ARCHIVED - Transcript, Hearing 4 April 2011
This page has been archived on the Web
Information identified as archived is provided for reference, research or recordkeeping purposes. It is not subject to the Government of Canada Web Standards and has not been altered or updated since it was archived. Please contact us to request a format other than those available.
Providing Content in Canada's Official Languages
Please note that the Official Languages Act requires that government publications be available in both official languages.
In order to meet some of the requirements under this Act, the Commission's transcripts will therefore be bilingual as to their covers, the listing of CRTC members and staff attending the hearings, and the table of contents.
However, the aforementioned publication is the recorded verbatim transcript and, as such, is transcribed in either of the official languages, depending on the language spoken by the participant at the hearing.
Abridged CTVglobemedia Inc.
TRANSCRIPT OF PROCEEDINGS BEFORE THE CANADIAN RADIO-TELEVISION AND TELECOMMUNICATIONS COMMISSION
To consider the broadcasting applications for the group-based licence renewals for English-language television groups listed in Broadcasting Notice of Consultation CRTC 2010-952, 2010-952-1, 2010-952-2 and 2010-952-3
140 Promenade du Portage
In order to meet the requirements of the Official Languages Act, transcripts of proceedings before the Commission will be bilingual as to their covers, the listing of the CRTC members and staff attending the public hearings, and the Table of Contents.
However, the aforementioned publication is the recorded verbatim transcript and, as such, is taped and transcribed in either of the official languages, depending on the language spoken by the participant at the public hearing.
Canadian Radio-television and Telecommunications Commission
Abridged CTVglobemedia Inc. transcript
To consider the broadcasting applications for the group-based licence renewals for English-language television groups listed in Broadcasting Notice of Consultation CRTC 2010-952, 2010-952-1, 2010-952-2 and 2010-952-3
Konrad von FinckensteinChairperson
Joshua DoughertyLegal Counsel
Valérie DionneLegal Counsel
Sheehan CarterHearing Manager
140 Promenade du Portage
4 April 2011
- iv -
TABLE OF CONTENTS
PAGE / PARA
CTVglobemedia Inc. (Cont.)1 / 7
- v -
PAGE / PARA
Undertaking44 / 283
--- Upon resuming on Monday, April 4, 2011 at 1518
1 LE PRÉSIDENT : O.K., Madame la Secrétaire, vous avez la parole.
2 THE SECRETARY: Thank you.
3 I would ask you again to please make sure that all electronic devices are shutdown.
4 And Mr. Chairman, we are now ready to proceed with the in camera session.
5 THE CHAIRPERSON: We are cut-off the internet, I hope?
6 THE SECRETARY: Yes.
7 THE CHAIRPERSON: Okay, Mr. Bibic and Mr. Crull and who is going to -- or Madam Brown, are you going to walk us through the numbers that you have put before us?
8 MS BROWN: So everybody has the chart that we filed?
9 So in response to your questions this morning we have prepared the five charts that are here.
10 THE CHAIRPERSON: Okay
11 MS BROWN: In the first chart we have applied what was described as the fixed CPE to our conventional business. So what we have done here is we have used our revenues as filed with the Commission and then we go through and we calculate each of the individual CPE requirements for the specialty services based on their COLs that we have requested in the application.
12 And then we take the total revenues and apply 30 percent and from that number we deduct the aggregate of all the specialty minimum spending to arrive at the conventional CPE spend which, in the case of these numbers, is ################ and reverse engineering on last year's revenue that produces a CPE percentage in the year of #### percent.
13 And then, essentially what we have done is we have used that #### percent and applied it to the prior year's revenue in each of the subsequent years of the licence term to determine the minimum CPE generated by our speciality businesses.
14 Any questions on that?
15 THE CHAIRPERSON: If I understand it, my staff tell me the total does not include LPIF or Olympics?
16 MS BROWN: That is right. We have based this version on revenues as filed in our application. I know there has been some discussion about the definition of what revenues should be included.
17 So on the next chart, Chart 1B, we have included all of the revenue sources that were identified on the handout this morning, so that includes Olympics' revenues, our receipts under the LPIF as well as other revenues generated in our broadcast businesses.
18 In this case we have applied the same methodology for the difference in the revenues. It ends up meaning that in the first year it produces a CPE percentage in our conventional business of 26 percent which we have applied throughout the licence term.
19 We have used the same methodology on the specialty services throughout. So under this method this produces total spend over the five years on Canadian programming of ##############.
20 THE CHAIRPERSON: But, I understand -- Daniel, are you there?
21 Something here should be done. There is a question of interpretation or something. You should have taken a three-year average and you only took -- can you explain, please, what the point is?
22 Use your microphone.
23 MR. PYE: (Off microphone)
24 THE CHAIRPERSON: Well, then come to the front. Switch seats with Joshua.
25 MR. PYE: Okay. At paragraph 52 of the Commission policy it essentially states that once you have figured out the CPE dollars, using paragraph 51 of the policy, essentially, so that would correspond to your ####### that you have in situation 1(a) -- so once you do your -- essentially your group spend plus your specialty obligations, in this case ####### minus your ####### you come to that #######.
26 Paragraph 52 then indicates that you should divide that total by the average of the conventional revenues over the previous three years.
27 And I believe in this case, and correct me if I'm wrong, that you have simply divided the ####### by your 2011 conventional revenues, which is simply the revenues of the previous year, if I'm not mistaken.
28 MS BROWN: You are correct that that's what we have done.
29 I would say that we were somewhat unclear -- thank you -- about exactly then what you were looking for in terms of the wording that was on the questions that were posed to us today --
30 MR. PYE: Oh, yeah, that's fine.
31 MS BROWN: -- where it specifically said to calculate it on the basis of prior years' revenues.
32 We didn't understand necessarily that you meant strictly to calculate the CPE percentage that way but not apply it that way in the first years of the revenues because, as you can appreciate, we have been running these numbers under several different models.
33 MR. PYE: Oh, absolutely. Yes, for sure, yeah, yeah.
34 MS BROWN: We could certainly provide it on that basis. It would not be a difficult thing for us to file with you.
35 THE CHAIRPERSON: What we were trying to figure out this is probably -- obviously a mistake -- a misunderstanding of us expressing here. What is the difference in what is shown here if you do it the way my colleague suggests or --
36 MS BROWN: Yes. So actually if we turn to the third chart it actually shows what the average of the three years' revenues would be.
37 So I have got the revenue difference there. So if you look down towards the bottom of the chart under the -- or sorry, the 2012 column -- using the three-year average our revenues for CPE purposes under that basis would be ################## as compared to the number on the first chart, which is the ########## billion which agrees to the forecast that we filed with you last week.
38 THE CHAIRPERSON: Sorry, give me that average number again that you had for the three years -- ###########?
39 MS BROWN: ##################.
40 THE CHAIRPERSON: Okay.
41 Before I let Mr. Katz go through it I just would like to hear from you, Mr. Crull and Mr. Bibic.
42 Why are you excluding LPIF and Olympics? I mean I don't get it. I don't get it at all. LPIF after all is something we made sure you have for -- as far as I am concerned is the revenue, and Olympics is something you bid on, something you wanted to do, something you did. Why should it not count? I mean you can bid on whatever you want.
43 You chose to bid on this. You chose to produce this. You made money on it. Why should it not be counted?
44 MR. CRULL: So Mr. Chairman, I think that to some degree, in fairness, there is going to be some differences and we will itemize the differences in the calculations that I think the Commission is looking for versus what we submitted. Some of it is pure confusion and interpretation of some of the wording. Some of it is not.
45 Olympics I would come back, when we spend some time on discussing the appropriate baseline for consideration of establishing a historical spend on CPE, we were quite focused on the anomalous impact of the 2010 Olympics. So we spent a lot of time thinking about that and if we come to that in talking about baseline historical spend we would like to share some information there.
46 I think that we wound up not including -- it was our intention in our group preparation sessions to apply future Olympic revenues and to have those applied to the 30 percent CPE obligation. So I think that we are going to be -- that's something that we would accept that does wind up getting added in.
47 I would ask as we go through, I think, on several of these where there is either a methodology or interpretation of what should be included, be it LPIF or sundry revenues as well, that we are very interested in understanding the Commission's direction with regard to symmetry on the industry and the obligations of the whole industry so that we can fully understand sort of that competitive parody as we give our responses as to what we would see included or not.
48 THE CHAIRPERSON: Well, as you picked up this morning, we tried to give you maximum flexibility. So therefore we said let's first of all see what we you spent in previous years. We picked that and it's specifically a percentage so it will go up and down with your revenues.
49 MR. CRULL: Right.
50 THE CHAIRPERSON: So I mean, I thought we were trying to make life as easy as possible. This is what you used to do in the past.
51 MR. CRULL: Yeah.
52 THE CHAIRPERSON: And basically we are just carrying it forward. If your fortunes go up, obviously the CPE goes up. Your fortunes go down your CPE -- but we make sure that you do not have the ability to overspend, that this basically -- that is really what the point is, that the CPE is as a result of this is fixed for the group. How you do it, how you adjust it, et cetera you can move around, et cetera, but in effect the CPE that you have done in previous years is there.
53 But why you would take out of the base an event like the Olympics I just don't -- I don't even understand the rationale.
