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TRANSCRIPT OF PROCEEDINGS BEFORE
THE CANADIAN RADIO‑TELEVISION AND
TRANSCRIPTION DES AUDIENCES DEVANT
LE CONSEIL DE LA RADIODIFFUSION
ET DES TÉLÉCOMMUNICATIONS CANADIENNES
SUBJECT / SUJET:
Review of the regulatory frameworks for broadcasting distribution undertakings and discretionary programming services /
Révision des cadres de réglementation des entreprises de
distribution de radiodiffusion et des services de
HELD AT: TENUE À:
Conference Centre Centre de conférences
Outaouais Room Salle Outaouais
140 Promenade du Portage 140, Promenade du Portage
Gatineau, Quebec Gatineau (Québec)
April 10, 2008 Le 10 avril 2008
In order to meet the requirements of the Official Languages
Act, transcripts of proceedings before the Commission will be
bilingual as to their covers, the listing of the CRTC members
and staff attending the public hearings, and the Table of
However, the aforementioned publication is the recorded
verbatim transcript and, as such, is taped and transcribed in
either of the official languages, depending on the language
spoken by the participant at the public hearing.
Afin de rencontrer les exigences de la Loi sur les langues
officielles, les procès‑verbaux pour le Conseil seront
bilingues en ce qui a trait à la page couverture, la liste des
membres et du personnel du CRTC participant à l'audience
publique ainsi que la table des matières.
Toutefois, la publication susmentionnée est un compte rendu
textuel des délibérations et, en tant que tel, est enregistrée
et transcrite dans l'une ou l'autre des deux langues
officielles, compte tenu de la langue utilisée par le
participant à l'audience publique.
Canadian Radio‑television and
Conseil de la radiodiffusion et des
Transcript / Transcription
Review of the regulatory frameworks for broadcasting distribution undertakings and discretionary programming services /
Révision des cadres de réglementation des entreprises de
distribution de radiodiffusion et des services de
BEFORE / DEVANT:
Konrad von Finckenstein Chairperson / Président
Michel Arpin Commissioner / Conseiller
Leonard Katz Commissioner / Conseiller
Rita Cugini Commissioner / Conseillère
Michel Morin Commissioner / Conseiller
Ronald Williams Commissioner / Conseiller
ALSO PRESENT / AUSSI PRÉSENTS:
Chantal Boulet Secretary / Secretaire
Cynthia Stockley Hearing Manager /
Gérante de l'audience
Martine Vallée Director, English-Language
Pay, Specialty TV and
Social Policy / Directrice,
TV payante et spécialisée
de langue française
Annie Laflamme Director, French Language
TV Policy and Applications/
Directrice, Politiques et
demandes télévision langue
Shari Fisher Legal Counsel /
Raj Shoan Conseillers juridiques
HELD AT: TENUE À:
Conference Centre Centre de conférences
Outaouais Room Salle Outaouais
140 Promenade du Portage 140, Promenade du Portage
Gatineau, Quebec Gatineau (Québec)
April 10, 2008 Le 10 avril 2008
- iv -
TABLE DES MATIÈRES / TABLE OF CONTENTS
PAGE / PARA
PRESENTATION BY / PRÉSENTATION PAR:
Crossroads Television System 595 / 3316
Canadian Association of Broadcasters 621 / 3448
Canadian Cable Systems Alliance Inc. 718 / 3978
Gatineau, Quebec / Gatineau (Québec)
‑‑‑ Upon commencing on Thursday, April 10, 2008
at 0833 / L'audience débute le jeudi
10 avril 2008 à 0833
3309 THE CHAIRPERSON: Good morning.
3310 Madam Secretary, who do we have today?
3311 THE SECRETARY: Thank you, Mr. Chairman.
3312 Bonjour, tout le monde.
3313 We will proceed this morning with the presentations by Crossroads Television System.
3314 Mr. Glenn Stewart will introduce his colleague, after which you will have 15 minutes for your presentation.
3315 Mr. Stewart...?
PRESENTATION / PRÉSENTATION
3316 MR. STEWART: Thank you.
3317 Mr. Chairman, Commissioners, Commission staff, thank you for the opportunity to appear at this important review of the regulatory framework for BDUs and discretionary programming services as we move forward to the brave new world of the fully digital television broadcasting environment.
3318 My name is Glenn Stewart, CTS Director of Sales and Marketing. With me is Matt Hillier, our Corporate Controller.
3319 Crossroads Television System is one of the few remaining independent over‑the‑air television broadcasters in Canada providing a diversity of original Canadian programming in southern Ontario and Alberta not available on other over‑the‑air, local or regional services.
3320 As a balanced religious broadcaster, we are for many faiths their only local source of religious programming. With the participation of these faith groups, thousands of hours of original programming have been exhibited over the past decade and we have had the privilege of building bridges of understanding and dialogue amongst the members of these various faith groups.
3321 As we approach the digital broadcasting world, the importance of distribution regulations will not be diminished. For the most part, we concur with the Commission's assumed distribution model: a Canadian basic tier limited to local over‑the‑air services, educational services and mandatory services offered at the lowest possible price to consumers.
3322 Low income and fixed income Canadians should not be discriminated against. Moreover, it is our view that we are entering a recessionary cycle, the duration of which cannot be determined. The regulation should make clear that all local over‑the‑air services are to be included in the basic service and should be positioned together in a common cluster of channel allocations.
3323 There are a number of issues raised in the Shaw submission of October 19, 2008 that are of concern to CTS. shaw's submission in point 21 implies that the formidable size, strength and viability of the large integrated communications conglomerates' significant bargaining power removes the need for access and distribution requirements.
3324 We strongly disagree.
3325 This formidable size and significant bargaining power is precisely why small independent Canadian broadcasters like CTS need existing regulations to remain in effect affording priority carriage.
3326 In recent channel allocation issues in Alberta, CTS was the only newly licensed over‑the‑air television service not assigned a low basic tier channel by the BDU. To our knowledge, this is a precedent setting decision and is a prime example of the need for regulated carriage for small independent Canadian broadcasters who are without any clout.
3327 In point 17 of that same submission Shaw argues that the market imperative for individual BDUs to employ their own rigorous customer service standards removes any need for mandated industry‑wide standards. CTS believes that BDUs should not be the gatekeepers for developing strong Canadian broadcasters.
3328 As near monopolies in their marketplace and licensees of the CRTC, BDUs must bear responsibility for the priority carriage of local over‑the‑air Canadian broadcasters.
3329 To avoid the risk of diverse voices being overlooked and disadvantaged simply because they are not owned by a BDU or other large broadcaster group, the basic tier model assumed by the CRTC should not allow BDUs to add services to the Canadian basic package, which would then be offered at a higher price.
3330 The CRTC's assumed model of Canadian basic tier limited to local over‑the‑air and other mandatory services is vital to CTS regardless of whether fee for carriage is instituted. Such a basic tier should continue to have common priority placement in relation to other offerings.
3331 It is crucial that the CRTC preserve regulatory jurisdiction on this matter.
3332 With respect to distant signal policy, we believe independent over‑the‑air stations should have priority over additional signals of network affiliated stations in order to maximize programming diversity and consumer choice. In our view, the broadcasting system would be enriched more by the addition of diverse programming and new markets rather than duplicating as many as eight signals of the major networks.
3333 Time shifting capability should not take priority over providing viewers with programming diversity. This is especially important given the pending satellite capacity shortages to accommodate HD services going forward.
3334 Our concern going forward, as regulators weigh important issues including fee for carriage, genre protection and preponderance rules, is that within the new framework the important contribution made by small independent broadcasters like CTS to diversity of voices will continue to be recognized with priority basic carriage for the benefit of Canadian viewers and a strong Canadian broadcast system.
3335 MR. HILLIER: In preparing presentations, the Commission requested interveners to address the list of issues with respect to the assumed distribution model for purposes of debate.
3336 In the interests of time, we will comment only on matters that are of direct concern to CTS.
3337 CTS is opposed to distributors adding services to the Canadian basic package and charging a higher price. This basic package should continue to provide priority carriage to all local over‑the‑air broadcasters, while maintaining an affordable basic rate for subscribers.
3338 On the question of genre protection, we agree with Ted Rogers and believe that it should be defined in broad categories and continue to be regulated in the digital environment in order to promote a Canadian‑first policy. There should be no importation of foreign signals in a category where a Canadian broadcaster provides a service.
3339 In our opinion, it would be appropriate to restrict foreign services where there is any appreciable overlap in program schedules in order to protect access rights and to protect diversity, if indeed diversity is truly valued by regulators, BDUs and consumers.
3340 On the issue of BDU licensing frameworks, our only concern would be that the Canadian basic package, hence priority carriage, would be mandatory across all classes and systems.
3341 With respect to financial disclosure on the part of large multi‑system operators, we would like to see it broken down by service area or market and by activity. Total transparency for all operations is desirable.
3342 In our view, non‑linear services such as VOD, SVOD and PPV, should not be permitted to carry, sell new or additional commercial advertising and therefore not be in direct competition with conventional broadcasters. Allowing commercial sales would reduce the value of advertising spots in the industry. There is no demand for additional inventory.
3343 MR. STEWART: The Commission has asked interveners to comment on the role of the CRTC in setting rates and/or resolving disputes between distributors and programming undertakings.
3344 With regard to rate setting, the CRTC should maintain jurisdiction in this matter. If fee for carriage is instituted, it should be uniform for all local over‑the‑air stations in their given market. If left to individual negotiation between BDUs and broadcasters, so‑called market forces will result in small independent stations being left behind in the competitive process.
3345 Similarly, fee for carriage rate structures should be calculated on the subscriber base of the BDUs and not station size or group ownership. To be clear, fee for carriage should not be a tradeoff for priority carriage of local over‑the‑air stations.
3346 With respect to dispute resolution, prevention of discrimination or self‑dealing by BDUs, CTS supports the proposed reversal of onus requirement. As stated earlier and because of our recent first‑hand experience, we strongly believe that BDUs should not be de facto gatekeepers of the Canadian broadcasting system.
3347 MR. HILLIER: Interveners have been asked to provide comment on the appropriate contribution to the creation of Canadian programs by all sectors of the broadcasting system.
3348 We believe that the current contribution by BDUs is both appropriate and necessary. It is important to note that the CTF came into being as a result of a CRTC decision in the late eighties to allow BDUs expanded carriage of foreign services.
3349 We believe that Canadian programming undertakings should continually strive to create quality shows that Canadians will want to watch, while at the same time meeting current programming obligations.
3350 In our opinion, the system would be better served if contributions would be measured in number of hours as opposed to dollar expenditures. In this instance, we are not advocating quantity over quality but assume higher quality Canadian production will be viewed by Canadians in a more competitive digital environment.
3351 It would seem inappropriate to require foreign services to contribute to the creation of Canadian programming without granting more access to them. It might also result in a costly legal challenge.
3352 Contributions by large broadcasting groups should continue to be assessed at the licensee level rather than at the ownership level in order to ensure continued local program production, which is at the very heart of local over‑the‑air broadcasting.
3353 MR. STEWART: Interveners have been asked to provide comment on additional sources of revenue that could enhance or increase contributions to the creation of Canadian programming.
3354 Greater flexibility with respect to advertising on specialty services and on‑demand services will only serve to reduce spending on conventional over‑the‑air stations and further reduce the value of advertising spots in the industry. No new advertising dollars will flow into the system. As a result, therefore, overall contributions will not increase and they will just come from different players within the system.
3355 Access to local avails on foreign specialty services will further reduce spending on conventional over‑the‑air stations, again without providing an overall boost to desired contributions.
3356 Regardless as to whether the BDU itself or a third party sold the avails and foreign specialty services, the outcome would be the same. New advertising revenues would not flow into the broadcast system, existing broadcasters would suffer and no incremental dollars would be directed towards the creation of Canadian programming.
3357 A subscriber fee for over‑the‑air services could hold the key for the continued enhancement of Canadian programming for local markets which offer uniquely diverse content for consumers.
3358 Rather than being a mutually exclusive choice, simultaneous substitution policy is at the very core of the relationship between the BDU and conventional broadcaster. Quite simply, it is what allows the Canadian broadcast system as we know it to succeed and is a simple legal consequence of acquiring the Canadian rights to successful U.S. programs.
3359 Any subscriber fee paid to the overall broadcaster should not replace or diminish the current simulcast policy in any way.
3360 It is also important to note that the current subscriber fee charged to consumers recognizes the BDUs' costs associated with effecting simulcast substitution.
3361 The respective roles of BDUs and programming undertakings in targeted advertising should be such that there are no self‑dealing or conflict between the role of the BDU and that of the broadcaster.
3362 MR. HILLIER: Now, to step back from the trees and refocus on the forest, among all the possible variations and rule changes including whether or not to institute fee‑for‑carriage, regulations that support the success of over‑the‑air locally diverse and Canadian broadcasters are key. At the risk of oversimplifying this means mandatory, common priority carriage across all BDU classes and systems in a digital world.
3363 With that, Mr. Chairman, we conclude our presentation. Thank you for hearing us and we await any questions the panel may have of CTS.
3364 THE CHAIRPERSON: Thank you. Thank you very much for your presentation.
3365 You were here yesterday when Bell made their presentation and they talked about Freesat as a way to avoid over‑the‑air broadcasters like you having to build new very expensive towers and antennas for the digital world.
3366 Do you see that as a realistic alternative for you, for instance?
3367 MR. STEWART: Mr. Chairman, frankly, we don't see the challenge of moving to digital as being overly onerous, and in the CTS perspective it's a good thing and we should enjoy greater viewing as a result.
3368 I don't really see ourselves as being in that boat. We are currently not licensed as a specialty network. We are a conventional over‑the‑air broadcaster and we operate within that realm albeit with a niche format, if you will.
3369 THE CHAIRPERSON: M'hm.
3370 MR. STEWART: But we are in that conventional over‑the‑air environment.
3371 So I don't think we need special status in that regard. Rather, we are advocating that we be treated equitably with other like over‑the‑air broadcasters, be it CFTO, CHCH, A Channel, Citytv.
3372 THE CHAIRPERSON: M'hm.
3373 MR. STEWART: That's what we really mean by common placement in a new digital world for local over‑the‑air stations.
3374 MR. HILLIER: One more point about Freesat.
3375 There was conversation yesterday about, you know, size of markets and that kind of thing. While we are a small player we are generally in larger markets. We have two rebroadcast transmitters in London and Ottawa and then Calgary, Edmonton and Toronto, Hamilton. So some broadcasters are in very small communities with broadcast towers and it may be of advantage to them but as far as the, you know, cost benefit it's advantageous to just take advantage of renting space on towers and continuing to serve communities.
3376 THE CHAIRPERSON: Okay, and another question.
3377 Your whole submission basically speaks of advertising as a fixed universe and there is a so much of the pie and you know if you let others in they would ‑‑ like the BDUs they will ‑‑ it will be at the expense of the broadcasters. When Rogers were here they were talking about growing the pie and they talked about targeted advertising and the ability to, in effect, customize advertising to specific user groups and thereby increasing the pie.
3378 Do you see that? I mean that's quite a different position than what you are advocating here. Do you think they are right or are they dreaming in Technicolor?
3379 MR. STEWART: I think as a large broadcaster ‑‑ with a large vertically‑integrated broadcaster they perhaps could grow the pie to a small measure. Unfortunately, it will be at the cost of smaller services like CTS, like SunTV, perhaps A Channel and their own Omni stations.
3380 There is only so much money in the television pie, if I can put it that way, Mr. Chairman. And yes, television advertising revenues have been growing, albeit only by inflationary measures in the last couple of years.
3381 It's not going to grow to the extent that $60 million of new revenue, I think was quoted by the Rogers team, will flow into the system. I do not believe that that will be the case.
3382 THE CHAIRPERSON: Okay, thank you.
3383 Ron, do you have some questions?
3384 COMMISSIONER WILLIAMS: Yes, thank you, Mr. Chair.
3385 Good morning, Mr. Stewart and Mr. Hillier.
3386 In going through your written presentation and your oral presentation today I have a few questions from that.
3387 You have stated in a post 2/11 or digital area all locals should be placed in close proximity to each other in a high priority cluster of channel numbers. Can you describe that a bit more and give us the reason why?
3388 MR. STEWART: Yes, of course. Thank you for that opportunity.
3389 The old world 2 to 13, under 22, before Tier 1 analogy will likely go away in the new digital environment. What we are advocating is that grouping of ‑‑ those stations who previously enjoyed 2 to 13 or under 22 be moved as a group into the digital world and whether we are 200 to 220 or 300 to 320 really doesn't matter. The more important issue for us is that we stay within that grouping because of the nature of how our business model works.
3390 COMMISSIONER WILLIAMS: Sometimes that grouping includes U.S. services as well in that channel piece. Do you see them as moving as well?
3391 MR. HILLIER: If I could?
3392 That's a good question. I think we focused our point of view around what would be the smallest basic package that we are supporting. And the smallest basic package would be the over‑the‑air stations and the educational and the mandatory, I guess, 91H services that would be the smallest package. We would be grouped as far as channel placement in proximity to those stations. So American isn't part of the basic package.
3393 MR. STEWART: Oh, yes, we believe that the basic package should be all Canadian.
3394 COMMISSIONER WILLIAMS: M'hm. And does the cable community channel fall into what you see as the basic package?
3395 MR. HILLIER: I don't see why it couldn't be.
3396 COMMISSIONER WILLIAMS: Okay. You talked about maintaining the priority carriage of independents like CTS in a time of scarce bandwidth and that diversity, not duplication should be the rule of the new high definition world.
3397 Can you elaborate on that a bit more, please?
3398 MR. STEWART: I guess we take a very personal view towards that, only because of the difficulty we had in getting channel placement in Alberta with our new stations and that did go to arbitration. It went through the system.
3399 And as a result we are on channel 51, not below 22, which is what we believed we would be coming out of the hearings and having the licence granted. While the Commission didn't stipulate, you know, we would be under 22, everything we went through at the hearing stage indicated that that was our request and there wasn't any opposition to that that we ran into.
3400 I guess going forward we are concerned that when we see ‑‑ when I go ‑‑ I have got Star Choice at home and when I flip through and I can get CTV in nine markets, yes, it's nice and convenient that, you know, I can catch something at 10 o'clock because I'm not home at 7 o'clock to watch it. But at the cost of programming diversity and excluding other Canadian services I don't think that's right.
3401 COMMISSIONER WILLIAMS: Okay. In terms of the religious broadcaster remarks and the Dunbar/Leblanc Report, you state:
"The current religious policy works well and no review is required. Religious local broadcasters continue to receive guaranteed priority carriage and current variety of faith viewpoints be freely available with TV and airtime for a wide variety..." (As read)
3402 COMMISSIONER WILLIAMS: With all the different religions in the world and the opportunities that increased bandwidth would provide do you not see the opportunity for targeted religious programming?
3403 MR. STEWART: Matt can speak to this in a moment but I guess I would preface it by saying CTS is quite happy with the current regulation as it stands. It works well, we believe, not only for ourselves but for everyone involved.
3404 I think we have operated for 10 years with a fair contribution to the system and without causing any difficulty to the system and we would just like to see it continue in that manner. We don't see any need for changes.
3406 MR. HILLIER: We would like for the local communities that we serve ‑‑ we serve the faith communities based on demographics. So what you might see are some specific programs on a weekly basis devoted to specific faith groups that are larger populations within the communities that we serve. But we also have programs on a weekly basis that deal with all the various faith groups and anything going on within those communities and deal with communities that are very small or might be even outside a little bit, outside the markets that we serve that may affect people in the community and promoting understanding between the different faith groups.
3407 And also on our daily programs there is opportunities for expression of a variety of different points of view. So it can be a faith point of view of one even on a specific show and topics. So I think that works well even in digital environments.
3408 Yes, I think that sums it up.
3409 COMMISSIONER WILLIAMS: Thank you, Mr. Hillier.
3410 On the topic of fee‑for‑carriage for the over‑the‑air broadcasters, if the Commission was to agree and allow a fee for carriage to be implemented, how much should that fee be and under what terms?
3411 MR. STEWART: We have heard various numbers quoted. 50 cents seems to be something that is in the right neighbourhood. A dollar or more seems not to be.
3412 I guess there is some degree of confusion as to how those monies would be spread out, whether it's 50 cents per subscriber, per broadcaster or whether it's a dollar and a quarter and it's to be divided amongst all the broadcasters in some fashion.
3413 We didn't really ‑‑ I guess to back up a step, Mr. Commissioner, CTS has not taken a position that we are here knocking at the door saying we have to have fee‑for‑carriage. We are here saying that if there is to be fee‑for‑carriage we would like to be treated equitably in any arrangement that comes about.
3414 We fully expect, however, that if granted it's not a freebie; it's not a handout, that there will be linkages to Canadian programming, production‑enhanced services, what have you. And from a CTS perspective we would be delighted to do what is required of us if fee‑for‑carriage comes about.
3415 MR. HILLIER: One other point is that we talked about whatever fee‑for‑carriage might be instituted what's the right amount. Well, the minimum amount that wouldn't be an onerous expense to the communities that we serve because we are all about ‑‑ we are a non‑profit organization. We don't line the pockets of shareholders. So we are all about programming and serving our communities and we want to reach and serve as many people as possible.
3416 So I wouldn't be an advocate of making it onerously expensive for the consumer. So what's the right amount? The smallest amount you decide is fair.
3417 COMMISSIONER WILLIAMS: So if I heard you correctly the CTS business model is not in need of a fee‑for‑carriage, life will go on without it and that you are a small, independent player, that if it is was given out you of course want your share but it's not necessary for your survival and ongoing success?
3418 MR. STEWART: Mr. Commissioner, I don't mean to mislead you. We are not rolling in all kinds of money. We are struggling probably more so than any other broadcaster. But we operate a very efficient model. We have perhaps a greater purpose than just trying to make a profit. We are not‑for‑profit, as Matt says.
3419 If fee‑for‑carriage were to be instituted the most interesting thing in a CTS example is that whether you say we have to add another hour of Canadian programming on top of what our current requirements are, all the money goes back into programming ultimately to improve the service. So we are a little bit unique in that example.
