ARCHIVED -  Transcript of Proceeding

TRANSCRIPT OF PROCEEDINGS BEFORE

THE CANADIAN RADIO-TELEVISION AND

TELECOMMUNICATIONS COMMISSION

SUBJECT:

Canadian broadcasting in new media

HELD AT:

Conference Centre

Outaouais Room

140 Promenade du Portage

Gatineau, Quebec

February 27, 2009

Transcripts

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

Contents.

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.

Canadian Radio-television and

Telecommunications Commission

Transcript

Canadian broadcasting in new media

BEFORE:

Konrad von Finckenstein   Chairperson

Michel Arpin   Commissioner

Len Katz   Commissioner

Rita Cugini   Commissioner

Michel Morin   Commissioner

Timothy Denton   Commissioner

Louise Poirier   Commissioner

Stephen Simpson   Commissioner

ALSO PRESENT:

Sylvie Bouffard   Secretary

Chris Seidl   Hearing Managers

Steven Harroun   

Regan Morris   Legal Counsel

HELD AT:

Conference Centre

Outaouais Room

140 Promenade du Portage

Gatineau, Quebec

February 27, 2009

- iv -

TABLE OF CONTENTS

   PAGE / PARA

PRESENTATION BY:

Sirius Canada Inc.   1400 / 7707

MoboVivo Inc.   1438 / 7935

TEN Broadcasting Inc.   1462 / 8072

   Gatineau, Quebec

--- Upon resuming on Friday, February 27, 2009 at 0911

7701   THE CHAIRPERSON: Good morning, everybody.

7702   Madame la Secrétaire, nous sommes prêts à commencer.

7703   LA SECRÉTAIRE: Merci, Monsieur le Président.

7704   Before we begin I would just like to note for the record that the Directors Guild of Canada has filed, in response to an undertaking, the reports that were mentioned in the Nordicity study that accompanied his written submission.

7705   We will now proceed with item 35 on our Agenda, which is a presentation by Sirius Canada Inc.

7706   Please introduce yourself and proceed with your 15 minute presentation.

PRESENTATION

7707   MS KERR: Good morning, Mr. Chair, Members of the Commission and Commission staff. I am Sherry Kerr and I am the Vice President and General Counsel at Sirius Satellite Radio in Canada.

7708   Sirius is one of only two licensed satellite subscription radio undertakings in Canada and we really appreciate the opportunity to speak at this proceeding.

7709   I have seen that the focus so far, understandably, has been mostly around video programming. Today I would like to ask you to change gears and think about the audio sector. The impacts of new media on our business are quite different.

7710   Most of you were not Members of the Commission in 2005 when satellite radio was first licensed. It was a fierce struggle, but in the end the Commission approved the applications of XM Canada and Sirius Canada. In doing so, they also imposed significant exhibition and expenditure requirements.

7711   In terms of expenditures you have the actual amounts in your files, but since our company is private I can't disclose publicly some of the figures.

7712   What I can tell you is that your two satellite radio companies already contribute more Canadian Content Development money to Canadian artists than the entire yearly basic contribution of all of Canada's terrestrial radio licensees put together. I invite you to think about that for a moment. We have never turned a profit, are an infant industry and we contribute more to CCD than the entire private radio industry in one year.

7713   Not only that, but we play materially more Canadian content on our Canadian channels than our terrestrial radio counterparts and, unique to radio, we have Canadian spoken word obligations, as well as obligations relating to new and emerging artists, and we serve as a North America wide broadcast platform for Canadian artists.

7714   So that is why we think the Commission should be concerned about the state of the satellite radio industry in Canada. We do not expect you to be concerned out of a feeling of sympathy for our shareholders or debtholders.

7715   So what's the problem?

7716   Our written submission described in some detail the threat that internet-related audio broadcasting poses to our business and I will not go over all of that ground again.

7717   But internet radio and its associated audio broadcast content -- such as Slacker -- is a direct substitute for satellite radio, both in the home and in vehicles. This view is supported by an increasing number of articles in the press opining that internet radio is a category killer and the category that it would kill would be ours.

7718   For example as discussed at slate.com recently:

"But Internet radio's reach is sure to expand. Indeed it's already mesmerizing: load up a program like Pandora or the Public Radio Tuner on your iPhone, plug it into your car's audio-in jack, and you've got access to a wider stream of music than you'll ever get through satellite"

7719   Similarly, RadioWorld online stated, with respect to the recent introduction of the first in-dash Internet car radio:

"...by pushing a button, users can switch from AM/FM to miRoamer's aggregated content from some 30,000 Internet radio stations -- without third-party devices or plugging in cords"

7720   Also note that AM/FM radio is still included with this device.

7721   These new media technologies will not likely have the same impact on conventional radio as on satellite radio, which may explain the relative absence of the former at this proceeding. That is, like for television broadcasters most radio broadcasters view the internet as complementary to their own activities rather than competitive. The leading business models on the internet are still advertising-based as opposed to subscription-based.

7722   Advertisers advertise where their customers are. Unless internet-based competitors can prove that advertising with their audio service will bring greater returns than advertising with Canadian radio programming undertakings, then any advertising dollars that do find their way to internet radio will continue to flow to the Canadian undertakings.

7723   Satellite radio does not have the same comfort. As noted, satellite radio has yet to turn a profit. It has less room to manoeuvre than our more profitable radio competitors. At a minimum, the lack of a level playing field can do nothing but harm the regulated entities and reduce our ability to meet our obligations under our licence.

7724   In terms of negative impact, internet audio broadcasting has significant reach and penetration already in Canada. As discussed by many other panellists, 60 percent plus of Canadian households already have broadband access and there are more than 20 million wireless subscribers in Canada. Compare this to the much more modest penetration for satellite radio, about 4 percent, as detailed in our submission.

7725   Indeed, there is significant average revenue per customer and overall revenue and profits being generated from broadcasting over the internet, whether by the ISPs or the wireless carriers. Like traditional broadcasting licensees, they are benefiting from the privilege of being able to broadcast to Canadians but, unlike traditional broadcasters, they currently have no obligations commensurate to that benefit.

7726   According to the Communications Monitoring Report 2008, in 2007 the ISPs average revenue per customer was over $30 per subscriber per month, with total revenues of over $5.6 billion; and for wireless 2007 revenue from data services was $2.5 billion. In contrast, XM Canada's total revenue for the last full year was approximately $40 million.

7727   As discussed in our written submission, the Commission felt that regulating satellite radio would contribute to meeting the objectives of the Act. Years later, the situation has changed.

7728   At this juncture, it is not clear to us how continuing to regulate our tiny element of the broadcasting system, while completely exempting those other elements serves to advance the objectives of section 3 of the Broadcasting Act. In our view, if the ISPs and wireless providers benefit from broadcasting and can afford to contribute, then absent it not being practical to do so, they should be made to make a contribution.

7729   We appreciate that it is much easier to state the problem than to find a solution. We sympathize with the Commission as it tries to keep current on all of these technological developments and, at the same time, trying to come up with the appropriate regulatory response.

7730   What follows next is an attempt on our part to try to look at some possibilities together in a spirit of cooperation.

7731   As discussed in our written submissions, the core of our proposal is that wireless providers, and ISPs, that are acting like BDUs -- or in many cases like "hybrids" such as our service -- can and probably should be regulated in the same fashion as BDUs/programming undertakings. In other words, mobile audio broadcasting undertakings.

7732   I realized upon rereading our submission that we might not have been clear in what we meant by "mobile audio broadcasting undertakings". We did not mean wireless carriers acting merely as a WSP and providing browser access. Our intention was to capture those situations where the provider is to any degree controlling what content the subscriber has access to.

7733   For example, for $8.00 a month a Bell Mobility subscriber can have access to 60 internet radio stations that have been aggregated and provided by Bell Mobility much like the BDUs choose which television shows to broadcast to their customers.

7734   Therefore, the more mobile audio broadcasting undertakings act like gatekeepers to content, the more they should be treated like any other traditional broadcaster. They should be required to have certain Canadian content carriage requirements and contribute financially to the development of Canadian artists. In our submission we propose that this financial contribution be 5 percent of their revenue derived from their BDU-like activities.

7735   If a wireless provider or ISP is acting like a BDU, it should not be able to use a loophole based purely on a delivery mechanism to escape its obligations as a broadcaster.

7736   What is a bit different from our written submission, however, is our thinking about what to do about internet radio in general.

7737   Wireless providers and ISPs acting as content aggregators or providing applications directly to their customers, like BDUs, are a very small piece of the internet radio pie and as such are less of a threat to satellite radio.

7738   Our primary concern is the situation where the consumer has access to thousands of internet radio stations -- whether in their home, over their phone or in their vehicle directly -- where the wireless provider or the ISP is not acting like a gatekeeper by choosing what content is going to be available to users, which is most of the time.

7739   But here we run into the core of the problem that is facing the Commission in these proceedings. As you stated, Mr. Chair in your opening comments:

"We must respect the principles of openness and individual choice that govern the Internet while maintaining access to, and for, Canadian stories, opinions and ideas."

