ARCHIVED -  Transcript of Proceeding

TRANSCRIPT OF PROCEEDINGS BEFORE

THE CANADIAN RADIO-TELEVISION AND

TELECOMMUNICATIONS COMMISSION

SUBJECT:

Policy proceeding on a group-based approach to the licensing of television services and on certain issues relating to conventional television

HELD AT:

Outaouais Room

140 Promenade du Portage

Gatineau, Quebec

November 23, 2009

Transcripts

In order to meet the requirements of the Official Languages

Act, transcripts of proceedings before the Commission will be

bilingual as to their covers, the listing of the CRTC members

and staff attending the public hearings, and the Table of

Contents.

However, the aforementioned publication is the recorded

verbatim transcript and, as such, is taped and transcribed in

either of the official languages, depending on the language

spoken by the participant at the public hearing.

Canadian Radio-television and

Telecommunications Commission

Transcript

Policy proceeding on a group-based approach to the licensing of television services and on certain issues relating to conventional television

BEFORE:

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

ALSO PRESENT:

Jade Roy   Secretary

Stephen Millington   Legal Counsel

Valérie Dionne

Jeff Conrad   Hearing Manager /

HELD AT:

Outaouais Room

140 Promenade du Portage

Gatineau, Quebec

November 23, 2009

- iv -

TABLE OF CONTENTS

   PAGE / PARA

PRESENTATION BY:

Alberta Motion Picture Industries Association   1367 / 7700

Canadian Cable Systems Alliance Inc.   1402 / 7892

MTS Allstream Inc.   1469 / 8255

Documentary Organization of Canada   1523 / 8553

Association of Canadian Advertisers   1557 / 8734

Legislative Assemblies of Nunavut and The Northwest Territories   1595 / 8976

Writers Guild of Canada   1614 / 9089

   Gatineau, Quebec

   Gatineau, Quebec

--- Upon resuming on Monday, November 23, 2009 at 0900

7694   THE CHAIRPERSON: Good morning. Bonjour.

7695   Madame la secrétaire, commençons.

7696   THE SECRETARY: Thank you, Mr. Chairman.

7697   I would like to remind you that when you are in the hearing room we would ask that you please turn off, and not only put on vibration mode, your cell phones and BlackBerrys as they cause interference on the internal communication systems used by our translators and interpreters. We would appreciate your cooperation in this regard.

7698   We would now proceed with Alberta Motion Picture Industry Association, Saskatchewan Motion Picture Industry Association and On Screen Manitoba.

7699   Please introduce yourself and after you can proceed. Thank you.

PRESENTATION

7700   MS LEVY: Good morning, Mr. Chairman, Vice-Chairman, Commissioners and staff. My name is Joanne Levy. I am a Producer with Buffalo Gal Pictures in Winnipeg and the coordinator of the Prairie region producers panel. Thank you very much for allowing us to participate in this consultation.

7701   Appearing with me are, from Alberta, Jane Bisbee, Interim Executive Director of AMPIA; from Manitoba, Lisa Meeches, Executive Producer and President of Eagle Vision Inc.; and our Saskatchewan representative, Shawn McGrath, Vice-President Business and Legal Affairs of Verité Films.

7702   We are encouraged by the Chairman's opening remarks at the start of this consultation that this hearing is about the future. That future may be uncertain but moving forward we believe is not an option, it is a necessity. We have competitors and coproduction partners around the world who have an impact on our business no matter where we are located. We are here to offer you some thoughts on local and regional reflection and production.

7703   On the broader issues before you, we endorse the national position and recommendations of the CFTPA regarding Canadian programming expenditures, exhibition obligations and the level of independent production.

7704   The Alberta Motion Picture Industries Association has been representing the interests of producers in that province since 1973 and Jane Bisbee will make their presentation.

7705   Jane...?

7706   MS BISBEE: Good morning. We appreciate this opportunity to be part of a seminal national discussion that may determine how Canadians see themselves, their communities and their country in the world for years to come. Most importantly, given the organization I represent here today, we appreciate the opportunity to focus your attention in this discussion on the point of view of Canadians far outside the centre of this country.

7707   As you may know, the Alberta Motion Picture Industries Association represents over 3,000 Albertans involved in all aspects of screen-based content creation industry. The organization strives to foster an environment where Albertans can create content reflecting our point of view to our fellow citizens, to the rest of Canada and to the world.

7708   From our perspective, there are three key issues that determine the creation of content for screen platforms and govern producers who work and live in a region.

7709   First, we must continue to create programming that viewers want to watch by employing the very best in creative and technical excellence. Without good programs, we will not attract an audience and we certainly will not have a business model that will sustain an industry. Many of the programs made in the region speak to important national and international issues and do it in a voice that is uniquely our own. A good example is this year's Gemini winner for best dramatic mini-series, a program called Burn Up, produced by Calgary's Seven 24, along with their international coproducing partners from around the world.

7710   We know we can make good programming. The question is how do you earn sufficient revenue from that programming so you can continue to keep doing it and so such regional, national and international stories are supported and not suppressed.

7711   Second, we must create programming that also speaks about and to fellow Albertans and Canadians, because if we don't tell our own stories, nobody will. If we fail to do so, Albertans will be shut out of the new digital communication arteries that are the lifeblood of our new world, leaving us with no voice and no place in the digital age.

7712   Third, we must ensure that a strong, regional independent production sector owns the rights to the programs we create. Through exploiting these rights to those programs, we can create a sustainable business model for independent companies, thereby ensuring a continued supply of innovative and relevant content from all regions of Canada.

7713   There has been much discussion about the value of local news and the use of a Local Programming Improvement Fund. As Albertans, we are very aware of the negative effect on the community when a local voice disappears. We just have to look at the example of Red Deer where the impact of the closure of the local broadcaster is now being felt.

7714   AMPIA understands completely the importance of the local news, but a community's quality of life, identity and cultural expression also includes the performing arts, local history, current affairs that are hard to produce within local news shows. We therefore appreciate the CRTC's move to include local broadcaster commissions from independent producers within the LPIF regulations, and we will work with our small-market outlets towards creating content that speaks to these communities.

7715   We will also be monitoring the annual report of the LPIF to track whether our members have benefited from this move. Hopefully we will see reinvigorated regional programming feeding into the national broadcast schedule.

7716   By expanding the use of the LPIF beyond the news, the CRTC has taken an important step that should encourage the diversity of cultural voices in the regions and ultimately across Canada.

7717   But equally necessary is a commitment from the broadcasters that such regional programming find an appropriate space on the programming schedule and be properly promoted once it's there.

7718   The closure of CHCA in Red Deer has also highlighted another ongoing concern for Alberta's production community. With the disappearance of CHCA Alberta's producers lost the CanWest Alberta Fund and as a result the benefits designated by the CRTC for that licence. Producers have not yet fully realized benefits promised through licence granted or changing hands between 'A' Channel, CHUM, Rogers, Super Channel and CTS. All of these broadcasters sought our support for their licensing applications, only to fall short in fully meeting their commitments in a timely manner.

7719   We would submit that perhaps it is time for the Commission to consider a more active role in ensuring that these benefits are actually expended for the development and acquisition of programming from the independent production industry in a timely and transparent manner. Perhaps a trust model could ensure that the opportunities represented by these benefit commitments are not lost.

7720   As stated by the President and CEO of CTVglobemedia, our country is so broad that a collection of voices from one central place cannot speak for all Canadians. We could not agree more. We also agree with the CFTPA's submission to this Commission that ensuring high levels of independent production is not the best, but likely the only way of ensuring a diversity of voices and programming choices for Canadians.

7721   As AMPIA expressed in our last presentation before you, reducing programming in the regions and from the regions in favour of a more centralized decision-making and production approach would be eliminating hundreds of independent development offices across Canada.

7722   We support the CFPTA's recommendation that at least 75 per cent of priority programming in terms of hours and expenditures be produced by independent producers. We would also recommend that the Commission ensure this programming requirement include the need to engage independent producers from all regions of Canada.

7723   As noted in the CFTPA's submission, the use of independent producers from the far reaches of this country will best ensure that we meet the objective of the Broadcasting Act to reflect the diversity of Canadian life.

7724   What this exercise is ultimately about is finding a business model for a truly national broadcast system that works. We believe that a key part of that success is a system that reflects this country from coast to coast through rich and diverse programming from across the country produced by independent producers, such as the members of the Alberta Motion Pictures Industries Association.

7725   Thank you.

7726   Joanne...?

7727   MS LEVY: Shawn McGrath is from the company that gave us Corner Gas, the first bona fide Canadian hit TV series. He is here this morning.

7728   Shawn...?

7729   MR. McGRATH: Good morning. The Saskatchewan Motion Picture Industry Association acts as an advocate for all personnel related to the making and exhibiting of film, video and interactive media in the province. Last year our industry created the equivalent of 1,200 jobs on 40 projects with a production volume of $75 million. However, in the last three years we have seen a decline in the percentage of Canadian Television Fund allocations coming to our province, from more than 2.5 per cent to less than 1.2 per cent. This is a direct reflection of reduced spending by Canadian broadcasters in our province. It comes at the same time that Canadian conventional broadcasters have invested more in American programs, particularly for simulcast.

7730   In your call for this consultation you stated the expectation that:

"... group-based licensing would create flexibility that should result in "greater support for Canadian programming, including original programming, particularly in categories that continue to be under-represented in the Canadian broadcasting system such as drama and documentaries". (As read)

7731   We believe Canadian programming expenditures for conventional English-language broadcasters should translate into more and better Canadian programming but the CPEs must also be structured to encourage regional production. History tells us that if it's not a requirement it most likely will not happen.

7732   We ask the Commission to require that a minimum proportion of the CPEs be spent on programming commissioned from regional independent producers and that this spending be reflected in the broadcasters' annual reports.

7733   The question then becomes how to discern the regional proportion. That, rightly, should be the subject of thorough and thoughtful analysis. Perhaps a jumping off point is to look at production volumes based on total production spends. Currently the production volume of Canadian television production outside Ontario, Québec and British Columbia is just over 10 per cent of the total of Canadian production spends.

7734   We believe an increase to 15 per cent of Canadian production spends over the life of a seven-year broadcast licence would be reasonable and that proportionate CPEs would assist in that regard.

7735   To be clear, this is suggested as a floor, not a ceiling, and it applies specifically to conventional broadcasters.

7736   But a regional allocation is only part of the solution. There are other issues.

7737   For example, Canadian television shows seldom receive the scheduling or promotion that U.S. shows get. Indeed, the problem is exacerbated by simultaneous substitution that often results in Canadian shows being shuffled around a broadcaster's schedule. If the shows get disappointing ratings, the conclusion is that Canadian shows do not attract audiences and do not make money. Yet, when a Canadian series such as Flashpoint is given the budget, the timeslot and the promotion normally given a U.S. show, it can prove to be a hit.

7738   Although we realize that simultaneous substitution and other aspects of the system are factors, we think there also needs to be greater commitment on behalf of all stakeholders to better scheduling and promotion of Canadian programming. The unique brands of Canadian broadcasters should be built around Canadian shows. It is time to resolve the challenges to ensure that happens.

7739   MS LEVY: The President of On Screen Manitoba was unable to attend today due to illness and so I will make her presentation.

7740   On Screen Manitoba represents the television film and digital media production community in Manitoba. Our membership covers the entire production industry from creators, the independent producers, directors and writers, to the technical crew and creative craftspeople represented by labour groups, and we also represent the service and goods suppliers and broadcasters in our region. Our city and our province contain many of the diverse cultures and voices that define our country and we have developed a mature production industry that has brought these voices into our broadcasting system. With our significant financial incentives, our internationally renowned production companies and crews, and the strong support of the province and city, we are able to offer broadcasters top quality original regional programming at bargain prices.

7741   We consider ourselves part of the solution to the economic difficulties of conventional broadcasters.

7742   You have also asked what other solutions might be brought to bear. We note that in June of this year, following your review of new media, you introduced a reporting requirement for new media broadcasting services to ensure that you have the best information available for future reviews. This is encouraging because content has value, of course, and new media broadcasting is simply another form of delivery that may need to contribute to content creation in a financial way.

7743   Broadcasters in Canada are arguably the biggest aggregators of content and are very well placed to extract value from it. We support terms of trade negotiations to ensure the benefits are fairly distributed.

7744   As the digital transition occurs, we see value in government investment and the work required for that task. Completing a vital component in our knowledge-based economy is just as important as roads and other infrastructure improvements. We realize this is the responsibility of government, not the CRTC, but it is critical to our competitiveness.

7745   Our final speaker is Lisa Meeches. She produced this year's Gemini award-winning TV movie Elijah.

7746   Lisa...?

7747   MS MEECHES: Thank you, Joanne. Good morning.

7748   Although we have a stong, well-established production community, Manitoba's industry is one of the most vulnerable to the current trends toward centralization and consolidation. When the broadcasters pull back, we tend to feel it first. They stopped travelling to see us as travel funds get tight. They object to regional spending requirements because it restricts them. They consolidate positions so there is no one in the local stations that has anything to do with programming.

7749   In the original call for this consultation the Commission signalled a desire to adopt concrete and measurable commitments to the production programming and airing of local content and achieve a focused and systematic approach to community involvement and reflection.

7750   I started my career in local television -- the Brandon station that has sadly gone dark. After broadcasting school I was hired as a reporter at CKX. That led to a weekly magazine show on aboriginal themes called The Sharing Circle. After a few years of in-house production, the Craigs encouraged me to start my independent production company so I could access tax credits and support to enhance the program. The Sharing Circle ran for 16 years and helped me build my company to where it is today, one of the largest aboriginal owned production companies in the country.

7751   We note that for most of the broadcasters that have appeared before you, local programming is in-house news and information programming. As viewers, we have noticed even that is shrinking. Cuts in staff and resources means civil politics is left to the newspapers; provincial politics coverage is much reduced; analysis, reflection and debate have all but disappeared from television news coverage.

7752   A program such as The Sharing Circle has neither a national nor a local TV home on conventional television in a province with the largest proportion of aboriginal peoples in Canada. We believe this is because programming decisions have been centralized as broadcasters have consolidated schedules and concentrated on network programs. If there is to be a commitment to local content, there must be an increase in local control. Shelf space for local programs has to be made available.

7753   Beyond local programming we believe broadcasters should be placing development officers in the regions so producers have an unidentifiable liaison to their broadcast clients, both local and national. Independent producers and broadcasters serve Canadians best when we work as partners.

7754   Whenever a broadcaster has assigned someone to our region, it results in more creativity. Most recently Super Channel placed development officers in every province. In Manitoba this has meant a number of projects received support for all those important first steps. We hope Super Channel will be able to resume its development program in the new year.

7755   Should negotiations on value for service conclude successfully, we will be watching to see what happens, what plans broadcasters have for truly improving their local and regional programs. We will also be watching to see that both cable and satellite carry local stations as part of the bargain. Chi meegwetch.

7756   MS LEVY: In spite of the current challenges, regional producers remain passionate, innovative, entrepreneurial and determined to contribute their creativity to Canadian broadcasting and serve their local communities. We stand ready to offer solutions to the challenges of creating that local and national programming.

7757   We thank the Commission for allowing us to appear and look forward to answering your questions.

7758   THE CHAIRPERSON: Thank you for your submissions.

7759   Ms Meeches, what was that word you said at the end of your presentation?

7760   MS MEECHES: Chi meegwetch. That means a big thank you.

7761   THE CHAIRPERSON: Okay. Thank you. I learned something, thank you.

7762   MS LEVY: In Ojibway.

7763   MS MEECHES: In Ojibway.

7764   THE CHAIRPERSON: In Ojibway.

7765   You are all talking about local programming and all last week we heard the same thing that Ms Meeches just said now: that basically when people speak about local programming, they think of news and information sharing.

7766   What else is involved in local programming that we should focus on and we should see?

7767   We established the RPIF. We want to see local programming. Give me some concrete example of what you see should be there by way of local programming which is not commissioned right now by the networks.

7768   MS BISBEE: I will give you an example of something that was done just recently in Alberta, a documentary that is being finished at the moment called First Little Mosque on the Prairie. It's a history of the first mosque built in Canada, which was actually built in Edmonton. It's a history story that has a lot of interest for the community of Edmonton and I think it's a story that needs to be told in the whole country.

7769   It's that kind of thing that doesn't happen because a programmer in Toronto would probably not find that entirely intriguing.

7770   I'm sorry, it's being done by Vision out of -- sorry, no, OMNI out of Edmonton, and it's being produced by Real Girls Media.

7771   THE CHAIRPERSON: Yes.

7772   MS LEVY: One of the other -- and please wade in.

7773   One of the other things that could happen is there is really no reason why, say, an entertainment program couldn't be done from the local community by an independent producer and offer it to the local stations. Certainly there is much on what passes for in-house news programming that really isn't journalistic at all -- not that independent producers can't produce journalistically structured programming, but certainly those are some of the things that we think that independent producers could do for a fairly low licence fee, but could attract other financing to enhance it and make it better.

7774   Shawn and Lisa...?

7775   MR. McGRATH: The best example I have, I have a number of friends who produce and they produce shows that are very local in nature. They tend to be more documentary type shows and, like Jane suggested, they tend to reflect the immediate environment.

7776   In the province of Saskatchewan I had one friend do a documentary on a strike that happened a few decades ago where people got killed and things like that.

7777   Probably the prime example of how local television can actually expand and be worthwhile nationally is, another friend who I helped did a documentary called Landscape As Muse. It was based on local artists and how the landscape inspires their work, and each episode was a separate artist. That show began very locally. Although it had a national licence it was about local thing and I believe it had funding from SCN, our provincial broadcaster as well.

7778   That show went a number of seasons and each season it grew and went beyond the borders of Saskatchewan. And the artists, yes, and it actually ended up winning Geminis and now I believe it is in the National Gallery of Canada.

7779   That is just one good example of how local shows can expand and not only expand and provide programming that is relevant to the entire nation, but help producers that start locally -- I believe I brought this up last time I was here -- help producers that are starting locally grow their businesses and become producers on a national stage.

7780   MS LEVY: Lisa...?

7781   MS MEECHES: Although I'm here to share my concerns about local programming, I can't help but be compelled to speak about the dismiss of aboriginal content in prime time on conventional broadcasters.

7782   We are very fortunate in the aboriginal production community to have the Aboriginal Peoples Television Network. Their budgets are quite small and, as a result, what you see from the camera reflects that. It reflects a small budget. I truly believe we need to enhance what needs to happen as far as conventional broadcasters and their commitment to aboriginal programming as well, which can enhance the look of APTN.

7783   An example that I'm working on right now is a program, a feature-length documentary called We Were Children, in partnership with Entertainment One out of Toronto. Now, this program that we are producing cannot find a conventional broadcaster. The content is about residential schools. Now, if there was anyone that needs to see this type of content, it should be Canadians and unfortunately, whether it be the content -- I don't think it was the pitch, but they don't seem to be too interested.

7784   So we have tried a local route and no response. So we have worked with the National Film Board who has very graciously stepped up to the plate and are working quite closely with us, as well as APTN.

7785   Those are some of my concerns as far as local content and aboriginal content, for that matter. Meegwetch.

7786   THE CHAIRPERSON: Thank you.

7787   Now, help me how to reconcile your demands with what we are doing here. We have said we were going to go for group licensing in the big television networks. Since they are both discretionary channels and OTA channels, let's treat them as a group and give them a bit more flexibility because, after all, we all know television is competing against the Internet and the wireless, the new media. So we want to give them more flexibility so they can successfully fight the onslaught or sort of share the audience with new media.

7788   We said we wanted to see more flexibility. On the other hand, we do not want to see them spend all their money in Hollywood, and that's why we are talking about putting in Canadian program expenditures, which would be obviously a considerable incentive to spend money here rather than there.

7789   But you go further. You want exhibition requirement, you support the CFTPA and then on top of it, on the CPE you want a regional component, if I understood you correctly.

7790   Does that not have the opposite effect? Instead of giving them more flexibility, we put more restrictions on broadcasters?

7791   MS LEVY: It's not so much more of a restriction, it should be looked as a positive because I think regional producers can bring a lot to the table.

7792   What we have found so often is that, as Shawn mentioned, if there isn't some sort of requirement, there is no incentive to do anything. We are very cautious about regional producers losing ground in the new marketplace. We found that in the consultations for the Canadian Media Fund, for instance, the role of regional incentives is falling off the table. It just doesn't have priority.

7793   So we have to look at every opportunity we can -- and this is one of them -- to reassert the place of regional production in the landscape because it is too often forgotten.

7794   THE CHAIRPERSON: And the combination of the CPE and the LPIF you don't think will do the trick?

7795   MS LEVY: Jane.

7796   MS BISBEE: It's often I think is challenging for the broadcasters in the regions and the regional outlets of the national broadcasters to convince head office that a show about a local topic might actually draw them audience.

7797   I think that in some cases they would say a program, if they had the opportunity to have the real estate for it, that they could in fact draw a good audience which would then benefit their revenue side.

7798   But they have as much of a challenge sometimes as the producers do to try to convince the powers that be that they should be able to do that.

7799   I think that those -- the situation is, is you need encourage them to look outside of their central area and the suggestion that development offices or development people in the regional areas really does have a benefit then to the central part of the broadcaster.

7800   MS LEVY: The other thing is, that what we're suggesting -- and this was just the jumping off point to give you some parameters of what that might turn out like in numbers.

7801   The analysis from the last CFTPA profile showed that, as we mentioned, just over 10 percent of the total volume of television production in the country is done in the regions.

7802   So, our suggestion that there should be some modest increase over a period of time is merely that, it's a jumping off point. You know, we just want to make sure that we don't lose any more ground than we have.

7803   THE CHAIRPERSON: But assuming we do that and we take your suggestion -- I think you suggested it should go from 10 to 15 percent, et cetera -- is this all global or it also then gets segmented by the various regions?

7804   MS BISBEE: Segmented by -- forgive me, by the regions?

7805   THE CHAIRPERSON: I mean, so much for Alberta, so much for Manitoba, et cetera, or do we just say, CTV you've spent 10 percent you now have to spend 15 percent regionally, where you spend it is up to you to decide?

7806   MS LEVY: I think that as a starting point for this discussion it should be fairly global. I mean, we'd like to see it equitably spread across the country, sort of on a population basis or whatever, but we are mindful that when you start any new regime it's probably better, as you said, to keep it simple and clear.

7807   THE CHAIRPERSON: Now, I'm sorry. Mrs. Bisbee you say in your presentation:

"The closure of CHCA in Red Deer has also highlighted another ongoing concern for Alberta's production community."

7808   THE CHAIRPERSON: And I'm sure it has but, strangely enough, closure of Red Deer has basically gone without a whimper. I mean, our Regional Commissioner in Alberta tells me he's had two complaints.

7809   MS BISBEE: Hmm...

7810   THE CHAIRPERSON: And I haven't seen anything in the press, et cetera. So, one has to ask the question, you know, is there actually a need for a regional broadcaster in Red Deer or not? It seems to be that the populace certainly has not spoken out as if they are missing something.

7811   MS BISBEE: Well, I guess they haven't come formally forward and done that.

7812   THE CHAIRPERSON: Yes.

7813   MS BISBEE: The conversations that we've heard and have been reported back, while they're not manning the barricades, we have heard that there's a disconnect now for some organizations, they don't feel they can get the word out about the things that they're doing.

7814   Any time that you have less voices for community to talk to itself it is detrimental for that community.

7815   THE CHAIRPERSON: And you --

7816   MS LEVY: I think that too, having lived in Alberta, it's clear from some of the transcripts of the preceding here that one of the difficulties was that a lot of people had become disconected from their local station because it wasn't carried on satellite.

7817   And I think that that is obviously a very big issue for local stations, and I know you've heard a lot about that.

7818   But the other fallout from that was the loss of the Canwest Alberta Fund which really had an impact on the Alberta production community. It was very, very sad.

7819   And that's why we suggest that -- we know that there's a list of institutions that can receive essentially endowments as part of Canadian benefits when you rule on those and our suggestion is that would you please make more use of that.

7820   I know that in the BC -- when BCE was up for sale to the Ontario Teachers' Pension Plan there was another $10-million of benefit that was discovered and the ruling there was that that should go as an endowment to the Canadian Television Fund and the proceeds used for new media.

7821   And we think that that approach, rather than self-administered benefits, is much preferable as we go forward.

7822   And I know you already have the rules to do that, we're just encouraging that to be used.

7823   THE CHAIRPERSON: You're actually going exactly where I was going to your idea of setting a test model.

7824   But let's stay with Red Deer. Red Deer was closed. Obviously when Canwest bought Red Deer there were certain benefits that had to be spent. Are they lost now; are you suggesting they're lost?

7825   MS LEVY: They --

7826   THE CHAIRPERSON: Is that not still an obligation on Canwest?

7827   MS BISBEE: No, the -- Canwest when it returned the licence ended its contributions to the fund, so there will be no new monies coming from Canwest into that fund.

7828   There will be a legacy of the returns on investment that were made through the production investments.

7829   THE CHAIRPERSON: Yes.

7830   MS BISBEE: But there will not be any new funds.

7831   THE CHAIRPERSON: I see. And you suggest in the future benefits -- you're suggesting we establish a fund, endowment or something, so that the money is guaranteed regardless what hapepns to the outcome of the transaction?

7832   MS BISBEE: Maybe use what we call the A-channel Chum/Rogers story, that bundle of benefits that came about as that ongoing changing of hands. It's been very intriguing to try to trace that over the years, the promises that were made, the orders that were given and then what the ultimate benefits that were paid out.

7833   Over time there has been a number of things done, but I think if everything had been in a trust somewhere it would be easier on all of us and that you would know that your rulings and those investments were actually having benefit.

7834   MS LEVY: The other advantage is that it evens out the peaks and valleys. When a Canadian benefit, especially a self-administered one is unleashed on the market it creates a lot of hope and a lot of opportunity, but it's of a fixed duration and when it ends it often has a very jarring effect all round.

7835   So, we believe that a more endowment approach would even that out.

7836   THE CHAIRPERSON: Okay. Thank you very much. Those are my questions.

7837   Michel, do you have anything?

7838   COMMISSIONER ARPIN: Well, I think you have very interesting comments, particularly on the contribution of the independent producer.

7839   Now, you had been saying that through the LPIF you will access some funding from the private broadcaster to do local programming.

7840   What type of programming are you talking with?

7841   MS BISBEE: Any sort of programming that they might find useful and interesting for their audiences. And, in those cases, they are small market programs, so anything that particularly focuses on Lethbridge, Medicine Hat which are the areas in Alberta.

7842   COMMISSIONER ARPIN: In the form of documentaries or magazines or what?

7843   MS LEVY: Well, that's essentially what it's up to the producer to dream up and the broadcaster to be convinced they're interested in.

7844   That then becomes something, you take a look at the local community and what do you want to talk about there that makes most sense for that community beyond what they can do within their local news regular kind of format.

7845   COMMISSIONER ARPIN: Thank you.

7846   MS LEVY: You're welcome.

7847   THE CHAIRPERSON: Candice?

7848   COMMISSIONER MOLNAR: Thank you.

7849   Just a couple of things, and I know you spoke about this with the Chair and I missed the conclusion here.

7850   You had said that you wanted proportionate CPE to be applied specifically to conventional broadcasting and you had the discussion with the Chair about moving to group licensing.

7851   So, could you just tell me again why is it important that this commitment to be only on conventional broadcasting and why is it not good enough to have the commitment over the group, if such a commitment existed?

7852   MS LEVY: I think that what we're recognizing is that as it applies to the contributions from regional producers, on the specialty side I think there has been pretty good access and I haven't seen any indications to the contrary, but as you approach a CPE regime it would seem that it's the conventional stations that are the ones that are going to -- it's going to be new for them and, therefore, when it's new to them we feel that it's important to clarify what the role of the regional producer should be within that.

7853   But similar to the position of the CFTPA that has suggested that the CPEs for specialty be allowed to remain as they are, I think that -- you know, until we analyse it further and see what the role of regional is, I think we can say that on the specialty side regional producers have been given good access, they've contributed to the success of the specialty side and, therefore, we're not specific to them.

7854   COMMISSIONER MOLNAR: Okay. Thank you.

7855   Just one other thing I wanted to ask you folks about and that is the opportunities of VOD. We're focused here a little bit on, you know, saving conventional but VOD is a new platform and it provides opportunities.

7856   Particularly in the provinces you are from, there is also BDUs that have approval to run local VOD and are looking for content.

7857   And I wondered if the VOD platforms was providing any of you with opportunities to have your content shown?

7858   MS BISBEE: At the moment I havent heard of any broadcast -- of any producers that are particularly benefitting from that at the moment, no.

7859   MR. McGRATH: I know of one producer in Saskatchewan -- well, actually two, one in Saskatoon and one in Regina that has been providing content to the SaskTel Max service, but the volume in terms of dollars is quite low, from what I understand.

7860   MS MEECHES: Yeah, I echo those facts.

7861   A lot of the emerging producers are able to access just that formula with the VOD through MTS TV and, so, it has been beneficial, but when you're working with more seasoned producers who use larger budgets it's almost -- it's quite difficut to strategize in that area.

7862   COMMISSIONER MOLNAR: Thank you. Those are my questions.

7863   THE CHAIRPERSON: Suzanne?

7864   CONSEILLÈRE LAMARRE : Merci, Monsieur le Président.

7865   Just one question of clarification.

7866   In your presentation, Mr. McGrath, you mentioned that you would like to see the production volume outside of Ontario, Quebec and British Columbia go up to a proportion of 15 percent of Canadian production over the life of a seven-year broadcast licence.

7867   Is your position for English production only, or for English and French productions?

7868   MR. McGRATH: We are only speaking about English at this point.

7869   COMMISSIONER LAMARRE: At this point.

7870   Thank you.

7871   THE CHAIRPERSON: Rita?

7872   COMMISSIONER CUGINI: Thank you.

7873   COMMISSIONER CUGINI: You don't mention priority programming today and, as regional producers, have you benefitted from the requirement -- not the requirement, from the fact that regional production counts towards priority programming currently?

7874   MS LEVY: We're not bowled over by it.

7875   COMMISSIONER CUGINI: M'hmm.

7876   MS LEVY: I'm sad to say.

7877   COMMISSIONER CUGINI: So, is the answer no?

7878   MS LEVY: I think it's helped in some cases. For instance, it's probably helped to bring award shows and things like that to the regions because the broadcaster would not normally be able to count those towards their hours, but if they're done in the regions they can.

7879   So, I suspect that that's helped to a certain extent, but it has not been a big issue.

7880   If you look at the breakdown of the Canadian Television Fund, they do a grid that shows how different broadcasters build up their envelopes, the Canadian Television Fund and regional is one of the components and it's very instructive to see which broadcasters have used that to build up their envelopes and which have just ignored it altogether.

7881   COMMISSIONER CUGINI: And we've received various definitions of priority programming going forward, everything from get rid of the term to tighten it up.

7882   What is your position on how we should define priority programming going forward?

7883   MR. McGRATH: I think it should be tightened up, and I'm speaking on behalf of myself rather than SMPIA necessarily, but I think it's really broad right now and I think it's become kind of untenable.

7884   COMMISSIONER CUGINI: So, which categories would you include in the definition?

7885   MR. McGRATH: Well, I think documentaries and narrative, drama, comedy. Actually comedy right now is part of drama.

7886   COMMISSIONER CUGINI: Right.

7887   MR. McGRATH: But the shows that people are actually watching in prime time should be a priority I think.

7888   COMMISSIONER CUGINI: Okay. Well, thank you very much. Those are my questions.

7889   THE CHAIRPERSON: Okay. Thank you very much.

7890   I believe those are all of our questions. Thank you for coming.

7891   We'll take a five-minute break to go with the next one.

--- Upon recessing at 0946

--- Upon resuming at 0953

PRESENTATION

7892   MR. EDWARDS: Good morning. I am Chris Edwards, Vice-President of Regulatory Affairs for the CCSA. You have told us that you wanted to hear directly from small BDUs about the issues in this proceeding, so I will turn this very quickly over to our members to speak.

7893   With me, on my immediate left, are Jim Deane, CCSA's Chair and CEO of Access Communications Co-operative in Saskatchewan;

7894   - on my right, Stéphane Arseneau, CCSA's Vice-Chair and Director of Operations for CCAP in Quebec;

7895   - two seats to my left, Roland McCaffrey, a CCSA Board Member and General Manager of Seaside Cable TV in Nova Scotia;

7896   - and also with us is Harris Boyd, President of Solaracom Inc., in his capacity as a regulatory consultant to CCSA.

7897   Jim.

7898   MR. DEANE: Good morning.

7899   Speaking as CCSA's Chairman, we want to make the point before we get into substantive issues that we are here today speaking for all of the small BDUs that CCSA represents.

