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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 14, 2008 Le 14 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 14, 2008 Le 14 avril 2008
- iv -
TABLE DES MATIÈRES / TABLE OF CONTENTS
PAGE / PARA
PRESENTATION BY / PRÉSENTATION PAR:
Cogeco Câble 933 / 5236
Pelmorex Communications Inc. 1010 / 5653
Score Media Inc. 1094 / 6113
Canadian Media Guild 1130 / 6315
Coalition of Internet Service Providers 1150 / 6429
Gatineau, Quebec / Gatineau (Québec)
‑‑‑ Upon commencing on Monday, April 14, 2008 at 0900 /
L'audience débute le lundi 14 avril 2008 à 0900
5230 THE CHAIRPERSON: Good morning.
5231 Madam Secretary, whom do we have today?
5232 LA SECRÉTAIRE: Merci, Monsieur le Président.
5233 Bonjour à tous.
5234 Nous procéderons ce matin avec la présentation de Cogeco Câble. Monsieur Louis Audet va nous présenter ses collègues, après quoi vous aurez 15 minutes pour votre présentation.
5235 Monsieur Audet.
PRÉSENTATION / PRESENTATION
5236 M. AUDET : Merci, Madame.
5237 Cette présentation sera livrée à la fois en français et en anglais.
5238 This presentation will be delivered In French and in English.
5239 Monsieur le Président et Conseillers, bonjour.
5240 Merci de nous donner l'occasion de vous donner le point de vue de COGECO Câble à l'occasion de cette importante audience sur le système de distribution.
5241 Mon nom est Louis Audet, je suis le président et chef de la direction de l'entreprise.
5242 Maître Yves Mayrand, vice‑président affaires corporatives est assis à ma droite et maître Lori Assheton‑Smith, une avocate en droit des communications bien connue du Conseil et qui nous a aidés dans la préparation de nos mémoires, est assise à ma gauche.
5243 Nous allons parcourir, au cours des 15 prochaines minutes, les questions auxquelles vous nous avez demandé de répondre dans notre présentation.
5244 Il va sans dire que nos mémoires comportent un exposé à la fois clair et plus détaillé de nos points de vue sur ces questions. Donc il est facile de s'y référer.
5245 This proceeding, as we understand it, is about change, change from prescriptive regulation to greater reliance on market forces, change from ex ante protection to exposed remediation on actual as opposed to potential problems, change from empowerment of a few large integrated broadcasters to empowerment of program end users, change from more to less regulatory arbitrage and cross‑subsidization for the benefit of selected players and their shareholders.
5246 Some of the parties appearing before you are trying to turn the objectives of this proceeding into the exact opposite. Please do not allow the thrust of this proceeding to turn into the preservation of the status quo with a few cosmetic touch‑ups or, worse even, an exercise in new or more prescriptive regulation.
5247 Cogeco Cable is routinely lumped together with other large integrated Canadian BDUs for regulatory purposes. I should point out from the outset a few key differences.
5248 First, we are pure cable telecommunications company with absolutely no ownership or financial involvement in any specialty program service or any other competing content distribution technology such as direct to home satellite or such as cellular phone.
5249 We serve only parts of two provinces, namely Ontario and Quebec. We have a non‑dominant position in these broadcasting distribution markets and lastly we compete head to head with larger integrated BDUs as well as incumbent telephone companies for customers, human resources, capital and content.
5250 Our success depends on delighting our customers every day of the year, and since our shares are listed on the Toronto Stock Exchange, we must publicly report to our shareholders every quarter to share our results and receive reactions and just listen in to our quarterly conference calls with analysts and see that any characterization of our business as a cozy monopoly or an oligopoly is utterly disingenuous.
5251 Il y a bientôt deux ans, nous avons fait l'acquisition d'une entreprise de télécommunications par câble au Portugal et là aussi, tout comme au Canada, nous n'avons pas de position dominante et nous sommes en concurrence féroce avec les grandes entreprises établies, tout comme au Canada également.
5252 Ceci nous permet de comparer les cadres réglementaires des deux côtés de l'Atlantique. En Europe, on préfère nettement se fier aux forces du marché lorsqu'il est question de communications électroniques, y inclus la câblodistribution.
5253 Les services portugais sont distribués tout aussi bien par tous les distributeurs, sans réglementation détaillée a priori.
5254 Je vais maintenant passer la parole à mon collègue Yves Mayrand qui va vous parler des principes directeurs qui nous apparaissent importants.
5256 Me MAYRAND : Merci Louis.
5257 We have put forward for your consideration a balanced, fair, transparent and effective updated framework based on eight fundamental principles.
5258 First, a preponderance of Canadian services.
5259 Second, a standard minimum basic service with a buy‑through requirement.
5260 Third, the continued carriage of minority language services.
5261 Four, the maintenance of a distinct Canadian rights market.
5262 Five, continued financial contributions to Canadian programming.
5263 Six, a stronger undue preference rule, both for BDUs and for discretionary services.
5264 Seven, improved reporting and disclosure by licensees, particularly where market power and related party transactions are involved.
5265 And eight, a more effective, transparent and fair dispute resolution process.
5266 Notre proposition de cadre de réglementation comporte également une seule classe d'EDR assujetties aux licences avec le même ensemble de règles communes, quelle que soit la technologie de distribution utilisée.
5267 Toutes les autres EDR seraient exemptées de licence au moyen d'une seule ordonnance d'exemption.
5268 Dans notre premier mémoire, nous avons produit en annexe un modèle de règlement qui montre précisément comment le nouveau cadre de réglementation peut être mis en place. Notre modèle démontre qu'il est possible d'alléger le règlement actuel de manière importante sans compromettre aucun des principes fondamentaux.
5269 We fully support a requirement that BDU customers receive a preponderance of Canadian services. While we do not see the need for adding a further preponderance test for services offered to but not actually received by the customer, we are not opposed to this proposal.
5270 We do, however, strongly object to the notion that services carried on the basic tier should be excluded from the preponderance calculation.
5271 We also disagree with a proposal that each package should have a preponderance of Canadian services. These proposals would only serve to unduly restrict customer choice.
5272 We also fully support the maintenance of a basic tier with a standard minimum set of services comprising that tier irrespective of the distribution technology used by the BDU. However, we strongly disagree with the idea that the basic tier should be limited to Canadian services only, whether in analog or digital.
5273 The idea of an all‑Canadian services basic tier was floated around more than 30 years ago, before the adoption of the first distribution regulations. It was never implemented by the Commission or its predecessors in the successive versions of the regulations. The reason is very simple. Basic service customers in Canada have always had U.S. network signals in their basic service package since the first beginnings of cable in 1949. Canadians have grown up with these signals, and if we try to take them away we will likely face the worst consumer revolt in the Canadian broadcasting system's history.
5274 If the Commission is at all serious about reliance on market forces and recognizing the autonomy of consumers, then BDUs must be allowed to compete on the size, service diversity and pricing of the basic tier. The only thing you need to ensure, in our view, is that all licensed BDUs carry the same minimum set of mandatory Canadian television services including 9(1)(h) services.
5275 In our written submissions we advocated for the elimination of all existing access rules. Having listened to the discussions over the past week, we remain of the view that there should be no guaranteed access for pay and specialty services other than 9(1)(h) services, of course. We note in this regard that Canada appears to be the only country in the world that mandates access for discretionary services. In light of the market incentives to carry as many services as possible, the access rules clearly go well beyond what is required to achieve the objectives of the Broadcasting Act.
5276 Category 2 services, for example, are continuing to receive carriage and their businesses have grown without the benefit of access rules applicable to analog and Category 1 services.
5277 Toutefois, si le Conseil se préoccupe du traitement des services indépendants ou de la possibilité de transactions non à distance par les EDR qui ont des services de programmation apparentés, nous vous représentons que ces préoccupations seront mieux gérées au moyen d'une application rigoureuse des règles sur les préférences injustifiées et, lorsque nécessaire, d'une ordonnance de distribution sous l'article 9.1.h.
5278 Bien que nous ne voyions pas la nécessité d'avoir des mesures de transition, si le Conseil se préoccupe de l'incidence du retrait immédiat des règles d'accès, nous sommes disposés à appuyer un modèle qui prévoirait que les droits d'accès des services analogiques et de catégorie 1 actuels seraient préservés sur toutes les EDR titulaires de licences jusqu'au 31 août 2011.
5279 With respect to the issue of genre protection, we believe that the Commission should eliminate genre exclusivity for all Canadian discretionary services. The current system of protected formats is not sustainable. It has also clearly outlived its stated purpose, which was the successful deployment of Canadian discretionary services.
5280 Using broader categories would not change that basic reality and would only serve to perpetuate, in our view, unnecessary regulatory protection for large integrated Canadian broadcasters and their shareholders. What is truly important for the Canadian broadcasting system is the preservation of a distinct Canadian market for program rights. Non‑Canadian programming services should be allowed for distribution by Canadian BDUs on the condition that they not acquire or hold exclusive rights for the broadcasting distribution of programs in Canada.
5281 On the question of new advertising revenue opportunities, we believe that BDUs should have the flexibility to insert advertising on the VOD platform and on the avails of U.S. specialty services. While the ability to insert targeted advertising on linear channels is still a ways off, we think this technology holds substantial promise for increasing the value of advertising content and for keeping advertisers in the Canadian broadcasting system.
5282 In all cases and on all platforms we believe that the ad insertion process is a manner of commercial negotiation between the program rights‑holders and the BDUs.
5283 Après réflexion sur les représentations faites au cours de l'audience, nous proposons que les EDR titulaires de licences soient autorisées à vendre ou utiliser 50 pour cent, la moitié des occasions publicitaires sur les services spécialisés américains, et que l'autre moitié soit utilisée pour les promotions des services canadiens de programmation spécialisée indépendants.
5284 On ne devrait plus accorder de privilèges spéciaux aux groupes canadiens de radiodiffusion qui contrôlent un portefeuille de services de programmation ou encore leur propre plateforme de distribution de radiodiffusion et qui ont, par conséquent, les moyens de faire leur propre promotion sans l'aide des autres intervenants du système.
5285 In a more streamlined regulatory environment there should be greater reliance on a fair and efficient dispute resolution process. We therefore support a strong rule against undue preferences or disadvantages applying to both BDUs and programming service suppliers, together with a more effective and transparent process for dispute resolution.
5286 There is no reasonable justification for having a less effective, efficient, transparent and timely disposition of disputes under the Broadcasting Act as compared to under the Telecommunications Act. This entails, in our view, that there must be clear evidentiary rules supported by improved disclosure of material information from parties with market power and integrated activities and that the ensuing decisions of the hearing Panel must be clearly motivated based on the evidence on record.
5287 On the matter of contributions to Canadian programming, some say that BDUs should be called upon to contribute even more money to Canadian programming than what is presently the case. We take great issue with this suggestion.
5288 When you calculate the total of what the BDUs paid to Canadian discretionary services, spent on Canadian community programming and remitted to Canadian programming funds in 2007, based on the Commission's latest published statistical and financial summaries, BDUs are already the largest financial contributors to Canadian programming overall, spending over $2 billion annually. This contribution is growing with each passing year as a result of increasing revenues derived from broadcasting distribution activities.
5289 Finally, on the issue of fee for carriage for conventional over the air television signals, we submit that the record of this proceeding completely fails to demonstrate that such a hefty new charge payable by all Canadian cable and satellite BDU customers is actually required in the circumstances, that consumers are willing to pay for it or that the proceeds of such a charge will truly benefit Canadian program production in exhibition in the end.
5290 In fact, the Commission's statistical and financial summaries show very clearly that the real issue is a disproportionate increase in the spending of conventional broadcasters on the acquisition of foreign programs.
5291 In 2007 Canadian private broadcasters spent almost $722 million on foreign programming, representing an increase of 4.9 per cent over 2006, while their spending on Canadian programming decreased by 1.2 per cent, to $616 million.
5292 A new tax on all cable and satellite customers across Canada will not solve that problem. It will only compound it and it will put at risk the 2 billion‑dollar pipeline from broadcasting distribution that feeds Canadian television program production and exhibition.
5293 In today's broadcasting system, conventional over the air television services are essentially integrated with discretionary programming services within four large public and private media groups: CBC, CTV Globemedia, CanWest Global and Qubecor. These groups already get the lion's share of the more than $1.8 billion in affiliation payments made by Canadian BDUs in 2007 to Canadian programming services out of subscriber fees. These payments are increasing with each passing year.
5294 It is therefore no longer appropriate to look at conventional TV in isolation and irrespective of the groups' overall performance from television activities. These four large media groups, who are the main advocates of a new tax on all cable and satellite customers, want to keep at the same time all of the benefits of the present regulatory bargain, including their own over the air distribution platform, a monopoly on local advertising revenue, guaranteed carriage on the basic tier of BDUs, program substitution and more compensation for distant signals.
5295 And what do they propose to offer in return as a public benefit? Well, we still don't know exactly two hearings after this issue has been discussed.
5297 M. AUDET : Merci, Yves.
5298 Le Conseil a conclu, il y a moins d'un an, que les télédiffuseurs hertziens n'avaient pas vraiment justifié l'établissement d'un nouveau frais d'abonnement.
5299 Ces mêmes diffuseurs n'ont produit aucune preuve nouvelle pour justifier une conclusion différente.
5300 En fait la preuve, telle qu'elle est déposée en ce moment, n'est pas crédible.
5301 One last comment. BDUs consume a tremendous amount of capital to support their activities and keep their distribution facilities competitive within the digital communications space. The Commission's statistical and financial summaries show gross fixed assets of $19.25 billion and net fixed assets of $12.8 billion as of the end of 2007 for all BDUs lumped together. This huge investment is entirely supported by BDUs alone and it is funded entirely from private capital sources.
5302 This capital must be fairly remunerated and it is therefore not the least surprising that retail rates have progressively increased despite fierce competition between BDUs, not only in Canada but also throughout the world.
5303 To summarize, this proceeding constitutes a unique opportunity for the Canadian broadcasting system to adapt and be able to prosper in the new digital world. It is an opportunity that should not be squandered. If we collectively fail to face reality and adapt on a timely basis, we could lose the hearts and wallets of Canadian consumers and hence lose the ability of our regulated system to yield lasting benefits as it should for our people, our talents and our culture.
5304 Thank you and we would be happy to answer any questions you might have on our submissions.
5305 THE CHAIRPERSON: Thank you very much for the very clear presentation.
5306 On page 7, halfway through, when you talk about program rights you say:
"Non‑Canadian programming services should be allowed for distribution by Canadian BDUs on the condition that they not acquire or hold exclusive rights for the broadcasting distribution of programs in Canada." (As read)
5307 Can you elaborate for me what is behind this idea?
5308 MR. MAYRAND: Yes. In our view, the central consideration that we collectively face here in Canada is preserving the integrity of a domestic rights market. Evidently the rights issue has always been part of the test in order to allow non‑Canadian services for distribution here in Canada.
5309 So I think what we are saying is that we should really focus on the central issue which is, in our view, absolutely key and totally important, as opposed to having a much more complicated test that deals with the notion of some competitiveness, some overlap to varying degrees. We think that we have to focus on the central issue.
5310 That's why we are saying, you know, the question of whether when an application is made to add a service on the eligibility list, the central issue is whether that service holds or intends to hold or acquire exclusive rights to the Canadian market to the detriment of licensed Canadian programming services.
5311 THE CHAIRPERSON: If I understand you correctly, you say no access right, no genre exclusivity. So this is even with regard to foreign service.
5312 The only thing is when foreign service comes here, they do not have exclusive rights to the Canadian market.
5313 So as long as it's a non‑exclusive right, they can come in? Is that the basic result: that any foreign programming becomes eligible as long as the rights to serve the Canadian markets are not exclusive to them?
5314 MR. MAYRAND: They key issue is that foreign services that would try to gain distribution in Canada would not engage in a practice that prevents Canadian licensed programming services from acquiring any rights to any programming that they wish to acquire.
5315 So hence the notion of non‑exclusive rights.
5316 And you are quite right in saying that our position is that really having genre protection has outlived its purpose, as we said in the presentation, and is really, in our view, unsustainable.
5317 Why? Well, first of all let's remember that the most prosperous Canadian specialty and pay services were introduced without the benefit of access rules. We tend to forget that. But when they launched, they didn't have access rules; these came afterwards.
5318 And the stated objective of the access rules has always been to ensure the deployment of the maximum possible number of Canadian licensed services.
5319 Now we are at a stage where we have a mature system with a large spectrum of licensed Canadian programming services, and that policy has been effective in achieving the objective of deployment.
5320 We say it has outlived its purpose because now we are not so much into deployment of new Canadian services, and the ones that do show up once in a while are usually proposed by integrated groups that have a strong entrenched position in the system.
5321 And as you go and as you get further and further into detail and refinements and variations of sub‑formats and sub‑models, it becomes almost impossible to apply correctly.
5322 THE CHAIRPERSON: Yes, but I think you are the only one so far at least who has come before us who suggests that there be no kind of genre protection vis‑à‑vis foreign services. That is the only thing you focus on, is the availability of the rights. As long as the rights from a foreign service are also available to other Canadians, then they should be let in.
5323 MR. AUDET: Yes. We have come to you with this position after careful consideration. Today, after many years of development, there is full‑fledged competition in all telecommunications services, whether it is telephony, whether it is cellular, whether it is services to business.
5324 In broadcasting distribution there is full competition, satellite, cable, some cable overbuilding others, some ‑‑ there is competition everywhere. IP TV soon to be launched, existing in some markets today.
5325 To be true, the only remaining monopoly in the Canadian broadcasting system today is genre exclusivity, and there is no valid reason in economic theory for that to continue.
5326 That is our basic position and Yves has correctly described how we consider how this works, what are the mechanics of it. But the fundamental of it is that this is the last remaining monopoly in the system and we fail to see why it is allowed to continue.
5327 THE CHAIRPERSON: Before I pass you on to my colleagues, one other question that fascinates me.
5328 In your opening remarks you point out that you are the only true BDU. Everybody else owns specialty formats; you don't. You obviously made a conscious business decision, business strategy not to acquire specialty services.
5329 May I ask why? I mean, obviously you are following a different business model here. It seems that all of your competitors feel that they have to be in both.
5330 MR. AUDET: Well, I will answer this with extreme care.
5331 We did apply to this Commission in 1994 and were chastised for being cable operators, and thereafter we did not come forth.
5332 Now, the other reason is that I think very wisely the regulatory system in this country says that programming should be available to all distributors, so there was no real strategic need. We have decided to focus instead on what we do best, and what we do best is cable.
5333 We have decided that we would be delighted to apply our expertise in cable in Canada as much as we can, but to the degree opportunities are not there that we would use our expertise elsewhere.
5334 THE CHAIRPERSON: All right. Len, I believe you have some questions.
5335 COMMISSIONER KATZ: Thank you, Mr. Chairman.
5336 Good morning. I want to come back to the notion of basic service and what defines a basic service.
5337 You clearly identified that the BDUs should, within the confines of protecting the 9(1)(h)s and those services that are deemed to be truly Canadian and the four‑plus‑ones, the control of what goes in should be at the beck and call of the BDUs.
5338 I read with interest ‑‑ this is out of your Executive Summary, the first page on basic service where you state, and I quote:
"While Cogeco Cable is on the record as supporting a smaller minimum basic service package, a smaller maximum basic service package is both impractical and unwarranted." (As read)
5339 Which leads me to believe that you want to retain the status quo and even though you are supportive of the smaller one, you don't see it in the best interest of BDUs or of Canada.
5340 I guess I put the question to you: What would be wrong with having a smaller basic package as well as a basic‑plus package that allows the BDUs to offer whatever they want to offer, including the four‑plus‑ones or whatever else you think your customers would want to see?
5341 MR. MAYRAND: Perhaps I can answer your question, Commissioner.
5342 Our view is that what has always made the strength of distribution in our Canadian system is the packaging and the value perceived by customers to be derived from each package. That applies absolutely to the basic service as well. So we are in a situation nowadays where we have basic packages that can go up north of 40 channels with a pricing that is well accepted and appreciated by the market and can be as low as, you know, some 20‑odd channels in smaller systems that are non‑interconnected.
5343 So let's not forget that we have a multifaceted existing situation where the actual composition of the basic and the actual retail pricing of the basic is not uniform. Even within our own company it is not uniform as between our various systems for various historical, technical and market reasons. So there is no such thing as the ideal composition of the basic tier. It is a reality that is adapted to each specific market, and underlying all of this always the key notion for the consumer and his or her motivation to remain a subscriber to that basic package is the perceived value of the package.
5344 So what's wrong in having a minimum set of things, or signals I should say, that have to be on that basic tier throughout the regulated system and then saying there is a market reality that's far too complex to set a general rule across the board for Canada and let's let the BDUs do what they do best; that is, respond to the specific conditions of each of the markets they serve?
5345 COMMISSIONER KATZ: I guess I would turn that question around and ask you, sir: What is wrong with the CRTC establishing what we believe within our mandate should be what Canadians should watch, and then you set the price in a competitive market as to what that price should be and anything else you want to offer Canadians, you are free to offer Canadians?
5346 MR. MAYRAND: If I may, I think that consumers would be concerned if you put it to them that it is the Commission that decides what they should watch and for what price.
5347 COMMISSIONER KATZ: That's not what I'm saying.
5348 MR. MAYRAND: Well, I sort of heard that that is where it was getting too.
5349 You know, consumers nowadays have a variety of options to consume their programming information and entertainment and the regulated system is only one of them.
5350 Now, they have over the top distribution over the Internet that is readily accessible and increasing year after year and, don't forget it, there is a black market. It is substantial and that one is also growing.
5351 So I think our concern is we have a system we think that works as best as it can be in terms of the basic.
5352 I haven't seen ‑‑ and we have checked on our logs. We haven't seen any complaints by our customers that the basic service does not provide value in any of our markets. We don't get those complaints.
5353 So if it's not broke, why try to fix it?
5354 MS ASSHETON‑SMITH: I would just like to jump in here for a second as well.
5355 I think we heard Bell Canada say last week they did offer a very small skinnied‑down basic service package a few years ago and they mentioned that there were very few takers for that package.
5356 A bigger problem at that time ‑‑ and I remember one of the problems with people who were taking it were taking it to get their local signals and then getting all their discretionary services from the black market satellites.
5357 So it was used as a tool by those who were wishing to just get their local services on a small inexpensive basic service. They could get them that way and could get the rest of their discretionary services on black market.
5358 This was of great concern, both to BDUs at the time, as well as to pay and specialty services, and there was a lot of discussion among the industry at the time to try to increase the size of the basic service because of the detrimental impact on pay and specialty services in Canada.
5359 So I think, you know, a good point. We have been through a long history on trying to find out what the proper size of the basic service is and it's one of those things that you really figure out as a distributor in response to what is happening in your market.
5360 COMMISSIONER KATZ: I guess my concern stems from the fact that five years ago basic cable was $17, $18, $19. It's now up in the low $30, I would guess, in virtually everywhere across the country. A lot of it is because, as I have heard in the last week, the industry has correctly said they have provided more value to consumers as well.
5361 The question is if we are looking at consumer choice, then let the consumers decide on the value proposition. Let's perhaps get back to a situation where there is an obligation by BDUs across the country to provide a uniform basic level of service as well, notwithstanding the fact that you can continue to offer your packages to your customers so they are not inconvenienced. If they want to get those services, they are free to get them, but at the same time there are free to roll back as well and get something less than that.
5362 MR. AUDET: Well, I think on the principle, we are not opposed to the idea of uniformity. What we are saying is that the uniformity should be restricted to local and regional over the air, provincial education, one SRC, one CBC and whatever the Commission classifies as being in the 9(1)(h) rule.
5363 So we don't oppose to the uniformity. What we do say is that beyond uniformity, you should leave it to market forces. And market forces are doing, we think, a fine job now.
5364 Now, the reason we have suggested this limited set is that we have been faced for ages with varying competition rules as between satellite and cable which have made our life extremely difficult. We had an arm tied at our back.
5365 This would ensure that the essentials are covered and thereafter there is flexibility.
5366 I would also like to add to what my associates have said here this morning.
5367 You have seen the study by Blackwell Globerman ‑‑ a study provided by our competitors, but still it is a valid study despite that. It says that there is about 2.8 per cent of illegals in the Canadian system.
5368 Our own observation ‑‑ and I say this because we are present in these markets day in and day out. We have 1,800 people there distributed across the markets reviewing the situation every day. There are between five and 6 per cent of Canadians who are active in the black/blue market. There were, at the height of the wave of illegal equipment that crossed the Canadian border in our territories, between 12 and 13 per cent of consumers who had in fact actively decided to opt out of the system through. Thanks to the Commission I must say, improved sensitization with the satellite owners, better encryption methods were developed and brought about and so it was reduced from the 12 that it was to about six.
5369 But I would like to point out that most of these homes still have their equipment. It's up there; it's ready to be used. And anything that we do, or anything that you do for that matter, that the consumer judges to be beyond the limit of what they consider reasonable ‑‑ and today they consider reasonable to do pretty much what they please ‑‑ you will see these illegal installations get lit up all over again.