3420 And what the Commission can take comfort in is that any fee‑for‑carriage coming our way is going to be well utilized and it's not going to the bottom line.
3421 MR. HILLIER: The one thing we are concerned about in a fee‑for‑carriage environment is what Glenn said, is being treated equitably. What we would not want is a situation that perpetuates have and have not stations. Where there might be a competitive advantage for larger stations who have fee‑for‑carriage, they will have a competitive advantage for not needing as high a dollar rate on advertising spot sales, those kinds of things.
3422 So we are cognizant of not having an arm tied behind our back in relation to the other over‑the‑air broadcasters.
3423 COMMISSIONER WILLIAMS: Thank you.
3424 Should the broadcast distribution undertakings have access to advertising revenues from on‑demand services or say from the sale of the local availabilities?
3425 MR. STEWART: With respect to local availabilities, as I said earlier, I don't believe that that's going to serve the broader industry well. I think it will create more demands on small broadcasters. Those dollars while they advocate giving 50 percent of it to the CTF et cetera, et cetera, it just means that contributions elsewhere will be diminished in the long run.
3426 There is not going to be ‑‑ there is not an extra $60 million in one example or $20 million in the other example just hanging out there ready for the taking. It's just not the case. All it will do is drive down the efficiencies or the costs of other spots.
3427 Of course advertising agencies are going to take up those avails and they are going to be taken up at a very low cost which is just going to drive everything else down. So if you have Top 20 programming and you are CTV, you are Global, you can charge whatever you want. The fact that commercial sales have been ‑‑ the restrictions on commercial time has all but gone away, all that means is that you can put an extra currently two minutes into CSI Miami and charge a gazillion dollars for them.
3428 New money isn't flowing into that because that's available. It's just reshuffling the deck. The pie isn't growing. So that just means CTV and Global are getting a bigger cut of the available dollars at this point because they can put two more minutes in CSI Miami, American Idol, et cetera, et cetera.
3429 The sad fact is, I have been told by many of my colleagues at other stations that you could have called up CTV on Monday and gotten a spot in Wednesday's American Idol; a number of years back that wouldn't have been the case. It would have been sold out, done, can't touch it, can't get in no matter what premium you are prepared to pay.
3430 Actually, now CTV and Global between their Top 20 programs because they can put in 14 minutes an hour, they are not filling up and they are not being able to get the premium dollars they would have envisioned for those Top 20 shows. But the bottom line is it is less money for CTS, for SunTV, for A Channel, for OMNI Television, in the main.
3431 Now, you can back that out a little bit because A Channel is now CTV and they can package. Rogers now has Citytv group. They can package with OMNI.
3432 So again it's going to be the likes of CTS, SunTV who will struggle as a result of that decision. I would love ‑‑ I mean I love the fact I can put, you know, two extra minutes into Full House or Happy Days but it doesn't have the desirability of an American Idol.
3433 So it really doesn't ‑‑ it really doesn't cause the smaller stations to be able to grow their revenues as a result of that. I look at avails in the U.S. programming to be similar to that in terms of the end result.
3434 With respect to VOD, again, Matt and I were talking on the way back to the hotel last night, "Oh, jeez, maybe we should look at a companion station for CTS". In that example we might be able to drive some new revenues by making the Corn Show available online, et cetera, et cetera. We couldn't do it with our entertainment programming, as few shows as they are, because we wouldn't have those rights and we don't have those rights currently. But certainly with our original programming we could do that.
3435 Whether there is an appetite for that I don't know and whether or not we would get that companion station from the BDUS who knows? And if it's left to negotiation I guess our track record with the BDUs is not strong. So the likelihood of us getting a VOD companion station channel versus CTVGlobal, Citytv, whomever, you know we would like to entertain it but I'm not sure that we will get there.
3436 COMMISSIONER WILLIAMS: Okay, thank you, Mr. Stewart and Mr. Hillier.
3437 That concludes my line of questioning, Mr. Chair.
3438 THE CHAIRPERSON: Okay. There don't appear to be any other questions. Thank you very much for coming.
3439 MR. STEWART: Thank you.
3440 THE CHAIRPERSON: We will take a five‑minute break while CAB ‑‑
3441 MR. HILLIER: Thank you very much.
3442 THE CHAIRPERSON: ‑‑ sets itself up.
‑‑‑ Upon recessing at 0905 / Suspension à 0905
‑‑‑ Upon resuming at 0911 / Reprise à 0911
3443 THE SECRETARY: Please be seated. We are about ready to start.
3444 THE CHAIRPERSON: Thank you very much, Mr. O'Farrell, for the medicine you gave me. So if I keel over during the proceedings we know why.
‑‑‑ Laughter / Rires
3445 MR. O'FARRELL: She is to blame. She is the naturopath.
3446 THE CHAIRPERSON: Okay. I hope it works. Thank you very much, it is very kind of you.
3447 Okay, why don't you introduce your panel and proceed with your presentation.
PRESENTATION / PRÉSENTATION
3448 MR. O'FARRELL: Thank you very much, Mr. Chairman, and good morning. My name is Glenn O'Farrell and I am the President and CEO of the Canadian Association of Broadcasters.
3449 I am joined today, starting from my far left, by Pierre Pontbriand, Vice‑President of Communications; Pierre‑Louis Smith, Vice‑President of Policy and Chief Regulatory Officer.
3450 To my immediate left, Jay Thomson, Vice‑President, Regulatory and Policy.
3451 To my right is Wayne Charman, Chief Adviser of Policy and Regulatory Affairs.
3452 Next to Wayne is Tara Rajan, Vice‑President, Research and Policy.
3453 And finally, to my far right is Steve Armstrong, the President of Armstrong Consulting.
3454 Alors, Monsieur le Président et membres du comité, nous sommes très heureux d'être ici ce matin.
3455 Nous aimerions faire une brève déclaration préliminaire portant sur les cinq questions que vous avez énoncées au début de cette audience publique, plus tôt cette semaine.
3456 Les réponses à ces questions exigent, selon nous, quelques commentaires, tout simplement pour bien établir le contexte de nos positions et vous soumettre respectueusement notre vision quant à l'issue de cette instance.
3457 Monsieur le Président, vous avez démontré combien vous comprenez en profondeur le mandat que le législateur a confié au CRTC pour faire en sorte que ce système continue à prospérer.
3458 Parliament has given the CRTC a special responsibility. It must place a high priority on the social and cultural contributions that broadcasting can make to the Canadian sense of identity.
3459 Furthermore, this Commission recognizes the central role of the broadcasting system, namely, delivering Canadian content, expressing the diversity of our country and allowing access to Canadians both as audiences and as participants.
3460 We are very encouraged by your understanding as well as the understanding and commitment of your colleagues to upholding the role of this Commission.
3461 As we see it, the importance of that role has quite possibly never been greater than in today's world where a regulated universe and unregulated universe of media choices live side by side.
3462 So as this proceeding takes flight, we respectfully submit that it is critical to take a moment to remind us all of what decades of work by broadcasters, distributors and regulators has produced: in our view, the very best broadcasting system in the world and not surprisingly, the very best example of tangible outcomes in the history of Canadian cultural policy.
3463 Let's start with how we compare on the international scale. Simply stated, Canadians enjoy more access to both domestic and foreign television services on a per capita basis than anywhere else in the world. On a per capita basis we have more than twice as many choices as the U.K., three times as many as France, five times as many as Japan and more than 10 times as many as the U.S., the world's biggest media powerhouse. I think the chart speaks for itself.
3464 Now in terms of measurable cultural policy outcomes, the Canadian broadcasting system outperforms every other federal cultural policy initiative. Consider this: Through content support with access, preponderance and genre rules, this system delivers more than 70 percent of English‑language viewing and more than 95 percent of French‑language viewing to Canadian channels and services.
3465 By way of example, let's look around and we did look around and we looked at films and magazines in Canada. The comparison is striking.
3466 Dans le cas des longs métrages n'ayant aucun soutien sur le plan de l'accès et de la prépondérance, donc, quant à sa distribution, les productions canadiennes de langue anglaise touchent seulement 2 ou 3 pour cent des recettes au guichet, tandis que les productions étrangères s'accaparent de quelque 97 pour cent de ces recettes. Le secteur des productions de langue française, quant à lui, affiche légèrement plus de vigueur, avec 17 pour cent des recettes au guichet.
3467 Du côté des magazines ne profitant pas de règles sur l'accès ou la prépondérance, donc, la distribution, les publications étrangères représentent 80 à 90 pour cent des ventes dans les kiosques à journaux. Même avec le soutien à l'accès que leur procure le programme des tarifs postaux préférentiels, la moitié des ventes par abonnement va aux magazines étrangers. Là où le gouvernement intervient pour soutenir et la création du contenu canadien, ainsi que l'accès et sa distribution, la réussite se manifeste et les chiffres en témoignent.
3468 Selon nous, aucune autre histoire à succès n'arrive à dépasser les résultats mesurables du système de radiodiffusion canadien, et c'est devant cette toile de fond et dans ce contexte que nous proposons de répondre, d'abord, selon des principes généraux, aux cinq questions posées au début de cette audience.
3469 Nous vous offrons ces réponses préliminaires pour amorcer la discussion avec le comité du Conseil, et nous comptons sur l'occasion de fournir des précisions sur chacune d'elles, ainsi que le raisonnement sur lequel elles se fondent.
3470 So let's get down to the questions and the answers.
3471 To question 1, our answer quite simply is: The minimum requirements for the basic package for all BDUs, including DTH, should include local stations in the market, educational services and mandatory services as those services represent and consist of the foundation services in the system.
3472 To question 2, our answer is: There should be guaranteed access to all analog and Category 1 Specialty and Pay Services on the basis that these services contribute significantly and substantially to Canadian programming and to diversity in the system. We refer to these as core services.
3473 To question 3, we respond that there should be genre protection for all analog and Category 1 Specialty and Pay Services from both other Canadian and non‑Canadian services to ensure Canadian TV viewers continue to benefit from the broad array of programming diversity in the system. Audience data clearly demonstrates the growing number of Canadian viewers to Canadian programming services defined by genres.
3474 To question 4, the CAB does not have a position on fee‑for‑carriage for over‑the‑air given that our members have chosen to address this issue on an individual basis.
3475 However, to address the underlying issue of program rights and to resolve the matter of impact evaluation and compensation for distant Canadian signals, we submit that BDUs must be required to obtain the consent of over‑the‑air broadcasters prior to their distribution in distant markets, thereby eliminating the need for program deletion regulations.
3476 And finally, to question 5, we welcome the opportunity to work with BDUs on developing business models for the VoD platforms that we do believe hold great promise for the future. However, without negotiated arrangements with broadcasters, in our view, BDUs should not have access to advertising revenues from on‑demand services. Only programming acquired from Canadian broadcasters should be made available on SVOD services. With regard to local avails, BDUs should not have direct or indirect access to advertising revenues.
3477 Advertising revenues should remain the exclusive purview of broadcasters on the simple basis that for every dollar of revenue earned, programming services contribute on average 30.5 percent to Canadian programming whereas BDUs contribute no more than 5 percent.
3478 As to the outcome of this proceeding, Mr. Chairman, we retain a strong conviction that this Commission will build on the legacy of its predecessors in ensuring that Canadians will continue, prior to and after 2011, to have access to the best broadcasting system in the world. Thank you.
3479 THE CHAIRPERSON: Thank you very much for a very clear and concise presentation.
3480 Tell me, on page 4 where you have the chart of television choice, how do you measure this?
3481 MR. O'FARRELL: I am going to ask our Vice‑President of Research, Tara Rajan, to walk you through that because she is the one who did the compilation but I think that the footnote helps you identify the sources for our information.
3482 But I will hand if off to Tara. Please, Tara.
3483 MS RAJAN: Thanks, Glenn.
3484 So the chart is the number of nationally available channels in different television markets in different countries. So this is not local or community channels but it will include cable channels or pay channels, national networks, domestic and foreign, that are available in those markets as of 2005, with one exception.
3485 MR. O'FARRELL: And if I may add a qualifier, there would not be multiple CTV or multiple Global channels in that chart. CTV would be accounted for as one national service and Global would be accounted as one.
3486 THE CHAIRPERSON: You say per capita. It is the per capita which threw me off.
3487 So how do you actually do the calculations? Take Canada as an example.
3488 MS RAJAN: Well, if you were to look at this strictly on a per person basis, the numbers for all countries would look infinitesimal, so we looked at per million people.
3489 THE CHAIRPERSON: Yes.
3490 MS RAJAN: So if you just take the population and divide it into the number of available channels, you will get the number.
3491 THE CHAIRPERSON: I see. Okay, thank you.
3492 And the chart on page 6 where you compare television to feature films and magazines, when you say in the results for television, over 70 percent of English‑language viewing is to Canadian channels and services, over 95 is French, isn't that somewhat misleading? Just because it is a Canadian English channel doesn't necessarily mean it is a Canadian program.
3493 MR. O'FARRELL: That is correct. But what we say is that that viewing is dedicated to services that are licensed by the Commission to contribute back to the broadcasting system.
3494 THE CHAIRPERSON: Okay. You have a point there, okay.
3495 Then in answer to the five questions, in question number 1 you don't mention community channels. Is that ‑‑ or are they included in ‑‑
3496 MR. O'FARRELL: They are not included in our minimum requirements but I will let Jay explain perhaps just a little bit as to what we conceive in minimum requirements.
3497 Jay Thomson.
3498 MR. THOMSON: So as has been, I think, a consensus so far in the proceeding, we would support the minimum requirements of the priority local and regional over‑the‑air services, educational services, public broadcaster 918 services.
3499 The community channel could be added to the basic or offered on a discretionary basis. That would be up to the BDU.
3500 The BDU could also offer the four‑plus‑one on basic to continue to offer that service that consumers have become accustomed to, provided, whether it is on basic or on a discretionary tier, simultaneous substitution continues.
3501 After that, a BDU could offer any of the Canadian analog or Cat 1 services on basic, subject to negotiations with the service provider, but no more foreign services and no other Canadian services.
3502 THE CHAIRPERSON: Okay. You have been here for the last two days, so three days, and you have heard the various proposals.
3503 CBC was quite explicit that there should be a minimum basic package and it has to be offered so that people who do not want to spend more than the absolute minimum amount have the option of doing it.
3504 The other extreme is sort of Rogers who says our basic package is what we can put together. The market and consumers will decide what the size of it is. That should include what CBC has but also all sorts of other channels that we may add onto it because there is consumer demand.
3505 So between those two extremes, where do you come out?
3506 MR. O'FARRELL: We believe that the idea of establishing minimum requirements, as we have defined, is the going‑in position. Once those are defined, we think that it is a useful approach to say, give the BDUs the flexibility to offer what could amount to be numerous basic services.
3507 There could be a basic that would look like the CBC model but then there could be, say, a basic basic, a basic sports, a basic news and information, such that if we were consumers, all of us in this room in the same community, we could have our BDU of choice offering us a basic basic package or any number of other basic services, either defined by theme or otherwise, always including the minimum requirements but perhaps giving them the opportunity to make their offerings to the subscriber more compelling.
3508 The example that strikes me would be ‑‑ and I apologize for the personal element in this answer ‑‑ but if I was to be offered a basic sports package, so the basic requirements plus sports, and then all of a sudden that service gave me a buy‑through to other sports channels on discretionary tiers that would be at a better price, I might be encouraged to buy every sports service that is on the dial because I kind of entered the system on basic but on a basic service thematically directed at sports programming.
3509 That is just an example. But to come back to the essence of your question, Mr. Chairman, we believe that with the requirements there, the BDUs would have to distribute those in one or multiple basic packages as they think does the best job for their consumers and, frankly, distinguishes them between the competitors who are also offering the same consumers basic packages.
3510 THE CHAIRPERSON: I understand that but I just want to make sure I don't misunderstand you.
3511 CBC basically said you must offer a barebones basic package and you can have the enhanced basics that you were talking about, basic plus sports or basic plus films or whatever. But there should be the opportunity for consumers to buy the barebones basic. Do you agree with that?
3512 MR. O'FARRELL: No.
3513 THE CHAIRPERSON: No. So it's leave it up to the BDU to package that the way they think the market will best receive it?
3514 MR. O'FARRELL: Because at the end of the day, Mr. Chairman, representing the discretionary service providers that are in the Canadian Association of Broadcasters, the larger the basic package is, the better it is because more services are being packaged in a basic component than elsewhere. So it just is better for the services.
3515 THE CHAIRPERSON: Now in terms of access, you basically want to retain the status quo, if I understand your answer correctly.
3516 As you have heard me pose many times in these hearings, is there a logic of having a phase‑out date for saying, yes, we gave you access but that was to give you a leg up to be able to establish yourself, get your brand established, in effect, appeal to Canadians that here is something that is Canadian but it is just as good as the American, et cetera, but after a certain period ‑‑ we can argue what the period is, whether it is the licence period or five years or whatever ‑‑ you lose that guaranteed access because at some point in time you have to go out and face the world as it is?
3517 I have heard different answers from different folks. So what is your answer?
3518 MR. O'FARRELL: Our answer very clearly is phasing out access or any kind of a reduction of access is not the way to go and here is why.
3519 I think that everybody recognizes that there are many measures of success to the Canadian broadcasting system the way we have it now. Most people who come to this country look at it and they say, how can we take some of or all of your solutions and bring them home.
3520 So while there is success ‑‑ and I think Mr. Rogers said it earlier this week ‑‑ the industry is still fragile. So let's not get carried away with the success. It has been developed through a variety of measures that take a small marketplace, Mr. Chairman, a small marketplace of 33 million people, the size of California, and look at the number of services. We have 170 services, discretionary services, operating in that marketplace now.
3521 It would strike us that to begin to dismantle in whole or in part the essential measurements, such as access, would simply lead to impoverishing the system, reducing the diversity and ultimately reducing the number of choices that Canadians can have.
3522 Access is also tied ‑‑ and I will turn this over to Jay ‑‑ to the fact that it is through these services that we have called our core services, the analog services and the Cat‑1s, that the largest contributions to the system are made.
3524 MR. THOMSON: The end result or the end game of that kind of model where access is ultimately subject only to the BDU is that we are moving from a system where we have a high level of contribution from those services that are guaranteed access to a model that you have already established for those services that doesn't have guaranteed access, which is the Cat‑2 model, where we move from high levels of Cancon exhibition and CPE to a 35 per cent exhibition obligation and no CPE obligation.
3525 That is the model that we would be working to, whether it is immediately or in the future. And that's not one that we think the Commission should be aspiring to.
3526 Bell suggested yesterday that consumers should be able to decide the fate of services and not the regulator. We would reword that to say that consumers should be able to decide the fate of services, whether now or in the future, and not the BDU.
3527 The consumers, whether it is now or in seven years time with respect to a service, should still have the ability to go to their BDU and one‑stop shop and get the service they want and not have to go to multiple BDUs in order to get what they want.
3528 They should be able to get the services that you licensed to make a contribution. That should not be up to the BDU to make that decision.
3529 There is no capacity issue here. Those services that are currently getting access are obviously taking up capacity that is available. Rogers, for example, has said in its written submission in other proceedings there is no capacity problem here whatsoever.
3530 So we can't suggest that it is going to be a capacity issue that will prevent access.
3531 What it really is, is an opportunity for the BDUs to take on a greater bargaining power.
3532 MR. O'FARRELL: And I would add, Mr. Chairman, just to go back to the Act, priority carriage is one of those things that we find in section 3. We find it in two places: in section 3(1)(t)(i) and 3(1)(d).
3533 Access in that context is effectively an extension of the licensing process, because through the licensing process you become convinced that this is a service deserving of being added to the menu of Canadian services that already exist. To do what? To add diversity, to add choice and to make a contribution.
3534 Without the access component, we believe that you are short‑changing the bargain on the ability to make the contribution.
3535 We honestly would ask the question in these terms, or answer the question by asking a question, which is: To what benefit would we remove access?
3536 What we have heard from others to date and what we have read in submissions essentially goes to what Jay was suggesting, which is BDUs are making this representation, in our view, simply to solidify their bargaining position with the service providers.
3537 It's not about providing more choice. It's not about providing better choice. It's about improving their position which, let's be candid, is already a dominant position.
3538 If you are a service provider, Mr. Chairman, where are you going to go to get access to the BDUs? If you look at the makeup of our broadcasting distribution undertaking environment, which is a good strong partner for broadcasters if access is there ‑‑ if access is not there, it's a dominant player that holds all the cards.
3539 THE CHAIRPERSON: But implicit in your answer is the very pessimistic assumption that Cat‑1s, once they no longer enjoy access, even if they are successful, will reduce the Canadian content of their CPE if they no longer have guaranteed access.
3540 Doesn't it really depend on how successful the brand is and whether it has managed to gain its support in the marketplace or not?
3541 I don't know why you automatically assume ‑‑ Mr. Thomson said basically the Cat‑1s, once they lose their access, will degenerate into a Cat‑2 level of Canadian content.
3542 MR. O'FARRELL: Your point is absolutely accurate. Why do we take that point of view? There are two reasons fundamentally.
3543 Why would we tinker with a winning formula when there is no obvious benefit that we have heard or read in dismantling the system that is producing the contributions that currently are there?
3544 That too, in our view, stands as a self‑evident truth so far in this proceeding, from what we understand the positions of others, both orally and in writing.
3545 The second issue is we are in the context right now of a transition for the discretionary services from an analog distribution model to a digital distribution model. And already, Mr. Chairman, even for analog services that had enjoyed high levels of distribution in an analog world, going to the digital platforms ‑‑ and we have the evidence of that now because the DTH platforms are digital.
3546 What do we see? What do we observe? And I'm going to ask Tara to explain perhaps just with a few examples.
3547 What we see is automatically lower penetration levels. And with lower penetration levels in a digital environment flow the following consequences: number one, of course lower subscriber fees; but also lower advertising revenue opportunities.
3548 So from that revenue base, there is no doubt in our minds that lower contributions will flow.
3549 If you don't mind, Mr. Chairman, we would like to give you one or two examples that are right there now. In other words, we don't have to predict the future on digital. We can see how it is taking shape before our very eyes.
