ARCHIVED - Transcript, Hearing 22 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 22, 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 22, 2010
- iv -
TABLE OF CONTENTS
PAGE / PARA
PHASE II (Cont.)
CACTUS 149 / 861
Save Our CBC Kamloops 177 / 1026
ACTRA 191 / 1115
Writers Guild of Canada 200 / 1161
Directors Guild of Canada 209 / 1201
Canadian Media Production Association 237 / 1342
TELUS 275 / 1585
Pelmorex Communications Inc. 315 / 1807
Media Access Canada 350 / 2041
Communications, Energy and Paperworkers Union of Canada 377 / 2186
- v -
Undertakings can be found at the following paragraphs:
970, 1000, 1075 and 2179
--- Upon commencing on Wednesday, September 22, 2010 at 0900
857 THE CHAIRPERSON: Good morning, everyone.
858 Madam Secretary, let's begin.
859 THE SECRETARY: We will begin by hearing the intervention of the Canadian Association of Community TV Users and Stations, CACTUS, which is appearing via videoconference from Gatineau.
860 Please introduce yourself. You will have 10 minutes for your presentation. Thank you.
861 MS EDWARDS: Thank you, and hello again.
862 CACTUS represents the views of Canadians and independent community television channels and producing groups that believe that participation in the broadcasting system by ordinary Canadians is fundamental to Canadian democracy.
863 We do not believe that further consolidation of Canadian media serves the best interest of Canadians. We do not believe that broadcast distribution undertakings should own content production entities. In our view, this sale represents another move in the wrong direction for the long-term health of both Canadian broadcasting and Canadian democracy, as we heard from thousands of Canadians at the Diversity of Voices hearing.
864 It is not our experience that the CRTC can adequately limit the abuse of power that this intensified level of cross-ownership enables. The experience of our members is that, in the last dozen years, Canada's large cable BDUs have routinely abused their obligations with respect to community channels, and the CRTC has lacked the will or resources to restrain these abuses. These companies are simply too large.
865 This being said, if the CRTC approves the purchase of Canwest by Shaw, what public benefits would be reasonable to expect from Shaw to balance the consolidation of power in the media industry that will result?
866 Like most other intervenors to this process, we do not accept Shaw's argument that purchasing Canwest constitutes a public benefit as normally understood by the CRTC, nor that upgrading Canwest's own transmitters to digital in non-mandatory markets represents a public benefit beyond the cost of doing business.
867 Nonetheless, like the CMG, we welcome Shaw's suggestion that upgrades to Canwest's transmitters in the non-mandatory markets might be accompanied by multiplexing, and that their transmitter towers would be made available to all local broadcasters, including community broadcasters.
868 Like the CMG, we believe that opening up transmission facilities to all, on a non-discriminatory and cost-recovery only basis, is a public benefit that would promote media diversity and access, to balance the media consolidation that this sale represents.
869 Specifically, we agree with the CMG that not only should Shaw upgrade Canwest's transmitters in non-mandatory markets, but it should offer multiplex space on each transmitter to all other existing local licence holders and new entrants in the public and community sectors at no charge, up to a maximum of six multiplexed SD channels.
870 The public benefit would be threefold: assistance to other local services to make the transition to digital; continued access by local viewers to OTA channels, not just Global; and a demonstration of how multiplexing can work, to fulfil the CRTC's goal of more efficient spectrum usage.
871 Second, other local community or public channels that want to pursue a separate licence -- for example, a full channel for HD rather than a multiplexed SD channel on Canwest's existing licence spectrum -- should be given access to the tower and to the transmission site on a cost-recovery basis, and we applaud Shaw for making this offer in its revised benefits proposal package.
872 In its reply, Shaw demurs about whether it would commit to offer multiplex space in all Canwest markets, so we would like to elaborate on why such space is crucial for the community sector.
873 In the new community radio policy announced in July, the CRTC states that it is not willing to either reserve or protect frequencies for community services. Although CACTUS and several other intervenors requested the same for the community TV sector, one reserved and protected frequency per market, the new community TV policy does not expand on this issue. We assume, however, that the CRTC's answer would be the same.
874 Since most communities in Canada do not enjoy a community television service, either cable only or over-the-air, finding space for such services is urgent.
875 Consultations with Industry Canada have also been discouraging to date. No set-asides nor consideration of the community sector have been incorporated into the digital allotment plan, although IC has a long history of reserving certain frequencies for public services, including educational, astronomy, defence and emergency services.
876 This is discouraging when we consider the reasons given for going digital in the fact sheet that accompanied Broadcasting Policy 2010-485. One of the main reasons for switching to digital TV was the need for more spectrum. Digital signals use less airwave space. This means that the freed up space can be used for other services.
877 Digital technology also provides better picture and sound.
878 The need for space for new services is given as the main reason, and the improvement in quality -- HD -- is given as secondary, yet the digital allotment plan assigns each incumbent a full 6 MHz channel, on the assumption that each will want to broadcast in HD.
879 Furthermore, IC personnel have informed us that each such channel could easily accommodate a full HD channel in addition to one or two SD channels, with the relatively rare exception of services that demand high resolution coverage of fast motion, such as a 24/7 committed sports service.
880 Add the fact that Channels 52 through 69 are slated for a spectrum option, it appears that the digital transition in Canada is poised to shut services down and make communities go dark, not to open up new possibilities.
881 We, therefore, look to the CRTC to set expectations that scarce spectrum should be shared by incumbents with priority new services, such as community services. We consider community services a priority because they are one of the three elements stipulated as making up the Canadian broadcasting system under the Act, because there are currently so few, and because of the steady diminution of truly local services in the public and private sectors.
882 Therefore, as a sector, we welcome the possibility that in markets where spectrum is not tight after the digital transition and related auctions -- chiefly rural markets, not close to the U.S. border -- that existing broadcasters might share space on their towers with community broadcasters.
883 In markets where spectrum is tight, the community sector could be distributed using digital multiplexes, sharing a frequency with an existing broadcast service even if the community service is only SD.
884 We have been discussing these options with the CBC, Global and CTV since last fall, so we welcome Shaw's initiative on both counts.
885 Many CACTUS members are also independent professional producers, and we acknowledge the importance of a diverse range of Canadian content and of sources of funding to produce such content. Therefore, we support the proposal in Shaw's revised benefits package of funding more Canadian content in key programming categories.
886 However, since sales such as this one imply long-term structural shifts within the Canadian broadcasting industry that reduce the diversity of owners and voices that are likely to reach the air, we don't think the entire benefits package, minus the transmitter upgrades, should be devoted to funding content that, once produced and viewed, is gone. Some of the money should be used to strengthen and enhance diversity of production and voices reaching the airwaves over the long term.
887 We note that money directed toward the community sector funds facilities and infrastructure that can be used over and over to produce much more local programming more cost effectively than can be produced professionally on a one-off basis, thanks to the production multiplier volunteer labour.
888 Furthermore, given that Shaw has been the most persistent and aggressive abuser of community access to its own erstwhile community channels -- in recognition, in part, of this abuse, Shaw's cable systems were given only a two-year renewal in 2008 -- and that little in their administration of the community channels has improved since then, in our view, we believe it would be appropriate for Shaw to contribute toward the long-term health of a new independent community media sector.
889 We suggest two specific measures. One, that the independent community media sector needs a national body to help re-educate Canadians about their right to access under the Broadcasting Act. They need a body that they can contact for technical, legal and policy assistance to set up their own services.
890 Commissioner Patrone asked on Monday why there aren't more such services, and I replied that there isn't a viable source of funding.
891 The sector has been denied any direct access to money collected from cable subscribers for local expression, the LPIF and value for signal. But one avenue that has not been tried as a consistent national strategy, which has worked with some success in other countries, is funding by municipalities. This possibility was suggested by Commissioner Morin in his dissenting opinion to 2002-622.
892 The time is ripe for municipalities to take a role in local broadcasting with the upcoming digital transition.
893 Two of our members in B.C. have been broadcasting a community service over the air for more than two decades, as well as rebroadcasting a package of remote signals from other broadcasters. This model has potential for communities that may find themselves cut off from free over-the-air TV and unable to afford satellite service, such as many rural and First Nations communities.
894 Many communities in the U.S. and abroad also offer free wireless internet and other local services bundled through digital multiplexing.
895 We are interested to get this message out to communities countrywide, and we have the experience to help maximize Canada's benefit from the digital transition, but we need resources. Our role need not be limited to traditional access issues only.
896 It would, therefore, be appropriate and of enormous public value for Shaw to establish multiyear funding for such an organization. To rebuild the community sector in Canada, CACTUS estimated in the spring that 8 to 10 employees would be required, requiring a budget of approximately $1 million annually.
897 Therefore, we would recommend that $10 million be set aside to fund such a national body for a period of 10 years, whether it is CACTUS or another body.
898 As CACTUS also outlined during the hearings and in a subsequent presentation before the Standing Committee on Canadian Heritage, infrastructure funding for the community sector is the best way to make real the full potential of the digital transition by establishing multimedia access training centres in every Canadian community to disseminate new technologies.
899 Second, in each of the non-mandatory markets where transmitter upgrades and multiplexes are established, Shaw could provide the capital cost to set up an independent community-owned and operated channel with a feed to this multiplex or tower.
900 As outlined in our submission to 2009-661, approximately $500,000 would be needed in each non-mandatory market. For 60-odd community channels, this would amount to $30 million.
901 Shaw would also benefit, as substantially more hyperlocal programming would become available in the basic cable package.
902 Since the creation of a Community Media Access Fund that could pay the ongoing operational expenses for these channels, as proposed by CACTUS in 2009-661, was denied in the new community TV policy, if the Commission asked Shaw to provide the capital cost for a new independent community TV service in Canwest's markets, we would commit to encouraging municipalities in those markets to step up to the plate and take on the operational costs. These discussions have already begun.
903 These measures, taken together, would significantly mitigate the ownership concentration and threat to diversity that this sale represents at the local level. A window would be technologically enabled for all would-be local broadcasters, and the means would be provided for the community to produce its own content.
904 As is well known, even those non-mandatory markets that still have their own news bureaus, they produce little more than a half-hour of news daily, and the majority currently have no local source of televisual information.
905 CACTUS appreciates the opportunity to comment on this sale, and thanks Shaw for its leadership in proposing both transmitter sharing through multiplexing and shared use of its transmission towers and sites.
906 THE CHAIRPERSON: Thank you for your submission.
907 I would like to go back to your first recommendation, which is to, in effect, set up a $10 million fund to educate Canadians on community TV. Presumably, the recipient would be you or an organization similar to yours.
908 MS EDWARDS: Yes, it doesn't have to be us.
909 THE CHAIRPERSON: Yes, I know, I heard you.
910 Isn't there sort of an ideological contradiction here? Because community is supposed to be the community speaking for itself, expressing its wishes, feeling dedicated to the issues, feeling that they concern them; therefore, they voluntarily get together, organize themselves, and find a means of expressing themselves.
911 Why do they require funding? It seems to me that either you are a voluntary organization and you are moved by your cause, and, therefore, you devote time and money, or else you're not.
912 This way aren't you becoming something like, in effect, a lobbyist for community groups, funded by television or distributors or broadcasters?
913 I just don't see how these two concepts are reconcilable.
914 MS EDWARDS: Because most communities have no idea, for example, that they could undertake their own rebroadcasting services much more cheaply than they could go on to satellite.
915 For example, in Valemount, B.C. -- and you met with Andrew by videoconference in the spring -- for $40 per household per year -- it's a community of only 1,500 people -- they offer a package of 10 to 12, depending on the time, rebroadcast over-the-air services. In addition, they pay his salary to offer a local community service.
916 So communities out there, when the TV turns off next year, just don't know that, hey, for a 10th of the cost of satellite, we could offer a package of, you know, as many channels as we really need and want. We could pick what they are, and we could have local content.
917 So there needs to be somebody willing to coordinate such a campaign, and to that end -- I don't know if you have seen our press releases, but we have written to the government saying that there needs to be a comprehensive national education campaign about the digital transition, not just about community access issues.
918 The website that Heritage has recently set up is just not adequate.
919 And your own policies, Bulletin 485, in July, recommended just such a campaign.
920 So that's what we are looking for. It's not just about access; people need to know, to be able to take action, what is available.
921 THE CHAIRPERSON: And you feel it is incumbent on companies like Shaw to educate the public?
922 MS EDWARDS: Our understanding is that the CRTC's current stance with respect to digital transition is that the industry is going to lead, but we are not sure that they are going to lead in a way that is not focused solely on their own services and what benefits them.
923 We feel that it needs to be a non-profit, third party organization that can offer a multitude of different choices to communities, that people don't, you know, find their lights going out one day and the next day it's satellite or nothing, with no local content.
924 THE CHAIRPERSON: Okay.
925 Len, I believe you have some questions.
926 COMMISSIONER KATZ: Thank you, Mr. Chairman.
927 Good morning.
928 MS EDWARDS: Good morning.
929 COMMISSIONER KATZ: I want to start with one of your opening statements that you have in paragraph No. 2, which says:
"CACTUS does not believe that further consolidation of Canadian media serves the best interest of Canadians."
930 Then you go on to suggest a number of benefits.
931 Just to be clear, are you in support of this acquisition or are you not?
932 Because, obviously, we all know that there is a CTV/BCE transaction that is taking place, as well, that is going to come before the CRTC.
933 So before we get into the benefits and everything else, does CACTUS support this transaction or does it not?
934 MS EDWARDS: We don't.
935 COMMISSIONER KATZ: You do not.
936 MS EDWARDS: We do not support it. We think it is part of a move in the wrong direction.
937 We think that the industry as a whole could have developed in quite a different way if BDUs had never been allowed to own content. There would have remained, you know, more possibility for negotiating power on behalf of specialty channels and traditional broadcasters to get value for signal 10 years ago.
938 We just think that it's another step in the wrong direction.
939 COMMISSIONER KATZ: Let me understand what you mean by Canadian media, because some people would come to the conclusion that the bifurcation of Canwest between the Financial Post and their broadcasting assets actually increases media instead of concentrating it, and the same with regard to the Globe and Mail and CTV.
940 There is an argument out there that says there is actually more competition in media, rather than less, so I am trying to understand what you mean by Canadian media here.
941 MS EDWARDS: We just think that consolidated ownership among different kinds of media and vertical integration is not helping in the long term.
942 We witnessed, for example, in the Diversity of Voices hearing, quite a number of intervenors -- not us, but others raised the issue of keeping newsroom editorial control separate.
943 In an ideal universe, where you had lots of competition and smaller companies, what you would want to see, in a traditional business, with a good competitive environment, is that they could use efficiencies and share information among different newsrooms.
944 If we are talking about small companies, that would be efficient and we would encourage it. But because we have gotten into a situation where there isn't enough natural competition -- it's not a freer market, it's a less free market -- then you, the CRTC, is put into this awkward position of having to actually put into place more safeguards and legislation to stop the abuses which that situation produces.
945 I think it's the opposite of streamlining regulation. You've got yourselves -- you guys have got yourselves into a terrible box.
946 That's my personal opinion. I didn't consult with everyone else in CACTUS to say that.
947 COMMISSIONER KATZ: I guess my confusion is, when you talk about diversity of voices, the fact that Canwest is now structurally separated between their publishing arm and their broadcasting arm means that there is more diversity on the media side, because the same people aren't reporting on the same issues the same way.
948 And the same thing would apply, I would think, on the CTV side, as well; the fact that the Globe and Mail now has independent journalists that aren't writing, as well, on the broadcasting side and reporting on radio and television creates more diversity of voices rather than less.
949 So I am trying to focus in as to whether your issue is vertical integration, and if it is, to what extent and for what purpose, or whether it is diversity of voices, which, like I say, when I read other people's submissions, it appears there is more diversity of voices, not less, coming through these types of acquisitions.
950 MS EDWARDS: Honestly, I think that common ownership doesn't end up with editorial slanting, no matter whether you have different journalists on the ground or not.
951 I mean every organization that I have ever worked in, the management at the top, their goals and objectives and styles, affect the way the organizations work all the way down. We all know that.
952 I would rather see separate, smaller companies undertaking these many functions.
953 COMMISSIONER KATZ: Okay. Let me move on to your benefit package.
954 In paragraph No. 5 of your statement this morning you say that upgrading Canwest's own transmitters to digital in non-mandatory markets does not represent a public benefit.
955 To the extent that they are non-mandatory transitions, don't you think there is a value and a benefit to the transition?
956 MS EDWARDS: I think that, going forward, Shaw and Canwest will have the benefit of those digital transmitters. Going into the future, if they want to multiplex them, for example, they can offer new services into the future.
957 I just think that they have a long-term, as yet unexplored, potential benefit, which stays within the company, of doing that. It's not a one-time thing.
958 COMMISSIONER KATZ: But there is a public benefit, as well --
959 MS EDWARDS: The digital transition is just --
960 COMMISSIONER KATZ: I'm sorry.
961 MS EDWARDS: -- right, but not as understood by the CRTC's usual benefits packages. It's meant to benefit third parties. That is my understanding.
962 COMMISSIONER KATZ: Okay. You comment an awful lot about spectrum allotment and how it is being done. Other than hearing what you have said -- and I am sure that others will read it, as well -- this does not fall under the CRTC's purview, per se.
963 We certainly can recognize the public benefits to spectrum being used for public purposes, including community, but when it comes to how that spectrum gets allocated, it first gets allocated by government outside of the CRTC.
964 I am sure that you appreciate that, and you have indicated here --
965 MS EDWARDS: For example, though --
966 COMMISSIONER KATZ: You have indicated here that you are making representations --
967 MS EDWARDS: Not exclusively.
968 I apologize that I don't have the policy number, and I could get back to you, but since the summertime a CRTC policy came out saying that incumbents -- that means people that have already been allotted a 6 MHz channel on the IC's digital allotment plan -- wouldn't be required to apply for licences for services that they want to multiplex with their traditional broadcast services, and we feel that that's a mistake. You are basically giving incumbents more spectrum -- given that we are tight for spectrum -- more spectrum than they actually need to continue to offer their traditional broadcast services.
969 You are not asking them to license the new spectrum, and yet new entrants like the community sector can't compete for that excess spectrum.
970 So the CRTC is involved. That was a CRTC decision, and if you want the number, I can get it for you.
971 COMMISSIONER KATZ: Okay, I would appreciate it.
972 My second-last question has to do with towers and the need to share tower space. When you make the suggestion that tower space be made available for community broadcasters, are you suggesting that the public benefit package that Shaw is required to undertake would include the costs associated with making that space available, whether it's lease costs, maintenance costs, or whatever, or to be just there as a public benefit at no charge, no cost at all?
973 MS EDWARDS: I think it might depend on market-by-market situation and whether there's other local services there, but we would be willing to look at a cost-recovery basis on the part of Shaw.
974 COMMISSIONER KATZ: Okay.
975 My last question is --
976 MS EDWARDS: We are suggesting --
977 COMMISSIONER KATZ: Sorry, go ahead if you want to finish that comment.
978 MS EDWARDS: No, that's okay.
979 COMMISSIONER KATZ: Okay.
980 My last question is with regard to municipalities. You comment repeatedly here about the role of municipalities, and certainly there may in fact be a role for municipalities.
981 But when you suggest that they take up the mantle and pay for the operating costs, how likely is that and how far have you gone in sort of discussing costs with municipalities?
982 Because obviously it affects their tax rolls and municipal taxation as well. So I'm not sure how likely this would be in the short term and whether it's a longer-term plan and how far your discussions have evolved in that regard.
983 MS EDWARDS: Like I said, with the example of Valemount, B.C., they are able to do it so cost-effectively. For $40 per household per year, which is added to the tax bill, so they don't pay monthly for the service, you know, it's in their yearly tax bill -- they get a mix of a dozen channels plus a community channel.
984 So we just feel that the digital transition, you know, it's a great time to say to municipalities, look, you haven't had a local channel here for 20 years since your local CBC channel closed, maybe since your local Global or CTV channel closed, you are also going to lose -- those transmission towers are even going to go dark to bringing free OTA TV to your communities. Rather than have your communities go to $500-per-year satellite services, you have this opportunity to put your own transmission infrastructure in place.
985 And once communities have that, what is possible is not only input into what gets rebroadcasted there, they can have a community channel if they want.
986 I just read that a 300-household community in Utah put in free wireless Internet because they have their own tower.
987 All the possibilities of the digital transition suddenly become under municipality control. They can have a say and a dialogue about what that is going to be and it doesn't have to be expensive. And I think that is the message that municipalities don't know yet.
988 COMMISSIONER KATZ: So this municipality --
989 MS EDWARDS: Nobody is talking about it.
990 COMMISSIONER KATZ: Sorry.
991 This municipality you cited in British Columbia, they voted to agree to pay $40 per household for this capability?
992 MS EDWARDS: That's right, $40 per household per year.
993 COMMISSIONER KATZ: And just so I understand, was it --
994 MS EDWARDS: And they get 12 over-the-air channels which they have picked and a community channel for that.
995 COMMISSIONER KATZ: Was it done by plebiscite?
996 MS EDWARDS: And 1,500 --
997 COMMISSIONER KATZ: Sorry, go ahead.
998 MS EDWARDS: I could get back to you on that.
999 COMMISSIONER KATZ: Okay.
1000 Those are my questions, Mr. Chairman.
1001 MS EDWARDS: It's a small community, so I can't imagine they haven't discussed it. But I can get back to you on the specific process if you would like.
1002 COMMISSIONER KATZ: Yes, thank you.
1003 Those are my questions.
1004 THE CHAIRPERSON: I didn't quite understand your answer to Commissioner Katz regarding spectrum allocation, that is, it was in the purview of Industry Canada, and you seem to suggest that no, there is some aspect of it which falls in our domain. Can you repeat that please?
1005 MS EDWARDS: What I have been told by Industry Canada is that in their digital allotment, incumbents, so any existing licence-holder has been assigned a new 6-MHz digital channel so that the incumbents -- you know, everyone has talked about the fact that a 6-MHz channel used to be space for six analog channels -- but they are being given this amount so that they can have HD channels.
1006 But I have been told by their technicians that unless you are doing 24-hours-a-day fast-motion sports, you don't actually need the whole 6 MHz for an HD signal. You can actually multiplex at least one or two SD channels in there.
1007 And in recognition of this fact, the CRTC since the summer -- and I can get you the policy number -- published a policy saying that incumbents don't have to apply for a licence to the CRTC to introduce and multiplex new services with their traditional broadcasting service within these 6-MHz channels they are going to get.
1008 So, for example, if I am Global and I'm really only using 4 MHz for my HD broadcast channel, you know, I can roll wireless in there or a text data service or something and they don't have to apply to you for a licence.
1009 So what we are saying is that if there is going to be a tight spectrum situation going forward, which there is, there are lots of markets where there is not going to be space near the American border for a community entrant, we are saying it would be much more just to recognize that there is space for multiplexing with incumbent services, rather than just letting the incumbents have that space sit idle or offer whatever services they want without even approaching you for licensing.
1010 So this is where we feel that you do have input. IC sets the channels, but there is more space within those channels for them --
1011 THE CHAIRPERSON: You are really freelancing here. That has absolutely nothing to do with this hearing. You are asking us to change our policy on multiplexing, that is really what it boils down to.
1012 MS EDWARDS: We are asking you to consider asking the incumbents to multiplex services with new entrants that can't get on the dial otherwise. Otherwise, what was the point of going digital? That is within your purview.
1013 And we are saying that Shaw has got a great chance to do that. They are offering to upgrade -- they have offered to experiment with multiplexes. Let's take them up on it. It is their offer, I didn't invent it. We think it is a great idea.
1014 THE CHAIRPERSON: So bringing us back to the hearing where we are, you are suggesting that as part of approval of this transaction, we do what? We suggest or impose to Shaw what with respect to multiplexing?
1015 MS EDWARDS: They have offered to experiment and implement multiplexes. So we are saying -- we are agreeing with them. We are saying yes, if you are upgrading your transmitter to carry the Global service, it is a 6-MHz channel, yes, please do implement multiplexes so that other local entrants that are satisfied with an SD channel could ride their signal with the Global signal.
1016 THE CHAIRPERSON: Okay. Thank you, that is clear.
1017 Those are all our questions. Thank you for participating in this hearing.
1018 MS EDWARDS: Thank you.
1019 LE PRÉSIDENT : Madame la Secrétaire.
1020 THE SECRETARY: Thank you.
1021 We will now hear the intervention of Save Our CBC Kamloops, who is appearing by audio conference.
1022 Madam Astbury, are you there?
1023 MS ASTBURY: Yes.
1024 THE SECRETARY: Perfect. So you have 10 minutes for your presentation.
1025 MS ASTBURY: Thank you very much.
1026 MS ASTBURY: My name is Pam Astbury and I am the president of a citizens' group called Save Our CBC Kamloops.
1027 I intended to appear in person as I did in November of last year in Gatineau, but with very limited funds for travel, my own, travel to Calgary was not possible.
1028 My appreciation to the Commission for accommodating me today.
1029 I would like to speak to a specific aspect of Shaw's proposal for Canwest, in particular the tangible benefits package.
1030 As the Commission is well aware, the standard analog broadcasting model is changing in Canada. The Commission has already determined which broadcast markets will be converted from analog to digital and which markets will eventually lose their free over-the-air broadcast.
1031 We believe that funds from tangible benefits package must be allocated to the future of small market broadcasting.
1032 Kamloops lost its televised over-the-air CBC content back in 2006. This event gave rise to a citizens' investigation into the future of free over-the-air broadcast in our city of 86,000 people.
1033 Today, we understand that our city, like others with populations less than 300,000, will not be converted to digital broadcast and will, as the old analog broadcasting equipment becomes obsolete, lose this beneficial service altogether.
1034 Being a professional engineer and a problem-solver, I am not one to mourn the glass of spilled milk, but I have chosen to join the national conversation on saving and growing small market free broadcasting.
1035 The answer is a technology called multiplexing. As described at the November hearings in Gatineau, multiplexing is a single digital broadcast split six ways. It can be picked up by an analog set-top box for the price of about $50.
1036 A viewer can watch on his set, as an example, the following six channels: for example, CBC English, Radio-Canada, Global, the Knowledge Network, CSJC -- that's Kamloops' local community broadcaster -- and, for example, maybe CTV.
1037 This spectrum of channels would provide a sufficient base of viewing for a household disinterested in a standard cable or satellite package.
1038 As I learned from the November hearing, any large cable provider will say to you: Commissioners, who doesn't want cable? Who are these people lobbying for over-the-air television? They don't exist. They are a declining species of viewer who also believe that ookpik dolls and Trudeaumania will be the next big thing. Investing in this Canadian demographic is not financially responsible.
1039 To that, Commissioners, I ask you to consider what is public benefit when it comes to the future of broadcasting?
1040 I guess great consideration be given to mandating the conversion of small markets to digital over-the-air by way of multiplexing.
1041 Here are my four primary reasons to mandate the conversion in small markets.
1042 Canadian personal debt has reached an all-time high. We carry the most substantial personal debt, second only to the United States. As Canadians move towards trimming household expenditures, expensive cable and satellite packages could be a start.
1043 A typical satellite package can cost a Canadian household over $1,200 a year. By mandating multiplexing in small markets, Canadians would have access to free viewing, giving them an option to delete cable and satellite fees from their yearly expenses.
1044 My second point. Obesity has been identified as a health crisis on the verge of eclipsing that of smoking as the largest burden on our public healthcare system. Inactivity does contribute to this crisis.
1045 I wouldn't be surprised to see the obesity trend correlated with the growth of satellite and cable package services through the nineties until now, but this is just a citizen's hunch.
1046 Multiplexing would again provide an option for those small market Canadian households seeking a lifestyle change to reduce TV time, get off the couch, get outside and get moving.
1047 My third point. Canadians, especially young professionals, are demanding savvy access to media. By this, I mean information for free. We know where to get movies for nothing, old reruns for free, and have the ability to stream live shows right over the Net.
1048 Having said that, we still love to relax in front of the set but are not willing to pay for the 100-channel universe when the quality has been reduced to an all-time low.
1049 Multiplexing is the future of over-the-air and it is absolutely in demand in small markets in young- and old-viewing demographics.
1050 My fourth point. Small market broadcasters are the life of community television. Of the two channels I watch in Kamloops, I primarily watch our local CFJC. Local news and advertising is crucial to small cities, as is the coverage of local arts, events, culture and sports.
1051 As I mentioned in November of last year, wildfires and weather can be a life-and-death situation for people in our small cities. Not only do we rely on the information to plan our travel for safety and efficiency but also to keep the young and infirm inside when smoke levels reach choking levels.
1052 If small-market television is forced to a cable-only scenario, as it will when the analog equipment reaches the end of its useful life, then what?
1053 Local broadcast becomes one of 50 channels, not one of two. Viewership declines. The station's television unit will close. That is the reality if we don't progress small market broadcasting to the multiplexing model now.
1054 We must maintain local broadcasting in the small markets since it is the only televised information that we have.
1055 Commissioners, analog is dead. We can all agree on that. Digital is the future, especially for small markets.
1056 Rick Arnish, president of the Jim Pattison Broadcasting Company, met with me in May and agreed that multiplexing looked like a great model for small markets, and he would know. Jim Pattison Broadcasting is the leader in Western Canada's small markets.
1057 During our meeting we discussed cost, and the reality is that although the transmitter conversion to digital multiplex would be less than $100,000, there are substantial station costs. There are also challenging issues of routing six digital signals from their production point to the broadcast tower.
1058 Although Rick stated that it is not financially possible for CFJC to undertake this conversion alone, he has made it very clear that with outside funding, CFJC would participate in converting Kamloops to a digital multiplex, in particular as a small market pilot station.
1059 In closing, I ask the Commission to give serious consideration to requiring a portion of Shaw's tangible benefits package to be directed to the conversion of CFJC's analog broadcast to a multiplex pilot and a substantial marketing and promotion campaign to help viewers understand this new service.
1060 The results of the pilot could be monitored for future small market conversion discussion.
1061 Our recommendation is for a safe and constructive project for a viewing community that is ready to adopt multiplexing.
1062 Thanks very much.
1063 THE CHAIRPERSON: Well, thank you for your presentation. I remember listening to you in November and I might tell you I told Mr. Arnish to get in touch with you and talk to you since he owns the station in Kamloops and I'm glad that you have had a discussion.
1064 Your point number two, quite frankly, I don't understand.
1065 Multiplexing will provide more TV. So how would more TV availability deal with getting people off the couch to get outside and moving and fight obesity? I would think it would do just the opposite. It would make them sit more on the couch.
1066 MS ASTBURY: Keeping in mind that when we lose over-the-air broadcasts, people will only have the option to have 50, 80, 100 channels, and I know from personal experience of certainly watching friends and colleagues become more engrossed due to the content and the volume of the content.
1067 When you have only six channels on a multiplex, that would be substantially less, plus they are not paying for it.
1068 I think it is very clear that this could be an excellent tool to help this very tragic lifestyle issue.
1069 THE CHAIRPERSON: Okay. Thank you.
1070 Marc, I believe you have some questions.
1071 COMMISSIONER PATRONE: Yes. Thank you, Mr. Chairman. I have a couple of questions.
1072 You did speak that there was quite a demand for this service, I believe, during your oral presentation.
1073 MS ASTBURY: Yes.
1074 COMMISSIONER PATRONE: Have you been able to sort of quantify that in any kind of numerical way for the Commission to be able to gauge that?
1075 MS ASTBURY: Absolutely. We had a survey conducted over -- it was a telephone survey conducted. Those results were in my presentation in November and I would be happy to provide those statistics for you.
1076 I will not provide the data right now because I don't want to misquote it. I will provide it to you via e-mail if that is okay.
1077 COMMISSIONER PATRONE: Would you be proposing a kind of dedicated fund towards this aim, like as was proposed by another presenter?
1078 I am just trying to gauge what your proposal looks like in terms of funding multiplexing.
1079 MS ASTBURY: Sure. So you would be looking at a one-time capital expenditure to convert the equipment, as well as provide an ongoing operation and maintenance budget, as well as, which is crucial, a promotion budget, a budget set up to inform through newspaper ads, mailouts, radio ads and television ads to help people in the community understand what this new service is.
1080 And from that, the budget could be monitored so that that information could go back to, you know, the national discussion about for a town of 86,000 with this kind of equipment, this is what you are looking at for expenditures. It is a very excellent way to accurately measure what this conversion cost would be.
1081 COMMISSIONER PATRONE: So you are talking about one-time capital costs and then --
1082 MS ASTBURY: O&M and then --
1083 COMMISSIONER PATRONE: -- going forward --
1084 MS ASTBURY: Promotion, yes.
1085 COMMISSIONER PATRONE: And the proposal is for 10 years, that we have on the table. Is that what you were looking at in terms of going forward?
1086 MS ASTBURY: I don't think that a 10-year commitment would necessarily be necessary.
1087 The reason why this absolutely must be a self-sustaining operation for many small markets -- I am not saying all small markets. There will be some that perhaps the local station will be not run for profit.
1088 In Kamloops, for example, the conversion costs would be maybe for five years, so with the criteria set that this has to be run by the private companies involved, that it balances out through advertising, et cetera.
1089 We believe that because this is a more efficient technology -- it uses less energy -- it will actually be very cost-effective to run on an ongoing basis.
1090 COMMISSIONER PATRONE: Have you been able to provide any numbers in terms of cost for the various parts of your proposal?
1091 MS ASTBURY: Right. So the first engineering study was done, I believe, two years ago and that is where we came up with the figure of -- I believe it was about $98,000 to convert the transmitter from an analog to a digital.
1092 What I am being very careful to say here is the cost will likely be -- the conversion cost will likely be in excess of that because of these other costs that I learned from meeting with Rick Arnish.
1093 What I would like to avoid is Shaw saying, fine, you need $100,000, Kamloops, there it is. Well, it wouldn't be enough. That is what I am trying to avoid.
1094 A secondary study to tighten down those costs, to look specifically at our local CFJC station, to assess maybe to a Class B, which is a higher detailed cost estimate, would be the next step.
1095 COMMISSIONER PATRONE: Okay. I only have one more question really and I know that there have been some discussions around sort of urban and rural divides and services that have been available to either/or.
1096 Can you talk about the implications to your community of, say, not following through with this proposal?
1097 MS ASTBURY: Specifically to the multiplexing or --
1098 COMMISSIONER PATRONE: Yes.
1099 MS ASTBURY: Okay. If multiplexing were not to be supported by Shaw's tangible benefits package, we would carry on, and this is -- I can't put words into Rick Arnish's mouth. He is the station manager.
1100 But as I understand it, they would carry on business as usual broadcasting with analog technology. However, as that technology becomes obsolete, as the equipment will no longer be cost-effective to replace, and therefore eventually the only outcome is that the over-the-air broadcast of the television portion of the unit -- radio, of course, we are not talking about radio -- the television broadcast would end.
1101 And therefore, the next step is when you become the local station and now you are one of 50 or 70 or 100, you sort of become fragmented in your viewership.
1102 Those ads that are being run in conjunction with that local station start to become less valuable and purchasers of that ad space could easily negotiate less fees, less contribution obviously for that space, and the revenue goes down for the station's television unit altogether.
1103 The next think we know, even on a cable or satellite basis, the station is no longer cost-effective, it is over.
1104 COMMISSIONER PATRONE: Okay. Well, thank you, Miss Astbury.
1105 MS ASTBURY: Thank you.
1106 THE CHAIRPERSON: Thank you. I don't think we have any more questions.
1107 MS ASTBURY: That's fine.
1108 THE CHAIRPERSON: Thank you.
1109 We will take a short five-minute break while the next panel sets itself up.
--- Upon recessing at 0946
--- Upon resuming at 0957
1110 THE SECRETARY: Please take your seats.
1111 THE CHAIRPERSON: Madame la Secrétaire, nous commençons.
1112 THE SECRETARY: We will now hear the presentation from ACTRA, the Writers Guild of Canada, and the Directors Guild of Canada. We will hear each presentation, which will then be followed by questions by the commissioners to participants.
1113 We will begin with the presentation of ACTRA. Please introduce yourself, after which you have 10 minutes for your presentation.
1114 Thank you.
1115 MS DEER: Good morning.
1116 Mr. Chair, Vice-Chairs, Commissioners and staff, my name is Joanne Deer. I'm ACTRA's Director of Public Policy and Communications.
1117 ACTRA brings to this hearing the concerns of 21,000 professional performers who work in film, television, sound recordings, radio, and digital media. We are also speaking today on behalf of the 17,000 members of AFM Canada, the foremost organization of professional Canadian musicians.
1118 We are happy to be appearing here today in the company of our fellow unions and guilds, the WGC, and DGC, and then to be followed by the Canadian Media Production Association.
1119 We each represent our own distinct memberships and sometimes we take different views on some details, however we all share the common goal of a healthy and robust Canadian broadcasting system that provides audiences with a diverse range of quality scripted Canadian television.
1120 Together, our organizations represent the creators of original television programs, feature films and digital media content. These creative Canadians give us all an important voice and reflect the diversity of our country to ourselves and to the world.
1121 In this particular process, the unions, guilds and CMPA agree on several core principles. We support Shaw's purchase of Canwest and urge the Commission to approve the application; however, our support is contingent on a fair return to the broadcasting system in the form of tangible benefits as required by the Commission's benefits policy.
1122 These tangible benefits must be 10 percent of the full value of the transaction or at least $205 million.
1123 I think we were all bit surprised yesterday to hear Shaw concede that the value of the transaction is indeed approximately $2.5 billion. I can tell you I have never been so happy to spend an afternoon in a hotel room rewriting my notes.
1124 We were also happy to hear the Chair confirm yesterday that the benefits period would be the traditional seven years.
1125 So now the key issues for us remain ensuring that the full amount of the tangible benefits package is calculated at the full 10 percent, as well as the types of benefits that are included in that package.
1126 We heard the Chair yesterday ask Shaw to refile its proposed package and we would like to request an opportunity to formally respond to that new package. In the meantime, we offer the following remarks based on our current knowledge of Shaw's proposed benefits.
1127 Shaw has repeatedly asked for special consideration and a discretionary application of the benefits policy. We certainly appreciate that the Commission can use discretion in its application of the policy, but we feel it's incumbent on the Applicant to make a compelling case as to why the Commission should deviate from the policy and past practices. It is our view that Shaw has repeatedly failed on this test and we cannot see any justification for the Commission to offer any discounts.
1128 We agree that Shaw' purchase of Canwest and its commitment to the conventional Global Television Network is a benefit to the system, and that's why we support their application. For similar reasons, we have supported other acquisitions in the past. But these are all intangible benefits, and no matter how substantial the intangible benefits of any acquisition are they do not eliminate the need for tangible benefits.
1129 It is our feeling that intangible benefits are part of the Commission's deliberation as to whether to approve the transaction. The tangible benefits constitute the conditions of that approval.
1130 I think we all know that tangible benefits are required because the transfer of broadcasting licences does not take place through a competitive application process. In place of a private auction of assets, the alternative in these cases would be for the CRTC to take back the licences and to issue a public call for applications, but success will come to the financially qualified applicant offering the best deal in terms of Canadian content judged by elements such as time, scheduling, money, genres and so on.
1131 We categorically reject Shaw's assertion that the CCAA process overseen by RBC is any kind of substitute. That may have been about who would offer the best deal to Canwest stakeholders, it was certainly not about who would offer the best deal to Canadians. It is the Commission's duty to get the best deal for Canadians by upholding the objectives of the Broadcasting Act and requiring tangible benefits.
1132 In its bids to convince the Commission to swap off tangible benefits for intangible benefits, Shaw has painted its acquisition of Canwest as some form of nationalist altruism for which we should all just be grateful. But it was not. Shaw made a very calculated business decision.
1133 In its own response to written interventions, Shaw describes itself as a strategic investor that is keen to take on a, quote, "financially stable and increasingly strong Canwest" in order to compete.
1134 If this transaction is approved, Shaw will solidify its position as a very large, vertically integrated communications and broadcasting company, well positioned to thrive in the new broadcasting environment. This transaction, and Bell Canada's more recent announcement of the acquisition of the broadcasting assets of CTVglobemedia, leave no doubt that our broadcasting system is changing.
1135 Broadcasting is now about television, the internet, smartphones, iPads, and who knows what else. It is about the integrated home computer and entertainment system and about delivering content to customers wherever and whenever. If this application is approved, Shaw will have a finger in every slice of this converged pie, and by Shaw's own testimony yesterday it needs to acquire Canwest and its content assets to compete and to survive.
1136 We also do not agree that any discount should be considered based on the CCAA proceeding. Canwest's television assets only got included in the CCAA process because Canwest had chosen to tie regulated broadcasting assets to their unregulated assets, namely the publishing.
1137 The Commission has also acknowledged that Canwest's TV assets were and are profitable.
1138 As well, Canwest Media, these assets were never under CCAA protection, and in a May 3rd conference call you know we confirmed yesterday that Shaw announced that these properties were in fact seeing upwards of 40 percent profits.
1139 In July 2010, Canwest announced total profits from television and Canwest Media of $268 million for the first nine months of this year. By all general indicators, television advertising revenues are on the upswing.
1140 Add in Shaw's increased power to distribute valuable content across multiple platforms and it looks to us like Shaw got Canwest at a bargain basement price and is now set to repeat the benefits as the cyclical TV industry turns around.
1141 In short, we don't see any case for a deal here and we would submit that a CCA discount in this case would be dangerous and an unfortunate precedent.
1142 Now just a few short comments about the contents of the benefits package.
1143 We would like to stick to the Commission's traditional definition that tangible benefits are new benefits that are seen on screen or that have a social value. The Commission policy also accepts as benefits only those initiatives that wouldn't otherwise be realized and normally rejects capital expenditures.
1144 Clearly, expenditures on digital transmitters do not fit this definition. Instead, an acceptable package for ACTRA would follow the Commission's traditional benefits packages and breakdown.
1145 A minimum of 75 percent should be directed to the creation of original, scripted, 10-point, Category 7 programming created by independent producers. The balance can go to, in this case, new morning newscasts or to social benefits.
1146 The Commission must deny Shaw's request to include the $96 million in outstanding benefits payable when Canwest, Goldman Sachs acquired Alliance Atlantis Communications as part of the tangible benefits package from this transaction.
1147 These benefits are not new and they were never truly in jeopardy since the assets they are tied to continue to be very profitable and were not subject to the bankruptcy protection process.
1148 We weren't in the room, but we would find it hard to believe that this liability was also not factored into Shaw's negotiations with the noteholders with Goldman Sachs. When Shaw acquired the assets, it also acquired responsibility for these outstanding benefits.
1149 Finally, a few words on vertical integration.
1150 I think we were all somewhat relieved yesterday to hear Shaw provide several assurances. We were told that Shaw wouldn't pursue exclusivity deals and they also restated that Corus would maintain a separate corporate structure. So since we all agree, we would suggest why not put some of these in writing and codify them into the conditions of approval.
1151 We would also be more comfortable if Shaw's broadcasting and distributing assets also had a separate corporate structure and we encourage the Commission to consider that as a condition.
1152 One of the best safeguards that can be put in place to ensure balance in the system is terms of trade. And I'm sure the CMPA will speak more to this issue, but we just want to express ACTRA's full support of independent producers' efforts to reach equitable terms to secure deals for program rights.
1153 We also appreciate the Chair's strong words yesterday about the importance of concluding terms of trade before licence renewals.
1154 While this transaction doesn't cross any of the thresholds for the Commission's carefully constructed Diversity of Voices policy, it comes perilously close. This is a momentous transaction that will reshape the Canadian broadcasting system. Let's proceed, but with caution.
1155 It's obvious that Shaw's purchase of Canwest wasn't just a selfless gift to Canadians. Was it the only outcome? Probably not. Was it the best deal? Who knows. What we do know is that Shaw will benefit immensely from this deal. By its own admission, this deal is critical.
1156 So as one of Canada's communications giants, Shaw can well afford to do its part and give a fair return to the Canadian public in exchange for the privilege of acquiring these valuable broadcasting licences. And what's fair, according to the CRTC's own rules, is a tangible benefits package of at least $205 million.
1157 Thank you.
1158 THE SECRETARY: Thank you.
1159 We will now hear the presentation from the Writers Guild of Canada. Please introduce yourself and you have 10 minutes for your presentation.
1160 Thank you.
1161 MS ASHTON: Good morning, Commissioners.
1162 My name is Kelly Lynne Ashton, and I'm the Director of Policy of the Writers Guild of Canada, a national association representing over 2,000 professional English-language screenwriters.
1163 To my left is David Kinahan, Director of Communications of the Writers Guild.
1164 The WGC is supportive of Shaw's acquisition of Canwest because it ensures that Canwest can continue as a major national network comprised of both its conventional networks and more recently acquired integrated specialty networks. The restructuring of Canwest means that Canadian audiences will continue to have a choice of programming over several different platform.
1165 However, the WG's support is subject to a number of concerns that we have regarding Shaw's proposed application of the CRTC's benefits policy and proposed allocation within the benefits package. We had grave concerns regarding the valuation of the transaction, but were quite pleased to hear Shaw agree that the transaction has a value of over $2 billion, as confirmed by the Commission after your detailed review.
1166 The Commission has also confirmed its policy that it expects to see 10 percent of the value of the transaction in a benefits package; however, Shaw has taken the position that Shaw should be exempted from aspects of the policy because, (a) the intangible benefits are so great that they should take the place of some of the tangible benefits; and (b) Canwest is in such financial difficulty that full tangible benefits cannot be paid.
1167 A policy is not something that can be ignored by stakeholders at their whim. Policies are more flexible and adaptable than regulation or statute, but they must still be interpreted and applied in each relevant case.
1168 The Commission's benefits policy is very relevant to this transaction and must be applied to the facts presented to the Commission. The WGC does not believe that Shaw has made their case for exemption from benefits policy.
1169 The intangible benefit of maintaining Canwest as a consolidated, multi-platformed national network, with significant financial resources, is a worthy one, but at no time has Commission policy said that intangible benefits could be substantial enough to substitute for tangible benefits.
1170 Tangible benefits are to be spent to benefit the Canadian broadcasting system so that the transaction is not merely of benefit to shareholders and to assure the Commission that the purchaser in question is the best possible purchaser for the Canadian broadcasting system.
1171 We find it particularly hard to accept Shaw's argument that it cannot possibly pay the full amount of benefits because Canwest is in such dire financial shape that Shaw will have to plug money into Canwest to keep it afloat.
1172 Such an assertion is in stark contrast with Canwest's own third-quarter press release on July 15th, which announced that for the nine months ending May 31, 2010, television revenue was up 7 percent from the prior year and operating profit was up 33 percent, and that, quote:
"These results are indicative of the industry-leading revenue performance of Canwest's specialty and conventional television operations."
1173 The evidence suggests that, while Canwest suffered from the burden of excessive debt, it is otherwise a healthy business. As did all other advertising-dependent businesses, its revenue dipped last year when major advertisers were hit hard by the recession. Now it has bounced back and appears to be thriving.
1174 We see no evidence of the financial distress Shaw refers to as its argument to avoid tangible benefits. In fact, we understand that Shaw executives were quite upbeat in their May 3rd call with analysts.
1175 The financial distress argument is also used by Shaw to justify including the outstanding Alliance Atlantis benefits in the calculation of benefits payable under this transaction.
1176 The Commission has clearly stated on numerous occasions that purchasers are to assume the existing benefits package obligations of the sellers. There are no conditions under which this aspect of benefits policy has been waived. Even if financial distress were such a condition, neither Canwest nor Shaw would qualify.
1177 Yesterday, Mr. Chairman, you said that what was now left to do was to put a price on the value of the intangible benefits of maintaining Canwest in taking over the Alliance Atlantis benefits. Commission benefits policy looks for both tangible and intangible benefits from a transaction. The Commission has never put a price tag on the intangible benefits, and, respectfully, we do not think you should start now.
1178 MR. KINAHAN: As to the actual benefits package proposal, we have concerns about the allocation. The WGC believes that Shaw should be proposing a benefits package of 10 percent of the value of the transaction, which the Commission set at $2.047 billion. That would result in $204.7 million, not including their commitment to fulfil the outstanding Alliance Atlantis benefits of approximately $95 million.
1179 In their benefits proposal, Shaw allocates $23 million to building digital transmitters in non-mandatory markets. That expenditure is the cost of doing business for a national network and not an appropriate inclusion in a benefits package, which must benefit the entire broadcasting system.
1180 Digital transmitters are also a capital expenditure, which has traditionally been identified by the Commission as a self-serving expense.
1181 We support Shaw's allocation of benefits to the development and production of scripted programming, however the allocation is insufficient. Past practice in the last few years has been that approximately 65 percent of on-screen benefits go to drama.
1182 If the Commission determined that the benefits package was $204.7 million, for example, and if the entire package was on-screen benefits, then the allocation to scripted programming should be $133 million rather than the $22 million set out in Shaw's letter.
1183 As well, the allocation for development within the amount for scripted programming requires review and adjustment. We proposed a develop account for 5 percent of the overall amount for scripted programming. This would be a more appropriate allocation, one consistent with past practice both in front of the Commission and with other funding agencies.
1184 Using this formula, if $133 million was set aside for scripted programming, then $6.65 million of that amount would go to development of scripted programming.
1185 As well, the WGC would like to work with Shaw to shape the details of the development program to ensure that it is effective and works both for Canwest and for the industry, and, ultimately, for Canadian audiences.
1186 We are also concerned with the proposed allocation to new media content innovation. While this is a very timely proposal, we would like to ensure that any such funding goes specifically to the development and production of new media content related to scripted programming funded under this benefits package.
1187 Some of the examples provided in the July 12th letter are not content, but applications, promotion or digital technology for television programming.
1188 As an example of what we are looking for, we draw the Commission's attention to the project Autotopsy, which was produced as an interactive extension of the television series Crash & Burn broadcast by Showcase. Autotopsy tells a story in an interactive and immersive way using the characters and setting of the television series.
1189 What we do not support is funding for brochure websites that promote a television show and are produced in-house, promotion through seeing discussion boards or building apps for channels to deliver content on Ipads. These are examples of new media creation that are a cost of doing business and should be covered by the broadcasters.
1190 We suggest that perhaps the Commission consider requiring that Shaw transfer the new media content funds to a third-party fund with experience in new media and convergent content financing, such as Canada Media Fund.
1191 There are also key principles that should apply to the entire benefits package. We were concerned about incrementality and are pleased that Madam Cugini clarified that point yesterday. We are also very pleased that Madam Cugini and the Chair confirmed that these benefits would be spent over a seven-year term, which is to start within 90 days of approval.
1192 We request that the Commission consider also requiring that Shaw spend the benefits equally over the seven-year terms, as the Commission did with the Alliance Atlantis benefits, in order to ensure regular expenditure.
1193 Finally, we are concerned that the size and consolidated nature of the new entity that will result from this transaction could potentially dominate the content marketplace. We do believe that certain safeguards can be imposed, chief among them being a requirement for a successful negotiation of terms of trade. Terms of trade are important to the maintenance of a sustainable, independent production sector and distinct rights market, all of which support a Canadian talent pool.
1194 MS ASHTON: In summary, the intangible benefits presented by Shaw acquiring Canwest are important to the Canadian broadcasting system, but do not outweigh the need for tangible benefits. The Commission has the right and obligation to insist on a tangible benefits package of 10 percent of the valuation of the transaction, the entire transaction.
1195 We urge the Commission to apply its benefits policy to this transaction in a manner consistent both with the policy and with past precedent in order to ensure transparency and consistency. This is essential to the integrity of the system and to ensuring that Canadians benefit from this transaction.
1196 We would be happy to answer any questions that you might have.
1197 We also ask for the opportunity to review and comment on the revised benefits package that you have asked Shaw to file with the Commission after this proceeding.
1198 THE SECRETARY: Thank you.
1199 We will now hear the presentation of the Directors Guild of Canada. Please introduce yourself, after which you will have 10 minutes for your presentation.
1200 Thank you.
1201 MR. ANTHONY: Mr. Chairman, Vice-Chairs, Commissioners, and CRTC staff, good morning, and thank you very much for the opportunity of appearing before you today.
1202 My name is Brian Anthony and I'm the National Executive Director and CEO of the Directors Guild of Canada.
1203 With me today is Peter Murphy, the Directors Guild of Canada's National Research and Policy Manager.
1204 As I will be stepping down on March 1st, 2011, this was going to be my CRTC swan song, and I was going to say farewell and I was going to thank you for the consideration that you have given to DGC presentations on my tour of duty, which began ironically with Commission hearings related to the Canwest acquisition of Alliance Atlantis. However, recent developments -- the Bell Canada/CTV issue springs to mind -- suggests that this swan may be singing before you erelong again.
1205 So I will not say farewell, but only au revoir for the moment. But nonetheless, I will thank you for the consideration that you have given to our presentations over the last three years. It's much appreciated.
1206 Our appearance today is related only to tangible benefits. During the written intervention process we participated in the preparation of a joint report with other intervenors represented here today before you. We also submitted our own intervention relating to other matters contained in the application.
1207 It is unfortunate that it took until day one of the hearing for Shaw to acknowledge the value of the transaction was more than $2 billion. Just like the Commission, we have had to adjust on the fly to these changed circumstances.
1208 We will try to respond today, but given the changes made yesterday by Shaw, as well as the various detailed arguments raised by Shaw in its reply, we would also like a chance to provide wrap-up written comments relating to the benefits package after this hearing ends, and we would undertake, Mr. Chairman, to do this very quickly.
1209 It our presentation today, I would like to focus on two matters.
1210 First, the fact that Canwest is in CCAA protection at the present time is no reason for the Commission to go light or provide a discount on tangible benefits.
1211 Second, although Shaw has acknowledged that the May deal with Goldman Sachs should be considered part of the value of the transaction, how much of the value is attributable to the former AA assets and how much is attributable to the legacy of Canwest assets.
1212 I would like to begin by addressing the notion of some sort of discount on benefits because the target has been in CCAA proceedings. As Shaw noted, the court's role on a CCAA planned sanction hearing, quote:
"...is to determine whether a plan balances the interests of all stakeholders and represents a fair and reasonable compromise that permits the emergence of a viable commercial entity." (As read)
1213 End of quote.
1214 This has nothing to do with the requirements of the Broadcasting Act. It would be no different if the CCAA plan dealt with a mining company or a pharmaceuticals company. Therefore, the Commission still has a key role to play.
1215 While CCAA is never a good situation for a broadcaster to be in, that does not mean that the Commission needs to shed a tear or have a tag day sale for Shaw in this instance. The Commission should do what it always does, which is to treat each case on its own merits.
1216 There is no magic to CCAA. The fact that the Canwest stations are in CCAA is a complete fluke. These are profitable televisions stations that got sucked into a CCA proceeding not because they were unprofitable, but because they happen to be housed in the same corporate structure, the same company, that overpaid for newspaper assets and borrowed too much to do so. To grant a discount in this case would be an awful precedent.
1217 Please consider the following facts: (a) the Commission has acknowledged that none of the Canwest groups of licensees has been unprofitable; (b) the CCAA process was brought on by too much debt at Canwest. The situation is being remedied not because of any operational shortfalls; (c) the CCAA process was a result of borrowing to buy newspapers, an asset not regulated by the Commission; (d) 85 percent or more of the value of this transaction flows from Shaw's purchase of Canwest assets that were not in CCAA proceedings; (e) the forecast is fine for the remaining Canwest companies that will emerge leaner and in fighting trim from CCAA; and (f) Shaw's executives painted a positive picture of the Canwest assets on the May 3rd, 2010 conference call with analysts.
1218 Therefore, the Commission needs to see through the CCAA fog and apply its tangible benefits policy clearly. This is a case that is quite different from TQS or CCI or any of the other cases that Shaw pointed to as precedents. Those were unprofitable, very small undertakings, with a difficult financial prognoses even after emerging from bankruptcy. Their difficulties related to their television operations, not to some unregulated assets that had nothing to do with broadcasting.
1219 Canwest should be treated on its own merits. In this case, there was absolutely no reason why the Commission should hold back from exacting the full 10 percent of the value of the transaction.
1220 If the Commission were thinking of applying any sort of discount at all, it should be only on Canwest's television stations that have negative PBITs, not for all of the legacy Canwest assets, and certainly not on the former Alliance Atlantis assets.
1222 MR. MURPHY: Thank you.
1223 We also wish to address the manner in which the $2-billion value of the transaction will be split up.
1224 It is very important to recall that Steve Wilson, Shaw's CFO, told more than 235 people on a call on May 3rd, 2010, that the $2-billion purchase price was arrived at as follows: six times EBIDA for the legacy Canwest assets and 9.7 times for the former AA assets, for a blend of 9.5 times EBIDA.
1225 In fact, Mr. Wilson went further. He specifically stated that more than 85 percent of the $2 billion was attributable to the Alliance Atlantis assets. He said, and I quote:
"In terms of the valuation, we are paying an aggregate approximately $2 billion for 100 per cent of Canwest broadcasting assets. In terms of the split, we are evaluating the Canadian television subsidiary, which includes the conventional business and TVtropolis, along with several other smaller specialty stations at approximately $250 million to $300 million. So I think it is important for people to understand that that portion of the business represents less than 15 per cent of the purchase price here. The majority of the value is for the highly profitable and sought after portfolio of specialty channels. CW Media Group subsidiary, which generate margins in excess of 40 per cent." (As Read)
1226 DGC also thinks it is important for people to realize that, especially you, Commissioners. It would be inconceivable to ask that the Commission would apply evaluation of less than $1.7 billion to the former AA assets.
1227 The DGC also notes that the Commission did not ask Shaw for evaluation, nor did the Commission conduct one on its own. This makes it very important to review closely Mr. Wilson's words when he was telling analysts what multiple Shaw had used.
1228 One assumes that the Commission will advise Shaw that they would like Mr. Wilson to be available for the reply phase of this hearing in order that a complete understanding is put on the record.
1229 For its part the DGC is prepared, if required by the Commission, to provide you with a full transcript of the May 3rd call with analysts that we have quoted from in our intervention and the joint report.
1230 In that joint report Sections 116 through 122 show that this year the former AA assets already have $169 million in profit for only nine months according to Canwest Management. If you multiply that times the 9.7 times earnings that Steve Wilson said Shaw did, you get $1.639 billion, and that is only for nine months. That is quite realistic, given that these assets enjoy a 40 per cent profit margin according to Mr. Wilson.
1231 In the absence of a study proving otherwise, there is no way the Commission should be valuing the former AA assets at less than $1.7 billion.
1232 Turning now to TV, why should there be any discount? It is just a fluke of history that Canwest chose to house their unregulated assets that cause the CCAA process in the same company as their TV assets. None of the Canwest divisions was ever unprofitable. There is no such thing as a CCAA discount, nor is it good public policy to introduce one now.
1233 The Commission already has a rule relating to discounts for stations that are in trouble, these ones are not. Imagine giving a benefits discount for TVtropolis, a service that has an average 30 per cent PBIT for the last five years and ought to be trading at least 9.7 or 10 times earnings; or MovieTime, another Canwest service with an average PBIT of 30 per cent over the last five years. Its 2009 PBIT was down to 26.6 per cent from the astronomical 41.9 per cent in 2008; or Deja Vu, down from 38.3 per cent PBIT in 2008 to 27.4 per cent in 2009.
1234 This is what the Commission would be doing if it permitted a discount for the Canwest Legacy assets.
1235 What about the TV stations? Which ones, if any, are unprofitable now that CHCH-TV Hamilton and CHEK-TV Victoria have been sold and Red Deer closed? Only the Commission has the figures, but the Commission's deficiency letter pointed out that divisions are all profitable, this includes TV.
1236 As noted, it is a real handicap to interveners that the Commission did not request or require evaluation. It is even more problematic to DGC that a chart distributed at the hearing yesterday apparently attributes a value of only $1.55 billion to the AA assets.
1237 While we do not purport to be valuation experts, the chart appears to us to be an error. It attributes a value of $492 million to the Legacy Canwest assets that were in bankruptcy. You will recall that Shaw has said that the AA assets account for at least 85 per cent of the value of the transaction, which would mean that the Legacy Canwest assets are worth only $250 to $300 million, not $492 million.
1238 Surely, a good portion of the $492 million should be attributable to Canwest's Legacy and very profitable specialty services as well. Why should they not be commanding the same multiples as other specialty services when they are earning a 30 per cent PBIT? In other words, if one properly parses the Canwest assets, it is very difficult to see why a discount is appropriate and, if it is, then it should be applied to a much much smaller amount than the $492 million.
1239 MR. ANTHONY: That concludes our oral remarks, and we would be pleased to respond to any questions that you might have.
1240 THE CHAIRPERSON: Thank you for your submissions.
1241 You all three make the same point, you say the value of the transaction is $2.05 billion, there should be a 10 per cent benefit on all assets and there should be no credit for existing benefit obligations that are being assumed in the purchase.
1242 As we said yesterday, we have no problem with 1 and 3. Shaw has said that survey value and our policy, as we enunciated in the CTV acquisition of CHUM, et cetera, is that you don't get any credit for benefit obligations that you are assuming. That is one of the liabilities you assume when benefits are calculated on the purchase price.
1243 Which brings me to the point where you and Shaw differ. I would like to understand your argument, because Shaw makes a fairly cogent argument saying the Alliance Atlantis assets are valuable, they are profitable, they paid for themselves, et cetera, 10 per cent on that is no question. It is the Legacy assets. And after all, we bought a company that went through bankruptcy proceeding. No matter how you slice it, CCAA is a bankruptcy proceeding.
1244 As a result of that bankruptcy proceeding, Canwest shed some of its assets, especially its E stations. And also we, Shaw, have bought it and, therefore, we have avoided the messiness of a breakup of selling things, which undoubtedly always has sort of costs, contingency costs, in terms of disruption, et cetera.
1245 So by us having done this we deserve either call it a discount on the Legacy assets or call it a credit for intangible benefits in keeping this large enterprise as one. It was disrupted because of management errors, not because the station -- but the fact they were in CWA and we, by buying it, have avoided those costs, and you should give us credit for that.
1246 All three of you say no and I am not quite sure why you feel so strongly about that. Surely, the avoidance of a reorganization of CCAA, et cetera, does present a net benefit to all players in the broadcasting system, including all the people that you represent. We can argue what that is. But you are all coming to the table saying those shouldn't be counted at all and I don't quite understand why you feel so strongly about that.
1247 So please, anyone of you, answer my question.
1248 MS ASHTON: Well, we are looking at what the Commission has done in the past. I mean, that is one point. This is not the first time that a failing station has been purchased and there has not been a discount. I believe that Shaw made reference to a Corus asset of Christian Channel, and while there weren't no benefit because it was a failing station, there was still no discount, they had to carryon the existing benefits package.
1249 We are also not convinced that this was the only saviour of Canwest, that there could have been other options. We have no evidence that says if Shaw had not bought Canwest it was doomed and it would have broken up. We are happy that this is the outcome, but that does not justify giving up on what is now a longstanding Commission policy of having intangible benefits continuing on the existing Canwest and then the tangible benefits.
1250 THE CHAIRPERSON: Anybody wants to add anything to it?
1251 MR. MURPHY: Yes. I think part of the reason we are saying that there shouldn't be a discount is one, yes, they are in a bankruptcy proceeding, but none of these stations were unprofitable. I think that is one aspect of it.
1252 As well, yes, I agree with the point that it wasn't the only solution to come out of it. If that is an intangible benefit, we don't see why that would be necessarily a discount on a tangible benefit if that is an intangible benefit, the company was kept together.
1253 Sorry, I have lost my point there. I will come back to it.
1254 THE CHAIRPERSON: Our job is to ensure the health of the broadcasting system, et cetera. And I find it hard to argue with Shaw, given that they were the only one who put a concrete offer on the table and that by purchasing Canwest they did not -- ensure the health of the broadcasting system, if you want to put it that way or, alternatively, avoided costs and disruption to the broadcasting system as a whole that would have incurred if Canwest had gone through bankruptcy proceedings.
1255 And as I say, that is the only concrete offer that was on the table. So I find those fairly strong arguments. I see your reluctance to go there now because we haven't traditionally done it. But we have never had a situation quite of this magnitude facing us. You know, and we can only all speculate what would have happened if Shaw had not come forward.
1256 MS DEER: Well, absolutely. I mean that is, you know, we don't know what would have happened if they didn't come forward. The fact is they did and this is the deal we have today. You know, those stations were not unprofitable and, sure, they avoided the messiness of a breakup and absolutely, you know, that benefits everyone we represent, but it also benefits Shaw significantly as well.
1257 THE CHAIRPERSON: Now, as one always does if one loses one's argument and also makes a contingent -- in case you decide otherwise, I would suggest, but only one of you does that -- I gather, if I understand, the Directors Guild are the only ones who made that suggestion. The other two of you feel you just don't even want to contemplate this, is that right?
1258 MS ASHTON: That would be correct.
1259 THE CHAIRPERSON: Secondly, this point which we had a lot of discussion on yesterday about the non-exclusivity which Shaw said about -- and I put to them the challenge of help me, how do we enshrine that, because this is such a key for all of you and all the people you...
1260 If you have any suggestion on that, I would suggest that you share them with us, not necessarily right now, but you send it to us in writing because that is clearly something that we will have to put our minds to, and any help you can provide will be appreciated.
1261 Rita, do you have some questions?
1262 COMMISSIONER CUGINI: Yes, I do. Thank you.
1263 I just want to continue along the lines that the Chair started, but referring specifically to the argument of intangible benefits.
1264 Is it your position that the Commission should not in anyway consider any of the arguments put forward by Shaw when it comes to the intangible benefits? Our policy does allow, you have acknowledged, for the applicants to make the argument on intangible benefits, but it is your position that we should simply ignore their arguments?
1265 MS ASHTON: We don't believe that they have made a sufficient case.
1266 COMMISSIONER CUGINI: So the answer is yes, we should ignore?
1267 MS ASHTON: Yes.
1268 COMMISSIONER CUGINI: Okay.
1269 Now, you have said that the portion of benefits earmarked by Shaw for the digital transmitters should not be included in the package. And if you were in the room yesterday, you certainly heard Shaw say that not only would it accelerate the whole digital transition issue, but it would allow them to build transmitters in all 67 markets remaining.
1270 Do you not see that as a benefit to the Canadian broadcasting system and, more importantly, to the Canadian public? Because otherwise, they may be left without over-the-air transmission.
1271 MR. MURPHY: Yes. I mean, there is obviously a benefit to the public to have these transmitters converted. At the same time, this is a massive benefit to Shaw because -- unless we forget benefits monies are public monies. And while Shaw has used the argument that, well, we will build the transmitters and we will upgrade the transmitters in these markets, which will spare other companies to come in and also upgrade. That is fine, but why should public money be used to give one company a massive advantage in that situation?
1272 COMMISSIONER CUGINI: And you don't agree that accelerating the process is something that they would not have been able to do it otherwise had it not been for benefits money?
1273 MR. MURPHY: That they couldn't have been able to do it?
1274 COMMISSIONER CUGINI: Yes, that they wouldn't have been able to do it in the timeframe.
1275 MR. MURPHY: That would be pure speculation. I have no idea if they -- I imagine they could do it if they felt they wanted to do it. I mean, they have said before, it is the cost of doing business. If they want to take on that cost or not, it is a strategic business decision.
1276 COMMISSIONER CUGINI: Okay. Anyone else?
1277 MR. ANTHONY: If I may just add. I mean, it is a business decision on their part, it is a capital expenditure and presumably you can write down capital expenditures for tax purposes over time, so there is already a built-in subsidy if you will.
1278 COMMISSIONER CUGINI: Okay. I believe it was the Writers Guild, in your written submission, you did not support any benefits money going to the news initiative, is that correct?
1279 MS ASHTON: Yes, that is correct.
1280 COMMISSIONER CUGINI: Do you not have members who are also news writers? Help me understand why it is that you have taken this position.
1281 MS ASHTON: Well, it is not just about what our members do. We actually are considering more about this being a cost of business, particularly with CTV having morning news shows, Citytv in their markets having morning news shows. In order for Canwest to be competitive, they need to have morning news shows in those markets, so that becomes a cost of doing business.
1282 COMMISSIONER CUGINI: Or not, they could counter-program.
1283 MS ASHTON: Yes, you are right, that is a choice. But again, it is part of their business strategy, rather than something that is purely of benefit to the system. It is also in-house production almost completely, as they have admitted, so we don't see that as being quite as directly a benefit to the system. So those were our reason for not supporting it.
1284 COMMISSIONER CUGINI: And providing potentially up to 100 jobs does not sway you, as they said yesterday, that this initiative would provide?
1285 MS ASHTON: If that money was put into independent production, I can't tell you what the actual multiple would be, but it would be a lot more than 110 jobs.
1286 COMMISSIONER CUGINI: Okay. Would ACTRA or the Directors Guild care to comment? Because I believe you both supported the news initiative, have I got that right?
1287 MS DEER: Yes, we did. We accepted that it was an additional expense because, you know, those newscasts had been cut and, you know, just supporting the diversity of news voices in our system, we were okay with that expenditure.
1288 COMMISSIONER CUGINI: Okay. Mr. Anthony, you were as well, right?
1289 MR. ANTHONY: Yes.
1290 COMMISSIONER CUGINI: You were, okay.
1291 Let's move to the drama or the scripted programming initiative. I believe you all are insisting on 10-point drama, not accepting Shaw's position 8-point drama should qualify as well? Correct?
1292 MS DEER: Correct.
1293 MR. KINAHAN: Yes, correct. The 10-point has an established track record. It is the programming that is most connected to the CMF as well in terms of development and production.
1294 There is really no case for 8-point production as more successful programming or more marketable in that regard. The top programs, if you look at them right now, Flashpoint, Rookie Blue, those kinds of things, they are 10-point programs.
1295 COMMISSIONER CUGINI: The new media initiative, you heard Shaw confirm that any of the elements that would be borne from that expenditure would be directly tied to the programming coming from the benefits, so the scripted programming, as well as the news initiative.
1296 You seem to all be in agreement with the new media portion, but you seem to differ with Shaw in terms of which of those elements that they have listed should qualify, correct?
1297 MS DEER: Yes, that is true. I mean, basically, we don't want to see any benefits money going to something that would otherwise be considered promotion or publicity. And, you know, right now having a presence on websites to promote a dramatic series, it is pretty much required these days if you want to compete and get it out there.
1298 However, if they want to make things that are very interactive, innovative, scripted story-telling types of games like the Writers Guild mentioned in their presentation, you know, that is a whole different thing. And if they were to specify that that is exactly what the money would be going to, that might be acceptable.
1299 But we just don't want to see it going into something that we consider cost of doing business, which is advertising and promotion.
1300 COMMISSIONER CUGINI: So based on their list, which of those elements would you include as being eligible?
1301 MS ASHTON: They referred to interactive gaming, web series, they say websites, but again that is a very broad description. As Joanne was saying, we are not looking at brochure site, it actually should extend the experience for the audience. That is what they are looking for; they want to know when the show is on, but they want to get more engaged with the characters.
1302 As a sort of easy example, if you look at what is on the website for Rookie Blue, there is just minor games with a little branding.
1303 Then if you go to Flashpoint, for example, they receive money from the Bell Fund, for example, interactive game where the audience member can actually act as if they are a recruit in the strategic response unit and have a whole experience with the performers that were in the show, the writers who were involved in writing it, the crews that created it, and it is a much more extensive experience. That is the sort of content.
1304 So when they say website, we are looking for that sort of website rather than the Rookie Blue, here is a matching game sort of.
1305 COMMISSIONER CUGINI: You have taken the position that perhaps the money would be better -- or I think it was the Directors Guild, I can't remember now -- but the monies should be perhaps sent to a third party.
1306 MS ASHTON: Yeah, it was me.
1307 COMMISSIONER CUGINI: Yes, that was you.
1308 You don't have confidence that Shaw could replicate or produce something similar to the example that you have just given us?
1309 MS ASHTON: We don't see the same sort of track record. And given that they did not give a very good description of the sort of content in yesterday's presentation, I think that sort of reinforces that we would like to see the money with those who do have the track record and the understanding of what the audience is looking for and the engagement in the content.
1310 COMMISSIONER CUGINI: Okay. I mean, Shaw may not, but certainly the assets that they are purchasing, Canwest and its relationships with producers as well as the former Alliance Atlantis channels have relationships with producers. You don't think that can be extended to this ownership?
1311 MS ASHTON: Well, it could be. We know that if it went to them, that money, we would have a greater level of confidence if the money went to Canada Media Fund, for example.
1312 COMMISSIONER CUGINI: Okay.
1313 Ms Deer, do you have the list now?
1314 MS DEER: Yes, I do have the list in front of me. They mentioned program-specific websites. If that is just a basic, you know, website, brochure site, then that would not be acceptable. Mobile and VOD applications, that is a pretty broad category. My gut is to say no to that one.
1315 Production of 3D-HD content, no. Interactive games. Well, as Kelly Lynne described, again, that is very broad, so that would have to be better defined. Development of short features of webisodes to promote the linear broadcast, that might be acceptable. Promotion of domestic programming on social networking sites, probably not. I mean, if that comes down to hiring someone tweet watch Rookie Blue tonight, that is not really the sort of content we think would be appropriate for this package.
1316 COMMISSIONER CUGINI: All right. Well, thank you all very much for your very clear presentations. Those are all my questions.
1317 THE CHAIRPERSON: Okay. Peter?
1318 COMMISSIONER MENZIES: I need you to dispossess me of a thought. The overall impression I got from the presentations, it applies more to some than to others, is that you don't seem very excited about working with this new company in terms of that.
1319 And I found it a little surprising that you don't consider -- I mean, I can understand arguing about it, but I found it surprising that you wouldn't consider the asset distressed at all given some of the things the Chairman mentioned.
1320 I mean, hundreds of people had been laid off in the years leading up to this. I don't think reporters could -- you know, I don't think could afford to go anywhere, I don't think they sent anybody around the block, programs were shut, Red Deer station closed very quietly, and the other three were sold for less money than I have in my hip pocket.
1321 That was a little bit of the impression that I was left. I want to give you an opportunity to dispossess me of that notion before we leave.
1322 MR. ANTHONY: Perhaps I could speak to that. I don't think any of us wants to leave you with the impression that we are not looking forward to working with this new corporate structure, that is not the case. It is just that, you know, there are many details to be sorted out, many concerns that we have that we would like to work through in order to get to the promised land.
1323 We are very positive, constructive, collaborative people and we look forward to getting there. But there are a few issues that have to be resolved beforehand.
1324 While I have the microphone, I just wanted to go back to perhaps correct an impression that we may have left with the Chairman who spoke of our seemingly dogmatic stand on the 10 per cent across the board for the benefits package.
1325 We understand the need for a healthy broadcasting industry, but I also want to say that we represent a fair chunk of that and we want to make sure that Canadian production activity remains high and that therefore our members, whether writers or performers or directors and the other 46 occupational categories that we represent, play an important role. Our members too have taken a hit over the course of the last few years, losing houses because they can't afford the mortgages, that sort of thing.
1326 So we are all looking forward to a much better tomorrow. And we are not dogmatic red in tooth and claw fanatics that we may have led you to believe we are. But we do have some legitimate concerns I think and we do have some strong positions that we understand and we adhere to as a result.
1327 THE CHAIRPERSON: Mr. Anthony, I recognize that. I acknowledge the fact that you gave an alternate solution if your submission was not accepted. So I did not throw you in the dogmatic category.
1328 MS DEER: I just also want to note, I mean, we did hear some very positive things yesterday from Shaw in terms of their attitude towards -- you know, what really concerns us is the Category 7 drama. There was some talk of it, you know, embracing it as an opportunity, to differentiate them as opposed to just being a regulatory burden.
1329 That was really refreshing for us to hear and we are optimistic, we are cautiously optimistic because, as we know, broadcasters will say lots of things when they want something. But we are very optimistic and we are glad that Canwest is continuing and we are optimistic.
1330 MR. KINAHAN: Finally, as we said in our presentation, and we do support the transaction and it is just now a matter of hammering out the details. We in fact want to work with Shaw on the creation of the development program as well and partner with them in that regard, to strengthen the system for all of us.
1331 COMMISSIONER MENZIES: Thank you.
1332 THE CHAIRPERSON: Okay. If there are no more question, we will do one more intervenor before lunch. So thank you very much coming.
1333 I think TELUS has told me they are ready to go, so we will take a five-minute break and then we will deal with TELUS.
1334 MR. KINAHAN: Thank you very much.
--- Upon recessing at 1049
--- Upon resuming at 1100
1335 THE CHAIRPERSON: We will resume now.
1336 I obviously can't read e-mail. We are dealing with the CMPA first, and then with TELUS.
1337 I apologize for the confusion.
1338 Madam Secretary, let's begin.
1339 THE SECRETARY: Thank you.
1340 We will now hear the intervention of the Canadian Media Production Association.
1341 Please introduce yourselves, after which you will have 10 minutes for your presentation.
1342 MR. BOLEN: Good morning, Mr. Chair, Vice-Chairs, Commissioners and CRTC Staff. My name is Norm Bolen, and I am the President and CEO of the Canadian Media Production Association.
1343 I am pleased to have with me today the following CMPA staff. To my left is John Barrack, Chief Operating Officer and Chief Legal Officer.
1344 To John's left is Reynolds Mastin, counsel.
1345 And to my right is Mario Mota, Vice-President, Broadcasting Policy and Regulatory Affairs.
1346 There are two areas that we want to address here today. The first is the need for safeguards to address market power, and the second is the tangible benefits package.
1347 Independent producers need and want a strong Canwest, but a strong Canwest can't be at any cost, and the cost could be too high under the current Shaw proposal.
1348 Mr. Chair, we share your view on this transaction. It will reshape the Canadian broadcasting system. Shaw will be the most vertically integrated media company in Canada, and it will have unprecedented market power. This is true by any measure, whether you look at it by number of broadcast licences, by revenue, or by audience share.
1349 The CMPA is not against consolidation in the industry, but there is always a tipping point, and this transaction is it. Safeguards are urgently needed.
1350 BCE's proposed acquisition of CTV's broadcasting assets makes the need for checks and balances all the more urgent now.
1351 BCE and Shaw and its affiliates will together control the majority of conventional television stations. They will also control 69 percent of all English-language analog, specialty and pay services.
1352 The CMPA recently brought together the leaders of all of the major Canadian independent production companies, and they all told us the same thing: They are worried about their very survival.
1353 Independent producers have no leverage in their dealings with broadcasters. They are cornered on rights. They are losing their independence.
1354 It is the independent producers who create the ideas. They develop the projects, they pull together the financing, and they used to control the exploitation of rights, but large media companies, because of their market dominance, now effectively control the copyright.
1355 This essentially means that, without safeguards, you are being asked to read out the word "independent" from the Act. Why is this a problem? Because section 3(i)(v) of the Broadcasting Act calls for a significant contribution from the independent production sector.
1356 The independence and viability of the production sector is lost without the ability to share in rights, and from there we lose diversity of voices and ideas, and then much of the rest of section 3 of the Act is jeopardized.
1357 The need for meaningful safeguards is critical in the face of growing market power.
1358 Vertical integration increases the likelihood of preferential treatment. Shaw has argued that the existing rules are sufficient to address preferential treatment and market power. In our view, they are not, particularly with regard to program buying and rights. So we are proposing simple safeguards as part of this transaction to fill in the gaps.
1359 It is critical that Shaw/Canwest and Corus remain truly separate and fully competitive. We propose the following:
1360 Prohibit any programming or licensing overlap between Shaw/Canwest and Corus services by condition of licence. Without this safeguard, competition decreases, diversity of voices is reduced, and producers are left with one less door to knock on.
1361 But there is one exception to this safeguard, Corus' Pay TV movie service, Movie Central. This service has long been an important financing partner on big-budget productions.
1362 Also, by condition of licence, require Shaw/Canwest to operate separate programming departments from Corus. This means separate executives with decision-making power and separate legal and business affairs departments. Without these measures, you lose a distinct programming voice and perspective in the market.
1363 In addition, we were happy to hear Shaw yesterday commit to not engage in content exclusivity on unregulated platforms. In our view, content exclusivity is not in the public interest, because it limits Canadian consumers' access to content.
1364 For certainty, we would like to see Shaw's commitment enshrined as a condition of licence.
1366 MR. BARRACK: One of the most important safeguards is terms of trade.
1367 Mr. Chair, as you reminded us all yesterday, three years ago Rogers committed to taking a leadership role in negotiating terms of trade. However, since that time the file has moved along at a snail's pace.
1368 In response to your direct questions yesterday, Shaw only wanted to commit to continuing the discussion and providing you with updates on terms of trade negotiations. Simply put, this is not leadership.
1369 One area where Shaw and CMPA fully agree is on the need for the Commission to apply its Diversity of Voices Policy. That policy states that when analyzing applications for changes in effective control, the Commission will give due consideration to the existence of effective terms of trade agreements between licensees and independent producers.
1370 No such agreement exists between Shaw/Canwest and the CMPA. Shaw did not even reference terms of trade in its application. Again, this is not the leadership we need from Shaw.
1371 We are also concerned about Shaw affiliate Corus Entertainment's submission to the Government of Canada's national digital economy consultation. In that filing, Corus asked the government to direct the Commission to eliminate requirements for independent production and to abandon terms of trade.
1372 Mr. Chair, in the face of Corus' position, we appreciate the Commission's continued support for terms of trade. We have heard you that terms of trade are best addressed through the group licence renewal process. In order to ensure the best chances of success, it is essential that broadcasters be required to submit final terms of trade agreements as part of their licence renewal applications.
1373 And, if no agreement is reached, then we would need to make submissions to you as to appropriate remedies to get a deal done.
1374 We have developed a simplified proposal that aims to meaningfully address the concerns raised by the Commission and by the broadcasters around the bargaining table.
1375 Let's be clear. We want a deal, but we need a willing dance partner.
1376 Independent producers are fearful above all else that our window of opportunity may close for another five years. If this is allowed to happen, then a key element of the broadcasting system will simply cease to exist in any meaningful way.
1377 We would also ask that the Commission provide an observer when negotiations resume. We are confident that simply having Commission staff in the room will discipline both parties and enable us to build momentum more quickly.
1378 At the end of the day, BDUs, broadcasters and producers are in the rights exploitation business. Broadcasters need access to rights to run successful businesses. So do independent producers. It is all about fair and equitable allocation of those rights.
1379 Terms of trade can ensure that producers remain independent, while enabling broadcasters to maximize the multiplatform benefits of consolidation.
1381 MR. MOTO: I will now speak about the value of the transaction and tangible benefits.
1382 The CMPA had prepared a detailed analysis of Shaw's reply to our joint report on the issue of the value of the transaction. However, we commend Shaw for conceding yesterday that the value is at least $2 billion. Therefore, rather than discuss the issue further, we would be happy to file the additional analysis, should it be useful to the Commission.
1383 Turning to benefits, the core issue in this proceeding is the same as with any other transfer of ownership: Is this the best proposal for the system in the circumstances?
1384 Shaw argues that because of intangible benefits, tangible benefits amounting to 10 percent of the value of the transaction should not apply in this case. We disagree.
1385 The CMPA acknowledges that the Commission has the flexibility to apply its benefits policy in a discretionary manner, we just don't believe that it should be applied in a manner that allows benefits to be avoided or discounted in this case.
1386 Yesterday we heard the Commission say that it could require 10 percent in benefits to be payable on the CWI value of the transaction, or $155.5 million in total.
1387 You asked Shaw to provide a rationale for a discount on the remaining CTLP value of the transaction.
1388 Let's look at the CTLP portion of the transaction. We submit that the CTLP assets are not failing undertakings. Therefore, no discount on benefits is warranted. There should be no exception to the normal application of the Commission's benefits policy.
1389 First, Shaw acknowledges that interest payments on Canwest's huge debt load, not its operating performance, forced Canwest into CCAA protection.
1390 2010 is turning out to be a great year financially for Canwest, including the CTLP assets. The numbers speak for themselves.
1391 Second, let's remember that the CTLP entity includes a few profitable specialty services, such as TVtropolis.
1392 Third, there is no doubt that a stronger Canwest will emerge from CCAA protection, including the CTLP assets. They will have a much cleaner balance sheet.
1393 Regarding the Canwest/Alliance Atlantis benefits, an existing condition of licence requires the remaining funds to be spent, regardless of this transaction. This is not a new benefit. Any owner would have had to fulfil the remaining benefits under existing CRTC policy.
1394 The proposed tangible benefits package also fails to live up to CRTC policy in three key areas. First, more money needs to go to onscreen initiatives, at least 85 percent of all benefit funds, per Commission practice.
1395 Second, some of the proposed initiatives should not quality.
1396 And third, more funds need to flow to third parties, such as independent producers.
1397 As a final point, should the CRTC require changes to the tangible benefits, in the interests of transparency and fairness, we encourage the Commission to allow parties to file comments on Shaw's revised proposal.
1398 And given the importance of this proceeding, we are formally asking the Commission to allow all parties to file final written comments after the hearing.
1400 MR. BOLEN: Mr. Chair and Members of the Commission, this transaction is a game-changer. It's about market power, it's about leverage, and it's about rights. Ultimately, it's about finding a balance. The challenge is to find the right balance, to ensure that diversity thrives in the face of a transaction of this scale, and that requires strong safeguards.
1401 We would be pleased to answer any question you might have. Thank you.
1402 THE CHAIRPERSON: Thank you for your presentation.
1403 Just a point of clarification; I read your submission and you had a whole list of safeguards. Today you were only talking, essentially, about two. Do I take it from that that the other ones, in light of the changed application, are no longer on the table?
1404 MR. MOTA: Mr. Chairman, the other safeguards that I think you are referring to are related to the fact that there is a self-directed benefits package involved with this transaction, and we raised some concerns in this proceeding and in a couple of other proceedings in the past about the fact that self-directed benefits give broadcasters even more power than they currently hold.
1405 Some of the self-directed benefit safeguards that we proposed are already Commission practice, we just wanted to see them entrenched and actually reiterated in the decision.
1406 So we are not backing away from them, we just chose not to focus on them today.
1407 THE CHAIRPERSON: In terms of terms of trade, you are suggesting that -- let me understand what you are saying:
"In order to ensure the best chances of success, it is essential that broadcasters be required to submit final terms of trade agreements as part of their licence renewal applications.
And, if no agreement is reached, then we would need to make submissions to you as to appropriate remedies to get a deal done."
1408 This is really not this transaction, you are looking forward. You are looking forward to April, and you are saying: Make it a condition that, in April, they submit final terms of trade. Should that not be the case, allow us, then, to suggest what you, as the Commission, should impose on licence renewal as a remedy, a penalty, or whatever you want, for the failure to reach a terms of trade agreement.
1409 Is that what you are saying?
1410 MR. BARRACK: That's correct, and that was informed by the comments that you made yesterday.
1411 THE CHAIRPERSON: Okay. You were here in the room for the last exchange that I had with the various production groups that were appearing before us, and on the whole issue of the value to the system, as such, what is being achieved by Shaw completing this transaction, rather than having to go through a bankruptcy and restructuring and reassembling of the assets of Canwest -- you know, how you do it, whether you, in effect, count it as an intangible benefit, so that it gives them a discount on the Canwest assets or whatever, those are just mechanics. The concept is, should Shaw be rewarded for keeping Canwest as an operating entity and avoiding the costs and disruptions that would be incurred by bankruptcy proceedings.
1412 If I understand you, Mr. Mota, you say, no, there should be absolutely no reward for that, or no discount.
1413 MR. BOLEN: The question here has to do with whether that's a benefit or not to the system.
1414 There is no question that it's an intangible benefit, and that is one of the reasons we are supporting this application.
1415 I think that the payback for Shaw is your approval of this transaction, really. That is a tangible benefit to them, your approval of this transaction.
1416 And let's look at the fact that Shaw, in their own statements, many, many times -- and I urge you to look at the analyst's statements that were made on May 3rd -- has clearly laid out that they are doing this for business reasons. This is not philanthropy; it's about value for their shareholders.
1417 So I think that approving the transaction, and us supporting the transaction, is all payback for the fact that there is some benefit there.
1418 The other thing that is important is to look at the alternative. If those dollars go into content on air instead of into a discount, the leverage factor attached to those dollars means that every dollar of benefit money that is applied towards content creation leverages $3 to $4 of production.
1419 So if you look at the delta, you know, the maximum discount on the chart that you showed yesterday, on the top line, it was something around $25 million. That may not seem like a large amount of money, and it probably isn't to Shaw. But to the system, it potentially leverages $75 million to $100 million in the creation of new programming of national interest. Now, that is a huge benefit and it's significant.
1420 THE CHAIRPERSON: Peter, I believe you have some questions.
1421 MR. BARRACK: Mr. Chairman, before we move over, I would like to make one clarification. When you asked the question in terms of timing, what we were referring to was that the deadline would be, actually, at the time of filing, not at the time of the hearing.
1422 Just so we are clear, and so all parties know where we are at, we are saying that it would be at the time of filing, in November, not at the time of the hearing itself, the reason being that it allows the parties, then, in their interventions, to make appropriate submissions as to what may need to happen in the event of a failed negotiation.
1423 THE CHAIRPERSON: Thank you for the clarification. I hadn't caught that fine point.
1425 COMMISSIONER MENZIES: Just to basically follow through here, the 60 days that you asked for in your written submission, that we order Shaw to conclude the terms of trade within 60 days, wasn't mentioned in the verbal presentation. Are you still asking for that?
1426 MR. BARRACK: I think, again, what we are saying is, we would be happy with the 60 days if...
1427 Maybe I could back it up one step.
1428 We have been negotiating with broadcasters as a group, on a without prejudice basis, and those negotiations have not been moving terribly quickly.
1429 It was our original hope to negotiate on a broadcaster-by-broadcaster basis, but, at the urging of the Commission, and at the urging of the broadcasters, we came together as a group.
1430 Our view was that, in light of those stalled negotiations, having Shaw put in the position where it would need to take leadership in the face of this enormous transaction was an excellent idea.
1431 However, yesterday we heard the Chairman -- we heard his strong support for a process that involved, if I could say, everyone.
1432 So I think it is less important to us if we have a clear understanding that there is a hard deadline of filing, if, for all intents and purposes, we are in the same range of time.
1433 Does that only serve to confuse you, or does that help?
1434 I mean, I think that if we are looking at filing in November --
1435 COMMISSIONER MENZIES: It was pretty muddy, yeah.
1436 MR. BARRACK: If we are looking at filing in November, that is going to be, roughly, in the same -- it's going to be 75, 80 days, something like that.
1437 COMMISSIONER MENZIES: Okay. Anytime you put a deadline on something and you just put it on one of the parties, it doesn't really work. Right?
1438 And it's hardly our role to -- I mean, our role is to make sure that there is a level playing field for things in time, if there is any at all, not to throw a little lead in one guy's saddle and not in the other.
1439 MR. BARRACK: I think that's where we said that we heard the Chairman yesterday, and we agree. That's all we are saying.
1440 COMMISSIONER MENZIES: Good, you can stop there.
1441 "We agree" is a good place to stop.
1442 COMMISSIONER MENZIES: Mr. Mota, in terms of your argument regarding whether this asset should get a discount, or Shaw should get some consideration for taking over a distressed asset, I find it a little --
1443 When you say that Canwest is having a great year this year, they kind of are, but the hundreds of people who got laid off last year probably aren't, and the pensioners at CH probably aren't, and the shows that aren't on any more probably aren't, and the people who used to work at Red Deer probably aren't.
1444 What I am trying to say is, when you compare year to year, in the 2009 year they had some clearly distressed assets. Red Deer was closed. The other three were sold for, as I said before, less money than I have in my pocket right now. Actually, a third of the amount of money I have in my pocket right now.
1445 Doesn't that relate to it?
1446 I mean, just because those things happened prior to going into CCAA, how do you then define this as a non-distressed asset?
1447 MR. MOTA: At the end of the day, they do face challenges. But, from our perspective, it would be a very unfortunate precedent to set. When you look at the root of those challenges, right down to the core, it was based on the fact that it was a company that took on enormous debt for buying a set of newspaper assets and it was never able to recover from that.
1448 You also look at the fact that there are external factors like the recession and stuff that had an underlying effect on where it's at.
1449 So from just a principle level, and a potential precedential level, I think it is kind of dangerous ground for what we may have coming forward, down the line, with any other future transaction.
1450 COMMISSIONER MENZIES: So how do you see this as different from, say, TQS, two or three years ago?
1451 MR. MOTA: First of all, from TQS's perspective, I think you have to look at the buyer -- two very, very, very different buyers in TQS.
1452 TQS also had a very, very longstanding history of financial failure. I think it was 18 years in existence before it filed for CCAA, and it had only been profitable for one or two years.
1453 I don't think you can say the same for Canwest. In fact, you can't say the same for Canwest.
1454 So I think the examples that Shaw has used to try to provide precedents of where the Commission has provided discounts before are just not comparable.
1455 They have also cited CHCH and CHEK-TV. Those were standalone operations. They were purchased by buyers who had very different structures, if you will, in their financial resources.
1456 So, from our perspective, it is an entirely different beast.
1457 COMMISSIONER MENZIES: Okay, understood.
1458 Mr. Bolen, when you talked about the necessity for safeguards, one thing that crossed my mind -- and I am certainly not dismissing your argument, but there is just a thought that I would like you to respond to.
1459 A healthy business has change. Right? It has advancements. Somebody is always taking the lead, and then people catch up.
1460 And an industry should work that way, if it's healthy. They are not stagnant. The rules don't stay the same, the owners don't stay the same, the content doesn't stay the same. Things have to change to be healthy.
1461 In this case, we agree that Shaw has taken the lead in this step. You want safeguards. Do you have concern at all that those safeguards could be inhibitors rather than facilitators of innovation and change?
1462 MR. BOLEN: Not at all. We are facing a situation here where we are seeing an incredible increase in market power, and that is why we are so concerned about the separation between Corus and the Canwest assets.
1463 If you look at it from an independent producer's point of view, this market power increase further exacerbates the rights problem that we have been faced with.
1464 Imagine if you are a producer and you now have two doors to call on. One of them is W, for instance, the other one is HDTV, who fiercely compete now in the marketplace.
1465 We heard yesterday from Shaw that they see some situations where there should be program overlap between these so-called competitive arms of Shaw.
1466 Well, if you are a producer, you now have really one door to knock on if that is the case, because those two entities can take the previous licence fee that one of them would have paid for the rights to that content, they can split it fifty-fifty and they can both acquire the rights to that program, further eroding the ability of the independent production sector to survive.
1467 What is really innovative in the system is the independent production sector. They are truly the innovators. They are the lean, mean small operations across this country, in every province, who are innovating every day. They are the ones who are taking linear television content now and adapting it to the interactive world.
1468 They need to have the means to survive and to run businesses that have margins. We look at the margins of the broadcasting industry of 30-40 percent. We are lucky to have single-digit margins in independent production companies.
1469 So any further ability for these large integrated market entities to collaborate and to avoid any measures to increase competition basically threatens that innovation.
1470 COMMISSIONER MENZIES: Okay.
1471 MR. BOLEN: Am I answering your question?
1472 COMMISSIONER MENZIES: I understand your position, yes. I don't think there is an answer to the question, it is more defining your position.
1473 MR. BOLEN: The independent producers and the broadcasters both have a role, but without safeguards, the independent production sector and its rights are further eroded and we just want to see a rebalancing of that.
1474 MR. MOTA: Commissioner Menzies, if I could just add, those safeguards are not inconsistent with what the Commission has imposed in the past.
1475 If you recall, in the CTV-CHUM there was a condition put on programming overlap. In the Rogers-Citytv there was a condition put on overlap. For us it is a fundamental need.
1476 COMMISSIONER MENZIES: Okay, understood.
1477 What extra benefits will accrue to the broadcast consumer if we were to side with -- I sort of asked the same question the other day.
1478 I mean one thing that gets overlooked -- I understand your position and your constituency that you have to represent. Very broadly, the system in the end relies upon -- will live or die on whether people watch it or not.
1479 How does your position improve the lot of the Canadian entertainment consumer versus Shaw's position?
1480 MR. BOLEN: Well, having a strong independent production sector with safeguards to ensure that it continues to exist and equitable sharing of rights means that consumers will have more choice and there will be more innovation and there will be more diversity in the system.
1481 It is the independent production community, those 400 entrepreneurs across the country, who bring diversity to the screen and that is really important.
1482 And it is in the Act. The Act says that there should be a significant contribution from independent producers.
1483 Without safeguards, we no longer are independent. We in effect become indentured to the broadcasters.
1484 Look at it this way. What has value? Rights. What is rights? Rights is inventory. If we have no inventory to sell, we can't bring in any revenue beyond what the broadcasters pay us, which is effectively a small percentage of the total cost of a production.
1485 We need to be able to run capitalized businesses as well as the big market power integrated companies.
1486 COMMISSIONER MENZIES: Okay.
1487 To move on to another question, in point 2 of paragraph 9 of your written intervention you ask that Shaw's new acquisition remain "fully competitive."
1488 They were kind of asked that question the other day and, you know, to the extent that -- my own question was: Would you even be negotiating a value for signal between Shaw and that? And they said: Yes.
1489 How do you define fully competitive if that isn't fully competitive?
1490 MR. BARRACK: I am not sure we understand the question in terms of competition as between whom, if I can put it that way. Are you saying between Corus and Shaw or between --
1491 COMMISSIONER MENZIES: Well, that is what I take your point to mean.
1492 MR. BARRACK: Yes.
1493 COMMISSIONER MENZIES: You are asking that the new acquisition be fully competitive with the -- you are asking that Canwest, let's put it that way --
1494 MR. BARRACK: Yes.
1495 COMMISSIONER MENZIES: -- be fully competitive with Shaw's current holdings.
1496 MR. BARRACK: Or I would say perhaps with its affiliated holdings.
1497 COMMISSIONER MENZIES: And I am just trying to understand -- yes. I am just trying to understand -- okay, you are the lawyer.
1498 MR. BARRACK: I'm sorry.
1499 COMMISSIONER MENZIES: I am just trying to understand what you mean by that.
1500 MR. BARRACK: I think it is truly as simple as it sounds, that we are trying to maintain a full separation so these are independent operating businesses.
1501 COMMISSIONER MENZIES: Okay. And how do we do that?
1502 MR. BARRACK: The safeguards that we are recommending.
1503 COMMISSIONER MENZIES: That referred back to those, okay.
1504 MR. BOLEN: If you run a common programming or a contracting department of business affairs content, how can you say you have competition? You don't.
1505 You can't compete with a competitor if your mind is the mind controlling both competitors and you have access to the strategies and both competitors are in fact involved in creating that strategy.
1506 We believe the current competition between Corus and Canwest is very, very important and it is working extremely well and it is helping to support the independent production activity in this country to create innovative content.
1507 COMMISSIONER MENZIES: What is it about what they have said so far that makes you not believe that?
1508 MR. BOLEN: Well, they said yesterday that they would like to see some overlap between commissioning of a program and running a programming by those channels, and that is not true competition.
1509 COMMISSIONER MENZIES: Does any of that overlap currently exist?
1510 MR. BOLEN: No.
1511 MR. MOTA: Commissioner Menzies, if I can just also add.
1512 Shaw also does point out, and it is a fact, they are two structurally separate companies with different boards of directors and different management teams. However, they exist to maximize profit and they report to two separate boards of directors.
1513 However, there may be examples where they can work more closely together, even as separate companies, to maximize profit for their individual companies.
1514 Tomorrow, they can sign a management agreement and start working more closely together. There is nothing precluding them from doing that today.
1515 So the kinds of safeguards we are proposing are to put some caps on that ability to operate that way.
1516 COMMISSIONER MENZIES: And that is safeguarding your investments as well, right? That is the safeguard you are looking for, that will safeguard the skin that the independent producers have in this game?
1517 MR. BOLEN: Let us go back to the market scale argument. It is not about our skin, it is really about -- think of it now. If you happen to produce programming for women, you now have two doors to knock on. One is W --
1518 COMMISSIONER MENZIES: Yes.
1519 MR. BOLEN: You will no longer have that if these two entities are allowed to share programming and other aspects of their businesses.
1520 So that means less diversity in the system and that means more pressure on producers, less bargaining power and less equitable sharing of rights.
1521 It is an inevitable extension of the challenge we have been already facing and makes it even worse.
1522 And the fact that there is a B.C. transaction coming up, the incredible market concentration just exacerbates the problem we have already been experiencing, which is threatening the viability of the whole independent production sector, which is part of the broadcasting system.
1523 COMMISSIONER MENZIES: I understand that position. I am just trying to understand that at certain points in industries things expand and you get too much product and then they consolidate, right?
1524 So if there is less diversity of programming, sometimes that occurs because there is too much diversity of programming.
1525 We hear these arguments all the time. No, you shouldn't add another licence in this market because that is going to -- sure, you will have more diversity, but you are just going to have six weaker radio stations instead of five strong ones.
1526 So when it comes around to programming like that, wouldn't we be better off -- wouldn't the system be better off in having, I don't know, five really good women's programs instead of six diluted ones?
1527 MR. BARRACK: If I can answer that in two parts.
1528 The first is each of those properties that compete head-to-head are extremely profitable. So consumers are voting, and they are very successful properties.
1529 So in those examples, this is not a situation where there is a glut in the market. Everyone is just --
1530 COMMISSIONER MENZIES: Okay. I understand your point better now, thank you.
1531 In paragraph 12.1, I think it is, in your written submission, you talk about drama, documentary, children's, youth areas, and I am just trying to understand a little bit there if you are not asking us to get a little too strictly into the area of doing their programming for them.
1532 MR. BOLEN: We just believe the best use of the programming component of the benefit expenditure should be on programming of national interest, something that the Commission itself has underlined as a priority in the new licensing framework, that's all.
1533 MR. MOTA: We probably should have used that language but I guess I was a little bit too specific.
1534 COMMISSIONER MENZIES: I am not sure it was the language. It just struck me that that is -- I mean I am not sure that we are really qualified. I mean there are obviously areas that we are involved in, but I am not sure we want to go too far down the road of slipping from regulation into programming.
1535 MR. BOLEN: Well, I think we are following the Commission's lead on this. The Commission has made it very clear that they expect all licence holders to spend a certain percentage of their budget on programming of national interest, and this recommendation by us basically follows that same logic and thinking.
1536 It is that scripted Canadian drama that is the most important to the system and it is what is under the most threat right now.
1537 COMMISSIONER MENZIES: Understood. Thank you.
1538 THE CHAIRPERSON: Can I go back to the safeguard which you mentioned.
1539 If I understood Mr. Mota's explanation just now, you are really worried about the future?
1540 Right now, Corus is operated totally separately, it does separate programming, et cetera. You are worried that if this actually is approved and Shaw then owns Canwest, there will be joint program or program cooperation between those two and you want us to say no, you have two separate assets, operate them separately so that I have two doors to knock on?
1541 MR. BOLEN: That is absolutely correct.
1542 THE CHAIRPERSON: Okay, thank you.
1544 COMMISSIONER CUGINI: On the issue of programming overlap, is there any percentage that would be acceptable to the CMPA, for it to be limited to that percentage?
1545 MR. BOLEN: No, we don't believe there should be any.
1546 COMMISSIONER CUGINI: All right. Let me ask you this.
1547 Shaw is also a distributor. Would it not be in their best interest to ensure that all the specialty services, especially once the new BDU Regulations come into place, are as attractive as possible so that its customers will subscribe to as many of those services as possible?
1548 Would they not be cutting off their nose to spite their face if they just made all of those specialty services repeaters of each other?
1549 MR. BOLEN: We actually don't think repeating -- just repeating those services is a good thing. Taking content from HDTV and putting it on W or content from Slice or vice versa actually homogenizes the offerings even more than they are being homogenized now.
1550 COMMISSIONER CUGINI: Well, I agree with you.
1551 MR. BOLEN: You referred to that yesterday.
1552 COMMISSIONER CUGINI: I agree with you, and so my point is if I am sitting at home and I know that I can watch the same show on five different specialty services, well, I am probably only going to subscribe to one. But if I know I can watch as many different types of shows on those five specialty services, I am probably going to subscribe to all five.
1553 So wouldn't that be in the best interest of Shaw as a BDU to ensure that that happens?
1554 MR. BOLEN: One would have thought so, but we have seen a gradual and continuous increasing overlap of programming on existing channels.
1555 When I was in the broadcasting business, we actually tried to maintain distinct identities for most of our channels, and we have seen increasingly, maybe partly due to the recession, maybe partly due to business pressures generally, more and more and more program sharing across many, many channels.
1556 So you are seeing the same content coming up over and over and over again. They are doing it now and it seems to be working for them in some business sense, so somehow they are able to cross-schedule.
1557 I think the strategy I used was you put one program in prime time on one service, you put it on in the afternoon on another service, and you checkerboard. But we think there is enough of that going on and we think it should stop.
1558 But the real key issue is about competition, particularly in the women's field. You know, they said yesterday that they would want to have some overlap, but we don't think it is appropriate.
1559 And again, it is a further erosion of rights because now you end up selling your content to one large integrated player for the same price you used to sell to a smaller player and they take all the rights across even more platforms. That further erodes the ability of independent producers to run viable businesses.
1560 COMMISSIONER CUGINI: Thank you.
1561 THE CHAIRPERSON: Marc?
1562 COMMISSIONER PATRONE: Thank you, Konrad, and thank you for your presentation.
1563 I have one question. At the risk of overkill on the program overlap matter, it is a question related to that and it is that: Is it possible that any financial benefits that might accrue to the broadcaster arising from synergies from those types of overlaps might be directed back into the independent production sector in the way of added productions?
1564 In other words, if they are able to save money by doing certain things in the way of overlap, for lack of a better word, isn't it possible that those savings might benefit your sector in the end by allowing the broadcaster to basically buy more and spend more to have productions produced?
1565 MR. BOLEN: Well, there is nothing that would guarantee that any benefit would go back to the independent production sector or go to incremental on-screen content.
1566 MR. BARRACK: And moreover, the affiliated company, if I might, has stated on the record that it is not interested in acquiring content from independent producers. It wants to do more in-house. So I think that defeats the argument in this context.
1567 COMMISSIONER PATRONE: So you are saying any savings would end up basically with the broadcaster, not put back into productions?
1568 MR. BOLEN: If there were any savings, they would be trumped by the fact that producers would be effectively selling to many, many more channels for the same price that they used to sell to fewer channels. They would be getting less value for their inventory.
1569 COMMISSIONER PATRONE: Okay.
1570 THE CHAIRPERSON: Len?
1571 COMMISSIONER KATZ: Just a quick clarification.
1572 Does your position on the split on programming extend to non-programming services like real estate, human resources, accounts payable?
1573 MR. BOLEN: We have no problem with management agreements being entered into on those aspects of their business.
1574 Really what we are concerned about is having independent programming departments, and the reason we have contracting and business affairs is because they are inextricably linked with programming decisions, programming strategy and rights management.
1575 COMMISSIONER KATZ: Okay, thank you.
1576 THE CHAIRPERSON: So it is basically just saying that is the price of acquisition, that you have to keep those separately, because yes, there will be synergies having joint programming operations and obviously Shaw might want to do that, but that would be at too great a detriment to the independent production sector?
1577 So therefore, we as Commissioners should impose, say, the price of our approval is that you keep the separate programming separate, and management and legal, as you suggest?
1578 MR. BOLEN: Yes. The competition between Corus and Canwest Global is one of the best things in the industry right now. It is very healthy for the industry, it is very supportive of the independent production sector and it is generating a lot of extremely good content on both services.
1579 So it is not like we are producing watered-down content because they are not combined. They are producing excellent content very competitively.
1580 THE CHAIRPERSON: Okay. Thank you very much for your presentation.
1581 MR. BOLEN: Thank you very much for hearing us. And maybe the sun will shine on all your deliberations today.
1582 THE SECRETARY: Thank you.
1583 We will now hear the presentation of TELUS.
1584 THE SECRETARY: Please introduce yourself and you have 10 minutes for your presentation.
1585 MR. HENNESSY: Thank you.
1586 Good morning, Mr. Chairman, Commissioners.
1587 My name is Michael Hennessy and I am Senior Vice-President, Regulatory and Government Affairs with TELUS.
1588 With me on the panel today are:
1589 - on my right, Blair Miller, our Vice-President of Content at TELUS;
1590 - and on Blair's right, Greg Goodwin, our Vice-President of Home Solutions;
1591 - on my left is Ann Mainville-Neeson, our Director of Broadcast Regulation;
1592 - and to her left is Andrew Davenport, Director of Corporate Development.
1593 TELUS was very pleased to hear Tuesday's exchange between the Commission and Shaw. TELUS welcomes Shaw's commitment to making content available to all distributors on all platforms.
1594 TELUS firmly believes that access to content on all platforms on a non-exclusive basis and on reasonable terms that prevent self-dealing is the best possible outcome for Canadian consumers, distributors and the Canadian broadcasting system as a whole.
1595 MS MAINVILLE-NEESON: The Canadian broadcasting regulatory system has been built on a regulatory bargain between broadcast distributors and programming undertakings whereby Canadian programming services benefit from protective measures in return for creation and presentation of Canadian content.
1596 As part of this regulatory bargain, programming undertakings have obtained many benefits, including genre exclusivity protection from competition, both foreign and domestic; mandatory carriage; sometimes priority carriage on basic; promotion on the local availabilities of U.S. stations; access to funds contributed by government and distributors for content creation; and simultaneous substitution to increase the value of their advertising.
1597 Distributors for their part get access to content on a non-exclusive basis subject to fair and reasonable terms.
1598 This regulatory bargain has greatly contributed to the success of the Canadian broadcasting system.
1599 MR. MILLER: However, the means by which Canadians consume media is evolving. Increasingly, customers of traditional distribution undertakings will seek to watch the same programming on both traditional and new platforms.
1600 If access on new media platforms is limited, this will devalue the regulatory bargain on traditional platforms for distributors who have negotiated non-exclusive rights.
1601 Additionally, consumers of services from Canadian broadcast undertakings may find themselves disadvantaged or inconvenienced where content becomes unavailable to them because they have the wrong wireless or Internet subscription.
1602 MS MAINVILLE-NEESON: The Commission correctly anticipated this development in its new media policy when it determined that it would be appropriate to implement an undue preference rule for new media platforms.
1603 This new rule which will apply to Internet and mobile platforms has yet to be tested and uncertainty around its application is apparent in the media releases of Bell regarding the acquisition of CTV and Quebecor regarding the launch of its new wireless service, each of which presumes that the non-exclusivity rule with respect to programming from Canadian broadcasting undertakings can be bypassed.
1604 For the record, we believe that the same rules on non-exclusivity should apply to all carriers and distributors, including TELUS.
1605 The Commission must make the application of the rule clear to all.
1606 Accordingly, despite the commitment by Shaw that it will not enter into exclusive content distribution arrangements and that it will make content available to all distributors, it would be highly beneficial for the CRTC to establish greater clarity around the issue of undue preference on new platforms.
1607 In particular, the Commission should make clear that the same rules with respect to exclusivity on linear platforms and VOD apply to new media and that reasonable terms of affiliation are also required in new media.
1608 It is in the public interest for the Commission to provide certainty regarding the application of the undue preference rule to new platforms.
1609 While we propose that certainty should be provided by means of conditions of licence for Shaw, TELUS concedes that it may not be necessary to use this regulatory tool for this purpose as long as the Commission can lay out general principles with respect to exclusivity and fair dealing in this proceeding.
1610 The Commission could provide certainty for the entire industry simply by clarifying what constitutes undue preference in the body of its decision approving the Shaw/Canwest transaction.
1611 The undue preference rule is enforceable as a condition of the exemption of the New Media Exemption Order and it is applicable to all new media broadcasting undertakings.
1612 As noted, policy pronouncements in the Shaw decision would equally apply to both vertically integrated and unaffiliated distributors and broadcasters and it will provide greatly needed clarity.
1613 MR. GOODWIN: The industry would also benefit from additional guidance and greater clarity on how undue preference might be determined on traditional platforms as well as new media in light of all this vertical integration.
1614 Price discrimination and short notice periods for the launch of new services provide a significant advantage to the vertically integrated company.
1615 To assist the Commission, TELUS has prepared and provided, as an appendix to these opening comments, a list of practices which it considers should constitute undue preference and how they might be resolved.
1616 MS MAINVILLE-NEESON: While the Commission can achieve much in the area of undue preference by making policy pronouncements in the body of its decision which will apply to the industry as a whole, some measures need to be taken by way of condition of licence.
1617 In particular, TELUS reiterates that a reverse onus with respect to undue preference complaints must be established by condition of licence for Shaw and Canwest. TELUS submits that such a reverse onus would be consistent with the Commission's policy when it adopted the reverse onus for programming undertakings.
1618 MR. GOODWIN: Also consistent with past practice, the Commission must establish by conditions of licence some form of structural separation in order to protect confidential and competitively sensitive information provided to Canwest as part of the negotiations from carriage of their programming service or as part of the negotiations for purchase of advertising.
1619 Such information might include subscriber numbers, expected rate increases, marketing plans and penetration rates, for example. It would be very harmful to TELUS if this information were to be shared with its biggest competitor, Shaw.
1620 TELUS submits that, at the very least, the Commission must implement similar conditions of licence to those applied to Cancom and Star Choice, now Shaw Direct, in Broadcasting Decision 2002-84. These conditions provide that each undertaking must maintain independent sales, marketing and customer service functions, as well as staff, and require adherence to confidentiality procedures.
1621 MS MAINVILLE-NEESON: These are the simple safeguards TELUS considers are consistent with the Commission's existing policies and which will ensure that a level playing field for competition is maintained in the face of massive concentration, consolidation and vertical integration in the broadcasting sector.
1622 These safeguards do not undermine the value proposition for Shaw's acquisition. Shaw purchased at a discount a programming service with significant revenue generation potential. There remain many synergies to be had, either with Shaw itself or with its sister company, Corus Entertainment. The safeguards proposed by TELUS merely address the potential significant distortions in terms of policy objectives of access, diversity and choice.
1623 MR. MILLER: The Shaw transaction, and now Bell's acquisition of CTV, as well as previous deals that have increased consolidation, should not distort the regulatory bargain that supports the achievement of the objectives of the act, nor make it harder for consumers to access content from within the Canadian broadcasting system.
1624 In fact, the need for safeguards to achieve policy objectives has become all the more important as consolidation and new technology intersect.
1625 MR. DAVENPORT: Vertical integration may or may not prove a winning strategy, but simply because it is a different business strategy does not change the act or its objectives, it just makes it all the more important to restrict the exercise of market power where it conflicts with the act.
1626 A Shaw transaction establishes significant consolidation of the broadcast sector. The Commission's tangible benefits policy was designed as a trade-off for the concentration that flows from such merger and acquisition activity. There is no reason in this case for Shaw not to contribute a full tangible benefits package exclusive of merely funding the cost of doing business.
1627 Neither Canwest nor Shaw are in financial difficulty, the only reason which the Commission had in the past considered a reduction in benefits payable. Canwest Global might have been under bankruptcy protection when it was purchased by Shaw, but this was a result of a timing issue, where it had to contend with significant debt at the start of one of the worst recessions in the past 50 years.
1628 Based on its third quarter results, Canwest demonstrates it has strong cash-generating capabilities.
1629 MR. HENNESSY: Mr. Chairman, Commissioners, if you were to ask what we consider most critical in respect of this transaction, we would submit a clear articulation of the rules of the game as they apply to exclusivity, pricing and the treatment of confidential information is paramount.
1630 The Commission has the power to articulate such policies which will apply to the industry, and to Shaw specifically, and we respectfully submit that it must make these policy pronouncements now in order to maintain the regulatory balance and ensure continued access to content by consumers on all platforms.
1631 Our panel is now ready for any questions you may ask.
1632 Thank you.
1633 THE CHAIRPERSON: Thank you.
1634 You were here when CPMA talked to us a moment ago, and the key point of having structural separation between Corus and Canwest, owned by Shaw.
1635 How do you feel about that?
1636 MR. HENNESSY: It's not our issue, per se. You know, there's certainly some reasonable arguments there, and clearly they raised an issue of diversity. Our issue around separation tends to deal much more with the issue of treatment of confidential information than competition in women's programming, of which we are not really expert.
1637 THE CHAIRPERSON: When I asked Shaw about program exclusivity on Monday, Mr. Brad Shaw unequivocally said they have no intention of doing that and they are willing to offer it on a fair basis to any competitor.
1638 He also cited the fact that you, TELUS, have exclusivity for CFL games, I believe he said.
1639 If that fact is true, how do you reconcile that with your statement, "TELUS firmly believes that access to content on all platforms and on a non-exclusive basis and reasonable terms?"
1640 MR. HENNESSY: Luckily it's not, but I will let Blair, who actually did the deal, explain it.
1641 MR. MILLER: Rights to the CFL game content were sourced from CTV, and they were sourced on a non-exclusive basis. In fact, Bell also offers the same CFL live game content via the Bell mobile TV application.
1642 THE CHAIRPERSON: So you practise what you preach. You don't have any non-exclusive deals?
1643 MR. HENNESSY: Yes, that is correct.
1644 THE CHAIRPERSON: Now, then, Ms. Mainville-Neeson, you suggested we, in effect, use the approval of this transaction to make a major policy pronouncement on the issues that raise here, especially, in effect, that the rules that we already announced apply in new media.
1645 Since we have already announced it, why is there a need to make this statement? I mean, I thought the rules are there. I discussed on Monday with Shaw the need to make clear that the reverse onus also applies to pay TV and that, but I just wondered what exactly do you expect.
1646 First of all, I don't believe one should be make policy pronouncement as part of a single transaction, you should have a policy review, but you feel there is a need for it. Secondly, you feel that it needs some application here, and I'm not quite sure I know what you --
1647 MR. HENNESSY: Yeah. So let me try first, and I see Ann's got her finger on the trigger.
1648 The Commission has made statements in the new media decision that deals with undue preference with respect to what is called broadcast undertakings, which include both distribution and programming. So we believe that the rules on exclusivity on the content that extends from the traditional platforms are pretty clear.
1649 At the same time, the pronouncements of Vidéotron earlier last week in respect of its wireless launch and Bell with respect to its proposed acquisition of CTV would suggest a lack of clarity, which was why we originally suggested that these should be put in as conditions of licence so that it's clear that they apply to Shaw, and, by inference, apply throughout the rest of the industry.
1650 We proposed in our comments right now, I think as Mr. Menzies alluded to on a different subject that it feels like you are loading all the weight in one person's pocket, is just to articulate what the rules is. But if you can't articulate it in a general sense, then we think it has to be articulated as a condition of licence so it's very clear in the case of this transaction. And we would absolutely suggest the same thing when we appear before you in terms of the Bell deal.
1651 MS MAINVILLE-NEESON: And if I may add, Mr. Chairman, I think what we are asking for is not for you to make a major policy pronouncement. We are not asking you to now apply the undue preference rule to new media. Of course, any major policy pronouncement would require a policy proceeding. But you have had that policy proceeding, you have made that determination, all we are asking for is to reiterate, make clear, make that much more emphatic that these rules will apply to all the industry players.
1652 The rationale for simply putting that in this decision is that there seems to be some lack of clarity given other developments in the industry.
1653 THE CHAIRPERSON: Okay.
1654 Now, then, your other point is how do we limit that structural separation that we imposed on Shaw on Star Choice, it should also apply in this case, and I'm not quite sure why you feel that is required.
1655 What advantages does Shaw get if we don't accept your suggestion?
1656 MR. HENNESSY: I'm going to pass it to Greg, but the critical issue is that when we negotiate for broadcast -- sorry, when we negotiate for carriage with Canwest Global, we will be providing a lot of sensitive information with respect to our distribution business. We don't think that's an appropriate thing to have in the hands of our major distribution competitor.
1657 THE CHAIRPERSON: Oh, okay, sorry, it's your information that you are worried about. I thought you were talking about Canwest. Then, of course, I understand. You don't want the negotiation to be a leak of your current affairs to your direct competitor in this.
1658 MR. HENNESSY: Exactly.
1659 THE CHAIRPERSON: Okay.
1660 And if I go through the annex that you put in, "Exclusivity of content on any carriage or distribution platform". We have already talked about it. Shaw has undertaken to do that. I asked them, you know, to draft language on how this should be enshrined and I asked everybody else, including you, if you have any ideas would you please do it.
1661 What's the second bullet? What are we driving at here?
1662 MR. HENNESSY: Yeah, I will pass this over to our content guys, but essentially it's one thing to make content available, but in a world of HD, if it's in not a similar format, we would suggest that's a undue preference.
1663 Perhaps one of you can give an example of that.
1664 MR. GOODWIN: So, you know, an example may be, you know, a Global TV asset, like Glee, and the distribution of that over an internet or a broadband platform. You know, we would view it as undue preference if the content that we had access to was low resolution and low quality, whereas on the Shaw broadband TV platform, you know, it was sort of a full HD stream and we didn't have access to equivalent quality assets.
1665 THE CHAIRPERSON: And what's the third bullet, refusing to sell advertising? Who is refusing to sell advertising?
1666 You know, we are talking here about Shaw having it, have this content. They have it for broadcasting because they produce and have bought it. They also show it on their new media assets, whatever it has been, phone, iPads or whatever.
1667 So bullet three, what are you addressing here?
1668 MR. GOODWIN: So that one would be advertising for our TELUS products and services that we may want to do on various hit TV programs. We think it's important that we have, you know, reasonable access to buying advertising space on Canwest properties.
1669 MS MAINVILLE-NEESON: I thing it's because of the vertical integration that you now have that distortionary effect. Prior to Canwest being bought out by Shaw, there was no reason why Canwest would ever refuse advertising from TELUS. In fact, they would welcome that extra revenue.
1670 Now, however, there might be some incentive to block TELUS from advertising in some of the hit programming, and that's our concern.
1671 THE CHAIRPERSON: But aren't we getting a little bit micro-managing here? I mean, surely Shaw has to make the business decision: is it better to take your money and let you advertise or refuse your money and take the loss?
1672 I mean, why do we, as a Commission, have to insert ourself into the sales decisions regarding advertising?
1673 MR. HENNESSY: Yeah. Well, I think the answer was in your question: because, you know, Shaw would be incentive to consider that type of behaviour, whereas an independent broadcaster would not be.
1674 So one of the potential downsides of vertical integration is exactly that issue, where the pure business decision of flowing money into a broadcaster's pockets could be put aside in order to give advantage to the distributor.
1675 And, you know, I could roll that up, I guess into saying: to the extent it might make sense to refuse advertising to advantage a distribution bundle, that might be good for the vertically integrated player, but might result in less money actually flowing into the content side of the business.
1676 THE CHAIRPERSON: I can see the validity of the argument if Shaw is the only means of advertising, but it's far from it. You know, your own sources, your newspapers, you have got radio or you have got other broadcasting, I think, but I...
1677 MR. HENNESSY: Well, let me give an example. And, you know, it's the problem sometimes you have to be specific because this hearing is specific.
1678 But the other sources of content or programming on the broadcasting system almost entirely now our choices would be Quebecor, who we compete with on the carriage side, Bell, who we compete with on the carriage side, Rogers, who we compete with on the carriage side.
1679 So the incentives that a short time ago CTV or Global or the Alliance Atlantis properties, or any of Canwest, anybody, had to maximize advertising revenues no longer necessarily accrue in an environment where all the major broadcasters are owned and operated by major distribution competitors.
1680 THE CHAIRPERSON: So, in effect, what you are saying is that we should establish a rule saying that all the vertically integrated companies, which you are, a small one, but you are, you have a distribution arm, you have a telephone arm, you have a wireless arm, et cetera, have to accept advertising from each other? That's what this boils down to, doesn't it?
1681 MR. HENNESSY: I think I'm saying on the broadcasting side, that, you know, the issue here is the ability to have an open market for advertising. And an open market for advertising, at the end of the day, all other things being equal, should create benefits back into the system that the reverse doesn't necessarily do, even though it may maximize benefits for the vertically integrated player.
1682 THE CHAIRPERSON: Bullet four, lack of notice period?
1683 MR. HENNESSY: Yeah, Greg, please go ahead, or Blair.
1684 MR. MILLER: So the lack of notice period for a new service launch is just that as -- I mean, if a service is launched by a competitor, specifically a competitor in the market, it can disadvantage TELUS as a distributor as that service is launched and available to clients of competitor but it isn't available to TELUS clients. And it may take a period of time and that negotiation period my be drawn out.
1685 So if there's advance notification of a new service launch, there's an opportunity to negotiate and add carriage of that service.
1686 THE CHAIRPERSON: Let me understand this. If Shaw wants to launch a new sport service, they have to tell you, We will do this in 60 days, do you want it? And if so, come and sit down with us and cut a deal, so you can also put it on your iPhone? That's the idea?
1687 MR. MILLER: Ideally, more than 60 days, but that's the idea.
1688 THE CHAIRPERSON: No, but, I mean, I'm just trying to...
1689 MR. HENNESSY: Yeah. And not just the iPhone, it could be, you know -- it could be the traditional platform. A good example, I guess, would be the new Sportsnet service, where -- you know, that's probably a glaring example of exactly that problem.
1690 THE CHAIRPERSON: And the last bullet?
1691 MR. HENNESSY: Okay. Probably one of the critical issues, and it's certainly an issue that, you know, the Commission deals with today, is that having content available to anybody as a principle is fine, but if the money behind the arrangements make the close of the deal prohibitive, then there really is no access at all.
1692 So we would suggest that content has to be available on fair and reasonable terms, and we think how you define "fair and reasonable terms", particularly at this point in time, is by looking arrangements that already exist in the marketplace with unaffiliated player, you know, whether it's on the broadcast side or the distribution side.
1693 Otherwise that becomes a huge loophole. If you were to say, Yes, we agree with your principles on exclusivity, and certainly there is no doubt that they already have been articulated on the traditional BOD and pay-per-view platforms, if the money arrangements make no sense or are based on self-dealing, then there's a huge loophole.
1694 So that's critical. It always boils down to money.
1695 THE CHAIRPERSON: So the only person who has access to those is obviously Shaw, when you say "Pricing complaints should be referred to an independent commercial arbitrator".
1696 MR. HENNESSY: Yeah.
1697 THE CHAIRPERSON: So let me just understand the process that you are suggesting.
1698 You are negotiating with Shaw for the distribution of their new Sportsnet, you can't come to appropriate terms, you think they are asking outrageous demands, et cetera, and it's disproportionate to what they have asked from others, you then have the right to invoke commercial arbitration, and the commercial arbitrator will then say, Shaw, well, what are you charging others? I want to have the quantity. In order for me to make a determination whether this is right and reasonable, I need to have access to see what you charged to Bell, for instance, or what you charged Rogers, et cetera, and then on the basis of that, which he may not share with you, he will then fix the price? That's the process that you can work with?
1699 MR. HENNESSY: Yes. And it could just as easily be the Commission, but we are suggesting, given the amount of load the Commission has on it, a process like has been adopted in the case of the wireless business.
1700 And there is a word missing there, and to me it's an important word, which is actually, it would be, "binding commercial arbitration", you know, on a timely fashion.
1701 But the Industry Canada process that we put in our evidence actually sets out all the procedures around timeliness, around disclosure, around confidentiality for that disclosure. That, then, ensures there is some transparency into other deals. Because unless there is somebody, either the CRTC or a commercial arbitrator -- and we don't object to either -- that is able to look at comparable deals, there is no way to determine whether or not what is being offered is preferential or not.
1702 THE CHAIRPERSON: And the only thing, do you think that would be arbitrated as the price, if I understand that? I mean, after all, these arbitrations, very often, we are not only talking about price, we have got all sorts different benefits.
1703 MR. HENNESSY: No, I agree, there may be other terms and conditions that are equally important.
1704 Greg, I think you wanted...?
1705 MR. GOODWIN: Yeah. The other one that would be important to us would be packaging regulations or restrictions as part of the agreement. So, you know, do we have to package it in basic or can we put it in an optional theme pack?, and those are very important to the economics of the service.
1706 THE CHAIRPERSON: Have you researched it to check? I thought we were talking of having content for new media. You are now talking traditional media. You are talking about packaging and so on. Or did I miss something here?
1707 MR. HENNESSY: Well, I think that you have to recognize as we evolve the packaging may involve a number of things at the same time --
1708 THE CHAIRPERSON: Right, but this process you --
1709 MR. HENNESSY: -- so there already is an arbitration process at the CRTC to deal with traditional media.
1710 THE CHAIRPERSON: Well, that's why, I mean, your last bullet, in all of these, I thought we were talking about non-exclusivity in new media. Are you now throwing in IPTV and you say this would also apply in case of negotiations here regarding IPTV?
1711 MR. HENNESSY: I think we are going to have disputes across all the platforms as a result of vertical integration. I think that that will lead to a significant increase in the number of complaints with respect to undue preference. Having a separate formalized process to deal with that that, you know, doesn't use up the Commission resources and can deal across the whole spectrum of services would be the easiest way to go.
1712 MS MAINVILLE-NEESON: But to be clear, Mr. Chairman, these bullets were intended to address issues of undue preference as they relate to vertically integrated companies across all platforms. So, for example, bullet 3, when we are talking about advertising we are talking about advertising on TV, which I would suggest there is no true substitute, whether radio or newspaper.
1713 So while it equally applies to new media, we are also concerned about TV and certainly bullets 4 and 5 as well are very relevant to TV.
1714 THE CHAIRPERSON: But I mean, hang on now. You are now expanding things considerably. But your original submission and today's submission, I also thought you were all worried about new media. You are in effect now saying you are worried about vertical integration and you are just as much worried for your IPTV launch, which you have launched, the gross of that, as well as you are having access to content for new media.
1715 MR. HENNESSY: Yes, absolutely. You know, clearly the issue of vertical integration raises that it is a concern. We are not opposing this deal or any of the deals. We recognize the evolution of the market. We are merely asking to ensure that the safeguards in place are adequate enough to deal with any situation.
1716 Because it is my belief that increasingly it will be hard to distinguish programming content from one platform or another. It may be scheduled on a particular platform, streamed on another, on demand on another, but the consumers of a traditional broadcast distribution undertaking may want in different periods of time or different locations to consume the same content using a different technology or platform. And it will be very hard to say, you know, where one stops and the other starts.
1717 At some point within the broadcasting system, and we are talking whether it is treated as exempt today by the Commission or fully regulated, it is the same content that we are really referring to that is important and consumers are going to be increasingly indifferent as to what the platform is and will consume it, you know, at their convenience where they want.
1718 But the regulatory bargain that underlies the protections and provisions of that content in the first place continues to exist, whatever that platform is.
1719 THE CHAIRPERSON: Okay, thank you.
1720 Marc, I believe you had a question?
1721 COMMISSIONER PATRONE: Yes. Thank you, Mr. Chair.
1722 Just one, referring to the third bullet, which you have talked a little bit about. The idea of refusing to sell TV advertising. The idea that anybody would leave money on they table by refusing advertising is hard for me to accept.
1723 But assuming that we take this as legitimate, there have been shows in the past or productions that have had exclusivity deals with a certain sponsor. Are you suggesting that we do away with those types of arrangements that have existed in the past?
1724 MR. HENNESSY: We are not at all. And if I could, I would maybe explain why I think that that would be rational economic behaviour in some circumstances to, as you say, leave money on the table.
1725 Because you may say by leaving money on the table or acting on a certain fashion or giving preference or preference against advertising by your competitor say for their wireless business that you enhance your own. And what you left on the table on the broadcasting side you intend to make up and more on the wireless side or the internet side or just the bundle side as a whole.
1726 So I agree, it would be economically irrational to engage in a strategy where the net result to the vertically integrated player wasn't positive. But it may be that the net result can be negative in terms of money flowing into the broadcasting system and still positive when it comes to the overall return to the company.
1727 COMMISSIONER PATRONE: So you think they would gladly shoot themselves in one foot if the other one was going to be massaged?
1728 MR. HENNESSY: If they could grow another one, yes.
1729 COMMISSIONER PATRONE: And I guess that would extend to the whole idea of exclusivity, whereas one would think on the face of it there would be a built-in disincentive for anybody to limit say the scope or the capacity to direct national ads to any of their platforms.
1730 I mean, so the idea that they would somehow limit their capacity to distribute ads as widely as possible in order to hurt their competition, you still think that is a legitimate possibility?
1731 MR. HENNESSY: Yes. And it is also possible that you make up a certain amount in ads from somebody else. Whether you maximize the revenue on that side, it is still not necessary, as long as you maximize revenues for the enterprise as a whole. Because at the end of the day that is I think how you are measured in terms of the performance of your stock.
1732 COMMISSIONER PATRONE: It is about leveraging then one business against another?
1733 MR. HENNESSY: Yes, I think so. And so all we are saying is leveraging is more than reasonable. Leveraging on an unduly preferential basis shouldn't be a by-product of increased market power.
1734 COMMISSIONER PATRONE: Thank you for your answers.
1735 THE CHAIRPERSON: Len?
1736 COMMISSIONER KATZ: Thank you, Mr. Chairman. Good afternoon.
1737 One of the key roles of the Commission is to establish and manage the line between free market and consumer protection, and step in when the market is not working efficiently and not protecting the best interest of consumers.
1738 How is the risk of content exclusivity, packaging and the controls you are talking about here different from hardware exclusivity and head start on hardware that we are seeing right now with regard to the iPad and the iPhone and the BlackBerry Torch and everything else where the market seems to discriminate and have exclusive deals?
1739 MR. HENNESSY: Well, I would respectfully disagree with that interpretation, and respectfully because you are the Commission.
1740 MR. HENNESSY: But I don't believe that that is the objective of trying to maximize competition and promote consumer protection is an objective of the Broadcasting Act.
1741 And so you have to start from that premise because, as I was trying to suggest earlier, the broadcasting market, you know, the distribution and programming that exists under the Broadcasting Act umbrella, is not necessarily an economically rational market in say the sense of telecommunications, because the intent is to try to maximize social and cultural benefits to the system and ensure diversity and maximize access to content for consumers.
1742 COMMISSIONER KATZ: But if consumers cannot get an iPad from anybody other than one source, then some of the broadcasting cultural availabilities are limited to that one source as well. And that also is not in the public interest, but it is not something that we as a commission look at.
1743 MR. HENNESSY: Yes, it is.
1744 COMMISSIONER KATZ: It is?
1745 MR. HENNESSY: Let me, again, respectfully, and I do mean that --
1746 MR. HENNESSY: -- let me try to give you an example.
1747 Clearly, in the linear distribution space today there is a complete prohibition on exclusivity. In the pay-per-view environment today there is a prohibition on exclusivity, in the video-on-demand environment today there is a prohibition on exclusivity, all under rules of undue preference.
1748 What we are talking about when we reach out then to the next step to wireless or to internet services is we are still talking about that universe that is under the jurisdiction of the Broadcasting Act, but where the Commission has chosen to exempt, except with respect to its rule of undue preference. And it is those rules of undue preference that underlie all the exclusivity prohibitions in the linear world to begin with.
1749 So if a carrier that was affiliated with a broadcaster in the linear space today was to port the programming that is protected in that linear space to the an exclusive arrangement through an iPad that they provided under their affiliate in wireless to their customers that, in my mind, would be an undue preference.
1750 It would also limit the access up to this point that had been openly available to all consumers to only consumers of that product. Well, I understand that from an economics perspective and from a telecom perspective, it does not extend well in the broadcasting space, because the broadcasting space is about ensuring diversity, ensuring protections to be able to create Canadian content and the trade-off for that at the end of the day is that it is available -- protected content is available on all distribution platforms and available to all Canadian consumers regardless of who they choose as their supplier.
1751 MS MAINVILLE-NEESON: If I may also add to --
1752 MR. HENNESSY: That was a good answer.
1753 MS MAINVILLE-NEESON: It was. If I may also --
1754 MR. HENNESSY: Are you sure you want to say anything else?
1755 MS MAINVILLE-NEESON: Yes. If I may just go back to your original question, Mr. Vice-Chairman.
1756 The iPad and any other device did not benefit from protection against intrusion of any other types of devices. Whereas, with respect to the broadcasting system, we certainly have protected our broadcasters from competition so that we may enhance those social objectives that are in the Act.
1757 So the device market has never benefitted from the protections and the various measures that we have implemented in the broadcasting system, and it is because of that that different rules must apply.
1758 COMMISSIONER KATZ: Thank you.
1759 THE CHAIRPERSON: Peter?
1760 COMMISSIONER MENZIES: I just need two things. One, on the advertising, your desire to have access to advertising. I am curious to know whether there is limits on that on your request. I, at one time, sold newspapers for a living. And there was no way I would take an ad from my competitor that said buy my newspaper, yours sucks or vice versa, it just wasn't done in that business.
1761 So if somebody wanted to place a career ad saying help wanted, we need this, that might be considered. But there is limits and I was obviously using hyperbole to make a point regarding the content of the ad. But there is a point at which accepting advertising, you know, goes against your core interest.
1762 Do you want a completely open market on that or not?
1763 MR. HENNESSY: No. You know what, I agree with your point, and I think you made a critical point. We do not compete with Canwest Global and we do not compete with CTV, we do not compete with Rogers Media, we do not compete with TVA. So that, to me, is the critical difference.
1764 COMMISSIONER MENZIES: But you want to be free to buy an ad on Canwest that says subscribe to TELUS TV instead of Shaw because theirs isn't good and ours is, more or less?
1765 MR. HENNESSY: That is right. And to the extent --
1766 COMMISSIONER MENZIES: Because you are not competing with Canwest?
1767 MR. HENNESSY: Exactly. But obviously, with vertical integration it becomes a lot fuzzier and I think that is why we say you have to be even clearer on your rules.
1768 COMMISSIONER MENZIES: I see. Now that we both got fuzzier on that one, when you talk about exclusivity and you talk about mobile platforms, I haven't quite got the grasp of that. Like, on the CFL website here TELUS CFL mobile FAQs, yes, TELUS CFL mobile AP is available to all wireless providers, but the advanced features, including live streaming, video content and other in-game features are exclusive to TELUS customers, the CFL's official national wireless provider.
1769 So are you talking about making some core information available, ensuring that it is available to each other or, I mean, what is the point in these value ads to people?
1770 MR. MILLER: I think the point, and correct me if I am off course, but the key rights, so the live game content, is available. So anyone can go to CTV and procure those rights. They were very clear, at least pre-transaction with BCE, that those rights would be available on an non-exclusive basis to any party that was to negotiate those rights.
1771 So chosen in this specific execution to hold some elements back for TELUS subscribers. What that does not mean is that we are the only place to get that content from.
1772 COMMISSIONER MENZIES: But it is the only place you can get some content from.
1773 MR. HENNESSY: Yes. So let me --
1774 COMMISSIONER MENZIES: So you want some stuff non-exclusive and some stuff exclusive?
1775 MR. HENNESSY: Yes. I will try to work through that exactly to your question.
1776 COMMISSIONER MENZIES: Because if we get into that, I mean there will be plenty of work for regulatory affairs officers and lawyers for a very long time I would think.
1777 MR. HENNESSY: No, I hear you.
1778 COMMISSIONER MENZIES: That is good for all of us, right?
1779 MR. HENNESSY: And more work for, you know, regulatory affairs officers, et cetera, is not really, you know, my vision of heaven. So I will try to be clearer for you to see if we can solve that.
1780 What we are really speaking to is the programming that is available on the traditional broadcast channels today or on VOD that can be streamed or made available on wireless or internet portals, managed internet portals.
1781 What we are not talking about is of course anything that isn't defined as broadcasting to begin with. So there are probably all kinds of features and APs and things that are seen as content in the internet or wireless space that wouldn't be defined as broadcasting. And to the extent that even I guess if they are program related and somebody has that programming and wants to move into a much more innovative universe, it is hard to argue against that.
1782 The critical thing, in my mind, is that the content that is available on a non-exclusive basis and under the protected umbrella is the content you are talking about.
1783 COMMISSIONER MENZIES: So any content that is within the current broadcasting system, Glee you mentioned, for instance, has to be available through anybody else's equipment.
1784 MR. HENNESSY: That is right.
1785 COMMISSIONER MENZIES: Okay, thanks.
1786 MR. HENNESSY: And Blair, I think you were --
1787 MR. MILLER: No, thank you.
1788 MR. HENNESSY: You are good?
1789 MR. MILLER: I am good, thank you.
1790 THE CHAIRPERSON: I think those are very useful discussions to show the complexity of some of these topics.
1791 But if I understand it correctly, the thrust of your submission is that in this decision we reiterate the principle that we had in the New Media Policy and say, you know, there can't be undue preference. And this is what we consider undue preferences, is these examples.
1792 MR. HENNESSY: Yes, exactly, Chairman.
1793 THE CHAIRPERSON: I mean, the first one I think gives no argument or even the second one. I mean, it is obviously not the same if you don't get the same product. But the other three are full of very difficult issues which take me back to my days when I was Commissioner of Competition, you know, what is undue preference and what is undue discrimination or what is shared business practices? It is not an easy line to draw at all.
1794 And it strikes me, to hoist this onto a regulatory approval is in effect essentially, to some extent, either start a whole new regulatory proceeding or else hoist all sorts of disbenefits on the emerging party.
1795 Isn't this something that should be much more -- to address in a policy hearing, isn't the thrust of your -- if we see this vertical integration with this deal and Bell and others, we have to rethink undue preference and put more detail on the policy.
1796 MR. HENNESSY: Yes, definitely. I mean, the message that exclusivity with respect to the content that we are talking about is, you know, an undue preference on any platform would be most welcome if the Commission ultimately chooses to go that way.
1797 I would say you cannot define what is an unreasonable price outside of particular deal. But you can say that, you know, content should be non-exclusive and available on fair and reasonable terms, which allows you that -- you know, with respect about format, pricing, because that then allows you to build your case law around that.
1798 So I think that is the approach. And you have already signalled in the traditional world that there are limits, you settle pricing disputes and terms and conditions with respect to these kinds of issues all the time. So it is really to my point that there has to be some signal that exclusivity or, you know, prohibiting exclusivity on itself is pretty meaningless unless the terms are fair and reasonable as well. So that I would think is really key for us.
1799 MS MAINVILLE-NEESON: And I think all of these issues arise because of the unprecedented amount of vertical integration that we are seeing now. Luckily, we do have other opportunities as well when the Commission will review the group licensing of all the major broadcasters in 2011. There is yet another opportunity to address a lot of these issues that are arising through this concentration, consolidation and vertical integration.
1800 THE CHAIRPERSON: Okay. Thank you very much for a very interesting exchange.
1801 MR. HENNESSY: Thank you very much, Chairman, Commissioners.
1802 THE CHAIRPERSON: It is 12:30 now, I suggest we break for lunch, and we will resume at 2:00.
--- Upon recessing at 1235
--- Upon resuming at 1403
1803 THE CHAIRPERSON: Madam Secretary, let's begin.
1804 THE SECRETARY: We will now hear the presentation of Pelmorex Communications Inc.
1805 Please introduce yourselves, after which you will have 10 minutes for your presentation.
1806 Thank you.
1807 MR. MORRISSETTE: Mr. Chairman, Vice-Chairs and Commissioners, good afternoon. My name is Pierre Morrissette, Chairman and CEO of Pelmorex Communications Inc., the parent company of The Weather Network and MétéoMédia.
1808 With me today, sitting on my left, is Gaston Germain, President and Chief Operating Officer; and on my right is Paul Temple, Senior Vice-President, Regulatory and Strategic Affairs.
1809 We are here today because, as an independent specialty service, we have serious concerns about the impact of growing vertical integration by BDUs.
1810 This week you have before you the country's largest BDU, seeking your permission to acquire the second-largest programming group. You will soon hear BCE propose to acquire Canada's largest programming group. Comcast seeks to buy NBC Universal.
1811 The trend is clear. These are not small firms buying fledgling broadcasters, these are BDUs tying market power to formidable national programming groups.
1812 A whole system that is vertically integrated undermines the achievement of Canadian diversity of voices. It threatens the ability of independently owned services to remain independent or even survive, let alone grow and contribute to the system the way they could and should.
1813 And it threatens the ability of new independent services to get up and running and to enter the system.
1814 We are here today to ask you to consider these threats and to implement safeguards to prevent them. In our view, this is consistent with your role of ensuring that Canada has a robust communications market, operating in a manner consistent with public policy.
1815 We do not want a system where the only people who can run a programming service are BDUs or governments, nor do you. Your Diversity of Voices Decision was clear, and I quote:
"Given the trend toward greater consolidation, and the consequent impact on diversity of voices, a plurality of ownership in the private element is necessary in order to maximize the diversity of voices in the Canadian broadcasting system."
1816 You put parties on notice three years ago with that policy. In this hearing, you will have to decide what that really means in practical terms.
1817 MR. TEMPLE: If I could, I would bring your attention to the slide presentation. I have to apologize for the clarity of it. We are taking new media to old media, and it doesn't seem to transfer too well, but I am sure you will get the idea of what we are going to be discussing.
1818 Shaw's Victoria, B.C. system is a typical example of vertical integration and concentration of programming services by BDUs.
1819 Basic and analog channels are often carried scattered throughout Channels 2 through 120 by BDUs. As the most widely subscribed to channels, we have taken that portion of the channel line-up for a closer look.
1820 Thirty-four of 119, which are shaded in grey, are foreign services or carry no programming. They offer no Canadian voice.
1821 Another 39 are Shaw, Corus or Canwest services, coloured in dark blue. That is a third of the channels between 2 and 120.
1822 Now, if we add other vertically integrated services, in light blue, an additional 29 channels are or will be owned by other BDUs, like Rogers, Quebecor, or Bell.
1823 A further 9 of the remaining channels, coloured in gold, are government owned or financed.
1824 We are now down to below 8 percent of the channels, 9 independent Canadian voices out of 120 channels. All of these 9 have access rights, 3 are over-the-air broadcasters, and the rest of the independents, as you can see, are well up the dial.
1825 In the end, 67 channels, or almost 80 percent of the Canadian voices, are or will be BDU owned.
1826 MR. GERMAIN: How is this issue of vertical integration relevant to Canadians?
1827 As a BDU, you have to make choices about programming services every day. You have to decide what channel positions to put them on, how to package them, how to market them, and so on.
1828 And if you imagine that you own some of these channels, and other channels that you carry, or channels that want to be carried, compete with them, then obviously there is a clear incentive for you to try and favour the ones in which you have a commercial interest, at the expense of those you do not own.
1829 You recognized this conflict of interest in your 2008-100 Framework Decision.
1830 Today they are struggling with the same issues in the United States, but access rules and after-the-fact complaints are not enough. They do not address issues like forced bundling, tier placement, or channel adjacency, or the hundred other ways in which BDUs can favour their own services.
1831 In Canada, the magnitude of the Shaw/Canwest transaction invites a whole new industry structure in which the opportunity for self-dealing becomes pervasive.
1832 Independent Canadian services' share of viewing to licensed Canadian English-language TV is 68 percent today, and will decrease to 9.4 percent with a change in control of Canwest and CTV. That is this hearing's central issue. It requires safeguards, and they must start here.
1833 MR. TEMPLE: We are arguing that, as a market regulator, it is the Commission's role to step in and ensure that market developments do not unfold in a way that is contrary to public policy. The Commission has already established its approach to transactions such as these.
1834 For horizontal transactions involving BDUs, the Diversity of Voices Decision said that the Commission would consider factors including "the extent to which a transaction could change the respective negotiating power of the BDUs and the programming service providers."
1835 For transactions involving programming services, the Commission said that it will not have a problem with horizontal transactions that concentrate less than 35 percent of the audience, barring other policy concerns.
1836 This transaction is all about those other policy concerns. It is not a simple matter of horizontal concentration. As these slides show, Shaw will dominate western Canada with programming services that aggregate more than 35 percent of the audience in the region, and a BDU that controls 90 percent of the terrestrial subscribers in the same region.
1837 On transactions involving services that raise other policy concerns, the Diversity of Voices Decision said that you, the Commission, would consider "the effectiveness of any safeguards to ensure fair access by programming services to BDUs in cases where a BDU controls such services."
1838 This case is the watershed for vertical integration and self-dealing. The structure of this industry is changing. If you rely on a regime that asks a small independent service to file a complaint against the biggest distributor that controls its destiny, well, you are not going to get very many complaints.
1839 To that end, we have put forward safeguards that we believe are fair, simple and light-handed. They will bring routine information out from the dark and give some certainty to independent services that if audits or affiliation agreements go off the rails, it will not go unnoticed.
1840 Our other recommendations address marketing packaging and dispute resolution safeguards to allow a fighting chance for diverse voices to be heard in Canada.
1841 In the Shaw Cable renewal hearing, we provided similar proposals, and we are aware that they are before you in that proceeding. Here we are asking you to review these proposals in respect of Shaw Direct at the earliest opportunity.
1842 Our proposals are attached to these oral remarks, and we would be pleased to discuss them with you in detail.
1843 MR. MORRISSETTE: Mr. Chairman, Vice-Chairs and Commissioners, every big player in this system was once a small player. We believe that the Canadian broadcasting system should be an enabling environment in which new voices can compete, grow and innovate.
1844 Your Diversity of Voices Decision was clear: a plurality of ownership is required. Your framework did not contain a complete code relating to vertical integration. Instead, with the support of intervenors such as Mr. Shaw, you adopted a case-by-case approach. You were to look at the effect on programming services' bargaining power, and on safeguards for programming services' ability to access audiences.
1845 In the United States, Comcast has a smaller market share than Shaw does in Canada. NBC Universal has a smaller market share than Canwest does in Canada.
1846 The remainder of the U.S. system is far less vertically integrated than the remainder of the Canadian system will be, yet before approving that merger the FCC has taken the time to explore broad-ranging safeguards.
1847 We have proposed much more modest measures, for a much more sweeping Canadian transaction. If you fail to consider them seriously, existing independent services will be at risk, while simultaneously closing the door to new entrants.
1848 This is clearly a challenging hearing. It is one of two back-to-back hearings in which you will be asked to set the future direction for consolidated media control in this country. You have been asked to make the tough decisions that we have argued a market regulator is required to. We hope you will stay the course by approving this transaction with the conditions we have proposed.
1849 Thank you.
1850 THE CHAIRPERSON: If I look at the appendix here, you are making seven recommendations. If we adopted those recommendations, then the issue of vertical integration, as presented by the Shaw transaction, and the subsequent Bell transaction, would be manageable?
1851 MR. MORRISSETTE: Just for starters, the safeguards that are proposed, we view them as a list of actionable red flags. With the implementation of these safeguards, they would flesh out elements, over time, that would make undue advantage out in the open.
1852 The main key is for them to be actionable, and that requires the follow-up.
1853 THE CHAIRPERSON: Let me take the first one, monitoring -- report related and unrelated Category B services carried, with the total paid subscriptions for each service, individually, in confidence, presumably with us, and publicly, in aggregate, for each of the two categories. Identify popular unrelated services not carried.
1854 Put that in practise for me. What exactly do you see here happening?
1855 MR. TEMPLE: Most of this -- I think all of it is actually based on information that Shaw and other BDUs already provide companies like Mediastats, so all of the information is easily available.
1856 It might be quarterly, semi-annually, or annually, whatever the Commission decides. Shaw would simply report the number of subscriptions to the various Category B services, so that they could be tracked over time, because undue preference will display itself over time.
1857 For the sake of argument, if 40 percent of their subscriptions are to unrelated services, and in two years from now that drops down to 20 percent, then obviously something has happened within the Shaw distribution system to cause unrelated services to drop in their penetration, presumably at the expense of related services.
1858 So by tracking this over time, we will be able to identify trends at large, and the Commission, because they will have individual numbers in confidence, will be able to track individual problems if dispute resolution -- if a dispute is brought forward.
1859 THE CHAIRPERSON: I asked Mr. Shaw about this on Monday, and he said yes, that they had no problem doing this, filing them in confidence with us. So you have --
1860 MR. TEMPLE: No, I thought he had agreed to file their affiliation agreements. I am asking for the subscriber counts.
1861 THE CHAIRPERSON: Oh, the subscriber counts.
1862 MR. TEMPLE: In other words, if I am an independent service now and I have -- let's say that I am a discretionary Cat B and I have 100,000 subscriptions on the Shaw systems, and two years from now I have 50,000. Now, maybe it's just because I have bad programming, but if you add up all of the unrelated services and you find that they are all decreasing, then there is something here that needs attention.
1863 Our focus is, let's get the numbers out where everyone can see them.
1864 Our experience has been -- at least my experience has been -- when the boss wants to see reports and numbers, that's what gets attention.
1865 So if these numbers are out in the public, the same with the other things that we are asking be monitored, then they will be self-correcting.
1866 THE CHAIRPERSON: Okay, but they are filed in confidence for the individual, and aggregated for each of the two categories.
1867 MR. TEMPLE: That's correct.
1868 THE CHAIRPERSON: Which, presumably, are unrelated and related.
1869 So, if I take your suggestion and we do it, we file them, and the unrelated Category B services are clearly decreasing over time, which is your scenario, then what?
1870 MR. TEMPLE: If there is a good explanation for that, then there is not a problem. If there isn't, then I think that raises a significant policy concern for the Commission.
1871 THE CHAIRPERSON: So you expect the Commission, then, to call Shaw in and say: Explain to me why the number of unrelated services is going down.
1872 Is that what you --
1873 MR. TEMPLE: That may very well be. It may be at the time of licence renewal, it may be at the time of some other proposal or transaction before the Commission. It could be whatever, it could be at a policy hearing.
1874 But the main point is, everyone will know. Everyone will know these numbers.
1875 THE CHAIRPERSON: In the aggregate.
1876 MR. TEMPLE: In the aggregate, and the same with these other things.
1877 There is no reason why we can't publish a list of all the unrelated services, and publish when they ask -- not who they are, but when they ask for an audit, and let's see how long it takes to get that audit complete.
1878 If it only takes three months, there is not a problem. But if it takes three years, then that information is now out in the open.
1879 Now, what is done about it depends on the circumstances. If it's at a licence renewal hearing, it might be: Why is it that it takes three years for you to do audits for unrelated services?
1880 Or it may be the grounds for someone to bring an undue preference dispute.
1881 But, at least, all of these things that are hidden are brought out into the open.
1882 And, as I said, the experience is, when things are out in the open, they get addressed.
1883 THE CHAIRPERSON: You mentioned a link to audits. So, assuming that we accept your suggestion, we make them file it, and we also have audits, presumably, when there is a request either for carriage or for a renewal of carriage, and the time it took to settle it.
1884 Is that what you are auditing?
1885 MR. TEMPLE: No, in the case of audits -- let's say that I have an affiliation agreement. I send them a letter and I say: I would like to come in and audit.
1886 THE CHAIRPERSON: I see. The audit assumes --
1887 MR. TEMPLE: So they say sure, and then, you know, how long does that take?
1888 The actual process is very simple. Someone just sends an e-mail to the Commission, copies the programming service, and says: Dear CRTC, we got a request from The Weather Network, or ichannel, or whoever it is, to undertake an audit.
1889 You now have that on record. When the audit is complete, Shaw would simply send an e-mail -- it's very simple, it's not complicated -- "We have now completed the audit. Any dispute or under or overpayment is settled." You copy the programming service and the Commission. You know how long it took that audit to take.
1890 THE CHAIRPERSON: And we publish that?
1891 The Weather Network requests an audit, the request was made June 1st, and the audit was delivered --
1892 MR. TEMPLE: The audit completed June 1st the following year, or three months later. You redact the name, it's not important who ordered it, but the fact is that everyone can see how long it took to audit unrelated services.
1893 The same with contracts. I have a contract with -- well, we don't, but you have a contract with Shaw, and Shaw just sends a note to the Commission and says, "I have a contract with X Service, and it expires in July of 2012."
1894 Maybe it's a month-to-month contract, or maybe it's renewed annually -- whatever -- but you have that information, and then you can see, as can everyone else, what the status of all the affiliation contracts are with unrelated services.
1895 THE CHAIRPERSON: And who bears the cost? For furnishing, it is, I presume, Shaw?
1896 MR. TEMPLE: Yes.
1897 THE CHAIRPERSON: And for record-keeping and so on --
1898 MR. TEMPLE: It is a simple e-mail. You can ask them to publish the results and file it with you annually.
1899 Every company has detailed records of all their affiliation agreements and what the expiries are, the renewal terms. This is not a make-work project. It is easily accessible. It is on hand. Sending a simple e-mail saying I got a request for an audit, this is not --
1900 And to the extent there is a little bit of work, I would argue that that is just a regulatory burden they are going to have to bear, as light as it is, to have -- to be the biggest distributor and one of the biggest programming operations in the country.
1901 THE CHAIRPERSON: Okay.
1902 Len, I believe you have a lot of questions on this.
1903 COMMISSIONER KATZ: I do. Thank you, Mr. Chairman, and good afternoon.
1904 You correctly said in your remarks this afternoon and also in your submission, we do have a diversity of voices framework, and you have referenced it as well. And it basically says that at 35 percent the Commission takes an interest.
1905 In your submission back several months ago, whatever the date is of it, August 23rd, you talk about changing the 35 percent threshold to 25 percent, and with that, all these safeguards sort of get triggered as well.
1906 First of all, I would like to chat about where the 25 percent came from, why it is 25 percent.
1907 And I will give you another question because you can think of them both at the same time.
1908 The Chairman this morning talked about policy and that this is not a policy hearing, this is a hearing on an acquisition as well.
1909 And if there are policy considerations, is this the appropriate place to look at changes to policy and thresholds or is there a broader process that has to take place to engage other participants who may have an interest in that type of policy issue that aren't represented here today?
1910 MR. TEMPLE: I will address -- first, I will address the 25 percent.
1911 Twenty-five percent -- when we first started drafting the written comments, we had taken an approach where we said, well, we should try and draft recommendations that would apply to all and whatnot.
1912 And subsequent to filing, you know, we just came up with 25 percent because it has to be lower than 35 percent because of the concern of vertical integration.
1913 Thirty-five percent is there in the absence of vertical integration, but if you add in the concerns, the policy issues related to vertical integration, the thought is that that benchmark should be lower.
1914 After we went through, we thought, it is getting too complicated and the preference is to focus on this transaction.
1915 When the Commission said that they would look at transactions, barring other policy concerns, the policy concern is vertical integration. That was not addressed and the 35 percent, that was a benchmark for horizontal.
1916 Maybe the Commission was contemplating if an Astral and a CTV tried to join, but --
1917 COMMISSIONER KATZ: But the issue is market power, and 35 percent is the number that is used by the Competition Bureau to begin to assess whether market power really becomes an inhibitor to fair competition. I mean whether --
1918 MR. TEMPLE: For banking, I think it was. Wasn't that the reference in --
1919 COMMISSIONER KATZ: For anything.
1920 MR. TEMPLE: Okay.
1921 COMMISSIONER KATZ: So whether it is by virtue of horizontal integration or vertical integration, it doesn't matter what the cause of it is, the issue is at that point there seems to be a need to investigate whether there really is an ability to exercise market power.
1922 MR. TEMPLE: But that does not preclude the Commission -- and you left the door open yourself -- barring other policy concerns, to look at anything. You can look at it if it is 10 percent.
1923 COMMISSIONER KATZ: Right.
1924 MR. TEMPLE: So we are saying look at this. We have kind of amended it to the policy of we have a very big distributor buying a very big programmer, operating in a very big part of Canada, and we will be able to vertically integrate because those services they are buying are in the same market they operate.
1925 That is a significant other policy concern and warrants your attention.
1926 So in our view, the 35 percent is great if CTV were buying Astral or something, but this is another policy concern.
1927 We are addressing the issue of vertical integration. So forget the 25 percent. It is just it is a big distributor buying a big programmer and they are going to have -- with it comes all the harm of vertical integration and the impact that is going to have on diversity of voices. That is the other policy issue.
1928 COMMISSIONER KATZ: I personally don't know what the market statistics are for the CTV Bell acquisition, but hypothetically, they may cross the 25 percent threshold as well, and they are not here and they are not represented and they may have a view as well --
1929 MR. TEMPLE: Right.
1930 COMMISSIONER KATZ: -- which is why I am simply questioning whether this is the appropriate forum to deal with that issue or whether it is a broader issue that needs a broader review.
1931 MR. TEMPLE: Right now we have an application before the Commission, and now is the time to deal with it.
1932 If the Commission decides that given other trends in the industry, a more fuller, broader -- a more fuller policy hearing is warranted, then that is fine, but that doesn't mean that action shouldn't be taken now.
1933 Because the application is before you now and we can't afford 24 months or whatever time it will take for undue preference and self-dealing to take place and become entrenched as it pertains to this particular application.
1934 So I am not saying don't have a policy hearing, but that is not a reason not to act now.
1935 COMMISSIONER KATZ: Okay. You did hear Mr. Shaw, I guess it was yesterday, indicate -- or maybe it was the day before yesterday -- that they are prepared to file all their affiliate agreements that are with Canwest, that exist basically in force today, that would allow for a review of that data by the Commission as well and to be used as a benchmark?
1936 MR. TEMPLE: That data is not -- doesn't include any of the information we are looking for. That information is of value to a distributor who is worried that because of vertical integration they will be harmed because of Shaw's ownership of the programming services, that they will somehow be disadvantaged.
1937 That is why they want to monitor the affiliation agreements, because they have to have affiliation agreements with those services. So they want to monitor any changes.
1938 We have a different -- vertical integration is a two-bladed sword. It can harm other distributors and it can harm other programmers, unrelated programmers.
1939 So TELUS has their own concerns. I am sure they are legitimate, but they are not our concerns. Our concerns are those of independent programmers, not of unrelated distributors.
1940 COMMISSIONER KATZ: Okay.
1941 You are currently mandatory carriage, are you not?
1942 MR. TEMPLE: That is correct.
1943 COMMISSIONER KATZ: So when you say you are concerned, I am trying to understand what your particular concern is. You can't be bumped anyways.
1944 MR. TEMPLE: Well, I guess nothing is forever, but quite apart from that, a lot of these measures have nothing to do with whether we are going to get bumped or not.
1945 A lot of them actually -- I mean a lot of them are to our advantage, you know. I wouldn't claim otherwise.
1946 Being able to have a contract and have some business certainty is of value to us.
1947 Having audits done expeditiously is of value to us.
1948 Making sure that competitive programming services don't have access to important set-top box information so that they have competitive advantage over us is important to us.
1949 So a lot of these -- it doesn't really matter what your carriage is, you know, a number of these apply to us.
1950 And I guess, lastly, I would argue that I think our tradition is to come to these hearings and promote what we think are in the best interest of the Canadian broadcasting system.
1951 Obviously our focus is on issues that impact us, but we think this is legitimately good policy for the Canadian broadcasting system.
1952 COMMISSIONER KATZ: And I think some of your recommendations are well founded as well.
1953 The question only is: To what extent do we have to impose heavy ex ante regulation, if I can call it that, or find other ways of addressing the same issue?
1954 I will throw out the issue of audits, for example, where you are suggesting that information be filed by parties on a regular basis as to how long it takes to do an audit.
1955 If we simply came along and said an audit should be done within X number of days or months from when it was requested, and that becomes the standard, so to speak. We don't need stuff being filed with us anymore at all. It is only a matter if there is a breach and it is not done in whatever number of period we decide.
1956 Someone can then take it up with us and say, I asked for an audit of whatever, it was supposed to be done in six months, that was your standard, it is now nine months, it hasn't been done yet, rather than an ongoing process of filing information just for the sake of administrative paperwork or --
1957 MR. TEMPLE: Well, I guess a couple of comments.
1958 It is not a burden at all. It is sending an e-mail saying, this is Shaw, we got an audit request.
1959 But the problem is then you -- under that regime, you are placing the onus on an independent service to complain, and that, quite frankly, is helpful, but that is not good enough because services aren't going to complain just about that.
1960 You are going to kind of take your biggest distributor to court every time something like that happens? I mean it is just not realistic to expect services who are maybe going through a contract negotiation or trying to get carriage of another one of their services to be bringing complaints to the Commission. It just won't happen.
1961 COMMISSIONER KATZ: I would assume that if there was a standard that was set --
1962 MR. TEMPLE: If it is in regulation --
1963 COMMISSIONER KATZ: -- that people would adhere to it.
1964 MR. TEMPLE: If it is in regulation, then I would applaud it.
1965 COMMISSIONER KATZ: Okay.
1966 MR. TEMPLE: But if it is just a policy or a rule -- the Commission has good commercial practices now. It takes years to get audits done. Years.
1967 COMMISSIONER KATZ: Yes.
1968 MR. TEMPLE: For some or many, we don't have affiliation agreements. So you can have, you know, recommended good practices but it has no teeth, and to expect small independent voices, which, you know, I think the Commission wants to encourage, then we have to have some teeth.
1969 COMMISSIONER KATZ: This issue on audits though was addressed in 2008-100 and I believe there was supposed to be some standard set there as well, was there not?
1970 MR. TEMPLE: I can't recall. I just -- what is the consequence of not following the standard and how would you know?
1971 COMMISSIONER KATZ: Okay.
1972 Getting back to some of these other issues, the one on monitoring, which you talked to the Chairman about as well, filing of paid subscriptions, would this be on an annual basis, on a semi-annual basis, on a quarterly basis?
1973 MR. TEMPLE: Well, I know -- I believe Shaw and pretty well all the BDUs file with Mediastats pretty well every other month, but I don't think you would necessarily have to do it that often.
1974 Even if it is annually, it is just so that we get things out into the open and we can see trends.
1975 COMMISSIONER KATZ: Okay.
1976 MR. TEMPLE: And it is not tough. As I said, they are doing -- all this information is easily and readily available. They use it themselves. They have their own reports.
1977 I mean I don't see Shaw's reports but I can't imagine they don't have reports showing the subscription of various services to their own distribution undertakings.
1978 COMMISSIONER KATZ: Okay.
1979 MR. TEMPLE: So this is not tough stuff.
1980 COMMISSIONER KATZ: On the issue of packaging -- my last question, Mr. Chairman -- you have here in the middle box on restrictions a 3:1 rule and a 1:3 rule.
1981 Can you explain what you are suggesting here or recommending?
1982 MR. TEMPLE: Well, one is we are trying to address a concern that after the -- you know, should the application be approved, sometime after that we will start seeing big packages of Shaw-owned and Corus-owned services packaged together.
1983 It is not unreasonable given the changes in the Regulations that you could put together -- I mean we saw how many blue bars there were there. I could put together a 20-channel extended basic package of all my own services and people call up, well, you know, our customers, their favourite package is the big blue package, and there you go.
1984 So we are saying, well, if they have to put some independents in, then at least someone is going to get some lift out of it, because otherwise, why wouldn't you do it?
1985 COMMISSIONER KATZ: And the 1:3 rule is one of theirs for three independents?
1986 MR. TEMPLE: The 1:3 is on -- we picked 1:3. I mean it can be anything. 1:3 seemed to be a popular ratio with the Commission.
1987 But the idea is that if there is a certain number, we said, in a discretionary package, if there are three related services, there would be one non-related.
1988 For basic, if they are going to put one of theirs on basic, they should put three unrelated.
1989 Now, whether that is the right ratio, maybe it is 1:1, I don't know, but the idea was to flag that as an issue because otherwise, again, because of the changes in the Regulations you could wake up and find out every Shaw-Corus programming service is on basic.
1990 COMMISSIONER KATZ: Okay.
1991 Those are my questions, Mr. Chairman.
1992 THE CHAIRPERSON: What you call access to information, that is the same issue that TELUS addressed this morning when they said there should be no separate organization in terms of customer service, in terms of legal and management between Canwest and Shaw, the same way it is right now between Shaw Cable and Shaw Satellite.
1993 That is the same issue, is it not?
1994 MR. TEMPLE: It is, although it is even broader than that in the sense that an independent service, Shaw can use that information, which the independent service will not have at the time of negotiation. They know all this information. Why shouldn't that be made available to the service?
1995 We are not asking to see anyone else's information. We just want to be able to see our information and we want to make sure that they cannot in any way disclose that information to any other programming service.
1996 THE CHAIRPERSON: Okay. The way you wrote it up, you left part of it out. You only have the negative. You haven't got the positive.
1997 In effect, you want Shaw -- let's say The Weather Network comes up for renewal. First of all, you want them to share with you all the set-top data they have regarding The Weather Network?
1998 MR. TEMPLE: Sure.
1999 THE CHAIRPERSON: And secondly, they may not share it with anybody else?
2000 MR. TEMPLE: That is correct. And not just when we are coming up for contract renewal, why not give it to us as they are getting it?
2001 THE CHAIRPERSON: Now, your overall approach --
2002 MR. GERMAIN: Mr. Chairman, can I just add one point on this particular information?
2003 I am speaking as an operator now. As an operator, I am competing with all of Shaw's services every day. We are competing for eyeballs.
2004 So the fact that they have access to that information for my service and they have access to that information for all of their services just puts me at a competitive disadvantage or can depending on how they utilize it.
2005 And that is another concern. It is not just at licence renewal but it really is a day-to-day issue for us.
2006 THE CHAIRPERSON: How often would you want that data?
2007 MR. TEMPLE: As often as they are collecting it. If they are getting weekly reports, just send me a copy.
2008 If they are getting them monthly, if they are getting them daily, they are going to be providing themselves with a competitive advantage every time they look at that report because they are seeing things about the viewership to our service, and they own a whole bunch of services themselves.
2009 THE CHAIRPERSON: Now, let me summarize what you said. I don't want to put words in your mouth but let me interpret what I understand you saying.
2010 You are saying ex post remedies are no good because given the vertical integration it will take a very courageous independent to take on its main distributor. So therefore, it is really the only way -- it is not an effective remedy.
2011 The much better way is to force the distributor to publish as much information as possible with us in confidence or aggregate it in a public form so that it is out there as a warning sign and therefore will presumably prevent them from abusing their dominance or power?
2012 MR. TEMPLE: Close enough. I wouldn't say that ex post are no good but it is not enough. I mean I certainly wouldn't want you to get rid of some of those rules, but --
2013 THE CHAIRPERSON: No.
2014 MR. TEMPLE: We need that but we need more. We need more of a watchdog function.
2015 There are dozens, hundreds of ways that they will be favouring themselves. I don't mean this in a bad way. It is natural.
2016 THE CHAIRPERSON: No, no. Of course.
2017 MR. TEMPLE: If I ran this system, it is just -- it will be everything from what message you get when you are on hold for the call centre to who knows what else.
2018 So we need to be able to have some watchdog or monitoring function so that that can be taken into account.
2019 THE CHAIRPERSON: So to avoid a heavy regulatory burden, you are basically relying on Sunshine and you want me to say, publish this thing, you know, just publish it, rather than in confidence with the CRTC, which business can hurt, or if it is not aggregated publicly, thereby that will in effect act as a moderator on self-serving behaviour?
2020 MR. TEMPLE: Yes, to some extent. It is not going to be a cure-all --
2021 THE CHAIRPERSON: No.
2022 MR. TEMPLE: -- but it gets it out there.
2023 MR. MORRISSETTE: Mr. Chairman, I agree with your summary, and perhaps I can also summarize it maybe slightly differently.
2024 A large concentrated programmer has market power. A large BDU also has market power, probably even more, as we have discussed in previous hearings.
2025 When you combine the two, you have exponential market power coupled with an inherent conflict of interest, because owning content services which directly or indirectly compete against non-owned content services, that is a conflict of interest to be managed.
2026 Quite frankly, my assumption would be that a responsible large organization like the Shaw Group would manage that conflict of interest in a responsible way.
2027 However, in the event that it is not managed at times in a responsible way, then you need a process to ensure the management of that conflict of interest indirectly. Directly is their responsibility.
2028 What we are proposing are the safeguards that would bring out -- flush out, you know, those instances where the conflict of interest is not properly managed. That would then lead to a responsible resolution of that exception.
2029 THE CHAIRPERSON: The only thing that doesn't fit into that is the packaging rules because you are really proposing new packaging rules after we have just abandoned packaging as of next year.
2030 MR. TEMPLE: Well, it still fits because, as I said, otherwise, you will get -- you know, if Shaw or anyone else is packaging responsibly, they will be taking a good mix of services and putting them together that they think will appeal to their customers.
2031 But if it is just Shaw-owned or -related services, then maybe they are not acting responsibly.
2032 Now, if they can show -- I mean, you know, I think we said when it comes to basic distribution, if they can make a case in advance that there is no undue preference in putting just one of their services on basic, we have no problem with that.
2033 If everyone else is putting a Shaw service on basic, then I don't think we have a problem with Shaw doing it.
2034 If all of a sudden we saw four or five Shaw services on basic, we are saying, well, you know, now there is something a little -- you know, they are self-dealing.
2035 THE CHAIRPERSON: Okay, thank you very much. You have certainly give us food for thought.
2036 I think, Madam Secretary, we need a break for the next group to set itself up. So let's take a five-minute break.
--- Upon recessing at 1447
--- Upon resuming at 1459
2037 THE SECRETARY: Please take your seats.
2038 THE CHAIRPERSON: Okay, nous commençons, madame.
2039 THE SECRETARY: We will now hear the intervention of Media Access Canada. Please introduce yourself, after which you have 15 minutes for your presentation.
2040 Thank you.
2041 MS MILLIGAN: Good afternoon, Commissioners, and thank you for inviting us to appear before you today.
2042 My name is Beverley Milligan, and I'm the Acting President and CEO of Media Access Canada, a not-for-profit corporation that educates and advocates on behalf of Canadians with disabilities.
2043 Joining me today on this panel are four of Canada's largest organizations, that represent approximately 4 to 8 million deaf, hard of hearing, blind, visually impaired and deaf/blind people who live and work in this country: Mark Workman, on behalf of the Alliance for Equality of Blind Canadians, a consumer group focused on the rights of blind, partially sighted and deaf/blind individuals in Canada; Al Kanji, on behalf of the Canadian Hearing Society, representing the 25 percent of Canadians with some degree of hearing loss, or one in every four Canadians; Robert Short, on behalf of the Canadian National Institute of the Blind, representing hundreds of thousands of Canadians with significant loss of vision; and Dr. Charles Laszlo, who is the founder of the Canadian Hard of Hearing Association, as well as a distinguished recipient of the Order of Canada. We are also joined by our legal counsel in this hearing, Monica Auer.
2044 This is the first time in the history of organized accessibility in Canada that organizations representing one-quarter of the Canadian population have come together as one united voice. Why are we here? Because in applying for your approval of this $2-billion transaction, Shaw has ignored the needs and interests of millions of Canadians with disabilities and it has dismissed our carefully considered and reasonable recommendations.
2045 Shaw's 42-page reply to intervenors used five brief sentences to ignore the recommendations of Canadians with disabilities. Shaw told us that it things that Canwest stations have met their accessibility obligations and that Canwest strives to take an industry leadership position on these issues.
2046 It said that Canwest has established a journalism internship program for students with disabilities, has made cash or in-kind donations to disability organizations and has provided the Accessibility Channel with 700 hours of programming for four years.
2047 While we appreciate Shaw's description of what Canwest has done in the past, we think the purpose of this hearing is to discuss how Canadians will benefit from this transaction in the future.
2048 Yesterday, for example, the Commission and Shaw compared estimates on the number of people who may lose over-the-air service in the coming analogue to digital transition. Shaw estimated that extending service to 31, to 400,000 people, will cost $23 million.
2049 Allow us to point out that 4 to 8 million Canadians do not now enjoy the full benefits of Canada's broadcasting system. They have not lost access, they have never had it. Implementing our recommendations will address this fundamental but fixable gap.
2050 Yesterday, there was also discussion about ensuring high levels of diversity for average Canadians.
2051 Mr. Chairman, the concept of "average Canadians" must include people with disabilities. Their needs and interests must and can be addressed in this monumental and precedent-setting transaction. But Shaw told us that the only long-term benefit that Canadians with disabilities should obtain from this transaction is Canwest's return to solvency, because this will broadly support its continued ability to evolve its broadcasting services to address diversity and accessibility issues.
2052 Commissioners, Shaw's response to date demonstrates an extremely troubling disregard for the needs and interests of Canadians with disabilities. You will understand our concern when we explain our recommendations.
2053 MR. KANJI (Interpreted): Good afternoon.
2054 My name is Al Kanji. I am here to speak on behalf of the Canadian Hearing Society.
2055 Eight of our recommendations are focused on Shaw. We are asking you to set up minimum levels of accessibility content on Canwest stations by condition of licence and to reassess these values in 2011. We made this recommendation because if we have learned anything in the last 25 years, it is that voluntary commitments to increase accessible content does not work. When times are tough, voluntary commitments are typically the first activities to be abandoned.
2056 Since Parliament only permits you to enforce regulations in conditions of licence, we cannot assume that you or any other body have clear authority to enforce voluntary commitments.
2057 But Shaw did not discuss our recommendations for conditions of licence. It did not address our request that you ensure that levels of accessible content in all of its services increase over time. It ignored our proposal that you ensure that its Canadian content complies with industry standards for accessible content.
2058 Commissioners, for Shaw to ignore our proposals, while saying that Canwest "strives" to be the leader in this area, is just not good enough. Shaw is one of Canada's largest communication companies. Last year, its earnings before interest, taxes, depreciation, amortization came to $1.5 billion on revenues of $3.4 billion. For a company of this size and position, being a leader means forging ahead of everyone else, not "evolving". Archaeology and fossil records have shown how long evolution takes. And with respect, Canadians with disabilities cannot wait, should not have to wait, and will not wait that long.
2059 On behalf of the Canadian Hearing Society, I ask you to adopt our recommendations and send a message to broadcasters that they must address the needs and the interest of Canadians with disabilities now and going forward into the future.
2060 MR. SHORT: Good afternoon.
2061 I'm Robert Short, and I'm here on behalf of the CNIB, the Canadian National Institute for the Blind.
2062 Our intervention asked you to ensure that those benefits of this transaction to our entire broadcasting system tangibly increase and improve accessibility for millions of Canadians. After all, since 1985 you have approved ownership transfers tied to the spending of hundreds of millions of dollars to strengthen Canadian programming, but if this content is not fully accessible to Canadians with disabilities they do not benefit from this money.
2063 We do not begrudge the money spent on Canadian programming. The slow-motion tragedies today are that general-interest TV stations are spending 40 percent more on foreign programs than Canadian programs and that local TV stations have cut news hours by about a third. And we are certainly not saying that every benefits dollar spend must benefit Canadians with disabilities any more than it should to a single genre of programming or production companies.
2064 But from our review of CRTC decisions, it looks like only a third of a percentage point of more than half-a-billion dollars in tangible benefits in the last 10 years was directed at improving accessibility.
2065 And here once more Shaw flat out ignored our request that a portion of the hundreds of millions of dollars it is spending to acquire Canada's second-largest English-language TV broadcaster be directed to strengthening accessibility.
2066 Closed captioning began in Canada in 1982. One hundred percent closed captioning was first required two-and-a-half decades later, in 2007. Perhaps the CRTC expects us to wait another 25 years for fully described programming.
2067 Canadians with disabilities need investments in technology now to reduce the costs of accessible programming and to ensure that after-market access devices are available. We also need expenditures to promote and market accessible content.
2068 On behalf of the Canadian National Institute for the Blind, the CNIB, I ask that you adopt our tangible benefits recommendations to ensure that Canadians with disabilities benefit equitably from this transaction.
2069 MR. WORKMAN: Good afternoon.
2070 My name is Mark Workman, and I'm with the Alliance for Equality of Blind Canadians.
2071 Our written intervention asked you to require Shaw's participation in developing harmonized industry standards for accessible content production and distribution involving closed captioning and descriptive video. We also asked you to have Shaw share in the cost of funding independent studies to measure compliance with such standards. However, Shaw ignored our proposals and seems to say that it is a leader in this system. We think that leaders are usually the first to demand that their performance be measured so they can show exactly how far ahead they are.
2072 On behalf of the Alliance for Equality of Blind Canadians, I ask that you adopt our panel's recommendations for standards and measurement to show that Canadians with disabilities must be treated equitably by our broadcasting system.
2073 MR. LASZLO: Good afternoon, Commissioners.
2074 I'm Charles Laszlo. I have yet to strengthen accessibility for Canadians with disabilities for 30 years and I am here representing the Canadian Hard of Hearing Association. Along with my colleagues, I asked Shaw to be required to share the cost of archiving accessible content for distribution nationally and internationally, yet Shaw has ignored our recommendation.
2075 Accessibility is not a purely domestic Canadian issue. In 2008, the United Nations Convention on the Rights of People with Disabilities came into effect and requires that accessibility is taken into account in designing new information technologies and systems. The World Intellectual Property Organization has also made firm commitments to accessibility issues.
2076 We also asked you to report how much original and repeat accessible programming has been aired by the Canwest TV stations since the group's last long-term renewal in 2000. You have collected this information in Canwest program logs, but your 2010 Monitoring Report does not even mention either closed captioning or described video. Canadians need the CRTC to audit and publish this information because this is the only way to know that accessibility is increasing.
2077 And finally, we ask you to report how much money Canwest has spent on accessible content since its last renewal in 2000. We need this information because without it we cannot assess claims that making programs accessible to Canadians is too expensive.
2078 We think that these are reasonable requests and ask you to provide us with this information well in advance of next year's licence renewal hearings so this will help us work together to improve and increase accessibility for all Canadians.
2079 The fact is that invention, implementation and success of captioning did not come from broadcasters. It came from the accessibility world. The familiar on-air sponsorship model, "closed captioning brought to you in part by", the name of the sponsor, for example, was invented by Canada Caption Inc., a not-for-profit organization that worked towards a 100 percent captioned day.
2080 MR. KANJI (Interpreted): Another fact, there is still much to be done. It is true that broadcasters are required to provide 90 percent captioned broadcast day by their licence renewal terms in 2002, but no requirement was set for captioning quality or legibility and serious problems that now exist in that area.
2081 Currently, we have an average requirement of two hours a week described Canadian programming. Will the blind and the visually impaired have to wait another 20 years before they can access all Canadian broadcasting?
2082 This is not reasonable. It is not acceptable. This is why we support steps that will reduce cost, improve quality, provide new revenues and expand markets for accessible content.
2083 Benefits from this transaction can create these opportunities, which would not only create new employment and new revenues, but would enhance Canada's international reputation.
2084 MS MILLIGAN: To conclude, Commissioners and CRTC staff, several of us have travelled half way across the country to present our views on this application to your. Our position is very clear: until Shaw commits to make its programming 100 percent accessible to the millions of Canadians who cannot access the TV programs of Canwest and Corus, you cannot approve Shaw's application.
2085 Accepting our recommendations means that Canadians with disabilities will not be subsidizing this transaction. It will send a message that you are taking tangible steps toward a 100-percent accessible broadcast day. It will show your commitment to serving the needs and interests of all Canadians, including the millions and millions of people with disabilities.
2086 Our 10 recommendations are strategies to help Shaw and the broadcasting system make progress on accessibility. Some focus on technological innovation, others on policy, and still others on working together to educate industry stakeholders about new revenue opportunities from providing accessible content.
2087 Your goal and ours is to make television programming 100 percent accessible. The only question is how.
2088 We considered arguing that, since Canadians with disabilities represents a quarter of Canadians, Shaw should allocate a quarter of any tangible benefits to accessibility. If benefits amounted to $200 million, that would imply $50 million to implement systemic, measurable and measured improvements in accessibility. But asking for $50 million today is just as unreasonable as Shaw's inadequate and unacceptable response to the concerns we have raised.
2089 At the same time, surely a transaction of this size should create a long-lasting benefit, that will endure long past the standard seven-year terms of individual licences.
2090 One way to create a lasting benefit would be to consider the Australian example, where a not-for-profit media access organization consults widely on standards, undertakes research, examines and evaluates new accessibility technologies and ensures community awareness.
2091 Media Access Australia operates on the interest earned from a $4.5-million endowment. What is missing from the Australian model, however, is actual monitoring of both the levels and quality of accessible programming.
2092 Measurement matters if we are to improve not only just the quantity, but the quality of accessible content for one in four Canadians with disabilities.
2093 Finally, Mr. Chairman and Commissioners, it is obvious that Shaw's first duty is to maximize profits for its owners and shareholders. This is a normal part of the competitive marketplace. When the competitive marketplace is not accessible to all Canadians, however, the CRTC's rule is critical.
2094 The groups at this table and the 25 percent of Canadians with disabilities rely on you to protect their needs and interests by encouraging, and, if necessary, by requiring broadcasters to make their programming accessible to all.
2095 How many more opportunities of this magnitude remain in this sector?
2096 Thank you for the opportunity to appear before you and for granting us additional time to accommodate our needs.
2097 We look forward to discussing our comments with you and I ask that you direct your questions to me so that I may redirect them to the members of our panel.
2098 Thank you.
2099 THE CHAIRPERSON: Well, thank you for your presentation.
2100 If I look at paragraph 43 of your material, you talk about our 2010 Monitoring Report and said it "does not even mention either closed captioning or described video".
2101 Have you ever asked us to do this?
2102 MS MILLIGAN: I'm sorry...?
2103 THE CHAIRPERSON: Paragraph 43 of your --
2104 MS MILLIGAN: M'hmm.
2105 THE CHAIRPERSON: You are saying our "2010 Monitoring Report does not even mention either closed captioning or described video".
2106 MS MILLIGAN: M'hmm.
2107 THE CHAIRPERSON: I assume that's correct. I obviously haven't looked at it from that point of view, but I don't have it here.
2108 But assuming that's the case, have you ever asked us to report on it?
2109 MS MILLIGAN: Yes, we have. We have asked previously.
2110 THE CHAIRPERSON: And what explanation was given to you for not doing it?
2111 MS MILLIGAN: Well, there is no explanation. I don't have an explanation that I have got back to them. We have asked for it in presentations, we have asked for it in speeches.
2112 I guess part of the problem at this point in time is that there is in the -- systemically, there's a bit of a problem in that descriptive video isn't even a category in the programming logs, so that a broadcaster doesn't need to report on descriptive video, meaning that the CRTC couldn't even include that in their Monitoring Report.
2113 THE CHAIRPERSON: But you are saying here that you have collected this information in Canwest's program logs.
2114 MS MILLIGAN: Oh, I say for closed captioning.
2115 THE CHAIRPERSON: Oh, it's closed...
2116 MS MILLIGAN: It doesn't exist at this time for descriptive video. So that would be...
2117 THE CHAIRPERSON: My whole point is you have mentioned it in speeches and so on, but have you ever formally made an application to us to publish this kind of data? That's what I really wanted to know.
2118 MS MILLIGAN: We haven't formally made an application, but we certainly would if --
2119 THE CHAIRPERSON: I mean but that's how the process starts. I mean you mentioning it in a speech is informative, but if you really want us to address something you have to obviously ask.
2120 Then if I look at your 10 recommendations, some of them are addressed to us, some of them are really addressed to Shaw or you want us to impose the requirement on Shaw.
2121 If I look at those 10, which is the one that is really key? Obviously, you want them all, I can understand that.
2122 MS MILLIGAN: Certainly.
2123 THE CHAIRPERSON: But if I ask you to prioritize, which is the one that is of paramount importance to you?
2124 MS MILLIGAN: I was really hoping that you might ask for two.
2125 THE CHAIRPERSON: Okay, give me two then.
2126 MS MILLIGAN: Okay. Recommendation 8 and recommendation 9, so quantitative assessments and harmonized industry standards. Work in this area is critical. And just to give you a sense of the impact that this would have, not only with compliance, the opportunity to measure performance and do quantitative measurement. But, for example, synchronization, the development of synchronization tools in broadcast operations require synchronization standards. So it would impact technical innovation.
2127 Multiple platforms, which has come up quite a bit in this hearing, to look at standards for multiple platform distribution of accessible content. And as well as harmonizing across descriptive video and captioning so that we can introduce new revenues.
2128 So standards and the harmonization and also, of course, the analogue to digital transition. Right now, the captioning standard, for example, is an analogue standard. There is opportunities in digital transition and technological changes that are going to become available that will need to be looked at. And as technology evolves, so too would accessible standards, so this is key.
2129 And also to be able to measure that standard on an ongoing basis so that we have the types of reports to which we can evaluate how we are doing. So it is really those two recommendations.
2130 THE CHAIRPERSON: Okay, thank you very much and that is very clear.
2131 Marc, I believe you have some questions?
2132 COMMISSIONER PATRONE: Thank you, Mr. Chairman. And thank you, Ms Milligan, and your group for your presentation this afternoon.
2133 I am going to picking up largely from what the Chairman has already asked you. And I must say, it does trouble me a little bit to hear that you feel progress has been so slow in this area. Because, as you know, the regulator has had policy proceedings and has put measures in place that are specifically aimed at dealing with some of the issues that you brought up today. So the fact that you still feel that we are almost making negligible progress isn't good news.
2134 Do you want to address that?
2135 MS MILLIGAN: Certainly. And I would like to, first of all, make sure that the Commission doesn't misunderstand that we don't appreciate absolutely the work and the attention that they have given disability, and we very much appreciate that.
2136 What I would like to do now is turn to the panel and have them talk a little bit about their experiences today so that we can give you a sense of some of the day to day challenges that they are facing with the current activities and with the current -- you know, just give you that sense.
2137 COMMISSIONER PATRONE: Please do.
2138 MS MILLIGAN: Al.
2139 MR. KANJI: I have a comment. Sometimes the captioning, I am watching the program and then all of a sudden the captioning just shuts off and the program is still going, so that is frustrating. Then when there is a commercial that comes on, they interrupt the captioning, so I don't get the last part, so the quality is not there.
2140 I have a concern that they should make sure that the captioning is allowed to finish and the comments are finished before they bring on the commercial, the timing.
2141 COMMISSIONER PATRONE: To what degree have you been able to complain about this problem and get some kind of response?
2142 MR. KANJI: I have called Shaw, but they said they can't do anything, they passed it onto -- they say it is somebody else, it is not them, that the signal just gets lost and they don't know where the signal comes from. So that is the response I get.
2143 COMMISSIONER PATRONE: Yes?
2144 MS MILLIGAN: I think, just to address that a little bit, it is important to note that, again coming back to the programming logs, if a program is captioned for five minutes it is logged as captioned, the entire program is logged as captioned.
2145 So these are some of the things that our recommendations are addressing, that we can educate, that we can address, that we can enable Al, through us, to be able to communicate this in a cohesive and a united way. And that they do know and have someone to call.
2146 I would like to, if I could, give you a description video sample as well.
2147 Marc, if you could.
2148 MR. WORKMAN: Well, frankly, I think the issue with descriptive video is just the lack of it. Requiring two hours a week or four hours a week really just doesn't leave a lot of viewing options. So I think the biggest problem there is the low requirements for it.
2149 I think also I would say something in response to this notion that CRTC has taken steps to encourage more accessibility in the broadcasting system. That is true, and we had the hearing in 2008 and there was a decision that followed afterwards. I think the trouble is that a lot of what comes out of those decisions have been using the language of "encourage," "we recommend," and these sorts of things and they just don't tend to get implemented when they are not backed up by some sort of obligation on behalf of the broadcasters.
2150 So I think that while it is good to hold hearings like that, if the broadcasters aren't made to comply through systematic changes like the ones that we talked about, harmonized standards, measuring some sort of accountability, then encouraging and recommending that they do certain things it doesn't have the results that you intend it to have.
2151 COMMISSIONER PATRONE: Right. You are referring to expectations versus conditions of licence --
2152 MR. WORKMAN: Yes.
2153 COMMISSIONER PATRONE: -- requirements, as it were.
2154 MR. WORKMAN: That is right.
2155 COMMISSIONER PATRONE: Was there another one of your group that wished to say something?
2156 MR. SHORT: Yes. I just wanted to back-up the notion of lack of choice and what an effect that has on a person who is partially sighted or blind. It makes it difficult to sort of fully participate in the cultural aspects of TV with a normal peer group. And maybe on a lighter note, much to the chagrin of my own family who I have trained as my own describers, it affects their viewing when I am going who's that, what's he doing?
2157 So to have more content is really a key factor to provide that choice to people who need that sort of service.
2158 COMMISSIONER PATRONE: Well, I can certainly appreciate the frustration that you are referring to, sir.
2159 Go ahead.
2160 MR. LASZLOW: I would like to comment on the quality of the captioning. The best way to describe it, it often is chaotic. It happens that the captioning is garbage, there is no intelligible words visible, nobody seems to be monitoring it. Very often the end of the captioning is cut off because it is out of sync. A newscast, if certain field reports are filed they are not captioned. It is really spotty throughout.
2161 I have experience that a program shown on American and Canadian channels, the American is captioned, the Canadian is not. Our organization, we had a voluntary organization, and we received a great number of complaints. People come to us and say captioning, captioning, captioning.
2162 There is very little we can do about it, because the answers we get from the broadcasting company is really useless. And there is no simple straightforward effective way of having a complaint investigated and acted upon.
2163 MS MILLIGAN: So it is a matter of education, it is a matter of technical innovation, all of these things, that can assist to address and work toward -- I mean, I don't think anyone in this room is intentionally -- I like to believe that no one in this room is intentionally not doing or providing access. It is about intelligent systemic change, cost effective systemic change, technology is extraordinary and the opportunities to innovate. All of these things, but it is a matter of being able to do them.
2164 COMMISSIONER PATRONE: You mentioned a couple of your priority recommendations. And I had just a couple of brief questions regarding what I felt in my reading of your submission. What was also a key area of concern, that is to direct a portion of the benefits from this transaction towards investments in the reduction of accessible content production costs and to ensure the availability of after market access devices.
2165 I just want to be clear about what you were referring to. You are speaking about things like special set-top boxes, that kind of thing?
2166 MS MILLIGAN: As we move from analogue to digital, we have a tremendous opportunity to look at distribution methodology, sub-channel opportunities that could address some of the staff challenges. The set-top boxes, to some degree, other than what the FCC decides, are out of our ability to do anything else. It is out of the BDU ability here in Canada. They are going to do whatever the U.S. decides and that is the reality.
2167 But there are other opportunities and, again, being able to communicate them, to be able to experiment in them, to be able to come up with best practices, being able to demonstrate it is a better way, being able to focus group that, all of these things is what we need to get to 100 per cent accessible content.
2168 COMMISSIONER PATRONE: All right.
2169 And you did talk a little bit about dollars during your presentation, numbers that I didn't see elsewhere, but very quickly. At one point you used the term 25 per cent --
2170 MS MILLIGAN: Yes.
2171 COMMISSIONER PATRONE: -- and then you backed away from that. And then you referred to the Australian model. Can you put some dollars, at least one or two figures on and, if not now, then perhaps submit them at a later date?
2172 MS MILLIGAN: We would very much like to submit some numbers at a later date.
2173 COMMISSIONER PATRONE: Okay.
2174 MS MILLIGAN: Sure, that would be great. I do have something now, however, if you would like me to very quickly review it?
2175 COMMISSIONER PATRONE: Okay.
2176 MS MILLIGAN: So effectively, what we would like to introduce today is the notion that some sort of amount of money be dedicated to a fund that would be invested and that the interest of which would provide a long-term operation for all of these activities to take place on an ongoing basis. The need to underwrite and to be looking for funding in different areas to get the job done is immediately eliminated.
2177 We can get to work on getting the job done at that point. So we have thrown some numbers and that sort of thing and we would very much like the opportunity to submit to you what we have looked at. But that is sort of where we are going with this.
2178 COMMISSIONER PATRONE: I understand. Why don't you take the time you need and submit, obviously in a timely fashion as well, as we require those numbers, the numbers that you feel are pertinent to this fund that you are referring to in order to help sort of move in the direction that you want to as far as services are concerned?
2179 MS MILLIGAN: Thank you, we will submit them in a very timely manner.
2180 COMMISSIONER PATRONE: Thank you, Ms Milligan and your group, for your presentation.
2181 THE CHAIRPERSON: Thank you, those are our questions for you. I especially thank you for identifying and prioritizing your 10 points because I am sure Shaw, if not in the room, is listening and is in the process of writing up their benefit package. I hope they take this into consideration.
2182 Thank you very much.
2183 MS MILLIGAN: Thank you.
2184 THE CHAIRPERSON: Okay, Madame la Secrétaire, I think we have room for one more intervener, so let's go.
2185 THE SECRETARY: We will now hear the presentation of the Communications, Energy and Paperworkers Union of Canada, CEP. Please introduce yourself, after which you have 10 minutes for your presentation.
2186 MS AUER: Thank you, Madam Secretary.
2187 For the record, I am Monica Auer, legal counsel to CEP in this proceeding. Peter Murdoch, the Vice-President of Media for CEP was unable to attend this hearing and asked me to, first of all, apologize for not being here, but also to present remarks on his behalf.
2188 As you know, CEP is Canada's largest media union. Twenty thousand of its members work in radio, TV, and cable companies across Canada. Hundreds work for Canwest and Shaw.
2189 CEP's members strongly support the success of local television in Canada and the continued operations of Canwest stations. As CEP said in its written intervention, the last two years have been extremely difficult for the men and women who work at Canwest services and for their families.
2190 This transaction offers the CRTC the opportunity to provide these services with strong financial backing so that they can increase their financial support for Canadian programming, including local content.
2191 Shaw's application still raises serious concerns however. CEP's main concern is that while Shaw claims that this is "the best possible result for Canwest, its employees, the economy, the Canadian broadcasting system and Canadian viewers," Shaw has tried at every step of this proceeding to minimize the tangible benefits that its purchase of Canwest ought to bring to the Broadcasting system and to Canadians. Generally by arguing that the Canwest stations are in such trouble, that keeping them open is the main, albeit intangible, benefit of this $2 billion deal.
2192 CEP obviously wants the Canwest stations to remain open but, for the record, no evidence has been brought forward in this proceeding or in any other recent proceeding to prove that each and every Canwest station loses money and loses money consistently.
2193 If the CRTC has this evidence, CEP has been unable to review, question, clarify or challenge it.
2194 But even if every Canwest station were losing money, two points are significant. The first is that simply as a matter of law, Section 9(1)(b) of the Broadcasting Act is very clear. It says that, the CRTC may issue licences subject to the terms and conditions of each of the licensees. In other words, rather than looking at the individual circumstances of the individual stations, one must be looking at Shaw.
2195 Our second point then in connection with that is of course that Shaw did show last year a 48 per cent operating margin on revenues of $2.8 billion. CEP therefore believes that with your support and appropriate conditions of licence under Section 9(1)(b) Shaw can be a true leader in the broadcasting system.
2196 It would then be up to Shaw to manage and strengthen the individual Canwest television services so that each makes "maximum use and, in no case, less than predominant use of Canadian resources to create and present programming as required by Section 3(1)(f) of the Act."
2197 That said, CEP wants to very clearly on the record as supporting Shaw's commitment to strengthen local news programming. The Union has taken note of Shaw's intention to establish morning newscasts in Halifax, Montreal, Toronto, Winnipeg, and Saskatoon.
2198 CEP welcomes Shaw's statement on Tuesday, that it will offer 10 hours per week of morning newscasts in each of these markets and that it plans to hire 110 news staff to support this programming. We assume that these 60 hours of local news will be original, not repeats.
2199 CEP wishes to address three other issues. First, it wants to draw your attention to the fact that Shaw did not answer any of the 12 questions set out in the Union's intervention. The Union's position is that this unresponsiveness defeats the purpose of the intervention process and underscores the necessity of allowing cross-examination in these proceedings.
2200 Second, just as Shaw's main concern must be for its shareholders, the Union's main concern must be for its members. CEP points out that although Parliament has specifically said that the system must promote employment opportunities, almost every major ownership transaction in broadcasting for the last 20 years has been financed in part by layoffs.
2201 Meanwhile, every application in these ownership transactions promises to strengthen and improve Canadian and local programming. CEP therefore asks you to set each programming commitment made by Shaw as a condition of licence. Without enforceable and enforced conditions of licence these commitments have little or no meaning.
2202 Last, CEP wishes to address concentration of ownership. The Union has opposed and continues to oppose the continuous increase in concentrated broadcast ownership. CEP's view is that even if concentrated ownership had benefitted the broadcasting system by strengthening Canadian and local programming, which the Union says has not happened, concentrated control over the news and information on which Canadians rely weakens democratic institutions.
2203 The solution to concentrated media ownership, says CEP, is structural separation through significant and clear diversity in ownership. This is why CEP has not supported and does not support the use of industry-drafted codes to strengthen information diversity. In the Union's view, these guidelines are virtually unenforceable. The actually promote the sharing of news across commonly-owned programming services and have not increased the level or quality of diversity in broadcast news and information.
2204 The two other applications now on the horizon for the Sun TV News service and Bell's purchase of CTV have already raised concerns about broadcast news and information in Canada. CEP asks you to consider whether the time has come to establish a mechanism to assess news and information diversity empirically so that Canadians have a better sense of the impact of excessive media concentration in Canada.
2205 To conclude, CEP submits that if the CRTC decides to approve Shaw's application, the Commission requires substantial tangible benefits, clear answers to the questions the Union has suggested, and unequivocal benefits to Canadians and the broadcasting system.
2206 Thank you.
2207 THE CHAIRPERSON: Thank you. Paragraph 18, what exactly do you have in mind when you say, "CEP asks you to consider whether the time has come to establish a mechanism to assess news and information diversity empirically."
2208 MS AUER: Content analysis. Starting reviewing and even if you were just to record programming to find out what is actually happening on the air, perhaps through a university undertaking, non-partisan independent properly funded empirical assessments. Not so much surveys of journalists, which is already available, but rather what is actually happening on the air?
2209 The Commission may recall that in undertaking its original studies on gender stereotyping in the 1980s the Commission actually undertook two content analyses; one in 1984 and one in 1988. The Commission retains those tapes, which included full broadcast days in both radio and TV, private and public, across Canada for a number of days considered useable for a good solid understanding of what was happening on the air.
2210 I understand that the Commission still has that kind of information. You could use that to undertake empirical research now.
2211 THE CHAIRPERSON: Sorry, I don't get you. What would be the reference point? What would we compare it against? I mean, the example you cite, I mean obviously looked as to how many programs involved or minutes, men in a stereotyped role or whatever. But you have some points of reference. I don't know what your point of reference is when you talk about information diversity.
2212 MS AUER: My only point there was that in terms of understanding how things have changed and what is being broadcast in terms of news and information programs, you have original data, you have original tapes from 1984 and 1988.
2213 THE CHAIRPERSON: So take today, take a snapshot of August, 2010 and compare it to a snapshot of August, 1996 or whatever?
2214 MS AUER: Right.
2215 THE CHAIRPERSON: Okay, thank you.
2216 Rita, I believe you have some questions?
2217 COMMISSIONER CUGINI: Yes. Good afternoon. Just a few.
2218 Were you here yesterday, Ms Auer?
2219 MS AUER: For part of it and, unfortunately, I was trying to listen on air but my system just kept crashing.
2220 COMMISSIONER CUGINI: Okay. One of the reasons of course, at the risk of overstating the obvious, that we hold public hearings is to get some answers to questions that we have.
2221 It is unfortunate that you didn't follow the proceedings yesterday, because Shaw did answer a number of questions, especially those that had to do with their tangible benefits and the proposals therein and the details with each of the benefits as they had proposed, which I do know forms a lot of your both oral presentation this afternoon and your written submission.
2222 I have your 13 questions here. I am not sure Shaw answered all of them, but I guess my question to you is, if you were to look at these 13 questions, can you prioritize for me which answers you would most want to have?
2223 MS AUER: Let me just turn to my executive summary.
2224 COMMISSIONER CUGINI: Sure.
2225 MS AUER: And incidentally, I do want to of course put on the record that we were very happy to hear employment information provided. We acknowledge that, we welcome it, super. I guess one concern might be that we are going from $43 million spent on four morning newscasts to $43 million spent on six, another number, implying that therefore there is less money for each. But I am sure nevertheless the programming will be excellent, so we are aware of that.
2226 I guess what I did not hear, and perhaps this is just the problem with my computer not working properly, was how much money would be spent in each of the markets. That was one thing that I didn't hear. Did Shaw mention that?
2227 COMMISSIONER CUGINI: Let me ask you this --
2228 THE CHAIRPERSON: We have the transcript.
2229 COMMISSIONER CUGINI: Yes, we do have the transcript, but let me ask you this on that note. Because I want to understand why it is important to the CEP to know how much money will be spent in each of the markets when we do have an aggregate number. So if you could explain that to me, that would be very helpful.
2230 MS AUER: We know that the licence renewals are coming up next year. We know that you have moved to a group licensing policy, that is understandable. I think Canadians need to know in terms of local programming, local news and information what resources are being allocated to the individual communities from which broadcasters in turn extract money in the shape of local advertising revenues.
2231 Hypothetically, I suppose if you had a central casting model you could have a single central cast location broadcasting the local news to each community across Canada. But traditionally, the Commission's view has been that you have a local advertising policy tied to actual content being produced in the individual communities so that you have a quid pro quo reciprocal relationship.
2232 The Union's concern then is if we don't know how much is being spent for the individual communities it is impossible to determine whether or not communities are receiving the benefits to which the policy entitles them.
2233 COMMISSIONER CUGINI: But won't the community tell us whether or not they are receiving the benefit through viewership? You know, if it is the number 3 newscast in that market, pretty good bet that whichever of the three broadcasters is not spending enough money to satisfy the needs of those viewers.
2234 MS AUER: I think that is a very good point. However, in the original decisions that address the local advertising policy the Commission was concerned about the expenditure of resources, not so much the popularity of programming.
2235 The idea being that if you are taking money out from a local advertiser, presumably you have hired people within the local community. In other words, it is a reciprocal beneficial relationship. I don't believe that under the previous decisions that relationship would have been satisfied merely by having a central cast model in which you got some programming and, by the way, we are going to take all that local advertising money out of the market.
2236 COMMISSIONER CUGINI: Okay. So do you want to give me your top five?
2237 MS AUER: I am just looking at all of them, and they are all such very good questions.
2238 COMMISSIONER CUGINI: If do say so yourself.
2239 MS AUER: Mr. Murdoch has a very clear understanding of the importance of all of this. I think number 10, which is the hours per week. The number of full time journalists and, in particular, the number of news bureaus that would be provided to the different markets. Because unless we have that information, we really don't know about the impact of consolidating media ownership.
2240 COMMISSIONER CUGINI: And once again, you would want that on a market by market basis --
2241 MS AUER: Yes.
2242 COMMISSIONER CUGINI: -- not just the aggregate? I think they did mention 110 new jobs would be created.
2243 MS AUER: Yes. I think number 11, which deals with the notion of balance in programming news and diversity. I did catch a snippet yesterday in which the applicant indicated that, of course, they were going to have solid, good, excellent news and information programming, and we assume that they are going to be monitoring that to ensure that that occurs.
2244 I am going to sneak in one last request, and that has to do with the new media issue. I believe that DGC, Canadian Media Guild, ACTRA, et cetera, have also raised concern about how the new media benefits money will actually result in, so to speak, on-screen tangible benefits so that all Canadians benefit.
2245 COMMISSIONER CUGINI: One of the advantages you have, and everyone who has participated in these proceedings is, yes, this is a transfer of ownership proceeding but, as you mentioned, the renewals will be taking place quite soon. And that any commitments made as a result of these proceedings we will be able to monitor them, analyze them and measure them, not in five years, but in a much shorter timeframe than that.
2246 So I know that the Shaw people are in the room and those who aren't are probably listening online, and I guess we are officially putting them on notice that we will be looking at a number of the issues that you and other interveners have raised.
2247 So thank you, those are my questions.
2248 THE CHAIRPERSON: Does anybody else have a question? No, I think that is it.
2249 Thank you for coming and your presentation. We will resume tomorrow morning at 9:00.
2250 MS AUER: Thank you very much, Mr. Chairman.
--- Whereupon the hearing adjourned at 1554, to resume on Thursday, September 23, 2010 at 0900
Johanne Morin Jean Desaulniers
Sharon Millett Monique Mahoney
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