7900   Our comments here today represent the deep concerns of close to 100 small BDUs who collectively through 400 individual systems serve over 300,000 customers across Canada. All of those companies see this issue as being potentially devastating for their businesses.

7901   I will turn it over to Stéphane Arseneau to speak about small system economics.

7902   Stéphane.

7903   M. ARSENEAU : Bonjour et merci de nous recevoir à cette audience aujourd'hui.

7904   La Coopérative de cablôdistribution de l'arrière-pays dessert un marché d'environ 10 000 clients au service de télédistribution analogique en banlieue de la Ville de Québec.

7905   Nous voici une nouvelle fois devant le CRTC à débattre du tarif de distribution des généralistes. Depuis les dernières comparutions portant sur le même sujet, nous avons assisté à des campagnes médiatiques massives, et parfois même très agressives, de la part de grands radiodiffuseurs comme CTV et Canwest, de même que d'importantes entreprises de distribution.

7906   Le véritable point que je veux soulever ici est que cette guerre est une bataille de gros sous entre gros joueurs. Pour ma part, je demeure convaincu qu'une telle taxe mettra en péril les petites entreprises de cablôdistribution, qui n'ont nullement la capacité de supporter ces dépenses additionnelles.

7907   Les entreprises que la CCSA représente sont, pour la plupart, des entreprises familiales privées ou des sociétés fermées comme celle de Roland, des coopératives communautaires comme celle de Jim et la mienne, ou encore des entreprises exploitées par des petites municipalités et des peuples autochtones.

7908   Ces entreprises ne disposent que de moyens limités de financement. Dans la plupart des cas, leur seule option se limite aux institutions financières de leur propre localité. Ils ne jouissent pas d'un large bassin d'abonnés potentiels ou d'offres de services multiples sur lesquels amortir de nouveaux tarifs. Leur base d'abonnés est limitée, répartie sur des territoires coûteux à desservir, et située dans de petites villes et localités rurales à travers tout le pays.

7909   Je voudrais partager avec vous quelques informations financières relatives à ma coopérative.

7910   Nous offrons un service de base analogique qui contient une quarantaine de chaînes pour la modique somme de $ 27,45 par mois. Nos tarifs de gros sont actuellement de $ 13,31 pour les services qui y sont inclus, soit tout près de 50 pour cent du tarif mensuel, et cela ne comprend que les tarifs de gros, bien sûr.

7911   Nos coûts d'immobilisation et d'exploitation par abonné sont beaucoup plus élevés que ceux des grands exploitants de systèmes multiples. En somme, il y a très peu de marge bénéficiaire pour une petite entreprise de cablôdistribution.

7912   Heureusement, mon entreprise possède une seule tête de ligne et dessert un territoire raisonnablement populeux. Ce n'est pas le cas de plusieurs membres de la CCSA, qui doivent, quant à eux, exploiter plusieurs têtes de ligne, souvent éloignées les unes des autres, afin de pouvoir offrir un service minimal à l'ensemble de la population qu'ils desservent, ce qui multiplie d'autant les frais d'immobilisation et d'exploitation reliés à chacune de ces installations.

7913   Une chose est certaine, il sera impossible pour mon entreprise d'assumer de nouveaux tarifs sans mettre notre situation financière en péril. Alors, je n'ose même pas penser ce que cela signifierait pour mes pairs de la CCSA qui possèdent des entreprises beaucoup plus petites et qui sont d'autant plus affectés par des augmentations de coûts d'exploitation, quels qu'ils soient.

7914   Les petites entreprises de cablôdistribution ne peuvent ni assumer ces nouveaux tarifs, ni les transmettre à leurs clients. Il est clair pour moi qu'imposer un tarif de distribution créerait une situation insoutenable pour des petites entreprises comme les nôtres.

7915   Dans leur proposition écrite initiale, certains radiodiffuseurs proposaient que les tarifs, s'ils sont autorisés, ne devraient seulement viser que les entreprises titulaires de licence. Je partage pleinement cet avis. Si jamais ces tarifs devaient voir le jour, ils ne doivent pas s'appliquer aux petits systèmes indépendants.

7916   Alors, merci de votre attention. Je passe maintenant la parole à Roland, qui vous parlera de la vraie télévision locale.

7917   M. McCAFFREY : Merci, Stéphane.

7918   Good morning. My name is Roland McCaffrey, General Manager of Seaside Cable Television in Cape Breton, Nova Scotia.

7919   Seaside serves a total of 11,500 customers in the communities of Albert Bridge, Louisburg, Manadou, Glace Bay, Dominion, Duncan Morien, New Waterford, St. Peter's and Baddeck, all small communities.

7920   What I want to address here today is one of the central falsehoods of the broadcasters' "Sale Local Television" and "Local TV Matters" campaigns.

7921   The simple fact of the matter is that in the communities like the ones we serve in Cape Breton there has been no real local television for years. The broadcasters have centralized operations to the point that the only so-called local programming we see comes from Halifax. That is true for all of the Maritimes, Prince Edward Island and New Brunswick included. Simply put, one or two minutes on the news hour does not local television make.

7922   In the bigger cities the broadcasters run profitable TV stations and have an interest in competing for viewers with local event coverage. When it comes to our communities the broadcasters are not the least bit interested in providing local coverage at all. For them such coverage is pure expense.

7923   It upsets me as a TV viewer, as a cable company operator and as a community channel operator to hear the broadcasters crow about their commitment to local programming. For me, as for all Canadians who live outside really big cities, there is no such commitment. There is no local programming except our, the community channels.

7924   For years the broadcasters have been providing just the opposite to what they are claiming. In contrast to radio, which continues to succeed and grow everywhere in Canada on the basis of local service, the conventional broadcasters have essentially abandoned local. We operate our own community channel. We are the ones providing local content, local expression and local involvement in the community.

7925   It is also clear that the national broadcasters are not interested in investing to deliver their signals digitally to smaller markets like ours. Rather, they intend to rely on us to deliver their signals to their viewers at our cost. They will save a lot of money that way.

7926   In many of our markets there will be no terrestrial feeds. As we do now, we will have to probably pay a premium to get those signals transported to our head ends, particularly once capacity-hungry, high-definition channels become the norm.

7927   All of that puts the obvious question in front of us. Why should smaller market BDUs have to pay to support the delivery of local programming that they don't do and have not done for years? The equally obvious answer is that we should not.

7928   CTV and Canwest propose to reverse the effect of amendments to the small system exemption order that you issued just two months ago. They want to ensure that even the very smallest independent BDU like us will be caught by this proposed negotiation scenario.

7929   For the many reasons that we are giving here today, small independent systems, whether they are licensed or exempt, simply have no negotiating power when it comes to the networks and simply cannot cope with additional charges.

7930   I would like to turn it over to Jim Deane to describe our members' concerns with such a scenario. Thank you.

7931   MR. DEANE: Thank you, Roland.

7932   I am here today not only as CCSA's Chair but also as CEO of Access Communications Co-operative. We are a non-profit community-owned co-op that operates one licence system in Regina and over 200 smaller exempted systems throughout Saskatchewan.

7933   The broadcasters have now proposed a made-in-Canada version of the U.S. retransmission consent regime. Retransmission consent has been a disaster for smaller independent BDUs in the U.S. It would be the same here.

7934   A 2007 report commissioned by the U.S. Congress concluded:

"Broadcasters increasingly are using the statutory retransmission consent requirement to demand cash payment from small cable companies who could lose subscribers to the satellite providers and new telephone entrants if they reach an impasse with the broadcaster and can no longer carry the broadcast signals." (As read)

7935   That is us. That is our market.

7936   In 2007 the FCC initiated a proceeding to review the broadcasters tied selling practices and their demands for higher payments from small BDUs. The American Cable Association in its February 2008 submission to the FCC in that proceeding said, and I quote:

"Broadcasters are charging smaller distributors per subscriber rates that are on average four to seven times higher than paid by larger distributors."

7937   In fact, the ACA submission noted:

"Frequently, broadcasters charge smaller cable operators retransmission consent fees as much as 20 times more than the largest distributors pay."

7938   We are deeply concerned that the value that broadcasters will demand from us will be much higher than the 50 cents per signal suggested in the Commission's "Compensation for Value of Signal" document, and, more importantly, will far exceed the rates charged to our DTH and telco competitors. In short, for us it is not likely to be fair value at all.

7939   Like other independent BDUs, we do not have the resources to run to the Commission to arbitrate our disputes with the CTVs, the CBCs and the Canwests of the world. They have legal teams larger than the total staff complement of many of our companies.

7940   Also, we do not have any other business interest to use as bargaining chips to negotiate fair and equitable rebalancing. It is simple: Companies like our have no power at all in value-for-signal negotiations.

7941   Access Communications operates in one of the most competitive markets in Canada. We are in a pitch battle with SaskTel and DTH providers for every single subscriber. We just can't afford yet another crippling, disproportionate addition to our cost of delivering programming to our customers. Frankly, these proposals will kill our business -- quickly.

7942   In point of fact, the suggested 50 cents per signal rate would represent more than 100 percent of our entire net income that our Co-operative reported to our members at our most recent annual general meeting. And keep in mind, we are CCSA's largest member.

7943   I also want to speak briefly about our community channels.

7944   At Access we are very proud of what we have accomplished with Access7, our community channels. We spend close to 6 percent of our gross annual broadcast revenues to produce more than 2000 hours of local programming each year. Through Access7 we are deeply involved in all aspects of our communities and we are a strong contributor to many worthy causes.

7945   I think the Commission needs to consider the impact that a new framework will have on community channels that currently serve viewers across Canada.

7946   Conventional broadcasters are not the only source of local television programming in this country. In many small towns it is the community channels, like ours, that have become the primary, if not the only, source of truly local programming.

7947   We ask the Commission to remind itself that its task is not, as we heard on the first day of the hearing, to ensure the survival of conventional broadcasters. Rather, it is to supervise the broadcasting system as whole for the benefit of Canadians in a way that reflects their experience.

7948   We worry that, focused as it seems on the current fiscal concerns of the broadcasters, the Commission may lose sight of the other effective responses to the objective of delivering local expression and community involvement to Canadians.

7949   Community expression and involvement is a real value that community-based BDUs offer. It is our link to our customers and we ask you to think broadly about what the most effective tools might be to deliver local content to Canadians. We think the community channel is a key piece of that solution.

7950   To conclude, there is no rational basis for imposing a negotiation on the industry. It is especially true in the context of small markets that our members serve, markets that do not benefit from local programming, markets in which the broadcasters are closing their stations and markets for which they have no plans for digital service.

7951   Our single clear message to you is this: These proposals or whatever you wish to call them must not apply to small independent BDUs. As the U.S. experience has already shown us, the result would be a disaster for our members and for the Canadians they serve.

7952   Thank you for your time.

7953   THE CHAIRPERSON: Thank you for your submission.

7954   You are giving me the opportunity to clarify something. You talk in your document on page 8:

"We are deeply concerned that the value that broadcasters will demand from us will be much higher than the 50 cents per signal suggested in the Commission's 'Compensation for Value of Signal' document..."

7955   First of all, we have never suggested that. That was part of the fee-for-carriage proposal that they put forward. When we had the licence renewal last April, I put forward a document that calculated what the demands of the broadcasters were, taking their example of 50 cents per signal. It was in order to expose what the amount is that they are demanding.

7956   It was never a Commission document in terms of endorsing it or suggesting that is the appropriate amount. On the contrary, we wanted everybody to know, look, when they say 50 cents per signal, it sounds like nothing but actually when you add it up across the country, it is a huge amount. That was the purpose for which we did the document. It is not a Commission-suggested value of what your signals are.

7957   That being said, you say you don't have the negotiating power to negotiate with these. I appreciate that obviously you are smaller units, you have less negotiating power and you work as an association to get some volume buys.

7958   But what do you do with the discretionary signals, don't you negotiate there? Don't you negotiate for TSN? Don't you negotiate for HDTV, et cetera? And what is your experience? Is it like the U.S. that you pay 20 times more than the big broadcasters or four to seven times more, is it two quotes that you are giving, or are the rates that you pay roughly comparable to what Rogers is or Shaw? I just don't know, that is why I am asking you.

7959   MR. EDWARDS: I will start the answer off by saying, well, first of all, we acknowledge and accept what you just said about the 50-cent rate in the value for signal document.

7960   THE CHAIRPERSON: Thank you.

7961   MR. EDWARDS: Our point was to peg it to a number and show you our concerns relative to that number.

7962   Second, yes, we do negotiate with the specialty services and we do always experience a significant lack of power in those negotiations. We have had recent situations with TSN2 and with Rogers Sportsnet, for example, where we have really suffered very badly because of that lack of power.

7963   THE CHAIRPERSON: So you pay a premium over what the large BDUs do?

7964   MR. EDWARDS: Absolutely. I couldn't say that for sure in Sportsnet. They would certainly say we get the same rate card as everyone else. I think that as a general proposition we pay more for specialty services.

7965   And then the last part of the question really is -- we have discussed the matter quite extensively with the American Cable Association and with their members. I have actually had calls out of the blue from small cable systems in the States who have seen the broadcasters' ads on television and they have called me out of the blue and said: You guys have to stop this because it is killing us down here and it is going to happen to you as well.

7966   With that, I think I would turn it over perhaps to Jim to amplify how he feels about the negotiation power.

7967   MR. DEANE: I would agree with Chris, I think we simply used the 50 cents to demonstrate to you what the impact would be on our Co-operative, and, as I said, it is more than 100 percent of our net income the previous year.

7968   It has certainly been our experience though and that is the raison d'être for the Association, is to band together and negotiate as much as we can by increasing our size and improving, I guess, our prospects when we negotiate with specialty services.

7969   THE CHAIRPERSON: I see the releases that you issue from time to time that you have struck deals with American programmers, et cetera. Obviously you are successful in your collective negotiations but it comes at a premium, if I understand you, the bottom line?

7970   MR. EDWARDS: I would say generally that is correct. Our situation negotiating with specialty services typically is that there is not even a discussion with CCSA until such time as the rate has been set in the market through negotiations with the larger BDUs and then it becomes a question of how much we are able to resist.

7971   I guess the point I would make here is that we have heard a lot from CTV and Canwest about how they lack negotiating power in this industry. Well, from our point of view, when we are talking to CTV, we are talking to someone who owns a major conventional network and 30 or more of the specialty services. That is a huge player in the industry compared to us.

7972   And again, I would remind you when we do go to the table even as an association, we are speaking in terms of hundreds of thousands of subscribers, not the millions that the major players bring to the table.

7973   MR. BOYD: And Chris -- I might add, Mr. Chairman, one of the things you will see with most of our member companies is they have much larger basic services than the big BDUs and the reason behind that is you have traditionally regulated the rates of specialty services on basic and we have to negotiate them if we put them on discretionary tiers. So at least if you put the service on basic, you know what you are going to have to pay, you have set the rate.

7974   If you see what happened to TSN when you changed its status from dual status to modified dual status, the rate went up almost exactly 50 percent. So 90 percent of our customers got to pay 50 percent more for that service. And we have had a more recent experience with Sportsnet.

7975   So negotiation doesn't work out very well for us and you will probably hear us use the term "fee for carriage" because if you don't impose the fee and we have to pay compensation, the broadcasters will certainly will.

7976   LE PRÉSIDENT : Monsieur Arseneau, dans votre présentation, vous dites :

« Dans leur proposition écrite initiale, certains radiodiffuseurs proposaient que les tarifs, s'ils sont autorisés, ne devraient seulement viser que les entreprises titulaires de licence. »

7977   Qui sont ces radiodiffuseurs qui proposent qu'on charge seulement les titulaires de licence?

7978   MR. BOYD: Both Canwest and CTV initially proposed that exempt systems not pay compensation. They have since changed their view and said that everybody should pay.

7979   THE CHAIRPERSON: I see. Okay.

7980   Steve, over to you.

7981   COMMISSIONER SIMPSON: Thank you very much.

7982   I have seen a lot of metrics this morning. I was just wondering if you had off the top of your mind what the percentage of subs is being serviced by your members compared to the total number of households receiving cable.

7983   MR. BOYD: I mean that varies a lot by market. I guess it is probably safe to say that the smaller the market, the lower the percentage of those that we serve.

7984   DTH obviously is available everywhere in most of the markets we serve, where everybody can access the signal in more urban areas.

7985   Secondly, there is a little more theft in our markets because it is also easier to do, particularly with the current split subscription models that pirates use.

7986   And I guess, thirdly, our cost structures are relatively higher and we are dealing with national competitors where the cost per customer is the same.

7987   And if I could even add a fourthly, I mean you heard Bell TV say the other day that for 12 years in a row they have lost money on their service. Well, I would say if most of our members lost money for one year, that would be the end of them.

7988   So in the marketplace it is very, very competitive. Jim has three competitors. One of our members has four competitors. These are all bigger companies behind them. So that does affect our percentage of penetration.

7989   COMMISSIONER SIMPSON: Another quick question. How many of the total -- of your membership are co-ops, non-profits compared to profit ventures?

7990   MR. EDWARDS: Off the top of my head, not knowing the number, I would say there are probably about 10 co-operatives in a membership of close to 100 companies.

7991   COMMISSIONER SIMPSON: Okay. Great.

7992   MR. EDWARDS: Aside from that, there are a number also of municipalities, Town of Southey, those sorts of systems, and a number of Aboriginal nations, and those numbers are actually quite high.

7993   COMMISSIONER SIMPSON: Going back to Mr. Boyd's point about cable penetration, particularly in the extreme rural markets where DTH is higher, this brings me to the point about your position on the Freesat notion.

7994   You don't think it is a very good idea. You have put forward a couple of loosely framed suggestions as alternates. I was wondering if you could expand on - in lieu of the freesat notion, what are you suggesting the market turn to as an alternate?

7995   MR. BOYD: There are a number of reasons we don't think freesat is a good idea. First, we are not sure that this is a very big problem to solve in the first place, and warranting that kind of attention.

7996   Second, certainly in the urban markets, where there is going to be a digital transition, the solution employed in the United States is much easier and more consumer friendly and less costly, where you just buy a converter and you continue on your merry way, or you buy a digital television.

7997   The real issue is in the markets where the broadcasters don't plan any digital transition and there will still be an analog solution. I heard CTV say last Monday that, in markets where it is not mandatory for them to make the transition - in fact, even in the mandatory ones they are not going to meet the August 2011 deadline - they are going to continue to run those analog transmitters until they run them into the ground, so off-air people will not have a problem with that.

7998   I guess the issue will be, what happens after they run them into the ground? Are they closing the station? Are they going to keep the studio, given there isn't much there in most of our markets? What are they going to do?

7999   So we think that freesat is a very, very expensive solution to a very, very small problem.

8000   Nevertheless, if there is a real problem, there are other ways to address it, as well. Analog cable, which we think, in basic, we will have for a very long time, is cheap. Once it's installed you don't need a set-top box, you run along very, very easily. It is customer friendly.

8001   We have many customers who don't want boxes in their homes. We have tried digital conversion in some places and lost customers, even when we gave them a free box.

8002   So satellite may not be the answer. You wouldn't get my mother to take satellite or to have digital cable. If you paid her to take it, she wouldn't take it. She does not want a box on her TV.

8003   We have a lot of our demographic that are like that, so we don't think freesat is a very good solution.

8004   Maybe my colleagues would like to comment, as well.

8005   MR. McCAFFREY: At Seaside we have very low digital penetration. The majority of our customers tend to be senior citizens.

8006   I would just like to respond and reconfirm that what Harris said is the truth. We have about 26 percent digital penetration, and 75 percent of our customers are taking the basic package.

8007   COMMISSIONER SIMPSON: Thanks. In a world that, potentially, could include some kind of regime of value for signal, you have indicated that if this were to happen, that you must be left to your own devices to put together a basic package that would not include 91H and other services that are currently mandatory - would you give me an idea - I am referring to paragraph 29 of your written submission from before. Would you tell me what that basic service looks like?

8008   MR. EDWARDS: If I understand the question correctly - and, in fact, what Harris was really saying - what we would wish to do is continue with the existing basic service. If you go anywhere else in a digital transition environment, you get into the trapping problems that other BDUs have discussed, and that becomes a serious cost issue for cable companies of this size.

8009   MR. BOYD: I might add that we are concerned that what you call a skinny basic might cannibalize our basic service, and I think everyone loses if people start cancelling their cable. It includes the specialty services and, obviously, the U.S. off-air in there, as well.

8010   We don't see many people that would be interested in that skinny basic. Most people that can get off-air signals now don't, obviously. They go to us because they can get things that they don't get off-air, like the U.S. networks and, obviously, some of the specialty networks as well.

8011   And the community channel, of course, we think is pretty important in that package.

8012   MR. McCAFFREY: From Seaside's perspective, the community channel is extremely important. Obviously, we can't compete with CSI, but we do fundraising, we do the Food Bank, we do hockey games, we do things for children and grandchildren, be it the pageant at the school, the high school graduation, the junior high graduation, the address at the Chamber of Commerce, and we do the municipal government on a weekly basis, and the total of those people is high.

8013   We also do, of course, our select programming, be it a puppet show for the kids or be it a fitness show for adults.

8014   I think, if you went into a skinny or a basic "light", for lack of a better word, you would erode the market.

8015   But, at the present time, people can get, over-the-air, Global and CTV, if they should so choose, and the majority of people prefer to go with basic, for various reasons, and one of them, of course, is the local community channel.

8016   Thank you.

8017   MR. BOYD: Commissioner, Simpson, I would just add one thing. We don't think there should be a freesat solution, obviously, but if you authorize the satellite companies to do something like that, what we would like is the regulatory flexibility to be able to have some sort of matching offering.

8018   When you allowed APTN to be provided in the north via a freesat solution, because APTN did not want to continue with their transmission facilities, we found that we lost cable customers in those communities, because once you get it in the home, you can market to them and you can upgrade them, and in that case the people got free equipment compliments of the Government of Canada. We do not think that taxpayers should be paying for free satellite equipment to compete with us.

8019   COMMISSIONER SIMPSON: Thank you.

8020   THE CHAIRPERSON: You realize that this scheme, if there were such free equipment, would be only for those people who are not on cable.

8021   MR. BOYD: Yes, but what if they were on cable six months ago? What if they were on cable last week?

8022   That's where our concern comes in, how do you control it?

8023   COMMISSIONER SIMPSON: Video-on-demand - I have gotten a very clear understanding of the importance of this revenue centre for cable companies and, in particular, in your presentation. Could you explain to me the method by which a BDU negotiates for programming that appears in video-on-demand, and how it differs from your specialty negotiations?

8024   MR. DEANE: At Access we operate VOD in Regina, Estevan and Weyburn right now and, frankly, we use the CCSA to negotiate content for our product.

8025   I could turn it over to Chris to tell you how the nuts and bolts of that work, but, again, we use the association because we just don't have the bargaining power to do it ourselves.

8026   COMMISSIONER SIMPSON: I am not thinking so much about the dollars but the rights. To what extent are the rights available to you when you negotiate?

8027   MR. EDWARDS: I guess what I would say about that is, a few years ago we did our trip down to Hollywood and we tried to talk to the studios, and we didn't get a lot of attention there.

8028   So what we have done is, we have really negotiated an arrangement with an aggregator. We have a contract with TVN, who aggregates content, puts it up on the satellite, and then pitches it to our systems that are VOD-enabled, which are very few at this point, by the way.

8029   TVN actually does the business of clearing the rights and, essentially, takes care of that problem, and then our contract is simply to take what they have given.

8030   It does raise another issue outside the VOD context that I did want to bring up, and that is a response to something Commissioner Katz said on Friday in his discussion with EastLink. The question was: I just watched a World Series game, and it had a property right claim on it. Doesn't that indicate that there is value in these signals?

8031   I just wanted to make the point, because it seems to get forgotten in this discussion, that the BDUs in Canada pay a great deal of money to collectives that represent the content creators in this country. Major League Baseball is represented in Canada by a collective, which takes in royalties that are turned over to Major League Baseball. That is the television retransmission tariff.

8032   I know that CCSA members, for 300-odd-thousand subs last year, paid the collectives, generally, under the television retransmission tariff, about $2 million.

8033   So if you extrapolate to the size of the major BDUs, there is a lot of money flowing to clear the rights to distribute the content in off-air networks in the Canadian market. The BDUs are paying that, and I think that is part of the value for signal equation.

8034   I just wanted to make that point.

8035   Bottom line: Major League Baseball is being paid for by the BDUs for the right to show that game.

8036   M. ARSENEAU : J'ajouterais peut-être qu'au niveau du marché québécois, au niveau du marché francophone, la vidéo sur demande en français est quasi nulle. Si on fait exception de Vidéotron et Cogeco qui offrent la vidéo sur demande, c'est quasiment les seuls au Québec. Je ne connais pas d'autres cablôdistributeurs qui en font actuellement.

8037   La réalité, c'est qu'il y a encore beaucoup de cablôdistributeurs qui ne font pas d'offre numérique encore, qui n'offrent pas d'Internet sur leur service de câble, et qui offrent leurs services via l'analogique, point à la ligne, et c'est la réalité de la majorité des câblos au Québec.

8038   On ne distribue pas nos services à la majorité de la population parce que Vidéotron et Cogeco à eux seuls vont chercher 95 pour cent du marché. Mais la réalité, c'est que les centaines d'autres petits cablôdistributeurs n'en font pas.

8039   COMMISSIONER SIMPSON: Following on the VOD question, last week when we were talking to Shaw, one of my colleagues was questioning Mr. Shaw on the subject of protection, rights and the essential need by broadcasters for more rigid simsub and non-sim applications as being imperative to the survival of the conventional broadcasters.

8040   My issue of rights focused on looking forward at the VOD world and its potential for revenue to the BDUs.

8041   Will you not be experiencing the same rights issues, given that last Friday I was downloading a 2009 program of 30 Rock from the NBC server, from Citytv's server, from Shaw's on-demand service, and also from Apple iTunes?

8042   I had four sources of current programming, none of which were coming from a BDU. Only one was coming from the server of a conventional station.

8043   Are BDUs going to be looking at the same kinds of rights issues and protection issues for programs that you are paying for for VOD in the future?

8044   It seems that the program producer is not protecting your interests as well as they could or should.

8045   MR. BOYD: I think you have identified a very serious problem, that broadcasters and producers are making their content available for free access by consumers and we are in the business of trying to sell it to them.

8046   As Stephane said, a lot of our members don't yet have VOD, but if we buy the rights to content to run on our VOD platform, hopefully those that sold us those rights would take steps to protect them so that it's not freely available. Otherwise, our platform will be undermined rather quickly.

8047   In small markets it is very difficult to make money in VOD anyway, because the investment is the same for one of our head ends as it is for one that might serve 10,000 or 20,000 people in a larger company, as it is for Rogers, which serves a million people off of one head end.

8048   So VOD is a very tough business case for our members, and if the content side of it is also undermined, I don't think you will see much further rollout.

8049   COMMISSIONER SIMPSON: Local TV - we have received written submissions and petitions from about 150,000 Canadians who felt pretty strongly that local TV had to be saved.

8050   My question to you, first of all, is this: What do you think they think local TV is?

8051   I have heard what you think it is, and I have heard what conventional TV broadcasters think it is. What do you think they think local TV is that is worth saving, "they" being the consumer?

8052   MR. McCAFFREY: I think that the consumer bought into a very well orchestrated advertising campaign. When I saw the ads myself, including full colour ads in the Globe and Mail that stated things which, I think, are fundamentally untrue, I, too, wanted to wrap myself in the Canadian flag and write to the CRTC to tell you, "Save local television."

8053   THE CHAIRPERSON: Thank you for your submission.

--- Laughter

8054   MR. McCAFFREY: I find that, from my perspective, I think that people are being misled. We have a building in Sydney that was originally part of CJCB Television Station, that became part of the ATV Network, the Atlantic Television Network, and that became part of CTV. The only thing they do besides sell advertising to local people - so the local car dealer is on CSI for one minute - is that they do local news, to the tune of one or two minutes per day.

8055   I think that the Canadian public at large - and I don't want to insult them - I think they got sucked in by this campaign. I believe that people think that because a program originates - they don't know where the program comes from - in theory, I mean, Toronto - where it comes from, but they see it locally and there is a local advertiser, and many people believe that it's a local program.

8056   I made a brief mention a couple of minutes ago about how I feel that community channels are the local programming. We have a local fitness show. We do a puppet show with Freddie and Freda for the kids.

8057   Is it high-end television? No.

8058   Is it well done? Certainly, for a small community.

8059   Do we have a lot of people watching it? Yes, we get letters and we get people phoning.

8060   Those are the things that we are contributing to local television, but I really think that there is confusion. I think that, if I were living in Toronto and I saw a noon-hour show, and I saw a talk-back show of some kind on television, I would say, "Sure, that's local programming," if I were living in Toronto.

8061   But when I see that same show somewhere in Cape Breton, be it in Margaree, be it in Yarmouth, be it in Sussex, New Brunswick, or be it in Skinner's Pond, the home of Stompin' Tom on Prince Edward Island, it is not a local program, it's a national program.

8062   MR. BOYD: Maybe I could add that, first of all, at the next hearing, next month, we will probably have more information from our customers, in terms of what they think, because we made our cable offices available, with not questions like "Do you want to pay more?" but more "What do you think of continuing our local station?" and that sort of thing.

8063   And I am sure you will hear a lot about Brandon at that time.

8064   I tried to get my 87-year-old mother to come to the hearing with me, because she is in rural New Brunswick, she is an off-air subscriber, she won't get cable or satellite, despite their availability. There are no local stations in New Brunswick, as Roland said, so her local station is Halifax, about a three-and-a-half hour drive away. She is - and CTV will probably quote me after I say this - she is enamoured by CTV Halifax. She really loves it, as does Commissioner Duncan. She likes the personalities on it, and she has told me, "I would pay for that station," even though I have explained to her, "You will never be asked to pay because you just have an antenna."

8065   Consumers, I think, in general, don't want to lose anything. We know that from changing channel line-ups, from repackaging services. You make changes; people get upset. Whether it is for the better or for the worse, change is not all that well received, and it is even less well received in the kinds of markets that we serve.

8066   So people are going to be upset if a station is closed, if there is less local content, or, obviously, if they have to pay more for it, but I think that the first two are actually the more important considerations.

8067   People are not happy and they have been incensed by this campaign. The media campaign this fall has done tremendous damage to the broadcasting system, to our relations with our customers, and I can't underline that enough. We are all losers at the end of the day because of this battle we have gone through.

8068   And I know that the Chairman has commented that he feels exactly the same way.

8069   We have done our best to stay out of it, but our customers see the ads, too. So we are caught up in it, and we are not very happy about it, I can tell you that.

8070   MR. McCAFFREY: I have an ad here that says I am charging $30.45 per month for basic. That's not true, I am charging $23.42.

8071   It says that I am making 26 percent profit. That's not true, I made 3.6, and you folks can check the records, if you wish, because we have to file with you every year.

8072   It's those kinds of things that they are misleading the public in. As I said to you, I, too, would be prepared to write a letter for local television, but what the broadcasters are offering, in my opinion, sincerely, seriously, is not local television.

8073   COMMISSIONER SIMPSON: Thank you. My last question - small BDUs are, obviously, feeling the pressure of the potential of any kind of regime for value for signal, and, from your submissions, perhaps disproportionately so.

8074   If that is the case and, as Mr. Bragg indicated last week, if that kind of regime were to go through, it would be the death knell, according to him, of many of the small operators.

8075   If we were to go with the other scenario, where we were experiencing the most local of local conventional broadcasting stations being, also, equally in peril and most likely to close, how do you think, given what the consumer believes is local - which, as you say, is functionally news and community information - how would that put new pressures on a small BDU to take up that mantle of local programming?

8076   Would that put you in the situation where you, too, would need something like the equivalent of the LPIF, where it is actually coming from you, but it puts you in the situation where you become the need to be a net recipient?

8077   MR. BOYD: Maybe I will start, Commissioner Simpson. Certainly it is an area where we do offer some programming. Some of our members offer some news now, but, as you know, news is quite expensive to produce.

8078   Ideally, having access to the LPIF would be great, if there was a void in that community. It seems to me that it would make sense for the community channel to have access, just as a local broadcaster could have access.

8079   The Brandon station closed, obviously, even before they had the first month's payment from LPIF.

8080   Secondly, we only can do sponsorship now, except in the very, very smallest communities, where you have under 2,000 customers. You can do advertising now, and that does keep some of those going. But if we could advertise, or at least have an expanded definition of the kinds of sponsorship we could do, and we could actually identify products and prices, which we can't do now, that would probably bring revenue to the community channel, as well.

8081   And if the broadcaster has closed his doors, there is obviously a market there for local television advertising that is not being fulfilled.

