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TRANSCRIPT OF PROCEEDINGS BEFORE
THE CANADIAN RADIO-TELEVISION AND
TELECOMMUNICATIONS COMMISSION
SUBJECT:
Licence Renewals for Private Conventional
Television Stations /
HELD AT:
Conference Centre
Outaouais Room
140 Promenade du Portage
Gatineau, Quebec
April 30, 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
Licence Renewals for Private Conventional
Television Stations /
BEFORE:
Konrad von Finckenstein Chairperson
Michel Arpin Commissioner
Len Katz Commissioner
Peter Menzies Commissioner
Rita Cugini Commissioner
Candice Molnar Commissioner
Louise Poirier Commissioner
ALSO PRESENT:
Lynda Roy Secretary
Stephen Millington Legal Counsel
Valérie Dionne
Nanao Kachi Hearing Manager
HELD AT:
Conference Centre
Outaouais Room
140 Promenade du Portage
Gatineau, Quebec
April 30, 2009
- iv -
TABLE OF CONTENTS
PAGE / PARA
PRESENTATION BY:
CTV Television Inc. (cont.) 1 / 1
Canwest Television Limited Partnership (cont.) 104 / 701
Gatineau, Québec
--- Upon resuming on Thursday, April 30, 2009 at 1011
1 THE SECRETARY: Mr. Chairman, we are now ready to proceed with the in camera.
2 THE CHAIRPERSON: Okay. Mr. Fecan, you and your people have assured themselves that only people who belong to CTV are in the room?
--- Off microphone
3 MR. FECAN: Yes.
4 THE CHAIRPERSON: Okay, then let's proceed.
5 Len...?
6 COMMISSIONER KATZ: Thank you, Mr. Chairman.
7 I was going to start by where you suggested, Mr. Goldstein, we go in camera but rather than doing that I am going to defer to some other questions first and come back to that.
8 It starts with a statement that I believe you made that staff have captured for me. In one of your submissions you have indicated that:
"Despite robust economic cycles in the postwar era the 'A' channels have consistently lost money for almost 20 years. CTV GM states that as a group these stations were never profitable under CHUM ownership when they routinely lost between $12 million and $17 million annually." (As read)
9 Is that a statement that you are familiar with?
10 MR. FECAN: Off microphone / Sans microphone
11 COMMISSIONER KATZ: So if that is the case and it has been 20 years since the "A" channels have made money, if at all, 20 years ago there weren't 400 stations out there, there wasn't the economy that we have today. If they haven't made money, can someone deduce that maybe these stations are not viable in these cities no matter what you do?
12 MR. FECAN: A possibility.
13 COMMISSIONER KATZ: So the only way for these stations or any other stations to survive is to continue to throw money at the problem? Because it is not a structural issue. There was no structural problems 20 years ago.
14 MR. DAVID GOLDSTEIN: In fact there were, respectfully, Mr. Katz. Let's take London as a specific example. Both London and Ottawa suffer from a similar issue in that the Commission, through various decisions, have eroded signal integrity in that market consistently.
15 First, the London station was a CBC affiliate. When it disaffiliated CBC was given a retransmission stick in that market and then subsequently Citytv was given a retransmission stick in that market.
16 There are now, I believe, five or six retransmission sticks in that market. This is before the 400-channel universe. So there are about four or five out-of-market sticks in that market that are all taking national revenue away from that television station.
17 Since national revenues are roughly 80 percent of a television station's revenue, it is the only truly local station in that market representing or providing local reflection but it is effectively competing for national ad revenues with seven other stations.
18 The various owners along the way for London and what was CHRO or CHRO had consistently every time a license application came forward for those markets vigorously opposed those applications and the Commission said, well, you know, the system is okay, London is going to be okay, Ottawa/Pembroke is going to be okay and they continue to license in those markets. So there is an issue of signal integrity which has created a big part of the structural problem there.
19 COMMISSIONER KATZ: Okay. But signal integrity is not a structural issue, it's a rights issue and an issue I understand that causes and costs money. Maybe there is a proxy to fix that and maybe there is a fix for it, but at the end of the day it is not a structural issue that needs a structural solution à la higher LPIF, fee for carriage or whatever.
20 I'm just trying to figure out whether we really have a structural problem and how to disassociate the economic situation which you said a couple of days ago is not really an issue because notwithstanding the economic situation that the world finds itself in there is still a problem and it goes back to the issue of multiple channels and fragmentation. But 20 years ago there was no fragmentation when these stations started up and we are still in the same boat for 20 years.
21 MR. SPARKES: Given we are looking to the future here, I think we are all at the crux of -- we are all at the river deciding whether or not we are going to operate these stations. I think that is what we have to look at, where we are today, where we are going to be a year from now. Are we going to continue to operate these stations or aren't we? That's the discussion that needs to take place, with all due respect.
22 COMMISSIONER KATZ: There is no doubt that based on your financials and everything else these things seem to have problems surviving on the revenues that are there today. The only question is whether --
23 MR. SPARKES: I think, you know, we can stay here for hours talking about what happened in the past, I think we need to talk about what is happening right now in the present and what are we going to do --
24 COMMISSIONER KATZ: I was just hoping we could find somewhere in the past when it was profitable and I can sort of say let's take a look at what made it work at that point in time and can we re-create that, but it has never worked from what I gather.
25 MR. SPARKES: [REDACTED]
Vice-Chair Katz asked the licensee a variety of questions pertaining to how cost are allocated to different types of programming and the licensee outlined its allocation methodology.
26 COMMISSIONER KATZ: Okay. Okay, let me take you first to submissions you made on April 23, 2009. [REDACTED] Do you have it there available?
27 It was the start of the question I was going to ask earlier, and that is: How do you allocate or distribute your costs among your various sectors? Initially, we will start with these three sectors but then we will get into the cities as well and how you distribute your costs between them as well.
28 MR. GOSSLING: Thank you, Mr. Vice-Chair. I will make some general comments about how we approach allocations throughout our businesses and then Ms Brown or Ms Moffat will add some detail colour on those types of questions like local markets and between program types.
29 [REDACTED]
30 [REDACTED]
31 [REDACTED]
32 [REDACTED]
33 Why don't I turn it over to Ms Brown and she can talk about the preparation of this schedule and how the various numbers were determined in these various categories.
34 COMMISSIONER KATZ: [REDACTED]
35 MR. GOSSLING: [REDACTED]
36 MS MOFFAT: [REDACTED]
37 MR. GOSSLING: [REDACTED]
38 COMMISSIONER KATZ: [REDACTED]
39 MR. GOSSLING: [REDACTED]
40 COMMISSIONER KATZ: [REDACTED]
41 MS BROWN: [REDACTED]
42 COMMISSIONER KATZ: [REDACTED]
43 MS BROWN: [REDACTED]
44 [REDACTED]
45 [REDACTED]
46 [REDACTED]
47 COMMISSIONER KATZ: [REDACTED]
48 MR. GOSSLING: [REDACTED]
49 [REDACTED]
50 MR. FECAN: [REDACTED]
51 [REDACTED]
52 COMMISSIONER KATZ: [REDACTED]
53 [REDACTED]
54 MR. GOSSLING: [REDACTED]
55 [REDACTED]
56 COMMISSIONER KATZ: [REDACTED]
57 What has been done in the last five years to try and reduce the cost of Canadian programming? Is there anything that has been innovative that has happened in the industry at all to reduce the cost of, I guess, independent as well as programming that you do in-house as well, to the extent you do any?
58 MR. FECAN: I think it's -- you know, aside from -- we are talking non-news.
59 COMMISSIONER KATZ: Yes.
60 MR. FECAN: Aside from "etalk" -- and we don't do sporting broadcasts on CTV, we do them on TSN, but that is not part of what you are looking at in that schedule -- it is pretty well all independent. Am I correct about that?
61 MS BROWN: Yes. "Canada AM" and "W-FIVE."
62 MR. FECAN: "Can AM" and "W-FIVE" are the other ones that are, I guess, non-news.
63 MS BROWN: Yes.
64 MR. FECAN: Okay. You know, your average "CSI" costs $[REDACTED] to $[REDACTED] US an episode. It has a lot of gloss on it. It is magnificently produced. How do we compete with that as a country?
65 I mean when you see -- when you will have the independent producers in front of you, they will talk about, I'm sure, the disparity between what they can spend and what we can spend. So it depends, Vice-Chair Katz. If you want people to watch Canadian programs they have to be of a good quality, they can't look second rate.
66 Typically on a Canadian hour drama you might spend -- in the past we might have spent about $[REDACTED] and not got a very good result. I'm not talking about us, I'm talking about us as a country because there is the CTF in there and there is the producer's share and our licence fee would have been somewhere in $[REDACTED] to $[REDACTED] for that, for a limited window.
67 Part of why "Flashpoint" works is they are spending $[REDACTED] an hour. It is still not the $[REDACTED] or $[REDACTED] that "CSI" is spending but it provides them the opportunity to have action sequences. They actually -- instead of just pretending to break glass when a bullet goes through it, it actually breaks.
68 All of these things cost money and, you know, the cost of the cameras, the cost of the tape, the cost of pretty well everything is the same here as in Hollywood. It is a little bit lower but then you have all of the Hollywood productions coming into Canada pushing the costs up because they are used to paying certain things.
69 So we have to ask ourselves, do we want this stuff to work or not? And if you want it to work, you have to put the money on the screen. Where are the producers going to get the money?
70 Well, we can't put in the money to invest in it because -- we dealt with that a little bit the other day -- there are reasons that -- there are prohibitions on us investing in Canadian programming and taking ownership, especially if you want into the CTF. So let's just put that aside.
71 Our licence fees have probably gone up to about $[REDACTED], maybe a little more, an episode for something of the quality of the "Flashpoint" but we are getting audiences for it. [REDACTED]
72 A show like "Idol" or the dance show, average cost of that is $[REDACTED] to $[REDACTED] an hour and there is no CTF in that. Are we happy with it? Sure, the quality is great. In some cases it is as good or better than the U.S. show that comes in, but it's expensive. [REDACTED]
73 [REDACTED]
74 [REDACTED]
75 COMMISSIONER KATZ: I was trying to figure out whether there has been any innovation in production that has resulted in reduced costs at all, or if there is anything on the horizon --
76 MR. FECAN: The costs of independent production have gone up, not down -- way up.
Vice-chair Katz asked the licensee to explain how it allocated revenues to various types of programming and the profitability of those programs in its confidential filing from April 23rd, 2009 and the licensee explained its methodology.
77 COMMISSIONER KATZ: [REDACTED]
78 [REDACTED]
79 MS BROWN: [REDACTED]
80 MR. FECAN: [REDACTED]
81 COMMISSIONER KATZ: [REDACTED]
82 MR. FECAN: [REDACTED]
83 [REDACTED]
84 [REDACTED]
85 [REDACTED]
86 [REDACTED]
Vice-chair Katz asked about the licensee's strategies and agreements pertaining to the acquisition of foreign programming and the licensee explained its approach.
87 COMMISSIONER KATZ: [REDACTED]
88 MR. FECAN: [REDACTED]
89 [REDACTED]
90 COMMISSIONER KATZ: [REDACTED]
91 MR. FECAN: [REDACTED]
92 COMMISSIONER KATZ: [REDACTED]
93 MR. FECAN: [REDACTED]
94 COMMISSIONER KATZ: Tell us your thought process. What do you prepare for in advance? How do you go in there, and how do you know what you are going to end up paying?
95 Do you walk in saying, "We can afford this much money. We are going to go in, and at this point in time we walk away from a certain program"?
96 Or, do you say, "We absolutely have to have this program because it's integral, and we will buy it at any cost," and at the end of the day you walk out of there -- at the end of May, and you go to John Gossling and say, "We just overspent by so much money"?
97 MR. FECAN: [REDACTED]
98 [REDACTED]
99 [REDACTED]
100 [REDACTED]
101 [REDACTED]
102 [REDACTED]
103 [REDACTED]
104 MR. GOSSLING: [REDACTED]
105 [REDACTED]
106 [REDACTED]
107 [REDACTED]
108 [REDACTED]
109 MR. FECAN: And maybe the most important piece you are missing is just the terms of trade for how you do business with American studios, and this has been true for conventional since the beginning of time, you pay by telecast.
110 [REDACTED]
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116 THE CHAIRPERSON: [REDACTED]
117 MR. FECAN: [REDACTED]
118 THE CHAIRPERSON: [REDACTED]
119 MR. FECAN: [REDACTED]
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122 THE CHAIRPERSON: [REDACTED]
123 MR. FECAN: [REDACTED]
124 THE CHAIRPERSON: [REDACTED]
125 MR. FECAN: [REDACTED]
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127 THE CHAIRPERSON: [REDACTED]
128 MR. FECAN: [REDACTED]
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131 MR. FECAN: [REDACTED]
132 THE CHAIRPERSON: [REDACTED]
133 MR. FECAN: [REDACTED]
134 THE CHAIRPERSON: [REDACTED]
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136 MR. FECAN: [REDACTED]
137 THE CHAIRPERSON: [REDACTED]
138 MR. FECAN: [REDACTED]
139 THE CHAIRPERSON: [REDACTED]
140 MR. FECAN: [REDACTED]
141 THE CHAIRPERSON: [REDACTED]
--- Laughter
142 THE CHAIRPERSON: [REDACTED]
143 MS MOFFAT: [REDACTED]
144 [REDACTED]
145 MR. GOSSLING: [REDACTED]
146 COMMISSIONER KATZ: [REDACTED]
147 MR. FECAN: [REDACTED]
148 THE CHAIRPERSON: [REDACTED]
149 MR. FECAN: [REDACTED]
150 [REDACTED]
151 [REDACTED]
152 THE CHAIRPERSON: [REDACTED]
153 MR. FECAN: [REDACTED]
154 MR. GOSSLING: [REDACTED]
155 COMMISSIONER KATZ: [REDACTED]
156 [REDACTED]
157 MR. FECAN: [REDACTED]
158 [REDACTED]
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161 COMMISSIONER KATZ: [REDACTED]
162 MR. FECAN: [REDACTED]
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173 THE CHAIRPERSON: [REDACTED]
174 MR. FECAN: [REDACTED]
175 COMMISSIONER KATZ: Where does the competitive element of all this fit in? You have your relationships over there, Canwest does, certainly Rogers does as well. You all go in there. You have explained how you buy, but at the end of the day where is the competitive element here in terms of the ratcheting up of price, I guess, of what you pay for based on somebody else coming along and saying I want the same thing as somebody else might want?
176 MR. FECAN: [REDACTED]
177 [REDACTED]
178 [REDACTED]
179 COMMISSIONER KATZ: [REDACTED]
180 MR. FECAN: [REDACTED]
181 COMMISSIONER KATZ: [REDACTED]
182 MR. FECAN: [REDACTED]
183 COMMISSIONER KATZ: [REDACTED]
184 MR. FECAN: [REDACTED]
185 COMMISSIONER KATZ: [REDACTED]
186 MR. FECAN: [REDACTED]
187 [REDACTED]
Vice-chair Katz asked questions relating to the various types of programming the licensee airs and what they contribute in terms of revenues and profit. He also asked about the acquisition strategy for each of the licensee's networks (CTV and A). The licensee outlined the contribution made by each type of programming and how it acquires programming for each network.