5370 And don't rule out the possibility that there might be more than 12 per cent if people get fed up.
5371 So I think this is a reality we have to deal with, this is a reality our country has to deal with.
5372 COMMISSIONER KATZ: I'm going to move on to the issue of access and genre protection.
5373 We heard last week from Allarco that they were having difficulties getting up as a must carry.
5374 Do you carry Allarco today?
5375 MR. MAYRAND: Yes, we do. We have an affiliation agreement in place and we carry them.
5376 COMMISSIONER KATZ: Thank you.
5377 With regard to the issue of genre protection, I believe last week we heard Rogers say that if there was to continue to be some degree of genre protection, a fallback position would be broad categories or themes of genre protection.
5378 What is your view on that?
5379 MR. MAYRAND: Well, as we said in our oral remarks this morning, we are not too enamoured with that proposal. The reason is that, first of all, you have already heard some debate last week as to how many broad genres there should be. Is it four, is it five, is it six or more?
5380 So that's going to be a tough nut to crack. You know, what are the key categories or broad genres and how should they be defined?
5381 Then you get into the whole dynamics of seeing how the various smaller sub‑genres, you know, have to be "migrated" to these broader categories and what that does to their conditions of licence.
5382 In our view, you are getting to a very, very complicated, cumbersome process and, frankly, we don't see what the public benefit is of going through that whole process.
5383 Let's face it, the key genres are now well entrenched in the marketplace insofar as Canadian programming services are concerned. Certainly if we are talking about analog services, you know, some of them go back to the 1980s. They are so well entrenched and so completely positioned in their respective format that there really isn't, I would think, and I would submit to you, any cause for being concerned that their position could be seriously eroded by some smaller independent services trying to expand their programming offering.
5384 Frankly, all the established services have a bank of program rights which they have acquired in their format. So there really isn't any incentive on one side or the other of the system to get into wholesale free‑for‑all hodgepodge change in formatting.
5385 Frankly, we don't see that happening at all.
5386 COMMISSIONER KATZ: How would you see the Commission undoing the genre protection in light of the fact that there are so many different conditions and obligations by genre on all these specialty programmers today?
5387 MR. MAYRAND: Well, we think that basically once you signal that the genre protection system is going to go away, you will have obviously licence renewals with each and every one of the services concerned and each service will come up with their plans. They will come up with their proposed conditions and you will have their business and financial plan and their projections.
5388 I really don't know how you can deal with all the particular aspects of each programming service ‑‑ and there are a number of them now ‑‑ without looking at them individually for that purpose at licence renewal.
5389 But I would add something more. I think, Commissioner Katz, you put the finger on a very important reality that we are all facing today and that is that, you know, there is pretty much a television market that includes specialty and conventional television and that that market is essentially controlled or concentrated, I should say, in the hands of very few players.
5390 So I think you ought to look at the individual licence renewal applications and the group performance of those who ultimately control the licences.
5391 COMMISSIONER KATZ: That would probably work or could work for the bigger players, but clearly the smaller players and the independents would be caught by the big paintbrush that would go across the page, would it not?
5392 MR. MAYRAND: Well, I don't know if they would. Just get me right. Cogeco Cable totally understands the concerns of independent Canadian discretionary program suppliers.
5393 It is not too clear how independent should be defined, but in our mind it is those services that are not part of a large integrated group, and we have named a few of those.
5394 It is quite easy I would think for the Commission to say from the outset, as it has done for cable regulatory purposes, who are the large players and who were not.
5395 But that being said, we are concerned about the fate of the independents. We certainly are the last people around who want to see them suffer or experience a loss in market share. The reality is, though, that they Cat‑2s do not have genre protection, do not have access and are still developing.
5396 I'm not sure what the universe is of services that could possibly suffer tremendously on the independent side from the relaxing of the genre protection. I can see, though, that if you remove the genre protection system that these small independents will have the opportunity to broaden their offering to go after more innovative or appealing programming and not face the objections of the entrenched groups that it is part of their protected turf.
5397 COMMISSIONER KATZ: I noticed as well you are very strongly supportive of the notion of a dispute settlement process as well. We haven't heard yet I guess but Astral are coming forward with one proposal, which is the baseball proposal for arbitration as well.
5398 You talked about the reverse onus and the strong support of it. Have you got any views at all as to what would be the solution at the end of the day to this arbitration process?
5399 MS ASSHETON‑SMITH: Yes. I don't think Cogeco put this on the record, but we have discussed this issue. I think there is a real concern about the continuation of the use of the final offer arbitration approach in the sense that it removes the ability for flexibility on the part of the Commission to find a fairer response based on the evidence.
5400 I think the real concern, and Cogeco is not the only company that has expressed this concern, is the lack of predictability and transparency on the broadcasting side. It's a bit of a guessing game as to what kind of process will be used in any particular kind of dispute and I think we are strongly in agreement with those who suggest that a more formalized approach, a more predictable approach would be good for everybody.
5401 We suggested going something along the lines of a Part VII application on the telecom side where there is a public record of the application, the response, the reply and any confidentiality claims are put on the record and justified and the decision on the confidentiality is put on the public record by the Commission so the parties have a better sense of what is going on. Because, frankly, on the broadcasting side it can be very, very difficult for parties to get a handle on what's on the record and what's not on the record and where they stand.
5402 So I think that is the main thrust of the Cogeco concern and the Cogeco proposal.
5403 COMMISSIONER KATZ: And you see that telecom Part VII process as a more transparent process than a two‑party dispute with binding timelines and then a final settlement?
5404 MS ASSHETON‑SMITH: Yes, well, it depends. The Part VII works for a lot of disputes. Where there is a factual dispute that needs to be resolved, I think we said that the expedited oral proceeding is an excellent one. I think it has worked very, very well on telecom. We think it has great potential on the broadcasting side. It hasn't been used very often but it's more transparent. It's not behind the scenes. It's all on the public record. The facts are there. The parties have an opportunity to cross‑examine each other and the facts are there before the Commission with a public decision on the facts.
5405 So I think that's all we are saying.
5406 The concern about final offer arbitration goes more ‑‑ not so much to the transparency of it as to the limitation the Commission puts on itself to find a middle ground between the two parties.
5407 COMMISSIONER KATZ: So you are suggesting that the final decision by the CRTC even within that context could be not just an either/or but something in between?
5408 MS ASSHETON‑SMITH: Yes, exactly.
5409 MR. AUDET: In fact, we very strongly suggest that it may be something in between. This has been a subject of much frustration within our company that at times we were entering what looked like a black box and didn't know what would come out at the other end and we were told in advance it will be either black or white. And that's not real life. Real life is sometimes there is some grey in there and it should be reflected in the decision.
5410 If something is fair and true then there should be no objections to the facts having been found duly, systematically made public and the decisions have been justified in writing clearly as to why this was considered and why this other thing wasn't and what the outcome is. That's just an issue of fairness.
5411 COMMISSIONER KATZ: Okay, thank you.
5412 I want to move on to the issue of additional revenues, the VOD, SVOD issue as well. And I need to get a better understanding and maybe you can provide it.
5413 The difference between SVOD and the addition of advertising revenue should the Commission deem it to be in the public interest vis‑à‑vis specialty programmers, what is the difference between those two distinct units if advertising is overlaid onto SVOD?
5414 MR. AUDET: Well, as we understand it SVOD is just the ability for us to re‑use for our consumers to access programs that had been taken out of a pay service.
5415 However, when we talk about VOD in the context of our presentation what we mean is programs that have been aired on a specialty service or on an over‑the‑air broadcaster which would be for consumer convenience, recorded at the headend and replayable at their option when they want to. And there of course the commercials that are already embedded in the programming, of course, are credited to the broadcaster and we derive no benefit from it.
5416 But to the degree in the future a broadcaster would want us to refresh the advertisements in that program or, even better, dynamically target advertisements to specific categories of viewers in that program, then of course it's the broadcaster's advertising revenue. But all we would do is in the freely‑negotiated commercial agreement agree to some sort of service charge for performing that function.
5417 COMMISSIONER KATZ: When I look at ‑‑ and I'm sorry. I don't have the Cogeco lineup.
5418 But we pulled off over the weekend Rogers has got an on‑demand service called Howard TV, Howard Stern, and it's a monthly subscription SVOD service that allows the consumer on a monthly basis to pay what is identified here as $16.95 a month to get Howard Stern on TV in perpetuity on a monthly basis. If you piggyback onto that the ability for in this case Rogers to put advertising on there as well, how different is that from a regular specialty TV broadcast?
5419 MR. AUDET: We do not carry that service. I'm sorry, I don't know.
5420 COMMISSIONER KATZ: Okay.
5421 MS ASSHETON‑SMITH: Okay. Can I just add one thing there?
5422 The SVOD functionality has been used primarily to this point by Canadian BDUs to extend the brand and the channel and the reach of Canadian pay and specialty services.
5423 I think if you look at a service like TMN On Demand it's a tremendous example of how SVOD can be a real tool to extend these services. And the Howard Sterns of the world, to my knowledge, are not very well subscribed to and they are comprised of programs that are not available on any other Canadian station. So it's not a matter of competing or overlapping rights there.
5424 But in any event, the vast, vast majority of SVOD viewing is to Canadian SVOD brands.
5425 COMMISSIONER KATZ: If it was limited to just Canadian brands would you see a problem?
5426 MR. AUDET: Well, we have to be careful with whatever goes on the specialty services with whom we have by way of private negotiations, access to minutes, advertising minutes and conceivably these could be replayed on a VOD platform as well.
5427 So I would just be careful about that because, as Yves has explained in our introductory presentation, as a matter of principle these minutes of advertising are really part of a commercial negotiation. We pay them a fee and in exchange for that fee we get to distribute the service and our cable franchise, and along with that as a quid pro quo for the fee come two minutes of advertising per hour.
5428 So you can understand that from a cable operator's point of view he would say, "Well, these minutes really they belong to us, you know, commercially speaking."
5429 As part of this proceeding we as a gesture of good will said, "Well, why don't half of these actually be used for the promotion of the independent specialty channels?" So it's really a gesture of good will. But if you looked at it from a strict commercial standpoint this should be a non‑issue.
5430 That being said, if some of these programs were recorded for VOD use subsequently, what you just said would be very difficult to apply.
5431 MS ASSHETON‑SMITH: Commissioner Katz ‑‑
5432 COMMISSIONER KATZ: Yes.
5433 MS ASSHETON‑SMITH: ‑‑ just to respond specifically to the restriction of SVOD offerings.
5434 I think one of the reasons why the VOD platform holds such great promise and has developed the way it has is because of the foresight of the Commission not to impose restrictions in advance of seeing any problem on the platform and to allow the service to develop and grow in an innovative fashion. And that's exactly what has happened on the VOD service. It has not developed into a competitor for linear channels. It has developed into an extension, a complement to the linear channels.
5435 And I think the point we would make would be just to be very cautious in putting fences around how the VOD offering can be put together in the absence of any demonstrated issue whether it's Howard Stern or others. I think the allegations that SVOD is acting as a competitor to the linear channels is overblown and there is really very little evidence that it's causing any financial harm or impact at all on those channels.
5436 So in the absence of a real demonstrated problem we just urge you to continue your course which is maximum flexibility and if something does evolve in a way that isn't beneficial to the system you have the power to step in and change it. We are saying there is nothing to suggest right now that that's happening.
5437 COMMISSIONER KATZ: Have you folks experimented with this Invidi service, the targeted ad service at all?
5438 MR. AUDET: No, we have not.
5439 COMMISSIONER KATZ: So you don't know how far away it is from reality, basically from live application?
5440 MR. AUDET: We think it is theoretically very appealing to extend the life of broadcaster's properties, but we have not to date spent time analyzing it.
5441 COMMISSIONER KATZ: Thank you.
5442 Those are my questions, Mr. Chairman.
5443 THE CHAIRPERSON: Michel.
5444 CONSEILLER ARPIN: Monsieur Audet, monsieur Mayrand, je voudrais vous ramener sur la présentation orale que vous avez faite un peu plus tôt et si je prends le texte français je vais me référer aux pages 10 et 11 où vous dites que les EDR sont les principaux bailleurs de fonds de la programmation canadienne dans son ensemble avec une contribution de plus de deux milliards de dollars annuellement.
5445 Je présume que vous avez additionné les coûts versés aux différents services plus votre contribution à l'expression locale et au Fonds canadien de la télévision pour arriver à ce montant de deux milliards ?
5446 Me MAYRAND: C'est exact et c'est pour tous les secteurs de la distribution, dont câble et satellite.
5447 CONSEILLER ARPIN: Est‑ce que vous allez agréer avec moi que cet argent‑là ne va pas nécessairement tout à la programmation canadienne ?
5448 Me MAYRAND: Je suis entièrement d'accord avec vous, monsieur Arpin, et peut‑être que c'est la grande question de ces audiences publiques.
5449 Vous savez, pour nous les distributeurs, nous faisons la distribution de services de programmation, nous collectons des frais d'abonnement, des frais d'installation, nous payons pour toute l'infrastructure requise pour faire cette distribution, tous les systèmes d'exploitation, tout le ‑‑ en bon français ‑‑ back office requis pour faire fonctionner le système, et c'est énorme.
5450 Et à partir des frais d'abonnement que nous percevons, nous versons un montant ‑ je dis nous collectivement, tous les câblodistributeurs et les opérateurs de services par satellite et les opérateurs de services par micro‑ondes ‑ nous versons collectivement plus de un virgule huit milliard de dollars à des services canadiens qui ont obtenu une licence du Conseil comme services canadiens titulaires de licences.
5451 CONSEILLER ARPIN: Et c'est...
5452 Me MAYRAND: Si vous me permettez de terminer l'exposé là‑dessus brièvement. Par la suite, le pourcentage de cette somme d'argent qui arrive dans le système canadien de programmation qui est effectivement utilisé pour de la programmation canadienne ou pour de la programmation américaine ou étrangère, nous n'avons aucun contrôle sur cette répartition et c'est là que l'efficacité de la contribution commence à varier.
5453 Ce n'est pas au niveau de l'entrée du pipeline, c'est dans les portes de sortie du pipeline que l'efficacité diminue.
5454 Et je vous dirais qu'on a le même problème avec l'autre pipeline d'alimentation du système canadien de radiodiffusion qui est les recettes publicitaires pour la télévision conventionnelle.
5455 Là aussi vous avez une masse d'argent qui entre dans le pipeline et il y en a une partie, et en fait maintenant une partie croissante, qui s'en va au sud de la frontière pour l'acquisition de droits d'émissions américaines et les distributeurs n'y peuvent absolument rien.
5456 CONSEILLER ARPIN: Et une partie de l'argent des canadiens qui rentre dans le pipeline de Cogeco s'en va au Portugal et en Europe de l'Est ?
5457 M. AUDET: Absolument pas.
5458 CONSEILLER ARPIN: Non ?
5459 M. AUDET: Non, absolument pas.
5460 Toutes nos dépenses qui sont passées à la dépense le sont... des entreprises canadiennes vont vers les entreprises canadiennes.
5461 Nous avons fait des emprunts pour réaliser notre investissement au Portugal, c'est vrai, mais ça n'a rien à voir avec les abonnés canadiens qui n'ont pas à supporter ça. Ce sont des financements distincts.
5462 CONSEILLER ARPIN: Mais, je veux dire, ce sont les bénéfices des opérations de Cogeco, faits à partir de revenus canadiens qui vous ont permis... puis ce n'est pas interdit là de prendre de l'expansion internationale, même c'est bénéfique, et malheureusement, les entrepreneurs canadiens sont très peu présents sur le marché international. Donc, au contraire, je suis d'avis que votre présence sur le marché international est, à mon avis, un geste extrêmement positif.
5463 Mais de dire que l'argent qui rentre dans le système canadien de radiodiffusion, soit par les revenus publicitaires, soit par la redevance, devrait exclusivement rester au Canada m'apparaît un petit peu difficile à gérer, compte tenu de l'historique de notre système canadien de radiodiffusion.
5464 Ça m'amène à me poser la question, quand vous faites le plaidoyer pour qu'il n'y ait plus de protection des genres par rapport aux services étrangers, est‑ce que c'est là pour vous un élément de votre équation pour corriger ce que vous appelez cette iniquité de fonds qui rentrent dans le système et qui s'en vont à l'étranger, donc, pour éventuellement pouvoir offrir que des services étrangers, puis ne plus avoir d'entreprises canadiennes qui auraient la capacité de se déployer?
5465 M. AUDET : Si vous me permettez, j'aimerais vous donner mon point de vue sur les deux questions, et je suis sûr qu'Yves voudra compléter ma réponse.
5466 Premièrement, nous n'avons pas exprimé le point de vue que les entrées de fonds dans le pipeline du système canadien de radiodiffusion devraient être exclusivement dépensées au Canada. Nous n'avons pas exprimé cette idée, tout d'abord.
5467 Deuxièmement, je...
5468 CONSEILLER ARPIN : Mais vous avez...
5469 M. AUDET : Je n'ai pas fini ma réponse, excusez‑moi.
5470 Deuxièmement, de suggérer qu'il y a une adéquation entre nos investissements au Portugal et le fait que les télédiffuseurs canadiens envoient une part croissante et supérieure à 60 pour cent de leurs fonds aux États‑Unis, de suggérer qu'il y a un parallèle entre ces deux choses, je m'excuse, mais c'est faux, et nous n'avons pas à être caractérisé de cette façon‑là. Ça m'apparaît absolument injuste.
5471 Maintenant, cela étant dit, les dépenses effectuées par les télédiffuseurs traditionnels sur de la programmation canadienne au cours des sept dernières années ont cru au total de 21 pour cent. Les dépenses de ces mêmes télédiffuseurs sur la programmation américaine ont cru au total au cours de ces sept dernières années de 63 pour cent.
5472 Donc, c'est un taux de croissance qui est de l'ordre de trois fois, de telle sorte qu'aujourd'hui, les dépenses des télédiffuseurs généralistes sur la programmation américaine représentent 60 pour cent de leurs frais et sur la programmation canadienne représentent 40 pour cent de leurs frais.
5473 Alors, ce que maître Mayrand vous a dit, c'est il n'y a pas de problème, de l'argent dans le système, on en envoie. Là où vous... vous, je ne dis pas ça d'une façon désagréable, mais là où nous comme société avons une décision à prendre et vous comme corps réglementaire avez une décision à prendre, c'est où voulez‑vous que l'argent que nous envoyons soit dépensé, et ça, j'ose espérer que ce sera une des décisions qui émergera de cette audience.
5474 Nous, pour notre part, nous avons une suggestion constructive à faire à cet égard, et nous aimerions proposer qu'une possibilité pour vous serait de dire aux télédiffuseurs généralistes, lorsque tu as un dollar de programmation canadienne, bien, tu pourras dépenser un dollar de programmation à l'étranger, et ça serait une façon très simple de vous assurer que ce qui rentre dans le pipeline est utilisé aux fins que vous souhaitez.
5475 Maintenant, pour ce qui est de la protection des genres, la protection des genres, dans notre esprit, n'est pas directement reliée à la question sur laquelle on vient d'élaborer. La protection des genres, c'est... La fin de la protection des genres, c'est simplement une question de gros bon sens.
5476 Quand vous avez une économie qui est essentiellement une économie compétitive pour le bénéfice des citoyens canadiens de A à Z et que le dernier monopole qui subsiste au Canada est la protection des genres de certains services spécialisés qui ont obtenu ces privilèges‑là il y a 30 ans, bien, vous conviendrez avec moi que pour nous qui sommes intensément compétitifs dans toutes nos activités et pour le citoyen canadien qui travaille pour des entreprises qui compétitionnent, il y a de quoi à se poser des questions. C'est simplement ça.
5477 CONSEILLER ARPIN : Maintenant, sur la question de la protection des genres, et je reviens particulièrement à votre proposition de l'abolition de la protection des genres pour les services étrangers, et vous le mettez quand même dans une équation de protection des droits de radiodiffusion.
5478 Qu'est‑ce qu'on fait si, effectivement, on ouvre la barrière et, effectivement, on découvre, après un an, cinq ans, 10 ans, que certains services étrangers ne protègent pas les droits de radiodiffusion, l'accès aux droits de radiodiffusion pour les entreprises canadiennes? Est‑ce qu'on les retire du système?
5479 M. MAYRAND : Monsieur Arpin, je vous soumettrais qu'à l'heure actuelle, nous avons un test plus complexe et sujet à beaucoup plus d'interprétations, mais nous avons quand même un test, et la sanction ultime demeure la même.
5480 C'est‑à‑dire que si vous avez un service étranger qui est mis sur les listes de signaux éligibles et qui, un moment donné, se met à se comporter de façon que les conditions du test qu'il a rencontrées à l'origine ne sont plus rencontrées maintenant ou ne seront plus rencontrées clairement à l'avenir, le recours demeure le même, c'est de les retirer de la liste des signaux éligibles.
5481 CONSEILLER ARPIN : Maintenant, vous avez dit vous‑même en réponse à des questions ou dans votre présentation que, finalement, c'est le consommateur qui vous fait vivre. Si je retire un service que vos abonnés regardent parce qu'il ne répond plus aux exigences minimales qui ont été imposées, vos abonnés vont réagir comment, et vous, par rapport à nous, vous allez nous appuyer ou appuyer vos abonnés?
5482 M. MAYRAND : Écoutez, je crois que notre entreprise, et je ne peux parler que pour notre entreprise, a toujours été très soucieuse de respecter le cadre de réglementation dans toutes ses formes et dans toutes les phases de son évolution. Alors, il est clair que ce que nous proposons dans un cadre de réglementation allégé, nous avons parfaitement l'intention d'y adhérer pleinement et de le faire honnêtement.
5483 Maintenant, pour ce qui est de la réaction des abonnés, je vous dirais qu'il faut toujours s'attendre à une réaction des abonnés, des consommateurs lorsqu'un ou des services sont modifiés ou supprimés.
5484 Toutefois, j'exprimerais pour notre entreprise avoir beaucoup moins de préoccupation à devoir éventuellement agir sur un ou quelques services étrangers délinquants lorsqu'il est nécessaire de le faire, plutôt que de changer radicalement la composition du service de base et d'affecter l'univers total des abonnés du câble et du satellite partout à travers le Canada.
5485 C'est beaucoup plus préoccupant, à notre point de vue, que d'avoir à utiliser, le cas échéant, la sanction qui doit s'appliquer un moment donné parce qu'il y a un service étranger qui n'a pas respecté les conditions de la liste des signaux éligibles.
5486 CONSEILLER ARPIN : Monsieur le Président, ce sont mes questions.
5487 M. AUDET : Monsieur le Président, pouvons‑nous nous concerter un moment, s'il vous plaît?
5488 LE PRÉSIDENT : On prend une pause de cinq minutes.
‑‑‑ Upon recessing at 1009 / Suspension à 1009
‑‑‑ Upon resuming at 1018 / Reprise à 1018
5489 LE PRÉSIDENT: O.K. Monsieur Audet.
5490 MR. AUDET: Yes.
5491 LE PRÉSIDENT: Vous vouliez dix minutes de conférence, vous avez eu vos dix minutes?
5492 MR. AUDET: No, I think we are done.
5493 If this is an opportunity to make a last statement, then I will make it.
5494 THE CHAIRPERSON: No, no, not yet. We have more questions.
5495 MR. AUDET: Okay. Thank you.
5496 THE CHAIRPERSON: Madam Cugini.
5497 COMMISSIONER CUGINI: Thank you, Mr. Chairman.
5498 I want to take you back to your model for basic service. If I understand you correctly, there would be a number of mandated services, as you have proposed, and then we would allow the BDUs to add whichever services they feel are appropriate for their market.
5499 My question is, should we prohibit BDUs from adding affiliated services to basic in your model?
5500 In other words, should Shaw be able to add all of its Corus services to basic, or should Rogers be able to add all of its specialty services to basic?
5501 MR. MAYRAND: I don't think it is really appropriate for us, having said that we don't own any services ‑‑
5502 COMMISSIONER CUGINI: But I think, in a competitive market, I mean, if you were to have ‑‑
5503 You know, you have Star Choice in your market, and they offer all of these specialty services on basic. Is that not a competitive disadvantage to you?
5504 MR. MAYRAND: I think we have spelled out as best as we could in the model regulations that we attached to our initial submission what the rules governing the composition of basic should be, and we certainly didn't put in an exclusionary affiliate rule.
5505 Really, I don't feel that it is for us to comment on whether the Commission should deal with situations.
5506 In fact, if I hear your question correctly, it has to do with a dominant position in the marketplace, and a high level of integration.
5507 It seems to me that the remedy we proposed, or we submitted to you for those situations, whether it is something that arises in connection with basic, or a tier, or packaging, or anything that has to do with the activities ‑‑ the broadcasting distribution activities of the BDU, or the program supplier, as the case may be, that, really, you ought to look at the issues, as, if and when they arise, in connection with the undue preference or discrimination rule.
5508 We support the notion that there should be a reverse onus when there is discrimination of preference.
5509 I think that is probably the best rule that you can have, and it is probably the most effective, rather than ‑‑
5510 And I can't emphasize this enough. Our whole thinking in connection with this reconsideration of the framework for distribution is to say: Let's spell out clearly what is allowed. Let's spell out clearly what is not allowed. And then, let's not try and cover in detailed regulations all possible other issues or scenarios that might happen.
5511 COMMISSIONER CUGINI: That usually is our job. That's why we try to cover as much ground as we possibly can in these proceedings.
5512 MR. MAYRAND: If I may, I think your job is evolving, in line with the system. It has to evolve, because as the system becomes increasingly complex and multi‑faceted, I don't think the Commission can keep on adding layers of more detailed regulation. You have to scale back and re‑focus on key fundamental principles.