8082   So those things would help us, but I guess the thing is - and Jim and Roland can talk to this more specifically - we would be interested in filling that role and are already trying to do so.

8083   MR. McCAFFREY: I think you saw us smiling and looking at one another when you asked the question, and I think that part of that is because we all have different views on it, and quite rightly.

8084   Harris' point was that if we were able to pay - we are already paying for our community channel, and we make a significant contribution, and I think we do quite a bit, but if there was one way of making it pay for itself a little bit more - because having local news, for example, from our community channel would increase our overhead.

8085   What I find with the networks is that maybe we are being asked to pay for some of their mismanagement, or we are paying too much for some of the purchases they have made over the last number of years, in terms of them growing, and therefore their business case is evaporating, to some extent.

8086   We are getting burdened already, and we don't make a lot of money, to be honest with you. We are viable businesses and things like that, sure, and we have been around for a long time, some of us, but we are not huge money-makers, and any imposition of extra charges would be onerous on us.

8087   I am speaking from the heart, I am telling you the truth, and as I said earlier, we submit our financials to the CRTC, you can see whether I am deluding you or misleading you, and I think that I am not.

8088   Jim...

8089   MR. DEANE: A couple of comments, one being that we are in a recession and we have experienced some decline in revenue, too, and we are trying to sell the top of our ad channel and the like, so we expect it to come back.

8090   The second thing I would say is that we are also operating a business, and local for us has been good business. I don't understand why local is not good business.

8091   I can give you an example - and we haven't done news because the other guys are doing it. The Town of La Ronge, a community-owned organization, asked us to assume the cable operation up there, because they ran into a wall technically and their ability to operate.

8092   We went up there a couple of years ago, and we decided to become local. One of the things that we did was, we launched a community channel dedicated to La Ronge, and one of the programs that we did was in partnership with Missinipi Broadcasting, another licensee, an Aboriginal-owned radio station, to do a weekly TV news program in Cree, Dene and English.

8093   And, I can tell you, local has been good business. It's not only the right thing to do, but we have 25 percent more customers in La Ronge than we did when we went up there.

8094   So I am mystified, I think local is good business and I would be prepared to do more of it.

8095   MR. BOYD: Maybe I could make one final comment about this whole process. This is supposed to be about group licensing, and I notice that the broadcasters have been very reluctant to have any thought of cross-subsidizing conventional broadcasting from specialty services.

8096   In fact, CTV even said that their U.S. partners in specialty services would be upset if they cross-subsidized their losses in conventional broadcasting, yet they are not shy about asking us to cross-subsidize that, even though we are not totally in the broadcasting service.

8097   For many of our members, the telecom services today are keeping them afloat. If it weren't for high-speed internet, which was introduced in 1996, many of our little companies would be long gone. It allowed them to rebuild their networks, to create bi-directional networks, and to subsidize their broadcasting business.

8098   You heard Vidéotron say the other day that they make about 1 percent, and I think Rogers said that they don't make any money in broadcasting. If Rogers doesn't make any money in broadcasting, you can imagine how little money we make in broadcasting.

8099   High-speed internet has been the salvation of our companies. The bigger ones are now getting into telecom.

8100   What Canwest and CTV are really saying is that the telecommunications side of our business should subsidize their conventional broadcasting, and we see no rationale for that whatsoever.

8101   COMMISSIONER SIMPSON: Thank you.

8102   THE CHAIRPERSON: Michel...

8103   COMMISSIONER ARPIN: Thank you, Mr. Chairman.

8104   Only a matter of clarification, just so everybody understands. It is true that the BDUs are paying your retransmission right, but that right doesn't go to the broadcaster, it goes to the producer. When the broadcaster gets any money, they are getting it as a producer, not as an aggregator of content and a broadcaster.

8105   So the right that the Major Baseball League gets is for the protection of their rights as a provider of content.

8106   Ma première question, c'est pour vous, Monsieur Arseneau. Dans votre présentation orale, vous dites que vous offrez une quarantaine de services sur la base analogique pour un montant de $ 27,45, et vous dites :

« Nos tarifs de gros sont actuellement de $ 13,31... »

8107   Votre tarif de gros, c'est ce que vous remettez à diverses entreprises de canaux spécialisés?

8108   M. ARSENEAU : Exact. Sur la quarantaine de chaînes, c'est ça, ça représente à peu près 50 pour cent du prix de vente.

8109   CONSEILLER ARPIN : Et ça, ça comprend à la fois des canaux 9(1)(h)...

8110   M. ARSENEAU : Oui.

8111   CONSEILLER ARPIN : ...ainsi que des doubles statuts et des entreprises qui ont lancé leurs services avant que, au Québec, on introduise la notion des étages?

8112   M. ARSENEAU : Exact.

8113   CONSEILLER ARPIN : Est-ce que ça en comprend d'autres que ceux-là?

8114   M. ARSENEAU : Non.

8115   CONSEILLER ARPIN : Donc, c'est historique, et, à l'exception des canaux 9(1)(h), la protection de double statut ou l'héritage qui a découlé de l'organisation de l'industrie se termine quand même dans les prochaines années?

8116   M. ARSENEAU : Oui, effectivement. En fait, dans le cas de la Coopérative de la RPI, on a toujours choisi d'offrir un service de base qui était... qu'on considérait élargi. On n'a jamais été avec les étages. On a toujours... de un, pour nous permettre d'avoir le meilleur tarif possible au niveau des chaînes, ce qui nous permettait d'offrir le plus grand éventail de services à nos clients en payant le moindre coût possible.

8117   La réalité aussi, c'est que quand on a migré ou quand on a décidé d'offrir le service numérique, on a décidé de dupliquer, si on peut dire, le service analogique, en disant que pour nous, le service analogique, c'était toujours le service de base. Alors, systématiquement, quand un de nos clients prend le service numérique, il a aussi le service analogique qui vient avec.

8118   Et on a fait en sorte qu'à la base numérique, bien, on a gardé le service analogique quasi-intact, et on a offert un peu plus de chaînes dans notre service de base numérique minimal, la raison étant qu'on doit compétitionner avec Bell TV, avec Shaw. Ils offrent une multitude de services, souvent -- et je pense qu'ils le redisaient dernièrement -- à perte. Ça fait sept ans qu'ils travaillent à perte. S'il fallait qu'on travaille à perte, nous, on serait... après un an, ça serait fini.

8119   Alors, la façon qu'on a vu la chose, c'était d'offrir le maximum possible à nos clients en leur demandant le moins possible en retour.

8120   Et le numérique, c'est un service qui est intéressant, mais qui coûte de l'argent. Les décodeurs sont encore très dispendieux.

8121   Et on se rend compte aussi que la plupart... comme disaient mes collègues, que la plupart des clients, pour beaucoup de clients, ça ne les intéresse pas d'avoir une boîte numérique installée sur la télévision. Ils sont habitués à la vitesse de réaction de la télécommande de la télévision, alors que numérique est un peu moins rapide.

8122   CONSEILLER ARPIN : Quel est le pourcentage de votre clientèle qui a pris le numérique?

8123   M. ARSENEAU : Présentement, on dessert à peu près 10 000 clients au total, télévision, et c'est environ 6 500 à 7 000 clients numériques.

8124   CONSEILLER ARPIN : Donc, ça donne quand même 65 pour cent?

8125   M. ARSENEAU : Oui.

8126   CONSEILLER ARPIN : Qui est un taux comparable à celui de Vidéotron...

8127   M. ARSENEAU : Exact.

8128   CONSEILLER ARPIN : ...finalement, parce que, de mémoire là, c'est à peu près ça.

8129   Et c'est un taux comparable avec l'industrie canadienne, pas très loin, à quelques décimales près?

8130   M. ARSENEAU : Je ferais peut-être une parenthèse sur le fait que oui, un client peut être numérique, mais sur deux ou trois télévisions, il y a peut-être juste une télévision numérique, les autres sont encore en analogique.

8131   CONSEILLER ARPIN : Ça, je peux comprendre que ça soit vrai chez vos clients, puisque c'est vrai dans ma propre maison.

8132   M. ARSENEAU : Et je pense que c'est ça notre avantage actuellement par rapport à Bell ou à ExpressVu.

8133   M. BOYD : Mais, Monsieur le Vice-Président, leur compagnie est interconnectée avec Vidéotron...

8134   CONSEILLER ARPIN : Oui, oui.

8135   M. BOYD : ...où l'offre est à peu près pareille.

8136   CONSEILLER ARPIN : Oui.

8137   Vous avez dit que votre service de base numérique était plus important en nombre de services que votre service de base analogique.

8138   M. ARSENEAU : Oui.

8139   CONSEILLER ARPIN : Quel est le prix de votre service de base numérique?

8140   M. ARSENEAU : Il est de $ 29,45, si je me souviens.

8141   CONSEILLER ARPIN : Il est de $ 29,45.

8142   M. ARSENEAU : En bas de $ 30.00.

8143   CONSEILLER ARPIN : Au cours de l'audience, on a parlé, effectivement, de ce qui s'est appelé un skinny basic, un petit service de base qui ne comprendrait que les stations locales, les services 9(1)(h), CPAC, l'Assemblée nationale.

8144   Est-ce que ça intéresserait votre clientèle d'avoir accès à un service de cette taille-là, à un prix, évidemment... quel pourrait en être le prix?

8145   M. ARSENEAU : C'est une bonne question. Je pense aussi... comme Harris le mentionnait, je pense que ça serait peut-être une façon de se cannibaliser nous-mêmes. Par le passé, je vous disais, justement, qu'on a choisi d'offrir une base étendue. On croyait qu'au niveau concurrentiel, c'était la seule façon d'arriver à la cheville de Bell ou Star Choice.

8146   Je pense qu'offrir un petit service... je sais que Vidéotron fait quelque chose du genre au niveau numérique. Je pense que la majorité des clients vont quand même prendre des services supplémentaires en numérique.

8147   CONSEILLER ARPIN : C'est ce qu'ils ont dit.

8148   M. ARSENEAU : Oui.

8149   CONSEILLER ARPIN : Ils ont dit que ça représentait 5 à 6 pour cent de la clientèle qui prenait la petite base numérique qu'ils offrent. Tous les autres prenaient dans leur offre 15 pour 15, 20 pour 20, 30 pour 30 ou dans le Telemax, dépendamment des choix que ces gens-là pouvaient faire. C'est ce qu'ils nous ont dit.

8150   M. ARSENEAU : Je pense que c'est la réalité. Dans notre cas, on a choisi, au niveau de notre offre numérique, d'ajouter la quasi-totalité des chaînes francophones qui n'avaient pas de licence obligatoire analogue, si on veut, pour nous permettre, justement, de compétitionner, encore une fois, avec ExpressVu.

8151   CONSEILLER ARPIN : Donc, vous avez créé, pour un montant inférieur à $ 30.00, un service pour une clientèle francophone qui comprend l'ensemble des services francophones?

8152   M. ARSENEAU : Exact. Il faut comprendre que sur les 7 000 clients numériques qu'on a, il y a environ, je dirais, au-dessus de 95 pour cent des clients qui prennent la base francophone. Elle inclut quand même beaucoup de canaux anglophones également. Mais toutes les stations numériques anglophones, c'est quasi-rien. Il faut comprendre que le marché qu'on dessert est, quoi, 90 pour cent francophone. Il faut vivre avec cette réalité-là également.

8153   CONSEILLER ARPIN : Je présume c'est les grands amateurs de sport qui vont aller chercher d'autres canaux.

8154   Mr. Edwards or Deane -- I don't remember who made that statement but when we dealt with the issue of negotiation you say that you -- through the experience that you have, even if you had been negotiating as a group and to offer -- are you making a difference in negotiating with those who are must carry or are benefiting of the access rule versus those who are Cat B, regarding their quest for a higher rate than what they maybe have been able to negotiate with other BDUs?

8155   MR. EDWARDS: Well, I think the answer is that those who are must carry come to us with much more sustainable demand. We have less to answer that because we know they must carry.

8156   Typically, the rate has already been established in the industry because BDUs must carry them. So that comes to us with a pre-packaged rate, add something for small cable and because you have to carry it that's pretty much the end of the negotiation.

8157   When we have a Cat B that comes to us it is much more a case of the desirability of the service. But again we are negotiating not with millions but with hundreds of thousands. So again it still tends to be a proposition that they would come to us with a rate that's already been set in negotiations with the major BDUs. I think that's probably the answer.

8158   MR. BOYD: And maybe just one comment. The must carry and the access rules really are major issues because what makes a must carry for us is whether our competitors are carrying them and those competitors are national and they carry virtually everything. So that determines what we carry.

8159   So we can't just say, "Well, we don't have to carry you so we won't pay you and that allows us to negotiate better. It doesn't work that way. They know we have to carry them because our competitors have them.

8160   MR. EDWARDS: Okay. And having said that, the rules have evolved a great deal over the past few years so that many, many of the small systems we represent simply aren't bound by most of the must carry rules. So that has changed the negotiation, I think.

8161   COMMISSIONER ARPIN: Obviously, the Commission has not issued many new services benefiting from the access rules, I think. They closed almost a decade ago the issuance of licences for Category 1. There had been no new takers. That may change in the future with Category As but we need to have a public process before that.

8162   So those were my questions, Mr. Chairman.

8163   MR. EDWARDS: Just one other element to the response to that question is it goes back to the point we have been making about the fact that many of those specialty channels including the Category 2s are now aggregated among major programming groups.

8164   So when we are negotiating for a Category B service now it is still CTV we are talking to. And it's still the power of CTV behind that negotiation and it's the ability -- you know if we want to have TSN we had better pick up TSN too. And it's just that plain.

8165   COMMISSIONER ARPIN: Thank you.

8166   THE CHAIRPERSON: Elizabeth.

8167   COMMISSIONER DUNCAN: I just have one -- it's actually a comment, a point of clarification for Mr. Boyd.

8168   I actually said that CTV was my go to station. I always start on our HD channel, but I want to make sure that you realize that many, many Maritimers have mentioned to me about the inadequacy of local news, not only in Nova Scotia but in New Brunswick and obviously Prince Edward Island.

8169   Thank you.

8170   THE CHAIRPERSON: Candice.

8171   COMMISSIONER MOLNAR: Thank you. I have a couple of questions here.

8172   First of all, as it regards negotiating value for signal, there is really two components.

8173   There is potentially any value for the local signal but there is also the value of distant signal carriage that has been considered to be part of you know, broader negotiations. The decision that there needs to be negotiations for the value of distant signals was made as you, I'm certain are aware, in a previous decision.

8174   When you are talking about the issues around your group negotiating either individually or collectively what does that mean to you as it regards upcoming negotiations for distant signal carriage?

8175   MR. EDWARDS: The first part of that answer is that we have in fact been paying the same payments that other BDUs pay to CAB as compensation for the impact of distant signals into the broadcasters' markets and we are continuing to do that as the other BDUs are on a month-to-month basis on agreements that have expired.

8176   So that's our situation right now.

8177   The other part of that is the Commission has recently said that the obligation to acquire consent for distant signal use no longer applies to exempt BDUs. So I guess our take on it is at least with respect to exempt BDUs going forward we would not expect to be doing a negotiation. We would expect to be carrying those signals without consent.

8178   And the third part of it would be we do still have at least one licensed system within CCSA and we would hope that it would be possible to obtain a condition of licence that would relieve them of the burden to do that negotiation.

8179   COMMISSIONER MOLNAR: Are you going to ask for that? Will that be an upcoming submission or do you just hope it happens as a result of this proceeding or you would make a submission in the future at some point?

8180   MR. EDWARDS: Yes, and then just finally to answer your real question, I mean the power balance is the same power balance whether you are talking about distant signals, local signals, whatever. We are -- we lack the ability to come to that table with any sort of power.

8181   COMMISSIONER MOLNAR: Yes, I understood that. I just didn't understand why we weren't talking about all of the values of the signal including distant when you were in front of us here.

8182   Let me ask something that has been kind of bantered about a bit last week, and that is if there was to be negotiations one of the things discussed is that it perhaps may only be in markets where the broadcasters have made the transition to digital and have transitioned their transmitters to digital.

8183   So from the perspective of CCSA is there anybody but Mr. Dean who would still have to negotiate if that sort of condition were put in place?

8184   MR. BOYD: I am pleased to hear that interpretation, but I certainly don't get the impression from the broadcasters that they are only planning to negotiate value for signal where the digital transmission --

8185   COMMISSIONER MOLNAR: Yeah. Oh, this is just a scenario.

8186   MR. BOYD: Okay. Yes, well, I like that scenario.

8187   COMMISSIONER MOLNAR: It's not a decision. I mean there has been no decision if negotiations should occur and if they should occur under what conditions.

8188   But it was tossed out, and so I just want to understand within the membership you represent -- except I do know Regina is a market that is mandatory for conversion -- are any of the rest of your members --

8189   MR. BOYD: Well, Whitehorse and Yellowknife, I believe, are included in your mandatory markets because they are territorial capitals and we serve both of those through NorthwesTel cable.

8190   COMMISSIONER MOLNAR: Okay. Okay, thanks.

8191   Just one more question. You spoke about the benefits of community TV and how perhaps we needn't be so concerned with saving local TV in the conventional broadcast sense. It happens by a matter of scheduling that you have come right after the regional independent production groups who were here speaking of their important role in the system and reflecting the regional issues and so on.

8192   So without getting into a broad dialogue on the values of community TV, how would you see where would be the place for these regional independent producers if we were to take your advice and not worry about saving local TV?

8193   MR. McCAFFREY: I think my point was on not saving local TV. I didn't say that.

8194   What I really meant -- if I misinterpret, I'm sorry. What I really meant was I don't believe CTV who sells themselves as a local television are in fact local in the Maritimes and probably not in most parts of the country except in the very big cities.

8195   We at Seaside we have a dedicated channel for a company called Talil which is a French channel. We make it available to them and we rebroadcast all their signals from Arichat to our folks and our catchment area.

8196   I am very much in favour of small community groups, organizations who wish to do independent community programming. We do on occasion make time available on our community channel to show something that perhaps you would bring to us and say, you know, "This is really interesting. Why don't you consider showing this?" It could be a speech. It could be an address. It could be a seminar or something like that.

8197   In other cases the university might phone us up and say, you know, "We have this speaker coming in. Would you like to cover it?" So we would send a crew in. We would film it. We would edit it and then we would broadcast it a couple of days later and then put it in our VOD files so that people in the community can access it at a later time so that if you miss the lecture for example you can get it from us for free.

8198   So I don't know if that really answers your question. All I was trying to make in the point was that I don't believe that CTV or even CBC, although they have a fabulous local radio presence, are considered in my book because they do one minute or two minutes of news on the local newscast either in the morning, breakfast television, or in the evening on the news hours, that because they do two minutes covering a murder or a fire or even a feel good story or a car accident, that that makes them a local broadcaster.

8199   MR. BOYD: I think, Commissioner Molnar, you were talking about professional producers who sell their programs to the broadcasters and at the moment, with the resources available to the community channels, we are not in a position to purchase programming.

8200   However, obviously, if we had access to the LPIF and advertising, we would be in a position to purchase that kind of programming.

8201   THE CHAIRPERSON: Save your comments for August.

8202   MR. BOYD: Okay.

8203   THE CHAIRPERSON: Suzanne.

8204   CONSEILLÈRE LAMARRE : Merci, Monsieur le Président.

8205   Ma question porte sur les points que vous avez présentés au sujet de votre position de pouvoir pour la négociation de valeur de signal ou, en fait, votre position d'absence de pouvoir, de la façon que vous nous l'avez présentée, et elle porte autant là pour le marché francophone que pour le marché anglophone.

8206   Mais le point de départ de ma question, c'est la position qui a été présentée par RNC Media et Télé Inter-Rives dans leur mémoire. RNC Media et Télé Inter-Rives présentent leur situation, en fait, comme étant le miroir de la vôtre. C'est-à-dire qu'ils sont des radiodiffuseurs indépendants, qui, dans cette situation-là, devraient avoir à négocier avec de grosses entreprises de distribution que sont Vidéotron, Cogeco, Bell et Shaw.

8207   Et à cette fin, surtout dans le cas de Télé Inter-Rives, ce qui est présenté, c'est que dans la mesure où les gros réseaux, TVA, TQS, la Société Radio-Canada, arriveraient à négocier une valeur pour leur signal vis-à-vis les EDR dans les grands marchés, que cette valeur-là devrait être la même pour les affiliés dans les petits marchés, et que ces tarifs-là soient appliqués à toutes les EDR, qu'elles soient petites ou grandes.

8208   Alors, partant de ce point de vue là, est-ce que la possibilité que la valeur d'un signal soit négociée par les grands réseaux de radiodiffusion avec les grandes EDR, que ce tarif-là soit utilisé ou imposé au niveau des petites ou moyennes EDR, est-ce que ça, c'est une position alternative sur laquelle vous avez une opinion?

8209   M. ARSENEAU : Bien, en fait, ça demeure, le fait qu'ils soient réglementés ou pas, le tarif fait en sorte que ça nous impose une charge financière supplémentaire qui, en bout de ligne, même si on ne veut pas la refiler à nos abonnés, bien, dans notre cas, c'est une co-opérative. Alors, quand on fait des profits, c'est redonné à nos membres.

8210   CONSEILLÈRE LAMARRE : Ça revient aux membres.

8211   M. ARSENEAU : Alors, c'est clair que si les profits sont moins, bien, les membres en bénéficient moins.

8212   Maintenant, la réalité de bien des petits cablôdistributeurs québécois -- c'est la même chose à travers tout le pays -- c'est qu'est-ce qu'il y a de local à Baie-Trinité, qu'est-ce qu'il y a de local à...

8213   CONSEILLÈRE LAMARRE : Ce n'est pas ça ma question. Ma question, c'est au niveau, justement, de l'établissement des tarifs, si on jugeait approprié qu'il faut qu'il y ait, effectivement, une valeur pour le signal des radiodiffuseurs conventionnels, est-ce que ça, c'est une position alternative qui éliminerait la difficulté d'avoir à négocier?

8214   M. ARSENEAU : Bien, c'est clair.

8215   CONSEILLÈRE LAMARRE : Et au niveau du marché anglophone, est-ce que vous avez une réaction à cette position-là?

8216   MR. BOYD: It seems to me you come back to kind of a fee for carriage concept when you go that route if everybody is going to pay at the same rate.

8217   We probably believe that the independent television stations do a better job of local than those in the networks. I mean it is the basis of their operations. They are more like us in that case.

8218   But we don't believe that this kind of a fee is the way to help them. The LPIF is actually a much more effective and fair mechanism because every station benefits by a third of it.

8219   It's just that third is divided by the total number of stations, 121 or whatever it is, and then the French-language ones get 30 percent of the remaining two-thirds. So that allows it redistribution of wealth already and we don't necessarily have a view what rate it should be set at. It's currently at 1.5 percent.

8220   But that is a better way of helping those small market independent television stations than anything else. If they only get paid by a small BDU in those markets, plus some DTH, they won't get much anyway.

8221   COMMISSIONER LAMARRE: On a different topic, in an answer to a question by Commissioner Simpson was wondering what percentage of your membership are actually co-ops. I think it's Mr. Edwards who answered and said approximately maybe 10 percent plus there some municipal organizations and operational organizations.

8222   In your final submissions could you kindly give us the exact breakdown? It would be very much appreciated.

8223   MR. EDWARDS: We will be happy to do that.

8224   COMMISSIONER LAMARRE: Thank you. Those are all my questions.

8225   THE CHAIRPERSON: Thank you.

8226   Rita, last question?

8227   COMMISSIONER CUGINI: No, I don't.

8228   THE CHAIRPERSON: Okay. Then let me just make two comments.

8229   Mr. McCaffrey, you were very critical of the campaign by the broadcasters. I think equally -- the same thing can be said to the campaign by the BDUs. I think neither one was a model of verity. Would you agree with that?

8230   MR. McCAFFREY: Could you repeat?

8231   THE CHAIRPERSON: You were very critical of the campaign by the broadcasters in "Save our Local TV". I think the campaign by the BDUs, "Don't Tax Me" or don't put a TV -- was equally less than truthful.

8232   MR. MCCAFFREY: Yeah, I would say that that's true. I certainly don't think it's a tax on television and I think, as it was brought earlier by a couple of people here and as well as Harris, that it was done a disservice and certainly didn't do the industry any good whatsoever.

8233   THE CHAIRPERSON: Right. And the one other question that has been floated around is that as we slowly convert to HD and as the system goes to HD and your customers sign up to HD, rather than trying to undo the task we look forward.

8234   Would it make sense that if there is value for signal, if a negotiation process of some sort is established, et cetera, that it would only apply to those customers who -- to those programs that you receive in HD and that you sell in HD, so in effect that the customer because he gets a better product, a better signal, et cetera, would also pay for that better product?

8235   MR. EDWARDS: I would like to comment on that if I could.

8236   I think the first thing I would like to say about that is by the time a customer actually receives HD programming he has bought a new television, he has bought expensive cables, he has probably bought a Blu-Ray player and he has bought a subscription to high definition and he may have bought the HD box. And I think, certainly speaking personally, my perception as a consumer is I have already paid a lot of value to get that HD product and I'm not sure that I see adding more to that as a beneficial thing.

8237   The other comment I would make about it is that this is a transition and we are moving to a place where eventually we hope high definition is going to be normal TV. It's like going from black and white to colour and I'm not sure that customers really see that that's something they should be paying more for, particularly when they have laid out so much capital expense for the equipment in their house.

8238   THE CHAIRPERSON: But surely it's also more expensive to deliver, et cetera? I mean it's fine what you say that the customer has to buy for a new set-top box. I appreciate it. But the supplier of HD also has to incur a huge cost in order to be able to supply the program in HD.

8239   I mean it just strikes me -- I hear a great resistance to value for signal because we didn't pay for it in the past, why should we pay? Obviously, it worked in the past. Why not -- the broadcasters create their own problem.

8240   That's the views that are presented to us. Whether we accept them or not is different. But as you move forward and if you have an improved product, it is usually the case that you pay for them.

8241   MR. BOYD: But I think there is two sides to that.

8242   Certainly, the HD product is a better product. It's worth more. Unfortunately, it also costs us a lot more to deliver it. We can only put three HD channels where we put 10 to 12 channels now. We have to subsidize a much more expensive box for the consumer.

8243   You would find in many of our companies digital boxes are actually given away. And it's one of the reasons that we have higher penetration is because we are not charging seven, eight, nine dollars a month for those boxes and, of course, in HD it's a lot more.

8244   So our subsidy of the customer offsets that value of the signal. Certainly, we welcome more HD and we have to go that route because of competition but our costs go up.

8245   MR. EDWARDS: I have a final comment there, which is this, that if you go to CTV's website today you will find that they are offering on-demand, free on-demand HDTV content. And perhaps it's not as good as what is coming across the television set today, but I would envision that in a few years that HD content is going to be out there for my kid in her university residence to look at on her computer in the way that she does now.

8246   THE CHAIRPERSON: In which case you are out of business.

8247   MR. EDWARDS: It's a concern.

8248   THE CHAIRPERSON: Yeah. Anyway, thank you for your submissions.

8249   And we will take a 10-minute break before we go to lunch.

8250   MR. BOYD: Thank you for giving us the time to make our points. We really appreciate it.

8251   MR. EDWARDS: Thank you very much.

--- Upon recessing at 1109

--- Upon resuming at 1122

8252   THE CHAIRPERSON: Okay Commençons.

8253   THE SECRETARY: We will now hear the presentation from MTS Allstream Inc. Please introduce your colleagues and proceed with your 10-minute presentation.

8254   Thank you.

PRESENTATION

8255   MR. PEIRCE: Thank you, Madam Secretary.

8256   Good morning, Mr. Chairman and Commissioners. My name is Chris Peirce, Chief Corporate Officer of MTS Allstream. With me today is Jenny Crowe, Director of Regulatory Law, and Greg McLaren, Manager of MTS TV Content.

8257   In a country of 10 million TV subscribers MTS is the eighth largest distributor. We provide just less than 100,000 customers with state-of-the-art television service in Winnipeg, Portage la Prairie and Brandon, Manitoba. In addition to our continual drive to use leading edge state-of-the-art technology, our program packages are designed to maximize viewer control to the greatest extent possible.

8258   MTS Allstream realizes that the entertainment industry is becoming increasingly influenced by the customer's desire and ability to control his or her entertainment experience. The Canadian broadcasting industry is not immune to these changes.

8259   The success of MTS TV can be attributed primarily to our ability to differentiate our service from the incumbent distributor by giving customers more control over their viewing experience. We provide a large selection of programming services and flexible packaging. Video-on-demand or VOD, a natural extension of our marketing approach, lets customers choose what programs they want to watch and when.

8260   In other words, our success is derived from our ability to respond to customer demand, rather than to simply force supply. Our experience in Manitoba informs our comments on the topics we will discuss today. We believe that changes to the broadcast funding model are needed, but these changes should not simply be an extraction of additional monies from the distributors. This would ultimately cost viewers more and fail to address what we believe are the underlying problems.

8261   In order to be effective and to achieve the objectives of the Broadcasting Act, the model must reflect the new paradigm of customer control. This will only be achieved if all stakeholders are responsive to viewer or customer demand. Responsiveness to customer demand is fundamental to the commercial success of broadcasters and distributors alike and is ultimately the only way to ensure a strong and dynamic Canadian broadcasting industry.

8262   In our opinion, the Commission's new group-based approach to the licensing of conventional over the air television services, in conjunction with other discretionary services under the same ownership, is the right way to go. It is the only way to determine the true financial picture for broadcasters, because while conventional broadcasters cite their financial plight, specialty services owned by these same broadcast groups are doing very well.

8263   CTVglobemedia and Canwest Global, two of the leading proponents of receiving new financial payments from distributors, have an interest in nearly half of the specialty services currently offered in Canada, the same specialty services that these networks argue are fragmenting audiences and leading to lower advertising revenues for their conventional stations.

8264   The fact is that revenues for private conventional OTA services have remained fairly constant, at roughly $2.1 billion, with roughly 90 percent of these revenues derived from advertising. However, on a year-over-year basis broadcasters have spent increasing amounts of non-Canadian programming. In 2003, private conventional broadcasters spent $545 million on Canadian programming and about the same amount on non-Canadian programming. By 2008, broadcasters were spending 25 percent more on non-Canadian programming than on Canadian programming.

8265   Interestingly, during this same period revenues for discretionary services grew by nearly 10 percent a year, to over $2.9 billion for the 2008 broadcast year. But unlike private OTA services, only about 25 percent of total programming expenditures were on non-Canadian programming. In 2008, Canadian specialty and pay services spent $1.1 billion on Canadian programming, nearly twice as much as the $620 million spent on Canadian programming by private OTA services.

8266   This suggests two things: first, that the broadcast groups overall remain financially healthy; and, second, as we will discuss further in a moment, that the Canadian expenditure requirements that apply to discretionary services appear to have been more successful in promoting Canadian programming than the exhibition requirements that apply to the conventional television stations.

8267   Considering the conventional OTA services in isolation could lead to incorrect conclusions. Until the Commission has assessed the overall financial state of these broadcast groups, it is premature to give any consideration to the question of value for OTA signals.

8268   As I mentioned, we believe that key in evaluating the need for additional funding for Canadian broadcasters and the utility of a particular funding model is whether that model will positively contribute to providing customers with the entertainment experience they are seeking. Customer demand is the cornerstone of any successful business model and has real implications on broadcasters' revenues and, by extension therefore, on the proportion of expenditures on Canadian versus non-Canadian programming content.

8269   So the first step in an analysis of any funding model has to be current viewership trends.

8270   In the 2008 broadcast year, despite the increase in online alternatives, the amount of television Canadians have watched has remained fairly constant, at 26.6 hours per person per week. On English-language private OTA services, news analysis and interpretation, plus longform documentary, are the only programming categories in which the viewing share of Canadian programs exceeds that of non-Canadian programs. Yet, according to the statistics provided by the Commission in your 2009 Communications Monitoring Report, these three categories combined accounted for less than a quarter of all OTA viewing in the 2008 broadcast year.

8271   By far the most widely viewed category for private English-language OTA services in 2008 was drama and comedy, which accounted for 40 percent of all viewing time, but 89 percent of this time was spent watching non-Canadian programming, up by 10 percent from the previous year. The fact is that viewing of all Canadian programming on English-language private OTA stations accounted for just less than 35 percent of total viewing of these stations in 2008.

8272   When Canadian viewing habits are taken into consideration, even though conventional broadcasters account for a significant share of total viewing hours, when all is said and done there is very little local in the programming provided by or viewed on English-language private OTA services.

