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TRANSCRIPT OF PROCEEDINGS BEFORE
THE CANADIAN RADIO-TELEVISION AND
Policy proceeding on a group-based approach to the licensing of television services and on certain issues relating to conventional television
140 Promenade du Portage
November 19, 2009
In order to meet the requirements of the Official Languages
Act, transcripts of proceedings before the Commission will be
bilingual as to their covers, the listing of the CRTC members
and staff attending the public hearings, and the Table of
However, the aforementioned publication is the recorded
verbatim transcript and, as such, is taped and transcribed in
either of the official languages, depending on the language
spoken by the participant at the public hearing.
Canadian Radio-television and
Policy proceeding on a group-based approach to the licensing of television services and on certain issues relating to conventional television
Konrad von Finckenstein Chairperson
Michel Arpin Commissioner
Len Katz Commissioner
Rita Cugini Commissioner
Elizabeth Duncan Commissioner
Suzanne Lamarre Commissioner
Timothy Denton Commissioner
Candice Molnar Commissioner
Stephen Simpson Commissioner
Jade Roy Secretary
Stephen Millington Legal Counsel
Jeff Conrad Hearing Manager /
140 Promenade du Portage
November 19, 2009
- iv -
TABLE OF CONTENTS
PAGE / PARA
Corus Entertainment Inc. 853 / 4791
Canadian Film and Television Production Association 915 / 5133
V Interactions inc. 973 / 5435
Canadian Association of Broadcasters 1031 / 5745
- v -
ERRATA / ADDENDA
November 16, 2009
Page 281, Para 1696
"stricten" should be "strengthen"
--- Upon resuming on Thursday, November 19, 2009 at 0910
4782 THE SECRETARY: Good morning, everyone. I wish to announce that we are going to start a little later today, around 10 minutes later.
4783 J'aimerais annoncer que la Commission sera en retard d'une dizaine de minutes ce matin. On va donc débuter l'audience vers 9 h 10. Merci.
4784 THE SECRETARY: Order, please. À l'ordre, s'il vous plaît.
4785 THE CHAIRPERSON: Good morning. Bonjour.
4786 Madame la Secrétaire, commençons.
4787 LA SECRÉTAIRE : Merci, Monsieur le Président.
4788 I would like to remind everyone when you are in the hearing room I would like to ask you to please turn off your cell phones and BlackBerrys and not only put them on vibration mode as they cause interference in the internal communications used by the interpreters. Thank you very much.
4789 We would now invite Corus Entertainment Inc. to make its presentation.
4790 Appearing for Corus is Mr. John Cassaday. Please introduce your colleagues and you will then have 20 minutes to make your presentation.
4791 MR. CASSADAY: Thank you.
4792 Good morning, Mr. Chairman and Members of the Commission. My name is John Cassaday and I am the President and Chief Executive Officer of Corus Entertainment.
4793 With me today are:
4794 - Sylvie Courtemanche, Vice-President, Government Relations;
4795 - Paul Robertson, who is the President of our Television Group;
4796 - and Gary Maavara, our Vice-President and General Counsel.
4797 Corus appreciates the opportunity to take part in this proceeding. We agree with you, Mr. Chairman, that this is a hearing about the future. In the next licence term of our services, broadcasters will need to adapt and compete in a radically different environment than that which existed just a few years ago.
4798 Our focus today will be on specific recommendations concerning group-based licensing. Our comments suggest that the Commission should adopt a balanced approach recognizing the unique contributions of each segment of the industry to the goals of the Broadcasting Act. We believe our proposals can help ensure that our system evolves successfully but not at each other's expense.
4799 We know the Commission understands that the fundamental question we all face is how we continue to provide Canadians with programming services that tell Canadian stories in an environment where digital technology enables a seamless flow of global content.
4800 Corus appears before you today as a successful conventional broadcaster as well as a successful participant in specialty and pay TV. We also successfully operate some of the most popular radio stations across Canada.
4801 All Corus services provide Canadians with popular high-quality programming of virtually every genre. The best in Canadian drama is produced and programmed on our channel, as are virtually all other genres.
4802 Corus is also one of Canada's largest content producers and exporters. We are also equity participants in television networks around the world. Our goal is to continue to grow and be seen as a great Canadian company.
4803 In our written submission we made the point that audience fragmentation, technology, the economy and varying competitive responses have brought us to an inflexion point. Some of our competitive responses to changing conditions have not always been successful. We accept the fact that we should not be rewarded for our mistakes. We respond to the actions of our competitors in the marketplace and not through regulatory intervention.
4804 All advertising-dependent services are challenged in this environment. PricewaterhouseCoopers forecasts essentially zero, in fact slightly negative growth in the specialty and television advertising market over the next five years. So the television ad market is not expected to grow, and more competition, more inventory and more types of competitors will not likely enlarge the pie.
4805 We learned this in the Quebec market. The introduction of the Quatre Saisons network did not grow the advertising market and it ended up hurting both the television and radio industries in that province.
4806 In the midst of all of this audience and revenue fragmentation, we must cope with digital conversion, while the specialty sector faces disruptive change in the new digital distribution environment, with potentially lower penetration and reduced revenues.
4807 So the first point that we would make in this is the group-licensing framework should be principles-based not rules-based. Flexibility to nimbly respond to change is what we need to compete with other non-regulated platforms and services that fragment the audiences and revenues needed to support Canadian programming.
4808 Expectations and obligations based on historical precedent only ensures a continuation of the current crisis mentality in the Canadian broadcasting system, which in turn is fostering cynicism on the part of our audiences, animosity between programmers and distributors, and a risk of a rush to the exits by the advertisers who are the foundation of the system.
4809 We recognize that an important issue in this process is related to conventional broadcasting. The Corus position is on the record on this point, so we will limit our comments in this regard.
4810 We are, however, concerned about the potential outcomes of any form of incremental payment to stations.
4811 A price increase on consumers could have a trickle-down effect and cause them to trim their channel line-ups to save costs. Absent that, some may decide to exit the system altogether and use other technologies to access the programming they want to see.
4812 Absent a price increase to consumers, the BDUs could seek to recoup from other services. The BDUs have made this clear, even the ones who support a new regime.
4813 The skinny basic system advocated by some could serve to deprive all elements of the system of some proportion of the audience and the resultant revenue pool.
4814 No one is certain what will happen but it is clear in our view that any monetary decision made as a result of this hearing will be noticed by all Canadians.
4815 MS COURTEMANCHE: The second comment we would like to make is that we understand and empathize with the private conventional television sector.
4816 At the same time we do not believe that the solution lies in cross-subsidizing conventional television by establishing increased obligations in the new licence term on other system participants, thus ultimately challenging their growth momentum and contributions to the system.
4817 In this context, a one-size-fits-all approach to group licensing fails to account for the unique circumstances, challenges and contributions of each individual ownership group. Each group has a different mix of services serving different audiences in different markets with a unique mix of programming genres and obligations.
4818 However, Corus does support several elements of a group-licensing approach. We believe we have recommendations that can respond to the individual circumstances of each corporate group to which it will apply.
4819 Our written submission details our recommendations on group licensing, including issues related to revenue support for conventional broadcasters.
4820 This morning we would like to highlight our position on four specific group-licensing issues: first, Canadian content exhibition requirements; second, the group requirement for Canadian program expenditures; third, support for independent producers; and fourth, advertising rules for specialty services and BDUs.
4821 First, Canadian content.
4822 The Commission's model proposed a minimum overall average of 55 percent measured across all services owned by a corporate group, with a minimum of 35 percent for each individual service.
4823 Corus believes that a more tailored approach is needed to avoid the inherent unfairness of a single CanCon obligation for all services where different groups have widely varying portfolios.
4824 We recognize that it was probably not the Commission's intent but this model would create a strong disincentive to the launch of new Category B or pay services.
4825 As an example, under the Commission's hypothetical model, a group with a higher proportion of Category B services would be disadvantaged compared to a group with a higher percentage of Category A services.
4826 This would fly in the face of the Commission's conclusion last year that Category B services should have lower exhibition requirements since they do not enjoy the same access privileges and genre protection as Category A services.
4827 Instead of a single CanCon obligation across all services, Corus recommends the establishment of a unique requirement for each category of service owned and operated or owned by a corporate group: conventional, Category A, Category B and so on.
4828 For any given category the exhibition requirement would be set consistent with the general attributes of the service within that category.
4829 Specifically, we propose the following CanCon exhibition requirements:
4830 - for 9(1)(h) services, 100 percent;
4831 - for conventional televisions, 55 percent averaged across all stations owned by each group and with no additional rules for specific day parts such as peak viewing hours;
4832 - for Category A services, 50 percent across all services owned by each group;
4833 - for Category B, 35, again averaged across all services owned by each group;
4834 - and for pay television services, excluding pay per view and VOD, 25 percent for traditional movie channels and 20 percent for services such as our Encore service.
4835 This approach represents a harmonized regulatory requirement with inherent flexibility within each category of service, better reflecting the unique circumstances of individual corporate groups.
4836 A floor of perhaps 20 percent could also be established for each channel in a group.
4837 MR. ROBERTSON: Turning now to the matter of Canadian programming expenditures, Corus supports the principle of a single overall CPE requirement for each corporate group.
4838 Our view is that such a requirement could specify an annual minimum level of spending in absolute dollar terms on all Canadian programming broadcast on the conventional, specialty and pay services operated by the group.
4839 The additional spending requirements would be fixed for the entire licence term for each corporate group would be equal to the total actual expenditures on Canadian programming during the last year of the old licence term for all services owned by the group.
4840 We believe this approach has several advantages and we submit that it is in the public interest for several reasons.
4841 It creates considerable streamlining as it replaces the current system with a single group-based obligation based on spending of all services. The Commission would not have to establish, monitor and enforce detailed spending requirements for individual services as the total group spending would be monitored.
4842 For each group the CPE requirement would include spending on Canadian programming shown on conventional television stations and Cat B services, neither of which currently have a CPE requirement.
4843 It creates a stable, predictable minimum level of spending on Canadian programming over the next several years. In an environment of at best flat advertising growth and decreasing subscription revenues, a fixed-dollar model would effectively represent increased spending overall compared to a percentage-of-revenue model.
4844 While Corus has some unease committing to a fixed spending level in an unpredictable advertising and carriage environment, we feel that this approach is preferable to increases indexed to revenue. It provides planning certainty for Corus and for the entire system.
4845 Corus is convinced that this model for CPE expenditures is the right one for conventional and discretionary television services but whatever model is adopted, we must emphasize one critical underlying point.
4846 A CPE system where increasing profitability leads to increasing spending obligations such as the one we have at present for specialty is simply not appropriate. This is effectively a tax on success.
4847 The combination of flexibility of Canadian content and CPE spending will allow Corus to take a strategic approach to programming so we can create more programming for use across geographies and platforms.
4848 For example, we operate Encore. It is a replay service for library programming. Increased spending for library content doesn't enhance the interests of the Canadian broadcast system. It would, however, make sense to make greater investments in new content for other channels that we own and operate.
4849 MR. MAAVARA: Our third issue is the appropriate level of support for independently produced programming. It is our contention that there is no need for a specific exhibition or spending requirement for programming obtained from independent producers.
4850 The question we need to ask is how best to foster the creation of great Canadian content from all Canadian producers, whether independent or affiliated with Canadian broadcasters.
4851 Market supply and demand is sufficient to ensure a significant contribution from independent producers, meeting the Broadcasting Act objective without the need for Commission regulation.
4852 Nevertheless, Corus recognized that some producers fear the potential consequences of an immediate removal of existing requirements respecting the exhibition of independently produced programming.
4853 To allay those concerns, we would be prepared to conditionally support a group-licensing requirement that 50 percent of the Canadian content exhibited on all services within the group must be obtained from independent producers.
4854 Our support is conditional on the Commission not imposing a requirement that licensees enter into terms of trade agreements with independent producers. This is a business relationship that should not and need not be regulated by the Commission.
4855 All broadcasters must be encouraged to seek out new streams of revenue to offset falling advertising revenues due to fragmentation.
4856 All players in the system must also recognize that we need to make significant investments in the digital technologies to manage content. We can't continue to spend a dollar to earn a dime and expect to survive in a digital economy.
4857 MR. CASSADAY: Finally, on the matter of advertising we need to protect our markets in exchange for the COL commitments. More fragmentation will not grow the pie.
4858 To help grow the market, we have a variety of recommendations.
4859 First of all, advertising restrictions should be eliminated for specialty services. This would harmonize the rules for conventional and specialty television under the group-licensing framework. It would also allow television advertising to better compete against the unregulated digital services that are drawing revenues away from the regulated system.
4860 Second, if the Commission decided to retain time limitations for commercial advertising on specialty services, we believe that the on-air promotion of non-Canadian programs should not count as commercial time.
4861 Third, we want to reiterate a fundamental point that we made in our submission earlier this year to the VOD policy proceeding. All advertising activity must remain the sole responsibility of the licensees of Canadian programming services.
4862 BDU proposals to engage in advertising activity, whether on their VOD platforms, in the local avails of U.S. satellite services or on their community channels, would serve only to drive down rates and siphon revenues from licensed programming undertakings, further damaging an already fragile advertising market.
4863 Corus has made a range of other recommendations that we believe could expand the television advertising market, thereby benefiting all sectors of our industry.
4864 We urge the Commission to carefully examine the potential of each of these. They could serve to solve some of the other problems the industry is facing, without attendant risks to the system.
4865 These include the following:
4866 - The Commission could continue to advocate with the government, either through a special report to the Minister or otherwise, the potential benefits of a relaxation on pharmaceutical advertising. Canadians already see pharmaceutical messages intended for U.S. audiences through foreign services. The quantification of the benefit to the Canadian system could encourage the government to act.
4867 - The Commission also report to the government, recommending the introduction of a temporary 1- to 3-year advertising tax credit of 10 percent on all Canadian media advertising and could also recommend that section 19.1 of the Income Tax Act be amended to also apply to websites.
4868 Mr. Chairman, that completes our prepared remarks. Corus is confident that it can continue to remain relevant to our viewers, distributors, subscribers and our advertisers. Our recommendations are intended to establish a framework for that. However, we strongly recommend that the Commission adopt a principles-based approach that allows all concerned to face the uncertainties of the future with confidence.
4869 We thank you for your attention and we would be pleased to answer your questions on our presentation this morning or on the contents of our written submission.
4870 THE CHAIRPERSON: Thank you very much for your presentation.
4871 Now, you are primarily a specialty broadcaster but you have two conventional stations, if I recollect correctly?
4872 MR. CASSADAY: That is correct.
4873 THE CHAIRPERSON: How are they doing?
4874 MR. CASSADAY: They are doing very well. We have two stations in Peterborough and Kingston that are affiliated with the CBC. Both of them operate with margins in the 20 percent range.
4875 THE CHAIRPERSON: How do you explain that? You have been listening to our hearing. You saw Canwest yesterday, who are under consumer protection anyway, and you heard CTV basically suggesting that the conventional industry is on its last legs. How come your stations are doing so well?
4876 MR. CASSADAY: We operate them, I think, with good management and we have access to programming from the CBC, which helps us to manage our costs effectively.
4877 THE CHAIRPERSON: So what is your position on value for signal?
4878 MR. CASSADAY: Our belief is that while we recognize, as Sylvie said in her comments, that there are issues that need to be dealt with as it relates to conventional that we need to understand better the problem definition. I think we need to understand specifically what the challenges are that are facing conventional broadcasters.
4879 Specifically, we need to know where the profitability issues rise. I would ask questions like, "Should we be competing in every market? Is it important that we are on the air 24/7? Are there specific day parts that are more of a challenge than others and how could they be addressed?
4880 I think there is a need for a system-wide approach to try to solve the problem. Our view is that VFS or fee for carriage is a solution to a problem that I don't think has been clearly enough identified.
4881 THE CHAIRPERSON: I thought that's why we are holding this hearing. What would you do -- if you were sitting here instead of me, what would you do?
4882 MR. CASSADAY: What I would do is I would ask for a symposium of all involved. I think there are things that the Government of Canada can do. We have spoken about the relaxation of rules as it relates to pharmaceutical advertising. That's a $4.7 billion category in the United States. We talked about tax credits.
4883 I think we need to understand specifically what the challenges that are conventional television is facing and deal with them, but I do not believe that the response of a fee for carriage or VFS is warranted, given the information that we have on hand.
4884 THE CHAIRPERSON: Please don't use them as synonyms. They are two different concepts.
4885 MR. CASSADAY: All right. Let's limit them to VFS.
4886 THE CHAIRPERSON: I guess I'm still stunned by what you are telling me about your two conventional stations. I mean CBC was here too. They were crying the blues like everybody else. You are a CBC affiliate and you are doing -- are your stations getting -- I'm sure it can't be. I mean are they getting the programming from your specialties at preferential prices or something?
4887 MR. CASSADAY: No, we rely heavily on the U.S. -- on the CBC service to provide the programming and then on local newscasts.
4888 We are in a privileged position. It is -- we are relatively small markets but we are in the privileged position of being the only local television broadcaster in those markets and we provide a vital service for the retails in particular in those markets.
4889 Paul, would you like to comment in more detail on some of the specific actions that we have in place to ensure the profitability of those stations?
4890 MR. ROBERTSON: Sure, John. Thank you.
4891 I think one of the keys to our success in Kingston and Peterborough, the markets are big enough to sustain some national advertising, but the main focus is on local. And you know we wake up every morning trying to please the local advertisers, finding a way to develop partnerships and mind those relationships. And I think because the majority of our revenues come from the local market that's totally where our attention is.
4892 And I think we have been very successful at doing that and during the last 12 months when things were pretty tough the advertising revenues in those markets were up kind of 1 or 2 percent, which was a pretty great result.
4893 THE CHAIRPERSON: But the key ingredient to your success, if I understand it correctly, is the fact that you are the monopoly conventional provider in those areas.
4894 MR. CASSADAY: I think there are two things. First of all, we do enjoy a monopoly in those markets and, secondly, we have access to affordable programming.
4895 THE CHAIRPERSON: And, secondly, this morning you talked about skinny basic and you said:
"The skinny basic advocated by some could deprive all other elements of the system of some proportion of the audience and the resultant revenue pool."
4896 THE CHAIRPERSON: Would you elaborate on that, because we have heard a lot about skinny basic here over the last three days?
4897 And essentially, all the conventionals feel that a skinny basic would help them. You are the first one who says the opposite, so I would like to understand your thinking.
4898 MR. CASSADAY: Well, let's take an example of a service like YTV which is relatively widely distributed in a skinny basic. The penetration would result -- probably result in a significant reduction in our penetration of the market.
4899 And then from a consumer -- an audience point of view, you would likely see a significant reduction in the satisfaction of the supply of children's programming. Very few of the players that would be included in a skinny basic package are actually producing any children's programming at this particular point in time.
4900 Gary, would you like to elaborate on that?
4901 MR. MAAVARA: I guess it would be an amalgam of results, the first thing being that obviously some people would choose to just take skinny basic which would deprive a variety of channels from being carried.
4902 We don't really know exactly what that skinny basic could be. Is it only local-local? Is it stations that are beyond the immediate market? So again, in the same vein as the other discussion, we are not clear yet exactly what it would mean.
4903 And the other thing that we have to always think about is there has been a lot of discussion about the digital transition and how in some ways it's seen as the over-the-air market is kind of irrelevant. There still are a lot of people watching television over-the-air and there are still a significant proportion of Canadians who can see, especially with the transition in the U.S., a crystal clear signal, and in that context, receive a lot of their entertainment over-the-air.
4904 You combine that with a skinny basic situation and we could see the Canadian consumer decide that they just don't need to. If they have got, for example, a Toshiba computer sitting in front of them with broadband, they may not see the value in getting all of those other channels.
4905 The result of that really cascades. We filed with the Commission last year with respect to our 9.1(h) application on YTV a number of models which showed what happened to YTV if it lost carriage on basic or on some form of extended tier.
4906 And, as John said, you lose the subscriber fee but then you also lose the advertising levels that you get with the audience levels. And that really applies to everybody. It wouldn't only be to a YTV situation.
4907 And it would also apply to the over-the-air of the conventionals to the extent that they lose carriage under a variety of scenarios that we have seen. They, for example, would lose the premium element to their ad revenue.
4908 THE CHAIRPERSON: Now, you said that one of the aspects of your success was that you were a monopoly provider in your market. Just out of curiosity, why didn't you show any interest in brand? It is a CBC affiliate. It is a monopoly provider there. Wouldn't that have been a natural addition to your portfolio?
4909 MR. CASSADAY: Well, it was a portfolio decision and for us we simply look at these conventional operations that we have as being attractive businesses, but for a dollar that we had to invest we see opportunities that are greater than that. So for example our priority is to focus on specialty and, quite frankly right now, our priority is to focus on specialty services that are specifically focused on programming to women.
4910 So it's really just a question of allocation of scarce resources.
4911 THE CHAIRPERSON: Okay, thank you.
4912 Len, I believe you have some questions?
4913 COMMISSIONER KATZ: I do. Thank you, Mr. Chairman.
4914 And good morning.
4915 I'm going to start with digital TV transition. You have made a minor overture in your initial submission and nothing this morning, with regard to the options for delivery of a digital television signal for your three markets.
4916 Can you provide us with any more information at this point in time?
4917 MR. ROBERTSON: Yeah, we can explain the nature of our plan. It's really a two-phase plan.
4918 The first phase is that we would move the stations into high definition. We feel that's where we need to be over time.
4919 We would seek carriage from a cable distribution standpoint inside the markets, thereby kind of securing the simulcast privilege on HD and then, as a phase two, we would offer the over-the-air signal. And I think we will have more clarification as time evolves about whether there is a Freesat option as an alternative to that, but our plan would be to go OTA. We are expecting that we could have that completed somewhere within the year of 2012.
4920 And since we are not on the mandated market, I guess we will see how those plans evolve with the overall evolution of the non-mandated group.
4921 COMMISSIONER KATZ: When you say you are not in a mandated market, you are not in channels 52 to 69, you are saying?
4922 MR. ROBERTSON: That's correct, yeah.
4923 COMMISSIONER KATZ: But you are within the 300-kilometre border --
4924 MR. ROBERTSON: That's right.
4925 COMMISSIONER KATZ: And the date initially for that has always been August 2011. So you are saying you will not meet that date.
4926 MR. ROBERTSON: Well, I guess when there was the establishment of the priority markets we weren't on that list.
4927 COMMISSIONER KATZ: Okay.
4928 MR. MAAVARA: Sir, our brightened channel is listed in the list three of the document that was put on the record yesterday, I believe it was.
4929 MS COURTEMANCHE: Monday.
4930 MR. MAAVARA: Or Monday. I'm sorry.
4931 COMMISSIONER KATZ: Okay.
4932 You mentioned this morning and in your submissions in September the notion of a fixed CPE rather than one that's tied to revenue. And you basically say it provides more certainty.
4933 It may provide more certainty in terms of the quantum but it certainly doesn't provide any ability to move with the markets, so to speak, as well. I mean what we have seen in the last 12 months, if there was a fixed amount, I mean a lot of people would be coming back to us sort of saying, "We just can't do it".
4934 So there was always a perception out there in the marketplace that having it as a percent of revenue, not necessarily a percent of profit but percent of revenue, allows for the flexibility to be able to anticipate what the market will or will not realize in the short term, rather than having a five year or a seven year fixed term amount that basically, first of all, is diluted in real dollar terms over a seven-year period if a licence is for seven years, assuming cost of inflation is 2 percent. After seven years there has been 14 percent loss in real dollars' investment as well as not being able to move with the marketplace on a more flexible basis.
4935 So I'm trying to understand why a fixed amount is preferable for the industry than something that provides more flexibility, which is something you advocate as well in terms of flexibility.
4936 MR. CASSADAY: In our particular case, the basis for our recommendation is that we plan to continue to be successful and we would like the opportunity to continue to develop our business and prove our margins, meet the needs of our shareholders by gaining share from our competitors, by controlling our costs effectively and, in return for that, having the opportunity to work with a fixed level of spending as opposed to an escalator which doesn't just go up in specific relation to the improvement in your revenue. There is actually a step up that ends up taking a significant bite out of our margins and forcing us to cut costs in other areas to maintain our margins going forward.
4937 So the bottom line is I do recognize that we are in an uncertain environment. Quite frankly, the timeframe -- our view is that the licence term is sufficient that we should be able to see clearly how our business is going to perform over that time and we would prefer to have the certainty of knowing that our costs are going to be at a certain level.
4938 MR. MAAVARA: Mr. Katz, looking at it from the regulatory application perspective, our submission was -- and going to your question about, how do we deal with the potential fluctuations -- we are looking at it from the benefit of both you, the regulator, and the licensees could sit down on a group company basis. And going to your point about what if the revenue is going up or down and would people come back, each company would be able to project what its needs were.
4939 In our presentation we said that one size doesn't fit all. What we meant by that was some systems that -- for example, in our case we do high end Canadian drama and that sort of thing for our pay services. We need to have that content in order to drive those services.
4940 So we would put forward a plan on that basis and the rest of our channels would flow in through that. We need to have the strategic ability to invest in the categories of programming where we think we can succeed. And, again, our plan would reflect that.
4941 Another company that has different kinds of genres would obviously come to you again with a fixed amount, but it would be based on a different list of assumptions.
4942 But the regulatory benefit to you is that you would be able to judge each group on its own merits and we wouldn't be faced with an industry-wide formula that wouldn't necessarily work for some people as well as it would work for others and in a sense that they would be back at your doorstep anyway.
4943 So we think that on the one hand you are getting the streamed line that you are looking for, but on the other hand it is very adaptive to the particular group.
4944 COMMISSIONER KATZ: But it doesn't recognize over the term of the licence the fact that there is a devaluation of the dollar as inflation -- to the extent there is inflation over the term.
4945 MR. MAAVARA: Well, that's true but I guess no one can really predict what's going to happen in seven years from now.
4946 But we have a number of our colleagues here from the CFTPA. What they will tell you is that in order to properly plan and finance a project it's really a three or four year kind of an effort. So even two or three years from now we are already planning year seven.