3550 MS RAJAN: Thanks, Glenn.
3551 As Glenn was saying, we can look at the DTH environment as a sort of proxy for what digital carriage in an all‑digital environment would look like for some of the incumbent analog services. We took some data on subscriber levels for all of these services and put them into little baskets of services.
3552 For example, the English analog services combined penetration rate would drop about 10 per cent. That masks such huge divergences as YTV whose 91 per cent penetration rate on cable would go down to about 45 per cent at a DTH carriage level; MuchMusic, 76 per cent penetration on cable, 50 per cent on DTH.
3553 In French, if we look at VRAK, cross Canada cable penetration of about 25 per cent; it's only about 13 per cent on digital.
3554 THE CHAIRPERSON: I don't understand why. Why would there be a lower penetration for MuchMusic on digital than on analog?
3555 MS RAJAN: Those are the actual penetration rates.
3556 THE CHAIRPERSON: I know you have given me the numbers. I understand. But there must be some explanation for why this would happen.
3557 MR. THOMSON: I think the answer is that in a digital environment where there is more flexibility to put services in different kinds of packages, them packages and so on, there is more opportunity for consumers to take what they want versus what maybe they don't want.
3558 So by the nature of the technology, there is more opportunity for consumers to avoid services, if you will.
3559 THE CHAIRPERSON: Okay. Then let's go to genre protection.
3560 You have heard Rogers undoubtedly saying that really we should simplify genres. Genre protection, as we all know, is a mess right now and it is very difficult to administer where one genre starts and the next one. So they said why not simplify, have broad categories and let people move within them and sort of move their niche a little bit to the left or to the right, wherever they find it is more profitable, et cetera, rather than restricting them to the limited genres they have right now.
3561 They want to maintain genre protection but a more simplified one.
3562 I gather implicit in that assumption was also that Cat‑2s who want to become Cat‑1s, once there is a broader genre, may up their Canadian content and their CPE requirements so as to qualify as a Cat‑1 status.
3563 What do you think of that proposal?
3564 MR. O'FARRELL: What we think of that proposal is that for the obvious imperfections of the current model, the proposed model would add what I would call more of the way of chaos than clarification of the imperfections that currently exist.
3565 It just raises a whole variety of issues.
3566 At least the way it was presented this week, and from what our understanding is ‑‑ and we may have misunderstood.
3567 Based on our understanding and our grappling with it and saying how would this work, we don't think it addresses ‑‑ we recognize the current model is not perfect, but we don't think it addresses any of the problems with solutions. We think it puts the model into a more chaotic outcome likelihood than where we sit today.
3568 What we do believe, Mr. Chairman, is that the genre model that has existed in this country ‑‑ and again I'll go back to the economics of the size of the market.
3569 Genre has effectively been the vehicle, if you will, the measure to which the Commission has ascribed either demographic targeted programming or thematic targeted programming for a given constituency, and attached on to that exhibition and Canadian program expenditure requirements on kind of a side‑by‑side basis.
3570 So if you think of genre, you should be thinking I guess of a system where you have a linear menu of services that sit side by side each in their own genre. We know it's not perfect but that was the construct.
3571 What it has developed is the capacity for those services to operate in the context of a small economic entity called the Canadian marketplace, with 11 or 12 million households, 10 million BDU subscribers, to draw from those limited baskets and actually become viable in a model that supports diversity.
3572 So number one is we say genre is your guarantor of programming diversity, is your guarantor of viewing choice diversity, is your guarantor of ownership diversity by way of the opportunity for new entrants to enter the market, as has been evidenced even in recent times.
3573 We believe that genre must be maintained with all of its imperfections because there is no suitable option that would produce the similar levels of contribution, of certainty or predictability that I believe this Commission is striving for.
3574 Sometimes I think we have to realize that while what we have may not be perfect, what we have may not be ideal, we are better to hold on to what we have than to move to an alternative under the sake of change for the sake of change, and the hope that it is better. But where there is no such evidence that it will produce those benefits, we are better to stick with what we have and hold on to it.
3575 Jay has another number of factors that I think are deserving of some time to support our genre suggestion.
3577 MR. THOMSON: While we support the retention of an approach to genre, we do suggest that it can be relaxed in some respects in order to perhaps remove some of the burden that has been placed on the Commission to deal with some complaints that come in from time to time, as services complain that another service, a competitor, may not be operating within their genre.
3578 In that respect, we suggest that the Commission should focus on the nature of service of the Canadian service as set out in its conditions of licence, typically in Condition 1(a) of its licence, but not have to worry about what is often in Condition 1(b) or 1(c), which is the program categories from which the service must take its program.
3579 THE CHAIRPERSON: Give me a concrete example of what you mean.
3580 MR. THOMSON: If we look at TSN, its nature of service describes it as a service that is to offer broad sports‑type programming, but the programming from which it must draw does not include, for example, game shows.
3581 So going forward, it could offer a sports themed game show. You wouldn't have to deal with a complaint, if TSN were to offer a sports game show, that it wasn't operating within its genre.
3582 That would remove some of the burden.
3583 It also applies to other services that are defined either by their demographic, like a Treehouse that's linked into its under‑six age category, or a Showcase that's linked into its drama‑type programming.
3584 THE CHAIRPERSON: All right.
3585 MR. O'FARRELL: You know, Mr. Chairman, just to come back to the economics again ‑‑ because I think that we always have to be guided by the realities of our economics.
3586 With the size of the market that we have, with the diversity of services that we have built that have enjoyed the success and by that success the contribution back that the system currently enjoys, you have to ask yourself the question: Have other places with similar market sizes succeeded to do comparable things?
3587 We have looked around in preparing for this hearing, and we haven't found any.
3588 For instance, I like to use the comparison with California simply because if 33 million people is California, San Francisco is the French speaking market within Canada in terms of comparable sizes.
3589 You don't have an MTV California. You don't have a Discovery California. You don't have services that were constructed on the basis of an economic model of that size and that scope, nor for French on the size of a San Francisco, nor for California.
3590 I know that the example in the illustration has its limitations. But it is just designed to say: Are there other places that have been able to foster Canadian expression in all of these various genres in that kind of a limited economic marketplace?
3591 We haven't found any. So we are suggesting to you, with all due respect to the views of others ‑‑ and this is a great dialogue and we are happy to be here to partake in it ‑‑ why would we be giving up on these success stories and on measures that have taken us this far when there is no evidence on the record that it's not working, when there is no evidence on the record that Canadians are clamouring for this, that or this other change that is being suggested?
3592 I haven't met too many people in the street who tell me genre protection's got to go.
3593 THE CHAIRPERSON: Most people won't know what you're talking about.
‑‑‑ Laughter / Rires
3594 MR. O'FARRELL: That's exactly it.
3595 THE CHAIRPERSON: Fee for carriage.
3596 I see that you are leaving it up to your members, but then you mention something about distant markets.
3597 I have been sitting here and I've been very surprised. I've been hearing the broadcasters' requirement that they be compensated for time shifting and distant signals, et cetera, and yet Rogers says it's a DTH problem; that we pay but the DTH don't. And yesterday the DTH says Rogers is absolutely wrong; we also pay, et cetera.
3598 And both of them quote you as being the recipient of the funds.
‑‑‑ Laughter / Rires
3599 THE CHAIRPERSON: So maybe you can tell me what is going on here.
3600 Is this distant signal an issue or not, in your view?
3601 MR. O'FARRELL: There is no doubt, Mr. Chairman, that the distant signal issue is one of the critical issues that this proceeding will hopefully address in a very straightforward way. And I believe we have a proposal.
3602 We, too, were taken aback a little bit with the difference of opinion on point as expressed but leaving aside what we feel was perhaps a little bit erroneous in the way things were represented.
3603 What we would like to focus on ‑‑ and I'm going to ask Wayne Charman to walk you through it, because Wayne knows this file as well as anybody in the country and probably better than most.
3604 What we are offering you in the end is a solution.
3605 The current situation is a situation that has gone on now for too many years between broadcasters and distributors arguing about valuation and compensation. What we are saying is let's reset the dial. What the dial is all about is program rights, and services by program rights should be entitled to see those programs rights enjoy integrity and respect in the marketplace; otherwise, we are undermining our business and we are undermining our system.
3606 So, Wayne, on the basis of a simple solution, we believe quite frankly that is elegant, efficient and effective, over to you.
3607 MR. CHARMAN: Thank you, Glenn.
3608 You are quite right, Mr. Chairman, this debate which has gone on for about ten years can get very complicated and very confusing.
3609 Yesterday's discussion with Bell and Tuesday with Rogers was another example of how there is some light shed on the issue but a lot of confusion over it as well.
3610 Your current framework, simply put, doesn't work. It hasn't worked for ten years. It will not work; it cannot work. I can go into lots of detail as to why, if you wish.
3611 Let me say that what we are saying today to you is that it is time to fix this problem once and for all. I personally am tired of the debates about compensation and impact. I'm sure the Commission is tired of hearing about this time and time again.
3612 We believe that the right solution is not a solution focused on impact and compensation but it is a solution focused on the underlying principle, which is that Canadian broadcasters acquire the rights to exhibit programming in their markets, and those rights should be respected.
3613 When distant signals are brought into those markets without their consent ‑‑ and sometimes it's their own network stations or mother markets ‑‑ then the value of the rights they have acquired are grossly devalued because the audiences are fragmented.
3614 So our solution is one that says going forward at let's say a point in time which you choose, no signal should be distributed outside of its local market without the consent of the broadcaster. It's as simple as that.
3615 THE CHAIRPERSON: The U.S. model.
3616 MR. CHARMAN: It's very similar to the U.S. model which has been applied for 17‑18 years. It's a simple approach but it restores the logic of the local licence, if you will, because it allows the broadcaster to have a say in where his signal is distributed.
3617 If you were to adopt that model, there is a number of advantages.
3618 First of all, it's simple.
3619 Second of all, you can eliminate all of the program deletion regulations that you have had in the BDU Regs for the past ten years and as you probably know have, to my knowledge, never been enforced.
3620 And third, it's a market‑based solution. It takes you out of the game. It is not, as Bell suggested yesterday, a regulatory solution; it's a market‑based solution. It allows broadcasters to talk directly to the distributors and arrive at whatever arrangements they feel are appropriate to see those signals distributed into distant markets.
3621 The problem with the current framework ‑‑ if you will indulge me, I wouldn't mind just putting on the record a little bit of the background.
3622 THE CHAIRPERSON: Only educate me why it doesn't work.
3623 MR. CHARMAN: Okay. It goes back to the DTH licensing decisions in the mid‑1990s, as I'm sure you are aware. The Commission for very good reasons at that time wanted to ensure that DTH had a good chance to enter the market and become viable competitors to cable. So they had a number of advantages.
3624 One of them was a new framework for distant signals, recognizing the nature of the DTH technology. So the Commission essentially gave DTH access to distant signals that they could deliver in any market across the country. This is something that cable really couldn't do up to that point.
3625 The only requirement or the fundamental requirement that the Commission placed on that distribution was a recognition of the underlying issue of program rights.
3626 So what the Commission did was institute a rule that said any programming that is brought into a local market that is identical to the programs broadcast by the local broadcaster must be blacked out at the request of the local broadcaster. It is a fundamental protection. That is the U.S. model.
3627 That's fine as far as it goes. And if that had been the model going forward, we probably wouldn't be here today having this discussion.
3628 What happened subsequent to that was the Commission decided that program deletion ‑‑ and I understand why. I was there at the time.
3629 The Commission decided that program deletion is not a terribly consumer‑friendly approach. So the Commission encouraged ‑‑ and I'll use the word "encourage" in quotation marks ‑‑ strongly encouraged broadcasters and distributors to negotiate measures as an alternative to program deletion.
3630 So the negotiation of compensation agreements is not in and of itself the objective. It's an alternative to program deletion; one or the other.
3631 The CAB heard that message loud and clear, and we did in fact in the early days, the late 1990s, early 2000s, negotiate compensation arrangements with ExpressVu and Star Choice. And of course at that time the impact of distant signals going forward was anybody's guess. We really didn't know. It was the first time that this had been devised as a marketing tool by the distributors.
3632 The important point here, picking up on a discussion you had with Bell yesterday, the Bell representatives talked about a negotiated agreement between CAB and ExpressVu in 2002 that, in their view, forms the basis of today's compensation.
3633 That is a very serious misstatement of reality, to be honest with you.
3634 It is true that in 2002 the CAB arrived at a negotiated agreement with Bell, with Bell ExpressVu, that went a long way toward solving this issue. It had carriage elements which ExpressVu talked about yesterday, and it had a compensation component, a very important compensation component that would have seen a fund of about I think $25 million, give or take ‑‑ I don't have the exact number in my mind ‑‑ to assist all local broadcasters across the country.
3635 That was the key element of that negotiated deal.
3636 That deal was subject to Commission approval. Had it been approved, I think we would have solved 90 per cent of the problem.
3637 Bell yesterday said something to the effect that the Commission slightly modified the deal. That's the understatement of the year. The Commission took our $25 million fund and essentially scrapped it and replaced it with a very good idea, which is a small market local programming fund which is worth about four or $5 million.
3638 That was an excellent decision by the Commission to create the small market local programming fund as far as it went. That helps 17 small market independently owned stations and has been of tremendous importance to those stations going forward.
3639 As you can appreciate, it does nothing for the other 80‑or‑so privately owned stations across the country.
3640 That deal then formed the precedent for subsequent deals.
3641 One additional example, if I may ‑‑
3642 THE CHAIRPERSON: The effect was to reduce the $25 million ‑‑
3643 MR. CHARMAN: About 25 to four or five. It's about 20 cents on the dollar, something like that, if you will.
3644 So you can understand why in our view that outcome wasn't really a solution at all for anybody other than the 17 small market independently owned stations.
3645 At that time we were also negotiating with Star Choice for similar arrangements, and Star Choice for their own reasons decided they didn't want to proceed. So they broke off negotiations.
3646 Our members thought it was appropriate under those circumstances to avail themselves of the protection that the Commission had put into the regulations, which was program deletion. Because it's in your regulations, we assume that regulations will be enforced.
3647 So our members in fact started making deletion requests, specific deletion requests, as they were entitled to do with Star Choice, requests which were unfortunately ignored. And the CAB got involved with the CRTC and complained. You have a licensee who is not respecting regulations.
3648 That complaint, unfortunately, was really not addressed. It was essentially ignored as well.
3649 Star Choice was able then to piggy‑back onto the nice deal that ExpressVu got.
3650 My only point is that there is a high sense of frustration amongst our members; that they have tried to work within the current framework. They have tried to negotiate deals, and when they did they were overturned.
3651 They have tried to avail themselves of the protections inherent in the program deletion rules, and when they did they were ignored.
3652 Frankly, I think it's unrealistic to expect that in this environment we can ever arrive at a negotiated settlement that will solve this problem. The only way to do that, in our view, is to adopt the simple principle that we are suggesting, and that is one of requiring broadcasters' consent. That will then allow the marketplace to work.
3653 THE CHAIRPERSON: Thank you very much. I'm sure I am going to hear a different version of the same story from Star Choice when they come up. But I'm glad to have one version.
3654 On fee for carriage, you have heard me in the last three days saying that it's not going to be a freebie. If there is a fee for carriage, it should be earmarked. Obviously the two areas of greatest concern to us are local content and Canadian drama.
3655 This is purely hypothetical here. If the fee for carriage was earmarked in such a way, would it have your support, Mr. O'Farrell?
3656 MR. O'FARRELL: We don't have support or opposition to provide to you because we don't have a collective position of our members. The members in this instance, given the particulars of this concern, decided that the Association would not be the voice or the vehicle through which a position would be developed but that instead they chose to do so individually.
3657 THE CHAIRPERSON: Okay.
3658 MR. O'FARRELL: I do believe as a matter, just to come back if I could for 30 seconds to the response that Mr. Charman was giving, that after all is said and done and after one version is on the record and the other version is on the record, the fact of the matter is, Mr. Chair, we are in 2008. This has been going on for ten years. DTH launched ten years ago.
3659 It has created a problem. We can argue about the magnitude. And that's been part of the issue. We've been arguing about valuation and from valuation flows impact and from impact flows compensation. We can continue arguing about that for a long time to come.
3660 We think that the Commission originally, when DTH was licensed, set the rules very straight. They said we believe in program deletion. Unfortunately, the events that kind of tripped over each other created a situation where parties have been at an impasse.
3661 All we are asking is to go back to first principles and assert the right of the local station to require its consent before it's distributed in the distant market. It will change the dynamic directly. It will take the Commission out of this very difficult situation of hearing these stories one way or another and basically caught between the discussions of expert witnesses on what is the valuation that is appropriate based on this methodology or that methodology.
3662 We say this with all respect to the parties because we know that they are bringing forward what they consider to be credible, thoughtful, well reasoned valuations on impact. But it hasn't produced an outcome.
3663 We don't want to be here in five or ten years from now with yet a larger problem because it hasn't been addressed. It has gone on for long enough, we think. Let's go back to first principles.
3664 THE CHAIRPERSON: Go ahead.
3665 COMMISSIONER ARPIN: Only a matter of clarification because I'm not sure I'm hearing well, because it seems to be two things that are said.
3666 When you are talking about consent from the broadcaster, you are talking about consent of the local broadcaster? Say, we will take an example. The Calgary broadcaster who will receive the signals of Vancouver, Toronto and Halifax or the consent of the Halifax or Toronto or Vancouver broadcaster that is going to be available in Calgary, consent of who?
3667 MR. CHARMAN: Thank you. I mean, a very important question and maybe I could illustrate it with a simple example, if you will.
3668 Let's say I am fortunate enough to have stations in five markets across the country; Halifax, Ottawa, Winnipeg, Calgary, Vancouver. I have got a nice collection of stations. I have commitments to local programming in each market and I have network programming which I share amongst the stations.
3669 Now, imagine that without my say‑so, no ability of me to say no, a distributor let's say here in Ottawa or Gatineau picks up my station in Vancouver or picks up all of my other stations and brings them into the local market. I have no say on this. What do those stations do? Well, they fragment my viewing locally because it gives consumers the opportunity to watch a given network program at six o'clock, seven o'clock, eight o'clock. You know the story. It lowers my ability to generate advertising revenues in the local market and the increased viewing that I might obtain on my other stations in Ottawa cannot be monetized. They cannot be monetized.
3670 Repeat that exercise in Halifax, in Winnipeg, in Calgary and in Vancouver and it starts to accumulate. So I am losing money through an action of the BDU in importing my own stations into my local market without my consent.
3671 So our proposal is I should be the one to give the consent to have my Vancouver station brought into any other market or my Ottawa station into any other market. It should be the originating broadcaster, the owner of the station.
3672 COMMISSIONER ARPIN: But I'm not part of a major group. I'm an affiliate in Peterborough and they want to bring my signal to Vancouver, Winnipeg and wherever. Am I the one who gives the consent or is it I give consent that they bring the Vancouver or Winnipeg stations in Peterborough?
3673 MR. CHARMAN: Our model is that the owner of the station being taken into a distant market is the one who must give the consent.
3674 MR. O'FARRELL: The logic, Vice‑Chairman Arpin, is simply on the basis of program rights.
3675 If you go back to the originating station whomever it is, by whomever it is owned, by whatever group they belong to, you are going back to the principle of they acquire rights for a local market only and they should be the ones who either consent to their redistribution or not.
3676 THE CHAIRPERSON: So in Michel's example the Peterborough station has to consent before the signal can be shown in Vancouver?
3677 MR. O'FARRELL: That's correct.
3678 COMMISSIONER ARPIN: Exactly.
3679 THE CHAIRPERSON: Okay.
3680 COMMISSIONER ARPIN: But they don't have to give consent to receive a competitor or the mother station, the mother network station?
3681 MR. O'FARRELL: That does not follow the logic of the program rights from the originating station.
3682 So we are saying nobody can stand at the border of the marketplace. It's really the originating station whose signal is distributed to whom consent ‑‑ from whom consent should be required.
3683 COMMISSIONER ARPIN: Okay, thank you.
3684 THE CHAIRPERSON: Okay.
3685 Back to question number five and the rights of BDUs to advertise. You have these lovely words in here yet you agree to it:
"...however, not without a negotiated arrangement with broadcasters." (As read)
3686 THE CHAIRPERSON: What exactly do you have in mind by what is negotiated? You obviously want a kind of sharing of revenues, I assume?
3687 MR. O'FARRELL: We say that ‑‑ first of all, I think that it's clear the VOD does hold promise for the future. We are all in agreement with that. We don't know how much and to what degree and how exactly it's going to look like but there certainly seems to be a fair amount of positive outcomes that can flow from that if it is launched properly.
3688 I am going to ask Pierre‑Louis Smith to address this in a second.
3689 Our basic principle guiding us here is if the revenue comes in through the system, through programming undertakings, the way the system is conceived now about 30 percent goes to the system. If a revenue stream comes through a BDU 5 percent goes to contribution.
3690 So we are suggesting that it's always in the interests of the system to get the larger as opposed to the smaller contribution as it currently exists. That's number one.
3691 The second part of our rationale is program rights. It's the same issue all over again. It's like Yogi Berra. The fact of the matter is, if the program rights are going to be made available on a VOD, or in this VOD platform will they be impairing the program rights of a licensed Canadian service on another platform?
3692 So there again we are trying to ensure that the contributions of licence service that acquire programming are not impaired; their capacity to make the contributions to the system are not impaired by viewing on the on‑demand platform.
3693 Those are the principles of our position; contribution and program rights.
3694 Pierre‑Louis, do you want to take it from there?
3695 MR. SMITH: Thank you, Glenn.
3696 And therefore the principle is that the programming must come from a Canadian licensee, be it an OTA service or a Canadian specialty or pay service.
3697 Now, it's interesting that for the VOD platforms there is an application that has been gazetted by the Commission for a coming public hearing. The application was filed by Wightman Telecom Limited for a VOD service to serve small local communities in southwest Ontario, if my geography serves me right.