8273   In Manitoba, similar to the previous panel, local is typified by a rebroadcast of the programming of the four U.S. commercial networks, a daily newscast inserted into a network feed from Toronto, and a series of program promos that encourage viewers to watch TV shows on specialty networks and the Internet. Indeed, if the broadcasters were to turn off their transmitters and feed their signals from Toronto, except for newscasts we would see relatively little change, even in the time of day the programs are telecast.

8274   In short, in the past eight or nine years, conventional broadcasters have chosen to move their businesses away from locally focused television stations in their communities and toward a network-based specialty service model.

8275   Continually increasing the subsidization of OTA broadcasters by BDUs and their subscribers is not the answer, in our view. It will cost subscribers more and will not increase the availability or success of local or Canadian programming. The facts demonstrate that in English-language markets consumers overwhelmingly prefer to watch non-Canadian programming. A new business model is required to find better ways of deploying the resources that are currently spent on Canadian programming, ways that will better support and encourage the development of commercially successful Canadian programming.

8276   The statistics make it clear that at least some element of the new model needs to be linked to customer viewing. This in turn will enhance the financial health of the broadcasters and the industry as a whole. Any new payment for the over the air signals, whether on a set fee for carriage model or a negotiated value for the signal regime, would simply deplete the resources needed to fund the key pillars of the Canadian broadcasting industry, the distribution network and the programming.

8277   Although the Commission has not yet reviewed the financial health of the major groups' conventional and discretionary services combined, the Notice of Consultation nevertheless proposes three new potential revenue streams to support OTA broadcasters.

8278   Two of them relate to subsidy from the BDUs: the enhanced Local Programming Improvement Fund, or LPIF, supported by contributions from BDUs; and negotiated fee for carriage. The third is the suggestion that the continued carriage of US 4+1 signals could be contingent on the successful negotiation of fair market value for Canadian signals.

8279   In our opinion, each of these is designed to put a disproportionate share of the burden of supporting the Canadian broadcasting system on the BDUs, even though there is no demonstrated need for additional funding of the system.

8280   BDUs already contribute significantly to the creation and presentation of Canadian programming as required by section 3(1)(e) of the Broadcasting Act. Their most important contribution is to the presentation of Canadian programming through ongoing investments in the network infrastructure required to provide high-quality signals to Canadians. Each year BDUs, both large and small, invest millions of dollars to maintain and upgrade their network infrastructure to keep up with advances in technology and improve the viewing experience for their subscribers.

8281   Programming costs already account for a considerable portion of BDU costs. MTS Allstream spends almost half of each revenue dollar on programming, just over 80 percent of this on Canadian programming. Our all-in cost of operating is also increased by at least 10 percent over the past year. Our position as the eighth largest distributor provides us with significantly less negotiating leverage with broadcasters and programmers than our larger counterparts. The recent deregulation of certain programming categories has further reduced our ability to reach cost effective arrangements.

8282   BDUs also contribute to the creation of Canadian content by way of their community channels or outlets for local expression. An example is MTS Allstream's Winnipeg on demand service which provides local and regional programming. In 2008, BDUs spent $116 million on local expression. As well, BDUs contributed over $200 million to the CTF and independent production funds.

8283   BDUs spent another $200 million plus in 2008 in respect of the programming services they are required to carry as part of their basic service offerings pursuant to section 9(1)(h) of the Broadcasting Distribution Regulations.

8284   BDUs also pay the Canadian Association of Broadcasters a monthly fee per subscriber, which is distributed among CAB members in lieu of non-simultaneous substitution.

8285   BDU contributions to the Local Programming Improvement Fund, which commenced effective September 1st, are expected to total more than $100 million for the current broadcast year. Initially the LPIF was designed to help broadcasters in markets with a population less than 300,000 improve their local programming. However, subsequently, on an interim basis, the requirement to use these funds for incremental local programming has been removed.

8286   Stations that qualify for LPIF funding this year, many of which are part of large multistation ownership groups, can use this money to purchase more non-Canadian programming or simply funnel it to the bottom line. This outcome will not ensure the viability of local or regional programming, indeed of Canadian programming in general.

8287   The only thing that will ensure this is viewership. If a sufficient audience can be attracted to the programming, advertising revenues will follow. However, forcing BDU subscribers to subsidize Canadian broadcasters, whether through the LPIF and imposed fee for carriage and negotiated value for signal or some other mechanism, will do nothing to attract additional viewers to Canadian programming or contribute to the health of the Canadian broadcasting industry.

8288   In MTS Allstream's opinion, the industry would be better served by incentives for Canadian drama and other priority programming, which would emphasize the importance of demand as current incentives all relate to supply, which has little to do with Canadian viewership and thus the commercial success of Canadian programming.

8289   There are a number of ways this could be approached. For example, Canadian content exhibition requirements could be substituted by Canadian priority programming expenditure requirements. The level of expenditure could be equivalent to current overall Canadian programming expenditures of roughly $2.3 billion.

8290   Needless to say, the continuation of the LPIF and the Commission's proposed negotiation for OTA signals, are not amongst the solutions we would suggest that will increase viewership of Canadian programming. Both fail to address the need for balance between supply and demand.

8291   Local OTA signals have a net market value of zero to distributors and to broadcasters. They are available for free to anyone with the appropriate receiver. Contrary to the claims that broadcasters are making, BDUs do not charge subscribers for local signals. The value in having the OTA signals distributed by BDUs is a value that is aimed at best serving Canadians and is already balanced between broadcasters and distributors. Canadians obtain the convenience of receiving OTA signals, along with other services they are interested in, without having to install an antenna. If we did not distribute local signals, our customers could still install a roof-top antenna for less than $250 and receive six OTA signals in perpetuity. With BDU distribution, however, customers also obtain the OTA signals at top quality, providing significant value to the broadcasters.

8292   Even the best antenna is subject to building reflection, airplane interference and all the other impediments that we have come to largely forget. BDU distribution of the OTA signals eliminates the inherently erratic behaviour of OTA signals. The existing balance argues against introduction of any so-called negotiated value for the signal or fee for carriage.

8293   I say so-called negotiations, because obviously there is no such thing as fair negotiation when one party holds all the cards, as conventional broadcasters do. This is particularly true for a smaller distributor like MTS Allstream. Mandatory carriage requirements mean that a BDU cannot refuse to carry local OTA signals. The broadcaster's leverage is further strengthened by the fact that the Commission is contemplating making carriage of U.S. 4+1 signals contingent on the successful negotiation of fair market value for Canadian signals.

8294   Denying carriage of U.S. 4+1 signals would have two undesirable effects. If the loss of competition from U.S. networks is more valuable to the broadcasters than a fee for carriage, denying carriage of those networks would be a disincentive for OTA broadcasters to reach a negotiated agreement.

8295   It would also create two classes of Canadians. As long as they have an antenna, Canadians living along the border would be able to receive U.S. signals over the air. This would include Canadians in southern Ontario, Quebec and B.C. where a substantial proportion of the population in each of these provinces lives. However, the main population centres in other provinces, such as Manitoba, would not have this option.

8296   In the end, broadcasters may not be well served by an OTA fee for carriage because it may have the unintended consequence of driving up the prices they have to pay for their most popular programming. Depending on the terms of their program rights agreements, broadcasters may have to get the consent of content providers before they in turn can consent to the carriage of their signals. Just as broadcasters are expected to demand a fee if BDUs need their consent, it is likely the content providers will demand a fee if broadcasters need their consent.

8297   Given the likely ramifications of a fee for OTA carriage, negotiated or otherwise, it is clear that it will not benefit the Canadian broadcasting system in any way.

8298   I'm going to switch gears somewhat to address the final topic raised in the Notice of Consultation: digital transition models.

8299   We were dismayed to hear CTVglobemedia state at last Monday's hearing that in some of the major markets it was counting on being able to continue transmitting over analog spectrum until the end of 2013 and indefinitely in other markets. In our view, this is simply unacceptable.

8300   In our opinion it is essential that full conversion to digital television be completed by the scheduled transition date of August 31, 2011. Not only is it necessary that the transition to digital be completed on time in major markets, but the conversion from analog to digital must also be universal, encompassing both urban and rural regions of the country.

8301   Spectrum for broadband wireless services needs to be available across the country. Canada is already behind the rest of the world in terms of broadband wireless services and any further delays in making available the spectrum that will be freed up by the conversion from analog to digital will only exacerbate this.

8302   To achieve this, broadcasters must either be required to replace their existing analog transmitters, regardless of the size of population they are serving, or an alternative means of making the digital signals available must be used. In this regard, MTS Allstream supports the freesat model proposed by Bell at the public hearings in April and would be willing to work with the Commission to make local digital OTA signals available to its local service customers who do not subscribe to television service from a BDU.

8303   Thank you. This concludes our formal comments. We are happy to respond to questions from the Panel.

8304   THE CHAIRPERSON: Thank you. I find your submission somewhat logically inconsistent. Maybe you can tell me what you mean by it.

8305   On page 6 you say:

"Local OTA signals have a net market value of zero to distributors and to broadcasters. They are available for free to anyone with the appropriate receiver."

8306   If we adopt the CTV model which says you have to pay for a retransmission consent of local stations and they are willing to -- say if there is no agreement then in effect they can withdraw the signal or you can refuse to carry it. If your hypothesis is correct and it has a market value of zero, then what negotiating strength would they have?

8307   MR. PEIRCE: Well, if --

8308   THE CHAIRPERSON: I mean, don't you need them in order for your programming -- to serve your customers? They want to have OTA as well as specialty programs. Isn't that a fact?

8309   MR. PEIRCE: Well, I think the actual percentage of customers that are only taking the OTA is a very small percentage of our overall customers. If the overall model is to change from a mandated carriage to a more specialty or discretionary approach, then that would presumably change more broadly the dynamic of arrangements between BDUs and the broadcasting system.

8310   THE CHAIRPERSON: That's not what I said, Mr. Peirce.

8311   You right now serve your customers. You serve them with a basic package that contains both OTA and specialty and you will sell them additional packages of specialty. Clearly the customer wants both, both specialty and OTA.

8312   If you didn't offer OTA, you suggest well, they could go and use the rooftop antenna and catch the signal for free.

8313   First of all, it is somewhat complicated having both cable or MTS and antenna at the same time. Second, as you yourself point out, the internal signal is full of deficiencies so it is much better receiving it from you.

8314   So there has to be a value to it. What the value is, I don't understand. But isn't the OTA one of the inputs that you sell when you sell your package to consumers?

8315   MR. PEIRCE: Well, the OTA is part of the basic package that we on a mandated basis provide to our consumers, you know. But what we are saying is that in terms of pricing for that signal, we aren't pricing the amount of that service into arriving at our cost in the same way that the other services are, at arriving at our cost to the subscriber.

8316   THE CHAIRPERSON: Right. But if we took away the mandating, would you not provide any OTA service? Wouldn't your customers demand it?

8317   Now, I agree with you, I have no idea what the value is. But normally if you have an input and you -- certainly I don't know about you, but I have heard Rogers and all the others say basically they are compensated through the existing system of mandatory carriage, blah, blah, blah. Okay.

8318   If that's the case, then the negotiation will be very short and sweet. On the other hand, if there is actually a value to it, you know, and you adopt the CTV model, wouldn't the negotiation basically at the end of the day ascertain what that value is, as small or as large as it may be?

8319   What am I missing here?

8320   MR. PEIRCE: Well, absent a mandate to carry, that would certainly alter the relationship between the two negotiating parties, you are correct.

8321   THE CHAIRPERSON: Yes. Well, I thought that's what CTV put on the table.

8322   MR. PEIRCE: Their model is the model I think that has been adopted by the FCC of either a negotiated fee for carriage or a mandate to carry.

8323   THE CHAIRPERSON: Okay. And the second thing is, on the top of page 6, when you talk about the LPIF, you say:

"Stations that qualify for LPIF funding this year, many of which are part of large multistation ownership groups, can use this money to purchase more non-Canadian programming or simply funnel it to the bottom line."

8324   I thought we had made very clear categories of what you can spend the LPIF money for. What makes you say they can use it for non-Canadian programming for just put it to the bottom line?

8325   MS CROWE: I think that was in the context of the removal of the requirement that there be incremental spending on local programming. So although the exact dollar amounts from the LPIF have to go to certain categories of spend, if you look at the overall financial picture of the local stations altogether, you know, on one level it's just more money into the available money they have without necessarily any new spend on Canadian or local programming.

8326   So in the wash of it all the extra money they are getting in could be spent, you know, in any way.

8327   THE CHAIRPERSON: Is it your contention that by normalizing local programming at seven or 14 hours we have overall taken down the level of local programming required?

8328   Is that what this boils down to?

8329   MS CROWE: By normalizing it, yes.

8330   THE CHAIRPERSON: Harmonizing.

8331   MS CROWE: Sorry?

8332   THE CHAIRPERSON: Harmonizing it.

8333   MS CROWE: Harmonizing it? Oh, okay.

8334   THE CHAIRPERSON: As you know, we provided on the 300,000 -- seven hours over 300,000 market, you have to do 14 hours.

8335   MS CROWE: That's right. I think --

8336   THE CHAIRPERSON: Okay. How does this result in a savings, as you are suggesting? I don't quite follow.

8337   MS CROWE: It was compared to the original scheme, which was that each independent -- each local over the air broadcaster, in order to get money from the LPIF, would have to spend more than they had in the previous year.

8338   THE CHAIRPERSON: Oh, I see. Okay.

8339   Michel, you have some questions?

8340   COMMISSIONER ARPIN: Yes, thank you.

8341   Let's be specific and look at the Winnipeg market because you are making the statement that they have reduced the limit number of hours that the Commission has stated in its policy. Yesterday I spent some time on the Citytv website comparing City Winnipeg to City Toronto, and their programming grids are totally different. Only they have one program that they call City Breakfast which is already 15 hours a week. And on top of that they have many other local programs. So they are much above.

8342   And when they appeared last week the representative of Rogers Media did say that they have used the LPIF because they were eligible for LPIF, and Winnipeg is the only market where they were eligible for LPIF. They used it to maintain and grow their local programming.

8343   So the statement that you have in your brief and the one that you just made in your oral presentation don't jive with the reality. I didn't check regarding CTV or Canwest, or CBC for that matter, but I used the Citytv case because Rogers Media had made a statement in that regard.

8344   I don't know -- well, obviously when you wrote your brief and you submitted it, the LPIF had just started by 14 days. But now we are almost three months in the program and I was wondering if your assessment remains the same?

8345   MR. McLAREN: Commissioner, I will try and answer that.

8346   I think it's fair to say the description that we were providing about local programming in Winnipeg would better describe Global and CTV. Citytv does appear and feel more like a local TV station we would suggest than the other two, and we also note that Citytv is not asking for some kind of fee for carriage or a negotiated value for signal; that they believe that is not necessary.

8347   I can't speak for them, but it may be that the emphasis that they are putting on local is giving them the value that they need to not be asking distributors for funding.

8348   COMMISSIONER ARPIN: Obviously you will agree with me that Rogers had a corporate position that they presented here, not necessarily -- well, which is the view of all their divisions, but they also stated that if they were allowed to negotiate for sure they will be negotiating.

8349   MR. McLAREN: It's probably fair that all of us have corporate positions overall --

8350   COMMISSIONER ARPIN: Yes.

8351   MR. McLAREN: -- and clearly they have had to take a stand.

8352   MR. PEIRCE: I think, just to follow up, Commissioner, per the Chair's previous conversation with Ms Crowe, is that our position around the LPIF funding broadly, without doing a station by station analysis, is that the obligations -- the practical obligations of the broadcasters to access the fund have not, in most cases, increased and in some cases have been diminished from what those obligations were prior. So just additional money has been added to the system without additional obligations.

8353   COMMISSIONER ARPIN: However, maybe that's partially the fault of the Commission to some extent because the Commission made the determination that in a market the size of Winnipeg they must have a minimum of 14 hours. Obviously if they had more than 14 hours before that, they may have reduced back to 14 hours as it was required.

8354   But that's something the Commission will have to assess when we will review the performance of the LPIF.

8355   But I only was making the case and Mr. McLaren just mentioned that City has been committing more than the minimum requirement.

8356   The LPIF is still in its infancy. However, the Commission has stated that -- is seeking the views of the various parties to see if the current 1.5 percent contribution should not be reverted back to 1 percent as it was originally mentioned.

8357   Do you have an idea what kind of an impact it will have on the broadcasters if we were to revert it back? Obviously I can understand what impact it will have on you -- it would be half a percent less -- but on the broadcasters?

8358   MR. PEIRCE: I think just our exchange here probably tracks to our officiality, I think we would say, of the again designation of a different type of funding for a specific purpose that, as you say, is a very small percentage as you look at any one provider. And it begs, to our mind, an analysis of how money has been used by broadcasters when the test has been different.

8359   So our comments about discretionary services where we are looking more at the type of programming or the type of expenditure that is being made, rather than just a supply void that needs to be filled in terms of a few hours.

8360   So that's the one point I just make in follow-up to our last conversation.

8361   As to the effect on individual broadcasters of going from 1.5 to 1 percent, I don't know that we could really offer much on that, other than to say it is about $100 million that will be raised this year is our understanding in terms of that fund.

8362   MR. McLAREN: It may be that we could give a better answer in a year or a year and a half when we see how the programming has evolved. Maybe it is going to be spectacular and we will all be extremely pleased with the results.

8363   COMMISSIONER ARPIN: I understand what you say. We have not even completed a full quarter. We are coming to a close on the first quarter, but it's very hard to assess at this time since it is part of our assessment to see if we -- if LPIF should be reverted back to 1 percent of its revenue.

8364   I appreciate your comment and I think surely it is legitimate.

8365   In your submission you have identified two factors that are most responsible for audience fragmentation of the conventional television. The first is the increase in specialty and pay services and the second being the ability of the programming of OTA, as well as specialty and pay services on their own websites.

8366   Does BDU have any responsibility also in this matter?

8367   Without BDUs more than likely there will be no specialty or pay services, yet you seem to take that position that all the difficulties that the broadcasting industries are facing are of their own will.

8368   Now, if there had been no BDUs, if the technology has not brought BDUs to -- it will be like we were in the early '50s and obviously the over the air operators would not more than likely be facing the type of financial crisis that they have been facing lately due to fragmentation.

8369   Fragmentation is caused by the existence of the BDU which, through technology, had allowed for more spectrum and more -- with broadband to operate websites and to allow pay and specialty services.

8370   Would you agree with me?

8371   MR. PEIRCE: Yes, I would agree, Commissioner. I think what that points to -- and, as you say, we are not going to revisit days of my youth in the last century.

8372   COMMISSIONER ARPIN: No, no, absolutely.

8373   MR. PEIRCE: You know, we are moving forward.

8374   COMMISSIONER ARPIN: But then it means that BDUs have some responsibilities.

8375   MR. PEIRCE: Certainly, but what we are saying is that with that fragmentation that is now a reality and presumably has a lot of good associated with it as well, it underscores the fact that sort of a blunt edged tool of a supply driven approach to Canadian programming is doomed to failure, in our view. We need to figure out a way to make Canadian, and in this case local content, more appealing to Canadian consumers because they are going to have more and more choice.

8376   But to your point, absolutely there is responsibility on both sides. All we are saying is that continuing to subsidize the pure supply has demonstrated itself as something that is not going to work.

8377   COMMISSIONER ARPIN: Now, regarding simsub, numerous intervenors have stated that one of the major reasons why the over the air broadcasters are having problems is due to the carriage of the 4+1 U.S. signals, for which the BDUs have been providing simsub. And I guess that MTS is also making similar.

8378   But then there is the old -- this was the old discussion about distant signals, both Canadian and foreign distant signals, where there seems to be no simsub done or no program deletion.

8379   Are you carrying any distant signals?

8380   MR. McLAREN: Which?

8381   COMMISSIONER ARPIN: Both Canadian and U.S.?

8382   MR. McLAREN: Yes. We have two packages that we call time shift packages --

8383   COMMISSIONER ARPIN: Yes.

8384   MR. McLAREN: One of them is from the west and one of them is from the east. Our west package also has a second 4+1 set of signals in it as well.

8385   Just to clarify -- I'm not sure I understood you correctly -- on those signals we are doing simultaneous substitution. We are not doing non-simultaneous substitution, but we are compensating for that.

8386   COMMISSIONER ARPIN: You are doing simultaneous substitution on simultaneous programming, but from the feed coming from the east or from the west you are not doing -- as you just said, you don't do deletion either. You compensate through a CAB fund.

8387   However, the broadcasters are -- some broadcasters are arguing that that money helps but it's not the ultimate answer that they are looking for.

8388   What will be the problem for an organization like yours to do non-simultaneous substitution?

8389   MR. McLAREN: Two responses, if I may.

8390   The agreement that we have through the CAB has expired and it is continuing on a month by month basis. I think it's fair to say that all of us, certainly on our side, have entered into agreements from time to time that we are not happy with.

8391   But that was a fair negotiation. They put on the table what they were asking for and we paid it. We didn't try to even bring the price down. We are paying them exactly what they asked for.

8392   The challenge that we have with non-simultaneous substitution is logistics. I can give you one example -- there are many, but I can give you one example.

8393   This morning -- I'm sorry, there is a program. Which one?

8394   MS CROWE: Ellen DeGeneres.

8395   MR. McLAREN: Ellen, yes. Thank you.

8396   This morning in Winnipeg on CBS at 9 o'clock ran the Ellen DeGeneres Show. That same episode is going to run tonight at 5 o'clock on CTV. For us to be able to do a non-simultaneous substitution at 9 o'clock this morning, we have to have a copy of that show in our library -- assuming we had a library, but in our servers, so that we could take the program and put it onto CBS, or onto the channel that we use for CBS, so that our customers would then see the CTV version.

8397   Currently, anyway, that program is not available to us until eight hours later. Now, there may be logistical ways to work through that, you know, we're not sure, but it's one example of some of the enormous complexities we would have. Others have brought this forward, just the sheer volume of storage space and administration required, we could have to do potentially hundreds of nonsimultaneous substitutions over the course of a week. Actually, I think it would be closer into the thousands.

8398   COMMISSIONER ARPIN: But if you were required to delete -- if you had been asked to black out that program, that CBS programming this morning, would it have been possible to do?

8399   MR. McLAREN: Blackouts are possible, yes. Then we are having to deal with the customer aggravation obviously, but blackouts are certainly possible. We do those today for specialty networks where a U.S. programmer is carrying the signal and a Canadian specialty has the rights.

8400   COMMISSIONER ARPIN: And what kind of reaction do you have from customers?

8401   MR. McLAREN: It's generally not bad, but the reason typically is because the programs are live and so they are available on the Canadian service at the same time.

8402   We don't do simultaneous substitution on the specialties, but we will do blackouts.

8403   COMMISSIONER ARPIN: But if you were allowed to do simultaneous substitutions on specialty services, would you be able to do it, technically?

8404   MR. McLAREN: Technically we could do it, yes.

8405   COMMISSIONER ARPIN: Because it won't need much more space on your servers to do that, because you will take -- you will be taking the feed from the specialty service and putting it on the U.S. channel.

8406   MR. McLAREN: Yes. For simultaneous substitution there is no server space required; it's an electronic switch.

8407   COMMISSIONER ARPIN: It's an electronic.

8408   MR. McLAREN: Right. The issue with simultaneous substitution from our standpoint is the customer concern.

8409   COMMISSIONER ARPIN: You have expressed a concern that if a value for service regime was to be implemented, you could end up paying higher rates under a negotiated fee approach. We listened also this morning to the CCSA making the same type of argument and we also heard Bragg Communications last week.

8410   What safeguards will smaller BDUs propose to establish in order to keep the compensation at a level similar to the larger BDUs?

8411   Could the CRTC make some rules and which should be these rules?

8412   MR. PEIRCE: well, I think if we unfortunately found ourselves in that type of world, since we have real doubts about the utility of any negotiation, that really a mandated or a more tariffed approach is probably one that would be more livable for a party our size.

8413   The problem with our negotiating leverage, especially in the market where we are, where of course you also have a larger BDU that is negotiating with the same players, is that we get swept up into that maw, if you will.

8414   I know there was an example posed by the previous panel about Sportsnet, which is something that we recently encountered as well in terms of where as time goes on a broadcaster is saying well, this is the approach we are taking with all of our larger BDUs. We are calculating our value based on, you know, your overall number of subscribers. We aren't particularly interested in what percentage of your subscribers actually take our service, and this is what we are going to be imposing.

8415   At the end of the day there is very little way around that for us. And our services, the cost of our services can quickly escalate by tens of percent very quickly.

8416   And as well, I think you know in a sort of free range of negotiation you are going to have things like most favoured nation clauses that arise for larger BDUs where effectively smaller regional providers will -- not commenting on what leverage the larger BDUs think they have, but in terms of smaller BDUs any real leverage at that negotiation is going to be little.

8417   So to our mind the regulator would have to be involved in some fashion or other to keep costs relatively under control, and the most direct way would be through a mandated fee.

8418   COMMISSIONER ARPIN: So are you of the view that the proposal that the Commission made regarding the baseball type of arbitration will suffice, or are you telling me that it will be a much bigger involvement by the Commission?

8419   MR. PEIRCE: I think there are problems with an arbitration approach, depending upon the transparency in the process. I know we were one who recommended a baseball arbitration like approach to the mandated negotiation process for roaming in the new wireless world post the AWS auction. We are discovering now that there are ways that that process can be delayed pretty significantly as well.

8420   So if you are utilizing an arbitration approach, it is actually going to build a body of evidence. Where the negotiation becomes more predictable for all parties, then that type of approach with teeth could well lead to a world where you don't need to use the arbitration nearly so often because, you know, the values have become described.

8421   To the extent that those sessions are confidential or that the results are not transparent to others in the industry, then they have limited value in terms of establishing, you know, any sort of predictable environment for players who have not been party to that particular negotiation. If you have one party who has been and the other party who hasn't, then the difficulties of that type of process can escalate even further.

8422   COMMISSIONER ARPIN: Now, in your oral presentation this morning you say -- it's towards the end of your oral presentation where you were dealing with the spectrum issues and the necessity of vacating the spectrum.

8423   Do you agree that vacating spectrum is mainly for channels 52 to 69, not necessarily all the television spectrums?

8424   MS CROWE: I believe that's right, subject to check, but it's the 700 MHz spectrum.

8425   COMMISSIONER ARPIN: Yes. So that's channels 52 to 69 of the VHF band.

8426   MS CROWE: Right.

8427   COMMISSIONER ARPIN: There are no broadcasters in Manitoba on any of these frequencies, so is it an issue for MTS?

8428   MS CROWE: Yes. I think we are concerned about the availability of spectrum across the country. And part of the problem is creating a patchwork of spectrum availability. It makes it a lot less valuable to, you know, potential wireless providers and ultimately to customers.

8429   COMMISSIONER ARPIN: Have you had the opportunity to check the list that we made public at the beginning of the hearing? If not, there are copies at the Secretary.

8430   If you have any comments to make regarding that list, could you do that for December the 14th?

8431   MS CROWE: Absolutely.

8432   COMMISSIONER ARPIN: Because there are some issues in British Columbia, Alberta, Ontario, Québec and Nova Scotia. We have put a list of these.

8433   All the Winnipeg stations are committed to moving to digital and, from what I have been able to recall, the five over the air broadcasters -- that are CBC, Radio-Canada, CTV, Canwest and City -- have committed to move towards HD on over the air by August 31, 2011. But nobody has said that they will do their retransmitter by that time.

8434   Outside Winnipeg, you are saying you are covering the territories of Portage la Prairie and a few -- Brandon and Portage la Prairie.

8435   In those areas if there is no over the air signal available, is it your plan to offer a small package to the non-cable subscribers that will be totally out of television service? A bit à la freesat, but à la free cable, I would say.

8436   MR. PEIRCE: À la freesat, yes. We support that proposal that was put forward by Bell.

8437   COMMISSIONER ARPIN: But will MTS have a plan to offer to local subscribers or you will let it only to the satellite operators?

8438   MR. PEIRCE: No, we would be prepared to offer a service to local MTS subscribers that are not TV subscribers.

8439   COMMISSIONER ARPIN: Free or for a fee?

8440   MR. PEIRCE: I think it would require a set-top box that we typically rent for three dollars a month. But I guess we would have to figure that out depending upon what the CRTC decided.

8441   COMMISSIONER ARPIN: Okay.

8442   Well, Mr. Chairman, those were my questions.

8443   THE CHAIRPERSON: On this last point, you are actually in an ideal position because I presume every person in Manitoba is an MTS customer. So basically so you could actually reach the people who would no longer get OTA signal.

8444   MR. PEIRCE: You are right, Mr. Chairman, we would have significant reach. You know, we are discovering through the government's broadband program that there are -- to what extent you can get unserved and underserved, but you are right, we have obviously the best reach in the province.

8445   THE CHAIRPERSON: So in your reply for December 14th maybe you could outline what kind of program you would implement if those retransmitters don't get converted.

8446   MS CROWE: Right, we can do that.

8447   I would also mention, though, we would only be able to provide that package I think where we have -- where our licence, our broadcasting licence extends. So right now we are Winnipeg and surrounding areas and Brandon, but not beyond that.

8448   THE CHAIRPERSON: Len, you have some questions?

8449   COMMISSIONER KATZ: Thank you, Mr. Chairman.

8450   Good morning or, more appropriate, good afternoon.

8451   Again MTS breaks the mould with novel and different views. You are the first BDU to come in here and say a new business model is required. What we heard from other BDUs last week was that the current business model is fine, give it a chance, advertising revenue will come back, everything is fine.

8452   You basically recognized, from your view anyways, that the model needs to be updated and reflect the new paradigm, and that is customer control which you have talked about here as well.

8453   You said it in a couple of places.

8454   You then say the new model needs to be linked to customer viewing. It's on page 4.

8455   Then you make an argument there.

8456   As I get to page 6 of your submission this morning you basically say there is a need to emphasize the importance of demand rather than the current incentives that exist for supply.

8457   I think that is a very novel and interesting observation and one that I want to pick on, because you then say in that next paragraph:

"There are a number of ways this could be approached. For example, Canadian content exhibition requirements could be substituted by Canadian priority programming expenditure requirements."

8458   To me that is still not based on viewership. They are still supply driven, not demand driven.

8459   So I'm trying to understand how we can get to the model that you are proposing, which is how do you get people to watch something? You can get people to know that it's there, but you can't force them to physically watch it.

8460   And one of the dilemmas that we face is, we're putting money into the system hopefully to improve the quality in order to get people to watch it, but it's still all supply driven rather than demand driven.

8461   So, I guess it begs the question, your suggestion here is still demand driven from my perspective, unless I'm missing something here. You're narrowing it down to priority programming which is the latter hours when people are watching TV in the evenings from 7:00 to 11:00 or whatever those times are and forcing that.

8462   But, aside from that, is there anything that we can all look at collectively to measure and to incent demand rather than promoting supply?

8463   MS CROWE: Well, you're absolutely right that we think that any solution that there is out there is going to have to focus on the demand and what customers want to watch.

8464   And right now there's a whole lot of money that's spent in the system and we think, you know, not that we have all the answers yet, but you need to focus on how to make better use of the money that is there.

8465   Right now there's exhibition requirements, certain number of hours per week for the conventional local over-the-air broadcasters but, you know, they can fill up that time with low-cost programming if they decide to go that way and it doesn't necessarily produce programming that Canadians want to watch.

8466   So, that's what we were talking about, about you know maybe expenditure requirements instead are a better way to go.

8467   But ways of actually tying it to viewer demand, you know, one possibility would be a system where you do have a certain number of hours per week that have to contain Canadian programming, but if you have better viewership numbers for that programming for the previous year, then the number of hours in the next year where you have to have the local or Canadian programming would be reduced, focussing in more and more on the Canadian -- or local programming that people are actually wanting to watch and focussing the spend on those programmings.

8468   We could try and think of other ways of doing it.

8469   COMMISSIONER KATZ: It's more than just local.

8470   MS CROWE: Right.

8471   COMMISSIONER KATZ: I mean, hopefully with quality drama and quality non-drama even people will watch it if it's good enough.

8472   Sure we're inundated with promotions from the U.S. and people want to watch the "CSI"s and the "House" and whatever else as well, but clearly they also want to watch good Canadian programming as well because it measures up and we're now seeing Canadian programming sold into the U.S. as well.

8473   So, the question is, how do you do that and is there a need to continue to promote forcing hours of viewership as opposed to just absolute dollars, and from some people's perspective saying you can spend an awful lot of money on one or two good programs rather than spending that same amount of money distributed over a number of programs which may in fact dilute the quality and then it's only a question of how much money do you have to put into the system.

8474   But that's another way of looking at it as well. Forcing hours and forcing dollars basically dilutes both of them, I would tend to think.

8475   MS CROWE: Yeah, and we agree with that.

8476   COMMISSIONER KATZ: Okay. Well, anything you can do to sort of flesh that out in your final submission with regard to driving demand and how we can help that would certainly be welcome.