5513 Really, that is what we tried to do, as well, on the test for approving the distribution of non‑Canadian discretionary services, putting them on the eligibility list.
5514 We are not advocating the abandonment of a test in a point of entry and control thereof, what we are saying is: Let's focus on the one key criterion, and let's apply that one effectively and properly.
5515 That's just another example.
5516 COMMISSIONER CUGINI: The bottom line answer to my question is that the undue preference rules, reinforced, will take care of any dominant position ‑‑
5517 MR. MAYRAND: That's what we submit to you.
5518 COMMISSIONER CUGINI: Okay. On the issue of the access rules, one of the areas that it seems most people agree on is the elimination or the relaxation of the distribution and linkage rules.
5519 Bearing that in mind, what harm is there in keeping the access rules as they are today?
5520 Because, in the context in which I am asking the question, if it is true that you want to offer your customers ‑‑ and I believe that it is true ‑‑ as much choice as you possibly can, and they are in complete control, provided that they meet the preponderance test, what is the harm in offering everything that you possibly can within your capacity constraints?
5521 In other words, how does the elimination of the access rules make your life easier?
5522 MR. MAYRAND: I would like to submit to you that the access rules don't apply to everybody in the system, to start with. I think we agree with that.
5523 I think what we are saying is, if the market dynamics were such that the Canadian services, the so‑called analog and Category 1 services, which have the benefit of access rules, do actually have access throughout the distribution system, are distributed, and are well entrenched in the marketplace, really, there is no use to keep these distinctions and these rules.
5524 If there is no use to keep them, then why should we keep them?
5525 We thought the exercise here was to try and update the regulatory framework and make it correspond to the realities that we are in today in 2008, as opposed to ten years ago, when the current version of the regs was put into force.
5526 COMMISSIONER CUGINI: This is going to be another "Yes, but this might happen" question, so you might not like it, but bear with me.
5527 Based on your answer, going forward, what incentive will the Category 1 services and/or the analog services have to ‑‑ I won't even venture to say increase their Canadian content obligations or contributions, but maintain their current level of Cancon.
5528 The regulatory bargain: High Canadian content, high CPE, you get must carry status.
5529 That is certainly true for Category 1 services.
5530 Will not all of these Category 1 services and analog services come back to us and say, "We can't make it. You have to lower our Cancon contributions"?
5531 Why would we say no?
5532 MR. MAYRAND: As, if and when they do come back to you and say that things are not working at all ‑‑ and I presume that would be at licence renewal, or even before, by way of an application to amend the existing Conditions of Licence ‑‑ I would venture to say that you would still be looking at their actual distribution within the system, and their actual financials and their projected financials.
5533 That is where we have conceptually a hard time imagining, as a matter of fact, that any of the so‑called analog services ‑‑
5534 I say "so‑called" because they are not only distributed in analog format now, but also digital ‑‑
5535 COMMISSIONER CUGINI: I understand.
5536 MR. MAYRAND: They have extremely pervasive distribution.
‑‑ or the Category 1 services, for some reason, in the absence of access rules, would be dropped by distributors in Canada.
5537 Certainly this company has absolutely no incentive or reason to drop services.
5538 I think the issue that you might face with some of the players that don't have the same level of bargaining power at renewal time for affiliation agreements ‑‑ and we are talking about the independents ‑‑ there is perhaps a concern ‑‑
5539 What we said in our opening remarks was: Fine. If there is a concern with the independents, let's make sure, then, that the access rules remain ‑‑ not the access rules, I should say carriage privileges remain in effect for a period leading to the full digital transition.
5540 But I have a lot of difficulty ‑‑ and I think it is part, really, of our company's whole thinking ‑‑ in seeing Canadian services, even Category 2 services, which don't have access privileges, being dropped in the current competitive context. There is no reason to drop them.
5541 I think what you might be concerned about is what happens when there is a dispute and there is an issue of related party transactions or a preference, and then we get back to the central rule, which, in our view, can address the specific problem at hand.
5542 Furthermore, I should say that the real concern is not so much services being dropped during the currency of an affiliation agreement, because that would be a breach of contract, it is really upon affiliation renewal time, and we certainly hold the view that, when there is a dispute, the parties, whether on the distribution side or the programmer side, should not be denying service completely until the dispute is resolved.
5543 So I think, unless I misunderstand your question, that really addresses the concerns you might have.
5544 COMMISSIONER CUGINI: I do enjoy it when participants answer the follow‑up question as well, so I thank you for that.
5545 One final question. In response to Vice‑Chairman Arpin's question regarding SVOD, you said that you do not carry the Howard Stern on‑demand service, but you do carry Anime! On Demand, do you not?
5546 And that is not an authorized service on the list of eligible satellite services. Correct?
5547 MR. MAYRAND: I must admit to you that you've got me here. I will check that.
5548 COMMISSIONER CUGINI: That's great. You can always address that in the reply phase.
5549 MS ASSHETON‑SMITH: Yes. Just to clarify, the way programs are acquired on the on‑demand platform is not the same as taking a channel. Those programs are programs for which typically ‑‑ and I'm not confident about Anime‑on‑demand. But those programs are typically programs that there is no other Canadian programming service that has acquired the rights to those programs.
5550 COMMISSIONER CUGINI: No, I understand that, but you do become the aggregator of those programs on that one dedicated on‑demand channel?
5551 MS ASSHETON‑SMITH: Yes. It is an aggregator service, though, not a channel.
5552 COMMISSIONER CUGINI: Like I said, we will look forward to your comment in reply.
5553 MR. AUDET: Yes. Well, I think we have replied. We purchased programs to put on our VOD platform and yes we have bought a series of programs from Anime and we show them.
5554 I think there is not much more to be said. It's paid for.
5555 COMMISSIONER CUGINI: I thought in reply to Vice‑Chairman Arpin's question you said that on VOD you only had programming that was available on linear broadcasting, unless I misunderstood your response to his question.
5556 MR. MAYRAND: We appreciate the point on Anime. We'll certainly address specifically that issue in the written reply.
5557 I am the first one to admit that, you know, I could not possibly go through each and every one of the services that we provide and remember exactly what the terms were in setting them up. All I know is that the principles we put forward to you are exactly what they are. There may be an exception but we will certainly deal with that in written reply.
5558 COMMISSIONER CUGINI: Thank you very much.
5559 Thank you, Mr. Chairman.
5560 THE CHAIRPERSON: Thank you.
5562 CONSEILLER MORIN: Oui, bonjour.
5563 Merci, Monsieur le Président.
5564 Il y a une entreprise concurrente, Quebecor pour ne pas la nommer, qui a identifié pas moins de 550 dispositions réglementaires et 80 en programmation, enfin, c'est le fameux livre rouge. Je ne l'ai pas lu, je dois vous le confesser.
5565 J'aimerais vous demander avec le modèle que vous proposez, combien il y en a qui vont disparaître de ces règles‑là?
5566 Me MAYRAND: Écoutez, monsieur Morin, je n'ai pas fait d'exercice à partir de la liste de Quebecor Media. Tout ce que je peux vous dire, c'est que le règlement que nous avons produit en annexe, le modèle que nous vous suggérons comporte la moitié moins de texte que le précédent et ipso facto, si vous acceptez notre modèle, il y a toute une série de documents connexes sur les règles d'accès, par exemple sur l'application des règles d'exclusivité, sur une série d'autres sujets, qui tombent ipso facto.
5567 Maintenant, je n'ai pas fait l'exercice de prendre toutes et chacune des exigences réglementaires que mon ami Édouard Trépanier a colligées avec autant de diligence et, je dois dire, beaucoup plus de patience que moi.
5568 CONSEILLER MORIN: En ce qui concerne maintenant le service de base qui se trouve... enfin on en parle souvent, j'aimerais d'abord savoir, le service de base que vous offrez à vos consommateurs, quel est le pourcentage des consommateurs qui réduisent leur achat, si vous voulez, ou leur abonnement, qu'au service de base?
5569 J'ai entendu depuis une semaine qu'il semble que le service de base, il n'y a pas beaucoup de gens qui ne prennent que le service de base.
5570 Est‑ce que c'est la même chose chez vous?
5571 M. AUDET: Oui, oui, chez nous c'est environ 19 pour cent de nos clients, tant au Québec qu'en Ontario qui ne prennent que le service de base,
5572 CONSEILLER MORIN: Qui ne prennent que le service de base.
5573 Donc, quand on parle de piratage comme vous en avez parlé, qui semble être un problème assez important pour vous, est‑ce que vous pensez qu'il y a une relation avec le service de base qui est plutôt réduit ou vous n'imposez pas, autrement dit, un service de base très lourd?
5574 M. AUDET: Nous, notre service de base au Québec, il est de l'ordre de 39 canaux et en Ontario il est de l'ordre de 50 canaux.
5575 La question qui a été soulevée et mentionnée tout à l'heure, c'est plutôt de savoir si le service de base était réduit, comme les entreprises satellite l'ont proposé, à presque rien, c'est‑à‑dire dix chaînes qui coûteraient un prix dérisoire, c'est un encouragement à s'abonner à ce service et ensuite voler le reste de la programmation une fois qu'on a la plateforme.
5576 C'est cette inquiétude‑là à laquelle nous avons fait référence plus tôt.
5577 CONSEILLER MORIN: Donc, vous êtes intéressés, comme entreprise de distribution, à offrir aux consommateurs un service de base plus élargi.
5578 M. AUDET: Je pense que c'est un service qui a un succès puisque tous nos clients le prennent, 100 pour cent de nos clients le prennent, et en plus ils y ajoutent autre chose.
5579 CONSEILLER MORIN: C'est tout. Merci.
5580 THE CHAIRPERSON: Thank you.
5581 I would like to come back to the question that Commissioner Cugini posed because I am not quite sure I understand your submission.
5582 You say no genre protection, no guaranteed carriage, no protection from foreign services except that they would have to be non‑exclusive.
5583 We have created this elaborate system, maybe too elaborate, but our mandate is to foster Canadian content and we provide that you get guaranteed carriage and you get genre protection in return for which you have very high Canadian content and guaranteed access. Alternatively, you are a Cat 2 when you have a relatively low.
5584 If you now take these protections away, aren't we reducing the whole system to Category 2 services?
5585 And on what basis could we possibly insist that existing Category 1 services or analog maintain the existing Canadian content requirement of CPEs?
5586 I mean, I just do not understand. Out of sheer regulatory fairness, we could say no, you started that way, you stay that way; you started as a Cat 2, you stay at a Cat 2. I mean, surely as a regulator we would lose all credibility.
5587 MR. MAYRAND: Well, if I may say, Mr. Chair, the services that have the benefit of the access rules at present have an entrenched position in the marketplace and are not going to be dropped. That is clearly the position we are coming from.
5588 THE CHAIRPERSON: Yes, but I'm not talking about being dropped. I'm talking about the obligation they have to live up to.
5589 MR. MAYRAND: If I may continue the reasoning, these services have business models that show growing revenue and growing returns. So I think in the end really we are back to the fundamental part of the regulatory bargain, which is you are imposing conditions including CPE conditions that relate to the ability of a licensee to deliver on those expenditures and the other commitments that you set by condition of licence.
5590 We don't see why the ability of the services that have access now and genre protection is going to be in any way transformed radically because you are moving away from that model. If there is a concern, we don't see the concern for services that are part of a large portfolio of specialty and/or pay programming services.
5591 Why? Because I can tell you we go through these negotiations for the whole portfolio of the services, or the better part of it, and it is a take all situation and we negotiate on the whole package. There is strength in packaging even on the programming affiliation side.
5592 So frankly, I don't see that the financial resources of your licensees must, of necessity, change dramatically if you are evolving the regulatory framework, certainly not for the integrated groups.
5593 Now there might be a concern with the independents and we are saying fine, let's keep the access for them.
5594 THE CHAIRPERSON: We are talking past each other here.
5595 I am positing a world à la Cogeco where we implement what you say. We are now in this new universe: no genre protection, no guaranteed package, no genre protection against foreigners, only an insistence on non‑exclusivity.
5596 Now here we have existing Cat 1s who have the CPE of whatever, 50 per cent let's say. The Cat 2 has one of 30. Licence renewal comes and you suggest we say you stay at 50 because you have an existing business case. You have shown you can make money at that rate, so you stay at 60 while the Cat 3, he goes on 30.
5597 How as a regulator can I treat them differently? Do I have to apply the same rule to everybody? That is the problem I am proposing.
5598 MR. MAYRAND: I understand your point. I would still venture to say that in the face of access rules applicable to analog services and Cat 1 services, you are still making differences between services and essentially those differences are in fact based on their financial capacity in the end when you look at it.
5599 You look at the performance of each licensee at their license renewal ‑‑ and I have been to a number of those hearings ‑‑ irrespective of the fact that there is this framework in place.
5600 MR. AUDET: May I add, what we have suggested is a uniform minimum threshold of 35 per cent Canadian expenditures. But that is really a minimum because it is the market that decides what people will spend.
5601 So if you are offering a news service, you are going to be, you know, for all intents and purposes spending 100 per cent of your money or close to delivering that service, if you are delivering a local news service.
5602 So really it is the minimum 35 per cent threshold which we have advocated, knowing that there are market realities and the market realities will dictate where people eventually land.
5603 We have spent the last four years scouting a part of the world, which is Europe. We must have visited 15 countries to date, have spent considerable time wondering where the system is going, where are we going, where is the rest of the world going. And what we see everywhere else are very limited set of constraints.
5604 When we sit down with a cable operator in a number of countries and tell them where we're coming from, they are ‑‑ they just can't believe what we tell them. They think we've descended from Mars with all the accumulation of rules that we have.
5605 I don't mean this as criticism; I'm just telling you a fact. I'm just conveying to you a fact of what we hear.
5606 What we think is that the future portends of massive influxes of information and video content over the Internet with increasing quality, improved in the negative sense attack by pirate satellite systems. The system, our Canadian system, must adapt or else will happen to it what happened to the economies of the Eastern bloc once the barriers fell. It was a total disaster. It was a slaughterhouse.
5607 Why? Because they were so protected that when the barriers fell ‑‑ and eventually they do fall, they always fall ‑‑ their economies were a shambles. It was a disaster.
5608 I think we have to adapt proactively.
5609 Is adapting painful? Yes, it is.
5610 Does adapting entail a risk? Yes, it does. It does entail a risk.
5611 But if we don't face this risk now, it could be a lot worse later.
5612 THE CHAIRPERSON: Okay. But then from this, I take that at the end of the day if we implement a new Cogeco‑type rule, et cetera, we are in effect going to have a 35 per cent Canadian content across the board. That is going to be the net result.
5613 There may be higher ones depending on what the market suggests, but that's really what we are looking at.
5614 MR. MAYRAND: Well, Mr. Chair, I still think that in the end, no matter which way you set up the regulatory model, you really have to consider services at licence renewal.
5615 The one component we think is missing in the equation is the group analysis, because in our mind ‑‑ and I think Commissioner Katz raised that very interesting issue ‑‑ you know, clearly there is a television market now that involves not just the conventionals but the specialties and that involves group players that are in both.
5616 And you see a lot of programming that is used, adapted or recycled, on the multiple platforms, which is good, but it's the new reality and I think you have to add that component in the analysis, but you still have to deal with the licences that you issue and their renewal.
5617 That is an inescapable fact of life.
5618 MS ASSHETON‑SMITH: Can I add, I think one of the things we are trying to do is delink the assumption that access should mean higher CPE because, it's not really the advantage that it appears to be. The advantage is really an incumbency. And that's what were saying.
5619 Those analog services that were licensed over 20 years ago, TSN, MuchMusic, YTV, services like that in fact for the first decade of their existence had no guaranteed access, they were optional carriage for cable companies. They grew. They grew stronger, they were distributed, because they are good compelling services that Canadians wanted to watch.
5620 I think what we are suggesting is that the assumption that greater access, privileges or rights should automatically equate to higher CPE or vice versa isn't necessarily the link that needs to be made, and that may be the proper link, as Yves has been mentioning, is actual distribution as opposed to access.
5621 Bearing in mind that you have the ability to craft, tailor situations where you think it is appropriate to do so.
5622 I can see a question coming.
5623 COMMISSIONER CUGINI: Yes, I just want to follow up on that.
5624 The example has been brought up a couple of times in these proceeding on the TSN and the others that were licensed at the time.
5625 Sure there were carried; there were only three of them. There wasn't the choice that we have today of the number of specialty services that can be carried by BDUs. Point number one.
5626 Point number two, on CPE and Cancon, here is our dilemma: The specialty services that have must‑carry status today were licensed, for the most part, in a competitive process, right, where there were two or three competing, or four or five competing applications all in the same genre and, in most cases, in the vast majority of cases, those services with the highest levels of Cancon and CPE were awarded a licence, and they were able to commit to those levels of Cancon and CPE because they knew they would get must‑carry status.
5627 That's the 25 words or less history of the licensing of those specialty services.
5628 We are not linking higher CPE with access; it's the other way around. The higher CPE's and the higher Cancon obligations were linked to must‑carry because that is what they based their business plan on at the time of licensing.
5629 MS ASSHETON‑SMITH: I guess my response to that would be that there are some Category 2 services that are showing much greater returns than Category 1s, they have been much more successful. And again, the fact that they don't have access maybe doesn't mean they should be let off the hook.
5630 So getting back to the notion of a minimum standard expenditure that's fair for everybody, some can step up to the plate a bit more, over time I agree, you are going to have to rationalize the licences I think as you move forward and you get away from classes of specialty licences. There may have to be a transitional period to get to that point.
5631 MR. AUDET: What you have just said, if I may, and I hope you will forgive me for over simplifying, you have just said that a monopoly is always profitable and I think everyone would agree with you. But what about creativity? What about the benefits of competition? What about what gets produced out of the money when you are forced to be more creative because you have competition? That's what our economies now are built on and that's what makes us a successful country as a country and we are arguing you could do the same thing here.
5632 THE CHAIRPERSON: I was dealing with quite a different point. I was taking your idea, applying it and saying 35 per cent across‑the‑board was what you say would come out. But then Mr. Mayrand, if I understood him correctly, said: Well, but you can then have different CPE requirements depending how well they are doing over what they can ‑‑ and I don't know as a regulator on what basis I discriminate and say you pay more than you, et cetera.
5633 I just have no basis on doing that. Why would I penalize somebody because it was more successful than others?
5634 Once you start you say delink, no carriage, no CPE because everybody has ‑‑ you say people have grown up, the infant industries have grown, they all have their place in the market, treat them the same. Even if I accepted intellectually, then the next step which you say is the divergent CPE requirement, I don't know on what basis you would impose those.
5635 MR. MAYRAND: Well, if I may comment on this, Mr. Chair, I still think that no matter which way you slice it and dice it, you know, each specialty service has indeed filed a business plan in order to obtain their licence and that business plan of course referred to ‑‑ in the case of Cat 1s and analogs as the case may be ‑‑ access privileges.
5636 But that's not some esoteric notion. That carriage was related to a certain percentage penetration in the distribution market and I certainly think there is nothing wrong in the Commission tailoring expenditure commitments based on not just a theoretical rule, but on the actual threshold of carriage.
5637 THE CHAIRPERSON: Michel une dernière question?
5638 CONSEILLER MORIN : Dans la Loi canadienne sur la radiodiffusion, je pense qu'on parle de programmation canadienne. On parle aussi, enfin, pas de contenu, le mot " contenu " n'est pas, mais on ne parle pas de libre marché et je ne pense pas qu'on parle de consommateur comme tel. Ce n'est pas dans la Loi canadienne de la radiodiffusion.
5639 Nous, on doit être les fiduciaires de la Loi canadienne sur la radiodiffusion.
5640 Les objectifs de la Loi canadienne de la radiodiffusion sont peut‑être plus politiques et sociaux que le marché et le consommateur.
5641 J'aimerais avoir vos commentaires là‑dessus.
5642 MS ASSHETON‑SMITH: If I may, this notion has been raised by a number of parties, that the Broadcasting Act doesn't refer to market forces, it's not an objective, competition is not an objective. That's true.
5643 The Federal Court of Appeal, however, has recognized the ability of this Commission to use market forces as a tool to achieve the objectives of the Act. It explicitly said competition may be relied on by the Commission as a tool to achieve its objectives. You have that discretion.
5644 That's not to say that you are required to, and certainly it is within your purview to decide when and where market forces will be useful for achieving the objectives of the Act.
5645 So we are not saying it's an objective that you should be trying to achieve. Market forces for market forces, I think everyone would agree, is not something that you should be trying to achieve. However, it is within the mandate of the Commission under the Broadcasting Act to use market forces where appropriate to achieve those objectives.
5646 COMMISSIONER MORIN: Thank you.
5647 THE CHAIRPERSON: Thank you very much. I think those are all our questions. Thank you.
5648 Madam Secretary...?
5649 THE SECRETARY: Thank you, Mr. Chairman.
5650 I would now invite the next intervenor to come to the presentation table, Pelmorex Communications Inc.
5651 THE SECRETARY: I would now invite Mr. Pierre Morrissette to introduce his colleagues, after which, Mr. Morrissette, you will have 15 minutes for your presentation.
5652 Thank you.
PRESENTATION / PRÉSENTATION
5653 MR. MORRISSETTE: Good morning. My name is Pierre Morrissette and I am the Chairman and CEO of Pelmorex Communications Inc., the parent company of The Weather Network and MétéoMédia.
5654 With me today, sitting on my right, is Gaston Germain, President and Chief Operating Officer. On my left is Paul Temple, Senior Vice President, Regulatory and Strategic Affairs. Next to Paul is Luc Perreault, our Vice President, Affiliate and Government Relations.
5655 We bring a unique perspective to these proceedings as a broadcasting panel that collectively has more than 60 years experience working as cable and satellite distributors.
5656 Mr. Chairman, Commissioners, we believe the real opportunity in this review is to build an even stronger, more successful Canadian broadcasting system. Ensuring access to diverse high‑quality Canadian content is a fundamental objective that underlies the Broadcasting Act, as valid today as it was 40 years ago. It's not about simpler rules, it's about the right rules.
5657 Ce matin, nous voulons discuter avec vous de notre vision d'un nouvel environnement réglementaire et vous adresser nos commentaires sur les questions mises de l'avant par le président dans son allocution au début de l'audience.
5658 Nous nous attarderons aussi sur l'impact de la déréglementation telle que proposée par les EDR.
5659 Our starting point for a revised regulatory framework is today's success. The Canadian broadcasting system is the envy of the world because of the number of domestic television services and the quality, quantity and diversity of the Canadian productions they broadcast.
5660 The current regulatory regime has built this system. We won't repeat the CAB's presentation on this point, except to say that we are proud of the contribution we have made to that success.
5661 Our vision of the future is a Canadian broadcasting system that can meet the challenges of new technology and competition without ever diminishing its contributions under the Broadcasting Act. It is based on the ideas contained in the Statement of Broadcasting Principles put forward by a large number of independent programmers in this review. These principles ensure a system that reinforces Canadian culture and identity, where Canadians have a broad choice of Canadian programming and where Canadian content and diversity take pride of place.
5662 Gaston Germain will now provide our responses to the Commission's questions and proposed model within this context.
5663 MR. GERMAIN: Thank you, Pierre.
5664 First, the size of basic service.
5665 We do not see how the public interest and the objectives of the Broadcasting Act would be furthered by limiting the basic service to priority over‑the‑air television stations and 9(1)(h) services.
5666 Rather, we see value in proposals that would require BDUs to also distribute on basic those specialty services that make a significant contribution to the objectives of the Act in terms of the exhibition of Canadian content and their expenditures on Canadian programming.
5667 The Commission has also raised the concern of offering basic at the lowest possible price. The cost of basic has particularly become an issue since it was left to the discretion of BDUs. As the following table from our February filing shows, the rates have skyrocketed since rate regulation in 2001 independently of programming costs. It is clear that the affordability of basic is largely unrelated to its size.
5668 With respect to access rules, our position outlined in the Statement of Broadcasting Principles is that analog and Category 1 services should be considered core services and guaranteed access to the digital broadcasting system. Also, any licensed Category 2 service that agrees to match Category 1 contributions should be added to the rank of core services.
5669 As major cable operators have indicated in this proceeding, capacity will cease to be an issue in a digital world, so there is no reason to limit access by licensed Canadian services to distribution networks or to limit access by Canadian consumers to Canadian services.
5670 It clearly furthers the policy objectives of the Act to ensure the Canadian services that make strong contributions to creating and showcasing Canadian content should have greater access privileges than foreign services that make almost no contribution.
5671 Services that are licensed by the Commission and that are deemed to be valuable contributors to the system, should not have to go through a second arbitrary licensing process at hands of the BDUs.
5672 Our proposal on genre exclusivity is to maintain it both between Canadian services and with respect foreign services. We would base it on niche categories and not on broad categories, and here is why. We feel that all the drivers that necessitated genre exclusivity in the first place still exist: strong foreign services, a relatively small domestic market and the need to finance significant regulatory obligations.
5673 Without niche categories our distinctive Canadian services will slowly blend into homogenous offerings like so many American services have done. Major broadcasters and BDUs would benefit but the broadcasting system and consumers would be the losers with a loss of programming diversity and independent voices.
5674 Genre exclusivity rules are needed to ensure a diverse array of programming choices, strong Canadian content and diversity in broadcasting players.