54 MR. CRULL: Out of the base for purposes of establishing the spend run rate coming into 2011?
55 THE CHAIRPERSON: Well, that's why -- yeah, that we -- I mean it was a three-year average to make sure that if you had a disproportionate year you know it wouldn't -- you wouldn't get skews.
56 But our thinking was quite simple. You know, let's give you credit for what you have done in the past. We will take the average over the previous three years. So I don't know why out of that base you would exclude the Olympics.
57 MR. BIBIC: Could we kind of unpack this a bit, because there is so many concepts here?
58 Let's assume that the CPE percentage is set at -- you know, the minimum expressed of 30 percent for the group is the one that's set out by the Commission going forward and it applies to each of the ownership groups, Rogers Media and Shaw Media. Everyone has 30 percent and that's what it is.
59 We agree then that the Olympics, going forward during the five-year licence period, the Olympics' revenues should be in when we calculate going forward each year's absolute dollars that need to be spent on CPE. It's 30 percent times the revenues. Revenues would include Olympic revenues. We can agree to that. We understand the point there.
60 THE CHAIRPERSON: When you say 30, I mean, you are making a ceiling of the floor. You realize the policy is set specifically at a minimum of 30 percent.
61 MR. BIBIC: Well, that is why I think the Olympics becomes a relevant consideration to debate with you if there is a view in the Commission, at the Commission, that somehow Bell Media's numbers should be higher than 30 percent because that would be more reflective of what Bell Media has done in the past.
62 If that's the line of inquiry of the Commission, then we should have a debate about the impact of the Olympics on that.
63 MR. CRULL: And I think in an Olympics year we would spend over 30. What we are looking for, Mr. Chairman, and maybe since we are in camera we can be, you know, more direct.
64 Is it your intent to give us a floor never ever below 30 and then some years given the spend that we have in Olympics year, it would go above that?
65 THE CHAIRPERSON: That is what our thinking is.
66 MR. CRULL: But we don't want to be locked.
67 I think what our anxiety is, in fairness, is that you are going to somehow look at a history at Bell Media and suggest that we should have a number higher than 30 while the other -- another large ownership group is at 30, and we would find that objectionable.
68 MR. BIBIC: Mr. Chairman, if we can -- because I have a feeling that we are going to go around in circles just because we are not understanding each other, there are very -- there are two issues.
69 One is issue number one. How will the Commission determine the CPE percentage applicable to Bell Media and the others, number one? How will the -- how will you establish whether it's 30, 25, 31, whatever the number is? How will you do that? That's one question.
70 The second question is once you have established what the percentage is that will be applicable to us and, hopefully, the same percentage will apply to the others, which revenues go into the basket to determine each year how much we have to spend?
71 Those are two separate questions and you can't answer one really without the other or sometimes you are asking us about one and we are answering about the other. So I just want to separate those two.
72 THE CHAIRPERSON: Let us take them in reverse order.
73 Revenues are revenues as far as I am concerned. I mean that's where we started off with; whatever you earn that goes into the base. I mean and are there not some revenues that were outside that? What did you spend on Canadian content?
74 MR. BIBIC: So on question number two, yes, for the Olympics we agree with you. I think we would like to have a discussion with the panel Members about LPIF but, putting LPIF aside just for a second, we agree with what you just said.
75 The question then becomes how do you establish what percentage will be applicable to Bell Media, Rogers Media and Shaw Media?
76 THE CHAIRPERSON: When we established the 30 we looked at the numbers from everybody and we thought you were all around that. Some of you were there. Some of you were slightly over it.
77 That's why we thought that that should be the minimum and it would go up. Those who are not at that we would take the five years of their licence period to bring them up to the 30 percent. That was the nub of our thinking.
78 MR. CRULL: So that is where we have -- and we have spent a lot of time on this, Mr. Chair, and this is where we are really struggling. We would like the opportunity to -- I don't believe that the historical spending has established the right point of view in your mind.
79 The Vancouver Olympics Games from a Canadian programming expenditure were anomalous to the #####################################. And if you look at this company's CPE spend over a six-year period it hovers around ########## every single year except the Olympics year it jumps up to ###
80 We would submit that for purposes of establishing a baseline for this large ownership group, that it's inappropriate to include that Vancouver Games. The cost of those rights that were bid is entirely anomalous in our lifetime and the production expense of doing a domestic Games in the way that they were done is also anomalous in our lifetime.
81 So what we object to is the conclusion that we spent a little bit over 30 because we didn't --we have average exactly 29 percent in the last three years.
82 We would also object to another large ownership group having the distinct competitive advantage of ramping themselves up over one year, two years or five years of the licence.
83 If you will indulge me for a minute, I actually believe -- I think this Commission has spent enough time that it fully understands that American programming, buying foreign-acquired programming can translate in higher revenue growth. If one group has an advantage on their percent of revenue that they can spend -- and you might think 2 percent is not a whole heck of a lot, but $10 million buys another Top Ten hit in Hollywood.
84 And the reason that we said we actually think that this creates an unintended consequence on the system, is what you will do is the large ownership group that has the advantage is going to wind up generating faster revenue growth against a lower CPE obligation and actually the spend would be less.
85 We absolutely feel that the circumstances of the three large ownership groups should be viewed such that we all get symmetrical application of the 30 percent. There is past practice around even the prior policy framework of exhibition requirements and priority programming that was applied symmetrically to all groups, regardless of the circumstances.
86 I know in my old shoes, in the BDU world, LPIF was applied despite us coming before this Commission and saying, "Look, the circumstances profitability-wise of Bell TV were very different than the cable providers" and, yet, after much deliberation that was applied symmetrically.
87 So this is quite a focus and an obsession for us in settling in on what our obligation is that we have a level symmetrical playing field against our exactly -- you established a definition of large ownership groups and actually put a criteria for somebody to meet the large ownership groups. And the fact that all three of these companies are in the large ownership group definition, we think they should be treated the same.
88 THE CHAIRPERSON: I mean, we are on totally different -- you are on a different point now it seems to me.
89 But anyway as I said -- you asked me for the question about what was our thinking behind it. I told you in the spirit of total transparency that's exactly what we did. We looked at your historical spending, all three of you. You are, you say, ####. It's not the number I have but you were all hovering around 30, Bell and CanWest very short -- very close to it, Rogers a little bit of.
90 So we established 30 but we specifically made it clear that 30 is the minimum. Some may go up. And clearly we saw that we might -- especially Rogers will need some time to ramp up to the 30.
91 MR. BIBIC: Well, Mr. Chairman --
92 THE CHAIRPERSON: I don't see why you are shaking your head and why you think this is so inherently unfair.
93 MR. BIBIC: It is the ramp-up issue. So one is let's establish what the percentage is going to be. We believe that that percentage should be the same for all three groups.
94 You have defined the three groups in a common way or you have designed an objective definition. So you are either in or you are out. The three that happen to be in are Bell, Shaw and Rogers, number one.
95 Two, the Commission has decided that spending on Canadian content is important to the tune of whatever percentage you are going to allocate. It's no less important for Rogers to live up to that obligation than it is for Bell.
96 The fact that it is a percentage takes care of the fact that they are a smaller ownership group with a different asset and revenue profile. That's the way it works on LPIF.
97 Bell TV, as you know -- Bell TV is the only BDU that loses money, a lot of money. Yet, when we came before you on LPIF whether or not as a 5 percent BDU contribution, the Commission didn't say "It's 1.5 percent for LPIF for Rogers but 0.5 for Bell in the first year, 1 percent in the second year and 1.5 percent in the third year". There is no ramp up.
98 The point was, it's important to subsidize local television in small markets. Everyone contributes.
99 So that would be the second point that we make. If it's important, it's important for all of us. The fact that they are smaller will take care of itself by virtue of the fact that applying a common percentage to a smaller revenue means in absolute terms they will spend less than us. We would clearly spend more than them.
100 And the third point -- the third point that I would make, Mr. Chairman, is that if we start having ramp ups because of their different asset and revenue profile then what then if two years from now -- I mean there is no kind of objectivity to that system. That will just encourage us or somebody else to come forward in two years and say, "Hey, you know, our asset and revenue profiles changes in two years. Our fortunes have changes vis-à-vis our competitors. So now we want different treatment or a ramp down or we want you to increase the ramp-up speed".
101 We think it really should be in all objective terms one number for everybody and it gets applied to a different revenue number, because we are all different in terms of the revenues we generate. That will meet the objectives of supporting Canadian content.
102 That's why Kevin answered the way he did in terms of foreign spending, et cetera, it's to address the point about the ramp up.
103 MR. CRULL: I also -- I just think the historical spending that you are using to establish your point of view of all of us hovering around 30 but Rogers being below and they need help ramping up, I think that we would prefer to establish symmetry. If we can't establish symmetry then I think a lot of effort has to go into informing the Commission on the real historical spend. Because I also believe that Rogers' number is understated because they only aired the Olympic Games which, again, the Vancouver Olympic Games are a historic, high cost Canadian expenditure.
104 We spend ############ a year and in that single one 17 days it was ############. They aired that on SportsNet so it's not captured. That huge CPE isn't captured in their history but it is captured in mine because I aired it on CTV.