188 COMMISSIONER KATZ: [REDACTED]
189 [REDACTED]
190 MS BROWN: [REDACTED]
191 COMMISSIONER KATZ: [REDACTED]
192 MS MOFFAT: [REDACTED]
193 [REDACTED]
194 COMMISSIONER KATZ: To what extent does your purchases of foreign programming generate revenue both on the "A" Channel and on CTV channels?
195 Do you buy primarily for CTV or do you buy primarily for both?
196 MR. FECAN: [REDACTED]
197 COMMISSIONER KATZ: [REDACTED]
198 MR. FECAN: [REDACTED]
199 COMMISSIONER KATZ: [REDACTED]
200 MR. FECAN: [REDACTED]
201 COMMISSIONER KATZ: [REDACTED]
202 MR. FECAN: [REDACTED]
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204 [REDACTED]
205 COMMISSIONER KATZ: [REDACTED]
206 MR. FECAN: [REDACTED]
207 [REDACTED]
208 [REDACTED]
209 MR. GOSSLING: [REDACTED]
210 MR. FECAN: [REDACTED]
211 COMMISSIONER KATZ: [REDACTED]
212 MR. GOSSLING: [REDACTED]
213 MR. FECAN: [REDACTED]
214 [REDACTED]
215 COMMISSIONER KATZ: [REDACTED]
216 MR. FECAN: [REDACTED]
217 MR. GOSSLING: [REDACTED]
218 MR. FECAN: [REDACTED]
219 COMMISSIONER KATZ: [REDACTED]
220 [REDACTED]
221 MS MOFFAT: [REDACTED]
222 [REDACTED]
223 MR. FECAN: [REDACTED]
224 MS MOFFAT: [REDACTED]
225 COMMISSIONER KATZ: [REDACTED]
226 MS MOFFAT: [REDACTED]
227 MR. GOSSLING: [REDACTED]
228 [REDACTED]
229 COMMISSIONER KATZ: [REDACTED]
230 MS MOFFAT: [REDACTED]
231 MR. GOSSLING: [REDACTED]
232 COMMISSIONER KATZ: [REDACTED]
233 MR. GOSSLING: [REDACTED]
234 COMMISSIONER KATZ: [REDACTED]
235 MR. GOSSLING: [REDACTED]
236 COMMISSIONER KATZ: [REDACTED]
237 MR. GOSSLING: [REDACTED]
238 [REDACTED]
239 COMMISSIONER KATZ: [REDACTED]
240 [REDACTED]
241 [REDACTED]
242 MR. FECAN: [REDACTED]
243 COMMISSIONER KATZ: [REDACTED]
244 MR. FECAN: [REDACTED]
245 [REDACTED]
246 [REDACTED]
247 MS MOFFAT: [REDACTED]
248 COMMISSIONER KATZ: Okay.
249 So there are some binders. Do staff have these binders?
250 I want to just go through some data with you, some financial data. What it is, is the actual submissions that you have made by city for CTV and the "A" Channel.
251 I think there are some, hopefully, for Commissioners as well.
252 There is one extra one here if you want. I have an extra one here.
--- Pause
Vice-chair Katz asked questions relating to the performance of certain of the licensee's stations and the licensee provided an overview of the financial results.
253 COMMISSIONER KATZ: [REDACTED]
254 [REDACTED]
255 [REDACTED]
256 [REDACTED]
257 [REDACTED]
258 [REDACTED]
259 MS BROWN: [REDACTED]
260 [REDACTED]
261 MR. GOSSLING: [REDACTED]
262 MR. FECAN: [REDACTED]
263 [REDACTED]
264 COMMISSIONER KATZ: [REDACTED]
265 [REDACTED]
266 [REDACTED]
267 [REDACTED]
268 [REDACTED]
269 MR. FECAN: [REDACTED]
270 COMMISSIONER KATZ: [REDACTED]
271 [REDACTED]
272 MR. GOSSLING: [REDACTED]
273 [REDACTED]
274 COMMISSIONER KATZ: [REDACTED]
275 MR. GOSSLING: The other thing to point out on the "A"s, you know, they don't have as heavy of a U.S. schedule perhaps that they had in the past, not as expensive maybe. So they probably had a different expense mix, especially in programming.
276 COMMISSIONER KATZ: But you don't look at these on a station by station basis this way. I mean, you file this with the Commission because I guess you have been required to do, but you don't manage your operations this way, you are saying, at all.
277 MR. FECAN: Well, we look at the "A"s as a group. We look at CTVs as a group. We look at stations within each and try to figure out whether, you know, understanding that a lot of the costs, the shared costs, stay if you keep the station or take the station out, but does the revenue stay or go.
278 COMMISSIONER KATZ: Yes. But the way I would look at it is incremental revenue and incremental costs, and if you are making a contribution, then you have a decision to make as to what the level is and where you draw the line.
279 But if there are fixed costs in there, I'm not sure whether they should be included.
280 MR. GOSSLING: I think that is true individually, but collectively the fixed costs need to be covered. So that's why there is different levels to this. There is the individual station level and, you're right, it tends to be incremental revenue and cost.
281 But even that result, to the extent it is positive, has to contribute to the centre because if nothing is covering the central costs because of the way we have structured back office or because of the way we buy programming, then the whole thing is not viable. So it is a bit of both.
282 COMMISSIONER KATZ: When you buy programming, does the same program appear on the "A" Channel as on CTV, in some cases?
283 MR. GOSSLING: In the numbers that you are looking at in 2008, no, that wasn't the case. That is now the case for 2009.
284 But recall the timing of the CHUM decision was late in fiscal '07. So '08 was already really from the former CHUM management. So the costs that you see here for the "A"s in '08 are what they had committed to for programming.
285 MR. FECAN: Was your question the exact same episode of the same show at the same time?
286 COMMISSIONER KATZ: Well, not at the same time. Different day, different time, whatever.
287 MR. FECAN: [REDACTED]
288 [REDACTED]
289 COMMISSIONER KATZ: [REDACTED]
290 MR. FECAN: [REDACTED]
291 [REDACTED]
292 [REDACTED]
293 COMMISSIONER KATZ: [REDACTED]
294 MR. FECAN: [REDACTED]
295 COMMISSIONER KATZ: [REDACTED]
296 MR. FECAN: [REDACTED]
297 COMMISSIONER KATZ: [REDACTED]
298 MR. FECAN: [REDACTED]
299 COMMISSIONER KATZ: [REDACTED]
300 MR. FECAN: [REDACTED]
301 COMMISSIONER KATZ: [REDACTED]
302 [REDACTED]
303 MR. FECAN: [REDACTED]
304 MS FELL: [REDACTED]
305 COMMISSIONER KATZ: When Commissioner Menzies asked -- I think it was you folks several days ago -- about Windsor and the fact that there were 40 people in the Windsor channel and I think someone said there was 40 for the last five years and there has never been a change, it has always been 40, it sort of begs the question: Have all the stations been rationalized or have some been rationalized more than others? Is it a cyclical thing or a timing issue?
306 MR. FECAN: I will ask Richard to jump in.
307 In a sense what you should do is try and think of it in terms of how the stuff gets made. To do local news, an actual newscasts in a place, you need a crew. And then the question you ask yourself is: What kind of -- once you have the people there, what kind of productivity can you reasonably expect for whatever quality target you set in that place?
308 And what I think Richard was saying is 25, a complement of 25 people, technicians and journalists, is your base crew. So if you go below that in Windsor, you don't have anything essentially.
309 And what we did in the other "A" stations is we took it down to one crew, because they in many of those stations operated two crews.
310 So when you look at it in terms of, you know, just an industrial approach, it will give you a better sense of how to interpret those numbers.
311 COMMISSIONER KATZ: Okay. I don't think I have any more questions, Mr. Chairman.
312 THE CHAIRPERSON: I have lots of them, but Rita is going to go first.
313 COMMISSIONER CUGINI: Thank you.
314 I just want to understand a little bit more the scheduling of CTV versus the scheduling of "A" when it comes to the U.S. programming.
315 [REDACTED]
316 [REDACTED]
317 MR. FECAN: [REDACTED]
318 COMMISSIONER CUGINI: [REDACTED]
319 MR. FECAN: [REDACTED]
320 COMMISSIONER CUGINI: [REDACTED]
321 MR. FECAN: [REDACTED]
322 MR. GOSSLING: [REDACTED]
323 [REDACTED]
324 [REDACTED]
325 COMMISSIONER CUGINI: [REDACTED]
326 MR. FECAN: [REDACTED]
327 COMMISSIONER CUGINI: [REDACTED]
328 MR. FECAN: [REDACTED]
329 COMMISSIONER CUGINI: Do you pay a premium for a show that -- or do the studios in the United States charge you a premium for a show that they know you will be able to simultaneously substitute?
330 MR. FECAN: [REDACTED]
331 COMMISSIONER CUGINI: [REDACTED]
332 You know what, those are all my questions. Thank you.
333 THE CHAIRPERSON: Okay. Let's go back to the U.S. purchase which I just don't understand.
334 [REDACTED]
335 MR. FECAN: [REDACTED]
336 THE CHAIRPERSON: [REDACTED]
337 MR. FECAN: [REDACTED]
338 THE CHAIRPERSON: [REDACTED]
339 MR. FECAN: [REDACTED]
340 THE CHAIRPERSON: [REDACTED]
341 MR. FECAN: [REDACTED]
342 THE CHAIRPERSON: [REDACTED]
343 MR. FECAN: [REDACTED]
344 THE CHAIRPERSON: [REDACTED]
345 MR. FECAN: [REDACTED]
346 THE CHAIRPERSON: [REDACTED]
347 MR. FECAN: [REDACTED]
348 THE CHAIRPERSON: [REDACTED]
349 MR. FECAN: [REDACTED]
350 THE CHAIRPERSON: [REDACTED]
351 MR. FECAN: [REDACTED]
352 THE CHAIRPERSON: Okay. Now, when you originally bought these "A" stations, you were here before me and you wanted to buy City and we told you no. You had the option of not buying the "A"s. You chose to buy them anyway, and your explanation to me at that point in time was I really need a second network because I am forced to buy all sorts of shows because they are tied with hits.
353 MR. FECAN: Yes.
354 THE CHAIRPERSON: I have them anyway so better a second network to show them. That was your plan.
355 What went wrong?
356 MR. FECAN: Nothing. Nothing went wrong. We are more efficient in our use of the product, but I can't monetize the ratings. The ratings are up 40 per cent on the "A"s.
357 THE CHAIRPERSON: But let's be honest, you knew you were buying a turkey. You knew the "A" stations had not made money for the last five years.
358 MR. FECAN: We were hoping we could turn that around.
359 THE CHAIRPERSON: And you have turned it around, you have --
360 MR. FECAN: Not really.
361 THE CHAIRPERSON: Well, that's what I'm saying. What went wrong? You have increased the viewership. You have reduced costs and presumably you have taken another level of costs out of them now by just having one use, et cetera.
362 What are the missing ingredients that you thought were there and that you don't have now?
363 MR. FECAN: You know, the "A"s have had, whatever we want to call them, structural issues for some time affecting all conventional broadcasting. Because they are the smallest, they probably feel them the most.
364 For many years they didn't have programs people wanted to watch. Now they do but unfortunately there is a recession. So I can't monetize those programs to the degree I might be able to in a better time.
365 We have run scenarios where what if there wasn't a recession, would we break even, would we make money? And we don't think we would still, which is why we conclude that there are structural issues there beyond what is just recession driven.
366 THE CHAIRPERSON: Okay. Where does that take us? You want a fee for carriage. Let's for argument sake you get your fee for carriage at 50 per cent. Does having a second chain like the "A"s make sense under that scenario or are the "A"s basically doomed no matter what?
367 MR. FECAN: I think, you know, it's hard to react specifically to hypothetical.
368 THE CHAIRPERSON: Well, it's not hypothetical. I filed a document on Monday that showed you that you would get $57 million.
369 MR. FECAN: At the right quantum, I think these stations make it.
370 THE CHAIRPERSON: And the right quantum being...?
371 MR. FECAN: I think we put it on the table. We are talking about fee for carriage?
372 THE CHAIRPERSON: Yes.
373 MR. FECAN: 50 cents capped in the big markets.
374 MR. SPARKES: And that number -- our numbers show a lot higher.
375 THE CHAIRPERSON: You keep saying that every time and I don't know what that means when you say capped in the big markets.
376 MR. FECAN: Well, I think what we don't want to have happen, and we don't think it's fair to anybody, is to have -- with a lot of local stations in Toronto or Vancouver to have the outlier example that Mr. Linseman used of $6.00 or something to a consumer or to the cable company.
377 So what we had been talking about -- I am not sure how many proceedings ago -- was putting some sort of a cap on those two markets and I think the cap was --
378 MR. SPARKES: It was about $3.00.
379 MR. FECAN: -- $3.00.
380 MR. SPARKES: -- in the major markets.
381 THE CHAIRPERSON: And working backwards from there how much everybody gets?
382 MR. FECAN: Pardon me?
383 THE CHAIRPERSON: Working backwards from there how much each network gets.
384 MR. FECAN: Yes.
385 THE CHAIRPERSON: Well, that is the cap you are talking about.
386 MR. FECAN: Right.
387 THE CHAIRPERSON: Okay. Now this contracting that you do with the U.S., all the networks -- all the studios insist on it, there is no variation. I mean I don't quite understand why they insist that you pay according to the showing in the U.S. It doesn't necessarily follow that they are making more money this way than if they paid you on a different formula.
388 MR. FECAN: Mr. Chairman, I can't speak to why that system developed but it is the system and as the former head of the Competition Bureau I think you understand the difficulties in sitting down with my competitors and dictating new terms to the studios as a group.
389 THE CHAIRPERSON: You anticipate my next question. I just wonder whether you tried to negotiate different terms because it might be more lucrative even for the studios. It depends obviously on a whole set of assumptions and variables. But there is no interest, I gather?
390 MR. FECAN: [REDACTED]
391 [REDACTED]
392 THE CHAIRPERSON: Yes.
393 MR. FECAN: The other issue -- sorry, Mr. Chair. The other issue is there is a new class of rights that is gaining a lot of interest among the studios and that is the VOD rights. And there, we are dealing with, again, a different set of competitors because we are also -- you know, when we go to the screenings in Hollywood, Mr. Purdy is there trying to buy VOD rights for Rogers while Rogers is there buying Citytv rights for their programs.
394 So it is another revenue source for the studios and while you are looking at the whole analysis you should keep that one on the radar too because it is a separate class of rights and we don't get that when we buy your normal American program.