5675 Now, on the issue of advertising we do not believe BDUs should have access to advertising revenues from on‑demand services or from local avails. Access to advertising by BDUs undermines the business model for programming services. It only serves to escalate the conflict of interest of BDUs in their dual roles as distributor and programmer.
5676 And with respect to local avails, the two minutes per hour on foreign services should only be used to promote Canadian services. That was the original intent when the use of foreign ad avails was approved. It's an important contribution to the broadcasting system by foreign services and should not be watered down.
5677 BDUs should absolutely not be able to demand and sell advertising on Canadian services. Few services are ever able to negotiate a rate increase after launch, leaving advertising as the only means to finance new and innovative programming.
5678 BDUs have far too much bargaining power for a fair negotiation of advertising inventory, especially with independent services or services seeking carriage.
5679 Finalement, je voudrais vous entretenir sur le sujet de la prépondérance.
5680 Dans le but de simplifier la réglementation actuelle, nous avons proposé de remplacer toutes les règles d'étagement et d'assemblage en les simplifiant via une obligation simple de prépondérance des services canadiens.
5681 Notre énoncé de principes de radiodiffusion recommande que les deux tiers de tous les services discrétionnaires offerts par les EDR soient canadiens et que les deux tiers de tous les services reçus par les consommateurs soient aussi canadiens.
5682 Cette prépondérance de deux tiers sera essentielle afin de maintenir le succès du système canadien de radiodiffusion lorsque les filtres analogiques et les règles d'assemblage seront disparus.
5683 Dans l'univers de 500 canaux, l'accès par lui‑même n'est pas assez pour assurer la prédominance des services canadiens.
5684 MR. PERREAULT: The BDU regulatory model that Rogers and Bell presented last week largely ignores Canadian content, diversity and the objectives of the Broadcasting Act. Their proposals are anchored on the scare tactics supported only by anecdotal evidence that Canadians are leaving the broadcasting system for the internet. In fact, the internet is not a threat to the BDUs.
5685 At the same time as they increase broadband subscribers, BDUs are also increasing basic cable and satellite subscribers. This is a long term trend as the following table from our February reply submission shows.
5686 As subscribers who have both internet and broadcasting services decide where to spend their time, it is broadcasters and not the BDUs who must innovate and face the internet competition. If the internet is a threat to the system then, in our view, the best strategy is to strengthen the Canadian programming services. Denying Canadian services access, removing genre exclusivity and eliminating promotional avails on foreign services only weaken Canadian services.
5687 MR. TEMPLE: Commissioners, the BDU model will cause lasting harm to the Canadian broadcasting system. Pelmorex strongly believes that the market forces that should sustain deregulation are rendered ineffective by the excessive market power that BDUs command within the broadcasting system.
5688 Mr. Chairman, you correctly remind us that what business needs is certainty, predictability and less arbitrary decisions. We can't think of a model that adds more uncertainty to programming services than the regime proposed by BDUs.
5689 On each of the key issues the BDUs' proposal solidify and expand their already excessive market power at the expense of diversity and Canadian content. In a digital world viewership information from their set‑top boxes tilts this imbalance even further in their favour.
5690 BDUs argue for a strict minimum of mandatory services on basic, according them with the power to package and tier the remaining services as they see fit. This proposal completely decouples contributions to the broadcasting system from carriage on basic for specialty services. It has the potential to leave valuable Canadian services without the resources to meet their regulatory obligations.
5691 Likewise, BDU access proposals set them up as a regulator deciding which services are, in their words "worthy of launch or continued carriage". This gives them an incentive to deny access and distribute cheaper American services or to launch their own house brands. This access policy does not empower the consumer. It empowers the BDUs.
5692 Without genre rules BDUs can launch or threaten to launch competitive services. Again, these include their own directly competitive house brands for which they would have an overwhelmingly unfair advantage.
5693 Under proposed BDU genre rules of broad shifting categories, services can morph into just about anything. The example of the Nashville Network becoming Spike TV, a men's service, would become more common under the BDU model. It's customer unfriendly and results in a loss of diversity of programming and voices and is inconsistent with the BDUs own packaging strategies.
5694 BDU VOD proposals amount to approving a parallel and competitive broadcasting system under the control of cable. VOD is essentially a monopoly service. It's generally available only through one supplier in a market and should be regulated accordingly.
5695 Like an iceberg many of the consequences of relaxing VOD rules are hidden below the surface. Cable operators control menus, the programming guide, marketing and promotion. They enjoy a powerful competitive advantage to their ability to extract subscriber behavioural profiles from the digital platform. If left unchecked they can use this business intelligence to identify top programming, acquire it directly, counter program with on‑demand content and undermine the specialty programming and over‑the‑air sectors.
5696 Pelmorex calls for a moratorium on VOD rules or the expansion of those services until a separate proceeding can be held to better understand and deliberate the long term implications of VOD to the Canadian broadcasting system.
5697 M. MORRISSETTE: Monsieur le Président, nos recommandations ont pour but de préserver et de construire sur ce que nous avons atteint en termes de contenu canadien de haut niveau, de diversité et du caractère distinct des services que des Canadiens peuvent regarder.
5698 Pour nous, comme pour tous les services indépendants, la composition du service de base, l'accès et la protection de genre sont les sujets les plus importants de cette instance.
5699 Ces trois sujets représentent d'immenses enjeux pour nous et pour tout le système de radiodiffusion.
5700 Following the proceedings the result of your deliberations will be felt for years to come. We have argued for evolution, not revolution because the system is working extremely well for all stakeholders and regulatory change can produce irrevocable consequences.
5701 We have tried to craft our proposals to offer a balance in the broadcasting system where all parties can benefit and prosper; consumers, broadcasters of all sizes; producers as well as distributors. And we believe that our proposals will offer a strong legacy to Canadians by ensuring an already great broadcasting system becomes even better.
5702 We have left untouched in our oral comments some important issues such as dispute resolution, undue preference, packaging of French‑ language services, satellite uplink payments and many others. As time permits we would be glad to discuss our detailed proposals or answer any questions you might have on our presentation.
5703 Thank you.
QUESTIONS BY COMMISSION / QUESTIONS PAR LA COMMISSION
5704 THE CHAIRPERSON: Thank you very much for your presentation. Let me go through the points with you so I understand them correctly.
5705 First of all, on the size of the basic service that chart that you have put in there is fascinating. It is that since the date of deregulation how the fees have increased and presumably the size of the basic package has increased as well.
5706 Do I understand that you want us to go back to prescribing a minimum basic package that every BDU has to offer? Is that the implication I am to take from this?
5707 MR. MORRISSETTE: No. Our presentation outlines the fact that the affordability of the basic package has little to do with price increases on the programming side.
5708 THE CHAIRPERSON: Yes.
5709 MR. MORRISSETTE: Since deregulation the price of basic has escalated and there is little correlation to increasing programming prices.
5710 I will pass it over to Paul to add to this.
5711 MR. TEMPLE: Just on that specific matter, one chart we didn't include in our oral presentation but was included in one of our filings was also relating to the cost, the increases in basic to the increases in programming costs. And I believe that showed, again, the same point.
5712 The increase in ‑‑ I'm looking desperately for the chart. But what it said is that the cost of programming on services on basic had risen by a few pennies a year whereas obviously the rate increases were typically in the range of a couple of dollars a year.
5713 MR. MORRISSETTE: I might add that for the Weather Network, MétéoMédia, specifically and most specialty services to my knowledge, the rate increases have been negligible. In our case for 20 years we have been offering our services at exactly the same rate. So it's no correlation whatsoever with respect to the cost of basic.
5714 THE CHAIRPERSON: So on basic package, basically you see us saying a basic package must include the following and then leave it up to each BDU to structure how big the basic package would be?
5715 MR. MORRISSETTE: I will ask Mr. Temple to outline our proposal on the composition of basic service.
5716 MR. TEMPLE: Yes, there would be a minimum mandatory element over‑the‑air and whatnot.
5717 The main point of difference between ourselves and, I think, the BDUs is that we agree that additional services should be permitted to be carried on basic. The point of difference is who decides and in our view it's a matter of the Commission deciding which services are eligible or the BDU. And I might point out you know there is a lot of talk about consumer choice, but in either case the consumer probably doesn't have an awful lot to say about it.
5718 And so our view is what is best for the system? What is best ‑‑ what approach is best to support the objectives of the Broadcasting Act? And we would much rather rely on the Commission establishing criteria, whatever they may be, that are going to further the objectives of the Act rather than BDUs deciding on some other basis. I'm not sure what basis they would decide and I am not going to go to their motives. But we would be much more comfortable with the Commission establishing those criteria.
5719 MR. GERMAIN: Mr. Chairman, if I can just add one point to that, I think Paul is quite right that there is not a lot to distinguish between what we are proposing and what I think most of the BDUs are proposing.
5720 But we do emphasize that some of the core services ‑‑ we recognize that there is ‑‑ at some level there should be an access and a distribution recognition that is commensurate with the contribution that some services make, measured however the Commission determines that it should but the presumption at least that Cancon and expenditures would play a role. But those are directly derived from the obligations under Act and the objectives of the Act.
5721 THE CHAIRPERSON: But different criteria than the 9(1)(h) criteria, I gather?
5722 MR. GERMAIN: Yes.
5723 THE CHAIRPERSON: And on access I am fascinated. Basically you are suggesting we keep the present access formula but you also provide that any Category 2 can become a Category 1 if they live up to the required content and CPE rules, if I understand that correctly.
5724 MR. MORRISSETTE: That's correct.
5725 Well, just a starting point on access, this is a fundamental for any specialty service whether it's a long service that has been in the system for a lengthy period of time or a brand‑new entrant. Without access you just simply don't have a business.
5726 Even if we are an established services such as ours or other independent services, because it's not just ourselves; it's all independent services, access is so fundamental that to not have it when you enter in negotiations you always have this level of uncertainty as to whether it could be removed. It's a hammer in negotiations that is just there.
5727 And so it's just one of those elements that we think there is no capacity issue and it's just one of those fundamentals that must be preserved.
5728 THE CHAIRPERSON: Operationalize this for me. How would we actually do this? Would we have annual hearings, every three years or something and saying any Cat 2 that's there who wants to become Cat 1 can make an application? I mean I ‑‑
5729 MR. TEMPLE: No. We have a very specific plan. Our proposal is that Category 2 licensed services ‑‑ so that would include only services that have launched ‑‑
5730 THE CHAIRPERSON: M'hm.
5731 MR. TEMPLE: ‑‑ would have the opportunity within some timeframe that the Commission might establish, to file and make a case that they can increase their Canadian content and exhibition commitments to warrant access; in effect, migrate to Category 1.
5732 The fundamental rationale behind that is our belief that if the Commission is going to issue a licence it has got to mean something. You are a regulatory body that has a great responsibility and if you deem a service is going to make a contribution to the Canadian broadcasting system then it should be carried.
5733 And so if there is a criteria ‑‑ if there is a benchmark that warrants being licensed, if that is Canadian content or whatever, then people will have to step up to the bar but they should have access.
5734 And in terms of new applicants, not necessarily existing licensed Category 2, but if anyone else wants to offer a service then they have to bring forward an application just as people do for over‑the‑air or radio and it will be judged on its merits. And that repatriates the significance and the meaning of holding a broadcasting licence as a specialty service.
5735 And that's where we are coming from.
5736 THE CHAIRPERSON: So you mean not only Category 2s can become Category 1s but some brand new service can make an application to become a Category 1 too, according to you?
5737 MR. TEMPLE: Why would we want to limit the number of Canadian services, that there could be new wonderful service ideas? Why do we want to close the door? You know, they may be fewer in coming.
5738 I don't know, but surely the Commission would want to leave itself open to receiving applications and enable Canadians. And that's what the Broadcasting Act is about. It is encouraging new voices, new expression, new content.
5739 THE CHAIRPERSON: But do you want to maintain genre exclusivity as it is right now?
5740 MR. TEMPLE: Yes; yes, we do. We believe that's fundamental to the whole package and we have a detailed proposal on that as well.
5741 MR. MORRISSETTE: On the question of genre exclusivity there are two, perhaps three make or break policies in our view. One has to do with composition of basic; two has to do with genre exclusivity and the third is access. And this is not just for MétéoMédia and the Weather Network. It's for all independent services.
5742 In the area of genre exclusivity we have a very large number of specialty niche television services in this country today and the system has worked very well. The Canadian market is very small and when you segment it further by niche categories it becomes even smaller.
5743 And the only way that many of these services can exist and provide quality programming at an affordable price to subscribers with high Canadian content is to be able to exploit this particular niche category in a successful way. Once we segment that niche category we are segmenting something that's already very small and it's only going to have one effect. It's going to push down the ability to invest in the quality programming that is available.
5744 I could go at greater length to explain why it is very important to preserve genre exclusivity; many other reasons as well.
5745 THE CHAIRPERSON: You have heard Rogers' proposal suggesting that we broaden the categories of genres into basically classes, one of them lifestyle, one of them sports, et cetera, and at least for Canadian services allow for competition among genres.
5746 Now, you suggest that would be a bad idea and it would lead to homogeneity and sort of everybody centring at the mass rather than having the discrete genres that we have right now. I mean couldn't it be just the opposite? I mean, that the more you have that people have to try to differentiate themselves and therefore you don't have a blending in the middle but you want to standout, and therefore people will go to discrete markets for which there is appeal?
5747 MR. MORRISSETTE: Well, I will just kick it off and have Paul give a more detailed response.
5748 In our case our business model is broad reach and in every region of Canada. We serve 1,300 communities.
5749 Now, it's important to appreciate the fact that our business model allows us to cross‑subsidize and sustain a French service which is barely breakeven on its own. It enables us to not just focus on the large markets in this country but to extend our local content; 100 percent Canadian content, I might add, to 1,300 small communities across the country.
5750 If there were another entrant and it would dilute our revenues, potentially dilute our carriage and certain service unless access is maintained; it would inevitably reduce our ability to spend and cross‑subsidize our markets the way we do today. It would push us to focus on the larger markets which contribute the most to our service.
5751 Paul, if you can?
5752 MR. TEMPLE: The Rogers' model, as I understand it, is that there would be some number of broad categories and if you met the criteria of that category then you could launch a service. I guess there is a ‑‑ and they seem to allude to the fact that, you know, in the U.S. market there is no genre protection and there is still distinct genres.
5753 But if you look at the U.S. market genre is largely limited to the name of the service. We actually looked at this evening's schedules and Arts & Entertainment; presumably focused on arts, has Cold Case, CSI Miami and Intervention playing this evening. Lifetime which was one time oriented towards women's programming has Frasier, Will & Grace and they have got the Golden Girls. MTV, once the music video service, has America's Top Model, The Hills and The Paper. And a little ironically, even the weather channel in the U.S. has Storm Stories and When Weather Changed History.
5754 So to us, without some kind of meaningful genre regime, services are going to change their programming strategy.
5755 With regards to ‑‑ the problem with genre protection ‑‑ not the problem but with eliminating it, is that all the reasons we established genre exclusivity are still in effect, as Pierre mentioned, small markets, a market again and a smaller market serving Quebec; English Canada beside a large U.S. market. These factors are still there. The Canadian market isn't any bigger than it was awhile ago. So if you are going to say, as Rogers is proposing, "Well, let there be competition" it is just going to drive people to lower prices and whatnot.
5756 The other issue, though, is that we have created a problem now where distributors are programmers and that is going to give them a tremendous advantage. They are going to be able to counter‑program. When they ‑‑ I don't think people realize the power that the digital set‑top boxes have given BDUs. They can monitor everyone's viewing. They know who is watching what, when those programs are on. They know that by geographical area. That gives them a tremendous advantage to counter‑program against everyone else.
5757 So once we open those or eliminate genre exclusivity it's just going to have the consequences that Pierre suggested earlier.
5758 MR. MORRISSETTE: If I can just add one very real experience? In the 1990s we launched a weather network in the U.K. and we were fighting for distribution. But very shortly after that there was another weather service that launched concurrently. So we were fighting each other, not just for distribution but on the basis of price as well as the number of systems that would carry us. It was a distributor's delight. They could beat us up on rates which they did. It drove the rates down like crazy. It fragmented the market. It split the market to the point where neither service was sustainable.
5759 About six months later we both realized that we were doomed, that we didn't have enough subscribers; the rates were too low to carry a level of quality programming. We merged but it was too late. You know, the rates were already way too low and within another six months both of those services closed down. And to this day, about 12 years later, there is still no weather service in the U.K.
5760 THE CHAIRPERSON: And the fact that you have now established a very powerful brand and are well known and have a loyal following is not enough to protect you?
5761 MR. MORRISSETTE: We have evolved over the last 20 years and we have built up our service and, yes, we do appreciate the fact and are proud of the fact that we have been successful. But you know, everyday in every market across this country we face direct competition for weather impressions and probably one of the bigger sources of weather impressions in this country is still radio.
5762 So we are constantly fighting for market share from all platforms and it's a fight for audience. Our business is not about big audience numbers. It's about a large reach which translates into a small share. It's our challenge after we have competed for audience share, competed for our share of weather impressions to monetize that through advertising. And we know that there are many, many different alternatives for advertising. Our rates are fixed.
5763 So it's all about, you know, developing market share and the advertising ultimately.
5764 MR. GERMAIN: Mr. Chairman, if I could add one thing, I think, to your question and the answer to your question; what underlies that is some notion of how ‑‑ what the dynamics of market forces are, where a specialty service such as ours operates.
5765 And there has been a very dramatic change in that landscape in the last 10, 15 years. Programmers have consolidated, BDUs have consolidated and BDUs are also in the programming gig. And laterally we have got other platforms that are coming into play, internet and mobile platforms, which we think are more of a threat to the programmers than they are to the BDUs.
5766 But those four factors have had the effect of shifting market power to a few groups. So there are market forces at play but market forces that would allow ‑‑ that would suggest that levels of protection whether they be access or genre can be removed and let people with the strongest brands fight it out with others, I don't think necessarily apply here when market power is localized in a few groups in the system.
5767 And the way it's likely to play itself out for us is we will be competing against either a BDU programmer or one of the existing groupings of programmers, strong players, who would focus on our genre in the large urban markets. We would end up overserving those markets but to the loss of the sparsely populated markets and including probably the French market because we would have difficulty sustaining that level of service as well.
5768 So the market forces, I think, aren't working as well as everybody would like to think that they are.
5769 THE CHAIRPERSON: I notice in your submission you say nothing about fee‑for‑carriage. Do you have any views on it?
5770 MR. MORRISSETTE: I guess it is more the issue for conventional broadcasters. Our concern is the trickle‑down effect from the issue of fee‑for‑carriage. If it were to be allowed, we have heard a certain number of BDUs express the fact that they would pass on the cost to subscribers. I think that they would also very much try to reduce the cost of existing programming services.
5771 That is ever present in our environment and it is an issue that we face regularly in terms of our particular subscriber fees and those of other independents and other services as well. So that is one of the concerns we do have.
5772 THE CHAIRPERSON: From that I take it you have no issue with the concept, you are just worried about the economic effect it will have on you?
5773 MR. MORRISSETTE: Rather than no concerns over the issue, I guess, we have not focused on that particular issue because there are three others which for us could have catastrophic effects versus this one.
5774 THE CHAIRPERSON: Then on the issue of VOD and BDUs advertising on VOD, you sort of make a strong point in saying this is an unexplored area and we should have a special hearing on it to understand the long‑term effects.
5775 I would like you to elaborate on that because you have heard Rogers and others and there is the whole idea of how does the whole broadcasting system keep its viewers, especially for advertising purposes, rather than seeing them migrate over to a new media and one way of doing this obviously is through targeted advertising and dynamic ad insertion. The persons best placed to do that are the BDUs.
5776 Now we can talk about whether they can do it on their own or if they should share with the broadcasters but that is clearly one way that Rogers and others see that we can make sure that advertising remains relevant and the broadcasting system is a generator of great revenue and serves a need for advertisers to really target and reach these particular micro‑audiences that they want to reach.
5777 In effect, it is a way of growing the advertising pie rather than redistributing it, et cetera, and the BDUs suggest that is why they should have rights to advertise on VOD, et cetera.
5778 Do you see that as a potential, do you see that as something that should be explored or do you see that mostly as a danger to you, et cetera? I am not quite sure from your presentation where you come out on this.
5779 MR. MORRISSETTE: We view the whole area of VOD as having great potential. The development of new technologies that contribute and support targeted advertising also has great potential. In fact, there is more and more of a trend in that direction whether it is through the internet or other platforms. So to be able to accomplish that via cable is a great opportunity.
5780 The issue becomes programming rights and advertising revenues and whose domain is that and also the kinds of agreements to be reached with BDUs to take advantage of their technologies that could allow targeted advertising.
5781 I would like to pass it over to Paul Temple to elaborate.
5782 MR. TEMPLE: As Pierre said, we are quite excited, we think it is a wonderful opportunity. It just simply boils down to who gets that new piece of the pie and this is a turning point because now is the time to get the rules right.
5783 We have used the analogy of ad avails because we see the same trend happening. When ad avails on U.S. services were first permitted to be used by cable operators, they were to be free to Canadian services. Then they became cost recovery. Now they want to take those and use them and generate revenue for themselves.
5784 So we want to make sure that the rules that apply to VOD advertising are firmly established, everyone understands what is going on, and the proposal, I think, of Rogers was well, we will do it kind of at a cost recovery and then we will maybe kind of share any profits and whatnot.
5785 It is a monopoly service. They are tremendously excited about VOD because they know their main competitor can't offer that service. So what is the cost ‑‑ all these issues, what is the cost going to be to transcode the programming? Who is going to do that? Can I do that or will they have a monopoly to transcode programming?
5786 Because right now it is weak. They won't let us do it and it is too expensive to have them do it, so we don't have programming on VOD. Will they be able to counter‑program? Will they be able to bid on rights of programming?
5787 All these issues have to be resolved before we open the door to these new services, otherwise we could get the system wrong and it will be very difficult to turn back. So excited we are but we are worried that it be done properly.
5788 MR. MORRISSETTE: This is going to become a major broadcasting component in our system. It will be a parallel broadcasting system to our traditional channels.
5789 It is programming à la carte, individual programs through VOD offerings and it is very, very important to determine the role of traditional programmers in that whole environment, and as opposed to everything ‑‑ we have used the term "morphing" a lot in this hearing ‑‑ morphing towards the BDU at the expense of the domain of programmers.
5790 THE CHAIRPERSON: So your suggestion is we basically hold a totally separate hearing on VOD, the future of VOD and the rules on VOD before we allow any advertising by BDUs on VOD?
5791 MR. MORRISSETTE: It is too important an issue to deal piecemeal, ad hoc, without having examined the full ‑‑ all the big picture aspects and ramifications of VOD programming in Canada today, next year and five years from now.
5792 THE CHAIRPERSON: And I presume when you talk about VOD, you include SVOD?
5793 MR. MORRISSETTE: Yes, we do.
5794 THE CHAIRPERSON: Okay, thank you.
5796 CONSEILLER ARPIN : Merci, Monsieur le Président.
5797 En parlant justement de publicité, mais seulement sur la vidéo sur demande, mais une des questions qui est dans cette audience‑ci, c'est l'élimination des règles de limitation de publicité sur les canaux spécialisés.
5798 Quelle est votre opinion sur cette question‑là?
5799 M. MORRISSETTE : Monsieur Arpin, je crois qu'avoir une limite sur le nombre de minutes de publicité sur un service spécialisé comme le nôtre, ça s'applique plus ou moins. Je crois que les forces du marché dans ce contexte‑là viennent s'appliquer.
5800 Pour nous, dans notre cas, on a décidé il y a longtemps que de dépasser 12 minutes à l'heure nuirait à notre habilité d'augmenter nos cotes d'écoute, et donc, on se limite nous‑mêmes à 12 minutes. Alors, on est satisfait avec ça. Alors, pour nous, nous sommes indifférents à l'augmentation de cette contrainte.
5801 CONSEILLER ARPIN : Maintenant, Rogers, dans son projet, propose qu'ils aient accès à des minutes publicitaires sur les canaux spécialisés canadiens. Je sais que dans votre mémoire vous avez commenté cette question‑là. Alors, peut‑être que pour...
5802 M. MORRISSETTE : Pour le record, nous sommes catégoriquement opposés. On négocie déjà des termes d'accès, et pour venir davantage, venir négocier des minutes de publicité qui réduiraient, que ça soit directement ou indirectement, notre habilité de vendre notre plein potentiel de nos minutes publicitaires irait à l'encontre de notre habilité de générer les revenus nécessaires pour rencontrer toutes nos obligations et de continuer à croître.
5803 Et puis ça, c'est le transfert d'une poche à l'autre de rendement économique qui vient tout simplement à cause de market power et l'habilité d'avoir un levier extrême face aux titulaires de licence pour venir exproprier des recettes des poches du programmeur au distributeur.
5804 CONSEILLER ARPIN : Maintenant, si le Conseil dans sa sagesse arrivait à la conclusion qu'il acquiescerait à la demande des exploitants d'entreprises de distribution et leur permettrait d'avoir accès à du temps publicitaire sur vos services, est‑ce que ça soulèverait des enjeux particuliers, commerciaux particuliers, par exemple, solliciter les mêmes clients que vous avez?
5805 M. MORRISSETTE : Absolument. Ça ouvre toute une situation où notre distributeur devient un concurrent direct à notre service via le secteur de revenus publicitaires sur lequel on dépend entièrement pour maintenir nos obligations actuelles et pour continuer à croître. C'est intenable.