105 So we just think that if you are trying to establish the three large ownership groups which are very similarly situated in terms of overall company capacity, to contribute to the broadcast system then we would like to provide a better informed view of the history.
106 We think that's an unnecessary exercise because we support the Commission's view on the policy of 30 percent and we would suggest if you think a ramp up is necessary, ramp us all up.
107 THE CHAIRPERSON: But you also then basically make -- the minimum becomes the ceiling. It is 30 and stays 30. That's what you are saying?
108 MR. CRULL: Understood; understood.
109 THE CHAIRPERSON: That's not what -- I just want to understand -- make sure I understood your proposition. You effectively say if it's 30 for everybody and it stays at 30 and you get the benefit we prosper because the 30 is a percentage.
110 MR. BIBIC: Well, if we prosper it will be 30 percent applied to a greater number and the dollars --
111 THE CHAIRPERSON: Exactly.
112 MR. BIBIC: -- will be higher.
113 THE CHAIRPERSON: Everybody is in that --
114 MR. BIBIC: But already our --
115 THE CHAIRPERSON: -- greater CPE is spent.
116 MR. CRULL: I mean, already our CPE is you know astronomically larger than Rogers in pure dollars and it is, you know, quite a lot larger than Shaw Media Group by virtue of our size.
117 MR. BIBIC: So, to sum all this up, we are back to the way I defined the two issues. One is how do we establish what the percentage ought to be going forward?
118 We are prepared to step up to 30 even though our historical spend, excluding the Olympics for the reasons that Kevin mentioned, is lower than 30. We are prepared to live up to 30. We think everyone else should live up to 30 with no ramp up. That's one issue.
119 THE CHAIRPERSON: You say that and I don't think I saw that.
120 Daniel, do our numbers show the same thing that if you exclude the Olympics, the historical spend by CPE is less than 30?
121 MR. BIBIC: We just handed out a document on that.
122 MR. PYE: Yes. If you exclude the Olympic spending the CPE falls to just below 30 percent. I believe it's somewhere in the range between 29 and 30 percent.
123 THE CHAIRPERSON: Okay.
124 MR. BIBIC: Then on issue two, the revenues to which you apply the common percentage, we agree with you, Mr. Chairman, that revenues should be in; the Olympics revenue should be in.
125 If you have an Olympics one year you generate revenues from those Olympics. Then you ought to apply the percentage to those revenues. So to that extent we agree with the Olympics point.
126 THE CHAIRPERSON: And the LPIF point just so we can complete this --
127 MR. BIBIC: Well, the LPIF point is -- LPIF is a subsidy and it was established about two years ago. And when it was established it was to make sure that dollar for dollar those revenues came in to support smaller market local TV stations with no need for incrementality.
128 To apply the CPE requirement at 30 percent or whatever percentage to these revenues now kind of partway through the system is really to diminish the impact or the value of the subsidy. So we don't think it should be in for that reason. That is not how it was designed.
129 Now, I think you make a point about whether it should be in going forward and the way I think we would bridge the gap with you on that is to say that is going to be reviewed in a year or so, the whole LPIF system.
130 So to the extent LPIF were to continue going forward, which we hope, I think then it is fair to have a debate about, okay, if it is going to go forward, what will be the modalities of LPIF going forward and should LPIF be counted in the CPE requirements going forward.
131 I think that is completely fair, probably something we could --
132 THE CHAIRPERSON: So you say the deal was LPIF at the time of renewal?
133 MR. BIBIC: I think so because it has been established for the two- or the three-year period under a certain set of parameters and to achieve a certain purpose, and to diminish its impact kind of two-thirds of the way through, I think would be a bit unfortunate and not the way it was contemplated back when it was established.
134 THE CHAIRPERSON: It has a major benefit for you because you get the LPIF on all your 'A' stations. Rogers only gets it on Winnipeg. So for them not counting LPIF has a very minor impact, but for you it is a larger one?
135 MR. BIBIC: It is a very large one. Well, it is -- we have the impact shown --
136 MR. CRULL: It is about $12 million.
137 MR. BIBIC: There we go, $12-million impact.
138 COMMISSIONER KATZ: But don't we get into --
139 THE CHAIRPERSON: Okay, Len, over to you.
140 COMMISSIONER KATZ: Don't we get into the magic of accounting when we start to exclude LPIF? It is easier to do on the revenues because we know what it is. Now, you have to start to exclude it on the expenses as well, and so it then becomes questionable as to whether this camera was bought with LPIF money or was it bought with business money and you get into all sorts of creative accounting.
141 I don't think we want to get into starting to audit your books and I don't think you want to start micromanaging your paperwork just to report to us the allocations and the splits between all these things, because that is what happens.
142 MS BROWN: Yes, I would agree that that is true. However, if we include it -- to Mirko's point, if we include it in the revenue base and charge CPE on it, then we haven't accomplished the goal of having the LPIF not be incremental, because then we are required to spend extra programming dollars on it. So I think it is --
143 COMMISSIONER KATZ: But you are spending it anyways. I mean whether we review it again in a year from now or whenever is moot from my perspective.
144 It's a matter of once we start this process, it's what information has to be tracked and reported and audited. It's work for you guys, it's work for us, and at the end of the day it is a lot simpler to give you the flexibility and say, it's all in, you report it all and that's it.
145 MR. CRULL: Yes. I think, Commissioner Katz, you make a good point that I hadn't thought of.
146 I think when we thought about LPIF, the Commission deliberated and decided, you know, the amount of the LPIF, dollar for dollar, was the amount that was required to preserve the small market local programming.
147 Now, this would diminish it by 30 cents. The dollar would become 70 cents. And so I think that is where Mirko was describing we would prefer to finish this run of LPIF and then revisit.
148 I appreciate what you are saying. I think what you are saying is look, as we change the CPE from an exhibition requirement to an expenditure, now you are tracking and submitting your expenditures and LPIF gets spent.
149 So maybe I would ask the Commission -- we would find it -- if you recognize a dollar of LPIF should be a dollar of LPIF through its first term, maybe there is a way that that expenditure is just -- without having to account for it, that we have an adjustment to that end. But I understand the dilemma on that.
150 COMMISSIONER KATZ: Well, let's think about it anyway.
151 MR. CRULL: Yes.
152 COMMISSIONER KATZ: And you may come back to us in Phase III as well.
153 MR. BIBIC: The dilemma from our perspective is if a small market has to deliver, call it seven hours of local programming and it costs $100 to do, and then we get $30 of LPIF as a subsidy to meet that seven hours.
154 Now, we are going to be, let's say -- have a 30 percent CPE imposed on that $30 of LPIF revenue now to produce the seven hours of programming. It is not $100 anymore that we have to spend, we have to spend $109.
155 That is how it is diminishing the impact of that subsidy just in simple math here.
156 COMMISSIONER KATZ: Yes. But that is what it is.
157 MR. BIBIC: But that is not what it was designed for. Now, I have no objection to having --
158 COMMISSIONER KATZ: Bear in mind that initially LPIF was designed to be incremental, and then because of this situation at the time because of the recession we waived the incrementality. The world has changed again.
159 MR. BIBIC: Well, of course, but the difference is that was changed before the fund ever came into effect. So the change happened before it came into effect.
160 Now we have been operating it for 18 or 24 months, and to change the terms of the fund two-thirds of the way through and having a real impact on the bottom line is what we are objecting to just in this debate, and happy to have -- you know, if that is what happens going forward then I think that is fair.
161 MR. CRULL: And I guess, Commissioner Katz, without -- you know, we filed so this -- you were probing on the Armstrong report and so you could compare Armstrong's projections versus what we submitted as a conventional broadcast.
162 You know, we have a very, very large -- conventional broadcasting is two-thirds of this company and I am blown away in the time that I have been here and it is the reason -- and this we have had a lot of fun joking about sort of changing teams and the view on value for signal as we completed this transaction.
163 But I have eight years worth of performance from 2008 -- we submitted the history -- through our projection of 2016, and we are more optimistic than Armstrong on every one of our measures, and this business will lose money in seven out of eight of those years.
164 So this $900-million business that is conventional television is a real -- I am going to have a lot of tough decisions in navigating what we do with this part of the business.
165 So I would hope that the Commission wouldn't look -- ##############################################################################################################################################################.
166 COMMISSIONER KATZ: ############# #####################################################################################################################################################################################.
167 MR. CRULL: ################## ##################################################### ##############################################.
168 #################################### ##########################################################################################################################################################################.
169 So I just don't want the Commission to have any kind of a view that the problems that were obsessed over as an industry in 2008 and 2009, that they have changed in 2011 because they haven't.
170 COMMISSIONER KATZ: Okay. Well, I mean you have to run your business the way you and your board have agreed.
171 I mean what we are trying to do here is create an environment to promote under the Broadcasting Act as necessary. Beyond that, we want all you folks to run your business without interference by the regulator.
172 It is just that there is a Broadcasting Act out there. We have to make sure that we comply with it.
173 But I want to come back to some of these numbers as well because they have been changing and I took a shot at you with regards to the Armstrong report because I felt that you were trying to establish a position of weakness, when in fact the marketplace certainly isn't as strong as the telecom market, I can grant you that, Mr. Crull, but the reality also is that it is not as bad as it was two years ago and has turned around significantly and will continue hopefully with your leadership and the leadership of the rest of the industry to turn around as well.