395 THE CHAIRPERSON: Yes. It also triggers a different royalty, if I understand it, on the copyright and all sorts of things.
396 MR. FECAN: The royalty would be the issue for the studio --
397 THE CHAIRPERSON: Yes.
398 MR. FECAN: -- but it is a separate class of rights that at the moment is not bundled in.
399 THE CHAIRPERSON: What we see in our example here is a lead-in of whose behaviour is imposed on you through studio sales tactics. Do they buy the VOD rights? To go back to "Law and Order," if they buy the VOD rights for "Law and Order," do you have to buy them too?
400 MR. FECAN: No.
401 THE CHAIRPERSON: Or do you have to pay for them when they show it on VOD?
402 MR. FECAN: [REDACTED]
403 THE CHAIRPERSON: Now, one on one, you tell me it's -- let's go back here.
--- Laughter
404 THE CHAIRPERSON: [REDACTED]
405 [REDACTED]
406 And so if you look at sports, this is the perfect example. You have salary caps, you know, and therefore that acts as a discipline to everybody. Within that salary cap you decide what is the best for you, et cetera.
407 And so analyzing from that it appeared to us that 1:1 would be sort of the same thing. You can spend as much as you want in Hollywood, et cetera, but that triggers an expenditure in Canada.
408 I have heard both from you and from Canwest saying that is way too dangerous. I would like to understand why. I am not sure I fully -- I understand your restraint on the U.S. parallelism that I wasn't aware of until this morning but I still don't see why on a group basis you would throw in the whole ensemble of your specialties as well as your conventionals and 1:1 is not doable.
409 MR. FECAN: [REDACTED]
The Chairperson asked the licensee to comment on the practicality of the Commission's 1:1 spending proposal and the licensee outlined its concerns.
410 THE CHAIRPERSON: [REDACTED]
411 MR. FECAN: [REDACTED]
412 [REDACTED]
413 [REDACTED]
414 [REDACTED]
415 THE CHAIRPERSON: [REDACTED]
416 MR. FECAN: [REDACTED]
417 THE CHAIRPERSON: [REDACTED]
418 MR. FECAN: [REDACTED]
419 THE CHAIRPERSON: [REDACTED]
420 MR. FECAN: [REDACTED]
421 [REDACTED]
422 [REDACTED]
423 [REDACTED]
424 [REDACTED]
425 THE CHAIRPERSON: [REDACTED]
426 MR. FECAN: [REDACTED]
427 [REDACTED]
428 [REDACTED]
429 THE CHAIRPERSON: [REDACTED]
430 MR. FECAN: [REDACTED]
431 THE CHAIRPERSON: [REDACTED]
432 MR. FECAN: [REDACTED]
433 [REDACTED]
434 [REDACTED]
435 THE CHAIRPERSON: [REDACTED]
436 THE CHAIRPERSON: Two questions.
437 Do you see yourself keeping the "A's" if you get your fee for carriage or do you see that there is no hope for them?
438 MR. FECAN: You know, as a management group, we are builders, we can't stand the idea of being faced with potentially closing something. We are trying to find solutions to make them work. That would be our preference. Closing is something -- or selling, which is the same as closing in this situation, is something that is nowhere near the top of our choices but it is something that these numbers that you have in front of us force us to look at as a distinct possibility.
439 THE CHAIRPERSON: No, and the reason I was questioning you is because Canwest has obviously made the decision that they cannot afford the "E's" and they have actually put them up for sale. But clearly, whatever their future plan is, and we will find that out this afternoon, it doesn't encompass "E's" anymore.
440 You are still working on the scenario where the "A"s will be your second chain, if I understand it correctly.
441 MR. FECAN: Yes, because I am dealing with known facts.
442 But let me kind of put it to you this way. Let's assume that there is some sort of additional revenue stream that goes to those stations. Whether we keep them or not, if they become viable, there are other buyers for them.
443 Whether we keep them or not, I don't think, is really the point. The point is whether they are viable.
444 Because if they are viable, then somebody else will step up.
445 The reason that nobody wants to buy Brandon is because they can't figure out how to make money there.
The Chairperson asked questions relating to the licensee's long-term strategy for its conventional television assets and the licensee outlined its views.
446 THE CHAIRPERSON: [REDACTED]
447 [REDACTED]
448 MR. FECAN: [REDACTED]
449 [REDACTED]
450 THE CHAIRPERSON: [REDACTED]
451 [REDACTED]
452 [REDACTED]
453 MR. FECAN: [REDACTED]
454 [REDACTED]
455 [REDACTED]
456 THE CHAIRPERSON: My last question is, you referred several times to vertical integration. You and Canwest are, basically, the only two that are not vertically integrated. The ones that are vertically integrated, such as City or TVA, obviously have an easier time because of being able to spread costs, being able to show things on variable platforms, et cetera.
457 In the long run, do you see that there would be a future for folks like you as a conventional broadcaster, with a stable of specialty channels, or are you inevitably going to have to link up with a distributor or a telephone company, so that you will have access to multiple --
458 [REDACTED]
459 MR. FECAN: The fundamental question from a business point of view is, for those other platforms, can we make a go of them, renting our content to those other platforms, or do you need to be vertically integrated in order to make a go of it.
460 With the greatest of respect, sir, I think of us not so much as not vertically integrated, but as the remaining independent broadcasters. It is sort of funny to think of us that way, because we are not a small company, but compared to them, we are.
461 I think a lot of it depends on the decisions you make as a Commission. If we have other revenue streams, if we have structural protections that allow us to exist, then, I think, there could be a good future, and I think we could rent our content out to those different streams.
462 That is always the question: Do you want to be the owner of it or do you want to rent it, and what is the best philosophy?
463 In an environment where we have the tools to compete and have a measure of success possible, then I think there is a future for it, but I think that, currently, with the net effect of many of the decisions of your predecessors, the balance seems to be more toward the vertically integrated groups.
464 It depends on you, I think. I'm sorry.
465 THE CHAIRPERSON: A nice way of turning the question around.
--- Laughter
466 THE CHAIRPERSON: Obviously, I don't want to drive you into consolidation, et cetera, but I just --
467 MR. FECAN: It would be a good thing for the country to have less diversity of voices and fewer voices, but these are tough issues that you are dealing with.
468 THE CHAIRPERSON: Right. Okay.
469 Peter...
Commissioner Menzies asked a series of questions relating to the long-term viability of certain of the licensee's stations and the licensee offered its views.
470 COMMISSIONER MENZIES: I think I missed something here. I am trying to understand the strategy [REDACTED]
471 [REDACTED]
472 [REDACTED]
473 [REDACTED]
474 [REDACTED]
475 [REDACTED]
476 MR. FECAN: [REDACTED]
477 [REDACTED]
478 COMMISSIONER MENZIES: [REDACTED]
479 MR. FECAN: [REDACTED]
480 COMMISSIONER MENZIES: [REDACTED]
481 MR. FECAN: [REDACTED]
482 [REDACTED]
483 COMMISSIONER MENZIES: [REDACTED]
484 [REDACTED]
485 [REDACTED]
486 [REDACTED]
487 [REDACTED]
488 MR. FECAN: [REDACTED]
489 COMMISSIONER MENZIES: [REDACTED]
490 [REDACTED]
491 MR. FECAN: [REDACTED]
492 [REDACTED]
493 [REDACTED]
494 [REDACTED]
495 [REDACTED]
496 [REDACTED]
497 [REDACTED]
498 [REDACTED]
499 COMMISSIONER MENZIES: [REDACTED]
500 MR. FECAN: [REDACTED]
501 COMMISSIONER MENZIES: [REDACTED]
502 MR. FECAN: [REDACTED]
503 COMMISSIONER MENZIES: [REDACTED]
504 [REDACTED]
505 [REDACTED]
506 MR. FECAN: [REDACTED]
507 COMMISSIONER MENZIES: [REDACTED]
508 MR. FECAN: [REDACTED]
509 [REDACTED]
510 [REDACTED]
511 COMMISSIONER MENZIES: [REDACTED]
512 [REDACTED]
513 [REDACTED]
514 MR. FECAN: [REDACTED]
515 COMMISSIONER MENZIES: [REDACTED]
516 MR. FECAN: [REDACTED]
517 COMMISSIONER MENZIES: [REDACTED]
518 THE CHAIRPERSON: Michel, do you have a question?
519 COMMISSIONER ARPIN: Thank you, Mr. Chairman.
520 To remain on the same line of questioning that Mr. Menzies was asking, if the A Channel and the E Channel were to go dark, where do you think the national advertising that is currently on these stations would go?
521 Would it remain in the television system, or would it be recuperated by the clients themselves?
522 MR. FECAN: We have our head of revenue management here, and he, probably, is in the best position to answer that question.
523 Brian McCluskey is probably in the best position, if you don't mind --
524 COMMISSIONER ARPIN: No, he certainly is welcome, he is part of your team.
525 MR. McCLUSKEY: [REDACTED]
526 [REDACTED]
527 [REDACTED]
528 MR. FECAN: [REDACTED]
529 MR. McCLUSKEY: [REDACTED]
530 COMMISSIONER ARPIN: [REDACTED]
531 MR. McCLUSKEY: [REDACTED]
532 MR. FECAN: [REDACTED]
533 MR. McCLUSKEY: [REDACTED]
534 COMMISSIONER ARPIN: [REDACTED]
535 MR. FECAN: [REDACTED]
536 COMMISSIONER ARPIN: [REDACTED]
537 MR. McCLUSKEY: [REDACTED]
538 COMMISSIONER ARPIN: Okay.
539 MR. FECAN: But our objective is if the revenue -- there is additional revenue sources. Just to be really clear, we want to keep these stations going. We think --
540 COMMISSIONER ARPIN: I heard you.
541 MR. FECAN: We are not looking to close them. It is not our first choice.
542 COMMISSIONER ARPIN: No. If the CBC was to go out of advertising, including getting out of sports, so the total. Where will that money flow? Will it flow back to organizations like CTV and Canwest or will it go in the specialty sector or in print?
543 MR. FECAN: Take your best guess.
544 MR. McCLUSKEY: Yes. I mean, we are just postulating here. You have really got two CBCs. One is the sports CBC, which is a high-profile player that commands a premium, and one is the other CBC, which is a discount station.
545 So if CBC were to shut down their discount station, the first beneficiary would be the remaining discount conventional stations in the market. And right now there is a sufficient number of them they could easily absorb what the CBC turned away.
546 From the sports standpoint, you would get some migration to sports on the specialties, depending on where those sports went. If they went to CTV, well, the money would migrate with it.
547 COMMISSIONER ARPIN: Okay. Thank you very much for your replies, sir.
548 Now I have two other sets of questions and three that are based on what has been said earlier today.
549 Mr. Fecan, when you describe how currently the payments are made for the U.S. programming, has it always been like that?
550 MR. FECAN: As long as I have been in the business, sir.
551 COMMISSIONER ARPIN: So as long as you have been in the business it has always been the way that -- so okay.
552 Well, that's --
553 MR. FECAN: I started buying programming probably I'm guessing in the early '80s when I was at the CBC, and that's how it was bought at the time, U.S. programming.
554 COMMISSIONER ARPIN: So the system has always been that way so at every repeat there is a --
555 MR. FECAN: Twenty-eight, 30 years it has, yes.
556 COMMISSIONER ARPIN: Okay. Now, regarding you there was a question [REDACTED] but what about Internet streaming? If you stream concurrently the programming with your on-air, does it trigger a different right?
557 MR. FECAN: [REDACTED]
558 [REDACTED]
559 [REDACTED]
560 COMMISSIONER ARPIN: [REDACTED]
561 MR. FECAN: [REDACTED]
562 [REDACTED]
563 COMMISSIONER ARPIN: [REDACTED]
564 MR. FECAN: [REDACTED]
565 COMMISSIONER ARPIN: [REDACTED]
566 MR. FECAN: [REDACTED]
567 [REDACTED]
568 [REDACTED]
Vice-chair Arpin asked the licensee about its use of CTF funds over the last year and the licensee responded.
569 COMMISSIONER ARPIN: Now, my last question has to do with the CTF.
570 [REDACTED]
571 [REDACTED]
572 [REDACTED]
573 MR. FECAN: [REDACTED]
574 [REDACTED]
575 [REDACTED]
576 [REDACTED]
577 COMMISSIONER ARPIN: [REDACTED]
578 MR. FECAN: [REDACTED]
579 [REDACTED]
580 COMMISSIONER ARPIN: [REDACTED]
581 MR. FECAN: [REDACTED]
582 COMMISSIONER ARPIN: [REDACTED]
583 MR. FECAN: [REDACTED]
584 COMMISSIONER ARPIN: [REDACTED]
585 MR. FECAN: [REDACTED]
586 [REDACTED]
587 [REDACTED]
588 COMMISSIONER ARPIN: Okay. Thank you very much.
589 THE CHAIRPERSON: Thank you.
590 Louise...?
Commissioner Poirier asked a series of questions about the licensee's projections for the next four years and how they would be impacted by the Olympics. The licensee outlined the impact.
591 COMMISSIONER POIRIER: Well, time is passing by and it's a very interesting discussion. We should have more of those in camera discussions, I believe.
592 Before you leave, I would love to talk a bit about the Olympics, okay, [REDACTED]
593 [REDACTED]
594 [REDACTED]
595 MR. FECAN: [REDACTED]
596 [REDACTED]
597 [REDACTED]
598 [REDACTED]
599 [REDACTED]
600 [REDACTED]
601 MR. GOSSLING: [REDACTED]
602 [REDACTED]
603 [REDACTED]
604 [REDACTED]
605 COMMISSIONER POIRIER: [REDACTED]
606 MR. GOSSLING: [REDACTED]
607 COMMISSIONER POIRIER: [REDACTED]
608 MR. GOSSLING: [REDACTED]
609 COMMISSIONER POIRIER: [REDACTED]
610 MR. GOSSLING: [REDACTED]
611 COMMISSIONER POIRIER: [REDACTED]
612 MR. GOSSLING: [REDACTED]
613 COMMISSIONER POIRIER: [REDACTED]
614 MR. FECAN: [REDACTED]
615 COMMISSIONER POIRIER: [REDACTED]
616 MR. FECAN: [REDACTED]
617 COMMISSIONER POIRIER: [REDACTED]
618 MR. FECAN: [REDACTED]
619 COMMISSIONER POIRIER: [REDACTED]
620 MR. FECAN: [REDACTED]
621 COMMISSIONER POIRIER: [REDACTED]
622 MR. FECAN: [REDACTED]
623 COMMISSIONER POIRIER: [REDACTED]
624 MR. FECAN: [REDACTED]
625 [REDACTED]
626 [REDACTED]
627 [REDACTED]
628 COMMISSIONER POIRIER: [REDACTED]
629 MR. GOSSLING: [REDACTED]
630 COMMISSIONER POIRIER: [REDACTED]
631 MR. FECAN: [REDACTED]
632 COMMISSIONER POIRIER: [REDACTED]
633 MR. GOSSLING: [REDACTED]
634 COMMISSIONER POIRIER: [REDACTED]
635 MR. GOSSLING: [REDACTED]
636 COMMISSIONER POIRIER: [REDACTED]
637 MR. GOSSLING: [REDACTED]
638 COMMISSIONER POIRIER: Thank you very much.
639 THE CHAIRPERSON: All right.
640 Candice, last question.
Commissioner Molnar asked a series of questions about the licensee's projections for the next four years and its decision to close CKX-TV Brandon. The licensee outlined the assumptions behind its projections and the closure of CKX-TV.
641 COMMISSIONER MOLNAR: I get to choose one?
--- Laughter
642 COMMISSIONER MOLNAR: I'm going to ask two.
643 COMMISSIONER POIRIER: Cherry-picking.
644 COMMISSIONER MOLNAR: I'm sorry, Mr. Chair, I am going to ask two.
645 First of all, I would like to also discuss these projections that you provided. [REDACTED]
646 [REDACTED]
647 MR. GOSSLING: [REDACTED]
648 [REDACTED]
649 [REDACTED]
650 [REDACTED]
651 [REDACTED]
652 [REDACTED]
653 [REDACTED]
654 COMMISSIONER MOLNAR: [REDACTED]
655 MR. FECAN: [REDACTED]
656 MR. GOSSLING: [REDACTED]
657 COMMISSIONER MOLNAR: [REDACTED]
658 [REDACTED]
659 MR. FECAN: [REDACTED]
660 COMMISSIONER MOLNAR: [REDACTED]
661 MR. FECAN: [REDACTED]
662 [REDACTED]
663 [REDACTED]
664 [REDACTED]
665 MR. DAVID GOLDSTEIN: [REDACTED]
666 MR. FECAN: [REDACTED]
667 [REDACTED]
668 [REDACTED]
669 [REDACTED]
670 [REDACTED]
671 MS FELL: [REDACTED]
672 MR. FECAN: [REDACTED]
673 [REDACTED]
674 COMMISSIONER MOLNAR: [REDACTED]
675 MR. FECAN: [REDACTED]
676 [REDACTED]
677 THE CHAIRPERSON: Well, thank you. I think these in-camera sessions are very useful because I think for the first time I had a true dialogue with you rather than sort of positioning. So in that spirit, let me leave you with a last thought.
678 You have made an elaborate and detailed plea for fee for carriage, repeated, et cetera. I left you this morning with an analysis which I think has three different elements. I think it would be wise to talk that way rather than fee for carriage.
679 Secondly, what you really want to do is in effect find a value for the product that BDUs are distributing without compensating you. But you weren't asked to set the rate. I think you should contemplate a scenario where there is a negotiation where at the end of the day if you don't get to an agreement you can put it to us for arbitration and we will deal with it under baseball rules, basically pick one or two numbers.
680 I think the way you have explored so far of trying to get us to set a rate which would keep you whole or something is not going to lead anywhere. I think it would be a much more saleable proposition if you could think of a scenario which in effect is a negotiation with an arbitration imposed at the end of the day if necessary.
681 MR. FECAN: You are speaking a fee for carriage in that one?
682 THE CHAIRPERSON: I am talking about value of the product that is being distributed by BDUs.
683 MR. FECAN: [REDACTED]
684 [REDACTED]
685 THE CHAIRPERSON: Mr. Fecan, I understand that. I don't want to have a discussion on the subject. I just said to you I think you should come up with a scenario along those ways.
686 Obviously in order for there to be a successful negotiation you have to have leverage and it may require action from us to give you the necessary leverage. Think along those lines. I think that would be a much more fruitful way than hammering a dead horse.
687 MR. FECAN: Okay.
688 THE CHAIRPERSON: Okay? Thank you.
689 MR. FECAN: Thank you.
690 THE CHAIRPERSON: On that note, let's break for lunch.
691 Maître Dionne, you wanted to make an announcement.
692 MS DIONNE: Yes, thank you, Mr. Chairman.
693 There was one undertaking in this in-camera session: File in confidence the CTV projections including the Olympics data.
694 Also, two undertakings were mentioned during the public phase earlier.
695 One, any data or information with respect to the Bell FreeSat proposal, particularly with regard to giving up compensation for distant signals in exchange for relief from converting certain transmitters outside urban centres.
696 Second, file in confidence information on how much shortfall is missing from a business perspective to keep the Wingham station viable.
697 Please provide all information at your reply or before. You may make an oral or written reply on May 11. Please advise the Hearing Secretary on which option you choose. Thank you.
698 MR. FECAN: Thank you.
699 THE CHAIRPERSON: Okay. Madame Roy, I think we will reconvene at 1:30, okay?
700 THE SECRETARY: At 1:30, thank you.
--- Upon recessing at 1212
--- Upon resuming at 1510
701 THE SECRETARY: We are now ready to proceed with the in camera session, Mr. Chair.
702 THE CHAIRPERSON: Mr. Viner, let's talk first a little bit about foreign programming. You buy each year a lot of foreign programming. You and all of the others have said, basically, that is the engine that drives the whole car. You make profit on the foreign programming; the Canadian programming is a loss, or, at best, a break-even.
703 Explain to me the terms on which you buy them, because we have heard different testimony, and obviously we are not in the market, participating as you are.
704 When you buy U.S. programming, what do you buy, and what are the conditions that are attached to it?
705 MR. VINER: I am going to ask Barb to answer that question, but, generally speaking, it is slightly different, depending on the studio you buy it from. The difference -- or how the market has sorted itself out in Canada is that CTV is aligned with some studios and we are aligned with others, and there are two or three in the middle that are kind of jump balls, which are not aligned, if I could say it that way.
706 I am going to ask Barb, who is our expert here, to articulate how it works.
707 MS WILLIAMS: You will guide me if I am giving too much or too little detail, I know.
708 The vast majority of our foreign programming comes from the six major studios based in Hollywood.
709 There is a whole chunk of programming that comes from smaller foreign providers, from England, Australia, and some of the other English-speaking territories, but the vast majority --
710 THE CHAIRPERSON: Let's concentrate on Hollywood.
711 MS WILLIAMS: There are six studios. [REDACTED]
712 [REDACTED]
713 Essentially, the program deals are put in place at the May screenings. Other bits and pieces of buying happen throughout the year, at the mid-season, and sometimes for summer, but the bulk of it is done at the May screenings.
714 And one big deal -- sort of, you come to terms with those screenings -- is typically led by a handful of shows that are thought to be the drivers, and no one ever knows for sure whether new shows will turn out to be those drivers or not, but they tend to lead the negotiations.
715 There are two big challenges why the foreign programming ends up being so problematic, if you will, to our business. [REDACTED]
716 [REDACTED]
717 [REDACTED]
718 [REDACTED]
719 THE CHAIRPERSON: Okay. Now you buy one of those big shows, and three trailers [REDACTED]
720 MS WILLIAMS: Yes.
721 THE CHAIRPERSON: My understanding is that you are going to show them, obviously, when the U.S. network shows them, to get the advantage of simultaneous --
722 But, also, you pay -- how do you --
723 Is my understanding correct that you then pay a royalty every time?
724 Let's say that NBC buys it. Every time NBC shows it, you pay a royalty, regardless of whether you show it or not?
725 MS WILLIAMS: When you buy a show, what you are negotiating is the price per telecast, and when you buy it, you have no idea how many telecasts there will be, because you pay according to the U.S. network's schedule.
726 So you buy House, and you have agreed how much you are going to pay every time they broadcast House.
727 And if they broadcast it twice, you only pay twice, and it cancels and goes away and you are done.
728 [REDACTED]
729 [REDACTED]
730 [REDACTED]
731 You are trying to establish a budget and stay in control of that budget, when you are really, completely dependent on the U.S. network's scheduling.
732 THE CHAIRPERSON: Now, take your example of House. They buy it and they show it once a week. You decide that not only do you want to show it once a week, you want to put a repeat on. Do you pay extra for the repeat?
733 MS WILLIAMS: [REDACTED]
734 THE CHAIRPERSON: [REDACTED]
735 MS WILLIAMS: [REDACTED]
736 [REDACTED]
737 THE CHAIRPERSON: [REDACTED]
738 MS WILLIAMS: [REDACTED]
739 The deals are all a little bit different.
740 [REDACTED]
741 [REDACTED]
742 THE CHAIRPERSON: Let's stay with the example of House, that is always easier.
743 So you buy House, [REDACTED]
744 MS WILLIAMS: Yes.
745 THE CHAIRPERSON: Now, let's assume that you also get the right to put some repeats on your specialties. How does the allocation work?
746 Does the price of acquisition go all to Global? Do you split it up, so much on Global, so much on E!, so much on Showcase, or whatever?
747 How does it work?
748 MS WILLIAMS: Every station, whether it be a conventional station or a specialty network -- each place that a show is run carries some of the cost.
749 There are a few ways that that is organized.
750 If it is clear in the deal what a cable day is worth, then the auditor simply accepts that that has been determined in the deal, that is what the play is worth.
751 Where that is not broken out in the deal specifically, but we are choosing to spread the play pattern across a number of stations, then we have to support the allocation to the auditors on some sort of net market value that we have appropriately put the right allocation to the right network, and we actually spend --
752 [REDACTED]
753 MR. VINER: [REDACTED]
754 [REDACTED]
755 MS WILLIAMS: [REDACTED]
756 So we have checks and balances all over the place to ensure that the allocations are fair.
757 THE CHAIRPERSON: Now, when I asked you yesterday about one-on-one, you said that you didn't like the idea because you thought it was too dangerous.
758 That is really the cause of your concern, if I now understand, because when you buy those big shows, you don't know how much they are going to cost you, because you don't know how much they will be shown by the U.S. network, which drives your price.
759 MS WILLIAMS: It is very, very hard to manage the budget as it is.
760 THE CHAIRPERSON: I never understood it until I understood how the pricing goes. Now I can see some of your reluctance.
761 Help me out here. As you know, the artistic community, every time they appear before me, makes the same point, saying that we could do so much better if those broadcasters wouldn't go to Hollywood and compete against each other, and beat themselves over the head, and completely overprice the American product, and therefore that leaves not enough for Canadian production. If there were to be some sort of constraint, or some sort of limitation on what they can spend in Hollywood, that would solve it.
762 And they have suggested that we put a one-to-one expenditure ratio on it, or a luxury tax, or something like that.
763 Clearly, they are looking to the sports franchises, where you have a salary cap. That is a restraint on the whole system, and everybody has to use their ingenuity on how to use the place within the salary cap to their maximum vantage, and why couldn't that be applied to the film industry, or to the broadcasting industry.
764 Whether one-to-one is the right ratio, or a different ratio, that doesn't make a difference. Do you see a way that we could do a ratio, or anything like that here, so as to address this concern?
765 I understand that you want to buy shows and maximize your income. On the other hand, you are really bidding against two other people who have interests in Canadian rights, other than City and CTV.
766 MS WILLIAMS: Just before we comment specifically on the one-to-one, I think it's important to understand the next layer of risk to this.
767 THE CHAIRPERSON: Okay.
768 MS WILLIAMS: The studios had traditionally been very interested in selling their product to Canada because it was a nice, closed, tidy market. There was a good little competitive game going on there between a couple of big buyers. It represented a fair bit of money to them.
769 Their game is changing, too. They are also trying to figure out how to curtail costs, and they are also trying to figure out how to manage their product differently across other platforms.
770 The other risk here in all of this, which we just are very unsure of, is, if there were to be a cap --
771 Because, essentially, that is what we are talking about, I agree with you.
772 THE CHAIRPERSON: Yes.
773 MS WILLIAMS: [REDACTED]
774 [REDACTED]
775 [REDACTED]
776 [REDACTED]
777 THE CHAIRPERSON: [REDACTED]
778 MS WILLIAMS: [REDACTED]
779 THE CHAIRPERSON: That's interesting, what you said. Of course, that is why we are having this hearing. We want to hear your views, because the last thing we want are unintended consequences. [REDACTED]
780 MS WILLIAMS: [REDACTED]
781 [REDACTED]
782 THE CHAIRPERSON: Did you want to add something, Mr. Viner?
783 MR. VINER: No, I think that Barb has said it well.
784 The connection that I find frustrating with the creative group and the production community is that, first of all, we don't like spending all of this money on U.S. product, and we are working hard at trying to bring it down, but, number two is, that is the engine that subsidizes the product that we commission from them.
785 So it is kind of a little bit of a lack of recognition or acknowledgement of that.
786 THE CHAIRPERSON: You are absolutely right, but I wish that the Canadian artistic community would understand exactly what Ms Williams just explained to me, because they just don't understand it, and I have had delegation after delegation before me, saying, you know, you have to stop this. All of our money goes to reward Hollywood, rather than being used to create Canadian creativity.
787 MR. VINER: I hesitate to be critical. We have been trying to get this message through for a very long time. These are very intelligent people; [REDACTED]
788 MS WILLIAMS: I think we have said some of this, maybe, in previous conversations, but the budget process at Canwest -- and I have worked at other broadcasters, too, and it's no different -- you don't have your conversation about your Canadian budget in the same room, at the same time, in any way connected to the conversation you have about your foreign budget.
789 And, if anything, the more successful you are with that foreign budget, the more opportunity you have to fight later to grow that Canadian budget.
790 And there are many of us in this business who are fighting all the time to make as much as we can, so that we can be successful with our Canadian.
791 But the frustration that we have with the community is -- I don't think they believe how much people like Christine and me and our teams -- how hard we are trying.
792 [REDACTED]
793 The whole success of the whole schedule is rooted in a handful of shows in prime time, and the Canadian community -- they need to be on our side for this. [REDACTED]
794 [REDACTED]
795 [REDACTED]
796 [REDACTED]
797 THE CHAIRPERSON: But the pricing of shows that you buy in Hollywood, which you just explained to me, which was news to everyone on the CRTC, I should tell you, is it well known in the artistic community that that's how Hollywood prices things, and that your income is actually driven by how often shows are being shown on the U.S. networks?
798 MS WILLIAMS: [REDACTED]
799 [REDACTED]
800 [REDACTED]
801 [REDACTED]
802 [REDACTED]
803 THE CHAIRPERSON: Yes.
804 Now, in going through your numbers -- and I looked at them last night -- first of all, there is, obviously, a huge difference between E! and Canwest.
805 If I understand these numbers correctly, just looking at them globally, Canwest in 2008 actually [REDACTED] and had a PBIT margin of [REDACTED] percent.
806 MR. VINER: That's correct.
807 THE CHAIRPERSON: I guess it would be too much to expect the same in 2009.
808 MR. VINER: It doesn't look that way, no.
809 THE CHAIRPERSON: If one looked just at Canwest, there is clearly a steady decline in profitability, but I can see that you have also taken --
810 Let's just look at salaries. They have constantly declined, et cetera.
811 It is not a hopeless situation. I mean, yesterday, when Mr. Lind said, "Give me time -- these guys make profit," you are just speaking of Canwest. There is a certain legitimacy to it. You know, one could argue that this is just a temporary decline because of the economic decision; that basically Canwest on its own seems to be a sound and profitable business.
812 MR. PETER VINER: Well, I think if you think that an [REDACTED] per cent return before capital investment or servicing debt or tax is a hell of a business, I guess you could make that case. We don't feel that way and we feel -- we remember in the salad days when it was making $[REDACTED] and we are looking at probably being underwater [REDACTED] this year. And, you know, this decline was evident for seven or eight years prior to, you know, any economic circumstance.
813 THE CHAIRPERSON: I know, but for instance last year when we made our decision on fee for carriage, which you don't like, we had the 2007 numbers to work with and when we looked at them compared to 2006, there was actually an upswing.
814 It seems to me that the problem is the "E!" Channel. That is a totally different story.
815 MR. AKMAN: Let me try to come at why we are not happy with those returns --
816 THE CHAIRPERSON: Please.
817 MR. AKMAN: -- from another direction.
818 [REDACTED]
819 When we look at Global, the Global Television Network, you are quite right that it had that PBIT margin. What the PBIT margin doesn't fully reflect is all the capital expenditures that we have had to make over the years, not to grow our business but to stay in business, things like the digital news initiative that Chris was talking about, things like S4M, the sales software that Errol was talking about.
820 In the last four years the Global Network capital expenditures have exceeded $[REDACTED]. The cash flow -- and I'm going to echo a metric that Rogers was using. They were trying to move towards free cash flow. Once you do those capital upgrades -- and it is a very capital intensive business. It is much more than trucks and transmitters.
821 Once you add all of that back, we are looking at a cash flow margin in 2008 I'm about [REDACTED] per cent. Now, that is before you have paid any interest. [REDACTED]
822 [REDACTED]
823 THE CHAIRPERSON: Well, I don't have those figures in front of me. Do you have them, the free cash flow for Canwest before and after interest?
824 MR. AKMAN: We can put this on file, but the numbers I'm looking at are in a slightly different format from yours.
825 I'm looking at operating margin in 2008 of $[REDACTED]. I think that ties to your numbers. In that year for the Global Network we spent $[REDACTED] on capital, leaving about $[REDACTED] of cash flow or a [REDACTED] per cent free cash flow margin before interest and taxes.
826 The other concerning trend is even if we were to return to the 2007 numbers -- and I'm not sure how we would get there because the ratings aren't what they were in 2007 -- the other costs have escalated.
827 So I think what we are looking for is a way -- we are looking for alternate sources of revenue to sustain and prolong what we have today. We can't hope to return to what we used to have.
828 THE CHAIRPERSON: Okay, two things.
829 First of all, can you later on, in confidence obviously, furnish us the numbers you were just talking about?
830 Secondly, this morning we talked to CTV and they gave us a sheet [REDACTED] which showed us the markets, the station, the projection for each year from 2008 to 2012 for both the CTV station and --
831 COMMISSIONER ARPIN: (Off microphone / Sans microphone)
832 THE CHAIRPERSON: I know that. I'm just describing the --
--- Laughter
833 THE CHAIRPERSON: I am not quoting numbers. I just thought it was very helpful to see this is how they see the world. This is how they see it unfolding for CTV. This is how they see it unfolding for the "A" stations and this is [REDACTED]
834 [REDACTED]
835 MR. PETER VINER: But I'm sure it's more optimistic.
836 THE CHAIRPERSON: More optimistic or pessimistic. Do you have something that you can show us?
837 MR. AKMAN: Well, we did submit seven-year forecasts to begin with, which were subsequently withdrawn, and those gave a picture of what we think the future looks like. We could resubmit those.
838 THE CHAIRPERSON: Seven years, I don't ask you to have a crystal ball.
839 MR. AKMAN: Yes.
840 THE CHAIRPERSON: This will get us to 2012.
841 MS BELL: We can do that.
842 THE CHAIRPERSON: Okay. You will do it, fine.
843 Then let's turn to the "E!"s. I looked at them and I must say I was absolutely shocked by the figures, and I guess I have two questions.
844 Number one, when you originally bought them, you obviously thought this would be the second chain from which you could -- it didn't work out that way, but the numbers are so incredibly negative and they keep getting worse every single year.
845 Last year it was less worse in 2005, but then 2006 it went back. So I guess the simple question is: How come it took you so long to figure out that this is a sinking ship?
846 MR. PETER VINER: [REDACTED]
847 You know, what happens, you get corporate attachments to things. You are optimistic, you think you can do it. It is very difficult and, you know, we have had -- it is sometimes very difficult to bring yourself to the conclusion that, you know, these things are never going to work.
848 You know, we are hoping, you know, for other changes, but just -- you are right, it's been a long time coming.
849 THE CHAIRPERSON: Even if we had given you fee for carriage the first time around, this wouldn't have saved the "E!"s, as far as I can see, given these numbers.
850 MR. PETER VINER: Well, I think we tried to save the "E!"s in a different way. The "E!" Program Supply Agreement was designed to bring down the cost of programming, foreign programming, fairly dramatically with kind of only a slight decline in ratings, and that part of the equation didn't quite hold up.
851 But at the same time the advertising market got softer and softer and declined, so you are kind of at a very ugly intersection.
852 Once it was clear that there was no way home for this, we just said, you know, we have to stop this.
853 MR. AKMAN: I think one other comment -- and Barb can speak more eloquently to it than I -- prior to the acquisition of the Alliance Atlantis channels, in order to furnish the Global Network, which was and remains profitable with a sufficient programming shelf, it was necessary to have a second network running. The acquisition of the Alliance Atlantis channels has significantly mitigated that so that is why we are able to say now that the "E!" Network is no longer core to our ongoing strategy.
854 MS WILLIAMS: Yes. We will use our leverage with the studios with all the product we need to buy on our specialties and won't hopefully need the leverage of that second platform quite the same way.
855 I mean, the other thing to remember is when you buy national rights for one of these big shows you by national rights, and whether you are putting that on ten big Global stations or you are putting that on five little CH stations, you are paying the same cost.
856 And to your allocation point earlier, if the show is running on only the CH stations, only on the "E!" Platform, then all the costs have to be carried by those too. So the shows are relatively more expensive for a network that gets relatively fewer ratings and a whole economy where the demand for advertising inventory is falling. We just couldn't get out of the hole.
857 THE CHAIRPERSON: What is happening in Red Deer? You have two stations. You have both a Global and an "E!" station?
858 MR. REEB: No. No, we don't.
859 THE CHAIRPERSON: Those are your figures here. They are both called Red Deer. CHCA TV and City tv.
860 MR. REEB: We have a rebroadcaster in Red Deer for our Global Edmonton station which has a 2.5 hour a week kind of licence to do local programming. We generate that programming actually out of our "E!" station in Red Deer, but it runs on the Global station.
861 But it is a rebroadcast primarily of the Global Edmonton schedule.
862 THE CHAIRPERSON: I'm sorry. You have a Canwest Global which is called City tv1; right?
863 MS BELL: CITV.
864 THE CHAIRPERSON: CITV, sorry. That's a "V", right. CITV-1.
865 That is a rebroadcast?
866 MR. REEB: It's a rebroad of the Global Edmonton, yes.
867 THE CHAIRPERSON: And then you have the Ch CATV which is Canwest "E!", [REDACTED] So are you making competition --
868 MR. PETER VINER: [REDACTED]
869 THE CHAIRPERSON: Are you competing with yourself is what I guess I was coming up with?
870 MR. PETER VINER: No, not really.
871 I mean, that market we had some hope for because until very recently it was a market that was in demand because of the health of the Alberta economy. So we had some hope that with a second programming strand we might be able to do well.
872 THE CHAIRPERSON: I'm just looking for your latest filing which was in here somewhere.
--- Pause
873 THE CHAIRPERSON: On April 9th you filed with us your Consolidated Global and Consolidated E!, the revenues and operating expenses and then especially on programming, on foreign.
874 I guess, Ms Williams, this is what demonstrates your points.
875 For 2008 on foreign use you made $[REDACTED] but you spent $[REDACTED], so this is your sole source of profit, if I understand this.
876 And is this --
877 MS WILLIAMS: [REDACTED]
878 THE CHAIRPERSON: Is this representative for a year-over-year, because we only have a figure for 2008?
879 MR. AKMAN: I think what you would see if -- you're looking at the chart on the top left corner which says "Canwest Conventional Excluding CJNT-TV"?
880 THE CHAIRPERSON: Yes.
881 MR. AKMAN: What you would see if you ran the same categories for 2007 would be a deeper loss for local news, which has been mitigated by some of the cost cutting initiatives Chris spoke to.
882 THE CHAIRPERSON: Yes.
883 MR. AKMAN: You would see a similar position for national news. You would see a deeper loss for non-news Cancon because of the synergies that Barb has been speaking about, and you would see a higher profit for foreign.
884 So what keeps us up at night is that none of those first three categories will ever make a profit, and the only category that is making a profit is getting squeezed more each year.
885 THE CHAIRPERSON: Well, what assurance do we have, then, that if you get some help from us that you wouldn't spend that on foreign acquisition, because that is clearly where you get the biggest return for your money rather than reducing your losses?
886 MS WILLIAMS: [REDACTED]
887 [REDACTED]
888 [REDACTED]
889 [REDACTED]
890 MR. PETER VINER: Yes. I think, too, you know, we will have to arrive at a -- mutually arrive at a mechanism that makes sense, whether it's local hours in the market, whether it's some other form, something closer akin to a specialty network. I think it is not an unreasonable request.
891 THE CHAIRPERSON: Yes. I think you should put your creative minds to it, because you are telling me, look, if we don't get fee for carriage or something like that, we are dust. And if you convince me of that, surely you have to somehow give me some assurance that the money that you will get will not all be used for foreign purchases.
892 That is the flipside, you know. If we buy your argument and we find a way of giving you relief, we have to be able to assure that, you know, it is being used for the objectives of the Broadcasting Act.
893 MS BELL: Just for clarity, you are referring to the LPIF or are you referring to possible fee for carriage?
894 THE CHAIRPERSON: I'm speaking conceptually right now.
895 MS BELL: Okay. Okay.
896 THE CHAIRPERSON: I just wanted to understand. You look at it obviously from the broadcast point of view. I have to look at it from the regulator's point of view. That is my concern.
897 MR. REEB: We understand.
898 MS BELL: Okay.
899 THE CHAIRPERSON: Some mechanism will have to be found.
900 MR. REEB: I did just want to echo Mr. Asper's comments from the other day, that our five and ten promise for local hours was predicated on the idea that there would be no relief when we looked at it. And if there was in fact an LPIF of 3 per cent, we would certainly be prepared to increase that and include a promise of weekend coverage as well.
901 THE CHAIRPERSON: I mean an LPIF of 3 per cent is already on the table, and we removed the incrementality. So you appreciate you are going to get your portion of the LPIF.
902 I actually gave out the figures on Monday, whatever it was. I forgot where you came out, but -- here we are.
903 Canwest, you are going to get $10 million, you know, in LPIF money this year. This is the whole Canwest.
904 MR. PETER VINER: That is both "E!" and Global together.
905 THE CHAIRPERSON: Yes.
906 MS BELL: Combined.
907 MR. PETER VINER: So we are assuming that that will not be the case going forward.
908 THE CHAIRPERSON: No, because you have to make the division accordingly.
909 MR. PETER VINER: Yes.
910 MS BELL: Yes.
911 THE CHAIRPERSON: Okay, I'm going to pass you over to my colleague Rita Cugini who is specializing on CNJT and then the rest of my colleagues.
912 So Rita...?
913 COMMISSIONER CUGINI: Okay, thank you. But I reserve the right to go back on Global questions.
914 THE CHAIRPERSON: Whatever you like.
915 COMMISSIONER CUGINI: I mean I don't have a lot of questions for you on the CJNT financials. [REDACTED]
916 So I'm just wondering whether you have any way of explaining that to us?
917 MR. PETER VINER: Yes. I will ask Errol, our head of sales to talk about the Québec market --
918 COMMISSIONER CUGINI: Sure.
919 MR. PETER VINER: -- and the Québec market for a station like -- an ethnic station.
920 MR. DA-RE: [REDACTED]
921 [REDACTED]
922 [REDACTED]
923 MS GARDNER: [REDACTED]
924 [REDACTED]
925 COMMISSIONER CUGINI: Even though -- I'm sorry to interrupt.
926 Even though you are running first round U.S. programming in the market?
927 MS GARDNER: Yes.
928 COMMISSIONER CUGINI: Unlike the OMNI station.
929 MS GARDNER: Absolutely.
930 COMMISSIONER CUGINI: Because you do throughout your application compare yourselves to OMNI. But you are offering first-run programming.
931 MS GARDNER: Yes, we are. And as Isabella pointed out, we can't always simulcast those properties and when they are not simulcast, we get zero ratings for those U.S. acquisitions.
932 COMMISSIONER CUGINI: Is the station for sale?
933 MR. PETER VINER: Yes.
934 COMMISSIONER CUGINI: [REDACTED]
935 MR. PETER VINER: [REDACTED]
936 COMMISSIONER CUGINI: And is it separate from the sale of the other "E!" stations?
937 MR. PETER VINER: It's in the same process.
938 COMMISSIONER CUGINI: It's in this process.
939 MR. PETER VINER: Yes.
940 COMMISSIONER CUGINI: Okay. Those are all my questions on CJNT.
941 THE CHAIRPERSON: Okay.
942 Michel...?
943 COMMISSIONER ARPIN: Yes. Thank you.
944 What will be the impact of leaving out French programming on CJNT in terms of revenues?
945 MR. AKMAN: I can speak to that.
946 What we estimated and we wanted to be conservative to not surprise ourselves and to plan accordingly, but with the licence condition that we are asking for we thought it could add approximately $[REDACTED] a year of revenue, which is about [REDACTED] per cent [REDACTED].
947 COMMISSIONER ARPIN: Which is reflected by your year 2010 [REDACTED] of $[REDACTED] from the local sales from the previous year? And there will be national -- no, your national is increasing.
948 MR. PETER VINER: Yes, that is because of a stronger American schedule from 8 to 10.
949 COMMISSIONER ARPIN: Yes. So you have an increase in national advertising, but the decrease is mainly due to the fact that if you have a stronger program grid, so you are selling more national advertising. So since you have a finite number of minutes to sell, you are going to be selling less local advertising.
950 MR. AKMAN: That's correct. Yes.
951 COMMISSIONER ARPIN: Currently are you selling ads in French?
952 MS FEDERIGI: Very little. Of the 20 hours of French that we currently broadcast, the forecast for this year is at about $[REDACTED] in total sales for French, not ethnic.
953 COMMISSIONER ARPIN: My next question is more political than economic, but what do you think the political impact will be of being relieved from any broadcasting of any French language programming on CJNT?
954 Do you expect an outcry from -- have you ever raised the issue with local MLAs and MNAs?
955 MS FEDERIGI: No, we haven't raised this issue with MPs or MNAs in the past. Like we said before, Francophones in Montréal don't necessarily tune to CJNT to see second and third window programming.
956 And also, just to help our sales team, we have acquired in the past and still currently series are geared to children, so we run the series early in the morning so that we don't take away good time slots for U.S. programming or ethnic programming.
957 MR. MEDLINE: Commissioner Arpin, it is perhaps worth noting that in this process, which has been a very public process, and I know Isabella has been out in the community, we didn't receive any negative comments on that particular change to the licence.
958 COMMISSIONER ARPIN: My question arises from the fact that particularly members of the opposition, both in Québec City and here in Ottawa, are sovereigntist and are from ethnic origin. They may not have noticed it, but they -- I am concerned if -- I'm asking just to be reassured that it is something that you have thought of.
959 MS BELL: I appreciate your concern. I totally appreciate your concern and it is a valid one.
960 [REDACTED] And, you know, if the issue does come up, we are certainly prepared to do our bit in terms of government relations and explaining to MPs why we have had to do this.
961 But no one is watching it so I would be surprised there would be a great outcry.
962 MR. AKMAN: [REDACTED]
963 COMMISSIONER ARPIN: I know that the station is carried by Vidéotron all across the province, at least I have it here in Gatineau. I'm not saying I'm watching it, I apologize. But I know it's on my grid.
964 I apologize, but I know it is on my grid.
965 I just wonder about any clash. Obviously it will rebound both on you and on us.
966 MR. PETER VINER: Thank you for registering the thought. We don't anticipate an issue and if we did, it would be on our -- it would be ours to manage.
967 COMMISSIONER ARPIN: Okay. Those are my questions regarding CJNT. I may have other questions.
968 THE CHAIRPERSON: On CJNT I am somewhat troubled by this.
969 [REDACTED]
970 And then in answer to my colleague you said well, basically it was posted up for sale, or words to that effect.
971 [REDACTED]
972 Why should we give you the concessions now so that you get a better sales price?
973 I don't quite understand this.
974 MS BELL: It's a fair question.
975 [REDACTED]
976 [REDACTED]
977 [REDACTED]
978 [REDACTED]
979 [REDACTED]
980 THE CHAIRPERSON: Okay. Thank you.
981 Michel, let's go with any questions you have generally for Global.
982 COMMISSIONER ARPIN: Yes, okay. Thank you very much again.
983 My first question and only question is one that will probably be handled by Ms Williams.
984 Has one of the producers that is working for you been successful to sell programming for which you have been the broadcaster to one of the U.S. networks?
985 MS WILLIAMS: Yes. We have just recently actually announced that one of our independent production partners has sold a series Copper which will come to the Global schedule this coming year, and they have also sold that show to ABC.
986 COMMISSIONER ARPIN: Well, I am very happy to hear that and I will say good luck to both of you.
987 You described to us the payment mechanism that you have to face when you buy some from the studios, American programming.
988 What is going to be the counterpart?
989 MS WILLIAMS: That's a great question and actually it's what makes a Canadian content -- a licensed in Canada Canadian content show sold to a U.S. network, that is a real win-win, because we will pay for that show based on the deal we did with the Canadian independent producer here in Canada for our territory.
990 So we will have made a commitment to the way we do in Canada. We don't have the luxury of saying you know what, we will license it and you do an episode or two and if we don't like it we will just cancel it and cut our losses. We don't have that luxury in Canada. We have to support the independents in a much more thoughtful and continuing way.
991 So we will make our upfront commitment to 13 episodes, and we will broadcast those 13 episodes regardless of what the U.S. does.
992 Now, we will follow ABC's schedule as long as they have it on the air because the simulcast of the Cancon show is, you know, that is the real jackpot. So as long as ABC is successful with it, we will follow their schedule and we will get the maximum out of it.
993 But if ABC drops it and takes it off their schedule, our commitment to the independent producer in Canada continues and we will broadcast the rest of the series on Global regardless.
994 COMMISSIONER ARPIN: At the same time or you will --
995 MS WILLIAMS: Well, we will simulcast as long as they've got it on the air. If they drop it, we will keep going and we will put it on our schedule. Maybe we move it at that point if that makes sense.
996 COMMISSIONER ARPIN: Now, regarding payment, you say that every time you're -- if there is a rerun of an American program, then if they choose to rerun the program because they felt the series is good, achieved a lot of attention and they decide to rerun it, how will the payment system work?
997 MS WILLIAMS: Christine, leap in here if you have these deal points more tightly than me, but typically in our upfront deal that we would do with the independent we would have contemplated a number of plays we have in the term that we have on that show, so we would be looking to match up the rights we have with exploitation of the show in the U.S.
998 COMMISSIONER ARPIN: And there will be any gain for you or all the gains are to the producers?
999 MS WILLIAMS: Gains from...?
1000 COMMISSIONER ARPIN: Financial gain.
1001 MS WILLIAMS: For us, the commitment we have made to the independent producer in Canada will include however many plays over whatever term we have.
1002 COMMISSIONER ARPIN: No, but your commitment is through a licence or --
1003 MS WILLIAMS: To a licence fee, yes.
1004 COMMISSIONER ARPIN: Did you also invest in the program?
1005 MS WILLIAMS: [REDACTED]
1006 MS SHIPTON: I would just add, the gain for us is that the budget has been able to go way, way up in terms of the amount of money available to that producer.
1007 COMMISSIONER ARPIN: So the money went into the production?
1008 MS SHIPTON: Absolutely.
1009 MS WILLIAMS: Oh, absolutely, yes. The U.S. sale money went into the producer's budget, yes.
1010 COMMISSIONER ARPIN: To the producer. And at the end of the day ends up in the production. But there is no money that flows back to Global?
1011 MS WILLIAMS: No.
1012 MR. PETER VINER: No. The big gain is that we substitute a high-quality Canadian show for a U.S. show.
1013 MS SHIPTON: I guess I would just add the gain would be that the ad revenue would be potentially more on that Canadian show and simulcasting if we weren't. So that's the gain.
1014 COMMISSIONER ARPIN: Yes. Well, thank you. That was --
1015 THE CHAIRPERSON: Len...?
1016 COMMISSIONER KATZ: Thank you. Just triggered a question in my mind. Is the agreement you have with the studios in the States fully reciprocal? Whatever terms and conditions, as onerous as you may find them or we may believe they are, if you had a Canadian production going the other way to ABC, they would be obliged to meet the same terms and conditions that they are imposing upon you?
1017 MR. PETER VINER: [REDACTED] No.
1018 MS WILLIAMS: No.
1019 MR. PETER VINER: No, there's no chance of that.
1020 MS WILLIAMS: That independent producer will go and cut their own deal with the U.S. network and we would say, I think our honest point of view would be the U.S. network is getting a great deal, that's why they are doing it. They are getting a production at a much, much reduced cost than them doing an original series themselves.
1021 We are getting a great deal because we are fulfilling our Canadian content obligations, we are supporting an independent producer to make a much richer show than they have ever been able to and likely will get higher ratings so we can sell it better.
1022 The producers are getting a great deal because they are playing with a bigger budget than they ever did, they are making an entry into the American market, they are building a contact base there that they hope they can exploit.
1023 So at the moment we are all seeing this as a win across all fronts. But there is no doubt that there is a win for the U.S. network in here and that they are getting a show much more cheaply than they would typically make themselves.
1024 COMMISSIONER KATZ: And do you have to put that show on the air when they decide they want it on the air on U.S. networks?
1025 MS WILLIAMS: I don't have to but I would be crazy not to because I will get the simulcast out of it.
1026 COMMISSIONER KATZ: But you are driven by them, you are driven by their scheduling?
1027 MS WILLIAMS: Right. And what I will hope, frankly -- and this is what needs to be remembered with this whole little simulcast game that is thought of to be our privilege, I think has been the word used sometimes -- I will hope that they don't put it at the time that, you know, FOX is already running "House" or CBS isn't already running "NCIS," because then I'm stuck.
1028 MS SHIPTON: I would just add, the producers are not dealing with the same studio personnel that Barb is dealing with when she is buying foreign programming, they are dealing directly with the head of programming, Barb Williams of ABC.
1029 MS WILLIAMS: That's a good point. They are dealing with the network, they are selling to the network, the network owns the studio, we are buying from the studio. It's not that they all don't know each other and work somewhat cooperatively but they are different entities. So they are selling to the broadcaster, we are buying from the studio.
1030 [REDACTED]
1031 COMMISSIONER KATZ: I have a lot of financial questions but I still have one more studio question.
1032 I think I heard, Mr. Viner, you say at the start of this, or maybe it was Ms Williams, CTV is aligned with some studios, you are aligned with other studios for the most part, you are not aligned with Disney or whatever. Where is the competitive aspect of the purchasing?
1033 MS WILLIAMS: It is not complete. We have a significant deal with FOX, but it's not that we own all the product from FOX. In fact, one of FOX's biggest shows, "American Idol," happens to be on CTV. So we tend to be a big buyer of FOX and we control, if you will, a lot of the FOX product but not all of it. Likewise, CTV has a big ongoing relationship with Disney but we still do buy "Extreme Makeover: Home Edition" and "Brothers & Sisters" from ABC. So it's not that they are exclusive.
1034 COMMISSIONER KATZ: So if you have the better relationship with FOX, do you have the first right to the channels?
1035 MS WILLIAMS: [REDACTED]
1036 MR. PETER VINER: [REDACTED]
1037 MS WILLIAMS: [REDACTED]
1038 COMMISSIONER KATZ: [REDACTED]
1039 MR. PETER VINER: [REDACTED]
1040 MS WILLIAMS: [REDACTED]
1041 MR. PETER VINER: [REDACTED]
1042 MS WILLIAMS: [REDACTED]
1043 COMMISSIONER KATZ: So this notion that I keep reading about by other people saying that you and CTV and maybe City are bidding up the price of programming is not really true if you each have your own alignment with the studios?
1044 MS WILLIAMS: Well, you see, when a new show comes, though, [REDACTED] So there is a lot of product still. Even outside of those bulk deals, there is a lot of product that we will all be vying for in the heat of the moment.
1045 COMMISSIONER KATZ: [REDACTED] do you each know each other's deals?
1046 MS WILLIAMS: No. But if you know theirs and you would like to tell me --
1047 COMMISSIONER KATZ: [REDACTED]
1048 MS WILLIAMS: [REDACTED]
1049 MR. PETER VINER: [REDACTED]
1050 MS WILLIAMS: [REDACTED]
1051 MR. PETER VINER: [REDACTED]
1052 I mean, Vice-Chairman, it can work other ways, too. If for instance both of us have a hole Wednesday night at 10 o'clock we can get into an auction. So I don't want to disabuse you to think that there is never an auction.
1053 [REDACTED]
1054 COMMISSIONER KATZ: Okay.
1055 THE CHAIRPERSON: Len, [REDACTED]
1056 MS WILLIAMS: [REDACTED]
1057 THE CHAIRPERSON: [REDACTED]
1058 MS WILLIAMS: [REDACTED]
1059 Pete is exactly right, the real gain for the Canadian broadcasters happens after the U.S. networks have revealed their fall schedules, which happens just a couple of days ahead of the actual screenings, and it's only then you know where your simulcast opportunities are and those simulcast shows are what we really end up fighting over, especially if we both have the same hole in the schedule.
1060 [REDACTED]
1061 COMMISSIONER KATZ: Okay. Let me put back on my accounting hat. What is the story with Hamilton? I look at the financials of Hamilton [REDACTED]
1062 MR. PETER VINER: Well, I mean the basic underlying issue for Hamilton is weak ratings in a weak market, which is a very ugly intersection. There is more capacity in Ontario than there had been. The station's ratings have declined, and when I say there is more capacity, advertising demand has softened, so you have a big expensive legacy station.
1063 COMMISSIONER KATZ: But it was this bad back in 2006 when the economy was somewhat vibrant.
1064 MR. PETER VINER: Exactly. Exactly. So, you know, we have been late in coming to the decision to get rid of it but, as you know or you might sense, this is a station that is about 50 years old, loved by the community, its news ratings are pretty decent, it's one of the few things in that market that they have [REDACTED], and they are passionate about it. And we did everything -- we are doing everything and we did everything possible to keep it alive.
1065 COMMISSIONER KATZ: To what extent was the local obligations on that channel a driver for increased cost? I think this had an awful lot of local programming.
1066 MR. PETER VINER: It did. It did but, you know -- that is a factor but the real factor is a weak advertising market and weak ratings.
1067 COMMISSIONER KATZ: There is just too much competition in that market basically?
1068 MR. PETER VINER: Yes.
1069 COMMISSIONER KATZ: Regardless of whether the market is vibrant or --
1070 MR. PETER VINER: [REDACTED]
1071 COMMISSIONER KATZ: Yes. Because I look at 2006 and it was just as bad as it was in 2008 and 2006 was a very strong economy.
1072 MR. PETER VINER: [REDACTED]
1073 COMMISSIONER KATZ: Okay. We have here -- I think you have here -- you filed on February 23, 2009 with your licence renewal 2009 current year and year one 2010 forecasts, I guess.
1074 We are now into the second quarter and I don't know whether these were forecast current year 2009, as you called them, or whether they are the end of Q1. Do you know what I'm looking at?
1075 MR. AKMAN: Yes. Can you just hold it up?
1076 COMMISSIONER KATZ: It has two columns on it.
1077 MR. AKMAN: Okay. The document you are looking at was prepared after we had completed our first quarter of 2009. Subsequent to that we filed with you an update for what we expected 2009 to look like given our Q2 results and in those three months the revenue picture deteriorated further. We managed to make up for some of it in cost savings but overall we are presenting a bleaker picture three months hence.
1078 COMMISSIONER KATZ: Yes, and I guess what I'm also looking at here is something with six months of actuals and six months of forecast.
1079 MR. AKMAN: Right.
1080 COMMISSIONER KATZ: And it has a [REDACTED] drop in national sales, to the extent that it goes down by about [REDACTED] percent in the first six months to the last six months.
1081 MR. PETER VINER: Mr. Katz, are you looking at CH? Is that what you are looking at?
1082 COMMISSIONER KATZ: I'm looking at the total.
1083 MR. AKMAN: It's a timing question between the first half and the second half.
1084 MR. PETER VINER: Errol, do you want to have --
1085 COMMISSIONER KATZ: Basically to make sure we have the same numbers, I'm looking at something that has $[REDACTED] of revenue in the first six months actual and $[REDACTED] forecast for the last six months.
1086 MR. DA-RE: Yes, I can try and address this. The first five or six months of the year were not terrible. They weren't great obviously but I think with the recession it really took effect in November and December, which affected all of the spring plans and the spring plans for conventional television have gone downhill big time like we have never seen it before.
1087 So every 4 to 5 weeks we seem to be looking at the re-forecast and I think for the "E!" stations they are more significant in terms of the drop versus where we thought they would finish.
1088 For Global it is actually holding its own. I mean it has dropped versus a year ago, but in effect if we take a look at the TSS reports, which is our only gauge looking at the competitors, we are actually doing quite well with our Global stations versus the competitors. But --
1089 MR. PETER VINER: Excuse me, Errol. You should explain what that is, what that report is. Thanks.
1090 MR. DA-RE: Sure. The TSS reports --
1091 COMMISSIONER ARPIN: We know very -- we are getting it every month.
1092 COMMISSIONER KATZ: I guess the reason I raise this issue is because the first six months is roughly [REDACTED] percent, a little bit more than [REDACTED] percent of your 2008 actual, and I don't know if there is a cyclical pattern to your revenues coming in or not but if I assume they are not, then the first six months of 2009, which is September 1, 2008 until February 28, 2009, pretty well ran consistent with the 2008 numbers and then there is this big drop.
1093 So I sit there and I go this is because of the economy, not a structural issue. Because what has happened is that you have now caught up to the economic issue that we are facing right now in the world.
1094 MR. AKMAN: One of the things that we can furnish you with is the first six months of 2008.
1095 COMMISSIONER KATZ: Okay.
1096 MR. AKMAN: That might help the story a little bit. There also is a cyclicality. The first half is typically stronger.
1097 COMMISSIONER KATZ: Why don't you give me the number just so we have it and maybe I will follow up with a question. What was your first six months 2008 actual national times sales that corresponds to this $[REDACTED] for 2009?
1098 MR. PETER VINER: Yes, we will look for that and just if I can add.
1099 Generally, as you know as a consumer, pre-Christmas is a stronger period than any other time of the year and if you are a manufacturer or a retailer and you don't advertise pre-Christmas you don't have any kind of a year. But after that, if the cash register hasn't rung or you're feeling the inventory is too high, you cut back.
1100 So generally speaking, pretty much if you are in the retail or manufacturing game you are in pre-Christmas, but you have the option to throttle back for the back half of the year and that is what has happened.
1101 MR. DA-RE: If I can just jump in, I just quickly did the calculation. For the first six months we are looking at about -- I think it was $[REDACTED] and the forecast for the last six months is about $[REDACTED].
1102 COMMISSIONER KATZ: Okay.
1103 MR. AKMAN: I feel compelled to add that we don't have confidence that when the economy returns to whatever level of strength it will return to that our customers' business plans will return to what they were before the recession. We are sitting here today with a very different business plan from what we had a year or two years ago and we are never going to go back. We are never going to spend as much on marketing as we used to. So it's hard for us to have confidence that our customers will do the same, will do any different.
1104 COMMISSIONER KATZ: But that being said, it stands to reason then that you would find a way of restructuring your business in order to recognize the fact that things may not go back to where they were and there might be a one-time cost to change how you do things, how you buy or whatever.
1105 MR. AKMAN: And what we have done to address that over the last two years or so are the Alliance Atlantis synergies, the digital news savings that Chris described, the cost-cutting that Pete mentioned earlier, about $[REDACTED] a year and we are going to shut down or sell the "E!" Network.
1106 The combination of all of those exceeds [REDACTED] dollars and you can't keep doing that. We are sort of at a point now where we are not sure what the next rabbit is.
1107 MR. PETER VINER: [REDACTED]
1108 [REDACTED]
1109 MR. DA-RE: If I can just quickly --
1110 COMMISSIONER KATZ: Sure.
1111 MR. DA-RE: Two points on this cyclical versus the structural nature. I think it is a bit of both.
1112 Since 2003-2004 broadcast year, our conventional revenue has decreased by 20 percent since that period. Since 1995 -- and I think Cathy has the same numbers -- the conventional audience in top 10 programs has declined by almost 50 percent.
1113 So in the advertising business it takes a little bit longer for the clients and for the advertisers to come on board and see that trend but that trend is certainly here now. But it has been happening for the last 4 to 5 to 6 years in the conventional world and we have a heck of a lot of competition right now that we didn't have 10 years ago with all of the specialty channels, and not just the specialties but some of the over-the-air conventional channels that have been launched. So the fragmentation just continues.
1114 COMMISSIONER KATZ: Could I just ask you for one undertaking as well. Can you file with us, going back five years, the percent of revenues that come in each of the quarters, just so we understand the cyclical nature of your business going back five years?
1115 MR. PETER VINER: (Off microphone / Sans microphone). Weak quarter in the summer and -- and the summer is the weakest quarter and you have a weak quarter January/February.
1116 COMMISSIONER KATZ: Just so we can see it over a five-year period.
1117 MR. PETER VINER: Yes.
1118 COMMISSIONER KATZ: The last question I have and it is more of a numbers question.
1119 Paris, Ontario, which is where your regional Ontario office is, I guess, if I look at this 2008 financial page it appears as though the salary as a percent of operating expense is very, very low and it has been for each of the years. It is [REDACTED] percent relative to the other markets where it is [REDACTED] percent.
1120 Are there more junior people there? Is there an anomaly there?
1121 MR. PETER VINER: We have nobody in Paris, which is just outside of London, to make it more interesting. That is just a transmitter site.
1122 COMMISSIONER KATZ: Okay. So it is not a body issue here, it's just a --
1123 MR. PETER VINER: No.
1124 COMMISSIONER KATZ: Okay. Thank you.
1125 THE CHAIRPERSON: Michel...?
1126 COMMISSIONER ARPIN: I only have one question and it is: If the "E!" channels and the "A" stations were to go dark, where will that money go? Will it be beneficial for you?
1127 MR. PETER VINER: Yes, in part, it will. We estimate that we will keep or capture [REDACTED] to [REDACTED] percent of the "E!" revenue but that is because we have an advantage. [REDACTED]
1128 But we think that we will lose [REDACTED] percent of it to -- it will just be scattered. Some of it will go to CTV, some of it will go to Rogers, some of it will go to the online, to other specialties.
1129 But yes, when you reduce -- you know, our theory is reduced capacity will help.
1130 COMMISSIONER ARPIN: Yes. You are reducing the inventory.
1131 MR. PETER VINER: Yes, exactly right.
1132 COMMISSIONER ARPIN: Will it also help you increase your rate?
1133 MR. PETER VINER: [REDACTED]
1134 MR. DA-RE: If I can quickly jump in on that one.
1135 There is quite a difference in the rates for the "E!" stations than the Global stations. That's why we don't say that we can repatriate [REDACTED] or [REDACTED] or [REDACTED] percent. We have a certain price point on the Global stations and they are premium-priced and the "E!" stations are more priced like the specialty channels and that's why we think that, you know, we can probably repatriate [REDACTED] to [REDACTED] percent, but after that there is a big rate difference.
1136 COMMISSIONER ARPIN: Thank you.
1137 THE CHAIRPERSON: Candice...?
1138 COMMISSIONER MOLNAR: Thank you.
1139 I would like to refer to the same projections that Vice-Chair Katz was using for your financial projections, if you have them.
1140 I think that I am going to use -- given the discussion that has occurred around the "E!" channels and the ethnic station I would like to maybe just focus on Global. I would like to understand these projections a little better, the upside and downside risks that are associated with these projections.
1141 Can you tell me first, you have asked in this hearing for some licence changes and concessions, the standardization of the local commitments, removal of the conditions over priority programming and the use of independent production. Have you incorporated the impact of these changes into your financial projections?
1142 MS BELL: Yes, we did.
1143 COMMISSIONER MOLNAR: You did?
1144 MS BELL: Yes.
1145 COMMISSIONER MOLNAR: Could you tell me what is the amount that you have incorporated?
1146 MR. AKMAN: Sure. For the Global stations in the first year, which we estimate a [REDACTED]
1147 COMMISSIONER MOLNAR: Let's use the full year.
1148 MR. AKMAN: Okay.
1149 COMMISSIONER MOLNAR: So if you go to -- what would that be, 2010?
1150 MR. AKMAN: Sure. It would be 2011.
1151 COMMISSIONER MOLNAR: Okay. I only have projections for 2009 and 2010.
1152 MR. AKMAN: Right. So for fiscal 2010, which starts in September, we have assumed a [REDACTED] but it is approximately a revenue decline of about $[REDACTED] because we are going to be producing less news, therefore we have less of that inventory to sell, offset by cost reductions of $[REDACTED], for a net improvement to the profitability of about $[REDACTED] annually.
1153 COMMISSIONER MOLNAR: So that is a potential downside risk to these projections if this flexibility is not granted.
1154 MR. AKMAN: That's correct.
1155 COMMISSIONER MOLNAR: Did you incorporate the 1 percent LPIF into these projections?
1156 MR. AKMAN: No.
1157 COMMISSIONER MOLNAR: You didn't?
1158 MR. AKMAN: No.
1159 MS BELL: No.
1160 COMMISSIONER MOLNAR: Okay.
1161 MS BELL: When we filed them we assumed we didn't have access to it. When we filed those reductions, yes.
1162 COMMISSIONER MOLNAR: Okay.
1163 MR. AKMAN: Can I offer a couple of other upsides and downsides that exist just with the environment?
1164 COMMISSIONER MOLNAR: M'hmm. And we have talked about the advertising.
1165 MR. AKMAN: [REDACTED]
1166 MS WILLIAMS: But to Commissioner Arpin's point about if the "E!" stations and/or the "A" stations were to go dark, you have to remember that primetime programming is a finite world. There are five U.S. network schedules. Only three of them now going forward will actually do 10 o'clock shows now that NBC is putting Jay Leno at 10. So there is a finite number of hours of primetime shows that will be sold into this market.
1167 In the past number of years we have had more network schedules in Canada chasing fewer network schedules in the U.S., so it has put enormous pressure on that good old supply and demand equation. To the extent that any of the network schedules in Canada are no longer in the foreign game we will more equal that supply and demand equation and that should help that price correction that we are hoping will come.
1168 MR. AKMAN: That is cause for hope.
1169 COMMISSIONER MOLNAR: Right. But some of that is under your control with the "E!" channels, whether you are in the foreign game.
1170 MR. PETER VINER: Well, yes. Yes, that's true -- yes, and that's why we are doing it.
1171 COMMISSIONER MOLNAR: I assume you have some sort of transition strategy, exit strategy. I mean if it is causing your corporation downside risk because of the potential higher cost and you can control whether you are a player in the game, I would think you can control that risk.
1172 So do you believe -- what would you say is the size of the potential risk on foreign programming?
1173 MR. AKMAN: For 2010? Barb, I'm going to guess there is at least $[REDACTED] of risk in that number.
1174 MS WILLIAMS: [REDACTED]
1175 MR. AKMAN: [REDACTED]
1176 MS WILLIAMS: Yes.
1177 MR. PETER VINER: I mean I think there are things that aren't in our control. For instance, City has stated that they are going to be rebuilding their program schedule and the way they will do that, and they have done it already by buying and stripping Jay Leno at 10 o'clock. The way they will do that is through foreign acquisition.
1178 COMMISSIONER MOLNAR: Okay, fair enough. Is there anything else you would like to share as significant upside/downside risk to the projections that you provided us?
1179 MR. AKMAN: Other than the lack of profitability on the top line, the airtime revenue, I think everything else is fine.
1180 COMMISSIONER MOLNAR: Okay.
1181 THE CHAIRPERSON: Since the newspapers talk about it, following up on Commissioner Molnar's question, will the CCAA filing have an impact on either your sales or your advertising revenue?
1182 MR. PETER VINER: [REDACTED]
1183 THE CHAIRPERSON: [REDACTED]
1184 MR. PETER VINER: [REDACTED]
1185 [REDACTED]
1186 THE CHAIRPERSON: All right. Thank you.
1187 COMMISSIONER MOLNAR: That's fine. I also want to talk about free cash flow and potential risks on that and potential uses of that, because you mentioned in, I guess it was 2008, [REDACTED] percent free cash flow.
1188 MR. AKMAN: For the Global Network, yes.
1189 COMMISSIONER MOLNAR: I would like to know whether or not you have already projected the costs of the digital transition into your financial projections?
1190 MR. AKMAN: They are not in the 2010 forecasts that you are looking at. When we do our five-year planning and take out our crystal balls we have to put something in there.
1191 COMMISSIONER MOLNAR: Yes. So you invested $[REDACTED] last year in capital. And I would like to point out before I don't have the microphone that I would like to congratulate you on your digital news program. Those initiatives that drive efficiencies and improve quality at the same time, I think you should be congratulated on that.
1192 MS McGINLEY: Thank you.
1193 COMMISSIONER MOLNAR: But that is part of the $[REDACTED]. As we go forward and you make the digital transition, have those costs been factored into your cash flow estimates going forward?
1194 MS McGINLEY: Sorry. They are sitting in our capital long-term planning. So we have provided for the strategy that we have presented, which are the 15 transmitters, is in our capital plan, but it is not sitting in the income statements that you have in front of you.
1195 MR. AKMAN: Nor has it been approved by anybody who can approve such expenditures.
1196 COMMISSIONER MOLNAR: When would you need to begin this activity to be ready? I mean it is a capital investment.
1197 MS DARLING: First of all, we already have started the process with three transmitters operational in Toronto, Vancouver and Hamilton and two more are in progress to be lit up within the next month in Calgary and Edmonton. So in our plan to complete the rest of our 15 we have to proceed next year in order to be ready by August 31, 2011.
1198 COMMISSIONER MOLNAR: Right. I want to make sure when I'm looking at these years I'm using the right year. When you say next year, that would be --
1199 MS DARLING: Commencing at the beginning of our fiscal year, in September 2009. So we will be working very hard on this. We have already started working very hard on this. This is a long lead time game that we are in terms of placing orders and getting in the queue for installations.
1200 COMMISSIONER MOLNAR: Right. Forgive me if I cross the line here but we know that there are a lot of priorities for cash today within the Canwest family. You brought up the issue that there is a pretty thin cash flow margin with conventional television today.
1201 As we looked at these upsides and downsides, the potential cash flow margin going into next year gets tight and I would like to know how we could have assurance that commitments made for digital transition can in fact proceed. You mentioned they weren't approved yet.
1202 MR. PETER VINER: Perhaps I can answer that.
1203 [REDACTED]
1204 [REDACTED] in order for us to be competitive and in order for us to meet our licence commitments we will have to be HD and that will be factored in by the new capital, if I can call it that.
1205 MS DARLING: Perhaps I can just add that we are stretching our engineering minds to find all kinds of clever ways to save money with this implementation and do it really cost effectively. Certainly as I was speaking to the issue of contours the other day, that is a very important consideration for us.
1206 COMMISSIONER MOLNAR: [REDACTED]
1207 MR. PETER VINER: [REDACTED]
1208 COMMISSIONER MOLNAR: So if we make a commitment that you put one -- because you suggested to us that it would be one transmitter per originating station.
1209 MR. PETER VINER: That is our current plan, yes.
1210 COMMISSIONER MOLNAR: That is your plan. So if we make it a commitment it is easier to ensure that the monies are put directly to that?
1211 MR. PETER VINER: Yes, absolutely. Yes, I don't see -- I don't have a choice. I don't feel that this is an option I have, to be honest. So if you want to put it and ensure that I don't have an option, I can't see how I could object.
1212 COMMISSIONER MOLNAR: Okay. Thank you. Just before I leave I want to talk about one potential upside that I thought of and see what your thoughts were on it and that was FreeSat. I know that there are some -- there are some questions and there are potential risks but I don't know if you have incorporated in here any upside, for example, for distant signals. Are they in here?
1213 MR. PETER VINER: No, they are not.
1214 COMMISSIONER MOLNAR: No,
1215 MR. PETER VINER: Nor are Part II fees, nor are other things that we hope might happen but we are trying to operate this -- you know, all surprises are pleasant.
1216 COMMISSIONER MOLNAR: Right. Well, in the other one that I -- it occurred to me when I heard Bell here yesterday because I heard you as well as CTV saying that there is a significant cost of not being on the bird, and they are proposing to put 30 to 40 more local stations onto their satellite as part of FreeSat.
1217 MS DARLING: Can I just speak to that, because over the last 24 hours I have been looking to get an understanding of what exactly they are proposing.
1218 The local signals -- from my understanding the local signals that they are looking at picking up they will be putting on the KA spectrum of their Nimiq 4 satellite. So we have to be careful that we don't assume that all the current Bell subscribers can see these local stations.
1219 A different dish is required, a different receiver is required, so they are clearly targeting the small population that are looking for another option to receive local stations. So we still have an issue in terms of how do we address getting our local services in to the big base of customers and certainly getting them in and in HD format as time goes on is also really important.
1220 What it might do for us that we are looking at is providing an option for small cable systems to also receive this package but we need some more time to take a look at it. But I just want to make it clear that getting local signals to the broad population is not part of this plan.
1221 COMMISSIONER MOLNAR: Thank you, because I didn't understand that from hearing them. I thought that was a potential.
1222 MS DARLING: The other thing to just add to that is that it is being designed as a solution outside of the major markets because the dish that is required to receive KA band signals is bigger than the typical ExpressVu dish.
1223 MS BELL: I think the other issue I just wanted to say and I won't say anymore about it, but just to be clear on the FreeSat, we are nowhere near the -- I mean we find it interesting and there are some good points to it. There are a lot of downsides, too, with -- I mean they have tied everything to this. You know, if we lost distant signal revenue [REDACTED] We have to look at it really carefully. I wouldn't assume there is definitely an upside there. I think we are being cautious.
1224 MR. PETER VINER: Yes, you know, could be.
1225 COMMISSIONER MOLNAR: Okay, thank you. Those are my questions. Thank you.
1226 THE CHAIRPERSON: Rita...?
1227 COMMISSIONER CUGINI: Just very quickly, just so I understand the change in condition of licence from Global Ontario to make it a Toronto station. There are no news bureaus anywhere in Ontario other than Toronto, are there?
1228 MR. REEB: We have a significant bureau here in Ottawa, though it is largely geared to the national news and our national news actually originates from Ottawa. This is where the anchor is.
1229 COMMISSIONER CUGINI: That goes against Global Ontario obviously.
1230 MR. REEB: No, sorry.
1231 COMMISSIONER CUGINI: Just those bureaus that are attributable to your Global Ontario licence.
1232 MR. REEB: No, we have no dedicated bureaus other than we maintain freelance assets in a number of markets.
1233 COMMISSIONER CUGINI: You maintain -- I'm sorry, I didn't hear you.
1234 MR. REEB: We have freelancers who are attracted to us in markets around Ontario in case news breaks.
1235 COMMISSIONER CUGINI: Okay. And would you keep those freelancers if we were to change your designation from an Ontario station to a Toronto station?
1236 MR. REEB: Yes, I think we would because, as I say, in many ways, to be quite honest, we operate as if it's a Toronto station now if you have watched it, but at the same time we recognize that in serving the Toronto market we are also serving a broader Ontario market and there are stories in broader Ontario that are of interest not only to our national audience but the Global Ontario audience.
1237 COMMISSIONER CUGINI: So changing the designation won't result in any savings, in other words?
1238 MR. REEB: No.
1239 COMMISSIONER CUGINI: Okay. Now, in terms of revenue when I look at the financial projections filed for Global Ontario, you don't project any increase in local time sales. There just isn't any in 2009 and there aren't any in 2010?
1240 MR. DA-RE: I can try to answer that.
1241 COMMISSIONER CUGINI: So if we were to change the designation you would now be able to access local sales, local ads, and there aren't any in your projections?
1242 MR. DA-RE: Right. When we look at the Ontario market Global Ontario represents about [REDACTED] percent of the Global revenue that we bring in from across the country and as such the rates that we charge are probably [REDACTED] percent higher than what a local over-the-air conventional station would charge in Toronto alone for local advertising.
1243 [REDACTED]
1244 [REDACTED]
1245 COMMISSIONER CUGINI: Okay. Thank you very much. That's it.
1246 THE CHAIRPERSON: Okay. Peter, clean-up man.
1247 COMMISSIONER MENZIES: One quickly and then another one that is a little longer.
1248 Has the digital transition -- has digital made the chances of asymmetrical substitution anymore likely or is that a reasonable thing to look at?
1249 MS BELL: Are you talking about non-simultaneous substitution?
1250 COMMISSIONER MENZIES: Yes.
1251 MS BELL: I'm not sure it changes. There are other issues with nonsimultaneous substitution. Yes, I don't think it changes.
1252 COMMISSIONER MENZIES: If you don't have an answer that's fine, I was just curious to know.
1253 MS BELL: No, I don't think there is any change.
1254 MS DARLING: I just want to say technically I don't think there are any barriers.
1255 COMMISSIONER MENZIES: Technically there aren't the barriers. I mean I know there are other issues --
1256 MS DARLING: No.
1257 COMMISSIONER MENZIES: -- but technically there aren't any barriers. Okay. That's really what I needed to know.
1258 Now, in going through this, Mr. Viner, you note that if the East changed you thought that you could recapture about [REDACTED] percent of that, [REDACTED] to [REDACTED]. So there is $[REDACTED] in revenue. So there is maybe another $[REDACTED] --
1259 MR. AKMAN: Last year. Last year. We are currently forecasting about $[REDACTED], $[REDACTED] of revenue.
1260 COMMISSIONER MENZIES: Okay. Whatever it is --
1261 MR. AKMAN: Yes.
1262 COMMISSIONER MENZIES: -- it's the percentage that I'm more interested in.
1263 MR. AKMAN: Yes.
1264 COMMISSIONER MENZIES: So if you did that, I mean if they went away you are going to save $50 million in costs and you have $[REDACTED] or $[REDACTED] in revenue that you might recover. [REDACTED]
1265 So I'm just trying to -- what I'm trying to get at is this rush in the last few years, CTV and Global, to look at creating a second conventional network, whether it is "E!" or "A" or that sort of stuff. Obviously something went terribly wrong along the way and everything has changed.
1266 Isn't that the core of the problem? If the herd was culled today, I mean if the market was allowed to follow its -- nature follow its course and these stations go their way, it is going to take a huge burden off you. It is going to open up -- you are not going to recapture all the revenue, but you are going to recapture more of it and just within that context I'm wondering why we are all standing on our heads talking about funds and LPIFs and all that sort of stuff.
1267 MR. PETER VINER: Thank you for the question. I don't think you can ignore the fact that audiences, as you have just heard, have declined in prime time, the top 10 where there is kind of a power ratio in terms of its ability to generate money by about 50 percent, and advertising has gone down in that pool that is available by 20 percent.
1268 Both the "A" tier and the "E!" tier are weak players and the system will be better off without it. In no way is that a remedy in any way and in fact, you know, one of the issues with "E!" and I suspect will be with "A" is [REDACTED]
1269 COMMISSIONER MENZIES: I can understand those being genuine concerns for you, I was just trying to look at it from a systemic point of view in the long term. It would be better to have fewer players rather than more?
1270 MR. PETER VINER: There is no question and that is part of our rationale, let's reduce the capacity. In fact for us, you know, we want to be back to major market television with one big brand but the only way that even works is if we have the kind of synergies and leverage afforded by a very good portfolio of cable networks. I would think -- especially networks, yes, sorry.
1271 I mean that is the way in which we can continue to have a -- if not healthy business, viable business and that is exactly where we see it going. But we see the trends in terms of audience decline and advertiser interest declining in conventional. You know, it is happening all over the world, it has been happening for some time, so there is no reason to believe that that direction will be interrupted.
1272 MR. AKMAN: The other factor with shutting down "E!" is there is no windfall for Global. If we were to show you our forecasts for Global in 2010 without "E!" we would estimate that at the bottom line there would be no change because whatever you recoup on the revenue side gets consumed by shared costs that you cannot eliminate. You still need a master control.
1273 COMMISSIONER MENZIES: I appreciate that in the short term those are enormous issues. I just was trying to move the question further ahead to -- I mean these licences run --
1274 MR. AKMAN: Taking out capacity, yes.
1275 COMMISSIONER MENZIES: These licences run for a long time and there are things that happen short term and there are things that need to happen long term in terms of structural transitions and that sort of stuff, so I was just trying to get your views on that, because keeping all these things around in the long term may not be in everybody's best interest and it might help you deal with the producers a bit from time to time.
1276 MR. AKMAN: I think there is a question there: Can you remove capacity from the system at the same rate as ratings and revenues will continue to fall, because that is what they are going to do?
1277 COMMISSIONER MENZIES: That is a good question. It is a different discussion. It is late in the day, I will let you go. Thanks.
1278 MR. REEB: Can I just make one additional comment on that, and that is that if you are looking at it through the prism of local television, three of the "E!" channels, Hamilton, Kelowna and Victoria, you could travel across the country and be harder pressed to find three stations which are more deeply ingrained in their communities.
1279 They are longtime heritage stations and I'm sure all of you have e-mails in your inboxes from community groups and people in Hamilton, Kelowna and Victoria who are desperately concerned about the futures of their local station. By the community service measure of success these are three of the most successful local television stations in the country. Yet, you can see what the numbers are.
1280 So if by that definition of community service they can't be successful financially it speaks to a much larger problem in the system as a whole.
1281 THE CHAIRPERSON: Okay. I think we need no further discussion, I think we have discussed everything.
1282 I have one question and one observation for you, Mr. Viner.
1283 [REDACTED]
1284 MR. PETER VINER: [REDACTED]
1285 THE CHAIRPERSON: Okay. Well, thank you very much for these in-camera discussions. I think they give us a better idea of where you are going, what challenges you are facing. Ms Williams, I especially thank you for walking me through the intricacy of contract negotiations with Hollywood, which we were ignorant of.
1286 Now, when we started off this hearing you will remember I gave you these numbers here on fee for carriage and I expect to get something back from you just so we know we are all talking the same thing. You have put the fee for carriage forward basically as a panacea to everything. We haven't talked about it here because we twice went into it and it is becoming a bit of the dialogue of the deaf.
1287 As I mentioned at the outset, the way that CBC looks at it, there are three different issues: like the subsidy for local programming which would be done through LPIF or a mechanism like that, it is a subsidy issue; a system integrity issue, which obviously if you wanted to address it, it has to be through regulatory means; and then also the whole issue of you being compensated for the value of your product.
1288 The way you approach it is you want us to set a rate to solve your problems. That is what all the submissions have been so far and I wonder whether you shouldn't try to think of it differently.
1289 This is really something that you have to negotiate with the BDUs and maybe you need regulatory help in order to do decent negotiations so that you approach the issue with equal leverage, et cetera. We can talk about that or it may be a negotiation which leads nowhere and winds up in arbitration before us and basically both of you come forward with a number and we pick one of the two.
1290 But I think we need a different approach to this whole issue. We will have to revisit it obviously before 2010 but I would encourage you very much to not try to come forward with a reiteration of the old, which we have now twice turned down, but look at it from in effect these are three different categories and how do we deal with them and how we view them as an industry solution and if necessary it will be sanctioned by us rather than as it is right now, basically asking us to find a rate and impose it.
1291 MR. PETER VINER: Well, thank you for that. I appreciate the group's interest and engagement.
1292 THE CHAIRPERSON: I left the same message with CTV, so you will hear further from them and I really think that is the way to go forward.
1293 MR. PETER VINER: I think both of us would welcome your intervention, if I can call it that, or your offer to use your offices, because the reality is we have no leverage with the BDUs. They completely dominate us and we are so interdependent, but suddenly you are on channel 200, suddenly you don't get your network deal renewed for a specialty channel, suddenly things slow down on distant signal.
1294 You know, we may well -- I think the only possible way we can arrive at any kind of a fair and equitable solution is through your offices. I don't think we have a prayer doing it on our own.
1295 THE CHAIRPERSON: As I say, I don't expect you to answer now, I just would like you to --
1296 MR. PETER VINER: No, no, I'm just making that observation.
1297 THE CHAIRPERSON: -- keep in mind the approaches from that area and see if we want to get it through that way, what do we need, what needs to be done, et cetera.
1298 MR. PETER VINER: Yes. And I appreciate your offer to help. We are going to need it.
1299 THE CHAIRPERSON: Okay. Then let's review the undertakings and then we have to go on record just for 2 seconds in order to say the day is over.
1300 Mr. Millington...?
--- Laughter
1301 MR. MILLINGTON: Thank you, Mr. Chairman.
1302 I have six undertakings, three from the public portion and three from the in-camera portion.
1303 The first from the public portion of the hearing this afternoon is file the appropriate level of programming overlap between CHAN and CHEK, and again with respect to CIII and CHCH.
1304 The second one is provide details with respect to CJNT as to how the Canadian content requirements have been corrected.
1305 Third was to provide your views on the Bell FreeSat proposal.
1306 Then from the in-camera session, file in confidence the 2008 free cash flow. I think we talked about both the actuals for 2008 and the 2009 projections.
1307 File the PBIT numbers for 2008 through 2012 for the Global and "E!" channels along the lines of what was discussed with respect to CTV.
1308 And finally, the percentage of revenues by quarter going back five years.
1309 We would ask you to provide those answers to us with your reply or sooner and we just want to remind you that we have given you the option of an oral or written reply but you would need to tell the Hearing Secretary -- or both -- which one you plan to do.
1310 MS BELL: We can tell you now it will be written. And the deadline is...?
1311 MR. MILLINGTON: May 11.
1312 MS BELL: Okay. All right.
--- Upon recessing at 1656, to resume in public immediately
REPORTERS
____________________ ____________________
Johanne Morin Monique Mahoney
____________________ ____________________
Jean Desaulniers Fiona Potvin
____________________
Sue Villeneuve
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