4947 So again, if we are able to see what resources we are going to be able to put into a program strategy, it helps us to plan and, frankly, it helps us and the independent producers to finance their projects with some certainty.
4948 COMMISSIONER KATZ: And just so I understand, the baseline that you are proposing to be used for the seven years is this last 12-month period?
4949 MR. MAAVARA: That's what we were looking at, yes.
4950 COMMISSIONER KATZ: Which obviously, one may say is an anomaly as well? Hopefully, it is an anomaly but we don't know.
4951 MR. MAAVARA: Well, in the Corus case, you made the point earlier about there has been a drop. That may be the case but again that's an industry-wide figure.
4952 In our case we are continuing to do -- in fact we have been doing more every year. So we felt that last year was a very fair jumping off point for the plan.
4953 COMMISSIONER KATZ: Would you have any problem if we did follow your recommendation to adjust it to inflation?
4954 MR. MAAVARA: Well, again, it's hard to predict on what inflation is. But again, one of the things -- one of the elements of our plan is the element of certainty and when you start throwing in a dynamic like that it just establishes really an artificial element that's hard to predict.
4955 MR. CASSADAY: Oftentimes in things like pension plans they will look at perhaps adjusting for cost of living over a three-year period. I think that some kind of a concession like that that took into account the possibility of rampant inflation would be fair and reasonable.
4956 But, again, the central premise for us is; allow us to plan our business over a sustained period of time; don't penalize us for being successful by increasing our expectations above and beyond those that do miserably.
4957 And that's the basic principle.
4958 COMMISSIONER KATZ: Okay.
4959 I want to move on to -- you have actually attached it on to today's submission but you also had it in your initial one, "Revenue support for conventional broadcasters
4960 And I want to go through those three major bullets or the last two pages, I guess, of your submission here, the last -- they were somewhere here. Well, they are not. They are in the attachment to -- they are on page 3 of your submission of September 14th, I guess it is.
4961 MR. MAAVARA: Right, and it's page 20 and 21 of the speaker notes. We have just appended it for convenience.
4962 COMMISSIONER KATZ: Okay.
4963 So the first one is you have got, "Alternative revenue support for conventional broadcasters" and the first item is:
"Alternative support mechanisms for local programming."
4964 COMMISSIONER KATZ: And in there you are suggesting the fact that the LPIF shouldn't be tied solely with incremental spending as it was initially conceived for the 1 percent. The 1.5 percent right now for this year is based on non-incremental spending as you are well aware.
4965 But you are proposing a split of this, one-third, one-third and one-third as I understand it, and that will provide additional flexibility on the use of that money.
4966 But when you say "revenue support" what are you referring to as a caption for this? How will this necessarily help the conventional broadcasters?
4967 MR. CASSADAY: Well, it is, in fact a form of revenue as is TeleFilm funding, as is production tax support. Those are all part and parcel of, I think, the array of financial incentives that can and are in fact available to all broadcasters in the system right now.
4968 COMMISSIONER KATZ: It's available right now but it's not anything more than what's available right now either. You are not suggesting any change at all to the LPIF.
4969 You are simply saying we have the flexibility to use it for multiple purposes, capital investment, incremental/non-incremental, whereas right now the situation at this point in time is the broadcasters can use the entire 1.5 percent for literally whatever they want.
4970 MR. MAAVARA: Right. I guess one of the underlining assumptions of our recommendation is that we would really like to give it a bit of a start and see how it works out.
4971 Paul Robertson can talk about some of the ideas that we have to use that money, but we are really looking at it as an opportunity to drive the service that we provide to our viewers and advertisers and, as such, it's an indirect revenue benefit to the extent that we can appeal to their interests.
4972 Paul, I don't know if you want to add to that?
4973 MR. ROBERTSON: Sure. Thanks, Gary.
4974 I will just add that the one-third, one-third, one-third was meant to say that there should be -- in our view there is an element of spend back to the funding and when we accepted the LPIF on our stations we set about to increase some investment in certain areas.
4975 So for example, we added videographers so that we could go deeper on stories. We created electronic links with townhall and the major entertainment centres.
4976 You know, basically, we added journalists so that we could improve the stories and increase the continuous coverage and serve more communities.
4977 So you know, I'm not saying that every dollar of the LPIF went towards an incremental expenditure but we are trying to improve the stations with it and that's where the one-third, one-third comes from.
4978 The last one-third which has got to do with the application towards capital expenditures is really meant to say these stations have got to continue to invest in future infrastructure to be successful in a digital world. And whether that's, you know, ultimately the conversion to HD or getting on multiple platforms or whatever the opportunities are by station that those investments should be also encouraged.
4979 So I guess we are anticipating there is going to be a day where we are going to have to account for the LPIF and we are trying to get ahead of the game.
4980 COMMISSIONER KATZ: Okay. Your second item on here on integrity of Canadian broadcasting signals suggests that programming rights protection should be enhanced to allow simsub for specialty services.
4981 Can you elaborate on that and what you think that would do to the market?
4982 MR. CASSADAY: Well, currently, specialty services are not availing themselves to simultaneous substitution.
4983 I think in the particular case -- if I could take an example that's not related to Corus, in the case of CTV or Rogers who was able to protect through simultaneous substitution the rights that they control to major sport, whether it's baseball or football, I think you would find their ability to repatriate a substantial audience and capture the ad dollars that are commensurate with that.
4984 Currently, you are seeing signals come in from Fox, NBC and CBS and right now that are in place essentially carrying the same game as they are carrying.
4985 So if they were able to protect those rights through simultaneous substitution I think you would find new revenue streams for two broadcasters who happen to own conventional operations and that would -- that would certainly be a leg up for them, relative to the current regime where they are sharing those rights in this market with the U.S. nets.
4986 COMMISSIONER KATZ: But you are saying some parties are able to take advantage of simsub and some are not?
4987 MR. CASSADAY: Well, I don't believe anyone is taking advantage of simsub right now but as I understand it, the rules are not cast in stone about the ability to do that. But to the best of my knowledge, no one has been afforded simultaneous substitution.
4988 I have got people more expert on all of the intricacies of the Act, but my understanding is that it is possible but not -- at this point in time it's not been something that has been applied.
4989 MR. MAAVARA: And it's also, we are looking at it as a looking-forward recommendation. As John mentioned, we have got and you have before you a number of companies that have a variety of different platforms and, in particular, CTV and CanWest are the largest specialty operators.
4990 They may want to decide to use their programming in a more strategic way across their channels. And as a result, at the end of the day what we really need to all keep doing is keeping the viewers interested and subscribing to our services and keeping the advertisers there in the midst of all this competition.
4991 So we saw that as this is a potential tool that could be explored much more deeply. And, as John said, the rules right now are a little bit fluid and we would just simply --
4992 COMMISSIONER KATZ: Just so I understand, though, if we do accept the notion of simsub for specialty does that not create more supply in the marketplace in general which would have presumably a further dilution of ad revenues for the conventional television sector?
4993 MR. CASSADAY: More supply of inventory or more supply of programming?
4994 COMMISSIONER KATZ: More supply of inventory for advertising. I'm thinking of the advertising component of it.
4995 MR. CASSADAY: Yeah, I don't think -- I don't know -- it would not expand the supply of advertising. All you are basically doing is protecting those Canadian rights that you own but now share in some instances.
4996 Quite frankly, most of the U.S. network programming is already owned by a Canadian over-the-air network so there are very few instances where -- you know there are exceptions. I mentioned sport as one.
4997 But for example, if we were to -- let's look at YTV, for example. There aren't many instances where simultaneous substitution would be of huge benefit to us because most of the programming that we acquire is from cable networks in the United States that is not available in Canada anyway. It's primarily --
4998 COMMISSIONER KATZ: So those ads that are on there are not Canadian ads. They are American ads?
4999 MR. CASSADAY: The ads that are on?
5000 COMMISSIONER KATZ: On YTV programs that you acquire from the U.S.
5001 MR. CASSADAY: No, they are all Canadian ads. So there is no additional ad inventory as a result of simultaneous substitution for specialty channels in Canada.
5002 COMMISSIONER KATZ: Okay. What are your thoughts on non-simultaneous substitution?
5003 MR. MAAVARA: Well, as the Rogers people said the other day, it is technically feasible. The issues that we have always run into tend more to be rights and guild-related. I can tell you from personal experience it was pretty difficult to navigate through that.
5004 But like everything else, there is always a solution once you define the problem correctly. But that would -- it would take -- it wouldn't be an overnight solution.
5005 COMMISSIONER KATZ: Can you put some thoughts behind that as well in your final submission as to how you think it might be able to work even if it is an evolutionary as opposed to a revolutionary idea?
5006 MR. CASSADAY: We can certainly do that.
5007 COMMISSIONER KATZ: I appreciate it.
5008 THE CHAIRPERSON: Can you say a bit more about that, why did -- how do rights work into non-simultaneous substitution? I'm sorry. I don't quite --
5009 MR. MAAVARA: Well, the problem we get into is some of the -- and I have to start by saying that I haven't been at this subject for a while so there are probably some people online right now who know way more about this than I do.
5010 So with that caveat, the last time that I looked at this there was issues, for example, with guild agreements where if you get into a non-simultaneous situation it's considered an actual -- another exhibition of that copyright work and the result is that it triggers payments and those payments are insurmountable in the context of the potential economic value of the use of that right.
5011 And that was always -- it was either a financial issue or simply you can't do that and we are not going to allow you to do that. But you know if you visit the master controls of most of the major BDUs now, from a technical standpoint it's just computers talking to each other. So it's not that difficult to do it that way.
5012 MR. CASSADAY: But just so the commission doesn't lose this, this is a potentially big idea and it's a potentially big idea for the over-the-air networks. Where it could help them is where they are in a position where they own the rights to two shows that happen to appear at the same time on a U.S. network.
5013 And again, as Gary is mentioning, there is obviously complexity associated with this. But maybe the way to get around it is to simply allow for a prescribed number of hours per week, you know, a limited number of hours.
5014 I mean typically what happens when broadcasters are buying programming, I mean, they don't buy two programs in the same slot. But sometimes a show gets moved and you find yourself now in the position where you own an expensive show that's been moved from nine o'clock to eight o'clock and you are not able to maximize that right.
5015 So it hurts the profitability of the broadcaster and if we could find ways of helping them improve their situation by protecting their rights then we would be fully supportive. As we said, we are very empathetic to the situation they find themselves in and very open to finding constructive solutions.
5016 COMMISSIONER KATZ: Thank you.
5017 MR. MAAVARA: If I could add to that, one of the issues -- and I would be remiss because we have been a bit of a broken record on this subject -- one of the other elements of the digital transition that we all as an industry and as regulators have to focus a lot of attention to is the issue of rights management, and this would be an example of that. We need to develop the taxonomy. We need to invest in the systems.
5018 Mr. Chairman, you were in Stratford last spring where we had a lot of demonstrations of the Canadian technology companies who are doing that. We mentioned it in our brief -- you know investing a dollar to get a dime. We are only going to be successful in the digital interactive media world if we all put our minds to this and also we are all going to have to invest in the rights management technologies.
5019 In the Corus case, for example, we are investing in a new building in downtown Toronto. It's not just about having a new space. It's about incorporating a system where we will be able to use rights in any manner that comes up and being able to track that use and to secure compensation for it.
5020 COMMISSIONER KATZ: Okay. I want to move on. We are kind of running out of time here, and I get your point.
5021 I spoke yesterday with Mr. Asper with the issue of causality and the fact that specialty has been a beneficiary of the fragmentation of the marketplace, and you folks are in specialty obviously as well.
5022 My hypothesis was notwithstanding anything with regard to negotiating value for signal, to the extent that specialty programming has created a loss with regard to advertising revenues on the conventional side, shouldn't they be required to bear some of the burden that we are facing right now or that they are facing right now as well?
5023 And they are not the only ones obviously. Specialty, BDUs, I believe as well are also a beneficiary of it as well. But if you look at cost causality, at a minimum, one would hope that you try and match the cost with the benefits at the same level, and you try and minimize the impact on other parties outside of that as well.
5024 So from my perspective, I look at this and sort of say, if there is something, we should be looking at both together. And that is one of the reasons why group licensing and CPE is one of those issues. The other one is actually the contribution that may have flowed, rightfully or wrongfully, from the conventional sector to the specialty sector.
5025 I would welcome your comments on that.
5026 MR. CASSADAY: I will start off and simply say that, you know, no, I don't believe there should be a corresponding recovery payment allowed. I mean, everyone of these conventional operators had the opportunity to participate -- basically, you know, to participate in the new and growing segments, many of them chose not to.
5027 They are now making efforts to get into these markets that offer greater growth potential. As Gary mentioned, the two largest over-the-air broadcasters happen to be the two largest operators of specialty television.
5028 So perhaps, for business reasons, they moved too late. They are catching up now. And those that did take the initiative to develop this market shouldn't be forced to pay for the sins of others.
5029 COMMISSIONER KATZ: I am not sure it is a sin, we are not talking about sins here, we are talking about benefits to the system. I mean, clearly, specialty programming has been a benefit to the entire system, right up and down the food chain. And all we are saying is let's make sure that we take a look at the system as a whole. And there may be a case obviously where, for other reasons, conventional television hasn't done very well, and that is a business issue and they have got to deal with it.
5030 MR. CASSADAY: M'hmm.
5031 COMMISSIONER KATZ: But there is a subset of that that basically says as well. The advertising revenue surely has gone down as the eyeballs have shifted, because there hasn't been a replacement of the eyeballs. This country is the size it is subject to the natural growth of population here as well. So why wouldn't one look at it on a more holistic basis?
5032 MR. MAAVARA: Well, I guess there is two elements to that; one is the factual background and the second is the legal and the ability, as it were, for the Commission to regulate this kind of an assumption.
5033 For example, in terms of contribution, Corus and Astral run more long-form scripted drama everyday than a conventional broadcaster would run in a month. So again, in the context of a goal being to put priority programming in front of Canadian audiences that they want to watch, the specialty and pay sector is meeting that goal. And, you know, we would make the submission that in fact that is doing some of the balancing.
5034 But turning to the regulatory problem, when you use the word "they" the difficulty that we would all have in trying to perfect a system that would say, you know, what are "they" going to do is who is the "they?" Fragmentation has been caused by new over-the-air services and there continue to be new over-the-air services, what we could call the CBC disaffiliates, which have separated from the CBC, and of course, as John mentioned, there are the CanWest and CTV specialties.
5035 There are the other specialties, there are the plethora of new foreign services, probably 200 or 300 that have been introduced into Canada, not of course all of them are being carried, but they are all taking different segments. And then, finally, there is new media.
5036 So difficult to define who you would look to for that.
5037 COMMISSIONER KATZ: Well, let me throw out an idea, hypothesis, and maybe you can think about if you don't want to respond to it right now.
5038 What if we felt that we were going to expand the LPIF to include all specialty as well in the program? So it is not just the BDUs that are contributing into the LPIF, but all the specialties as well.
5039 MR. MAAVARA: Right off the top of my head, probably a more beneficial recommendation would be, which I think would have a more direct causal result, would be to say to specialty, you can produce local programming. Because I think what you would see there is an entrepreneurial entry into the market. And in fact we would, as some of the interveners over this week have said, you know, give us a chance and we are there.
5040 COMMISSIONER KATZ: Okay. My last question goes back to DTH. Does DTH carry your three stations in Ontario?
5041 MR. ROBERTSON: Yes, they are all carried in standard definition.
5042 COMMISSIONER KATZ: All three are carried?
5043 MR. ROBERTSON: Yes.
5044 COMMISSIONER KATZ: Okay.
5045 MR. ROBERTSON: Well, two out of the three are carried. Kingston and Peterborough are carried. Oshawa has seven hours of local, it is kind of -- in part, it repeats the -- sorry, go ahead.
5046 MS COURTEMANCHE: Twelve and a half hours of local.
5047 MR. ROBERTSON: Anyway, the answer to your question is that Peterborough and Kingston are carried by both DTH and carriers and Oshawa is not.
5048 COMMISSIONER KATZ: Those are my questions, Mr. Chairman.
5049 THE CHAIRPERSON: Thank you.
5051 COMMISSIONER ARPIN: Only one question regarding CPE. Have you contemplated CPE based on expenses rather than on revenues? That is surely the position that Quebecor took yesterday, and they gave us eight great reasons to do it on expenses. And I wonder if you have thought about the CPE based on expenses? Did you ever give any consideration to that model?
5052 MR. CASSADAY: I am sorry, I didn't hear the Quebecor submission, so I don't know exactly what their idea was. But, you know, I --
5053 COMMISSIONER ARPIN: Well, their argument is that obviously advertising is very volatile --
5054 MR. CASSADAY: Yes.
5055 COMMISSIONER ARPIN: -- and if you have two or three bad luck in one year, then it has a carryover over time and it hurts your CPE. Another area was there is a lot of fixed expenses in broadcasting, there is -- and the issue of productivity. It forces creativity if you are based on expenses, because you have an interest in spending more to acquire an audience. If you are based on revenues, then you protect yourself and maybe the only way out is to do what CanWest is currently doing.
5056 MR. CASSADAY: Well, again I just go back to the simplicity of our notion, which is that we want certainty over a licence period, that we will commit to a cumulative amount of spending over that licence term, and we feel that that would give us the flexibility to plan and run our business as professionally and competently as we can.
5057 COMMISSIONER ARPIN: Thank you.
5058 MR. MAAVARA: We can undertake to reply to your question, Commissioner Arpin, on the December 14 --
5059 COMMISSIONER ARPIN: Okay, yes. Okay, fine. Thank you.
5060 THE CHAIRPERSON: Rita.
5061 COMMISSIONER CUGINI: Thank you and good morning. Just a couple of follow-up questions.
5062 On CPE, I believe in your written submission you said that you would continue to include CMF top-up fees in..? You would continue.
5063 Do you see --
5064 MS COURTEMANCHE: Could I just add on that though?
5065 COMMISSIONER CUGINI: Yes, please do.
5066 MS COURTEMANCHE: Just to make the point that, you know, I was around in 1994 and 1996, and before that when we did the licensing of the various specialties that we are talking about. And when people put forth those levels of CPE it was with the understanding that the licence fee top-up would be allowed and would be attributable towards achieving that number.
5067 So what would happen if we take away the CPE, everybody would want to come back to the table and say, well, you know, my commitment was based on adding this component. So they would want to downgrade their obligation to reflect that the licence fee top-up is no longer included.
5068 I think you would have a rush of people who would come and make that argument out of fairness that, you know, that is the way the system was, we would want to recalibrate the CPE downwards. Just making that point.
5069 COMMISSIONER CUGINI: Yes and, as you know, I think it was the Chairman yesterday who said, well, if that is the way it was, that is the way it was, but we are looking toward the future. And you know what the creative community has submitted on this issue, that the CMF top-up fee should be excluded, as that it is not reflective of actually how much money is in the system from broadcasters for Canadian programming.
5070 So if we were to exclude it, what effect would that have on Corus?
5071 MR. MAAVARA: Well, I think, going to the point of it, which ever way you decide to go, it is really going to be something that we have to look at in terms of how we file our applications for renewal. And, as Sylvie said, we have proceeded on a certain basis.
5072 We also have a circumstance now, there seems to be a lot of variables in almost everything we do these days. And one of the variables is that we are just seeing how the new fund is going to roll itself out. We are just getting accustomed to those rules. By the time we file our applications we will have a better sense of that.
5073 But whether the Commission accepts it or not, we will all have to govern ourselves accordingly.
5074 COMMISSIONER CUGINI: And on the issue of simultaneous substitution for specialty services -- and I did say this with CTV on Monday -- very commonly the example that is used are the sports services. But you operate W and there are a number of network shows that could very well fit within the nature of service of W.
5075 And although I know it is difficult to cherry-pick network shows, is it your intention or your hope that if we extend simultaneous substitution rights to specialty services that you would be able to acquire some network shows for your specialty services like W?
5076 MR. ROBERTSON: I think it is possible, but it is not going to substantively change our strategy. I mean, at this point we run some five-day a week programming in syndication windows, they might be simulcastable. It may be that in a trip to LA, which we do in a small way, that there may be a program or two that might be a fit for us. But I don't think it is going to fundamentally change kind of how we go about things. It is not going to open up a lot of new opportunities on program acquisition.
5077 COMMISSIONER CUGINI: Okay. Thank you, those are my questions.
5078 THE CHAIRPERSON: Suzanne.
5079 COMMISSIONNAIRE LAMARRE: Merci, Monsieur le Président.
5080 I have a few follow-up, a few clarification questions. And my last question will be in French, because the way I have written it down, I can't say it in English.
5081 My first question, if we turn to page 20 of your summary of recommendations on Canadian content exhibition, what you have there, would it be the same for groups, corporate groups in Anglophone and Francophone markets?
5082 MS COURTEMANCHE: Well, our recommendation was formulated for the English-language market. But, having said that, I don't see any reason why it shouldn't. You know, currently I think that the 35 per cent applies both for the French and English market currently, so does the 25 and 20. The same level applies for the various categories.
5083 As far as the overall, I think that, you know, the Category A services generally have fairly high Canadian content, so I see no reason why this couldn't apply in both French and English markets.
5084 COMMISSIONER LAMARRE: Okay. Turning to page 16 of your presentation. You are asking that advertising restriction be eliminated for specialty services. And in support of that request, you say that this would harmonize the rules for conventional and specialty television.
5085 Well, harmonization is one of the arguments that conventional television is making to get value-for-signal. So if we really truly wanted to harmonize, shouldn't it be going both ways?
5086 MR. MAAVARA: I guess, I could start by saying that Corus originally, in the last round, we had actually recommended that the limit not be removed on specialty. Our overall position is that throwing, as we said with respect to some of the other areas, we said that the simple opening up of more inventory into the market is not going to create a larger pie.
5087 So, as such, our position is that if you are going to open up everything else, then perhaps you should also look at specialty. But we don't feel strongly that simply by opening up specialty that it is necessarily going to solve any problems.
5088 And as we said in the brief, if you decide not to do that, we would simply like to be able to use promotion of foreign content to not count as part of that. So we don't feel very strongly on this point. But we do feel strongly about the fact that more fragmentation and more inventory does not necessarily drive more revenue and that, of course, is a problem that specialty services have as well as conventional.
5089 COMMISSIONER LAMARRE: So if I hear your correctly, harmonization is not an absolute for you?
5090 MR. MAAVARA: No.
5091 COMMISSIONER LAMARRE: My third question, again with your presentation. On CPE expenditures on page 13, you mention that, in your opinion, the CPE system where increasing profitability leads to increasing spending obligation is effectively a tax on success.
5092 Now, some other members of the industry may be arguing that, in fact, it is just fulfilling the obligation under section 31(e) of the Act, that each element of the Canadian broadcasting system shall contribute in an appropriate manner to the creation and presentation of Canadian programming.
5093 What would you answer to that?
5094 MR. CASSADAY: That the exhibition requirements satisfy the Broadcasting Act in that respect, and that our ability to manage our P&L effectively shouldn't have a bearing on how much we are required to spend to produce the quality of service that is required to get ratings and to meet our overall exhibition requirements.
5095 COMMISSIONER LAMARRE: Going on page 11 of your presentation. I understand the discussion you had with Mr. Katz about, you know, fixing the amount of expenditures in absolute dollars. And I don't want to go back on that discussion, but I want to bring an extra question. Because the way you have set it out, you are saying, if I understand it properly, that the annual spending requirement would be fixed for the entire licence term based on the last year of the old licence term.
5096 Well, if we do that licence term over licence terms, isn't it the equivalent of a moratorium on expenditures?
5097 MR. CASSADAY: Well, yes. And on the other hand, the current regime could suggest that expenditures are going to go down every year if in fact the revenues decline for the groups that are being regulated.
5098 What we are saying here is that the benefit to the broadcaster is that they have some assurance as to what their program expenditure requirement is going to be, the benefit is to the system is to have some assurance as to what the expenditures on Canadian programming is going to be. And the current system leaves ambiguity for both parties.
5099 COMMISSIONER LAMARRE: Okay. For my last question it is my turn to sound like a broken record.
5100 Sur la question du passage au numérique pour les stations en ondes, si j'ai bien compris votre réponse à monsieur Katz, je vais vous avouer que son ambiguïté me laisse perplexe.
5101 Vous avez trois émetteurs dans des marchés qui, effectivement, n'ont pas été identifiés comme prioritaires dans la liste du Conseil, mais qui sont dans des ondes densément peuplées. De votre propre aveu, ce sont des stations qui sont profitables, qui se comportent bien, et, malgré tout, vous semblez hésiter à faire passer vos émetteurs au numérique.
5102 Est-ce que j'ai bien compris?
5103 MR. ROBERTSON: We don't mean to sound hesitant about our commitment to move to an over-the-air digital signal --
5104 COMMISSIONER LAMARRE: Okay, so please don't.
5105 MR. ROBERTSON: -- but the situation, as it sits now, is that there has been a list of stations that have been considered the highest priority. And then there is a kind of a secondary list that we are on. There is a lot of dialogue in the industry and in the regulatory context of what the best way to do this is. There is still an idea on the table called Freesat which we are having a dialogue about.
5106 We know that our plan is a two-face plan and that we have to execute the first phase in any event, which is the movement to HD and the distribution of HD so we make firm progress towards a full digital OTA.
5107 Then we can certainly upgrade to an over-the-air antenna to broadcast that digital signal. But wouldn't it be logical to find out where the industry is going with respect to Freesat before making that final determination? If there is no Freesat, then we commit to an OTA broadcast of the channel to make sure that Canadians continue to receive it.
5108 So there is no hesitation, it is just in recognition that there is a discussion still in the mix relating to Freesat.
5109 COMMISSIONER LAMARRE: Those are all my questions.
5110 Merci, Monsieur le Président.
5111 THE CHAIRPERSON: Thank you.
5112 Tim, last question?
5113 COMMISSIONER DENTON: Gentlemen, I have a naïve respect for people who are in business and make money in difficult environments. And so more by question of tone than perhaps anything else, you were somewhat downplaying, it seemed to me, the apparent crisis in television broadcast revenues.