7740   In the traditional broadcaster model, broadcasters operate in a relatively closed system. When listening to all other forms of radio, Canadians must have access to a certain amount of Canadian content, which automatically operates to limit access to, and choice in respect of, non-Canadian content. Those same Canadians of course have the choice to not listen to that Canadian content, but it still must be made available to them.

7741   The Commission has consistently supported high levels of Canadian content requirements for all radio, terrestrial, pay audio and satellite licensees, with the downstream effect of excluding a great deal of non-Canadian content from Canadian airwaves.

7742   Logic, policy and consistency would suggest then, that if the Commission wanted to import the traditional radio broadcasting model to new media, that all programming undertakings, whether Canadian or foreign, would be expected to meet minimum Canadian content requirements if they wanted the privilege of broadcasting audio content to Canadians over the internet.

7743   Presumably one way of operationalizing this approach would be to require ISPs, including wireless providers, to geo-block audio content that does not comply with CRTC-imposed Canadian content requirements. Only those programming undertakings that met such requirements would be permitted to broadcast their audio content to Canadians.

7744   That approach, if taken by the Commission, would of course thrill us completely. We would throw actually throw a party for you.

--- Laughter

7745   MS KERR: Nothing else would level the playing field for us from a regulatory perspective as would geo-blocking of non-compliant audio programming undertakings.

7746   However, we recognize that this approach flies in the face of the principles of openness and freedom of choice that governs the internet and actually hasn't been suggested by anybody else here. Perhaps pushing water uphill best describes our proposed option. I imagine of the Commission's top 100 practicable alternatives it might be considering, this one might fall somewhere around 98.

7747   But the reason I bring it up is to give the Commission some insight into the threat we perceive to our business from unregulated internet radio that is currently not expected to contribute to the broadcast system and just how unlevel that playing field is for us.

7748   So if it is not practicable and it does not respect the principles that govern the internet to geo-block content, what can be done so that we have a broadcasting system in which new media participants contribute too, so that traditional broadcasters are not under real threat simply as the result of a heavier regulatory burden?

7749   All broadcasters are required to make direct financial contributions to support Canadian content development. Therefore, to address this specific issue, Sirius proposes a levy be placed on the revenues of all wireless carriers for their data traffic related revenues related to broadcasting and on all ISP revenues related to broadcasting. This levy should be proportionate to what traditional broadcasters contribute.

7750   The other way traditional broadcasters are expected to contribute is through Canadian content quotas. By contrast, our competitors out on the open internet are not required to play any Canadian content at all. So even with a levy in place you still have a very asymmetrical system and new media broadcasters will always be contributing a lot less.

7751   Now, except in the unlikely event that the Commission chooses to implement our inspired geo-blocking suggestion, this asymmetry will not change, but we would point out that one way to account for this smaller contribution is to take account of it in the total levy. In other words, even when the levy is the same for traditional and for new media broadcasting, the overall contribution being made is still not the same. If you wanted to be technology-neutral, the new media levy should in fact be higher.

7752   And how should this levy be spent? We suggest the funds, at least from the audio perspective, should be directed to eligible third parties, similar to the Radio Policy that is already in place. Perhaps similar to our own conditions of licence, half should be spent in French and half in English.

7753   A lot has been said already about the proposed levies and I'm certainly no expert on this matter. Those who are against it unsurprisingly call it a tax. Further, it seems that opponents of such a levy obfuscate the real issue -- that is, all broadcasters are required to contribute to the system for the benefits they receive -- by claiming that demand for internet services will go down as a result of higher fees paid by consumers forced by the levy.

7754   Let's keep two things in mind.

7755   First, Canadians used to pay less than $20 a month to access the internet over dial-up, and dial-up is still available, yet, at least 60 percent of them don't seem overly concerned with paying up to triple that amount to have broadband access.

7756   Second, internet service seems to have reached some sort of tipping point into becoming a necessity service like phone or cable, at least according to a lot of the discussion and press around what consumers were planning on cutting back during these challenging economic times.

7757   Even if ISPs decide that an absence of competitive forces will let them pass that contribution charge on to customers rather than dipping into their profit margins, customers are highly unlikely to cancel their service because they are paying an extra dollar or two a month.

7758   The last component is: So what about us?

7759   Our suggestions that we have made today would, we believe, help Canadian artists, but how do they help satellite radio?

7760   Requiring new media broadcasters to contribute to the system from which they are benefiting would indirectly operate to level the playing field, but only to a degree. As we have discussed, internet radio poses substantial risk to our business, in part as a direct result of them being substitutable but unregulated.

7761   So in order to strengthen our ability to compete and to remain a viable business as a distributor of audio content that is paying into the system, we would also ask the Commission to consider lightening our own obligations.

7762   That concludes my oral remarks and I would be happy to answer any questions.

7763   THE CHAIRPERSON: Thank you very much for your very clear and lucid presentation. It's a pleasure to listen to somebody whose thoughts are that well organized and well expressed.

7764   Let me first of all put my bias on the table. I am a Sirius customer and I lover your service.

--- Laughter

7765   THE CHAIRPERSON: But I am really surprised that you are suggesting there is going to be a problem from internet radio.

7766   I always assumed that you built an advantage that one can receive the signal anywhere while the internet radio, the mobile one in cars, is very dependent on what your connection is and where you are.

7767   MS KERR: Certainly that is why the focus of our presentation, our written submissions, were on the wireless carriers.

7768   THE CHAIRPERSON: Yes.

7769   MS KERR: Because wherever you can get your wireless reception you can now get internet radio.

7770   The introduction of -- certainly WiMAX, if it every shows up, is going to be a big threat, but if you look at the iPhone as a real example, it is a 3D phone and you can go and download thousands of applications onto that phone.

7771   THE CHAIRPERSON: Yes.

7772   MS KERR: So wherever you have wireless access for those types of phones, it's already there. With the number in particular -- it used to be sort of, well, who is going to be driving around listening to their phone held up to their ear, but with the number of auxiliary jacks that are being installed in cars primarily to be able to plug iPods into them, you can just have a direct little cable from your iPhone right into your car. In fact, I was here last night having dinner with friends and they were doing exactly that in their car, they had their iPhone and they were listening to an internet radio station in their car from their iPhone.

7773   THE CHAIRPERSON: Yes, but you are restricted to urban areas essentially. Right?

7774   MS KERR: Well, yes.

7775   THE CHAIRPERSON: I don't know, you tell me. Do you think this is a serious competitive problem already now?

7776   MS KERR: Yes. Yes.

7777   THE CHAIRPERSON: I thought this was something off in the future --

7778   MS KERR: No.

7779   THE CHAIRPERSON: -- once we basically have universal broadband access.

7780   MS KERR: Yes. Especially given the launch of the 3D phones, because unlike with -- in fact, our satellites say we can go most places in North America and quite far north, but in terms of footprint I would suggest that North America-wise we have a similar footprint to wireless because of all the roaming that you can do.

7781   Your wireless device has access in most places that Sirius can go and it has a similar feature in that you don't have to change the channel as well, so that's the other thing that people like. You can drive from one end of the country to the other and you can get the same station.

7782   So we do see it much more as a more immediate threat than 5, 6, 10 years down the road.

7783   THE CHAIRPERSON: On page 4, at the bottom paragraph, you state:

".. there is significant average revenue per customer and overall revenue and profits being generated from broadcasting over the internet, whether by the ISPs or the wireless carriers."

7784   Are you talking about radio broadcasting over the internet generating profit?

7785   MS KERR: Overall broadcasting.

7786   THE CHAIRPERSON: Overall broadcasting.

7787   MS KERR: Yes.

7788   We recognize that radio is always going to be quite a small piece of that pie.

7789   THE CHAIRPERSON: Do you have any figures for this statement? Because I understood that at this point in time it is mostly a marketing tool rather than a revenue generator.

7790   MS KERR: Yes. It is more that -- I know lots of other folks have sort of discussed how do you measure what portion of monies are they making from broadcasting activities, but the way I look at revenues from ISPs or wireless providers is like the revenues that BDUS receive, is they are actually receiving their money from the infrastructure and the transmission of the signals that they provide as opposed to the content per se.

7791   So if you look at the ISPs that had $5.6 billion in revenue from broadband services last year, obviously all of that isn't broadcasting content, but whatever way you slice it a fair chunk of it is.

7792   I don't have the expertise at that level to sort of -- it just seems that they are acting -- from that perspective they are broadcasting like a BDU and that is where they are getting some revenues.

7793   THE CHAIRPERSON: Okay, I'm sorry. Now I understand. You are talking about the profits of the ISPs, the wireless carriers --

7794   MS KERR: Yes.

7795   THE CHAIRPERSON: -- not of the broadcasters.

7796   MS KERR: No.

7797   THE CHAIRPERSON: Okay. My apologies, I missed that. Okay, that I understand.

7798   Thank you.

7799   Michel, you have some questions?

7800   COMMISSIONER ARPIN: Yes. Thank you very much, Mr. Chair.

7801   Welcome, Ms Kerr.

7802   MS KERR: Thank you.

7803   COMMISSIONER ARPIN: I am also a Sirius customer.

7804   MS KERR: That's great.

--- Laughter

7805   MS KERR: I guess we are above 4 percent.

7806   COMMISSIONER ARPIN: My car is not equipped to listen to iPhone with -- I don't have jack's, I don't have Bluetooth or the Bluetooth system as it goes directly to my telephone to allow me, even if I have a 3G phone.