174 The 2011 number that you handed out this afternoon, is your new number with six months of actuals and your forecast for the last six months?
175 MS BROWN: Yes.
176 COMMISSIONER KATZ: And you carried that through to 2012 to 2016? You have used the revised number in 2011 to grow your revenues through to 2016?
177 MS BROWN: So our revised number that we filed with you the week before last is not significantly different than the numbers that we were working with as a basis as we bridged from 2010 into 2011 to build the projections for years one to five. We don't think that they actually have any significant impact on our outlook for what will happen over the next five years.
178 COMMISSIONER KATZ: I am just looking here. The revenue that we had for 2011 before this revised number came in two weeks ago was -- I am trying to find it here.
179 MS BROWN: ############################################################
180 COMMISSIONER KATZ: #####################################.
181 MS BROWN: ###################### ################################################ #############################.
182 COMMISSIONER KATZ: I am looking at #################. I am looking at page 1b, I guess Table 1b.
183 MR. CRULL: ############# ###############################################
184 MS BROWN: Sorry, Commissioner Katz, I think part of the difference is accounted for by the fact that in our filings that we have made to you we have been excluding the LPIF revenues.
185 So this jump isn't -- between the numbers that we filed with you in December and the numbers that we have in front of you here, the jump is accounted for actually largely by the inclusion of revenues that we haven't included as being CPE eligible revenues in our previous filings and we would be happy to file a reconciliation of those numbers for you.
186 THE CHAIRPERSON: How can you use 2011 numbers when 2011 isn't finished?
187 COMMISSIONER KATZ: It is forecast.
188 THE CHAIRPERSON: I know, but why are we using forecasted numbers rather than the actual ones? I thought the whole way we described in our position is using the last three previous years. How did the present year projection get thrown in?
189 MR. BIBIC: The question asked what would your CPE be over the next five years and we would apply the percentage to the revenues over the next five years. We can only forecast those.
190 We started at 2011 for the purposes of the calculations because it asked applying it using the revenues of the previous year. So we started with 2011, we have to forecast that, and then we gave you forecasted CPE for 2012, 2013, 2014, 2015, 2016, the next five years.
191 THE CHAIRPERSON: I think I asked a different question and you gave me the answer. So let me just -- paragraph 52 of the decision says:
"The difference established in the above paragraph, calculated as a percentage of the average of the previous three years' gross revenues..." (As read)
192 You don't have gross revenues for 2011, so presumably you used 2008, 2009, 2010. That is the question I was asking.
193 MS BROWN: For the purpose of our filings we used our estimated 2011 and 2010 and 2009, and I think this was clarified in some of the correspondence that we have had with your staff. We always understood that it would need to be confirmed once the 2011 numbers were final.
194 MR. GOLDSTEIN: Just to clarify it further, our understanding is that the actual number that applies is set based on the actuals that the Commission has relating to 2008, 2009 and 2010, but when we actually go to apply it in terms of 2012, just like a specialty service will know in the first couple of months of the year what its spend was in the previous year, it is the same mechanism.
195 The debate is whether it is a three-year average or the previous year, but in either situation we will be able to figure out those numbers, as will the Commission -- actually everyone will know the previous year within a couple of months and for us probably a month earlier.
196 THE CHAIRPERSON: So if there is a problem, there will a true-up or something at the end?
197 MR. GOLDSTEIN: There is no true-up because whether you use previous year -- and just let's use an example.
198 If you are looking at the 2012 broadcast year, whether you use the 2011 revenue and apply a percentage against it or you use the average of 2009, 2010 and 2011 and apply a percentage against it, we obviously know 2009, we know 2010, and by October 1st we will know 2011. So we will figure out within the year how we apply whatever the spending amount is to make sure we make it by August 31st.
199 Is that right, Clare?
200 MS BROWN: Yes. And I mean obviously from a planning perspective we monitor and forecast our revenues on an ongoing --
201 THE CHAIRPERSON: Sorry, can you speak up, please?
202 MS BROWN: Sorry. From a planning perspective we monitor and, you know, we have budgets that we use during year 2011 to help us prepare to plan for our Canadian programming in 2012, which we have already started the process of trying to do that.
203 THE CHAIRPERSON: Okay, go back.
204 COMMISSIONER KATZ: I am going to come back to the reference you used, as did others, the transition year, and for the first year you wanted to use a three-year average, and after that you went to the previous year.
205 I am just trying to understand the relevance of the term "transition year." Just because the first year you didn't want to use the previous year's revenue, whichever that is, you chose to take an average, but going forward you didn't choose to want to continue to smooth it, presumably because our decision said use the previous year, but yet, you still ask for that change in the first year and I am trying to understand what the logic was in doing that.
206 Was it in order, to be honest, to reduce the actual CPE quantum because you were going to be using lower revenues or was it to address the issue of the Olympics in one of those years, which was higher?
207 I just want to understand why you chose the first year to be what you called transitional and used an average rather than the previous year.
208 MR. GOLDSTEIN: I think this refers to the draft COLs that I think all industry participants submitted jointly as part of their filings.
209 The reason we chose the three-year average was essentially it's a twofold part of the same answer.
210 One is that -- I think as Mirko and Kevin have indicated throughout, this is a new system. We are setting a baseline to apply to a new system and what we wanted to do was to try to essentially establish a representative sample of what the spending of the industry looks like.
211 If you pick one year out, whether it's 2011 or 2009 or 2007 or whatever, there can be anomalies in any given year essentially for a variety of reasons.
212 What we wanted to do was we wanted to essentially say, okay, we are starting with a new system, let's really take a representative sample of what spending in this industry looks like and then apply the new requirements against that, as opposed to picking one particular year and saying, okay, here is what it is and let's move forward.
213 COMMISSIONER KATZ: But I guess out of those three years, I am not sure how representative they are when one of them was a crash that happens every 50 years in this world and the second one was the Olympics that in Canada only happens once every whatever number of years it is. I am not sure those two are.
214 MR. BRACE: No, I know. Those two kind of -- they work in opposite directions of each other.
215 You know, I guess the true answer, and, Commissioner Katz, we would probably support, again, with symmetrical application across the industry -- we kind of in this case -- as Kevin said, we kind of looked at it the way the others did, if you apply the prior year. So 2011 is the number that applies to 2012.
216 It does result in a higher spend. We don't like that. You know, that is a bit of your objective. It is a bit of what we are resisting.
217 We think that that actually -- that because 2011 is a bounce-back year in revenue, that will create about a ########### spend above what we think our historical baseline has been.
218 I guess I would say it is within, you know, your view. If it is applied symmetrically to all the large ownership groups, we will accept it if that is your decision.
219 MR. BIBIC: So, Vice-Chairman Katz, just so we can have a kind of common understanding of where I think -- well, where we are on all the issues, where Bell Media is on the all issues that have been raised so far in this in camera session, I would sum it up like this.
220 We think it should be -- the group spend should be 30 percent and in fact that causes us to go up in minimum and we think everyone should be at that level, one.
221 Two, you calculate the specialty spend based on what their conditions of licence say.
222 And then three, you calculate the conventional percentage, as paragraph 52 says, based on the difference between the 30 percent and what the specialty services will be, and the difference you calculate as a percentage of the average of the previous three years' gross revenues. So with that we agree.
223 Now, that is not what we did in sheet 1a because we didn't understand the question, but we agree with the point.
224 And I would say that, four, when you apply the percentage to determine in each given year how much you need to spend, it should be in relation to the previous year's revenues, not three years, the previous year's revenues, again, assuming symmetry across --
225 THE CHAIRPERSON: That is really what 1b is all about, isn't it? That is what 1b represents. The only thing is LPIF and Olympics -- you have a problem with LPIF?
226 MR. BIBIC: Correct.
227 THE CHAIRPERSON: You only want LPIF future, but not right away?
228 MR. BIBIC: Correct. We would add the Olympics in the revenues, take LPIF out, apply --
229 THE CHAIRPERSON: As of next year?
230 MR. BIBIC: Correct.
231 THE CHAIRPERSON: We think we actually understand that.
232 COMMISSIONER KATZ: You would take the LPIF out? That, I don't understand.
233 MR. BIBIC: Well, so now we have -- now, we would follow the --
234 THE CHAIRPERSON: On a forward basis.
235 COMMISSIONER KATZ: Okay, that is fine. Okay.
236 I want to -- maybe I will come back to this but I want to move to PNI because we haven't talked --
237 THE CHAIRPERSON: Before you do that, basically, if I understand, the key from all of this is your first step. It is 30 percent for everybody and it is 30 percent, not a 30 percent minimum. That is what I took from this discussion.
238 If we agree to that, then the rest will all follow sequentially, I understood from your presentation?
239 MR. BIBIC: Correct. And the difference is this fixed -- I think we are having -- your question is around fixed versus floating, I think?
240 THE CHAIRPERSON: No, no, no, no.
241 MR. BIBIC: No?
242 THE CHAIRPERSON: On the 30. The 30 is the --
243 MR. BIBIC: Right. If you look at --
244 THE CHAIRPERSON: The decision says 30 percent as a minimum -- as a minimum. You are saying basically 30 percent is a fixed percent --
245 MR. BIBIC: Correct.
246 THE CHAIRPERSON: -- and that is for everybody. It floats with the percentage, but it doesn't float as a -- there is no increase?