5806 CONSEILLER ARPIN : Monsieur Morrissette ou Monsieur Germain, puisque c'est vous, dans le texte, qui en avez fait allusion.
5807 Vous avez parlé de la prépondérance et vous avez dit que votre position, c'était que deux‑tiers des services discrétionnaires offerts devraient être canadiens et deux‑tiers des services reçus devraient être canadiens, et à la toute fin du même paragraphe, vous dites, dans l'univers des 500 canaux.
5808 Deux‑tiers de 500 canaux, ça en fait beaucoup de services canadiens. Est‑ce qu'il y a l'économie de marché canadien pour être capable de soutenir deux‑tiers de services canadiens?
5809 M. GERMAIN : Pardon, Monsieur Arpin. On pourrait se poser la même question à 250 aussi ou à 350. C'était tout simplement un exemple que le niveau de capacité et les plates‑formes augmentent grâce à la technologie et les niveaux de compression et tout ça. Mais le principe se livre entièrement à ce que nous croyons sont les objectifs de l'Acte sur la radiodiffusion, et c'est tout simplement de réaliser...
5810 Je recule un peu. On pense, en fait, que ce que nous proposons simplifie un peu la réglementation qui existe aujourd'hui, parce qu'on ne propose pas de le faire au niveau du packaging. Alors, c'est au niveau de l'offre et au niveau de la recette.
5811 CONSEILLER ARPIN : C'est pour ça que, enfin, je pose la question, parce que certains nous ont dit que ce qui était important pour eux, c'était le nombre de canaux auxquels les gens souscrivaient plutôt que le nombre de canaux offerts.
5812 Vous, vous dites, vous avez une règle double, nombre de canaux offerts et nombre de canaux souscrits, et vous nous parlez d'un univers de 500 canaux. Un calcul mental rapide là, ça en fait 330...
5813 M. MORRISSETTE : Ça en fait pas mal, oui.
5814 CONSEILLER ARPIN : Ça en fait pas mal.
5815 M. MORRISSETTE : Monsieur Temple a une très bonne réponse à votre question.
‑‑‑ Rires / Laughter
5816 MR. TEMPLE: The reference to 500 channels, of course, is a reference to a song. I don't think ‑‑ it is just a saying, however many channels.
5817 COMMISSIONER ARPIN: Well, the CAB in ‑‑ Glenn O'Farrell wrote a paper saying that there is currently 430 something channels available here in Canada. So we are not far from 500.
5818 MR. TEMPLE: It is the count. Our proposal is specifically based on ‑‑ our preponderance proposals are specifically based on licensed discretionary specialty services and our point is that applied to licensed discretionary specialty services, both as to distribution and those received by a subscriber, it should be the 66 percent.
5819 We are not including all of the audio channels, all of the VOD and all of those channels, we are just looking at the ones that relate to specialty services.
5820 COMMISSIONER ARPIN: So you are even making ‑‑
5821 MR. TEMPLE: We are focused.
5822 COMMISSIONER ARPIN: You are quite focused, but you are even making the pool much smaller than I was understanding from your oral presentation.
5823 My concern is, is that pool ‑‑ is it realistic to think that there could be two‑thirds Canadian services on the total offering?
5824 MR. TEMPLE: Currently, I think, that is not a problem with the number of Canadian discretionary licensed services.
5825 There is no issue there.
5826 The reason we proposed this in terms of services being distributed, as well as being received, is that we don't want a world where BDUs decide ‑‑ and, basically, they alone decide what services will be added. The menu will simply grow full of U.S. services.
5827 If the discretion to add services is left solely to the BDU, we may see a world in five years where all of the new additions are U.S. services. We don't feel that that meets the objectives of the Broadcasting Act, so we are trying to create a simple incentive that says: You want to add foreign services? There is an incentive to add Canadian services.
5828 COMMISSIONER ARPIN: Okay. Let's take your answer for what it is for the English market, but, at the end of his oral presentation, your president, Mr. Morrissette, suggested that there might be issues specific to the French market and the availability of French services to subscribers.
5829 Could you expand on that?
5830 MR. TEMPLE: Our proposal is based on ‑‑ in our written brief, which is a little more extensive, the preponderance proposal that we make is applied to services, domestic and foreign, in the language of the market.
5831 In English Canada we are focusing on English‑language specialty services to foreign‑language specialty services in English. So the same principle would apply to the French market.
5832 COMMISSIONER ARPIN: That means, if I am following you and I hear what you say, that Videotron will have to remove from their current distribution over 50 services in English.
5833 MR. TEMPLE: No. No, it wouldn't apply to English services carried in French‑language markets.
5834 What we are saying is, focus on the main language of the market in question.
5835 If you are dealing with English Canada, you have to have two‑thirds English services to foreign‑English services.
5836 In a French‑language market, you would have to have two‑thirds French‑language services, and you couldn't have more than one‑third French‑language foreign services.
5837 COMMISSIONER ARPIN: That's exactly what I understood.
5838 Currently, I would guess that Videotron is offering some 250 services, altogether, 200 of which are in English.
5839 MR. TEMPLE: They wouldn't be in our count.
5840 They wouldn't be on either side. That's fine.
5841 And we hope that distributors in English Canada carry francophone services, but it doesn't go to our count.
5842 COMMISSIONER ARPIN: We all hope that, particularly when we go to hotels.
‑‑‑ Laughter / Rires
5843 COMMISSIONER ARPIN: Mr. Temple, in the discussion that you had with the Chairman on access, you dealt with the Category 2 that could migrate to Category 1.
5844 I wonder what is the interest.
5845 I think the sole benefit of having been granted a Category 1 licence a couple of years ago was that you had access. But the very day you launched, when you started to build your brand ‑‑
5846 I mean, you may legally have a right to access, but the reality is that you are there.
5847 And BDUs are saying that it is very hard to remove a service when they have done that, and it is even hard to move a service from one tier to the other.
5848 So why would a Category 2 come up and ask us to grant them ‑‑ which is already launched. That is what you say in your statement, an already launched Category 2.
5849 What would be the benefit in migrating from Category 2 to Category 1 when he has already launched? He is there.
5850 To get the branding, Category 1 means that it is going to cost him more money, and he will have to program more Canadian content.
5851 MR. TEMPLE: We propose that Category 2 services be given the opportunity, but not the requirement ‑‑
5852 COMMISSIONER ARPIN: No, no, I heard that, but I am trying to find out where is the opportunity.
5853 He is there. He is launched. He is across the board.
5854 And there are good numbers of Category 2 services that currently are carried by all of the BDUs, or at least the major BDUs. There still, probably, are smaller ones on which they may not be there, but there are a good number of Category ‑‑
5855 Okay. I can understand that there are some Category 2s that are on one or two BDUs, but there are also Category 2s that are on all of the major BDUs.
5856 MR. MORRISSETTE: Two significant incentives. If they are not carried across all systems, this would enable them to be carried across all systems.
5857 In addition, when it comes time to renegotiate, they cannot be dropped.
5858 COMMISSIONER ARPIN: But, then again, the same BDUs are saying that it is very hard to remove a service.
5859 MR. TEMPLE: I have been negotiating affiliation contracts, both as a distributor and as a programming service, for, probably, 25 years, and whenever someone tells me, "Don't worry, I will do it anyways," I always say, "Great. Let's put it in the contract just to be sure."
5860 If they are going to do it anyways, there is no harm, let's just put it in the rules anyways, and we can move on.
5861 I think that we are spending, collectively, so much time on an issue that, quite frankly, we go back to the kind of ‑‑
5862 If you have a licence, and it comes from a regulatory body that has determined you are making a contribution to the Act, you should get access.
5863 It has nothing to do with issues related to, "Well, if they don't have access, it will keep them on their toes," and, "They are getting a little sloppy and not very innovative."
5864 Every programming service struggles every day to be as attractive and as innovative as it can be, because it relies largely for its future on advertising revenues, and you are not going to get that if you are not appealing to the market.
5865 So there is lots of innovation. There is lots of hard work in maintaining these services as attractive as they can be.
5866 And arguments against access, quite frankly, are just not realistic at all.
5867 COMMISSIONER ARPIN: Thank you.
5868 Those are my questions, Mr. Chair.
5869 THE CHAIRPERSON: Commissioner Katz?
5870 COMMISSIONER KATZ: I am going to follow up on that question, and then I have one or two others.
5871 Let's try to call a spade a spade. Is your greatest fear that, by eliminating access and genre protection, vertically integrated BDUs, who today have the incentive to enter The Weather Network, like the Rogers of the world who are on radio and TV, will now have the open access to go right into that marketplace and compete with you?
5872 MR. MORRISSETTE: In this whole proceeding, a service like ours ‑‑ and I would venture to say every other independent, but they will have to speak for themselves ‑‑ has nothing but downsides.
5873 Our starting point is that we have the privilege, but also the responsibility of being on basic service across the entire country. Ninety‑nine percent of the households that subscribe to television in this country subscribe to our service.
5874 We all know that the distribution market is heavily concentrated. All it takes is one ‑‑ maybe more, but one to move our service to a tier ‑‑ and we have experienced that threat in the past ‑‑ and, all of a sudden, the number of households that we serve declines significantly.
5875 We are a fixed‑cost business, and this would have, immediately, a material impact, not just on our subscription revenues, but on our advertising revenues because of reduced audiences.
5876 Couple that with loss of genre exclusivity, and then we face a further decline in market share, perhaps with even some systems opting for their own local weather service, versus ours, maybe even having it dropped.
5877 I know it would be very difficult because of the strength of our brand, but the bottom line is, at the very least, an alternative weather service would significantly impact our audience levels and, hence, our advertising revenues.
5878 So the end result would be, in a fixed‑cost business like ours, that a 15 or 20 percent drop in revenue would go right to our profitability, and that would have a major material ‑‑ I would even use the word "catastrophic" effect on our business.
5879 First of all, like most businesses that are run efficiently and are reinvesting in extensive capital ‑‑ HD TV is a major commitment that we have facing us ‑‑ then we are in the situation where we could very quickly face a material adverse change clause in our loan agreements.
5880 This is real, and this is true ‑‑ every independent service would have that threat.
5881 The large players don't have those levels of risk. They don't have those levels of downside. But for an independent, that is our reality.
5882 So basic carriage for us ‑‑ fundamental.
5883 Genre exclusivity is fundamental.
5884 And access is also fundamental, because we just don't want anybody having that hammer over us to extract, theoretically, if it were allowed, a few minutes of advertising from our existing resources.
5885 COMMISSIONER KATZ: You have been very successful in evolving ‑‑ and I commend you for it ‑‑ into the internet space, as well. How has that evolution impacted your core business, if I can call it that, on television?
5886 Have you seen eyeball shifting to the point where your advertising revenue has been impacted to a negative extent on the TV side of it, or has it become a win‑win on both sides because one has supported the other, if I can call it that.
5887 MR. MORRISSETTE: For some services the internet represents a threat. It could be a substitute, it could be challenging to have the rights carry over onto the internet, because there are no borders for the internet.
5888 In our case, it has been significantly complementary. People use different screens to access the weather content. There is the television. It's the flagship. It's the dominant. It continues to grow. We have experienced record numbers in audience this past year.
5889 The internet is also rapidly growing, and that has also, for us, been a success story.
5890 The new frontier is wireless platforms, and we think that that will follow where the consumer is going to go, and that is another very attractive platform over time.
5891 But they are all complementary in our case.
5892 For a regular specialty programmer who requires rights from Hollywood or some other source, then there is a whole set of different issues and they may not be able to take advantage of the internet, and there it poses a significant risk.
5893 But, for us, it is complementary. We have been an early entrant. We have been extremely innovative in that regard. We spend significant amounts on technology to take advantage of these new opportunities.
5894 But, at the end of the day, the entire success of our business hinges on the strength and success of the flagship, which is our two television networks.
5895 COMMISSIONER KATZ: But you do see them as complementary, as opposed to substitutes; where other people have come before us and have talked about the fact that the internet will be a substitute and will cause erosion of the network and their business.
5896 MR. MORRISSETTE: We view it as complementary, and other broadcasters can, too, depending on the programming right that enables them to use those platforms as complementary opportunities.
5897 That is where we all have to be open and mindful in terms of future negotiations.
5898 I can't speak for a conventional broadcaster or a non‑information specialty programmer. We have our own business model as an information programmer.
5899 MR. TEMPLE: I would like to add that, as Pierre suggested, for some programming services the internet is a threat. You can't access rights or ‑‑ I won't get into all of that.
5900 The proposals that we have tried to put together, we have tried to propose that they would apply to all. I am sure that everyone looks at their own best interest, but we have tried to put forward rules that we thought would work for everyone.
5901 So while the internet may be less of a threat for us, we recognize it for other services.
5902 The main point in our filings is, if you want a Canadian expression, if you want a Canadian presence on the internet, then the best way to do that is to have strong programming services.
5903 I don't think we need strong BDUs, we need strong programming services, so that they can have that Canadian presence on the internet, and that is the focus of our points, in terms of whether the internet is a friend or a foe.
5904 COMMISSIONER KATZ: My last question has to do with renewals.
5905 You mentioned that in the number of years that The Weather Network has been around your rates have never changed. If anybody has leverage amongst specialty programmers, I would think it would be you folks, given your brand, and the reach you have as well.
5906 Can you give us some insight as to how negotiations take place, and why you haven't been able to lever, to some extent, your best interest?
5907 What I hear you saying is that you have one hand tied behind your back when you walk into renewals with the BDUs.
5908 MR. TEMPLE: Historically, as a dual service, at our option, we are carried on basic, and we have treated every BDU the same and have sought distribution on basic.
5909 As Pierre suggested, our business model is being able to have as broad a reach as possible. People don't ‑‑ some watch us for hours at a time, God bless them, but most people don't. They are in and out, so we have to be there and be constantly convenient.
5910 It is fundamental to our business model to be there.
5911 If the rules change ‑‑ and we have experienced this in terms of distribution undertakings that aren't required to carry us on basic ‑‑
5912 In one case we were moved, and it was only through a long and awkward and, I think, distasteful process, probably for both sides, that we were put back on basic.
5913 In a going forward world, if a BDU has an opportunity to launch a competitive service, sure, we might be put in a news and information package, along with ‑‑ probably the channel beside us would be their service. That is going to create significant harm. Just the threat of doing that ‑‑
5914 I mean, what leverage do we have? Unless we create a fight in public, what leverage do we have?
5915 If a BDU comes and says, "You can stay on basic, I know it's really important to you. I was thinking, maybe, of giving you half," what are we going to do? What resources ‑‑
5916 We don't have ten other channels where we can say, "Why don't we do a package deal."
5917 If the BDU says, "I am moving you," you are gone, because "I get to decide now" and I am gone.
5918 What am I going to do? Other than, maybe, raising a stink in the press and the media, and trying to mobilize subscribers and whatnot to phone in, or raise a stink, what is my leverage?
5919 Are we just going to kind of have all of these fights in public now, because small independent services have no leverage?
5920 MR. MORRISSETTE: The end result of that scenario, which we have experienced by the way, is that the resources that we have ‑‑ our profitability, gets immediately transferred to the BDU, and does not find its way, whatsoever, to the subscriber. It is just a shift of resources.
5921 In that context, the quality of our service is diluted, and, at the end of the day, our ability to meet our contributions to the Canadian broadcasting system is also diluted.
5922 The end game is a significant loss for us and the consumer.
5923 MR. TEMPLE: I think your original question was: Why didn't we raise the rate.
5924 We didn't raise the rate because it is set by the Commission, and the Commission hasn't increased it since 1980‑something.
5925 MR. MORRISSETTE: 1990.
5926 MR. TEMPLE: 1990. So, being on basic, we can't raise the rate.
5927 MR. MORRISSETTE: A quick calculation ‑‑ 23 cents 20 years ago may be worth about 40 percent of that today, so that's, what, about 10 cents today.
5928 So relative to purchasing power, our rate has significantly declined, yet we have gone from 125 employees in 1993, when we acquired the business, to about 400 today, and that is despite a fixed rate.
5929 That is because we have been doing the job in a very competitive environment to increase our share of audience and monetize it through advertising.
5930 COMMISSIONER KATZ: Those are my questions. Thank you very much.
5931 THE CHAIRPERSON: Thank you.
5933 COMMISSIONER CUGINI: I have a couple of follow‑up questions.
5934 On the issue of genre exclusivity, the CAB, when it was before us, on behalf of its members, suggested that all programming categories should be a free‑for‑all for all specialty services.
5935 Do you agree with that position?
5936 In other words, should you be able to show "Twister" ‑‑
5937 I was going to say "The Wizard of Oz", but I thought that would be too cute.
‑‑‑ Laughter / Rires
5938 MR. TEMPLE: We think that there should be some flexibility, or some additional flexibility. We recognize that.
5939 That, hopefully, would get rid of a lot of the problems associated with making applications to the Commission because you want to have a sports game show and you don't have any sports or game show categories.
5940 Some flexibility. I am not sure that we would just have it go away, because, in the extreme then, we could theoretically become a network devoted 100 percent to weather‑related movies, and I don't think that would be a good business proposition. We wouldn't do it anyways, but some flexibility is warranted.
5941 COMMISSIONER CUGINI: And that goes to, however, the criticism that genre exclusivity, really, is a broad term and it is not applied to the literal sense of the word.
5942 I know, Mr. Temple, that you cited U.S. examples, but for every U.S. example, we could probably cite a Canadian example, where one title might be seen on five or six different specialty services, both Canadian and U.S. titles.
5943 How do we come to some kind of compromise?
5944 MR. TEMPLE: I think that genre exclusivity has to have some flexibility in it, in the sense that if you are a science fiction‑based service, yeah, you are going to have movies. Does that mean that you are a movie network?
5945 There has to be a common sense test, but our proposal is that the Commission look at the nature of service definition. I think it is possible ‑‑ I mean, the Commission has, in a sense, been doing it, and has modified it slightly to accommodate sub‑genres.
5946 I don't think it has been a big problem. I think it is just something that requires some work.
5947 We have proposed some specific guidelines to assist the Commission, which I would be happy to read to you if you want, but they are already on the public record.
5948 Overall, it would be beneficial to the system. I don't think it would be that hard to manage.
5949 COMMISSIONER CUGINI: Thank you.
5950 Thank you, Mr. Chairman.
5951 THE CHAIRPERSON: Commissioner Morin?
5952 CONSEILLER MORIN: Merci.
5953 Un des paragraphes qui m'a le plus frappé dans votre présentation orale ce matin, c'est en page 9, la déclaration, c'est monsieur Temple, je pense, qui lisait ce paragraphe, et vous parliez des EDR et vous disiez :
« They enjoy a powerful competitive advantage through their ability to extract subscriber behavioural profiles from the digital platform. If left unchecked, they can use this business intelligence to identify top programming acquired... »
5954 Et donc, lancer leur programme.
5955 Si le Conseil devait toucher à la politique du genre, est‑ce qu'il y aurait une mesure, à votre avis, qui pourrait être prise pour diminuer l'importance que les EDR ont dans le système avec ces nouvelles technologies et qui leur donne un avantage que personne, finalement, n'a dans le système?
5956 Autrement dit, je songe, par exemple, dans cette hypothèse évidemment, est‑ce que ces données que les EDR sont les seules à posséder, que certains pourraient dire que c'est de l'information privilégiée, est‑ce que ces données devraient être rendues publiques, enfin est‑ce que vous avez une position là‑dessus si jamais, comme je le dis, le Conseil devait changer les règles ou, en tout cas, changer l'exclusivité du genre, se distancer de l'exclusivité du genre?
5957 MR. TEMPLE: With regard to the information collected through the set‑top box, whether genre exclusivity is maintained or eliminated, we have called for any information that is being collected by the BDU to be made available to the programming service, so quite separate from the issue of genre protection.
5958 We have proposed that in our filing, and that is also one of the points in the Statement of Broadcasting Principles that a number of other services have supported.
5959 For instance, if they are not collecting the information, then there is no requirement to provide it, but if they are collecting information, say, on who is watching our service, or some other service, then it doesn't matter whether there is genre exclusivity or not, they should be providing that information to that service.
5960 We are not suggesting that we get information on other services, but just information on our own service.
5961 We have to understand ‑‑ and it is an important issue that I don't think people are aware of ‑‑ that they are capable of monitoring all of this information.
5962 If you go to the U.S., a number of U.S. services, as part of their terms and conditions and privacy statement ‑‑ I mean, you can get it on the internet, and it is pretty powerful stuff.
5963 Indulge me ‑‑ the comcast terms of service under customer privacy ‑‑
5964 When you use our interactive or transactional services, such as video‑on‑demand, for example, our systems will automatically collect certain information about your use of these services.
5965 This may include information required to change your television channel, review listings in the program guide, to pause or fast‑forward through certain demand programs, or invoke a calling feature, among other things.
5966 It may also include information such as the time you actually use our services and the other features of our services and which menus and menu screens are most often used and the times that you are using them.
5967 Some of our systems might collect limited anonymous aggregate information using set‑top boxes and other equipment we use as aggregate information to determine which programs are most popular, how many people watch a program through its conclusion and whether people are watching commercials, for example.
5968 I can read you charters and a few others but that is the issue. So if they are going to collect information about us, we would like to be able to see it. We think that is only appropriate and helps.
5969 It doesn't level the imbalance in market power but at least it gives us a little something and that should be applied irrespective of the genre rules but arguable even more so because of any elimination of genre exclusivity.
5970 COMMISSIONER MORIN: So perhaps we will have to consider a new sort of rights to the programmers?
5971 MR. TEMPLE: Well, the fundamental issue is that when distributors were allowed to become programmers, safeguards were put in place and some of those safeguards are a little out of date. With the transition into video on demand, we don't believe the safeguards have kept up, and so we are very anxious about the lack of safeguards.
5972 That is one of the reasons why we have suggested a separate proceeding on VOD because what are the safeguards that will address this issue.
5973 MR. MORRISSETTE: In addition, as we move towards targeted advertising, dynamic display advertising, if programmers are to market‑sell this opportunity to their advertisers, obviously, you require access to that data, that information in order to present a compelling buy to the advertisers.
5974 So it is part of the deal and I think it is a great opportunity. Yes, I think that there ought to be some kind of rate card to access that kind of opportunity and that becomes a partnership then between the BDU and the programmer.
5975 However, that partnership starts to wane when the BDU may exclude certain information or not make it fully available, use it for its own purposes to develop their own programming rights and opportunities and sell the advertising themselves, perhaps against the same advertisers that we would be targeting. That is where all of a sudden it starts to get into very tenuous territory.
5976 CONSEILLER MORIN : Tout à l'heure, vous avez parlé du contenu canadien et des dépenses de programmation comme étant des critères extrêmement importants.
5977 La semaine dernière, j'ai évoqué au moins trois fois un modèle auquel je pensais. Je ne veux pas revenir là‑dessus, mais l'essentiel de ce modèle, ce serait de considérer le contenu canadien et la programmation canadienne, mais aussi de considérer le prix, et plus le prix serait bas du service, plus ce serait déduit, si vous voulez, du contenu et de la programmation dans un système de pointage.
5978 Est‑ce que sur le plan des principes, évidemment, en ce qui vous concerne, votre prix a été assez maintenu au cours des dernières années, mais est‑ce que vous pensez que dans les autres secteurs de la programmation, pour les indépendants, par exemple, est‑ce que vous pensez qu'un tel système aurait un certain sens?
5979 M. MORRISSETTE : Si on comprend bien ce que vous avez énoncé, premièrement, c'est simple, c'est prévisible, ça indique clairement les règles du jeu, ça favorise des systèmes qui contribuent de façon excellente aux objectifs du système de radiodiffusion canadienne, et la question de tarifs est aussi impliquée.
5980 C'est un système qui semble autoréglementé, en même temps, et aussi, c'est un système qui motive les différents services à rencontrer les objectifs de l'Acte afin d'atteindre un niveau de distribution qui est plus avantageux.
5981 Alors, pour toutes ces raisons‑là, ça semble être un système qui semble être quelque chose qu'on doit considérer favorablement. L'expression anglaise, the devil's in the details, c'est évident qu'il doit y avoir beaucoup d'analyse pour s'assurer que oui, c'est favorable.
5982 Mais aussi, si je comprends bien, ça permet au CRTC d'ajuster les normes du jeu au cours des années pour s'assurer que les niveaux maintiennent les niveaux de programmation canadienne de dépenses de programmation au cours des années, que ça va en contribuant davantage.
5983 Alors, c'est quelque chose que je crois qui est favorable et devrait être considérée.
5984 CONSEILLER MORIN : En tout cas, si je dépose, à la fin des audiences, ce système de pointage, j'aimerais obtenir beaucoup vos commentaires là‑dessus, parce que je pensais, notamment, aux indépendants, et j'ai oublié de le demander ce matin à Cogeco, mais, évidemment, je sollicite l'avis des EDR sur ce système que je pourrais déposer à la fin des audiences.
5985 Je vous remercie.
5986 THE CHAIRPERSON: Ron.
5987 COMMISSIONER WILLIAMS: Thank you, Mr. Chair.
5988 Good morning, Mr. Morrissette and panelists.
5989 How do your wholesale rates compare with, say, a company like The Weather Channel which would supply Americans similar weather programming through television?
