ARCHIVED - Transcript, Hearing 21 September 2010
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TRANSCRIPT OF PROCEEDINGS BEFORE
THE CANADIAN RADIO-TELEVISION AND
To consider the broadcasting applications listed in Broadcasting Notice of Consultation CRTC 2010-498
Four Points by Sheraton
2875 Sunridge Way NE
September 21, 2010
In order to meet the requirements of the Official Languages
Act, transcripts of proceedings before the Commission will be
bilingual as to their covers, the listing of the CRTC members
and staff attending the public hearings, and the Table of
However, the aforementioned publication is the recorded
verbatim transcript and, as such, is taped and transcribed in
either of the official languages, depending on the language
spoken by the participant at the public hearing.
Canadian Radio-television and
To consider the broadcasting applications listed in Broadcasting Notice of Consultation CRTC 2010-498
Konrad von Finckenstein Chairperson
Len Katz Commissioner
Rita Cugini Commissioner
Peter Menzies Commissioner
Marc Patrone Commissioner
Jade Roy Secretary
Stephen Millington Legal Counsel
Rachel Marleau Hearing Manager
Four Points by Sheraton
2875 Sunridge Way NE
September 21, 2010
- iv -
TABLE OF CONTENTS
PAGE / PARA
Shaw Communications Inc. 5 / 26
Canadian Cable Systems Alliance 119 / 685
- v -
Undertakings can be found at the following paragraphs:
514 and 609
--- Upon commencing on Tuesday, September 21, 2010 at 0832
1 THE CHAIRPERSON: Good morning, ladies and gentlemen. We will now proceed with the second public hearing.
2 Our panel today consists of: Len Katz, Vice-Chair; Rita Cugina, Acting Vice-Chair, Broadcasting; Peter Menzies, Regional Commissioner for Alberta; Marc Patrone, National Commissioner; and myself, Konrad von Finckenstein, Chairman. I will be presiding over this hearing.
3 The Commission team assisting us includes: Rachel Marleau, Hearing Manager and Manager of Corporate Analysis and Ownership; Stephen Millington and Moïra Letourneau, Legal Counsel; and Jade Roy, our Hearing Secretary.
4 At this hearing we will consider Shaw Communications' application to acquire the conventional television stations and specialty channels owned by Canwest Global Communications.
5 Given the size and scope of the proposed transaction, the panel will want to discuss its potential impact on the Canadian television market. We will focus on the following issues, in the following order: vertical integration; diversity of voices; valuation; and the benefits package.
6 Obviously there will be other issues that we will cover, as well.
7 Following the hearing, the Commission will issue its decision within 35 days.
8 I would now like to ask the Hearing Secretary, Madam Jade Roy, to explain the procedure that we will be following today.
9 THE SECRETARY: Thank you, and good morning.
10 Before beginning, I would like to go over a few housekeeping matters to ensure the proper conduct of the hearing.
11 When you are in the hearing room, we would ask that you please turn off your cell phones, beepers and BlackBerrys, as they are an unwelcome distraction and they cause interference on the internal communication systems used by our translators. We would appreciate your cooperation in this regard throughout the hearing.
12 We expect the hearing to take two and a half days. We will let you know of any schedule changes as they may occur.
13 The Spruce Room, which is located on the 7th Floor, will serve as the examination room, where you can examine the public files of the application being considered at this hearing.
14 As indicated on the agenda, the telephone number of the examination room is: 403-262-3903.
15 Le service d'interprétation simultanée est disponible durant cette audience. Vous pouvez vous procurer un récepteur auprès du technicien à l'arrière de la salle. L'interprétation anglaise se trouve au canal 2 et l'interprétation française au canal 3.
16 Interpretation services will be available throughout the duration of the hearing. English interpretation is available on Channel 2, and French interpretation on Channel 3.
17 We would like to remind participants that during their oral presentations they should provide a reasonable delay for the interpretation, while respecting their allocated presentation time.
18 There is a verbatim transcript of this hearing being taken by the court reporter sitting at the table in front of me. If you have any questions on how to obtain all or part of this transcript, please approach the court reporter during a break.
19 Please note that the full transcript will be made available on the Commission's website shortly after the conclusion of the hearing.
20 And now, Mr. Chairman, we will start with Item 1 on the agenda, which is a non-appearing application by Canwest Global Communications Corp., Application No. 2010-08-540.
21 Interventions were received for this application. The panel will consider these interventions along with the application, and a decision will be rendered at a later date.
22 We will proceed with Item 2, which is an application by Shaw Communications Inc., on behalf of Canwest Global Communications Corp. and its operating subsidiaries/licensees, for authority to transfer the effective control of Canwest Global's broadcasting entities to Shaw, through a wholly-owned subsidiary of Shaw known as 7316712 Canada Inc.
23 Appearing for the applicant is Mr. Jim Shaw.
24 Please introduce your colleagues. You will then have 20 minutes to make your presentation.
25 Thank you.
26 MR. JIM SHAW: Thank you.
27 Good morning and welcome to Calgary for another warm day. Hopefully it's going to be a warm week this week.
28 My name is Jim Shaw, CEO and Vice-Chair of Shaw Communications. We are excited to be here today, in our hometown, to request your approval of this historical Shaw acquisition.
29 We are also very pleased that J.R. Shaw, the Chairman of the Board and our founder, and my sister Julie Shaw, to be joined later by Heather Shaw, and the matriarch of our family, Carol Shaw, will be with us here today to go over what we think is a good building for broadcasting.
30 We are also joined by Director Adrian Burns, and by Mike O'Brien, our Lead Director on the Shaw Board.
31 We would like to begin by thanking Chris Johnston for his valued advice throughout the acquisition and application process. We regret that he cannot join us today, but we want to express our deep appreciation for his wise counsel and send our warmest thoughts to Chris and his family.
32 I will ask Ken Stein to introduce our team.
33 MR. STEIN: Thank you.
34 On our panel, Jim is joined by Peter Bissonnette, President; Brad Shaw, Executive Vice-President; Steve Wilson, on my left, Chief Financial Officer; and on the far right, Paul Robertson, Group Vice-President of Broadcasting.
35 Behind us we have Michael D'Avella, Senior Vice-President of Planning; Jean Brazeau, Senior Vice-President of Regulatory Affairs; Cynthia Rathwell, Vice-President of Regulatory Affairs and Programming; Stephen Zolf, partner at Heenan Blaikie; and Vince Mercier, partner at Davies, Ward, Phillips & Vineberg.
36 As well, on the far right is Peter Viner, Canwest President and CEO, Canadian Television; and Barb Williams, Executive Vice-President.
37 As well, we have Charlotte Bell, Senior Vice-President of Regulatory Affairs, Canwest.
38 That is our panel.
39 MR. JIM SHAW: Mr. Chairman and Commissioners, Commission approval is the last step required to end nearly a year of creditor protection and 18 months of financial uncertainty. It has been a difficult road.
40 A large team has worked together to resolve a range of complex issues and to plan a future as one of Canada's leading content providers.
41 Let us be clear. The most important benefit of this acquisition is saving the Global Television Network.
42 Peter will now explain how we have made this possible by overcoming the challenges of acquiring effective control.
43 MR. BISSONNETTE: Thank you, Jim.
44 Shaw's acquisition ends the uncertainty and preserves the future of Canwest's broadcasting assets, including the over-the-air stations.
45 This transaction creates exciting new opportunities for independent producers and unaffiliated broadcasters, preserves diversity, and allows us to offer Canadians strong choices in a rapidly evolving media landscape.
46 Global has a proud history, beginning with a single station in Winnipeg. The Asper family grew that first station into the second largest broadcast group in Canada, entertaining viewers from coast to coast, providing national news and local news from 11 cities, across seven provinces, financing independent production throughout the regions, and creating an integrated business model to strengthen its total program offering.
47 The odds of this entity surviving the insolvency as a whole were not high, given the very complex ownership structure and economic interests at play.
48 Achieving control required clear-headed commitment to our goals and a willingness to assume risk.
49 The bidding process was a competitive and open one. What began as a canvass of over 90 potential investors ended with two formal bids. Shaw's agreement to acquire control was approved by Canwest's Board of Directors, and subsequently by the Ontario Superior Court, on February 19th, on the basis that it was in the best interest of the corporation and the stakeholders.
50 Shaw was considered by creditors, the CCAA Monitor and the Court to be a strong strategic investor whose industry experience could revitalize the company.
51 We secured our successful bid through a very challenging, Court-supervised process, involving an extensive market canvass, highly sophisticated parties and extremely difficult negotiations. Failure would have resulted in the break-up of the specialty and over-the-air channels.
52 While the resolution about standing matters with Goldman Sachs was a condition of closing, there were several ways that this could have been achieved. Subsequent events led to our decision to acquire all of the equity of Canwest Global and CW Investments Co. Shaw took the risk and resolved the outstanding issues with Goldman Sachs through Court-directed mediation.
53 When approving the CCAA Plan, Madam Justice Pepall of the Ontario Superior Court stated that the Shaw acquisition:
"...will ensure the continuation of employment for substantially all of the employees of the Plan Entities and will provide stability for the CMI Entities, pensioners, suppliers, customers and other stakeholders. In addition, the Plan will maintain for the general public broad access to and choice of news, public and other information and entertainment programming. Broadcasting of news, public and entertainment programming is an important public service, and the bankruptcy and liquidation of the CMI Entities would have a negative impact on the Canadian public."
54 Before we address the opportunities we envision, Peter Viner will now explain the experience of the company while it was under CCAA protection.
55 MR. VINER: Thank you, Peter.
56 We are very proud of the fact that Canwest maintained high quality programming during increasingly difficult circumstances under CCAA protection.
57 The financial difficulties that we faced for almost 18 months have taken a serious toll on the company and its employees.
58 Even before the CCAA filing in October, we experienced significant tightening of credit, due to publicized defaults and the resulting uncertainty. Maintaining the operational performance became increasingly difficult.
59 In some cases, Canadian television producers asked for advances and escrow payments of licence fees and letters of credit. Certain productions were even put on hold, and major U.S. studios demanded standby letters of credit as a condition of renewing program supply agreements. This effectively meant that we had to prepay programming well before it was aired.
60 Large advertising agencies advised us that their clients planned to reduce their spend on our television networks.
61 Maintaining employee morale was very difficult, and the CCAA proceedings posed significant risk to the key personnel who we thought might leave.
62 As the Court has noted, emergence from creditor protection is a matter of national interest. For this reason, and in order to move forward from the serious operational challenges that the company has endured, we ask that the Commission expeditiously approve Shaw's acquisition, as it is of critical importance.
63 MR. BRAD SHAW: Virtually no one else was interested in acquiring the Global Television Network as part of the restructuring. By contrast, Shaw sees conventional television as a key part of Shaw's competitiveness and the appeal of the Canadian broadcasting system going forward.
64 Conventional television continues to attract the biggest audiences and advertising revenues, and therefore has the unique ability to support the production, commissioning and exhibition of high quality programming with mass appeal.
65 Global's television stations, together with its popular specialty services, create multiple venues for exhibiting programming and maximizing the value of that programming. Everyone benefits from this continued integration - the stations and the services themselves, producers, viewers and the broadcasting system. The Commission recognized this in its new television policy.
66 We embrace this vision and we are eager to build on it. Uniting broadcasting services and content with Shaw's advanced distribution platforms, and innovating new business models will position us to give Canadian consumers the content they want, when they want it. We will meet the competition head-on.
67 And this competition is intense. Technology is revolutionizing content distribution and viewership. Vertical integration is critical to competing with over-the-top applications offering unregulated, on-demand viewing alternatives to Canadians across various platforms, including broadband and mobile devices.
68 New applications, devices and functionality that have been talked about for years are now a reality. Apple TV offers simple connectivity that links its library of popular programming to family televisions.
69 Google TV will launch this fall, providing a TV interface with simultaneous internet viewing, browsing and chatting.
70 Hulu offers access to the programming schedules of major U.S. networks, and can be accessed using the iPad and Xbox. Over 3 million iPads were sold in the first quarter alone. On the Xbox, consumers have access to hundreds of titles, including TV series and next-day episodes of hit shows.
71 These new services are owned and financed by huge foreign communications and entertainment companies. In addition to internationally known brands and sophisticated technological and marketing expertise, these companies have very, very deep pockets.
72 For example, Google's market cap is over $150 billion alone. These companies own and have sufficient bargaining power to license rights in the world's most popular content.
73 They also have the ability to transform entire industries, as demonstrated by iTunes and the music industry.
74 Much of the content available from these services is not accessible in Canada. For the time being, program rights holders still see greater value in licensing exclusive foreign rights. We cannot rely on this indefinitely. When rights holders find it more profitable to reach consumers directly, they may well stop licensing exclusive territorial rights to Canadian broadcasters and BDUs.
75 Market forces will drive the expansion of these new over-the-top services. They cannot be "kept out" by regulation, nor should they be. Shaw welcomes the competition and respects our customers' demands for choice, quality and value.
76 This acquisition will create a strong entity with sufficient linear and broadband platforms to compete for and maximize the value of content rights. We will have the expertise and financial depth to respond to intense competition from unregulated, over-the-top services.
77 We will innovate to develop our own anytime, anywhere programming solutions, value-added content and applications. This is essential to the continued success of the Canadian broadcasting system.
78 Strong, integrated Canadian communications companies will be well-positioned to acquire content rights. More importantly, they will have the ability and need to support Canadian content as a key differentiating factor, not just a regulatory obligation.
79 Independent producers, who create popular and viable Canadian programming will be a critically important part of our success.
80 Shaw's acquisition will create a bridge between content and distribution, driving innovation in content production, exhibition and marketing, including Canadian content.
81 Moving a major Canadian broadcaster from a position of insolvency to the vanguard of innovation is a tremendous benefit to everyone with a stake in the company's future and to the Canadian broadcasting system.
83 MR. STEIN: As Jim said earlier, this acquisition saves the Global Television Network. This is clearly the most important benefit of Shaw's acquisition.
84 We submit that the benefits to the broadcasting system and the public interest of our acquisition involve three components:
85 First, the public interest benefits that flow from the continued operation of a major Canadian conventional television network;
86 Second, the commitment to the ongoing benefits;
87 And finally: third, new benefits. Some benefits have obvious price tags while others do not, but those which are difficult to quantify are no less real.
88 The key public interest benefits include the following:
89 By ensuring the continued operation of the Global Television Network, more than $100 million in annual Canadian content expenditures will be preserved. These expenditures would likely have been lost or severely reduced with station sell-offs or closures in the event of an asset break-up.
90 The stations comprising the conventional network will also continue to provide strong local programming in all the communities they serve across Canada.
91 Dynamic competition and diversity of voices will be enhanced and the jobs of over 1,000 employees have been secured.
92 Canwest will finally emerge from creditor protection, removing the risk of indefinite insolvency which would have resulted from shareholder litigation.
93 100 percent Canadian ownership has been re-established and the significant influence of non-Canadians with strong economic rights will be completely removed.
94 Everyone in the system will benefit from this transaction, including up to 16 new unaffiliated Category B services that will be added to Shaw's BDUs.
95 The second component is the commitment to the ongoing benefits from the Alliance Atlantis acquisition. The key benefit of the merger will be realized --- the ability to cross-promote, exhibit and amortize Canadian content across multiple television services.
96 The company will become an even stronger competitor, benefiting from multi-platform distribution of its content and innovative business models. This will improve our ability to preserve a strong Canadian rights market.
97 Shaw's purchase also ensures the fulfilment of the $95 million in remaining benefits pursuant to the Alliance Atlantis acquisition.
98 Paul will now discuss the third component, the new benefits.
99 MR. ROBERTSON: Thank you, Ken.
100 We have proposed $24 million to the incremental development, creation and promotion of new scripted comedy and drama, produced exclusively by independent producers.
101 Canwest has strong relationships with the independent production community, from whom all of its Canadian programming, other than our news, is commissioned.
102 The new hit Rookie Blue, produced by E1 Entertainment, has succeeded not only in drawing huge Canadian audiences but also in securing first-run exhibition on ABC. And the best part is that it is visibly Canadian. It's a police drama set in Toronto, not Toronto masquerading as New York or Chicago.