3698 What they are proposing in this application is conditions of licence to allow them to show on VOD programs that would have advertising in it. Currently, the VOD services are governed by the pay regulations which preclude airing of advertising. So they are proposing conditions of licence that would allow them:
"To air advertising provided that the message was already included in a program previously broadcast by a Canadian programming service and;
(b) that the program's inclusion as part of the video‑on‑demand offering is in accordance with the terms of a written agreement entered into with the operator of the Canadian programming service that broadcast the program." (As read)
3699 MR. SMITH: We think that such conditions of licence would be in line with what we are proposing; in other words, respect the program rights. So access to VOD programming by Canadian programming services and that only the broadcasters could advertise and insert advertising in VOD programming.
3700 Now, with respect to SVOD which is another way ‑‑
3701 THE CHAIRPERSON: Hang on, stay with VOD.
3702 MR. SMITH: Yes.
3703 THE CHAIRPERSON: Only broadcasters can insert advertising?
3704 MR. SMITH: Yes.
3705 THE CHAIRPERSON: So what's the benefit of the BDU?
3706 MR. SMITH: Well, the ‑‑
3707 THE CHAIRPERSON: They are talking here about advertising rights of BDUs. Under that model you just mentioned, as far as I can see, the broadcasters get another revenue stream from VODs. I don't see where the advantage to the BDUs is.
3708 MR. SMITH: Provided that there is an agreement between the service provider and the VOD operators there could be shared ‑‑ shared revenue.
3709 MR. O'FARRELL: Our position, Mr. Chairman, is exactly what Pierre‑Louis said. On the principle that the advertising should be the purview of the broadcasters, the broadcasters should be encouraged to enter negotiations to secure the VOD platform outlet.
3710 But it would be a different negotiation without that principle than with that principle, and we are suggesting that a principle is motivated and justified by virtue of the contribution ratio that we were referring to earlier. If there is to be a sharing of revenue it should be on the principle that first and foremost you are sharing what the broadcaster brings to the table.
3711 THE CHAIRPERSON: Okay, SVOD, what about it?
3712 MR. SMITH: And with respect to SVOD we believe that it's absolutely critical that access or SVOD proposal or programming block be offered only by Canadian services, be it again OTA or specialty or pay services.
3713 Simply because, again, we need to ensure that the SVOD platforms won't serve as a backdoor entry for foreign services that are not already allowed on the eligible satellite list such as, for instance, an HBO video‑on‑demand service that could provide up to 40 hours per week or per month of programming whereas the service, HBO for that matter, has not been approved on the eligible satellite list.
3714 THE CHAIRPERSON: But you are talking about Canadian licence holders, not Canadian programming.
3715 MR. SMITH: That's right.
3716 THE CHAIRPERSON: So a Canadian who holds the right to HBO content can then put it on VOD?
3717 MR. SMITH: Absolutely.
3718 MR. O'FARRELL: Which is currently the case with TMN On Demand.
3719 THE CHAIRPERSON: Yes.
3720 MR. SMITH: That's right.
3721 THE CHAIRPERSON: Okay, and what about local avails?
3722 MR. O'FARRELL: That is very simple. We maintain the position that we have maintained in, I guess, two proceedings that the Commission has led on this, which is that the local avails should not be freed up for sale by BDUs. We have said it in the proceeding in Calgary on Only Imagine and we said it before that in the proceeding that did not ultimately end up at a hearing.
3723 It to us is simply not a solution at this point in time that we would suggest is in the interest of the system. And we don't understand what rationale would actually be served by it.
3724 And I think that Steve Armstrong can explain to you that the kind of revenue that would be derived from that if that were allowed, we are not talking about new revenue. We are talking for all intents and purposes about fragmenting more so the advertising pie that is there.
3725 THE CHAIRPERSON: We will focus on Mr. Armstrong after.
3726 Why the logic that you and the principles you have just so eloquently put on the table? Why won't they apply to advertising and local avails the same way as on VOD and SVOD?
3727 You say it should be the Canadian licence holder and he should share it with BDUs. Why couldn't you have that principle extend to local avails as well?
3728 MR. O'FARRELL: I'm not sure how that would work, sir. In other words the local avails in American services?
3729 THE CHAIRPERSON: Well, a BDU doesn't get the American services from the States. They only get it from a Canadian licence holder, right?
3730 MR. O'FARRELL: No, we are talking about local avails on ‑‑
3731 THE CHAIRPERSON: Oh, where they bought the record from Hollywood?
3732 MR. O'FARRELL: ‑‑ on non‑Canadian services.
3733 THE CHAIRPERSON: Right. And that's why you are opposed to it, because the BDU ‑‑ you are saying if your BDUs sell those services there is no contribution to the system?
3734 MR. O'FARRELL: And it's money that is not coming from some new source. It's basically going to fragment what is an already very fragmented marketplace.
3735 THE CHAIRPERSON: But do you have to go through those two pieces of category? Couldn't it be subject to an increased contribution to the CTF or something like that?
3736 MR. O'FARRELL: Well, we have looked at the economics of it both in the Only Imagine case and previously.
3737 THE CHAIRPERSON: Yes.
3738 MR. O'FARRELL: And based on the models that were being proposed there which did offer some mitigating effect, that still was a net loss to the system in our view and we believe that that's still the case.
3739 Steve, would you like to just add a few details on that, please?
3740 MR. ARMSTRONG: Thanks, Glenn.
3741 Providing advertisers with additional opportunities to advertise on existing television services is really, in my view, analogous to introducing a new local television station in the market. It doesn't encourage advertisers to increase their commitment to television. It merely provides them with another opportunity to advertise.
3742 I think that if we think about the number of new television services that have been introduced since 2002 and we look at the share that television has of the total advertising market it hasn't increased. In fact, over that period it's decreased by a point or so.
3743 So I think what we are talking about by providing advertisers with another opportunity to advertise on television is further fragmentation of what they would have already spent.
3744 THE CHAIRPERSON: Is that necessarily the case if we were restricted to sort of targeted advertising as Rogers talked about that, you know, remember the example that they used with GM and the same people watching and one would see a truck and one would see a sports car and one would see this, et cetera.
3745 So thereby according to Rogers, growing the pie rather than just taking a slice away because you could now demand a greater premium from GM because GM would be sure that the audience they want to reach is actually being reached because the data that the BDU has allows them to target that precisely.
3746 And if the ‑‑ let's say advertising on local avails was made subject to some sort of sharing formula but more importantly it could only be targeted advertising all the time that Rogers talked about, which would be in effect increased advertising that isn't there right now, would your position still be the same?
3747 MR. O'FARRELL: I think that ‑‑ well, for one we too were intrigued by that idea but we see it as a work in progress as opposed to a finality that we can ascertain exactly what it is they are talking about and where it would be drawn from and how it would work.
3748 There is no doubt that if there are ways, verifiable, measurable ways to bring more advertising into the system to serve the system and some new contribution drawn from some new revenue source we are not going to turn our backs on that discussion. We would obviously look at that. But we don't think we are talking about that yet because we think that that's still a work in progress that has yet to be fleshed out fully so that may be put on the table with clear identifiable revenue target sources, impacts and ultimately contributions.
3749 Steve, is that correct?
3750 THE CHAIRPERSON: Here we are looking forward. We have to ‑‑ we know that Rogers for one is spending a lot of money on this trying to develop it. Other people are too. We at the Commission have had representations from people who say that they can do it actually quite discretely, et cetera and without violating privacy laws, et cetera.
3751 I agree with you this all has to be worked out, but let's work on the assumption it has been worked out and it actually is doable. Then, I gather, your position of BDUs using local avails for that type of advertising would change?
3752 MR. O'FARRELL: Under that hypothetical scenario we certainly would have to look at changing our position to adjust to what would be a different picture than the one we have now.
3753 But absent that we are forced to say we have to go with what we know. And we have to go with what we have seen in the way of measurable impact on the system now, fragmentation, and basically as Steve has indicated just adding more competition for the advertising dollars as opposed to growing the pie.
3754 THE CHAIRPERSON: Thank you.
3755 Michel, did you have any questions? Yes, I'm done.
3756 COMMISSIONER ARPIN: Thank you very much, Mr. Chairman.
3757 I want to come back to VOD. I don't know if you had a chance to read the submissions that the A&E filed in this process where they are ‑‑ because they are describing how VOD is working in the U.S. and they are saying that the A&E:
"...currently provides VOD programs to cable operators in the U.S. through what is commonly known in the cable industry as a content aggregator." "(As read)
3758 COMMISSIONER ARPIN: Content aggregator ‑‑ I'm reading from their submission:
"Content aggregators facilitate VOD program delivery by transporting electronic files of programs to cable operators that aids in preparing these files for deployment." (As read)
3759 COMMISSIONER ARPIN: Obviously, that's an issue for the BDU, the way it's going to be working. But my reading of their submission is that in the VOD of A&E the advertising that is prepared is put in the program by A&E, not by the cable guy obviously, and managed by the aggregator.
3760 Do you think a similar system could be implemented here where an aggregator will be making sure that the programs are delivered to the cable through VOD and manages on behalf of the broadcasters the distribution of VOD programs?
3761 MR. O'FARRELL: I think that what we would respond to that is between that model, U.S., as explained in the A&E proposition or A&E submission ‑‑ pardon me ‑‑ and what we see evidenced in the public notice the Commission issued yesterday, two days ago by the small cable system, we think that they have it right.
3762 We think that what they are saying works in terms of an approach to the orderly introduction of VOD and the orderly elaboration of a system that would allow for the concerns that we have addressed ‑‑ the concerns that we have raised to be properly addressed. I am not sure to what extent what A&E has said is operating in the U.S. either overlaps, intersects or doesn't with how this approach would.
3763 We can tell you certainly, Mr. Vie‑Chair, is that we see comfort and we are encouraged by that approach. I'm not sure that we find it all there as A&E has submitted, not to suggest that what they are doing in the U.S. is right or wrong. I'm just saying in terms of what we have seen here so far.
3764 COMMISSIONER ARPIN: When I read ‑‑ and that's what I understood from the CCSA submission, and we can hear more about them today ‑‑ is that what they are proposing for their small members it's the implementation of such an operation with an aggregator who will manage on behalf of all the small cable systems the provision of VOD programming.
3765 MR. O'FARRELL: If that takes the shape that ultimately results in the kind of Public Notice CRTC 2008‑13 ‑‑ I think it is ‑‑ 2008‑13 we see that approach taking shape in an encouraging format.
3766 COMMISSIONER ARPIN: Now, A&E, because you have been talking about only Canadian service. Now, obviously A&E did put in this submission in this proceeding because they want to have access to the VOD platform for their programming with their American commercials as they do now with their service that is carried by the BDU. Do you have any problem with that?
3767 MR. O'FARRELL: We certainly don't want to see more services added by what Pierre‑Louis was suggesting is the backdoor approach.
3768 Do you want to elaborate a little further on that, Pierre‑Louis?
3769 MR. SMITH: What we see, Mr. Vice‑Chair, is that currently if we take Rogers' offering on VOD there is, you know, services that are authorized on the eligible satellite list like Playboy on‑demand, but we also see programming like our TV on‑demand which is not an authorized service and proposed something like 30 hours of new programming each month. Well, it's like ‑‑ you know it's like a specialty service if you will.
3770 So you don't want to see, like Glenn was saying and I was saying earlier, a way for the BDUs ‑‑ even though we understand that VOD is an important platform and that will grow the business, we don't want to see VOD becoming another way to enter the system and offer programming that will be only Americans.
3771 COMMISSIONER ARPIN: I hear what you say but surely you are not answering my question because I'm restricting myself to existing foreign specialty services that are available in this country.
3772 I invite you to read their submission. It's not very long. And you may make comments about their plan in the next step but they ‑‑ obviously, their claim is only regarding their own programming. They say they are currently on some of the ‑‑ well, they say they are on Shaw, Rogers and Cogeco VOD platforms, while in the U.S. their programming is available within 24 to 36 hours after it's been broadcast in Canada. Because of our current restrictions they have to put them on DVD and make them ‑‑ they are making them available only a couple of weeks after the broadcast.
3773 But I will invite you to look at that submission because it gives a lot of technical detail on the way and it may open up a door for the way Canadians ‑‑ BDUs could start initiating VOD distribution in this country.
3774 MR. O'FARRELL: Mr. Vice‑Chairman, we undertake to provide you comments after we have studied this aggregator model that you have highlighted for us here in our written response in the next phase of this proceeding.
3775 One idea that crosses my mind just as we are thinking about this and talking about it in this context is the aggregator a Canadian aggregator that we would want to see? Is there some kind of a role that we see for Canadian ownership in the aggregation process?
3776 So we will look at that and we will try to offer you some thoughtful ‑‑
3777 COMMISSIONER ARPIN: Surely that's not something addressed here but of course ‑‑
3778 MR. O'FARRELL: No, but that's what I mean. We will look at it and pose questions.
3779 COMMISSIONER ARPIN: But I could see that the word "aggregators" is plural here, so it means in the U.S. they probably are regionally based. So they could be also regionally based here because the word aggregator is plural in their text.
3780 MR. O'FARRELL: And that's exactly what I mean. We will look at it and we undertake to provide you written responses in the next phase on that question.
3781 COMMISSIONER ARPIN: Thank you very much, Mr. Chairman.
3782 COMMISSIONER KATZ: Thank you, Mr. Chairman.
3783 I want to come back for a minute to the issue of time shifting and the notion that ‑‑ I think I heard the CAB say that the proposed solution would be to respect the rights of the licence holders and let them negotiate their own deal. Why would a natural extension of that not be why limit it to distant signalling? Why not allow it to happen for local signalling as well ergo you are moving into an environment of fee‑for‑carriage?
3784 I mean how do you stop it at distant signalling? If you go that far why can't you just say, "Let the parties negotiate" and if the local broadcaster doesn't get what he thinks he deserves for it he simply says, "Don't broadcast my channel"?
3785 MR. O'FARRELL: Well, I think the two are distinguished by way of the legislator's intent. The local carriage and the matter of distant carriage are two very separate and distinct notions as far as we are concerned.
3786 What we are suggesting, Mr. Vice‑Chairman, is that the distant signal model that originated out of the framework for the introduction of a new distribution platform called DTH for all intents and purposes, if you can allow me to simplify it on those terms, while well intended, while replete with great outcomes in mind and many good outcomes were produced by the DTH platform and its introduction by way of additional subscribers and new contributions and so on and so forth, the fact of the matter is this has ended up producing a very large, unintended consequence in our view, in creating this imbroglio between BDUs and signals who are distributed on a distant signal basis in terms of compensation and evaluation and impact.
3787 And we are saying, "Why would the Commission want to allow this situation to perpetuate itself when it has an opportunity here to reset the dial, go back to first principles on the very point that was in that DTH policy originally" and that was the respect of program rights. We stop there because we think that that is essential.
3788 As to carrying over that thinking or that logic to any other part of the system including local and local, we don't have the position on that. Our members in terms of a fee‑for‑carriage or that whole discussion have chosen to bring their positions forward individually. So we stop at that point where the distant signal discussion ends and where other discussions may ensue.
3789 MR. CHARMAN: Could I also add to that, on that point of the distinction between local and distant, I would be guided by the Broadcasting Act on that score. We have already referenced section 3.1.t.i.:
"Distribution undertakings should give priority to the carriage of Canadian programming services and in particular to the carriage of local Canadian stations." (As read)
3790 MR. CHARMAN: It doesn't say distant stations. It says local stations. So I think there is a big distinction there.
3791 COMMISSIONER KATZ: Let me take this one further step then.
3792 I think I heard Rogers on Tuesday talk about the fact that one alternative to the issue of time shifting is VOD where you can actually access the news or whatever it is at a different time. Under your model again, on your VOD model, there is still negotiations taking place between the broadcaster and the BDU provider.
3793 In cases where there is local content here as well in a local environment you are still saying there should be negotiations that take place for the VOD platform but not for the original broadcast which is still local, the same broadcast.
3794 MR. O'FARRELL: Well, we are saying that if you adopt the idea of going back to first principles as it applies to distant signal distribution and if there is some potential solution to the distant ‑‑ to the time shifting issue that is available by way of VOD platforms, the negotiation that would flow from going back to first principles and requiring services to provide their consent would carry over into the negotiation on VOD. And therefore, I think that it's just a continuum.
3795 But just to be perfectly clear, the VOD issue should not ‑‑ or the VOD opportunity and it probably is a useful opportunity. I don't want to dismiss it. We should not be distracted in this discussion by that opportunity. We should be looking first and foremost at the essential issue. which is Canadian signals are currently distributed on a distant signal basis and have produced this longstanding conflictual relationship that should be resolved and we think that we have given you a very useful way to do so and to pull yourselves out of this impact evaluation versus impact evaluation versus compensation discussion by simply saying we reassert the local station's right to ‑‑ the local station's entitlement to provide its consent prior to its distribution on a distant signal basis, period.
3796 If that carries over into some VOD discussion, tant mieux.
3797 COMMISSIONER KATZ: Okay. Can we come back to your answer to question number 3. I want to focus on the piece of it that talks about the reference where you are opposed to opening up genre protection, not only from non‑Canadian services, which we talked about and I understand, but from other Canadian services, and the reason you give is to ensure Canadian TV viewers continue to benefit from the broad array of programming diversity in the system.
3798 I don't know how that would be compromised if the genre protection was opened up within the Canadian system.
3799 MR. O'FARRELL: Well, that is what makes these discussions so fascinating.
‑‑‑ Laughter / Rires
3800 MR. O'FARRELL: We see the completely different picture. What we see, Vice‑Chairman Katz, is basically a situation that without genre protection there is an incentive to move towards the middle. There is an incentive to be relieved or released or to abandon a genre thematically defined, demographically defined, and move to the middle.
3801 COMMISSIONER KATZ: But isn't that where the genius of Canadian marketing comes in?
3802 MR. O'FARRELL: No, the genius of Canadian broadcasting comes into the fact that we have created over 170 services, discretionary services that are now up and running in a market of 33 million people. That is the genius.
3803 COMMISSIONER KATZ: But if there is a market there for specialty programming, people will stay there, they are not going to leave where their roots are, where their money is but they will follow the money.
3804 If there is an opportunity to broaden that out, as long as it is within the Canadian system, why should a group of regulators sit here and make a decision to say, you can't provide broader services? All within the context of meeting, what you said earlier, the 30.5 percent contribution back into the system, it is still going back into the system, it is still Canadians that are doing it.
3805 Why should we be the ones deciding where Canadian broadcasters should be focusing their attention?
3806 MR. O'FARRELL: For a number of reasons, beginning with the statute that guides this Commission and that has taken this system where it is now is fundamentally a social and cultural statute. It is not an economic statute. It is not a statute that introduces in section 3 that market‑driven conditions are the operative element of the system. It is those 40 or so sometimes contradictory objectives of the Broadcasting Policy itself.
3807 It is the very ‑‑
3808 COMMISSIONER KATZ: But that policy ‑‑
3809 MR. O'FARRELL: It is the very fact that ‑‑ if I may continue ‑‑ it is the very fact that we have created 170 or so services that are up and running, exist and for which the viewership has shown Canadians are watching in growing numbers.
3810 Why would we be compelled, which is why I guess this discussion is so fascinating ‑‑ why would we be compelled to walk away from all that and say, there has got to be a better way and say, just because we want change for the sake of change or we are seduced by the remarks of some of the intervenors who are well intended, who say, market forces should decide?
3811 We are not in a market force‑driven statute environment. We are in a cultural and social statute‑driven environment, number one.
3812 Number two is we have built this up with a tremendous amount of success. Why would we just walk away from that and say, this doesn't matter anymore or let's try to do things differently, let's go into the laboratory but let's not take some sliver of reality as our template, let's put the whole system in the laboratory?
3813 We don't think that that makes any sense. We don't think that Canadians would continue to watch what they are watching if it were structured differently like this because suddenly we want to try something out.
3814 What we suggested at the outset, and I think that we feel that BDUs are entitled to give flexibility in their packages, this whole idea of basic basic, multiple basics. Let them define themselves with minimum requirements. Let them define themselves with access requirements, one‑to‑one linkage requirements on the preponderance rule.
3815 Because we believe, I think like the Commission articulated, that there should be two preponderance requirements: a preponderance in the number of services offered and a preponderance in the number of services received with this one‑to‑one relationship to ensure that happens.
3816 We can't understand why we would walk away from this.
3817 COMMISSIONER KATZ: But you are also saying that within the closed box of Canada ‑‑ I am not going outside of Canada ‑‑ within the closed box of Canada there needs to be oversight as to what programs Canadian‑produced, Canadian‑broadcast programs should be limited to in terms of their sphere of scope?
3818 MR. O'FARRELL: No. And I will ask Jay to jump in. In fact, one of the ideas that we have articulated in the genre protection discussion was take away the program categories and Jay was giving an example of that.
3819 Jay, do you want to expand?
3820 MR. THOMSON: Well, just going back to the Treehouse example where we have in the broad Category of Children's, we have YTV that serves youth, we have a Treehouse that serves a specific demographic that might not otherwise be served if we were to allow either broad categories of genres or no genre protection whatsoever.
3821 We have other kinds of mini‑genres within broader categories, if you will. Within, say, the Drama Category we have a Showcase and we have a Space. Would we lose the Space, so to speak, if we were to get rid of genre protection?
3822 The other thing is we have to look at it from a consumer service standpoint too. Canadian consumers buy packages in order to get specific services because they want ‑‑ the young family wants Treehouse, the science fiction fanatic wants Space. If their services can change at any time and they have already bought into the package, what does that mean to them in terms of their disruption?
3823 COMMISSIONER KATZ: I think what I heard from some people in the last three days is BDUs would be foolish to change what Canadians want to see, so they wouldn't willy‑nilly change it anyways.
3824 MR. O'FARRELL: But it is not their decision, it is this Commission's. That is why we have a Commission that is operating within a regulated statute that has an obligation that has been carried out by generations of regulators, that has basically taken the system to where it is at now.
3825 I don't understand one proposition that many of the intervenors that you have heard so far ‑‑ well many ‑‑ a few of the intervenors that you have heard so far have suggested, which is change for the sake of change. But where is the evidence that they have suggested to support that there is a need or a demand for change? Have you seen it? We haven't anywhere.
3826 THE CHAIRPERSON: It just seems to me implicit in everything you say that we have a great diversity but we only have it because there is genre protection.
3827 If we remove genre protection, it will all ‑‑ in effect, the various specific genres will go to the area of greatest profitability and we will have a much smaller diversity and much greater homogeneity in specialized services?
3828 MR. O'FARRELL: That is correct and I again would echo the sentiments that Mr. Rogers put on the record in this proceeding on Monday.
3829 For all of the success of the system, and we like to celebrate it and sometimes Canadians, you know, by their modesty, don't celebrate enough, but let's stop for a moment and take stock in the accomplishment here, it nonetheless is a fragile industry.
3830 We agree with that statement and with fragile industries or fragile situations I think that we should approach all change with care, and the kind of change that some of the proponents that you have heard so far have put on the table, without any evidence of the demand for change, put an awful lot at risk.
3831 COMMISSIONER KATZ: I just feel that there are a lot of issues here that we have got to deal with and certainly the social and cultural ones are inherent in the Broadcasting Act and there is an obligation for all of us to follow that as well.
3832 But within that context, what can we do to make life easier for everybody, the programmers, the broadcasters, the consumers, the Canadians at large as well? That is what we are trying to do here.
3833 MR. THOMSON: Well, getting rid of genre protection might make life easier for the BDUs because they will have more opportunity to morph their own existing services into popular genres. I am not sure it makes life easier for anyone else.
3834 COMMISSIONER KATZ: Well, I think the issue of self‑dealing is a separate issue, dispute resolution, everything else, and we are focusing on that as well, absolutely.
3835 Those are my questions.
3836 THE CHAIRPERSON: Thank you.
3837 Rita, I believe you had some questions.
3838 COMMISSIONER CUGINI: Yes, thank you.
3839 Let's stay with your position on genre protection and based on the discussion this morning you force me to go back to my former life because as a programmer I would say that is great, I have got a nature of service I have to abide by and as far as program categories are concerned I can do just about anything I want.
3840 So does your proposition also include eliminating the restriction as a percentage on some of the categories? As we know there are COLs that say you can only do 15 percent from Category 7 for this service. So does your proposition include removing those restrictions as well?
3841 MR. THOMSON: Our proposition adds some flexibility but not that much flexibility in the sense that to the extent a service is defined by its nature of service that includes restrictions on particular types of programming or positive obligations to undertake certain kinds of programming, those would remain.
3842 COMMISSIONER CUGINI: But ensuring diversity comes from a combination of the nature of service and the restriction on certain programming ‑‑ the restriction of program categories, not on certain of them, but in your example, the TSN can't do game shows. It was one of the ways in which the Commission could ensure that there was diversity even amongst specialty services that were in the same genre.
3843 So how does your proposal ensure that there continues to be diversity within the specialty services if now they can just about program anything they want?
3844 Because as we know, one of the criticisms of genre protection is that the lines are perforated ‑‑
3845 MR. O'FARRELL: And we appreciate that.
3846 COMMISSIONER CUGINI: ‑‑ and they are morphing and they are starting to all look similar, not alike but similar. So it is really not an effective tool today.
3847 MR. O'FARRELL: Well, I would suggest to you that it remains an effective tool but an imperfect tool, for sure, and we appreciate what you call the porous qualities of the demarcations, if you will, but we maintain that those demarcations, even in the narrative only of the nature of service description, is in of itself a mandate, is in of itself a mission.
3848 And as Jay suggested with the examples he gave, it does provide in certain instances some finite lines, perhaps not dark and fully ‑‑ you know what I mean, dark, big lines ‑‑
‑‑‑ Laughter / Rires
3849 COMMISSIONER CUGINI: Solid.
3850 MR. O'FARRELL: Solid. Thank you very much. But the fact of the matter is it still allows a service at the end of the day to distinguish itself from every other service most of the time fairly easily, maybe not in its entirety, one would argue, but in its materiality, it is.
3851 And I believe that is the question. It is in respect of genre protection or genre as a definition, as to its impact from a materiality point of view, that we believe that it still is deserving of the support of this Commission because it is a useful measure for the reasons we have talked about. I don't think you want to hear them again.
3852 But it is not perfect, we realize that. We have looked at how could we provide you with additional measures or ideas that would improve on it. We think that one is to take you out of the business of hearing a complaint about the game show that Jay was saying earlier. That would make things easier. It would remove you to a certain degree. It is still imperfect but it is still better than anything else we can come up with.
3853 COMMISSIONER CUGINI: VOD, only programming acquired from Canadian broadcasters should be made available, as you said this morning.
3854 Should we then take this as an opportunity to increase exhibition requirements on VOD? Because Canadian broadcasters are the ones who have access to Canadian programming, they have the relationships with independent producers, why not increase the exhibition requirement that is currently set in the VOD Regs?
3855 MR. O'FARRELL: I am not sure I follow that. Go ahead, Jay.
3856 MR. THOMSON: Well, my understanding of the obligations imposed on VOD providers relates to ensuring that within their library they have a certain percentage of Canadian shows.
3857 COMMISSIONER CUGINI: That is right.
3858 MR. THOMSON: So you could increase that percentage, if you will, to ensure that they ‑‑ I think it is 20 percent. They could increase it to something higher.
3859 There is also an expenditure obligation and one of our positions is that VOD is a programming service and morphing into more of a programming service like other programming services and their contribution obligation should start to match those of other programming services in the marketplace.
3860 COMMISSIONER CUGINI: So I guess the answer is yes, we should consider ‑‑ we could consider increasing exhibition requirements on VOD?
3861 MR. THOMSON: Exhibition and financial contribution.
3862 COMMISSIONER CUGINI: Okay. On the issue of access, we heard Rogers on Tuesday say that it is very difficult to remove a service and in the most recent past they have maybe removed two or three.
3863 Would it make any sense to retain the must‑carry provisions but add a can‑remove provision for the BDUs? So they would have to come to us and say, you know what, this service has 50 subscribers, look at the BBM Nielsen ratings, if it even gets rated by BBM, it is just not meeting any kind of market test and we therefore apply to be able to remove this service.
3864 MR. O'FARRELL: I think the key in making a thoughtful assessment in response to your question would be understanding what the criteria for can remove would consist of and without knowing where that box would be or how that box would be drawn, I am finding it difficult to offer you a definitive answer.
3865 We could consider that in our reply submission.
3866 COMMISSIONER CUGINI: That would be appreciated, yes. Thank you.
3867 And then just one final question on your solution to distant signals. How would this apply to DTH?
3868 MR. CHARMAN: I think our solution applies equally to cable and to DTH. So I am not sure if I understand the distinction you are driving at.
3869 COMMISSIONER CUGINI: Well, the issue here is, of course, broadcasters are saying that DTH should carry all local signals.
3870 MR. CHARMAN: Oh, I am sorry. Yes. Yes, absolutely. We are saying there is a fundamental principle in line with the Broadcasting Act that DTH should move to what we have termed a local‑interlocal regime.
3871 COMMISSIONER CUGINI: Right.
3872 MR. CHARMAN: That is with respect to carriage in the local markets. But again, carriage beyond the local market would still be subject to the consent of that broadcaster.
3873 COMMISSIONER CUGINI: So if a ‑‑ okay, take me through it. Would a subscriber of DTH in Red Deer be ‑‑ they would still have the obligation to carry the Red Deer local signal?
3874 MR. CHARMAN: Yes.
3875 COMMISSIONER CUGINI: And they would still have to get the consent from Global to carry their Vancouver signal or their Toronto signal, DTH would?
3876 MR. CHARMAN: They would require consent to carry hypothetically the Vancouver signal outside of Vancouver.
3877 COMMISSIONER CUGINI: Right.
3878 MR. CHARMAN: That is right.
3879 COMMISSIONER CUGINI: Okay. Thank you.
3880 Thank you, Mr. Chairman, those are all my questions.
3881 THE CHAIRPERSON: Thank you.
3882 Just to follow up on this one. On the local, you said that DTH would be required to carry all local signals?
3883 MR. CHARMAN: Yes. We haven't discussed this this morning but part of our proposal with respect to over‑the‑air services is that in light of the discrepancy between the cable framework and the DTH framework, it goes to the carriage of local signals.
3884 Cable carries local signals within their local markets, DTH does not, and although they do carry a large number of local stations, they do not carry them all. So we are recommending that there be a move towards full local‑interlocal carriage on DTH.
3885 THE CHAIRPERSON: I understood from the DTH people that there is a capacity constraint, especially as they move into the HD world.
3886 MR. CHARMAN: We are not unmindful of that and we are not suggesting that this should happen overnight. We have done a little bit of research into what is involved and I know Bell put some numbers on the table yesterday but in terms of local private broadcasters, there are about 100 local private broadcasters in the country, of which ExpressVu carries ‑‑ to use ExpressVu as an example ‑‑ about 60 of them right now. So there is a gap of about 40 stations that would need to be carried.
3887 It is a challenge, I admit that, but let me just walk through how we think it could work.
3888 Let's take capacity as it exists today and assume that capacity is frozen. In reality it is not but let's assume it is.
3889 How would you put 40 channels on today without taking something else off? You would obviously. So you would have to look in terms of whatever other channels are available. They have 50 channels of pay‑per‑view, for example. They have numerous other non‑Canadian exempt services. So it is a matter of assigning priority. Where do local stations fall in that list of priority?
3890 More importantly though, going forward, we get into the technical changes that may yield capacity in the future. There are new satellites coming on stream. There are new technical advances in compression and modulation which will yield increased capacity.
3891 We would love to do a detailed analysis of that but we cannot and the reason why we cannot is that the information that ExpressVu and Star Choice filed early on in this proceeding, a large part of it is kept confidential for competitive reasons. I understand that. So we can't do the detailed analysis.
3892 But the point is capacity continues to grow, and therefore, we are suggesting that the Commission should weigh what priority it assigns to the carriage of local stations and as we go forward, as capacity becomes available, let's look at, for example, taking the local stations that aren't carried and let's start with those that serve the small independent markets. There is still a handful of stations not carried there.
3893 Let's look at stations that are disadvantaged because they are not carried while their competitor is. That is a very serious issue when a competitor gets carried on DTH and you don't.
3894 Let's look at station that operated in markets where there is a high penetration of DTH.
3895 You can prioritize these things and a plan can be developed.
3896 What we are suggesting ultimately is that when ExpressVu and Star Choice come back to you in about two years time for their licence renewal, in 2010, we will have a lot more information on the table in terms of technical advances. There will be an opportunity, we believe, to develop a comprehensive plan which makes sense.
3897 So what we are asking you in part in the context of this proceeding is really to focus on the principle. We think the principle is important and an implementation plan can be worked out.
3898 THE CHAIRPERSON: But, Mr. Charman, my understanding is that roughly you need three times the amount of bandwidth for HD?
3899 MR. CHARMAN: Clearly, HD is going to add to the challenge. I mean what we are looking at today in terms of the analysis was based on the standard definition channels that exist today.
3900 Again, as we move forward, HD requirements will need to be accommodated as well. We understand that. But let's not assume that capacity is frozen, that there is no more capacity available. Capacity will continue to increase.
3901 THE CHAIRPERSON: Okay, thank you.
3903 COMMISSIONER WILLIAMS: Good morning, Mr. O'Farrell and CAB panellists.
3904 If I heard you correctly, Mr. O'Farrell, in response to a question from the Chair about whether the community channel should be included in this new basic, I believe your position was no.
3905 Why does the CAB not think the community channel is an important part of a basic package on a going‑forward basis? What is the reason for not thinking it should be included?
3906 MR. O'FARRELL: I will ask Jay to fill in the details on this.
3907 I think that the answer begins with we understood the Commission to be looking at what should the minimum requirements for basic be. So we were trying to take the most focused approach possible and we thought we should stop at these foundation services as we call them.
3908 We don't dismiss the usefulness or the service that flows from community channels or for that matter the contribution they make to communities on the many levels that they do but they just didn't seem to represent or to have the same status in terms of "foundation" services that the others that we do suggest meet the minimum requirements do have.
3909 MR. THOMSON: In the end, we are flexible on that point. If the Commission chooses or decides that the community channel should be on basic, then we are certainly willing to accept that. We are just looking for more opportunities to create flexibility for the BDUs where it works in the system.
3910 COMMISSIONER WILLIAMS: CATV or cable was ‑‑ Community Access Television was founded on the ‑‑ it was the foundation of the cable business, was the community channel, and perhaps it maybe just needs to be rejuvenated.
3911 MR. O'FARRELL: Perhaps.
3912 COMMISSIONER WILLIAMS: Yes. Thank you.
3913 THE CHAIRPERSON: Thank you.
3915 CONSEILLER MORIN : Merci.
3916 Si je comprends bien votre politique sur le genre, c'est le statu quo?
3917 M. O'FARRELL : Oui.
3918 CONSEILLER MORIN : Il n'y a pas de changement, on garde notre système parce qu'il est déjà extrêmement diversifié.
3919 En ce qui concerne l'accès au service de base, d'une façon générale, c'est aussi le statu quo?
3920 M. O'FARRELL : Si vous me permettez juste un commentaire pour qualifier.
3921 Ce qu'on constate, Monsieur le Conseiller, dans l'environnement actuel, où vous avez des services qui sont distribués et sur les plates‑formes analogiques et des plates‑formes numériques, les mêmes services ne bénéficient pas des mêmes niveaux de pénétration lorsqu'ils sont en analogique qu'en numérique. Alors, on voit déjà une baisse de pénétration, et ça, c'est avec la réglementation existante.
3922 Alors, on prétend qu'il faut essayer de faire tout ce qu'on peut pour maintenir la force de ces services‑là dans un environnement numérique, qui, à toute évidence, change la donne du point de vue du nombre d'abonnés qui reçoivent le service. Alors, on part avec l'idée qu'il faut maintenir ces mesures‑là.
3923 Pour ce qui est de l'accès, on considère que lorsqu'on regarde les services analogiques et les services de Catégorie 1 que ces deux catégories‑là ‑‑ on parle des services discrétionnaires ‑‑ sont de la taille de sorte que leur contribution, à toute fin pratique, au système mérite qu'eux aient cet accès pour l'avenir.
3924 C'est ça qui, en quelques mots, résume notre pensée là‑dessus.
3925 CONSEILLER MORIN : Mais, grosso modo, c'est le statu quoi quand même?
3926 M. O'FARRELL : Oui.
3927 CONSEILLER MORIN : Alors, ayant ces deux oui là, dans l'avis public, on disait bien, quand le Conseil a émis l'avis public, qu'on devait :
"Relying on market forces wherever possible, the Commission seeks to develop forward‑looking regulatory frameworks that are strategic, straightforward, flexible and equitable."
3928 Vous, vous êtes pour le statu quo, et on a entendu Bell hier, Bell ExpressVu, à qui j'ai posé la question, notamment, pour les services spécialisés... à qui j'ai posé la question, dans le fond, ce que vous demandez, c'est de nous remplacer, vous êtes le nouveau CRTC.
3929 Est‑ce qu'il n'y aurait pas un compromis qui respecterait, à mon avis, l'esprit de ça, c'est le compromis que je recherche, un compromis au niveau de l'accès des services spécialisés au service de base?
3930 Je pense que vous avez dû, sans doute, prendre connaissance, je l'ai expliqué quelques fois... encore, dans Cox, ce matin, il y a un article. Est‑ce qu'un système de pointage qui reconnaîtrait le contenu canadien, les dépenses d'émissions canadiennes et le tarif de base du CRTC, est‑ce qu'il n'aurait pas un certain sens?
3931 Tout à l'heure, on a parlé de Treehouse. Treehouse, qui est un canal spécialisé pour les émissions d'enfants, son contenu canadien, c'est de 70 pour cent, donc, 70 pour les fins de la démonstration, ses dépenses au titre d'émissions canadiennes, condition de licence, 36 pour cent, donc, 36, ce qui fait 106. Son tarif, le tarif de base, c'est 20 cents. Donc, 106 moins 20 cents, c'est 86 cents.
3932 Si le Conseil mettait la barre à 90 cents, il y aurait toute une motivation pour ce service pour enfants d'atteindre le contenu canadien et d'être sur le service de base. Si le Conseil mettait la barre à 100 points, ce serait plus difficile, mais ce serait aux joueurs de décider.
3933 Autrement dit, m'inspirant de la déclaration de l'avis public du CRTC, qui recherche un cadre ou qui donnerait de la flexibilité au système, et j'assume que le genre, on garderait le genre, mais ça pourrait aller... si on devait avoir des familles de genres, le modèle pourrait s'accommoder.
3934 J'aimerais savoir si, au niveau du principe de prendre en compte l'intérêt du consommateur, tout en prenant en compte l'historique du CRTC... parce que tout le système dont vous semblez satisfait et qui a produit un certain nombre de fruits, on utiliserait toujours les mêmes chiffres.
3935 J'aimerais avoir des commentaires généraux là‑dessus.
3936 M. O'FARRELL : Premièrement, on a suivi la discussion que vous avez eue à ce sujet‑là avec d'autres intervenants, et on trouve que l'idée est intéressante dans le sens que ça nous amène à une réflexion, en toute candeur, que nous n'avions pas fait jusqu'à présent.
3937 Donc, répondre à votre question ce matin sur le principe ou sur plus que le principe m'embête un peu parce que, comme on dit en anglais, the devil is in the details, et je pense que pour vous donner une réponse raisonnée et appropriée, ça exigerait de notre part un certain nombre d'exercices pour aller le tester, aller vérifier, sonder un peu.
3938 Donc, ce qu'on vous propose, Monsieur le Conseiller, c'est que dans la prochaine phase, les répliques que nous soumettrons par écrit, que nous prononçons nos commentaires là‑dessus, après avoir eu le temps de faire ces exercices de réflexion là et vous offrir le fruit de nos réflexions.
3939 CONSEILLER MORIN : Merci.
3940 THE CHAIRPERSON: Before I let you go, I think I would like to know your views on dispute settlement because many parties before us have raised it and few really ‑‑ I mean the general tenet so far has been that the balance of power between the BDUs and broadcasters is really out of whack and, therefore, a strengthened and enhanced the dispute settlement mechanism is necessary in order to ensure smooth functioning of them or as a stop‑gap or standby, a last resort for negotiations.
3941 So where do you stand on this issue?
3942 MR. O'FARRELL: We like the final offer arbitration approach, and Jay can explain to you very briefly how we see that working.
3943 MR. THOMSON: I can be very brief, because Astral has submitted a proposal on law for dispute resolution which we think has merit. And that would be one that we would support, because we think it promotes the efficient and effective resolution of disputes, it is timely and gives the parties an equal opportunity to make their presentations and also encourages them to come together to try to find resolution between themselves before having to come to the Commission at the risk of having their separate position rejected in favour of the other one with no middle ground.
3944 THE CHAIRPERSON: Okay, thank you very much. I have read the Astral proposal, so I know exactly what you are talking about.
3945 So let us take a 10‑minute break ‑‑
3946 MR. O'FARRELL: Mr. Chairman, if we may, we had asked that the Commission ‑‑
3947 THE CHAIRPERSON: Oh, I apologize.
3948 MR. O'FARRELL: We used a few minutes less in the opening because we would just like to package our closing comments.
3949 THE CHAIRPERSON: I understand, Mr. O'Farrell, I knew your request ‑‑ that is fine, by all means. You wanted to do a resumé, go ahead.
3950 MR. O'FARRELL: Well, we would just like to bring some closure to our remarks and to do so I think it is appropriate, because we see this as a very important process.
3951 So we would like to conclude our presentation today, sir, by expressing again our appreciation for this opportunity to participate in this very important dialogue. We take it very seriously. And there is no doubt that we feel very strongly about the positions that we put forward here today. But we also understand and we appreciate that you have heard and will hear many other voices throughout this proceeding with differing views.
3952 Canadians, as we know, have been debating broadcasting policy for decades and it is largely because we care a lot about radio and television. And we sincerely consider it a privilege to be sitting in this room today debating how to take the best broadcasting system in the world and go forward and face the challenges that lie ahead.
3953 The public record of this proceeding is replete with evidence of success in accomplishing the objectives of the Broadcasting Act. Frankly, we find no evidence to the contrary, even from those who suggest wholesale change.
3954 The simple fact is that this system is the product of hard work of generations of broadcasters, distributors and indeed regulators. Our journey to this point did not always unfold under sunny skies or over well‑paved roads, there were many many challenges along the way. Challenges that would have severely crippled or compromised the outlook of the less committed, innovative and industrious group of builders.
3955 Instead, while both formidable and numerous, the challenges only offered more inspiration to those who believed in the vision of building a unique Canadian broadcasting system, a system of opportunity and inclusion of Canadian expression.
3956 Our broadcasting history has scores of examples of defining junctures, crossroads where very tough choices were required by this Commission or its predecessors as well as by broadcasting and cable pioneers. When you look back it is really interesting to observe how at every crossroad it would seem that we encountered challenges relating to access, diversity and choice in one form or another, seems to be on our road all the time.
3957 So let me start by giving you an example. Some will recall that the early days of cable many of the systems were owned by Famous Players or by CBS. On the heels of the recommendations of the Fowler Committee in 1964 we found ourselves with the 1968 Broadcasting Act that said the system must be owned and controlled by Canadians. Under its Chairman, Pierre Juneau, the regulator announced that all broadcasting undertakings, cable included, had to be at least Canadian‑owned to the tune of 80 per cent.
3958 That opened the door to Canadian cable pioneers like Ted Rogers, Henri Audet and Francis Shaw who became some of the first major system operators in the country by introducing Canadian control of what was, up until then, a U.S. right industry on the cable side.
3959 I am going to give you a second example of a time when our predecessors, yours and ours, had to stare down formidable challenges. As late as 1980 there were still Canadians, believe it or not, who had no access to television at all. A CRTC‑appointed committee chaired by Vice‑Chairman Real Therrien was created to find solutions. And the Therrien Report broke ground in two major areas: first, Aboriginal broadcasting and, second, for encouraging the use of satellite television to reach remote communities.
3960 Well, with respect to Aboriginal Canadians, the Therrien Committee Report recommended that the CRTC issue a call for licences for native broadcasting, and what came out of that was Television Northern Canada, the predecessor to today's APTN which, as you know, reaches 10 million households and broadcasts in 28 different languages today.
3961 The Therrien Committee also urged the CRTC to issue a call for licences for satellite services to serve remote and underserved communities. Shortly thereafter, CanCon was launched and quickly it became possible to extent cable services to 100 households. And since that time, DTH has emerged as the essential component which it has become of our broadcasting system, today serving over 2.6 million subscribers across the country.
3962 And finally, there is a third example. Throughout the 1970s cable operators had been pushing for pay‑TV in Canada. The service was already available in the U.S., HBO had been launched in the early 1970s. And by the early 1980s in Canada A&E that we were talking about earlier was available on cable in Canada. In 1982 the CRTC under then Chairman André Bureau awarded the first Canadian pay‑TV licences. However, it is interesting to note the Commission at that time was concerned, notwithstanding its licensing, that pay‑TV in particular would be a conduit for U.S. programming while undermining the financial base of Canadian television.
3963 Acting on the deliberate language in its pay licensing decision the CRTC set out and I quote:
"To use its powers under the Broadcasting Act to meet this challenge by fostering the development of a distinctive pay‑television system that will further the objectives of the broadcasting policies set out in the Act." (As Read)
3964 From those very decisive words was born the regulatory framework for Canadian specialty services, and we saw TSN and MuchMusic licensed two years later.
3965 And as a result of that framework, today we have access to 170 Canadian discretionary services operated by medium‑sized, large‑sized and small‑sized players in English and French and in 40 other languages.
3966 The only reason I refer to these examples, Mr. Chairman and commissioners, is to simply put this proceeding in context as we see it. Here in 2008 in this room is yet another appointment with chapters of Canadian broadcasting history waiting to be written. The history of the system is much richer in remarkable stories than time can afford me the opportunity to recall in their full details today.
3967 Yet, throughout the many accounts of how this tremendous broadcasting system's success story was built we find a common thread, we find a reoccurring theme, and that is that at the very core of our broadcasting system what we find is the inclusion and a voice for Canadians. And so I leave you with this question, what is a people without a voice? That is what your job is, is to ensure we continue to have one through our broadcasting system. Thank you.
3968 THE CHAIRPERSON: Thank you very much. Your speech reminds me, this is the 40th anniversary of the CRTC, as you know, so ‑‑
3969 MR O'FARRELL: You can have ‑‑
3970 THE CHAIRPERSON: ‑‑ your little summary was a very apt resumé of what the CRTC ‑‑
3971 MR. O'FARRELL: No attribution required, use it wherever you wish.
‑‑‑ Laughter / Rires
3972 THE CHAIRPERSON: Okay. Thank you very much. We will take a 10‑minute break.
3973 THE SECRETARY: I would ask the representative from the Canadian Cable Systems Alliance to come forward please.
‑‑‑ Upon recessing at 1109 / Suspension à 1109
‑‑‑ Upon resuming at 1128 / Reprise à 1128
3974 THE CHAIRPERSON: Madam Secretary.
3975 THE SECRETARY: Thank you, Mr. Chairman.
3976 We will now proceed with the last participant for today, the Canadian Cable Systems Alliance Inc. And I would ask Ms Alyson Townsend to introduce her colleagues, after which you will have 15 minutes for your presentation.
3977 Ms Townsend.
PRESENTATION / PRÉSENTATION
3978 MS TOWNSEND: Thank you very much.
3979 Good morning, Mr. Chairman, commissioners and staff.
3980 I am Alyson Townsend, President and CEO of the CCSA. I have with me today Chris Edwards, our Regulatory Vice‑President and Harris Boyd, our Regulatory Consultant.
3981 This proceeding opened with this statement, that the consumer is in charge, because licensees will need to have the flexibility to react quickly and creatively to the opportunities and challenges they encounter.
3982 The Commission said:
"It is time to move away from the current detailed regulation and to take a revitalized approach to both distribution and discretionary programming undertakings that aims at reducing regulation to the minimum essential to achieve the objectives of the Act, relying instead on market forces wherever possible." (As Read)
3983 The objective, the Commission said was "to recognize the increasing autonomy of audiences and consumers, providing them with the greatest possible choice of services at affordable prices." We could not agree more. We applaud the Commission's courage and foresight in making those statements. This fresh and pragmatic approach is exactly what the system needs.
3984 "If the regulated system is to flourish then it is essential," as the Commission put it, "that both programmers and distributors be encouraged to promote and publicize Canadian programming and that they have the flexibility to do so by the most effective means possible." The way to do that, in the words of the 1994 cabinet order, "is through an increased reliance on market forces in a provision of facilities, products and services." And the way to do that, as both 2007‑10 and the Dunbar/Leblanc report had made clear, is to create a simple light‑handed, smart regulatory framework coupled with effective enforcement tools.
3985 We endorse the Commission's expectation that parties arguing for continued regulatory intervention should provide a full rationale for that intervention with supporting evidence to establish that such an intervention is essential to the objectives of the Act. The focus must be simplification of the Regulations so as to enable flexible, creative responses to market forces.
3986 Our submission today will focus on our recommendation for a new licence exemption for small independent cable systems. We strongly believe that our recommendation will help both the Commission and small cable to continue to meet the objectives of the Act in the most effective way possible. It is a simple and low‑risk response to small systems' challenges.
3987 Also, as you have requested, we will address specific points raised in the Commission's assumed distribution model. In so doing, we wish to emphasize that, even with substantially complete exemption, certain aspects of the regulatory framework will continue to affect small systems.
3988 MR. EDWARDS: CCSA strongly supports the concept of a single class of licence for all BDUs coupled with a new and substantially complete exemption from regulation for all small cable systems not affiliated with the major MSOs.
3989 The primary purpose of such a small system's exemption would be to enhance the flexibility of such systems, to package products in response to customer demand and to assist independent small cable systems with migration of programming services to digital so that they can recover capacity and use that capacity to offer more and different digital services.
3990 The proposed exemption would exempt independent small cable systems from application of Part 2 of the Act and, thereby, from application of the BDU regulations. That would include exemption from the application of all distribution and packaging rules other than the requirement to provide a basic service to all customers, the requirement to provide priority programming and the requirement to deliver a preponderance of Canadian programming to each subscriber.
3991 CCSA's proposed exemption order has two application provisions as follows. All cable systems not affiliated with or operated by a major MSO would be exempted under the order. And no systems previously exempted under an existing small systems exemption order would inherit any new obligations as a result of the order.
3992 Accounting for the recent sale of Aurora Cable Internet to Rogers, for CCSA systems this would amount to exemption of some 20 systems that serve 160,000 subscribers or 1.5 per cent of multi‑channel households. Our proposal would extend a more complete exemption to other independent cable systems that already operate under an existing exemption order.
3993 The Commission has already applied the definition of the class of BDUs to which this exemption would apply in its 2001 small systems digital migration policy and its 2006 digital migration framework. In the migration framework the Commission defined a small system as being one that is not owned or operated directly or indirectly by Rogers, Shaw, Vidéotron or Cogeco without regard to the number of subscribers.
3994 CCSA submits that the definition used in those circumstances is a reasonable, supportable and sufficient precise definition of a class of undertakings to work as a basis for exemption. That class definition is based on the fundamentally different economic circumstances and technical challenges that are faced respectively by the major MSOs and small cable systems.
3995 Exemption of such a class would be consistent with the wording and purpose of subsection 9(4) of the Act and with the Commission's policy for use of exemption orders as expressed in public notice 1996‑59.
3996 CCSA's proposed new small systems exemption order would have no negative impact on the achievement of the Act's objectives. Rather, by removing the hurdles to digital transition that small independent systems currently face, such an exemption would facilitate the digital transition in many of Canada's smaller communities. As such, the proposed exemption would assist the Commission in satisfying the objectives of the Act.
3997 Recognition of a new class of exempt systems is not by itself a complete answer. In the draft exemption order it has provided CCSA addresses other important issues as follows. The draft order states the Commission's expectation that programmers will permit independent small systems to distribute their services, regardless of the technology used, at wholesale rates that are equitable in relation to the rates paid by the major MSOs.
3998 To make that expectation work we have also included a provision whereby the major MSOs cannot invoke contractual MFN provisions to demand the same special carriage terms and rates that are granted to independent small systems. Independent small systems are exempted from currently applicable digital migration policies. In particular, the existing tier mirroring requirements continue to be an obstacle to digital migration.
3999 All independent systems that currently are required to directed 5 per cent of gross revenues to Canadian programming must continue to do so. But the full 5 per cent may be direct to local expression.
4000 And finally, exemption from licensing must not impair a BDU's right of access to the Commission's binding dispute resolution processes.
4001 Those are CCSA's submissions with respect to its proposed exemption order for independent cable systems. We would now like to address briefly the fee‑for‑carriage issues raised once again in this proceeding.
4002 We have yet to see any compelling justification for such a fee. We see on the record no evidence of a sustained downturn in conventional television's profitability. Conventional television's profit margins are at least as good as small cable's. Fittingly, we see no evidence of any fundamental change in circumstances that would warrant a change to the Commission's decision in PN 2007‑53 to reject the broadcasters' fee proposal. Rather, conventional television's position has improved since that decision was made.
4003 We do not believe that the conventional broadcasters have met their burden of demonstrating subscriber acceptance of increased fees or that such fees would not adversely affect the health of the speciality services. We do believe strongly that it would be improper to levy such a new tax on BDUs and their customers. There is no convincing logic that leads to a conclusion that BDUs and the subset of Canadians that subscribe to BDU services should be the ones to fund the private commercial enterprises of the conventional broadcasters.
4004 In particular, small cable companies simply cannot afford to add a new cost element with no corresponding addition to product value. The allegation that cable operators regularly raise their basic service rates does not generally apply to small cable. If our members are forced to raise their rates they expect their customers to vote with their feet.
4005 CCSA Class 1 and 2 systems pay compensation to CAB for the use of distant signals. We agree with the larger BDUs that the rates paid today overvalue the harm caused by such use. As well, in relative terms, the impact caused by small cable's time shifting use is miniscule. There should be no increase to the compensation rates currently in place.
4006 Should the Commission decide to adopt some form of fee‑for‑carriage we strongly urge that our proposed small systems exemption include an exemption from payment of such fees. As is currently the case, exempt systems should not be required to compensate CAB for distant signals.
4007 MR. BOYD: I would like to now address certain aspects of the Commission's assumed distribution model.
4008 CCSA supports regulation of the minimum offering of services on the basic service tier. However, CCSA would have serious concerns with any regulated maximum number of services that may be included in basic. We believe that BDUs should be as free as possible to design program offerings in response to consumer demand. A BDU should be able to distinguish its offerings from those of other BDUs as a means of competitive positioning. That ability should extend to the design of basic service offerings that respond to the demographics of the BDUs' markets.
4009 A regulated maximum offering that is less than what the BDUs currently offer on basic will cause serious disruption, particularly for small cable systems that offer a large basic service or an analogue‑only system.
4010 Campbell River TV Association, for instance, has currently over 50 services on basic for a price that arguably is probably the best programming deal in the whole country. It would be a huge problem for Campbell River to break that basic package apart, adjust its other discretionary tiers and then have to resell those new discretionary levels of service to its angry customers and, I might add, to actually pay the cost of installing the traps to do so.
4011 We can't imagine a more destructive measure related to BDU service than that of depriving customers of the channels they are used to receiving on basic and then requiring them to buy a new tier of other discretionary services to get those channels back. We wish to emphasize that every single customer loss is a major event to a small system. It would be wrong to assume that such systems can absorb any level of customer losses.
4012 The assumed model suggests creation of guaranteed access for a limited number of core Canadian services that provide exceptional diversity to the system. CCSA does not agree with that approach. We submit that once the Commission recognizes access rights for a core group of services it will inevitably be bombarded with applications from others hoping to join the group. Frankly, we anticipate that that would evolve into something very like the dual and modified dual status designations that arose from the different licensing rounds of analogue services.
4013 The Commission's power under section 9(1)(h) of the Act is capable of dealing with any requirements for guaranteed access for any service. CCSA considers that use of 9(1)(h) is a much better approach because it can be applied on a case by case basis and, therefore, demands a full justification for each regulatory intervention. And secondly, it can be applied flexibly to create only the minimally intrusive intervention required by the specific case. The standard applied to mandatory carriage applications should be high, that is it should be the same standard as set for 9(1)(h) applications in the digital migration framework.
4014 We wish as well to remind the Commission that every time it guarantees distribution access to a service it profoundly affects the balance of any commercial negotiation with that service. For small systems, even as represented by CCSA, the negotiation effectively becomes a take it or leave it proposition. As such, guaranteed access inflates prices, both to the BDU and to the consumer.
4015 Even with the small systems exemption in place as we propose, non‑protection limits the number of competing suppliers in the field and forces small BDUs to negotiate with sole‑source suppliers. Again, the protection profoundly affects the balance of these commercial negotiations with the programmers and, again, the result is inflated prices to both us and the consumer. We believe that this should be the fullest possible competition among Canadian services. This is how the regulated system will match the already competitive offerings of the unregulated systems. Consumers will benefit from such competition.
4016 The preponderance requirement is a reasonable form of cultural protection. Again, however, simplicity and flexibility are the key issues. The existing 50 per cent plus 1 requirement is sufficient for that purpose. CCSA is particularly troubled by the suggestion that preponderance be applied at the package level. This would amount to an even more stringent requirement than the existing one to one packaging rule. As such, it would effectively negate any gains in packaging flexibility that this proceeding was originally intended to provide.
4017 Measurement of subscriber purchases at the package level to ensure preponderance at that level would be a substantial new administrative burden. Such a requirement would be inconsistent with the objective of streamlined regulation.
4018 We agree as well that there should be some restriction on the authorization of non‑Canadian services that compete directly with Canadian ones. Because this issue is largely about the protection of the Canadian rights market, the assessment should be based on the degree of overlap of programming that is identical to that carried by the Canadian service.
4019 CCSA emphasises the importance of the Commission's increased exercise of jurisdiction over foreign services. They should be required to operate in a way that supports the Canadian system. For small cable, this means that those services should be encouraged to assist in a digital transition by permitting migration of the services. At this time, it is the foreign services that remain the primary obstacle to migration by small systems and so are holding up the digital transition.
4020 CCSA submits that those services should also be subject to the Commission's binding dispute resolution mechanism. Within that framework, they should be bound to act in a manner that does not hamper the achievement of the regulatory objectives of section 5(2) of the Act.
4021 MS TOWNSEND: To conclude, our top priority in this proceeding is a new substantially complete small systems exemption. That exemption should include exemption from any requirement to pay wholesale fees to conventional broadcasters. Such an exemption should apply to all cable systems, regardless of size, that are unaffiliated with the large BDUs. Its key purposes will be the creation of additional flexibility for small systems and facilitation to digital by those systems.
4022 We wish to emphasize that no party to this proceeding has raised any serious objection to CCSA's proposal. Rather, independent cable systems are almost completely under the radar, which can be illustrated by this room at the moment.
4023 That fact alone underscores the appropriateness of the proposed small systems exemption.
4024 Thank you for your time and the opportunity to make these remarks. We would be pleased to respond to any of your questions.
4025 THE CHAIRPERSON: Thank you for your presentation.
4026 On page 5 where you talk about the proposed exemption, you say the primary purpose of such small systems exemption would be to assist independent small systems in migrating programming service to digital so that they can recover capacity and use that capacity to offer more and different digital services.
4027 Can you explain to me? I don't quite see the connection between the exemption and the migration to digital.
4028 MR. EDWARDS: I think that goes back. The first thing I would say is the issue with the current mirroring policy in the digital migration. At this point we are still faced with a situation in which even the smallest systems have to move entire tiers of service if they are going to move.
4029 It also relates to the question of how services will be packaged once they are moved to digital. The more freedom in packaging that is available, the more the small systems will be able to design a package that's responsive to consumers in their smaller markets.
4030 MR. BOYD: If I might add, there is one element and that's the cost element. Exemption from licensing is exemption from licensing fees, which is an important element in their cost structure. And as we are proposing, it would be an exemption from all new fees as well.
4031 These companies have very difficult business models and high cost structures and any lower costs that they can have can be devoted to investment in initiatives like the digital platform.
4032 THE CHAIRPERSON: Okay, I understand that point. I'm not too sure I understood the first point.
4033 Are you saying that our present migration rules make it difficult for small systems to meet your customers' demands?
4034 MR. EDWARDS: The present migration rules have evolved over time and have gotten closer and closer to liberal rules for small cable. But the mirroring requirement and the consent requirement are still obstacles.
4035 I guess we are asking to get to the point where small systems at least can simply move services to digital without further process.
4036 THE CHAIRPERSON: And on guaranteed access, if I understand you correctly, you are suggesting the present guaranteed access be abolished under 9(1)(h) and then you have a 9(1)(h) like proceeding for anybody who wants guaranteed access other than access to basic. But the test would be the same.
4037 MS TOWNSEND: That's correct.
4038 What we are suggesting is that there is no need for an access rule beyond the mandatory basic requirement. That would effectively introduce the access commitment all over again.
4039 Really, it is not needed at this time. There are Cat‑2s who have been introduced to the marketplace. The larger BDUs carry at least 40 of them. They have been very successful. And they have shown us that reliance on market forces is reasonable protection for these services.
4040 THE CHAIRPERSON: You heard Mr. O'Farrell who appeared just before you making an eloquent plea that the diversity of the existing system is based on both access rule and ‑‑
4041 MS TOWNSEND: Yes.
4042 THE CHAIRPERSON: You are willing to jettison both.
4043 MS TOWNSEND: Well, you know, I don't see it ‑‑
4044 THE CHAIRPERSON: You feel that is an over‑statement?
4045 MS TOWNSEND: I don't see it as jettisoning. I see it as an evolution. What was described was an historical growing up of a system. In the beginning, yes, protections were required. It was a nascent, it was an infant system. But it became a teenager and now it's an adult.
4046 I think to restrict choice, choice of the consumer who is asking for this, is I guess paternalistic. It is an adult system now.
4047 The protections are no longer required. We got to where we need to get. And as an adult, if we want to grow and create, the less protection the better. It's like an adult child. It's time for them to leave home.
4048 MR. BOYD: And there is one other element. A number of people have spoken here in this forum about unlimited channel capacity. That is certainly a fallacy in the systems run by our members.
4049 We do have limited channel capacity. We have to make choices about what services we put on. So if there are more services with guaranteed access rights than we have room, then others won't get on.
4050 We certainly would like to be able to put on many more Category 2 services, many more high definition services. In fact, we really have no choice if we are going to remain competitive. But we would like to make those selections based on what our market wants.
4051 MR. EDWARDS: If I can just add, in terms of diversity and how the market will respond to that, it seems to me that the direction of the market has been towards more and more niche programming, both on the Internet and in the regulated system.
4052 In fact, what we see is many, many Category 2 applications for all sorts of very directed types of programming services, and we see those Cat‑2 services being carried.
4053 We gave you some numbers in our October 19th submission showing you the explosion of content on some of the small systems in our membership. I was looking at those again last night, and Westman's Verdon system, which has just over 800 subscribers, has almost 30 Category 2 services on them.
4054 The other systems that we showed you had well over 30.
4055 The fact is that these services are responding to a demand in the marketplace for this type of programming. They are being carried and they are being viewed.
4056 THE CHAIRPERSON: Thank you.
4057 Michel, I believe you have some questions.
4058 COMMISSIONER ARPIN: Thank you very much, Mr. Chairman.
4059 I know that you are going to come back a few times to the exemption order that you have been talking about in your presentation, particularly you, Mr. Edward, because I know it is a major thrust of your submission.
4060 Before starting to deal with some of the issues here, you are not considering EastLink as being an MSO for the purpose because in your oral presentation and in your submissions, you are restricting the MSOs to be Rogers, Shaw, Vidéotron and Cogeco.
4061 MS TOWNSEND: CCSA does not represent EastLink for regulatory purposes. So that would be up to the Commission to decide whether they regarded EastLink as a major BDU.
4062 COMMISSIONER ARPIN: I see. Regarding your exemption order, will you apply it as well to small DSL and small MMDS?
4063 MR. EDWARDS: I think the intention has been to apply it to small cable systems and that follows on all of the decision‑making that has come before with respect to digital migration where those definitions have evolved.
4064 We are picking our definition out of decisions that the Commission has made in respect to migration.
4065 COMMISSIONER ARPIN: I remember that you are referring to a 2006 Public Notice that the Commission did issue where they defined small cable systems.
4066 Obviously you are representing cable operators here. And for the purpose of the exemption, what you are saying to me is it applies to the cable industry, not the other types of BDUs who are essentially in digital format.
4067 MR. EDWARDS: That is correct. And if you look at the draft exemption order that we submitted in our reply phase comments, it is defined as small cable, following on those Commission definitions.
4068 MR. BOYD: And just to add to that, Commissioner Arpin, companies like MTS Allstream, SaskTel and Aliant are not small independent companies like the ones that we represent. There is quite a distinction. They may currently have a fairly small customer base on telco TV, even though it is growing rapidly, although all of them are now bigger than any of our members. We certainly don't feel that they should qualify for this kind of an exemption.
4069 COMMISSIONER ARPIN: Now in your oral submission this morning you were talking about Aurora Cable and you are saying it should remain an exempted service.
4070 Is that request made on behalf of Rogers?
4071 MS TOWNSEND: I think that what we intended by that remark was to give you an idea of the numbers that would be impacted. So Aurora Cable would not be part of the application that we are making.
4072 We just wanted to illustrate to you that after Aurora leaves CCSA, which they will, being purchased by Rogers, we are talking ‑‑
4073 COMMISSIONER ARPIN: If approved.
4074 MS TOWNSEND: If approved, that's correct.
‑‑‑ Laughter / Rires
4075 MS TOWNSEND: We will be talking about 20 systems within CCSA.
4076 COMMISSIONER ARPIN: Thank you very much for that clarification.
4077 At the bottom of page 8 and the top of page 9, you are saying the allegation that cable operators regularly raise their basic service rates does not generally apply to small cable.
"If our members are forced to raise their rates, they expect their customers to vote with their feet." (As read)
4078 It is surely a true statement. Where will they go? They will go to DTH. Isn't the DTH basic rate higher than your small cable?