8477   Those are my questions.

8478   THE CHAIRPERSON: Candice?

8479   COMMISSIONER MOLNAR: Thank you.

8480   I wanted to just talk to you folks a bit about your VOD platform. You know, you have, I'm aware, a very rich and varied VOD platform with local and regional programming subscription and transactional VOD and you've had it for quite some time.

8481   And, so, I'm trying to understand through these hearings really how VOD fits and how much it's a threat to conventional broadcasters and how much it's an opportunity.

8482   So, my first question, just as clarification on the discussion you had on the Freesat, the MTS Freesat offer, would you see giving folks who are given this Freesat opportunity also access to VOD?

8483   MR. McLAREN: We hadn't contemplated that.

8484   COMMISSIONER MOLNAR: Oh.

8485   MR. McLAREN: Doesn't mean we wouldn't.

8486   COMMISSIONER MOLNAR: M'hmm.

8487   MR. McLAREN: There are existing rules today that require us to provide I think -- I think require us to provide the VOD service to everyone.

8488   We're going to have to take that away, sorry.

8489   COMMISSIONER MOLNAR: Fair enough. If you hadn't contemplated it, you know, that's my answer I suppose.

8490   MR. McLAREN: We were looking at it strictly from the over-the-air service. How do we maintain the over-the air service or the programming on the over-the-air service for consumers if it goes away.

8491   COMMISSIONER MOLNAR: M'hmm. Have you looked at VOD -- I asked a question earlier this morning to the independent producers from Manitoba and the prairie region about whether VOD is a platform that provides them commercial opportunities to get their local or regional productions, you know, into the communities they serve.

8492   You must have some sort of a strategy for your VOD and your local VOD licence. Do you see that VOD can serve as an alternative means to conventional broadcasting to get local stories into local communities?

8493   MR. McLAREN: Yes. We do have a strategy for our local programming. We're rolling it out kind of in a phased approach, we can't do it all at once, there's a question of resources and, you know, it's walking before you can run.

8494   Not unlike when community channels first started in the 70s, you know, they built over time.

8495   What we're finding right now very interesting, we've had some of our programming produced by people who do this for a living, so we haven't done much in the way of going out and looking for programming saying, this is a program that we would like to produce and then going and getting it commissioned. We've gone more with the public access model and said, we have a platform and we have production funds available, bring us your ideas and we'll see what we can do about helping you to get these things produced.

8496   And we've had some interest from the local production community on two levels. One is to get local stories told. And we are intensely local, if it doesn't -- if it plays well outside our market we're likely not going to produce it.

8497   But they'll come to us and say, I'd like to get this story produced, I'm going to shoot extra footage and expand on it later and potentially try and sell the concept to a national network, a specialty or a conventional.

8498   So, they're looking at us as being an opportunity to get local stories told and potentially also to find a way into getting broader exposure and access to bigger networks.

8499   COMMISSIONER MOLNAR: Just a very quick question.

8500   Once you've encrypted it for your VOD, can it be transferred to other VOD at no cost?

8501   MR. McLAREN: Only if the other VOD service is using the same technical format as us.

8502   COMMISSIONER MOLNAR: Okay.

8503   MR. McLAREN: I guess one of the things --

8504   COMMISSIONER MOLNAR: That's enough. Yeah, thank you.

8505   MR. McLAREN: Okay.

8506   COMMISSIONER MOLNAR: And one last question. VOD as a means to address the signal integrity issues such as distant signals and so on, have you considered that, have you considered using your VOD platform instead of time shifting local channels or, you know, the distant channels?

8507   MR. McLAREN: We've certainly been watching the industry. The big players have been talking about that and, so, it's caused us to have to look at it because, you know, as go Rogers and Shaw, pretty much so goes the industry and if they're able to migrate off the distant signals potentially they will evaporate, they will disappear.

8508   The challenge that we've got is that if you're going to build a library of five or six or 7,000 titles, both Rogers and Shaw say they have over 5,000 titles now, you need a certain infrastructure to be able to do that, you need a certain amount of file space but, more importantly, you need sheer volume and staff.

8509   And when you can spread that cost over -- currently they both got over a million digital subscribers, you know, they work out what their business case is for that.

8510   Those exact same costs apply to us. If you need 20 people to do the job, we need 20 people to do the job and we're trying to spread that cost over 85,000 customers today.

8511   And our challenge is so far at least the numbers aren't working.

8512   COMMISSIONER MOLNAR: Thank you. Those are my questions.

8513   THE CHAIRPERSON: Thank you.

8514   Suzanne?

8515   CONSEILLÈRE LAMARRE : Merci, Monsieur le Président.

8516   First off a clarification question. In your presentation this morning on page 3 and 4 you talk about the viewership of Canadian programming in the -- no, from the private English language OTA services.

8517   Now, on page 2 you make statements about revenues of conventional OTAs. Is that also the English conventional OTAs only, or is it amalgamated with the French OTAs?

8518   MS CROWE: That's English only.

8519   COMMISSIONER LAMARRE: Okay. Thank you.

8520   Now, on page 5 of your presentation this morning you do refer to the potential of having a system where values for signal is negotiated as being equivalent to additional funding of the system.

8521   Now, there's at least one BDU, Videotron who's not talking about the issue of value of signal as funding but, rather, as a need to re-balance the revenues.

8522   Also there's a number of conventional broadcasters from both the English and French markets who argue that now specialty services are well established in the system, it's time that conventional broadcasters access the same revenue streams and, in this case, be paid a fair value for the signal the same way specialty services are.

8523   So, what's your reply to these stakeholders who present to us what they see as an unequitable situation in the system right now?

8524   MR. PEIRCE: I guess that, Madam Commissioner, that the equation around conventional signals and conventional television and the relationship between providers of that content and those signals and the BDUs themselves have is a different one than has existed with respect to specialty services and just relate to more or less the preferential treatment of OTA broadcasting in relation to distribution and that initial equation I was referencing earlier in terms of the value brought to delivering an over-the-air signal via a BDU.

8525   To your point, and I think as we make the point in our comments, clearly a number of the broadcasters have decided to treat from their own perspective conventional television more like a specialty service in terms of how they are approaching it in terms of local content and their role in those local communities.

8526   That implies a broader change if that's what's to befall conventional television. It's just it's not been the bargain, if you will, between BDUs and broadcasters up to this point in time.

8527   COMMISSIONER LAMARRE: Thank you.

8528   Merci, Monsieur le Président.

8529   THE CHAIRPERSON: Tim, last question.

8530   COMMISSIONER DENTON: I wish to echo what my colleague, Mr. Katz, says. You paint a pretty damning portrait of the success of our efforts to subsidize Canadian television.

8531   In your pages you point out the 10s and indeed hundreds of millions of dollars we're spending to produce viewership levels of 35 percent of total viewing, and your report shows this pretty clearly.

8532   And well it's -- you know, if you shouted it louder it would have been -- might have hit the news, but it's a very interesting presentation.

8533   So, my question for you, Mr. Peirce, and the panel you have before you is, when you make the radical suggestion that at least some element of this new model needs to be linked to customer viewing, how do we make this operational?

8534   MR. PEIRCE: Well, and we thought there was enough shouting going on before this and, again, as you know, we shout about other things, so...

8535   And we wouldn't -- you know, clearly a player of our size wouldn't presume to have all of the answers nor, I think to be fair, wouldn't damn one particular party as we generally in this industry have tried to encourage Canadian -- you know, Canadians to watch Canadian shows, if you will.

8536   So, we all have a role to play.

8537   But I think to the comments of Commissioner Katz, there are successes. You know, there are places where clearly Canadian production is attracting viewers both in Canada and beyond, so...

8538   But we've not been -- I think from our perspective we would say we've not been focussed on that conversation with all parties believing that was the conversation to see if we could drive the solutions. We have been sort of stuck in this rut for a while now of, that's a bit been defined by some of the players, about what's required and the what's required is more money from a part of the industry that's perceived by some to be more profitable than others.

8539   And that's just never going to be a healthy conversation because the market's going to change the dynamics between those players from time to time and we'll just find ourselves continually having that conversation with one party or the other complaining that the pie isn't being cut appropriately.

8540   So, I think it behooves that a different conversation for all concerned, but where we can agree that that's the goal and if we're focused on that goal, that there should be ways home, if you will.

8541   COMMISSIONER DENTON: So, what you're seeking is to brooch a new form of discussion without necessarily presenting exactly what the outcome of that discussion is going to be?

8542   MR. PEIRCE: I think beyond, you know, beyond the broad parameters that we think the mere -- not the mere, but the setting of a hurdle that's solely based on filling time isn't an approach that's working and if we look even at the tea leaves of what we have currently, that it seems like the discretionary service approach with an expenditure-based approach maybe is yielding some better results than the other purely supply driven approach.

8543   And with two -- you know, $2-billion is a lot of money and we should be able to deliver some value in terms of goals related to Canadian viewership with that as well.

8544   COMMISSIONER DENTON: So noted. Thank you very much.

8545   THE CHAIRPERSON: Okay. Thank you very much. Those are our questions for you. We look forward to your additional replies.

8546   We'll now break until 1:30.

8547   Thank you.

--- Upon recessing at 1232

--- Upon resuming at 1334

8548   LE PRÉSIDENT : O.K., Madame la Secrétaire, commençons.

8549   THE SECRETARY: Thank you, Mr. Chairman.

8550   I would now invite the Documentary Organization of Canada who is appearing via video conference from our Toronto Regional Office to make its presentation.

8551   Please introduce yourself and proceed with your 10-minute presentation.

8552   Thank you.

PRESENTATION

8553   MR. McMASTER: My name is Cameron McMaster and I am the Policy Research Coordinator of the Documentary Organization of Canada, l'association des Documentaristes du Canada.

8554   Chairman, Commissioners, thank you for the opportunity to present before you today.

8555   DOC supports the promotion and the development of the art of documentary film making and speaks on behalf of the Canadian independent documentarians.

8556   It champions the positions of its members in order to create an environment that is conducive to documentary production with the aim of re-enforcing the sector to the benefit of the entire Canadian film and television industry.

8557   DOC represents directors, producers and artisans working in an under represented and under financed form of programming in conventional broadcasting.

8558   As our past submissions already demonstrate, documentary exhibition and expenditure are declining on the conventional stations.

8559   However, we believe that the proposed regulations on mandatory Canadian programming expenditures, the creation of the programming of national interest system and maintaining independent programming exhibition regulations will reverse this decline.

8560   Today we'll respond to some industry developments, comment on the importance of the PNI system, CPE and group-based licensing and, finally, draw attention to some specific documentary regulatory concerns.

8561   Over the last year the entire broadcasting industry has been affected by the recession and documentarians are no exception. At the same time the documentary community face an even greater blow. The end of documentary commissioning on the private conventional channels for the fall of 2009, combined with the disappearance of flagship documentary windows on the public broadcaster.

8562   All of the major private conventional television stations have either shuttered their documentary commissioning units or suspended the commissioning of any documentaries. Indeed, the conventional broadcasting world is bleak for documentary production.

8563   Last year there was a decrease in documentary production on all television from $481-million in 2007 to $424-million in 2008. The number of documentary hours being produced continues to decrease, from 2,894 hours in 2007 to 1,896 hours in 2008.

8564   As for the demand of Canadian documentaries, 16.74-million hours were watched between 2007-2008 which is flat from the previous year.

8565   For conventional stations there has been a decrease of Canadian documentaries viewed from 2.22-million in 2006-2007 to 1.94-million 2007-2008, a figure which is indicative of a decreasing commissioning rather than a lack of public interest.

8566   There has been an increase in Canadian documentaries on specialty and pay services. In 2006-2007, 11.85-million hours of documentaries were watched, in 2007-2008 that increased to 12.17-million hours watched.

8567   The numbers bear out the following conclusion. Despite the drop in commissioning and decrease in documentary exhibition on television, Canadians continue to watch Canadian documentaries.

8568   The demand is growing and the viewership is stable.

8569   Alongside television, there's been an increasing demand for documentaries off screen, Canada's three major documentary film festivals, Rencontres internationales du documentaire de Montréal, Hot Docs and the Global Vision Film Festival.

8570   There is also a growing number of smaller documentary film festivals appearing across the country such as Movies of Uncommon Knowledge with some themed festivals primarily screening documentaries, for example, Planet in Focus.

8571   According to film festival box office statistics, documentaries remain an audience favourite. In addition, festival audience of Hot Dogs and the Vancouver International Film Festival, for example, continue to increase.

8572   For consumers, festivals are an expensive proposition with ticket prices sometimes more expensive than theatrical features, but the numbers show that Canadians are attending film festivals to see documentaries.

8573   It is our position that in the absence of documentaries being aired on television, the Canadian public is prepared to pay the cost of festival tickets for the content they want.

8574   It, therefore, puzzles us that broadcasters would halt commissioning documentaries on conventional stations when there's an increasing or constant demand for documentaries on and off the air.

8575   In our submission we express our support for a group-based licensing system. We have seen in the past that programs are often cross-licensed over a group and it only makes sense that programming expenditures should be shared across corporate groups.

8576   We have proposed floors and averages for each element of the corporate group, allowing costs to be indexed to the growth and prosperity of a group that will also serve as safeguards.

8577   Although many of the large corporate broadcasters have different compositions and holdings, we think that our proposed model provides enough flexibility as well as guidelines to allow the broadcasters to create adaptable programming strategies that help under represented programming.

8578   DOC appreciates that the Commission has decided to replace the priority programming regime with a new one, programming of national interest. Although DOC welcomes the change, we urge the Commission to create a system that actually promotes under represented programming.

8579   In order for programming of national interest to properly support under represented programming, DOC argues that the Commission should implement expenditure requirements for the programming of national interest system. The expenditure requirements serve as a means to keep over spending on foreign programming in check. Priority programming was based solely on exhibition requirements and it failed to live up to its targets. It makes no sense to repeat the same mistake.

8580   In addition, if the focus of the PNI system is to support and maintain under represented programming of private conventional stations, the programming supported by the system must be those that are truly under represented; namely, children's and youth programming, documentaries, drama and variety and performing arts.

8581   If entertainment magazine programs are to be included, they should actually support the Canadian star system and only showcase Canadians.

8582   We urge the Commission to not expand the scope of the programs but limit it to those that actually require regulatory aid.

8583   If we as a country are going to demonstrate a commitment to maintain the diversity of voices in Canadian programming while making maximum use of Canada's creative community, it is important to ensure that 75 percent of the programs of national interest be created by independent producers as was the case with the priority programming regime.

8584   With the impending changes related to the implementation of the Canadian Media Fund, there is a strong pressure to diminish the role of independent production community which could undo years of capacity building in the sector.

8585   With the proposed changes to this Canadian Media Fund, it is clear that the programming environment may evolve into one where independent production would have a continually diminishing presence.

8586   Unlike other under represented genres, documentary production could easily be usurped by in-house production.

8587   It is DOC's view that the changes in the production landscape in the last 10 years have played to the broadcasters' advantage when commissioning works. DOC believes that in order to re-establish some equilibrium, terms of trade should be in place before the Commission considers renewing any broadcasting licences in the future.

8588   As for Canadian programming expenditures, it is our belief that they should be spent on actual programming and not the infrastructure that allows for programs to be delivered, such as new media infrastructure.

8589   The Commission should only allow for Canadian programming expenditures to apply to programming, otherwise many other expenses will be made in the name of the support of Canadian programming; for instance, digital transition.

8590   It is DOC's view that in exchange for the privilege of being a national broadcaster there are national obligations; namely, that of providing national programming.

8591   The debates around value for signal and local programming have squeezed national programming out of the discussion, which we believe is a way of avoiding the most contentious issue at hand, the commitment of the conventional broadcaster's need to have national programming.

8592   On the subject of non-simultaneous substitution, although DOC welcomes renewed integrity for Canadian signals, we are cautious about the implementation of such a system. It may result in more foreign programming on conventional stations rather than putting Canadian programming centre stage.

8593   The introduction of non-simultaneous substitution does not guarantee that Canadian programming will benefit. If such a system were to be implemented, we urge the Commission to regulate it in the interest of under represented programming.

8594   As for regional programming, Canadian documentaries, especially one-offs and point of views reflect local realities from across the country, independent documentary film makers explore in depth the issues that face their regions, however, the broadcasters year after year decrease the commissioning of regional documentaries and now they want to decrease the level of independent production, including independent regional productions and replace it with more self-produced local programming not of the documentary genre.

8595   We want to see the regulation of under represented programming done right and, in order to do that, the effects of the new regulation must be measurable. For DOC that means seeing exhibition expenditure on independent documentaries.

8596   Presently it is very difficult to track and monitor the state of documentary production because of the aggregation of categories 2 to 5 and in this application of the documentary definition to other programs.

8597   The result of these misapplications distort the current production conditions and paint a rosier picture than what is actually currently taking place.

8598   We ask the Commission to reconsider its decision to aggregate 2B with categories 2 to 5 in light of the need for the public to assess the Commission's new regulations.

8599   If the application of the definition is more transparent and vigorous and 2B is disaggregated, it would allow for better public scrutiny and assessment to the new regulations for the promotion of under represented Canadian programming because clear and reliable expenditure of exhibition statistics would be generated.

8600   DOC has come up with a number of solutions on how the Commission could approach solving this problem and we are happy to engage in this dialogue at a later date.

8601   In conclusion, DOC finds it regretful that larger issues of substance have been lost over the course of this hearing.

8602   We would like to re-articulate the position underlying our policy recommendations.

8603   The Commission must create conditions of licence where all broadcasters, whether they be conventional or specialty, private or public to spend money on independent under represented programming.

8604   Without specific conditions of licence, the progressive decrease of independent children's and youth programming, drama, variety and performing arts and documentaries on conventional channels will continue.

8605   We welcome any questions on our submission and today's presentation.

8606   Thank you.

8607   THE CHAIRPERSON: Thank you very much, Mr. McMaster.

8608   You say:

"It puzzles us that the broadcasters would halt commissioning documentaries on the conventional stations when there is an increasing or constant demand for documentaries on and off the air."

8609   Surely the fact that you stated here about festivals and the general attractiveness of documentaries can't be foreign to the broadcasters, so how do you explain this phenomenon? There seems to be an obvious, well-demonstrated public demand; on the other hand, the broadcasters don't meet it.

8610   MR. McMASTER: To the best of our understanding, the lack of commissioning of documentaries by the broadcasters has to do with their evaluation of the programming itself, where they seem to think that it is not worth the advertising dollars that they would lose in their prime time real estate.

8611   However, we have found, through some of our own research, that it is not just an empty hole that you are throwing money into. Global Currents is $2,000 a minute, and that is about 12 minutes an hour, and, give or take, there might be 42 to 46 weeks of this being broadcast. That is about $1 million revenue generation.

8612   There is an idea that there are not sufficient returns on advertising, so they don't commission as much, but we believe that there is the potential for them to garner advertising revenues from documentaries.

8613   THE CHAIRPERSON: Is this a question of belief or is this a question of lack of proof?

8614   MR. McMASTER: I believe, for the most part. We have yet to do sufficient research into the advertising, but presently, given that there are not that many conventional broadcasters actually commissioning and exhibiting documentary programs this year, it would be difficult to tell the difference between how much advertising revenue they have this year, given that there isn't any actual -- that they are not trying to commission any, and last year. So it would be difficult to say whether or not the recession had an impact on this.

8615   But if we were to look at the following years, we would probably be able to demonstrate some proof that there is a correlation between the belief in the advertisement and the lack of proof.

8616   THE CHAIRPERSON: Okay, thank you.

8617   Tim, over to you.

8618   COMMISSIONER DENTON: Good afternoon. Mr. McMaster, I have a bunch of questions related to your presentation, the purpose of which is, essentially, to unpack for this particular Commissioner what you are saying, so I can understand it better.

8619   And nothing is implied by it, other than curiosity to get at what you mean.

8620   At the beginning, in the bottom paragraph on your first page, you give a figure that --

"For conventional stations, there has been a decrease of Canadian documentaries viewed from 2.22 million in 2006 to 1.94 million in 2007, a figure which is indicative of a decrease in commissioning, rather than a lack of public interest."

8621   Can you explain the derivation of this thought, please?

8622   MR. McMASTER: From what we showed in that paragraph about how many hours are decreasing, the 2,894 to 1,896, we believe that most of those hours that were no longer commissioned could have primarily been on the conventional networks.

8623   So there isn't a lack of public interest, but there is a lack of actual exhibition.

8624   We are seeing that, with the mere drop of 1,000 hours of documentaries within these two years, we believe that the decrease of commissioning is not based on that there isn't public interest, it is just that there weren't enough documentaries --

8625   COMMISSIONER DENTON: And to support this, you say in the last sentence of that paragraph that, in 2006-07, 11.85 million hours were watched, versus a year later, when 12.17 million hours were watched.

8626   So you note an increase of watching, but a decrease of commissioning.

8627   Is that correct?

8628   MR. McMASTER: Yes, there is an increase in watching and a decrease in commissioning, and the decrease we have is across the board.

8629   But from our experience and what we have highlighted in the first paragraph of the presentation, in regards to the shuttering and lack of commissioning, we believe that this decrease is primarily on the conventional networks.

8630   COMMISSIONER DENTON: Thank you.

8631   Now, you seem to speak in terms of expenditure requirements, and one of the points made by the previous people, MTS Allstream, was the notion that our existing broadcasting regulatory system seems to be driven by statistics of supply rather than of demand, namely, that we encourage production through many billions of dollars of expenditure, and yet there doesn't seem to be a link-up between viewership and the dollars expended. That is to say, there doesn't seem to be a reward directly between viewership and what you get out of the system.

8632   I would be interested in your comments on this, because I hear intonations in your presentation that we should, in a sense, regulate supply.

8633   MR. McMASTER: That has definitely been brought up by numerous parties. One could say, is there an overproduction of Canadian programming, but an under-exhibition of it?

8634   If there was going to be a regulation of any supply, we could take the argument of Peter Miller that, if you regulate the oversupply of American programming, you could, in fact, be able to solve some of the financial difficulties. But that is a different point altogether.

8635   What I mean to point to is that the regulation of the supply also allows, therefore, incentives for the broadcasters to try to actually promote everything equally, in such a way that the demand on Canadian stations is always reinforced by the star system of the U.S.

8636   They wouldn't necessarily complain about an oversupply of American programming, the conventional broadcasters. To them, the supply and demand is there.

8637   But when they think of certain other types of programming, especially Canadian programming, they tend to look at it as something that has no demand.

8638   But when it comes to demand, demand is often generated through promotion and the advertising of those programs. So if you had the chance to spend more money promoting Canadian programs, and have them on more often, it would create an increasing flow of demand.

8639   But, historically, the Canadian broadcasting system has had a lot of American programming, where they don't actually have to do too much demand generation, because it has already been done in other media systems that we have access to.

8640   COMMISSIONER DENTON: Noted.

8641   On your second page you speak of the PNI. Could you unpack that? What does that stand for, PNI?

8642   MR. McMASTER: Programming of National Interest.

8643   I'm sorry if it's --

8644   COMMISSIONER DENTON: No, it's okay, it's my ignorance, not yours.

"In order for PNI to properly support underrepresented programming, DOC argues that the Commission should implement expenditure requirements for the PNI system."

8645   Can you go into that for a moment, please?

8646   MR. McMASTER: From what we saw, if we were to compare the two different regimes or systems, that is, the Priority Programming System and the Programming of National Interest system, which would be the future system, one thing that we observed over the last ten years was that the priority programming regime was based primarily on incentives for the broadcasters to show more Canadian programming. So it was based solely on exhibition, and expenditure would just follow along.

8647   But if we think of some of the examples where they are just trying to fill up the schedule with priority programs, we think of examples like Train 48, where we had a show that they didn't spend too much money on -- and I am not criticizing the show because it has low production value at all, I don't believe there is any correlation between the amount of money you are going to be spending on something and whether or not it will be popular.

8648   We saw that the exhibition requirements were easily fulfilled by commissioning fewer and fewer programs, or having something like Train 48.

8649   Our argument about PNI having expenditure requirements is, if you have an allocated budget for the Canadian programming, you will spend money toward actually promoting it, because you want to have value in your system for your programming expenditures. You would want it to do well if you were spending such significant amounts of money on it, rather than putting it at the end of the week, having it on over Christmas, having it in the summer months, when you don't have as many viewers.

8650   COMMISSIONER DENTON: Noted.

8651   Now, in a later portion you use the expression "terms of trade". You say that terms of trade should be in place before the Commission considers renewing any broadcasting licences in the future.

8652   Could you elaborate on what you mean by that concept, please?

8653   MR. McMASTER: Yes, we mean terms of trade agreements between the CFTPA and the broadcasters.

8654   COMMISSIONER DENTON: Say more, please. What would that entail?

8655   MR. McMASTER: What it would entail is -- we are on board with what the CFTPA is putting forward for their terms of trade agreements, namely, we want to see some sort of rates there rather than broad principles.

8656   We feel that if the terms of trade were based on broad principles, especially in a time like the recession and any type of economic hiccup, it could decrease the amount of licence fees and the amount of money that would be going toward programming.

8657   So this is setting a safeguard between the producers -- who often don't have very much bargaining power, given that we are working with very large corporate groups when it comes to the broadcasters. They have specialty channels, they are moving into online portals and the like.

8658   When producers come and negotiate with the broadcasters, it is sort of a Catch-22. You want to have your stuff on the air, but at the same time you want to be properly compensated for it.

8659   So, when it comes to terms of trade, we would like it to be that we are able to start with some minimums, rather than, at least, come in with nothing, as is the case with some media rights, such as new media rights and, often, VOD rights, which are part of some contract negotiations.

8660   COMMISSIONER DENTON: Thank you.

8661   Now, the concept of simultaneous substitution is that the advertising value accrues to the Canadian broadcaster, so that a U.S. showing of a program to which the Canadian owner has rights would then be substituted -- the advertising would then go to the Canadian advertising for the Canadian broadcaster.

8662   I would like you to elaborate a bit on your objections to non-simultaneous substitution. Is it because it creates the wrong incentives or because it would be too burdensome from a regulatory point of view, or simply because it would be just too unpopular with the Canadian viewing public?

8663   MR. McMASTER: I don't think it would be a big problem with the Canadian viewing public, given that, for the most part, people are going to be watching the program on the Canadian network or the American network, and there is simultaneous substitution there, so they are going to be able to switch over into this new system easily. In fact, they probably would even prefer to be able to watch the show earlier on one channel than on another.

8664   Our issue is, basically, when broadcasters buy programming, they often buy sets of programming in case a show becomes cancelled, and if a show becomes cancelled in the States, the network replaces it with a program that is going to go into the following line-up.

8665   But if they have these programs on the shelf that they are not able to use, if there is non-simultaneous substitution, there is no real stopping them from putting it on the air, and thus having more American programming.

8666   CTV brought up the example of Flashpoint, that it is forced into Friday night because CBS puts it on on Friday night.

8667   And, we admit, it would be great to have more signal integrity, so that we would be able to arrange our schedules, so that Canadian programming could have the forefront, or at least be part of some of the most popular days of the week; for instance, Sunday, Monday, Tuesday, Wednesday, Thursday.

8668   But prime time is also described as prime real estate by the broadcasters, and it would make much more sense from their perspective about how much money they garner from advertising to fill those times with even more popular American shows, because they would be able to make much more advertising in those times.

8669   We are afraid that if there is freedom for scheduling changing, there might be more American programming, and that's why we would say that it would be better, if this were going to be implemented, if it had some stipulations about trying to help underrepresented programming, which is often at the end of the week.

8670   From a regulatory perspective, and from a technical perspective -- from a regulatory perspective, I hadn't really thought too much about what would be the big problems that the Commission would face in implementing a non-simultaneous substitution regime.

8671   I have read the Keeble paper, but I haven't fully assessed which of those different systems would be the best one.

8672   I recall Shaw talking about the system of non-sim sub, saying that it is technically very, very difficult. On the other hand, we have other stakeholders saying that it's not particularly difficult, it's just putting it into practice, and that we have rights that -- there are some negotiations between the unions and the guilds in the States that need to be taken into consideration.

8673   Our position on non-simultaneous substitution is, we think it is great for the ability for Canadian broadcasters to have control of their schedules, but we want it to be for the betterment of the Canadian broadcasting system; in particular, helping more underrepresented programming have more prime time slots.

8674   COMMISSIONER DENTON: My next question concerns a fairly cryptic statement on your last page. You say:

"We ask the Commission to reconsider its decision to aggregate 2(b)..."

8675   -- and I find that that is long-form documentary:

"...with Categories 2 to 5, in the light of the need for the public to assess the Commission's new regulations."

8676   Again, could you unpack that bit of regulatory arcana for me?

8677   MR. McMASTER: Okay. I'm sorry if that was not as specific as I wanted it to be.

8678   Basically, just recently, when the CRTC decided that they would not disaggregate 2(b), we in the creative community asked the Commission to allow certain amounts of information from the financial records of the broadcasters to be made known to the public, so that these hearings could go better.

8679   For DOC, we have dealt with Category 2(b) being aggregated with Categories 2 to 5 for the longest time, and when we are looking at how much is being spent on documentaries, we have to somehow separate it with news and analyses, religious programming, and the other programs from 2 to 5. So it is very difficult for us to assess how much is actually being spent on documentaries.

8680   Meanwhile, if there is going to be a system put into practice where there are underrepresented programs having some sort of regulatory incentives, such as Programming of National Interest, it would make sense that we would be able to track these numbers more effectively.

8681   Right now, when we look to see how much is being spent on documentaries, we have to rely on the profile by the CFTPA or we look at the CTF information. But when we turn to the broadcasting monitor -- the Communications Monitoring Report of the CRTC, we are finding that it is aggregated.

8682   And it is the same thing with the returns, they are aggregated as well.

8683   So it is difficult for us to see whether or not there are actually expenditures on documentaries or whether it's news and analyses and news magazines.

8684   It is very bundled together and it makes it very muddled for us to understand what is going on.

8685   At the same time, with the misapplication of the definition of documentaries, often documentary programs are -- some programs are to be considered documentary programs, like news magazine shows, sometimes like So You Think You Can Dance, or other programs of that nature, and perhaps the aggregation of 2(b) into 2 to 5 is just a way of keeping this muddled application of the documentary definition.

8686   I don't want to say that there is any type of intent on anyone's part to do this, but one would help the other. If 2(b) were disaggregated, it would be easier to see what is actually being considered a documentary.

8687   So the one informs the other, and with a new system of regulation for Programming of National Interest, we will be able to see that, yes, documentaries are getting their proper expenditures, and it's not reality programming or lifestyle or a news magazine show --

8688   COMMISSIONER DENTON: I get it.

8689   MR. McMASTER: -- that is being promoted instead.

8690   COMMISSIONER DENTON: I get it.

8691   My last question is really based on the thrust of what you are saying, and it may be unfair, but it has to be asked.

8692   This all seems to be predicated on the CRTC involving itself very deeply in the manipulation of supply by a series of clever regulations to cause to happen what you want to happen.

8693   I come back to what MTS Allstream was saying about some sort of feedback loop between where these subsidy moneys go and what people want to watch.

8694   Is it possible that your presentation assumes the continuation of the CRTC engaging in these forms of output-type regulation in ever greater detail?

8695   MR. McMASTER: That is something that we haven't taken too much into consideration. Unfortunately, I wasn't able to watch the MTS Allstream presentation today, but it is something that we would like to revisit, because if the promotion of Canadian content and the health of the broadcasting system are intertwined, and if we have a system of regulation which is, as you are saying -- or as MTS Allstream is saying, that there is this output versus supply and demand, it would require further analysis as to how is demand actually created within a system where there aren't sufficient amounts of promotion.

8696   COMMISSIONER DENTON: Your premise is that promotion determines everything, but maybe it is the natural attractiveness of the program that determines everything.

8697   Your premise seems to be that if people just went out and propagandized more for a certain classification of programming, there would be more watching of it, and I would think that is a highly arguable proposition to advance.

8698   It may be that some forms of materials are not inherently all that attractive to all that many people, and it seems to me that you are asking us to engage in careful manipulation of that demand.

8699   MR. McMASTER: I do not wholeheartedly think that it is entirely promotion, I am saying that it is a particular factor that, historically, we have seen a lack of marketing Canadian programming to the same extent that American programming is marketed.

8700   That is simply what I am saying, I am not saying that it is entirely promotion. I am not saying that it is propaganda, I am not saying that the viewer, if told to watch something, would watch something.

8701   I am not subscribing to this type of communications system here, I am simply saying, given that we have had such a history of a large amount of American programming, and we don't actually have to promote it as vigorously as Canadian programming, because it is done for us by someone else, that it is a factor, not necessarily the reigning factor.

8702   COMMISSIONER DENTON: Thank you for that qualification, Mr. McMaster. That concludes my questions.

8703   THE CHAIRPERSON: Rita...

8704   COMMISSIONER CUGINI: Thank you.

8705   Mr. McMaster, I have just one question, and it is in the context of your statement in your oral presentation today that:

"It is our position that, in the absence of documentaries being aired on television, the Canadian public is prepared to pay the cost of festival tickets for the content they want."

8706   In that context, is it acceptable to you that documentaries could be made available on a transactional video-on-demand basis; that is, if I want to watch a particular documentary, I can go to an on-demand platform and pay $1.99, $2.99 -- whatever the cost?

8707   Is that a viable alternative for you?

8708   MR. McMASTER: Before that becomes a viable alternative, there needs to be a category on VOD, particularly, for feature film documentaries, because presently there isn't one.

8709   And in my studies of what is on VOD, primarily we have films, but it is moving more into a subscription base for television shows.

8710   We would like to engage more in the VOD world, and we would like to have more documentaries on VOD. In fact, it would be very helpful, because, for the most part, people are moving toward more of a "want to watch when you want to watch it" situation.

8711   So in order for us to take advantage of the VOD system, there needs to be some slight regulatory tweaks; for instance, the creation of a 2(c) category for feature film documentary programming, and the actual commissioning of those programs for VOD.

8712   If the CMF moves in the direction where the television platform can be considered VOD, that might be a future reality. But given that conventional television remains to be the most popular viewing window for the Canadian public, we still would like to have documentaries on the conventional channels and not relegated, simply, to VOD.

8713   If the project merits the public demand -- for instance, if we think of a documentary like "Saving Luna", which was on CBC's The Lens, it had about 500,000 viewers, which was a very good viewing for a documentary.

8714   And it also has agreements with other broadcasters from around the world, like France 2, the BBC, and PBS.

8715   We are seeing that, if allowed -- if on conventional television, there is a demand for people to watch it, and it shouldn't be ghetto -- I don't want to say ghettoized, but it shouldn't be relegated, necessarily, just to VOD.

8716   We would like to take advantage of VOD. We would like to take advantage of these other viewing windows, but we also would like to be compensated at the same time for them, because often VOD rights are negotiated within a larger contract, and given what happens with the Canadian Media Fund and any future terms of trade agreements, it could be favourable for documentaries to enter into the VOD market.

8717   But, to respond to your question as to --

8718   COMMISSIONER CUGINI: Thank you, you gave me a very fulsome answer.

8719   THE CHAIRPERSON: Thank you.

8720   Steve, the last question.

8721   COMMISSIONER SIMPSON: One quick question. Is it customary for documentary producers to co-produce their projects with television networks or broadcasters, and, if so, is that percentage going up or down?

8722   MR. McMASTER: From what we have seen, there are some cases where co-productions are happening.

8723   For instance, if we look at some situations on The Nature of Things, sometimes independent documentary makers are asked to act as co-producers with the CBC in a situation, and there have been some cases where a broadcaster will ask a producer to come and make a project, and then they consider it to be their in-house production, even though it was made by someone else.

8724   So there is an increase, from what we are seeing, of more in-house production, and the co-productions themselves might be a new relationship that is coming with this changing environment.

8725   And if this happens to be what is happening more and more, we would like there, at least, to be fair contracts, if this becomes the situation.

8726   As for the increase or decrease of it, we are doing our best to try to find out how much in-house production of documentaries there is, but bringing it back to the aggregation of 2(b) within 2 to 5, it is very difficult to see whether or not broadcasters are spending money on documentaries or if they are doing lifestyle programming.

8727   If we wanted to track this -- and I agree that it would be a very good thing to track and figure out if this is a change in the broadcasting environment -- we would need to have more transparent information.

8728   COMMISSIONER SIMPSON: Thank you.

8729   THE CHAIRPERSON: Thank you very much, Mr. McMaster, those are our questions for you. We appreciate you appearing via videoconference before us.

8730   Madam Secretary, let's move on to the next group.

8731   THE SECRETARY: Thank you, Mr. Chairman.

8732   I would now invite the Association of Canadian Advertisers to make its presentation.

--- Pause

8733   THE SECRETARY: Please introduce yourself and your colleague. You will have ten minutes for your presentation. Thank you.

PRESENTATION

8734   MR. LUND: Thank you.

8735   Mr. Chairman, Commissioners, Commission Staff, good afternoon. I am Ron Lund, the President and CEO of the Association of Canadian Advertisers. With me today is Bob Reaume, the association's Vice-President of Policy and Research.

8736   We are very pleased to have this opportunity to participate in the Commission's call for comments on the critical issues as they relate to conventional television.

8737   Most of you will have heard this description of our organization before, but for those who have not yet heard it, please permit us a few introductory remarks.

8738   The Association of Canadian Advertisers, or ACA for short, is the only association representing the interests of advertisers in this country. Our members, some 200 companies and divisions, represent a wide range of industries, including manufacturing, retailing, packaged goods, financial services, and communications.

8739   They are the top advertisers in Canada, with sales representing over $350 billion.

8740   Despite the current reduction in ad revenue that conventional broadcasters are experiencing, advertising in Canada is still a significant contributor to the Canadian broadcasting system. In all its forms advertising in 2008 was estimated to be $14.6 billion, a major investment in the Canadian economy. Of this total amount, approximately $3.4 billion was invested in television advertising.

8741   Obviously, advertising continues to play a substantial role in the Canadian broadcasting system, helping to keep the final costs of television to consumers manageable.

8742   It is still advertising dollars that substantially pay for the programs that entertain, inform and educate Canadians and is the essential economic underpinning to our system.

8743   Mr. Chairman, in your opening remarks you stated that this hearing is about the future, not about enshrining or protecting old business models. We couldn't agree more with you that these proceedings should be about the future and, as such, it was fairly disappointing that so much of this hearing's time has been occupied by a single issue.

8744   First, a little perspective, for the first time in history there are structural shifts in spending away from traditional media. In the year ended August 2008 overall media spending increased by 3.8 percent but newspapers was down 2.7 percent and this was their third successive year in decline.

8745   Magazines also registered a decline of 3.7 percent. By comparison, television as a whole experienced a 2.8 percent increase. No doubt the figures from 2009 when they come out will not be even this good.

8746   But juxtapose this to the 29.1 percent increase in investment on online advertising in 2008 and a projected 9 percent increase in 2009 and a real new reality starts to emerge. Online is now the third largest advertising medium with television and newspapers and they are bigger than magazines, outdoor and radio.

8747   In fact, the internet now attracts more ad revenue in Canada each year than the specialty stations.

8748   Providing financial support for the conventional broadcasters is one of the Commission's stated goals for this hearing. Advertisers have and continue to play a significant role in helping to achieve this objective. We would like to focus our comments in this area.

8749   Commissioners, the challenges taking place in Canadian broadcasting do call for new thinking. New and innovative forms of digitally-based advertising do represent a way forward offering new revenue opportunities for all sectors of the Canadian broadcasting system.

8750   As well, these new digital technologies present television advertisers with new market-competitive ways to deliver their messages to consumers.

8751   Bob.

8752   MR. REAUME: It is in this spirit we would like to introduce several suggestions for the Commission's consideration.

8753   First, we believe the inclusion of current fresh advertising in VOD programming is vitally necessary in order to have a viable television business model going forward.

8754   Advertisers continue to be concerned with clutter on television and regard the growing popularity of digital video recorders with their commercial avoidance capabilities to be a consumer coping mechanism.

8755   As DVR penetration increases, advertising support for this type of program on linear television will no doubt continue to diminish. VOD has the opportunity to become a primary platform for their exhibition.

8756   Second, as we have explained at many other appearances, an impediment that Canada's advertisers have had to cope with over the years is our restricted access to Canadian audiences. Over 20 percent of all TV viewing in this country is to signals that cannot currently be accessed by advertisers in Canada; U.S. conventional and cable channels, international channels, on demand, pay, educational and so forth. Fully one-fifth of our valuable Canadian audiences currently goes untapped.

8757   Therefore, the opening of local availabilities to access by advertisers would begin to repatriate some of these lost Canadian audiences. As well, it will slow the erosion of television advertising revenues to other platforms in Canada and can do this all without creating any new fragmentation.

8758   In addition, past and current proposals relating to non-simultaneous substitution or the repatriation of Canadian audiences to general U.S. signals certainly have merit and could be monetized to the direct benefit of the whole broadcasting system in Canada.

8759   Next, targeted dynamic ad insertion capabilities of advanced television also could provide benefits not only for advertisers but for broadcasters and BDUs as well. In particular, when dynamic targeted advertising is in widespread use, admittedly that will be a few years, but by then it will provide the broadcast medium with the capability to compete with the personal targeting strengths of video on the internet.

8760   We would like to acknowledge the Commission's forward thinking thus far in giving the areas of VOD and local availabilities serious consideration. We believe that these have the potential to deliver innovation, creativity and renewal in Canada's broadcasting system and will give Canadian advertisers the ability to continue to reach consumers in the television medium as their viewing preferences evolve.

8761   Advertisers also need to be able to access more non-traditional program-integrated styles of advertising such as sponsorships, product integrations and branded entertainment.

8762   Although opportunities for this type of advertising approach are far more limited in English Canada than in French Canada, they do represent an example of how advertisers can react in a positive way to consumer commercial avoidance while directly contributing to Canadian program production.

8763   We would like to acknowledge in particular the many specialty stations that have worked creatively to accommodate advertisers in this way.

8764   Commissioners, advertising is in a temporary slump, it is true, and as part of an ongoing adjustment to a digital marketplace ad funds are diverting from traditional media to the internet. That is also true.

8765   The advertising media universe is evolving but the golden rule will always apply. Attention still equals audience and audience equals money.

8766   In all of this we must remember that it is the audience that can be monetized, not the programming itself. If we can turn the industry's efforts toward the future, not the past, to recapture the lost 20 percent of Canadian audiences that are currently not monetized as well as adopt these or other new innovative approaches, somewhere in the neighbourhood, we estimate, of $500 million per year could be added to the Canadian broadcasting system. And that, Mr. Chairman and Commissioners, is a whole lot of value for a whole lot of signals.

8767   For over 50 years ad-supported television has been a great marketing tool for advertisers and at the same time it has been a great deal for all stakeholders since it financially underpinned the broadcasting system and kept the costs of television to consumers manageable. We think it should and can continue to do so.

8768   We thank you again for the opportunity to participate in this important consultation and, as always, we wish the Commission well in your deliberations.

8769   Thank you.

8770   THE CHAIRPERSON: Well, thank you for your presentation. I must say it's refreshing to have a presentation that looks forward and not backwards and tries to anticipate what they could do in the future.

8771   I have a couple of questions. On page 6 you say:

"In addition, past and current proposals related to non-simultaneous substitution or the repatriation of Canadian audiences to general U.S. signals certainly have merit..."

8772   THE CHAIRPERSON: I understand non-simultaneous substitution. What is the "repatriation of Canadian audiences to general U.S. signals"? What do you have in mind there?

8773   MR. REAUME: We already repatriate quite a substantial amount of Canadian audience viewing that goes to American stations with simultaneous substitution but there is still a lot of viewing to U.S. signals that goes untapped. I think we could find ways in order to monetize, to exploit that audience because currently it just disappears and there is no value attached to it.

8774   And so if we can find a way to monetize that it could add --

8775   THE CHAIRPERSON: So what are we talking about? I mean simultaneous substitution I understand. You say you are not talking about non-simultaneous substitution.

8776   MR. REAUME: Right.

8777   THE CHAIRPERSON: Then what are you talking about?

8778   MR. REAUME: Okay, let's take CBS. It comes into Toronto from the Buffalo stations.

8779   THE CHAIRPERSON: Yeah.

8780   MR. REAUME: There are several hours of programming on CBS that do get simultaneous substitution. That is taken care of.

8781   THE CHAIRPERSON: Right.

8782   MR. REAUME: There is a lot of programming that gets watched by a Toronto audience to CBS that Canadian advertisers do not have access to. When a Canadian watches those programs that's valuable and it goes nowhere. It's not exploited.

8783   So I would -- I don't know what the figures are. My guess would be something like three-quarters of the U.S. schedules -- let's say the four top American networks the Canadian audience to those stations is not exploitable.

8784   THE CHAIRPERSON: So you are talking about the income tax deduction, is that it?

8785   MR. REAUME: Well, it could be that. There have been some proposals in the past -- I'm going back now four or five years. 49th Media is one that comes to mind that was suggesting that we insert commercials into those commercial breaks, not just for the local avails but for the whole program.

8786   There could be other ways to exploit that.

8787   THE CHAIRPERSON: So the BDUs would substitute Canadian commercial formats and commercials on programs that don't -- that are not subject to simultaneous substitution?

8788   MR. REAUME: Yes.

8789   THE CHAIRPERSON: Okay.

8790   MR. LUND: Well, and on the specialties as well.

8791   MR. REAUME: Sure, all U.S. stations.

8792   MR. LUND: It's also on the U.S. specialty channels as well. So the proposal that came before and we supported it very much -- it was 49th Media with Kevin Shea -- was in fact for him to go down and negotiate with those broadcasters in the States for the programming and, in fact, that would have been accessible to Canadian advertisers and it was rejected.

8793   It was not supported, as you might expect, from the broadcaster community up here but certainly that is one way of doing it. Because it is; it's 20 percent of audiences, not duplication -- now, this is not fragmenting. It's 20 percent of audiences watch other programs.

8794   THE CHAIRPERSON: Okay. I understand the benefit it would be to you as an advertising industry. I fail to see how it would benefit the Canadian broadcasting system.

8795   MR. LUND: Well, it would add that much more advertising revenue to the broadcasting corporations as well because they would be putting Canadian commercials in there. It would be handled either by broadcasters, a separate Canadian organization. We are not saying we would pay the advertising money to the U.S. We would be paying it to whomever was in fact bringing that program into Canada.

8796   THE CHAIRPERSON: Sorry. Explain it to me.

8797   Rogers on its schedule has CBS, to take your example, and somebody also has right to -- Rogers also has to substitute the commercials. Clearly, it would charge for those commercials and the advertising industry would do -- have a greater reach but how does it get to the broadcasting system? You would couple it with an obligation of Rogers to use this for --

8798   MR. REAUME: Yes.

8799   THE CHAIRPERSON: -- for some fund or something, that's what you are suggesting?

8800   MR. REAUME: Yes.

8801   THE CHAIRPERSON: Okay. And on page 7 you are talking about a:

"...non-traditional program-integrated styles of advertising such as sponsorship, product integrations and branded entertainment."

8802   THE CHAIRPERSON: And then the next sentence is what throws me:

"Although opportunities for this type of advertising are far more limited in English Canada than in French Canada..."

8803   THE CHAIRPERSON: Why would they be more limited in English Canada than in French Canada?

8804   MR. REAUME: In French Canada there is substantially more indigenous locally-produced programming that Canadian advertisers can become part of. In English Canada it's really quite limited.

8805   Now, I'm not saying that there is nothing. There were a number of advertisers who did product integration and branded entertainment into shows like Canadian Idol or the dance programs, et cetera.

8806   So it does exist but I guess I'm suggesting there is much more American programming in English Canada than in French Canada and so the opportunities for this type of programming has to be in Canadian-produced programming. It cannot be in U.S. programming that is brought into Canada.

8807   THE CHAIRPERSON: But you could put it in Little House on the Prairie or something like that, just as much as you can put it in a French program?

8808   MR. REAUME: Well, no, because that is produced -- most of that program is produced in Los Angeles and so Canadian --

8809   THE CHAIRPERSON: I'm sorry, Little Mosque on the Prairie, I mean.

--- Laughter

8810   MR. REAUME: Oh, yes -- no. Oh, yes, of course.

8811   THE CHAIRPERSON: Yeah.

8812   MR. REAUME: No, of course, and as I have said, there are examples in English Canada. There is no question about there are examples.

8813   THE CHAIRPERSON: Yeah.

8814   MR. REAUME: And Kraft's hockey bill is a very good example and there are a number of other examples.

8815   In specialty channels we are given to understand by our members that they work very hard in order to get Canadian advertisers involved in some of their programming. I'm thinking of The Food Network, for instance, where companies like Campbell's Soup or Kraft or Nestle could very easily work their products into actual content.

8816   THE CHAIRPERSON: Okay, thank you.

8817   Elizabeth, you have got some questions?

8818   COMMISSIONER DUNCAN: Good afternoon.

8819   I found when I read your submission just like your presentation today, that it is -- as the Chairman said, it's very upbeat and I think it's very encouraging. I think it's worth repeating a few of the quotes or statements that you make in your presentation that overall television as an advertising medium remains strong.

8820   And you point out that since 1995 TV's annual share of total Canadian ad spend has been without exception between 23 and 25 percent and that the TV medium as a whole is holding its own in attracting ad revenues. So you know, I think that maybe sort of dispels some of the gloom and doom that we are feeling.

8821   I also was happy to see that you focused on identifying potential revenue opportunities for the broadcasters because I think that you are probably the first group before us that has placed such an emphasis on that.

8822   I'm wondering, you say that the inclusion of advertising -- and you touched on it here too today -- that the inclusion of advertising in VOD programming is vitally necessary in order to have a viable television model going forward. And you mention as you did about the clutter on television and the growing popularity of DVRs.

8823   I'm wondering, first of all, if you could just tell me what you are referring to as clutter on television?

8824   MR. LUND: For some time, for at least 12 years that I have been head at the ACA we have come and, contrary to popular belief, we have always offered up that there is far too much ads, too many commercials on television. The 12-minute limit was something we thought should have been held and not changed.

8825   We believe that you have to have ultimate respect for the consumer or they will in fact tune you out. And that's what we find in study after study, that consumers are in fact zipping back and forth from channel to channel. And therefore the efficacy of our commercials is always an ever-increasing doubt on conventional television stations.

8826   So you know we would certainly be proponents going back to the 12-minute limit, maybe even a 10-minute limit but at least have quality out there and not quantity.

8827   COMMISSIONER DUNCAN: So the Commission, I know you know, effective September has removed any limit.

8828   MR. LUND: Oh, yeah.

8829   COMMISSIONER DUNCAN: And I'm just wondering what you have seen as a result of that.

8830   MR. LUND: Well, again leading up to that, we have seen again study after study. We have seen in Canada as well as the States, we have seen not only an increase in the number of minutes, but since we moved to 15 from what was originally the bargain of 60 seconds, there was going to be 12 60-second commercials in an hour, we can see upwards to -- how many in an hour now, Bob, 48 interruptions?

8831   MR. REAUME: Yeah, interruptions.

8832   MR. LUND: In interruptions an hour and it's just -- it's agonizing. This of course does not include all the exceptions.

8833   So you have to remember, things like you know station identification, station promotion, ads from -- you know if there is an electoral campaign -- none of these are included and they add to the clutter.

8834   So at points in time the amount of times that a consumer is interrupted while they are trying to watch a program is horrendous. And they don't recognize the exceptions as being, "Oh, that's okay. That's really not advertising". It's all advertising to the consumer.

8835   COMMISSIONER DUNCAN: When you are negotiating with commercial broadcasters to buy ads, are you able to influence that?

8836   MR. LUND: No.

8837   COMMISSIONER DUNCAN: Not at all? So they set the rate?

8838   MR. LUND: Yes.

8839   COMMISSIONER DUNCAN: So even in this market, then, they are still -- obviously you don't have to negotiate.

8840   MR. LUND: Well, we do negotiate, but the rate is fundamentally set. I mean it's a supply and demand situation.

8841   COMMISSIONER DUNCAN: Okay. I'm just wondering how much experience you have had with the inclusion of advertising in VOD programming in other countries or jurisdictions.

8842   MR. REAUME: I can't say that we have looked into that very much at all.

8843   COMMISSIONER DUNCAN: But what I was wondering, I guess, was how do you see that happening? Will the advertisers deal with the BDUs and the BDUs deal with the broadcasters or will it be a three-way --

8844   MR. REAUME: It's going to have to come down to negotiation because the rights owners of the programs, the content, have to strike a deal with the BDUs because there is going to have to be a sharing of revenues there, is the only thing we could see.

8845   COMMISSIONER DUNCAN: So do you think its going to end up being a three-way thing or negotiation?

8846   MR. REAUME: Well, if the third is us then yes. Yeah, broadcasters, BDUs and advertisers indeed.

8847   COMMISSIONER DUNCAN: Okay, yeah, yeah.

8848   Now, the insertion of dynamically-updated ads, I'm also wondering if those will be the result of negotiations or arrangements between advertisers and BDUs or do you see broadcasters being involved in those as well?

8849   MR. REAUME: Again, well, I think we even have to add a fourth party in this regard. And that is there are companies who have developed this very sophisticated complex software in order to analyze who was watching in the home so that the BDUs can send the appropriate ad to the appropriate TV set.

8850   So yes, again, it comes down I think to a negotiation between the BDUs, advertisers and broadcasters. That, by the way -- we believe that can put broadcasting back on a firmer competitive footing with the internet because you know we just talked about clutter a few minutes ago.

8851   The VOD platform and the online platform can restrict the fast forward function so suddenly advertisers are back in a position whereby our commercials have a much better chance of being seen than they do now on a television.

8852   We are training -- with DVRs we are training the audience to start viewing 10 minutes past the hour because they know that if they have recorded the show they can watch the whole show without watching a commercial. We can't let that go on too long because at some point advertisers are going to say, "We are really not sure how many people are watching this anymore and we can't continue to make the investment in that kind of proposition".

8853   COMMISSIONER DUNCAN: It's interesting because I have been doing more watching using the PVR than I ever did and I only just recently realize that there is at least three speeds that I can fast forward.

8854   MR. LUND: There is four, I think.

8855   COMMISSIONER DUNCAN: If there is four, okay. I didn't get that far then.

8856   So it just seems --

--- Laughter

8857   COMMISSIONER DUNCAN: I will try that when I get home.

8858   So it seems to me that the BDUs are responsible for that. I'm getting my PVR from the BDUs.

8859   MR. REAUME: Well, let's be --

8860   COMMISSIONER DUNCAN: That feature on the box.

8861   MR. REAUME: -- let's be honest, consumers love it.

8862   COMMISSIONER DUNCAN: Oh, yes?

8863   MR. REAUME: So we have to find a way in order to engage them in other ways and some of the other ways we have described here today.

8864   MR. LUND: Just if I may add something, Commissioner, the one thing that -- and it was in some of the opening remarks. Certainly through the first week with the cabling companies and broadcasters, we all speak "we" and "them". Consumers don't know we and them anymore than they know, you know, an ad for electoral advertising is not an ad or station identification. It's seamless to them.

8865   So you know the campaigns that have been going on, you know it's very bizarre for you. You just talk to an average person the street. It's very bizarre for them to listen. Like what is this argument all really about?

8866   So when we do talk about things it will become consumer reality because they don't see them as being segmented the way we see them being segmented. They just see it as being unable to do things, whether they are watching it on their iPod or wherever they are watching it. It's seamless to the consumer.

8867   Sorry.

8868   COMMISSIONER DUNCAN: I agree with you. I think that it has caused a lot of confusion out there too, and you are right, yeah.

8869   You talk about broadcasters being able to segment their programming and therefore monetize that. Just when you say "segment" you are meaning that Commissioner Denton might be interested in something different than I am?

8870   MR. REAUME: Exactly, yeah. Could I take this -- if you are interested I could just take a second to suggest a scenario. The technology exists for a TV network to be able to send an automotive commercial to you because they know that you often watch in a certain room. They would send a golf commercial to Commissioner Denton because they know that he views in a different room and that may suit his tastes more, perhaps a cell phone commercial to a younger daughter, perhaps another type of commercial to a son in the house.

8871   That is possible. It can't be implemented tomorrow. It's going to take some development, a beta test, some experimentation. But a couple of years down the road it is doable.

8872   COMMISSIONER DUNCAN: That's where we are headed.

8873   I'm just wondering here, how do you think broadcaster revenues will be impacted if BDUs are permitted to sell ad avails in the U.S. services?

8874   MR. REAUME: It's recovering an audience that we are not monetizing now. So in a general overall picture we are adding more money to the system. Who gets the largest proportion of that money is, I think a -- is the real question here. I think it's got to come down to some kind of either regulatory decision or a negotiation on behalf of the two parties.

8875   So I think the bigger picture is that we are drawing more funds into the system. As to who gets it is a matter of regulation or negotiation.

8876   COMMISSIONER DUNCAN: That's helpful, yeah.

8877   You also talk about heavy ups in the market by market, and this was interesting to me because of course I live in the region. I'm actually from Halifax. And so I'm very concerned about local programming and you have heard people say today, you know, if you live in Toronto, well, I'm sure you are -- or words to that effect, that you are getting lots about the programming.

8878   So I'm just wondering, am I understanding here that you are saying that it's almost impossible to place -- to do a heavy up ad campaign in smaller areas?

8879   MR. REAUME: I wouldn't say smaller areas. The point we were trying to make here is that with very few exceptions we really don't think there is a local station in the country -- CFTO for instance covers Toronto, London, Kitchener, Ottawa -- I may be mistaken on Ottawa. There are a number of stations that have over the years extended their coverage area to include multiple markets. When an advertiser targets a certain geography of Toronto or Ottawa, their national buy covers part of that but then they have to do heavy ups in order to bring up what we refer to as weight or impact in the market to an acceptable level. Often, they can't find a local station in order to just target that market. That's the point we were trying to make in that regard.

8880   COMMISSIONER DUNCAN: So it seems to me then, if there was -- that there might very well be a business case for local stations, truly local.

8881   MR. REAUME: I would say indeed there --

8882   COMMISSIONER DUNCAN: So there is probably, the way I read this, potentially a considerable amount of advertising revenue that's not coming into the system that maybe is having to be spent on newspaper or billboards or whatever.

8883   MR. REAUME: In particular retail, indeed.

8884   COMMISSIONER DUNCAN: Yeah.

8885   MR. REAUME: Yeah.

8886   COMMISSIONER DUNCAN: Yeah, okay. Thank you very much.

8887   Those are all my questions, Mr. Chairman.

8888   THE CHAIRPERSON: Thank you.

8889   Steve.

8890   COMMISSIONER SIMPSON: Thank you very much.

8891   With respect to the interactivity component of television advertising at its potential, are there issues of privacy that your association is grappling with on behalf of your members?

8892   MR. LUND: Yes, it's obviously a very complex one because we have privacy rules not only provincially but federally and, in fact, we have been working with international organizations and the World Federation of Advertisers Association, national advertisers in the States to check into where this can go.

8893   I mean obviously one of the major concerns is on the interactive, the online behavioural advertising aspect. And we would certainly like to take a step in the forefront on that before it is suggested by other parties we should. So yes, the short answer is, yes, there is issues with privacy.

8894   MR. REAUME: Could I, yeah, just add a comment, Commissioner, that these systems that have been developed to deliver dynamic ads to different TV sets in different households, it would all be opt in. The family would be giving their permission to be part of this but also it could also be done just by viewing habits.

8895   The creators of the technology claim that with 95 percent accuracy after 48 hours of viewing in a household they can tell with 95 percent accuracy who is in the household and who watches TV set the most. And so in fact, the cable company wouldn't even have to disclose which household the ad was going to as long as the demographic was right. It could be done within the privacy rules.

8896   COMMISSIONER SIMPSON: Thank you.

8897   I am fascinated, by the way, with your suggestion on commercial insertion into unconflicting programming to Canadian broadcasting and the concept of there potentially being revenue sharing between the BDUs and the broadcasters. I think it is very innovative and you are to be commended for that.

8898   It leads into the second part of this issue and that is the idea of interactivity from a technological standpoint. It would seem to me from my limited exposure on the technical issues associated with interactive that it would require a very deft coordination and participation between the broadcasters and the BDUs to make this kind of phenomenon viable for the advertiser.

8899   And I guess to that end, who do you think would logically be the entity that would collect those new advertising revenues from interactivity, it would be the broadcaster or the BDU?

8900   MR. LUND: No comment.

8901   MR. REAUME: Well, how about a third party. Again, the one example we do have in the past was this 49th media application that I believe was offering to do all the sales, all the advertising sales, collect the revenue and then share if after that. So if you ask me to put a percentage, I would stay away from that.

8902   MR. LUND: I think the only caveat to that was I think 49th Media were planning on collecting all the revenues and keeping them. The question is, is there a sharing arrangement after that?

8903   COMMISSIONER SIMPSON: Just in closing, I would have to say, again, a very forward-looking presentation.

8904   If there is indeed -- this Commission is trying to find out if there is money in the system that we can look at for the purposes of the betterment of the system and you are saying that there is potentially $500 million worth, which seems to imply that there are $500 million good reasons for the television industry and the BDU and satellite industries to perhaps start talking.

8905   MR. LUND: Good way of putting it.

8906   COMMISSIONER SIMPSON: Thank you.

8907   MR. LUND: Thank you.

8908   THE CHAIRPERSON: Len.

8909   COMMISSIONER KATZ: Yes, I was going to ask the same question. Just to follow up, you have cited $500 million. Was that developed as an art or a science?

8910   MR. LUND: A bit of both. The $500 million, we started off with a premise of the 20 percent, which is a very real number.

8911   And just as an aside on the 20 percent. With our current measuring systems, pretty soon that 20 percent, we won't even know what it is anymore because a television measurement in the future -- because the U.S. programming isn't coded, it will start to dwindle within the system. So we are working off a year ago's number, where we could still -- we had accurate numbers.

8912   So if you start with the 20 percent premise, that would actually, on just an absolute pro-rated basis, equal $900 million --

8913   MR. REAUME: Seven.

8914   MR. LUND: -- sorry, $700 million dollars. And we said, well, maybe it won't be one for one. So we started reducing that and we said, and we haven't accounted for any of our other suggestions.

8915   So part -- a very little bit of science in terms of what the current market size is, what people would be willing to pay for the additional 20 percent, and then a generous reduction on that, and added no money for the other suggestions that we had, the other recommendations.

8916   COMMISSIONER KATZ: That is too bad because that is what I was trying to focus on, if there was a science there. I was hoping you would have a breakdown as to how much could be generated from VOD advertising, how much could be generated from targeted advertising.

8917   If there were slices in there that sort of added up, there would be some opportunity for us to sort of look at the magnitude of each one of these opportunities individually.

8918   MR. REAUME: Yes. I think in a previous filing we did suggest that in our estimation we thought that local avails were worth about $30 million a year. So we could start from that.

8919   VOD, we haven't looked at that closely because we don't know what the parameters would be on VOD. Would it also be 12 minutes an hour? Would it be 3 minutes an hour? I mean you can't put an estimate until you know what you are estimating, I guess.

8920   The $500 million comes from a pretty rough estimate on math, as Mr. Lund explained. If you take -- if 80 percent of viewing in this country, if we are monetizing that right now and advertising accounts for $3.5 billion a year, so that equals 80 percent, then 20 percent, which we haven't monetized, has to equal about $700 million. And, you know, probably we can't do it a hundred percent, which is why we reduced that to $500 million.

8921   COMMISSIONER KATZ: Okay. On page 6, and I think the Chairman asked this question as well, right on top you say:

"Therefore, the opening of local avails to access by advertisers will begin to repatriate some of the lost Canadian audiences."

8922   I don't understand what you are saying there. Opening up local avails just provides for the capability to generate revenue through advertising. I don't know how you repatriate Canadian audiences through that.

8923   MR. REAUME: Well, by that, we mean -- probably it is the language. By that, we mean every time a Canadian watches what is in the local avails now, there isn't a price attached to that view. If we could actually sell ads in the local avails, there would suddenly be a price attached to that view and that money would go into the broadcasting system.

8924   So that is what -- we mean monetize --

8925   COMMISSIONER KATZ: So that is in addition to the $500 million or is that part of --

8926   MR. REAUME: No, that is part. That is part.

8927   COMMISSIONER KATZ: That is part of the $500 million as well?

8928   MR. REAUME: Yes. Yes.

8929   COMMISSIONER KATZ: Okay. When you finalize you submission in December, can you sort of try and parcel these pieces out for us to the extent you can. If you have to make some assumptions, then identify what those assumptions are.

8930   MR. REAUME: Yes.

8931   COMMISSIONER KATZ: I think it would be very helpful.

8932   MR. REAUME: We actually did not file on the December -- I don't know what you mean by December.

8933   COMMISSIONER KATZ: No. I think in this one here you get a chance to respond in writing --

8934   MR. REAUME: I see. I beg your pardon.

8935   COMMISSIONER KATZ: -- in December, I think.

8936   MR. REAUME: Yes.

8937   COMMISSIONER KATZ: Okay.

8938   THE CHAIRPERSON: Those local avails, aren't they just going to be redistribution? It is not new money. Wouldn't that just be redistribution of existing advertising?

8939   MR. REAUME: I am not sure I understand the question.

8940   THE CHAIRPERSON: I assume you are not bringing any new money into it because it is money that is being spent on TV right now. Presumably if someone would spend on local avails, they will spend less on discretionary or OTA. I don't see how opening up local avails necessarily will bring new money into the system.

8941   MR. LUND: Well, that would be true if this was duplicating what is already out there. Then I would agree with you one hundred percent.

8942   Right now, this is a person watching a program on a U.S. station that we have no accessibility to. If there was more accessibility -- that would be the same argument as -- the magazines used to have that. If you open up the U.S. magazines, we are going to lose all the Canadian advertising in magazines. No, we will put more money into it if there are ways of targeting that consumer on a specific program.

8943   THE CHAIRPERSON: I thought local avails are the two minutes on U.S. programs bought by Canadian broadcasters and shown on their network.

8944   If Canwest buys "CSI" and there is a two-minute local avail on that --

8945   MR. LUND: Right.

8946   THE CHAIRPERSON: -- that would be sold. So it would still be sold in Canada to Canadians who are watching a Canadian network. So I don't see where the new money is being brought into it.

8947   MR. REAUME: Well, perhaps if we had more access to all of the audience that is generated in Canada, the Canadian advertising industry could be brought up to a level of activity somewhat closer to the United States.

8948   You know, in the United States on a per capita spend, they spend $800 -- pardon me, yes, $800 per capita on advertising. In Canada it is only $400. So we have an underdeveloped advertising industry in this country and part of that may be because we don't have full access to all of the audience that is generated in this country.

8949   THE CHAIRPERSON: But didn't you just earlier say -- complain about clutter and too much advertising?

8950   COMMISSIONER ARPIN: It is even the lowest of all the G8 countries.

8951   MR. REAUME: It is, indeed, yes. But, Mr. Chairman, understand this, those commercial breaks already exist. So by monetizing the local avails, we would not be creating any more advertising.

8952   THE CHAIRPERSON: I got it. Thank you.

8953   MR. REAUME: Yes.

8954   THE CHAIRPERSON: Rita, you had a question?

8955   COMMISSIONER CUGINI: Well, I did on the issue of clutter because you just said that you thought that Canadian conventional should be brought back to 10 minutes and hour and we know that on the U.S. networks it is up to 16 minutes an hour.

8956   So why does that represent clutter on Canadian services but it doesn't represent clutter for your advertisers if you were allowed access to those breaks on U.S. services?

8957   MR. REAUME: It is an environment question. We don't need more commercials on the stations we have. We need more stations with less commercials. It would be the same amount of -- it would be more money coming into the system. But in an environment -- in a one-hour show, in order to have 10 minutes is a much better environment for an advertiser than to be in a show that has 16 minutes of ads.

8958   COMMISSIONER CUGINI: I understand your point that that is 20 percent of the Canadian audience that is lost to those American networks but you know that broadcasters are going to say, between conventional television and specialty television on which you can buy ads, why isn't that enough for Canadian advertisers, why do you have to go after those spots in U.S. networks?

8959   MR. LUND: It is exactly as Mr. Reaume said, it is an environmental question. We are not after having -- that has always been our point before the Commission. We are not after more minutes, more advertising on less stations, we want to have more advertising on more stations.

8960   The clutter, indeed -- again, in study after study, and we have presented them to the Commission, consumers will check out and do check out. And what that does is in fact put the whole system under stress because there are many, many advertisers -- and that is part of the growth of the internet -- that say, what are we getting for our money on a conventional television station, you know, all you see is a bunch of commercials.

8961   COMMISSIONER CUGINI: Thank you.

8962   THE CHAIRPERSON: Okay. Before I let you go, one short snapper. If you have 10 minutes of advertising on a program, as opposed to 14 other programs, does it command a higher rate?

8963   MR. LUND: Generally speaking, yes, it would and I will give you an example of that. In fact, it is CBC Quebec, so Radio-Canada.

8964   MR. REAUME: Oh, yes!

8965   MR. LUND: Go ahead and tell them about that.

8966   MR. REAUME: No, you go ahead.

8967   MR. LUND: So basically, Radio-Canada in Quebec has a very interesting -- they actually sell it this way. They say: We will in fact reduce the number of commercials on this program, this program and this program, and you will pay us this much more for it. If you want to be at the top of the hour or the bottom of the hour before the breaks or before breaks, we will let you charge a bit more.

8968   And they actually then tell the people watching the commercials how long there is left in the breaks. So they actually took that and they started monetizing it to charge more money.

8969   THE CHAIRPERSON: Yes. Thank you very much.

8970   Let's take a 10-minute break before we go to the next one.

--- Upon recessing at 1457

--- Upon resuming at 1509

8971   THE CHAIRPERSON: Okay, Madam Secretary, would you connect us with Nunavut?

8972   THE SECRETARY: I would now like to invite the Legislative Assemblies of Nunavut and the Northwest Territories to make its presentation.

8973   THE CHAIRPERSON: Oh! I am sorry, I didn't realize you were here. I see you on the screen with a picture of your Assembly, so I thought you were going to speak from there.

8974   THE SECRETARY: Appearing for the Legislative Assemblies of Nunavut and the Northwest Territories is the Honourable James Arreak.

8975   Please introduce your colleagues and proceed with your 10-minute presentation. Thank you.

PRESENTATION

8976   HON. JAMES ARREAK: (Native language spoken).

8977   I will repeat what I just said.

8978   Mr. Chairman, Members of the Commission and staff, thank you for the opportunity to appear before you today. My name is James Arreak, Speaker of the Legislative Assembly of Nunavut.

8979   Our time before you today will be shared with my colleague the Honourable Paul Delorey, Speaker of the Legislative Assembly of the Northwest Territories.

8980   Accompanying us today are:

8981   - Mr. John Quirke, to my immediate right, Clerk of the Legislative Assembly of Nunavut;

8982   - Mr. Brian Thagard, Sergeant-at-Arms of the Legislative Assembly of the Northwest Territories; and

8983   - Mr. Jerry Giberson, Consultant, Broadcast and Telecommunications Servics.

8984   We believe that this is a unique opportunity for the Commission to support the achievement of a number of important goals:

8985   - the enhancement of broadcasting services to remote and underserved northern communities;

8986   - the strengthening of governance and democratic accountability in respect to our Legislatures and the residents whom we were elected to serve;

8987   - the protection and promotion of Canada's Aboriginal languages; and

8988   - the assertion of Canada's Arctic sovereignty.

8989   We believe that in order to understand the needs of the North, it is important to be familiar with our geographic, cultural and linguistic context.

8990   Nunavut and the Northwest Territories are over 3 million square kilometres in size. Together we comprise over a third of Canada's total land mass. Approximately 75,000 residents live in the two Territories.

8991   There are almost 60 communities in the Northwest Territories and Nunavut whose populations range in size from less than 200 residents in Grise Fiord to over 18,000 in Yellowknife.

8992   Approximately half of the residents of the Northwest Territories are Aboriginal Canadians. In Nunavut, almost 85 percent of our population is Inuit.

8993   As you may be aware, both Territories have official languages legislation that recognizes the use of Aboriginal languages in our institutions of government.

8994   In the Northwest Territories, 11 languages enjoy legally recognized status: Chipewyan, Cree, English, French, Gwich'in, Inuinnaqtun, Inuktitut, Inuvialuktun, North Slavey, South Slavey and Tlicho.

8995   In Nunavut, our three official languages are the Inuit language, which includes Inuktitut and Inuinnaqtun, English and French.

8996   As you will have noted from our written submission, the promotion and protection of Canada's Aboriginal languages is important in our jurisdictions. My mother tongue is Inuktitut and I am proud that the use of Inuit language in our Legislature is serving to foster this goal.

8997   The most recent national census indicated that almost 70 percent of Nunavut's population reported that the Inuit language was their mother tongue. Approximately 10 percent of the population are unilingual speakers of Inuktitut and Inuinnaqtun.

8998   Early this year, the Standing Committee of the Legislative Assembly of the Northwest Territories submitted a major report on its review of the Territories Official Languages Act. Some of the findings of the report are worth noting today.

8999   As of 2006, the year of the most recent national census, approximately 7,500 residents of the Territory reported that they were able to converse in an Aboriginal language.

9000   Although Canada's Aboriginal languages are relatively strong in the North, we recognize was must be done to protect and promote them.

9001   In an age in which our children are exposed from birth to a multi-channel universe we believe that it is essential that our Aboriginal languages have a respected place in Canada's broadcasting framework.

9002   As legislators, we believe that our constituents have a right to be able to view the proceedings of their institutions of government in their own language.

9003   Before turning over our presentation to my colleague, Speaker Delorey, I would like to take a moment to introduce a video montage that we have prepared for you. I anticipate that the footage that we have selected will clearly illustrate the use of Aboriginal languages in our two Legislatures.

9004   We hope that you will find this demonstration to be of interest and I thank you very much for your attention today. Thank you.

--- Video presentation

9005   MR. DELOREY: Thank you very much and good afternoon.

9006   As my colleague indicated earlier, my name is Paul Delorey. I am the Speaker of the Legislative Assembly of the Northwest Territories.

9007   Our submission to the Commission has emphasized the importance of ensuring that Northerners from Tuktoyaktuk to Katiktarjuuak feel fully engaged with and connected to their institutions of governance.

9008   I am proud to say that political engagement in the North is strong. Although voter turnout across Canada during the federal general election has been steadily decreasing, turnout at our Territorial election has remained high.

9009   For example, turnout in the 2004 Nunavut General Election was over 80 percent and over two-thirds of voters participated in the most recent Territorial General Election in the Northwest Territories.

9010   This engagement is reflected by the significant demand that exists for our televised proceedings. Both Speaker Arreak and I have heard very clearly from our constituents that the public in the North pay close attention to our proceedings.

9011   A few years ago the Government of Nunavut Bureau of Statistics conducted a household survey across the Territory in which a number of questions were asked of residents.

9012   The survey included questions concerning viewership of the televised proceedings of the House. At that time almost 70 percent of Inuit respondents indicated that they watched Legislative Assembly proceedings at least once per week.

9013   You will have noted the letter provided by the President of Nunavut's Association of Municipalities in support of our joint submission. Speaker Arreak recently informed me that when he received this correspondence, he was told by President Sheutiapik, who is the Mayor of Nunavut's Capital City, that she has personally experienced frustration in not being able to watch the televised proceedings of her Legislative Assembly even though she lives in the same community in which her Legislature sits.

9014   As a subscriber to satellite television she does not have the option of tuning into the evening broadcast of the Assembly's proceedings that took place earlier in the working day. We believe that this kind of situation is unacceptable and clearly illustrates the need to take action to expand the coverage of our legislative proceedings.

9015   As we noted in our August submission, our Legislatures have been working together since 2007 to provide live and recorded television coverage of our proceedings.

9016   Our programming is transmitted by C-band uplinks located in Yellowknife and Iqaluit. In the communities our signal is distributed by either over-the-air low-power transmitters or through local cable providers. The deployment of an addressable smart receiver recorder in each community facilitates multilingual broadcasting.

9017   However, we have seen unsuccessful in attaining carriage on satellite direct-to-home service. As I noted earlier, this has resulted I many of our residents being unable to view the proceedings of their Legislature at work.

9018   As in the rest of Canada satellite television is becoming an increasingly popular option for households and this has caused a serious and significant gap.

9019   Our Legislatures strongly support a decision on the part of the Commission to grant must-carry status to our broadcast feeds.

9020   As the Commission is aware, section 44 of the Broadcasting Public Notice CRTC 2008-100 clearly recognized the importance of ensuring that basic service to Canadians includes access to the relevant provincial legislature service. However, this provision refers only to terrestrial broadcasting distribution undertakings. It is essential that our signal also be made available to satellite subscribers.

9021   We would also suggest that section 58 of the Notice, which addresses the specific needs of the Territories, be looked at with a view to strengthening the language so as to ensure that the regional basic service includes our broadcast as part of the core programming package provided by direct-to-home service and cable.

9022   As the Commission is also aware, section 3 of the federal Broadcasting Act provides that programming that reflects the Aboriginal cultures of Canada should be provided within the Canadian broadcasters system as resources become available for the purpose.

9023   We believe that the provision of dissemination on locally produced programming current content by the democratically elected northern Legislatures can also serve as an important tool with which to foster the goal of asserting Canada's Arctic sovereignty.

9024   The Government of Canada's recently released Northern Strategy recognizes that a modern public infrastructure will contribute to the strengthening of northern communities.

9025   Today's modern communication infrastructure plays a key role in connecting communities and strengthening national identity. The social cohesion of the North and its people will be enhanced by ensuring that the important programming produced by territorial Legislatures is widely and easily accessible by the citizens to whom the Legislatures are accountable.

9026   This initiative will also support the Northern Strategy's goal of improving and devolving northern governance so that northerners have a greater say in their own destiny.

9027   We look forward to responding to any questions the Commission may have. Thank you very much.

--- Native language spoken

9028   THE CHAIRPERSON: Thank you very much for your presentation.

9029   You say there are 75,000 residents in the two Territories. How many of those are satellite subscribers right now?

9030   MR. THAGARD: Right now, we don't have any detailed information on the breakdown between direct-to-home satellite subscription numbers and cable versus over-the-air in each of the areas. We do see it expanding, however.

9031   To give an example, one of our largest Aboriginal communities, the community of Betchico, the cable company there recently went out of business resulting in us having no broadcast solution in that community and they are encouraging all the residents to switch to a direct-to-home solution for their broadcasting needs.

9032   THE CHAIRPERSON: Do you have any idea what the split is between Shaw Direct and Bell TV?

9033   MR. THAGARD: I don't have any detailed information at this time. However, it appears from my travels throughout the North that the Bell system seems to be the more popular of the two in the Northwest Territories.

9034   THE CHAIRPERSON: And have you approached either company to carry your Legislature?

9035   MR. THAGARD: Yes, sir, we have. When we approached each of the companies, their initial response was that there was no bandwidth available.

9036   THE CHAIRPERSON: I see. Okay.

9037   Candice, you have some questions?

9038   MR. GIBERSON: I just wanted to add -- excuse me, Commissioner -- that the national average, I believe, is around 27 percent for DTH saturation. In some areas up North it is much higher, as mentioned, because of cable companies and that sort of thing closing down.

9039   THE CHAIRPERSON: Is there any way that you can obtain those statistics of what actually the DTH penetration is in both Territories?

9040   MR. GIBERSON: We have tried that but we understand that some of those statistics are proprietary to ExpressVu and Shaw but we could try to see if we could get an estimate for you.

9041   THE CHAIRPERSON: Thank you.

9042   Candice?

9043   COMMISSIONER MOLNAR: Thank you and welcome here this afternoon, gentlemen.

9044   I am just following on some of the questions of the Chair in asking what percentage of your population uses DTH. I wondered if you had some other statistics regarding the population and their viewing habits. As you mentioned in here and in your submission, you provide your feed over low power over the air as well as to cable.

9045   And I also looked on your legislative websites and I noticed that you also have -- you provide it on the website as well, correct? So is it available over the web?

9046   MR. THAGARD: That is correct. In the Northwest Territories we have set up -- it was sort of a test run to see how web-streaming, how effective it would be. However, we have some major bandwidth issues in that regard as well that make it difficult, if not impossible, in most of our small communities to be able to access that kind of a stream over their internet connections.

9047   MR. QUIRKE: If I may also add to that, Madam Commissioner. In Nunavut, we do not have that type of service. We just do not have the bandwidth to allow for that type of streamlining. Thank you.

9048   COMMISSIONER MOLNAR: And can I follow up on that for just a minute.

9049   You may have, if you followed this hearing over the last week, heard a lot about different stations and the local conventional television stations. For example, there's a number of them who make the same request as you, that they need to get onto our birds, if you will, onto the DTH. And so we have heard a lot over the last while about some of the capacity limitations.

9050   So as I was looking at yours, I was actually quite interested in the potential of the internet for a service such as yours. So while it is going a little bit off topic here to be talking about broadband capacity instead of DTH capacity, I just wondered what sort of a solution that was for you.

9051   You say you don't have capacity. I assume that a number of your populace would be using satellite-based internet applications as well, such as Barrett Xplore, for example. Would that be the case or who are the internet providers within your Territories?

9052   MR. GIBERSON: If I can respond to that, the internet providers, the typical ones are SSI Micro, as I understand, and NorthwesTel. They both suffer from severe bandwidth limitations.

9053   If I can give you an example, most of the people today who were trying to watch this on CPAC probably won't be able to see it because it will freeze up. The internet is in need of an enhancement.

9054   This was looked at when the project was started to be able to distribute the Northwest Territories and Nunavut Legislature proceedings and the test proved that we just could not get the signal distributed even at a basic level.

9055   There are some infrastructure improvements that are planned for the next while but, as I understand it, no additional bandwidth is available at this time. There are two C-band satellite transponders that have been maxed out probably as of two years ago and so even basic email is a hard thing to come by unless you are in one of the larger centres.

9056   COMMISSIONER MOLNAR: Thank you.

9057   And if I understand correctly, your station, the legislative feed runs for two hours per day, two hours of original programming, if you will -- if I can call it programming, probably not the right term for it -- but two hours of when your Legislature sits and then you run it the rest of the day on a wheel, is that the idea, Monday to Friday?

9058   MR. THAGARD: That is correct. The system that we are currently using has great flexibility. In most cases that is correct, we will broadcast live the first two hours of our sitting day and then rebroadcast that same two hours in the various languages that we have interpreted the day's proceedings into.

9059   In the case of our major centre in Obichi and Yellowknife, our local cable does take us gavel to gavel and then we do get some rebroadcasting in the evening. However, that solution is only when our House is in session. We don't get any further ability to broadcast after that intersessionally.

9060   MR. QUIRKE: If I may, that is the same in Nunavut. We broadcast live for at least an hour and a half to two hours and then in the evenings that rebroadcast is done at the local cable company in three languages, English, Inuktituk and Inuinnaqtun, Monday to Friday. Thank you.

9061   MR. GIBERSON: If I could explain maybe a bit more about the system that we have. It is a bit unique. The smart receivers can receive programming in all of the languages that were described and time slots can be scheduled that meet each individual community's requirements and language needs. So there is a rebroadcast of all the languages and as well, you know, specific time slots and repeats that suit the community. It is an extremely addressable system.

9062   COMMISSIONER MOLNAR: Thank you.

9063   Just one more question. I was looking at one of the satellite provider's line-ups on their basic and I did not see any provincial legislative feeds on it.

9064   Are you aware if there are any other provincial legislative feeds that have been picked up by either of the satellite companies?

9065   MR. QUIRKE: Madam Commissioner, I believe, based on the research we did, in British Columbia, we believe that the B.C. Legislature leases a channel from Shaw Broadcasting Services, Shaw Broadcast Service satellite. We also understand from the website the broadcast is available on Star Choice basic.

9066   In Saskatchewan, we were able to determine that the Saskatchewan Communities Network, SCN, is a must-carry on Star Choice and Bell ExpressVu.

9067   And in Quebec, we determined that the Quebec Legislature has a dedicated parliamentary channel available 24/7 on ExpressVu and also on certain other networks such as Videotron.

9068   That is the extent of the research I have been able to find out right now. Thank you.

9069   MR. GIBERSON: If I might add about CPAC. There has been a precedent set in there in that their distribution order requires them to be carried based on the mandatory -- not mandatory carriage but the exemption order that they have. I think it is 2002-73. That is what enables their mandatory carriage, the fact that they put on the proceedings of the federal Legislature as well.

9070   COMMISSIONER MOLNAR: Thank you.

9071   Just one very small point. I am from Saskatchewan. SCN is the educational broadcaster. I don't believe the provincial Legislature is captured.

9072   And just one more comment. Being from Saskatchewan, we have 1 million people over 652,000 square kilometres and we often discuss the challenge of that. So I certainly appreciate the challenge that you folks have in reaching your populace.

9073   Those are my comments.

9074   THE CHAIRPERSON: Thank you.

9075   By the way, the Ontario Legislature is on Star Choice as well.

9076   Now, I don't know whether you were here yesterday or the day before. We had FreeHD here, which is a new satellite service which is applying with us for a licence and will then, if they get their licence, agree to carry any local television service as long at it is in HD because apparently they have a new technology where they can really micromanage the signal and so therefore can target specific communities, et cetera.

9077   So if they ever get up and running, are you producing your program in HD so you could avail yourself of it?

9078   MR. GIBERSON: The system is possible to be upgraded at a future date into HD. However, there would be expense, of course, involved.

9079   The other thing too is with the FreeHD system, I have had some initial discussions with them. They are using a CL satellite and the contour, as I understand it, doesn't necessarily get as far north as we would like.

9080   However, there may be some possibility still of doing that, you know, and yes, they do have a very good system of bandwidth management that might allow for that but it is quite preliminary at this point.

9081   THE CHAIRPERSON: Yes, I had forgotten about the angle. Of course, you being so far north, they are probably not tilting their antennas the right away.

9082   Okay, thank you, those are our questions. Thank you very much for coming down and taking the time to acquaint us with the problems up North.

9083   You know, we have two commissioners who responsible for you. My colleague Peter Menzies, who is not on the Panel today, is responsible for Northwest Territories and my colleague Elizabeth Duncan from Nova Scotia is also responsible for Nunavut. So hopefully, in very short time they will be able to visit your Territories so they can get a firsthand view of what your problems are.

9084   Thank you for coming.

9085   MR. DELOREY: Thank you very much for your time and you are more than welcome to come visit us in the North anytime.

9086   COMMISSIONER SIMPSON: Thank you.

9087   THE SECRETARY: I would now invite the Writers Guild of Canada to make its presentation.

--- Pause

9088   THE SECRETARY: Please introduce yourself and your colleagues and you will then have 10 minutes for your presentation. Thank you.

PRESENTATION

9089   MS PARKER: Hi. Good afternoon, everyone. My name is Maureen Parker and I am the Executive Director of the Writers Guild of Canada, a national association representing 2,000 professional English-language screenwriters.

9090   To my right and one over is Rebecca Schechter, WGC President and co-creator of "Little Mosque on the Prairie."

9091   Andrew Wreggitt is on my direct right, WGC Counsellor and writer of "Mayerthorpe" on CTV.

9092   Cal Coons is at the end and he is the showrunner of the television series "Murdoch Mysteries" on Citytv.

9093   Also with us today is Kelly Lynne Ashton, WGC Director of Policy.

9094   And we have with us today Dustin Chodorowicz from Nordicity sitting behind us.

9095   The WGC is here today as representatives of professional screenwriters and Canadian audiences because we share the goals of a strong broadcasting system that puts Canadians first and offers them a wide variety of high-quality Canadian programming.

9096   In particular, the WGC supports a regulatory framework that serves underserved programming genres such as drama, documentaries and children's programming.

9097   Our concern is about more than the work for our members, it is about choice for Canadians, the reason for a Canadian broadcasting system.

9098   Our presentation will focus on two issues raised in the Public Notice: group-based licensing and support for Canadian programming.

9099   We propose a regulatory framework that focuses on four key elements:

9100   1 - an overall CPE for conventional services;

9101   2 - a corporate group drama CPE;

9102   3 - a drama exhibition requirement for conventional services;

9103   4 - specific expenditure and exhibition requirements for documentaries and children's programming.

9104   We thank the Commission for acknowledging the problems with the conventional broadcasters' expenditures on Canadian programming and for floating the idea of group-based Canadian programming expenditures.

9105   However, the real funding crisis for Canadian programming is caused by the excessive spend on foreign drama. The system needs to be rebalanced and our proposal for a new regulatory framework can do the job.

9106   We listened to you when you told us to be creative and come up with new solutions. We collaborated with our colleagues at the CFTPA, ACTRA and DGC.

9107   Our proposal evolved from a presentation by Peter Grant to the Broadcasting Invitational Summit last June. It considers the needs of all parties and it is both flexible and effective in meeting the goal of increasing Canadian programming on our airwaves.

9108   Our model offers the broadcasters real business flexibility while mitigating the potential to game the system to their benefit.

9109   Our proposal is not simple but it will be more effective and more transparent than the existing priority programming exhibition rules.

9110   Rebecca.

9111   MS SCHECHTER: Thank you, Maureen.

9112   Since the 1999 TV Policy establishing priority programming, it has been increasingly difficult to create drama in Canada.

9113   In the 80s and 90s we experienced what may now be called the Golden Age of Canadian TV thanks to expenditure and exhibition requirements as conditions of licence. That led to well-loved Canadian series such as "Street Legal," "ENG," "Due South," "Road to Avonlea" and "North of 60."

9114   In '99, based on this successful track record, the Commission listened to the broadcasters and rewarded them with additional flexibility by removing expenditure requirements and creating priority programming exhibition rules. Immediately after the decision, broadcasters reduced their spending on drama, leading to diminished choice for Canadian viewers.

9115   In '99, before there even were specialty channels, Canadians were offered 186 hours of one-hour drama. In 2007, with all the specialty and pay channels as well as conventional, there were just 119 hours on offer.

9116   Broadcasters shifted expenditures to low-cost programming that qualified as priority programming. They spent their money on entertainment magazine shows, reality programs masquerading as documentaries, and they took advantage of the ability to get credit for airing repeats.

9117   It is clear that priority programming has failed the Canadian public. That is why we are advocating the removal of priority programming rules and a move to specific exhibition and expenditure support for drama, documentaries and children's programming.

9118   The expansive definitions and rules for priority programming have also proven problematic. Given what we heard last week in these proceedings, we need to remember that the goal of priority programming is to support underrepresented programs, to make these kinds of shows a priority. It was never intended to support categories such as news, sports and reality TV shows because they can be supported by the marketplace.

9119   But priority programming has not achieved the goal of more high-quality dramas and true documentaries on our screens.

9120   Priority programming has shifted the emphasis for conventional broadcasters. For example, it has enabled them to fulfil their conditions of licence with entertainment magazine shows made eligible with the intention of creating a star system in Canada but it is hit dramas like "Flashpoint" and "Durham County" that have made Hugh Dylan a star, not entertainment magazine shows.

9121   Under priority programming the OTA's business model became, as Peter Miller described in his paper for the Commission:

"...one of filling the broadcast schedule with the maximum amount of big budget U.S. programming in the best time slots."

9122   They then fulfilled their minimum hours of Canadian programming, spreading the leftover funds thinly across the Canadian schedule. This is a Canadian-last approach.

9123   Recent consolidation has exacerbated the problem, deepening the broadcasters' pockets and allowing them to go on spending sprees in Hollywood.

9124   Last year private English-language broadcasters spent $53 million on Canadian drama but over $490 million on non-Canadian drama. Spending on Canadian drama went from 5.2 percent of ad revenue in '99 to only 3 percent of ad revenue in 2008.

9125   The WGC supports the move to corporate group licensing provided that necessary platform-specific regulation is applied. Group-based licensing is a more accurate reflection of the broadcasting landscape.

9126   However, there are differences between conventional discretionary and pay platforms which need to be taken into consideration. They have different audiences, business models and competitors that affect their revenues and their programming strategies.

9127   Maureen.

9128   MS PARKER: First, we looked at where the real problems lie. The conventional business model is now based on a schedule that is entirely dominated by U.S. programming. A group CPE would not address this because it would encourage broadcasters to relegate their CPE to the specialty side of their businesses and free up even more of their conventional schedule to U.S. programming. This would, as the Chair has said, reward inefficiencies.

9129   And CPEs on the specialty side are working. Specialty broadcasters spent over $1 billion on Canadian programming last year or 35 percent of their revenue, while conventionals spent $452 million or 21 percent of their revenue. Even in these dark economic times, specialty broadcasters are profitable, showing that a Canadian first approach and a CPE can work. Conventional broadcasters need to raise the bar with the CPE.

9130   CPEs for specialty services were developed as part of a competitive bid process and are often specific to the nature of service. However, a corporate group should not be able to take advantage of having a mix of services to use their naturally high CPE of a sports or news channel to balance channels with lower CPEs.

9131   We therefore recommend keeping the specialty CPEs where they are and instituting a CPE for conventional stations that increases their overall expenditure on all Canadian programming and brings it up to the level of the specialty services, around 35 percent.

9132   CTV, Canwest and Rogers are all currently spending 10 percent less than the specialties. There is no need to set customized conventional CPE figures.

9133   Kelly Lynne...?

9134   MS ASHTON: The next step is to specifically address the problem with the drop in drama spending by conventional broadcasters. Last year the English-language conventional foreign spend on drama was nine times what it was on Canadian drama and in 2007 it was more than 12 times greater.

9135   Specifically, CTV spent 4.1 percent of their revenues on Canadian drama, Canwest spent 2.5 percent and Rogers only 1.3 percent.

9136   The Commission recommended 6 percent as a fair target when it instituted the Drama Incentive Program in 2006. It has been suggested that a higher overall CPE will benefit all forms of Canadian programming so there is no need for drama specific targets; that we can trust broadcasters to spend more on drama. Well, based on past experience, we don't trust that that will happen.

9137   And overall CPE gives broadcasters too much flexibility. The only solution is a specific group CPE for drama. A group drama CPE would provide broadcasters with the flexibility to continue to license programming by station group, an area where it makes the most sense based on their various programming strategies. It reflects the business reality.

9138   Under this model Canwest could license a program and possibly air it on both Showcase and Global. It would then have the flexibility to allocate the expense to either their specialty or conventional side, as long as they met their group drama CPE. To mitigate the risk that Canadian drama might be relegated to the specialty side and lose its chance to garner mass audiences on the conventional stations, the group drama CPE must be paired with an exhibition requirement.

9139   The shows created through the group drama CPE would need to air at least once on the conventional broadcaster within two years of availability. Because of the exhibition requirement and the business need for broadcasters to capture mass audiences for revenue purposes, we believe they will commission high-quality programming. In combination with the expenditure requirement, Canadians will see an increased volume of high-quality Canadian drama.

9140   The plan also gives conventional broadcasters increased flexibility with their schedules because they will no longer have the requirement to broadcast eight hours of priority programming per week.

9141   We refer you to our proposed framework for a detailed discussion of how to set the rate for the group drama CPE. We agree with CTV and Canwest that each corporate group has a different mix of assets which should be factored into any spending formula. Certain specialties are drama heavy by their nature of service, while others are not.

9142   For each corporate group's calculation we use the Commission's goal that conventional broadcasters spend at least 6 percent of revenues on Canadian drama. We phased it in over a seven-year term and combined it with that group's existing spending by discretionary services on drama, to arrive at each corporate group's unique drama CPE.

9143   As we said, it is a complex solution, but this is a complex situation.

9144   We also see the need for targeted support for documentaries and children's programming. We ask that the Commission request from broadcasters separate reporting on true documentaries and children's programming prior to their licence renewal. At that time we could discuss the most appropriate group expenditure and/or exhibition requirements for those two categories.

9145   Cal...?

9146   MR. COONS: We urge the Commission to adopt our proposed regulatory framework. It is proportional and it is not a tax on profits. Since it is based on revenue, any additional revenue streams such as LPIF or value for signal are included in the base for the calculation of the expenditure requirement. If the broadcasters do not have those additional revenue streams, they still have to make a commitment to Canadian programming, just a proportionately smaller one.

9147   Such a formula is consistent with the Broadcasting Act, adjusting with circumstances and ensuring each element of the Canadian broadcasting system makes an appropriate contribution to the creation and presentation of Canadian programming.

9148   So why drama? Because Canadians want it. They vote with their remotes. In any given week 15 to 20 of the top 30 programs on the BBM listing are dramas. When Canadians have the chance to choose their regularly scheduled and well promoted high-quality Canadian drama, they watch it, as demonstrated by the audience numbers Flashpoint, 1.8 million; Rick Mercer Report, 1 million; and Heartland, 1.2 million.

9149   Now, how do we create even more successes for the Canadian viewer to choose from?

9150   Our submission also calls for a narrower definition of primetime. Top viewing hours are 8:00 p.m. to 11:00 p.m. Monday to Friday and because of a long-standing tradition of family viewing on Sundays, 7:00 to 11:00 p.m. on that night.

9151   Audience numbers tell the tale. Monday to Friday the jump in viewership from 7:00 to 8:00 p.m. can be as high as 3 million people. Large audiences still sit down in front of the TV sets to watch scheduled programming.

9152   Yes, there are more options out there for audiences to watch catch-up TV on their PVRs, VOD or online, but the majority of viewing is still to scheduled broadcast television.

9153   Canadian audiences deserve the chance to choose Canadian programming during the hours they want to watch television. A narrower primetime definition will encourage our broadcasters to prioritize our dramas when developing their schedules. It is a Canadian-first approach.