247 MR. BIBIC: Correct.
248 THE CHAIRPERSON: That is what you -- and there is also no increase for anybody else?
249 MR. BIBIC: Correct.
250 THE CHAIRPERSON: That is the key point for you. And then if we agree about that, then you say, yes, so in the Olympics, LPIF is on a forward basis and you basically use the methodology set out in 1b?
251 MR. BIBIC: Correct.
252 THE CHAIRPERSON: That is what I understand your position to be.
253 MR. BIBIC: That is our position.
254 THE CHAIRPERSON: Good. Thank you.
255 COMMISSIONER KATZ: Okay. Now I am confused.
256 COMMISSIONER KATZ: Your page 1b, if I look at the combined it's not capped at 30. You have a 30.1, a 30.2; in fact, you have a 29.9. You may be rounding, I don't know.
257 But I thought I heard the Chairman say so your position is the 30 is the cap and you said that is correct. I am looking at this and you have higher than 30.
258 MR. BIBIC: No, but what we are answering -- 1b is answering the Commission staff's question. Our position is 2a.
259 COMMISSIONER KATZ: Your position is 2a?
260 MR. BIBIC: If you see down the bottom of the page, it is 30, 30, 30, 30, 30, 30. The specialty percentage stays at -- well, is determined by the conditions of licence, and then the conventional number changes depending on -- you know, depending on year on what the performance is.
261 THE CHAIRPERSON: Okay.
262 COMMISSIONER KATZ: That is your position?
263 MR. BIBIC: That is our position.
264 THE CHAIRPERSON: But 2a doesn't include the Olympics.
265 MR. CRULL: No.
266 MR. BIBIC: Well --
267 MR. CRULL: 1b, the reason, Commissioner Katz, that it goes over 30 percent is when you fix the conventional -- so we take year one and we find -- by the methodology that now we understand a little bit better, you fix conventional at 26.1 percent by basically backing out the specialty portion and then you hold that 26 percent one flat through the period and then you solve for specialty and that actually does cause us to go over 30 slightly.
268 COMMISSIONER KATZ: Which is what the decision 2010-167 really intended.
269 MR. CRULL: Okay.
270 MR. BIBIC: We didn't read it that way, but --
271 MR. CRULL: But we understand and we accept it.
272 I think in practice also, Mr. Chairman, and particular of where you are going, I think in practice as we play this out that we are going to see this -- because I am going to have to do a business plan and I am going to have to do licensing and purchase agreements and things of that sort to ensure I hit the 30 percent minimum.
273 I think in practice it is going to be -- you know, in certain years it is going to go probably to 31, 31 and a half. In other years it is going to be 30.2. So I think if I am understanding, and the reason I wanted to provide that clarification is I think, Mr. Chairman, that is your intention, is that you set business plans that you hit the 30, but then because in practice then things play out, we have to ensure that we are covered and that is going to create a little bit more of a spend.
274 COMMISSIONER KATZ: But I think more importantly what I said before you commented is important for you, and that is 2010-167 intended that the CPE for conventional would be fixed and would not be a back-out of the success of specialty in CPE to the point where your CPE percent in the subsequent years would go down. It would stay fixed.
275 MR. CRULL: We now understand that.
276 COMMISSIONER KATZ: Okay.
278 THE CHAIRPERSON: Oh, sorry.
279 Ms Brown, you have been wonderful in producing numbers in that quick turnaround.
280 Can I ask you to produce for tomorrow morning the numbers on the basis of what Mr. Bibic and I just discussed, in effect so that we know if I accept the Bell proposal that is what it would be, i.e., so 30 percent fixed, Olympics included, LPIF on a forward basis, and we use the 2010 year for the projections, et cetera --
281 MS BROWN: Okay.
282 THE CHAIRPERSON: -- and work it out so we can see that, we have a full appreciation of what Bell is putting on the table.
283 MR. BIBIC: So, Mr. Chairman, it would be --
284 THE CHAIRPERSON: Explain the rationale the way you walked through.
285 MR. BIBIC: Okay. So I think --
286 THE CHAIRPERSON: Mr. Bibic, you can put 1, 2, 3 -- put it in writing --
287 MR. BIBIC: Okay.
288 THE CHAIRPERSON: -- on this assumption and these are the numbers and work this out.
289 MR. BIBIC: Got it.
290 THE CHAIRPERSON: Thank you.
291 MR. GOLDSTEIN: Just in the interest of trying to manage, if we could have till end of day tomorrow --
292 THE CHAIRPERSON: I beg your pardon?
293 MR. GOLDSTEIN: -- end of day tomorrow, that would be greatly appreciated. Ms Brown needs to get --
294 THE CHAIRPERSON: Sure. Sure. I don't want to deprive her of sleep.
295 But, you know, you are the first of three, and obviously if we buy into that model, before I sort of try it out on the others, I want to make sure what I'm buying.
296 MR. BIBIC: I think we will try to file before you have the in camera with the others. I think that will be helpful.
297 THE CHAIRPERSON: Perfect! That will be wonderful. Thank you.
298 MR. BIBIC: And I would assume it is going to follow the basic same path as today?
299 THE CHAIRPERSON: Yes. Yes. Exactly.
300 MR. BIBIC: All right. So late morning?
301 THE CHAIRPERSON: No, no. We only have half a day for Rogers. So about 11 o'clock or so we will probably go --
302 MR. BIBIC: We will do our best to have it before the in camera.
303 THE CHAIRPERSON: Thanks very much.
304 So PNI.
305 COMMISSIONER KATZ: PNI. Okay.
306 So decision 2010-167 said that the PNI would be a minimum of 5 percent, and at that time all we had were the CAT 7s. Since that time you have provided us with the Category 2(b)s as well as the specialty programming, the programming of national interest, the award shows and the like, which has pushed that number up well above 5 percent.
307 I guess the question is: In light of that, do you still feel that the 5 percent is the most you are prepared to commit to on PNI?
308 MR. CRULL: I think based on our history, what we saw is between 5 and 6 percent. There was one anomalous year also that it bounced to 7.
309 But again, that depends. In many cases it depends on the project pipeline, you know, on the flow of projects, Commissioner Katz.
310 I must go on the record with this, Commission, knowing we are in camera, but the reason we struggle on this so much is that we feel like there is a tremendous amount of money flowing both into CPE and into independently produced PNI, and the vast majority of that for us is money losers.
311 And the burden on operating this business with the kinds of projects that lose the kind of money they do, indeed, we are asking for the flexibility that this policy intended to operate our business in a sustainable manner and have that 5 percent be the minimum, but not to have a minimum that is higher for any participant.
312 COMMISSIONER KATZ: Is there any value to talking about a redefinition of what is in PNI to include things that are becoming more and more popular, like virtual reality shows and that type of thing, and therefore creating a different definition which would in fact give you the flexibility to provide more PNI, if I can call it that, PNI plus?
313 MR. CRULL: Yes, I think that I would ask if there are categories, Corrie, that you have always said, boy, there is demand in the market and there is production capacity? We would love that.
314 THE CHAIRPERSON: Just a second. We are in camera, so we are doing this, but we have a policy we announced that we said if you want to create a PNI plus, et cetera, we would need a policy hearing and get other people too. We can't just do that.
315 As an intellectual exercise, by all means we can talk about it, but that is not part of this proceeding.
316 I am sorry, I didn't mean to cut you off.
317 MR. CRULL: So you would like the intellectual exercise, but not the --
318 MR. CRULL: I wasn't sure of the direction we were --
319 THE CHAIRPERSON: By all means, go ahead. I just wanted to make sure don't take this as me opening up PNI.
320 MR. CRULL: Okay, I understand.
321 Okay. Corrie or Rick?
322 MS COE: I would be happy to jump in. Thank you. Actually I think this will be an interesting intellectual exercise.
323 I think you are right, Commissioner Katz, there are genres of programming that are sort of forming hybrids, and this won't be news to any of you.
324 Certainly, documentary is one of those where they really range from the very hard-hitting point of view social issue doc but now are typically and largely being done as feature films really, one-offs, to the sort of lighter fare almost verging on reality into reality, where viewers are now expecting their entertainment and their information programming to come at them from a whole bunch of different ways and they are looking for more modern expressions of it. They are looking for those sort of high-drama elements that often spike.
325 It doesn't mean it is scripted necessarily at all, which some forms of those kind of contest realities can be, but they are presented to the viewers in a totally different way.
326 It would be very true that some of the projects that we used to do that qualified as priority programming absolutely do not qualify as PNI, and we are fine with that and that is what we have -- we are going to apply the policy in that fashion.
327 But definitely, shows that did speak to big audiences and that regions of the country really got behind, like "Idol" or like "So You Think You Can Dance" or those kind of programs no longer will qualify, and if in future, you know, at a future point if you did enlarge PNI, would that mean that additional shows would be captured and would that mean that those shows which have significant budgets would also be captured?
328 The answer is yes, and from a programming point of view, certainly it's something that we know for our channels and for the main network they generate large audiences. So it is attractive programming for us because it's programming that we know will get -- you know, it will be a big hit and that just generates sponsorship and all those kinds of good things.