5990 MR. MORRISSETTE: Quite frankly, The Weather Channel, even though they are a minority shareholder in our company, they are a very private company and I am not privy to their wholesale rates. My guesstimate ‑‑ well, first of all, I am aware that they serve 95 million households ‑‑ it might be 98 million households.
5991 COMMISSIONER WILLIAMS: Yes, 18,000 locations or something. Yes.
5992 MR. MORRISSETTE: Yes. But at the end of the day it is about 10 times the subscriber levels that we serve and it is only one service, English‑language service across the vast U.S. market, and I would guess that their rates maybe are about half of ours but let's not lose sight of the fact that 10 times the subscriber households.
5993 In the Canadian market we serve two markets. It is an English service and a French service. We are very labour‑intensive, everything is live, and also capital‑intensive.
5994 We have chosen to offer the same rate for everybody and by so doing we are one of the only services in this country that offers the same rate for the English and the French service. Typically, every other similar French service in the Quebec market is about double, if not more, the rate. So it is significantly different.
5995 As Paul says, and I agree with him, it is a bargain. Our rate has been low and continues to be low, and compared to other specialty services in this country it is a very low rate.
5996 COMMISSIONER WILLIAMS: Thank you, Mr. Morrissette.
5997 That's my questions, Mr. Chairman.
5998 THE CHAIRPERSON: On that positive note I think we will break for lunch. Thank you very much. We will resume in an hour from now.
‑‑‑ Upon recessing at 1223 / Suspension à 1223
‑‑‑ Upon resuming at 1330 / Reprise à 1330
5999 THE CHAIRPERSON: Madam Secretary, who do we have now?
6000 THE SECRETARY: Thank you, Mr. Chairman.
6001 Before we proceed with the next presentation, I would just like to indicate for the record that CBC Radio‑Canada and the Canadian Association of Broadcasters have filed a joint letter to the Commission on April 11th objecting to Bell Canada's filing in confidence with the Commission empirical evidence regarding the effect of price increases on subscriber rates for its BDU service.
6002 The Commission has today written to Bell Canada asking for its position on this letter and requesting that they comment, if they can, by April 18th.
6003 Parties wishing to reply to this information can do so by Tuesday, April 22nd.
6004 These letters will be placed on the public record. We have copies available ‑‑ or will have copies available in the examination room this afternoon.
6005 Thank you.
6006 We will now proceed with the next presentation by TimeScape Productions, Ms Catherine Edwards will be presenting.
6007 Ms Edwards, you have 15 minutes for your presentation.
6008 Thank you.
PRESENTATION / PRÉSENTATION
6009 MS EDWARDS: Hi. My name is Catherine Edwards. I run a Canadian independent television production company called TimeScape and I'm known to four of you I think through my participation in the Diversity of Voices hearing.
6010 Although the focus document for this hearing states that community TV will be reviewed at a later time, as the Fédération des télévisions communautaires autonomes du Québec stated on Friday, the survival of the community programming tier is intimately related to both the Canadian Television Fund through common financing and to this hearing which deals with the composition of the basic BDU tier.
6011 Therefore, I would like to comment upon paragraphs within 2007‑10 which will inevitably set the parameters for later discussions of the community tier.
6012 My interest in community TV dates from working for Shaw's community TV channel in Calgary. I left in 1997 when Shaw eliminated the public from program production. We sent thanks but no thanks ‑‑ sorry, thanks but don't come back letters to more than 400 volunteers who had donated their time, some over a 20‑year period, to the production of a vibrant local programming service which they felt was their own. That's an experience that I'm not going to forget quickly.
6013 This picture of community TV being gradually stripped of its community participation in favour of a corporate‑run and commercially‑driven model has happened across Canada, with the exception of a few pockets in Québec and in other parts of the country where cable cooperatives are still holding out.
6014 At the diversity hearings I provided DVDs to the Commissioners to show the difference between what we once called community TV and what it is today. On it was a clip made by aboriginal children in 1996 in Vancouver's lower east side championing their right to dress up on TV as superheroes, and a clip from a Shaw's flagship Vancouver program today which is called "Urban Rush". It's a ripoff of commercial breakfast programs that promotes everything from cars to internationally distributed beverages.
6015 As the Canadian Institute for Policy Initiatives pointed out in their submission to these hearings, the community channel has become an increasing source of income for cable companies.
6016 In an effort to better understand the potential of community TV, since 2001 I have been documenting models of community television around the world for a series for Canadian Learning TV and Access Alberta.
6017 Finally, although it didn't exist when I wrote my submission to this process in October, I represent the newly formed Canadian Association of Community Television or CACT(us).
6018 As I'm sure the Commissioners are aware, the overwhelming majority of interventions to 2007‑10 by the Canadian public dealt not with the issue of fee for carriage nor the make up of cable tier packages, but with paragraph 73, the proposal to remove the requirement that the community channel be carried on the basic tier.
6019 CACT(us) was founded to represent the views of that public. Its members include members of the Community Media Education Society of Vancouver, such as Michael Lythgoe who spoke at the diversity hearings, as well as a growing list of independent and cable co‑op community TV groups.
6020 CACT(us)' goal is to form a consensus about the policies needed to restore the community broadcasting tier to the dynamic service it once was and to develop it in the future to world standards. We aim to present these views at the policy reviews in 2009.
6021 To put my comments in context, consider the relative resources and airtime that are devoted to the three tiers that make up Canada's broadcasting system under the Act, public, private and community. The Act makes clear that Canadians should own and control their broadcasting system and that access to that system should be as broad as possible.
6022 At present, the public and community tiers are mandated to respond to the needs of the general public and to serve the public good. The licences sought on the private tier and granted by the CRTC on behalf of Canadians have the primary purpose of creating profits for license holder shareholders.
6023 That being the case, it's telling that such a small part of the enormous bandwidth now available via digital cable and satellite are available for use by the public and community tiers. The public tier includes both French and English CBC, CBC Newsworld, CBC Country Canada, CPAC and provincial educational broadcasters.
6024 As the number of channels available has increased, so has the public broadcasters footprint, although it still represents a tiny percentage of channels available to Canadians. The community tier, on which the average Canadian is supposed to find expression within the system that he or she owns, comprises a single channel, if it is even available. The bandwidth for community use has actually shrunk since the Act was written, from one channel among 30 to one channel among hundreds, if the cable BDU even offers it since it has been optional since 1997.
6025 For satellite customers, there is no community TV channel at all.
6026 During the same period that the community tier has lost so much ground here at home, it has gained importance around the world. As other western countries who formerly had limited cable penetration began offering satellite and digital services, the majority recognized that some of the new bandwidth ought to be available for use not just by private and public broadcasters, but by ordinary citizens, local governments and educational entities.
6027 In the U.S. it is common for there to be five, six or more public access channels in a city, offering a rich, local educational mix. One is typically programmed by municipal government and links city administrators and policymakers with residents, including the cable casting and council meetings, traffic zoning and by‑law information, emergency response directives and the availability of local services. We have no equivalent in Canada, other than the coverage of municipal council meetings on the community channel.
6028 Another two or three of those channels might be programmed by high schools, colleges and universities offering courses in education. Some of this programming already exists in Canada, such as closed‑circuit TVs within universities, but other than a few instances on provincial broadcast they do not have distribution to the community at large.
6029 Under the U.S. formula the community tier occupies a percentage of total bandwidth as it grows. This is not a monetized entertainment platform serving consumers, to use phrases that I kept hearing last week, but a communication platform for a society that thinks good communications among its many parts is important.
6030 The U.S. also has two national services, Free Speech TV and Deep Dish, that make available the best and most nationally relevant of alternative programming from the country's public access channels. They enable communities across the U.S. to know one another and to share views on issues that affect all.
6031 Australia, in addition to local, urban and aboriginal community TV, has a national aboriginal channel Imparja distributed by satellite that shares programming produced by tribal community television channels throughout the outback. Australia, like Canada, is vast and the sharing of community television from place to place enables communities to feel less isolated, to know one another and to develop a sense of common identity.
6032 Israel, in addition to local community TV, has a national community TV service offered in parallel through cable which shares nationally relevant program beyond the community of origin. Like the U.S. model, much of the programming on local community TV is supported by municipalities to ensure that there is communication between administration and residents. Like the telephone and the internet, it enables two‑way interactive communication that promotes the growth of community and linkages between residences, their locality and their nationality.
6033 The U.K. has a national community TV service that airs videos produced by the non‑profit sector. Again, not a monetized entertainment platform, but a platform for the sharing of publicly beneficial information.
6034 So the community tier in Canada has fallen into decline since 1997, during the same period in which both the public and private tiers have vastly expanded and nationalized their programming and in which the community tier is being given increasing importance in other countries.
6035 With this in mind, it is of concern that several of the proposals in 2007‑10 would further weaken the community tier and cripple its ability to provide the only effective access by ordinary citizens to the Canadian broadcasting system.
6036 The decline of the community tier is of equal concern as a substantial source of local programming genres other than news, often producing five to six times as much programming as a local private broadcaster in the same market.
6037 The proposals that represent a threat to the community tier include of course paragraph 73. Allowing community channels to be relegated to an upper cable tier that would be accessible to even fewer Canadians would be a final nail in the community channel coffin. It would make a mockery of the Broadcast Act statements that our lone community channel represents a tier at all.
6038 To catch up to world standards, this tier in fact needs to be developed and expanded. This brings us to paragraph 75.
6039 A step in the right direction, and which would equalize the treatment of cable and DTH BDUs, would be for DTH basic service to include a national public access channel that would carry the best or most nationally relevant of programming made by community channels, as well as additional programming from independent producers, for example feature films and documentaries. Many of these under represented key cultural programming categories actually have content that never finds an airing in the commercial system.
6040 As with cable BDUs, 2 per cent of the DTH BDUs gross revenues could go to the maintenance of this channel and to a national organization to provide training, program bicycling, lobbying, an awards program and licence application assistance to community TV groups across the country.
6041 Since the dissolution of the CCTA such a central coordinating body has been missing. Most sectors of the Canadian public are no longer aware they have a right to access cable‑operated community television channels, let alone how to put together a community TV licence application or run a channel. This infrastructure is crucial for this tier to survive.
6042 We note that the Dunbar‑Leblanc report endorses DTH contribution to a national public access channel and both Shaw at the diversity hearings and Bell ExpressVu have advanced the idea of a national public access channel program through 2 per cent of DTH gross revenues. Such a channel should be operated as an independent entity, however, much like CPAC, and be carried on the basic tiers of both DTH and cable.
6043 Paragraph 57. There should not be advertising on the community channel which is meant to be programmed according to the needs of the community, not those of advertisers.
6044 The Broadcasting Act recognizes that for the healthy functioning of the modern democracy its communication system must be more than a monetized platform for mass entertainment. It must be a marketplace of ideas, which implies diversity and the right of even the unpopular, unusual ideas to be heard.
6045 The Broadcasting Act stipulates that access should be as broad as possible and defines three different tiers because it recognizes that different kinds of programming arise from different funding models already.
6046 Since advertising rules have been loosened for the community channel, the so‑called community programming being produced by the big cable BDUs looks like a low‑budget version of what we used to think of as local private broadcasting. It's predominately soft local news with little that is innovative or challenging.
6047 The same principle holds for the CBC. The more it has to rely on advertising, the more its programming looks like that of a private broadcaster.
6048 As Commissioner Langford said at the diversity hearings: Why is the CBC doing hockey? The private broadcasters would do it on their own.
6049 The community Channel is by its nature and niche cast, meant to serve groups ignored by the mainstream. If members of the public are willing to make the effort, they can program for their own community, whether that community is the 10 per cent of the population who are gay, the 3 per cent who are aboriginal, or the minute fraction of a per cent who might want to see the local primary school basketball game.
6050 On a community Channel, with minimal investment because the programs are made by volunteers, those programs can be made and shared. This is why it is inappropriate to deregulate the community tier and let its future be determined by market forces. Market forces are just one model for creating television programming. The Broadcasting Act envisioned three.
6051 Paragraphs 64 and 677 suggest the removal of class distinctions for cable licences. This raises two concerns for the health of the community TV sector.
6052 The first is that the class distinctions for cable BDUs currently determine what is spent on community TV, 2 per cent in large systems, Class 1, and 5 per cent in smaller systems. This distinction continues to be necessary. Although in 1997 51 decreased required spending on community TV in Class 1 systems from 5 to 2 per cent, with recent reductions in costs of production equipment, 2 per cent I would say is just about adequate in large cities.
6053 Five per cent or more ‑‑ it used to be 10 ‑‑ is still needed in small communities however. There are many small systems where this amount might fund a single person to train, maintain equipment and schedule a channel. There is a minimum number of paid bodies you need, even with volunteer‑driven television, to coordinate the public to produce it.
6054 The cable licence areas have grown as well, causing many community TV channels to be closed and their programming regionalized. This is not just an issue of relevance of the programming, whether it's really about your town or about someone else's, but also about access. Is there some where you can get to in a reasonable amount of time and access a camera?
6055 In conclusion, the Broadcast Act recognizes that different funding models result in different kinds of programs, different genre, content and audience; state‑funded, privately funded by advertising, and community funded.
6056 The community funded model is unique, it uses seed money provided by BDUs, which it magnifies in programming power by the training and enabling of large amounts of volunteer labour. As steady decreases in both private and state‑funded local programming shows, the volunteer‑driven model may be the only one that is viable in such a geographically dispersed and small market as Canada.
6057 So we ask that you protect the place of the current lone representative of the community tier on the basic BDU tier, as has been requested by so many Canadians who intervened in this process, and we ask that going forward you work with the new organization CACT(us), with the Fédération, and with independent community TV channels to revitalize and expand this tier, including finding independent and stable forces of funding and including expanding their bandwidth and presence so that not just cable subscribers but all Canadians can share the rich local programming mix that these channels can so cost‑effectively generate.
6058 Where once we did set an example for the world with the enlightened policies of the CRTC, in this tier we would do so again.
6059 Thank you.
6060 THE CHAIRPERSON: Thank you for your presentation.
6061 As you noted in your opening, we will have a special hearing on community channels and really the key contribution you make to this is what should be in the basic package.
6062 MS EDWARDS: Right.
6063 THE CHAIRPERSON: I gather you feel community channels should be part of the basic package?
6064 MS EDWARDS: That's right. On cable as community TV exists now, but I also think that DTH should be including a community programming service on the basic tier.
6065 THE CHAIRPERSON: Okay.
6066 Ron, you had some questions on this?
6067 COMMISSIONER WILLIAMS: Good afternoon, Ms Edwards.
6068 MS EDWARDS: Hi.
6069 COMMISSIONER WILLIAMS: As our Chair stated and you stated in your opening remarks, this is really going to limit what we have to talk about based upon your presentation.
6070 I think what I will do is I will ask you the four remaining questions that Chair didn't deal with in regards to the five main issues that we are interested in gather information on during this hearing.
6071 So you have talked about ‑‑ actually I will do all five.
6072 What should the size be of the basic service package and what you think should be in basic service?
6073 MS EDWARDS: You know, I don't want to talk here about things that I really haven't thought through. My main goal in appearing today was just, as the Fédération stated on Friday, that the structure that you are setting in place for the system as a whole can have long‑term impact on the community programming tier.
6074 I mean, I do have opinions on some of those things, but my main area of expertise is the community tier.
6075 COMMISSIONER WILLIAMS: Okay. Do you think the community tier should be included in basic service?
6076 MS EDWARDS: Absolutely. That's the main reason I'm here.
6077 COMMISSIONER WILLIAMS: Okay.
6078 MS EDWARDS: Because it's the only representative of the entire tier and if those three tiers are meant to together be part of the Canadian broadcasting system, it doesn't have much meaning if representatives of all three of those tiers are not on the basic tier.
6079 COMMISSIONER WILLIAMS: So do you think the basic model, the basic tier or should be a large wide offering of channels or a relatively small number of channels that are accorded basic service?
6080 MS EDWARDS: I don't think I'm in the best position to comment on that.
6081 COMMISSIONER WILLIAMS: Okay.
6082 MS EDWARDS: I'm here representing the interests of the community tier and the average Canadian's access to the system. They ought to have presentation on the basic tier because that's the only place where they get to directly participate.
6083 COMMISSIONER WILLIAMS: Okay. You may answer the same to the rest I guess, but I will go through them.
6084 MS EDWARDS: Okay.
6085 COMMISSIONER WILLIAMS: Should there be guaranteed access for certain Canadian specialty and pay services and, if so, which ones and what terms?
6086 MS EDWARDS: I mean my general ‑‑ there was a paragraph for a shortage of time I didn't include here. One of the paragraphs in the original policy document wanted to know whether provincial broadcasters should be on the basic tier.
6087 I have the same feeling about that as about the community tier, that because there are so few public channels, as well as community channels in those two tiers in the system as a whole, that they should definitely have representation on the basic tiers of both DTH and cable subscribers.
6088 What other specialty services should be there I don't really have an opinion about. I think that's better for other people to comment on.
6089 COMMISSIONER WILLIAMS: Okay.
6090 We have talked in this hearing about genre protection. Do you think there should be protection from other Canadian services or only from foreign services?
6091 MS EDWARDS: I think that there should continue to be genre protection. I have been watching Bell ExpressVu for the last four months and noticing, as everyone else has, that they often have five different, you know versions of the same thing on different channels that are supposed to be genre specific but are becoming more and more similar because they are owned by the same people and it's cheap to replay the programming.
6092 I have already noticed that kind of convergence even with the rules that we have in play today, so as a viewer giving you a gut reaction, we are already going too general with all those common ownerships. So in no way would I encourage a decrease in the genre protection rules.
6093 COMMISSIONER WILLIAMS: What are your views on a fee for carriage?
6094 MS EDWARDS: Again, I don't feel that I have thought through that particular issue in enough detail.
6095 COMMISSIONER WILLIAMS: I think that concludes my questions, Mr. Chair. Thank you.
6096 Thank you very much. I did read your full written presentation and your responses to interventions and it's a very well thought out piece of work that I think we will find quite valuable when we actually do deal specifically with the topic of the community channel.
6097 Thank you.
6098 MS EDWARDS: Okay. Because as I point out here, there was a few other ‑‑ I mean the issue of license classes could have a negative impact on community TV, it just depends what the funding formula ends up being. So it's just to make sure that those things are kind of in the back of your minds as you go forward with these other decisions.
6099 COMMISSIONER WILLIAMS: Thank you once again.
6100 Thank you, Mr. Chairman.
6101 THE CHAIRPERSON: Well, thank you for your contribution. I appreciate especially you being so succinct on the points of interest to you.
6102 So I think we got that and we have it on our mind.
6103 Thank you.
6104 MS EDWARDS: Great. Thank you very much.
6105 THE CHAIRPERSON: Madam Secretary, who's next?
6106 THE SECRETARY: Thank you, Mr. Chairman.
6107 I would now invite the Canadian Media Guild to come forward to the presentation table.
6108 THE SECRETARY: I see they are not present in the room. I know they were here earlier today.
6109 So we will proceed with the next intervenor and come back to the Media Guild after.
6110 I would now ask Score Media to come forward to the presentation table.
6111 THE SECRETARY: I understand Mr. John Levy will be introducing his colleagues, after which you will have 15 minutes for your presentation.
6112 Mr. Levy...?
PRESENTATION / PRÉSENTATION
6113 MR. J. LEVY: Thank you very much.
6114 Mr. Chairman, Members of the Commission and staff, my name is John Levy and I am the Chairman and Chief Executive Officer of the Score Television Network Limited.
6115 On my far left is David Errington, who is the Executive Vice President and Co‑Chief Operating Officer of The Score. David has been with us since the inception of the network.
6116 Next to David is Benji Levy, also Executive Vice President and Co‑Chief Operating Officer. Benji's primary area of responsibility is the development and integration of new media properties and strategic growth opportunities.
6117 On my right is Grant Buchanan of McCarthy Tétrault, our outside counsel.
6118 Mr. Chairman and Members of the Commission, over the years I have had the privilege to grow successful independent businesses in the Canadian broadcasting system, first as a cable operator and now as a specialty network owner. As such, we believe that we bring a completely different perspective to this very important hearing.
6119 Our position from the outset has been quite clear, this is not the time to make dramatic wholesale changes to the core of the Canadian broadcasting system.
6120 We make this assertion based on the following rationale. The current rules, regulations and policies are working. The broadcasting industry in Canada is healthy and growing, with broadcasters and distributors enjoying on average PBITs in excess of 20 per cent. Without any additional regulatory intervention, the Canadian broadcasting industry is well positioned to continue to grow and embrace new technology.
6121 We have heard from some during this proceeding about how the growth of the internet looms as a threat to the system and how in response the foundation of our broadcasting system should be dismantled.
6122 This could not be farther from reality. The internet is not a threat, rather it's a major opportunity. Broadcasters are able to connect with their audience in ways never before possible, and distributors, who now sell access to the internet, are able to generate an entirely new revenue stream.
6123 Two, there is no consumer outcry to justify the changes being proposed. Where is the evidence of consumer dissatisfaction?
6124 The truth is that the Canadian viewer has more choices, better programming and greater in‑home entertainment value than any other consumer probably anywhere in the world.
6125 Contrary to the unsubstantiated rhetoric of the large BDU gatekeepers, the existing rules are working.
6126 Market forces. Market forces will not provide an acceptable solution to the Canadian broadcasting system. It has been suggested by the BDUs that by eliminating guaranteed access and by abandoning genre protection market forces will fill the void to the benefit of the Canadian broadcasting system. However, we ask where is the proof that this will occur?
6127 Certain parties would have the Commission believe that it will be consumers who will decide. However, the truth is that consumers will have no say in the matter. The six big BDUs who control access to over 90 per cent of the Canadian television households will decide the fate of every Canadian specialty and pay service.
6128 Accordingly, we think those who want to alter the status quo in such a manner should have put concrete evidence to the benefit to the broadcasting system on the table. Those who want to preserve the status quo have already placed evidence on the Commission's files for over 40 years.
6129 When you hear us arguing for the status quo, it's not as if we are standing still. Quite the contrary. We are today in the midst of one of the biggest transitions in the industry's history as we migrate from analog to digital distribution and from standard definition to high‑definition broadcasting.
6130 Through its digital migration and HD framework, the Commission set out explicit rules to guide this transition. Indeed, as recently as the summer of 2006 the Commission promised must‑carry status and continue genre exclusivity to the HD versions of specialty services that upgraded their plants such that more than 50 per cent of their programming was in HD.
6131 By September of 2008, at a cost of over $15 million and a reliance on the Commission's promise, over 80 per cent of The Score's content will be broadcast in HD. We certainly hope that the Commission is not now going to reverse itself and say that must‑carry status is not available for our HD service after we relied on the Commission's policies in making our investment decision.
6132 Five, there is a complex web of specific rules that must be considered in their entirety if anything substantive is to be changed. The economic viability of any service is dependent upon the relationship of its nature of service, its ability to be seen, and its promises of performance, and all this must also be balanced against those of its competitors.
6133 Indeed, in 2004 The Score asked for a rate increase in order to allow it to be more competitive and more effectively compete with TSN and Rogers SportsNet. The Commission substantially denied The Scores request, effectively saying we were not in the same business and that we only needed the much lower $.14 rate since we were a sports, news and information service and not a full‑fledged sports service.
6134 Notwithstanding all the foregoing, if the Commission determines that some changes as proposed need to be implemented, then as the CRTC has already recognized, there must be specific mechanisms to protect the interests of the viewers and owners of independent services.
6135 Our thinking here is quite simple. While the apparent assumption underlying the market forces argument is that big distributors and big programmers are strong enough to be able to fight it out and achieve some form of equilibrium, such is certainly not the case with respect to the independent specialty services. The 130‑pound fighter simply stands no chance whatsoever against a 300‑pound heavyweight, no matter how fit or talented he or she may be.
6136 We would now like to address the five specific questions posed by the Chairman in his opening remarks.
6137 Question one, size of the basic tier.
6138 Since there is no evidence of the record to the contrary, we suggest the current rules are working to assure a relatively inexpensive entry‑level basic service. In addition, the high penetration levels of discretionary service tiers today suggest that very few customers actually purchase only the basic tier.
6139 Question two, guaranteed access for specialty and pay services.
6140 We believe that there should continue to be guaranteed access for all analog and Category 1 digital specialty and pay services. The most fundamental issue in this hearing is the need for services to have continued access to their subscriber base.
6141 When you speak of getting rid of the current access rules and allowing market forces to play a greater role, you are effectively abdicating to the BDUs the choice as to what services get carried.
6142 There has been a great deal of discussion in the last week about letting the consumer decide. This simply is a BDU smokescreen. The primary concern of publicly traded BDUs is shareholder return and, unless the Commission orders otherwise, carriage choices will be dictated by which programming service can create the largest profit margin for the BDU. It will have nothing to do with the goals of the Broadcasting Act.
6143 On the one hand BDUs preach the mantra of consumer choice; on the other hand they have said that they are very reluctant to remove services or even change packages.
6144 Even if what they claim is true, what will happen is a radical change in the economics of access.
6145 For BDUs, this proceeding is fundamentally about lowering their costs and increasing their profits. Affiliation payments to programming services represent a significant cost. By being able to threaten services with removal or relocation to a low‑penetration tier, BDUs will benefit from a significant change in negotiating leverage.
6146 Instead of getting access because the regulator decided they would benefit the system after a competitive licensing process, programming services will now have to buy their way onto BDUs. They will do so either through lower affiliation payments or through tied purchases of airtime or advertising in media owned by the BDUs or in extreme cases just by outright cash payments.