103 Shaw has always believed that Canadian content can and must be viable for the system to remain competitive. We are confident that working with the independent production community, we can support the creation of more Rookie Blues and their marketing and promotion on all of Shaw platforms.
104 We will spend $18 million on new media content to complement and reinforce our other benefit initiatives in connection with scripted programming and news. This proposed contribution is consistent with the government's objective of supporting investment in digital media and the exposure of content across multiple platforms.
105 These new expenditures will further the technological advancement and appeal of the Canadian broadcasting system for the benefit of consumers.
106 Furthermore, we will spend $43 million on local morning newscasts in Regina, Saskatoon, Winnipeg, Toronto, Montreal and Halifax.
107 This will enhance local programming and diversity of news voices, while creating additional employment and training opportunities.
108 This will give viewers in those markets a starting point for local news each day, which they can update continually across Shaw platforms.
109 Finally, we have proposed to spend $23 million to build digital transmitters in non-mandated markets, thereby ensuring over-the-air service to over 60 small communities.
110 The proposed digital television benefits will ensure a local broadcasting presence on Canadian airwaves even in very small communities.
111 None of these additional expenditures would have been made in the normal course of business. They are purely incremental commitments on top of the already long list of public interest benefits of Shaw's acquisition.
112 The Commission has stated that the benefits policy "must be applied with discretion and understanding, taking into account the particular circumstances of each case". It has also said that intangible benefits "may be as significant as tangible benefits and, in some cases, of primary importance in the approval of transactions."
113 We respectfully submit that there have rarely been circumstances more appropriate to a discretionary application of the benefits policy. The alternatives to Shaw's acquisition would have had serious negative impact on Canadian broadcasting and its stakeholders, certainly the viewers.
114 Shaw's agreement to acquire all of Canwest is the best possible outcome for the company, its employees, its creditors, the independent producers; the viewers and of course the overall Canadian broadcasting system. This is a unique transaction that occurred under a unique set of circumstances.
115 Taken together, the three components of our benefits respect the spirit of the benefits policy and far exceed the benefits realized in standard transactions.
116 MR. JIM SHAW: In closing, Mr. Chairman and Commissioners, changes in the Canadian communication landscape are dramatic and happening at break-neck speed.
117 The intense competition to meet consumer expectations for anytime, anywhere content and innovations like 3D TV -- unregulated competitors are creating new challenges that must be met sooner, rather than later.
118 The transaction will give Shaw a strong content base to offer innovative, multiplatform services. This is critical to maintain our competitive position and strengthen the Canadian broadcasting system.
119 So with that our panel will be ready for any questions you have. Thank you.
120 THE CHAIRPERSON: Thank you for your presentation.
121 Let me just say first off that we are obviously delighted to see that if this transaction is approved that Canwest will be on solid financial footing and a major Canadian player in the broadcasting scene will be saved and will continue to produce valuable Canadian content.
122 So your aims and ours are absolutely the same. The question is if the transaction and some of the outcomes of the transaction, whether they are properly structured or not.
123 I want to make sure I understand the transaction properly.
124 Madam Secretary, would you please provide everybody with a sheet while we try to graphically portray the transaction?
125 I'm not interested so much in the detail but just to understand generally this is what you are doing, because if we don't start from the same point we won't have food for discussion.
126 MR. MERCIER: Yeah, this is the proposed final structure. I think there is a reference here to GSCP as a box, as a shaded box.
127 Obviously, the Goldman parties will not be part of the structure on the final acquisition. Shaw will own 100 percent through the numbered company.
128 THE CHAIRPERSON: I am sorry. Can you speak up? I didn't hear you.
129 MR. MERCIER: I'm sorry. If you look there is a shaded box here that seems to refer to the Goldman Sachs, the GSCP which obviously on closing of the transaction --
130 THE CHAIRPERSON: Will disappear, yes.
131 Okay. So then explain to me how you are going to run this. Because if I understand you right now, you are also affiliated with Corus but Corus is run totally separately. You have voting control but basically the board of directors run Corus.
132 You also have Shaw TV and formerly Star Choice which is -- first you had such a separation. It's now slightly different. You have separate services and separate salespeople but other than that it's integrated, if I understand it.
133 How is this new entity which I guess will be 7316712 -- is that only a holding company or is the actual -- is it all going to be run by Shaw Communications directly? Is there going to be a separate board? Is there going to be structural separation? How are you seeing running your distribution activities and your new broadcasting activities?
134 MR. BISSONNETTE: Well, if you would like me to start, Mr. Chairman, Paul Robertson will be responsible for that, essentially a division of Shaw.
135 And just as Shaw Direct and Cable are divisions of Shaw and both report -- both of those that head up those divisions report to Brad Shaw -- Paul Robertson will be the third, if you will, triumvirate reporting into Brad. And they will really deal with it as a team.
136 You know, what we have talked about here as a marriage of content and distribution. With Brad looking after all aspects of content and distribution, whether it's satellite or cable, he now will have the third component which is the content reporting into him as well.
137 And so it makes, we think, for a really enlightened approach.
138 MR. BRAD SHAW: Just to continue, you know, this transaction is about the future and building. When we talk about the competitors, we are in intense competition of course with the ILECs and as we see Google and Apple.
139 You know the world is not falling but things are changing very fast and very rapidly. We see this as a great opportunity to bring a great company from a content creation and a great distributor and creating some unique business models that allow us to compete and allow us to strengthen the Canadian broadcasting system.
140 THE CHAIRPERSON: Okay. You have seen the various interventions, Telus, Pelmorex, CMPA, et cetera who all very much point out that this in their view is something undesirable, that they would much prefer you know structural separation because content and carriage usually are separate. By using this you will have undue leverage according to them and you will use it your advantage and obviously to their disadvantage.
141 Have you given any thought to structural separation? Obviously, if so then you have dismissed it, and explain to me the reasoning.
142 MR. BRAD SHAW: I will start and maybe someone else wants to jump in.
143 But you know as far as Corus goes, you know, there is a separate board of directors, public, separate management, separate strategy.
144 When I look at Shaw in my position we have Shaw Direct and Shaw Cable compete day in, day out for customers; may the best division win. You know we don't see this as any different.
145 We want to grow Canwest. We want to grow the services. We want them to achieve wherever -- achieve on multiple platforms and maximizing audiences. So we are really looking forward to those pieces, and you know we compete.
146 So we are competing within Shaw now. We plan to continue to compete. We will compete with Corus on all levels and believe it's healthy for the system to have that competition.
147 MR. JIM SHAW: And I think, Mr. Chairman, that when you look at it, you know, we need to expand. We need to get more Canadian programming on VOD. We need to do a little more online stuff with that, you know, given our extensive internet network. You know, getting access is really not the hardest thing to get at Shaw.
148 I think that when we look at it, that we want to have every product because it's our feeling that people leave because you can't offer a product. And if you can offer a product -- so that whether that product is from Global or that product is from, you know, Shaw Network or how it's provided, or whether it's from Shaw Direct or Star Choice, whatever you want to call it, that there is a real, real thing that you know we are not going to be able to choose those kinds of products anymore.
149 Just as the Commission moves now to, you know, kind of breaking the structure up and it is kind of getting to be more pick and pay and we are having a hard time like demanding our customers to take everything because we get so many complaints that, you know, as we move to the newer structures which, of course, as Brad said, who has Google TV, Apple TV, you know, I mean, there is a lot out there.
150 So I think that -- you know, I mean we need to be able to have our hands on the assets to be able to provide the level of service to Canadians that they require so we continue to grow and build.
151 I don't think that means we deny anyone.
152 THE CHAIRPERSON: So the fears expressed by Telus and Pelmorex and CMPA are unfounded?
153 MR. BISSONNETTE: Sorry. I think we believe that the safeguards already exist within the regulations whether it's, you know, carriage or access.
154 You know one of the things that I think, you know, makes us very unique is that the content that we are going to provide on multiple platforms will not be exclusive to Shaw. It will be available, you know, to anybody who wants that content. Our customers are the ones that are demanding it and we will make it available to them and to others.
155 THE CHAIRPERSON: Well, speaking of safeguards, as you know the safeguards in terms of basic in Category A, not only is there a prohibition against self-dealing or discrimination but there is also reverse onus so that if somebody comes and claims that you have discriminated the onus is on you to show that there was no discrimination. That does not exist for pay and specialties.
156 Both Telus and CMPA have said we should impose that on you for pay and specialty given that you have now -- you are now one of the largest distributors both in cable and satellite and since you are owning a network and a whole host of specialties directly, not separate management, not like Corus.
157 But for you there is obvious incentive to self-deal or self-promote or discriminate against others. In order to avoid that there should be by condition of licence a provision there imposing that reverse onus with regard to specialty and pay.
158 What is your view on that?
159 MR. STEIN: Well, first I would like to comment on the overall policy that the Commission put in place because the policies that you have put in place have actually made this kind of arrangement in our view possible, because in your decisions on the new television policy, in your decisions on diversity of voices, we saw a means by which we thought the future could be developed in a new and unique way, as Brad outlined.
160 In terms of having an open system that brought together key team leaders and other people within the company from three different -- four different; five different vantage points and being able to combine people who were developing wireless, satellite, cable systems, internet, telephony, mobile television.
161 All those things together with a content provider, we thought, would be the best way to be not only competitive with the very large competitors we do have to deal with in Canada but also with the kinds of systems that were being developed by Apple and Google, et cetera.
162 So we thought that we could take this unique approach and that the Commission's policies with respect were exactly the right policies to allow that to happen. We think that the safeguards that you have established are the right safeguards.
163 I would note that in that regard although Telus and Pelmorex may have issues, Rogers put in a very strong supporting intervention. There are other people who have taken this kind of approach and we are sure we will have their support in terms of moving us forward.
164 THE CHAIRPERSON: But Mr. Stein, that doesn't answer my question. My question was very specific.
165 I said the reverse onus that we have right now with regards to Category A and basic, why don't we apply that also with regard to Canadian specialty? It still allows you to do exactly what you want to do, to package things together, to be a unified force both in distribution and programming but provides some assurance to specialties that if they have a problem with you since you are the owner of all the distribution, information, data, et cetera it's very hard for me to -- for a complainant to make out a case. You have all the relevant information.
166 So they are saying here, "Fine. I take you by your word, Shaw. You are willing to play fair". And I said give them this assurance because all it makes clear is that if there is a complaint you enter in it and say, "Okay, here is the data. You can see it. I didn't discriminate".
167 MR. STEIN: Well, first of all, we wouldn't want to be disadvantaged with respect to other licensees so we would not want to have a provision. So we are saying, no, we would not want to have that provision.
168 The only point I would make is the only --
169 THE CHAIRPERSON: Mr. Stein, please, you know as well as everybody in the room knows that what I discuss with you and what will be imposed upon you will also be imposed on BCE.
170 Everybody here knows it. Let's not play games here, okay.
171 MR. STEIN: Well, one may hope so.
172 But can I just say this? You do have reverse onus provisions. I would have to get some guidance from our regulatory counsel in terms of how the reverse onus provisions that are being proposed by Telus and Pelmorex which we think are quite dramatic and are not just reverse onus, that we think --
173 THE CHAIRPERSON: Please, let us stay to the -- I asked the same concept. I didn't say Pelmorex's proposal. I said the notion of reverse onus being imposed upon you by a condition of licence so that it will be equal treatment across the board.
174 MR. STEIN: If you want to do it that way, fine, but we don't see why you wouldn't do it through a policy that affects everyone.
175 THE CHAIRPERSON: Obviously if we had thought of it beforehand we should have done it that way. I agree with you. So we will do it now piecemeal, okay.
176 MR. JIM SHAW: And that is probably why we got a call this morning from Pierre Karl saying that it was totally wrong yesterday what the gal was saying and that he totally supports the transaction and the letter from Rogers totally support it.
177 You know, these guys are integrated to some degree and we seem to be able to manoeuvre through, you know, the issues that come outstanding. You know, as you run a large company and as the team does here, I mean there is always going to be a couple of little fussy spots that pop up because we don't know everything.
178 So we don't think it's required and we think, you know, whether it's TVA in Montreal or it's, you know, Rogers with CITY or access to lots of things, we seem to have been able to work it out and to come through and have an extra policy or something seems just a little over the top to us.
179 THE CHAIRPERSON: Mr. Shaw, fortunately this is really a momentous transaction and followed by the BCE transaction it really does reshape the Canadian broadcasting market considerably.
180 So we have to look at it very carefully and make sure that while we allow you to prosper and reap the benefit of this enormous purchase that you are doing, at the same time it doesn't give you an undue weight. That's really what this vertical integration is all about.
181 MR. JIM SHAW: We understand, and we appreciate your thoughts.
182 THE CHAIRPERSON: In that connection, the other part that always is mentioned is that the power is with you, with the incumbent, et cetera, especially when you are an owner of a speciality. If there is a dispute, et cetera, you know, where they may come to us, we will deal with it, et cetera, but while we deal with it the patient dies, so to speak, if you don't carry them.
183 So what everybody in different ways has said that is there such a thing and you cannot resolve it and then bring in application before it, so that during the time that that application is being dealt with there will be a standstill, so i.e. that person will not lose carriage?
184 MR. BISSONNETTE: I think, you know, one of the things we have tried to really focus on is that there really are tremendous opportunities for Category 2 services that previously haven't been carried, that they will now be carried as a result of this transaction.
185 The other thing is that we recognize the responsibility now as a company that is not just a distributor, but would be also a content provider, that there will be special expectations of us. And we are confident that we will meet your expectations in the thresholds that you think are important in approving this kind of an application.
186 THE CHAIRPERSON: I am sorry, Mr. Bissonnette, I just don't know what you just said.
187 Did you say yes or no?
188 MR. BISSONNETTE: I said yes.
189 THE CHAIRPERSON: Okay, thank you.
190 MR. BISSONNETTE: That was the artistic francophone in me.
191 THE CHAIRPERSON: Okay. Now then, if you read the -- their terms of trade is some thing that is very dear to their heart. They mention that they have been in discussion with you, that this has not come anywhere. And they suggest that we should impose this as a condition of approval within 60 days, you cut with them a deal of terms of trade, et cetera.
192 I have no idea where the negotiations stand or where they are going, et cetera, but obviously this is going to be, for them and for the independent, for the production industry, of key importance.
193 And I have never talked with you, I have talked very much with Rogers about terms of trade when they made the application for Citytv and they gave the undertaking that those terms would be done before the next licence renewal, and we shall see.
194 What is your position on terms of trade?
195 MR. ROBERTSON: I can report that the Canwest people tell us that there has been, you know, a lot of meetings between the parties on terms of trade and that the development of the discussion seems to breakdown a little bit as it relates to how specific the documentation should be at the end of the day. Is it kind of a guideline that gets finalized or is it more in specific terms? And that has been the kind of point of discussion.
196 But from a Shaw standpoint, we are totally supportive of continuing those discussions, and we have stated that, and it is our hope that we can bring this together and find a way to create an understanding that is agreeable to the parties.
197 Timing-wise, we are not sure exactly how long that is going to take. We will certainly start in on it shortly after approval, and when it comes time for our licence renewal hearing, then we will have another opportunity to discuss how we have made out. But there is goodwill between the parties and it is our hope that we can sort out an agreement that makes --
198 THE CHAIRPERSON: So I can expect an agreement between you and them at the time you come for licence renewal?
199 MR. ROBERTSON: Well, it is hard to say that there will necessary be agreement, because it will depend on both parties coming forward with something that works. But you have our firm commitment that we will dedicate ourselves to working forward something on that timing and that we will update during the hearing on our progress.
200 THE CHAIRPERSON: What do you mean by firm commitment?
201 MR. ROBERTSON: Like a commitment to continue to negotiate, to look to bring the parties together. It is hard to say we will absolutely will have an agreement or the other party could just put whatever they want to in front of us and say sign, right? So it needs to be a negotiation.
202 MS WILLIAMS: Paul, if I could add.
203 Mr. Chairman, I think, as you understand, this is an important document for us as an industry to tackle. I think we have all understood that the broadcasters, as a group, need to be having a clear point of view and that the production community has its group together for a clear point of view.
204 And we really believe that the ongoing negotiation and ultimate resolving of this terms of trade document, which we do believe will be resolved, is to be done as an industry, not tied to a particular transaction of one company or another. So we will continue that negotiation with our broadcast colleagues and I am confident that we will come to a good resolution down the road.
205 THE CHAIRPERSON: Well, Ms Williams, that is exactly why I mentioned licence renewal, because you will all be in the same boat and you will be at the same hearing, et cetera. Let me just make it clear, that I expect you and CTV and City to come before us as the three largest coming and saying, you know, here is a deal.
206 You know, we have made it quite clear that this is something the industry should resolve by itself, but on the other hand it would be beneficial I think for all players. And this has been raised very much by the other people, as you will hear later on, and I just wanted to make sure that I have the full commitment and not just lip service to substantial negotiation between now and licence renewal.
207 MR. ROBERTSON: You have our commitment for that.
208 THE CHAIRPERSON: The other thing that sort of I found intriguing, that people expect there will be a lot of negotiations between you and obviously other speciality channels, and that you will also have now knowledge of all the speciality channels that have agreements for distribution.
209 And on the other hand, in order to ensure that there is fairness in the way you deal it, see one of the proposals is that you file in a separate confidential registry I guess is what the people are thinking all the affiliation agreements between Shaw and Canwest so that if somebody comes forward and alleges, you know, there is a base people can compare with and say, well, is what you are imposing on this specialty channel unreasonable or, no, that is really in line with what you have done to yourself, the arrangements are existing within Shaw and Canwest, et cetera.
210 I think I have seen reference to this idea several times. How do you feel about this? This is a new idea, so I am just -- I am going to hear from the others afterwards, but I wanted to hear what --
211 MR. JIM SHAW: Yes, that would be fine.
212 THE CHAIRPERSON: Lastly, you filed a separate application regarding the distribution ratios, 3.1 and 5.1; 5.1 now and 3.1 once we go digital.
213 If I understand it, you will actually may able to lift up to this 3.1 between now and you feel -- well, assuming we approve the transaction, this 5.1 will rule and you have no problem, you can do that until August 2011. Then in August 2011, when the 3.1 kicks in in the digital world, given your plans, on the terrestrial side it will be okay, but on the satellite side you will be offside until such time as there is a new bird in the sky.
214 Did I understand that correctly?
215 MR. D'AVELLA: Mr. Chairman, we would like to do as proposed, we will meet the 3 to 1 certainly by the August 31 deadline of 2011. We will probably meet it earlier on cable, likely in the next six months. Our commitment is that we would not add an affiliated service until we met that 3 to 1 commitment.
216 Now, that is a little bit more complicated on satellite, given that we don't have a bird in service or new satellite in service until 2012, late 2012. So we would endeavour to meet the 3 to 1 on satellite certainly by that time, possibly earlier, depending on whether we can take advantage of some compression technologies. But it would be the same commitment, that we would not launch an affiliated service on satellite until we meet the 3 to 1 commitment.
217 THE CHAIRPERSON: I realize this is a separate application you made, but defacto we approve your purchase, we approve that application, that is why I am raising that right now. You know, I mean, it is unrealistic to expect you to have to shed service and make consumers suffer, et cetera.
218 So essentially, if I understand correctly what you are saying, if we approve this you will be okay on the terrestrial side and on the satellite side that will be an interim period where you are offside, but you will at least mitigate that offside by not ending any new services of your own until such time as you comply with 3 to 1?
219 MR. D'AVELLA: That is correct.
220 THE CHAIRPERSON: And when do you expect to have that new bird up?
221 MR. D'AVELLA: The bird is under construction and, if it doesn't blow up on the launch pad, it should be available by the latter half of 2012. They have given us a window of roughly the fourth quarter it will be in service.
222 THE CHAIRPERSON: And that will have had the sufficient capacity for you to --
223 MR. D'AVELLA Yes.
224 MS RATHWELL: Excuse me, Mr. Chairman?
225 THE CHAIRPERSON: Yes?
226 MS RATHWELL: Just a point of clarification on the 3 to 1 on the cable. I believe there may have to be a short interim period, you know, before full 3 to 1 compliance is achieved by that. But as Michael was saying, there would be no related services added in that period. And it is --
227 THE CHAIRPERSON: How short is short?
228 MR. BISSONETTE: Six months. We have the plans in place right now to add up to 20 services, and to do that as quickly as possible, so the outside would be within six months.
229 THE CHAIRPERSON: Okay. And the point that was raised by TELUS and will be raised today again by everybody is the new media issue and the exclusive rights. This is obviously the elephant in the -- whatever the expression is. The big fear everybody -- that the preferential mode of distribution or viewing things may be new media, iPets, iPhones or whatever the mobile, et cetera.
230 People are very much afraid that you are going to use your enormous purchasing power to buy exclusivity. So one can only view this thing if one is a subscriber to Shaw or wireless, which isn't even up yet, but it will be at some point in time, et cetera. And the same thing obviously in other transactions and various proposals have been put forward.
231 You don't address this at all in your submission. What am I supposed to read into this whole issue of program exclusivity in new media? It has not been referenced at all. So what are your plans here?
232 MR. BRAD SHAW: Just a couple things on that. First, it is funny you mentioned TELUS, knowing they have a CFL arrangement that is exclusive on mobile. For us, we believe there is a real benefit for the system to offer those rights to everyone on commercial terms and there is no exclusivity on our behalf on any of the Canwest services.
233 THE CHAIRPERSON: Now, also once you go wireless, same thing?
234 MR. BRAD SHAW: Yes, same thing for both mobile and broadband rights. So we would offer those to TELUS or Bell or Rogers, just as we would hope they would offer it to us, to be able to negotiate the rights for sports and other things. We believe there is a real benefit for the overall broadcasting system in doing that and that is our commitment.
235 THE CHAIRPERSON: I want to make sure I understand you correctly, because this is a hugely important point.
236 I think the Olympics had brought home to everybody how important this market will be. If I understand it, during the Olympics, I could watch the Olympics on CTV, I could watch it on my computer on CTV.ca, but if I wanted to watch it on a mobile device I had to have a Bell device because Bell has the exclusive -- even if I went on my mobile device on the browser and put in CTV.ca I couldn't see it.
237 Now, let's move forward 10 years. Canwest has won the Olympic rights, et cetera. You are telling me at that point in time I will not have to be a customer of Shaw's in order to -- I can be a customer of Bell or TELUS, et cetera, subject obviously to Bell or TELUS doing a deal with you. And you are open to making those deals, you are saying it is not your business strategy to be exclusive.
238 MR. VINER: That is 100 per cent correct.
239 THE CHAIRPERSON: Okay, thank you for the clarification.
240 Okay, as I mentioned before, we are moving from one -- first of all, do my colleagues have any questions on the vertical integration? If not, then we will go now to Peter and he will talk about diversity of voices.
242 COMMISSIONER MENZIES: Thank you.
243 In terms of diversity of voices, I suppose it is fairly conceded that trials of Canwest have created more diversity of ownership in all media in the country than before. But nevertheless, your company is moving from very large delivery and some content creation mechanism into a provider of news and information at a level that you haven't been at before.
244 So as Madam Justice Pepall is quoted in your presentation, "Broadcasting of news, public and entertainment programming is an important public service."
245 Anytime a large operator, and I think, rightly or wrong, particularly when it tends to be dominated by a family, is involved in media, it makes some people -- I'm not saying it is justified, but it does make some people uncomfortable because they wonder how the news may be influenced or how this may impact this or that or the other sort of stuff the previous proprietors and proprietors in other industries have come under criticism for this.
246 So my first question really is to what extent are you conscious of that and what do you intend to do to ensure that such fears are allayed?
247 MR. ROBERTSON: First of all, there is a very strong editorial voice that is Global. And what we would like to do on behalf of Shaw as the companies come together is give them the support and give them the tools, work the content across the Shaw system to look for ways that people can get this content, not just first thing in the morning, but all throughout the day, which people like to do now, like to be constantly informed about what is going on.
248 So we have a vision that would take the news and make it stronger from the standpoint of having the right kind of tools and being able to integrate across platforms. But we would totally respect the editorial voice of the Global team which is headed up by Troy Reeb, who joins us here today. They will be the ones that will decide how they believe the news voice should be advanced in the future. It is not our role to jump in and try to redirect in any way, because it is a terrific thing to have that voice and to have that voice being a meaningful one for the Canadian system.
249 COMMISSIONER MENZIES: What sort of operational structures are involved that ensure that separation? For instance, and I will be reasonably blunt about it, I mean the people who would be concerned about this, and you see this on journalists' websites and sometimes within the union movement, they are afraid that one of the Shaw brothers is picking up the phone and calling Troy and saying, do this.
250 So what is your response to that? What sort of operational barrier structures are in place, what sort of cultural barrier structures are in place or are there not?
251 MR. ROBERTSON: From a structural standpoint, Troy would be on our management team on the Canwest side and be part of that management group, perhaps it will be called Shaw Media on approval. That is really where his focus is going to be.
252 With respect to anyone picking up the phone, I mean I think that is not the business we are in, but I will leave that to the Shaws to comment on.
253 MR. BRAD SHAW: I will say, and maybe Jim wants to add something but, you know, certainly we truly believe in the diversity of voices and allowing that autonomy to happen. For myself, with everything we are facing and everything doing, to me it is the focus of the job at hand and how we can best support everything we have invested all these years and continue to grow and build for the Canadian broadcasting system. So, you know, our focus is going to be on that and won't be on what we are going to report today or tomorrow.
254 MR. JIM SHAW: I guess when I think about it I think about -- you know, I think it makes me reflect on CTV and Globe and Mail and, you know, maybe the National Post and all the regional papers and, you know, there never seems to be a problem with diversity of voices there to a large degree. Once in a while you might have a lot of Liberal voices, once in a while you might have a lot of Conservative voices on there.
255 You know, I think Brad brought it up in his part of the speech, you know, we are for diversity of products and servicing Canadians. And so denying access or taking control for a personal issue is just not even on our agenda.
256 So we really don't have much to say there other than we believe in diversity, we believe in strong editorial comment or whatever you want to -- programming, and it is our job to do a good job with the programming. The more we limit the diversity the worse we will look. That is kind of our feeling too.
257 Do you agree, Brad?
258 MR. BRAD SHAW: Yes, that is right, Jim. And, you know, as I mentioned earlier, it is about building the services and news is a key component and we will want to have that as diverse as it needs to be and reflective of the community or the Canadians and the stories going on and, you know, we want to build that.
259 And so the strength of that I think is allowing it to grow itself and allow Donna and her team and Troy to do that and we believe that is the right process.
260 COMMISSIONER MENZIES: There is obviously two separate corporate structures here with the new company. To what extent will there be separate cultural structures? I mean, to what extent like in terms of Shaw and Corus, for instance, are they predominantly the same culture or are they different type of companies? And I guess the broader question in that is how do you intend to manage the cultural integration between two companies, which is always challenging?
261 MR. JIM SHAW: Well, I guess, Commissioner, that when you look at it, you know, we have been able to maintain a lot of separation with satellite and competing back and forth. Everybody has different products and they are geared a little bit different way.
262 With Corus, they are a sister company of Shaw but, you know, everybody thinks that, you know, myself, Brad or my dad are involved there. Well, we have our hands full just kind of running what we have. Like, you know, we don't have time to worry about what John and Heather and their team are doing, nor do they get any special treatment. You know, you have conditions on them where we have to carry more than any other content producer in Canada, we do that, so we operate under that.
263 So I don't really feel there is much need for a lot of separation here. And I think we have proven as a good example of not using that to our advantage and taking a different approach to how we want to approach these businesses.
264 MR. BRAD SHAW: Just to expand on that, you know, when we talk about culture and, you know, it will be a separate division of Shaw and Paul will be running that, culture is key. And as we go forward we truly believe where we are going, the values we have, what Shaw is about, innovative and creative, our goal is to have the Canwest team be a real part of Shaw and to integrate them.
265 Of course you have HR and finance of back office but, you know, we are going to give them that big hug and we want them to be a part of the culture, we want them to be a part of Shaw and this great opportunity to go forward and build on what we plan to do.
266 COMMISSIONER MENZIES: So how separate would it be in terms of you talk about the competitiveness between the satellite and the terrestrial cable -- I mean, would the new company Canwest Shaw Media or whatever, would it be negotiating a value for signal regime with Shaw Cable?
267 MR. BISSONNETTE: Depending on what the courts say, it certainly could be, yes. It could be, yes.
268 COMMISSIONER MENZIES: It could be. Yes, okay, thank you.
269 How conscious are you of the fact that if your continued growth -- approval of this acquisition would I think put you somewhere around 31 to 32 per cent of market dominance. At 35 per cent it officially comes on our radar. How conscious of that are you in terms of your plans going forward?
270 MR. STEIN: Well, first of all, the 32 per cent is a combination now of Shaw --
271 COMMISSIONER MENZIES: Shaw, Corus and --
272 MR. STEIN: -- is successful together with Corus already.
273 COMMISSIONER MENZIES: Yes, right.
274 MR. STEIN: So, I mean, that is the way people look at it, that is fine. But what Paul will be running, what Canwest has will be significantly less than that on its own. That is one thing. And as Jim said, Corus is run totally separately.
275 The other point in the diversity is, of course, Global CanWest viewing share on the conventional side is much less than CTV's. We hope to change that, which then could push -- you know, if we are successful, I hope we wouldn't be penalized for being successful at doing that as we go forward.
276 But we are conscious of the situation with respect to it and we understand the bright line, but I think our overall view is, the way that Brad and Paul and others, Barb and others from CanWest will manage it as a team will be to ensure that there is a strong alternative player in the business, and that, in itself, both at a national and local level, will ensure the diversity that's there.
277 You know, we'll see how those numbers change as they go forward, but hopefully they will be successful and will push up against your limit.
278 COMMISSIONER MENZIES: Thanks.
279 There was a little phrase that kind of popped off the page to me in your presentation this morning, and it's on page 10:
"...Canadian ownership has been re-established and the significant influence of non-Canadians with strong economic rights will be completely removed."
280 Are you just trying to smuggle something in there or are you trying to tell us something that we didn't know, in terms of...?
281 MR. BISSONNETTE: No, I think we are referring to the bondholders in Goldman Sachs relinquishing the control that they have right now, frankly, and that essentially moving entirely into a Canadian's hands.
282 COMMISSIONER MENZIES: Okay. And that's better why?
283 MR. BISSONNETTE: That's the great thing about this transaction: it's now moving Goldman Sachs and the noteholders completely outside of the realm of this company and it becomes controlled and managed by a wholly Canadian company.
284 COMMISSIONER MENZIES: Okay, I understand that.
285 MR. JIM SHAW: Yeah. And I guess, you know, the deal now is being managed by, really, the American guys, because they have total control of this given, you know, the past transaction.
286 I mean, you know, does Shaw have some American people that buy their stock and trade their non-voting stock? Yes. But, you know, still right now the deal's really being brokered by the U.S. guys, bondholders in Goldman Sachs, and so we are just saying we are just bringing her back and taking her home.
287 COMMISSIONER MENZIES: So they have been in control?
288 MR. JIM SHAW: Not technically --
289 COMMISSIONER MENZIES: Right. Okay.
290 MR. JIM SHAW: -- but financially.
291 COMMISSIONER MENZIES: Okay, that is kind of what you are saying.
292 The last question on this is one of the things we don't talk about or mention enough. So how does this deal make life better for the average Canadian consumer or citizen?
293 MR. ROBERTSON: Yeah, that's a great question, and it's an exciting one.
294 I think if you look at the public benefits that we have put forward, you can see that we are very enthusiastic about the idea of reinstating the local news in the markets, six markets, that we have selected. And, you know, we really think that Global has an important news voice, that it does a lot getter in the west than it does in the east, but with the kind of reinstatement of the morning programming, and then the ability to move that news content throughout the day with facility, however anybody would like to receive it, we can build on that news voice and continue to add a diverse perspective in the marketplace.
295 So that's really key.
296 Another area that we are really enthusiastic about is the addition in programming benefits through independent production. As you know, part of the Alliance Atlantis benefits, the $95 million in programming, still remains, and, if unspent, will be, of course, spent over the next three to four years consistent with the original transaction.
297 That money, and the additional programming benefit, will definitely be seen on the screen. I mean, there's a lot of wonderful programs that have been appearing on CanWest, from a Canadian content standpoint, and they are really going to see that continue.
298 So the average person out there, they are going to see a stronger news voice from Global, they are going to see wonderful Canadian content programming on the air. Those, clearly, are two key benefits of this transaction.
299 COMMISSIONER MENZIES: Thank you.
300 I will turn the next question over to my colleague.
301 THE CHAIRPERSON: Rita, I believe you have still a question.
302 COMMISSIONER CUGINI: I do. Thank you.
303 It's something that stems from your oral presentation this morning, and I believe it was Mr. Brad Shaw who said it on page 6:
"Global's television stations, together with popular specialty services, create multiple venus for exhibiting programming and maximizing the value of that programming."
304 A component of our Diversity of Voices policy is also diversity of programming, and since CanWest has owned the Alliance Atlantis specialty services, as a viewer we are seeing how these multiple venues have come to be.
305 But when I then look at the Alliance Atlantis services, coupled with the Corus services, and I'm a television viewer, am I going to see programming diversity in its true sense? Because there are many programs that now can cross over between the Alliance Atlantis services and the Corus services, both the drama channels and the lifestyle services.
306 I ask this because intervenors have raised it as well. I understand how maximizing the value of the programming can work for the company, but how is that going to work in the best interest of the viewers?
307 MR. ROBERTSON: First of all, there definitely is the use of some of the programming on more than one service currently. That really is to the benefit of the programming, which becomes, as it gets cycled through a couple of different specialty channels for example, maybe gets a premier on Global, in a world that is so fragmented with various programming, this is the way that you can build awareness and get a following for that programming.
308 It's really become a very important programming and marketing technique to look to establish new programming, so it's, I think, very consistent with wanting to get the best out of the Canadian content and get it to be popular in rate. So I think that current system works really well.
309 In terms of the relationship with Corus, I think, as we have said, already it's two separate companies. We wouldn't envision that we would create a single programming vision or a single programming department and try to, you know, do the same programming and cycle it through both companies. That's definitely not what we are here to do.
310 We are here to make the CanWest component, Canadian content component, as strong as it can possibly be. Yes, that will mean some cycling through the networks, which we think's a really good thing, but I think --
311 COMMISSIONER CUGINI: So I'm not necessarily going to see programming originating on Food Network on W, for example?
312 MR. ROBERTSON: There may be instances where it's helpful to provide -- where an additional window, whether it's through the CBC or CTV, or in this case Corus, where it might just help get a show produced. So say, for example, pay window could be complementary with a conventional or a specialty window.
313 In those instances we wouldn't want to be -- you wouldn't want to prevent us from trying to do those kind of arrangements with Corus on a kind of ad hoc basis because it could be just what's required to fund the program, but I can say to you that our focus is going to be very much on the CanWest programming services and there will be no single mind trying to program both in some collaborative way.
314 COMMISSIONER CUGINI: Okay. Thank you.
315 MR. BISSONNETTE: There will also be diversity of platforms. You know, we will have a wireless platform in the future, and so applications -- I think you might be aware that there's a food application right now that's available on a iPad. That may be the conduit, if you will, for diversity with respect to those programming showing up on other platforms, video on demand or wireless.
316 COMMISSIONER CUGINI: I mean you can see where the concern is coming from, especially the intervenors, where, if I can see House on 10 different channels, why am I going to subscribe to 10 different channels? I'm just going to subscribe to one.
317 MR. JIM SHAW: Yeah, yeah. I think the other thing that we are seeing, and I know this is a big issue with Peter and Brad and the team, is on the sports side. You know, there's going to be lots of diversity of sports around. Even though, you know, lots of them are doing kind of exclusive deals, we are hoping those will go away and, you know, we will have access, and then they can have access to our products over multiple platforms. Right, Brad?
318 COMMISSIONER CUGINI: Okay. Thank you very much.
319 THE CHAIRPERSON: Before we break, Mr. Brad Shaw, I would like to back to your commitment just now on non-program exclusivity for new media. This is, I think, a very key issue.
320 How do we enshrine that? How do we make it -- I mean, obviously, I don't want to -- so that maybe should -- I don't want to arbitrate under any circumstance, you know, and I'm not trying to put you in a bind, but I'd like to sort of see that.
321 What you basically have said is you are willing to negotiate with others for fair value of those products, so how do we enshrine that in this approval, if there is an approval?
322 MR. BRAD SHAW: I'm not totally sure how that will come about, but, you know, certainly our commitment is to offer all rights, broadband and mobile, to all competitors. We would look for the same thing coming back from them. We believe it is for the betterment of the overall Canadian broadcasting system and not just individual companies.
323 THE CHAIRPERSON: I'm delighted to hear you say that.
324 We will break now. Maybe you want to talk to counsel and find as well. I'm sure they have ingenious ways of finding --
325 MR BRAD SHAW: I'm sure they do.
326 THE CHAIRPERSON: Okay, let's break for 15 minutes.
327 Thank you.
--- Upon recessing at 0947
--- Upon resuming at 1007
328 THE CHAIRPERSON: Okay, let's resume.
329 Len, I believe you have some questions on valuation.
330 COMMISSIONER KATZ: Yes, Mr. Chairman.
331 Good morning.
332 I would like to start by focusing on the value of the transaction. If I can ask the hearing secretary to distribute two pages to you, we can start with that, and there will be a subsequent page handed out shortly.
333 COMMISSIONER KATZ: I believe you will recognize the top half of the first page as it is what you filed on May 20th in response to the Commission's information request, specifically to question number 17.
334 I think it's still being handed out, so I will just hold off for a second.
335 THE CHAIRPERSON: Hang on. Your fellow panellists would like to see the pages, too.
336 COMMISSIONER KATZ: Yes.
337 COMMISSIONER KATZ: Okay, so the bottom portion identifies certain elements that the Commission has in the past made adjustment for to recognize our normal practices. This includes how we account for capital leases and assumed leases, how we have historically recognized transaction costs, and we have also adjusted your payments to recognize final settlements entered into with some CanWest shareholders following your last submission.
338 I really don't want to focus on these adjustments, but I would ask you to review them as normal course adjustments. If you feel you need to comment on them, then in your Phase III reply or in written response prior to closing the record please do that.
339 I have also explained on the second page why they have been included or excluded and what the adjustments are. I think at this point in time they are nominal for the purpose of my next set of questions, but I just wanted to use that number of 2047 going forward. So we can all start from that as well.
340 Is that clear?
341 MR. WILSON: Yes, that's clear.
342 COMMISSIONER KATZ: Okay.
343 I would now like the hearing secretary to hand out the next page, which is titled "Document for Discussion on Value of the Transaction".
344 COMMISSIONER KATZ: I just wanted to start with a consistent view of how the application of benefits works without getting into what qualifies and what does not and what exceptions should or shouldn't be made.
345 So please note for the purpose of this I have assumed the adjustments are included in there, and you can see, under "Value", that 2047 number carries through.
346 What we have also done is we made certain numerical assumptions just for the purpose of quantifying what it is the value of the transaction and the subsequent benefits might and could result in depending on where the Commission ends up.
347 By no means are these number on this page anything to do with a final solution or where the Commission's going. I just want to get to the nub of it so we all understand where we are coming from.
348 So at the highest level it's a mathematical exercise. If there was a distinction to be made on the value of the CanWest Global properties and the assets associated with the Goldman Sachs/Alliance deal, it would be at the breakdown that you see there, where on the top half you see the benefits, under the CanWest Global, of $492 million, which is the quantum, based on the data that we have here, that relates to the non-Goldman Sachs/Alliance Atlantis transaction, and below that the 1555 is that portion that relates to the subsequent transaction.
349 I just stop there and ask you to comment. I think those numbers are somewhat consistent to what you have actually discussed at your conference call, Mr. Wilson, with numerous groups of investment community people.
350 MR. WILSON: Yes, the numbers are roughly consistent with what we have discussed. I can see what you are doing here by reducing the obligation on the conventional side and maintain the obligation on the Goldman Sachs side.
351 I think what we wanted to focus on today, and we had put in submissions, is the enterprise or transaction value was $500 million, and that was based on a legally binding agreement that we entered with the bondholders. That was approved by the CanWest board and approved by the court on February 19th.
352 Subsequent to that, we went through a process of mediation in the courts and we were given an opportunity to solve what was the key issue in all of this, the puzzle here, first of all, CanWest was in bankruptcy, and, second of all, Goldman Sachs had a contract which had onerous mechanisms in it, which had a significant impact on the value of the conventional assets and how people would bid on those assets.
353 You will recall from 2007, and your approval in December of 2007, that there were put-and-call mechanisms that called for a vending of the business in perhaps 2011 and 2013.
354 The significance of all of this, and why this is the thing that needed to be solve to solve the CanWest Global problem and bring it out of CCAA, was that contract needed to be fixed. So even in the RBC equity solicitation process, which began in the month of December, it contemplated that any bidder looking at this and trying to put an equity value on the conventional side would need to assume that the put-and-call mechanisms that gave Goldman Sachs its guaranteed return of 17.5 per cent, they would need to be eliminated or the contract would need to be terminated by the court. That's how important that was in looking at the overall values.
355 So I think what we are here today to say is that, while we had a contract to take control, we had an obligation to take control in that contract in February for $500 million, it is our view today that, you know, we look at the transaction of what's in front of you, and you obviously have the discretion to decide, but we look at it as a $2-billion transaction.
356 What we would like to talk to you about is the application of discretion in the application of the tangible benefits policy.
357 COMMISSIONER KATZ: Okay, and we will come to that later on as well. I just want to try and focus on the numbers, because there's been some discussion and dispute as to whether this is one transactions or two transactions, and how the Commission should be looking at it.
358 When I read over the arguments on all the parties' side, including a very comprehensive analysis by ACTRA and a group of others, I will call it ACTRA et al, you have never responded to their statements and their allegations as well, if I can call them that. So I want to take you through that, because, at the end of the day, we have got to start with a number and then we will deal with the benefits and how we make recognition of some of the issues that you have brought up in the fullness of time.
359 MR. WILSON: Right.
360 COMMISSIONER KATZ: But we have got to start with something, so this is the something we are going to start with --
361 MR. WILSON: Right.
362 COMMISSIONER KATZ: -- if that's okay with you.
363 MR. WILSON: Yeah, and I'm just commenting on the fact that there's been no reduction in the Goldman Sachs piece on this page, that's all.
364 COMMISSIONER KATZ: Okay. So let me try and go through some of ACTRA's arguments and just get a sense from you as to your views and your comments on them as well.
365 MR. WILSON: Well, as I said, we entered into an agreement with the bondholders, which took quite some time. They had the ability to select their partner, and they selected us. On February 12th that agreement was approved by the board of CanWest, and on February 19th was approved by the court.
366 That agreement called for us to invest $95 million to take a controlling ownership position in CanWest. So that was a point which we argued, that that was the control element, from a valuation point of view.
367 COMMISSIONER KATZ: But that deal was never consummated. There is no formal documented agreement signed and consummated. The deal that we are looking at right now is a deal that has a $2.047-billion number to it.
368 MR. WILSON: Well, that agreement was what then led to the court mediation. It was a signed agreement. It was a bona fide agreement.
369 There are two bona fide agreements in here. One was that and one was the purchase of Goldman Sachs, which came out of the mediation.
370 COMMISSIONER KATZ: But you always have multiple agreements. When you sign a contract, there's a whole table laid out with contracts that are being signed on closing. So you had multiple contacts to close as part of this deal to take on 100 per cent.
371 MR. WILSON: No, we had one contract on February 19th. The contract was to take controlling interest in CanWest for $95 million.
372 Frankly, we were very pleased with that. That was an option for us to control the business, to begin to learn the business. And I will tell you that one of the things in that contract included a stand-still agreement with the bondholders where none of us could have changed our ownership position for a period of 12 months. So none of us were contemplating that there would be an immediate acquisition of Goldman Sachs. At that time we felt that we could solve that problem either through renegotiation or resiliation of the contract.
373 We were then directed into a court-ordered mediation, and, as a result of that, it became clear to us. And remember, we could not talk to Goldman Sachs. Right from the start of the process we were prohibited from speaking to them at all, so, you know, we didn't fully understand what their views were.
374 I think I'm going the way you want me to go here, by the way, that when we got into the mediation it became very clear that Goldman Sachs was not prepared to negotiate the contract and these are the extraordinary circumstances that you have to understand.
375 They have a valid contract with a viable organization, and they had done nothing wrong. And, frankly, that was the right position for them to take because they were looking after the interests of their shareholders and their investors.
376 Through the mediation, we were given an opportunity, as it sort of evolved, to purchase out Goldman Sachs at their guaranteed rate of return, and we did that as a second transaction.
377 What I will say to you today is we are not here today -- we understand you have the discretion to decide the value. We have put in our submissions $500 million, but our view today is that the value in front of you is $2 billion. So we are not here, really, to argue that. We are really here just to give you more a sense of how extraordinary the circumstances were around this negotiation and the fact that Global was in CCAA protection as well.
378 THE CHAIRPERSON: You are really talking about the application of our discretion --
379 MR. WILSON: Yes.
380 THE CHAIRPERSON: -- in light of a $2-billion transaction.
381 MR. WILSON: Yes, exactly.
382 COMMISSIONER KATZ: Okay.
383 MR. BISSONNETTE: Also, in light of the fact that, through our actions, we actually saved Global Television.
384 COMMISSIONER KATZ: Yeah.
385 MR. BISSONNETTE: That's the part of the unusual circumstances here.
386 COMMISSIONER KATZ: Yeah, no, and we understand that. I'm just trying to focus on the number that's going to be used to apply and to deal with the bottom line. I guess some of my fellow commissioners will deal with the actual content of those benefits as well later on.
387 So I guess I can pass over the rest of my questions here, other than to say that the way I see things transpire is Justice Pepall basically instructed negotiations to take place on March 1st. On March 31st, you filed your initial brief with us, where you basically acknowledged that satisfactory resolution of Goldman Sachs is fundamental to this deal, if not there is no deal, and then on May the 3rd there was a press conference announcing the complete and final deal.
388 So from that perspective, you look at it and you sort of say, Looks like one transaction, from our perspective.
389 MR. BISSONNETTE: We are here to agree with you on that.
390 COMMISSIONER KATZ: Okay.
391 Now, one of the things that ACTRA brought up was an issue that you have tabled with regard to the nationality of the Goldman Sachs piece of it, and in the past how the Commission has recognized that the majority shareholder taking control is the one that should be paying the benefits and it shouldn't be on minority shareholders.
392 They actually cited in their evidence a transaction between Shaw and A&E, and a sale to Rogers as well, and they said at that point in time there was no carve-out for the U.S. component of A&E as well. And so they have used that as another fundamental reason to basically say that nationality of the minority shareholder has no relevance here when you are taking the value of the transaction.
393 I'm not sure if you have any comments on it or not, but it's something that they put on the table again to justify the fact that the value of this transaction is the full $2 billion, and not anything less than that as well.
394 So I will just leave that with you. If you do have any comments on it....
395 MR. BISSONNETTE: Really, it's not an issue.
396 COMMISSIONER KATZ: Okay.
397 I guess I'm moving along here kind of quickly, eh?
398 MR. BISSONNETTE: We thought we would help you.
399 COMMISSIONER KATZ: Yeah, I think you have. I think the value is no longer an issue.
400 COMMISSIONER KATZ: Thank you, Mr. Chairman.
401 THE CHAIRPERSON: Okay. Then, Rita?
402 COMMISSIONER CUGINI: Okay. I'm caught a bit off-guard here, but that's good.
403 So as you can imagine, I'm now going to ask you questions about the actual quality of the benefits that you have proposed. Let's just go in the order in which you have proposed them, and I will start with the programming initiatives, the scripted drama and comedy.
404 You have limited this category of programming to drama and comedy, and, as you know, some intervenors have submitted that this should also include documentary and children or youth programming. I would ask you to please elaborate on why it is that you have chosen only drama and comedy.
405 MR. ROBERTSON: Sure, Commissioner/Vice-Chair Cugini.
406 We looked in particular at the drama side. We knew we had a lot of the $95 million that were being spent on Canadian drama. You know, it's almost entirely Canadian programming that will be invested from the ninety-five, so we knew we had that for the first maybe two, three years coming up. And then after that we thought, well, we would like to be able to continue on and have some additional opportunities there for new programming.
407 So we thought that if the Alliance Atlantis benefits kind of ended at a point in time without kind of a flow into additional scripted programming that would cause a kind of disconnect in terms of the industry. So that's what we had in mind.
408 In terms of why we picked comedy in particular, we had an internal discussion about wanting to do more in the comedy scripted area. We just thought that it was an area where Canadians can do a very good job. I think it has been proven with some competitive programming on the air. We won't give them airtime at this point, but there are some good comedies on the air and we just felt that we could create some on behalf of Shaw and Canwest that we could get pretty excited about.
409 We broadened it out after that to say: Well, let's include...
410 It may be that the ideas that come forward are terrific on the comedy side, but there might also be more serious drama that would work.
411 But in terms of not having kids and not having documentary -- and they are, obviously, clearly worthy categories -- we just thought that we should focus our efforts on where we thought we could make a real difference, and the comedy area really caught our attention.
412 COMMISSIONER CUGINI: So we might see the Great Canadian Sitcom come out of this?
413 MR. ROBERTSON: One would only hope so, and I hope that we will all laugh heartily.
414 COMMISSIONER CUGINI: In your response to interventions, you also say that 8-point Category 7 Drama should qualify, while intervenors have asked us to limit that to 10-point only.
415 Can you explain the reasons why you would want to include 8-point Drama?
416 MR. ROBERTSON: It just gives us the opportunity to include so many more production opportunities of terrific programs that don't qualify all the way for 10-point.
417 I think there is probably some precedent, maybe even on the Alliance Atlantis transaction, where we would limit the amount of 8-point programs.
418 That's something we would be willing to do. I am not sure what the best ratio would be, but say that no more than 50 percent would be 8-point.
419 COMMISSIONER CUGINI: In your application you cite as a potential non-CMF-supported series as potentially being funded by this portion of the tangible benefits.
420 Does this mean you will go as low as 6-point Drama?
421 MR. ROBERTSON: No, that wouldn't be our intent. We would go 8-point or above.
422 COMMISSIONER CUGINI: Which of the platforms of your many platforms will have the first window?
423 MR. ROBERTSON: It depends. I mean, in some instances it could be a Global Network program, but we are also premiering wonderful programs for the first time on Showcase and also on History that are doing really, really well.
424 So it could be that one of those kind of large analog specialties could also carry the introduction of these programs.
425 That's the way the benefit has been laid out, that it is going to be somewhere between Showcase and Global, primarily, where these would premiere.
426 COMMISSIONER CUGINI: Thank you.
427 I am going to move on to new media content. You say that this benefit will be tied to new incremental programming initiatives flowing from the benefits package, and you did repeat that in your oral presentation today.
428 I just want to be absolutely sure that what you mean -- and correct me if I'm wrong -- is that the new media content that will flow from the benefits will be associated with these programming initiatives that we just talked about.
429 MR. ROBERTSON: That's right, but it could also include the news benefit that we referred to, as well.
430 COMMISSIONER CUGINI: So it will not include -- this new media content will not be borne from programs that are currently either on Global or on any of the specialty channels.
431 MR. ROBERTSON: That's correct.
432 COMMISSIONER CUGINI: Many of the intervenors have said that the examples that you have listed -- and I appreciate that it may not be an exhaustive list -- are simply the cost of doing business, and that no benefits money should be spent on, for example, program-specific websites or interactive games.
433 Could you respond to those interventions, please?
434 MR. ROBERTSON: Yes, we have seen those interventions. I guess that we come at this from perhaps a different place, where we look at it from a competitive standpoint.
435 And you heard from our oral remarks, and throughout our presentation, that our focus is very much on new competitors coming into the marketplace, which we call over-the-top competition, but foreign competition, creative use of new technology, access to inventory. And we know that the viewers are very engaged with these offerings.
436 What we need to do in the Canadian marketplace is find the most innovative solutions, the way to take that kind of linear content that we are very good at doing and finding a way to creatively manifest it across various platforms.
437 I think we are all kind of amazed at how successful the iPad is, and what is clear about it is that it does so many different things. It's such a wonderful platform for innovation and creativity.
438 How do we get the young, brightest minds in Canada working on new innovations in the new media area relating to traditional content, but purposed across these platforms, so we can keep the folks inside the system.
439 COMMISSIONER CUGINI: But, Mr. Robertson, the point, I think, that everyone is trying to make, or those who are opposed to this, is that you are experienced broadcasters. The competitive landscape existed, just the way you described it, prior to this transaction, so why do you need benefits money in order to level the playing field or to compete with the non-regulated media, or to provide the content that you have just described on iPads?
440 Why is it that you need to do it with the tangible benefits?
441 MR. ROBERTSON: I guess what we are saying is that we think that the urgency around finding creative solutions for new media platforms is every bit as worthy as Canadian content scripted drama. The state of our industry is such that we need to do a lot of innovation.
442 Now, you could say, "Why doesn't Shaw just do that innovation?" and, of course, we will be. But this application of the benefits will be against innovations that will have no prospect of return. They will be done for learning and education and stimulating new thinking in the marketplace that will benefit the whole system.
443 This is money being set aside to invest in things that are quite different from what we would do on our own accord, with the kind of fiscal responsibilities of the organization.
444 COMMISSIONER CUGINI: Will it allow you to do it faster?
445 MR. ROBERTSON: In terms of accelerating the way in which we can get these to the market, there is no question.
446 And when you look at the unique structure of the organization that we have created, with the easy flow of content on the one side and the technological strength and the focus on new platforms on the other, finding ways to mesh those together has infinite possibilities that will help the entire marketplace.
447 COMMISSIONER CUGINI: One thing that I am having trouble understanding, anyway, is how interactive games are going to be tied to scripted drama and/or comedy.
448 MR. ROBERTSON: When you start with the program concept and it starts to get famous, Ice Road Truckers or whatever it is, you can take these concepts and you can build them into all sorts of things.
449 I don't know whether there are 200,000 apps for the iPad right now, but I am sure that there would be all different sorts of ways that content could be applied in that regard.
450 COMMISSIONER CUGINI: You cited Rookie Blue in your oral presentation. Tell me about an interactive game for Rookie Blue.
451 MR. ROBERTSON: We just make sure the policemen don't get shot.
452 COMMISSIONER CUGINI: Okay.
453 MR. ROBERTSON: That's what we will work on on that one.
454 MR. ROBERTSON: It's so much fun, the marketplace that we are looking at right now, because there are just infinite possibilities.
455 Sometimes I think we find it hard as an executive team to be able to articulately describe exactly what we are talking about, because we don't know. We want to put people in a position where they can create new things that we never thought of. Those are the kinds of people we want around us, and it would be great to have this sort of fun to do it.
456 I think we think that it's very valid and appropriate, given the competitive situation that we find the industry in.
457 MR. STEIN: I would just add a comment; I am surprised at some of the interventions because I know from my position as a Board member of the Shaw Rocket Fund, and from discussions with our nominated Board member on the Canadian Media Fund, Max Ellicott, that kids -- youth -- really relate television and games together in a very unified way, and that sometimes the games drive what happens towards the development of a program, and sometimes it's vice versa.
458 And one of the problems that both funds are struggling with is not being able to fund that, so it's unfunded.
459 So our idea for this, as it applies to the programming that Canwest is doing, is to take that kind of digital-driven interaction and try to apply it to television programming, or the reverse.
460 COMMISSIONER CUGINI: And every single one of these new media elements will be directly tied to a linear broadcast of a program?
461 MR. ROBERTSON: Yes.
462 COMMISSIONER CUGINI: Okay. I know that the next item on your list is the new morning newscast, and I am going to leave that to Commissioner Patrone to question you on.
463 I want to move on to the issue of incrementality and how it will be measured and monitored, because it is an important part of the whole discussion on tangible benefits.
464 You know already that, until such time as the group-based approach to the licensing of private television services comes into effect, we have a basis upon which to measure incrementality, based on expenditures, on the eight hours of priority programming. That is the current framework.
465 Now, until that time, you will agree to comply with the requirement to report on incrementality on that basis, until the group-based approach is implemented?
466 MR. ROBERTSON: Yes, we would.
467 COMMISSIONER CUGINI: And in that decision we put forward a preliminary view that, as a result of the shift away from priority programming, in favour of programs of national interest, the spending requirements for programs of national interest would be a reasonable threshold on which to base the incrementality of tangible benefits.
468 Do you agree with that approach?
469 MR. ROBERTSON: After group licensing comes into effect?
470 COMMISSIONER CUGINI: Yes.
471 MR. ROBERTSON: I would have thought that the overall percentage of year-ago spending, so your overall Canadian content spend requirement, would form the basis of the incrementality test.
472 COMMISSIONER CUGINI: No, we are talking here about the 5 percent that we had said, of which -- you know, that 5 percent of the CPE would be dedicated to programs, or up to 5 percent would be dedicated to programs of national interest.
473 It is on that basis that we would then measure incrementality.
474 MR. ROBERTSON: Because we are talking about a scripted --
475 COMMISSIONER CUGINI: That's right.
476 MR. ROBERTSON: -- and news would follow?
477 COMMISSIONER CUGINI: That's right.
478 MR. ROBERTSON: News doesn't really follow.
479 COMMISSIONER CUGINI: News doesn't, no, but programs of national interest, so the scripted drama and comedy, Category 7.
480 MR. ROBERTSON: Yes, I think that that would be an appropriate base on which to judge the additional scripted programming.
481 And then, presumably, news -- do you want me to go to news?
482 COMMISSIONER CUGINI: Not yet. He's doing news.
483 MR. ROBERTSON: Okay.
484 COMMISSIONER CUGINI: I told you that already.
485 COMMISSIONER CUGINI: But on the scripted -- on the programs of national interest category only.
486 MR. ROBERTSON: That's right.
487 I don't know whether my associates want to comment further on that, but I would think that...
488 Okay, that sounds right.
489 COMMISSIONER CUGINI: Okay, thank you.
490 I am going to move on to the digital transition, and just so I am sure that our records are correct, we have Canwest operating a total of 87 analog transmitters, 20 are in mandatory markets -- and you said that those will be converted by August 31, 2011 -- 67 of those 87 are outside mandatory markets, of which 32 will be converted using tangible benefits money. Right?
491 MR. ROBERTSON: That's almost exactly right. The only variation is that, in the mandatory markets, we can actually cover the 20 markets that we participate in with 19 transmitters, because the Toronto transmitter -- we have received approval to extend its power to cover Barrie.
492 So, in fact, there will be 19 to cover 20 markets, and then, as you say, we have the additional 67 transmitters, which we are committing to convert from analog to digital.
493 COMMISSIONER CUGINI: And the remaining 35, for sake of argument here --
494 MR. ROBERTSON: Yes.
495 COMMISSIONER CUGINI: -- you say will be subject to review at a later date.
496 MR. ROBERTSON: No, in fact, what Global had previously -- what Canwest had previously said, in response to 2010-169 -- so that was back in May -- was that they would plan to do the mandatory markets only, and that there are transmitters in mid-size markets which would stay in analog, and then the small market transmitters would be discontinued.
497 So now what we are saying is, we will convert all of those transmitters to digital. So, in addition to the 19 that we talked about in mandatory, another 67 transmitters would be our commitment.
498 COMMISSIONER CUGINI: And that would cost you $23 million?
499 MR. ROBERTSON: That's correct.
500 COMMISSIONER CUGINI: Okay. Do you know how many households in those markets rely on over-the-air transmission?
501 That is, if you don't convert, how many people will be cut off?
502 MR. ROBERTSON: Yes, we do. We know that if you went with --
503 Just looking at the mid-size markets and the small markets, which the 67 transmitters serve, there are 400,000 people that receive their Global signal not through cable or satellite, but over the air.
504 COMMISSIONER CUGINI: Do you know of other broadcasters in those markets who have analog transmitters, and do you believe that this commitment of yours will incent them to do the digital transition earlier than later?
505 MR. ROBERTSON: Yes, we do think it's an incentive. We felt that it was a leadership statement to say that we would wholeheartedly get behind the government and the CRTC's clear priority in this area, and that by stepping out and making this sort of commitment, albeit through the benefit side -- and we definitely think it is a public benefit -- that it would cause others to say: Okay, how do we keep up?
506 I guess it felt a bit like breaking a bit of a log-jam, a challenging objective, and this was a good way to get things going.
507 THE CHAIRPERSON: May your words be prophetic, that's all I can say.
508 MR. ROBERTSON: One would hope so.
509 COMMISSIONER CUGINI: Can you provide us with a little bit more detail as to how it is that you arrived at a cost of $23 million for the conversion of these 67 transmitters?
510 You may not have to do it now, you may submit it in reply.
511 MR. ROBERTSON: I am happy to give you a general overview.
512 COMMISSIONER CUGINI: Please do.
513 MR. ROBERTSON: In those mid-size markets -- you know, the bigger the marketplace, the broader the coverage, the more investment on a transmitter site. So the transmitter investment could be $1 million. When you get down to the smaller markets, without as much coverage, it could be $200,000.
514 So what we have done is taken every single market and laid them out and estimated costs by market, depending on how elaborate that transmitter investment needs to be, and come to a total, and it's $23 million, and we are happy to submit those budgets if it's helpful to the Commission.
515 COMMISSIONER CUGINI: Yes, please. Thank you.
516 Now, you did say, however, in your application -- you used phrases such as "as resources permit" and "as soon as possible".
517 Do you have any more of a specific timeline for this conversion to take place?
518 MR. ROBERTSON: I think you did ask an earlier question about -- it wasn't a question, a statement about our timeframe in the mandatory markets, and I can confirm that the 19 that need to be converted will all be converted within the timeframe that we are looking for, which is August.
519 There may be a little bit of a delay on the Montreal conversion because there is a need for analog to be stopped before we can convert to digital.
520 So it's kind of a two-phase process, and since the transmitter is shared with the CBC, that one is going to take a little bit longer.
521 But, basically, we are on track for the commitment to be there on time.
522 Now we are talking about the remaining 67 transmitters, and, of course, this is an industry-wide issue, because it has to do with the resources that are out there to do this work; not just for us, but for the other OTA broadcasters, and how aggressive do they want to be in moving forward. So we are making kind of guesstimates here.
523 One thing we do know is that the total capacity in Canada to convert transmitters is about at the rate of four transmitters a month. So once you kind of share out what we are trying to do here with what others may do, or may plan to do, it does extend the timeframe; not because of our willingness -- I mean, we would be happy to invest in it earlier, but we would expect that getting to all 67 transmitters could be up to a five-year period.
524 COMMISSIONER CUGINI: Now, I know you have read the record of these proceedings and, as you know, some intervenors have said: Cost of doing business, guys.
525 So the same question as the digital media. Why should we allow this as a tangible benefit?
526 MR. ROBERTSON: I think one must start with saying, "What would be a good business decision here," and whether you look at the mid-size markets or the small markets, almost entirely a good business decision would be that these conversions don't have a strong ROI -- well, they don't have an ROI -- a return.
527 So because they don't have a return, I think that Canwest made a very rational proposal, which was: We will convert the 20 mandatory markets, but we will hold off on the rest of the markets in analog as long as we can.
528 And that decision was based on being in CCAA, but it was also based on rational business.
529 That is the base case. It is exactly what Canwest submitted on May the 6th. That's the base case. What is happening here is an incremental investment as a public service, not as a business investment.
530 COMMISSIONER CUGINI: So, again, it will accelerate the conversion?
531 MR. ROBERTSON: Absolutely.
532 COMMISSIONER CUGINI: Has any thought or consideration been given to -- I suppose it would be qualified as a social benefit, when it comes to the digital transition, and perhaps using some of the benefit money similar to a coupon program, or giving a free satellite box to customers for a year.
533 Have you considered any of that to be part of your benefits package, to accelerate the digital conversion even further?
534 MR. ROBERTSON: Yes, we have talked about these sorts of things, and we know that consumer awareness is probably the primary thing that we need to put our attention to, helping people understand what to expect, and it is made challenging because of the mandatory and non-mandatory markets being side-by-side, and trying to communicate to one but not confuse the other.
535 That being said, I think that answers your question a little more broadly than you may want, but the consumer awareness side is really key.
536 Now, in that, in terms of further incentives, that is something that we would entertain in conversation with the rest of the industry.
537 We would note that the industry's need for collaboration on this is high, and the time is right for us to get together and think our way through these things.
538 I can make the commitment to you that if, indeed, we can sharpen our pencil and find that $23 million is more than we need for the transmitters, what we would consider is putting the remaining funds into some sort of an incentive program, or into consumer awareness building, whatever kind of benefits the overall transition.
539 COMMISSIONER CUGINI: So are you, Mr. Robertson, volunteering to lead the charge on industry collaboration, for consumer awareness especially?
540 MR. ROBERTSON: Of course.
541 We are showing leadership in this move, and we will continue to show leadership in the overall transition, yes.
542 COMMISSIONER CUGINI: Thank you.
543 I am now going to move on to --
544 THE CHAIRPERSON: May I interject for a minute?
545 COMMISSIONER CUGINI: Yes, of course.
546 THE CHAIRPERSON: On this very point, on digital transition, you made the very important announcement today that you are going to convert in the non-mandatory markets too.
547 Our calculations are that if all non-mandatory markets do not convert but go off the air -- all -- and you have already said that you are going to do some -- the maximum number of Canadians affected will be 31,000.
548 That is absolutely the total maximum. It will be a much, much smaller number if you convert and others follow you. It's anywhere between zero and 35,000.
549 Those folks, then, will be without a signal, and that will create a problem. The logical thing is to hook them up on satellite.
550 On the basis of your figures, it would cost $500 per person to get a dish, a set-top box and a connection; probably less, depending on where they live, but the average price -- and it's your number, not mine -- would be $500.
551 So let's say it's not 35,000, but it's 15,000 or 10,000, or something like that. Having them hooked on satellite would make this problem go away. It would be a great solution to us, it would be a great solution to the government, and to you.
552 So one way to do it is, obviously, some sort of incentive, that you either hook them up for free, give them a set-top box, a combination, or whatever.
553 It strikes me that you have a golden opportunity here to take this problem off the CRTC and the government, because I don't think it's politically tenable -- it's not tenable that Canadians who now enjoy access to broadcasting will be cut off.
554 As I say, I cannot give you any more definition because we don't know who will stop transmitting in non-mandatory markets, but if the number cannot be more than 31,000, and it could be much lower, as I say, by your own calculations, the maximum exposure is $50 million if you should give them all a free hook-up, set-up box and dish.
555 So I would very much would appreciate if you would reflect on this and see what you can do, because this is a major problem that has got to be taken off the table. And you, as being a satellite provider, have a golden opportunity here to show some leadership.
556 MR. ROBERTSON: We read you loud and clear and we will confer with it as a team and, as I say, continue to show leadership in the area.
557 COMMISSIONER CUGINI: Now, I would just like to move on to the timing requests that you have made in your application.
558 You have asked for a year to file revisions to your tangible benefits package, if necessary. Why would it take you a year to revise that package?
559 MR. ROBERTSON: Well, our thinking behind this one was when Shaw first announced the acquisition of Canwest pending approval we were put into kind of an interesting scenario. There was a fair bit of overhang from the Competition Bureau who had not yet judged on the matter, there were questions about whether the acquisition approval could be challenged in someway by others and other parties might be involved. So there was quite a chill. And when I went to visit the folks at Canwest they were certainly advised that they shouldn't share with us any competitive information.
560 So we have been kind of looking at the assets through the seven veils up until now and, because of that, when the team at Canwest, who are a terrific team, say it is going to cost this or that to do these conversions or this to do the morning news, it is hard for us to really do the normal kind of diligence that you would do through the budgeting process and that kind of thing to make sure that you get all the answers you need to confirm that that is the right amount.
561 So what we talked about was we should ask for a period of time for us to do more diligence on the numbers and make sure that we have it right. And if indeed we don't have it quite right, we may come back and just, you know, do a little bit of shifting around say, well, if we have anything leftover on the digital transmitters can we put it into the incentive program that we just talked about or on the CanCon side, if we don't need 18 for digital, we could put that back into programming. So that was our thinking.
562 And we appreciate if we shift around too much it is sort of start again territory, but we really saw it as an exercise of fine tuning rather than a restart.
563 COMMISSIONER CUGINI: As you know, it is rather unprecedented to give you that much time to make revisions. Is any period of time shorter than a year acceptable? Because now I am assuming you have more information, you have more answers to questions, you might not have all the answers, but you certainly have more answers. So, for example, would 90 days from the date of the decision be acceptable?
564 MR. ROBERTSON: Yes, it would.
565 COMMISSIONER CUGINI: Thank you. That was fast.
566 Another timeline question that you have asked for that is unprecedented is to have the tangible benefits spread out over 10 years as opposed to what has become common practice over seven years or the term of a licence. And in fact, interveners have been quite precise in examining precedent and this would be the first time that the Commission would extend beyond a licence term.
567 So why should the Commission set this precedent at this time?
568 MR. ROBERTSON: Well, it was interesting, because we have talked to all those interveners and gave them the rationale for the 10 years. But clearly, we didn't make much progress in our argument, so we will try it again here today and see if it has any --
569 COMMISSIONER CUGINI: Yes, we need to buy it too.
570 MR. ROBERTSON: Of course.
571 So here is our thinking. We haven't asked for 10 years on all the benefits, we have only asked for the 10 years on the digital benefit and on the Canadian content benefit. Our thinking was pretty straightforward, it was that we knew that Alliance Atlantis, the $95 million that is yet to be spent, would continue to be spent for the next three to four years.
572 And if you could, at the end of that period then, you know, dovetailing and the additional programming commitments that from an industry standpoint it would produce a more even -- you know, it would extend those Alliance Atlantis benefits farther is what we were sort of thinking.
573 So it was really that simple and, you know, the response we heard from interveners is, you know, more and faster. So that is where we are.
574 COMMISSIONER CUGINI: So you absolutely maintain that you need this to be spread out over 10 years? Anything shorter, what would happen? If we said, you know what, we don't buy it, seven years or maybe even five years to coincide with our preliminary view in the group-based licensing?
575 MR. ROBERTSON: We are not fussed about it as an organization, it is not a huge amount of money to kind of accelerate the spending of it. It was really more thinking about it from an industry perspective and thinking it would be best all around. Clearly, we don't have a lot of industry partners that agree with that.
576 COMMISSIONER CUGINI: Okay, thank you.
577 And then one final question which we do have to put on the record. You will confirm that, consistent with Commission policy, no administrative fees would be charged against tangible benefits whether programming-related or otherwise?
578 MR. ROBERTSON: That is the existing policy?
579 COMMISSIONER CUGINI: Yes.
580 MR. ROBERTSON: Then we agree.
581 COMMISSIONER CUGINI: Okay, thank you. And now I will pass on over to my colleague, thank you.
582 COMMISSIONER PATRONE: Thanks, Rita, and good morning.
583 We are going to look at your benefits proposal as it applies to the new morning shows in Toronto, Winnipeg, Regina, Saskatoon and, as you have announced today, Montreal and Halifax. Now, you already have Vancouver I believe, which is a going concern as far as morning shows. But that would give you coast to coast morning shows.
584 Given that it has been a bit of a minefield in the past for Canwest, why did you decide that morning TV was the way to go?
585 MR. ROBERTSON: Thank you. Yes, in fact, we have morning newscasts in Calgary, Edmonton and Vancouver, and they do very well there, they are very strong markets for Global News, that is where the real strength of the brand lies.
586 But our thinking was that habits of the way people take information are changing dramatically. And the way it works is they want to get a news hit in the morning, but after that they want to -- you know, they would rather have services that push information to them or they pull it down or, you know, whatever method they use, they are going to continue to get that information throughout the day.
587 We felt that for the Canadian broadcasting system to not have a strong news voice in the morning by Global in eastern Canada that we were missing out. And the viewers need it in the morning, in which case they can start with the information early in the day, and then get it refreshed throughout the day.
588 So our thinking was really based on the way the audiences are changing and the importance of establishing an additional news voice in the east.
589 COMMISSIONER PATRONE: Would there be a national segment as well? I mean, since you will have morning shows in each of the centres, I guess it makes sense it pull them together with cut-ins I guess from the national desk. Was that something you were looking at as well?
590 MR. ROBERTSON: We haven't designed the programming at this stage, but that would seem every logical. There would be some national components that could be inserted throughout. But the morning show in particular is about, as you know, personalities and the way in which people relate to them and it is a little bit of a comfort experience first thing, waking up with these people after all. So it is really the local local side that is going to be the most powerful component of it.
591 COMMISSIONER PATRONE: Yes. And I want to get to just what these shows are going to look like a little later on in my line of questioning. I needed you to confirm that the benefit expenditures will be over and above what is currently being spent on local programming in each of the markets and that would be including the LPIF, for instance, in Halifax which receives LPIF payments.
592 Can you confirm at this point that what we are talking about is investments that will be made on top of what already exists?
593 MR. ROBERTSON: Yes, absolutely. And there will need to be some care in how we set that out and report it, because not 100 per cent of the expenses -- so say for Halifax, it may be that some of the local service provided for Halifax is done in a different market. So the bulk of the expenditure for the Halifax morning show will pertain to work done in Halifax, but some lesser amount will pertain to work being done somewhere else provided to Halifax.
594 So we will just have to think though, because I don't think you will be able to do it kind of strictly market by market. But yes, you are looking for incrementality on the 43. Absolutely, the 43 will be incremental, in total, to what we are currently doing.
595 COMMISSIONER PATRONE: Now, do you expect to add to the overall number of hours of local programming that you are currently doing?
596 MR. ROBERTSON: Yes, that is right. The programs could be three hours, could be two hours so, at minimum, we would confirm that there will be two hours five days a week, so 10 hours additional news programming in those markets effectively.
597 COMMISSIONER PATRONE: Okay. I just want you to repeat that. You are proposing the 10 hours per week for each of those markets?
598 MR. ROBERTSON: That is correct.
599 COMMISSIONER PATRONE: And that is all original local programming that is unique to those particular markets?
600 MR. ROBERTSON: That is correct.
601 COMMISSIONER PATRONE: Are you able to provide a breakdown of morning news financial allocations? Because, of course, your original proposal was for four cities $43 million dollars. And I guess ultimately that $43 million is not going to be stretched over six cities unless you are planning to add to that at some point. Are you able to provide a breakdown financially for me at this point?
602 MR. ROBERTSON: So the financial breakdown you would look for would be a by-market estimate of how we got to the 43?
603 COMMISSIONER PATRONE: Yes, if that is available at this point.
604 MR. ROBERTSON: Oh, well, we would be happy to submit our forecast in any event. I mean, it could change. I can explain -- so yes, we would be happy to submit a budget.
605 COMMISSIONER PATRONE: Okay.
606 MR. ROBERTSON: And I guess the other element of that was how we got from four markets for $43 million up to six markets for $43 million.
607 COMMISSIONER PATRONE: Yes.
608 MR. ROBERTSON: Put that in there as well?
609 COMMISSIONER PATRONE: Yes, please.
610 MR. ROBERTSON: Okay. Well, what happened there was -- and it was a bit what I was saying earlier to Vice-Chair Cugini, was that we have been looking at the financials through a veil and, because of that, we hadn't been able to ask the kind of more specific questions that you would like to do. And I have never known a budget that started small, you know, and got bigger. It always starts kind of big and then you whittle it down a bit. This one hadn't been whittled as much as it should be.
611 So we went back and we had heard from the interveners in Halifax about Halifax and Montreal and the interveners said, you know, what about us? You know, can we not extend it out to the east? And we really were enthusiastic to do that, so we asked the gang to go back up to 43 and take out a fine pencil and grind it down so we could add the other two markets.
612 COMMISSIONER PATRONE: Well, I am sure you will make your viewers in Halifax and Montreal happy. I have been in your Halifax newsroom recently and they need some help over there.
613 MR. ROBERTSON: Well, we will look forward to that.
614 COMMISSIONER PATRONE: Is there a timeframe for launch?
615 MR. ROBERTSON: Our plan would be to start with Toronto first, so that is something we could probably get underway within the first six months. And then within about six months of that we hope to start to launch the remaining market, so I would say within a sort of 18-month period after approval we will be everywhere.
616 COMMISSIONER PATRONE: You touched earlier on what the shows will look like in terms of a combination of talk and newscasts. So newscasts top and bottom of the hour sort of thing?
617 MR. ROBERTSON: Well, we haven't exactly squared up on the format of how the news component will be interjected into the programming. But we do know that it will have a strong news voice. And if you are able to see our new news program with Donna Friesen, and we are very proud of its premiere last night, that we are very enthusiastic about the future in news and the new Global and getting those local newscasts starting first thing in the morning and getting them as great as they can be throughout the day. We just want them to be the best they can possibly be.
618 COMMISSIONER PATRONE: Yes. And you always do some recycling from the night previous, so obviously if there is national news stories then obviously those visuals and sometimes the packages get recycled the morning after. It is nice to see as much new stuff in the morning as possible, and I think you will agree with that point.
619 MR. ROBERTSON: Totally.
620 COMMISSIONER PATRONE: What is the running time for the shows?
621 MR. ROBERTSON: Well, we committed to a minimum of two hours and that may be where we go or perhaps we would like an earlier start. I think there is a trend towards earlier starting times even, you know, 5:30, 6:30. We will have to figure out how early we want to go and, as such, if we do that we will just extend the program, it could be there for two and a half, three hours.
622 So while we want to experiment with this a little bit, we will make the minimum commitment of 10 hours a week.
623 COMMISSIONER PATRONE: Are you able to discuss staffing commitments at this point per market?
624 MR. ROBERTSON: Again, we have this available from a budgeted standpoint and our numbers say it will take about 110 incremental folks to run the morning news, so it is a significant benefit to employment in the marketplace.
625 COMMISSIONER PATRONE: A hundred and ten for all the shows?
626 MR. ROBERTSON: Yes, that is right. And this should be welcome news journalist students who love to get into this business and, you know, things are difficult these days.
627 COMMISSIONER PATRONE: I know it well.
628 And of course we would be talking about commitments to fulltime reporters, producers, writers, that kind of thing, anchor people?
629 MR. ROBERTSON: That is right.
630 COMMISSIONER PATRONE: Will the news shows be using sets and equipment leftover from the programs that were terminated in 2009? There are reasons for my asking that, and I would like to know if that is what you are planning, is to use essentially much of the same infrastructure that existed for shows that were mothballed.
631 MR. ROBERTSON: Oh, gosh, anything to do with those programs are gone. I mean, things move so quickly and particularly with the advancement towards digital. And as we looked at this from a Shaw technical standpoint to the extent that we have been able to look at the facilities, we are pretty excited about getting them to be state of the art and continuing to invest. So investing in capital in the broadcast organization is not going to be a problem.
632 COMMISSIONER PATRONE: Some of the interveners, the CMPA for instance, have suggested that morning local news initiative really only benefits Canwest rather than the broadcast system as a whole. Do you want to address that one?
633 MR. ROBERTSON: We would love to, because it has all got to do with Global's unique voice in the matter, and Global's news voice is not a very strong in the east. The reason why it is not very strong in the east is because they were unable to kind of be there first thing in the day.
634 So what it does is it speaks to the vibrancy of conventional television. I mean, gee, it was just a year or two ago we were all sitting around saying this could be the end of over-the-air television.
635 And now here we are talking about a grand future design and people investing in that business rather than trying to cut everything that moves, and it is a whole new day. Part of that whole new day is getting these newscasts off first thing in the morning and sending the signal to everybody that there is a wonderful future for OTA and the whole system relies on that as a cornerstone.
636 COMMISSIONER PATRONE: Do you anticipate that any of those segments will be produced by independent producers or will it be pretty much staff?
637 MR. ROBERTSON: I would expect that it would be mostly staff.
638 COMMISSIONER PATRONE: Do you anticipate any collateral benefits to other news shows in the system? And it makes sense that if you are adding staff to a morning show, that those news elements get filtered down to noon-hour shows and evening shows and that sort of thing, so I would assume that the answer is yes. But can you discuss that for me?
639 MR. ROBERTSON: Well, that would be logical. I mean, this is your first -- and in terms of having fresh programming first thing in the morning rather than recycled from the night before, that is the whole key.
640 So you start the morning with news stories that happened in other time zones or over the night and there you are with the news stories in the morning. Well, clearly, they would be reused for other audiences. But the important thing about the commitment that we have made on the $43 million is that it is clearly incremental, it is clearly there to support the production of morning news. The fact that, for the benefit of the audience, is some of those programs get reused throughout the day is just good news.
641 COMMISSIONER PATRONE: In your written submission you propose that the longer more comprehensive production cycle would increase the likelihood that the new incremental benefits programming will be successful. Could you define success for me? Are we talking strictly commercial success? And further to that, what would failure look like in your view?
642 MR. ROBERTSON: Just so I am clear, are you talking about the -- is that the seven versus 10 years that is being referenced there?
643 COMMISSIONER PATRONE: Yes.
644 MR. ROBERTSON: Well, it only related to the drama programming side.
645 COMMISSIONER PATRONE: Okay. It doesn't relate to the news side?
646 MR. ROBERTSON: No. The news is a seven-year benefit.
647 COMMISSIONER PATRONE: As you pointed out though, the local morning cast in Toronto under an earlier administration was cancelled for economic reasons. And I am wondering about your commitment to morning news beyond that of applying any tangible benefits package if, for instance, one of the markets, the Toronto show continued to lose money for a period of time. Are you prepared to make any commitments beyond the period within which your tangible benefits package would apply?
648 MR. ROBERTSON: Well, I think that we wouldn't be able to foresee what the marketplace would be like or, you know -- the worst thing ever is to try to keep a show going that is just not working, right?
649 So we are going to use this period of time to do everything we can to make these not only a success from an audience standpoint, but also a commercial success. So that as we get to the end of the period, our full belief that we will be able to maintain them, I think that what we see is that consumer trends are on our side because more and more this idea of getting the news first thing in the morning and then all different access to news throughout the day is where people are going.
650 I mean, we just think that by the time we get to the end of the seven-year period that we will find a way to make these work long haul.
651 COMMISSIONER PATRONE: And I guess, making those programs available on alternate platforms increases the likelihood, hopefully, for success. Is that a fair assessment --
652 MR. ROBERTSON: That is fair.
653 COMMISSIONER PATRONE: -- because people don't always have time to park themselves in front of a TV all morning, they can then access it on their iPad or mobile phone or whatever.
654 MR. ROBERTSON: I think that is a very good point, and all that would add to the stature and the importance of Global news.
655 COMMISSIONER PATRONE: I have a couple more questions related to accessibility. Media Access Canada of the view that a portion of the benefits from this transaction should be invested in technology to reduce accessibility content production costs and ensure the availability to after-market access devices equipment such as set-top and remote control and that sort of thing.
656 Do you care to comment on that?
657 MR. ROBERTSON: I can't say that -- I don't know whether my associates have much to offer on that. I know that we are compliant with all of the existing policies and regulations in the matter and very supportive of finding, you know, advanced ways to provide access. On this particular point, I must say I don't have a lot to add.
658 MR. BISSONNETTE: Well, you know, there are a myriad of things that you can do to come up with a benefits package. And what we have done is, you know, is what we have done. And you saw what we do from a distributor company on accessibility and it is a priority and will continue to be a priority but, you know, this is the package.
659 COMMISSIONER PATRONE: Well, thank you very much.
660 Those are my questions, Mr. Chair.
661 THE CHAIRPERSON: Thank you.
662 Len, you had some clarification questions?
663 COMMISSIONER KATZ: Thank you, Mr. Chairman. I feel like Colombo, I just have one more question to ask. It is actually a confirmation.
664 The situation with Goldman Sachs is invested properties. I think you called them the CW Media Group. Can you confirm that it was never under CCAA protection?
665 MR. WILSON: Yes, that is correct. CW Investments was never under CCAA.
666 COMMISSIONER KATZ: Okay. And the other question is -- and it comes from transcripts of your conference on May 3. There is a reference here by yourself, Mr. Wilson, that that group of stations under that subsidiary were generating margins in excess of 40 per cent.
667 Is that a correct statement?
668 MR. WILSON: Yes, that is correct
669 COMMISSIONER KATZ: Those are my questions.
670 THE CHAIRPERSON: Okay, well thank you very much. That has been a long discussion. Obviously, we are going to hear from the other interveners.
671 I think I can tell frankly I expect you to refile the benefit package and I would like you to take the following things into consideration, subject to what the hearing tomorrow, et cetera. But as of today, it seems to be clear that from the sheets that my colleagues showed me, we feel that the GSW transaction, you know, I don't understand why we wouldn't ask you for the whole 10 per cent.
672 The Canwest benefits, obviously, you are buying something out of bankruptcy and there has to be a discount. What is a proper discount and why? And we showed you three figures here. And secondly, you made a long issue about the intangible benefit, like with Mr. Bissonnette especially, that you are keeping Canwest alive.
673 And by keeping it alive, we have this major player in the broadcasting industry and we also have full commitment to the tangible benefits that they assumed when they bought Alliance Atlantis. That is clearly a solid argument. The question is, what is the price of that? And I think we need some clarification on that.
674 Then on the seven-year period versus 10, I think, Mr. Robertson, you heard from my colleague I think seven years it is, and I don't think we want to establish new...
675 And lastly, there is this whole thing which I mentioned to you on satellite and people who will be without a signal. And anything you can do there would be appreciated.
676 So I just wanted to give you that as instant feedback. So after we go tomorrow, you have a chance to reflect on your package.
677 Okay, we are way ahead of schedule. I must say this has been a very pleasant surprise the way this hearing has developed and I think we had a very fruitful discussion, businesslike discussion and didn't get diverted by any other issues.
678 So let's have lunch now and we will resume at 1:00 and we will hear from the interveners. Thank you.
679 MR. JIM SHAW: Thank you, Chairman.
--- Upon recessing at 1112
--- Upon resuming at 1306
680 THE CHAIRPERSON: Madame la Secrétaire, nous commençons.
681 THE SECRETARY: We will now proceed to Phase II, in which intervenors appear in the order set out in the agenda to present their interventions.
682 For the record, the Commission has been advised that the Independent Broadcast Group, le Groupe de diffuseurs indépendents, and the Alberta Motion Picture Industry Association, listed on the agenda, will not be appearing at the hearing.
683 We will now hear the presentation of the Canadian Cable Systems Alliance. Please introduce yourself, after which you have 10 minutes for your presentation.
684 Thank you.
685 MS TOWNSEND: Thank you very much.
686 Good afternoon.
687 I'm Alyson Townsend, President of CCSA, and I have with me Chris Edwards, who is Vice-President of Regulatory Affairs.
688 CCSA represents more than 100 small independent and generally rural BDUs across Canada. Many of our members, as you know, serve remote locations. They have lack of access to fibre interconnection and they rely completely on satellite delivery of television programming to their headends.
689 CCSA supports the Applicant's request for approval of this transaction and we understand that it's crucial for all Canadians to have access to a strong Canadian broadcasting system, and that strong Canadian system should include viable, private, conventional television networks.
690 We will limit our comments here today to discussion of how a portion of the benefits package resulting from this transaction could be used to ensure non-urban and rural Canadians continue to enjoy substantially the same viewing services and choices as those in major cities.
691 CCSA proposes that the Commission direct a portion of the tangible benefits towards creation and maintenance of a television signal transport fund. The Commission's tangible benefits policy was designed as a vehicle to support and strengthen the Canadian broadcasting system.
692 In applying that policy, the Commission defined and has consistently applied a benefits test with the following elements: one, the proposed expenditures was must be truly incremental; two, they must be directed to projects or an initiative that would not be undertaken in the absence of the transaction; and three, they must flow predominantly to third parties.
693 Tangible benefits have responded to certain needs within the broadcasting system that otherwise have not been addressed through a commercial marketplace. Examples have been expenditures on children's programming and the contribution to services such as VoicePrint. Benefits packages have been used to establish new programming funds and to maintain and culturally support valuable programming services.
694 The Commission has always reserved the right to deal with proposed benefits packages on a case-by-case basis. The benefits can be highly focused or applied to system-wide opportunities, depending on the circumstances. CCSA's proposal meets all of the elements of the Commission's test and falls well within the boundaries established by past precedents.
695 The present transaction offer a unique opportunity to address the fundamental issue of equitable access for non-urban Canadians to services that are readily available to other Canadians in urban areas. CCSA's proposal directly supports the objective at section 3(t)(ii) or the Broadcasting Act, that BDUs:
"should provide efficient delivery of programming at affordable rates using the most effective technologies available at reasonable cost."
696 That objective applies to all BDUs with respect to their provision of broadcasting services to all Canadians.
697 The cost of signal transport or access is a concern only to those BDUs that serve non-urban areas. Increasingly that cost is creating an issue of access that is of great concern to rural Canadians. The non-urban small BDUs pay transport fees whether in relation to the satell or fibre signal transport that other BDUs simply do not need to pay. In a competitive market they must absorb those costs.
698 Most of CCSA's member must access their signals from satellite relay distribution undertakings. Generally, if a programmer pays the SRDU for uplink with a signal, the BDU does not need to pay the SRDU a fee for delivery of a signal to their headend; however, if the programmer does not pay an uplink fee then the receiving BDU must pay a per-subscriber fee. That transport fee is in addition to the wholesale fee the BDU pays to the programmer.
699 While this signal transport fee has made signals more expensive for BDUs that are independent, they have no choice but to pay it, and in a standard definition world they have been able to live with that cost. With the recent proliferation, however, and the consumer appetite for high-definition services, the issue has become critical. Moreover, it has become an issue not simply of cost, but also access to television programming.
700 Because more bandwidth is required, the SRDUs per-subscriber fees for delivery of HDTV signals to the BDU exceed the rates for standard definition by a multiple of 10. They are 10 times the cost.
701 Programmers who face similar cost increases for the uplink of their HDTV signals have, in many cases, declined to pay for the uplink of services. Rather, their HDTV affiliation agreements leave it to the BDU to source the service directly from the programmers. As a result a number of new HDTV services simply are unavailable on satellite, and therefore unavailable to the BDUs that rely on satellite delivery.
702 A growing number of HDTV services are unavailable to Canadians served by the smaller, more remote BDUs either because transport is too high a cost to absorb or because the service simply is not available via satellite. That creates very real issues of access and choice for non-urban Canadians.
703 In the context of a system that's moving rapidly toward delivery of most services in HDTV format, the satellite delivery model for small BDUs and rural Canadians is broken. The purpose for which SRDUs was originally licensed, that is cost-effective delivery of signals to smaller, more remote BDUs for the benefit of rural Canadians, is no longer being met.
704 Shaw's reply comments state that a vast majority of the transponder costs for HDTV are being absorbed by Shaw Direct. CCSA would say that is exactly where the costs belong. As Shaw Direct makes the decision as to which HD signals they will uplink and sell to Shaw Direct customers, small BDUs have no input as to which signals are uplinked or as to where those signals will be placed on the transponder. That's entirely the decision of Shaw Direct. The entire SRDU business is incremental to the Shaw Direct business, which it must be noted competes directly with our members.
705 CCSA's proposal, however, would not disadvantage Shaw's SRDU business, but would provide a stable subsidy for that business. CCSA members and their customers need an SRDU business to remain viable and deliver more, not fewer, signals. So while customers in rural Canada have no choice but to purchase the same HD television sets as the rest of Canada, their access to HDTV content is far more limited. The broadcasting system is not serving them well.
706 The issues are similar for small systems that are close enough to larger BDUs to interconnect by fibre. The small BDU is restricted to offering only those signals that the larger BDU has chosen to carry, and again smaller BDUs pay an increasing premium for transport of those signals.
707 In Broadcasting Regulatory Policy 2009-406, the CRTC relieved over-the-air broadcasters from the obligation to convert to digital transmission outside of major urban markets. As a result, digital OTA signals will not be available to CCSA member companies without transport charges that they will need to pay to the SRDU.
708 While the CRTC in Broadcasting Regulatory Policy 2010-485 authorized the provision of a free package of digital off-air signals to the customer, the transport cost of those signals must still be paid for by the smaller BDU. In fact, the BDU is not allowed to recover the costs of transporting those signals from the consumer even if it chooses to offer such a package.
709 CCSA proposes that a fund be set up to defray the costs of HDTV transport. While we initially proposed that the fund be accessed by programmers, such a fund might be less costly to administer if BDUs were permitted access to the fund to recover amounts actually paid for transport.
710 Such recovery would apply to direct costs of HDTV signal transport fees in relation to signal sourcing from both SRDUs and TRDUs. The fund would designate a finite amount to be accessed once a year on a first-come-first-served basis, with a maximum allowable percentage of costs, for example 15 per cent, eligible for subsidy. As with the LPIF, an independent body could be engaged to administer the fund following a public process to establish funding criteria and processes.
711 CCSA members, excluding EastLink, currently pay just over $1 million annually to SRDUs for HDTV transport, but the number of signals and the amounts will grow as more HDTV content becomes available and replaces standard definition. CCSA recommends the establishment of a fund in the amount of $40 million. That amount of capital, returning 2.5 per cent, would generate sufficient revenue to provide roughly a 50-per-cent HDTV signal transport subsidy to small systems operated by CCSA members and EastLink.
712 Like the conventional broadcasters, we are highlighting to the Commission an important element of the broadcasting system for which the existing model is broken. Unlike the case presented by those broadcasters, the fix will not cost hundreds of million, rather the scope of the issue we have raised can be accommodated within a tangible benefits package of the amount that the Applicant must offer. That application of tangible benefits will be entirely consistent with the overarching objectives of the Broadcasting Act and federal government policy.
713 Indeed, a number of recent federal policies have recognized and attempted to respond to the inherent access difficulties for rural Canadians. Examples are the ongoing Industry Canada broadband funding program, the application of deferral accounts for rural builds, and the recognition in Industry Canada's recent Canada 3.0 consultation paper that governments will likely have an ongoing role to ensure Canadians in rural areas are not left behind.
714 Our Canadian geography makes such policies a necessity. Our communications system, and in particular our broadcasting system, are intended to work for the benefit of all Canadians and it falls squarely within the Commission's mandate to supervise the system in such a manner as to ensure that that intention is met.
715 CCSA's proposal, we believe, offers an excellent cost-effective opportunity to improve the broadcasting system for the benefit of rural Canadians and we urge you to capitalize on this unique opportunity.
716 Thank you very much. We would be pleased to answer any of your questions.
717 THE CHAIRPERSON: Well, thank you for your submission.
718 I'm somewhat puzzled. Let me make sure I understand it.
719 You are saying here that Shaw distributes all the channels anyway for the benefit of its Shaw Direct TV, and if that's paying for the SRDU costs is your objection really the one to cost or in terms of selection in variety of channels offered? Because, if I understand you correctly, they are distributed anyway for their Shaw Direct. Then, does that not bear the cost of the Applicant distribution?
720 I'm missing something here.
721 MS TOWNSEND: I'm not sure I understand your question, but we are not suggesting that we should have any control over what is uplinked. We simply don't. That's Shaw's business --
722 THE CHAIRPERSON: Okay. Right.
723 MS TOWNSEND: -- and Shaw will make that decision.
724 What Shaw was saying in their intervention was that most of the costs were subsidized by Shaw Direct, and our response to that is: well, that is rightly so. That is part of the Shaw Direct business. They would be absorbing those costs as part of getting the programming to their customer. However, we are looking for something to assist members to get the signals in rural communities without paying an additional cost that other BDUs are not required to pay.
725 THE CHAIRPERSON: So basically Shaw is saying it's subsidized. You agree that it is subsidized, but it's not subsidized enough.
726 MR. EDWARDS: If I can weigh in here, Shaw --
727 THE CHAIRPERSON: Can you just answer my question? Was what I said just now right or not?
728 If I understood you correctly, Ms Townsend, you said Shaw says this is already largely subsidized, the cost of this is passed through their Shaw Direct service. You agree with that, but you find the subsidy is not large enough and you would like it to be augmented by the fund that you are advocating?
729 MS TOWNSEND: I don't think that what Shaw is doing is subsidizing. They are paying for a cost of their business. There is no subsidy that is coming to us from Shaw.
730 MR. EDWARDS: If I can, it depends on the commercial arrangement for the individual signal.
731 So Shaw Direct will make a decision to have a signal. That signal will be put up by Shaw Broadcasting Services for Shaw Direct's benefit.
732 The commercial arrangements, as I understand it, vary from signal to signal. In some cases the programmer whose signal is being carried will have paid an uplink charge, again depending on the total commercial arrangement they come to. In other cases they will not. So what we have is a distinction between what are called chargeable and non-chargeable signals for delivery to CCSA members by Shaw Broadcasting Services.
733 So it depends on the individual commercial arrangement.
734 THE CHAIRPERSON: And on the third-last page, under "The Digital Divide", the last sentence says:
"In fact, the BDU is not allowed to recover the costs of transporting those signals from the customer even if it chooses to offer such a package."
735 Who prohibits you from regularly charging the customer?
736 MR. EDWARDS: That is directly in reference to the small locals' and regionals' off-air package that the Commission has authorized BDUs to distribute. The point of that is that package must be offered free to customers, so there is no recovery mechanism for transport charges that the cable company must pay to get those signals.
737 THE CHAIRPERSON: Say that all again slower, and explain the terms you are using.
738 MR. EDWARDS: Sure.
739 The CRTC recently issued a decision in which it authorized BDUs to offer a locals' and regionals' package of off-air signals. One of the terms of that authorization is that the BDUs cannot charge customers for that service. That means that to the extent that a small BDU that is getting those signals from the SRDU must pay additional costs for the transport of that signal to its headend, it has no mechanism to recover costs from the consumer because it cannot charge the consumer for the package.
740 THE CHAIRPERSON: But we don't get involved in what BDUs charge consumers. That's what puzzles me here. We don't regulate the rate, et cetera.
741 Is this your interpretation or...I mean we don't enter a deal with BDU pricing, that's why I'm somewhat puzzled about this statement.
742 MR. EDWARDS: We are talking in this particular paragraph only about the offering of that regionals and local OTA signal package --
743 THE CHAIRPERSON: That's one small segment, I see. Okay.
744 MR. EDWARDS: -- and that has to be free to the consumer.
745 THE CHAIRPERSON: Okay.
746 Marc, you have some questions?
747 COMMISSIONER PATRONE: Thank you, Mr. Chairman.
748 And thank you for your presentation this afternoon. I just have a few questions, and perhaps some of my colleagues may want to follow.
749 There are those that would wonder whether a tangible benefits package is the proper vehicle even if one were to determine that your request reasonable one, whether or not it would fit within the framework of a tangible benefits package. You have touched on that in your presentation.
750 Could you sort of help me out with that?
751 MS TOWNSEND: Well, one of the things that I think a lot of the intervenors have noted in this proceeding, the benefits that are proposed do not seem to be of assistance to third parties. So from my review of other times that benefits packages have been used, generally, the benefit is intended to accrue to third parties. So quite obviously, we are a third party. Then it seems to be --
752 COMMISSIONER PATRONE: But you're not independent producers of content.
753 MS TOWNSEND: No, we are independent BDUs.
754 COMMISSIONER PATRONE: Well, much of the tangible benefits packages are allocated towards that kind of material.
755 MS TOWNSEND: Well, VoicePrint, I believe --
756 COMMISSIONER PATRONE: I'm just asking.
757 MS TOWNSEND: VoicePrint, that's not an independent producer, is it?
758 COMMISSIONER PATRONE: Okay.
759 MR. EDWARDS: We are independent participants in the broadcasting system as a whole.
760 COMMISSIONER PATRONE: Okay.
761 MS TOWNSEND: And there is an opportunity to benefit the system as a whole, including the rural Canadians, so I think that does fit squarely within the benefits.
762 COMMISSIONER PATRONE: Fair enough. And I will ask you to fill me in a little bit more on that, help me understand how it's going to have an impact on consumers in non-urban areas.
763 But I don't recall seeing much in the way of a number or figures in your presentation. Can you put some numerical information onto this request?
764 MR. EDWARDS: It's a concept, and you could pretty much make it any size you want, depending on how much you wanted to assist the small BDUs and the consumers they serve.
765 What we did is we did a very simple math calculation, and that proceeds from the costs that we know that CCSA members pay today for the transport only of high-definition television signals to their facilities.
766 COMMISSIONER PATRONE: Can you share some of that arithmetic with me?
767 MR. EDWARDS: Yes. And so between the two SRDUs currently in operation, which is ExpressVu and Shaw Direct, it is just over $1 million paid by all CCSA members in a year. So that's the basic number that we went from, and then we just said very simple math, you know, at a conservative rate of return, basically on interest, how big a fund would it take, how much capital would it take, to provide that much money? That's the numbers that are reflected in our oral presentation.
768 We are not the only BDUs out there with this situation, so we did mention EastLink has the same situation. I believe Rogers has some Newfoundland systems that are still SRDU dependent.
769 So it's a very rough figure. And if we took all of those BDUs that we know about right now for whom we actually have some numbers, then that million -- sorry, the $40 million generating 2 1/2 per cent would create $1 million, and that would be about a 50-per-cent coverage of the ones that we know about.
770 Sorry, too fast on that one. Anyway, the point is that --
771 COMMISSIONER PATRONE: We would be talking about a multi-year investment, though, obviously, not a one of.
772 MR. EDWARDS: Well, our point was to use some funding to create a capital fund that would then provide a subsidy through annual interest.
773 COMMISSIONER PATRONE: And you spoke a little bit about how this might be administered. Can you talk a little bit more about that: how it would work, who would be administering it, that kind of thing?
774 MR. EDWARDS: The most recent example we have to look to is the LPIF, which was set up under McCay, Duff. It could be a firm like that.
775 I hesitate to suggest this because I know how you will react, but we know the numbers for our members and most of the BDUs involved. It's a very simple matter for us either to do that or to provide the numbers to a third party.
776 In terms of process and application, really, it would be a matter of the BDUs providing their actual substantiated costs, and recovering a portion of those. So really procedurally quite a simple process.
777 COMMISSIONER PATRONE: Could I ask you to forward any of the numbers that you have, any of the calculations that you have already done at some point to staff?
778 MS TOWNSEND: Certainly.
779 MR. EDWARDS: We could do that in confidence.
780 COMMISSIONER PATRONE: Can you talk to me about the implications, long term and otherwise, of denial of this request to offset transport costs?
781 MS TOWNSEND: Sure, I would be happy to do that.
782 I would like to maybe start with a little bit of history, because the whole SRDU, and how it became part of Shaw, is kind of an interesting development.
783 Because back 15 years ago the whole transport issue was not related to Shaw, it was CANCOM. And in the beginning CANCOM was set up so that rural Canadians could receive access to signals that they wouldn't receive otherwise. CANCOM, initially, was intended to be a break-even business. It was there in order to ensure that rural Canadians got access to the same thing that urban Canadians got.
784 Well, then Shaw reasonably purchased CANCOM, which made sense. Because they had the business of Shaw Direct, so it made perfect sense for them to combine those two businesses. And that has created, I think, a lot of confusion concerning the costs of transport insofar as the Commission may be concerned.
785 They have the Shaw Direct business, which also administers the SRDU as well now. But they are two separate businesses.
786 So starting from that, what CANCOM had back 15 years ago was a commitment and a requirement to serve these communities, to serve the rural communities. Now that has been kind of caught up in the Shaw ownership, and now it's a Shaw Direct issue, or at least it's maybe concentrated more on Shaw Direct.
787 The whole idea of being there to support the rural communities has kind of faded into the background, so it seemed to us that this was an excellent opportunity, given the fact that costs are increasing because of HD.
788 COMMISSIONER PATRONE: Right.
789 MS TOWNSEND: Previously, the costs of transport were something that we lived with. It was something that we knew. We mentioned it to the Commission from time to time, but we lived with it.
790 Now with HD costs, transport for every signal for every subscriber is 10 times the amount that it used to be. Therefore, we are getting back to the issue of what CANCOM was originally created for, which was to ensure that there would be access for the rural Canadians. Because our members are not going to be able to afford to pay 10 times the amount for transport.
791 COMMISSIONER PATRONE: Exactly what are you saying about the implications?
792 MS TOWNSEND: I'm saying that they will not have access to HDTV signals.
793 COMMISSIONER PATRONE: Which speaks to impact on the consumer, obviously, in those areas.
794 MS TOWNSEND: That's who I'm speaking of. The consumer will not have access --
795 COMMISSIONER PATRONE: Understood.
796 MS TOWNSEND: -- to HDTV signal.
797 COMMISSIONER PATRONE: Has there been any negotiations? And I realize that there's been some communication in the form of interventions and responses, but have you been speaking with Shaw?
798 MS TOWNSEND: We did tell them that we intended to intervene because we thought, actually, this was a win-win situation because we are suggesting a subsidy for SRDUs basically.
799 At that time I suspect that Shaw had a huge list of things on their plate and we just were not one of the priorities yet.
800 COMMISSIONER PATRONE: You were at the bottom of the laundry list.
801 MS TOWNSEND: That's right.
802 COMMISSIONER PATRONE: Because that would be the ideal scenario, really, is to have some kind of industry-related --
803 MS TOWNSEND: It certainly would.
804 COMMISSIONER PATRONE: -- framework for discussions between your two groups.
805 MS TOWNSEND: It certainly would. And coming up before you there will be another situation with the other SRDU in Canada, the same situation will be presented.
806 COMMISSIONER PATRONE: I have no more questions, Mr. Chairman.
807 And thank you.
808 THE CHAIRPERSON: Len?
809 COMMISSIONER KATZ: Thank you, Mr. Chairman.
810 And good afternoon.
811 These charges, as I understand it, are just normal operating costs, no different than any other costs of providing services from your members to their customers.
812 MS TOWNSEND: They are an operating cost that no one else in the industry shares.
813 COMMISSIONER KATZ: Okay. You are recommending that this Commission approve a set-aside of $40 million to create a new fund in order to subsidize private businesses operating services to the public.
814 MS TOWNSEND: I really don't see any difference between that and providing them with subsidies to build broadband in rural areas. What the end result is is providing a better service to a rural Canadian.
815 COMMISSIONER KATZ: You have included in here among your members EastLink, which the last time I looked is a $300-million profitable business that would partake in a subsidy, and would probably take the lion's share of the subsidy given the number of subscribers that they serve relative to your other members. I mean, I just don't get it.
816 MS TOWNSEND: Well, actually, I don't think that that would be the case, sir, because EastLink is interconnected with other larger BDUs, so they don't have the same reliance on transport. It's more the outlying communities that have the increased reliance on transport, EastLink not so much. However, EastLink is made up of, as we know, the Persona systems, which are small, rural, far away from being interconnected to anything, so long as they could prove transport -- and we are not talking just about EastLink. We could be talking about Rogers. We could be talking about -- because we are not talking about the cable company, we are talking about the subscribers that otherwise would not have access to services.
817 COMMISSIONER KATZ: But as the Chairman said, we don't regulate the rates to subscribers.
818 MS TOWNSEND: And nor are we asking you to. What we are asking you to do is to make it possible for rural Canadians to have access to the same services that urban Canadians will.
819 COMMISSIONER KATZ: And that's without any substantiated data to support the fact that the CCSA members would not survive without the subsidy. I mean, on the basis of this submission, there are no numbers here at all saying this is a failing industry, with failing members, that are going to put consumers without services if you don't get this subsidy, and I just don't see the support for it.
820 I'm just looking for data. I mean, these are businesses out there, their costs are going up, costs go up all the time, people have got to figure out how to do it.
821 And I'm not saying yes or no here, I'm simply saying there's no substantiated data here to support a recommendation to set aside a fund as large as $40 million at this time.
822 MS TOWNSEND: We are not saying that these companies are going out of business for this; we are saying that they will not be able to provide the HD signal that they would provide if they receive such a subsidy.
823 COMMISSIONER KATZ: But if they wanted to provide it, they could, it's just that perhaps their profit margins may go down, I guess. I mean they are profitable today, these businesses, so --
824 MS TOWNSEND: These little businesses? Marginally.
825 COMMISSIONER KATZ: So the question only is how do they allocate their costs? And if they have got to put a larger share of their costs for certain services, that presumably will generate revenue for them. HD services are premium services. You can charge more for the services as well. There's a cost and there's a return. I just don't have any substantiated data to support --
826 MS TOWNSEND: There will be a larger cost for that rural subscriber than there will be for an urban subscriber, and that's what we are asking you to address.
827 COMMISSIONER KATZ: Like I said, I just don't see the data. I don't see the numbers here to support it. There's no numbers here, other than a recommendation that this Commission create a new fund of $40 million for a group of businesses that untofor have not proven to me that they are not going to be able to be viable.
828 That's all my questions, Mr. Chairman.
829 THE CHAIRPERSON: Thank you.
830 Rita, you have another question?
831 COMMISSIONER CUGINI: Yes, thank you.
832 Are you suggesting that the $40 million be over and above what Shaw has proposed or is it to be part of what has already been proposed?
833 MR. EDWARDS: I think I did want to emphasize this point at some point. We really came here with a thought that there have been some issues raised about the tangible benefits package. I appreciate the lack of concrete numbers, it's very difficult to do in a short time frame. But we came here with the thought that, if there are issues with that package, this could amount to a reasonable concept for the benefit of the broadcasting system and rural Canadian consumers that could be used to augment, if necessary, the benefits package that's on the table.
834 So we are not necessarily talking about additional numbers. We are saying if there were issues, here's another alternative you could look at.
835 COMMISSIONER CUGINI: Well, you are allowing me to raise something that unfortunately I forgot to raise with Shaw, but that's the beauty of a multiple-phase hearing: we can raise it before the hearing is actually adjourned.
836 As you know, there is a bit of a question as to whether or not the unfulfilled Alliance Atlantis benefits package should qualify. Do you have a position on that?
837 MR. EDWARDS: I don't think we are really competent to comment on that.
838 COMMISSIONER CUGINI: Okay. We will ask other intervenors.
839 THE CHAIRPERSON: You are aware that in the CTV transaction the same argument was made here. There were all sorts of benefits that CHUM had accrued over the years and had not paid, and CTV liked to get credit for it. We told them quite clearly, no, when you buy an asset, you buy it with the obligation, including benefit applications. The same applies here.
840 But I think what Rita was asking is: if they have to find benefits, because they counted as benefits, the undischarged ones from the Alliance Atlantis ones, are you suggesting your fund would be one way they could fit the whole...?
841 MR. EDWARDS: I think our proposition was a bit more general than that, not necessarily tied to those Alliance Atlantis parts. But if there were some deficiency that needed to be made up, this would be one possible alternative proposals.
842 THE CHAIRPERSON: And we have had I don't know how many hearings, four or five, on digital transition, et cetera. How come this issue has never been, I would say, the idea that there needs to be a fund to subsidize rural BDUs, raised before? This is the first time I have heard of it.
843 MR. EDWARDS: I think we have raised the problem of transport at a number of hearings now --
844 THE CHAIRPERSON: Yes.
845 MR. EDWARDS: -- and the transport costs.
846 The other thing that is becoming evident to us that is more recent is this issue of access to high-definition television programming.
847 And I realize that we haven't come before the Commission today with a list of services that our members have not been able to afford to carry, but I think that's where we are heading, is that they are going to have to make choices not to offer signals that Canadians in the urban centres are going to get, and that's really the concern we are addressing.
848 THE CHAIRPERSON: I still don't understand why it isn't a question of business. As my colleague, Mr. Katz says, you know, you are a rural Canadian, you can subscribe to Shaw or Bell and you get satellite TV and you get all the HD, or you can get it from your local one, local BDU, but obviously you are going to pay more for the HD signal than you do for the non-HD signal. Why has this become something that is required to be subsidized?
849 MR. EDWARDS: I guess what I would say to that is you are not going to have that competitive alternative from the local BDU or increasingly his offering will not be competitive with what the DTH provider is offering there, and that's a restriction on choice for those people.
850 THE CHAIRPERSON: I see.
851 Okay, thank you very much. I think those are all our questions.
852 Madame Roy, do we have another intervenor this afternoon?
853 THE SECRETARY: No.
854 THE CHAIRPERSON: Okay. Then in that case, what time do we resume tomorrow morning.
855 THE SECRETARY: At nine o'clock tomorrow morning.
856 THE CHAIRPERSON: Okay, thank you, everybody.
--- Whereupon the hearing adjourned at 1343, to resume on Wednesday, September 22, 2010 at 0900
Johanne Morin Jean Desaulniers
Sharon Millett Monique Mahoney
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