5114 And, you know, we have been presented with figures from the CBC, which you can see even at this distance the trend line, this is for profits of private broadcasting tending downward continuously since what, 1976, or in the case of conventional and pay television profit, again from the CBC, you can see possibly even this gap between the specialty is turning profitable and the conventional not so.
5115 So can you explain the disparity between what these kinds of figures and what the parties presenting them are saying to us and the kind of muted tone that you folk are taking with regard to the apparent crisis in private broadcasting?
5116 MR. CASSADAY: Thank you for that question. As we suggested, we think that a good part of this hearing should be about making sure we are asking the right questions and making sure we understand precisely what the concerns are all about. Is it about the specific profitability of a station in a market, is it about the profitability of a day part? I think there is a lot of questions that have to be answered.
5117 But, you know, here are the facts. The overall advertising pie for television continues to grow, but at a slower rate than it has historically. The reality of it is is that certain business plans that were premised on perhaps higher levels of growth need to be modified in light of the fact that you are now looking at, for conventional television, the likelihood that their growth, going forward, is not going to be as substantial as that of perhaps other sectors, like specialty, that are delivering more targeted audiences and still are being under-rewarded relative to their share of viewing.
5118 So just to put it in perspective, in the specialty sector we have approximately 50 per cent of the viewing audience, we have less than 40 per cent of the revenue share. You would expect that that is going to be closed over time, which would suggest that, you know, the ability for conventional to grow is going to be limited in light of that fact. So my view is that understanding the questions, figuring out where the problems are and how they can be solved is what we need to do as an industry together. We have suggested some solutions.
5119 But I think the expense model is an area that needs to be looked at carefully in light of, you know, what has happened to the revenue growth rates over time, but we can't forget that by and large the category has still grown.
5120 COMMISSIONER DENTON: So the expense model, just unpack that concept briefly.
5121 MR. CASSADAY: You now, can we afford to spend at the levels that we once did when we were growing at 4 to 6 per cent?
5122 MR. ROBERTSON: Well, I would just add that the specialty sector is not immune to the challenges that are out there in the marketplace. And in fact, when the returns come in for the previous fiscal year you will see a net decline in overall specialty.
5123 I mean, the other thing that is going on in the specialty side is that from a distribution standpoint we are facing the most uncertain time in the history of the specialty sector in the sense that with the movement towards theme packs and pick-a-pack and the flexibility that the distribution side will have, when we reach August or September of 2011, when the distribution regulations ease, creates a huge level of uncertainty for the specialty sector.
5124 So I think one of the risks is that we look at historical data and think about how specialty looks like it is outperforming conventional without an eye to the future where things are going to change a whole lot as we move into this next era, when the distribution side has total flexibility in how they package this.
5125 COMMISSIONER DENTON: Thank you, gentlemen.
5126 THE CHAIRPERSON: Okay, thank you very much. Those are our questions. You have until December 14 to add any submissions. And personally, I would appreciate if you did deal with the issue of licence fee top-up, I was not very convinced by what you were saying. So maybe you can either change your position or explain a bit better what your concerns are.
5127 Thank you. We will take a 10-minute break.
--- Upon recessing at 1025
--- Upon resuming at 1040
5128 LA SECRÉTAIRE : À l'ordre, s'il vous plaît. Order, please.
5129 LE PRÉSIDENT : O.K. Commençons, Madame la Secrétaire.
5130 LA SECRÉTAIRE : Merci, Monsieur le Président.
5131 I would now invite Canadian Film and Television Production Association, CFTPA, to make its presentation.
5132 Appearing for CFTPA is Mr. Norm Bolen. Please introduce your colleagues, after which you will have 20 minutes to make your presentation.
5133 MR. BOLEN: Thank you.
5134 Good morning, Mr. Chairman, Vice-Chairs, Commissioners and CRTC staff. My name is Norm Bolen and I am the President and CEO of the CFTPA.
5135 The Association is here today to bring reasonable and constructive proposals to the table in this proceeding.
5136 I am pleased to have with me two of Canada's best screen-based content entrepreneurs.
5137 To my immediate right is Linda Schuyler, CEO of Toronto-Based Epitome Pictures.
5138 Linda co-created and executive produces the multi-award-winning original "Degrassi" series, including "The Kids of Degrassi Street," "Degrassi Junior High" and "Degrassi High."
5139 The current iteration of "Degrassi," the multi-platform "Degrassi: The Next Generation" is in its ninth season on CTV in Canada and TeenNick in the U.S. Next year "Degrassi" will celebrate 30 years as a fixture on Canadian television.
5140 Linda's other notable production credits include dramatic series "Liberty Street," "Riverdale" and "Instant Star." Linda was awarded the Order of Canada in 1994 for her work on "Degrassi" and she is also the former Chair of the CFTPA Board of Directors.
5141 To Linda's right is Tom Cox, President of Seven24 Films of Calgary. Tom is co-executive producer of the popular family drama series "Heartland," TV movies "Mayerthorpe," "Waking Up Wally" and "After the Harvest," and the Canada-U.K. co-production mini-series "Burn Up."
5142 Also, Seven24 Films' sister company, Alberta Film Entertainment, has co-ventured on many American movies, including "Brokeback Mountain" and "The Assassination of Jesse James."
5143 Tom serves as Vice-Chair of the CFTPA Board and is a member of our Broadcast Relations Committee.
5144 CFTPA staff with us today are, to my left, John Barrack, National Executive Vice-President and counsel; and to John's left, Mario Mota, Vice-President, Broadcasting Policy and Regulatory Affairs.
5145 Mr. Chairman, at the outset of this hearing you set out four broad issues to be covered. Today we are here to address the first two issues, where we believe we can add the most value, and these relate to establishing an appropriate framework for group-based licensing and ensuring greater support for Canadian programming.
5146 Commissioners, decisions made in this process will have far-reaching consequences for the entire system, not just for over-the-air television broadcasters. Canadian broadcasting is a complex system of interconnected parts that includes viewers. It is not just about broadcasters, BDUs or even independent producers.
5147 Conventional television broadcasters say their business model is broken. They want the ability to negotiate compensation from BDUs for the carriage of their signals, and the BDUs flatly reject this idea.
5148 The very divisive and bitter public battle between the over-the-air broadcasters and BDUs must end. The fight is not doing anyone any good.
5149 All industry stakeholders, including the CFTPA, have issues and interests that are at stake in this proceeding but it is in our collective interest to work together. We all must find reasonable, balanced solutions to the challenges facing conventional television, solutions that benefit the Canadian broadcasting system as a while.
5150 We believe that all elements of the broadcasting system must be financially healthy and strong. We are not blind to the fact that over-the-air television faces challenges -- audience fragmentation, on-demand technologies, digital transition -- but we believe that conventional TV still has lots of life in it. It remains a powerful platform to reach and attract mass audiences. In fact, the new PPM ratings measurement system is showing higher audiences than previously thought.
5151 Giving conventional broadcasters the ability to negotiate fair value for their signals is one way to improve the financial health of over-the-air television.
5152 There are also other ideas that have been raised that could help fix the problem:
5153 - better protecting the integrity of broadcasters' signals and their programming rights -- this includes mechanisms such as non-simultaneous substitution and program deletion;
5154 - requiring the carriage of all local signals by DTH providers;
5155 - moving up the date for implementation of the new Distant Signal Policy; and
5156 - taking measures to put the brakes on ever-escalating foreign programming expenditures.
5157 These ideas and others have merit.
5158 We would like to focus on the foreign program spending problem.
5159 Sky-high expenditures on foreign programming are a big part of the problem in the English-language market. The massive spending on foreign programming takes a big bite out of the over-the-air television profitability.
5160 In 2008 private conventional TV broadcasters spent 7.4 percent more on foreign programming, while their revenues decreased by 1.5 percent. Any business that grows spending more than its revenues is walking on a tightrope.
5161 Consultant Peter Miller prepared a report for this proceeding and he concluded that the increase in U.S. programming costs is the single biggest reason for the reduced profitability of the English-language over-the-air television business.
5162 So what is the solution?
5163 Well, we believe an essential element is a Canadian programming expenditure requirement for English-language conventional TV broadcasters. What is compelling about CPE obligations is their demonstrated success. A CPE approach is a proven winning formula for Canadian content and it can be profitable. Specialty television has shown us that.
5164 First and foremost, it will put the brakes on spending on foreign programming. It is important for the Commission to understand how this works.
5165 I had the privilege of being a programmer at Alliance Atlantis for more than a decade and every year my team and I would build a strategic plan and a program budget. With CPE requirements on our channels, we knew we had a fixed cost that we had to spend on Canadian content for each channel and this was non-negotiable. We then had to take into account our fixed overhead and operating costs. Then we set a profit level to satisfy our shareholders.
5166 And what was left is what we could spend on foreign programming. Again, this was non-negotiable unless we wanted to reduce our profit levels. Needless to say, that would have been bad business.
5167 So CPE requirements forced us to control our appetite for foreign programming. They also motivated us to view Canadian programming as a business opportunity, not as a liability, as a benefit, not as a tax.
5168 So we scheduled it appropriately. We marketed it effectively. We used all our assets to cross-promote it. We gave it our maximum attention. We worked to create a star system around the talent in our Canadian shows and we did this working in partnership with entrepreneurial and innovative independent producers.
5169 And so what happened? We succeeded in making Canadian content a winner. Many of our top shows were Canadian.
5170 And the model works for other specialty broadcasters as well. In fact, many Canadian specialty channels' top programs are homegrown. Mandated CPEs help make that happen.
5171 In short, meaningful CPE requirements for over-the-air television will encourage broadcasters to treat Canadian programming as core to their business. With no spending requirements, they lack the motivation to do so.
5172 In fact, when their motivation is to get the highest audience and the most profits out of U.S. programming, then that programming becomes an addiction and pretty soon the addiction starts affecting profitability and damaging their business.
5173 When done properly, CPE obligations can be good public policy and good business.
5175 MR. MOTA: What is the best way to apply a CPE requirement for English-language over-the-air broadcasters?
5176 Do we keep individual CPE levels for specialty services as they are and introduce a separate CPE for conventional TV or do we apply a single CPE requirement on a corporate group-wide basis?
5177 Should an overall CPE requirement apply to large corporate groups only?
5178 How do we calculate the CPE?
5179 And is an overall over-the-air CPE enough or do we also need CPE requirements for specific programming of national interest?
5180 We have looked at all of these questions in detail in our written submission.
5181 You will remember that when we appeared before you last spring we supported in principle a group-wide CPE model. At the time we cautioned that extensive modelling would need to be done to determine whether this model would be workable in practice.
5182 Having now looked at the issue more closely, we have a number of concerns about adopting a single group-wide CPE approach.
5183 First of all, we share the Commission's desire to develop a simple, flexible model for the broadcast corporate groups. In fact, it was one of the reasons why we endorsed a group-based CPE approach in the first place in principle.
5184 The Commission's conceptual model is a useful working document but it needs to be fine-tuned very carefully. If not, it could lead to significant unintended consequences for Canadian programming in the system.
5185 Based on the modelling we have done, we believe it would be difficult to completely harmonize existing discretionary service CPE requirements at the group level. This would erode the uniqueness of each pay and specialty service. It would seriously undermine the diversity of Canadian programming they provide in the system.
5186 Layers of additional safeguards would need to be added to avoid this unintended outcome. We can discuss those specifics if you wish.
5187 After much thought, our preferred option is to maintain the existing approach with individual CPE levels for each specialty and pay service and introduce an overall CPE for private English-language over-the-air television. After all, the specialty model is not broken.
5188 The question then becomes: To which broadcasters should an overall CPE requirement apply?
5189 We believe it is appropriate to limit the requirement to the large private English-language over-the-air television groups.
5190 We also looked at the question of how to set the CPE level. We believe the simplest way is to examine the Canadian programming expenditures actually made by conventional broadcasters over an appropriate number of years as a proportion of that broadcaster's total over-the-air television revenues.
5191 Finally, we believe it is not enough to have an overall over-the-air television CPE requirement. Peter Grant explained this point in his speech to the Broadcasting Invitational Summit this past June.
5192 To paraphrase, even with an overall conventional TV CPE requirement, over-the-air broadcasters still have the incentive and opportunity to reduce their spending on riskier and more expensive Canadian programming. They will naturally focus their spending on programming categories that do not compete with U.S. programming, such as news and sports. Therefore, safety nets need to be established for priority programming.
5194 MR. COX: As a solution to their financial challenges, some broadcasters have proposed lower regulatory requirements with respect to Canadian priority programming and independent production.
5195 This is absolutely the wrong approach. Reducing priority programming and independent production runs contrary to the policy objectives of the Broadcasting Act. We should not weaken the framework the Commission has carefully built over the years. This framework serves Canadians well. Now is not the time to take a step backwards.
5196 Some broadcasters say the priority programming rules do not provide them with enough flexibility. Some want to broaden the definition even further and extend peak time period.
5197 To us these are puzzling suggestions. Existing priority programming rules provide conventional TV broadcasters with enormous flexibility. Almost every Canadian programming category currently qualifies as priority programming, except for news, information and sports. That means that reality shows, magazine shows, documentaries and drama of any quality or cost level can count. If everything is a priority, then nothing is a priority.
5198 The requirements are modest, only 8 hours on average per week in prime time. That is less than 30 percent of prime time or 6 percent of the broadcast day, and the broadcasters have the added flexibility to average over the entire broadcast year.
5199 As well, there are also currently no requirements with respect to original first-run priority programming versus repeats in meeting the modest exhibition requirements.
5200 Consider this: Almost 40 percent of the required hours of priority programming broadcast by CTV over the past five years on average have been repeats and this includes the impact of bonusing up hours resulting from the use of drama time credits.
5201 Given these facts, existing priority programming requirements are hardly a burden. In fact, the current definition of priority programming has been detrimental to truly underrepresented Canadian content in the system, in particular drama.
5202 We therefore recommend a tightening up of the program categories that qualify as priority programming. This will ensure adequate support for the production and exhibition of truly underrepresented Canadian content. This would include at a minimum no longer allowing entertainment magazine programs to qualify as priority programming.
5204 MS SCHUYLER: Every program begins with a story and every story begins with an idea. And it is a long way from the idea to the program. Trust me.
5205 That idea needs to be nurtured. It needs a creative team. It needs writers and a script. It needs to be financed through combining private and public funding, tax incentives, partnerships and maybe co-production opportunities.
5206 And once it becomes a story, it needs to be told through broadcast partners, multimedia platforms, distribution deals, and on a good day international sales.
5207 Against the odds, independent producers make all of this happen. Nurturing the idea and making the program happen, that is in essence what the independent producers do.
5208 Specifically, why are independent producers important to the system?
5209 We have answered this question before and it is critical to reiterate this as part of this process.
5210 First, we provide a diversity of ideas and voices. Highly consolidated and centralized broadcasters do not.
5211 We are a key access point to the creative community: the writers, the directors, the actors. We incubate ideas. We create and we innovate.
5212 Let me give you a very recent example. Vision TV put out a call to independent producers for proposals for dramedy series that reflect Canada's cultural diversity.
5213 Independent producers submitted a whopping 280 submissions. In an in-house or affiliated production model, there may have been half a dozen ideas at best.
5214 Second, independent producers come from all regions of Canada. We ensure that Canadian programming reflects all of Canada. If not for independent producers from the regions, stories such as "Corner Gas," "Mayerthorpe" or "Da Vinci's Inquest" would not have been told.
5215 Third, independent production companies are innovative small- and medium-sized businesses. We are important drivers of the creative economy and jobs. We have the talent, business acumen and entrepreneurial spirit to lead content creation across platforms.
5216 Fourth, we build great relationships with partners around the globe. We take Canadian programming to international markets and bring foreign funds to Canada program financing. We bring Canada to the world and the world back to Canada. That success abroad requires success at home. Three decades of policy support for independent production fuels that success.
5217 Let me give you a personal example to illustrate this point. It relates to what Norm said earlier about the power of CPEs.
5218 When BCE bought CTV it had to spend a significant amount of money on Canadian programming as part of its benefits package. This allowed great things to happen. For my show, "Degrassi," we were able to go from 13 episodes in a season to 22. That helped to build audience and loyalty. It also made the program more attractive to foreign broadcasters, particularly in the U.S. Each international sale fuelled more sales. But "Degrassi" was just one example.
5219 The BCE CTV benefits allowed the Juno Awards to transform from a Toronto-centric production to a roving event, celebrating Canadian music across the country, and this has become the model for the Geminis.
5220 Program spending requirements fuelled these successes but independent production rules are also key. In terms of the hours, the 75 percent priority requirement is modest. It is a mere six hours in prime time per week. That is 21 percent of prime time, or put another way, the six hours represents less than 5 percent of the broadcast day.
5221 As the Commission states in its Diversity of Voices Notice:
"This is not an onerous obligation."
5222 Reducing independent production obligations would not relieve over-the-air television challenges but it would devastate the production sector. It would erode ideas and creativity. It would reduce innovation. It would limit program choices for Canadians. Ultimately, it would mean fewer voices.
5224 MR. BARRACK: Broadcasters are our customers. That said, broadcaster consolidation over the past number of years has dramatically skewed the economic balance of power in favour of broadcasters at the expense of producers. These large broadcast groups now dictate contract terms to independent producers, which threatens both their independence as well as their viability.
5225 Independent producers are seeking equitable terms of trade as a tool to restore balance in the broadcaster/producer relationship.
5226 So what are terms of trade?
5227 They are baseline frameworks or floor agreements that set basic parameters for the negotiation of licence agreements between individual producers and broadcasters.
5228 As you have stated several times, Mr. Chairman, terms of trade agreements will provide the stability and clarity necessary to allow for the most efficient exploitation of content across the widest variety of platforms.
5229 To us, terms of trade will help strengthen the relationship between broadcasters and independent producers. It will define rights. It will set a framework for rights exploitation and revenue-sharing. In short, it will unlock innovation and experimentation for the benefit of Canadians and the system overall.
5230 We welcome the CRTC's efforts to move the terms of trade file along. Most recently, the Commission indicated that it will only consider licence renewal applications for seven years with finalized terms of trade agreements in place.
5231 However, the current economic environment and the instability in the over-the-air television business might well mean that the major broadcast groups will apply for licence renewal terms of less than seven years.
5232 Therefore, we ask the Commission to specify that it will not renew licence applications, regardless of the length of licence term applied for, in the absence of finalized terms of trade agreements with the CFTPA.
5233 Frankly, without this incentive, broadcasters will not be willing to engage in meaningful terms of trade negotiations.
5235 MR. BOLEN: In closing, Mr. Chairman and Commissioners, the CFTPA appreciates that the Commission's job is to strike a reasonable balance for the system, the entire system. We have given the models and ideas a lot of thought.
5236 In the end, we believe it's important to focus on a few key areas.
5237 The most important thing is implementing a CPE for conventional television. This is vital. It's the best way to get foreign spending under control and shift the focus to Canadian content and mechanisms need to put in place to make sure that programs of national interest get made.
5238 One mechanism is retooling the priority programming definition because everything is a priority and nothing is a priority.
5239 Also, a minimum spend on priority programming should be implemented.
5240 And the last thing I want to emphasize is the critical importance of the existing 75 percent exhibition rule on independent production. The system needs our ideas, our creativity, our risk-taking and our diversity. These critical elements will ensure that this hearing results in a positive outcome for the entire system.
5241 Thank you for your attention, and we welcome any questions you may have.
5242 THE CHAIRPERSON: Thank you.
5243 You say the most important thing is implementing a CPE for conventional television. If we do it and we do it properly does that obviate the need of a value for signal?
5244 MR. BOLEN: That is a hard question to answer but I think there is no question that the profitability of the over-the-air services has been degraded largely because of the excessive spending.
5245 You know, we heard earlier from Corus today. I thought it was really interesting when they talked about their local stations that were doing quite well and they said, well, we have costs -- we have our programming costs under control. That's because they weren't spending a lot of money on foreign programming.
5246 So I think that's key.
5247 THE CHAIRPERSON: Well, they also said they have a monopoly market.
5248 MR. BOLEN: They had a monopoly market and there are other reasons. So you know, I don't know.
5249 Do any of my colleagues have a thought on that?
5250 THE CHAIRPERSON: You know we have talked a lot about value for signal and most people have thrown into the same mix the idea that there should be a skinny basic, and basically that it's various definitions. But the key idea is clear, just the local stations and the 9(1)(h) and everything else becomes optional, let the viewer decide.
5251 So therefore -- on the other hand, others like Corus just before you said that's a horrible idea. It actually will weaken the whole system, et cetera.
5252 CanWest said something the same -- the same thing, saying that it really would be counterproductive because what would be -- people would choose just one or two Canadian shows they wanted. The rest they would just choose the 4+1 from the States, et cetera.
5253 What's your view on the skinny basic?
5254 MR. BOLEN: While the idea of consumer choices is always appealing, giving consumers choices, but I think the dangers that have been pointed out are potentially real. And there could be an overall negative impact on the system if people move away from consuming other services.
5255 So I think that's something that's got to be considered very carefully.
5256 THE CHAIRPERSON: Then on CPE your core idea is leave in fact the specialty and pay as it is and establish a CPE for the conventional and then maybe aggregate the two as the overall CPE for the group. If I understood it, that's basically what you are saying.
5257 MR. BOLEN: We would like to see the specialty CPEs stay the way they are. We think they are working extremely well and they have contributed to an immense explosion in the production of good, high quality Canadian content. So we would leave them the way they are.
5258 What we are suggesting is that each over-the-air service should have a CPE for that over-the-air service.
5259 THE CHAIRPERSON: Yeah, but on Monday when CTV was here they put on the table the idea of sharing and obviously it gives them greater flexibility and the various obligations you have whether it's independent production, whether it's CPE, whether it's priority could be shared within limits. Obviously, there would have to be a minimum between the specialty and the conventional so as to give them more flexibility in terms of programming, in terms of how to maximize obviously the success of their business.
5260 They didn't pick that up which I found surprising. So do you think it's a good idea or if not what do you see as the downside on that?
5261 MR. BOLEN: Well, we think that the corporate groups already have immense flexibility and the over-the-air channels have immense flexibility on programming given the very loose priority programming rules we have.
5262 And our concern is that you would have to micromanage the requirements for each channel in a pretty significant way because the danger is that basically over-the-air channels could become the repository for almost exclusively American programming and lower cost Canadian programming and we don't think that's good for the system.
5263 THE CHAIRPERSON: Yeah, but I mean I assume to -- let's say 10 percent maybe share it or something like that. So therefore you would in effect not be absolutely held to the exact number but if you underachieve here, you can overachieve there and as long as the total comes up, okay, that would be fine. That's how I understood this idea to work.
5264 And I find on first blush I don't see any downside to that.
5265 MR. BOLEN: I would ask Mario to comment on that.
5266 MR. MOTA: Mr. Chairman, in your conceptual model, the problem we had with that model was that there were no minimums on spending per service. And so in theory it would allow a corporate group, for example, even within their specialties, to say load up all their Canadian content on say a lifestyle-based channel where the cost of programming is much cheaper and lower their CPE or their spending on a service, say like a Showcase which is a high drama.
5267 So when we started to plug the numbers in the model, there are about 1,000 permutations that you could see gaming in the system where they would move money around so that ultimately they paid less in the end. So that causes a lot of concern.
5268 THE CHAIRPERSON: Yeah, that was our conceptual model. But what I was asking you about was what CTV suggested, which was if you have these CPEs for the various specialities but you have an ability to share, then obviously you would have to put a cap on all this sharing. Otherwise what you suggested would happen.
5269 MR. MOTA: In theory, Mr. Chairman, we don't have a problem with allowing some flexibility. It's this open-ended -- the money can move around. That's why we suggested one of the safeguards would have to be a minimum per service.
5270 THE CHAIRPERSON: Right.
5271 MR. MOTA: As long as it's a reasonable number -- right now on the specialty side as you know, there is the 5 percent flex rule where you can under spend in a given year as long as you make it up in next year. That is a tool the Commission has used for many years to give the specialty broadcasters some flexibility.
5272 In terms of allowing something like that, as long as the number is reasonable between conventional and specialty, I think in theory we think is a reasonable way of giving them some flexibility. But they can't -- it can't be about, you know, having it all because that could do some significant damage to the system.
5273 THE CHAIRPERSON: Okay, thank you.
5274 Steven, you have some questions?
5275 COMMISSIONER SIMPSON: Thank you very much.
5276 My questions, I'm going to try and delve into the -- bifurcate the issues of cost versus value in content, because a lot of difficulty I'm having in trying to square the circle with respect to the behaviours we are seeing in the television industry, is that we are seeing the cost of American programming rise and we are seeing arguably the profits of the OTAs falling, which would seem to signal some kind of odd behaviour in the notion that if you are spending all this money to try and achieve a higher audience and therefore a higher revenue base for your network and this isn't working, why would you perpetuate this?
5277 And I find as I look at your arguments, which I commend you for the volume of everything because it -- but it belies your goal of the paperless conference. I really wish we could somehow figure -- I'm doing my best by the way to meet you page for page, but I failed.
5278 The submissions you are making on the surface sound good but I find them -- I find your solutions a little conflicting as you get into each individual argument.
5279 For example, in the issue of wanting to maintain a CPE requirement that's separate for specialty from conventional, we are seeing a wholesale move of revenue to the specialties and their ability to generate revenue for the same -- for the same owners of conventional would seem to be an attractive notion to go after on a group basis as long as there is some surety that there is an exhibition requirement or a spending requirement attachment.
5280 So with that said would you go back for me and give me a very top line view to your CPE proposal? Because I'm finding it quite complex, to be frank, in that you know you are agreeing that it's a good idea but you are saying that it's not.
5281 You know, it applies only to the conventional and I'm wondering if you could expand.
5282 MR. BOLEN: Well, I think the core element there -- this is -- a lot of this is based on my experience as a programmer working in specialty.
5283 In specialty I have laid out the dynamic of how we put our programming plans together and how the psychology of the way we approached our business was different from that of conventional because we had to put a significant focus and emphasis on making our Canadian programming a profit centre, making it top audience programming.
5284 So that's the first principle.
5285 And we believe across the specialty system that's working extremely well. We have a very healthy specialty sector and it's been making a very good contribution to Canadian content. It's been championing Canadian stars. It has been creating Canadian hits and it's been profitable for the owners and it has had high CPE levels at the same time. So obviously, there is something in that that works for specialty.
5286 Why shouldn't it work for over-the-air?
5287 Our concern of doing it on a corporate basis, as we have said, is if you mix specialty and conventional together you risk actually upsetting the specialty apple cart which is actually rolling along just beautifully. So why is there any need to mess with that? We don't really see any need to mess with that. It's working well.
5288 The problem is on the conventional side and the problem is profitability. The problem actually long term hasn't been a revenue problem long term for over-the-air television. It's been a profitability problem. We have only had one year where revenues dropped in the last -- you know 2008, I believe, when revenues actually dropped.
5289 Now, we recognize there is structural change in over-the-air and growth rates are certainly slowing. We have said repeatedly, and we still believe this, that there is a cyclical component to this revenue problem. Yes, there are structural components to it as well. We are not naive to that. But there is a cyclical component.
5290 And I believe that post-recession the advertising industry will experience a rebound as it has in previous recessions. It's never going to become the growth engine it was five or 10 years ago because we are seeing a shift to the internet. But there is no question that revenues can come back.
5291 The question is profitability. How can over-the-air become profitable? Can they become profitable by continuing to escalate spending on foreign? Where does that end? What is the end result of that as your business model?
5292 What we need to do is refocus, rebalance; put emphasis on Canadian, give it pride of place. Yes, have foreign programming but in balance to continue generating revenue, make some of those Canadian shows actually start to generate revenue. I think we are seeing that.
5293 If you look at a show like Flashpoint now pulling two million viewers on CTV that's an independently-produced Canadian show. It's getting foreign traction. It's on CBS and primetime. It has been re-ordered.
5294 We can do more of that. We can grow the pie and grow the sources of revenue that are coming in to produce Canadian content.
5295 That money that's coming in from CBS isn't just going to some producer's bank account, I can assure you. It's going in to making that show better, stronger and more popular with Canadian audiences.
5296 So it's a paradigm shift. I don't usually say that -- use that term -- but it's a different way of thinking.
5297 The other thing we need to do is we need to all be thinking about the digital future, the digital revolution. We continually hear a discounting of the potential revenue in the digital sphere. It's like, "Oh, it's all dimes. It's pennies". Well, we have seen in other countries that there has been an embracing of the opportunity in their digital domain and there has been significant revenue that has been pouring into content and other domains.
5298 We are seeing internet advertising growing exponentially, online advertising. We need to figure out how to tap into that. We need to do a lot of things around that.
5299 And over-the-air, I would say, in Canada hasn't done a very good job of embracing those opportunities.
5300 So it's a big idea, you know, and the mechanics of it -- you are going to have struggle with the mechanics of all this and there is tons of different ideas. We have looked at a lot of them.
5301 But when we really sat down and looked at our own experience, and what we see around us with our own eyes, we see a model that works well in specialty. We think a big part of that model can apply to over-the-air and we don't see the justification for mixing them together. We originally did approach the problem with that idea in mind at the last hearing. We thought that would be the best approach but when we looked at it, we saw that it would require all sorts of safeguards in order to make it work to avoid those unintended consequences.
5302 COMMISSIONER SIMPSON: Thank you.
5303 I see your argument. I think it's been well presented with respect to your position on the one to one or the one for one. You know, that I think is an articulate argument.
5304 But in looking at your proposal coming back to us -- I think it's Appendix D where you are saying, look, give Canadian programming the chance to be tied to revenue. We think that we can add value to the conventional broadcasters' balance sheet. And you were also saying that taking examples from the existing expenditures it would net out at something like 26 percent starting point, if I'm not mistaken.
5305 Now, that's assuming an incrementality approach. Now, it's putting a lot of onus on the -- and I commend you for this -- that it's putting the onus on Canadian content to be a revenue generator, not just a cost reducer.
5306 What happens if that doesn't happen, if it doesn't pull the numbers and revenues go down -- well, the costs are going down? Is that a scenario that you have thought about?
5307 MR. COX: Well, obviously that's a troubling scenario, but it's actually one that we think is less and less likely especially if the over-the-airs are properly incentivized, if you will, to concentrate on Canadian programming as the specialties have.
5308 Heartland, a show that we are currently filming season three of and have an order for season four, has almost doubled its audience in the last two years. We are now enjoying over 1.2 million weekly.
5309 And our presence on the internet is growing. We see a fanatical fan base and great loyalty there.
5310 And we see Flashpoint as another example. It's clear to us that if properly managed and properly promoted, Canadian content stands up with the best programming in the world.
5311 So the scenario that you point out is obviously one that none of us are comfortable in anticipating. But quite frankly, it also seems to be a scenario that we can avoid if we are mindful of how productive the Canadian imagination is, the Canadian production imagination and the fact that Canadian audiences are responding in greater and great numbers to our programs.
5312 MS SCHUYLER: I'm speaking from the perspective of having been an independent producer for 30 years and have actually watched the maturity of the independent producer in large part helped by a lot of the government incentives and rulings.
5313 The interesting thing about the independent producer is we span right across the country. One of the joys for me of getting involved with the CFTPA was getting to meet my peers from across the country that were over 400 strong. So what's happening is there is 400 parts of development, ideas are being incubated. Ideas are being nurtured right across the country.
5314 So nobody can capture -- nobody can assure that we are going to capture lightening in a bottle and if we did, we would all have hit television shows. You need incubation. You need development. You need diversity and you need to take risk.
5315 But I feel that having watched the independent sector grow and mature and become more healthy, and become very competitive on the international marketplace -- I mean, I'm thrilled that right now it's my American broadcaster on Degrassi that is actually driving my deals and not the Canadian side. And that's happened because we were able to get a very healthy show going through CTV.
5316 So I think that the model is there. I think we have to have confidence in our independent producers. We have to have confidence in the fact that ideas are being nurtured and we just have to go boldly forward that this is a model that can and will work.
5317 MR. BOLEN: You know, I think this is really important. It's the most fundamental question that can be asked here because it's really about what the broadcasting system is about.
5318 And the question that comes to mind when we asked you your question, and I appreciate your question very much -- is what happens if we don't change the model? Because we seem to be on a path that requires us to constantly be finding new band-aids and new ways to prop up the over-the-air system.
5319 The over-the-air system isn't coming to you and saying, "We have a financial model for success based on the current paradigm". They are not saying that. They are not saying, "We have a solution to the problem" other than you know "Let's get a new source of revenue. Let's take it from here and put it over there and get us some more money from here". That doesn't seem to me to solve the fundamental problem.
5320 What's the system -- how is that a sustainable system?
5321 So what is the risk of keeping what we have? It doesn't seem to be going in a positive direction.
5322 MR. BARRACK: Sorry -- I think it's an important question. And I think there is also tools; the conversation earlier about non-simultaneous substitutions, for example, and then there are other mechanisms.
5323 A lot of the answering the question to how to make it work is about scheduling and having real scheduling that can build audience and so forth. That's a lot of why specialty has been successful.
5324 And so we need to look very closely at that and, you know, one of the hats I wear is to work with the unions and guilds in this country to negotiate. I also work with the unions and guilds of the United States. There is a solution to that problem.
5325 I'm not saying that it would be necessarily something you do overnight, but it could be achieved. So I think looking at tools that would allow conventionals to maximize the opportunity for Canadians is going to eliminate that risk.
5326 COMMISSIONER SIMPSON: I was going to get into simsub a little later but it's a good opportunity to get into it now.
5327 I asked a question yesterday that was very hypothetical, as I was reminded by my peers, but I love hypothetical questions.
5328 I asked CanWest yesterday who have, you know, a lot of irons in the fire in this industry -- if they could operate in a totally unrestricted network in Canada that could program anything it wanted without restriction.
5329 And it wasn't just implying American programming. And given an unfettered existence and every available revenue opportunity they could figure out how to go after, could they make a living? And you know I have to take them at face value, but the answer I got was "no".
5330 And the reason why was that their issue was that they are really struggling with the ability to control the product that they have acquired for exhibition. And it came down to simultaneous substitution and a bunch of other stuff, you know, creep of the product via the internet and that sort of thing.
5331 So my question is this; that we seem to be going in different directions here with the issue of simsub, because to the broadcasters simultaneous substitution was a mechanism that we conjured up and put in place with the intention of trying to give some financial viability with the networks. But at the same time, you are saying very clearly that the more effective it is, the more it perpetuates the problem.
5332 So could you expand on which direction you think this thing has got to hit? I know you are going to be giving me a biased answer but, you know, we are trying to find every solution possible here.
5333 MR. BARRACK: Well, on this one, I don't know that we are on a different page from the broadcasters.
5334 Frankly, we want to see them succeed. I mean this is one of those situations where we would like to give them the tools that actually alleviate the problem created by simultaneous substitution and give them -- allow them to retain the benefit of it at the same time. So if you can do non-simultaneous you get all of the benefits without the burden, if I might, and at the same time allow for the building of schedules that maximize those Canadian opportunities.
5335 So I don't think -- to your point I think this is a real win-win for everybody. It allows for the maximization of value in those U.S. programs acquired which is, frankly, if we are going down the CPE road, in all of our best interests, right?
5336 So we are very much in favour of seeing it work to its best effect.
5337 Mario, do you want to add to that?
5338 MR. MOTA: Commissioner Simpson, I mean the point I would make about -- we have thrown out non-simultaneous as an option to consider. We haven't looked at this issue closely. The Commission, I don't think has looked at this issue in a very significant way for well over a decade and the world was very different then.
5339 The issue has always been technologically it's difficult to implement but we are moving to a digital world with the directional set-top boxes and the technologies evolve significantly. So you know the technology exists to make this happen.
5340 But you know we should be giving it some serious consideration. Is this one tool to better protect broadcaster signal integrity? We fully support the fact that if they are buying rights for programming in this country, they should be able to maximize those rights. And that's a big part of their problem, is somebody else has eaten into that right that they purchased.
5341 So when CTV has told you that they would prefer a non-simultaneous substitution with a program deletion option, it makes a lot of sense to us because it does unlock what we see to be the burden of simultaneous substitution, which is our producer, our members will -- and we have said this before -- we will never achieve the success in this country for Canadian programming if Hollywood studios or the U.S. networks are scheduling our Canadian networks.
5342 We are just never going to get there. So we are spending money. We have BDU contributions to help fund this stuff, but we are never going to get to those levels of the Flashpoints of the world unless we find an alternative, I think, to simultaneous substitution.
5343 So I think the Commission and the industry should -- we should put our heads around this and find creative ways of benefiting the system as a whole.
5344 THE CHAIRPERSON: What's stopping you from doing it right now? Why didn't you do that for this hearing? It's clearly on the table.
5345 I mean this is a policy hearing for conventional and you think it's so important, why are you not making -- we actually published a paper on it. We are seeking comment and you are giving me generalities. Well, I don't understand this.
5346 MR. BOLEN: Well, we have not done a study on simultaneous substitution on the specifics of it, the technology on it and so on. We have taken a look at the rights issue around non-simultaneous substitution because of John's connection with the unions and guilds in the States. We think there is opportunity there.
5347 But we are just bringing forward that this is -- protecting program rights is the principle, you know. Mr. Cassaday talked about what are the principles.
5348 One of the principles is protecting programming rights. Non-simultaneous substitution isn't the only way to do that. Program deletion is another way to do that, and that's something that people in Canada seem to think is consumer unfriendly. But it's something that's done all the time in the United States and consumers have learned to adapt to it, because program rights are protected in different regions and territories in the United States by program deletion.
5349 We seem to have a block about looking at that idea. That's another very simple idea.
5350 So you know we would be happy to participate in any industry-wide initiative to try to explore the nuances of non-simultaneous substitution. It's not really our area of expertise but the question of program rights is our area of expertise and we think they need to be protected. And we need to have control of our schedules.
5351 You know, we would like to help out in any way we can to do the work that needs to be done.
5352 COMMISSIONER SIMPSON: I very much encourage that, and I sense and I would be interested if you have any top of mind notions on this. But it seems to me that simultaneous substitution examination would be tied to, you know, a cornerstone policy on Canadian. It would have to be, I would think, because -- you know to ensure that both policies would be successful or serve their end purposes.
5353 The next question I have got for you is on drama. Heavy emphasis in your submissions on the need to uphold and recognize the contributions of drama to the Canadian narrative.
5354 I can't help but notice that there are some anomalies that are starting to form. We are seeing it in the United States with drama is drifting to specialty and winning Emmys and not having the audience. You know it's embarrassing when you have a show like Mad Men that wins a ton of Emmys and half the audience hasn't seen the show, which goes to your point about the importance of the conventional television relationship to Canadian content, and I fully subscribe to that.
5355 But if there is a migration of drama to specialty and there is an update to that phenomenon in Canada, is this the principle reason why you are wanting to make sure that specialty is treated separately from conventional so that you can adjust your policy to support for drama if it finds its way at that level onto specialty TV?
5356 MR. BOLEN: No, that wasn't our thinking because by and large drama on specialty tends to be lower budget than on over-the-air because of the over-the-air revenue profile and also the reach of over-the-air. So it's very hard for specialty in -- it's very hard to see specialty in Canada doing big budget drama. They can participate with an over-the-air broadcaster in that production but that wasn't an olive factor in our thinking.
5357 And the truth is, if you look at over-the-air television in Canada right now, and I encourage you to do this, take a look at the top 25 shows in any given week, there is a website that shows that information.
5358 You will still see that the vast majority of programs are drama programs. The vast majority of programs that people enjoy and watch are drama programs. You have got a few high-end reality shows that come in there, the Canadian Idol type shows or the Battle of the Blades type shows, you have got a few sports shows that come in really high, but the rest of the shows are all drama shows. So drama is still extremely popular and it is still extremely popular in the States.
5359 And, you know, in the States NBC took the gamble of putting Jay Leno on at 10 o'clock, they thought they could get a better result with Jay Leno at 10:00 because it was a lower cost profile. And, in fact, that strategy hasn't worked, the dramas are consistently beating NBC in that 10 o'clock timeslot. And I don't think drama is at all dead on over-the-air television, shouldn't be.
5360 The problem is Canadian drama is not being well represented. You have got foreign drama extremely well represented, but Canadian drama unrepresented and that is one of the reasons we think we need to tighten up the priority programming rules.
5361 You know, to allow entertainment magazine programming, for instance, to chew-up a significant portion of the priority programming commitment isn't really doing much good for the system, it is not really supporting that high value programming of national interest like drama.
5362 And we think that by having tightened up priority programming rules, by having a CPE and by having some spending requirement around priority programming as well, those three elements will contribute to us seeing more Canadian stories on prime time on over-the-air with the protection of programming rights and the freeing up of scheduling. It is all packaged, it all works together.
5363 COMMISSIONER SIMPSON: Speaking of packages, with respect to independent producers, I take your point that they bring a diversity of voices to the table, diversity of ideas and creativity. But as the saying goes, sometimes your greatest strength is your greatest weakness.
5364 And where I am going with this is the whole economic model of the independent production. And my question is focused on one of being able to secure the kind of development financing that you require to be able to bring a good assortment of product to your customer, which is the network.
5365 Would you give me a quick tour as to what you are finding within that producer community of 300 or 400 right now? You know, are you getting enough pilots to the table beyond script stage or is there an opportunity to think about a different way to start packing up these projects with a consolidation effort?
5366 MR. COX: Well, clearly, we are adjusting our thinking to ensure that we are exploring multiple platforms and we will continue to have to broaden our horizons with respect to how we finance and how we develop. The crucial aspect in all of this though is the retention of rights and, therefore, the ability to exploit our product in after markets.
5367 We typically fund a level of development, each of us, across the country. And I would say that for every project that we bring to a broadcaster there are 10 that we look closely at that we work with with writers, that we work with with our own in-house development people to decide whether it is viable in the marketplace, whether it is viable in the Canadian and international marketplace, whether it is a viable project across multiple platforms. That is an expensive proposition and it is one that we undertake on our own before we take an idea to the broadcaster.
5368 We can only continue to do that development, that predevelopment if you will, and continue to advance our companies to the point where they are sustainable if we own rights and if we maintain the ownership of those rights.
5369 We are happy to see broadcasters licence those rights, we are happy to share revenue with them if they have licensed rights and we absolutely want the broadcasters to prosper. But in terms of our ability to develop, it hinges on our ability to retain and maintain rights and exploit those rights. And if we are able to, we will be sustainable companies and we will continue to generate the ideas that will make the Canadian broadcast system work.
5370 MS SCHUYLER: One of the things I think that the independent producers have become very skilled at over time is really taking one dollar and giving incredible value to this on screen. And, you know, I look at financing a Canadian independent production as dealing with a labyrinth of moving parts, it is just everything is interconnected and it is moving. And what we have to do, as the producers, we find we have, when you have entered into a deal with a broadcaster, you have got a hard day for delivering your project.
5371 So what happens to us is, I have shared these stories with Tom, it is exactly the same as my story, we have to begin production on a particular day, we start on that day, we are not fully financed. We carry the cost of our own financing, collateral mortgages on properties that we might own, whatever.
5372 But we are able to take this risk and we take this risk because we are passionate about the shows that we are producing and, as Tom said, we are counting on there being a award at the other end. And with that reward, we can nurture the talent that I was talking about earlier.
5373 So are there new models for independent production? I don't know. In 30 years I have lived through many of the models. We are very nimble as producers in finding ways to work with our broadcasting partners, and that is the key.
5374 Our relationship with our broadcaster is critical, that is what triggers everything else. And what happens in independent production, that broadcaster stays with that show, they assign a broadcast executive, that executive is there -- we don't just do the deal with the broadcaster, we get our casting approved, our writers approved, our directors approved so that there is a real partnership going on here rather than just taking a show where all the creative decisions have been made south of the border and dropping it into a schedule.
5375 So we think, in the long-term, that that partnership with the independent and the broadcaster is a very healthy model and one that needs to be really supported.
5376 MR. BOLEN: If I could just add, as a former broadcaster who also did in-house production, I am actually having a hard time understanding why this issue has become so important to so many broadcasters.
5377 And, you know, broadcasters are not particularly efficient at producing programming, we aren't. I lost a lot of money doing that and, you know, it wasn't exactly a career highlight for me, trying to produce programming in-house. The best success we had was sharing the risk with the independent production sector.
5378 And I think perhaps if you look at the whole package of what broadcasters are putting forward here -- and I am really not trying to slag them, because they are essential to our success -- you know, if you look at the flexibility that is being suggested, the flexibility that is being suggested really is saying a lot of in-house production can happen on lower-cost programming that isn't necessarily of the greatest value to the system. And our model going forward will be to do a lot of more of that volume in order to meet our CPE requirements.
5379 There is a danger, if we don't put the right safeguards in place, that the whole system goes in that direction, which really doesn't fit public policy on what broadcasting is supposed to contribute to the Canadian system.
5380 So you know, I think if you peel away the layers, where is all this going; more in-house, more flexible priority, moving everything around the channels, don't worry about the foreign, where is that going?
5381 I don't see that that is a solution to the structural problem that we face. It is not a solution, because the solution that is proposed requires more and more money being poured in, whether it is LPIFs or value-for-signal or whatever other thing we come up with next.
5382 COMMISSIONER SIMPSON: Thank you.
5383 To go back to my opening comments, what I am trying to probe here is not the issue of the economics of production per se and that argument. I am looking more forward rather than back to the issue of, again, how does a Canadian producer add value to the overall equation?
5384 And because the value word is a really an amorphous word and we are struggling to quantify it. And my question is coming more from the perspective of the right issues. Everybody wants the rights, but nobody is sure what to do with them.
5385 And what I find interesting, there has been many arguments or many comments made by the production community that broadcasters negotiate rights and then seldom use them beyond the exhibition platform. And the production community, being entrepreneurial, knows exactly what to do with them, but often is limited by their ability to exploit the other values of that content.
5386 So going forward into something like youth programming, children's programming as an example of a product that can go cross-platform and have all kinds of potential for additional revenues, is there the opportunity to look at -- perhaps even through the structuring of how the Canadian Media Fund is appropriated, is there an opportunity to look at funding formulas that acknowledge a more collaborative relationship with the broadcaster and the production community on a mutual exploitation of those rights and values to be able to try and, you know, add more value to the chain?
5387 MR. COX: I certainly think that is possible. Having said that, our core business is the exploitation of our products. Before we ever take an idea to a broadcaster, we have already shared it with international distributors, with LA agents, with potential foreign co-producing partners to know that it has a place in the marketplace.
5388 That extends to multi-platforms, that extends to every conceivable way of monetizing a project. That is our core business and we recognize that that is not necessarily the core business of the broadcasters. So we think we are actually in a better position to carry that ball. But to the extent that they are willing to licence rights, we are very very interested in working with them, partnering with them to ensure that those rights are properly exploited.
5389 MR. BOLEN: To speak to your broader point about the future --
5390 THE CHAIRPERSON: Excuse me, Mr. Bolen, it is just I am terribly worried about time. Could we be a bit more succinct, both with the questions and the answers, because it would be unfair to give you more time than --
5391 MR. BOLEN: Okay. Well, I will try to be very succinct. Just to your broader point about the CMF, we are moving in the right direction by this shotgun marriage really that the Heritage Department is forcing on the production sector, the broadcasters and the interactive media sector. And that is going to generate a lot of really interesting creativity.
5392 But again, rights are key. If we have no control over rights or are not in a rights sharing arrangement, we can't do much about exploiting and growing.
5393 MR. BARRACK: And, very quickly, that is why in our terms of trade proposal, for example, it is very simple, use it or lose it. Our view is happy to licence if there is a plan to use, but because we are entrepreneurial and because we are nimble we will exploit them if they are, don't please put them on the shelf.
5394 COMMISSIONER SIMPSON: Okay, last question. This leads right into terms of trade. How do you see the terms of trade actually working in a top-line way and, as a takeaway, what role do you see the Commission having in terms of trade?
5395 MR. BARRACK: I think the Commission, and we appreciate what the Commission has done to date to sort of facilitate this conversation, but as you have heard in the conversations between the BDUs and the broadcasters there is often a reticence to come to the table and this is a reason to come to the table.
5396 I think, as we said in our statement, the Commission needs to incentivize the broadcasters to engage in this process or, quite frankly, they won't. And I think the proposal that we have put forward, which is essentially when you seek your application please come with completed terms of trade, I think that is ultimately, if I might, both the carrot and the stick.
5397 But without some impetus from the Commission, without some push from the Commission, this is not going to happen, because there is frankly extraordinary inequity of bargaining power. You heard that this morning when you heard Mr. Maavara, you know, we are okay with independent production, but don't make us do terms of trade.
5398 That is similar to the example you hear everyday when licensing terms are negotiated between broadcasters and independent producers, yes, it is a partnership, but it is not an equal partnership. And without the Commission stepping in there, what is happening is independent producers are losing their independence. So we need the Commission to motivate this process.
5399 COMMISSIONER SIMPSON: Thank you very much.
5400 THE CHAIRPERSON: Len.
5401 COMMISSIONER KATZ: Thank you, Mr. Chairman.
5402 I just have one question, it is a clarification I think more than anything else. On page 4 of our opening remarks, the second sentence of the first full paragraph reads, "The massive spending on foreign programming takes a big bite out of over-the-air television profitability."
5403 Are you suggesting that foreign programming is not profitable and that the more foreign programming that is done the more it drives the OTA's profitability negative?
5404 MR. BARRACK: I think what we are saying is that, and as Peter Miller found in his study, the biggest negative impact on profitability of over-the-air television is excessive spending on foreign programming and the growth of foreign programming, the rate of foreign programming beyond the revenue growth.
5405 COMMISSIONER KATZ: That is not my question.
5406 MR. BARRACK: Well --
5407 COMMISSIONER KATZ: Is foreign programming, in your mind, making a profit or not making a profit?
5408 MR. BOLEN: Some of it is, but I would submit that not all of it does. When I was buying foreign programming at Alliance Atlantis I was often forced by the American distributors to buy programming that I couldn't even use or that didn't perform for me. The show I wanted performed, but other shows didn't.
5409 And in fact, the over-the-air broadcasters have programming now on the shelf that they are paying big bucks for that doesn't even get aired. Can you say that that is profitable programming, profitable foreign programming?
5410 COMMISSIONER KATZ: I mean, obviously --
5411 MR. BOLEN: But in general foreign programming, yes, makes money generally, I wouldn't deny that.
5412 COMMISSIONER KATZ: Okay, that is my question.
5413 MR. BOLEN: But is it making a level of profitability that is sustainable for the over-the-air television business? That is the question.
5414 COMMISSIONER KATZ: Okay, thank you.
5415 THE CHAIRPERSON: Steve, you have a question?
5416 COMMISSIONER SIMPSON: There is a lot of stuff on the table. Can we render that six inches of stuff --
5417 MR. BOLEN: Yes.
5418 COMMISSIONER SIMPSON: -- down to a list, a priority list of perhaps -- you know, starting with the most important down to perhaps the fifth most important please?
5419 MR. BOLEN: I can actually do better, I can do four. I can give you the four things that are most important to us. And the first one is to have a CPE, a reasonable CPE that doesn't just perpetuate the status quo, but actually motivates the broadcasters, reduce their foreign spend and put increased real emphasis on Canadian programming, so CPE is number one.
5420 Number two, for diversity of voices, regional reflection and the entrepreneurship of independent producers, maintain the 75 per cent independent production rule on priority programming. The third most important thing, redefine priority programming, tighten it up, at the very minimum take out entertainment magazine programs.
5421 And the fourth thing is, put some spending requirements on the priority programming exhibition requirement to really make it work so that it is not just a hollow vehicle, it actually has an impact. Those are the four things.
5422 Everything else in our proposal, we put a lot of other ideas in our proposals, put a lot of research, a lot of suggestions, a lot of tools you might cherry-pick from and find something that is of use, but these are the four things that really matter.
5423 COMMISSIONER SIMPSON: Thank you.
5424 THE CHAIRPERSON: Okay, thank you for your presentation. And you have until December 14 to follow-up on a certain point. And again, I urge you, if you think simultaneous substitution and those other things are important, spend some time on it and share your views with us. Thank you.