9154   But conventional broadcasters say our programming doesn't make any money and that they need to buy U.S. shows to pay for it. This just isn't true. As demonstrated in the study, The Economics of Canadian Television, conducted by Nordicity and attached to our submission, Canadian programming can and does make money for Canadian broadcasters. Nordicity found that Canadian drama and comedy hits can make money after just their first repeat airing on conventional television and less popular Canadian series can still make money after moving to the specialty side and airing in repeats.

9155   Canadian programming cannot readily be used as an excuse for over-spending in Hollywood.

9156   The quid pro quo of having a broadcast licence is the obligation to provide Canadians with a wide variety of Canadian programming. This is why broadcasters like CTV and Canwest have been licensed, not just to enrich their shareholders, but to provide Canadians with programming that reflects their attitudes, opinions, ideas, values and artistic creativity.

9157   Andrew...?

9158   MR. WREGGITT: Unfortunately, value for signal has become a dominant topic at these hearings. Broadcasters and BDUs battle in the front seat while the Canadian public and the creative industry sit in the back and watch the car fly off the road.

9159   Whatever you decide on this front, we urge you to keep in mind the goal of the Broadcasting Act is to provide Canadians with access to programming of their own. There is not much point in having Canadian broadcasters if their broadcast schedule is indistinguishable from their American counterparts. Why go to all the trouble of licensing them, protecting them from foreign competition and supporting them with simultaneous substitution and a host of other benefits if the Canadian public doesn't see their lives and stories reflected there?

9160   We have proven over and over again that Canadians can make great programming that the Canadian public wants to see. So why are they seeing less and less of it every year on their televisions?

9161   The creative community has been waiting 10 years for the 1999 TV policy to be revisited, and during that time the Canadian public has missed out on a lot of quality Canadian programming. I have seen a number of talented colleagues leave Canada for the U.S. because of lack of opportunity here. Writers and producers who are thriving in the U.S. because they are very good at what they do, we could have kept them here, adding their voices to our cultural landscape, but we lost them. And if we don't do something about it, we are going to lose more talented people and the Canadian public will once again end up the loser.

9162   The Canadian production industry has been on hold for the past year while the broadcasters wait for the outcome of this hearing. The development of new material is stalled. We are all holding our breath waiting to find out if we are going to end up with a viable truly Canadian television industry in this country, and every day that goes by diminishes us further as our talent pool leaks away searching for work elsewhere.

9163   We need the Commission to help us keep this car on the road.

9164   Our proposed new regulatory framework would make all the difference in the world: an overall CPE for conventional services; a corporate group drama CPE; a specific exhibition requirement for drama programming on conventional services; and, finally, specific expenditure and exhibition requirement for documentaries and children's programming.

9165   We think it's time the Canadian public was put back in the front seat.

9166   Thank you.

9167   THE CHAIRPERSON: Thank you for your submission.

9168   You say that the 1999 policy has been a mistake and I think we all come to that conclusion, so the time is to go back. You refer to the period before as the golden age of Canadian TV. Why are you not advocating a return to the rules that were in place prior to '99?

9169   MS PARKER: Well, because we believe -- and it has -- the broadcasting landscape has changed. There were not specialty discretionary services at that time. Really, we had the conventionals and that was pretty much it.

9170   THE CHAIRPERSON: Educate me. What were the rules before '99?

9171   MS PARKER: There were an expenditure requirement in 1999 for drama specifically and -- Kelly Lynne, can you help me?

9172   MS ASHTON: There were program specific expenditure and exhibition requirements and they were licensed by broadcasters, so it wasn't across the board for OTA. So CTV had its own expenditure and exhibition and Canwest had its own, what they were at that time.

9173   THE CHAIRPERSON: Yes, okay. And you now advocate CPE 6 at percent for drama and then a separate one for documentary and children.

9174   Why aren't you throwing the three together?

9175   MS PARKER: Mr. Chair, we didn't have enough data to make an educated assumption and how to exactly address documentary and children's, so we would actually need more reporting from the CRTC to ascertain what is being spent on documentary and children's programming.

9176   We do believe --

9177   THE CHAIRPERSON: But surely you have data on the supply side. You know how much it costs to produce a drama, how much a documentary, how much is children's programming. I mean, there must be means for each one of these that you should be aware of?

9178   MS PARKER: Well, not exactly. The Canadian Media Fund may have some of that data. Some of the documentaries are not produced in our jurisdiction, for example. Some documentaries may be labelled as lifestyle programming.

9179   I don't believe that we currently have anywhere to get all of that data completely.

9180   MS ASHTON: The CMF has a different definition than the CRTC. That makes it difficult.

9181   Also, children's is more of a definition of audience rather than programming. It covers a wide variety of content. It includes drama, but it can also include lifestyle or news even. It is defined by audience.

9182   What we really wanted to look at was the fact that just anecdotally you can see on the broadcaster, on the conventional broadcaster, that they are not supporting children's and we are seeing a drop in documentary. But we really need to see what they are doing before we can say what needs to be done to improve it.

9183   THE CHAIRPERSON: And why children's? I thought we had a very flourishing industry in terms of children's programming in Canada.

9184   MS ASHTON: On the specialty side.

9185   THE CHAIRPERSON: Yes.

9186   MS ASHTON: Which means that anyone with a young child needs to pay extra for that programming and we feel that that is a basic -- should be a basic condition of licence of over the air television, that it covers all of the audience, or the mass audience.

9187   THE CHAIRPERSON: And by creating the CPE for conventional you would see a transfer of some of those programs from specialty to conventional? That is the aim of it?

9188   MS ASHTON: We would just like to see some children's programming on conventional other than The Littlest Hobo. I'm sorry.

9189   THE CHAIRPERSON: Okay.

9190   Rita, you have some questions?

9191   COMMISSIONER CUGINI: Thank you and good afternoon.

9192   I just want to say right at the beginning I have more questions of clarification than anything else, because take it for granted that I have read your submission and all the appendices and so the rationale is quite fulsome in your submission. So I really have questions that pinpoint, like I say, just some areas that I require some clarification.

9193   You just touched upon the issue of the CPE with the Chair and I just want to dig a little bit further there and ask you why you are advocating a drama only CPE for all corporate groups.

9194   In your written submission you made a point of saying "including Astral and Corus".

9195   Why do you feel that Astral and Corus need a drama only CPE, as an example?

9196   MS ASHTON: I think we wanted to be able to treat those larger corporations in the same way. They do have -- Corus does have a couple of OTAs. It's not at all in the same method as a consolidated business.

9197   They do have also a mix of drama on their specialties. It seemed to be a way of consistent application of the policies.

9198   COMMISSIONER CUGINI: I know this is going to go from the sublime to the ridiculous, but when you say "all corporate groups", surely you're not thinking of Pelmorex having a drama only CPE?

9199   MS ASHTON: No, no. That's why within the proposed framework that we had that's as far down as we went.

9200   We would think that if this is something that you wanted to explore, then we would have to have -- we would have to look at this in a lot more detail to decide what the exclusions were.

9201   But definitely someone like Pelmorex would not be a part of that.

9202   COMMISSIONER CUGINI: Okay. You mentioned the 35 percent both in your written and in your oral presentation today, and I appreciate the fact that that is something that you are saying, you know, that it could be up to 35 percent.

9203   And the percentage that would be then, as you say, 6 percent of revenues to be allocated to drama, would that be on top of the 35 percent or is the 6 percent part of the 35 percent?

9204   MS PARKER: It's part of the 35 percent.

9205   It is a complicated formula, the drama formula. It's not quite 6 percent. Six percent is a factor in the calculation to bring the OTAs up to a higher level of spending on dramatic programming.

9206   So if you look at the submission, particularly I think it is Appendix A --

9207   MS ASHTON: Table 4.

9208   MS PARKER: Table 4, Appendix A, you will see it's an amalgamation of two charts, one moving OTA up to 6 percent and then looking at currently what the specialty channels' obligations are to dramatic programming.

9209   COMMISSIONER CUGINI: Yes, I do appreciate the fact that both in your written and oral submission you said it's not that easy.

9210   MS PARKER: It's so not easy.

9211   MS ASHTON: It's not.

9212   COMMISSIONER CUGINI: Now, one thing you haven't suggested is how many hours of drama that exhibition requirement should translate into.

9213   I'm wondering if you have an idea as to how many hours that should be?

9214   MS PARKER: Well, I guess the idea behind this is we do want it to be flexible and by not say what type of drama the broadcasters need to make. They can license it over their station groups, they can allocate as they choose. They may choose to make an MOW. They may choose to make dramatic series, one hour. They may choose to make half-hour comedy.

9215   So it is really impossible to target how much drama that will mean.

9216   We have done some calculations and I believe it is approximately 140 hours of --

9217   MS ASHTON: Just sort of playing with numbers, we looked at well, for example, CTV at the end of the seven years that we had projected out, how many extra additional hours would it be at current licence fees. So they are not paying the whole budget. They are only paying, you know, like 30 percent of the budget. It could be as much as 140.

9218   There is a lot of ifs in that, though.

9219   COMMISSIONER CUGINI: Okay. You know, if you have been following the hearings -- and I'm sure you have -- flexibility has been a major theme, both in this hearing and in hearings in the past.

9220   For example, let's take the Rogers example where they say that there is no point in putting a drama requirement on us, drama is not our focus. We are in five major markets, we really believe that to distinguish ourselves from Canwest and CTV, we need to focus on local.

9221   You don't buy that argument?

9222   MS PARKER: Nope, we don't buy that at all. I mean, local programming is far less expensive to make and I'm sure if I were Canwest and CTV I wouldn't be feeling that that was quite fair, if Rogers was not required to make dramatic programming.

9223   It is the crown jewel of what we do in terms of programming in this country. It is expensive, but if we do it right it attracts a large audience.

9224   I would just like to say that Cal, to our left, is actually working and has -- I'm sorry, I don't think you are working right now, but maybe you are coming back, but has been the show runner for Murdoch Mysteries on CTV, Rogers -- City. Sorry, City. Sorry, City.

9225   COMMISSIONER CUGINI: So you want to see every OTA broadcaster with not only a CPE but a drama CPE, regardless of -- okay.

9226   MS PARKER: Yes.

9227   COMMISSIONER CUGINI: Your redefinition of primetime. First of all, do you still maintain that primetime is 6:00 to midnight?

9228   MS PARKER: No.

9229   COMMISSIONER CUGINI: No, no, not the core of prime. Primetime is 6:00 to midnight?

9230   MS PARKER: Oh, yes. Yes, we do, I'm sorry.

9231   COMMISSIONER CUGINI: Because you do say that you would still like us to have a requirement that 50 percent of programming be Canadian and that is from 6:00 to midnight.

9232   MS PARKER: That's correct.

9233   COMMISSIONER CUGINI: All right.

9234   Now, you want to redefine the core of prime --

9235   MS PARKER: That's correct.

9236   COMMISSIONER CUGINI: -- from 7:00 to 11:00 to 8:00 to 11:00, Sunday to Saturday.

9237   Only drama and documentaries are to air -- Sunday to Friday, sorry. Right?

9238   MS PARKER: Yes.

9239   COMMISSIONER CUGINI: That's your proposal?

9240   MS PARKER: Yes.

9241   COMMISSIONER CUGINI: Sunday to Friday?

9242   MS PARKER: Yes, yes.

9243   COMMISSIONER CUGINI: Okay. One rationale that I didn't quite understand is with the elimination of priority programming, with the elimination that you are suggesting, that the requirement of eight hours, you redefine the core of prime to be from 8:00 p.m. to 11:00.

9244   MS PARKER: Yes.

9245   COMMISSIONER CUGINI: And therein drama and documentaries would air?

9246   MS PARKER: Yes.

9247   COMMISSIONER CUGINI: Is that your position?

9248   MS PARKER: That is our proposal, yes.

9249   COMMISSIONER CUGINI: With your emphasis on children's programming, of course it is not going to air between 8:00 and 11:00, but is there a suggestion that if conventional broadcasters do air children's programming they would get time credit against 8:00 to 11:00?

9250   I'm trying to understand why it is that you have grouped these three categories of programming together when they can't air in that core of prime.

9251   MS PARKER: That's a very good point. I think what we were doing when we looked at these three categories of programming, we were identifying the areas where the OTAs are not delivering that programming. So we weren't necessarily considering, you know, how children's would play off a core prime.

9252   We do of course understand that they wouldn't be on from 8:00 to 11:00, and we could consider a credit. It's something we haven't talked about, but we could consider that for December 14th.

9253   COMMISSIONER CUGINI: Okay.

9254   Your position on independent production is clear so I don't have questions -- except one thing you have done is not talked about regional production.

9255   MS PARKER: In terms of independent production?

9256   COMMISSIONER CUGINI: Yes, and how it can be attributed to priority programming. You don't make any mention of regional producers in your submission.

9257   MS PARKER: Well, we do have a problem with priority programming and regional programming. We have found over the last couple of years that regional programming can be a way around the true intent of priority programming, which is to put underserved genres of production on the air.

9258   In particular, we have had shows that may not qualify under the priority programming being produced in the regions and falling into the eight hours.

9259   So we do think there has to be a readjustment along those areas.

9260   Now, drama can be produced anywhere across the country and we consider that has its own regional base inherent in that position.

9261   COMMISSIONER CUGINI: Because I'm sure you can appreciate the difficulty sitting up here when we just had a panel this morning --

9262   MS PARKER: Of course.

9263   COMMISSIONER CUGINI: -- of regional producers saying don't forget about us.

9264   MS PARKER: Of course.

9265   COMMISSIONER CUGINI: -- and balancing, though, the needs or the expression that they can deliver to the Canadian broadcasting system with now you coming and saying yes, but it's kind of been gained a little bit.

9266   MS PARKER: Well, I think that is actually with respect to certain genres of production, perhaps lifestyle and entertainment magazine shows.

9267   Also, we are national association so we have members living in every province in the country and they produce drama. Our proposal for the OTA of 35 percent in group drama does apply to every Canadian in every production centre.

9268   COMMISSIONER CUGINI: Another major theme that has come through during the past six days of this hearing, we have been asking people to look for industry solutions to all the issues facing us.

9269   So in that context have you had an opportunity to talk to broadcasters prior to submitting your proposal to us?

9270   Because based on your reaction I'm going to assume no.

--- Laughter

9271   COMMISSIONER CUGINI: Would you see any benefit in doing so?

9272   MS PARKER: We are always open to discussion, and I think having waited such a long time to be here and discussing this policy, we are all well aware of each other's problems and absolutely we would be open to discussing it.

9273   We have heard from them in the past that they do not want their businesses to be micromanaged. We are coming at it from a totally different perspective, saying you are not delivering what is required by the Canadian public. So somehow we have to merge those two polar positions.

9274   But absolutely, we would be very prepared to discuss with all of the broadcasters our ideas of an OTA expenditure requirement and the group drama.

9275   And I do think that it has inherent benefits for them, I'm sorry, in particular the group drama. It's very flexible and it allows them to determine what type of program they want to invest in, how to promote it and schedule it.

9276   COMMISSIONER CUGINI: And my last question to you is going to be just that, in terms of if we take the sum total of your recommendations, to give you a last opportunity to convince us that this addresses the objective of streamlining regulation, giving broadcasters flexibility and of course giving Canadians the kind of programming they want to watch, how does the sum total of your recommendations do all that?

9277   MS PARKER: Well, I think you know, that the Canadian public has been very underserved in terms of dramatic programming and that has obviously been the thrust of our presentation today.

9278   When we look at ratings we know that if we make good dramas and we promote and schedule them, they will bring in good numbers.

9279   The finale for Corner Gas I find outstanding. It was 2.9 million. That is an outstanding number in our fractured market: French, English, diverse population.

9280   And just Flashpoint, for example, 1.8 per week. Again, in our fractured marketplace those are outstanding numbers.

9281   Heartland, a TV series on Sunday nights, CBC, 1.2.

9282   You know, it just comes back to the message that Canadians do want dramatic programming, but of course they are like everyone. We want things that are well done.

9283   So we think that our proposal gets you there.

9284   Streamlined? I think it is streamlined when we strip it. It's very hard to explain in a 15-minute presentation and, believe me, we struggled with writing those sections. But I think it does afford the broadcasters a fair degree of flexibility and we would always be prepared to listen and adjust. It is a model. You know, it's an idea.

9285   We wanted to come up with something new for this hearing that we think would address the real root of the problem, which is dramatic programming and the excessive spend on foreign dramatic programming.

9286   COMMISSIONER CUGINI: Thank you very much. Those are my questions, Mr. Chairman.

9287   THE CHAIRPERSON: Michel...?

9288   COMMISSIONER ARPIN: Thank you, Mr. Chairman. Only a couple of questions.

9289   My first one is, did I hear you well when you said that you were looking for an over the air CPE for the Astral TV stations and the Corus TV stations?

9290   MS ASHTON: No, it was the group drama rather than --

9291   COMMISSIONER ARPIN: The group drama.

9292   MS ASHTON: Including Astral and Corus, including the larger companies.

9293   COMMISSIONER ARPIN: I'm don't know if you understand, but both companies you are playing with CBC affiliates, so they are running the CBC drama content and imposing them supplementary obligations for a TV station of the size of Dawson Creek and Terrace, B.C.

9294   MS ASHTON: These are not essential points of our proposal. We are really focused on Canwest and CTV and Rogers.

9295   COMMISSIONER ARPIN: I see.

9296   MS ASHTON: If there are problems with including Corus and Astral, we are very happy to go back and look at that.

9297   COMMISSIONER ARPIN: Because you have the same thing with Newcap in Lloydminster and a few others. In all instances they are always CBC affiliates.

9298   Now, in your oral presentation, in the first paragraph of Mr. Coons' oral presentation, you are saying that the revenue shall include LPIF contribution.

9299   Aren't you diverting the LPIF, which is made for local programming in the local market, towards your own objective?

9300   MS PARKER: Well, I guess our question back would be: Would they be planning to include LPIF expenditures in their calculations?

9301   We want to make it balanced. So if they are going to include expenditures as part of their reporting and costs, then revenue has to be reported as well.

9302   COMMISSIONER ARPIN: But for the purpose of the CPE?

9303   MS PARKER: That's correct, for the purpose of the CPE.

9304   COMMISSIONER ARPIN: Because the purpose of the LPIF is to sustain local production and local markets of size lower than 1 million habitants. So you're talking again with the Dawson Creeks of this world, but up to Winnipeg, mind you, the size.

9305   MS PARKER: We have no intention of diverting much needed revenue away from local programming. We are just saying it is part of a calculation. So if we want the calculation to be fair, then if they are going to include the expenditures that come along with local programming, then the revenue.

9306   So if they want to exclude those expenditures, we of course would not include the revenue.

9307   COMMISSIONER ARPIN: Okay. Fine. Those were my questions.

9308   THE CHAIRPERSON: Len...?

9309   COMMISSIONER KATZ: Thank you, Mr. Chairman. Good afternoon.

9310   I was reading the Nordicity study that was filed in September 2009 and if I can direct you to it -- it would be a shame if no one asked you questions on it, you probably spent so much money on it.

9311   On page 1, in the third paragraph there is a reference about the objective.

9312   It says:

"Rather, the objective of this report is to demonstrate that Canadian programming can..."

9313   And you have underlined the word "can".

"... be profitable for Canadian broadcasting groups in situations that reflect Canadian advertising market conditions, average audience levels for Canadian programming and the repeat factors." (As read)

9314   Then when I look at page 14 of your submission today, in the second full paragraph you say:

"As demonstrated in the study of the economics of Canadian television conducted by Nordicity and attached to our submission, Canadian programmers can and does make money for Canadian broadcasters."

9315   So I look at these two and one says it can, the other says it can and it does.

9316   I will put it in context for you. I guess I need a better understanding as to whether it does or not because earlier this year, as you are well aware, we had in camera meetings with the three conventional TV broadcasters, all of whom have provided us with some level of comfort that their foreign programming is making a contribution and a profit. And notwithstanding how much it is and everything else as well, which was confidential obviously, if 2008 numbers indicated that the broadcasting community in Canada virtually broke even and the foreign component is making money, then one would assume that the Canadian component is barely break even, if not losing money, to offset the strength of the foreign.

9317   So first of all I'm trying to understand whether it actually does make money or not, then whether there is an additional study to the Nordicity one that takes the "can" to a "does" or whether there is something that I'm missing between the wording in one and the report of the other?

9318   MS PARKER: I don't think so. I think that what we are saying is that of course with any market some programs make a lot of money, some make a moderate amount of money and some do not make money. That happens in any market, the same as in the U.S. Not all of their programs make money.

9319   The focus of the Nordicity study is based on two models -- actually more than two, but several models. But one, for example, that looks at hit Canadian programming, let's say a Flashpoint with a 1.8. Under the analysis that we provided you in this report it appears -- and Dustin from Nordicity is here with us, who has compiled and worked on this report -- that after one repeat a Canadian program with highly rated numbers, such as Flashpoint, does recover their broadcaster, their licence fee portion.

9320   Now, when we look at other one-hour dramas, these one-hour dramas do not recover their costs in the conventional markets, but rather need specialties in order to recover the broadcaster's investment, and the average seems to be about 25 repeats.

9321   Now, I know that we have brought this study to you before, last year, and there were some questions about the methodology. We believe that that has been refined and we have had another go at that. So we do believe that the analysis is fairly complete.

9322   Again, these are estimates and guesses because we have not been able to get figures from the other side of the industry, and while I appreciate that you have been able to, we have been working in the dark.

9323   In our opinion, we are the ones providing you with factual evidence, but yet we have never had a chance to respond to what they are bringing forward.

9324   You know, we were discussing something that happened at the IEC conference last week, and we were talking about revenue generated for a particular project where I believe one of the participants was discussing his understanding of how that project was financed. Well, we disagree with that and we actually have additional information. But in order to have that fulsome discussion we need to have all of the evidence put forward and we need to be in the same room to actually knock that about a bit.

9325   But, you know, I guess what we are saying is that we have done an analysis. If you read the report, you will see that we base this on conversations with producers who have actually budgeted these particular shows. We have looked at the number of repeats. We have looked at patterns.

9326   Dustin, is there anything that you would like to add?

9327   MR. CHODOROWICZ: No. Maureen, yes, that sums up the general approach of the report. It was basically a bottom-up calculation and a very cash-based accounting as opposed to an accrual-based accounting to how programming is amortized per se.

9328   Certainly the key assumption or the key variable that we find once you get outside of the hit programming category, as Maureen pointed out, is the number of repeats. I think in the first version of the report that was an assumption that wasn't well supported, so we did go back in the second version and utilize the CRTC's own program logs to establish some reasonable range for the number of repeats. Once we did that, we found that Canadian programming outside of the hit audience category could be breakeven or profitable.

9329   COMMISSIONER KATZ: But your report does not say it does make money; you are saying it can make money. The evidence filed today says it does.

9330   So is there something that takes that to the next step?

9331   MS PARKER: No. You know what, we should probably take out that "does" and just leave it at "can".

9332   COMMISSIONER KATZ: Okay.

9333   And when you are saying it can make money, the analysis that you have done in the Nordicity study is looking at the pure incremental costs and the incremental revenue of the business. You are not looking at all the fixed costs associated with the infrastructure and running of the broadcasting system?

9334   MR. CHODOROWICZ: Well, in terms of the overhead costs that the conventional and specialty television services incur, in that case we did use the average costs, basically taking those costs, both fixed and variable overhead costs, the administrative costs, the marketing costs, and dividing them by our distributing costs across the average number of hours of programming transmitted per year to arrive at a figure that we could allocate to each hour of programming or half hour of programming in our calculations.

9335   COMMISSIONER KATZ: Okay.

9336   And I take your point, Ms Parker, that we have a disconnect because we have data here that you don't have, other than the fact that you can take our word for it. I mean, at the end of the day some of that stuff is confidential so I'm sure you can appreciate it. But we are looking at ways of making more data available to the extent we can without compromising any of the carriers as well.

9337   MS PARKER: I truly do understand your dilemma. I guess we feel that we are presenting factual information and that if it appears to be inaccurate, we would love to have that discussion.

9338   COMMISSIONER KATZ: Thank you, Mr. Chairman.

9339   THE CHAIRPERSON: Steve...?

9340   COMMISSIONER SIMPSON: Thank you very much.

9341   Thank you for coming today.

9342   If I may go back to something that is a clarification I need because I don't quite understand the semantics of it, when you are calling for exhibition and funding guidelines, are you talking pure percentages or are you talking relationship to revenues of the broadcaster?

9343   MS PARKER: Well, the OTA is an expenditure based on a percentage of revenue and the revenue calculation will determine on what's in and what's out.

9344   We just had that discussion with LPIF. Again, this is a model and we are all very prepared to treat this as a model and figure out the best way to move this forward.

9345   So it's a percentage of revenue and the exhibition requirement really is must accompany the expenditure to ensure that it actually ends up on the conventional broadcaster's schedule.

9346   COMMISSIONER SIMPSON: So you are consistent with CFTPA's position on that, because they had indicated an attachment to revenue. I just wanted to make sure I was clear on that.

9347   May I asked a few questions about -- and these are more to do with the genres of drama today, because drama ostensibly seems to me to always be typified in these conversations as being high value, high drama in high-value portions of the broadcast day. I would like to try and sort of flesh out some understanding of other areas for opportunity that I haven't heard discussed in this week and a half.

9348   The first is to do with your position as writers on the phenomena we are seeing toward -- I don't want to call a docudrama, but unscripted drama, which I think is coming as a hybrid out of people's appetites for reality television. I'm thinking of shows like Curb Your Enthusiasm, which is in my mind a very entertaining television show, but it is a hybrid.

9349   I'm wondering if you have a position on that type of production that obviously uses the creative talents of writers, but not necessarily to the fullness of their word processing abilities.

9350   MR. COONS: The truth of a show like Curb Your Enthusiasm is that it is scripted in a form, and I would argue that probably most reality programming is scripted and most documentary is scripted in the sense that you create a number of scenes that take you through a story. You know, I know that certainly on Curb Your Enthusiasm the writers create beats, stories and within that moment they ad lib. That's a technique to do it. That is one way to do it.

9351   I think that what you are really talking about is this is the way we do it right now and we have enjoyed a period where, you know, audiences have liked reality programming and they have liked documentary. They have also liked high -- what we would call high-quality drama.

9352   The thing is, it's fickle. It's just the nature of the audience. We are searching for the next idea. As writers it's our job to find what's next. Whatever the hybrid is, whatever that is, the skillset of a Larry David, who creates Curb Your Enthusiasm, dictates that is how you make the show.

9353   You know, other shows don't work that way. It is just simply what comes and goes.

9354   We can't imagine where we will be in 10 years. You know, there could be another hybrid of something else. It evolves, it changes and we move through that into the next thing. That's what we try to capture, is what the audience wants. We don't know.

9355   I have a personal -- you know, it's very difficult to understand the idea that we have lifestyle or -- not lifestyle, but reality programming which in fact, you know, replaces comedy, which in fact replaced -- the consistent through it is that from when we were in caves until now we like stories. We like good stories told that were about things that we knew and associated with.

9356   And the way we trick the audience into telling it and feeling that it's fresh, you know, that changes, but you always come back to that core thing. I think that what earns the Canadian viewer -- what earns the respect of the Canadian viewer and the Canadian audience is a show that is crafted well. You know, it doesn't matter what it is, except that at the heart of it is a written group of ideas.

9357   We certainly don't set out on a documentary very often without a guess at what we are going to get.

9358   COMMISSIONER SIMPSON: It seems like standup comedy: it seems spontaneous, but it's extremely crafted.

9359   MR. COONS: It's not. It's not.

9360   COMMISSIONER SIMPSON: Extremely crafted.

9361   MR. COONS: And that's the illusion you pull.

9362   COMMISSIONER SIMPSON: Yes.

9363   MR. COONS: I hope that answers the question.

9364   COMMISSIONER SIMPSON: It does. I'm looking at it as an appetite the audience seems to be going to. The other --

9365   MR. COONS: I think it's temporary. You know, frankly -- and I don't mean that it might not last for years but, you know, audiences change. That's their nature, right. That's our job, is to provide them with it.

9366   COMMISSIONER SIMPSON: Yes. My other question --

9367   MS PARKER: That said, just to get --

9368   COMMISSIONER SIMPSON: I'm sorry.

9369   MS PARKER: -- the main note on that, is that it is scripted. There is an outline, there are scenes. You know, where they actually ad lib -- and I think it's very funny too, I really like last week's episode, is the actual dialogue, and that's because he's got a very long rapport with this particular set of actors and he is a completely unique creator who is putting up his own money to make this production.

9370   COMMISSIONER SIMPSON: Where I was asking this question from in terms of a point of view was that I have been struggling myself with the same type of production but taken from the other end, the other end being of subsistence level programming, where it is really a documentary that tries to pass as drama. And that's where I think I was trying to understand your view of I think better example of the two, which does take a lot of effort and production.

9371   The other question I have comes from the view of building an industry which takes all types of productions at all types of production levels, but the idea is keep working, build an industry from a variety of footings.

9372   I have noticed in this country in contrast to the United States, which always seems to be the bellwether I guess by which we measure ourselves -- in the United States there is anywhere from between 10 and 15 hours a week of dramatic programming, scripted dramatic programming -- a.k.a. soaps or whatever you want to call them -- that are very profitable, very long-running and fill out the other day part, which is daytime.

9373   I don't see a lot of that in Canada and I'm wondering if you could tell me why. Because it would seem a natural to be a vehicle for the Canadian narrative.

9374   MS SCHECHTER: If I could, I have worked on a number of productions through my career that have attempted to either fill that gap just as you are saying, because it seems logical. But, you know, it hasn't historically worked here. We have had a number of attempts at daytime soap operas that haven't worked.

9375   Right now, the daytime soap industry in the States is failing really severely. It sort of never recovered from O.J. Simpson actually and now things are just getting worse and worse and shows are disappearing.

9376   So it is a difficult, difficult model to sustain here and I don't really feel like -- if we could have one, it's not a bad training ground for people to emerge from it to actually, you know, get the nuts and bolts of their craft and start to write stuff that's of higher quality. But there are other ways to get that experience that do work in this country.

9377   I think that's, you know, what we need to build.

9378   COMMISSIONER SIMPSON: Other ways that could also potentially involve coproduction with the networks, because that is really where the soaps started. It was a very obvious studio production and that was part of the view to my question, was ways to coproduce with networks to get networks involved in producing programming again.

9379   MS SCHECHTER: Do you mean in-house?

9380   COMMISSIONER SIMPSON: Well, not necessarily in-house, but collaboration.

9381   MR. COONS: I think, Becky, in addition, Becky and I both worked on the same -- a soap opera I call Metropia. But the thing is, you know, that was a commitment for 90 episodes, right. I mean, you are talking about shows like if you were talking The Brave and the Bold or The Edge of Darkness, these are commitments --

9382   COMMISSIONER SIMPSON: Dark Shadows.

9383   MR. COONS: -- for 10, 15 years of production that they are committed to do with enormous amounts of, you know, of amortization, of production over the course of it could be decades if the show works.

9384   I think that from a broadcast point of view you have to be committed to doing that and I don't know that that is kind of a financial game they want to get into frankly. I think that is the way those shows build and, you know, maintained my mother's interest for the last 30 years, you know, is loyalty.

9385   MS SCHECHTER: The American daytime industry comes from radio, right. That's originally where sort of those soaps started. I think that, you know, we have enough trouble with getting an audience to pay for our dramas when you have the primetime size of audience. When we do well, we can pay for our dramas, but the audience in daytime is so small I think that the financial model is extremely weak and that is why most of the attempts -- and there have been a number of them. I know personally of at least four to do that that haven't sustained more than a season.

9386   COMMISSIONER SIMPSON: Besides, we have CPAC.

--- Laughter

9387   COMMISSIONER SIMPSON: Thank you, I'm done. Thank you.

9388   THE CHAIRPERSON: Well, thank you very much for your presentation. You say it is flexible, effective but complex. It certainly is complex, but I gather you are test marketing it with us, and we will see what the broadcasters say in their final reply by December 13th(sic). And anything you can do to simplify it would be appreciated.

9389   So thank you very much.

9390   I think that's it for today, Madam Secretary. We will start at 9 o'clock.

9391   MS PARKER: Thank you very much for your time. Thank you.

9392   THE CHAIRPERSON: You are most welcome.

9393   We will start tomorrow at 9 o'clock.

9394   COMMISSIONER ARPIN: You said December 13th. It's December 14th.

9395   THE CHAIRPERSON: I'm sorry, I am being corrected. It's December 14th, not December 13th. Sorry.

--- Whereupon the hearing adjourned at 1635, to resume on Tuesday, November 24, 2009 at 0900

   REPORTERS

____________________      ____________________

Lynda Johansson         Jean Desaulniers

____________________      ____________________

Monique Mahoney         Fiona Potvin

Date modified:

2009-11-24