7807   That being said, welcome to this hearing --

7808   MS KERR: Thank you.

7809   COMMISSIONER ARPIN: -- I think it is a very nice place to be here today, particularly on your birthday.

7810   MS KERR: Yes, thank you.

7811   COMMISSIONER ARPIN: So I will send you a happy birthday --

7812   MS KERR: Thank you.

7813   COMMISSIONER ARPIN: -- and long-standing in the broadcasting industry, because I guess it's the first time you appear before the Commission.

7814   MS KERR: It is. It is the first time.

7815   COMMISSIONER ARPIN: My first question is that obviously the submission is made by Sirius, but from time to time you are talking about the two satellite competitors and you are using the "we" from time to time. So is the submission made on behalf of the two audio satellite providers?

7816   MS KERR: When I said "we", I just meant Sirius.

7817   COMMISSIONER ARPIN: You only meant --

7818   MS KERR: Yes.

7819   COMMISSIONER ARPIN: Okay. I think your brief is very clear, your oral presentation this morning summarized it very well so I won't have that many questions to ask --

7820   MS KERR: Okay.

7821   COMMISSIONER ARPIN: -- because I think the message is clear. However, I have a few questions to ask. You may not have the answer, but you will have until March 27th to file any complementary information if you feel that you could contribute to the proceeding.

7822   Do you have any data about the number of Canadians whose cars are equipped to listen directly to cell phones? You said yesterday you had dinner with friends who --

7823   MS KERR: Yes.

7824   COMMISSIONER ARPIN: -- had the gear, but my guess is that there are not that many cars that have it yet.

7825   MS KERR: A lot of it is starting to just come out.

7826   COMMISSIONER ARPIN: You are saying that 58 models --

7827   MS KERR: Yes.

7828   COMMISSIONER ARPIN: -- of the new cars coming out for 2009 have at least Bluetooth equipment, but 3G phones are not that numerous. We could see from the data released by Rogers that the iPhone take out is not --

7829   MS KERR: Not working.

7830   COMMISSIONER ARPIN: -- as huge as they had thought it would be, at least that's my understanding of their quarterly reports that they issued to shareholders and the story that comes with it, so I'm wondering if you have an idea of what that market currently is?

7831   MS KERR: Well, you don't actually need the 3G phone to be able to get the audio on your phone. Any phone that just has the little earpiece out, you can connect it to the auxiliary jack ones.

7832   So I think it was in the Communications Monitoring Report in 2008. I just seem to remember a little graph and it talked about that to get high-quality audio was at the to 2G level of phone, which most phones in Canada already have that capability. So unlike video it was a much lower threshold for the quality.

7833   So you don't actually need to have an iPhone quality phone and the bulk of phones in Canada are already at that level. So it's more the connection to your speaker so you can listen to it at a quality level that is the issue, and the penetration rates of the auxiliary cables or auxiliary adapters is as high as or higher than for satellite radio in the newer vehicles.

7834   So they are marching kind of in lockstep or even more penetration than satellite radio will have a new vehicles.

7835   COMMISSIONER ARPIN: Do you have an idea, comparing with how much it cost on a per-month basis to subscribe to Sirius, how much it will cost a user of a cell phone to listen to internet radio through his cell phone?

7836   MS KERR: Well, the one example I have right now is just Bell Mobility. For $8.00 a month you can get 60 -- on any one of your phones for $8.00 a month you can get 60 channels of music. But I think that --

7837   COMMISSIONER ARPIN: And you are providing more than 100 service for --

7838   MS KERR: Yes. $15 a month.

7839   COMMISSIONER ARPIN: -- $15.

7840   MS KERR: Yes. So that's one example.

7841   A lot of it is of course the more worrisome, that in your iPhone for example you can go and just download a bunch of applications.

7842   I think for example Pandora is a service in the United States that is geo-blocked, but that is from the content provider side so you can get it in Canada yet. But that type of thing is, I believe, free.

7843   So as soon as you can get it on your phone, you go and they have all of these musical selections for you that actually learns your musical tastes over time and you are delivered just what you want to hear right to your device at either no additional our very nominal additional cost.

7844   COMMISSIONER ARPIN: In your submission, and in the oral presentation also this morning, you were saying that the overall contribution by the two satellite providers are in excess of what the broadcasters are doing.

7845   How much, on a yearly basis, at least for the record, are Sirius and XM contributing towards CCD?

7846   MS KERR: Well, I can't sort of disclose publicly the actual amounts, but last year at this time we did say that we had 750,000 paying subscribers, and you multiply that by $15 a month and take off 5 percent, so what's the math there.

7847   XM Canada last year was $40 million in revenue, so they contributed 2 million just by themselves and we are contributing more than they are.

7848   COMMISSIONER ARPIN: Obviously you have more subscribers.

7849   MS KERR: Yes. Yes.

7850   COMMISSIONER ARPIN: Almost double, from what I'm reading from time to time, at least by analysts.

7851   MS KERR: Yes.

7852   COMMISSIONER ARPIN: You are also arguing that you are playing more Canadian content. Obviously it's true on your Canadian channels, the terrestrial radio counterparts, but the overall Canadian content on all the Sirius service is surely lower.

7853   MS KERR: Yes. I was going to do it again this morning. I did the calculations on the back of a napkin and we actually have 65 full-time music channels, six of them which are Canadian. So if you take 65 Canadian radio stations and you calculate their 35 percent versus our 85 percent, so our six channels are playing more -- so we are playing more Canadian content on 65 channels, if you spread it across the 65, than an equivalent 65 Canadian radio stations.

7854   So I did the numbers on the back of a napkin. Especially because we have no commercials, so that means 85 percent is a significantly larger number. We don't have morning shows, we don't have all of those types of things. Plus our broadcast day is 24 hours a day versus the 6:00 a.m. to midnight requirement.

7855   So I can certainly send you the numbers because we did that math just to see if it worked out and it turned out we are playing more Canadian content than 65 equivalent radio stations would be playing.

7856   For example, Iceberg -- I don't know if anyone listens to it, it's a great channel -- they have chosen to do 100 percent Canadian content format, so they play 100 percent Canadian music on that one channel.

7857   COMMISSIONER ARPIN: The main thrust of your argument is directed to the wireless operations. From time to time you are talking about the ISPs also, but mainly you are addressing the WSPs, and you are saying in your oral presentation that what you are aiming at is the revenues that they are making from audio broadcasting, not the overall revenues of WSPs.

7858   We have heard so far -- you have quoted the number of $5.6 billion, but we heard numerous intervenors asking for a levy on the $5.6 billion. What you are saying here, you are looking at a levy specifically on the audio revenues that they will be making?

7859   MS KERR: It is probably a little confusing the way it is written because everybody is -- it's hard, you have this one little device and they are doing a whole bunch of things on it.

7860   It is actually sort of a two-pronged, it is where the wireless carriers are acting as aggregators of content, so they are controlling that particular part of their business that's on the phone, because you can attach that directly to audio streams and audio broadcasting. There is no question, they are broadcasting audio content and they are controlling the application. That is all that is coming across the phone at that particular time.

7861   That particular part would attract a direct levy of 5 percent, but when either the wireless carriers or the traditional ISPs on your home computer, our main thrust of that is we agree with the rest of the folks that are saying there should be a levy for broadcasting activities and that some portion if that levy should be devoted to eligible third parties because some portion of the broadcasting activity that is taking place, either by ISPs or WSPs, is audio content that is being broadcast.

7862   So it is sort of a double, 5 percent on the stuff that can clearly be identified as audio and then some proportionate amount on the levy, if any, that is supplied to the rest of the revenues.

7863   COMMISSIONER ARPIN: This will be my last question.

7864   You have argued this morning that the money, that such a levy should be distributed in the same fashion as it is currently distributed regarding CCD. Other organizations who have appeared before us -- obviously among them are the songwriters and the more creative organizations are suggesting that the money goes to them rather than through CCD.

7865   Do you have a comment to make regarding...

7866   MS KERR: Well, considering that we are still waiting for a Copyright Board decision I should probably...

7867   Artists already get significant revenues from the copyright regime. I think compared to -- because our contributions are so material to CCD, I think more than any other radio broadcaster we take a much more hands-on approach, we have really been able to see the effect that CCD money has on the artist directly, because the money goes directly to them to support them in their travel, to support them in their performing and it just gives them a huge avenue to be recognized, whereas the copyright revenues, or any of that portion going to the collective societies, it is less of a hands-on approach obviously.

7868   So we are just quite comfortable with the CCD third parties that are eligible already. It seems like a pretty good scheme that is working well. There are also lots of funds that flow to FACTOR and MUSICACTION which are there to support emerging artists as well.

7869   That's what I like about the focus of CCD the way it is now, is it is really there to help up and coming artists and new artists that struggle, honestly. So it seems that it is designed to do exactly what Canadian content development was designed to do, so it's already working so we don't need to fix it.

7870   COMMISSIONER ARPIN: Thank you, Mr. Chair.

7871   Thank you.

7872   THE CHAIRPERSON: Thank you.

7873   Len, you have a question?

7874   COMMISSIONER KATZ: Thank you, Mr. Chairman.

7875   Good morning.

7876   MS KERR: Good morning.

7877   COMMISSIONER KATZ: I have one question.

7878   Mr. Lord was here, on Wednesday I think it was, from CWTA and he didn't dispute the fact that wireless was starting to make inroads, albeit, as he said in a relatively limited way at this time. I think Nordicity, in their study, quoted 1 percent for WSPs as well.

7879   Numbers can be interpreted different ways. The question I have is: What is 1 percent to the wireless subscriber base as a percent of the satellite radio business today?

7880   MS KERR: I'm sorry, I'm not sure.

7881   COMMISSIONER KATZ: If in fact there is a substitution effect going on --

7882   MS KERR: Oh, okay.

7883   COMMISSIONER KATZ: -- and 1 percent of wireless subscribers -- and I gather there is well north of 20 million of them in Canada.

7884   MS KERR: Yes.

7885   COMMISSIONER KATZ: -- and 1 percent of them are using broadband services, and I will make the assumption they are using it for radio application as well, and if you are concerned about the transposition of people leaving satellite internet radio and moving to the iPod model or the wireless model, what proportion are we looking at here?

7886   MS KERR: Yes. The substitution effects are very hard to figure out because, of course, all the information that cell phone companies have is all proprietary, I mean they don't give it to anybody. So it is very hard for us to have a good idea, and we have tried.

7887   It's hard to find the data to sort of say: Yes, we lost this customer because they decided to subscribe to their wireless and get all of their audio content on their phone instead of through satellite. So we have tried to get that information and have really struggled with it. In fact, we have just been unable to get it.

7888   But I think the economic problems that are happening right now are affecting us disproportionately because people who already have wireless, if they were thinking of getting Sirius they might now because we are kind of first to go. We are not a necessity service -- as yet. For those who do have it, it is apparently.

--- Laughter

7889   COMMISSIONER KATZ: Do you know what the latest public numbers are with regard to the base of Canadians subscribing to satellite radio?

7890   MS KERR: We are over 1.2 million I think is the latest public numbers.

7891   COMMISSIONER KATZ: Okay.

7892   Those are my questions.

7893   THE CHAIRPERSON: Tim...?

7894   COMMISSIONER DENTON: Good morning.

7895   MS KERR: Good morning.

7896   COMMISSIONER DENTON: I too have a satellite radio kit in the basement waiting for installation in the car, so I am looking forward to joining your service.

7897   Now, you say at a certain point in page 12:

"Further, it seems that opponents of such a levy obfuscate the real issue -- that is, all broadcasters are required to contribute to the system for the benefits they receive..."

7898   Now, in the case of a pure internet play, would you not agree that there is basically no benefits that the CRTC can confer in a world of very large choice?

7899   MS KERR: I guess it comes back to the principle of if the pure internet play ISP in that case is allowing broadcasting content to go over their networks they are benefitting from being able to broadcast to Canadians, because if they weren't able to provide those broadcasting services to Canadians they would probably be much less successful as an ISP because Canadians would go to somewhere else or their profit margins would be significantly less also because they wouldn't be providing -- if they were unable to provide video or audio streams to Canadians their picture would look a lot different I would think.

7900   So it's hard to sort of say is there a pure internet play. If the Commission has decided that audio or video streaming and/or downloading is in fact broadcasting, then they are benefitting from it.

7901   COMMISSIONER DENTON: I guess we need to get a common agreement on the fact situation.

7902   First of all, if I just set up my internet radio station there is no benefit that the CRTC is conferring upon me. I might have to pay copyright on the music, but there is no shortage being engineered by a scarcity of spectrum or licensing that causes me to have economic rend.

7903   So then we go to the case of the ISP and it's your contention that it's the ISP whose revenue stream is being derives from dissemination of programming, among other things, that causes it to be taxable?

7904   MS KERR: Well, I guess in the best of all worlds the programming undertaking, the person, the company that provided you the internet radio, if they were in Canada obviously they would be subject to CRTC jurisdiction potentially if they are broadcasting. So they are actually part of the piece, but you can't get at them, or perhaps we don't even want to because that goes against the principles that we have decided -- that it seems the Commission may have decided that this openness and freedom of expression, all those things, would somehow be contracted if you stepped in and regulated at this point.

7905   But if it wasn't for the method of distribution, they would still be programming undertakings that are just not subject to regulation.

7906   So it's more that they are benefitting from broadcasting to Canadians, but we either aren't reaching out to try and regulate them, through choice or practical means, that we have just decided maybe that we are not going to go there.

7907   So the only place to attach to really is the ISPs because of the decision that has been made. They are both benefitting, but the only place to go is to the ISPs as a practical matter.

7908   COMMISSIONER DENTON: Okay. So in other words, their sort of market power or whatever that can be -- from which we can extract a levy to sustain these other things?

7909   Okay.

7910   THE CHAIRPERSON: Steve...?

7911   COMMISSIONER SIMPSON: Good morning, Ms Kerr.

7912   MS KERR: Good morning.

7913   COMMISSIONER SIMPSON: Two quick questions.

7914   Your offering of Canadian channels such as Iceberg, is this part of the basic service or is it optional?

7915   MS KERR: All subscribers get the full service.

7916   COMMISSIONER SIMPSON: Do you have any method by which you can monitor the --

7917   MS KERR: Listenership?

7918   COMMISSIONER SIMPSON: Yes.

7919   MS KERR: No. We wish.

7920   COMMISSIONER SIMPSON: Boy, that would be really useful.

7921   Thank you.

7922   THE CHAIRPERSON: One final question before I let you go.

7923   We have seen the merger in the States of Sirius and XM, we have also seen the bailout recently by Malone of them, so they clearly play --

7924   MS KERR: I would have liked to have been a fly on that wall.

--- Laughter

7925   THE CHAIRPERSON: Yes. Also I would love to know what is motivating him to do it.

7926   But I presume that you also have to merge in Canada, or is there a possibility that you remain separately, because I notice your programming has already, to the extent that it comes from the States, is called Sirius XM, et cetera, so it is clearly packaged together over there.

7927   MS KERR: I am a fly on that particular wall and I don't think that we would be forced. It is still a business decision as to whether that would be a good idea, so we are -- we have been talking about it since the merger was announced, so a couple of years, and they have now been merged already for a while and we are still operating as fully separate companies, competing very hard against them at the retail level.

7928   So I don't know that the merger would actually require us to merge here.

7929   THE CHAIRPERSON: Okay. Thank you very much.

7930   MS KERR: Thank you very much.

7931   THE CHAIRPERSON: Madame la secrétaire, let's do another intervenor before we break for coffee.

7932   THE SECRETARY: I would now invite MoboVivo Inc. to come to the presentation table.

--- Pause

7933   THE SECRETARY: Appearing for MoboVivo is Mr. Alan Sawyer.

7934   Please proceed with your 15-minute presentation.

PRESENTATION

7935   MR. SAWYER: Thank you.

7936   Mr. Chair, Vice-Chairs, Commissioners and Commission Staff, my name is Alan Sawyer, and I am the interim Policy Director for MoboVivo Inc. On behalf of MoboVivo, I would like to thank the Commission for providing us with the opportunity to appear at this hearing.

7937   In practising my presentation, after it had been printed, I discovered that I could not deliver it in the allotted time, and I apologize for that. Therefore, I will be skipping a number of paragraphs in my presentation, and I have marked these paragraphs in the printed copies that you have before you now. For the record, these are paragraphs 5, 9, 12, 17 through 24, 27, 30, 33 and 34.

7938   Please also note that in paragraph 11 the word "preview" should actually be "purview", an unintended consequence of auto-correcting word processors.

7939   Based in Calgary, Alberta, and established in 2005, MoboVivo was the first Canadian company to offer digitally distributed sales of television content over the internet when we launched the alpha version of our MoboVivo.com web store in 2006. We remain, I believe, the only Canadian company whose sole focus is the online retail distribution of TV content and the development of the necessary technologies to facilitate that.

7940   For clarity, I would like to emphasize that we deal in professionally produced television content, not user-generated content.

7941   Business doesn't like uncertainty, and while an absence of any policy creates uncertainty, so too does an interim exemption order that can be re-visited at any time.

7942   Indeed, Canadian business -- and others doing business in the new media space in Canada -- have operated in a state of uncertainty since the internet became available. We are pleased, therefore, that the Commission is undertaking this review. We hope that the Commission's conclusions will be clear and unambiguous with respect to the new media world, and will create an environment of long-term certainty that fosters innovation and growth for the Canadian content industry.

7943   The Broadcasting Act, 1991, uses wording that is broad and vague in nature. The non-exclusive nature of the wording used has established, we believe, that the Commission has dominion over many activities that constitute broadcasting in the so-called "New Media world". We also accept the Commission's premise that broadcasting in new media is occurring today.

7944   At the same time, however, we are of the strong opinion that there are new media activities that do not constitute broadcasting, despite the fact that they are associated with professionally produced television content.

7945   We appear before you today with the primary intention of ensuring that any new media policy, or the extension of any existing policy, be defined to clearly delineate the lines between broadcast and non-broadcast activities.

7946   Until recently, the distribution of television content involved methods that were either clearly broadcasting or clearly weren't, and the distribution medium provided clear delineation.

7947   If you rented a TV series, you did so by acquiring temporary access to a VHS tape or a DVD. Likewise, if you purchased a TV show -- or, more accurately, acquired a perpetual viewing licence for a show, together with a copy of the program -- it was tied to a specific physical format -- again, a VHS tape or a DVD.

7948   These activities were clearly rental or sales activities, and equally clearly, they were not broadcasting activities.

7949   It is important to note that the distribution method clearly differentiated retail and rental activities from broadcasting. It was not necessary to delve into the intricacies of the underlying commercial transaction to make that determination.

7950   Today, however, much has changed and digital delivery of content is becoming increasingly common across all traditional TV content distribution models.

7951   We would be the first to admit that it can be difficult to distinguish between broadcast and retail activities on the internet at a quick glance. As a case in point, the presentation last week by the APFTQ compared online video services to the regulated VOD services offered by BDUs. The APFTQ argued that non-BDU internet-based services should be regulated. They cited Bell as a specific example. We are assuming that they were referring to the Bell Video Store, and its French-language counterpart, the Bell Boutique Video service.

7952   The Bell Video Store uses digital distribution of television content for retail sales -- so-called "download to own" transactions -- and rental -- called "download to rent" transactions.

7953   In the former case, using a "download to own" model, this is clearly not analogous to BDU VOD offerings, since BDU VOD services allow only a temporary viewing window for the consumer. The "download to own" terminology clearly indicates a retail sales offering based on digital delivery. BDU VOD offerings are time-limited. In effect, they offer a content rental service.

7954   The latter case, the "download to rent" model, is arguably, in some ways, similar to BDU VOD services. There are, however, several very important differences that should be considered between BDU VOD and Internet-based offerings:

7955   BDU VOD services are delivered over a communications infrastructure that is dedicated or, at the very least, partitioned for the exclusive purpose of providing broadcast-related services and has a managed quality of service aspect to it.

7956   In contrast, internet-based services operate on the open internet, which is still a "best effort" infrastructure, with no guaranteed quality of service.

7957   BDU services are accessible only to BDU subscribers, and that gives them a built-in audience and a monopoly on that platform for any given consumer.

7958   Internet-based services are available to anyone with internet access, and must compete with many other services.

7959   BDU services are constrained to viewing through the set-top box. With many internet-based services, downloaded content can be moved from device to device to meet the consumer's needs.

7960   While Bell's offering may be an attractive and easy target for some, given Bell's role as a DTH and an IPTV provider, it must be noted that most players in the digital retail and rental space have no affiliation or presence in the regulated world. This includes, of course, MoboVivo, as well as Apple's iTunes and Apple TV offerings.

7961   Had the APFTQ used Apple and its iTunes and Apple TV services as an example instead of Bell, the association's suggestion to regulate such undertakings would certainly have captured media attention and resulted in considerable public outcry.

7962   And, I would also add, that it would put them in a position where foreign ownership would become an issue.

7963   The Commission does not concern itself with content rental or retail sales, and we submit that the shift from distribution using physical media to digital distribution should not change that. Rentals and retail sales are not broadcasting activities and should not be included in any regulatory policies that the Commission may decide to create as a result of this hearing. We hope and trust that the Commission does not intend to extend its purview to these areas.

7964   Our concern, however, is that careful diligence must be applied in the creation of any new policies for the new media world to ensure that the wording used is sufficiently specific that it does not inadvertently encompass retail or rental activities.

7965   As stated earlier, the existing definitions in the Broadcasting Act are vague and broad, and could be interpreted to apply to digitally delivered rental and sales operations.

7966   Should the Commission decide to replace the existing New Media Exemption Order with new regulations or policies, we urge it to be mindful of the need to clearly and unambiguously exclude rental and retail activities from regulation.

7967   We do not believe that this will be an easy task. In the absence of the previously clear distinction between broadcasting and the delivery of content using some form of physical medium, the distinctions become difficult to define.

7968   As the Commission is well aware, we still lack established terms of trade between broadcasters and producers that adequately address new media rights. Some broadcasters -- and I wish to emphasize that this only applies to some broadcasters -- insist upon acquiring all new media rights as part of the deal when licensing a program for broadcast. It is important to note that the scope of these all-inclusive rights goes beyond the traditional broadcast realm. It doesn't merely encroach on retail and rental rights; with digital distribution, it tramples on those rights completely.

7969   Broadcast rights and the rights to rent or sell the same content have never been seen to overlap or be intertwined in the past. In the era when content is digitally delivered across all business models, though, it is vitally important that we acknowledge the need to explicitly separate broadcast-related digital rights from those that are associated with non-broadcast activities.

7970   The Commission has strongly encouraged the producers and the broadcasters to define equitable terms of trade. We urge the Commission to establish parameters for these agreements that clearly separate rental and retail rights -- regardless of distribution mechanism -- from those rights that are truly of a broadcasting nature. Only with proper boundaries can we ensure that the interests of everyone, including the broadcasters, the producers, the various guilds and unions, companies like MoboVivo, and the consumer, are protected.

7971   Further, as was also suggested by the CFTPA, we urge the Commission to encourage the adoption of a "use it or lose it" approach to rights. It should be incumbent upon broadcasters to demonstrate that they are actually using the rights they acquire. If they can't, the claim to such rights should be forfeited and the rights should revert to the content owner.

7972   We view our service as a valuable extension to the traditional ecosystem, in that we create additional opportunities for content owners and rights owners to monetize their content. We submit that when content is available and monetized through legitimate channels, this leads to a reduction in piracy and is of significant benefit to the industry as a whole.

7973   However, when deals have been made that lock up the digital retail rights to content, but don't in any way actually deliver on the wants and needs of the consumer, money is being left on the table. This is detrimental to the industry as a whole and does a disservice to Canadian content and the consumer.

7974   Allow me to point out that we are a distributor of content only. We do not create content, nor do we commission the creation of any content. This sets us apart from both the producers and the broadcasters, in that we have no control over the content. We are able to choose the content we offer, but only from within the content that is made available to us for licensing.

7975   Although we operate globally, we do carry a lot of Canadian content. In fact, 43 percent of the content in our catalogue is Canadian, and four of our top ten series, by sales volume, are Canadian content.

7976   It may surprise the Commission to learn that about 65 percent of our sales are to the United States, and about 11 percent are to Canada, with the rest of our sales spanning the globe. Clearly, we play a role in helping Canadian content find audiences outside of Canada.

7977   We believe that our role in the Canadian content ecosystem will continue to grow and will be of increasing importance in the future to the well-being of our content creation industries.

7978   The Commission identified visibility and promotion of Canadian content in new media as a specific area of interest for this hearing. At MoboVivo, we promote Canadian content and make it easy for Canadians, and the world at large, to discover the great content that Canadian actors, directors, writers and producers collaborate to create.

7979   As a Canadian company we take pride in this role and look forward to making an even greater contribution to the visibility and promotion of Canadian content, but we need the right environment in place to help us help Canada.

7980   Distributors such as MoboVivo add to the diversity of distribution channels that serve consumers' needs and we must be cautious that we don't regulate the diversity out of the system.

7981   While we recognize that network traffic management is a matter currently before the Commission under the auspices of the Telecommunications Act, we urge the Commission to recognize that in today's digital world there are many facets of the content delivery ecosystem. Although we don't participate in broadcasting activities, we are a part of the overall ecosystem and the economic engine that helps to distribute Canadian content to our citizens, as well as to others beyond our borders. To succeed, we are dependent upon fair and reasonable network access for consumers, and that means fair, reasonable and transparent network management practices on the part of ISPs.

7982   With respect to this hearing, we submit that any regulatory rules introduced with respect to the new media activities of licensed broadcast undertakings should be done in such a way that they do not put unlicensed players at a strategic, competitive or economic disadvantage.

7983   In conclusion, we encourage the Commission in its deliberations to consider that both domestic and global digital distribution of content for rental and retail purposes provides significant opportunities that can be of great benefit to our Canadian content industries. It is vitally important, therefore, that we protect these parts of the ecosystem from potential unintended consequences that could occur if these operations are not carefully considered when policy is being drafted.

7984   We ask that the Commission ensure that the existing worlds of content sales and rental continue to be recognized as being outside of the broadcasting system and beyond the intended scope of the Broadcasting Act.

7985   Furthermore, while the power and privilege that goes with a broadcasting licence from the Commission reasonably entitles a broadcaster to negotiate exclusive broadcast deals with content producers, such exclusivity should not extend beyond the realm of broadcasting activities.

7986   New media may have changed how broadcasting is done, and, indeed, it is similarly changing how sales and rental of content occur, but it hasn't changed the fundamental distinction between broadcast and non-broadcast activities. Content creators should be empowered to make deals that are in their own best interest with respect to rights for non-broadcast activities, and should be afforded any necessary protection to preserve their ability to treat those rights as separate commercial entities.

7987   While we maintain that our activities do not constitute broadcasting, at the same time we believe that we are a very important -- and growing -- part of the overall media ecosystem in Canada, in that the retail activities in which we engage provide further revenue opportunities that are potentially of great value to Canadian content producers.

7988   As such, we wish to reiterate the importance of making available to us any favourable advantages that may be bestowed upon more traditional segments of the Canadian media value chain. At the same time, as a nascent segment of the industry, it is important that we not be encumbered by burdensome regulatory restrictions.

7989   While we have indicated that we do not wish to be adversely affected by protectionist policies, at the same time we do believe that it is important that non-traditional domestic players, such as MoboVivo, be able to avail themselves of potential benefits that may be available to other domestic distributors.

7990   This concludes our presentation, and I would now be happy to address any questions that the panel may have.

7991   THE CHAIRPERSON: Thank you very much.

7992   First of all, satisfy my idle curiosity. Are you reading from a tablet computer, or is that an electronic book?

7993   MR. SAWYER: It's a tablet computer.

7994   THE CHAIRPERSON: As I understand your submission, essentially, you are a DVD seller, but instead of selling DVDs, you sell the content online, over the internet.

7995   MR. SAWYER: Essentially, yes.

7996   THE CHAIRPERSON: And you think that's not broadcasting, so "make sure that I don't get caught up in your regulations."

7997   MR. SAWYER: Exactly.

7998   THE CHAIRPERSON: Thank you.

7999   Rita.

8000   COMMISSIONER CUGINI: Thank you very much, Mr. Chairman.

8001   Mr. Sawyer, good morning.

8002   MR. SAWYER: Good morning.

8003   COMMISSIONER CUGINI: Much like the previous presenter, you answered some of my questions in your oral presentation -- and I know that all of you hate it when we say, "However, I do have more." They are, really, questions of gaining a further understanding of your company, because, like I say, certainly most of the regulatory issues were addressed in your oral presentation.

8004   You say in paragraph 31 that "43 percent of the content in our catalogue is Canadian, and four of our top ten series are Canadian content."

8005   Of these series, what percentage of them are series that are web-only, as compared to -- they have already been distributed on a broadcasting entity?

8006   MR. SAWYER: I think I can say that all of our content is broadcast content, and none of it today is web-only, although we certainly may move in that direction. Some of it may be of that nature, but predominantly it is content that was produced for broadcast purposes, and this is a second window type of distribution.

8007   COMMISSIONER CUGINI: And like the Chairman said, your position is that you are a distributor. Much like Alliance Films is a distributor of films in Canada, you are a distributor of content, it just happens to be on the web.

8008   MR. SAWYER: I would differentiate that by saying that Alliance, as a film distributor, distributes to theatre chains, and theatre chains are the ones who have the relationship with the customer. We have a direct relationship with our customer. So, on behalf of the content creator, who has licensed the content to us, we deliver the content directly to the consumer.

8009   COMMISSIONER CUGINI: And your relationship is directly with the producers of the content.

8010   MR. SAWYER: In most cases it is directly with the producers of the content. In some cases we have worked with broadcasters to obtain the content.

8011   COMMISSIONER CUGINI: Because I see on your website that you have as partners the CBC and Rogers, for example.

8012   MR. SAWYER: Yes.

8013   COMMISSIONER CUGINI: So you would have a relationship with the CBC, for example, for the content that is produced by them, to be distributed on your site.

8014   MR. SAWYER: Yes, that would be an example.

8015   COMMISSIONER CUGINI: And the same with Rogers.

8016   MR. SAWYER: Yes.

8017   COMMISSIONER CUGINI: Do you have a relationship with any other broadcasters?

8018   MR. SAWYER: Those are the only two that I am aware of at the moment. I would say that the broadcast community has not done everything it could to engage with us and take advantage of the opportunities that we provide to add to the ecosystem, and to add value.

8019   COMMISSIONER CUGINI: The other thing I noticed about the cost to the consumer is that -- and, obviously, I haven't looked at every single program on your site, because it is quite robust, but it seemed to me that, regardless of the genre, regardless of the length, any episode would cost the consumer $1.99 to download.

8020   MR. SAWYER: I have to confess, I haven't looked at every item in the catalogue either, and I can't answer the comment on whether all the pricing is the same or not.

8021   There tends to be a fairly standardized pricing model, and if you go to iTunes, you know that it also tends to be a fairly standard pricing model, regardless of length.

8022   We are about to embark on some new initiatives, where we will distribute some content at no cost to the consumer, in relationship with other partnerships that we are developing.

8023   COMMISSIONER CUGINI: The customer, once they have downloaded the episode, they own it forever?

8024   MR. SAWYER: Yes, that's the typical model.

8025   COMMISSIONER CUGINI: So you are sales, as opposed to rentals --

8026   MR. SAWYER: Our current model -- we don't wish to preclude ourselves from a rental model, but our current model is a retail sale with a perpetual licence, much like you would obtain if you bought it on physical DVD.

8027   All we are doing is taking advantage of technology to more efficiently deliver it, and make the content available on an iPhone or an iPod, which obviously doesn't have a DVD drive.

8028   The restrictions of physical media, as they exist today, are actually an encumbrance to the consumer, which digital delivery eliminates, so we are taking advantage of the advances in technology in that way.

8029   COMMISSIONER CUGINI: I was going to ask you if you consider iTunes or Apple TV to be your major competitor in the market, but you seem to have answered that, because you work with them, as opposed to trying to compete --

8030   MR. SAWYER: We very much target the Apple devices, like the iPod and the iPhone, as content target platforms for consumers, but we do not work with iTunes. iTunes, in fact, does compete with us, very much.

8031   We were there first, though, in Canada.

8032   COMMISSIONER CUGINI: I have just one final question, because you spoke quite extensively about the terms of trade negotiations. Is MoboVivo part of those negotiations?

8033   MR. SAWYER: No, we are not.

8034   COMMISSIONER CUGINI: Are you in the room?

8035   MR. SAWYER: No.

8036   COMMISSIONER CUGINI: You are not. Okay.

8037   MR. SAWYER: No, it's just the producers and the broadcasters. We are considered outside the traditional value chain.

8038   COMMISSIONER CUGINI: Thank you very much, Mr. Sawyer, those are my questions.

8039   THE CHAIRPERSON: Michel?

8040   COMMISSIONER MORIN: At paragraph 32 you have written:

"To succeed, we are dependent upon fair and reasonable network access for consumers, and that means fair, reasonable and transparent network management practices on the part of ISPs."

8041   Have you read the presentation on the non-appearing items, "New Media, Deep Packet Inspection and Canadian Content", by Mr. Robert Ester?

8042   MR. SAWYER: I have not read the paper. The first --

8043   COMMISSIONER MORIN: But are you aware of the technique, Deep Packet Inspection?

8044   MR. SAWYER: Yes, I am.

8045   COMMISSIONER MORIN: What do you think of this technique as a means to prioritize Canadian content?

8046   MR. SAWYER: I am not sure that I want to answer in terms of the question of prioritizing --

8047   COMMISSIONER MORIN: But you know that each --

8048   MR. SAWYER: -- but in order to identify Canadian content --

8049   COMMISSIONER MORIN: Yes, you can identify each content by a specific address, can't you?

8050   MR. SAWYER: In an ideal world that might be possible. Today it would be extremely difficult, I believe.

8051   Deep Packet Inspection is largely, today, used to identify the protocol that is being used and does not examine the content of that payload.

8052   What you are suggesting is that the ISPs would have to actually look inside the envelope to see what the content is. A lot of content that travels over the internet today is encrypted, or encoded with digital rights management protection. It would become a rather cumbersome burden on the ISPs to be able to identify that content.

8053   If we looked at ISAN, for example, as a standardized method for encoding Canadian content, you would actually have to embed that in all of the content that is travelling around, which is not impossible, but it would be a cumbersome process, and you would actually have to find a way to embed it in all of the different video formats that are used out there.

8054   There is not one standard format that is used for transmitting video content across the internet. In fact, there are very many of them. Some of them are common standards, and some of them are proprietary, and the ISP would have to actually know not only that video content was travelling across, but what the format of that video content was, to then be able to examine the content and parse out what the actually ISAN number was, if ISAN was in common use, which today, unfortunately, it's not.

8055   COMMISSIONER MORIN: But will they have the choice, because the networks, with the speed and the gigabytes at the maximum already, will have to face the problem of a congested network in the future.

8056   MR. SAWYER: Yes.

8057   COMMISSIONER MORIN: So will it be so cumbersome?

8058   Would it be a logic issue for them to use this technique?

8059   MR. SAWYER: I would say at the moment -- and I am not a network engineer, but I would say that it would probably introduce latency into the process and slow down the flow of traffic, as it would have to stop and examine that content going by, which would actually contribute to more congestion on the networks today.

8060   I would also say, as a general response to this line of reasoning, that the intent we should bear in mind is, really, making content -- Canadian content -- available to Canadian consumers, on as many platforms as possible, and creating as much of that content as possible, but not focusing on measuring the consumption of that content, because this is all about giving the consumer choice, not about measuring how they choose or what they choose to consume.

8061   COMMISSIONER MORIN: Thank you very much. I have enjoyed your comments.

8062   If it is possible, I would appreciate your comments about the issue that was raised by Mr. Ester. It is a 26-page document, and during the final comments I would appreciate it if you could give us your insight, if you have any, on this issue.

8063   MR. SAWYER: I will certainly take the time to read it, and if there is anything that I can add, I would be happy to.

8064   COMMISSIONER MORIN: Thank you very much.

8065   COMMISSIONER DENTON: There is one point for the rest of us; "latency" means delay?

8066   MR. SAWYER: Yes.

8067   COMMISSIONER DENTON: Thank you.

8068   THE CHAIRPERSON: All right. Thank you very much for your presentation, Mr. Sawyer.

8069   We will now take a 10-minute break.

--- Upon recessing at 1023

--- Upon resuming at 1037

8070   THE SECRETARY: We will now proceed with the presentation by TEN Broadcasting Inc.

8071   Appearing for TEN Broadcasting Inc. is Mr. Stuart Duncan. Please introduce your colleague and then proceed with your presentation.

PRESENTATION

8072   MR. DUNCAN: Yes, hello.

8073   Thank you for having us here today. My name is Stuart and this is my colleague Roland Renner.

8074   TEN Broadcasting will comment today primarily with respect to the exemption orders, impact, support and contribution requirements.

8075   We are here today because adult entertainment on the Internet is huge. From the perspective of revenue and availability, it is a major success story. This is illustrated by the one-half billion dollars paid for adult FriendFinder.com last year in the United States.

8076   From our perspective new media is old media for the adult broadcast sector and we have to be there. We are now in process of launching our participation in what the Commission calls new media services.

8077   While we feel it is a bit late to be discussing new media, we in fact believe that the new media horse left the barn a long, long time ago as far as we're concerned.

8078   We do feel that the results of the hearing will directly affect our ability to operate in the new media environment.

8079   Adult new media is more fully developed from a competitive perspective in relation to adult content in traditional broadcasting than perhaps in any other area. As such, we believe there may be perspectives of interest for the other stakeholders at this hearing.

8080   The comments of the stakeholders at this hearing seem divided into two camps. One camp, those with most at stake in this process, as far as we're concerned, favour the continuation of the exemption orders and oppose new taxes and contribution mechanisms.

8081   The other camp proposes to carry over a variety of measures from the existing broadcast regulatory environment to new media, including a proposed ISP tax.

8082   TEN Broadcasting is firmly in the camp of those supporting the continuation of exemption orders and against the creation of any new taxes.

8083   In the adult sector new media initiatives are bigger than linear channels. There are subscription services with minutely by the scene, by the movie, daily, three-day, weekly, monthly or longer pre-payment options. Just about any combination you can think of is available online, including free.

8084   Options are available for subscriptions with access to video, still images and chat lines. There are download sites and streaming sites and sites that offer both and more.

8085   The established brands, the big brands, such as Playboy, Hustler and Penthouse are represented, but there are also new entrants that are even more successful. There are free sites that offer samples that point to pay sites. There are adult tube sites, some operated from Canada, that offer free video on the basis of an advertising model.

8086   Finally, there are powerful social networking sites like adult FriendFinder.com that offer a mix of content and social networking, including live introductions.

8087   TEN Broadcasting must participate in this new media world to maintain a viable business model into the future, however, we consider regulation to be almost impossible without spending a huge amount of money to monitor the industry or to block hundreds of thousands of websites with China style web censorship.

8088   Without spending a huge amount of money, there is no practical way for the CRTC or anyone else to regulate content on today's Internet.

8089   The exemption orders remain appropriate. Indeed, they are essential for the development of new media initiatives in Canada. From our perspective, the exemption orders are essential for us to build a successful entry into the new media world.

8090   The various suggestions for new restrictions, tax impositions and contributions will permanently impair the ability of Canadian participants to launch and operate new media initiatives that must be able to compete on a global basis.

8091   As a participant in the adult sector, the implementation of these proposals will have a large immediate impact on our business.

8092   Even without regulation, broadcasters are being forced to adapt to the new media environment in order to survive.

8093   That is certainly what we are experiencing in our market from a strategic perspective at this time.

8094   We do not need government assistance or intervention, or new taxes to succeed in the global nature of our business. The traditional measures of the Canadian broadcast system weigh heavily upon us in this respect and we will provide some examples in a moment.

8095   The Chairman was quoted recently as saying the system is broken. If this is so, then it's time to resist intervention here at home in order to compete globally and perhaps instead use incentives from general tax revenues.

8096   We suggest that allowing new media content development to count towards linear channel content requirements would be a step in this direction.

8097   Further, technical issues such as traffic shaping by BDUs has a major impact on a level playing field. Service quality and video streaming and downloads is a highly visible and tangible factor in our business. If an independent service is of lower quality than a service owned or favoured by a BDU, then this very quickly results in a difference in marketing acceptance, success or failure.

8098   Broad band access for Canadians should not be throttled back. Rather, we believe that band width purchase choices should be created that make consumers aware of band width throttling practices by their providers and that non-throttled access plans be offered to Canadians in that case and marketed with more visibility.

8099   We hope the CRTC will continue to exempt new media from regulation and perhaps, because we all know the current broadcasting industry needs help, convince the members assembled here today to help fix the overall problems in the broadcast industry and address the inequities that have been built into this system over the years before endeavouring to compound old problems by creating new ones and adding new taxes as well.

8100   Clearly, no one broadcaster -- and broadcasters are one of the two groups with most at stake here -- is chomping at the bit to add regulation to the current system.

8101   Funding for the interest groups seeking support for their operations cannot come at the expense of crippling the broadcasters' ability to compete. No tax in new media or levy can be justified.

8102   It would be wrong to allow special interest groups to corral revenues from new media offerings of broadcasters or from ISPs and others operating legitimate businesses on the Internet.

8103   Canadian users of Internet services surely do not want censorship introductions and increased taxations either.

8104   It would also be unforgivable if Canadians were not able to access content and information they have always traditionally had access to. We do not, therefore, think any contemplated regulation is in the interest of Canadians.

8105   We are very concerned that considering the discussions we seem to have been having this week, we can see the distinct possibility that some groups and associations would accept that a limit would be placed on the ability of Canadians to access the Internet and they would restrict the ability of our business and others to operate in the new media world.

8106   This type of regulation would help create virtual monopolies online, or create barriers to entry into the businesses that do not exist now.

8107   Blocking access to programming and content in the future would only benefit certain interest groups and a few associations. Freedom of choice would be restricted. The overall usefulness of the resource would be compromised or worse.

8108   We are adamantly opposed to any proposal that would see new taxes and levies go into the making of regulated content here in Canada by or controlled by special interests funded with our money.

8109   This type of thing happens to us now. For example, SOCAN and the CTF currently enjoy revenues from us deducted at the source by the BDUs. This happens although we carry no music programming created by any SOCAN member or any Canadian musician.

8110   In the case of the CTF, they will not contribute to adult programming we create and we cannot use the programming that they support, however, they still take our money.

8111   Clearly from our perspective we already have unfair taxation on our business. What we are here arguing against today would only make it worse for us in the future. At a time when all broadcasters are under the gun to reduce costs, and some are reeling inches away from the precipice of bankruptcy, it is not a wise course to consider creating yet new taxes and indirect tax mechanisms, rather it's time to fix the overall system.

8112   The problems we already have as a broadcaster extend back in time to decisions made in the past that have clearly not been equitable heading into the future.

8113   Take for example the requirement to produce Canadian content. This requirement does not fall equally on Canadian broadcasters. For example, ethnic channels owned by Canadians are regulated by the CRTC and are carried on Canadian BDUs but contribute absolutely nothing in terms of Canadian content as they are not required to produce any.

8114   In addition, non-Canadian channels on the eligible satellite list carried on BDUs across Canada carry no Canadian programming.

8115   If the system was to be truly fair, then it would require all broadcasters to provide a certain level of Canadian programming or contribute somehow to the overall health of the system.

8116   So, are all the stakeholders in the current environment contributing equitably to the Canadian broadcast system? No.

8117   Would new regulation for mobile and online content make sense in the light of the failure to make the current system equitable? We feel the only answer is no.

8118   We respectfully conclude that the Commission accept we have far greater problems in the current Canadian media business that needs to be addressed before considering lifting the exemption orders.

8119   We, therefore, ask the CRTC not to regulate new media, but instead turn their attention to fixing the larger problems in the Canadian broadcast system.

8120   In this effort we would be happy to assist the Commission and work with them to develop a new broadcast system with regulations that will enable all of us to meet the challenges of the future.

8121   Thank you.

8122   THE CHAIRPERSON: Thank you for your presentation.

8123   You are using also some very strong language about regulating Internet and controlling content, et cetera. I don't think you have ever heard the CRTC espouse any goals along that vein in what we are doing. This is a hearing to re-examine the exemption order and that's all.

8124   But you make one comment here which I don't quite understand. When you talk about SOCAN and CTF, you said they:

"...currently enjoy revenues from us deducted at source by BDUs. This happens although we carry no music programming created by any SOCAN member or any Canadian musician." (As read)

8125   THE CHAIRPERSON: Explain to me that comment. I just don't understand it.

8126   MR. DUNCAN: Well, we have...

8127   Go ahead, Roland.

8128   MR. RENNER: If I can address that.

8129   We recognize the obligations under the system, that these are legitimate payments and we have no objection in those terms.

8130   Our point in this context is that this is a general requirement for all broadcasters, but because we don't actually use the music and we don't actually have a way of participating in the programming that CTF makes, that we are in a different situation from other broadcasters.

8131   Yes, as a niche broadcaster, but that there are these inequities -- little inequities that grow up over the years.

8132   THE CHAIRPERSON: I just don't understand what you're referring to. You are talking about BDUs here.

8133   MR. RENNER: Let me --

8134   THE CHAIRPERSON: What BDU -- a BDU, you are not talking about broadcasters, you are talking about BDUs here.

8135   So, in effect, some distributor like Rogers or so collects at source from you money and gives it to SOCAN? That's what you are saying. That's what I don't understand.

8136   MR. RENNER: That's correct. Rogers and other BDUs across Canada currently take money from us that would be otherwise available to us, they take a percentage and they give it to SOCAN.

8137   And, likewise, you know, we --

8138   THE CHAIRPERSON: What money -- please put, just explain to me how --

8139   MR. RENNER: We get subscription revenues every month and deducted from our subscription revenues that we would otherwise receive, are monies paid to these organizations.

8140   THE CHAIRPERSON: Oh. So, you are suggesting that the five per cent that Rogers has to pay to the CTF, they deduct it from a subscription that would otherwise go to you; is that...

8141   MR. RENNER: That's correct.

8142   THE CHAIRPERSON: That is how this sentence is...

8143   MR. RENNER: Right. And to clarify, it's not that we don't use music produced in Canada, we make it ourselves and we put it on our channels, but we don't source it from any third parties.

8144   THE CHAIRPERSON: Okay, thank you.

8145   Tim, I believe you have some questions.

8146   COMMISSIONER DENTON: Good morning, gentlemen.

8147   You suggest in your presentation that content created for new media should apply towards a broadcaster's Canadian content requirements for on-air programming. This is at page 4 of your presentation.

8148   Wouldn't such a change have the effect of diluting the amount of Canadian content that is available in the conventional system?

8149   MR. DUNCAN: I don't think so but, you know, we threw it out there as a trial balloon, point on.

8150   If we produce programming, and we do produce programming and we are launching websites, we do fully intend to use that programming over in our websites. But if we're looking at going ahead -- we're looking at going ahead and we're launching 15 websites. If we're producing content in Canada and you're looking at regulation, and I don't know how it's going to get parsed out in the end, if we're going to be -- you know, we'll have our linear channels.

8151   Right now we also provide VOD systems across Canada and there are no Canadian content requirements certainly from us to provide a certain measure of Canadian VOD to any of the BDUs that we deal with.

8152   If you're looking at something in the future, what we're saying is that if we're producing content for our online new media venture, then we do feel that, you know, you could consider that that could be Canadian content and maybe you could take it into account in our overall requirement of 35 percent.

8153   COMMISSIONER DENTON: Okay. This may be the same question again, but you recommend that content created for your new media should apply towards the broadcaster's Canadian content requirements for on-air programming.

8154   So, you suggest that this should be so, that your new media -- you suggested that Canadian content created for new media should apply towards the broadcaster's Canadian content requirements on traditional platforms.

8155   Would this result in a decrease of Canadian content on traditional platforms? How would this be measured and what new media content should qualify?

8156   MR. DUNCAN: Well, I can't comment for other broadcasters, but for ourselves, no, I don't think so.

8157   COMMISSIONER DENTON: No, you don't think what?

8158   MR. DUNCAN: I don't think it would result in a lower level of Canadian content across our channels and products.

8159   COMMISSIONER DENTON: Do you have some suggestion as to how this should be measured in terms of your contribution?

8160   MR. DUNCAN: No, we haven't -- we have no proposal to the Commission on how that could be done.

8161   COMMISSIONER DENTON: And do you have proposals for what content would qualify for being considered?

8162   MR. DUNCAN: Well, I guess it would be any content -- well, you're not currently regulating the Internet so, but any content that we're currently producing for our channels we fully intend on using in our new media properties.

8163   COMMISSIONER DENTON: Right.

8164   MR. DUNCAN: So, that content we feel should be --

8165   COMMISSIONER DENTON: Qualify for both?

8166   MR. DUNCAN: Yes, absolutely.

8167   COMMISSIONER DENTON: Okay. I don't have any further questions for the moment.

8168   THE CHAIRPERSON: Monsieur Morin.

8169   COMMISSIONER MORIN: Yes. You suggest in your oral presentation that the market can play its role as far as the competition is concerned.

8170   So, I think that if more than 80 percent of the ISP traffic is under the supervision of five big players, do you think that the market can take care of, in a profitable way as far as the competition is concerned, of this issue of, for example, the traffic shaping?

8171   MR. DUNCAN: My personal ISP provider at home is Barrett Explorer, I use a wireless high-speed Internet service. They can barely provide service to my home that's consistent and regular.

8172   I don't know how they would actually drill down and look at any of the programming that I'm able or the content that I'm able to see across the Internet.

8173   I don't use Rogers, I can't comment on it. I don't use Bell Sympatico, I can't comment on it, and the other three, I don't know who they would be.

8174   But, you know, I just don't think it's the responsibility of the ISP to regulate content or be -- you know, I don't completely understand how you're asking the question either.

8175   COMMISSIONER MORIN: You know, is there real competition as far -- I've seen a list of the ISPs on the Internet, I don't know how many of them we can get, but in the real world, is there real competition as far as the ISPs are concerned? Can we get really the best price we want and -- because we can believe in the virtues of the market, but is there a real market in Canada? That's my question.

8176   MR. DUNCAN: You know, that's -- I think I understand better now. That's an interesting question.

8177   I was the Chairman of the Internet Committee for the North American Broadcasters Association back in the late 1990s and one of the things that we found, we were looking at the possibility of creating an Internet cable television company that would help broadcasters bypass traditional gateways for content distribution and consumers, and we quickly abandoned it because a lot of the broadcasters who were represented inside the North American Broadcasters Association didn't have rights to their own programming.

8178   For example, ABC would sell its news program in certain markets and wouldn't give it to the ABC affiliate, but somebody else might have it.

8179   But one of the things that bothered me was that the high-speed services that were capable of being rolled out in Canada at the time were dependent on the availability of what's called dry copper to the home.

8180   Dry copper is a telephone line. When you order a security system for your house, oft times a Bell line will be put in there and that's only connected to your alarm company and it's only used for those alarm services.

8181   High-speed services, again, that dry copper had to be provided by a Telco. Those Telcos also today provide high-speed services. Those services I don't feel are very competitive, I don't think Canadians are getting a very competitive service offering from some of these suppliers, even though you would have somebody like the lady who made a presentation from Sirius and she seemed to indicate that she thought the price had come down and it was very competitive.

8182   I pay somewhere north of $70 a month for my service and it's not very good, it's not really a high-speed service, but it's all I can get where I am. If I don't use them, I've got to go and resort to using a satellite-delivered high-speed Internet service. And I've tried those and they don't work very well.

8183   I was there at the beginning trying all of this stuff. I used to work at Telesat Canada, I know how satellite communications works.

8184   And, no, I don't feel in the Canadian environment today that it's a very competitive industry.

8185   COMMISSIONER MORIN: Thank you very much.

8186   THE CHAIRPERSON: Thank you. Those were our questions for you.

8187   I think that is it for today; is it, Madam Secretary?

8188   When are we meeting again?

8189   THE SECRETARY: Yes. This concludes our agenda for today, and the hearing will resume on Monday, March 9th at 9:00 a.m.

--- Whereupon the hearing adjourned at 1058, to resume on Monday, March 9, 2009 at 0900

   REPORTERS

____________________      ____________________

Johanne Morin         Jean Desaulniers

____________________      ____________________

Sue Villeneuve         Beverley Dillabough

Date modified:

2009-03-02