329 COMMISSIONER KATZ: Okay. Does anybody want to pick up on that thought? Yes, go ahead.
330 COMMISSIONER MENZIES: Could you give us an example, like a for instance of one of those programs?
331 MR. CRULL: Maybe, Commissioner Menzies, before I have Corrie give you an example, because of the invitation on an example, I think it's important the reason we have wrestled.
332 Look, I have obviously immersed myself into a number of the parts of this business in the last five months, but some examples of PNI that does cause us to struggle, you might have seen recently that the Giller Prize was moved from CTV to the CBC and this is a program that is PNI that we were losing ######## a year to produce and a five-year commitment. I just couldn't commit to lose ########## on a program that had very, very, very little audience and very little applicability strategically to what we were trying to do.
333 The Junos is another -- you know, a very successful commercial program with record audiences and great entertainment value and celebration of Canadian artists, but in our 10 years that we have been producing the Junos we have lost a little bit over ###########. So I think that I just want the Commission to see these examples.
334 By the way, these are like the 'A's or the blunt end of the conventional station operations. PNI is the blunt end of, you know, the poor economic performing Canadian production in many ways.
335 COMMISSIONER MENZIES: What's an example on the positive side? What's an example of what Commissioner Katz was talking about, something that isn't currently defined as PNI which might be a good fit and that works?
336 MS COE: Commissioner Menzies, I just want to make sure I understand your question because I was hearing two conversations at once.
337 You are looking for an example of a show which would not currently be captured under PNI's definition, but which we feel could be successful.
338 I will use an obvious one. Any of our shows like an Idol or a Dance -- just by way of kind of background, the budgets on those shows are enormous; they are large. ##################################################################### So I know a lot of people feel that that kind of programming is cheap, it absolutely is not. To try and pay for that, because it only has a relevancy for a certain period of time, you basically have to -- you try and get all the revenues you can and you try and get all the sponsors you can, but if they are not fully there and the advertisers don't fully trust that you are going to get big numbers, you don't get the sales you hope, meanwhile you have spent ################## because that's what the costs are and there is no way you can defray any of those from sales outside of Canada or any of those kinds of -- or even hope to play it in an evergreen way year over year on your channels, and yet these are shows that get very strong audiences and get incredible viewer engagement. I mean people really get behind some of these participants in those shows.
339 Now, you know, those are just illustrations of ones that we currently have. We have people come to us with ideas for these kinds of shows fairly often and some of them would be really great and in fact get people excited about the idea of doing it and then I sort of start talking to some of my finance colleagues and they are a little less excited about the idea of doing it because of the costs involved.
340 I think the Junos example is a great one. I am so proud of that show, it's a fantastic show. I don't know if any of you saw the most recent one, it's great, but going forward we made a commitment to do it for another five years. Will we still be able to always afford it at that same level that you just saw this year? I don't know, it gets a bit tighter. Those are the kinds of things where you would like to go bigger and better.
341 So while I really appreciate the focus on the under represented genres that currently included in PNI just, you know, for that discussion are there broader ranges? Of course, that would be perhaps interesting to consider.
342 COMMISSIONER MENZIES: I'm just trying to get -- I don't want to drag it on, just give me a for instance. Like name a show. Canadian Idol.
343 MS COE: Sure.
344 COMMISSIONER MENZIES: Rick Mercer Report, Ice Pilots, I mean any of those things, if they were -- do they --
345 MS COE: We would love all of those. Canada's Worst Driver.
346 COMMISSIONER MENZIES: I know you would, but give me an example of something you have. I'm just trying to -- like something you do that doesn't have to make money but something that loses less money than what it is you have to do now.
347 MS COE: Oh, you would like -- oh, okay.
348 COMMISSIONER MENZIES: You don't have to. I don't want to put it to the test, it's just --
349 MR. CRULL: Canada's Worst Driver is a perfect example.
350 MS COE: Yes, Canada's Worst Driver.
351 MR. CRULL: Canada's Worst Driver.
352 COMMISSIONER MENZIES: Okay.
353 THE CHAIRPERSON: Let's get back to square one here, folks. PNI, let's face it, we give you a big break. We looked at what you spent on priority programming and we said, no, we abolish that category but we want to see the same amount spent. That was only drama. Now we threw in award shows and documentaries and it seems to me that your historic average, according to my figures, is 6.5 percent so in effect by you agreeing to 5 percent, you are lowering what you spent in previous years on this. Are you going to make money on it? No, of course not; you never have and you never will be. It's a cost of doing business, we all know that so let's not fool each other.
354 It's a question of making as much money as you can, but will it be profitable? I doubt it. We are not talking here about classifying reality shows as Canadian programming.
355 MR. BIBIC: Here is how we approach the issue, Mr. Chairman, going back to resetting the original question and answering that. So we get the fact that broadcasters ought to spend on Canadian content. We totally get it, it's the vision of the Broadcasting Act and you will set a number and that number will identify the annual envelope, the amount of money we need to spend. Let's recognize that the amount we spend on Canadian content as a whole in that envelope we will not make money, okay.
356 UNIDENTIFIED SPEAKER: Why not?
357 MR. BIBIC: Because we don't. We just don't. On Canadian content it's a challenge.
358 So we will try to make it work obviously, because we are not in business to lose money, but it doesn't.
359 So now we have this envelope and we are going to spend that money on various types of programming and to dictate now that we are going to, as a minimum, have to spend more than 5 percent on PNI, which is the category that absolutely seems to me, based on the numbers that I have seen, loses the most money, makes it that much more difficult to kind of get in a comfortable position on the entire Cancon envelope.
360 So we are not saying that we are not going to spend more than 5 percent, we are saying as a minimum we will live up to that. In some years we may very well still be higher, because it's a floor, it's not a ceiling.
361 THE CHAIRPERSON: You saw the submission of others and CPMA, they all think you should be 10 percent.
362 MR. CRULL: Well, of course they do. That's entirely in their interest to burden us that way. Entirely in their interest.
363 By the way, the 6.5 percent I think is a misleading number. It does take into account, we would say for intellectual honesty and fairness, that 2000 -- there is a one year that it jumped significantly and I don't know if it's because of a low revenue denominator or what, but that skews. In 2011 we are going to spend 5.2 percent.
364 I just have to underscore this idea. I understand the idea that Canadian content we have to -- we are perfectly aligned with the interests of trying to make money, I guarantee every single person in this organization is always trying to --
365 THE CHAIRPERSON: No doubt there.
366 MR. CRULL: It's not for a lack of trying but, you know, in business you have loss leaders that you have operate, Loblaw's has loss leaders in its aisles, and things of that sort, it's typically 1 to 2 percent of their stock-keeping units that are loss leaders. We have 60 percent of our schedule that falls into this category of loss leader.
368 So while we are fully aligned I think that the interest for the longevity and the flexibility and everything that we have embraced in this policy, I think what causes the struggles for us is the loss leaders on our shelf you are asking us to carry are at a very high burdensome level.
369 THE CHAIRPERSON: Can you give me those figures again?
370 MR. CRULL: So because of the exhibition requirement on conventional Canadian was 60 percent of our schedule.
371 THE CHAIRPERSON: Yes.
372 MR. CRULL: If I take now my 30 percent CPE by my total programming and production --
373 THE CHAIRPERSON: Right.
374 MR. CRULL: -- ##################### ####################################################### ###########################################.
375 Now, I will submit to you that this is not scientific, this is my probing --
376 THE CHAIRPERSON: No, no, no. But it's a nice encapsulation of what you are dealing with here.
377 MR. CRULL: -- and it's plus -- this is the management evaluation that we have made. You bet. That's where we wrestle.
378 THE CHAIRPERSON: Tom, you had a question?
379 COMMISSIONER PENTEFOUNTAS: Yes, good afternoon.
380 I think everyone in this room would agree that Canadian drama constitutes a mirror for who we are and that's why it's important. I'm not sensing a lot of excitement from the representations I have heard this afternoon and this morning for Canadian drama.
381 I understand that CSI Miami is profitable, but CSI Miami does not reflect Canadians. We don't see ourselves in CSI Miami necessarily. I don't mean to offend any of the producers of CSI Miami and nobody likes Miami more than I do, but that's the reality of the situation.
382 So are you telling me that competent creative people such as yourselves cannot make quality Canadian dramas that Canadians, for one, want to watch without being forced to watch and that, second, is not of a sufficient quality that we can sell it and export that product to create a revenue stream outside of Canadian revenues?
383 MR. CRULL: Well, it's a fantastic -- I think that what I had hoped the video to convey in our opening remarks, is that this team is incredibly passionate about Canadian dramas. The Borgias just is premiering last night on Bravo, it's an amazing Canadian produced drama; Flashpoint has been the most successful Canadian police drama
384 COMMISSIONER PENTEFOUNTAS: I saw your video.
385 MR. CRULL: We go down the list, there is quite a lot of if.
386 COMMISSIONER PENTEFOUNTAS: It was great. Yes, you used those Canadian dramas in your promotional video and that was fantastic, very exciting, but I don't see an energy, an excitement and a desire to go forward with more Canadian dramas and to put our efforts, our creative and advertising efforts towards pumping up Canadians to watch Canadian dramas.