4079 MR. EDWARDS: Part of this goes back to the study we submitted a while ago.
4080 One of the things about the small cable systems is they tend to carry dramatically fewer services than DTH. So the numbers in that CMRI study was that the average for small cable was about 62 services; the averages for the large cable and DTH were more like 118 services.
4081 It's not just the price proposition. It's a full value proposition, and that gets tougher and tougher.
4082 MR. BOYD: There are a couple of things here.
4083 Our smaller members tend to have fairly large basic services. They don't have the number of discretionary tiers. And some of them have basic only systems, in fact.
4084 So our rates aren't necessarily lower than DTH for basic service. In fact, they are sometimes higher.
4085 The other thing you need to keep in mind in many of the markets that we serve is the problem of illegal satellite use is much higher out in rural areas where everyone has access to it. And there we are competing essentially with free.
4086 The third problem is we have another issue with satellite subscription division; account stacking, if you will, which is an issue the Commission has dealt with, where one little six‑unit apartment building has one subscription and they divide the price by six. That makes it very hard to compete with as well.
4087 There is a lot of that rampant in the markets that we serve, where everybody tends to know everybody.
4088 COMMISSIONER ARPIN: And finally, my final question regarding your oral presentation has to do with page 10 where you are dealing with Campbell River TV and where you say that it has currently 50 services on basic and it is an analog basic service.
4089 Having a smaller basic service, you won't see it as an opportunity for him to launch digital, because he will have to go there?
4090 MS TOWNSEND: And he has launched digital. The point here is that if the Commission determined that there was going to be a mandatory number or a maximum number of basic services, then Campbell River may have to dismantle their current basic service and the customers will be charged for a tier where they previously got it as part of their basic cable.
4091 MR. BOYD: And just one other thing. Campbell River has actually quite a low penetration in digital. So the possibility of moving services that have 100 per cent penetration up to digital, where they might have 15 or 16 per cent penetration, is very customer unfriendly or very costly to the customer to move to digital.
4092 So if you put them in analog, then it's costly to the company because they have to put in traps.
4093 So either way, it's not a good proposition for that company.
4094 COMMISSIONER ARPIN: But you surely also heard that it is not a very good proposition even for Rogers in the analog world.
4095 MR. BOYD: Exactly.
4096 COMMISSIONER ARPIN: And they surely made the quest that whatever the Commission comes up with a solution, it applies only in the digital world and leaving alone the analog system at least, because it's a vanishing ‑‑
4097 MR. BOYD: Exactly. It would be a step in the wrong direction. We don't want to do any more investments in analog.
4098 COMMISSIONER ARPIN: Implementing traps and making significant investment, particularly for the smaller player.
4099 MR. EDWARDS: We should probably add the point that a number of CCSA systems are basic only systems and dismantling of that analog basic would force them to create tiers anew.
4100 COMMISSIONER ARPIN: Do you have an idea how many of your members are only having analog service, in terms of percentage?
4101 MR. EDWARDS: I think we would have to undertake to answer that in our final comments with a precise number.
4102 COMMISSIONER ARPIN: Are you talking the majority of your members or the minority of them? I think it will help in better understanding.
4103 MR. BOYD: I think we would want to do it for you two ways.
4104 It's probably quite a few member companies but it's not that many subscribers, because the larger ones all have a digital offering at a certain level of penetration.
4105 We can give you that information.
4106 COMMISSIONER ARPIN: I am moving towards the questions that I had prepared for you today.
4107 The first one, I think in your oral presentation you have addressed it. It has to do with the basic service and the size of that basic service and the issue of limited capacity compared to the major, the MSO.
4108 The Commission has put forward the notion of an all‑Canadian basic service ‑‑ and we will deal with it only in the digital fora because I understand well why the issue of analog is very different ‑‑ made up of local and regional over the air, one per network or per group, educational broadcasters of the province and 9(1)(h) services.
4109 Don't you think an all‑Canadian basic service will benefit your members in developing new and attractive packages of the remaining offering?
4110 I heard you saying that you agree with the small package but leave it to the market force to determine if it's got to be broader.
4111 MS TOWNSEND: I think that our members are having enough difficulty just getting to digital, that what they need to be able to do in their markets is respond to the people they know in those markets and what they want. Any further regulation on digital seems counter‑productive to that. They have a tough enough job moving there and selling it than to be limited in what they can sell.
4112 COMMISSIONER ARPIN: Some of your members may have only from 100 to a few thousand subscribers, and obviously in markets where they only have a few hundred subscribers probably they have a single offering. They may have a pay service on top of that, but the rest everybody gets it.
4113 MS TOWNSEND: That's why it's all the more important that whatever they put on digital is what their customer wants.
4114 MR. BOYD: And we don't disagree with you, Commissioner Arpin, that we might want to do a fair amount of repackaging of what is currently offered on analog. We can do that as long as there is no maximum or in fact minimum. The more regulation you put on it, the more difficult it will be to design those packages.
4115 So if you say you have to have these services on basic ‑‑ you can have more, you can't have less ‑‑ then we have the flexibility to do that as we move to digital. We fully appreciate that we will probably have a smaller digital package that might not be as small as you were suggesting a few minutes ago.
4116 MS TOWNSEND: The other thing you might think about is the impact. When we are talking about these small systems, we are not talking about systems that can contribute a huge deal to these Canadian services, these very robust Canadian services. These are very small systems that in terms of the return that might be received, it would be negligible.
4117 That's why it is our position that these systems should be allowed to respond to market forces.
4118 MR. EDWARDS: I just wanted to say, in response to your question, the small basic you are suggesting might well be an opportunity for some systems. I think it is important not to restrict them in some cases from doing a very simple large basic offering as the response to their customers' demand.
4119 COMMISSIONER ARPIN: In the Commission description that we are dealing with an all‑Canadian basic service, meaning there will be no four‑plus‑one services, only Canadian, do you have any comments to make on that?
4120 That is a proposal that has been put on the table for the purpose of this public hearing, so it's time to say what you have to say.
4121 MR. BOYD: Well, we will.
‑‑‑ Laughter / Rires
4122 MR. BOYD: We would certainly be concerned with any restriction that would require us to remove the four‑plus‑one U.S. services from basic, and in fact other services as well.
4123 You have to keep in mind the kinds of markets we serve. The demographics are quite different. It has affected our approach to digital. We essentially have a somewhat older demographic, lower income. We have lower cable penetration. We have smaller communities with lower density. And as I mentioned earlier, we have a higher propensity to use some of the illegal services.
4124 People get used to having things in a certain way. It has been a real barrier to us to try to push digital because people don't necessarily want a digital box in their home. They are quite comfortable with analog as long as it's a good signal.
4125 People will expect, based on our experience, that in digital it may be a different technology but they will still get mostly the same services that they have now. And if we start playing around with it, well, now you don't get the U.S. four‑plus‑one on basic or now you don't get say The Weather Network, or whatever. We know the reaction we are going to get.
4126 So I would be very cautious about forcing a change which is really unnecessary, in our opinion.
4127 COMMISSIONER ARPIN: In your submission ‑‑ and I'm referring you to paragraph 23 of the October 19th submission. And I'm stating you:
"In CCSA's view, the regulatory question is not which sector of the industry shall suffer for the benefit of another but rather how can regulatory adjustment best contribute to the growth of the industry as a whole and fulfilment of the promise of digital technology?"
4128 Could you expand on that statement from the perspective of the small cable operators? What are you trying to aim with that statement?
4129 MR. EDWARDS: I think the point here is that, like everybody else, small cable operators find themselves more and more facing competition from various unregulated platforms.
4130 Our point of view really is that the task at hand is not do you take from one side and give to another in the regulated system but rather how can the regulated system respond in a positive way to the competition it faces as a system?
4131 That goes back to, I think, that growing pie proposition that we've heard a couple of times. It's a question of looking for ways to improve the product offering that the customer receives and to improve the commercial opportunities that arise in the context of offering those improved products.
4132 COMMISSIONER ARPIN: I note that in that section you are also dealing with HDTV and the availability of HDTV signal for small cable systems on one end.
4133 Can you explain to us what are the main issues regarding HDTV? Is it a technological issue? Is it access? Is it cost? Is it all of those that are intertwined that are a problem for your members?
4134 MS TOWNSEND: It is all of those intertwined.
4135 Probably one of the key issues is access. It was interesting to hear ExpressVu or Bell talk about this yesterday; how they had resolved the problem really by allowing everybody to come pick up the signal at 151 Front Street.
4136 Well, that does not help our members who are in B.C., who are in Newfoundland. We need to be able to access those signals over satellite. However, the cost of doing that is prohibitive because the programmers are not paying uplink to either of the SRDUs. We have to pay additional costs for HD over and above the cost of the signal itself.
4137 So for small systems, they pay doubly. They pay the increased fee, the increased subscriber fee for HD, and if they are not able to interconnect and they need to get it over satellite they will pay an increased fee there as well.
4138 COMMISSIONER ARPIN: We will have an opportunity to deal ‑‑ unless you want to immediately deal with the issue of SRDU and interconnect where you are suggesting that you will be exempted from having to deal ‑‑ that your members have to deal with an SRDU, deal with whoever is able to provide them with the signal.
4139 I know that is what you are suggesting and you are requesting that you will be exempted of having to absolutely go through the mechanism of SRDUs and ‑‑
4140 MR. BOYD: One of the problems for our members is that because of the hit system and the digital authorization provided by Shaw Broadcast Services, virtually all of them rely on Shaw or Star Choice for their SRDU signals.
4141 The second issue is that that service offers a lot less HD services than ExpressVu does. ExpressVu has made that decision, a wise business decision on their part. They carry a lot more HD.
4142 Unfortunately, in our markets we have to compete directly with them but we can only compete to the extent that we can get those signals from Star Choice.
4143 Any opportunity for us to get signals elsewhere, either from a major MSO who is able to provide that feed via fibre, will help our offering. We essentially need the flexibility to get the signal anywhere it is available.
4144 The big MSOs have the great advantage, as Alyson was saying, that they can get direct access to the feed. So we have to pay to actually have it transported. We have to pay for the equipment to receive it on the ground, and then we have to put it out over our network. Our costs are already higher.
4145 If in addition to that it isn't even available at all, then we can't compete.
4146 Everyone knows these days that HD is the way of the future. The people in our markets are buying those big television sets, just like they are in Toronto, and they expect their little cable company to be able to provide the services.
4147 COMMISSIONER ARPIN: How are your members that are only making an analog offering able to compete with those HD services?
4148 MR. BOYD: Well, keep in mind that these are the very small systems that only have analog today. We are talking systems with less than a thousand customers in most cases and in some cases only a few hundred customers. They are struggling. There is no doubt about it that systems that small that can't go to digital, that can't introduce high speed Internet, are having a very, very tough competitive problem.
4149 The reality in the small cable business is that broadband service is keeping them afloat. Our broadband services are subsidizing our broadcasting services, subsidizing the upgrades on our network.
4150 And fortunately our entrepreneurial spirit of our members has allowed them to bring broadband into communities with two or three hundred people. They put a lot of effort into that, but that has allowed them to develop a two‑way plant.
4151 So many, many of them now have digital.
4152 But I totally agree with you. If you don't go digital, you are not going to be around.
4153 COMMISSIONER ARPIN: For long, at least.
4154 MR. BOYD: That's right.
4155 COMMISSIONER ARPIN: You also addressed in your oral presentation the whole issue of preponderance. We heard over the last couple of days the various approaches towards preponderance.
4156 I heard you this morning saying that preponderance is 50 per cent plus one services taken by subscribers. Others have been suggesting that preponderance should be 50 plus one offering and 50 plus one taken by subscribers.
4157 We also heard the CBC saying that really the real preponderance shall be much higher than 50 plus one; it shall be at least two‑thirds as a minimum taken by subscribers. And they were saying that there was no need to have a preponderance level at the level of the offering.
4158 What are your views about all those scenarios that have been put on the table so far?
4159 MR. EDWARDS: I think, first off, we like the dictionary definition of preponderance, which is really 50 per cent plus one. We don't really see the need for a much higher level, such as 66 per cent, or whatever is proposed.
4160 I think the fact of the matter is that BDUs are exceeding the 50 per cent plus one preponderance requirement by a great deal anyway.
4161 Certainly as we said in our remarks, we would be very concerned with any suggestion that preponderance be defined at the package level that is delivered to the customer. Because the current regulatory situation is a preponderance of services delivered to the subscriber we are content to live with that as the threshold as opposed to the offer.
4162 MR. BOYD: And maybe just one question you didn't ask that I think was raised the other day is whether the preponderance should include the basic service. In our case we might well have a bigger basic service with more specialty services on it. So we definitely want to see the preponderance measured at the full number of services the customer receives including basic.
4163 COMMISSIONER ARPIN: Well, thank you.
4164 Now moving, still talking about access and access rights ‑‑ well, I'm looking at your section that goes on from paragraph 183 forward where you are talking about carriage rules and packaging requirements and you are talking about the damage aspects of the current regulatory framework.
4165 And in using the example of Rogers Media Sportsnet service you are making the point that whenever a service achieves notoriety your members are losing all their ability to negotiate proper agreement. In case you don't achieve settlement your members could even lose their subscribers to DTH.
4166 What measures are you seeking from the Commission on these matters and what tools should we put in place at the Commission if we don't have it yet in our arsenal?
4167 MR. EDWARDS: I think the very key underlying proposition that we would put forward is that you need competition throughout the supply chain. We have said that for some time. And really, the kernel of the problem for us is the requirement to deal with a sole source supplier and when you are in that position and your ability to negotiate is effectively gone.
4168 And that's the reason we would support for instance either elimination or a great broadening of the genre protection rules, because our interest really is to see more than one supplier in the market and to see true competition at all levels of supply, ending we would say with a benefit to the consumer in the form of increased choice and lower prices.
4169 MS TOWNSEND: It is interesting that you have picked that example because that particular issue arises because of regulation. It arises because of dual carriage and modified dual carriage status. And that is one of our points, is that once there is a regulation that becomes part of the negotiations.
4170 COMMISSIONER ARPIN: But Sportsnet it was a modified dual licensee.
4171 MS TOWNSEND: Right.
4172 COMMISSIONER ARPIN: And my guess is that your members agreed to put it on basic when they launched because of the sports nature of the service.
4173 MS TOWNSEND: M'hm.
4174 COMMISSIONER ARPIN: And I know ‑‑ well, in a previous life I was responsible for a music service where I was displaced to allow Sportsnet to go on air. So I know ‑‑
4175 MS TOWNSEND: Hopefully not one of our systems.
4176 COMMISSIONER ARPIN: What you are saying today is that Sportsnet now has acquired notoriety, wants to get back ‑‑ now wants to move on the tier.
4177 MS TOWNSEND: M'hm.
4178 COMMISSIONER ARPIN: And while they wanted absolutely to be launched on basic when they got the licence even if they were not necessarily entitled to basic distribution, at least not through regulation and CRTC policy ‑‑ that was a matter of negotiation ‑‑ and so what you are saying today is that Sportsnet is telling you and your members, "You either put me on a tier as of September 1st or goodbye."
4179 MS TOWNSEND: That's right.
4180 MR. BOYD: Maybe I could just add?
4181 I mean, one of the reasons historically we have had a lot more services on basic is because you regulated basic rates. That levelled the playing field for our negotiations because we knew what the rate would be.
4182 So putting Sportsnet on basic was a pretty easy way to get a rate out of that. Obviously, they make a lot more money if they are on a tier because the rate goes up more than the percentage of the ‑‑ more than the percentage of the viewers' declines.
4183 We had the same experience with TSN when they changed their status from dual status to modified dual status. It was about money and that money came out of our pockets.
4184 So obviously we are quite concerned about our ability to negotiate. It hasn't come up yet but certainly any services that are designated for basic should still have basic rates. We believe that if you decide to put some specialty services on basic.
4185 But you know without ‑‑ even with CCSA, which is the negotiator, our small base makes it very difficult to deal with some of those services.
4186 MS TOWNSEND: And our point really ‑‑ Sportsnet was just an example, and the point is that you had said, "What could we do for you to provide you with protections?" Well, the odd thing that happens is those rules are manipulated in a way that was never intended.
4187 So if there is a level playing field to begin with, i.e. none of those protections there, the ultimate mechanism that you provide is an alternate dispute resolution mechanism which we are thankful for and we see being preserved and widened if anything.
4188 COMMISSIONER ARPIN: Have you ever used the ‑‑
4189 MS TOWNSEND: Yes.
4190 COMMISSIONER ARPIN: ‑‑ dispute resolution mechanism?
4191 MS TOWNSEND: Yes, as a matter of fact we were the very first to use it.
‑‑‑ Laughter / Rires
4192 COMMISSIONER ARPIN: Oh, I see. So you have acquired the experience already?
4193 MS TOWNSEND: We have.
4194 COMMISSIONER ARPIN: I will move now to fee‑for‑carriage.
4195 Obviously, your January 25th submission goes into strong argument, but when I'm reading your February 22nd reply you seem to have toned down your views regarding fee‑for‑carriage, particularly since you ‑‑ the proposal put forward by CTV and CanWest which is, I think, exempting small BDUs from fee‑for‑carriage payment seemed for you to be an appropriate reply.
4196 Am I summarizing properly your views?
4197 MS TOWNSEND: We have not softened our position. We ‑‑
4198 COMMISSIONER ARPIN: No, I heard that this morning as well.
4199 MS TOWNSEND: Yes, we were aware that this was going to be a huge issue for the larger BDUs and they have resources to commit to that issue that we are unable maybe to commit. So our key request here today is for an exemption order and we did not want to lose the focus of that.
4200 Fee‑for‑carriage we believe it's not the mechanism that should be used to provide an influx of funding to Canadian programming. And we are very strong on that point.
4201 MR. BOYD: And just on fee‑for‑carriage, for all BDUs we do not believe that that is necessary, that there is a problem that needs to be solved. And if there is such a problem that relates to Canadian programming that, as Rogers said the other day, that's not the most efficient way to do it.
4202 We have had a lot of input from our members in developing our submissions and preparing for these audiences and they mince no words in telling us, "Why should we who have lower profit margins than the broadcasters who are seeking these fees take off our bottom line and give to theirs"? They said, "They must be living in another world that they can't possibly believe that this is being entertained", given the number of co‑ops that we represent that have no profits and the number of companies that are supposed to be profitable that we represent that have no profits.
4203 COMMISSIONER ARPIN: Except co‑ops are structured in a way not to make any profit.
4204 MR. BOYD: Yes, exactly.
‑‑‑ Laughter / Rires
4205 COMMISSIONER ARPIN: They make profit and they have a problem.
4206 MR. BOYD: Yes.
4207 COMMISSIONER ARPIN: Well, they have to refund.
4208 MR. BOYD: Yes, but unfortunately if it was just limited to co‑ops it would be bad enough but the profit companies are having problems.
4209 COMMISSIONER ARPIN: So I want to seek your view on the CBC proposal that the fee‑for‑carriage be established based on ‑‑ well, the example they have used, they used the investment in Canadian drama and they divided it by the total number of BDU subscribers, that they did arrive to $1.53 per month and in their view all that money should be invested in doing more Canadian programming and reinforcing Canadian programming.
4210 Don't you see it as a proposal that makes television more attractive and beneficial for your members?
4211 MR. BOYD: I think we will all have a comment on the CBC proposal. Well, maybe I can start.
4212 And I will preface by saying I'm a huge fan of the CBC. I think it produces a lot of great programming. I think some of the private broadcasters could learn something from the public broadcaster.
4213 Nevertheless, the CBC is paid for by taxpayers at large. There is absolutely no reason that a subset of taxpayers, those that already pay for a lot of other things and make a lot of other contributions to the broadcasting systems, should have an extra tax on them.
4214 If for some reason in the wisdom of our legislators and in the wisdom of the CBC and the CRTC there is a need for extra funds for them, there is a very viable way of getting it. They have access to a third of the Canadian Television Fund which is set up and with all due respect to Shaw, I think, works quite well. And so put more money in there. But this is not the way to fund the CBC.
4215 MS TOWNSEND: I guess I would just draw your attention to the type of markets that our members serve. And these are small markets, tend to be older; older people, tend to be lower economic circumstances.
4216 If we are talking about another $1.50 for something that they already had I think that the companies that we represent simply can't absorb that. They would have to pass it on to their subscriber. If they pass it onto their subscriber chances are, as Chris said earlier in his remarks, they will vote with their feet whether it is legal or illegal.
4217 MR. EDWARDS: I think part of this issue comes about because what the Commission is doing is responding to a proposal from the conventional broadcasters. I was reviewing the notices that have been issued in this proceeding last night and I noticed the statement in 2007‑10‑3 which introduced this question back into this proceeding. And the question is:
"...whether the payment of a fee by BDUs is essential for the ongoing viability for conventional television stations and their ability to fulfil regulatory obligations." (As read)
4218 MR. EDWARDS: With respect, I think that question gets a bit ahead of itself. It seems to me that the question should surely be first of all: Is there an issue with the conventional television stations being commercially viable and being able to meet their regulatory obligations?
4219 And then it follows if that is the case, then the next question must be: What is the best response for the Canadian broadcasting system to respond to that?
4220 But what the question as framed in this proceeding has been is it has leapt to the conclusion that it's the BDUs that should be paying for that, and I think that's where we have a tremendous issue.
4221 COMMISSIONER ARPIN: And if someone has to pay, if it's not the BDUs who should it be?
4222 MR. EDWARDS: I think the first stage in the process is to assess the criticality of the problem and decide whether there is a problem that requires a response. And then I think ‑‑ and really, I think as the Dunbar‑Leblanc Report suggested, then you look at the broadcasting system as a whole and assess the various possible options.
4223 MS TOWNSEND: The real movers behind this particular issue and the largest proponents of it appear to be Global and CTV which are huge companies that are vertically integrated and have all sorts of other areas of profitability. When you ask the question, as Chris said, the threshold question is: Is it broken? And then if it is and somebody needs to pay, it seems to me that they have more funds certainly than the small systems do.
4224 MR. BOYD: And just one maybe final comment on this in terms of if somebody needs to pay who should it be, I think you have to say if somebody needs to pay ‑‑ if the broadcasters are having problems they need to look at their own businesses the same as we do all of the time on our side. There are obviously new revenue opportunities that have been discussed here. There are the bidding wars for U.S. programming. There is the popularity of their programming for advertising and their ability to track the advertising.
4225 I think if you give them a fee‑for‑carriage you are only going to postpone the inevitable for them, for in five years' time we will be back looking for something else. It will postpone them having to review their business models and make the kind of decisions that everybody else does in a competitive world.
4226 COMMISSIONER ARPIN: Now, I know that you have members in Quebec so you are suggesting here that CTV and Global appear to be the prominent leader in the quest for fee‑for‑carriage but TVA and TQS are making the same quest.
4227 And so since you have francophone members and small cable systems in Canada do you have a different view regarding ‑‑ because in the case of ‑‑ I think everybody is aware that TQS is not doing that well these days since they have been put under the protection of different creditors. So it means that things are not doing all that good.
4228 Are your replies the same?
4229 MS TOWNSEND: Well, I think that in connection with who should pay the systems that we represent in Quebec are very tiny, very small. They are certainly not the dominant players in the Quebec market. And any fee that those networks would get from our members would not be of any huge assistance. It would be minimal.
4230 COMMISSIONER ARPIN: So you should not count only on the fees coming from these BDUs.
4231 MR. BOYD: Only if they need coffee money, I think.
‑‑‑ Laughter / Rires
4232 MR. EDWARDS: I don't think the principles change, really.
4233 COMMISSIONER ARPIN: It's a matter of principle.
4234 Now, you have already dealt with genre exclusivity in your submission. You are saying it is an anticompetitive and protectionist measure and you say that it is a limit to the ability of new digital entrants to launch exciting new content options.
4235 First, what evidence do you have to support that statement, the one that I am finding in your paragraph 154 which says:
"Genre exclusivity functions today as a limit to the ability of new digital entrants to launch exciting new content options." (As read)
4236 MR. BOYD: Start with that.
4237 It may in fact be somewhat of an overstatement when you see the number of Category 2s that have been licensed and particularly those that have launched. But certainly the fact that they are excluded from the genres that currently exist for the most popular and most financially successful services keeps them out of those current niches and prevents them from obtaining that revenue. So they are certainly not going to have the ability to be as financially strong.
4238 The second thing I would say about genre protection, while we said in our submissions that we would like to see it eliminated entirely, you know there has been a proposal from Rogers and Bell to have broader genres. That's certainly a step in the right direction; sports, news, drama, children's. We can support that as well.
4239 COMMISSIONER ARPIN: So this was my next question.
‑‑‑ Laughter / Rires
4240 COMMISSIONER ARPIN: So go ahead with your comment.
4241 MR. BOYD: And further to that I think that, you know, as long as there is three or four options.
4242 Take sports for example. You have allowed some of the sports services to evolve within their genre. You moved the score from not being allowed to have live programming to now they can. But the problem is that it creates certain aberrations. Now, you have games on the score and they have to interrupt them every 15 minutes to do something else because that's a condition of their licence. So it seems to me you end up with some artificial irritants not just to BDUs but to customers by trying to maintain these.
4243 Why not have three sports services that can all compete with each other and at least then we have those three services to negotiate with? Hopefully we will have deals with them all. But at least we are not being kidnapped by them one at a time because they are the only one in their niche.
4244 So again, I think we could support the Rogers' proposal. We leave you to come up what they would actually be. There is probably six or eight rather than just five or six. But we need to go in that direction.
4245 MR. EDWARDS: I think always with a view to the fact that more and more over‑the‑air alternative platforms, particularly the internet, these types of content are becoming available to consumers in ways that are attractive to them, and you need to bear that in mind.
4246 COMMISSIONER ARPIN: Now, Rogers and a few others did say that the Commission should keep assisting foreign services before allowing them to come to Canada and keeping in mind the current genre structure and consideration.
4247 Do you have any ‑‑ what are your views on that?
4248 MS TOWNSEND: We have a different proposal to make. It is similar but different, and I know that from listening yesterday it appeared that the Commission was seeking something that might be a little bit more of a test that could be used of when should a foreign service be granted a place on the eligible satellite list?
4249 What we would propose is that it be based ‑‑ because it is a rights issue; it's a protection of Canadian rights, that the issue should be identical programming. And the Commission could set whatever percentage they thought was reasonable. Maybe it's 20 percent, maybe it is 30; maybe it's something else. But if there is identical programming on the applicant's foreign service then they would not be granted eligibility.
4250 That would also resolve the Commission's concern about a morphing service. What if a foreign service gets on the eligible satellite list, changes into something else? Well, there would be a very real test by determining: What is the overlap in the services in the programming that is offered?
4251 So then the final comment on that is that we would really like to see the foreign services contribute to the Canadian broadcasting system through the dispute resolution mechanism. We have had issues with foreign services previously and there is really no ‑‑ there is no avenue of redress. And so it would be our submission that foreign services should be subject to dispute resolution.
4252 MR. EDWARDS: This is an area where we have come to Commission staff on occasions before and asked for help in dealing with the U.S. services, particularly with respect to the migration issue. And the answer generally is, "We just can't do that."
4253 So we feel it is very important to have the foreign services subject to dispute resolution. We have cast it in a manner that we tie it back to section 5.2 of the Act and the point there is there are some criteria regarding support to technological advancement and the system, not hampering where the system is trying to go, that could be useful tests.
4254 The other point to this perhaps is that I just wanted to point out that the U.S. services in particular are very resistant to migration because they are very concerned about setting a precedent for their domestic operations. And to the extent that the Canadian regulator imposes rules that are different from what applies in the U.S. they have some ability to justify acting differently in the Canadian market from their domestic markets. And that may be helpful to us.
4255 COMMISSIONER ARPIN: And I know that in your submission while you are talking about digital migration and the issues regarding foreign services, you also are saying that you have more issues with foreign services on the matter of digital migration than the MSOs will have. Do you know why?
4256 MR. BOYD: Maybe, to start with, in your digital migration decision you actually had a separate set of rules for small systems which I believe were designed to ensure that we can more easily make that transition to digital because we need the capacity more and that sort of thing.
4257 So the main issue that comes out of that, those rules really don't do us any good. We don't need consent but we have to do the mirroring and if you can't get the parties on that tier to agree to be on the digital one then you can't mirror it.
4258 With the large companies their approach to digital is somewhat different. They have a lot more capacity. They don't mind keeping some of those services on analog and they also have the same service on maybe three different times because they have a duplication of services and then they have theme packs. So as a customer you have more opportunity to get at the way you want it.
4259 On our systems we by and large have a service only on once. We offer it one way and it's in either analog or digital but certainly not both.
4260 MR. EDWARDS: We have some small systems. I'm thinking of an example up around Lac‑Megantic in Quebec that have gone digital only or were created digital only and there are U.S. programming services that for two years now and still will not permit digital‑only distribution on those systems, despite the fact that there is not even any question of loss of subscribership between analog or digital subscribers. They just won't permit it.
4261 And the answer to the question on that side really is just fear. The American programmers don't want to go there.
4262 MR. BOYD: Another thing on migration that I thought of ‑‑ we haven't mentioned in our submission ‑‑ the current rules require a system to come in and apply to go 100 percent digital for some reason. I have no idea why, because if you go 100 percent digital you could still have the same subscriber base that you had in analog.
4263 It seems to me that's sort of ‑‑ I don't want to use the word ridiculous but it seems that it's an unnecessary step in this process. Some of our members actually foresee doing exactly that. That's the easy way to get there, to create a lot of capacity and not have to rebuild the system and if they can afford to subsidize the boxes to treat everybody fairly in the system.
4264 So that's certainly an example of unnecessary regulation on the digital migration issue.
4265 COMMISSIONER ARPIN: So that you will want to be covered in your exemption order?
4266 MR. BOYD: Yes, you can add that in.
4267 COMMISSIONER ARPIN: The issue with foreign services that you have, are your counterparts in the U.S. having a similar problem?
4268 MS TOWNSEND: I don't know. I suspect that they are. I don't have any real knowledge of their contractual negotiations but I do know that the reason for the foreign services refusal to go digital is their concern about what will happen in their domestic market. So I would guess that our counterparts are having a problem.
4269 COMMISSIONER ARPIN: Okay. Well, now we will move to my last section which is the advertising issues that you have raised or others may have raised.
4270 You have suggested in your submission that small cable will be authorized to do targeted insertion ads in VOD programming and that you allow your members to move towards ‑‑ that will allow your members to move towards a digital platform. And I earlier this morning read to the CAB an abstract of the submission made by A&E on how they are doing it in the U.S.
4271 Are you contemplating similar ‑‑ being such a content aggregator yourself?
4272 MS TOWNSEND: Not at this point in time. We are dealing with a content aggregator in the U.S. But on the issue of advertising in general we would like the ability to advertise.
4273 And just breaking it down into the categories there is the ad avails which in our systems right now are not being used because our members cannot afford the ad insertion equipment. So to allow them to sell some local ads could allow them to purchase this equipment.
4274 That would also solve another problem that I don't know whether the Commission is aware of. I know that staff is aware that because we ‑‑ our members receive 4+1 signals from Shaw's Star Choice they actually do use the ad insertion and they advertise Star Choice. So our member companies are in the position of paying for 4+1 and at the same time advertising their competition which understandably they find not satisfactory. So if they were able to sell some local advertising to purchase the ad insertion equipment they could resolve that problem.
4275 Then there is the community channel. We would like to be able to sell some ads to fund local programming for the community channel.
4276 VOD same thing; if we were able to sell some ads in order to recoup the costs that would be great. But we are not talking ‑‑ when we heard CAB talk about the fragmentation of the market, the place that we will sell ads, our members will sell ads is to Joe's muffler shop which is not going to fragment the national market. We are just talking about some ways to subsidize and be creative and provide the local programming that the customers want.
4277 So I don't know if that answers your question about VOD and I know that there are some concerns around A&E and the difficulty of stripping ads out.
4278 Do you want to talk about that, Chris?
4279 MR. EDWARDS: I was just going to directly answer part of the question which is that CCSA is certainly not currently planning to be a content aggregator for its members. We are using the services of content aggregators out of the United States. We have a commercial contract with one of those.
4280 And that takes us to the issue that Alyson was just raising, and it's an important one to us. And that is the requirement that advertising in VOD services, the embedded advertising, the advertising that's already been shown on a Canadian programming service and was done with the agreement of the programmer ‑‑ and the CAB was referring to Wightman's application earlier this week and the rules set out in that. The problem that creates for us is that if we want to take VOD content from Arts & Entertainment and, say, get it through the content aggregator that pitches it up from the United States, then A&E has embedded advertising in that product and the difficulty then becomes, to meet the current rules, that advertising must be stripped out of the VOD content before we can show it and that means either we have got to strip the content out or A&E has got to strip it out before it is pitched up to the content aggregator.
4281 And certainly, in our situation, we are not that powerful a commercial proposition for Arts & Entertainment to justify stripping out advertising content before they deliver the signal. So the result of that is we don't get the content, we can't do the deal, and that is a serious issue for us in getting our content.
4282 COMMISSIONER ARPIN: If as a matter of policy the Commission was to come up with a determination that will allow ads in VOD, in your view, could there be a Canadian content aggregator, and if there to be Canadian aggregators, do you think your members could do with the business with the Canadian ones, not necessarily with the U.S. aggregators?
4283 MS TOWNSEND: I think that it would be terrific if a Canadian aggregator came forward.
4284 One of the difficulties in VOD for our members, that is not an issue for Rogers and Shaw, is encoding and the aggregator that we deal with in the U.S., that is part of what they provide, is the encoding.
4285 So if that service was available in Canada, and actually we are even having difficulty getting Canadian content on VOD, and if they had the deals, that would save us a lot of problems because you can imagine, as very small systems and a very small number of VOD subscribers initially, we are not dominant in the market by any stretch of the imagination.
4286 COMMISSIONER ARPIN: And are the U.S. content aggregators only providing their service to small cable systems or ‑‑
4287 MS TOWNSEND: No. No.
4288 COMMISSIONER ARPIN: So they are operating on a regional basis, I guess?
4289 MS TOWNSEND: That is right. They are operating ‑‑ they will offer their services to anybody but we need them more than anybody else because they do the encoding.
4290 COMMISSIONER ARPIN: Yes, which obviously, the MSOs could do by themselves ‑‑
4291 MS TOWNSEND: Exactly.
4292 COMMISSIONER ARPIN: ‑‑ but they would more than likely also prefer having a third party doing it for them because it is more players.
4293 MS TOWNSEND: Mm‑hmm.
4294 COMMISSIONER ARPIN: Now, you are also requesting the right to sell local avails. There have been various submissions put forward before the Commission. Obviously, we heard the CAB, no, but we heard other intervenors saying yes, but a portion of the revenues could go to programming funds.
4295 What are your members thinking of doing if we were to approve local avails?
4296 MR. EDWARDS: I think it is important to note that our members, first of all, aren't expecting to be making a lot of money with the local avails.
4297 I think what they are doing is looking for a way to make the capital expenditures associated with ad insertion viable. They want to be able to create a business case for buying ad insertion equipment and starting to do that activity.
4298 One of the primary reasons for that goes back to what Alyson was saying about the fact that we have got embedded Star Choice advertising in the streams we are taking and that is a serious problem for our members.
4299 So I don't think there would be a categorical no to the idea of some portion of that being contributed to programming but maybe Harris could pick up on that.
4300 MR. BOYD: As Chris said, we are not talking about a great deal of money here. We actually only have three companies that can do ad avail insertion because we have never been able to afford to buy the equipment and this is a very valuable tool that we have been missing out on, even with the current rules because cable companies right now can use 25 percent of them to promote their own services, including telephone and internet. So it is a very good marketing tool.
4301 The second part of it, the 75 percent allows the programmers, the Canadian programmers, to have their services promoted but they have to pay, on a cost‑recovery basis, a rate card of the cable company or the DTH provider. If you look at those rate cards, they are actually quite lucrative and that equipment has been paid for many times over.
4302 If you look at our markets and you talk to the programming services, they are not particularly interested in developing ads to promote their services in our market. So it hasn't been possible to have a rate card that would ever pay for the equipment. I mean if you have a million subs like you do in Toronto and the same head‑end equipment that we have on a 10,000‑sub system, you can imagine what our rate card would look like.
4303 What we need is some source of revenue to make this viable. Even if you say, you should continue to promote Canadian services, there should be some restrictions, the issue really is to get into this business at all. So I don't think there will be enough revenue to actually share but it would be nice if over the long run, even over a 10‑year amortization period, there was enough money to pay for the damn equipment. Excuse my French but ‑‑
4304 MR. EDWARDS: I think another aspect of this that certainly I think about is that there is a property right that we get value for in our U.S. contracts and it is a shame not to be able to use it.
4305 I also wanted to cycle back briefly on the VOD advertising question and particularly on CAB's assertion that somehow BDUs should not be entitled to advertising revenues from that activity and that the programmers should have it.
4306 The first proposition would be that I think, like Rogers and others, there has never been a question but that revenue‑sharing would occur with the person who is providing the content. I don't think that is an issue.
4307 But the point I wanted to pick up on is CAB's assertion that somehow BDUs should not be entitled to any VOD advertising.
4308 The point I wanted to make is that VOD undertakings are separate licensees. They are not BDUs. They are their own kind of undertakings and it happens to be that BDUs have made the investment in the capital to create the distribution systems that run VOD but really anybody could do that, I think.
4309 So I don't, I guess, buy the argument that a VOD undertaking is a BDU and therefore just a distributor and therefore not entitled to revenues. And in fact, CAB said this morning, a VOD undertaking is becoming more and more like a programming undertaking. So I just wanted to make that point.
4310 COMMISSIONER ARPIN: My last thing is a request. I think we discussed earlier you providing us with a list of your members, with the number of analog subscribers and digital subscribers, and I know that you have provided us with your February submission a list. That is your Appendix A. You have a long list of all your members by territory that they are serving and you are telling us those who are exempt and those who are not.
4311 Using the same list, could you provide us with the number of their analog and digital subscribers and ‑‑
4312 MR. BOYD: Could we do that in confidence, Mr. Arpin?
4313 COMMISSIONER ARPIN: No. My next question is could it be put on the public record?
4314 MR. BOYD: It is competitively sensitive in terms of how large a digital offering our members have because we are competing with 100‑percent digital DTH providers. So I think on a system‑by‑system basis there would be some sensitivity.
4315 MS TOWNSEND: We could do it on an aggregate basis.
4316 COMMISSIONER ARPIN: On?
4317 MS TOWNSEND: Aggregate basis.
4318 COMMISSIONER ARPIN: On an aggregate basis?
4319 MS TOWNSEND: Yes, we have that information easily available.
4320 COMMISSIONER ARPIN: Aggregate? Okay, we will take it ‑‑
‑‑‑ Laughter / Rires
4321 COMMISSIONER ARPIN: ‑‑ on an aggregate basis.
4322 MR. EDWARDS: Can I clarify just exactly what was asked for there?
4323 COMMISSIONER ARPIN: The number of analog subscribers versus digital subscribers by members on an aggregate basis. Now, I will accept confidentially that it be broken down.
4324 So for the public record, we will put the aggregate numbers, but for the Commission to have it broken down by system and we will take it under confidentiality.
4325 At least I made the ruling. I hope my colleagues are supporting my ‑‑
‑‑‑ Laughter / Rires
4326 COMMISSIONER ARPIN: Thank you very much, Mr. Chairman.
4327 MR. BOYD: We will respect your ruling.
4328 THE CHAIRPERSON: Ron, you had a question?
4329 MR. EDWARDS: I would just note you do have on file some presentations we have done for the annual industry briefing in January that I think do give you some sense of the penetrations of digital by class, in case that is helpful to you.
4330 THE CHAIRPERSON: Okay, Ron.
4331 COMMISSIONER ARPIN: Thank you, Mr. Chairman. Those were my questions.
4332 THE CHAIRPERSON: Thank you.
4333 COMMISSIONER WILLIAMS: Welcome.
4334 How important is the community channel to your membership? Is the channel being utilized as a strategic marketing tool, something you have that your competitors don't have?
4335 Many of these small communities, I imagine, don't have a daily newspaper, so I guess that is one way to spread some information around.
4336 Can you tell us a bit about the community channel and then maybe a bit about alphanumeric channels, using the ability to provide classified ads or something, as a product differentiator between your type of system and your competitors?
4337 MS TOWNSEND: I can deal with the community channel part and then possibly Harris can pick up where I leave off.
4338 But it is crucial to our member companies, the community channel, both as a competitive thing but also for what they can provide back to their community.
4339 There is a great story and I love to talk about where we did a call across Canada to try to figure out what were the key things to our members that they wanted us to talk about in a regulatory venue and community channel was one of them.
4340 I was speaking with this gentleman in Newfoundland who has a small, small system in Newfoundland and he said, you know, everybody here at noon hour closes their business and goes home and then they come back at 1:00 after their noon hour. But, he said, if you go into any house in that town in Newfoundland, they are all watching the community channel. They are not watching the come‑from‑away television shows, they are watching the community channel.
4341 So that is how those communities stay together, whether it is local hockey. I know one of our larger members, Access, uses their community channel to do a lot of fundraising and they have received awards for that. So it is not only a competitive advantage, it is a part of who they are.
4342 MR. BOYD: I can't resist saying a few words about the community channel because I hold it in the same high regard that I do the CBC. It is very, very important.
4343 We are in many, many communities where there is no local television broadcaster and sometimes there isn't even any local radio, and as Commissioner Williams said, sometimes there isn't even a daily newspaper. So we do play a vital role.
4344 Had the community channel not been removed from this hearing, we actually had a lot of suggestions for you in terms of how flexibility for the community channel could be improved so that it would have greater ability to operate and to develop more programming.
4345 One of the issues with our smaller systems that have community channels is the 5 percent of gross broadcasting revenues isn't very much because they don't have that high revenues. So you take the 5 percent and you don't get a great deal to spend on programming. They would like to do a lot more, they have a stable of volunteers and they do believe it is very, very important.
4346 So sharing finances when you have multiple community channels within a small cable company would be useful. Broadening the definition of what actually is local programming would be useful because, you know, in many regions ‑‑ I am from the Maritimes. Often, New Brunswick is considered an entire community and certainly what goes on down the road is just as important as what happens in your own town.
4347 So we need more flexibility for the community channel, we need more funding, but at the end of the day, our gross broadcasting revenues aren't going to grow very much, so a little bit more flexibility in advertising on the community channel, as we just mentioned, would be helpful.
4348 In terms of alphanumeric channels, our larger members do have such alphanumeric channels either for tourism purposes, real estate purposes, certainly, special purpose channels, and they are a source of revenue for those companies and by and large they are still either running them on analog or they have moved up to digital if they have sufficient digital penetration. So they are a useful tool.
4349 Hopefully, in the long run, when the digital transmission allows us to have a lot more channels, there will be more room for that. It is just that at the moment we don't have a lot of extra channel capacity that we can use for that purpose as long as we are still largely embedded in analog. But I totally agree with you, it is a very useful thing to do.
4350 THE CHAIRPERSON: Thank you.
4351 COMMISSIONER KATZ: I just have a quick question.
4352 Can I get confirmation or clarification that the issue of traps goes away when we are all digital, it is all gone?
4353 MR. BOYD: Yes. There are no traps in digital because you have the ability to turn services off and on at the level of the individual subscriber.
4354 COMMISSIONER KATZ: Thank you.
4355 THE CHAIRPERSON: Okay, well, thank you very much for your very extensive presentation.
4356 I think that is it for today, Madam Secretary. Do you want to make some announcements?
4357 MS TOWNSEND: Thank you very much.
4358 THE SECRETARY: Yes, that is the last presenter for today. We will resume tomorrow morning at 9:00 with the presentation by Telesat Canada.
4359 Thank you, Mr. Chairman.
‑‑‑ Whereupon the hearing adjourned at 1300, to resume
on Friday, April 11, 2008 at 0900 / L'audience est
ajournée à 1300, pour reprendre le vendredi
11 avril 2008 à 0900
Johanne Morin Monique Mahoney
Jennifer Cheslock Fiona Potvin
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