5425 MR. BOLEN: Thank you very much.
5426 MR. BARRACK: Thank you.
5427 THE CHAIRPERSON: Well, we will break now and we will resume at 1 o'clock.
--- Upon recessing at 1148
--- Upon resuming at 1311
5428 THE SECRETARY: Order, please. À l'ordre, s'il vous plaît.
5429 LE PRÉSIDENT : O.K. Commençons.
5430 Je m'excuse pour le retard, Monsieur Rémillard, mais les restaurants étaient trop longs pour mes collègues.
5431 O.K. Commençons.
5432 LA SECRÉTAIRE : Merci, Monsieur le Président.
5433 Alors, j'inviterais maintenant V Interactions inc. à faire sa présentation. Monsieur Maxime Rémillard comparaît pour V Interactions inc.
5434 Monsieur Rémillard, veuillez nous présenter vos collègues. Vous disposerez ensuite de 20 minutes pour faire votre présentation.
5435 M. RÉMILLARD : Merci, Madame Roy.
5436 À ma gauche, monsieur Mark Sorella, directeur des Affaires juridiques et réglementaires chez V Interaction; monsieur Sami Chaouch, vice-président exécutif, Stratégie entreprise et chef des Services financiers; et à ma droite, monsieur Tony Porrello, vice-président exécutif et chef de service de Diffusion; et moi-même, Maxime Rémillard, co-président et chef de la direction.
5437 Monsieur le Président, Mesdames et Messieurs les Conseillers et les Conseillères, nous vous remercions de votre invitation et de la tenue de cette audience. Elle survient à un moment crucial et touche des enjeux majeurs pour l'avenir de la télévision au Canada.
5438 Remstar Diffusion est devenue propriétaire de TQS en septembre 2008, après que ce réseau ait traversé une période de plusieurs années de difficultés et une faillite technique débutée en décembre 2007.
5439 La relance du réseau a plutôt été une réinvention de l'entreprise, parce que nous avons :
5440 - revu le modèle d'affaires et maintenu 170 emplois à l'interne;
5441 - clarifié les rôles en nous spécialisant dans la diffusion et l'exploitation du contenu et en confiant à des producteurs indépendants la réalisation de toutes les émissions;
5442 - nous avons investi 30 millions de dollars dès la première année pour produire du contenu réalisé par des producteurs et des artistes du Québec, ce qui a permis la création de plus de 300 emplois et des retombées de 40 millions de dollars;
5443 - nous avons également investi plusieurs millions pour déménager l'entreprise et installer la technologie numérique la plus avancée pour diffuser toute notre programmation en haute définition;
5444 - finalement, nous avons créé la nouvelle identité V qui reflète notre positionnement et notre public cible, et qui se décline à la télévision et sur le web.
5445 Contrairement aux arguments présentés par certains EDR, nous avons fait des efforts considérables pour nous adapter à l'environnement actuel, et nous consacrons aujourd'hui plus de 66 pour cent de nos revenus publicitaires en programmation à l'écran.
5446 Ces efforts commencent à porter fruit puisque nous avons augmenté notre auditoire de 30 pour cent chez les 18 à 49 ans, et près de 56 pour cent de notre auditoire a moins de 50 ans.
5447 Nous rejoignons un auditoire plus jeune que les autres généralistes, car l'âge moyen de notre public est de 42 ans.
5448 Mais nous vivons le double paradoxe de la télévision généraliste privée :
5449 - plus d'obligations que les spécialisées, mais moins de sources de revenus;
5450 - des abonnés au câble et au satellite qui paient pour la télévision qu'ils ne regardent pas, mais qui ne paient pas pour la télévision qu'ils regardent.
5451 Comme toutes les généralistes privées, nous n'avons aucune contribution garantie de l'état, et 100 pour cent de nos revenus sont soumis aux fluctuations de l'économie.
5452 Nous diffusons une programmation complète, et nous devons payer toutes et chacune des émissions que nous diffusons. Rien n'est gratuit pour nous, et nous devons engager nos dépenses plusieurs mois avant de toucher le moindre revenu.
5453 Et contrairement à la télévision généraliste publique, nous ne débutons pas l'année avec une trésorerie solidement alimentée par l'état, ce qui nous a obligé à adopter une série de mesures pour réduire nos frais d'exploitation.
5454 Sans la contribution du Fonds pour l'amélioration de la programmation locale, les réductions auraient été encore plus sévères.
5455 Nous gérons de manière vigilante et responsable afin d'éviter de retomber dans un cycle de pertes annuelles majeures. V constitue donc par son contexte un pur réseau de télévision généraliste.
5456 Nous sommes prêts à vivre et à nous développer dans un environnement concurrentiel et équitable pour tous les partenaires. Nous recherchons simplement un level playing field, et nous espérons que cette initiative du CRTC permettra de moderniser le cadre réglementaire pour atteindre cet objectif.
5457 Aujourd'hui, 92 pour cent des citoyens du Québec et du Canada sont abonnés à un service de câble ou de satellite. La télévision gratuite existe au bénéfice de très peu de Canadiens dans les faits, mais son maintien coûte très cher aux généralistes, surtout avec le passage au numérique.
5458 En obtenant un accès exclusif aux revenus provenant des tarifs de distribution, les chaînes spécialisées se sont multipliées et ont assuré leur rentabilité sur une base stable et avec très peu d'obligations.
5459 Leur accès à cette base de revenus leur permet de maximiser la publicité comme seconde source de revenus en réduisant leurs tarifs de manière agressive et exploitant une définition élastique de la publicité locale dont les télévisions spécialisées devraient, en principe, être exclues.
5460 Les télédiffuseurs généralistes privés, qui doivent offrir de la programmation locale et de l'information, se heurtent donc à un marché publicitaire très difficile et déséquilibré.
5461 En avril 2008, lors de leur comparution devant le Conseil, les représentants de l'Association canadienne des annonceurs affirmaient que les télévisions spécialisées étaient en mesure d'offrir des meilleurs taux aux annonceurs parce qu'elles bénéficient de la subvention que constituent les redevances d'abonnement.
5462 L'existence de cette subvention leur permet de vendre leur temps d'antenne moins cher, ce qui crée une pression à la baisse sur les taux des télévisions conventionnelles.
5463 Cette subvention a aussi pour conséquence de faire migrer les annonceurs vers les canaux spécialisés de sorte que les annonceurs ne font presque plus de distinction aujourd'hui dans leurs achats média entre les généralistes et les spécialisées.
5464 Il en résulte que les généralistes ont moins de ressources à consacrer à leur programmation globale et à leur programmation locale en particulier.
5465 Le résultat prévisible est le suivant :
5466 - la marge bénéficiaire des sociétés de câble est plus de 25 pour cent;
5467 - celle des télévisions spécialisées est aussi de 25 pour cent;
5468 - alors que celle des généralistes est à 0 pour cent en 2008.
5469 Dans une industrie de la télévision où les principaux générateurs de contenu original prennent des risques majeurs pour un retour nul, tandis que les deux autres partenaires ont des revenus assurés et réalisent des profits impressionnants, il est important que le CRTC révise les règles du jeu dans l'intérêt de tous les Canadiens.
5470 Cet intérêt est important car les Canadiens aiment leur télévision, et c'est encore plus vrai au Québec pour la télévision francophone. Si la qualité de notre programmation originale se détériore, l'attrait des contenus américains grandira, notamment auprès de la génération montante car leur niveau de bilinguisme est élevé.
5471 Le CRTC est conscient de la nécessité de revoir les règles du jeu.
5472 Le moment est venu de procéder à un rééquilibrage et de répartir les revenus d'abonnement de manière à établir un marché équitable. Il faut partager la tarte sur une base différente, et il n'est pas nécessaire de l'agrandir aux dépens des consommateurs.
5473 La mise en place d'un processus de négociation entre les divers partenaires, sous la supervision du CRTC, est essentielle pour atteindre des résultats tangibles à l'intérieur d'un délai raisonnable.
5474 Compte tenu des spécificités de la télévision francophone au Canada et en particulier au Québec, les négociations pourraient se faire avantageusement en suivant deux processus similaires, mais segmentés sur une base linguistique.
5475 Ainsi, tous les partenaires qui desservent les auditoires francophones mèneraient leurs négociations parallèlement au processus des partenaires des réseaux anglophones.
5476 La télévision francophone généraliste joue un rôle majeur dans la création et la diffusion du contenu culturel, en particulier au Québec. La production de séries de qualité ou à grand déploiement ne peut être assurée par les chaînes spécialisées, ni par internet. Elle représente un contenu qui est indispensable à la qualité de notre vie collective.
5477 V appuie donc sans réserve l'orientation formulée par le CRTC à l'effet qu'il faut négocier le montant d'une compensation, équivalant à la valeur du signal de la télévision traditionnelle dans le marché.
5478 La télévision publique -- Radio-Canada et Télé-Québec -- devrait être exclue de ce processus parce qu'elle est largement financée par les impôts des Canadiens et dispose déjà de plusieurs sources majeures de revenus, dont les contributions annuelles versées par l'état et la publicité, sans compter, dans le cas de Radio-Canada, la part du lion du nouveau Fonds pour l'amélioration de la programmation locale.
5479 La valeur réelle du signal des généralistes est indéniable puisqu'elle représente plus de 50 pour cent de l'auditoire des télévisions francophones au pays.
5480 L'attraction et la fidélisation de la clientèle passe par le contenu, et la télévision généraliste doit obtenir les revenus qui correspondent à la valeur du contenu qu'elle diffuse.
5481 Afin d'obtenir des résultats rapidement et équitablement, le CRTC doit baliser le cadre de ces négociations pour en favoriser le bon déroulement, en tenant compte du statut mixte de certaines entreprises qui sont à la fois diffuseur et distributeur.
5482 La juste valeur marchande d'un signal traditionnel doit reposer sur des critères pertinents.
5483 La base du calcul de cette valeur devrait être la moyenne des redevances par mois par abonné versée aux télévisions spécialisées obligatoires.
5484 À cette base devrait s'ajouter une valeur de performance calculée à partir d'une pondération négociée de trois critères principaux, soit :
5485 - les obligations d'heures de programmation locale;
5486 - le ratio des dépenses de programmation canadienne sur l'ensemble des dépenses de programmation;
5487 - et finalement, les cotes d'écoute.
5488 Pour des raisons évidentes et compte tenu de la concentration qui existe dans l'industrie, il faudra également tenir compte des montants par abonné qui sont versés aux chaînes spécialisées et de leurs parts de marché, soit une clause de nation la plus favorisée.
5489 V souhaite participer de façon constructive au processus de négociation et que le CRTC établisse un délai de six mois au-delà duquel la négociation cèdera le pas à un processus d'arbitrage obligatoire.
5491 M. CHAOUCH : Merci, Maxime.
5492 Nous voulons maintenant aborder l'excellente initiative que le Conseil a mise de l'avant en créant le Fonds pour l'amélioration de la programmation locale.
5493 Il nous apparaît important de souligner la pertinence d'augmenter la contribution des EDR au Fonds, tout en différant pour les deux ou trois prochaines années qui viennent l'obligation pour les diffuseurs de contracter des dépenses additionnelles en contenu local.
5494 Nous partageons, évidemment, le constat formulé par le Conseil quant à la capacité des télédiffuseurs traditionnels d'élaborer des modèles d'entreprise rentables à condition qu'ils soient appuyés par des sources de revenu prévisibles qui reflètent la valeur de la programmation qu'ils diffusent.
5495 La crise que connaît présentement le secteur de la programmation locale touche la structure même de l'industrie. À notre avis, le Fonds doit donc être renouvelé pour les années à venir avec un plancher d'au moins 1,5 pour cent et viser la cible de 2,5 pour cent, qu'on pourrait atteindre progressivement.
5496 D'ailleurs, c'est ce qui est recommandé dans le rapport du Comité du Patrimoine canadien déposé le 19 juin dernier à la Chambre des Communes.
5497 Ce Fonds, à notre avis, doit être transitoire, et la hausse graduelle de 1 pour cent pourrait être assortie de conditions visant à ce que la plus grande partie des nouveaux revenus se traduise en investissements supplémentaires soit en production locale ou en contenu original canadien.
5498 Il sera important de tenir compte pour nous de la situation particulière de V dans l'élaboration des critères d'admissibilité au Fonds. En fait, compte tenu de la situation vécue par l'entreprise durant les deux dernières années de TQS, il serait injuste et inéquitable de baser la formule de redistribution sur les investissements effectués pendant les trois dernières années de référence. Manifestement, ce critère ne nous avantage pas beaucoup.
5499 En revanche, cette formule avantage grandement les télévisions publiques en calculant le soutien supplémentaire du Fonds sur une base qui repose largement sur l'injection de fonds publics. Cette formule a permis cette année au service français, par exemple, de Radio-Canada de toucher près des deux tiers des sommes allouées, et nous considérons, quant à nous, que les télévisions généralistes publiques ont un statut particulier parce qu'elles sont financées, justement, par des deniers publics.
5500 Le Conseil devrait trouver une formule peut-être plus équitable de redistribution annuelle du Fonds en se basant sur les heures de programmation locales exigées de chaque réseau généraliste. Il favoriserait ainsi une plus grande équité entre les généralistes, en évitant de valoriser le transfert de dépenses des généralistes vers les régions.
5501 Je veux aussi résumer nos suggestions concernant les autres enjeux soulevés dans la présente consultation.
5502 Le passage à la diffusion numérique représente des investissements majeurs pour les télédiffuseurs, sans pour autant générer de revenus supplémentaires. Ainsi, V devra investir des sommes considérables dans le déploiement de nouvelles antennes émettrices sur le territoire québécois, en plus d'absorber les coûts associés à cette transition technologique en remplaçant les équipements désormais désuets.
5503 Il sera impossible de rentabiliser l'installation des nouveaux émetteurs dans les régions les moins populeuses que nous desservons. Nous demandons donc au CRTC de faire preuve de souplesse et de compréhension en cette matière.
5504 On peut estimer, quant à nous, qu'environ 8 pour cent des auditeurs ne reçoivent pas le signal de V par le câble ou par satellite. Ce n'est pas suffisant. Les revenus générés par leur inclusion dans le marché publicitaire ne compenseront pas les investissements requis dans les régions les moins populeuses.
5505 Dans certaines régions -- c'est, par exemple, le cas pour V à Trois-Rivières -- les abonnés d'un service satellite n'ont pas accès à la programmation locale.
5506 Dans les cas de Sherbrooke et de Saguenay, les ententes actuellement en vigueur sont reconduites de mois en mois, et, par conséquent, les abonnés de ces régions pourraient se retrouver privés de signal.
5507 En plus de priver les abonnés d'un service public et d'avoir un impact sur les revenus publicitaires régionaux, nous pensions que cette pratique va à l'encontre de la Loi sur la radiodiffusion.
5508 Nous ne pouvons qu'appuyer la volonté exprimée par le CRTC de corriger ce manquement car il est essentiel que les services de programmation régionale de chacune de nos régions soient distribués sur toutes les EDR présentes.
5509 Nous avons de sérieuses réserves à l'égard des propositions initialement avancées par Bell TV et Shaw Direct d'offrir un service satellite gratuit de type Freesat, car nous craignons que cette solution se traduise par l'obligation pour les télédiffuseurs de défrayer la note ou de payer le coût d'acheminer nos signaux à Toronto.
5510 En outre, V ne s'oppose pas au principe de reconnaître sur le plan réglementaire le concept de groupes de propriété, mais nous recommandons que le Conseil le balise avec une grande rigueur afin d'éviter que les nouvelles règles ne favorisent indûment les entreprises qui exploitent un grand nombre de chaînes en leur permettant de transférer leurs obligations de manière stratégique et de réduire ainsi le contenu original présenté aux Canadiens.
5511 Dans un souci d'équité et afin d'éviter tout accroissement de la situation de déséquilibre observée présentement, nous recommandons que le Conseil reconnaisse les besoins particuliers des télévisions généralistes indépendantes et assouplisse les contraintes qui leur sont imposées, afin d'assurer la diversité des voix à long terme.
5512 M. RÉMILLARD : En conclusion, le temps est venu de procéder au rétablissement d'un marché juste, concurrentiel et équitable au sein de notre industrie, dans l'intérêt des Canadiens et de tous les partenaires de cette industrie.
5513 Aujourd'hui, le modèle économique qui découle de la réglementation actuelle est brisé et profondément inéquitable.
5514 Le CRTC a manifesté sa volonté de remédier à la situation, et nous vous en félicitons.
5515 La résistance exprimée par ceux qui bénéficient de la situation actuelle ne devrait surtout pas stopper le processus, ni le retarder.
5516 Le mouvement lancé par le CRTC se fonde sur des faits et la réalité des Canadiens dans toutes les régions du pays.
5517 Il faut attribuer une juste valeur marchande pour le contenu diffusé par les chaînes traditionnelles de télévision privée, par la négociation d'abord et l'arbitrage si nécessaire.
5518 Je vous réitère notre volonté d'être un partenaire présent et constructif dans cette démarche.
5519 Merci de votre attention.
5520 LE PRÉSIDENT : Merci pour votre présentation.
5521 Premièrement, dites-moi, seulement de curiosité, pourquoi le nom V? Qu'est-ce que ça signifie? Quel est le but d'avoir ce nom?
5522 M. RÉMILLARD : Bien, il y a plusieurs significations pour mon frère et moi. V, évidemment, c'est le chiffre romain de 5, puis, je pense que le chiffre 5, c'était vraiment dans l'ADN de l'entreprise.
5523 Moi, quand j'étais plus jeune, j'écoutais TQS sur le 5. Et V aussi, dans l'ancienne Europe, c'était le signe du taureau pour les Romains. Alors, de mouton noir à taureau. De là, un V avec des cornes.
5524 Il y a plein d'autres significations, mais on trouvait que c'était une belle évolution de la marque.
5525 LE PRÉSIDENT : Bon, merci.
5526 Vous dites à la page 4 :
« Il faut partager la tarte sur une base différente et il n'est pas nécessaire de l'agrandir aux dépens des consommateurs. »
5527 Et vous suggérez qu'on ait des négociations entre les généralistes et les cablôdistributeurs.
5528 Mais comment atteint-on ce but que vous avez dit sans que les cablôdistributeurs demandent un plus grand prix d'abonnement de leurs clients?
5529 M. RÉMILLARD : Est-ce que vous pourrez répéter votre question, Monsieur le Président?
5530 LE PRÉSIDENT : Vous avez vu la grande campagne de publicité des cablôdistributeurs?
5531 M. RÉMILLARD : Oui.
5532 LE PRÉSIDENT : Ils disent, s'il y a des négociations, si nous devons payer pour les signaux des généralistes, on va le mettre sur la table, et le consommateur doit le payer.
5533 Maintenant, vous, dans votre présentation aujourd'hui, vous dites que vous voulez qu'on vous paie et vous êtes en faveur des négociations.
5534 M. RÉMILLARD : Exact.
5535 LE PRÉSIDENT : Comment pouvons-nous éviter que les cablôdistributeurs augmentent les frais aux consommateurs?
5536 M. RÉMILLARD : Dans notre présentation, Monsieur le Président, on favorise un rééquilibrage de la tarte déjà présente dans le marché francophone. Alors, je crois qu'il y a un rééquilibrage. Il faut ramener à la juste valeur les signaux de tout le marché, et je crois que c'est ce qu'un des distributeurs proposait également.
5537 Nous, on est assez d'accord avec cette démarche-là, et je crois que si on rééquilibre et on rajuste les valeurs des signaux, ça va avoir un impact positif sur le marché, sans toutefois avoir un impact sur les consommateurs. Au contraire, ça devrait offrir une programmation plus diversifiée.
5538 LE PRÉSIDENT : Mais comment on fait ça? On va payer moins pour les canaux spécialisés pour avoir de l'argent pour payer les généralistes; est-ce que c'est l'idée?
5539 M. RÉMILLARD : C'est, effectivement, je crois, l'idée qui est mis de l'avant ici. C'est selon des critères précis, dont les performances... les investissements en productions canadiennes, qu'est-ce qui va dans la collectivité. Il va avoir un système de calcul qui va un peu rééquilibrer, justement, les revenus qui vont à ces chaînes spécialisées.
5540 LE PRÉSIDENT : En termes pratiques, comment on arrive là? Un distributeur, soit Quebecor, soit Cogeco, va avoir des négociations avec vous, il va avoir des négociations avec les canaux spécialisés, et il va dire, je vais réduire votre tarif pour que je dois payer à V; est-ce que c'est ça?
5541 M. RÉMILLARD : Écoutez, nous, on n'est vraiment... ce n'est pas nous les distributeurs. Nous, on demande un marché équitable, une juste valeur pour notre signal. Alors, on essaie d'être proactif et on amène une solution qui s'adresse à l'industrie, mais ce n'est pas à nous de faire ces négociations-là avec les autres spécialisées.
5542 Hier, monsieur Péladeau de Quebecor proposait un système semblable, mais je crois que c'est aux distributeurs...
5543 LE PRÉSIDENT : J'ai écouté sa proposition aussi, mais personne ne m'a expliqué comment on va le faire, et pour cette raison, je voulais savoir si vous avez des idées particulières comment on peut atteindre ce but.
5544 M. RÉMILLARD : Je crois qu'il faut que ça passe par une période transitoire. Je crois qu'il y a une adaptation au marché. Le marché doit s'adapter sur une période. Une fois que les critères sont connus et une période transitoire établie, je crois que l'industrie doit marcher selon des règles qui sont vraiment équitables pour tous les joueurs et tous les partenaires.
5545 Mais comme je vous dis, Monsieur le Président, malheureusement, je ne suis pas le distributeur. Ce n'est pas moi qui détiens... ce n'est pas nous qui détenons l'autoroute. Alors, c'est plus les distributeurs qui pourraient répondre à cette question-là, à moins que mes collègues auraient des idées.
5546 M. CHAOUCH : Peut-être juste confirmer ce que Maxime disait à l'instant. Effectivement, nous, nous considérons que notre signal aujourd'hui n'est pas valorisé, sous-évalué. Il n'est même pas valorisé. Donc, il devra se trouver valoriser à l'intérieur de la tarte.
5547 LE PRÉSIDENT : O.K.
5548 Michel, tu as des questions?
5549 CONSEILLER ARPIN : Merci, Monsieur le Président.
5550 En fait, ce que vous dites, c'est que vous avez épousé la thèse présentée par Quebecor et dans son mémoire et dans sa présentation d'hier, mais je vois que vous y avez ajouté une dimension.
5551 Vous y avez ajouté la dimension de la base du calcul de la valeur qui devait être la moyenne des redevances par mois par abonné versée aux télévisions spécialisées obligatoires.
5552 Ces tarifs-là sont publics. Est-ce que vous avez fait le calcul pour quelle somme monétaire que ça vous donne sur une base mensuelle?
5553 M. PORRELLO : Oui, on avait fait ce calcul. La moyenne présentement est à 49 sous par abonné par mois.
5554 CONSEILLER ARPIN : C'est beaucoup plus que ça. Monsieur Péladeau disait hier, uniquement parlant de RDI, que RDI est à 1 dollar. La moitié de RDI, c'est déjà 50 cents. Ça fait déjà une cent de plus que votre 49 là.
5555 M. PORRELLO : On a pris la moyenne des 20 canaux qui étaient must carry.
5556 COMMISSIONER ARPIN: Oui. RDI en est un. Monsieur Péladeau disait hier dans sa présentation que RDI recevait 1 dollar. La moitié d'un dollar -- je ne devrais pas le dire à un comptable là -- mais c'est 50 cents.
5557 CONSEILLER ARPIN : Or, c'est déjà un sous de plus que le montant que vous venez de me donner de 49 sous, à quoi j'ajoute APTN, VRAK.TV, Canal D, tous les must carry. Donc, on va avoir Canal Vie, Canal Z, Évasion, RDS.
5558 On va parler d'un montant de... je ne sais pas, je n'ai pas fait le calcul là, mais à l'oeil, qui va dépasser certainement 49 cents, parce que juste un seul qui a été utilisé par monsieur Péladeau hier le dépasse.
5559 M. RÉMILLARD : Monsieur le Vice-Président, ce qu'on recherche, évidemment, c'est une moyenne d'industrie. On cherche une moyenne qui est équitable, une valeur marchande qui est équitable, compte tenu du marché présentement, et notre suggestion était de trouver la moyenne des signaux distribués, la moyenne des valeurs des signaux distribués.
5560 On peut vous revenir avec des calculs plus précis, mais c'était une idée de base pour discuter. On croit qu'il faut que ça soit équitable, il faut que ça soit une moyenne de l'industrie, et qui a un plancher aussi pour les généralistes privées, servant comme base de calcul ensuite pondéré par la performance.
5561 CONSEILLER ARPIN : Effectivement, vous ajoutez, parce que vous dites, « à cette base devrait s'ajouter », au haut de la page 6. Donc, finalement, la somme qui est recherchée, elle est, à mon avis, très significative. Ça va être une dure négociation, de ce que je peux croire.
5562 M. RÉMILLARD : Bien, nous, tout ce qu'on demande, c'est une valeur équitable. C'est tout ce qu'on demande, et on a mis des options de l'avant qu'on pense qui établissent la valeur du marché.
5563 Évidemment, tout dépend de la pondération, combien est-ce qu'on attribue aux cotes d'écoute, combien est-ce qu'on attribue dans la pondération aux dépenses canadiennes. Tout ça est de la négociation.
5564 Évidemment, j'aimerais ça pouvoir vous arriver avec un plan très, très précis, mais ce n'est pas moi qui a fait cette négociation-là, c'est le distributeur, puis it takes two to tango.
5565 Alors, nous, on essaie d'être proactif. On croit qu'il devrait avoir un plancher avec une moyenne d'industrie et ensuite pondération selon la performance, et on croit que c'est fair. Excusez l'anglicisme.
5566 CONSEILLER ARPIN : Mais vous m'incitez à conclure que vous n'avez pas déjà eu de discussion avec aucun des distributeurs.
5567 M. RÉMILLARD : Aucune discussion, Monsieur le Vice-Président.
5568 CONSEILLER ARPIN : Aucune discussion.
5569 Maintenant, évidemment, si vous utiliser la base de la performance et des cotes d'écoute, des ratios de dépenses de programmation, c'est assez évident que les sommes ne seront pas distribuées de manière égale entre chacun des diffuseurs généralistes.
5570 Est-ce que ce n'est pas mettre V à la remorque du système ad vitam eternam? Puisque c'est clair que dans l'état de la situation, puisque vous éliminez les télévisions publiques, on parle de seulement deux intervenants, on parle de groupe TVA, d'une part, et V, d'autre part. Les parts de marché sont, pour un, autour de 30, et, pour vous, autour de 7. Si je divise votre somme par ce type d'équation là, V n'aura pas grand-chose. En tout cas, l'autre en aura beaucoup plus et aura toujours beaucoup plus de moyens de vous concurrencer.
5571 Quand vous avez fait votre proposition, vous aviez réfléchi à cette question-là.
5572 M. RÉMILLARD : On a réfléchi à ça, Monsieur le Vice-Président. De là aussi, encore une fois, je réitère que tout dépend de la pondération, et de manière à trouver quand même une solution équitable pour nous, le plus petit des privés, qui n'est pas un distributeur, qui n'a pas des chaînes spécialisées, on s'est dit, on devrait commencer aussi avec un plancher, une base. De là, on aurait un calcul de performance.
5573 Les proportions de cette pondération-là restent à être déterminées, mais c'est sûr que nous, on veut s'assurer qu'il y ait des mécanismes qui nous protègent un peu dans le sens qu'on ne donne pas accès à un de nos compétiteurs à des fonds pour qu'il produise des occupations doubles dans chaque case horaire là. On comprend la réalité du marché, et on essaie de trouver...
5574 CONSEILLER ARPIN : Parce que vous dites que vous dépensez... 66 pour cent des dollars que vous présentement dépensez, vous les mettez à la programmation. Votre concurrent principal -- j'aurais pu faire le calcul là, j'avais les données -- il dépense plus que ça.
5575 M. RÉMILLARD : Si je ne m'abuse...
5576 CONSEILLER ARPIN : Donc, encore là, en utilisant ce ratio-là, parce que c'est un des ratios que vous suggérez, le ratio des dépenses de programmation...
5577 M. RÉMILLARD : Si vous me permettez, Monsieur le Vice-Président, je crois que le chiffre que vous faites allusion, qui a été mentionné hier, je crois, c'est 87 pour cent de leur budget de programmation qui est en production canadienne.
5578 CONSEILLER ARPIN : Oui. Exactement. C'est pour ça que je n'ai pas utilisé ce chiffre-là.
5579 M. RÉMILLARD : Nous, on est à 75, 77 pour cent. Alors, l'écart est beaucoup plus... Le 66 pour cent, c'est chaque dollar qui rentre dans l'entreprise de revenu retourne à l'écran. C'est ce qu'on essayait de faire.
5580 CONSEILLER ARPIN : C'est ce que j'ai bien compris.
5581 M. RÉMILLARD : Exact. Donc, le ratio de dollars dépensés en programmation versus ratio... versus dollars dépensés en production canadienne est beaucoup plus rapproché entre les deux entreprises. Puis, je trouve que c'est un bel incitatif pour le système, pour l'industrie, de réinjecter dans la production canadienne.
5582 CONSEILLER ARPIN : Ça m'amène à une des questions qui fait partie de l'audience publique et qui est toute la question des dépenses en émissions canadiennes. La discussion a porté, avec la majorité des intervenants... puis depuis plusieurs années, d'ailleurs, dans le cas des canaux spécialisés puis à la télévision hertzienne, jusqu'au début des années 90, on avait un régime de dépenses en émissions canadiennes, mais qui était essentiellement basé sur un ratio basé sur les revenus.
5583 Quebecor, dans son mémoire, en propose un nouveau système, une nouvelle approche qu'il voit beaucoup plus intéressante particulièrement pour le marché francophone, qui, lui, est un ratio basé sur les dépenses de programmation, et c'est là que le 87 pour cent a été énoncé.
5584 Et vous venez de me dire que dans le cas de V, on tourne autour de 75 pour cent?
5585 M. RÉMILLARD : Exact. Sur une programmation de près de 50 millions de dollars, on est au-delà de 30 millions de dollars en productions canadiennes.
5586 CONSEILLER ARPIN : Si le Conseil retenait cette hypothèse d'établissement des dépenses en émissions canadiennes sur la base des dépenses de programmation, j'en conclus que ce n'est pas une... vous ne rejetteriez pas cette notion du revers de la main, vous ne diriez pas que c'est inéquitable ou ça favorise un groupe plutôt qu'un autre?
5587 Puisque c'était la proposition de Quebecor, je veux m'assurer que si le Conseil allait dans cette voie-là, elle n'est pas inéquitable pour vous?
5588 M. RÉMILLARD : Vous parlez si on instaure la notion du ratio ou strictement en valeur absolue?
5589 CONSEILLER ARPIN : Je parle d'un... je veux dire si le Conseil... Dans son mémoire, Quebecor a dit qu'un ratio de 50 pour cent le satisferait. Mais monsieur Dion, lors de sa comparution, dit que TVA accepterait 70 pour cent comme ratio de dépenses canadiennes comme une contingence réglementaire. Même si actuellement il en dépense 87, il dit, j'accepterais une contingence réglementaire à 70 pour cent. Ça ne veut pas dire qu'il ne ferait pas mieux, mais ça lui donnerait un élément de flexibilité. C'est ce qu'il nous a dit hier.
5590 Si le Conseil allait dans cette voie-là puis disait, pour le marché francophone... parce que l'argument de Quebecor, c'est que la politique canadienne de télévision, particulièrement sur la question des dépenses en émissions canadiennes, elle est faite uniquement... elle ne rencontre pas l'esprit de la diffusion de langue française.
5591 C'est un mécanisme qui a été mis au point sur une base d'une politique nationale, mais qui n'a jamais eu de signification particulière pour le marché francophone.
5592 Or, la proposition de Quebecor, c'est clairement d'inviter le CRTC à développer une politique spécifique pour la télédiffusion de langue française et l'élément charnière de cette politique-là, c'est les dépenses en émissions canadiennes où eux nous disent: on préférerait un ratio basé sur les dépenses de programmation plutôt qu'un ratio basé sur les revenus.
5593 M. RÉMILLARD: Mais, monsieur le vice-président, évidemment, nous on est vraiment d'avis qu'on veut favoriser le contenu canadien, la production canadienne, sauf que j'aimerais prendre le temps d'analyser un peu la proposition de Quebecor puis je pourrais revenir au Conseil.
5594 CONSEILLER ARPIN: Bien, premièrement, vous pourrez nous déposer des commentaires d'ici le 14 décembre et on va certainement... donc, je vais attendre votre réponse à ce moment-là.
5595 M. RÉMILLARD: Merci.
5596 CONSEILLER ARPIN: Maintenant, si le Conseil maintenait sa politique traditionnelle de dépenses en émissions canadiennes basées sur les revenus, est-ce que V a réfléchi à cette question-là puis quel serait le niveau de pourcentage qui pourrait lui être acceptable?
5597 Dans le débat avec les anglophones, on a joué autour de... il y a eu plusieurs variantes, là.
5598 M. RÉMILLARD: On est toujours en réflexion là-dessus, monsieur le vice-président. On roule plusieurs *modalisations+. On va vous revenir également sur ce pourcentage-là.
5599 CONSEILLER ARPIN: Maintenant, vous nous invitez à la prudence et vous l'avez dit, d'ailleurs, dans votre présentation orale, mais vous l'aviez aussi également écrit dans votre Mémoire, puisque votre groupe ne possède pas de canaux spécialisés.
5600 Cette situation vous fait dire que les règles que le Conseil mettra en place doivent tenir compte de la réalité de chacun des groupes.
5601 Vous écrivez que la flexibilité recherchée par les entreprises de grande taille et dont le modèle d'affaires repose sur le développement des stratégies de convergence ferait en sorte qu'elles seraient les seules à bénéficier des mesures plus souples.
5602 Pouvez-vous dire qu'est-ce qui serait le modèle à retenir?
5603 M. RÉMILLARD: Vous parlez en terme de?
5604 CONSEILLER ARPIN: Bien, c'est parce que vous nous dites de prendre... de se rappeler que des grands groupes ont le moyen de partager, ont des synergies avec des canaux spécialisés et même... puis même plus loin vous allez et vous parlez de convergence en multi plate-formes et, bon, dans le cas de Quebecor on peut ajouter qu'il y a des synergies avec son entreprise de distribution.
5605 Mais V comme étant une entreprise uniquement de télévision hertzienne, bon, vous nous dites que, ça, c'est le modèle des grands conglomérats. Qu'est-ce qui est le modèle de V et lequel on devrait...
5606 M. PORRELLO: On ne proposait pas de nouveau modèle. Tout ce qu'on voulait dire, c'est si vous prenez en considération des groupes qui ont plus d'une plate-forme et quand vous leur donnez leur obligation, et si ces groupes qui ont plus d'une plate-forme ont le droit de partager leur obligation puisque, nous, on a seulement qu'une plate-forme, ça va nous pénaliser.
5607 Tout ce qu'on était en train de dire, c'est: quand vous prenez vos décisions et vous donnez une latitude à ces groupes-là pour leur obligation sur plus d'une plate-forme, mais de vous assurer que ça ne pénalise pas un groupe comme le nôtre. Mais on ne proposait pas d'autre modèle.
5608 On voulait simplement nous protéger puisqu'on a une plate-forme seulement.
5609 CONSEILLER ARPIN: D'accord, O.k., c'est clair.
5610 J'ai une question qui est plus technique, là, qui n'a pas été posée souvent depuis le début de l'audience, mais qui est une question de flexibilité. Elle existe dans le Règlement sur les canaux spécialisés où elle dit, essentiellement, qu'au cours d'une année de radiodiffusion, parce que, regardez, s'il y a un engagement de dépenser X pourcentage des revenus de l'année précédente, il peut y avoir quand même des écarts puis la politique dit que vous pourriez en dépenser jusqu'à cinq pour cent de moins dans une année, mais vous devez le dépenser dans l'année suivante ou vous pouvez en dépenser plus et le récupérer dans l'année suivante.
5611 Croyez-vous que si on ré-introduisait dans le secteur de la télévision hertzienne ce type de mécanisme-là, sa flexibilité serait un outil intéressant pour les entreprises?
5612 M. RÉMILLARD: Ça pourrait être effectivement un outil intéressant, monsieur le vice-président. Ceci étant dit, sans vouloir amener à notre problématique principale, c'est que ça ne sera pas suffisant pour rétablir une équité dans le marché présentement, mais...
5613 CONSEILLER ARPIN: On va y revenir à la question.
5614 M. RÉMILLARD: Effectivement, ça peut être un outil intéressant pour nous de flexibilité puis on apprécierait cette proposition-là.
5615 CONSEILLER ARPIN: Mon plan d'interrogatoire est basé sur la structure de l'Avis Public. Alors, la juste valeur marchande, c'était l'avant-dernier.
5616 Je comprends qu'il est peut-être votre premier point, votre priorité, mais dans l'Avis Public, il était l'avant-dernier.
5617 La question des émissions dites prioritaires. Bon, TQS était tenu à cinq heures d'émissions hebdomadaires d'émissions prioritaires. Quand on vous a autorisés à prendre le... vous nous avez demandé d'être libéré de cette condition-là pour au moins une période, la période de démarrage, mais vous étiez ici du moins quand le CFPTA a comparu ce matin, vous les avez entendus reparler des émissions prioritaires. Demain on va recevoir l'APFTQ et je m'attends bien à ce que ça soit haut dans leurs priorités.
5618 Est-ce que pour vous c'est une mesure de qualité de programmation les heures prioritaires, parce que... puis la question va venir, à savoir: Actuellement, les catégories sont la dramatique, le documentaire, les émissions produites en région, mais il y a plusieurs demandes qu'on élargisse à d'autres catégories et à d'autres types de formats.
5619 Donc, pour V, dans le futur, parce que je suis persuadé qu'en 2012, le Conseil va vous parler d'émissions prioritaires ou d'émissions d'intérêt national comme on a utilisé dans l'Avis Public, là, comme terminologie, là, mais...
5620 Et comme on est en train de faire la structure réglementaire présentement, c'est quoi la vision de V par rapport à toute cette programmation qui est perçue du moins comme étant de plus haute qualité?
5621 M. RÉMILLARD: Monsieur le vice-président, nous, on est du même avis également qu'on apprécie la programmation des émissions prioritaires. On est très curieux aussi de voir quelles pourraient être les autres inclusions dans la définition d'émissions prioritaires.
5622 Ceci étant dit, il faut pouvoir se les payer -- excusez mon expression -- vu le contexte difficile dans lequel TQS a évolué et le marché difficile que V maintenant évoluée, c'est juste des options qui ne sont pas envisageables.
5623 Ceci étant dit, on a confiance en l'avenir et on a confiance dans la procédure présentement aussi et c'est sûr qu'on n'est vraiment pas fermé aux émissions prioritaires, la dramatique, et caetera, mais pour l'instant, ce n'est pas une réalité pour nous.
5624 CONSEILLER ARPIN: Donc, on va parler du sujet qui vous intéresse au premier point. Non. On va parler du Fonds d'amélioration de la programmation locale en premier.
5625 Si je vous ai bien compris, évidemment le Fonds avait été créé au départ comme étant un pour cent des revenus des entreprises de distribution. Au mois de juillet dernier le Conseil l'avait accru à 1.5 pour cent. Alors, quel a été l'impact?
5626 Vous l'avez décrit un peu dans votre présentation orale, là, le bénéfice que le Fonds a présentement pour V, mais de manière pratique, de manière tangible, qu'est-ce que ça vous a permis de faire dans les régions aux stations qui ont accès au Fonds?
5627 M. RÉMILLARD: On apprécie l'initiative du Fonds d'amélioration de la programmation locale et ce que ça nous a permis de faire, c'est que ça nous a permis de respecter nos obligations et de continuer d'offrir un produit à nos consommateurs, nos clients.
5628 C'est un marché extrêmement difficile et je le sais, je le redis et je le redis, mais tout le monde le dit, mais c'est un marché particulièrement difficile pour nous parce qu'il y a quand même une grande migration des revenus publicitaires régionaux qui ont été vers du...
5629 Disons, l'inventaire publicitaire, on a beaucoup d'inventaire publicitaire au niveau régional, il y a une pression à la baisse, c'est très difficile et pour nous, rentabiliser des produits et des émissions dans nos stations locales et régionales, c'est plus difficile.
5630 Alors, ce Fonds-là est venu nous aider à respecter nos obligations et de continuer à offrir un produit qui est de qualité à nos clients.
5631 CONSEILLER ARPIN: Parce que, effectivement, dans votre Mémoire au paragraphe 33, vous avez notamment parlé d'une baisse des annonceurs au niveau local.
5632 À quel facteur attribuez-vous cette baisse-là?
5633 M. RÉMILLARD: C'est un sujet fort intéressant parce qu'il y a plusieurs facteurs. On a passé au travers de quelque chose d'assez extraordinaire. Je me rappelle qu'on a -- extraordinaire pas dans le bon sens, là -- mais je me rappelle que j'étais avec mon frère et Tony et notre équipe, on était ici il n'y a pas très longtemps dans cette salle-là.
5634 Il y a eu, évidemment, une situation qui a été difficile surtout pour nos opérations régionales.
5635 CONSEILLER ARPIN: Particulièrement à Québec.
5636 M. RÉMILLARD: Particulièrement à Québec, il y a eu une opinion publique qui a été défavorable par rapport à notre tentative de redressement de l'entreprise, tout ça, puis il y avait des perceptions. Alors, il a fallu rebâtir ça.
5637 Ça a pris du temps rebâtir la confiance de notre public, la confiance de nos clients et on a souffert beaucoup de ça et nos revenus ont baissé. En plus, rajoutez à ça un marché économique difficile puis des compétiteurs qui veulent notre pain. Alors, ça a été très difficile.
5638 Donc, ça explique beaucoup les chutes de revenus et ce qui explique pourquoi c'est difficile pour nous de... surtout avec les conditions présentement de calcul sur le Fonds d'amélioration, on n'a pas vraiment d'expectative de pouvoir accéder à des fonds pour réinvestir dans notre produit, réinvestir dans notre programmation pour répondre aux attentes de notre public.
5639 CONSEILLER ARPIN: Mais vous dites que, effectivement, la concurrence est forte dans les plus petits marchés et puis, évidemment, la conjoncture. Mais aujourd'hui, 15 mois plus tard, après la prise en charge et puis la relance, vous êtes 15 mois plus tard, est-ce que ça s'améliore ou bien si c'est encore en recul?
5640 M. RÉMILLARD: Ça s'améliore c'est sûr et pour nous, on a eu quand même une période plus creuse. On a connu, je veux dire, un bas dans nos revenus, mais la confiance revient. Nos performances à l'antenne, comme je vous ai mentionné tout à l'heure dans la présentation, augmente.
5641 On est vraiment sur la bonne voie puis on a confiance en notre produit. On a confiance en notre antenne puis à ce qu'on va livrer à notre public.
5642 Ceci étant dit, il y a un contexte économique qui rend la compétition encore plus féroce puis vous n'êtes pas sans savoir, j'ai mentionné dans mon texte, je pense que la preuve est faite que les chaînes spécialisées offrent des tarifs publicitaires des fois 50 pour cent, des fois trois fois moins chers que les chaînes généralistes.
5643 Alors, il y a plusieurs clients qui décident de migrer vers un produit spécialisé. Alors, ce qui crée une croissance de l'offre des mesures publicitaires sur les marchés et, particulièrement dans notre inventaire régional.
5644 Alors, vu l'iniquité dans les tarifs, dans le marché, c'est sûr que, nous, on est les premiers à souffrir.
5645 CONSEILLER ARPIN: Parce que vous dites dans votre présentation orale que les canaux spécialisés qui ne sont pas éligibles à la publicité locale vendent de la publicité locale.
5646 M. RÉMILLARD: Pas exactement. Il y a quand même un... puis encore là, dans mon texte je dis... il y a une définition élastique de la publicité locale.
5647 CONSEILLER ARPIN: Oui.
5648 M. RÉMILLARD: Mais je vais vous donner un exemple concret que l'on vit dans notre station à Montréal.
5649 C'est vu que les prix sont tellement bas pour les spécialisés, on parle d'une moyenne de 6,00 $ le coût par 1 000 $, la généraliste a un coup moyen par 1 000 $ de 10,00 $... 10,00 $, 11,00 $ environ Tony. Vu les différences de coûts, un client qui typiquement annoncerait chez V à Montréal se dit, pourquoi annoncer à un prix plus élevé sur une généraliste quand je peux trouver mon compte avec une fréquence beaucoup de fréquence, beaucoup de répétition sur un ensemble de chaînes à un coût moindre.
5650 Alors, c'est là qu'il y a un exode des clients qui sont typiquement locaux et s'en vont vers des chaînes spécialisées qui ont un signal à la grandeur de la province et à un coût moindre. Alors, c'est là le déséquilibre.
5651 Vous savez, monsieur le vice-président, notre réalité à la fin de la journée, c'est quand on vend un produit sur le marché, nos forces de ventes sur le marché, ils arrivent avec un produit, ils ne peuvent pas compétitionner les prix des autres.
5652 Alors, on n'a pas la juste valeur de notre produit parce que nos compétiteurs dévaluent leurs produits en ayant des prix qui sont en bas de leurs coûts. Et là, encore là, je ne mets pas une intention de mauvaise foi là-dedans, c'est que le système est fait comme ça et ça adonne que les prix sont nettement inférieurs.
5653 Alors, nous, on ne peut pas compétitionner dans ces conditions-là, encore moins avec un produit de nature locale.
5654 CONSEILLER ARPIN: Et le Conseil ne réglemente pas le prix des annonces.
5655 M. RÉMILLARD: Eh! non.
5656 CONSEILLER ARPIN: Le Conseil, dans son Avis Public, et là, vous, vous nous recommandez d'augmenter de 1.5 à 2.5 la contribution au Fonds d'amélioration, mais dans son Avis Public le Conseil posait la question s'il ne devait pas ramener la contribution au 1 pour cent comme il avait à l'origine créé, puis je me demandais quel serait l'impact pour V si le Conseil, au lieu d'aller dans la direction de 2.5 allait dans la direction de 1 pour cent plutôt que de... Donc, ça veut dire que c'est un tiers de moins.
5657 M. RÉMILLARD: Tout dépendant du calcul, on vous a suggéré peut-être de revoir... on vous a proposé peut-être de revoir une méthode de calcul qui serait nettement plus favorable pour nous et qui nous permettrait d'avoir accès à plus de fonds et de réinjecter ça dans notre programmation.
5658 C'est sûr que si les méthodes de calcul ne changent pas et le Fonds est réduit à 1 pour cent, ça va avoir un impact sur le produit à la fin de la journée, qu'on met en ondes.
5659 CONSEILLER ARPIN: Parce que, comme vous dites, d'après vos calculs 60 pour cent des dollars sont ramassés par Radio-Canada, du Fonds francophone?
5660 M. RÉMILLARD: D'après nos estimations à l'interne, là. Évidemment, on n'a pas de confirmation.
5661 CONSEILLER ARPIN: Mais personne n'a de données au moment où on se parle, malheureusement.
5662 Et la juste valeur marchande du signal, il y a des questions qui sont déjà répondues et c'est pour ça que...
5663 Bon, vous en avez fait un peu allusion vous-même, là, mais dans les Mémoires ou dans les présentations qu'on a entendues à ce jour, certains groupes nous ont dit que le Conseil devrait annoncer des paramètres de la négociation, d'une compensation, alors que d'autres nous ont prédit de laisser ça carrément au libre marché puis, même, ne vous mêlez pas d'arbitrage. S'il y a besoin d'arbitrage, que les parties se nomment un arbitre indépendant pour rendre cette décision-là.
5664 Donc, pour vous, pour V, est-ce que vous avez des opinions par rapport aux avantages ou les désavantages d'une méthode ou d'une autre, en tenant compte avec qui vous allez avoir à négocier?
5665 M. RÉMILLARD: Oui, effectivement. Comme on a mentionné dans notre présentation du début, ce qu'on recherche et ce qu'on demande, c'est un marché équitable. Je vous ai exposé un peu notre vision sur les prix tarifaires de la publicité.
5666 Et on cherche un processus qui va déterminer la valeur, un processus qui va être équitable, compte tenu qu'un de nos compétiteurs est aussi le distributeur majoritaire puis je pense qu'il veut... il a des plans de lancer plusieurs chaînes aussi et on veut s'assurer que ça soit un processus qui est balisé et qui est encadré avec un système d'arbitrage de façon à s'assurer pour nous qui sommes une pure généraliste, qu'on ait un fair deal, si on peut dire.
5667 CONSEILLER ARPIN: Et pour vous, que l'arbitre soit... qu'il soit le CRTC ou qu'il soit un tiers?
5668 M. RÉMILLARD: Nous, que ce soit le CRTC ou une tierce partie indépendante, on est très ouvert à ça. Je crois que le CRTC a toutes les compétence pour faire cela ou une tierce partie indépendante que les parties voudront choisir, on est assez ouvert par rapport à ça.
5669 CONSEILLER ARPIN: Dans votre Mémoire et puis encore aujourd'hui, vous avez réitéré que les télévisions publiques ne devraient pas bénéficier de la négociation.
5670 Au-delà de l'affirmation que c'est au gouvernement de définir ça adéquatement, est-ce qu'il y a d'autres raisons pour lesquelles, de manière intrinsèque Radio-Canada ou Téléquébec ne devraient pas avoir accès?
5671 Ils ont quand même des parts de marché. Les abonnés du Câble souscrivent à ces signaux-là?
5672 M. RÉMILLARD: On est pour une télévision publique forte et en santé. Ça, il n'y a pas de doute là-dessus.
5673 Ceci étant dit, on revient encore avec notre notion de marché équitable. Il faut rétablir un équilibre. La réalité sur le marché encore, le marché publicitaire, bien, c'est ça qui nous fait vivre, c'est qu'on ne peut pas compétitionner les joueurs qui vont avoir trois, quatre, cinq, six sources de revenus, qui vont avoir les produits avec des budgets qui croissent sans cesse.
5674 Il y a une réalité de marché puis il y a une iniquité là-dedans, là, et on veut rééquilibrer ça et on croit que si les télévisions publiques veulent une valorisation de leurs signaux, bien qu'ils s'adressent aux instances: le Parlement pour Radio-Canada et le Gouvernement du Québec pour Téléquébec.
5675 Il faut ramener un équilibre dans le marché parce que, à un moment donné, nous, on aura seulement... si jamais on pouvait valoriser notre signal, on aurait deux sources de revenus. On ne peut pas compétitionner comme un joueur public qui est déjà substantiellement financé par l'État et, en plus, une valorisation de signal et j'en passe sur les autres sources de revenus.
5676 Alors, pour nous, c'est clair qu'on n'est pas pour que les télévisions publiques aient accès à des valorisations de signal régies par le secteur privé.
5677 CONSEILLER ARPIN: On a plusieurs intervenants dont, notamment, le Ministère des communications et de la culture du Québec, l'APFTQ, l'UDA, la SARTEC qui, certainement, ne partagent pas vos vues parce qu'ils nous disent qu'on devrait... qu'ils devraient y avoir accès.
5678 Mais il y en a aussi qui vont un peu plus loin et qui disent, pas dans ces groupes-là, mais c'est un argument qu'on a souvent entendu que les télévisions publiques pourraient accéder au financement par la valeur marchande de leur signal. En contre-partie, évacuer le champ de la publicité et que les généralistes, eux, au lieu de bénéficier d'une compensation pourraient aller chercher une part accrue de cette publicité libérée.
5679 Est-ce que vous avez des opinions sur cette question-là?
5680 M. RÉMILLARD: Absolument, monsieur le vice-président. C'est un concept qui est fort... qui est certainement intéressant, mais si jamais les conditions de marché n'étaient pas rétablies, et je reviens encore avec mon déséquilibre entre les tarifs des spécialisés et des télévisions généralistes.
5681 On se rappelle en France que, évidemment, le président Sarkozy a fait des modifications comme ça et c'est -- it's my knowledge -- d'après ma connaissance que la majorité des revenus qui étaient destinés aux généralistes privés en France ont été vers la spécialisés en France, dites TNT, je crois. Je ne me rappelle plus, télévision...
5682 CONSEILLER ARPIN: Numérique terrestre.
5683 M. RÉMILLARD: La télévision numérique terrestre. Donc, c'est les télévisions numériques terrestres qui ont eu la majorité des revenus qui, hypothétiquement, étaient supposés d'aller vers les généralistes privés, mais ça a été vers les spécialisés à cause de leur tarification -- because there are better deals on the market. Excusez mon anglais.
5684 CONSEILLER ARPIN: D'accord.
5685 M. RÉMILLARD: Alors, c'est intéressant, mais on veut juste s'assurer que la même chose n'arrive pas ici parce que, encore la il y a un déséquilibre dans le marché.
5686 CONSEILLER ARPIN: Parce que, encore là, c'est une question de libre marché en fait. Il faudrait que... mais ça dépend des volumes aussi disponibles.
5687 M. CHOUCH: Et, absolument, ce serait un libre marché si, effectivement, les chaînes publiques ne se finançaient pas, ne couvraient pas l'essentiel de leurs dépenses par les ressources publiques et que, ensuite, elles se présentent sur le marché publicitaire avec un produit dont elles pourraient baisser le prix.
5688 En fait, tout ceci concours à un seul facteur que vous envisagez aujourd'hui de corriger présentement sur le marché publicitaire actuel qui est le fait qu'il y ait une pression indue à la baisse sur les prix du marché publicitaire et cette pression indue à la baisse, elle provient du fait que certains canaux bénéficient de ressources dont d'autres canaux ne bénéficient pas. Donc, ils peuvent... je vais utiliser un mot un petit peu brutal, mais *dumper+ en quelque sorte les prix et ça, c'est quelque chose qui n'est jamais souhaitable dans un marché, notamment le marché publicitaire.
5689 Il ne faudrait pas qu'en corrigeant cette situation, par ailleurs on recrée une autre forme de dumping de prix en permettant à la télévision publique d'être l'auteur, finalement, de cette baisse de prix.
5690 CONSEILLER ARPIN: On a entendu CORUS ce matin dire que le Conseil devrait libérer le temps publicitaire des canaux spécialisés qui est actuellement limité à 12 minutes à l'heure, qu'ils devraient faire comme avec la télévision généraliste et laisser tomber toutes les barrières.
5691 Si je vous comprends, vous ne préconisez pas cette hypothèse?
5692 M. RÉMILLARD: Non, absolument pas, monsieur le vice-président. Et on croit que peut-être sur un point que je n'ai pas mentionné tout à l'heure, c'est que s'il y a un rééquilibrage de l'industrie, c'est que peut-être, effectivement, certaines chaînes auront peut-être... n'ont pas le même volume de revenu d'abonnés.
5693 Ceci étant dit, on observerait sûrement un impact positif sur la publicité. Ces chaînes-là auraient moins de revenus d'abonnés, devraient élever leurs prix et pour gagner des parts de marché, devraient investir dans le contenu.
5694 Alors ce qui devait -- et excusez ma naïveté, mais ce que je pensais quand je suis rentré dans l'industrie, on est nouveaux comme vous le savez, je pensais que les spécialisés avaient un auditoire spécialisés, donc captifs, précis, et pouvaient demander plus cher le 1 000 $. C'est l'inverse qui est arrivé.
5695 Je pensais qu'un lecteur de Rub Report, le coût par 1 000 $ pour quelqu'un qui livre Rub Report est plus élevé que People Magazine et c'est l'inverse qui est arrivé dans l'industrie et je trouve que c'est fort intéressant de voir ce phénomène-là et c'est pour ça qu'il faut rectifier.
5696 CONSEILLER ARPIN: J'ai quelques questions sur la télévision numérique puis le passage au numérique.
5697 Dans votre Mémoire, là, vous avez écrit que, bien, 1, je comprends que V diffuse déjà en numérique sur Montréal?
5698 M. RÉMILLARD: Exact.
5699 CONSEILLER ARPIN: Mais pas dans les autres. Vous n'êtes pas encore en numérique à Sherbrooke ou à Québec, là. C'est exclusivement sur Montréal?
5700 M. RÉMILLARD: On est numérique, monsieur le vice-président, à nos distributeurs, mais pas avec émetteurs.
5701 CONSEILLER ARPIN: Ma question est sur les émetteurs. Donc, vous l'êtes sur... Dans votre mémoire, vous dites que le Conseil devrait établir des obligations mesurables à partir du moment des renouvellements de licence. Or, dans votre cas, votre licence va jusqu'au 31 août 2015.
5702 Donc, votre plan de développement du numérique, à l'exception de Montréal où vous êtes déjà implantés, partirait à partir du 1er septembre 2015? C'est comme ça qu'il faut que je comprenne votre Mémoire?
5703 M. RÉMILLARD: Je vais laisser monsieur Porrello répondre.
5704 M. PORRELLO: Non. Dans notre mémoire, là, notre plan pour Québec va sûrement être avant septembre 2011, mais pour les autres marchés... pour les autres marchés, on souhaite qu'on ait une souplesse de ne pas mettre des émettrices parce que toutes nos analyses et nos plans qu'on a faits, les marchés sont trop petits pour qu'on dépense pour une émettrice, un émetteur.
5705 CONSEILLER ARPIN: Cependant, et Radio-Canada et TVA nous ont confirmé qu'ils seraient également en numérique pour le 31 août 2011 à Sherbrooke et Radio-Canada à Trois-Rivières pour le 31 août 2011 puis TVA hier disait qu'il leur faudra probablement bâtir pour le 31 août 2011.
5706 Quel va être l'impact sur V si les deux autres groupes sont déjà en diffusion hertzienne numérique et V ne l'est pas? Parce que le projet free sat, à ce moment-là, il ne s'applique pas dans ce marché-là.
5707 M. PORRELLO: Exactement. Mais le nombre de population qu'on va atteindre seulement avec nos émetteurs est très petit parce que, présentement, à Sherbrooke, par exemple, la plupart de la population est câblée ou par satellite. Alors, nos émetteurs, là, allaient rejoindre simplement une très petite portion de la population, ceux qui ne sont pas câblés ou qui n'ont pas de satellite.
5708 CONSEILLER ARPIN: Mais à Sherbrooke, votre signal est offert par satellite parce que... tout comme à Saguenay, mais ce n'est pas le cas à Trois-Rivières, parce que ce n'est le cas de personne à Trois-Rivières.
5709 M. PORRELLO: Oui, exactement. Trois-Rivières n'ont jamais été sur un satellite.
5710 CONSEILLER ARPIN: Non, mais en fait, comme priorités, Trois-Rivières devrait être prioritaire à Sherbrooke, je présume?
5711 M. PORRELLO: Bien non. Comme priorités, on a les deux marchés en même temps. Par contre, ceci étant dit, on n'a pas... présentement, on est en train d'évaluer toutes nos autres options aussi. Il y a d'autres options qu'on peut partager certaines de ces coûts-là, on est ouvert.
5712 On est encore un peu tôt dans le processus, malgré qu'on sait qu'on doit l'adresser la situation
5713 CONSEILLER ARPIN: Parce que vous êtes à l'intérieur de la zone de coordination de 360 kilomètres, Saguenay est aussi à l'intérieur de cette zone de coordination où les... et on sait qu'aux États-Unis, et je ne le sais pas pour le nord de l'état de New York, là, mais on sait qu'aux États-Unis, il y a plusieurs stations américaines qui diffusent à une puissance réduite parce qu'ils attendent le 31 août 2011 pour être capable d'augmenter leur puissance.
5714 Donc, les pressions vont être énormes si ça se présente et donc, vous seriez peut-être forcés d'éteindre également vos émetteurs analogiques.
5715 M. RÉMILLARD: On est fort conscient de cette possibilité-là, monsieur le vice-président et on regarde toutes les options qui s'offrent à nous et même celle de regarder si on ne peut pas partager des coûts avec un autre groupe, un genre de *piggy back+ -- excusez l'anglicisme.
5716 CONSEILLER ARPIN: Mais avez-vous... en avez-vous parlé avec d'autres groupes?
5717 M. RÉMILLARD: On est en discussion préliminaire avec d'autres groupes, mais on n'est pas encore au niveau où est-ce qu'on veut être, mais c'est préliminaire et on regarde ça activement.
5718 CONSEILLER ARPIN: Parce que j'ai l'impression que les gens ne se parlent pas beaucoup. Merci. C'était mes questions, monsieur le président.
5719 LE PRÉSIDENT: Suzanne.
5720 CONSEILLÈRE LAMARRE: Merci, monsieur le président. Je vais continuer sur la question du numérique parce qu'il y a deux choses qui me laissent... qui me déconcertent un petit peu dans votre Mémoire à ce niveau-là.
5721 La première c'est au niveau de votre Annexe. Vous avez fourni les évaluations des coûts de la conversion numérique pour chacun de vos émetteurs et je vous en remercie, là. Il n'y en a pas beaucoup qui ont fait ça.
5722 Mais à Montréal, vous êtes déjà en ondes et vous prévoyez, malgré le fait que vous êtes déjà en ondes, une dépense de 1 362 000 $ supplémentaire? Oui?
5723 M. RÉMILLARD: Oui.
5724 CONSEILLÈRE LAMARRE: Oui, bon, O.k. Est-ce que c'est possible pour vous, dans votre réplique du mois de décembre de nous fournir vos estimés détaillés pour vos différents émetteurs, là, sous pli confidentiel si nécessaire?
5725 M. PORRELLO: Oui, absolument, on les a déjà.
5726 CONSEILLÈRE LAMARRE: Merci. Et maintenant, vous parlez -- attendez que je retrouve le paragraphe en question -- autour du paragraphe 60, lorsque vous demandez la flexibilité pour ce qui est de la conversion des émetteurs, vous avez utilisé le terme *piggy back+ tout à l'heure.
5727 Et au paragraphe 61 vous allez jusqu'à dire: *Nous demandons au CRTC de faire preuve de souplesse dans le cas où des diffuseurs devaient s'associer pour partager un émetteur+ et c'est là que je suis un petit peu déconcertée: *Quitte à compresser davantage leur signal.+
5728 Vous avez dépensé des millions de dollars pour faire de la production en haute définition et au moment de la livrer -- je suis d'accord avec ce que vous avez dit, là, je comprends que ce n'est pas tout le monde qui le reçoit, là, de façon hertzienne -- mais au moment de la livrer de façon hertzienne, vous élimineriez cette valeur ajoutée-là?
5729 M. RÉMILLARD: Ce n'est pas tout à fait ce qu'on voulait dire, madame la conseillère. C'est que... encore là, il faudrait que je parle à notre directeur technique, mais je crois ce qu'on fait allusion dans le Mémoire, c'est de compresser parce que la technologie nous permet non seulement d'avoir plus d'un signal HD, mais également d'autres signaux SD.
5730 Alors, quand on parle de compression, on parle peut-être de sacrifier d'autres bandes passantes pour avoir deux signaux HD. On ne parle pas de sacrifier la qualité.
5731 CONSEILLÈRE LAMARRE: La qualité... en tout cas...
5732 M. RÉMILLARD: On ne parle pas de sacrifier la qualité, mais je peux...
5733 CONSEILLÈRE LAMARRE: Si vous pouviez préciser ça dans votre Mémoire, là.
5734 M. RÉMILLARD: Absolument. Je vais demander à notre directeur technique, on va regarder ça ensemble et vous clarifier ça.
5735 CONSEILLÈRE LAMARRE: Et lorsque vous parlez aux paragraphes 67 et 68 de la nécessité pour le signal de V d'être distribué dans toutes les EDRs présentes dans les régions où vous avez des émetteurs, est-ce que vous faites allusion seulement aux EDRs satellite ou est-ce que vous estimez que c'est nécessaire aussi de modifier le Règlement sur la distribution pour les EDRs terrestres pour que votre signal soit distribué correctement?
5736 M. PORRELLO: On faisait référence au satellite et plus spécifiquement à Trois-Rivières.
5737 CONSEILLÈRE LAMARRE: Donc, parfait, ça clarifie les choses. Merci, monsieur le président, merci, messieurs.
5738 LE PRÉSIDENT: Je crois que ce sont toutes nos questions. Merci beaucoup pour votre présentation. S'il y a des matériaux additionnels que vous voulez soumettre, vous avez jusqu'au 14 décembre pour faire ça. Merci.
5739 M. RÉMILLARD: Merci.
5740 LE PRÉSIDENT: Nous allons prendre une pause de dix minutes.
--- Upon recessing at 1422
--- Upon resuming at 1435
5741 THE SECRETARY: Order, please. À l'ordre, s'il vous plaît.
5742 LE PRÉSIDENT: O.k. Commençons, madame la secrétaire.
5743 LA SECRÉTAIRE: Merci, monsieur le président.
5744 I would now invite the Canadian Association of Broadcasters, CAB, to make its presentation. Appearing for CAB is Mr. Pierre Louis Smith. Please introduce your colleagues and you will then have 20 minutes.
5745 MR. SMITH: Thank you, madam secretary. Good afternoon, Mr. Chairman, Mr. Vice-Chairs, Commissioners and Commission staff. My Pierre Louis Smith, I'm Vice-President Policy and Chief Regulatory Officer at the Canadian Association of Broadcasters.
5746 With me today is Pamela Jones, Director of Research & Policy of the CAB.
5747 L'ACR représente la très vaste majorité des télédiffuseurs privés canadiens. Nous représentons autant des télédiffuseurs privés de langue française que de langue anglaise, des diffuseurs de grande taille appartenant à des entreprises oeuvrant dans une multitude de secteurs médiatiques, tout comme ceux qui se concentrent uniquement en télévision ou en télévision spécialisée et payante, les stations de télévision qui desservent les marchés télévisuels les plus importants au Canada et celles qui desservent les plus petits marchés au pays.
5748 As a result, and as the Commission is no doubt aware, not all our members agree on some of the issues being considered in this proceeding. So, our members will address in their individual appearances issues such as value for signal, the TV transition and the appropriate group licensing framework.
5749 There are, however, three specific points we are mandated to make on behalf of our members because these are matters on which almost all broadcasters generally agree.
5750 First; the Commission should direct DTH service providers to distribute local stations into their local markets so that private broadcasters have access to the audiences in the market you have licensed them to serve.
5751 Second; the Commission should formally recognize the integrity of exclusive programming rates purchased by private broadcasters.
5752 And third; as you make your determination, the Commission should have regard to the changing regulatory in market landscape and the impact these changes will have on pay and specialty services.
5753 In our written submission we set out the facts that we urge the Commission to factor into the policy determination emanating from this proceedings. Facts about the changing economic realities for broadcasters and the changing regulatory and technology landscape.
5754 Canadian Broadcasting Industry is going through a difficult period of transition. The business model that has underpinned broadcasting is being challenged on multiple fronts.
5755 What broadcasters want out of this proceeding is simple. They want control of their signals and they want control of the content they produce or acquire. Above all, they want to reach the audiences that you licensed them to serve.
5756 Broadcasters urge the Commission to correct the mistakes of the past and make determinations that might not please everyone, but that are based upon what needs to be done to allow us to transition to a new reality while still meeting the objectives of the Act.
5757 The CAB is fully aware that what broadcasters are asking you to do is not easy, but it is absolutely necessary at this critical juncture of the history of the broadcasting industry.
5758 Canadians want their local TV. They want to see themselves in their community reflected in the local news and they want to know what is happening in their community.
5759 Unfortunately, 38 locals originating stations are not being carried on Shaw Direct and 35 local stations are not being carried on Bell-TV. Now, what's wrong with this picture?
5760 In one word, everything. DTH service providers claim that there is not enough channel capacity to carry all Canadian local television stations. Yet, they are able to find enough capacity to develop dozens, upon dozens of channels to sports paper view packages that only operate during the sport seasons, duplicate a view S 4 + 1 networks, foreign specialty and, of course, adult programming.
5761 Il est inacceptable qu'un abonné à l'un ou l'autre des services de distribution par SRD, résidant à Trois-Rivières au Québec se voient offrir le choix entre quatre ou cinq signaux du réseau américain NBC, mais n'a droit à aucune des trois stations de télévision locale de son marché.
5762 American Services provide next to nothing to the Canadian Broadcasting System. They don't own the Canadian rights for the program they carry, they don't spend a penny to support the creation of Canadian programming and, furthermore, the vast majority of the popular programs they carry are already being aired on the Canadian Programming Service.
5763 DTH is no longer a nation business. It is available to 100 per cent of Canadian homes. Its penetration is 27 per cent nationally and as much as 70 per cent in some markets. It is time for the Commission to take away DTH straining wills.
5764 The CAB believes that with new channel capacity coming on stream and advances in compression technology, DTH service providers should be able to carry all local stations in the three-year time frame that CAB has recommended.
5765 Now, with regard to the integrity of programming rights. Canadian broadcasters purchase exclusive programming rights. This is the bed rock of their business model. These exclusive rights must be respected and not be conditioned or diminished. Technology and regulatory decisions have gradually eroded these program rights over the years.
5766 We are asking you to put in place measures that uphold the value of broadcasters' exclusive program rights. Here are the things the Commission must do.
5767 Mandate program deletion. Second, mandate simultaneous substitution, regardless of whether a signal is provided to a BDU off-air or by direct feed. And finally, mandate simultaneous substitutions regardless of the presence of local programming.
5768 We would further note if a program is blacked out, technology will ensure it is available via other methods that respect broadcasters' exclusive rights, such as VOD and program blackouts have long been part of the system. Sports telecaster often blacked out because of rights issues. The measures we propose are essential to maintaining the integrity of the exclusive programming rights that broadcasters acquire. Pam.
5769 MS JONES: Finally, as noted at the outset, when making its policy determinations in this proceeding the Commission should have due regard for the changing regulatory and market landscape and the impact these changes will have on paying specialty services.
5770 We have heard some parties who have already appeared before you note that the specialty sector is doing well relative to the conventional sector. When viewed in the aggregate, the sector is performing well. However, the aggregate numbers do not necessarily reflect the circumstances of the individual services themselves.
5771 When viewed on an individual basis, we see that advertising revenues and affiliation revenues are flat or negative. In fact, although revenue and pbit for the sector increased, when analyzed on a per unit basis, the results are flat.
5772 Since 63 per cent of paying specialty services revenues are derived from affiliation payments, it is important to note that the five-year growth rate in affiliation payments for most Category A analog and digital specialty services were negative or flat.
5773 In 2011, a number of new regulations will take effect that have the potential to significantly, permanently and irreversibly alter the paying specialty service business model.
5774 The elimination of the licence wholesale rate, changes to the specialty packages and numerous changes to the BDU regulations are anticipated to have a wide ranging impact on existing pay and specialty revenues.
5775 In addition BDUs are seeking to sell advertising in the local availabilities and to offer non-Canadian packages on VOD.
5776 Taking all these factors into account, we need you to recognize the cumulative impact and a transformative potential these measures may have on the sector as a whole and on each individual service.
5777 In the past, you have used historical pbits to determine whether increase in the Canadian programming expenditure is warranted. In some cases, you have increased service conditions of licence regarding spending to Canadian programming.
5778 Given the stagnant growth and the fact that the digital migration coming to effect in 2011 may dramatically change the revenue foundation that pay and specialty services rely on, this is no longer a tenable strategy because the future will definitely not replicate the past.
5779 M. SMITH : Merci, Pam.
5780 En conclusion, nous recommandons au Conseil de prendre en considération, d'une part, la possibilité réelle que l'environnement économique continuera de montrer des signes de fragilité au cours des prochaines années, et d'autre part, les transformations profondes qui affectent et continueront d'affecter les télédiffuseurs canadiens.
5781 En raison de ces transformations et de l'incertitude entourant les conséquences de la mise en oeuvre du nouveau cadre réglementaire à l'égard des EDR et des services facultatifs, nous croyons fermement que le Conseil doit garder à l'esprit le dicton qui dit : " Le passé n'est pas garant de l'avenir. "
5782 En d'autres termes, alourdir le fardeau réglementaire des diffuseurs ne ferait que contribuer à affaiblir notre industrie au moment où celle-ci doit disposer le plus possible de flexibilité pour s'adapter à l'univers du tout-numérique.
5783 The CAB asked this Commission to adopt strong yet simple principles, broadcasters must be allowed to reach the audiences that you have licensed them to serve and broadcasters' exclusive programming rights must be respected.
5784 Thank you for the opportunity to appear before you today and we are now ready to answer your questions. Thank you.
5785 THE CHAIRPERSON: Thank you.
5786 Explain to me a bit about the exclusive program rights. What exactly here do you have in mind when you say mandated program deletion, for instance, on page 5? Surely by itself -- okay, explain to me what you mean by saying mandated program deletions without any contacts.
5787 I don't know what to make of this.
5788 MR. SMITH: Well, I will try to answer your question, and let me know if I do. But the principle for us is simple. Broadcasters are acquiring program rights on an exclusive basis. They pay premiums to get the exclusivity on those programs. Yet, unfortunately, because of regulations in technology, American services that are carrying the same type of programs are being allowed in this market, being distributed, and also we have the phenomenon of distant signals, which means that you don't have exclusive rights even though you have paid for one.
5789 What we are asking you to do is to implement program deletion as in the regulations and enforce it so that broadcasters have what they are paying for, exclusive rights. That's exactly what is happening in the U.S. That's the regulation that exists there and I know that the system is different there.
5790 But the reality, Mr. Chair, is that if you carry House in Chicago you are the only one carrying House in Chicago, be it by cable, by DTH or off-air. Nobody else gets it whereas here, in this market, whereas you operate in Ottawa or Toronto you have another broadcaster, Fox, who is in the market.
5791 THE CHAIRPERSON: So how do you square them to simultaneous substitution? I mean when do I have -- if I ever take you by your word and say, fine, we will do what you say, when do I delete -- mandate program deletion and when do I mandate simultaneous substitution?
5792 MR. SMITH: Well, simultaneous substitution occurs when a program is aired at the same time on the American network and the Canadian network. You are aware that Canadian broadcasters often purchase exclusive rights on American shows that are broadcast on different networks in the U.S. and sometimes, not all the time but sometimes, these programs are aired at the same time in the U.S., which means that you can apply simultaneous substitution only on one program. You cannot apply it on both.
5793 So what we are asking you to do is that, you know, when you have the right, the exclusive right on a program, if the show is broadcast at the same time that you broadcast it, no problem. We do simultaneous substitution. Everything is fine.
5794 THE CHAIRPERSON: Okay. And when they are not being broadcast at the same time you mandate program deletion?
5795 MR. SMITH: Program deletion.
5796 THE CHAIRPERSON: And what is this number three, "mandate simultaneous substitution regardless of the presence of local programming"? If there is no local programming -- well, what do you mean by -- local programming in this point you mean whether it is to air. Is this the rebroads you are talking about?
5797 MR. SMITH: No, what I mean by that -- and I hope that what I will say is clear and if it's not I encourage you to ask further. What I mean by that is that respect of programming rights has nothing to do with the provision of local programming. It is a question of; you have rights that you are acquiring and that needs to be respected. It doesn't have to be and shouldn't be traded off for other things, like for instance you have made some amendments; to say for instance that if you want to do simultaneous substitution on HD you need to have an HD transmitter fee and therefore you can only benefit from simultaneous substitution when you do.
5798 Well, it has got nothing to do with the transmission of the signal. It has got nothing to do with the provision of local programming. The rule with respect to simultaneous substitution was established back in the seventies to protect the exclusive rights that Canadian broadcasting are purchasing.
5799 What we do here in this country is no different than what they do in the U.S. and what they do in Europe. Broadcasters are purchasing exclusive rights --
5800 THE CHAIRPERSON: So you --
5801 MR. SMITH: -- and that's their business model.
5802 THE CHAIRPERSON: Okay. So let's say we are in Ottawa and you just mentioned the program House.
5803 MR. SMITH: Yes.
5804 THE CHAIRPERSON: Nobody has House on HD, but it comes on House on HD from the U.S. We should still order program deletion is what you are saying?
5805 MR. SMITH: No, that's not what I said and, sorry, a good question because I should have clarified this.
5806 What we are saying is that as long as we are providing a feed, an HD feed to the cable distributor or DTH service providers, for that matter, simultaneous substitution should occur. It shouldn't be related to the off-air transmission of the signal. That's what we are saying.
5807 THE CHAIRPERSON: So at point number three on page 5 I should put the words in "regardless of the presence of off-air local programming"?
5808 MR. SMITH: I don't want to be facetious but off air or not, it's not a question of if a service provides local programming. It's a question of protection or respect of rights. It shouldn't be a trade-off, Mr. Chair.
5809 THE CHAIRPERSON: I guess I don't understand you. So let me go again.
5810 MR. SMITH: Okay.
5811 THE CHAIRPERSON: I can understand if somebody buys the exclusive rights for -- let's say for argument in Toronto of their program.
5812 MR. SMITH: Yes.
5813 THE CHAIRPERSON: Then you say black it out or we can do simsub -- simsub.
5814 MR. SMITH: Yes.
5815 THE CHAIRPERSON: Preferably simsub or program deletion?
5816 MR. SMITH: Yes.
5817 THE CHAIRPERSON: What if it's in a different format?
5818 MR. SMITH: Well, again let's say --
5819 THE CHAIRPERSON: I bought the exclusive rights of House for Toronto but I only bought SD, but it comes in HD from Rochester. What happens?
5820 MR. SMITH: The answer to this is that the Canadian broadcasters buy the exclusive rights on the program. And, again, I'm taking the example of House. I could take --
5821 THE CHAIRPERSON: Yeah, sure, take --
5822 MR. SMITH: Or whatever, but they are buying the exclusive rights. They are buying it for SD; they are buying it for HD. They are buying it for this market. They are the only ones that have the rights for this market.
5823 So what we are saying with respect to local programming is that it has nothing to do with this. It's a question of respect of right. And therefore it's --
5824 THE CHAIRPERSON: But stay with my example. Even if I bought the HD rights for Toronto, since I don't have an HD transmitter, et cetera and that means that now the citizens of Toronto get the program in HD because I bought the exclusive rights. So tough luck, you have to enjoy the analog.
5825 MR. SMITH: That's not what I'm saying, sir.
5826 THE CHAIRPERSON: No, no, but --
5827 MR. SMITH: It's probably because, sir, I don't explain it very well.
5828 THE CHAIRPERSON: No, no, I know what you are saying. If you say respect complete rights, et cetera, I understand what you are trying to do. You are trying to protect the broadcaster and the integrity of the signal, but you are forgetting the consumer.
5829 MR. SMITH: Sir, with respect to HD what we are saying is that, provided that we transmit the HD signal by a feed it doesn't need to be off air.
5830 THE CHAIRPERSON: Yeah, yeah, okay.
5831 MR. SMITH: Simultaneous substitution should apply and it shouldn't be related to the provision of local programming.
5832 Now, to your question with respect to the consumer, I suspect you make reference to blackouts.
5833 THE CHAIRPERSON: Yeah, yeah.
5834 MR. SMITH: Can I?
5835 THE CHAIRPERSON: Yeah.
5836 MR. SMITH: Okay. Well, the issue of the Swiss cheese approach which has been around for years and years where BDUs, cable and after that DTH, have said that it was consumer unfriendly, now we have technologies like VOD which allow the subscriber to view a program. Say it's broadcast at the same time at nine p.m. on one network, one American network, Fox, and another American network, ABC, and that Global has the right, the exclusive right for this market for both programs that are aired at nine p.m. That subscriber would have the possibility to say he wants to watch the other show at nine but he wants to watch House. He can watch it on VOD.
5837 He is not prevented from accessing this program except that on the Fox signal there will be a mention it is blacked out, the same way that you if you are, like Mr. Katz, enjoying watching hockey games on Sportsnet and sometimes you will be faced with the fact that games are blacked out.
5838 It has been like this for years and years and years. Nobody died, with all respect, and nobody has unsubscribed in droves because of that.
5839 THE CHAIRPERSON: And why, if that's the case, have we not done this a long time ago?
5840 MR. SMITH: That's a very good question, sir. I don't have the answer to this.
5841 THE CHAIRPERSON: Okay.
5842 Elizabeth, you have some questions?
5843 COMMISSIONER DUNCAN: Yes, I do. I am going to start first of all with the one signal per province that you raised in your presentation today, although I don't think you used exactly that term but at any rate.
5844 I'm wondering first of all how many independently-owned stations are at risk of being dropped by either or both of the DTH providers.
5845 MR. SMITH: Because of the rule of the one per province?
5846 COMMISSIONER DUNCAN: 2008, yeah.
5847 MR. SMITH: I don't have the exact figures before me, but the rule the way it is written says that the DTH service providers must carry one signal per province per group, say CTV, CanWest, CBC, and one independent. So for instance, in B.C. where you have Astral and Pattison who are independent groups, then only one of them, one station, would be carried.
5848 COMMISSIONER DUNCAN: I understand that and I guess I'm kind of interested in the numbers. So are you able to provide us that, by province?
5849 MR. SMITH: Sure, we can provide you that.
5850 COMMISSIONER DUNCAN: Okay. And I am also wondering if any of them have been told they won't be carried at this point.
5851 MR. SMITH: I don't have the answers to this question, Madam Commissioner, but if I may -- if I may, we note that in response to applications made by small independent television services that are only asking the status quo, that their 13 signals continue to be carried beyond September 1st, 2011, we have seen DTH service providers gone ballistic on this application by saying, "Well, we have made plans to, you know, make room and take off these channels and make room for something else".
5852 So my sense is that the DTH service providers will exactly want to follow the policy as it is written and we will end up with something that is -- you will have less private OTA local originating stations being carried on each of the DTH service providers than the number of U.S. OTA stations currently being carried by them. We think it is wrong.
5853 COMMISSIONER DUNCAN: If you could just give us the number then -- the location actually of those ones we would have that you are referring to there, but of all of the others that you are suspecting would fall in this category, you know, the Astral/Pattison example that you gave for British Columbia. So we would be interested to know the number because if it comes down to an issue of capacity, I think it would be helpful for us to understand the potential of the problem.
5854 MR. SMITH: Absolutely.
5855 COMMISSIONER DUNCAN: Okay.
5856 MR. SMITH: I do note that the group of independent broadcasters will appear before you next Tuesday.
5857 COMMISSIONER DUNCAN: Yes. M'hmm.
5858 MR. SMITH: So they can provide this type of information as well as I can and even better than I can but I will undertake to provide it.
5859 COMMISSIONER DUNCAN: Do they represent 100 percent or are they just representing --
5860 MR. SMITH: They represent almost 100 percent. The only one that they don't represent, if I recall correctly, is Kenora, which belongs to Shaw.
5861 COMMISSIONER DUNCAN: Okay. So we can get the information from them or perhaps they filed it.
5862 MR. SMITH: Sure. But I will provide it to you as well.
5863 COMMISSIONER DUNCAN: Okay, thank you.
5864 Then I understand why too that the carriage is vital to everybody, because they need to be able to reach 100 percent of their market, and I am wondering if you can provide a list of the 63 private stations that you refer to in your submission that would be in the grade B contour and the number of households that would be in the grade B contour, of those that are expected to convert to digital.
5865 MR. SMITH: We will absolutely provide you with this information and thank you for providing us a little bit of time to provide that to you.
5866 COMMISSIONER DUNCAN: And there are some that are carried in your 63 number that are carried by Shaw and some are carried by Bell, so if you could tell us the numbers that are not carried by each of them, identify those stations by Bell or Shaw.
5867 MR. SMITH: We will do that.
5868 COMMISSIONER DUNCAN: Okay. And I am wondering here -- you have alluded to here in your remarks or you mentioned it here in your remarks -- you say in your submission that you have identified 27 duplicate U.S. services and that the balance missing that are not served on either Shaw or on Bell could be made up by simply replacing adult content. So it would cover --
5869 MR. SMITH: Yes.
5870 COMMISSIONER DUNCAN: I am just wondering if you have discussed that proposal with either Bell or Shaw.
5871 MR. SMITH: No, we haven't discussed that with Bell or Shaw.
5872 And let me be clear here, what we have expressed in our submission, and we are reiterating again this afternoon, is that DTH service providers have claimed channel capacity limits to not carry local television services into their local markets. Yet, they find ample capacity to provide these U.S. services.
5873 So at the end of the day we don't want to tell them what they should do or shouldn't do if ever channel capacity is an issue. We are simply saying we shouldn't be penalized for the fact that you want to be more competitive with cable and that you think that you are being more competitive with cable by providing, in the case of Bell TV, 55 channels devoted to sports packages or 31 in the case of Shaw Direct, services that are operating in a very small period of time.
5874 Let's take NFL tickets, for instance, between September and December, only on Sunday, and it will be between April and September, and the NHL between September and April. And we do understand that there is an appeal for subscribers to subscribe to these packages but we wonder why Canadian broadcasters who are licensed to serve 100 percent of their local markets should be penalized so that DTH can be more competitive with cable.
5875 You know, you set at the outset of this hearing that you like to watch your CTV local news services in Halifax. Well, in Halifax, 25 percent of penetration -- DTH has 25 percent of penetration. In your town it is 63 percent. In Regina it is 30. In Saskatoon it is 30. In Lloydminster it is 69 percent.
5876 So if you are Newcap operating two television stations in Lloydminster and you are not carried, well, you know, someone just broke your leg, cut your legs and you are expected to run and compete with others. We think it is wrong.
5877 COMMISSIONER DUNCAN: I think that I am giving you a soapbox but at any rate I take your point and I actually had understood your point before that. I am just trying to put the numbers to it. I just like to see the magnitude of the problem --
5878 MR. SMITH: I understand.
5879 COMMISSIONER DUNCAN: -- because if it is not that large in numbers, then I guess a simple observation would be, well, why don't you. I mean I thought your example that you gave that there were 27 duplicated U.S. services was a better argument than the sports services because Canadians love their sports. But I mean you are making your point. I get your point.
5880 MR. SMITH: That is true.
5881 COMMISSIONER DUNCAN: And on the example you just gave with Newcap, now they would have been one of the stations or two getting compensation all along; is that how that was working?
5882 MR. SMITH: Are you referring to the Small Markets Programming Fund?
5883 COMMISSIONER DUNCAN: Yes. Was Newcap part of that?
5884 MR. SMITH: Yes, Newcap is part of that.
5885 COMMISSIONER DUNCAN: Yes. Okay. So this point they are getting compensation but no audience; is that it?
5886 MR. SMITH: They are getting compensation but they are getting compensation for the impact of distant signals in their market, not compensation for are you carried or not. That is not the way the system works. But again, their conditions of licence with respect to local programming is being based on 100 percent of the market. It is based on the size of the market. You do seven hours per week in some markets and 14 in some others. It is not predicated on are you carried on DTH or not.
5887 COMMISSIONER DUNCAN: Okay, thank you.
5888 I am actually going to move into the whole area of signal integrity next and I think I will probably be repeating some of Konrad's questions there because I don't necessarily have it clearly either.
5889 I am wondering, do they always buy -- and I gather from your comment that they always buy the exclusive rights, there is no question about that. When they buy a package or a program, they are getting all the rights, SD, HD, whatever, they get all the rights?
5890 MR. SMITH: They buy the rights for the conventional television window and they buy the rights based on markets. In other words, you are buying rights, you might purchase it at the national level but then it is fragmented into the markets that you are serving.
5891 So again, taking my example of Newcap in Lloydminster, affiliate to CTV, well, you know, "Desperate Housewives" is sold exclusively to Newcap in Lloydminster based on the size of the market. Newcap is not in a position to fully monetize the full value of this program because of different issues but also because of the fact that there are distant signals being imported into the market because there are American networks that carry the same program.
5892 COMMISSIONER DUNCAN: You mentioned there they also get the VOD rights as well as the conventional TV rights?
5893 MR. SMITH: Listen, I think you would be better to ask directly licensees on the specifics on this.
5894 COMMISSIONER DUNCAN: Okay.
5895 MR. SMITH: My assumption is that they are buying the rights when they are available to be purchased from the distributors of U.S. programming. They are paying a premium or they are paying a price for the VOD rights.
5896 But the point that I want to make on this is that we have a technology now that wasn't available to us 10 years ago or 20 years ago and therefore the argument about the Swiss cheese impact is less, in my view, less relevant and that consumers, subscribers have other means to view that program if they are blacked out at the time that they wanted to see first.
5897 COMMISSIONER DUNCAN: M'hmm. In your submission you say that:
"Provision by a Canadian broadcaster of an HD feed is necessary to trigger simultaneous substitution of an HD U.S. program from the U.S. HD signal made available to a subscriber by a BDU."
5898 So this, I guess, then goes to the point that you were touching on there with Konrad, is that delivered not just over the air.
5899 You don't want the requirement to be over the air, it could be by direct feed?
5900 MR. SMITH: That is right.
5901 COMMISSIONER DUNCAN: But I found the wording was a little bit ambiguous because it made me wonder if you were suggesting that an HD signal could be provided from Toronto to EastLink in Halifax and you would expect EastLink then to do the substitution. That is not what you are saying?
5902 MR. SMITH: No, that is not what I said but I am French, so maybe writing in English, I was unfortunately ambiguous.
5903 COMMISSIONER DUNCAN: That is okay. I just wanted to make sure what your intent was.
5904 Then talking about the deletion rule:
"That BDUs be mandated to black out a program broadcast on a U.S. signal in a market where a local Canadian broadcaster holds the exclusive rights to exhibit that program within the same broadcast week."
5905 MR. SMITH: That is right.
5906 COMMISSIONER DUNCAN: So this one I am wondering on a number of levels.
5907 First of all, I am wondering how it would work for one thing. Like would the BDU be expected to store the program? How would that work? So the program airs on CTV on Monday and on the U.S. network on Thursday. Like what would happen? They would have to store the program or CTV would send it to them again on Thursday? I just don't quite understand how that would work.
5908 MR. SMITH: Well, I hope I will help you with my answer and if I am confusing you -- I hope I won't but if I am confusing you it is because I am technologically challenged.
5909 But the principle here is to say, you know -- in the Dunbar Leblanc report, one of the recommendations was that it is unfortunate that Canadian broadcasters depend on Americans to make decisions on their scheduling.
5910 COMMISSIONER DUNCAN: M'hmm.
5911 MR. SMITH: The approach that we are suggesting is to say, well, we would have then the freedom to schedule more for the benefit or according to what Canadians want to watch in our market because we know our market, and that way it would -- if it airs on CTV on Monday and if it airs on Fox on Thursday, well, you know, it is blacked out on Fox.
5912 COMMISSIONER DUNCAN: I understand why you want that. I think you want to give the Canadian broadcaster the programming flexibility. So your solution is not to substitute it, it is to go to dead air on that?
5913 MR. SMITH: Well, again, you know, just to be clear, it would be much better obviously to find a way to do non-simultaneous substitution. We have put in our submission that it would be, you know, probably the best way to go.
5914 We know how simultaneous substitution works and, you know, it has been working to some extent over the years. Non-simultaneous substitution is just removing the ads on the program in the U.S. network and you attribute the viewing hours from the viewing on the U.S. program on the U.S. network.
5915 Now, we heard on Monday from CTV that there are still glitches or problems that are related to non-simultaneous substitution but I would argue with you that if the Commission put a clear principle on the table, in the books that says, it will be program deletion and we will enforce it, you can bet your life that broadcasters and BDUs will work together to make sure that we will find a less disruptive way to apply, enforce and make it work.
5916 COMMISSIONER DUNCAN: The first quote that I read to you, you then went on in your submission to say, in the alternative then, you would recommend substituting the ads that you have just talked about now.
5917 MR. SMITH: That is right.
5918 COMMISSIONER DUNCAN: So --
5919 MR. SMITH: It could be the other way around, Madam Commissioner. The point is that broadcasters have no interest to, you know, disrupt -- for lack of a better word, to disrupt the viewing habits of the consumer. It's our consumer. It's our viewers.
5920 We would rather go for something that would be less disruptive but if ever there is not at this point in time a practical solution, workable solution, then unfortunately, you would have to implement and enforce program deletion.
5921 What we are telling you is that doing that, the consumer will still have the opportunity to watch the show that he wants, which is "House", say, or "Desperate Housewives" on VOD. There is SVOD for CTV and SVOD for Global. They have the opportunity to watch it. It is not that they would be prevented from accessing the content. On the contrary.
5922 COMMISSIONER DUNCAN: So I am certain I am clear on your point that you want to protect the broadcast rights, I think we have heard, you know, plenty about that this week, so I am clear that that is what you want to do and I understand that.
5923 I guess I am wondering about the number of errors or the probability of errors if you were to have them substitute Canadian commercials in the U.S. show. Like, I just don't appreciate what would be involved in doing that and it sounds complicated. But if I am understanding what you are saying, and I will just say it back to you, you are saying they will find a way?
5924 MR. SMITH: That exactly what I am saying.
5925 COMMISSIONER DUNCAN: That is what you are saying, okay.
5926 And I don't know -- you know, I think and I am an EastLink customer, so I think that I have a lot of services --
5927 MR. SMITH: Good for you.
5928 COMMISSIONER DUNCAN: -- I have the Movie Network, I have the pay-per-view, and that is showing favouritism for anybody. But I don't know that I have video-on-demand that allows me to watch House. So is that available to the consumer without paying any premium? I somehow doubt that it is. So it is not quite as simple as you have described it, you have to have more service? And I am not saying that is not solution, I am just --
5929 MR. SMITH: No, no. But to answer your questions, I subscribe to Rogers in the Ottawa market and I have access to VOD platforms and it is transactional VOD, so programs that you can purchase one at a time. And I have access also to what is called SVOD or subscription VOD that usually, you know, the cable providers will offer you to, you know, as a benefit of subscribing to them, allow you to do time shifting and to do, you know, watch programs when you want and --
5930 COMMISSIONER DUNCAN: Just to pick up on your point though, it is not without an additional cost to the consumer?
5931 MR. SMITH: You know what, on this, I don't want to mislead you, but I don't think that I am paying a premium for this on --
5932 COMMISSIONER DUNCAN: Do you buy the Movie Network?
5933 MR. SMITH: I am not talking about the Movie Network.
5934 COMMISSIONER DUNCAN: No, no, but I think you get some of these extra services because you do buy the Movie Network --
5935 MR. SMITH: That is right.
5936 COMMISSIONER DUNCAN: -- or at least that is in my case anyway.
5937 MR. SMITH: That is right. If you want to subscribe to TMN or have TMN on demand, it is part of the package to get TMN.
5938 COMMISSIONER DUNCAN: M'hmm.
5939 MR. SMITH: But in the case of Global and CTV, my understanding -- and, again, I don't want to mislead you, but my understanding is that those services are offered at no charge. That is my understanding.
5940 COMMISSIONER DUNCAN: Well, EastLink is coming up, we can ask them too.
5941 MR. SMITH: Sure.
5942 COMMISSIONER DUNCAN: Because I just don't understand. Okay.
5943 And so I had read in your submission the discussion about the 2008-100 and the potential disruption for pay and specialty as time goes on after 2011. And, you know, there was a hearing on that, so you know that we are not going to change that hearing at this point, those decisions at this point. And there was a chance for everybody to make their case and these are the decisions that were made.
5944 And I think the consumers have been asking for years and years and years for more choice. So I am just not quite sure what you wanted us to do with that information.
5945 MR. SMITH: What we are looking for?
5946 COMMISSIONER DUNCAN: Yes.
5947 MR. SMITH: We are not telling you to change the 2008-100 policy except for the one-per-province rule --
5948 COMMISSIONER DUNCAN: Right.
5949 MR. SMITH: -- that, we want to do. But otherwise, this is the policy, this has been determined. What we are telling you is you are going into and you are seeking comments on group licensing including, you know, companies that have both OTA and specialty services as part of the group.
5950 In some other cases it is only -- it is specialty pure play or pay TV pure play. All we are saying to you is that take into account the fact that we don't know how the framework will play out. There is a lot of uncertainties that are related to, you know, what will be the impact on the level of penetration of services. And if that is the case, 63 per cent currently -- 63 per cent of the revenues of specialty services are derived from subscription.
5951 So if your level of penetration -- let's say that you are used to 60 per cent penetration on your main services, branded services, and that you end up on a pick-and-pay, you know, approach, bear in mind that BDUs will still have to package services, but they could package it in two, and that the main way of distributing services is what Mr. Déspatie was telling you yesterday, you know, pick 15, pay 15 and pick 20, pay 20 and so on and so forth. Well, your level of penetration will be significantly lower.
5952 Now, two things will happen here, either someone will have to make the consumers, the subscribers, understand that the rates that specialty services, their wholesale rates, in most cases were approved by the Commission a long time ago in a different universe based on commitments that were made with respect to Canadian programming, diversity of programming and so on and so forth. But also assuming a certain level of penetration, not 15 per cent, not 20 per cent, but significantly higher
5953 So two things might happen here. Either the level of penetration will go significantly lower and we will respond by, well, we need to crank up the rates that we negotiate with BDUs. It isn't going to be easy to do that, but that is one possible solution. Well, the subscriber needs to understand that, you know, 20 for 20 sounds great from a marketing standpoint.
5954 But in a pick-and-pay environment normally rates would go up, significantly up or the other way around. The rates don't go up, in fact they might go down because of pressure from, you know, bargaining with the distributors and you end up with significantly lower level of revenues, which means that there is significantly less money flowing into Canadian programming expenditures and you have a ripple effect.
5955 So all we are saying is that we don't know yet how it will play out. We just want you to factor that into the equation and allow broadcasters the flexibility to adapt to the changes that they will be faced with. That is all we are saying.
5956 And we are saying instead of aiming for a one-size fits all, which we all understand would make sense from the regulator's perspective, it is easier to manage and monitor, but the broadcasting companies have different circumstances and they might need to have a different regulatory approach. Let them, like they are telling you --
5957 COMMISSIONER DUNCAN: Yes, m'hmm.
5958 MR. SMITH: -- you know, the approach that they are suggesting and let's see how things will play out.
5959 COMMISSIONER DUNCAN: Thank you very much.
5960 Those are my questions, Mr. Chairman. Thank you.
5961 THE CHAIRPERSON: Thank you.
5963 COMMISSIONER MOLNAR: You make this sound that what the Commission must do is relatively simple. First of all, I went back to the transcript of yesterday with CanWest and, so I don't get it wrong, Mr. Asper said:
"If you protect program rights, protect the exclusivity of our program rights, we don't need a fee-for-carriage and we don't need a value-for-signal. We don't need to negotiate anything." (As Read)
5964 So you have come forward with three simple things we must do to protect program rights. And I wonder, for your members generally, can you speak for your members in saying -- would your other members agree with what Mr. Asper told us yesterday?
5965 MR. SMITH: I think that you know very well the answer that I will provide to you. I am in no position to provide you with an answer on this.
5966 The only thing that I would be saying to you is that we believe that what we are asking you to do is something that is fundamental to help this sector of the industry stabilize and be able to live to fight another day. Is this the only thing that is required? I don't know, madam, but we need those two things; we need services to be all carried on DTH and we need the Commission to enforce exclusive programming rights.
5967 And I am sorry I could not help you more than this.
5968 COMMISSIONER MOLNAR: Well, no, that is fine. I wish I would have asked the question earlier when we had some of the broadcasters in front of us. But no, unfortunately, we seen CanWest yesterday and the statement was made so --
5969 MR. SMITH: You will have a second kick at the can at the December hearing I think.
5970 COMMISSIONER MOLNAR: Yes.
5971 THE CHAIRPERSON: We won't, because the December hearing is not a policy hearing, it is a hearing on the report.
5972 MR. SMITH: You are right.
5973 THE CHAIRPERSON: But, fortunately, people are hearing you and Commissioner Candice exchanging things over-the-air right now and they have until December 14 to make additional submission. And maybe you can also speak to your members and suggest that they might want to answer that question.
5974 MR. SMITH: I can relay the information, sir.
5975 COMMISSIONER MOLNAR: Yes, that is a great idea and a great way to address it.
5976 And I want to make sure that I understand these three elements that you put forward as it relates to protecting program rights. You did speak about them with the Chair and, unfortunately, I was still a bit confused at the end of that so --
5977 MR. SMITH: My fault.
5978 COMMISSIONER MOLNAR: -- I am going to start with number three, mandate simultaneous substitution regardless of the presence of local programming. Are you talking about specialty there? Is that what we are talking about?
5979 MR. SMITH: No.
5980 COMMISSIONER MOLNAR: No?
5981 MR. SMITH: That is not what we are talking about. We are talking about the fact that an OTA service that operates say in Regina, say the CTV affiliates in Regina, which I believe is an O&O, it is owned by CTV, that that station holds the exclusive rights on the programming of CTV in that market, which is Regina.
5982 COMMISSIONER MOLNAR: So assuming we licensed an over-the-air station without any local programming obligations?
5983 MR. SMITH: That is not what I am saying, madam. What I am saying, and I am sorry, I am trying to be helpful, what I am saying is that the issue at stake here is not -- it is only that station, that Regina station owns the exclusive rights on programs, on shows, that are also carried by, for the U.S. programming, on U.S. networks, available in the Regina market through either cable or DTH.
5984 What I am saying is you shouldn't link the provision of simultaneous substitution to the provision of local programming. It has nothing to do with this, it has nothing to do with it. We are not saying that stations shouldn't have local requirements, we are just saying these are two separate issues, it doesn't matter.
5985 What matters here is that programmers, broadcasters acquire exclusive rights, enforce it, that is what we are saying. Don't make it conditional of the fact that they provide the signal HD, for instance, off air. We know you want it to do that to make sure that there was an incentive for broadcasters to convert to DTV, but it has nothing to do with the issue. Same thing with the provision of local programming. So I am not talking about speciality.
5986 COMMISSIONER ARPIN: Mr. Smith, take the example of Regina. Are you saying that say CTV in Regina has House --
5987 MR. SMITH: That is Global who have House.
5988 COMMISSIONER ARPIN: -- and they also have a re-transmitter in Saskatoon. They will be able to get program substitution in Regina, but not in Saskatoon? Is that the message that you are trying to convey to us, but they should have got it?
5989 MR. SMITH: All I am telling you is that these two things are not related, Mr. Vice-Chair.
5990 THE CHAIRPERSON: What you are really talking about is territorial rights.
5991 MR. SMITH. That is right.
5992 THE CHAIRPERSON: You say CTV for Regina, you bought the rights to House, so nobody in Regina can show House, it is either going to be blacked out or simultaneous substitution?
5993 MR. SMITH: That is exactly right. That is exactly right, Mr. Chair.
5994 COMMISSIONER MOLNAR: That is all I have, thanks.
5995 THE CHAIRPERSON: Okay. I don't see any other hands. It has been a long day.
5996 Thank you very much, Mr. Smith, that is all we need from you today.
5997 MR. SMITH: Thank you, Mr. Chair.
5998 LE PRÉSIDENT : Madame la Secrétaire, est-ce qu'on a d'autres intervenants?
5999 THE SECRETARY: For the record, Mr. Chair, I would like to indicate that intervener 19 on the agenda, which is Mr. Rick Willows, has advised the Commission he will not appear today.
6000 And I don't know if the three other interveners are present or not, but I would now invite them to the presentation table, it is Mr. Michael Taylor, Darmo Sugeng and Amitabh Chakravorty.
6001 Are any of these persons present?
6002 It appears they are not present, Mr. Chair.
6003 THE CHAIRPERSON: And they have been duly notified by you?
6004 THE SECRETARY: They have indeed, yes.
6005 THE CHAIRPERSON: Okay, I think that is it for today then. We will start tomorrow morning at 9 o'clock.
6006 Thank you.
6007 THE SECRETARY: Thank you.
--- Whereupon the hearing adjourned at 1531, to resume on Friday, November 20, 2009 at 0900
Lynda Johansson Jennifer Cheslock
Monique Mahoney Madeleine Matte
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