387 MR. CRULL: We have delivered in the last few years the most successful Canadian drama, the most successful Canadian comedy and I can guarantee you with the spend obligations the reason there is not a lot of energy is this isn't a creative review, this is a policy setting for financial purposes.
388 The 30 percent CPE is going to provide enough money, the PNI at 5 percent and the benefits, there is going to be an amazing flow of Canadian drama, documentary and scripted programming that is going to flow from this effort.
389 COMMISSIONER PENTEFOUNTAS: You know, there are increased costs in production and that was mentioned earlier. Why don't we have a PNI of 10 percent given the increase in production costs? Your overall CPE is still at 30, but your PNI is at 10. I understand you feel that we lose -- those are the biggest money losers out there; right?
390 The only problem with that is they are also the greatest reflection of who Canadians are and we want to see ourselves -- it used to be on the small screen, now we want to see ourselves on all the screens and all the platforms. So why can't we do 10 percent PNI?
391 MR. CRULL: Well, I think that there are probably some good logical answers.
392 I would find that in a business that is burdened like this and the loss of flexibility -- the definition of the PNI's makes it very difficult for us, I think, to find that. And with the amount of money also, there is more money flowing to PNI in the next five years, from my observation, than in the history of this industry. So I would find it a very misguided policy decision to go to 10 percent.
393 Now I will let the experts talk about limitations and things of that sort.
394 MR. KEVIN GOLDSTEIN: I think one of the important things to also highlight, just from a policy perspective, is that moving to 10 is --
395 THE CHAIRPERSON: Move closer to the microphone.
396 MR. KEVIN GOLDSTEIN: Sorry. I think one of the things that needs to be highlighted from a policy perspective relating to 10 or 9 or 8 or 7 or even 6 in the case of ours, it far outpaces historical spend in the area, which the Commission made it quite clear in their policy statement was not going to happen out of this process. So I think obviously we have concern on that.
397 Mr. Vice-Chair, as to your specific question about rising production costs, the impact of rising production costs is that a dollar doesn't go as far as it used to so you are getting less content for the same amount you would have spent historically.
398 So raising it to 10 percent simply means you are going to have to spend more on productions that are going higher that, as Mr. Crull indicated, lose money. So you are creating a situation where the proportion of your spend creates a much worse profit-loss scenario than it was in before.
399 So we don't believe that is in the interest of the system or consistent with the policy.
400 MR. CRULL: I also worry you would create a situation where those producers aren't motivated or inspired to create great -- if they bring great commercially viable product we buy it, we jump on it, but whenever you create this flow of funds that's guaranteed to them regardless of the quality that they produce, I really worry about that.
401 COMMISSIONER PENTEFOUNTAS: They will get lazy.
402 What percentage of the 5 percent PNI will go, if you can just give us a guesstimate, towards dramatic works?
403 MS COE: Maybe I would jump in here. I'm speaking a little bit without having the chance to speak with Phil King who is in charge of the conventional side of things, but Rick is here and can help out on specialty.
404 The largely CTV and its platforms have been dramatic services. That's been our focus, certainly on the main network. That's one of our strengths and one of the things that we concentrate on in trying to attract viewers. Typically dramas, followed a little less so by big event kind of specials or one-off shows or event kind of -- you know, Amazing Race thing if you were speaking about the U.S. side of things.
405 COMMISSIONER PENTEFOUNTAS: Yes.
406 MS COE: And on our specialty services, certainly for Space it's almost predominantly drama and scripted programming; comedy is a lot of scripted programming, with some, you know, stand-up thrown in there; Bravo is a mix of documentaries and scripted, and the direction for Bravo as we try and revitalize that channel a bit is to try and work in high-end provoking and thoughtful dramas into that mix along with our arts programming.
407 Certainly as we look at Much, they have moved into some dramatic programming. Just a couple of years ago they took over Degrassi to real success, it's fantastic, and we are developing -- we have commissioned a show called "Highland Gardens", which is a new drama for them that's going to be playing on Much and MuchMore. We are developing some things, so that has typically in the past been our focus over some of the other genres.
408 COMMISSIONER PENTEFOUNTAS: But as a percentage of PNI what would you guesstimate you would be investing in drama over the term of the license?
409 MS COE: Honestly, I wouldn't feel comfortable --
410 COMMISSIONER PENTEFOUNTAS: Can I also ask you, the numbers I have here show that in '08 you were at 8 percent PNI and in 2010 you were at 5.7 percent PNI.
411 Are those numbers correct? Those are the numbers that we have here. Are your numbers different?
412 MS BROWN: Our numbers are a little bit different.
413 COMMISSIONER PENTEFOUNTAS: Okay.
414 MS BROWN: For 2008 we have 7.5 percent --
415 COMMISSIONER PENTEFOUNTAS: Yes.
416 MS BROWN: -- and for 2010 we have 5.9 percent.
417 MR. CRULL: And 2011 our projection --
418 MS BROWN: ##############.
419 COMMISSIONER PENTEFOUNTAS: Okay. Why this constant drop? Is there an explanation for that?
420 MS BROWN: Well, from time to time it has to deal with projects. So for example, when we started out this year one of the projects that we were counting on coming through was the next season of The Bridge and, as you may have read, the show -- we were working with the producers -- and Corrie could speak to the specifics more eloquently than I, but it fell apart. So it's there in our budgets, it falls apart. You know, it's after Christmas, we don't have another large production drama in the wings and that's the difficulty sometimes with Canadian programming.
421 We have, as Corrie mentioned, a lot of projects on the go and not all of them --
422 COMMISSIONER PENTEFOUNTAS: That was not foreseeable, the fact that The Bridge would fall apart?
423 MS COE: No, not at all.
424 COMMISSIONER PENTEFOUNTAS: No?
425 MS COE: We had actually ordered it and commissioned it and were excited about having it go --
426 COMMISSIONER PENTEFOUNTAS: Okay.
427 MS COE: -- and then for a mix of both financing and a little bit of an issue with the talent it just kind of -- there were way too many bleeding holes in that show to ever really come together and at the final -- I guess probably only about two months before we were hoping it would go ahead the producers and CTV sat down and went it's just never going to be able to happen.
428 COMMISSIONER PENTEFOUNTAS: C'est désolant. It's unfortunate to see the pattern.
429 MR. BRACE: But it has to be understood --
430 COMMISSIONER PENTEFOUNTAS: You were at 7.5 by your numbers and #############, two years later.
431 MR. BRACE: But it has to be understood that there is real cyclicality to the interest in drama program and the way that viewers tend to view it.
432 There was a time not so long ago, six or seven years ago, when Movies of the Week -- we were heavily involved in Movies of the Week and I'm sure if we went back to that time we would see just the number we were doing, but things like Lives of the Saints; Eight Days to Live, there were numerous movies that we were actually -- the Terry Fox Story -- that we were getting a million-plus viewers for and I remember making that a submission here a few hearings ago.
433 But it does change. I mean, we move into the Flashpoint, The Bridge, they become popular, they lose popularity. There is a period of time to develop these shows. As Corrie has pointed out, in excess of a year, sometimes two years, where you are waiting for the script to be developed, to be approved, for the cast to be approved.
434 So it's not a process that's linear, it really ebbs and it flows. That's why you see kind of the ebb and flow in terms of the annuals. You can't really look at it kind of on an annualized basis, it's something you have to look at over a period of time to really get a better picture of it.
435 COMMISSIONER PENTEFOUNTAS: Yes, but you had a 25 percent drop on one project falling apart.
437 MS BROWN: Sorry, I didn't mean to say that it was the one project caused the whole change, I was using that as an example of the type of situation that makes it difficult sometimes for us to
438 COMMISSIONER PENTEFOUNTAS: But wouldn't a higher PNI put more pressure on people to keep coming up with creative ideas that are popular?
439 I know you mentioned -- that question first, sorry.
440 MS COE: Well, I think what hasn't been mentioned is the stuff that we have recently ordered. We have two new drama pilots, one by Sic Drew(ph), which we are hoping we will shoot in early June, looking to hopefully make that a 13-episode series.
441 We have a second one with Alana Frank which will also be going in the same timeframe.
442 COMMISSIONER PENTEFOUNTAS: Okay.
443 MS COE: Just ordered another season of Todd & The Book of Pure Evil, which is a fantastic drama for Space.
444 We have a new pilot called Borealis, so there is --
445 COMMISSIONER PENTEFOUNTAS: Okay. I understand all that, but none of these -- you mentioned maybe about 50 projects or so and none of them were ready to go when The Bridge fell apart?
446 MS COE: No.
447 COMMISSIONER PENTEFOUNTAS: No.
448 MS COE: Well, you have things in various stages of development. Things get more complicated at a production level when you factor in that The Bridge was also reliant on Canada Media Fund financing. In order to secure that financing you have to have a locked budget, a locked production schedule, you have to have financing that looks like it can come together in a certain amount of time, you have to have casting ideas, you have to have directors. To try and replace that at the last minute is virtually impossible. I wish I could, I would love to have a whole bunch lined up like that, but they just -- they can't come together that quickly.
449 COMMISSIONER PENTEFOUNTAS: Okay. Given the fact that quality of programming is cyclical, wouldn't we be able to attain a higher PNI over the course of the license, a higher average? I mean some years you are at seven, some years you are at five, some years you are at eight.