6147 This is not a hypothetical scenario. This is what market forces have produced in the United States.
6148 What would this shift in access rules do for furthering the goals of the Broadcasting Act? Absolutely nothing. It would simply result in money being taken from programmers and given to the BDUs. While big corporate programming families may have other levers to pull, small independent services like ours will become collateral damage.
6149 That is why it is so imperative that if the Commission were to remove access guarantees, it must establish special access rules for independent services that ensure not just access but access to a significant number of subscribers through carriage on digital basic.
6150 This latter point is key since in a digital environment, a BDU could satisfy its access requirement by carrying an independent service but then relegate that service to a very low‑penetration package which would be tantamount to not carrying the service in the first place.
6151 So why do we believe we are worthy of must‑carry status?
6152 First and foremost, the Commission's entire diversity of voices proceeding showcased the value and the need for diversity of voices in the system. At this point there are actually only three English‑language independent services that began life back in the analog days. The other two are The Weather Network and Vision.
6153 For purposes of this policy we would define an independent service much like the Commission did in exempting small cable systems from certain regulatory requirements.
6154 An independent programming service would be one that is not controlled by Rogers, Shaw, Cogeco, Videotron, Bell, Astral, CanWest, CTV, CBC or Corus.
6155 In addition, must‑carry status was part of our regulatory bargain. The Score has a high CPE and Cancon exhibition requirements and a low wholesale rate. That combination reflects and requires deep penetration on BDUs.
6156 Indeed, based on the point system proposed by Commissioner Morin, our 80 percent Cancon exhibition requirement, 40 percent CPE and 14‑cent basic wholesale rate results in a score of 111, one of the highest in the industry.
6157 In the event the Commission implements changes to the access rules, we believe guaranteed access on digital basic, as described above, will ensure that diverse voices are able to thrive. This approach would include all three of the analog independent English‑language services.
6158 In the case of The Score, we live in an ultra‑competitive sport genre. Our two principal competitors are TSN, owned by Canada's largest programming conglomerate, and Rogers Sportsnet, owned by Canada's largest communications company.
6159 Notwithstanding that both of these networks have substantially higher subscriber rates, millions of more subscribers, lower Canadian programming exhibition levels and large corporate families upon which they can depend, we have demonstrated throughout our history that if we can reach subscribers, we can excite them and get them to watch us. We love to compete but we need access.
6160 Finally, we are heavily advertiser supported. Over the years the Commission has encouraged services to be less reliant on subscriber revenues and to compete in the marketplace for advertising revenues. We have taken this to heart. Sixty percent of our revenues are earned this way and if our access to high penetration disappears, so does our chance to compete in the marketplace for these advertising dollars.
6161 Question 3, genre exclusivity.
6162 We believe that genre exclusivity should be maintained in its current form for analog and Category 1 digital specialty services with respect to both other Canadian services and foreign services.
6163 While admittedly imperfect, the existing system for genre exclusivity has served the Canadian broadcasting system well and has resulted in Canada having access to a diverse selection of programming services that is unparalleled in the world.
6164 The impact of altering the genre exclusivity model is particularly severe on small independent broadcasters like us.
6165 As an example, assume that the Commission were to broaden the categories or to eliminate genre protection entirely, a programming conglomerate with vast resources like CTVglobemedia could with relatively little effort launch a new sports news and information service. Let's just call it TSN News. Then as part of the BDU negotiations for their flagship TSN service, they could offer TSN News to the BDU at a discounted rate or even for free.
6166 In a digital environment, even with guaranteed access, The Score could be relegated to a low‑penetration tier by the BDU and replaced in its existing slot by TSN News. This is what some participants in this hearing would call market forces. We call it snuffing out an independent voice.
6167 Accordingly, should the Commission elect to alter the genre protection rules, the need for guaranteed access for independent services to a meaningful number of subscribers is magnified.
6168 And obviously, our concerns regarding genre protection extend equally to non‑Canadian services. We already compete with the biggest communications companies in Canada but even they are small compared to some of the non‑Canadian services.
6169 As a further note on genre exclusivity, there has been substantial discussion during this process about creating five broad genres, one of which would be sports. We would like to discuss with you in the question period why this process is fraught with issues. Nobody has proved any specifics to date on how the structure would be implemented. When we tried, we ran into a number of practical issues, some of which we have outlined in the attached Schedule 1.
6170 Question 4, fee‑for‑carriage for over‑the‑air broadcasters.
6171 Fee‑for‑carriage is a secondary issue for us compared to retaining access to our subscribers and genre exclusivity.
6172 Question 5, BDU access to advertising revenue from on‑demand and local avails.
6173 For a service like ours that generate a significant portion of their revenues from advertising, watching BDUs try to muscle in on advertising is disconcerting. It is bad enough that these services are starting to look like linear specialty services, allowing ad sales would add insult to injury.
6174 In addition, they should not be in the market selling ads for U.S. specialties. The purpose of bringing these services into Canada was to support Canadian specialty services, not to compete with them for ad dollars. The advertising pie will not grow and instead those dollars will be siphoned from us.
6175 And should the Commission ever allow them to advertise on specialty services, you will simply be mandating the donation of two minutes an hour of our precious airtime to the BDUs.
6176 In conclusion, we see no reason for the Commission to undertake the types of changes being proposed at this time.
6177 If, however, the Commission is of the view that it is appropriate to make changes to the fundamental underpinnings of our broadcasting system, then it is imperative to take steps to ensure that small independent voices like ours have continued access to a significant enough volume of subscribers that we can compete in the marketplace on a sustainable basis.
6178 It is critical if diversity in the system is to flourish that small independent programming services like ours have the possibility to continue to grow and to contribute to our broadcasting system.
6179 We would now be pleased to respond to your questions.
6180 THE CHAIRPERSON: Thank you for your presentation.
6181 I must say you take me somewhat by surprise with your position on genre exclusivity. Knowing that you have had particularly problems with genre, you know, where it goes, et cetera, I would have thought Rogers' proposal saying let's have one bucket called sports and you can compete, you can become the TSN of tomorrow or the Sportsnet, et cetera, you would see this as an opportunity. Instead, you see this as a threat. Can you explain to me why?
6182 MR. J. LEVY: Notwithstanding that I like how that sounded, the reality is that it is impossible and it would never occur.
6183 I am going to turn it over to Grant in a moment to ‑‑ because we have done a lot of thinking about this in the context of the bucket philosophy.
6184 At 60,000 feet our service of sports news and information service, our fee is 14 cents per month. If the genre opened up, for example, and allowed us to compete with TSN, even if I was good enough to convince my investors and our bank to pour money into this company and allow us to go and try and buy rights at $700,000 or $800,000 a game, which is what it cost for hockey or major sporting events, we would have no assurance that we would be able to recover any fee close to what would be necessary to be able to compete on that basis (a) because the distributor would not allow us to negotiate at that level and (b) they probably wouldn't let the programming off their networks in any event.
6185 The interesting is the corollary is not necessarily true. While we can't go into their camp, it is very easy for them to come into our camp. At 78 cents a basic subscriber or more on a tier, which is what they get, or a dollar something plus more on a tier for what TSN gets, with very little additional capital they would be able to launch a TSN to use their position of strength ‑‑ or a sports news and information service to use their position of strength and lever into our genre.
6186 So what is good for the goose is not necessarily good for the gander in our particular case. Unfortunately, we are the gander and the reality of the situation is that open bucket doesn't work for us.
6187 Now, at a more specific level I would like to turn it over to Grant because it is not just a problem for us in sports. I mean that is a specific problem we have but we really don't think this works altogether. So, Grant, can you elaborate?
6188 MR. BUCHANAN: Well, there are two components of what I would like to say to you and the most interesting and immediately comprehensible is the money.
6189 I have tried to create a list of the services that would go into such a sports bucket should you go that route. They are Sportsnet, TSN, RDS, Leafs TV, The Fight Network, The Score, Infosports, World Fishing, ATM Cricket, Outdoor Life, Game TV, Goal TV, Raptors NBA, Fox Sports, World Canada, HPL TV, The NHL Network, ESPN Classic and Extreme Sports.
6190 They spend $260 million a year on Cancon. The average weighted percentage is 48.
6191 What number did we hear this morning? We heard 35.
6192 The delta, what you lose for Canadian content if you move to a common 35 percent is $70 million a year in Canadian content expenditures.
6193 The big winner, this will surprise you, is Rogers. Half of that is a savings they get on Rogers Sportsnet because they go from 54 with a very high Cancon expense to 35. That is how we move to the middle.
6194 Just by way of figuring it out, about 1.7 million is what each of their points of Cancon is worth. So if you move to 40 percent, it comes to 40 million, they save 20. Everybody else moves around accordingly but it is ‑‑ we will file this in reply but it is fascinating when you see it.
6195 THE CHAIRPERSON: No, but I mean that depends on where you set the ‑‑
6196 MR. BUCHANAN: Sure.
6197 THE CHAIRPERSON: ‑‑ bar for Canadian content on CPE.
6198 MR. BUCHANAN: Yes. And if there is no suggestion that that changed, then we have the situation we have now.
6199 Because in 2004 when The Score asked for a rate increase because it wanted to compete with those two services, they were told very clearly by the Commission: No, you are not in the live sports business. That isn't what you do. You can live in your particular kind of sports genre, sports news and information. You can live there at 14 cents. The fellow with $1.07 and the fellow with 78, they are going to do the live sports.
6200 Now they want to remove that and put us all in a common bucket. That doesn't work.
6201 Quite apart from that, we now ‑‑ if you actually get into the mechanics, sports you think of as being quite homogeneous but it is not.
6202 You have got live sports. You have got taped sports. You have got ESPN Classic, of course, which would then get dropped into the same bucket but it can only do old sports and yet, it will get brought up to a higher level presumably. You have got French, you have got English. You have got amateur, you have got professional.
6203 Each one of these has really different dynamics associated with it and each one of the sports services has a series of conditions of licence that preclude elements of it from being aired on its service compared to the other fellows. So it has all been designed not with this common bucket in mind. It has been designed like this and now we are going to try to put it in a box that goes up and down.
6204 When we started trying to do it after we first heard about it, it became so messy for us that I thought we should probably share this with you because if you think you are simplifying matters by creating five genres, we picked what we thought was the easiest, sports, and what a dog's breakfast!
6205 Let alone when you start thinking about the money, if you made a common CPE, somebody has to go up and somebody has to go down and everybody has a budget that their last licence renewal was based on. So it looked all pretty difficult to us when we actually got into the mechanics of it.
6206 THE CHAIRPERSON: Okay, thank you.
6207 Ron, I believe you have some questions.
6208 COMMISSIONER WILLIAMS: Thank you, Mr. Chair.
6209 Good afternoon, Mr. Levy and panellists. Welcome.
6210 So if I have got your presentation down here, it is not broken, so don't fix it. PBITs are 20 percent or more. The internet is not a threat but it is an opportunity. In the market forces scenario, your perception is the reality that the BDUs will be deciding the fate and whatever we do, there should be some special access rules for independents and must‑carry as part of your bargain and what you based your business plan on and any changes could result in the snuffing out of independents.
6211 That is kind of what I got from you and our Chair talked about genre exclusivity. I have just been reading through your Schedule 1, the issues relating to the creation of the sports genre.
6212 Your presentation has been very clear and it certainly limits what I have to ask you.
6213 You did talk about fee‑for‑service and it looks like in your presentation you answered that the fee‑for‑service is ‑‑ how it would affect you. You viewed it as a secondary concern but what are your views on fee‑for‑service for the over‑the‑air conventional broadcasters? Should they be allowed a fee‑for‑service?
6214 MR. J. LEVY: Well, as I indicated in our ‑‑
6215 COMMISSIONER WILLIAMS: Sorry, it is fee‑for‑carriage. I keep saying service, I mean carriage.
6216 MR. J. LEVY: Fee‑for‑carriage.
6217 As I indicated, I think, in our response, anytime you add potentially other layers of costs on, it potentially will impact the decision‑making of the consumer in the marketplace, and every indication that we have heard is that if there is a fee‑for‑service coming across from the over‑the‑air broadcasters, you can be sure it is going to be passed on and we have heard numbers to the extent of $2 to $3, even more, $5, $10, we don't even know what it is, on a monthly basis.
6218 It was not something that was of primary concern to us in responding to the questions but anytime you increase the fee coming across, that potentially could have some negative impact.
6219 Having said that, as long as we have access, as long as we have the ability to continue to talk to a substantial number of subscribers, we feel, as part of our regulatory bargain that we made when we got our licence, by being high CPE, high Cancon, low rate, as long as we get access to those consumers, we are going to be able to compete.
6220 So it may have some negative impact on us if the additional charges flow through because of the over‑the‑air guys or it may not.
6221 COMMISSIONER WILLIAMS: Thank you, Mr. Levy.
6222 That is my question, Mr. Chair.
6223 THE CHAIRPERSON: Michel.
6224 COMMISSIONER ARPIN: Mr. Levy, you are saying that you are going to be providing the service by early next fall and even late summer, I would say ‑‑ I hope it is still summer at that time ‑‑ at the beginning of September.
6225 I am sure with the time that is left before launching that you have already initiated negotiations for carriage of your service in HD with the BDUs?
6226 MR. J. LEVY: We have some carriage for our HD service with the BDUs. We don't have complete carriage.
6227 Our whole effort to launch an HD service is really twofold. Number one, because it is the right thing to do. Sports in HD is magnificent. You watch a hockey game, you watch a football game, you can't watch it any other way. If we are going to be in this business, we have to stay in this business. However, we can't be silly about how we spend our money and how we deploy our capital.
6228 What the Commission said to us was that if you are willing to push this perhaps faster and further than you otherwise may have ‑‑ and for a company like ours to spend $15 million in that short a period of time is a lot of money.
6229 Basically, the Commission said two things.
6230 Number one: As long as you are over 50 percent, you are going to be guaranteed access.
6231 And you have heard a lot this morning about the fact that what the Commission says and what you are able to tuck into your pocket when you are negotiating is very strong.
6232 And when we approach our distributors and they see that we are already doing some HD and they already see our plans ‑‑ and I can elaborate on our plans a little bit because they are very exciting ‑‑ they know we are serious and they know that we are going to be providing and they know they are going to have to give us access. So I think the fact that it is there was a strong ‑‑ and the fact that the rules were in place.
6233 There was one other aspect to it too. The Commission also said that if you don't do it, there is a possibility that you may lose the ability to continue with your service. That is another ‑‑ we respond well to threats like that.
6234 This is our lifeline. We want to do it anyway. We are doing it in a way that no other service is doing, by the way, and it is not just about our HD, it is about our whole HD presence, which hopefully, next time you are in Toronto, we will be able to show you.
6235 COMMISSIONER ARPIN: Last week we heard some intervenors talking about HD carriage and the issues of uplinking the signal on satellite.
6236 Is it for you as well an issue or is it something that has already been dealt with?
6237 MR. J. LEVY: Again, I think that they know we are going to have our HD service, they know they have to provide it for us. We are presuming there is going to be bandwidth available for us to be carried and every indication we have had so far, as recently as the last few days actually and perhaps in anticipation of this hearing, is that assuming we get to where we are going to be, there will be bandwidth available for us to provide the HD service.
6238 COMMISSIONER ARPIN: Well obviously, that is the channel capacity but the issue that was raised by some intervenors had to do with uplinking costs where they ‑‑
6239 MR. B. LEVY: Commissioner Arpin, we make our HD service available to the BDUs who are carrying it today from downtown Toronto and they pick up the signal from there. Currently, we don't uplink our HD signal.
6240 COMMISSIONER ARPIN: Okay. So they pick up your signal from your master control?
6241 MR. B. LEVY: Correct.
6242 COMMISSIONER ARPIN: Thank you. That was my question.
6243 THE CHAIRPERSON: Rita, you had a question?
6244 COMMISSIONER CUGINI: Yes, thank you.
6245 I just want to focus a little bit on your suggestion on page 8 of your oral presentation and that is guaranteed access to the digital basic tier for independent programming services.
6246 If I look at your definition, one that is not controlled by, and you list them, this would include Category 2 services and it would include ethnic services as well, would it not? Are you suggesting that all of those services be carried on digital basic if we take your definition?
6247 MR. J. LEVY: No. We were just referring basically to the three analog services.
6248 COMMISSIONER CUGINI: So only to the three analog services?
6249 MR. J. LEVY: Correct.
6250 COMMISSIONER CUGINI: Not even to Category 1 services?
6251 MR. J. LEVY: Correct.
6252 COMMISSIONER CUGINI: And they qualify for carriage on digital basic simply by virtue of ownership, no other consideration, no other Cancon, CPE? Based on what you have said, I mean that would be the bar, just by virtue of ownership?
6253 MR. J. LEVY: Well, the answer to that is yes but a qualified yes because the other matters that you are referring to are already part of our licence, they are already part of basically the negotiated or lack thereof, the negotiated deal.
6254 We already come in with a high CPE, we already come in with a high Cancon and we also have a very low rate and if you use the formula that Commissioner Morin ‑‑
6255 COMMISSIONER CUGINI: It does happen to work in your favour, so I am not surprised.
6256 MR. J. LEVY: If it didn't, I would be coming up with another rationale but it happens to work very well for us.
6257 And again, maybe just to go back to why we just did the three analogs was because, again, the Category 1s came in a different time, they have different business models, they have different expectations of carriage and the whole approach for them is different.
6258 We grew up in a ‑‑ we have over 6 million subscribers, so a little less than some of my other associates in the sports business, and we can go into the reasons why that is at a different time, but our whole business model is based on that sort of access.
6259 COMMISSIONER CUGINI: But your initial business model wasn't based on basic, on carriage on basic. This is going a step further?
6260 MR. J. LEVY: Correct. But again ‑‑ first of all, we do have some basic coverage, by the way.
6261 COMMISSIONER CUGINI: Right.
6262 MR. J. LEVY: It is still less than half‑half, I think, half on a tier, half on basic.
6263 But again, it was in the context of the fact that we did have mandatory carriage and we did have genre protection.
6264 And just to be clear, if the rules don't change, we are not asking for anything. If the rules do change and you are tinkering with access and genre protection and this, then I am saying, well, everything is out on the table, we need some regulatory safeguards.
6265 And just one other thing to think about in the context of risk versus reward for what we are talking about. We are talking about three services with wholesale rates of less than 50 cents, two of which are already on basic, ours, 50 percent of the universe is on basic. In the context of the overall cost structure to the BDUs, we are not talking about a lot. We are talking about a lot to us on an individual basis but to them we are not talking about a lot.
6266 The risk on the other side if you don't give us that level of protection is that there is a very high possibility, notwithstanding what you have heard, that we could get steamrolled or at least negotiated, as you heard this morning, to much lesser rates or pushed to a lower tier.
6267 So we are only asking for it because we are here responding to the fact that there is a potential for some serious changes happening. If none of those changes ‑‑ if you buy our argument that let's wait five years, let's let this digital path roll out, let's come back to this when we are a little more certain and when there is some evidence as to why we need to make these changes in the first place, which we haven't heard, then we can relook at it and we will deal with it at that point in time. But if you are going to do something now, then we need what we are talking about.
6268 COMMISSIONER CUGINI: This is the minimum requirement?
6269 MR. J. LEVY: Minimum requirement.
6270 COMMISSIONER CUGINI: Thank you.
6271 Thank you, Mr. Chairman.
6272 THE CHAIRPERSON: Thank you.
6273 Michel, you had a question?
6274 COMMISSIONER MORIN: Yes. I am more than happy that you have passed the test with the 100 threshold but beware because, as I explained, this threshold can move up, of course.
6275 I am wondering if you have done more than your little homework per se but for the whole system. As a matter of principle, can this model, in your view, make sense for the system as a whole and do you think that such an access model will decrease the diversity in the system? And diversity is an objective of what we are looking for.
6276 MR. J. LEVY: I am going to start and then I am going to turn it over to Grant because we have done work on the modelling and, in fact, have a list of all the services and how they ranked and we are available to make that available as part of the reply or to the Commission.
6277 COMMISSIONER MORIN: I would like to.
6278 MR. J. LEVY: Okay. But just in the context of the general question on how we view it, obviously, we view it very highly because we rank very highly. But that wasn't a surprise to us because, as I said before, we know we are a high value service with huge commitments and we can live with that, and not only can we live with that, we love that. It allows us to develop our product, create programming.
6279 I think we would want a little more time before we would say it is that criteria which dictates the whole universe of where coverage is. As I think was suggested this morning, I think it is one very helpful element in making the decision as to who has coverage and who gets access but I also think it has to be taken in the context of who the player is, what genre are they in.
6280 I think there are other factors here that also should be looked at and I am trying to be objective about it because based on where we place, we would be almost at the top of the list. I think, Grant, we ranked like fifth or seventh or something on the entire list, very high, very strong.
6281 But again, in the spirit of trying to be objective about it, I think it is a very neat way to try to categorize it. I think it would ‑‑ certainly in the context of the small independents, it would continue to provide diversity of voice and diversity of programming.
6282 COMMISSIONER MORIN: Even with your scores?
6283 MR. J. LEVY: I believe, yes. Yes. But again, I just would caution to say I would like to think about it a little more. I would like to think about it in the context of broader considerations but it certainly seems to be providing, again, a helpful guidepost.
6284 Grant, do you want to comment on it?
6285 MR. BUCHANAN: Well, it is a bit of a strange discussion since I have the list and nobody else does.
‑‑‑ Laughter / Rires
6286 THE CHAIRPERSON: Why don't you file it with your reply comments.
6287 MR. BUCHANAN: Yes, I was ‑‑
6288 THE CHAIRPERSON: As you know, there will be 14 days for people to file replies and I think it would be the appropriate ‑‑
6289 MR. BUCHANAN: Perfect.
6290 THE CHAIRPERSON: Since we don't have the list, it would be of relatively little use to us right now.
6291 MR. BUCHANAN: That's fine, Mr. Chairman.
6292 THE CHAIRPERSON: Okay.
6293 MR. BUCHANAN: I will do that. I would make two general comments.
6294 One, you might expect it's skews towards news because they have high Cancon, high CPE, low cost. You would expect the services at the top of the list to be the news‑based services. And sure enough CTV Newsnet is first, Slice is second because they have such high Cancon, then Pulse 24, Canal Nouvelle, Weather Network, CPAC, the Score, Argent, Bold, BNN, the Business News Network and Vision TV. Those services are all 100 or higher and they are the only ones, and this includes Category 1 and analogs. Category 2s will never make it. They are too low on their Cancon. At least I don't imagine they will. I didn't finish running it.
6295 The other thing you find, and the reason we didn't present it with our submission today, some of it requires a little bit of massaging; for example, if you have something with 80 percent Cancon for the broadcast day, 60 percent primetime, which number do you use?
6296 And there is a number of services that have differentiated Cancon obligations depending on the time slot. We use the highest one for every service in each case even though some have higher primetime and others have higher broadcast days.
6297 So you have a few judgment calls to make. Also, some don't have regulated rates. So you need to do a calculation dividing three years' expenditures by three years' CPE or the CPE by the revenues to come up with a guesstimate or an actual but a number that isn't regulated by you.
6298 But with those in mind, as John said, I think it's a very interesting way to look at it. It's different than what we have done before. It encapsulates exactly what you would expect, low cost, high Cancon. That's part of the answer to Commissioner Cugini's question as to why we thought these services ‑‑ it wouldn't be strange for them to be on basic anyway because the three that we were talking about; the Score, Vision and Weather are already on basic and they are already low cost and they are already high Cancon. They all have scores over 100. In other words, it's not such a leap and you take care of the independent problem at the same time.
6299 So it's another way of looking at the same issue but I think probably we will refine this a little bit, Mr. Chair, and put it in with our reply comments.
6300 COMMISSIONER MORIN: But do you think that it's workable with the third variable, the price, if we want to increase in the future the Canadian content and to give the access to those who are investing in Canadian content and Canadian programming of course?
6301 Do you think that this model is ‑‑ this point system is good for the channels which are under the threshold?
6302 MR. BUCHANAN: Well, you are now out of the rate business so you won't be setting rates anymore. So I'm not sure how you measure the subtraction from the Canadian content.
6303 And the Cancon, CPE and Cancon exhibition requirements aren't tools that are immediately flexible. I can't decide that I want to have a higher one in order to get there without coming to you and going through a process that won't happen quickly. So it's not the kind of tool that I can decide, "Oh, well, next year I need a higher" ‑‑ "I need to be on basic" or I want to do this, I want to do that.
6304 So it lacks a certain flexibility.
I'm not sure. I need to think about it. We have two weeks.
6305 So I think now ‑‑ we needed the numbers, I think, to start the process going as to how you could work with it. But you know it's interesting as far as it goes so far but that's as ‑‑ you know we haven't taken it any further to be able to generate the scores to trigger the thing.
6306 COMMISSIONER MORIN: Thank you.
6307 THE CHAIRPERSON: Okay, thank you very much.
6308 Let me just say this is not a Commission proposal or anything. This is an idea that Commissioner Morin has evolved and he has floated and it's an interesting idea and obviously everybody needs to reflect on that. And if you have some views on it or have done some thinking of some calibrations by all means share it with us.
6309 Thank you.
6310 Madam Secretary, who is next?
6311 THE SECRETARY: Thank you, Mr. Chairman.
6312 We will now call to the presentation table the Canadian Media Guild, please.
6313 THE SECRETARY: Mrs. Lise Lareau will be introducing her colleagues after which she will have 20 minutes for ‑‑ I'm sorry ‑‑ 15 minutes for your presentation.
6314 Please go ahead.
PRESENTATION / PRESENTATION
6315 MS LAREAU: Good afternoon. My name is Lise Lareau and I am National President of the Canadian Media Guild.
6316 I am joined by Karen Wirsiq, the Guild's Communications Co‑ordinator and Brian Olsen of Olsen Enterprises who has provided the technical research behind much of our work and our presentation.
6317 Thank you for giving us the time to present to you today.
6318 Our primary concern in this proceeding is the survival of local TV programming and broad access to it. Our statements to the CRTC have been consistent on this issue and we certainly don't need to reiterate all of our concerns and arguments here today. What we can do is address the relevant questions that you have asked during this proceeding through the lens of what will best ensure that local television survives and thrives.
6319 Local TV was once a cornerstone of this industry. Now, it's little more than an afterthought or, worse, a costly inconvenience at least from the perspective of those who sit around boardroom tables. Simulcasting, timeshifting, video‑on‑demand these are all creatures of a continental TV system that largely distributes foreign content to Canadians and income to Canadian TV licence holders.
6320 Even the Canadian Television Fund, as it is currently structured, prioritizes the financing of productions that are national in scale. The regulatory system is increasingly supporting a model that is sucking the life out of smaller‑scale local TV production.
6321 Nonetheless, over‑the‑air licences continue to be a key element of overall broadcasting regulation and the primary means of ensuring Canadians have access to at least some locally or regionally‑relevant TV programming. Looming large, though, is the real possibility that the transition to digital TV will put the local building blocks of the system in danger while cutting off hundreds of thousands of OTA viewers in nearly 1,000 communities.
6322 OTA broadcasters have been trying to limit their local programming obligations and are suggesting that they will not fully replace their analog transmitters or do it at all. And by not addressing these issues in the proceeding key opportunities to protect local TV could be lost.
6323 So what can be done?
6324 With respect to the issues at stake in this particular hearing we can recommend three strategies:
6325 One, ensure that broadcasters who maintain an over‑the‑air presence after the transition to digital TV enjoy privileges and benefits that the others don't;
6326 Two, create opportunities for new, local and regional players using new transmission technology and;
6327 Three, use BDUs' subscription revenue to finance an increase in the production and airing of local programming.
6328 MS WIRSIG: So I will continue here.
6329 In terms of incentives for OTA broadcasters, incentives to maintain an over‑the‑air presence would include mandatory carriage and priority placement on BDUs. OTA broadcasters would form the core of a basic cable package that would also include provincial broadcasters, the Aboriginal Peoples Television Network ‑‑ we believe up to three Canadian all news channels that have their own newsgathering capacity ‑‑ CPAC, a Canadian all weather channel, a Canadian sports channel committed to airing a certain amount of amateur sport and even a specialty service devoted to Canadian drama.
6330 The basic Canadian package in our view should be a zone on the dial where viewers would know they could count on finding Canadian programming, quality Canadian programming in various genres.
6331 We support the principle of the proposal put forward by the independent specialty broadcasters for a Category A group of channels that would include those specialty services that commit a certain amount of their schedules and gross revenues to airing and commissioning or producing Canadian TV.
6332 However, we believe the minimum requirement under such a system for airing and spending on Canadian TV should be closer to 65 percent and not the 50 percent being recommended. Time of day restrictions would be necessary to ensure that the bulk of the broadcasting requirements were not met during overnight hours.
6333 So‑called conventional broadcasters without over‑the‑air service in the area served by a cable company would not have mandatory carriage or priority placement on that cable service. They would also not have a right to simultaneous substitution. In addition, only broadcasters with local programming should have access to local advertising revenue.
6334 MS LAREAU: Now, in terms of new opportunities for local and regional players, new technology presents an opportunity to enhance and diversify local TV in smaller markets, those markets not currently seen as a priority in the transition to digital TV. We had talked about this exciting possibility before you last year and I believe even earlier than that, and it's all about multiplexing.
6335 Multiplexing allows a single digital transmitter to broadcast up to six stations at standard definition. In countries such as the U.K. and New Zealand multiplexes have been created by partnerships among broadcasters to provide extensive free TV service. It also provides a possibility for cost sharing among broadcasters. Perhaps best of all, unlike the big cable and satellite companies and the technologies they use, multiplexing is based on local transmission so it could present new opportunities for smaller, local and regional players to enter the scene.
6336 Take the City of Kamloops. It is a city of nearly 100,000 people where viewers currently have access to only three stations over‑the‑air. Two are private English stations carrying CanWest programming while the third is Radio‑Canada's main network station which is broadcast by a repeater out of Vancouver. CBC is no longer available for free and there is only one local news show on TV.
6337 From what we know right now, it's not clear there will be any local TV free or otherwise left in Kamloops after the switch to digital TV in 2011.
6338 We believe multiplexing presents important possibilities for viewers, broadcasters and small advertisers in that city and cities like it. A partnership among the two existing private operators, CBC/Radio‑Canada, the Knowledge Network and perhaps APTN or even a new community station would actually improve TV service there. It would also ensure that the local cable service had a decent local and regional element after the transition to digital. We can talk about further ideas to address this in a pilot project in the Q&A after this.
6339 And we must note that Kamloops is only one city among nearly 1,000 communities to be cut off from free TV after the transition to digital if we follow the current, admittedly vague, plans provided by OTA broadcasters.
6340 Of the 970 cities and towns we have determined would be cut off, about 90 percent currently have fewer than six TV stations available over‑the‑air.
6341 Multiplexing then not only represents an opportunity to save free TV in those communities, it stands to improve access to free TV and local programming in smaller cities and towns across the country, the very places that have been hurt most by the centralization of TV production and newsgathering.
6342 MS WIRSIG: So finally in terms of financing for local programming, we are persuaded that it would be advisable to explore new sources of revenue for quality local programming and believe that BDU subscription revenue is a reasonable source. When we appeared before the CRTC in late 2006 we proposed a broadcaster programming fund be created from a small increase to BDU subscription fees. The principles behind that fund are still sound but we now believe that the money should be used exclusively for local programming provided by OTA broadcasters.
6343 We are proposing that OTA licensees apply for a per‑subscriber amount during their next licence renewal to provide a new and additional block of local programming in a particular licence area. The application would include a business case for the new programming, an estimate of costs and a proposed monthly amount per local BDU subscriber in the market to be served.
6344 Given that cable providers end up with more obligations with mandatory carriage and simultaneous substitution rules than their satellite counterparts, perhaps satellite companies could be required to provide a slight premium per subscriber towards the funding of local programming.
6345 Satellite subscribers may not have access by a satellite to the local program they are paying for. However, those subscribers would continue to have the option to hook up an antenna in order to receive local TV service without an additional subscription fee and we believe that satellite subscribers already do that in many cases, hook up a TV for local programming.
6346 We believe our proposal would further allow the broadcasting system to meet important public objectives while providing a clear rationale to BDU subscribers. Unlike with many BDU fee increases, subscribers would actually be able to see what they are newly paying for.
6347 We should point out that we flatly reject any fee‑for‑carriage proposal that excludes OTA public broadcasters or grants subscriber fee revenue to OTA broadcasters without any additional programming requirements.
6348 So just to sum up, we are proposing ‑‑ what we are proposing is a couple of new ways to look at making sure the infrastructure and means are there to continue providing what Canadians fundamentally expect and deserve from their broadcasting system, local TV. It may not always be sexy or stunning but it should always be there to provide a window into local events, politics; issues and let's not forget local emergencies.
6349 We thank you very much for your time and would be pleased to answer your questions.
6350 THE CHAIRPERSON: Thank you.
6351 You have me at a disadvantage. You say that in previous hearings you explained multiplexing. I wasn't here in previous hearings.
6352 MS WIRSIG: M'hm.
6353 THE CHAIRPERSON: So maybe you can tell me what you are talking about.
6354 MS LAREAU: Well, perhaps the best person to do that is Brian Olsen.
6355 MR. OLSEN: In the new high‑definition digital environment, we would have for instance a digital transmitter that might put out one signal in high definition. That transmitter also has the capability through a multiplex scheme to actually provide six standard definition signals simultaneously. So the same digital technology can do one HD, six SDs, or in the U.S. we have seen instances where broadcasters have put up one HD and a couple of SDs on the same transmitter.
6356 THE CHAIRPERSON: But they will be all digital signals?
6357 MR. OLSEN: They are all digital, all standard definition.
6358 THE CHAIRPERSON: I see. And then your proposal therefore is ‑‑ how does this tie in to your proposal ‑‑
6359 MS WIRSIG: Well ‑‑
6360 THE CHAIRPERSON: ‑‑ that those present OTA broadcasters will put ‑‑ in effect reward those who provide a digital signal in the future; those who will say "no, we are not prepared to provide a digital signal. We will just provide our digital signal via cable companies" will effectively be penalized?
6361 MS WIRSIG: Right, that's our proposal, to maintain the over‑the‑air capacity, yes.
6362 THE CHAIRPERSON: And to provide them an incentive to provide it?
6363 MS WIRSIG: I mean if we look at what the plans ‑‑ and maybe Brian can speak further to this, but if we look at what the plans suggest right now or what the broadcasters said back at the hearing in 2006, there would at best be a hybrid system and at worst no over‑the‑air broadcasting from some broadcasters apparently.
6364 THE CHAIRPERSON: Yes.
6365 MS WIRSIG: It's not clear exactly what is going to happen.
6366 But if we assume the hybrid case those people who live in large urban centres would likely have over‑the‑air HD service and those people living in about 970 or 977 smaller cities, but cities that are up to the size of 100,000 people, would have nothing anymore over‑the‑air. They would be forced to subscribe to satellite or to cable and likely then ‑‑ it's not clear how local programming would survive in a place like Kamloops anymore because what would the basis of a licence be and would it even be required anymore? Would you be able to require it of somebody that is not in effect a local broadcaster anymore because they don't have a signal?
6367 See it becomes a bit of a regulatory problem.
6368 THE CHAIRPERSON: Yes.
6369 MS WIRSIG: In our view.
6370 THE CHAIRPERSON: Yes. So you want to encourage them to use multiplexing, to put out a digital ‑‑ and in return for that they will get what?
6371 MS WIRSIG: Well, they will get some of the things they continue to get today which is the rules that currently support OTA broadcasters like the simultaneous substitution rules, like the priority carriage rules, right?
6372 THE CHAIRPERSON: Right.
6373 MS WIRSIG: Which is, I think, what is sort of on the table today anyway. But what we think the multiplexing would do is just increase ‑‑ actually increase even from today the numbers of local stations available in a lot of smaller locations at standard definition.
6374 THE CHAIRPERSON: And if we bring in a fee‑for‑carriage they will get the fee‑for‑carriage too presumably.
6375 MS WIRSIG: If they propose to do ‑‑ well, our view is if they propose to do new local programming that met the test that the CRTC thought contributed to the goals of the Broadcasting Act, then they might get a piece of local subscription fees in order to do specifically that local programming, yes.
6376 THE CHAIRPERSON: Okay, thank you.
6377 Michel, I believe you have some questions.
6378 COMMISSIONER MORIN: Merci.
6379 You agree with the Dunbar‑Leblanc Report that the CRTC must ensure a basic cable service that exhibits a high level of Canadian programming? CBC‑SRC have said that the basic service must be minimal, but we know that in the real world the consumer buys packages and bundles instead of only the basic service.
6380 This morning Cogeco said that less than 20 percent of the clients are choosing only the basic service.
6381 So what is your position? Are you in favour of a small basic package as suggested by CBC/Radio‑Canada or a bigger one with Canadian content?
6382 MS LAREAU: Our overall view is that there should be a cluster of quality Canadian programming that people know how to find in one place. That's what is really guiding our principles here.
6383 If it's as small as the CBC or larger than ours, I mean you can quibble over one or the other. There needs to be a place that is identifiable and is based on quality programming as opposed to quantity of minutes of Canadian programming.
6384 COMMISSIONER MORIN: You are saying that the fee‑for‑carriage must be invested in new original, local programming. It sounds great but the problem, as the broadcasters have explained, is not the provision of new content but the maintaining of the local services as they are. These fees for carriage are a lifejacket for the industry. They claim that they have to cope with obligations and if they aren't able to do that the crisis will stay if they don't get fee‑for‑carriage. That's their argument. This is why they are asking for new revenues.
6385 So are you sticking to your point that 100 percent of the new revenue must be invested in new original local programming?
6386 MS WIRSIG: Yes.
6387 COMMISSIONER MORIN: Yes, good.
6388 So if the BDUs are not in a position to increase local programming with fee‑for‑carriage should the Commission refuse to grant fee‑for‑carriage rights?
6389 MS WIRSIG: If the BDUS are ‑‑ you mean if the OTAs?
6390 COMMISSIONER MORIN: Are not in a position to increase the local programming even if they get the fee‑for‑carriage. Should the Commission refuse to grant those fees‑for‑carriage?
6391 MS WIRSIG: Do you mean if the local conventional stations ‑‑
6392 COMMISSIONER MORIN: Yes.
6393 MS WIRSIG: ‑‑ aren't able to increase local?
6394 COMMISSIONER MORIN: Yes.
6395 MS WIRSIG: Yes. We don't think that they should be getting something for nothing.
6396 Now, in our original proposal back in 2006 what we suggested was a broadcaster programming fund as a bit of a counterweight to the Canadian Television Fund because you may know that ‑‑ probably do know that the CTF does not allow broadcasters to produce their own programming. And in some cases it's the most economical way of producing quality Canadian programming is to do ‑‑ especially news and current affairs programming ‑‑ is for the broadcaster to do it directly, right?
6397 So we thought BDU subscription revenues could be used as a counterweight to create a new fund that would be open for use by broadcasters.
6398 This time we are saying, you know, even in the last two years we have seen local programming more and more at risk. So now if the money ‑‑ if there is a small amount of money there it's also easier to sell because it's not a diffused question.
6399 In Windsor you are going to get two new 30‑minute shows on this station and you are paying x amount to help finance those shows. It's very clear. It's very transparent what you are getting. It's not like yet another cable bill increase that you can't explain, right?
6400 So I mean I think that's our rationale; is we understand this question is extremely controversial. It is opening up a big can of worms. But from the point of TV viewers, if we know what we are paying for it's more likely to be acceptable. And we do know that quality local news is something of value to people and the more competition there is in local news the higher the quality gets. So the more people doing local programming, local news programming and local current affairs; cultural programming, the likelier it is to be higher quality.
6401 THE CHAIRPERSON: Is what we are talking about local news?
6402 MS WIRSIG: Sorry, no; not exclusively. I mean on CBC for example, I mean, there is the living in Toronto. There is a number of local shows where ‑‑ we live in Toronto. There are different local shows across the country. Certainly, I don't think any type of local show would be excluded.
6403 COMMISSIONER MORIN: Following the discussion, in your January comments you refer to a Nanos poll which states that 77 percent of cable and satellite subscribers place a high value on local news.
6404 Did this poll ask the same question for drama, children's programs and documentaries and if "yes" what were the results? Was the local news always the consumer's first choice?
6405 MS WIRSIG: We piggybacked on, I think, it was a CTV Global TV joint survey in that case. So I'm sorry but you will really have to ask them about the broader survey.
6406 It was just based on something they put out into the news ahead of these hearings about the survey. I am not exactly sure what the full list of questions was but the highlight in that report was the local aspect. And that is consistent with other studies we have seen.
6407 MS LAREAU: And notably too, coming at a time where local news is in jeopardy right across the country. I mean you know this; the amount of local news shows across the country is decreasing year after year after year as operations centralize. And so it was in that context that we wrote this brief and our previous ones as well.
6408 So in some ways it's a good question, but it's not entirely relevant to our concern which is with our local news and trying to save both local programming and free TV
6409 COMMISSIONER MORIN: Of course.
6410 MS LAREAU: At the same time.
6411 COMMISSIONER MORIN: You say that both public and private broadcasters must have access to the fee‑for‑carriage. You are still being generous, but just as a matter of principle wouldn't it make more sense to give the CBC commercial publicity rights to the private sector and fee‑for‑carriage, right, to the CBC?
6412 Have you just as a matter of principle without discussing the issue of fee‑for‑carriage but generally as a whole picture ‑‑ for the whole picture?
6413 MS WIRSIG: In other words, CBC/ Radio‑Canada would get fee‑for‑carriage.
6414 COMMISSIONER MORIN: Yes.
6415 MS WIRSIG: And give up commercials for that program?
6416 COMMISSIONER MORIN: As they have done with the radio.
6417 MS WIRSIG: Right.
6418 COMMISSIONER MORIN: It's not the object of this hearing but you know ‑‑
6419 MS WIRSIG: It's a bit of a touchy question for us. I think in principle there is nothing wrong with it.
6420 And in fact, what we said in our programmer ‑‑ in our 2006 proposal is that the public broadcasters would in fact get access to this money for programming that would run without commercials, so as a way of ‑‑ you know private broadcasters might get access to the money if they were doing incremental Canadian programming. They would still run commercials but the CBC, Radio‑Canada and the provincial educational broadcasters would do so without commercials.
6421 So it's certainly something that we have talked about, yes.
6422 COMMISSIONER MORIN: Thank you.
6423 MS WIRSIG: It seems reasonable.
6424 MS LAREAU: With the CBC, it is always a question of being incremental on this question. It's the reason why it's touchy for us because it's not like anybody would propose take one thing away entirely and substitute with another. There is a lot of risks attached to that, but obviously providing funding for programming that would be without commercials would certainly be a start, an incremental start, and that's important.
6425 COMMISSIONER MORIN: Thank you.
6426 THE CHAIRPERSON: Okay. Well, thank you very much then for your presentation.
6427 I think we will take a five‑minute break before going to the next one. Thank you.
‑‑‑ Upon recessing at 1500 / Suspension à 1500
‑‑‑ Upon resuming at 1511 / Reprise à 1511
6428 THE CHAIRPERSON: A familiar face.
PRESENTATION / PRÉSENTATION
6429 MR. DENTON: Yes, for your crimes, I'm back again.
6430 I can see, by the increase in the number of commissioners, that we can recognize the relatively greater importance of broadcasting to telecom.
6431 Good afternoon, Mr. Chairman; good afternoon, Commissioners. My name is Timothy Denton. I represent the Coalition of Internet Service Providers, and it is now time for something completely different.
6432 The intervention I am making today relates to the role of Bell Canada as a distributor of high‑definition television programming, which, in CRTC lingo, is referred to as a Satellite Relay Distribution Undertaking, an SRDU.
6433 The particular hook that I am hanging my hat on is paragraph 40 of your Broadcasting Notice of Public Hearing that started this proceeding.
6434 I will quote your words:
"Finally, the Commission asks the parties to comment on any changes to its policies with respect to Satellite Relay Distribution Undertakings and Terrestrial Relay Distribution Undertakings that might be required as a result, for example, of possible changes as to who is responsible for the delivery of signals or the capacity requirements for the delivery of high‑definition signals." (As read)
6435 THE CHAIRPERSON: Mr. Denton, I am somewhat puzzled. You say that you represent internet service providers and Xittel, neither of which are BDUs or broadcasters. How do you fit into this proceeding?
6436 MR. DENTON: They are exempt BDUs, sir.
6437 When Xittel submitted its paperwork to the CRTC to be a BDU or to be exempt, the paperwork was sent back saying, as long as we control the head end, we are an exempt BDU, when they act in that capacity.
6438 THE CHAIRPERSON: Okay. Proceed.
6439 MR. DENTON: That's a good question, though.
6440 My clients wish to have the CRTC emphasize the importance of the obligations it has imposed on its licensees in relation to their carriage obligations as SRDUs and TRDUs. Here is why.
6441 The primary path to the survival of independent ISPs lies in the provision of triple‑play services: internet, telephony and broadcasting.
6442 The CRTC has established rules in its recent Essential Facilities Proceeding that allow ISPs to start to deploy more infrastructure. So far so good.
6443 If the ruling in the Essential Services Decision stands, then ISPs will have a planning horizon and a feasible path on which to take action.
6444 The second part of the equation concerns access to Canadian programming. ISPs need to have access to long‑haul facilities, which includes the use of satellites, across standard, non‑proprietary interfaces, such that ISPs can deliver programming to their customers across private IP‑based networks.
6445 That brings me to the observation that protocol interfaces are the new bottlenecks.
6446 The focus of the coalition is, for the moment, confined to relationships with Bell and its subsidiaries and affiliates. There are several obstacles to negotiating a successful outcome with Bell ExpressVu in this regard, and we want to talk about them in this presentation.
6447 First, in rural markets in Quebec, Xittel, one of the members of the coalition, has serious plans for the deployment of fibre to the home technology. For this purpose, it needs to be able to get access to dedicated long‑haul transmission at a minimum of 100 megabytes per second.
6448 The need for bandwidth rises to 500 megabytes per second on more reasonable commercial assumptions.
6449 Access to the facilities of incumbent cable and telephone operators is not available on an economic basis. The result of this situation is that access to satellite‑delivered programming signals is the most economically efficient way to solve this problem.
6450 Second, the ISPs must adapt their engineering to fit the requirements of a Satellite Relay Distribution Undertaking, the SRDU, which is Bell ExpressVu in this case.
6451 Likewise, we submit that Bell ExpressVu has to make some adjustments to its SRDU operations to make them useful to those companies that the SRDU concept is supposed to benefit.
6452 This has not been the case so far, as Bell ExpressVu has been focused on its own operations, as Mr. Bibic testified in the proceeding on Public Notice 2006‑14.
6453 The coalition understands that whatever adjustments both parties need to make should be arrived at by negotiation, but the attention of the CRTC to realizing the SRDU concept would certainly assist the process.
6454 The main point we are trying to make is that Bell ExpressVu has licence obligations to make its carrying capacity available to others without undue preference. CISP members operate as forborne from regulation if they control their head ends. Hence, Bell ExpressVu is obliged to make its service available to the CISP members that so qualify.
6455 The obligation to make this capacity actually useful to potential customers is necessarily implied by the non‑discrimination clause.
6456 Technical decisions can make interconnection to the SRDU economically unjustifiable. We use the term "interconnection" because that, in substance, is what affiliation means in this context.
6457 We would like the CRTC to remind Bell ExpressVu, in whatever way the Commission thinks best, to think about how it can achieve this goal of actually being useful to its customers.
6458 Here is an example of what we are talking about. Bell ExpressVu provides access to its programming through content access modules, which are the white chip decryption cards. Currently, our information from the makers of these chip cards, which is a company called Nagra, available on the internet, is that we can decrypt four channels per crypto card, and not two, as Bell ExpressVu maintains.
6459 The use of these cards has a decisive effect on the economic case for establishing IP TV service.
6460 Under current arrangements Xittel has to build four head ends in each of the four regions it serves in order to pick up Bell ExpressVu signals. This is so because access to terrestrial service facilities at economic cost is not available.
6461 In addition to the costs of those head ends, Xittel also faces significantly increased costs, depending on the number of decryption devices that are needed per head end.
6462 These costs can vary in two ways. The first way, as we mentioned above, is when Bell ExpressVu insists that commercially available decryption cards can only decrypt two channels per card rather than four, as the manufacturer maintains.
6463 The second way these costs can vary occurs when ExpressVu reassigns channels without prior notice to new transponders for which descrambling equipment has not been fitted.
6464 This is a matter that could be fixed by what is called a Service Level Agreement, if Bell ExpressVu had an incentive of any kind to negotiate one.
6465 So far, the SRDU has never had to account for the cost structure that these decisions and others impose on its customers. This is the fundamental point of our presentation.
6466 The problems of interconnection standards and agreements never go away. These standards and agreements could be more speedily and readily arrived at by the Commission reminding the SRDU of its licence obligations, by enforcing them if necessary, and by encouraging the SRDU to come to mutually acceptable agreements with people who desire to use its carrying capacity.
6467 CISP members want to come to mutually acceptable arrangements with Bell ExpressVu about the use of these facilities. Our question is: Will the Commission help us in this regard.
6468 Thank you.
6469 THE CHAIRPERSON: Thank you.
6470 I don't think we have any questions for you. This is really not on the table for discussion.
6471 You have taken this opportunity to remind us of an issue that you have. We take cognizance of it. Obviously, you can invoke the Commission process if you want to, should you have a problem with Bell or anybody else.
6472 But as far as the subject of this hearing, which is clear, I don't think it relates to it at all, so we have no questions for you. Thank you.
6473 MR. DENTON: Thank you.
6474 I hope that having attained your attention on this matter we will be able to make progress with them, because this is a key portion of the commercial strategy of independent ISPs.
6475 THE CHAIRPERSON: I have no doubt about it. I think you should have invoked the proper process, and I don't think this hearing is it.
6476 Let's go on to the next intervenor, Madam Secretary.
6477 THE SECRETARY: Mr. Chairman, this is the last intervenor for today. We can resume tomorrow morning with Quebecor Media Inc. at nine o'clock.
6478 Thank you.
‑‑‑ Whereupon the hearing adjourned at 1521, to resume
on Tuesday, April 15, 2008 at 0900 / L'audience est
ajournée à 1521, pour reprendre le mardi 15 avril
2008 à 0900
Johanne Morin Monique Mahoney
Jean Desaulniers Fiona Potvin
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