450 MR. CRULL: I have never seen a year that it's at eight.
451 COMMISSIONER PENTEFOUNTAS: Well, 7.5 according to your numbers.
452 THE CHAIRPERSON: Can we get those numbers again? Ms Brown, you gave the numbers so rapidly I didn't have time to write them down.
453 MR. CRULL: 7.5, 5.9 and ###.
454 Is that correct?
455 MS BROWN: For 2008 --
456 MR. CRULL: '08, '09, '10.
457 MS BROWN: No, that was for 2008.
458 MR. CRULL: 7.5.
459 MS BROWN: For 2009 we have 5.8.
460 THE CHAIRPERSON: Yes.
461 MR. CRULL: And ### for 2010.
462 MS BROWN: No, sorry. 5.9 for 2010. We are projecting ### for the current year.
463 THE CHAIRPERSON: But what about the point -- I mean you say it's cyclical and you have been through a major recession and a bad year, you also have been under tremendous pressure because we had all these wonderful hearings on BFS, et cetera, but you are now under stable ownership, you are now part of the largest conglomerate in the country and, et cetera.
464 You have seen the submission from everybody else which basically thinks it should be a 10, and yet on the numbers you just gave me you are going down. Shouldn't they be going the other way?
465 I think you have to rethink your offer, what you are putting on the table here on this one because this is the heart of it. This is the heart of the Canadian broadcasting, this means jobs for Canadian creators. And it's the quality stuff what you do, that's why we are not including games shows or something which are relatively cheap to produce but you don't need that much talent, et cetera. This is documentaries, award shows and drama.
466 You, as the largest broadcaster in the country sort of, I thought you would be putting a leadership option on the table rather than one that seems to be holding it to the minimum.
467 MR. BIBIC: Mr. Chairman, that's a little bit unfair.
468 THE CHAIRPERSON: I know.
469 MR. BIBIC: I mean the fact is Bell Media is a leader in delivering this type of quality programming and I think there is a passion there. Vice Chairman Pentefountas, like you, I am coming new to this and I have asked the same questions, which is: Wait a minute, how can we not produce Canadian programs with a passion towards quality and a passion towards making money and making those two fit together?
470 I asked about Flashpoint because -- and I read the press releases like everybody else, Flashpoint has a huge audience and draws over 1 million viewers and has been sold in the U.S., et cetera, how can that not make money? So I asked the very same question.
471 I learned, well, CTV or Bell Media doesn't get the revenues from the U.S. sales, doesn't get the revenues from the DVD, doesn't get the revenues from download to own, you know the iTunes, so from a Bell Media perspective Flashpoint has made a little bit of money, in some years has lost money -- and we are talking here about the most successful one of all.
472 COMMISSIONER PENTEFOUNTAS: Is that under the new Terms of Trade or the old Terms of Trade?
473 MR. BRACE: It would be the same.
474 COMMISSIONER PENTEFOUNTAS: It would be the same.
475 MR. BRACE: Yes.
476 But it's an interesting point because although Flashpoint has made a little bit of money we actually requested more episodes this year and -- just to give an idea of how the industry works.
477 MR. BRACE: Yes, please. Please.
478 MR. BRACE: We currently have 18, we were looking for 22 I believe, Corrie, and they couldn't deliver. They said that there just wasn't enough capacity for them to kind of deliver that number of shows. They just didn't have the infrastructure to do that.
479 So it's just an example of how things kind of morph and change in this space, particularly with the dramas. We are dealing with a very highly creative process that is really not tied to any kind of a calendar, it's not tied to any kind of a finite term, you know, for the most part.
480 COMMISSIONER PENTEFOUNTAS: But when did you sign up for those new episodes? We are not ordering a pizza here, it takes time obviously. You have to sort of sign on long-term; right?
481 MR. BRACE: Yes. That's not exactly how it -- Corrie, maybe you want to jump in here.
482 COMMISSIONER PENTEFOUNTAS: You are lucky I didn't ask you about the -- to answer the Pimp My Ride question that I saw you lateralled that back to the younger crowd in the second row. Sorry about that. It's late in the day. I was really waiting for that Pimp My Ride answer, yes.
483 MR. CRULL: You know, Vice Chair, the other tough thing, I mean the scale -- many of you have learned this, the producing television shows is a real, real, real low probability success business and so you have to get, you know, probably 50 to 100 projects on-air to find one that becomes the Flashpoint and so the capacity necessary in order to create more of the Flashpoints, you are really throwing a lot. I mean, I'm going through the process of picking the schedules right now and looking at the amount of product that gets produced in order to get one hit and it's astonishing.
484 I would ask, though, if the obsession -- and I appreciate the focus on having a material amount of money flowing to PNI and to this production endeavour for Canadian dramas -- at our 5 percent floor, which I think that as ebbs and flows occur we would certainly spend more than that, but at the 5 percent calculated floor over the license it's $330 million and I would just remind the Commission there is another $100 million dollars being spent by this organization in that time period.
485 I'm really worried about the capacity of the industry and especially when we are also going against other groups that have really big benefits.
486 I think during this license period there is going to be a tremendous amount of inflow of funding that I would love to have the analysis done to look at any prior five-year period and I don't think it would come close.
487 COMMISSIONER SIMPSON: Mr. Crull -- I want to just weigh in here for a second, please, Mr. Chair.
488 Let's go at it a different way. A few minutes ago, actually about a half an hour ago, Mr. Crull, you said that you just aren't making money on Canadian content. You didn't qualify that and I won't ask you to do that now, but this kind of goes to the heart of what I was asking earlier about your production commitments.
489 What I find anomalous here, you know, regardless of everyone's ambition to see Canadian talent and Canadian productions knock the ball out of the park, we all want that but the question is can we do it. We have economy of scale problems that are always in our way in terms of audience sizes and cost of production, which we know won't go away. But the one thing we do have is that we have this Broadcast Act that says there has to be contribution to the industry.
490 What I was trying to get under the hood on was now that you are in this very enviable position of being the big dog in the business, what is your commitment to getting involved in Canadian productions to the extent that you can mitigate your losses, if that is what it takes?
491 You are programmers and you guys and gals are supposed to have a pretty good idea of how to read the tea leaves so that when you go shopping for productions you have a pretty good idea of what will sell, not be in a situation where you have to air whatever is made available to you.
492 This isn't really a question but a commentary that where I'm having a big problem is I am seeing production houses in Vancouver closing their doors, those who made a living producing television, episodic television or posting episodic television, I see conversely film houses and CGI houses turning away business because they can't do enough -- they haven't got enough facilities to look after the movie industry, so I know that the talent is there, I know that the quality of production is there, but the economics of TV in Canada seems to be struggling.
493 So my question to you is this to perhaps take away: How can you get more involved in the guidance of the industry if you already know you have to write a cheque to the Canadian production industry to make us happy, but do it in a way that's more involved to be able to build -- to take what you know about programming and start building hits, even if it's a long involved process? That's really what it's coming down to.
494 THE CHAIRPERSON: Okay. I think you obviously will reflect on this and we are going to see you in Phase III.
495 The point Mr. Crull will take away I think is very clearly we want to give you the maximum flexibility so that you can do -- I think you have made a very convincing case on the CPE. On the PNI I don't think we are quite as convinced, especially it seems to me that you are just enshrining the status quo.
496 Part of all of this that we were doing was trying to make sure that this is after all the heart of what everybody wants to see, more Canadian drama, more documentary, et cetera, that we would see some growth here. The numbers that you put on the table basically, if you look at your average, it's a declining average from previous years and, as my colleague pointed out, it goes the wrong way.
497 Nobody doubts your passion for Canadian content. I have been in this job long enough to know that you are all doing this for the love of the business, et cetera, so in the end you are very passionate about it. That's not the question.
498 But it will be difficult to accept a PNI at the level that you put forward, so why don't you reflect on that. There are some certain things we want to ask, some other things my colleagues want to. We should also summarize what you have agreed to do for the public record. So if it's okay with you I would suggest we put the Internet back on so people know what as a result of this in camera session we have agreed to do.
499 Is that okay with you?
500 MR. BIBIC: Yes. So in terms of the redesign --
501 THE CHAIRPERSON: We haven't gone on yet, I just want to do process first of all.
502 You are okay with doing this.
503 Also, before we will also have to issue obviously a -- whatever you want to call it, a very short and redacted format of what went on in camera, something that we need your approval for, et cetera, as we have done in previous in camera sessions.
504 MR. BIBIC: That would be fine.
505 All I was going to say is the chart that we will redesign, it's quite okay to say publicly that we will do this --
506 THE CHAIRPERSON: Yes.
507 MR. BIBIC: -- but we would like to file it confidentially.
508 THE CHAIRPERSON: Absolutely, yes. Okay.
509 Madam Secretary, let's go back on the record then and then Mr. Bibic will say what you are going to file and I believe my counsel has a couple of other things he wants you to file, too.
511 THE SECRETARY: So this concludes the in camera session. We are just going to take a little two-minute break so that we can put everything back on.
512 THE CHAIRPERSON: Okay.
--- Upon recessing at 1650, to resume immediately in public
- Date modified: