ARCHIVED - Transcript, Hearing 5 April 2011
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Volume 2, 5 April 2011
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
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 Finckenstein Chairperson
Leonard Katz Commissioner
Rita Cugini Commissioner
Suzanne Lamarre Commissioner
Peter Menzies Commissioner
Tom Pentefountas Commissioner
Stephen Simpson Commissioner
Jade Roy Secretary
Joshua Dougherty Legal Counsel
Sheehan Carter Hearing Manager
140 Promenade du Portage
April 5, 2011
- iv -
TABLE OF CONTENTS
PAGE / PARA
Rogers Broadcasting Limited 210 / 1238
Corus Entertainment Inc. 329 / 1938
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PAGE / PARA
Undertaking 302 / 1735
Undertaking 368 / 2186
Undertaking 371 / 2207
Undertaking 371 / 2217
Undertaking 396 / 2364
Undertaking 397 / 2377
Undertaking 411 / 2462
--- Upon commencing on Tuesday, April 5, 2011 at 0900
1234 THE CHAIRPERSON: Good morning. Let's begin, Madam Secretary.
1235 THE SECRETARY: Thank you.
1236 And now, Mr. Chairman, we will proceed with item 2 on the Agenda, which is the applications by Rogers Broadcasting Limited on behalf of itself and of Rogers Sportsnet Inc., for the renewal and/or the revocation of the issuance of broadcasting licences for the stations and services listed in Notices of Consultation CRTC 2010-952.
1237 Please introduce yourself and your colleagues and you have 30 minutes to make your presentation.
1238 MR. PELLEY: Thank you.
1239 Good morning, Mr. Chair, Commissioners, Commission staff. My name is Keith Pelley and I am President of Rogers Media.
1240 With me today, starting from my far right, your left, are: Malcolm Dunlop, Executive Vice President of Programming; Alain Strati, VP of OMNI and Specialty TV; Susan Wheeler I know you are all familiar with, our VP of Regulatory.
1241 From my far left: Jamie Haggarty, our Executive VP of TV Operations; Navaid Mansuri, our VP of Finance and Administration; and to my direct left, Shannon Valliant, our VP of Finance Operations and Strategic Development.
1242 In the back row we are also pleased to have with us today, from left to right, Mitch Dent, Executive Vice President of Sales, as well as the General Managers of each of our Citytv stations. From left to right, Richard Hiron from Edmonton; Tina Cortese from Toronto; Dwight Iwan from Winnipeg; Paula Davies from Calgary; and Renato Zane from Vancouver.
1243 At the far right is David Keeble who prepared our genre exclusivity study and would be pleased to respond to any specific questions you may have on that report.
1244 It seems this industry is always changing; as are all Canadians in the way they consume media. Canadians want unprecedented choice. They want to watch what they want, when they want, how they want.
1245 With the recent consolidation of Shaw and Canwest and CTV and Bell, competition is at an all-time high. That means that the creation of compelling content transferable to many platforms is absolutely critical.
1246 It is for this reason we applaud the new group-based licensing framework which encourages quality content creation through expenditure measures. Despite our support for the policy our needs and wants as a group are different. In fact all broadcasters are different. We are all bringing something different to the table and feel our obligations should reflect our asset mix and track record.
1247 I have been at Rogers for just over 6 months; prior to that I was with CTV as their Executive Vice-President of Strategic Planning. CTV and Rogers, two companies in similar business but really different in so many ways. So here are some of my initial thoughts about Rogers and our aspirations for our television business.
1248 Coming from CTV I am coming from a television powerhouse, a strong collection of specialty services that garner big ratings are wildly profitable.
1249 Rogers is anything but. We are just starting out and the smallest of four groups by any measure, number of services, distribution, audience reach or total revenues.
1250 As an example, Citytv is in only four provinces, a significant disadvantage when it comes to network advertising buys.
1251 I think it was day two when I asked Malcolm, our EVP of Programming, whether he viewed Citytv's competition as -- "The biggest competition, Malcolm, I said, you know, what is it? Is it Global or is it CTV?" He said, without blinking, "The 'A' channels". I stopped in my tracks.
1252 But when you think about it you can understand, because when looking at the 'A's they are more comparable to Citytv's size, distribution, revenue and are it's direct competition for advertising.
1253 Then I went and sat down with Shannon. You know, you can imagine when you come into a business you are eager and you are excited and you immediately go to the CFO and you ask to look at the financials. I looked at the financials and all of us would have the same reaction. I just went "Wow!" The losses at Citytv are staggering; $72 million in 2008 and 2009 and over $110 million since Rogers acquired the stations.
1254 I don't care who you are or how big you are, there is no company that would either endorse or support a business that is losing that much money for that length of time.
1255 My direction to our team -- and they have heard it a plethora of times over the last couple of months -- is "We need to change the financial model and we need to do it quickly."
1256 Perhaps the most glaring gap in Rogers broadcast portfolio is our lack of specialty services. We have only three, with OLN as the only one with broad distribution.
1257 I remember, we sat down with Nadir Mohammed and in the first meeting we talked about this disadvantage and we talked about how in most broadcast groups specialty is a profit centre and offers tremendous synergies with OTA. Bell, Shaw and Corus all own a number of strong specialty services which allow them to amortize programming costs way more effectively than a group of our size. They are also able to buy programming more effectively, since they can use their economies of scale as leverage in acquiring programs.
1258 It's almost impossible for us to match the scale of our competitors, but I can assure you that growing specialty is still a priority.
1259 The other big surprise and a huge disadvantage in trying to attain a 5 percent PNI is the size, or lack thereof, of our Canadian Media Fund. Our CMF envelope is $3.7 million a year compared to $37 million at Bell and $29 million at Shaw.
1260 This is crucial funding that supports Canadian drama. In fact, our funding allows us only to produce one 13-hour drama series, a monumental disadvantage. Alain Strati later on today is going to explain a little bit more about that.
1261 The bottom line is we have huge challenges, but we are improving. The team here today has created a stronger programming schedule and implemented strict cost controls to bring Citytv's business model in line. Building on this, my plan, or our plan, is to:
1262 One, build City to where it is profitable in 2014;
1263 Two, grow our number of specialty services. While the launch of new services will result in further losses we believe we need a bigger presence in this space; and
1264 Three, build a stronger local presence in our Citytv markets outside of Toronto. Growing up in Toronto, the slogan Citytv "Everywhere" was commonplace in everyone's mind. We want to make that the case in our Western markets. We are not even remotely close and this is going to require some serious attention.
1265 Although an aggressive plan, I believe it is achievable, but to make it happen we need to increase revenues by 8 percent while our competitors are predicting 0 and 2.
1266 Today we will focus on three specific issues:
1267 One, why a 25 percent CPE is fair for our group. We are not shying away from a significant increase in Canadian content. Far from it. A 25 percent group CPE sees us contribute an incremental $100 million over the license term, a 65 percent increase, while our competitors are looking at a 20 percent increase.
1268 Shannon will show you how our asset mix directly impacts our group CPE level. She will explain how the more OTA revenue in a group, the bigger the increase in Canadian program expenditures;
1269 We will also explain why a 5 percent PNI is unreasonable target for us based on size, reach, size of CMF envelope, our programming philosophy and City's need to focus on local.
1270 And, three, modernizing rules on genre exclusivity.
1271 But first to Shannon and CPE.
1272 MS VALLIANT: As Keith mentioned, we support the Commission's policy of having a group-based CPE. However, due to the size and asset mix of our group, we will not be able to derive the same level of financial and programming benefits from this new framework as other larger television groups, as I will explain in a moment. As a result, we strongly believe that the specific circumstances of a group should be considered when establishing an appropriate group CPE.
1273 Under a group-based framework, groups like Shaw, Bell and Corus, who derive a good portion of their group revenues from specialty services, have a significant advantage over a group like Rogers with its mix of assets.
1274 We also support the Commission's view that CPE obligations should be based on historical expenditures. However, we believe these expenditures should be considered in terms of total dollars, not as a percentage of revenue, given the transitional state of Citytv.
1275 Our revenue mix as a group is heavily weighted to our five conventional stations which represent close to 90 percent of our group revenues. Under a group-licensing framework, that means the majority of our increased Canadian content and programming of national interest commitments will need to be borne by the weakest segment of our business, Citytv. This is not the case for the other groups who all have significantly larger specialty TV portfolios.
1276 Bell, Corus and Shaw all own a number of Category A services whose current CPE obligations range on average between 35 percent to 40 percent. These specialty services represent half, or in the case of Corus almost 100 percent, of their total group revenues.
1277 Under a group-based CPE of 30 percent, a significant portion of their spending will already be achieved based on existing requirements. On the other hand, for a group like Rogers this would mean a significant increase in spending.
1278 Given the importance of this issue in illustrating why one size does not fit all, we thought it would be helpful to explain the impact of the mix of specialty and conventional services on a group by looking at some hypothetical examples. I plan to walk you through each of these examples to illustrate the resulting inequity in required CPE spending based on the proportion of specialty and conventional services in a group's portfolio.
1279 So I would like you to turn your attention to this chart at the front of the room. I apologize for those of you in the audience.
1280 In this first chart what we have done is take four hypothetical companies and we have made a few key assumptions.
1281 We have said all four of these companies today are generating $1 billion in annual revenue.
1282 We have also said, for simplicity, that all four of these companies today spend about 25 percent of their revenue in a conventional business on generating Canadian programming.
1283 And on the specialty part of their portfolios they spend on average 35 percent on Canadian programming today.
1284 Now, the conventional percentage based on our review of historical spending is a reasonable proxy for what's happening today in the industry and, as you know, many specialty services today have a higher required spending on Canadian programming. So, if anything, perhaps this 35 percent may be a bit conservative, which would only illustrate our point more strongly, as you will see.
1285 So in the first company, Company "A", this company has a significant portion of their revenue being generated from their specialty portfolio. So the light blue is specialty and the darker blue is conventional. So 90 percent of their revenue is coming from specialty and only 20 percent from conventional.
1286 So today this company, on the conventional part of their business, is spending 25 percent times $100 million, or $25 million on Canadian programming.
1287 On the specialty part of their business, which is significantly bigger, they are spending a higher percentage, 35 percent times $900 million, for a total of $315 million.
1288 So today Company "A" is spending $340 million on Canadian programming. Because Company "A" has a billion dollars of revenue their effective CPE today is 34 percent.
1289 If Company "A" moves to a fixed group CPE of 30 percent, they have a billion dollars of revenue, their required spending is going to be $300 million. So the impact is, Company "A" ends up spending $40 million, or about 12 percent less than what they are spending today, on Canadian programming.
1290 Now, as we move through each of these hypothetical examples the only thing we are going to do is shift the revenue mix more towards conventional.
1291 So in Company "B" we have an equal mix of revenue coming from their specialty services portfolio and conventional services. So today Company "B" spends 25 percent times half a billion dollars, or $125 million on the conventional part of their business; and on the specialty part of their business 35 percent times half a billion or $175 million.
1292 So in total today Company "B" is spending $300 million on Canadian programming. On a billion dollars of revenue their effective CPE today is 30 percent. So when Company "B" moves to a fixed group CPE of 30 percent, it would also be required to spend $300 million, so that has virtually no impact on them, they are indifferent.
1293 When we move to Company "C" and shift the revenues more towards conventional, Company "C" is spending 25 percent times $600 million, or $150 million on Canadian programming in their conventional business; they are spending 35 percent times a smaller proportion of revenue, $400 million or $140 million, for a total Canadian programming spend today of $290 million.
1294 On a billion dollars of revenue their effective CPE is 29 percent. When they move to the 30 percent fixed group number, $300 million like the other two players, but it in fact forces them to increase their spending by $10. Not significant, but increasing.
1295 Now, if we look at these first three hypothetical examples, Company "A" looks a little bit like Corus in that the significant portion of their revenue is coming from specialty; Company "B"s revenue mix looks a little bit like Shaw in that there is an equal amount of revenue coming from speciality and conventional; and Company "C" looks a little bit like Bell in that they have a little bit more revenue coming from conventional.
1296 If we look at our last hypothetical example, Company "D", this is what Rogers looks most like. The majority of our revenue is coming from the conventional part of our business. So today, using the same assumptions as we have for the first three companies, spending 25 percent on $900 million or $225 million on the conventional part of our business, and 35 percent times $100 million on the specialty part of our business, for total Canadian programming spending today of $260 million. On a billion dollars of revenue, like all of the other companies, our effective CPE for Company "D" is 26 percent.
1297 So when Company "D" moves to the fixed group CPE of 30 percent, like all the other companies, they are going to be required to spend $300 million on Canadian programming, but the impact for them is it will be an increase of $40 million or 15 percent more than what they are spending today.
1298 So it's clear from these four hypothetical examples if you have relatively less specialty services and a fixed group CPE you will end up spending relatively more on Canadian programming, and if you have more specialty services you will end up spending less.
1299 So if you are a company like Company "A", like Corus, you like the new framework. It allows you to spend less on Canadian programming and increase your profitability.
1300 If you are a company like "B" or "C", like Shaw or Bell, you are either completely indifferent or almost indifferent because you are in the same place as you would otherwise be. You might have to spend a little bit more on Canadian programming, but it will have an immaterial impact on your profitability.
1301 If you are a company like Company "D", like Rogers is, you are justifiably concerned because moving to a fixed group CPE will cause you to spend relatively more on Canadian programming, which is going to reduce your profitability or, in the case of Rogers, increase our losses.
1302 Now, this resulting inequity based on mix to revenue was not something that the Commission intended with its policy. We note that the Commission acknowledged one size doesn't fit all by suggesting each of the groups suggest a CPE for their group that was appropriate based on their size and circumstances. As this illustrates, were that not the case a company like Rogers, who is the smallest and least profitable of all of the groups, would end up spending relatively more on Canadian programming.
1303 So moving away from the hypothetical examples we wanted to look at our actual spending in dollars on Canadian programming. We are mindful of the Commission's view that they did not want to impose obligations beyond historical expenditures.
1304 So in this chart the first three bars represent our actual and planned spending on Canadian programming. As we carry on into the next broadcast term the light blue bars show our proposed spending at a 25 percent group CPE and the darker blue chunks on the top show what would be required to spend at a 30 percent group CPE.
1305 So starting with where we are today, for the last three years our average spending has been about $54 million per year on Canadian programming. So to establish the baseline and make it clear, we have extended that historical average across the chart through the next broadcast term to make it clear what our historical spending has been.
1306 Now, if you look at our proposed spending on Canadian programming at a 25 percent group CPE, which again are the light blue bars in this chart, you will see that we are proposing a significant increase in Canadian programming through the next broadcast term.
1307 In fact, by the time we get to the last year of our broadcast term, on an annual basis we will be spending 65 percent more per year than what we have been most recently spending. If you look at what that means over the term of the license, the sum of this incremental amount above our baseline is about $100 million more on Canadian programming.
1308 Now, moving to a 30 percent group CPE may not have a significant impact on our competitors, but if you look at this chart -- and again moving to the darker blue chunks at the top -- it show you the impact that this would have on Rogers. It would cause us, by the end of the license term, to increase our spending on an annual basis on Canadian programming 100 percent more than what we have actually been spending most recently. This incremental amount, if you add the incremental spending in the dark blue bars, is another $72 million that we would have to spend on Canadian programming and that will just put additional pressure on our ability to turn Citytv around.
1309 So we strongly believe that it is important to note that at a 25 percent group CPE our projected increase in Canadian programming spending is higher than our projected increase in revenue that will be generated over the term, and more than double our projected spending on non-Canadian programming, or any other expense in our business.
1310 So we strongly believe that based on our mix of revenue, our historical spending on Canadian programming and our proposed significant contribution to Canadian programming over the next broadcast term, a 25 percent group CPE is appropriate for Rogers, given our size and structure.
1311 MR. STRATI: Turning to the issue of Programs of National Interest, we believe it is clear from historical expenditure data that a 5 percent target is not realistic for Rogers. In our application, we have instead proposed a target of 2.5 percent, rising to 3 percent during the term. For a number of reasons, we believe our proposal is representative of our group's Canadian programming reality.
1312 Number one, our programming focus. We have little history with the funding and production of dramas and documentaries. Our TV services are all focused on local programming or other reality programming;
1313 Number two, access to funding. We have limited access to funding from numerous specialty CPE's or from broadcast envelopes of the CMF. Access to these funding sources is critical for the production of Canadian dramas and documentaries;
1314 Three, increase of spend over the term. Even at a level of 2.5 percent rising to 3 percent, growth within our group will provide a strong injection of new funding to the production of dramas and documentaries over the license term.
1315 At Citytv our programming focus and success has been in local programming; at OLN it has been in Canadian programs like "Mantracker" or "Survivorman"; and at G4 it's in electric culture sort of programs like "Electric Playground" and "Reviews on the Run".
1316 Historically, most of Citytv's dramas and documentaries came from CHUM's specialty services, funded through their CPE and supported by their CMF broadcast envelopes. Unfortunately, when we bought Citytv we did not inherit their funding capacity. The specialty CPE spend and the CMF envelopes moved over to CTV.
1317 A typical episode of "Murdoch Mysteries" costs more than $1 million. To produce English-language dramas, broadcasters need access to the CMF. CMF funds effectively bridge the financing gaps in many productions.
1318 Unlike Bell and Shaw, we do not have access to large amounts of funding. Our Broadcast envelopes remain very small, totalling only $3.7 million in 2010, easily eclipsed by the sizeable envelopes of $29 million at Shaw and $37 million at Bell.
1319 The production of a 13-hour series like Murdoch uses up more than $4 million in Citytv license fees and almost all of our CMF envelope. After Murdoch, there is little room for anything else. The PNI allocation has been spent and the CMF envelope has been used up.
1320 Under a 25 percent group CPE, a PNI obligation of 5 percent would represent an additional investment of $5 million dollars in Year 1 of our renewal term. $5 million cannot even cover the costs for the production of just one more Canadian drama series.
1321 On the other hand, the same $5 million could produce hundreds of hours of quality local programming in our Western markets.
1322 In our view, the choice is clear. The nature and local orientation of our Citytv stations supports relatively higher spending on local programs, and relatively lower spending on dramas and documentaries, not the other way around.
1323 Access to funding will continue to be a challenge for our TV group. We do not have CPE spending over numerous specialty services and have very few secondary distribution platforms.
1324 It is difficult to see how our CMF envelopes will increase to any significant degree over the license term. That's why we have proposed a PNI target of 2.5 percent, rising to 3 percent over the license term. At those levels spending on programs of national interest will increase by more than $5 million -- a 100 percent increase over today's historical expenditures. That will allow our group to invest additional resources into the production of Canadian programming while remaining proportionate to our group size, our asset mix and our access to funds.
1325 We believe our proposal will allow us to build a strategy for the future and enhance our contribution to Canadian television.
1327 MS WHEELER: Like television services all around the world, our services, and those of our competitors, have and will continue to evolve in ways not contemplated by their original natures of service. We believe Commission policy should encourage this, not restrict it.
1328 The license amendments we have proposed for OLN, G4 and Biography reflect this reality and the Commission's current policies respecting genre exclusivity and program flexibility. If approved, these amendments will ensure the terms and conditions of these licenses are consistent with those of other Category "A" services.
1329 Specifically, our request to remove the word "exclusively" from the nature of service descriptions for OLN and G4 will bring their natures of service more in line with those of other Category "A" services. Removal of this limiting condition will also allow us to offer a greater variety of programming that meets the interests and expectations of our viewers, while still preserving the overall orientation of these services.
1330 We also believe our request to remove the limiting conditions on "stick and ball" sports and foreign drama on OLN is consistent with the programming flexibility that has already been granted to other services. Other Category "A" services do not have these restrictions.
1331 CBC and Shaw have already received approval to air, up to a limit of 10 percent, programming from a number of categories, including professional sports. Bell and Corus have made similar requests.
1332 Approval of our proposed amendments will simply ensure the same standards are applied to all Category "A" services.
1333 More fundamentally, however, we believe the genre exclusivity policy is no longer a useful tool for promoting program diversity. The majority of the Category "A" services that have benefited from this policy are now mature businesses with strong audience loyalty, brand awareness and key program supply agreements. They no longer need the Commission's protection.
1334 What was once a meaningful and successful policy has outgrown its usefulness in the system and now only serves to create uncertainty and barriers to entry for new services.
1335 We do not believe this change will result in a "rush to the middle". The U.S. has never had genre protection, yet they have a number of popular niche cable services.
1336 Applying the genre exclusivity policy has always been a highly subjective exercise. The application of the policy when considering license amendment applications for Category "A" services, or applications for new Category "B" services, has also become very unpredictable. As new services are licensed and protected services evolve it is increasingly difficult to apply the Commission's "directly competitive" test.
1337 In our case, the genre exclusivity policy also acts as a barrier to entry because any new services we license must accept significant programming limitations in order to comply with the policy. This severely limits our ability to launch new specialty services and compete with incumbent broadcasters.
1338 We also believe that in today's environment the genre exclusivity policy could foster anti-competitive behaviour by allowing vertically integrated companies to leverage their exclusive access to certain areas of programming against their competitors.
1339 For these reasons, we believe the Commission should signal to the applicants in this proceeding that it intends to modernize its rules on genre exclusivity and review the implications of this change at an upcoming policy proceeding on vertical integration or a subsequent policy proceeding.
1340 MR. PELLEY: Thanks, Susan.
1341 Mr. Chair, we believe that a strong, financially stable Rogers television group is important to the competitive balance and diversity in the Canadian broadcasting system.
1342 We have not come here today to ask for a handout. In 2011 we have a planned CPE of 23 percent, and we are still losing $15 million. We are simply asking for a level playing field and reasonable licence terms that will allow us to stabilize our television group and continue to make meaningful contributions to the system.
1343 We hope that we have clearly explained to you why, based on our mix of assets, it is unreasonable to take a one-size-fits-all approach to establishing group CPE requirements. Our group is not in the same situation as Bell, Shaw or Corus. We strongly believe that CPE and PNI targets must reflect the unique circumstances of each group.
1344 We also hope that we have clearly demonstrated why a high PNI obligation is overly restrictive in our situation and will compromise our local programming strategy for City, but understanding still that our PNI commitment exceeds historical levels and doubles by the end of the licence.
1345 We believe that investing in local programming is the most effective way for our group to contribute to the objectives of the Broadcasting Act and to enrich the cultural, political and social fabric of the communities that we are so proud to serve.
1346 Finally, we hope that we have clearly explained how our proposal of a 25 percent group CPE is fair, based on our asset mix and historical expenditures on Canadian programming. It will also result in new and incremental spending on Canadian programming that will grow over the licence term, as we strengthen our financial position.
1347 Our commitment to you today is that Canadian programming will be the primary beneficiary of our financial recovery. Rebuilding our group will take time, effort and commitment. We are committed, we are competitive, we want to grow and we want to compete. I think our requests are well thought out by this group, and we believe they are fair, based on our current position in the industry.
1348 We would be happy to answer your questions.
1349 THE CHAIRPERSON: Thank you for your presentation.
1350 First of all, in terms of procedure, I gather that you listened very carefully yesterday and you have prepared the numbers the same way as CTV.
1351 MR. PELLEY: Yes, we did.
1352 THE CHAIRPERSON: I propose to do the same exercise with you this morning as we did with CTV, go through as many issues as we can without going in camera, and then doing your exact numbers in camera at the end, if that is okay with you.
1353 MR. PELLEY: That is perfect.
1354 THE CHAIRPERSON: Like I told CTV yesterday -- I have to get used to calling them Bell Media -- I am delighted that you entered into a Terms of Trade Agreement, that you are part of that, et cetera, and that issue is off the table.
1355 Also, you obviously listened yesterday to my comments on genre, and I think you have the same general approach to it. I am not so sure that we want to necessarily put it into the vertical integration hearing. That is already a pretty well overbooked hearing, but it is an issue that has to be addressed.
1356 Coming to what we are talking about here, the group renewal, when I listened to what you said both on CPE and PNI, you are really asking for a policy change. It's as simple as that.
1357 This is like a review on your application. You are saying: We like what you did, but we want you to change it so it fits better with City.
1358 That was not our intention. We made it quite clear. We said 30 percent, and we suggested a method of calculating it. And that wasn't grabbed out of the air. We looked at previous years, where your CPE standing was in your conventional business, and you were right there. So I do not understand why, suddenly, it is such a difficult thing.
1359 I appreciate that you are not in the best of financial shape, but when you bought the broadcasting service, presumably the health of it was reflected in the purchase price that you paid, and you are trying to make it more profitable. But I don't understand why you feel that we should change the basic policy that we enunciated, both in terms of CPE and PNI, just because City is not healthy.
1360 MR. PELLEY: I think, when you talk about the historical expenditures, Mr. Chair, in 2007 we inherited a group of stations that were failing, failing miserably -- costs were high, revenues were low, and we had to change things because, over those three years, they had lost $100 million -- and we just do not believe that this is an appropriate basis on which to assess historical expenditures.
1361 So we took a completely -- and I will let Shannon speak to it -- a completely different approach when looking at the CPE and PNI, which made the most sense for financial viability for our business.
1362 MS VAILLANT: Thank you, Mr. Commissioner.
1363 If you look at our historical CPE levels in 2009 and 2010, they were in the 30 percent range, but we also think it is important to note that over that same period Citytv lost $75 million.
1364 If you think about how the percentage of CPE is calculated, it is the spending as the numerator and revenues as the denominator, and we were working very hard, as Keith said, to turn the business around and take costs out of the business, but revenue was falling more quickly.
1365 So, in fact, our CPE historically is inflated because of our low revenues.
1366 If you look at this broadcast year, where we are starting to bring revenues back, our CPE as a group is about 26 percent, and for City it's about 23 percent. As Keith mentioned, we will still be losing $15 million on Citytv.
1367 So we don't feel that a CPE of 30 percent, historically, will allow Citytv to be a financially viable, stable business, to continue to contribute to the broadcasting system.
1368 THE CHAIRPERSON: We make rules, and we laid it out very clearly, based on the historical evidence that we had. You participated in this hearing, et cetera.
1369 When we issued the decision, nobody came forward and said: I want a review, because this is impossible for us to meet.
1370 No, you waited until today, and you are, in effect, asking me to go to the heart of our group-based policy, to the absolute heart, which is the CPE and PNI, and change them both for Rogers, while I leave them for the others.
1371 How can I, as a regulator, justify that?
1372 MR. PELLEY: I will have Susan Wheeler comment in just a second, and Shannon has talked about the financial situation, but the financial situation is really not only what comes into factor in terms of the CPE. I think we have articulated that one size does not fit all, and it must be based on the asset mix.
1373 In terms of PNI, as I mentioned, our PNI commitment exceeds historical levels, doubling by the end of the licence term by an increase of 100 percent.
1374 When you actually look at PNI and how it makes sense from our group -- even if you take something like Murdoch Mysteries, that we use our CMF funding for, unlike Shaw and unlike Bell and Corus, Murdoch Mysteries only has one place to air. It can only air on Citytv.
1375 So we don't have those extra benefits of having a plethora of specialty services that it can air on.
1376 In addition, our programming strategy has gotten away from that. We have moved away from that.
1377 So combining our programming strategy, the size of our CMF, the fact that we cannot take programs and distribute them on more than one platform, really, we thought -- and we had tremendous dialogue about this internally -- we thought that it would be better that we focus on our local programming, where we can actually make a difference.
1378 Can we really compete in Canadian drama with the behemoths of Shaw and Bell? The answer is no.
1379 So we thought it was best that we move toward a commitment and a look toward local programming, as opposed to focusing just on the 5 percent PNI.
1380 THE CHAIRPERSON: But you have a policy of -- you are obviously going to get into specialties in a big way. If I remember, you applied for about 10 Category B specialties --
1381 MR. PELLEY: We did.
1382 THE CHAIRPERSON: -- and you got them all, if I recall. Or you got 9 out of 10, or whatever.
1383 MR. PELLEY: We have.
1384 THE CHAIRPERSON: Whatever it is.
1385 So you are clearly going to launch some specialties.
1386 You have also been the leader on putting your programming online, Rogers Online, and getting a second window that way. Clearly, that is one of the benefits of vertical integration, that's why you are doing it. You are taking advantage of that base.
1387 I mean, we can't just look at the static situation right now, but obviously into the future, where you are going, et cetera.
1388 You call Bell a behemoth. For all I know, you will be one very shortly, depending on how you use the asset mix and how you grow it and how you expand it.
1389 MR. PELLEY: I think that if our cable company was here, they would put their hands up and say: Yes, we need more content from our media division. We are significantly disadvantaged and we can't do what Bell just did in terms of mobile.
1390 As far as new services, yes, we are talking about that every day, about launching new services, and we plan to launch three new services.
1391 The challenge, obviously, is -- a couple of things. First of all, they are unprofitable and we wouldn't be able to actually see the benefits until at least Year 3 or Year 4, in terms of this particular licence term.
1392 As well, unfortunately we are so far behind that it is tough to reach the scale of our competitors.
1393 Finally, I am hearing that not only are we launching new channels and applying for new channels, but so are our competitors.
1394 So as feverishly as we are trying to produce and create more content, it is just becoming more and more difficult.
1395 THE CHAIRPERSON: Before I pass you on to my colleagues, I appreciated that at this hearing we would have problems with the 30 percent and 5 percent, but what I expected was to talk with you and others on how you get there over the term, not how we change the rules to lower it, and you are asking us to do something quite different. You are asking us, effectively, to change the policy and, as I say, that is where my problem is.
1396 But I think we will have a more fruitful discussion about this in camera, so I will pass you over to --
1397 MS WHEELER: Mr. Chair, if I could just have an opportunity to address your concern about changing the policy --
1398 THE CHAIRPERSON: Absolutely.
1399 MS WHEELER: You are absolutely right, we did participate in the group-based licensing framework policy hearing, where we thought we tried to make it clear that we were supportive of that proposal, but that we wouldn't be able to derive the same level of benefits or programming synergies that the other, larger groups had.
1400 So when the policy was announced and the Commission expressed its preliminary view that, based on industry historical spending, it was 30 percent, we are here today to tell you that 30 percent is not reflective of our historical spending, and not a path for future viability for our services.
1401 THE CHAIRPERSON: Your colleague just told me that it actually is reflective of your historical spending, except that you were losing money. But you did spend exactly that.
1402 MS WHEELER: It is reflective of an unsustainable business model, absolutely.
1403 THE CHAIRPERSON: But the point is, we looked at historical spending, and we said that we were not going to try to impose something new on you. Let's just keep this level so it doesn't go down. That was our rationale.
1404 As your colleague told me, and as the figures show, you were exactly at 30 percent.
1405 I appreciate that you were losing money and that is why you can't sustain that.
1406 MS WHEELER: And we did try to adhere to the group-based regime that the Commission expressed, but we just simply set a different target than 30 percent.
1407 THE CHAIRPERSON: Rita, over to you.
1408 COMMISSIONER CUGINI: Thank you, and good morning.
1409 MR. PELLEY: Good morning.
1410 COMMISSIONER CUGINI: Again, if you were following along yesterday, you know that a number of us have different areas of questioning for you this morning. I will start off, essentially, with some general questions.
1411 One of the things I didn't hear from you this morning was: What are the advantages to your group of the group-based licensing framework? What do you hope to derive from this framework, and how will those advantages help to grow your business?
1412 MR. PELLEY: That's an excellent question. There are benefits for us, similar to some of the other broadcasters. We can consolidate, despite the fact that there are only three specialties, and communicate that with our OTA, and pool that together for a group CPE.
1413 Hence the reason that we applaud that, and we applaud the Commission's understanding of more flexibility in the creation of great content, as opposed to expenditures.
1414 But, really, we don't see the benefit, like some of the other broadcasters, based on the fact that we are not as rich in specialty.
1415 MR. STRATI: Commissioner Cugini, that is a good question because we certainly talk about that and I think the difference really is one of scale. It is no different than the others, but the scale is different.
1416 If I look at a group like CTV, for example, they have approximately -- you know, I review it myself -- $165-$170 million in sort of group CPE from their specialties. I have or our group has $11 million to work with.
1417 So it is not a question -- not a difference of they can look at a $170-million group and say, how can we allocate to certain projects that we really want to go after, certain things we really want to do?
1418 We will do the same thing. There may be a project for City, for example. I mean New Year's Eve has been something that has been on City for just past 25 years.
1419 So there are certain things -- whether it is that or something else or a "Mantracker" special on Citytv, there are a number of different things that we could look at. It is just a question of scale.
1420 We have a limited pool, they have a much larger pool, but in essence it is the same idea. It is that flexibility to work on different projects.
1421 COMMISSIONER CUGINI: Now, in making your case or trying to make your case for a PNI expenditure of less than 5 percent, you focused on drama and made the point that "Murdoch Mysteries" can't air on any of your specialty services today, but, as you know, in the framework we also talked about documentaries being part of that expenditure requirement, which certainly can air on bio and G4 and OLN.
1422 So why the focus only on what you cannot do as a result of the framework?
1423 MR. PELLEY: Alain?
1424 MR. STRATI: Commissioner Cugini, you are quite right. We didn't feel -- we didn't want to sort of communicate there are things we could not do.
1425 We are still talking about a significant scale. So even if you are talking about documentaries, for example, you still are talking about a level of funding -- if you do 13 hours or 13 episodes of "Murdoch" or 13 episodes or 13 different documentaries, you are still talking about a significant scale of financing for the projects.
1426 So the financing, when I look at a project when someone comes in and gives us -- there are three elements, they pitch the story to us, they talk about how much it will cost and they talk about the financing structure.
1427 When we get to the third issue it is always a difficult one for us because we don't have the specialty CPE and we don't have the CMF.
1428 So if you come and talk to us about a show like "Murdoch Mysteries" or a show like "Flashpoint" or "Rookie Blue" or a large documentary project, they can access -- the other groups can access specialty CPE contributions that I can't and they have CMF envelopes that we don't have as well.
1429 So it's the same -- you are quite right, the distribution part is important, but so is the funding, the actual -- the ability to actually finance the shows, including documentaries.
1430 MR. PELLEY: I think also when we talk about PNI, I don't think we should lose sight of the fact that based on our distribution of just 80 percent as opposed to our competitors, one of the aspects of PNI in award shows, we can't really do.
1431 They did a terrific job and they have done a wonderful job, CTV, of rebuilding the Juno Awards. When they came up for renewal, it was something that we couldn't even bid on. We can't bid on award shows because we just don't have the distribution to take them to all Canadians.
1432 In addition -- and I think, Alain, I just want you to touch briefly on -- because during these discussions in preparing for this we talked a significant amount about programming philosophy and how -- and I kept hearing -- as the new guy that is coming in, I kept hearing that the PNI outside of awards doesn't fit the programming strategy that Alain has developed as he has rebuilt these networks.
1433 MR. STRATI: Part of the reality for our three specialties is what they are involved in.
1434 So a channel like OLN has a total CPE or we spend in the neighbourhood of $6.5 million to $7.5 million. Within that it's a strategy in terms of what our nature of service is, what is popular and interesting with our audiences, and we have historically been involved in the production of programs like "Mantracker," "Survivorman," "Departures" and others.
1435 On G4 we produce an hour daily, sort of a digital culture, digital magazine style show, from a production company in Vancouver that really focuses on our target.
1436 So we try and establish a focus for our stations and a program that really fits them, and it's a lot of original programming for those three specialties.
1437 But the reality for us is in doing that, a lot of those shows are not in the PNI category, where, if you had a larger specialty envelope, a showcase for Shaw, a comedy for CTV and others, there are different points of focus. Our focus to date has not been in the PNI area.
1438 COMMISSIONER CUGINI: Ms Wheeler, you talked about genre exclusivity and the policy and you say:
"[It's] no longer a useful or relevant tool for promoting program diversity."
1439 Commissioner Simpson has been tasked with going through your specific requests in terms of changes to your specialty services, but are you here asking us to eliminate the genre exclusivity policy now or do you think that is the subject of a future proceeding or should be the subject of a future proceeding?
1440 MS WHEELER: I think we would like the Commission to take a preliminary view that a genre exclusivity policy is no longer a relevant policy in today's vertically integrated broadcasting environment.
1441 We recognize that the devil's in the details and that there will be some mechanics in terms of the implementation of that, the impact that that may have on mandatory carriage and other associated regulatory mechanisms that go along with genre protection.
1442 So we recognize there may be the need for an additional dialogue on how the Commission should effect that change, but we are hoping out of this proceeding that you will express a preliminary view that the policy has outlived its usefulness and move towards a more modern approach to genre reproduction.
1443 COMMISSIONER CUGINI: I think in your answer you have anticipated some of the concerns that we would have with this, and with this now, because the new BDU Regs come into effect in September, and genre exclusivity and mandatory carriage, quite simply, they are linked together.
1444 And so my question was then going to be: Why now? Why look at this now? And if not now, within what time frame do you think we should be looking at this if we decide that it is something we should be looking at?
1445 MS WHEELER: I think the Chair aptly noted yesterday that this proceeding is really setting the course for the next five years of the English-language television sector, and clearly, genre exclusivity has a bearing on that future path.
1446 And so that is why we feel that it is timely at this point when the environment has changed. Consolidation has happened. You have large vertically integrated companies owning the majority of the services that do have genre protection. I do think that the timing is such that it is appropriate to review it at this point.
1447 MR. PELLEY: Also, just to make a couple of comments on it, I think we have talked a lot about flexibility and I found it, you know, ironic that you -- that Shaw and CTV are opposed to the removal of genre exclusivity, yet are asking for their nature of services to be altered to allow for more flexibility. I think there is some irony in that.
1448 I also look at it and say, you know, everyone is taking the nature of service now and you are forensically looking at it. You are bringing in all your lawyers. You are looking at different interpretations. You are all trying to -- let's be honest, we are all trying to push the boundaries.
1449 Is that really what we should be doing and is that where the Commission and the broadcasters should be spending their time?
1450 And so we thought it was best to bring it up. We totally believe that it has worked in sports. We believe it worked in news. And we believe competition is good because I think what happens is the stations that have genre exclusivity move into a realm of complacency, in a harvest mode and I think competition makes them better.
1451 I think that it really came to roost -- I will just have Malcolm Dunlop talk just for a second on how much programming there is out there.
1452 We said, why is it -- why couldn't we come in with a food network and why couldn't we come in with a history network and compete directly? Would it make it better? Is it not time to let the best services, the best operators and the best programmers operate so that some of the independents can come in and challenge the big broadcasters?
1453 Malcolm said there is tons of programming out there, and just very quickly, Malcolm, maybe you could just touch on that.
1454 MR. DUNLOP: Certainly. Thank you, Keith.
1455 We go to the markets -- we go to a number of markets a year where we buy programming and there is so much programming out there. There is so much programming right now that isn't seen in the Canadian marketplace that is available.
1456 I think some examples -- even in the U.S. there's things like truTV. There's a number of shows that are on that service that aren't seen here in Canada: SCi-Fi, FX, things like that.
1457 So we believe that there is a lot of programming out there. We also do believe that if this programming came in and there were other channels that it would create more Canadian spend as well.
1458 COMMISSIONER CUGINI: Thank you.
1459 I am going to move on to the specific asks in your application that obviously are related only to your service and one of them is your request to delete the no overlap requirement between City and OMNI when it comes to formally called "priority programming" now, in the future to be called "programs of national interest."
1460 Is it not enough -- could we simply replace "priority programming" with the words "programs of national interest" or do you want a complete elimination of the overlap requirement of any programming between OMNI and City?
1461 MS WHEELER: I don't think that we are asking to eliminate any overlap between OMNI and City.
1462 There are still -- there is a 10 percent flex that is still on both the OMNI and City licence that we haven't requested to have removed. There is still the prohibition on City that it cannot air any third-language programming generated from OMNI.
1463 So we believe that those safeguards are really what is needed to ensure that those two services are distinct.
1464 Our request to remove the overlap on priority programming was simply to reflect the fact that the Commission has moved away from a priority programming regime to an expenditure regime.
1465 So it wasn't that we were looking to bring more OMNI programming onto City, it was simply a technical cleanup of the conditions of licence.
1466 COMMISSIONER CUGINI: Okay. It is housekeeping.
1467 You make a similar argument for the condition of licence that requires you to air 100 hours of Canadian films on City. You are asking for that to be deleted, as you say, because our policy is focusing on expenditure requirements and therefore this requirement is redundant.
1468 As you know, there are interveners in this process who are asking us to not only maintain that COL for you but to expand it to Citytvs in other markets.
1469 MR. PELLEY: Well, if I could, Madam Commissioner, in terms of -- this had a lot of conversation and for me it was a learning experience as we learned a little bit about where movies fit in in the program philosophy of City.
1470 When you go back to the days of Moses Znaimer and his brilliance on the station, there is no question that movies was not only the foundation but it was the signature of City television, and I am going to pass it to Malcolm just to talk a little bit about that.
1471 But now, you can get movies everywhere, and really for City to concentrate or to have a condition of licence, it really is totally against our programming strategy.
1472 When Rogers took over and Malcolm slowly started, and his team, to rebuild it, movies was not a programming philosophy and a priority.
1473 Malcolm, maybe you could touch on that.
1474 MR. DUNLOP: Thanks, Keith.
1475 It is interesting, when we bought Citytv, as Keith said, we moved away from the movie philosophy. We didn't feel that it was in the best interest for long-term growth of the station.
1476 Interestingly enough, when we bought Citytv, we actually didn't own any movies. We were sublicensing all our movie from CTV. So we weren't even buying Canadian movies. The first time we actually started buying Canadian movies was actually fall of 2010.
1477 As Keith said, the movie business is difficult these days. You know, I think Citytv when I was growing up was always the movie, you know, was movie, news and music. It is not a movie station anymore. We actually probably run less movies than anybody else.
1478 If you want to see a movie these days you tend to go more to the specialty channels, which tend to buy most of the movies.
1479 You know, one of the challenges with programming movies is by the time it has all the levels that it has, whether it's theatrical, premium pay, pay per view, DVD, on demand, specialty. By the time it comes to the over-the-air a lot of those movies people have seen already. So we saw the ratings of movies and Canadian movies decreasing.
1480 MR. PELLEY: I would also say that no other OTA has that requirement and even if it was a programming philosophy, when City was acquired by Rogers, just prior to that they had the likes of Bravo and Space to at least get second and third windows. Again, the size of our specialties prevent that.
1481 And then there is that magical company called Netflix that seem to be really engaged in movies these days.
1482 COMMISSIONER CUGINI: One other area of questioning has to do with the area of accessibility and, in particular, the quality of captioning.
1483 Were you part of the working group that there was a working group process to monitor or to enhance the quality of captioning? Were you part of that group?
1484 MS WHEELER: Yes, we are members of that working group.
1485 COMMISSIONER CUGINI: I mean, I understand, from your application that you are obviously committing to all of the requirements when it comes to issues of accessibility. But that working group is -- it is my understanding that they are coming up with a policy or a book of standards for captioning.
1486 What are you doing over and above what that working group process will result in to ensure the quality of captioning?
1487 MS WHEELER: So we have implemented a monitoring system because, as you know, the closed captioning requirements are a condition of licence and we have received some complaints particularly with our Sportsnet service due to the fact that we do a lot of live programming and we also air live sports events on multiple feeds at the same time. So it's a bit of a complex process.
1488 So as a result of some of the viewer feedback related to concerns about caption and quality, we have implemented a monitoring mechanism to ensure that at the master control we actually are ensuring that the captioning is coming through, the caption is able to hear the feed and be able to transmit it through to the -- or that the feed is getting through to the captionist so that he or she can properly transcribe and that will review the programming afterwards to ensure that any captioning errors are corrected before they air again.
1489 COMMISSIONER CUGINI: How do you monitor your captioning errors?
1490 MS WHEELER: The master control goes through the program afterwards and if the program is scheduled to air in the short term, they will correct them immediately. If not, they will put it in a log and it's in a queue to be re-captioned before it's aired. But there is an absolute prohibition on it being aired before the day captions have been corrected.
1491 COMMISSIONER CUGINI: What position in your organization is accountable for --
1492 MS WHEELER: It is my responsibility.
1493 COMMISSIONER CUGINI: It's yours.
1494 MS WHEELER: Yeah.
1495 COMMISSIONER CUGINI: Okay.
1496 One housekeeping issue: Outdoor Life and your tangible benefits that resulted from you acquiring the remaining portion of Outdoor Life, there was an OLN production initiative totalling $3.8 million. That was committed to during that transaction and we haven't seen a report.
1497 MS WHEELER: I will let Mr. Strati answer that question.
1498 MR. STRATI: Commissioner Cugini, the truth is up until this year we have not spent any of the benefits. The reality for that is we actually had a production two years ago that was a co-production that we actually slotted and had allocated funds for, $3.5 million. You can imagine that's sort of a project or two.
1499 So we have our spending we do, our projects we do to meet our CPE and then we have sort of identified this show as the one. Unfortunately, the project dismantled or fell apart. The good news is, it's back on track.
1500 In the interim, we realized that we had to start the process going, so we have started with another program. We have probably spent about $500,000 this year in 2010-2011.
1501 And next year that project will come onboard so we will file the report obviously this year.
1502 Then in the years after we feel by the end of 2012, if not shortly thereafter, you know the $3.6 or $3.8 million will be spent.
1503 COMMISSIONER CUGINI: Okay, thank you.
1504 I will hand you off to my colleagues now.
1505 Thank you, Mr. Chair.
1506 THE CHAIRPERSON: Thank you.
1507 Suzanne, I guess you will do yours when we do --
1508 COMMISSIONER LAMARRE: I can --
1509 THE CHAIRPERSON: You want to do some in -- okay, fine.
1510 COMMISSIONER LAMARRE: I won't touch the numbers. We will just talk about principles on CPE and PNI.
1511 Most of it has been covered by the Chairman and Commissioner Cugini so I am not going to get you to repeat what you have already said. It was clear.
1512 But I do want to point out what seems to me a contradiction between the difficulties you seem to be expressing in how spending that much money on Canadian programming would put Rogers in a hardship situation and what you have presented this morning.
1513 Page 4 of your presentation you are saying that you built your plan on three issues. And the third one is to build a stronger local presence in our Citytv markets outside of Toronto and want to make the case, you know, that Citytv everywhere is in everyone's mind and you want to do it in your Western markets.
1514 Well, that's obviously going to be translated into more expenses in local programming and that's Canadian programming. So you are actually going where we want to take you. Yet, at the same time, you seem to be kicking and screaming as we are trying to get you there.
1515 So I don't understand why it's becoming such a problem when it's actually what you are trying to do here.
1516 MR. PELLEY: Well, I think, Madam Commissioner, that again we are -- when we are looking at this particular illustration that Shannon went, of one size does not fit all, was based on our asset mix and that's how we got to the point that we thought everybody should be definitely treated different based on that asset mix.
1517 We also looked though when we went through this forensically as a business and where it was run in the past and where it is run now and where we want to get to. And we want to get to the point where we are not doing what Malcolm said on day two, where we are competing with the /A\s, that we are competing with the likes of CTV and Global. And that means spending money on local.
1518 But what we were thinking was the 25 percent CPE makes us viable while at the same time the 5 percent PNI, if we don't spend that on programs of national interest --
1519 COMMISSIONER LAMARRE: I'm sorry to interrupt. Just I am going to get to the PNI, but just on the CPE itself?
1520 MR. PELLEY: Just of the...?
1521 COMMISSIONER LAMARRE: Yes, just never mind the PNI. It's of course out of CPE.
1522 MR. PELLELY: Correct.
1523 COMMISSIONER LAMARRE: Just talk to me about CPE right now.
1524 MR. PELLEY: Well, we looked at it and said historically where we have been, where do we actually need to get to?
1525 We say this particular year in 2011 we are at a 23 percent CPE and losing $15 million. That's with an 8 percent advertising revenue increase, a 9 percent on conventional when our competitors are saying zero to 2 on conventional and 2 to 4 as a group.
1526 But let's say even -- and even at that aggressive revenue target if in fact we were only to reach 3 percent of advertising revenue, then we would not at even at a 25 percent CPE be profitable in these 5 years.
1527 Perhaps I will have Shannon just touch on that.
1528 So it is -- you know, we are not here -- first of all, we wanted to show you the mix. There is no question. And we are not here to simply ask for a handout.
1529 We are simply saying, "This is the reality of our business. This is what we need to be a robust and competitive player in this marketplace".
1530 And Shannon, did you want to touch a little bit more on the history?
1531 COMMISSIONER LAMARRE: Shannon, before you take that, I just want to touch on what you just said.
1532 You are right. You are showing us the mix that's a reality of your business.
1533 At the same time the reality of the Canadian broadcasting system is that the OTA part of it is the most visible one. It's the one that will reach out to more Canadians.
1534 MR. PELLEY: Right.
1535 COMMISSIONER LAMARRE: So it's the one that we are going to most of the time want to have the most Canadian content.
1536 MR. PELLEY: Right.
1537 COMMISSIONER LAMARRE: And going into the business you knew that, like it was not some hidden weird regulation. It was -- it's plainly set out in the Broadcasting Act.
1538 So as much as I am very sensitive to what you are explaining and I fully understand it, at the same time if we do base it on the historic dollar amount, as you have been doing, instead of the percentages, what you are proposing right now is for the Canadian broadcasting -- Canadian system to actually water down as years go by.
1539 How could we accept that?
1540 MR. PELLEY: Well, actually, I beg to differ, when you actually look at that second chart and you see the significant commitment that we are making in Canadian programming.
1541 As our revenue grows and as Malcolm and his team build a stronger U.S. programming schedule that allows for revenues to increase and allows the profitability, that leads us right into spending more money on Canadian. Even at the numbers at 25 percent the numbers are significant in terms of our contribution to the Canadian broadcasting industry.
1542 MS VAILLANT: Just to your point, Madam Commissioner, in terms of our incremental spending that we have proposed at a 25 percent CPE, most of that $100 million will be going to local and although we don't think financial viability is the key point of our argument, it's something that we have to take into consideration if we want to be a long term player that can contribute to the system.
1543 And at a 30 percent CPE true or historical numbers are around that level but that's inflated based on the recession. If we use a 30 percent CPE through the next broadcast term, Citytv never reaches profitability. After losing over $110 million to the end of this year, it will lose another $13 million through the next five years.
1544 So in fact, you know, Citytv since we have bought it will be an unprofitable venture. And you know that's not our goal.
1545 We want to turn it around but we are looking for help from the Commission to be able to do that at least through the next broadcast term.
1546 COMMISSIONER LAMARRE: Okay, you have made your point. I am not telling you whether I agree or not. I'm still going to think this over.
1547 But I want to move to PNI because when you -- I understand why you are saying that it's difficult for you to spend 5 percent on PNI. I have read your rationale both in your briefs and your presentation this morning and all of that.
1548 MR. PELLEY: Right.
1549 COMMISSIONER LAMARRE: But what I would like to know is, let's say that we decide that we agree with your argument -- assume that. It's a hypothetical, okay? We have to make that clear.
1550 COMMISSIONER LAMARRE: If we agree that, okay, you should just spent 3 percent, not 5 percent, there is --
1551 MR. PELLEY: How much was that?
1552 COMMISSIONER LAMARRE: 3 percent, assuming -- assuming hypothetically, okay? You don't have to start at 5 percent Year No. 1.
1553 Let's say you start at 3 percent. So there is this 2 percent flex you get.
1554 Where am I going to see the changes in your schedule? Where is that 2 percent going to go? If it doesn't go on PNI how is it going to turn out in your system, in your schedule, let's say in Winnipeg?
1555 MR. PELLEY: Ah! It's a great question. I am going to pass that to Mr. Haggarty to talk a little bit about the commitment to local programming.
1556 It comes back to your original comment in saying that City television and Citytv in Toronto is Citytv everywhere. Local is the area where we believe we can compete.
1557 Now, we are concerned about the social dollars that were awarded to Shaw and CTV that they are going to put towards local programming. So all that does is make Mr. Haggarty's job that much tougher, but we need to be a real player in the west and local programming. We need to fix our breakfast televisions and we need to make them like they are in Toronto.
1558 Perhaps, Jamie, I will just pass it to you to talk a little bit about local programming.
1559 MR. HAGGARTY: Sure. I am happy to, Keith.
1560 As many people know the heritage and the brand of Citytv in Toronto is well established. The original owners did a fabulous job of establishing that position in the marketplace with viewers who resonate, as Keith mentioned earlier.
1561 We don't have that heritage and track record in the western markets. It's a tough market to be in but we knew that when we bought the Citytv stations so we are not just realizing this after three years.
1562 What we didn't realize is when we bought the stations how bad of a condition they were in when we first arrived. And that was complicated by, within a year later, the recession.
1563 So what we have been doing in the interim is not accepting that as just victims of circumstance. We have retooled the business in the west. It does take time.
1564 This is a financial turnaround. It's kind of like parenting multiple children. Each of our children has different needs and challenges.
1565 Toronto's is relatively working. Our hosts in Toronto are well known. They are parts of the family. If you walk down the street with Gord Martineau or Kevin and Dean in the morning, these folks are loved and revered in the marketplace. They can't go to lunch without having to take their picture with somebody.
1566 In the Western markets, we need to get there. And we are going to get there by investing and continuing to invest in our morning shows, in local traffic and in weather and in promoting services.
1567 So step one is fix the product. We are on the track to doing so.
1568 Step two is to promote it like crazy to get people to be aware of our shows in the morning in the Western markets.
1569 I will ask Dwight to -- I want a comment on the role of news in Winnipeg -- and maybe Paula Davies -- to discuss the relevancy of BTE in Calgary as to what we do that personifies us in the marketplace.
1570 We are enthusiastic about our current shows prospects. We have retooled out talent, our morning show host; we have brought in a brand new management team in the last two years in every market in the west. We know we had to go in a new direction and we believe with a better product and more promotion that we will see the same success that we have in Toronto.
1571 COMMISSIONER LAMARRE: So in short, if you don't have to spend 5 percent on PNI, then it's a shorter number, the amount that will be freed up there, what you are telling me, you are going to use it to make a better breakfast television show in all of the western markets; is that it?
1572 MR. HAGGARTY: Well, you know --
1573 COMMISSIONER LAMARRE: I'm not saying that it's the law, but what I asked is practically. How is it going to change the schedule in the look of what you are doing?
1574 MR. PELLEY: If I may, you are right, local is the only area where we believe we can be competitive and we can win it. We will look at -- we have already -- Jamie and I and Scott Moore, our President of Broadcasting, have had a number of meetings on local and just in the last couple of months we added weekend news back into Toronto.
1575 COMMISSIONER LAMARRE: Okay.
1576 MR. PELLEY: We have added four specials that we have done, including one about concussions that was done and carried across the country on hockey.
1577 So where you are going to see it -- correct, we can't win the PNI game. We have a chance to be competitive and win the local game and that's where we are looking at right now.
1578 Maybe we will have Dwight just touch on what we are doing in Winnipeg.
1579 MR. HAGGARTY: Sure. Before I throw it to Dwight for some examples as other things that we are currently doing, just to tease you with some ideas of initiatives, when I asked the General Managers what they would do with some extra money in local programs, there was everything from brand new shows -- we announced a few months ago the local current affairs shows that we had planned for Calgary, we have plans to do more entertainment city profiling of what is going on in each of the western markets. That would be one hour a week. The current affairs show we announced for Calgary would be a half hour show. That concept could extend to Vancouver.
1580 COMMISSIONER LAMARRE: Okay.
1581 MR. HAGGARTY: Again, it's a half hour Monday to Friday. We look at potential brand extensions. CityLine is a national show that we do out of Toronto, but we see there is a demand in opportunity for CityLine Calgary, CityLine Vancouver.
1582 Speaker's Corner is an old concept, but it certainly was the first of the YouTube social media of its kind. We could do a Speaker's Corner half hour, an hour a week in each of the western markets where viewers talk back.
1583 Keith mentioned our event success, whether it was the New Years Eve we have done in Toronto or the concussion special that we have done. We would love to do a special on the Stampede in Calgary. We would love to do specials on the fabulous festivals that come out of Edmonton and Winnipeg. But that's the future. That's what we are excited about where we could spend the money.
1584 COMMISSIONER LAMARRE: Okay. Well, that's a good answer.
1585 COMMISSIONER LAMARRE: But still, let's go back to the policy. The policy still says 30 percent CPE, 5 percent PNI. So let's say for argument's sake again we do accept that at this point in time in this renewal that it would be unrealistic or it would be difficult for City next year to go for 5 percent. What about increasing it over license term?
1586 We are talking about transition, we are talking -- and as you do develop those brands, as you do develop that local presence, as you do become a more fierceful competitor --
1587 MR. HAGGARTY: Right.
1588 COMMISSIONER LAMARRE: -- to your other colleagues in those markets, why couldn't we expect more of Rogers by the end of the license term?
1589 MR. PELLEY: Well, we are definitely expecting more within Rogers, there is no question. We are already at -- is it, Shannon -- 2.5 percent right now and we believe that when we looked at those numbers and if we were to increase it all the way to 5 percent over the license term, who is going to pay the price is local. We are just not going to have the money to do both.
1590 At the same time -- I can't emphasize this enough -- I think that we are at a significant disadvantage based on the assets that we have to be able to do PNI at 5 percent.
1591 Shannon, maybe I will have you talk a little bit about the history.
1592 And remember, though, even our PNI -- and I have said it before -- exceeds our historical levels.
1593 MS VAILLANT: Right. So our historical PNI spending is about 2.5 percent, so to your point out plan is to increase that over the term. So our proposal is we start at 2.5 for the first two years of the broadcast term and increase it to 3 percent for the last three years of the term. So we are moving in the direction that you want, albeit more slowing than you would like, but appropriate for our circumstances.
1594 MR. PELLEY: But our goal would be to be back here in the next license term and be a more, I guess, relevant competitor to CTV and Global and be able to meet those requirements at that time.
1595 COMMISSIONER LAMARRE: Okay. I will leave it at that for now and I will give you the opportunity in the in camera session to maybe refer directly to your numbers that you are making sure that you don't divulge here right now.
1596 Thank you.
1597 THE CHAIRPERSON: Steve...?
1598 COMMISSIONER SIMPSON: Thank you very much.
1599 Nature of service, I'm your guy.
1600 COMMISSIONER SIMPSON: I would like to start off on some broader programming concepts to help me understand where you are going with your assets and then we will get into some of the housekeeping details later.
1601 What I find really interesting about your dilemma -- and I do have an understanding, a complete understanding of the economy of scale issues you are dealing with and the need to be able to bicycle programming assets around to get value out of them because it's a big money game and you have to extract as much value as you can out of what you get your hands on and also the implications of not having enough money in your jeans relative to your revenues to be able to go out and create your own.
1602 So with all that said, I would like to start off with sort of the 80,000 foot view and talk about the two chunks of Category "A"s and OTAs as a concept.
1603 What I find interesting about the whole evolution of Citytv as a concept going back to Moses' vision of -- which I thought was a good one and probably still is -- as an OTA that has a niche within a television industry that has been quite networked up to the point where you look at most OTAs today they are functionally 95 percent network, 5 percent local. That's my figures, they are probably inaccurate.
1604 But the idea is that an OTA is not really an OTA today, it's a network that happens to have a programming commitment to local. And what you have I find interesting in that you are really a niche OTA.
1605 You know, you have a specialty and you are trying to work more towards that specialty, play your strong cards, and yet with your Category "A"s, I think out of economic compulsion, you are trying to move your OTA, which is a broader category of specialty, into more of a network OTA in appearance and that by pulling the cork out of the bottle with the removal of the "exclusively" word, essentially you broaden the genres so potentially wide that they get, in my mind, to be somewhat problematic, again understanding your need to do this.
1606 So with that said, and I suppose coupled with your Category "B" applications which are definitely driving your business more toward where the market seems to be going, these Category "A" issues -- and again, I'm trying to stay away from the specifics of your request -- why are you feeling that it's important to drive the Category "A"s to the widest possible extent possible in genre and not try and make them more specialized playing to what their strengths are supposed to be?
1607 MR. PELLEY: Well, it's interesting because you go back to 1984 and when TSN launched people said sports was too niche and now it might not be niche enough. I think there is 15-24 hours sports networks.
1608 As far as our Category "A"s -- and probably the best one I can give you is the Outdoor Life Network. The Outdoor Life Network, I had the privilege or responsibility back when it was owned by CTV, owned by Rogers and also owned by OLN U.S., of running the Outdoor Life Network, and we kind of tried to go with this broad programming strategy, we had fishing, we had adventure, we had reality, we had a bit of everything and quite honestly I didn't do a very good job and really didn't think OLN was a licence that could be that niche.
1609 Then I came here to City and I was blown away with what Alain has been able to do. It kind of took the nature of service and focused and made it exactly what you are saying, is made it niche, focused right onto the word "adventure", adrenalin, survivor and adventure and all the programming kind of followed that.
1610 So I think we do want to be as niche as we possibly can. I think the BDUs want that, they want to have a Space Channel, they want to have a Food Network, they want to have HGTV, they want to have an Outdoor Life Network with adventure.
1611 The only thing is that I think all of us are looking for is just a little bit of flexibility in that 10 percent. I think that is what PN-2008-100 talked about, is that flexibility. But I do agree with you, I don't think we are trying to make them -- and that's not really why we wanted to remove genre exclusivity, that is a whole different -- we believe that we want to be able to compete just like everybody else, but we want to be niche. Our Cat 2s that we will launch will focus on that, because that's where we believe that the industry is going, that the broad networks like Sportsnet and TSN, although they are powerful now, you just can't start another sports network, you have to go for a niche licence.
1612 Anything? Did you want to just add on that, Alain?
1613 MR. STRATI: Sure, Keith.
1614 Just to give you a bit of context --
1615 MR. PELLEY: He is the master for creating OLN.
1616 MR. STRATI: Just to talk a little bit about exclusively, that was one point you talked about, and I heard the widest extent possible.
1617 I think there are two things. I think one, on the exclusive part, there is sort of a myriad of 50, 100, 150 channels, whatever you would like to look at, there is about 10 or 12 that have exclusive or sort of some kind of limiting language in it which sort of takes in again this interpretation element where you sort of look at each specific program, each specific element. I think it's sort of how you read and how you look at every single element in a kind of a -- let's call it an administrative way.
1618 When we talk about exclusively, it's about that, it's not about changing the nature of service. What we did with the nature of service --
1619 COMMISSIONER SIMPSON: But I think in terms of the -- again, I'm trying to avoid getting into the specifics, which we can do later, but I'm looking downstream. Our job is to look at what you want to do with your specific assets, which is of vital importance to you and us, but trying to contemplate the slippery slope situation.
1620 In looking at -- again, without getting into the specific details, I think when you look at your request for OLN as an example, there is only about six categories of programming that you don't want in the future for this particular network.
1621 MR. STRATI: Commissioner Simpson, I think the fact that "exclusively" is there or not doesn't impact, quite frankly, the nature of service because you have a significant number of services that have nothing to do with any word relating to "exclusively" and you seem to have a very small number that have "exclusively", so in the end it should be about the nature of service, if that is the conversation.
1622 COMMISSIONER SIMPSON: Yes, you're right. We are drifting into programming.
1623 MR. STRATI: So if you have a vast majority of services that have nature of service without that word or that condition, the widest extent possible they are fulfilling their -- and even as a self-interest perspective, if I'm talking about OLN or G4, as Keith mentioned, for a distributor it's in our best interest. They come to us and they say, "Tell me what OLN is. Tell me what G4 is", because they want to communicate that to their subscribers and we want to communicate that to our viewers.
1624 So we want to establish, if you will, sort of a bit of holistic idea to say what are we about. For OLN, as an example, we talked about adventure, we talk about quest, challenge, pursuit, chase, survival, that is the sort of element we are talking about for OLN.
1625 MR. PELLEY: I think it's important because we have had this firsthand from our own company who have talked to us about the Cat 2s, and BDUs, including ourselves, will not give you a wholesale rate if you weren't offering a real distinct service.
1626 So that's why I honestly believe that it is how good you are within the boundaries of your nature of service which is going to be your success on a go-forward.
1627 COMMISSIONER SIMPSON: You know, I think you found that. In the whole chronology of OLN, again using this as an example to try and keep our heads up on this, as it struggled from 2004 to 2008 with its initial conditions of license you seemed -- the channel, and I think you were a minority partner at that point --
1628 MR. PELLEY: Yes.
1629 COMMISSIONER SIMPSON: -- seemed to strike some pay dirt. You found this resident chord when all of a sudden programs like "Mantracker" started to pop up, and "Survivorman" and others, which really found the sweet spot. It was at that point that Rogers swallowed the hook and bought the whole channel.
1630 MR. PELLEY: That's right.
1631 COMMISSIONER SIMPSON: But then you started drifting back into "Dog The Bounty Hunter", which again is a pursuit show, but it isn't what I would say is a -- I just don't see the dotted line between --
1632 MR. PELLEY: Right.
1633 COMMISSIONER SIMPSON: -- an urban cop show like "The Beat" or "Dog The Bounty Hunter" or the repossession show as being an adventure show. It's an urban adventure show which is anathema to outdoor life.
1634 MR. PELLEY: Well, the way it was described to me -- and I will have Alain maybe tough on that, but the way that it was described to me was OLN. Because I had a significant interest in OLN and its success when I came to City because, as I said, I ran it as part of the consortium of City and CTV and OLN U.S. and we couldn't figure it out.
1635 The way that it was explained to me, and Alain said, is we really took three words and if those three words fit then the programming would fit. They were: adrenalin, survivor and adventure. Those were the three words. I think that has dictated his programming philosophy, but I will let you talk about "Dog The Bounty Hunter", because I have not much to say about "Dog The Bounty Hunter".
1636 MR. STRATI: Commissioner Simpson, there are sort of two elements of that conversation. The first element is what you look at is your channel and what you are trying to do; you also look at what's going on outside your channel and what others are doing. I will start with the first.
1637 When we look at what we are doing with our channel, if you do "Mantracker" or "Survivorman" and if you do four different survival shows one after another, people want an element of diversity, so what you want to give them is the opportunity to come in and tune to you and say, "Wow, I watched that show yesterday."
1638 You know, there is a show called "Departures" which we get so many comments about that experience of travel, sort of I'm a traveller and not a tourist. So it's the ideal of an experience, of an adventure. But if you give the same adventure one after another you begin to lose the aspect of adventure.
1639 So what we tried to do is to work within that adventure, adrenalin, pursuit, chase element and yes, we expand on that, if you will, and try to give other elements -- we are trying to think what does the viewer want, what is the viewer interested in. While "Dog The Bounty Hunter" may not be someone who goes out like Les Stroud on a 7-day quest and is starving by day 3 and hasn't slept, it is in that sense of -- all of our shows seem to have this you sit down, you are given sort of a context or what the game is going to be or what the issue is going to be or what the chase is going to be and then you go somewhere. You go on a chase, on a pursuit, on a challenge and at the end of it it's sort of resolved and something happens.
1640 But the other part -- if I can just say very quickly, Commissioner, the other element is what is going on in the marketplace. "Survivorman" is Les Stroud, Bear Grylls is on Discovery. So what you have is you have other channels, "Deadliest Catch" on Discovery, you have "Ice Road Pilots" on History, fantastic shows, but what you have is you have that element of if something is working others are doing it, too.
1641 COMMISSIONER SIMPSON: I totally understand that argument.
1642 The slippery slope element -- and then we will close this off because we have a lot of work to do here -- is that genres still exist and until such a time as they don't what Category "A"s have the potential of doing is blockading Category "B"s because the genres of Category "A"s become so broad that there is no room in the 500 channel universe. That is a concern that I have, not ignoring the economic argument that you are extolling.
1643 I will just leave it at that because I would like to move on, unless there is something that you want to close off on.
1644 MR. STRATI: If I could, Commissioner, I apologize, but just to give you a sense on that, I talk about the marketplace that OLN is involved in specifically, I talk about it as a Bermuda Triangle, we are sort of between Discovery, History and there is actually a channel called National Geographic, and Nat Geo is in that space as well. There are a lot of channels, if you look at Category "B" nature of service, a lot of channels have the description of action, adventure and in fact have greater flexibility than OLN does, or History or Discovery.
1645 So I would argue that there is already -- we are getting into an element of programming competition, viewer competition and Category "B" and Category "A" competition.
1646 THE CHAIRPERSON: Your license renewal is not going to turn on OLN, so let's move on.
1647 COMMISSIONER SIMPSON: I would like to move back to City, the City format for a second.
1648 I find the City format intriguing, because it is trying to do something in an OTA network environment that is singularly unique and I think meritorious. I will give you an example of why I say it's meritorious.
1649 Two weeks ago, three weeks ago when the tsunami -- the earthquake happened in Japan and the tsunami that came after started to cause all of the west coast of North America to wake up to the potential of having a tsunami coming, what was really vexing for me is out of all the signals that came into Vancouver -- and we get a lot on the Shaw system -- with the exception of Fairchild I believe, the ethnic station, there were only two English-language television broadcasters broadcasting live television in the morning and City was one of them and Global was the other.
1650 I think that really gives me and you inspiration to look at the next line of questioning I would like to ask you about, and that is live programming.
1651 From your perspective, knowing that news is the most expensive format with the live genre, is there an avenue for more live television in local television? Does that work for you or does it help abate your programming cost questions?
1652 MR. PELLEY: Well, first and foremost we see breakfast television as news. We see it kind of as informative yet entertaining with big news elements.
1653 We are proud of what we have been able to do in Toronto. We haven't taken the secret sauce of City television and how it is linked to the community in Toronto across the country. I guess we would have to save our secret sauce for in camera, but we definitely want to be able to do that.
1654 As far as live programming, it's one of the ways that we have gone the special route. It was maybe two weeks ago we did the first kind of live special in-studio on the challenge of concussions in hockey. When Prime Minister Stephen Harper talked about it and it was changing our game and we had to do something about it, we tried that. It was kind of the first experiment of that and we did pretty well. We could have been a little bit stronger, but it was a good start.
1655 So in terms of specials, Jamie, that's something that we have kind of focused on. I know you did the New Years Eve special and you did the Grey Cup Parade, I think specials, live specials, is probably where we can stand apart from our competitors.
1656 MR. HAGGARTY: I couldn't agree more, Keith. Live is what we do best. Live is what we prefer to do. With the wind at our back from an economy condition point of view, I know the high expectations that Keith and Scott have of us is to continue to grow our business. We couldn't be more enthusiastic about doing more live.
1657 Some of the events that Keith mentioned, we are proud of these that we have done. In Vancouver it was the Santa Claus Parade, we wrestled that away from another broadcaster and we were pleased to do that on City. We did a Peewee hockey tournament in Calgary throughout the week and we turned that into a one-hour special. We did a two-hour Canada Day special last July in Winnipeg. That's never been done before. We have a series of these also that have happened in Toronto, a teen depression special that was done live-to-air, a stand up to cancer special that was done live-to-air.
1658 So live is what we do and we do well. We just need the economics to line up to do more of it.
1659 MR. PELLEY: It is also more than just economics. It's also a cultural change. Sports -- and I have had a significant background in sports, as has my colleague Scott Moore, who is the President of Broadcasting -- and sports, when something happens you go live.
1660 Even way back when before Sportsnet came onto the horizon, when it was just TSN, you didn't tend to go live as much, but as soon as Sportsnet came on we decided and now all of a sudden it became -- so now it is commonplace. When something happens, a big signing, a big firing, you go live.
1661 And it's the cultural change that we need to have going live to the big events at City. We are getting there, but it's more than economics, it's a cultural change, too.
1662 COMMISSIONER SIMPSON: Thank you. I am going to move into some clean-up questions for the record, please, and I would like to start with your request again for removal of "exclusively" with your G4 and OLN applications.
1663 What safeguards do we have in terms of what you would do with a decision that would be favourable to this request that would protect other Category "A" services, given the type of programming you have been leaning to, like "The Office" and "Dog" and so on really put yourself at odds with other services?
1664 MS WHEELER: I'm going to ask Alain to address specifically how the removal of "exclusively" will impact or won't impact the nature of service of G4 or OLN.
1665 But I guess just to bring it back to the approach that we took in removing the word "exclusively" or requesting to have the word "exclusively" removed, as you are aware there were a number of analog specialty services licensed and then around 2000 there were a number of Category 1 services licensed. They were given a bit more of a restrictive nature of service because the intent was that they complement the exiting analog services.
1666 About a couple of years ago the Commission was of the view that all of those services should be grouped in together as Category "A" services. So what we now have are a group of Category "A" services all on the same terms and conditions essentially, some with broad natures of service and some with more restrictive natures of service.
1667 It kind of peaked for me when I received some correspondence from Commission staff on going through program-by-program how it related exactly to the nature of service given the word "exclusively" in the nature of service description for both OLN and G4.
1668 If you looked at a service like Discovery or History, they have words like "devoted to", "focus on", so it's a little bit more latitude and clearly if a forensic program-by-program analysis would be in keeping with that because it's in keeping within the overall orientation of the service.
1669 That's essentially what we are asking, is just to have the work "exclusively" removed for technical purposes, not because it's going to have any impact or change the direction that we are already taking the services because, frankly, we feel that we have actually started to have a lot of traction with the programming direction we have for those services.
1670 I will let Alain speak to that.
1671 MR. STRATI: I will talk a little bit about G4 because we have talked a little bit about OLN.
1672 G4 currently has a programming restriction on drama or comedy programming. We applied a couple of years ago to get some flexibility in order to run some drama and comedy club programming to enhance, if you will, our programming lineup for our viewers.
1673 But really what the channel is, there is two hours, there is "Electric Playground" and "Reviews on the Run", a daily show that we produce here in Canada, one hour a week night.
1674 There is a show called "Attack of the Show" that from G4 in the U.S. That is two hours every night in prime time. This is real core in our -- you know, everything from comic books to video games to Internet content, to film, TV, music that is of interest to 12 to 24, 18 to 34 year olds, it really is a core of our channel.
1675 On top of that, we have also added some dramas and comedies. You have mentioned "The Office". "The Office" has always been a show that is of greater interest to younger people. It is sort of quirky and different.
1676 We also have an hour of programming called ADD - Adult Digital Distraction. These are 15-minute episodes. They are sketch comedy, animation. They are quirky, adolescent, youthful, and they are from the Adult Swim, and very successful, particularly in our demo.
1677 I think that the Commission, a couple of years ago, gave us the ability to carry more Category 7 programming. Yes, we have The Office. You always want to have something that people can gravitate to, but if you look at our lineup, people watch Electric Playground, they watch Attack of the Show, they watch The Office, and they stay for ADd.
1678 So it's a great sort of core prime time lineup, and we have programs in place for each one of them.
1679 COMMISSIONER SIMPSON: Let's follow on to get a little more specific. You mentioned G4 and drama on that particular channel.
1680 Tell me a little more about how you pinpoint the type of drama that fits -- drama being scripted drama, which could be comedy, like The Office and so on. How are you going to --
1681 Let's face it, if you are programming to teens, and that is your genre, teens eat. Therefore, you are saying that I should be able to air a program about food. I think that is the slippery slope I am worried about.
1682 How do you narrow down, to this Commission's satisfaction, if given the removal of a restriction, that you would program to that G4 audience drama that would satisfy us that you are not widening the genre too far?
1683 MR. PELLEY: First of all, we are talking about limited amounts of drama, and many others have a lot more. So, by definition, I have to focus on a lot of other things on our channel, and we do.
1684 But even in drama, you don't want it to be at odds with what you are doing, you want it to actually line up exactly. You can't have viewers that watch two hours of programming like EP, Attack of the Show, and then, all of a sudden, you have a drama that goes on that is of no interest to them. So you want to have consistency.
1685 COMMISSIONER SIMPSON: I understand. Again, it's like running a hotel, you want it to be environmental. You want all of the amenities that fit the nature of interests of a guest, but it is still, I think, to Staff's view, and probably to this Commission, if I can -- I can't speak for the rest of the Commissioners -- problematic.
1686 I am still not totally 100 percent happy with what I am hearing. But, then again, we are down into programming again, which is that other weird and wonderful thing that I am not wanting to go to, because we have dealt with that already.
1687 Let's move over to OLN. I just have two more questions.
1688 On OLN, the removal of exclusively, by evidence of the type of programming you see fitting into action -- I shouldn't say --
1689 To me, what you were describing earlier, Mr. Pelley, was sounding more like Spike TV than OLN, under its current licence genre constraints, and the same question applies again: How does a program like Operation Repo or Campus PD fit into outdoor adventure? I am really having a problem seeing that connection.
1690 MR. STRATI: Thank you, Commissioner Simpson.
1691 Operation Repo -- OLN had a show that it produced itself, called Tow Biz, a number of years ago, which was about the towing business.
1692 With Operation Repo, again, we are trying to be -- it is adrenaline-based, adventure-based and, quite frankly, it is what it is. It's not as serious as many of the other shows, it's a bit more comedic.
1693 It doesn't have that sort of very serious angle to it, it's a bit more lax.
1694 COMMISSIONER SIMPSON: Yes, it is. But, again, as you say, that is the nature of the beast today, and it goes to your other argument about genres in general.
1695 I will just leave you with this. If you go back to 2004 and you look at the genesis point of OLN, your programming themes in those days were outdoor exploration and adventure, marine recreation, winter recreation, conservation, nature enthusiasts, anglers, outdoor cooking and hunting.
1696 How far we have come.
1697 And understanding the economic argument, but trying to practise safe genre, we have to find the happy medium before we pull the cork on that particular --
1698 MR. PELLEY: The only comment I would make -- and it just struck me when you listed those -- is that now, all of a sudden, it's almost like a general service. You have a little fishing here, you have Don't Forget Your Passport, you have some reality -- and that's what OLN was. But OLN, under that model, wasn't successful.
1699 I keep coming back to, if these services are going to be successful down the road, I think that OLN is a pretty good case study, because I happen to see it the other way. It is a pretty good case study of how niche works.
1700 I think all Alain is saying is that 90 percent of our programming is going to be after those three adjectives.
1701 We might need a little bit of flexibility, and there might be a little bit -- in every service you are going to say, "That's kind of grey."
1702 But when you really come right down to it, what are the actual signatures of OLN that are going to drive it, and what is its brand identity, that is Mantracker, that is Survivorman. That is the way I see OLN. I think it has really become successful, but it has been very, very niche.
1703 COMMISSIONER SIMPSON: Fine. My last question has to do with -- two questions, very quickly -- the removal of feature film restrictions. How will it affect your programming strategy for OLN if this request is granted?
1704 MR. STRATI: Commissioner Simpson, we currently carry little drama programming and little movie programming on OLN.
1705 COMMISSIONER SIMPSON: The last question is stick and ball. I am struggling with this one, as well. You say that OLN should be allowed to broadcast stick and ball programming. Again, it opens another door. How would it differ from your programming on Sportsnet?
1706 MR. PELLEY: First of all, we are only talking 10 percent.
1707 One of the questions that I asked when I got here was: Okay, you have the Food Network, you have Discovery Health, you have MuchMusic. They all can broadcast 10 percent professional sports.
1708 OLN already can broadcast professional sports that aren't stick and ball. We can already do amateur sports. What is the hesitation with professional sports?
1709 We know it is not going to morph into a sports network. There is no chance that is going to actually happen. It is going to simply be an opportunity -- because you have the sports networks, like Sportsnet and Sportsnet One, but if you do have three events on a day -- and, actually, it happened last year and one we had to put on tape-delay.
1710 So there would be occasions when you would put a stick and ball on OLN. Will it be the major priority? Not whatsoever.
1711 It comes right back to that whole concept that 90 percent of the service is going to be there.
1712 But you could also argue, having been at a couple of football games, that there is a lot of adrenaline in a football game, and often it can be very survival-oriented, and it certainly has some adventure.
1713 So stick and ball definitely fits with all facets of the Nature of Service.
1714 One is, we want equity with other services like Men TV, and at the same time we just feel that if we were able to use it, then it would help us to offload some of the programming when we have so many different networks.
1715 And I am going to tell you, consumers are different. It used to be that 60 baseball games was good enough, or 40 hockey games. They want to see everything now, every single thing that they want.
1716 For example, we just completed a deal for Indian Premiere League Cricket. We just completed it. Plus, we have the Blue Jays and the NFL. So maybe some Indian Premiere League might find its way onto OLN.
1717 COMMISSIONER SIMPSON: Thank you very much. Why am I having trouble getting rid of this vision of Mantracker on a polo pony?
1718 COMMISSIONER SIMPSON: I appreciate very much your responses, and those are my questions. Thank you.
1719 THE CHAIRPERSON: I think we all need a health break. Let's have a 10-minute health break.
--- Upon recessing at 1055
--- Upon resuming at 1116
1720 THE CHAIRPERSON: Peter, you had a question or two?
1721 COMMISSIONER MENZIES: I have three quick questions, and if you don't have the answers right now, it's okay to bring them back later, because they should be just two-word answers.
1722 How much does it cost to produce one hour of described video?
1723 If you don't have the answer, you can get back to us, because you will need that answer to answer the next two questions.
1724 MS WHEELER: Yes, I would like to provide an answer at a later date, because it does depend on the genre.
1725 COMMISSIONER MENZIES: Sure. I will give you the next two.
1726 That was the first one. The next one is: How much more will it cost to increase the amount of described video by one hour per week in each year of the licence term?
1727 Do you have that?
1728 MS WHEELER: I'm sorry, I am assuming that is original?
1729 COMMISSIONER MENZIES: Yes.
1730 The last one is: How much will it cost to increase the described video percentage on original from 75 to 90 percent?
1731 MS WHEELER: I'm sorry, from 75?
1732 COMMISSIONER MENZIES: Yes.
1733 MS WHEELER: From 50 to 75?
1734 COMMISSIONER MENZIES: To 75 from 50, yes. I'm sorry.
1735 MS WHEELER: Yes.
1736 COMMISSIONER MENZIES: I can't understand my own writing.
1737 The other question is: I took it as an implication from your original presentation that if you didn't have to spend 5 percent on PNI, you would be able to invest more robustly in local.
1738 Was that appropriate of me?
1739 MR. PELLEY: That's correct.
1740 COMMISSIONER MENZIES: When I look at basically everything you have in conventional in the west, there is very little that has been local programming in recent years. The evening newscasts, such as they were -- it could be understandable that you would get out of news, but getting out of local entirely has reduced the local presence in Vancouver, Calgary, Edmonton and Winnipeg.
1741 I live in Calgary, so I notice it the most.
1742 I guess the question is: What sort of conditions of licence or undertakings would you be willing to take on in improving local programming in those western markets, which seems to be in line with your strategy anyway, if you were to get some of the flexibility you are asking for on PNI?
1743 MR. PELLEY: I think that local, as we have said, is something where we believe we can make a difference, where we can be competitive, where we can resonate with the viewer. So it is a priority for us.
1744 What that is going to look like and what that is going to be is something that we are going to determine over the next five years.
1745 What I mentioned earlier is a concern for us, the power of the social benefit dollars that have been awarded to CTV, some $28 million on local news, and Shaw some $45 million. It is something that has required us to discuss which way and where we should go.
1746 I think that perhaps Jamie could talk a little bit about Calgary in particular, based on your interest, but at this particular time we feel that it is somewhere that we need to be at, and certainly a high priority for us.
1747 COMMISSIONER MENZIES: I understand that, and thank you, but the question was reasonably direct. Would you be willing to undertake conditions of licence --
1748 MR. PELLEY: I think we want maximum flexibility, depending upon if, in fact, a local strategy doesn't work, based on -- we cannot compete with the likes of CTV and Global.
1749 We would be more than willing to make a commitment in Year 1, but to lock us down for the next five years, I am not sure if that is practical for us.
1750 COMMISSIONER MENZIES: If it helps at all, I am not -- at least I am not talking about doing news or something. Getting out of news in those markets is perfectly sensible, because there are too many other people. You would just beat your head against the wall.
1751 Pretend for a minute that at least one Commissioner doesn't care what you do --
1752 MR. PELLEY: Right.
1753 COMMISSIONER MENZIES: -- and just cares that you do something, and that you produce it locally.
1754 Just think about that, because if you are saying one year is the answer and you need to think about it more -- that was really the entire purpose of my question, so we are done.
1755 MR. PELLEY: Perfect.
1756 COMMISSIONER MENZIES: Thank you.
1757 THE CHAIRPERSON: Len...
1758 COMMISSIONER KATZ: Thank you.
1759 They say that a picture is worth a thousand words, and I got it, so thank you.
1760 What is not on here -- and I don't know if the number is confidential, but you have indicated that historically your CPE, in `08, `09 and `10, was flat. What was your investment in foreign programming during that same period?
1761 THE CHAIRPERSON: Would you rather do it in camera?
1762 MR. PELLEY: Yes, why don't we do that in camera.
1763 COMMISSIONER KATZ: My other question is: You suggest in your opening remarks and in your evidence that perhaps we should be looking at genre exclusivity one more time at some point in time. You also talk in your application about the fact that you applied for a number of licences. We talked about it here, as well.
1764 Is five years too long a period of time, in your eyes, to issue a group licence, given the things that you are looking for, the changes that you think are going to be happening in this industry?
1765 MR. PELLEY: To start with, Commissioner Katz, in terms of the removal of genre exclusivity, I guess our question is: Why wait? It's not working now. Let's remove it.
1766 That is, I guess, our key point with that.
1767 In terms of five years --
1768 COMMISSIONER KATZ: That's a policy issue; this is a licence renewal. Bear that in mind. It can't come out of this hearing.
1769 MR. PELLEY: I totally understand that.
1770 Our point with genre exclusivity was: Yes, why wait? Let's remove it.
1771 Overall, I know that is not necessarily practical at this point, hence the reason that Susan talked about. We wanted to bring it to the Commission's attention, stimulate some dialogue on it, see where it -- maybe bring it up at the vertical hearing, and maybe have further discussion on it down the road.
1772 That is just where we kind of feel on it.
1773 Do you want to add anything?
1774 MS WHEELER: Yes. To answer your question about is five years too long, it is really hard to say. This is a new regime. We think it is the right direction to go in, in terms of a group-based licensing approach.
1775 However, in a couple of years' time, maybe it won't be working.
1776 I think that five years is probably a fair period of time. You have reduced it from the usual seven-year period. The industry is changing. We may be back to you asking for additional changes or flexibility if circumstances change dramatically or materially that affect our situation.
1777 But, generally, I think the five-year licence term is reasonable.
1778 MR. PELLEY: And I was going to comment that, in terms of five years, in order to properly plan -- it's just like if you are planning a sports organization like the Blue Jays. We have a five-year plan. We don't have a five-year plan right now at City, but based on a new licence, that is what we would embark on.
1779 COMMISSIONER KATZ: But I hear you saying that, during that five-year plan, if you wanted to change the landscape, you would consider coming back and expecting us to change it one more time.
1780 MS WHEELER: Only if there were material circumstances that changed our situation. We don't foresee them.
1781 Obviously, our plan today, which we hope you understood, is that we plan to take our group from a position that is financially unviable to a financially viable situation.
1782 We don't see any reason why we would come back to you, but of course that is always at the discretion of any licensee, or it's at the discretion of the Commission to bring the licensee back.
1783 COMMISSIONER KATZ: Just to confirm, in your five-year plan, you envision opening up a whole bunch of new specialty programs, which you have applied for.
1784 MR. PELLEY: We hope so. Our plan would be to launch three this year, if possible, and potentially as many as two in the forthcoming years.
1785 THE CHAIRPERSON: Tom...
1786 COMMISSIONER PENTEFOUNTAS: Good morning.
1787 Did I understand you, Mr. Pelley, correctly when you mentioned that at 25 percent CPE you would not be profitable over the term of this licence?
1788 MR. PELLEY: No, I didn't say that. At 30 percent we wouldn't become profitable --
1789 If I could be so bold as to ask that we discuss that in the in camera session?
1790 COMMISSIONER PENTEFOUNTAS: I was under the impression -- I thought I heard you say that at 25 percent you would still lose money over the course of the licence.
1791 MR. PELLEY: No, I didn't -- and I apologize if I misled you. I said that at 23 percent right now, in 2011, we are still losing $15 million.
1792 At 25 percent we will become profitable over the licence term and become very financially viable.
1793 MS VAILLANT: But at 30 percent we would not be profitable over the licence term.
1794 COMMISSIONER PENTEFOUNTAS: I understand that. At 22 percent you have lost $15 million. Is that what I heard?
1795 MR. PELLEY: In 2011 that is what --
1796 COMMISSIONER PENTEFOUNTAS: In 2011 that is what you would be losing.
1797 MR. PELLEY: Yes.
1798 COMMISSIONER PENTEFOUNTAS: So the likelihood is that, over the next couple of years, at the very least, you will be losing money, even at 25 percent.
1799 MR. PELLEY: That's correct.
1800 COMMISSIONER PENTEFOUNTAS: You are not in the money-losing business.
1801 MR. PELLEY: No, we are not.
1802 COMMISSIONER PENTEFOUNTAS: Why not ask for 20 percent?
1803 MR. PELLEY: That's an excellent question. You hit a pretty good one there, because there were debates, arguments, battles -- call it any word you want -- among us and some of the others, internally, about why we wouldn't have come in at 20 percent.
1804 COMMISSIONER PENTEFOUNTAS: Or 10 or 5.
1805 MR. PELLEY: We didn't go that low, but 20 percent was the number that we talked about. We just felt that, based on what the Commission was asking, it wasn't going to be remotely realistic at 20 percent.
1806 So we decided -- and, like I said, if you asked people behind closed doors to raise their hand, who wanted 20, who wanted 25, there would be a split.
1807 We decided, as a consolidated group, to come in at 25, and we believe that at 25 we can build the business to the point where it is financially viable and can contribute significantly to the Canadian broadcasting system.
1808 COMMISSIONER PENTEFOUNTAS: So you are asking us to give you a break over the next five years, and at that point you will become good corporate citizens and contribute proper amounts to Canadian content?
1809 MR. PELLEY: I think it's important that -- I don't like to use the phrase "break", because I think our financial numbers are certainly something that is not to lose sight of, but the other argument is, we just want to be treated fairly, based on the fact that our mix is not the same as our competitors.
1810 COMMISSIONER PENTEFOUNTAS: You are asking us to allow you to become profitable on the back of Canadian programming, and five years down the road we will re-examine the whole issue.
1811 MS VAILLANT: I think we want to be treated equitably, as it relates to our mix of assets. So we are not asking for a break, we are just asking the Commission to recognize that we have less specialty services, which brings up your combined CPE.
1812 If we had more, we would be easily able to get there. But because we only, primarily, have a conventional services business, we are much lower than the 30 percent target.
1813 So we are not asking for a relative break, we want the Commission to consider our mix of services in establishing a percentage that is equitable with our competitors.
1814 MR. PELLEY: But I totally concur that when we catapult ahead five years from now, you are talking to a completely different group, with a completely different group of assets.
1815 COMMISSIONER PENTEFOUNTAS: You understand that GLP falls apart if we cut a different deal with you and with every other player. There is no longer a need for group licensing.
1816 MS WHEELER: I guess we disagree with that.
1817 And just to go back to your earlier question about giving us a break or having different circumstances --
1818 COMMISSIONER PENTEFOUNTAS: Yes.
1819 MS WHEELER: -- the Broadcasting Act does provide to make contributions as resources become available, and that is exactly what we are here proposing today.
1820 As we become financially viable, we will contribute incrementally to Canadian programming. Canadian programming is growing at a faster rate than any of our other expenses, and, frankly, faster than our revenues. Any other business, that is illogical. But we are here today stepping up, making a contribution.
1821 In terms of cutting a different rate, I think we tried to explain in our opening remarks that you can still have a group-based construct without having the same number, because the mix of assets requires that you have to have a different number.
1822 MR. PELLEY: Yes, I guess -- I don't think -- I don't know if it falls apart with that as per what Susan said.
1823 I think if you are, say, Corus, and you are Company A and we are Company D, I think it only makes logical sense and it is only fair, based on the mix of conventional to specialty, that they would have a different group-based licence number. Logically it makes sense that that is the way that it would be.
1824 Now, taking aside all our financial challenges, which I think need to be taken into account, because you are right, we are not in the business to lose money, but it really -- I don't think it falls apart. I just think that it is a different model and that all broadcasters should be treated based on their circumstances.
1825 COMMISSIONER PENTEFOUNTAS: Did you ever think about asking for exclusion from the group licence?
1826 MR. PELLEY: We talked about it briefly and we talked about a number of different things and a number of different scenarios. The biggest one was looking at the framework -- like overall we believe in the group-based licensing framework.
1827 We believe that it should move from expenditures from exhibition. We believe that it is about flexibility and the creation of compelling content. All of that we believe in.
1828 So we just felt that -- when we looked at it we said we want to be part of it. At the end of the day, how do we become part of it and how do we be part of it with equitable financial terms that make sense for our current mix?
1829 COMMISSIONER PENTEFOUNTAS: You know, my only problem is that -- I heard your opening statement and your representations. You know, Rogers is a proud, profitable Canadian company --
1830 MR. PELLEY: Correct.
1831 COMMISSIONER PENTEFOUNTAS: -- that spoke of CPE as if they were speaking about the plague. Correct me if I'm mistaken.
1832 MR. PELLEY: No, I think you're -- yes, I believe you are completely mistaken. I believe that our contribution, based on what we have said, is significant. We are talking about $100 million. We are talking about a 65 percent increase. You know, when we actually look -- I think it keeps coming down to we just want to be treated fairly.
1833 Rogers is a powerful company, there's no question. Do we want to produce Canadian content? Yes. And as we grow both financially and grow from a revenue perspective, we will be a massive contributor to the Canadian broadcasting system.
1834 COMMISSIONER PENTEFOUNTAS: How much of your revenue are you planning to spend on Canadian works of drama next year, what percentage?
1835 MR. PELLEY: What percentage? What percentage would that be? Is that --
1836 COMMISSIONER PENTEFOUNTAS: The percentage. I am not asking for -- you are asking for a PNI of 2.5?
1837 MR. PELLEY: Right.
1838 COMMISSIONER PENTEFOUNTAS: Okay. So what percentage of that will be spent on Canadian drama?
1839 MR. PELLEY: I am not sure. Does it -- do we -- Alain.
1840 MR. STRATI: Commissioner, based on our projections, there are roughly Canadian expenditures of about $50 million. We have about $5 million in dramas mostly. There is a little bit of documentaries or other elements, but let's say $5 million. So it is $50 and $5.
1841 COMMISSIONER PENTEFOUNTAS: Maximum 1 percent of your revenues?
1842 MR. STRATI: Sorry, of overall revenues or for --
1843 COMMISSIONER PENTEFOUNTAS: Yes, overall revenues.
1844 MR. STRATI: Oh, of our overall revenues. It's at a level of 2.5 percent.
1845 COMMISSIONER PENTEFOUNTAS: That is your PNI?
1846 MR. STRATI: Correct.
1847 COMMISSIONER PENTEFOUNTAS: Okay. Within the PNI, how much are you planning on spending on Canadian drama?
1848 MR. STRATI: It is right around that number. It is maybe 2.4 or 2.5.
1849 COMMISSIONER PENTEFOUNTAS: All your PNI is going to Canadian drama?
1850 MR. STRATI: Much of it will, yes.
1851 COMMISSIONER PENTEFOUNTAS: Nothing towards long form docs or award shows?
1852 MR. STRATI: What we do is we have some allocation for documentaries and we are growing that allocation for documentaries.
1853 But it is going to be -- if you will, about 80 percent of it or 90 percent of it is going to be drama because we want -- we are involved in one drama series currently.
1854 That could change, but currently, you know, we are projecting based on what we are doing and our mix is a little bit of drama and then documentaries.
1855 COMMISSIONER PENTEFOUNTAS: About 2 percent of your revenues?
1856 MR. STRATI: Correct. For drama, yes.
1857 COMMISSIONER PENTEFOUNTAS: Would you find it objectionable if your licensing term was shorter hypothetically, given that you are way off the policy as it was put forward six months ago, I guess? Because you are not even close.
1858 MS WHEELER: Yes, and I guess I have to go back to the policy. In the policy the Commission said it was a preliminary view that 30 percent was the right number for group-based.
1859 In our application forms it said: Are you willing to adhere to 30 percent? And if that is not an appropriate target for you, please suggest one with a supporting rationale.
1860 That is what we are here today doing in terms of a 25 percent CPE, with our supporting rationale of why that is reasonable for a group of our size with our asset mix.
1861 In terms of a short-term licence, we can consider it, but as Keith said earlier, you know, we do need to plan. We need some kind of business certainty.
1862 You have heard our plans today that we intend to grow our group. In five years time we hope to be in a different situation, coming to you with a different story with different commitments. So we probably do need five years in order to get us where we really need to be.
1863 MR. PELLEY: See, I would say that -- and I concur with the stability -- in terms of moving from five years to three, you know, we would be open to that suggestion if everybody else moved from five years to three.
1864 I think that we have shown that we are different, we are not the same, but at the same time we are all broadcasters that need a licence, a term that you can actually build and produce a plan.
1865 We have shown that in five years the contribution to the broadcast system is significant, and from a percentage perspective much higher than our competitors.
1866 So, you know, we are all operating in the same environment and if they were to move from five to three, then we would look at that, but we won't --
1867 COMMISSIONER PENTEFOUNTAS: I am sure they would look at it if they had a 25 CPE and a 2.5 PNI, but that is not what we are trying to get at.
1868 MR. PELLEY: I understand that, and we would probably look at a 30 percent CPE if we had a mix like some of them. So it comes down to the mix.
1869 COMMISSIONER PENTEFOUNTAS: So why -- you know, you want the flexibility of a GLP but you are not willing to give something in return.
1870 MR. PELLEY: Well, I think we are giving quite a bit. I think we are making a significant contribution to the Canadian industry, and when you start to look at $100 million that we are contributing incrementally, with a 65 percent increase, on a business that is still losing money, I don't think that is not significant, I think that is very significant.
1871 COMMISSIONER PENTEFOUNTAS: Last point. I think you are obviously going to try and grow -- you have mentioned it yourselves -- you are going to try and grow your revenue on American programming, and, you know, at some point in time we don't need Canadian broadcasters that are simply interested in showing American content. We can go to NBC, CBS, ABC and FOX for that.
1872 That is my point and I would like you -- we are not going to get into anything today, but if you can --
1873 MR. PELLEY: Right.
1874 COMMISSIONER PENTEFOUNTAS: -- sort of go back, sharpen up those pencils and try and find some creative energy to get some good quality Canadian content on your Rogers channels.
1875 I will leave you with that. Thank you, sir.
1876 MR. PELLEY: I appreciate that, and my only comment would be that I believe that the American programming that has -- and you look at the success of CTV, is that they have produced excellent Canadian content on the back of the profitabilities of the U.S. programming.
1877 We are just looking at that model. We don't have their distribution. We don't have their scale. But that same model, with the ability to move those on different channels, i.e. they have two conventionals, is a significant advantage but it is something that -- that is why we were investing in the U.S. programming.
1878 But I understand and respect your comments.
1879 COMMISSIONER PENTEFOUNTAS: Thanks.
1880 THE CHAIRPERSON: Ms Wheeler, I have to correct you because you said twice now something that is absolutely not right.
1881 When we made this policy we set 30 percent as a minimum, the exact amount to be determined. Therefore, what should be the amount above the minimum, not that we were contemplating -- the wording is quite clear.
1882 It should be 30 percent of the gross revenue and the Commission considers this an appropriate level given the record of the group actual spending in Canadian programming for the years 2007, 2008 and 2009. In all of those three reference years you spent over 30 percent. That is why we set 30 percent.
1883 Now, I appreciate for you it is a problem, but I mean this is not what the policy says. The policy said it is 30 or above, let's fix the exact amount at --
1884 The other part. When you keep talking about profitability, Mr. Pelley, isn't the problem here really that you paid too much in the first place? That is really what the problem is. You know, it has nothing to do with Canadian content or anything.
1885 When you acquired City you paid too much and that is why you are losing money. If you had paid the appropriate market value, then we wouldn't have this discussion right now.
1886 MR. PELLEY: Well, I think the way that we look at it right now is -- taking that aside, that they paid over $300 million and they have lost $100 million, the way that we are looking at it right now is cash in, cash out on a per annum basis.
1887 THE CHAIRPERSON: But when you say profitability, surely you are taking the cost of acquisition in that?
1888 MR. PELLEY: No.
1889 THE CHAIRPERSON: Just on a straight revenue basis?
1890 MS WHEELER: No, we are not. The profitability discussions we have been having have no bearing on what we paid for the asset. That was simply an acquisition cost. That is not reflected in our profitability statements.
1891 MR. PELLEY: It is simply cash in, cash out, is the way that we are looking at our profitability right now.
1892 THE CHAIRPERSON: Thank you. I appreciate that clarification. I assumed, like any business, acquisition cost would be part of the mix.
1893 MS WHEELER: We don't amortize those over time. We simply book those to our balance sheet and it doesn't have any bearing on our profit and loss going forward.
1894 THE CHAIRPERSON: You don't have to pay any intercorporate interest or anything on the acquisition. Okay.
1895 COMMISSIONER PENTEFOUNTAS: Has that been written off? Sorry, Konrad.
1896 MS VALLIANT: Sorry?
1897 COMMISSIONER PENTEFOUNTAS: Has that been written off?
1898 MS VALLIANT: Part of it has been written off, but that is unrelated to our profitability. We wrote it off a few years ago, but the acquisition cost of City television has no bearing on our profit and loss statements at all since buying it.
1899 THE CHAIRPERSON: Okay. So those were our questions.
1900 Let's go in camera now. Our secretary is going to make some announcements.
1901 THE SECRETARY: Thank you.
1902 We will now shut down all broadcasting live feeds and clear the hearing room and the examination room.
1903 When the in camera session is complete, an announcement will be made as to when the hearing will resume.
1904 Everybody except CRTC staff, the translators and court reporters and representatives of Rogers Broadcasting are asked to leave the room and to take all of their personal belongings with them, including all electronic devices such as laptops and BlackBerrys.
--- Upon recessing at 1143, to resume immediately in camera
--- Upon resuming at 1225
1905 THE SECRETARY: We are now ready to resume the public session of the hearing.
1906 THE CHAIRPERSON: Okay. So we have finished our in camera part now.
1907 As a result of the discussion there are several undertakings that Rogers has agreed to make.
1908 Counsel, would you please straighten them out?
1909 MR. DOUGHERTY: Thank you, Mr. Chair.
1910 There are seven undertakings. We ask that you provide the following information prior to Rogers' reply on April 14th:
1911 - The first one is please comment on the current costs to produce one hour of described video.
1912 - Provide the impact of incrementally increasing the amount of described video for original programming for each year of the licence term.
1913 - Provide the impact of increasing their percentage of original program being described to 75 percent from 50 percent.
1914 - How many hours of local programming on an annual basis only does Rogers foresee adding to its current local over-the-air obligations in Vancouver, Edmonton, Calgary and Winnipeg.
1915 - And please provide some alternatives for creating additional Canadian content on your services.
1916 - Please add PBIT as an additional line of information on the chart provided to the Commission today.
1917 - And please provide updated financial projections using the financial information filed on Friday.
1918 Thank you very much.
1919 MS WHEELER: How many hours on local programming over and above current expenditures, and is that on a yearly basis or over the licence term?
1920 MR. DOUGHERTY: On an annual basis and it is incremental, yes.
1921 MS WHEELER: And the alternatives, could you just repeat that?
1922 MR. DOUGHERTY: Some alternatives for creating additional Canadian content on your services, alternatives to what has been filed already with the Commission in your application.
1923 MS WHEELER: In terms of types of programming or expenditures or hours?
1924 MR. DOUGHERTY: All of the above.
1925 MS WHEELER: All -- okay.
1926 THE SECRETARY: Mr. Chairman, is there something to add for Rogers or are we going for lunch?
1927 THE CHAIRPERSON: Sorry. Okay. That's all we have then.
1928 Thank you. I can only say let us both try to be creative in solutions. I appreciate your problem. I hope you do appreciate ours. We have got to find it in some way without undermining the integrity of the group-based licensing policy.
1929 MR. PELLEY: Well, thank you for your patience with us, respecting and considering our position, and listening today and opening up the dialogue.
1930 THE CHAIRPERSON: I appreciate your frankness and talking out of one side of your mouth only, and I think the other -- as a result we had a very useful dialogue.
1931 Thank you.
1932 MR. PELLEY: Thank you.
1933 THE CHAIRPERSON: We should break now and we will resume at 1:30.
--- Upon recessing at 1229
--- Upon resuming at 1337
1934 THE CHAIRPERSON: Okay, madame la sécretaire, commençons.
1935 THE SECRETARY: We will now proceed with item 3 on the agenda, which is the application by Corus Entertainment Inc., on behalf of the licensees listed in Broadcasting Notices of Consultation CRTC 2010-952 for the renewal and/or the revocation of the issuance of broadcasting licences for the stations and services listed in the notices for this proceeding.
1936 Please introduce yourself and your colleagues, and you have 30 minutes for your presentation.
1937 Thank you.
1938 MR. CASSADAY: Good afternoon, Mr. Chair, Commissioners, and Commission staff.
1939 My name is John Cassaday, and I am the President and Chief Executive Officer of Corus Entertainment.
1940 Before we begin this afternoon, we would like to recognize our colleague and long-time broadcaster Jack Hepner. He's the Head of Radio Engineering at Corus Entertainment and Jack is fighting for his life right now, with his family surrounding him in Winnipeg, and we wish him all the best in his fight.
1941 With me today, to my immediate left, is Doug Murphy, Executive Vice-President and President of Corus Television; to his left, Judy Adam, our Vice-President of Finance; to my right, Gary Maavara, Executive Vice-President and General Counsel; to Gary's right, Sylvie Courtemanche, Vice-President, Government Relations; and to Sylvie's right, William Knight, Vice-President, Head of Business Development and Planning.
1942 At the back, starting at the left end of the table is Bryan Ellis, Vice-President, Content Management; to his right, Gordon Lee, Director of Content Distribution; to Gordon's right, Gerry Mackrell, Vice-President and Head of Airtime Sales; to Gerry's right, Jocelyn Hamilton, Vice-president, Original Programming for Kids, Comedy and Drama; and to Jocelyn's right, Karen Phillips, our Vice-President of Network Program Operations.
1943 We are especially delighted to have in the audience our newest addition to the Corus management team, Maria Hale, who is on her second day on the job. Maria is our new Vice-President, Head of Programming and Production, Corus Television, and Maria will be key in helping us execute our programming and content strategies over the next licence term.
1944 Mr. Chairman, Corus welcomes the opportunity to participate in this historic proceeding. In our brief comments today, we will quickly review what we have accomplished in the past 10 years, we'll then talk about the elements of our application, and then, finally, how this forms part of our plan for the digital future of Corus Entertainment.
1945 Corus was first established in September of 1999. Since that time we have come a very long way. Our portfolio of television assets includes 15 specialty and pay services, along with three over-the-air stations serving eastern Ontario.
1946 Corus employs over 2,000 persons across Canada.
1947 Now, let's take a very quick look at what we have been up to for the past decade.
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1948 MR. CASSADAY: Since Corus' inception our broadcast revenues from our television properties have increased by a compound annual growth rate of 14 per cent. In fact, Corus has grown every year since its inception. We were perhaps the only significant broadcaster in the world to continue growth through the recession of 2009. As the Commission is aware every other company went negative at that time.
1949 If we include our specialty services, since 1999, Corus has paid more than $449 million in licence fees to independent producers and is responsible for triggering over $1.3 billion in new original Canadian production. In 2000, the Corus group of services spent $28.7 million on Canadian programming. By 2010, this had increased to $101.3 million.
1950 Corus boldly invested in Nelvana, Canada's premier animation production studio. We sell this content globally, and, in fact, our Canadian content is aired regularly in the United States on Nickelodeon, The Disney Channel and the NBC saturday morning children's block, not to mention on numerous networks around the world, such as TF1 and Super RTL.
1951 Corus has established strategic relationships with some of the world's largest media companies, such as Viacom and Hearst. We have revived moribund services by rebranding them and relaunching them with tremendous success.
1952 For example, we rebranded Canadian Learning Television to VIVA, allowing us to increase our investment in Canadian programming from $7.2 million at the time we acquired the service in 2008 to $8.8 million in 2010, or a 22.2% increase.
1953 Our contributions to Canadian drama through our pay services are particularly noteworthy. From fiscal 2003 to fiscal 2010, Movie Central expended $120.5 million to support high-end Canadian drama. We have invested over $150 million in Corus Quay, making it one of the world's most advanced digital operations.
1954 We have a proven track record and we are here today to show you that, despite the obvious change in the competitive landscape, Corus believes that we can continue to grow, and that, if we are given the right circumstances, we will succeed and spend more on Canadian programming.
1955 In fact, with adoption of our COL amendments, our 29 per cent group CPE spend in year 5 of the upcoming licence term will be 27 per cent greater than our projected CPE spend this year, and this is at a time when most people at this hearing will suggest that the advertising pie is going to shrink.
1956 So in brief, our key messages to you today are as follows:
1957 First, give us the right circumstances to succeed and we will spend more on Canadian programming.
1958 Second, the future is bright. There are many opportunities. Healthy competition will be essential to achieve key broadcasting objectives. Progressive taxation and conditions of licence based on historical factors no longer relevant to today's marketplace will not achieve this.
1959 And third, Corus is an industry leader. We have both a solid plan and a solid and proven track record. We are a publicly traded company and committed to increasing shareholder value. In broadcasting you achieve this goal with continuous enhancements to your programming, which results in increased ratings.
1960 MR. MURPHY: Good afternoon, Mr. Chair and Commissioners. It's a pleasure for me to appear before the Commission for the first time today.
1961 We'd like to take a few moments to explain why we need the right circumstances to succeed during the coming licence term.
1962 It is clear that the television market is enormously multifaceted, and that it is changing each day. Members of the Commission, we compete for audiences in the global marketplace and even on your TV screen at home. The emergence of digital platforms has also increased the competition for content and advertising dollars. This complex environment is also changing at an unprecedented pace. For example, consider the moves that Netflix has made in the last week along.
1963 Last Monday, Netflix announced a five-year deal with Paramount Pictures. This involves exclusive Canadian pay TV rights to Paramount's first-run films.
1964 Netflix also announced last week that it had adjusted its Canadian service to help customers who are subject to ISP caps avoid excess usage fees.
1965 Combine this with the earlier Netflix announcement in the United States that it had signed a $1-billion deal to stream movies from Paramount, Lionsgate and MGM online, and it is clear that digital television market of the future is right now.
1966 The Netflix developments are significant not only to Corus, but to the Canadian broadcasting system as a whole. Non-Canadian programming rights are now being made exclusively available to a distribution outlet here that is neither regulated nor a contributor to the Canadian system, and this is happening before we even begin the next licence term, which is a subject of this hearing.
1967 Moreover, the number of non-Canadian television services available within the regulated environment is fast out-pacing the number of Canadian television services.
1968 Netflix is not our only challenge. Indeed, in the three years 2006 to 2009, the regulated Canadian system added seven new category B services and 30 new non-Canadian services. Clearly, the consumer demand for foreign services is outstripping the launch of new Canadian services.
1969 This is the Canadian broadcasting reality. We have a relatively small market base, and each day it gets more fragmented. It takes creativity, capital, and a will to launch new Canadian services. Corus knows this because during the same three-year timeframe, we have launched two new category B services and we successfully rebranded services, Sundance, W Movies and the Oprah Winfrey Network.
1970 We are pleased with our progress, but it is imperative that the regulatory framework governing Corus be relevant not only this September, but also at the end of the next licence term, in August 2016.
1971 Consider this morning's headlines about Google's purchase of what is left of Nortel. Google owns YouTube, is launching Google TV and has a market cap of about US$187 billion. This is our competitive set. The four groups before you are small players in this digital marketplace.
1972 Within this context, it is clear to us that the barriers we have erected to protect Canadian media will become a confining trap if we're not allowed to adopt a new framework.
1973 MR. MAAVARA: In this proceeding, the Commission set out clear goals for the group-based licensing hearing. It recognized that it is now necessary to shift its regulatory focus from program exhibition to program creation. It also stated that, with increasing fragmentation, it was the Commission's intent to remove unnecessary barriers to the continued viability of private broadcasters. We agree.
1974 We also agree with the Commission's statement in 2008 that, within the context of this complex and rapidly changing environment, regulations must be as flexible, responsive and targeted as possible and impose the least burdensome constraints.
1975 All of our major competitors in the Canadian English-language television market will have the benefit of having a new, flexible framework, and to be competitive we need to operate with the same basic ground rules. In this context, Corus cannot be left behind.
1976 Corus is a signatory of the Terms of Trade Agreement. The process that it contemplates will allow us to navigate through digital platforms with independent producers. We hope that our new licence framework will do the same.
1977 We have carefully considered the implications of the frameworks established by the Commission in 2008 and 2010. The Commission is well aware that these real changes will dramatically change the television distribution environment starting in September of this year. This is when the new digital distribution and programming licensing rules will come into play.
1978 The so-called digital migration rules represent significant changes, including: the ability of BDUs to offer all foreign packages; removal of the 1:1 and 5:1 linkage rules; the elimination of the so-called analog channel status; the reduction in access rights for category A services to only packages or à la carte distribution -- we know from experience that this will reduce their reach -- a relaxation of genre exclusivity, which is, in fact, already occurring; group-based Canadian programming and PNI requirements, with CPE now being applied across all services, including over-the-air and category B services, with over 1 million subscribers; and, the establishment of flexibility for allocation of all or part of the required CPE and PNI spending, subject to restrictions such as no more than 25 per cent of the CPE obligation for conventional television being transferable to qualifying specialty and pay services.
1979 It follows that the traditional foundation of the Commission's regulatory approach will change. Market entry can no longer be controlled. Demand for certain types of content cannot be fostered simply by establishing space on a linear shelf where consumers have such abundant choice. We accept that the Commission's policy approach must be aligned to consumer pressures on the BDUs.
1980 MS COURTEMANCHE: Notwithstanding the uncertainty that Canadian broadcast groups will face during the next licence term, Corus made a bold decision in relation to its group of television services. We decided that we would structure our group-based licensing application so that we can spend more on Canadian programming. Corus believes that, given the right circumstances, we will succeed and grow. As a result, we will spend more on Canadian programming.
1981 What are the right circumstances? These include the changes to the conditions of licence of our category A specialty and pay services, such as: harmonizing the Canadian content levels for our category A specialty services; eliminating obligations regarding the broadcast of non-North American programming on W Network and YTV; amending the manner in which programming must be targeted and other scheduling restrictions on YTV; changing the amount of video clips on CMT; and retaining the 150 per cent time credit for Canadian feature films on Movie Central.
1982 We have provided the list of changes sought in our application and a detailed rationale for each. Many of the changes relate to legacy conditions that were first imposed two decades ago. Corus was mindful, however, that the changes sought should not impact on the ability of these services to operate within the genres for which they were first licensed. Our changes do that, while at the same time allowing us to adapt and grow in the new environment.
1983 The right circumstances also include the Commission accepting our proposals with respect CPE and PNI spending. We believe that strategic spending will greatly benefit all sectors of the system: carriers, content producers and viewers.
1984 The next licence term is about spending more so that we can create better and more compelling Canadian programs. We have embraced the Commission's premise that we shift the regulatory focus from Canadian content exhibition to spending on Canadian programming.
1985 We are in the midst of what is probably the single-most important and complex licensing proceeding ever undertaken by the Commission. With four group applications, involving over 100 individual licences, more than 1,000 interventions, there is a virtual mountain of detail to review, analyze and respond to. The Commission, itself, had a variety of questions late in the process.
1986 It is said that "The devil is in the details". In preparation for this hearing, we thoroughly reviewed each and every detail of our own application. In doing so, we realized that we needed three amendments to our application to properly reflect our intent and to achieve the central objective of our application, which is to obtain the right circumstances to succeed and allow us to spend more on Canadian programming.
1987 We described the amendments in our March 24th letter.
1988 First, we proposed minor changes to the individual CPEs of individual category A services. These changes have no impact whatsoever on our group CPE commitment.
1989 Secondly, we have asked to add a COL to each of our services to confirm that we will report CPE on a cash-outlay basis. The absence of the COL in our original application was simply an oversight on our part. It addressing an accounting matter rather than a substantive issue. As such, it does not represent a material change to our application. The proposed COL seeks only to standardize the CPE reporting practice, which we currently employ for the majority of our services.
1990 Thirdly, we propose a change to the language of the standard COL respecting the provision of described video as it applies to our movie service Encore Avenue. This change does not affect the number of hours of described video that Encore Avenue must provide, it only removes the requirement that 50 per cent of the described video must consist of programming original to the service. Given its nature of service, Encore Avenue cannot offer programming that is original to the service.
1991 We acknowledge that, given their timing, these three amendments require the Commission's consent. We regret that we did not discover these earlier in the process, but we took immediate action when we found them. We wrote to the Commission on March 24th. We also copied all opposing intervenors so that they would be aware of the changes at the earliest possible date.
1992 Corus submits that, from a procedural point of view, accepting the amendments to our application does no harm. This is not a competitive licensing hearing, with several applicants seeking a single licence, where the interests of one party could be affected by a change to a competitor's application.
1993 In non-competitive situations, such as the current proceeding, it is not unusual for certain details of an application to change at the hearing. In that sense, applications are not static and most often they can and do evolve. In our case, we simply wanted to ensure that our application evolves in the right manner to properly reflect our intentions.
1994 We would further note that appearing intervenors will have an opportunity to comment during their presentations at the hearing. And finally, all parties will be able to comment in their final written submissions after the hearing has ended.
1995 For all of these reasons, Corus respectfully requests that the Commission accept the three amendments we have proposed.
1996 MR. KNIGHT: Our proposal is to establish a group CPE at 29 percent, which represents a significant increase from our historical CPE levels. In fact, we expect to be able to generate $127.9 million in additional revenues and $53 million in additional Canadian spending over the license term.
1997 We have proposed that our PNI spending commitment be set at 5 percent of revenues, of which at least 75 percent must be directed to independent producers.
1998 We have also requested that the individual CPE requirements for our specialty and pay services be harmonized. This will achieve administrative efficiencies for all concerned without impacting the total CPE spend that must be made by the Corus group each year and over the license term.
1999 In fact, this streamlined approach guarantees the same pool of money from Corus' specialty and pay services as would otherwise be available with individual CPE's tailored for each service.
2000 Accordingly, we have proposed the following individual CPE obligations, assuming approval of the COL amendments we are seeking:
2001 Category "A" specialty services 31 percent of previous year's gross revenues;
2002 Category "A" pay services 30 percent of previous year's gross revenues; and,
2003 Category "B" services 15 percent of previous year's gross revenues.
2004 Our proposed 31 percent CPE for Category "A" specialty services is a change to our original proposal for a 30 percent CPE for these services. As outlined in our letter of March 24, 2011, this minor amendment simply ensures that our proposed CPE commitment more accurately reflects the historical spending of our conventional TV stations. It will have absolutely no impact on our total group CPE spending obligation, which remains at 29 percent.
2005 This means that over the license term we project spending on Canadian programming of $657 million.
2006 The Commission is aware that for most of our services we report our CPE in our annual returns on a cash outlay basis. This makes our spending more transparent and predictable.
2007 MR. CASSADAY: For most of our specialty and pay services it has been more than 10 years since the last license renewal so this hearing has been a long time coming. Many policy proceedings preceded this licensing hearing. These were necessary steps so that we could be prepared to meet the challenges that will unfold during the next license term.
2008 Fundamentally, Corus believes that the future is bright for Canadian broadcast services. There will be many opportunities over the next license term and with healthy competition we will be able to achieve many of the objectives of the Broadcasting Act.
2009 With the right regulatory framework, Corus will spend even more on acquiring Canadian drama. This will be essential to maintain the exclusive and distinct window that pay services offer in our system.
2010 The Corus plan is to build on what we have done if we are granted the right circumstances to allow us to grow our businesses, spend more and delight our audiences. We have a plan and we will execute it superbly.
2011 We have built Corus Quay, a facility that will allow us to compete in a fully digitized media environment. Corus can and will compete with all players in the system, both regulated and unregulated, in Canada and around the world.
2012 We would like to thank the Commission for this opportunity to outline our proposal. We ask that you approve our application and renew our licences for a 5-year term.
2013 We would now be happy to answer any questions that you may have.
2014 THE CHAIRPERSON: First of all, a procedural point.
2015 You want us to accept your amended submission, as I understand it. You want us to accept the amended submission?
2016 MS COURTEMANCHE: Yes. I would like if you would accept the amendments that we filed on March 24th.
2017 We understood from your last notice that you weren't prepared to accept it then but that you would discuss it at the hearing, so I was instructed that I should formally ask for it at this point in time.
2018 THE CHAIRPERSON: Okay. You asked for that on pages 13 and 14.
2019 I understand the first two points, I don't understand the third point. Maybe you could elaborate. What is this about?
2020 I understand it's a cash outlay basis and that you want to --
2021 MS COURTEMANCHE: The 30 to the 31.
2022 THE CHAIRPERSON: Yes.
2023 MS COURTEMANCHE: Encore Avenue has a condition of license. It's nature of service restricts it to material that is copyrighted either three or five years. The other only fresh programming we are entitled is filler programming and public service announcement.
2024 So when there is the 50 percent that it's original to the service, that conflicts with having fresh programming because it is a second window. So that's where our concern is, is that the nature of service would conflict with that particular part of the described video COL.
2025 THE CHAIRPERSON: I understood absolutely nothing of what you just said.
2026 MS COURTEMANCHE: Oh, okay.
2027 THE CHAIRPERSON: Maybe you can walk me step by step through this.
2028 MS COURTEMANCHE: Okay. Movie Central is -- sorry, not Movie Central. Encore Avenue, I apologize -- late nights.
2029 Encore Avenue is a pay service operated by Corus and it is a second window so the dramatic programming that is offered, a series, and so on and so forth, either have to be copyrighted three years previous to the broadcast date or five years. We are also entitled to offer filler programming or public service announcements.
2030 So where the condition of license says four hours a week, 50 percent of the four hours has to be programming original to the service. Well, I'm not entitled to do fresh programming, I'm only entitled to do stuff that's, you know, three or five years old. so that's where we think we have a problem.
2031 MR. MAAVARA: It's a technical glitch in the sense that there is in fact no original programming on the service by condition.
2032 MS COURTEMANCHE: It's all library titles. On Encore it's exclusively library titles.
2033 THE CHAIRPERSON: Okay. Well, we will let you file it.
2034 I presume the other intervenors are aware of this so that if they have any problems they will point it out to us.
2035 MS COURTEMANCHE: Yes. Thank you.
2036 THE CHAIRPERSON: Second, yesterday morning we asked Bell to redo the numbers they had done because of the question of calculation, et cetera, and we asked everybody else to do it. Did you do that? If so, do you have them for the in camera part?
2037 @00:07:02 MS COURTEMANCHE: Yes, we are prepared for the in camera discussion.
2038 THE CHAIRPERSON: Could you give them to my staff now so they can look at them --
2039 MS COURTEMANCHE: Sure.
2040 THE CHAIRPERSON: -- while we deal with the general part?
2041 THE CHAIRPERSON: Okay. Then this is group licensing and, as you know, the two key issues are the CPE or 30 percent and the PNI of 5 percent.
2042 I see that you have no problem with a PNI of 5, but you suggest a CPE of 29 instead of 30. Why?
2043 MR. CASSADAY: We started from a bottoms-up approach. This represents an increase from our historical spending of 28.5 percent, represents an incremental $53 million as part of that step-up.
2044 As you saw, what we did is we looked at spending 30 percent, on Category "A"s 15. Because of our mix of services it ended up at 29.
2045 Mr. Chairman, it was abundantly clear to me this morning -- I was not here yesterday, but it was abundantly clear to me this morning that what I really took as a direction on a 30 starting point -- and again I would remind you, we weren't even contemplated in that original group when you did your homework.
2046 We are prepared to talk about 30 in camera. We would like to do that in camera because, as we said earlier in another context, the devil is in the detail and I think we want to make sure that we understand how the formula would work.
2047 But it's our interest, given the flexibility we are looking at, to be as accommodating as possible because we certainly value the Cancon in our schedule and if there is a way of getting there that satisfies the needs of both participants in this hearing, we are happy to do that.
2048 THE CHAIRPERSON: Okay, let's do that.
2049 Now tell me, what is the advantage that you get out of the group licensing? Because you are an unusual beast compared to the other ones because you only have these three small OTA stations while the others have very substantial networks.
2050 MR. CASSADAY: Right.
2051 THE CHAIRPERSON: So you weren't really in our mind when we thought of group based licensing so I wondered what is the advantage for you of the group based licensing?
2052 MR. CASSADAY: There are two points that I would like to make.
2053 First of all, I think the most important role that a CEO has in any corporation is allocating capital and what this group based licensing approach would allow us to do is to allocate our programming to those areas that have either the greatest strategic need or the greatest strategic opportunity, so we can be more strategic or discriminate in terms of how we spend our money and I think we can be more effective in that way.
2054 Second, given the fact that the other three groups that were formally invited to this hearing represent our competitive set we felt it was essential that we have an opportunity to have a voice at the same time as theirs and ensure that we come out of this hearing with similar conditions of license so that we can ensure that we are able to compete effectively in the future.
2055 THE CHAIRPERSON: And you are controlled by the same owners as Shaw, but you want to be treated separately and we are looking at your separately, et cetera.
2056 I'm trying in my mind to figure out, is that an advantage or disadvantage of you for being treated separately or jointly with Shaw?
2057 Second, if it is an advantage will I see other companies coming forward and saying, "We want to do the same sort of split."
2058 MR. CASSADAY: Well, I think the first principle, the fact of the matter is that we are a structurally separate company, we have separate shareholders, we filed a legal opinion which I'm sure you have read carefully and understand all the nuances.
2059 THE CHAIRPERSON: Yes.
2060 MR. CASSADAY: We have had no collaboration with Shaw whatsoever at any time in relation to this hearing and our plans. I have not seen their plans.
2061 So to your question as to whether or not there is any advantage coming out of this hearing, by looking at the companies together or separate I really can't comment.
2062 THE CHAIRPERSON: Are you penalizing yourself by not putting the two together?
2063 MR. CASSADAY: You know, I think the approach that we took is that we are Corus Entertainment, a separate and publicly traded company, what do we need to compete successfully in the future and those are the plans that you have before you.
2064 So the commitment that we are making to you today, notwithstanding the uncertainty, we are firm believers that we can grow our business in this environment, that we have laid out the tools that we need to do it and the result of that will be a significant increase in our expenditures on Canadian programming.
2065 THE CHAIRPERSON: Okay.
2066 Len, you have a lot of questions I believe.
2067 COMMISSIONER KATZ: I do.
2068 Thank you and good afternoon.
2069 MR. CASSADAY: Good afternoon, Commissioner Katz.
2070 COMMISSIONER KATZ: I'm going to pick up on the three amendments that you asked for this afternoon and the Chairman alluded to the third one.
2071 Can you elaborate on this cash basis versus accrual basis issue and whether this is a standard procedure in the industry or not? It seems that you are a hybrid. You are saying in some of your cases you report on a cash basis and in others on an accrual basis and you are perhaps seeking consistency, I'm not quite sure, but I would like to know how we got to where we are and also what your understanding of how other industry players are reporting and counting.
2072 MR. KNIGHT: Sure. So to answer the industry players, it is our understanding that Corus is along, other than Astral which reports I believe their pay services on a cash basis just as we do, and I believe Teletoon as well is on a cash basis.
2073 You're right, it's a hybrid. We have two services that are actually on the accrual method, which is Treehouse and CMT. We are seeking a standardization to have all of our services on a cash outlay basis. It's simply, yes, a standardization.
2074 We have the history of how these services are on cash. Pay services, our understanding of Movie Central and Encore, by condition of license it actually says "expend" and "expend" is the definition of actual cash outlay.
2075 For "W" we actually came to the Commission, I believe it was in 2004, and asked for this change. YTV, I believe we also asked for permission for the change.
2076 So what we are seeking to do is to standardize across all of our --
2077 MS COURTEMANCHE: Just to be clear, Commissioner Katz, this started with pay services. It goes way back to -- because, as you know, pay services were the firs to be licensed in the early '80s and so that's how it was structured. That just carried through and they we carry it through with our other services. So it's a historical method of accounting.
2078 COMMISSIONER KATZ: Is this just an anomaly because the pay industry has evolved this way? Because Astral obviously has pay as well. Because I think I heard you say a minute ago that the other players in the industry report on an accrual basis.
2079 MR. KNIGHT: That's our understanding. Of course I don't know for sure, but it is our understanding that the other players all report on an accrual basis other than Astral.
2080 I don't know that it's exactly related to our pay services because, as I said, our Movie Central -- excuse me, our "W" Network and YTV, we specifically asked to go on a cash basis for those services and it was approved.
2081 MR. CASSADAY: The other thing I would add, as Bill explained, it is historical so it's difficult to unwind something when we have been doing it this way for quite some time, but over the course of a five-year license term there is absolutely no difference between the cash and the accrual method of accounting, dollars end up being identical.
2082 COMMISSIONER KATZ: There may be a timing issue, I'm not quite sure. I have a series of questions here, I'm going to hold off asking them and ask the staff to provide you with them after your appearance here and ask that you respond to them. It talks to timing issues, it talks to some discrepancies in some numbers that we have versus numbers that you reported as well. I think to the extent they are all public you can put them on the public record. If you feel there is something there that may require some degree of confidentiality, I will leave it to you to request it. Okay?
2083 MR. CASSADAY: That would be fine.
2084 COMMISSIONER KATZ: Coming back to the Chairman's comments about you wanting in on group based licensing, it seems like some players want in, someone want out, some want changes, I would like to understand, specialty aside, your involvement in the OTA marketplace.
2085 I understand you have three stations, they are affiliates, if I understand, of CBC.
2086 MR. CASSADAY: That's correct.
2087 COMMISSIONER KATZ: Can you talk about how much flexibility you actually have in programming in Canadian content in insertions in those stations?
2088 MR. CASSADAY: Very little is the headline. I will let Bryan Ellis just expand on that, but largely we accept the CBC schedule as it is delivered to us in its entirety.
2089 MR. ELLIS: We currently carry about 64 hours of required CBC programming. That can vary depending on whether they are specials or sporting events. We broadcast 11 hours of local production, which is predominantly news.
2090 The majority of the schedule then really, especially prime time, is controlled by the CBC. That will again be changing with our new agreement going forward in 2012, fiscal 2012, where it will be up to 80 hours I believe held by CBC.
2091 MS COURTEMANCHE: So essentially speaking over the broadcast day 57 percent of our program schedule is network programming and about 80 percent -- or 73 percent, sorry --
2092 MR. ELLIS: Seventy-four.
2093 MS COURTEMANCHE: Sorry, 74.
2094 MR. ELLIS: Yes.
2095 MS COURTEMANCHE: Seventy-four percent between 6:00 p.m. and midnight is CBC network programming. So that's our level of flexibility.
2096 COMMISSIONER KATZ: So within that flexibility you have the ability to actually create Canadian content?
2097 MS COURTEMANCHE: We do, local news.
2098 COMMISSIONER KATZ: Okay. But no PNI obviously.
2099 MR. ELLIS: Correct.
2100 MS COURTEMANCHE: Not when most of your 6:00 p.m. to midnight goes to the network, no.
2101 COMMISSIONER KATZ: 7:00 p.m.
2102 MS COURTEMANCHE: By the way, the CBC programming is largely PNI programming in prime time.
2103 COMMISSIONER KATZ: But it's not attributable to you, it's attributable to them.
2104 MS COURTEMANCHE: No, no, no. But I'm just saying that it is that type of programming though.
2105 COMMISSIONER KATZ: Right.
2106 MS COURTEMANCHE: But, you know, we do have scheduling. I mean if you are going to do that type of programming obviously you would like to schedule it in prime time.
2107 COMMISSIONER KATZ: So when you say that you are prepared to do PNI it's 100 percent on the specialty side and presumably 0 percent on the OTA side?
2108 MR. CASSADAY: The commitment is on specialty and pay.
2109 COMMISSIONER KATZ: Yes. I have a couple of questions with regard to some outstanding issues, one regarding tangible benefits.
2110 You acquired a couple of stations in the last several years and there, as I understand it, has been an obligation for you to report the status of the tangible benefits.
2111 Is that something that you do on a routine basis, because we have no idea whether you are in compliance or not right now.
2112 MR. MAAVARA: We monitor the benefits. We have a couple of pools.
2113 We have been talking to some of the beneficiaries about changing around our spend a little bit. For example, last week we sent George Brown a cheque for the entire five-year amount in advance on the basis that they could lever that with matching funds with the Ontario Government. They came to us and asked us about that, so we did it.
2114 So when I say we move money around a little bit, we do it in consultation with the recipients.
2115 COMMISSIONER KATZ: But do you file with us on an annual basis the obligations associated with those transactions?
2116 MS COURTEMANCHE: Yes, we have. Yes, we have. And I can give you some details if you like right now, but we could file it in a reply if you prefer. I can put some information on the record, but we have been filing annually, yes.
2117 COMMISSIONER KATZ: Okay. I guess if we need a follow-up we will follow up with that in Phase III.
2118 MS COURTEMANCHE: All right.
2119 COMMISSIONER KATZ: We will try and find it.
2120 MS COURTEMANCHE: Okay. Because I could be prepared to provide that.
2121 COMMISSIONER KATZ: With regard to --
2122 THE CHAIRPERSON: Hang on.
2123 You have something you want to provide right now to the Secretariat?
2124 MS COURTEMANCHE: Well, I can provide -- yes, I could provide this, absolutely.
2125 THE CHAIRPERSON: Well, why don't you do that.
2126 MR. MAAVARA: You should probably read into the record.
2127 MS COURTEMANCHE: It was not necessarily prepared for filing, it was just prepared to read into the record.
2128 THE CHAIRPERSON: All right, read into the record. Let's go.
2129 MS COURTEMANCHE: Sorry.
2130 For the CTV fund, the Sex TV and --
2131 MR. MAAVARA: Driving Classics.
2132 MS COURTEMANCHE: -- and Driving Classics acquisition, for the industry social initiatives there was a $1.265 million requirement and that has been fully committed. The payments continue through 2016.
2133 On the program benefits there was $2,735,000 requirement. Funds are not yet committed, but the funds will be spread as evenly as possible between 2012 in 2016 at $547,000 per year and that's --
2134 COMMISSIONER KATZ: The funds are not yet committed you are saying?
2135 MS COURTEMANCHE: No, they will start --
2136 COMMISSIONER KATZ: So they are not evenly distributed because you are already into this two years.
2137 MS COURTEMANCHE: They will be evenly distributed, sorry, between 2012 and 2016. That's what I have.
2138 COMMISSIONER KATZ: Why haven't you committed them by now? This was a 2008 acquisition, if I remember.
2139 MS COURTEMANCHE: 2009.
2140 COMMISSIONER KATZ: 2009.
2141 MS COURTEMANCHE: 2009 I believe. 2008 was CLT, 2009 -- we got it at the end of the year, so we did a closing on November 30, 2009, so getting the services in, so we are starting in 2012. It represents about 2 to 4 projects per year.
2142 The funds will be primarily used to trigger Movie of the Week and documentary programs for our Women's network, so the categories would be 2A, 2B, 5A, 5B, 7 and 9.
2143 On the Canadian Learning Television acquisition for educational institutions, we had a commitment of $975,000. That has been fully committed. Payments continue through 2015.
2144 On program benefits, there was a $6,326,368 requirement. Of this $1 million to development. To date we have committed $2,528,850 and we have also just committed an additional $800,000 since we filed our renewal application. There is a $3,797,518 remaining. The remaining funds will be spread evenly as possible through 2012 to 2015.
2145 We proposed to trigger programs from Category 5A and 5B.
2146 COMMISSIONER KATZ: So to the extent that you are fully committed, you are also on schedule on your payments?
2147 MR. MAAVARA: As I said, we in some cases were -- all of the monies are committed, but we are working with the parties. We have the commitments with respect to the payment of those and in some cases we are ahead or in other cases we are on track.
2148 On the program projects, we are still working on developing those.
2149 COMMISSIONER KATZ: I guess I'm just concerned that in those cases where they haven't been committed yet you technically have the use of the money and it's not being spread across proportionately to the term of the license.
2150 MR. MAAVARA: Actually, we don't have the use of the money because we have used -- if you look at the benefits as a pool of money and you slice it up into the time period that's required, we have actually been spending the money, it's just that we have been spending it in different ways.
2151 We will be fully compliant by the end of the term with all of the commitments that we made.
2152 COMMISSIONER KATZ: Okay. I would imagine to the extent that you may not be we will hear about it during the next several days from some of the folks that were expecting to be recipients of that money.
2153 MR. CASSADAY: We will be in compliance on the spending.
2154 COMMISSIONER KATZ: Okay.
2155 With regard to Cancon, I have in front of me here a couple of services that you offer that have not met the Cancon requirements.
2156 Are you familiar with them?
2157 MS PHILLIPS: Yes. We are familiar in some cases. If you wanted to be specific we could answer to that.
2158 COMMISSIONER KATZ: Yes. If you want me to be specific, one of them is SKY Tg24.
2159 MS COURTEMANCHE: Sorry, that's me.
2160 COMMISSIONER KATZ: Oh, okay.
2161 MS COURTEMANCHE: We didn't expect to -- because we only got this information last Thursday so we thought that normally we would have had Mr. --
2162 MR. CASSADAY: Also, while Sylvie is looking, SKY is a station run by Telelatino which has filed a separate application and is not included in --
2163 MS COURTEMANCHE: In the group.
2164 MR. CASSADAY: -- our overall filing for our group application.
2165 COMMISSIONER KATZ: But are you not here representing them as well?
2166 MR. CASSADAY: Not in this hearing, no. They filed separately.
2167 MS COURTEMANCHE: They filed separately.
2168 MR. CASSADAY: They are minority shareholders in Telelatino.
2169 MS COURTEMANCHE: Yes.
2170 MR. MAAVARA: We don't operate that service.
2171 MS COURTEMANCHE: Yes. But I did contact Telelatino because unfortunately they weren't able to appear at the hearing on such short notice, because we only got this Thursday afternoon, but I did get information from them and they -- according to our information, we are fully -- they are -- sorry, not we, they are fully compliant.
2172 SKY television is basically -- it's a Category 2, as you know, it only has about 5,200 subscribers and it's essentially a plug-and-play service. So in February '09 the average Cancon remains consistent from semester to semester and semester, because it's all library titles. I mean there is no fresh programming on a Category 2 service that only has 5,200.
2173 THE CHAIRPERSON: I'm confused here, you don't own them and you don't represent them.
2174 MS COURTEMANCHE: We don't own -- we do have a minority interest, I will let John speak to that.
2175 MR. CASSADAY: Telelatino is a separate company, it's not included as part of our group-based license. We control percent of Telelatino, there are three minority shareholders from the Italian community included. So the company operates separately, reporting to a board.
2176 THE CHAIRPERSON: Are you asking for license renewal at this hearing or not?
2177 MS COURTEMANCHE: Telelatino has asked for license renewal, but that was done separately to our group-based licensing proceeding because, first of all, group based doesn't include ethnic.
2178 THE CHAIRPERSON: My point is it part of this hearing or not?
2179 MS COURTEMANCHE: Yes, it is part of this hearing.
2180 MR. CASSADAY: It was a non-appearing item, Mr. Chairman.
2181 MS COURTEMANCHE: A non-appearing.
2182 THE CHAIRPERSON: Oh, okay. Thank you.
2183 MS COURTEMANCHE: It's a non-appearing item, yes.
2184 So I mean I do have the information here, but perhaps, because, you know, we only got this Thursday afternoon, Commissioner Katz, the best thing we could do for you is to provide the information in writing and have Telelatino do it themselves, but I can tell you that they have provided me with the information that demonstrates that they are in full compliance, both for TLN and sKY 24. But I would be happy to ask them to provide that to you in writing --
2185 COMMISSIONER KATZ: That would be fine.
2186 MS COURTEMANCHE: -- with the full explanation. That's probably the best way to proceed.
2187 COMMISSIONER KATZ: That will be fine.
2188 MS COURTEMANCHE: Thank you.
2189 COMMISSIONER KATZ: And with regard to Encore Avenue, is there a situation there?
2190 MS PHILLIPS: With Encore Avenue, we became aware at one point that the antiquated DOS system that we were using had corrupt data in it, which we were not aware of that time. At the time that we became notified by our staff that something doesn't look right we went back, we had the DOS system fixed and in fact what we did was strive to overcompensate in the next year to try and make up for that, understanding that it's a yearly condition, but as a measure of good faith.
2191 COMMISSIONER KATZ: Okay. Thank you.
2192 I want to change topics and move to accessibility. There were a series of questions that were posed to some of the other applicants as well, you may have been here and heard them.
2193 We are looking at the existing policy and some of the information that we had obviously is out of date. If you could be so kind as to provide us with what the current cost is of producing one hour of described video, that would be useful.
2194 MS COURTEMANCHE: I can put that on the record immediately, if that's acceptable.
2195 COMMISSIONER KATZ: Sure. If you have it, by all means.
2196 MS HAMILTON: In general it's within a range of approximately $1000 to $1400 per episode --
2197 MS COURTEMANCHE: For one hour.
2198 MS HAMILTON: Per episode of one hour.
2199 MS COURTEMANCHE: For one hour.
2200 MS HAMILTON: For one hour.
2201 COMMISSIONER KATZ: Is there a difference between French-language and English-language closed captioning?
2202 MS COURTEMANCHE: We don't operate in a French-language market so, I'm sorry, I don't know the answer to that.
2203 COMMISSIONER KATZ: Okay. Okay.
2204 Can you comment as well on the impact if we chose to ask you to incrementally increase described video over the term of your license?
2205 MS COURTEMANCHE: We would have to do that in reply because we only heard that question for the first time this morning and we didn't -- we were busy trying to get the CPE and PNI information prepared for the Commission.
2206 COMMISSIONER KATZ: Sure.
2207 MS COURTEMANCHE: So we would be happy to provide the impact at reply, if that's acceptable.
2208 COMMISSIONER KATZ: Okay.
2209 And the other question this morning that you may have heard as well was comment on the impact of increasing the percentage of original programming described to 75 percent from 50 percent.
2210 MS COURTEMANCHE: So the impact as opposed to the cost impact? I just want to understand.
2211 COMMISSIONER KATZ: The cost --
2212 MS COURTEMANCHE: The cost --
2213 COMMISSIONER KATZ: -- any other operational impacts that you may have.
2214 MS COURTEMANCHE: -- any other operational impacts.
2215 COMMISSIONER KATZ: Which presumably would impact financially I would think.
2216 MS COURTEMANCHE: Correct. Okay.
2217 There are probably some technical issues as well, but we will provide that. We undertake to provide that to you in reply.
2218 COMMISSIONER KATZ: Okay.
2219 And I think that is it, Mr. Chairman.
2220 In your remarks this afternoon, on page 12, you talk about some of the right circumstances, and one of them -- the last bullet -- is retaining the 150 percent time credit for Canadian feature films on Movie Central.
2221 I understand what the time credit is. It's an incentive to motivate you to do more. But I don't know how --
2222 MS COURTEMANCHE: It is not just an incentive to do more. The Movie Central 150 percent credit is specific to Movie Central, and it's an incentive to do feature films. That's why it distinguishes itself from the standard. It only applies for Canadian feature films that are broadcast in prime time, but also they have to be 75 minutes in length.
2223 So, basically, this is the driver for funding.
2224 As you know, on Movie Central, we provide, or we broadcast, on average, in excess of 65 Canadian movies a year, and a lot of those titles require a pre-buy purchase before they get sufficient funding to get actually made. Otherwise, we would wait to do the acquisition after it is made.
2225 It was done specifically in order to incent and help with the funding of Canadian feature films. So it doesn't apply to everything, it is really specific to Canadian feature films. That's why it's different.
2226 I can tell you that when you speak to the independent producers, they will tell you that that is very important for them, that piece of the money that we provide them.
2227 We provide money for script development, for pre-buys, licence fees and equity investments, and all of those are --
2228 COMMISSIONER KATZ: I understand all of that, but what I am then confused about, if you say that, is that we have provided you with flexibility within the general licensing of specialty, and I would imagine that you want to pay -- and specialty could be compounded together, so you have the full flexibility between them.
2229 If there is an incentive there to direct you to do Canadian feature films, and we then give you the flexibility in grosso modo terms, how do we know that the system is really going to be working and you are not going to be what I will call sucking and blowing at the same time?
2230 MR. MAAVARA: Commissioner, what do you mean by sucking and blowing? What is the problem you are trying to solve?
2231 COMMISSIONER KATZ: You are taking advantage of the credit situation on the one hand, which means that you will be doing less hours of Canadian programming, if hours even matter any more in the current environment --
2232 MR. MAAVARA: In fact, we are not proposing -- in fact, we are going to be spending more money.
2233 COMMISSIONER KATZ: The credit is against the hours, right? It's an exhibition credit.
2234 MS COURTEMANCHE: It's an incentive to buy a particular type of product. Otherwise --
2235 COMMISSIONER KATZ: But the exhibition is going away. There is no longer an obligation for you to do exhibition.
2236 MS COURTEMANCHE: No, we continue to have an exhibition requirement on Movie Central. That doesn't go away, right?
2237 We continue to have an exhibition. That doesn't go away.
2238 Each of our services continues to have an exhibition requirement. We are not looking to get rid of that, we are just saying that, way back when -- this is another one of those historical conditions that was put into place in order to incent the purchase of Canadian feature films.
2239 Producers will come and tell you that there are not enough outlets in Canadian cinemas. As you know, Canadian films don't get into Canadian movie houses. So this was a way to ensure that you could get -- and we buy it before it's even made, so it's a pre-buy.
2240 COMMISSIONER KATZ: And without this credit, you are saying --
2241 MS COURTEMANCHE: We are just saying that we would lose the incentive. We would wait until it was made. It would make the straight out -- instead of doing a pre-buy, we would wait until it was done.
2242 So it would hurt the financing of Canadian feature films.
2243 MS HAMILTON: If I could just add a nuance to that, it's the difference between a pre-licence and an acquisition.
2244 So the rule of 150 percent is -- there is an incentive for us to take the risk to come in before it has ever been made and help the producers at the end of the day.
2245 That doesn't mean we wouldn't acquire all of those movies, but we have the choice to either pre-buy and come in in the early day, or acquire it later, and it is just better for everybody if we come in at the pre-buy stage.
2246 We would still acquire Canadian feature films, for sure. It's just -- that is the nuance.
2247 MS COURTEMANCHE: It's not so much the acquisition as much as whether it would even get made in the first place, because there is a piece of the funding pie that could maybe not happen otherwise. That's what you have to worry about.
2248 COMMISSIONER KATZ: Those are my questions. Thank you.
2249 THE CHAIRPERSON: I think we will do the CPE and PNI in camera, so I will go over to production. Steve...
2250 COMMISSIONER SIMPSON: Thank you very much. I don't have very many questions.
2251 Going back to the question that Commissioner Katz was asking with respect to conditions of licence, particularly for Movie Central and Encore, as I understand it, for my own clarification, with group-based licensing, there will be no change to the production requirement or the stipulation regarding your ability to produce up to 25 percent of the content that you broadcast.
2252 MS COURTEMANCHE: We purposely did not request that change, and the reason we did that was because we knew you would be concerned if we did.
2253 We understood that there were some conditions of licence that were important, not only for the system, but for those participants in the system, so we wanted to be able to reassure, especially when it comes to Canadian drama and that type of programming, that we would not be seeking to produce more than 25 percent of that schedule.
2254 That is exactly the reason why we kept that particular condition of licence in.
2255 COMMISSIONER SIMPSON: Terrific. Thank you very much.
2256 Getting up to a higher level at this point, overall -- and given the hybrid nature of Corus and how you operate -- would you just give me a commentary as to how group-based licensing may positively or negatively impact the independent production industry as you go forward in your strategic planning for programming?
2257 MR. MURPHY: I'll take that, thank you.
2258 Corus, obviously, is asking for the right circumstances to be successful, and group-based licensing will enable us to work strategically with producers in Canada to make the right shows, on the right networks, that our audiences want.
2259 In our view, group-based licensing is a real opportunity for us to make better programming, and invest more, potentially, in programming, with the producers that work for our various networks.
2260 MS COURTEMANCHE: I would like to give Jocelyn the chance to tell you about a couple of our success stories. I think it's really worth mentioning. Thank you.
2261 MS HAMILTON: Thank you, Mr. Commissioner.
2262 Our Canadian success stories are abundant at Corus. Right now, for instance, the number one show on two of our networks is a Canadian series, one on YTV and one on Treehouse, beating out huge, superpower brands like iCarly and SpongeBob.
2263 Mr. Young is a Canadian production from Vancouver. It's the number one show for winter/spring right now, in 2011. And Toupie et Binou from Quebec is the number one show on Treehouse right now. Both are Canadian success stories, and we have many others.
2264 On Treehouse, six out of ten, in most weeks, are Canadian productions.
2265 And our independent production community -- we have a strong relationship with them. We have great successes on our kids' networks. On our women's networks there are top five programs all the time, for shows like The Cupcake Girls and Come Dine With Me Canada.
2266 On Movie Central we have had, just recently, Call Me Fitz. It's in the top five. The Pillars Of The Earth, in the top five.
2267 We have some great programming. There is no reason why we would stop working with our independent producers. This flexibility would just give us a great opportunity to put it in the right place, potentially spend more on some shows, and do the right things from a strategic programming standpoint.
2268 COMMISSIONER SIMPSON: Terrific. Thank you.
2269 On the theme of independent production, presently how involved are you as a company in getting out into the regions and developing relationships with the regional producers?
2270 I ask this question from two standpoints. I was quite disappointed in CTV's response to this question the other day, in that I felt they were taking more of a hands-off, buyer approach, as opposed to a developer approach to content, and yet, in the same regard, they seemed to feel that the kind of content that was available to them from the Canadian producer wasn't really making them a lot of bucks.
2271 My question was, more or less: Well, then, why don't you get more involved?
2272 Now, you are the inverse to that, it seems, in that you are highly vertically integrated, a highly centralized company that has become quite masterful in the control of your own destiny, and it is from that lens that I am asking, are you getting out into the regions and making an effort to engage the regional producer, or are you finding that, with your new facility, you are becoming more centralized?
2273 MS HAMILTON: We are out all the time. In fact, I leave for Vancouver next Thursday, April 14th, for a set visit, and we are going to be seeing about five or six other producers while we are out there.
2274 We were just in Nova Scotia. The Nova Scotia film industry invites us regularly to come out and talk on panels, and we meet with all of the producers out east.
2275 We are constantly on the go.
2276 Less Than Kind is shot in Winnipeg.
2277 We are out all the time. We are also at all the markets. We will be at Banff. We took last year, alone, over 2,100 pitches in our building, let alone when we are out at all of the markets.
2278 So we are constantly on the road.
2279 MR. MURPHY: If I could add, Mr. Commissioner, we are also out internationally. We believe that a very important part of group licensing is working with the many gifted programming producers in Canada, but one of the reasons why we believe strongly that our kids' content business is so successful in Canada is because we are in international markets, getting feedback from our broadcast partners there.
2280 That has helped us to really sharpen our saw on the type of content we make for kids, and we believe that intel can be used broader, across women's drama and scripted, et cetera.
2281 MR. MAAVARA: Mr. Commissioner, there is just one thing I wanted to add in the context of Terms of Trade. Some of the hall discussions that have gone on over the last couple of days, as a consequence of our reaching the agreement, concern the whole education process. We have been discussing with Mr. Bolen and Mr. Barrack the notion of getting out there.
2282 It is one thing to get the deal done; we now have to get out to the production community to show them what the deal is, explain how it is going to work, explain how the buyer community is going to have to deal with it.
2283 That is something that we are going to have to actively work on, under a relatively tight timeline, because our goal is to try to get it all rolling by September 1st.
2284 So that's another area where it is going to be coupled with our program development. There is just going to be the process aspect to the business of developing the shows.
2285 COMMISSIONER SIMPSON: Great. Thank you very much, Mr. Maavara.
2286 On the subject of production, we heard evidence the other day from another group that one or two productions falling out of bed -- let's say that they were in the late stages of development -- had a significant impact on their spending in PNI.
2287 I am just curious as to how many projects for PNI you might have under development at any given time; and secondly, what the success ratio is on that in working with the independents.
2288 MS HAMILTON: I don't have it divided up by PNI, because we have both, but currently we have 65 series/shows in development, across all of our networks, and we have 92 in production.
2289 That is sort of the pipeline right now, the current phase.
2290 As far as the question related to if a development fell apart, we always have lots of things in development. That's part of what we do, to ensure that we are always on top of all trends, to make sure that we are always ahead of the curve from a programming standpoint.
2291 We have, again, great relationships with our independent producers. We have fabulous things in development and in production, so we feel secure that we are always ready if one were to fall apart.
2292 COMMISSIONER SIMPSON: Thank you.
2293 On the issue of movies, if you could give me a very brief commentary for the record on how you feel the removal of movie restrictions on CMT is going to have an effect in the Canadian film production industry.
2294 Do you think it is going to have any kind of impact at all?
2295 MR. CASSADAY: I think it could have a tremendous effect. We know that movies are extraordinarily popular to this group of people, who are interested in the country lifestyle. Who are they? They are people who shop at Walmart and Target. It's not just people who wear boots and have hats.
2296 If we can build audience again, as we have proven with the example that we used on CLT and the revival of that network, we can continue to make a bigger contribution to Canadian content. More revenue equals a greater amount of dollars as a percentage of that revenue.
2297 MR. MURPHY: I might also add that we work with our partners in the States, CMT in the United States, and they have changed some of their programming strategies now, and an important movie strategy is part of their service. So this is kind of brand aligned.
2298 Furthermore, we think that moving away from the country music protagonist and getting more specific to the general themes of country living -- family values, wholesomeness, trust -- will give us a lot of flexibility to make some great films for our audiences.
2299 COMMISSIONER SIMPSON: Thank you very much, those are my questions.
2300 THE CHAIRPERSON: You mentioned twice the work you have done with The Learning Channel. That was VIVA. Is that not Oprah Winfrey now?
2301 MR. CASSADAY: That's correct.
2302 THE CHAIRPERSON: Are you asking for a new genre description for it?
2303 MR. CASSADAY: I think, on a couple of separate occasions, on both the rebranding from CLT to VIVA, and then to OWN, we provided the Commission with a detailed description of our genre description.
2304 We believe that we are completely compliant with the COLs of CLT.
2305 MS COURTEMANCHE: In response to your question, no, we are not asking for a genre change.
2306 THE CHAIRPERSON: Explain that to me, because I am looking at VIVA and it says:
"The licensee shall provide a national English-language specialty television service which provides formal and informal educational programming and learning opportunities that generally focus on adult education. Educational programs will come from the full spectrum of basic, credit-based, skills-related and life-enhancing programs, many of which will be undertaken in cooperation with colleges, universities and training institutions."
2307 That doesn't sound like the Oprah Winfrey Network to me.
2308 MR. MAAVARA: Mr. Chairman, as we said, we have replied in writing to the Staff questions on this. In fact --
2309 THE CHAIRPERSON: You now have the opportunity to do it face-to-face.
2310 MR. MAAVARA: We will do it face-to-face, and we are delighted to do so, I might add.
2311 Oprah Winfrey and the whole range of the program service really epitomize the Nature of Service, both from a broad attitudinal perspective, but also with respect to the specific programming. There are formal education elements to the schedule. We are aligned with educational institutions in that regard.
2312 But, also, the program service -- basically what Oprah Winfrey has done -- in fact, what we did with VIVA was show that learning doesn't have to be dull. The exploration of learning can, in fact, be quite entertaining and quite interesting, and on close examination of those programs, that really comes through.
2313 In fact, we meet all of the conditions in the NOS.
2314 MR. MURPHY: If I could add to that, Mr. Chairman, just to describe some of the detail around the vision of the Oprah Winfrey Network, learning really is an essential part of the positioning.
2315 If you will permit me, I will talk a little bit about the network's positioning. The general theme is: "Live Your Best Life." It's about trying to be life-enhancing, to adopt behaviours that improve your life.
2316 There are three specific programming categories to it, the first of which is "Take Charge of Your Life", and there are a number of experts -- I can give you more detail, if you wish, or we can submit it after the fact -- that help audiences, whether it's removing clutter, improving their sex life, financial coaching.
2317 The second one is "Dream It, Do It", which is more of an aspirational theme of programming that is desired to inspire and to excite the audience.
2318 Finally, third, "Look Beyond Yourself" is really about looking through the lens in terms of what other people's accomplishments are globally.
2319 It is our view that this positioning is, indeed, highly learning in its orientation.
2320 I might also add that this is another example of a network where we are working very closely with the Canadian independent production community to commission shows for the Oprah Winfrey Network, and we are very pleased to tell you that, in every case, shows that we are commissioning in Canada are being looked at by the Oprah Winfrey Network in the U.S.
2321 So this is a chance for Canadian independent programmers to have access to the U.S. marketplace, with the Oprah Winfrey Network.
2322 THE CHAIRPERSON: You heard me at the beginning of the questioning asking if genre is really something that we should maintain, et cetera, or if its time has come.
2323 You have heard other intervenors, most notably Rogers, saying just before you this morning that we really should have a proceeding, and maybe even put it into the vertical integration hearing and review the whole thing, because it has become so amorphous and so difficult.
2324 Here we have a perfect example. I hear what you are saying. I also think that if you asked the average person, "What is Oprah Winfrey," they wouldn't think of education. That is not exactly what comes to mind.
2325 It is very good entertainment, but --
2326 I can see how you are developing your argument in saying that everything she does is, in effect, life enhancing and, therefore, it is part of education. I get that, but are you a firm believer that our genre system, as we have it now, works, or needs an overhaul, needs a revisit, or recasting?
2327 Where do you stand on this whole issue?
2328 MR. CASSADAY: We certainly agree with your point that the genre exclusivity of the past has evolved. Our personal -- I shouldn't say our personal view -- our corporate view of genre exclusivity is that, for the established networks, they have had ample time to establish their position with the consumer. If they are vulnerable, shame on them.
2329 We have asked for flexibility to be able to compete in a more open environment.
2330 If you can imagine -- you spoke earlier this morning about the fact that Rogers had been granted nine or ten new services. Many of them are direct competitors to services that we have. We are fine with that.
2331 But if we are at 70 percent CanCon on W and they are at 30, that puts us at a significant disadvantage. So we simply want the ability to compete in a more open environment.
2332 The other thing I would add is, we do firmly believe that the programming that we are putting on Oprah is educational, and I think we should take comfort in the fact that we took a service that had absolutely no audience to one that has the potential of being very appealing to Canadians, generating substantial revenues and making a contribution to the system.
2333 I think I could guarantee you with almost 100 percent certainty that CLT would not survive a day after digital migration. It would be so far up the dial and à la carte that it would be available in no Canadian homes, had we not made the change that we did.
2334 THE CHAIRPERSON: I haven't seen the Oprah Winfrey Network. I saw VIVA. If we were talking about VIVA, I really would have a good debate with you as to whether it was educational or not, because you had an awful lot of crime shows on there, and I don't see anything there that is educational.
2335 That is the whole thing about this genre, it is becoming such a fluid thing.
2336 I understand your argument in terms of fairness. If you have high Canadian content, you shouldn't have to compete against somebody who has low Canadian content, but...
2337 MR. CASSADAY: Yes. I respect your opinion on that, but virtually every show was curriculum based, and virtually every show was preceded by an interstitial with an educator linking the content of the show to a curriculum.
2338 It was clumsy, but it was our effort to make sure that we were living up to not only the word, but the spirit of those COLs, and I think, quite frankly, we did a good job.
2339 Most importantly, we built audience with that service.
2340 THE CHAIRPERSON: The bottom line is, I am not terribly interested in Oprah Winfrey, but genre, per se, you feel that it is still a working concept in tone and the way we use it in order to determine whether you are Category A or B, et cetera, to give you, in effect, mandatory carriage?
2341 I mean, you went all over the place, so I didn't --
2342 MR. CASSADAY: Well, I tried to be --
2343 THE CHAIRPERSON: Yes, I know, but the bottom line -- are you feeling that we should continue this, or should we undertake a major review of it, as we have been urged by Rogers?
2344 MR. CASSADAY: The bottom line is, as we have laid out in our submission, we think there should be some general categorizations, but there should be much more flexibility within the broad categories, whether it's kids or family. So we do favour an environment that is much more open and gives broadcasters the flexibility to attract audiences.
2345 MS COURTEMANCHE: Just to be clear, in 2008-100, we did advocate opening up the genres, but with specific baskets. So you would have a basket of children's programming, you would have a basket of lifestyle programming. Within those baskets you would have, you know, like, open season.
2346 It wasn't, like, remove all of it, because we thought that you didn't want all of the services to morph into general interests. So we thought that if you created, like you do now -- you know, you opened up sports and you opened up national news. You could do that with lifestyle and children's programming.
2347 That's how we had advocated, but in this context, too, we said that we had prepared our applications and our financial projections based on the fact that you had ruled that genre exclusivity would continue. So it would have an impact on our financials if you were to decide as part of this hearing that genre exclusivity was --
2348 THE CHAIRPERSON: No, it's not part of this hearing, I was just wanting to know, as a successful company, what your feeling was on it.
2349 MS COURTEMANCHE: Understood. We just wanted to make sure that you also understood how our financials were prepared.
2350 MR. MAAVARA: Mr. Chairman, it may be worth having that examination, and just to expand a little bit on what Mr. Cassaday said, one of the dangers of genre exclusivity is the circumstance which we are facing, literally, on a daily basis, of where a Canadian player is unable to move forward because of the exclusivity policy. Meanwhile, a foreign player walks through the door, either over the top or through the eligible list.
2351 Genre can be very difficult to define, but if it is used as a shield, it's not helping anybody.
2352 THE CHAIRPERSON: Okay. Suzanne, do you have some questions?
2353 COMMISSIONER LAMARRE: Yes. Thank you, Mr. Chairman.
2354 First off, I am going to try to put away the issue of descriptive video with Encore. I understand your issue, but I think you have missed the point here.
2355 And I say that very respectfully, because it could have been confusing.
2356 The whole idea of the accessibility conditions of licence is to increase the level of productions that are available through the distribution system, through the Canadian system, with described video.
2357 Here we get the point that Encore is a second window. So, obviously, we cannot relate to Encore talking about original productions or original viewings. But the point is that what you are showing with described video on Encore, half of it could be new described video. Like, the new side of it would be related to the described video.
2358 Let me read to you what it could look like as a condition of licence, and you will have it in the transcript tomorrow, so you don't need to write it down. If you need to make further comments at the end, you can.
"Only for services in which 50 percent or more of the programming comes from Category 7(2)(b) and/or children's programming, the licensee will, by condition of licence, provide described video for a minimum of four hours per week of programming, of which 50 percent must consist of programming broadcast with described video for the first time."
2359 So it is the described video that is being broadcast for the first time, not the main feature.
2360 MS COURTEMANCHE: Or that the production is original to the system or the service.
2361 COMMISSIONER LAMARRE: Yes.
2362 MS COURTEMANCHE: Okay. Could we take that under consideration and come back to you, because I would like to talk to my operational people, to make sure that we are --
2363 COMMISSIONER LAMARRE: Yes.
2364 MS COURTEMANCHE: So we will come back in replay. Thank you.
2365 COMMISSIONER LAMARRE: Absolutely.
2366 MS COURTEMANCHE: And thank you for that clarification, that is very helpful.
2367 COMMISSIONER LAMARRE: That takes care of that.
2368 Now, since you were just talking about Oprah with the Chairman, I figure that I should get a crack at it, too.
2369 COMMISSIONER LAMARRE: It's only fair.
2370 Looking through the deficiency letters that were sent by our staff to you, reading through them, it feels like we are trying to pull teeth out of you to try to get a picture of what it would look like once it got on the air.
2371 Part of the problem was, from your point of view, the network had not been launched yet, and obviously you could not answer the questions.
2372 Well, correct me if I'm wrong; it has been launched since March 1st.
2374 So in helping us to figure out the educational part of it, and whether or not it still meets the Nature of Service of the former VIVA, would you be able to provide us with your schedules, so we can have something to look at, instead of debating --
2375 MS COURTEMANCHE: We would provide a schedule with the categories?
2376 COMMISSIONER LAMARRE: Yes, please.
2377 MS COURTEMANCHE: Yes, we will do that. Thank you.
2378 MS COURTEMANCHE: Could we do that at the same time as reply?
2379 Is that acceptable, Mr. Chairman?
2380 THE CHAIRPERSON: Yes.
2381 MS COURTEMANCHE: Thank you very much.
2382 COMMISSIONER LAMARRE: Okay. The other thing is, let's talk about CMT and the requested modification to your Nature of Service -- well, not really Nature of Service, but the conditions of licence.
2383 I don't want to take the proposed modifications one-by-one, because I think what is important is the overall change you are trying to make.
2384 If I just pick them one at a time, it doesn't seem like an issue. When I look at the whole picture, it seems to be.
2385 For CMT, your Nature of Service, basically, is that you shall provide a service with programming focused on country and country-oriented music. Okay, let's take that for granted.
2386 Now, you are also asking us to reduce by half the programming of music video clips. You are asking us to increase by a third what you will be broadcasting in Category 7. You are also asking us to reduce the overall Canadian content, over the year, from 60 percent to 50 percent.
2387 So all those changes taken together, exactly how are you going to be able to still respect the fact that you are going to be focused on country and country-oriented music?
2388 MR. MURPHY: Let me start, Madam Commissioner, with the music question because it is à propos to the nature.
2389 One of the things that we are asking for is relief on the amount of music flow for CMT. We heard some of it also for some of the competitive music flow channels in yesterday's hearing.
2390 We have made some significant investments in learning about our audiences for country music and using new technologies to satisfy their demands. So if you will permit me, let me just take you through some of the things we are doing.
2391 The first thing is that at Corus Quay now we have the ability to engage in productions of live music. So we have had a number already, Johnny Reid, Great Big Sea and others, where we do a broadcast out of Studio 1 in our facility, which goes to air.
2392 So we believe that there is still a way for us to deliver fresh, engaging content of country musicians on CMT, leveraging the investment we have made in Corus Quay, and we will continue to do that in the future. It remains a strong strategy.
2393 As for music videos, our research has told us that the country music fan spends a lot of time going online for their information about their artists, listening to music and thus watching music videos online.
2394 So our request to take the music flow down on the linear television service is going to be met with more music videos on our CMT.ca.
2395 We launched a new video player in August of '09. We have increased our viewership of country music videos online by 526 percent because it is tapping into that behaviour right now where country music fans are going online to find out about their favourite artists.
2396 We have also invested in a really exciting new piece of technology. It is an online social networking platform called Supernova.com. We did a test in one of our major markets. We are going to roll in out in five major markets. What it enables bands to do is to upload their auditions into a website scenario wherein our audiences then can go vote on them.
2397 So we are still going to be very much making country music a hug part of our audience base, but we are going to drive that strategy through a multiplatform strategy.
2398 So our ability to use the Web, Corus Quay, Supernova.com and our CMT.ca, we think, more than addresses the needs of music videos on a channel.
2399 MS COURTEMANCHE: I would just like to add.
2400 On the programming, that will help build the country music star system because I think that is a very key element. If we are going to decrease the video flow, I think we have to deal with the issue of whether we are building a country music star system.
2401 We are going to do that through the broadcast of programs such as "The Wilkinsons," "Johnny Reid: Live at the Jubilee," "The Tara Diaries," "The Road Hammers."
2402 We also provide on CMT -- we air the Country Music Awards. Prior to airing those awards we produce air companion specials such as "CMT at the CCMAs." We profile the CCMA artists on the Chevrolet Cross Country Countdown" program, where the nominated and winning artist videos are aired.
2403 We also assist with the creative writing and booking of acts for CCMAs and we are also a sponsor of CCMA's FanFest, which is an area for fans to gather and connect with the artists during the show.
2404 So we understand. We get it. It's not just about -- you know, we have to do something to help with the country music star system and I can tell you that there are a few country music artists such as Johnny Reid who were going nowhere until we started playing his music on the station.
2405 So we are aware that that is part of our responsibility and it is our intention to continue that. I just wanted to make that clear.
2406 COMMISSIONER LAMARRE: Yes, and I almost forgot, another modification you are asking for is actually a deletion of the requirement that right now no feature films can be broadcast except those for which a country music artist is the key subject or a country music artist is cast in the key performing role.
2407 So that is also really going to change the window of CMT, isn't it?
2408 MS COURTEMANCHE: Well, we thought -- because the condition of licence says that all programming has to be focused on country and country-oriented music, we thought that caught it.
2409 Now, if you feel that at the end of the day we need that additional condition of licence with respect to feature films specifically, we could understand that, but we just thought that it was caught in the original 1(a).
2410 So we thought that once you have 1(a), all your programming has to be like that, why do you have to repeat it again for feature films? That was just our logic.
2411 COMMISSIONER LAMARRE: Okay. So you felt this was redundant with the first condition of licence?
2412 MS COURTEMANCHE: Well, I think it's redundant especially, yes, once you have decided that your programming has to focus on country and country-oriented music that you have a genre there that you are looking at.
2413 COMMISSIONER LAMARRE: So you will not be showing "Terminator" on CMT?
2414 MR. MURPHY: No.
2415 MS COURTEMANCHE: No. You know what, we don't do films that require advisories because that doesn't fit within the format of what we are talking about.
2416 MR. MURPHY: If I could just add to that, Madam Commissioner.
2417 You know, this is about studying and paying attention to our audiences, and so, you know, what we are proposing is that we are still able to tell stories about the values of country music and the country lifestyle. It is very family-focused.
2418 This would be relevant to the relaxation on the feature protagonist issue we are requesting. It would also speak to the increase in the Category 7 drama asked.
2419 We think these relaxations will help us to grow our business, grow our audiences and thus in the longer haul invest more in those activities that support the service.
2420 COMMISSIONER LAMARRE: Okay. That is a fair answer.
2421 Moving on to children's programming. Currently you have two services. You have Treehouse and you have YTV.
2422 My understanding was always in looking at your nature of service as it is now, as it stands now before us, is that Treehouse was for the younger kids, like zero to six, and YTV was for, you know, seven and on as teenagers are teenagers earlier in age as ever.
2423 And when I look at the changes you want to make to the conditions of licence and nature of services, I feel like you are just trying to have two similar windows, you know.
2424 So explain to me what it is you are trying to achieve with the modification you asked for because when I read through it, all I can make out of it is that you are going to be able to just show whatever on YTV or on Treehouse depending on how the scheduling manager feels.
2425 MS COURTEMANCHE: No, absolutely not. We have two very distinctive brands with YTV and Treehouse. We are not going to cannibalize that brand.
2426 Treehouse is targeted to children that are six or under and I can tell you that every parent or grandparent in this room that has a child -- and your Secretary General tells me every time I see him about how much he loves Treehouse -- will tell you that this programming service targets children to six and that is what it focuses on. There is absolutely no doubt about it.
2427 And YTV, it goes back to the history. YTV was one of those services that was licensed back in 1987. Well, in 1987 there was no Treehouse, so YTV had to be everything to everyone. It needed to be there for children, it needed to be there for youth and also with some family viewing, right?
2428 So, you know, with the advent of new services in the system -- there is Nickelodeon, there's a bunch of other children's services -- we just saw at this point in time that, you know, YTV could focus on youth, which is seven to 17, and there would still be the opportunity for some children programming but essentially it would focus on its demographic.
2429 COMMISSIONER LAMARRE: Okay. So what you are telling me is that I am reading this wrong. What you are actually trying to do is specialize YTV more towards the oldest ones while keeping the specialization of Treehouse for the six and under. Okay. Okay.
2430 You do a lot of children's programming with your production house Nelvana, which I visited a few years ago and, you know, I was amazed.
2431 But do you also plan to do -- are you currently also commissioning like fiction, drama for children, not just animated, but, you know, with real people around?
2432 MR. MURPHY: Commissioner, yes. The answer is yes. We do a lot of animation obviously and we are happy to speak to that should you desire.
2433 But most recently again, and I will come back to my earlier comments, what we are very focused on is the needs of our audiences because that is what is going to drive our business, you know, in the kid space in Canada and internationally. And increasingly now we are seeing a trend towards, you know, sort of scripted live action.
2434 I will ask Jocelyn Hamilton to talk a little bit more about some of the things we are doing in the scripted live action for kids.
2435 COMMISSIONER LAMARRE: Yes, scripted, that is the right expression. Thank you.
2436 MS HAMILTON: Just to clarify, are you talking about our independent producers or -- because you mentioned --
2437 COMMISSIONER LAMARRE: I am talking about what you are showcasing, basically what you are putting on the air.
2438 MS HAMILTON: Yes. So we have a little bit of everything. Yes, we have animation, of course, because, as we just discussed, our target is from, say, six, seven years old till about 17. So animation tends to be targeted for the younger side of that, six to 11.
2439 Then we also have scripted comedies, sitcoms.
2440 COMMISSIONER LAMARRE: Yes.
2441 MS HAMILTON: One of the ones I just mentioned is the number one show on YTV, called "Mr. Young." We have "How To Be Indie." We have a new one coming called "Life with Boys." We have a sketch show also, a comedy which is called "That's So Weird." And we just recently commissioned a series that is a little more sci-fi drama, also scripted type of programming. So we have a little bit of everything.
2442 We also have some unscripted as well but it is still in the vein of empowerment for kids and competition adrenalin, shows like "The Next Star," which is a huge hit and we have had lots of success from a multiplatform standpoint, shows like "In Real Life," produced in Montreal, and shows like "Survive This."
2443 So we have a plethora of different kinds of genres for kids and youth.
2444 COMMISSIONER LAMARRE: Okay.
2445 The last item is a housekeeping --
2446 THE CHAIRPERSON: Hang on. Before you go on, I am not quite satisfied with the answer we just go.
2447 Treehouse says up to six years. YTV says children and youth up to 17 years of age. There is a complete overlap. There is nothing that you can put on Treehouse that you can't put on YTV.
2448 You are telling me that those are -- the service description doesn't -- has no limitation whatsoever. You could in effect put the identical programming on both.
2449 MR. CASSADAY: Again, as Sylvie mentioned, part of it is historical because there was no Treehouse at the time YTV was launched. So there is a significant number of conditions associated with pre-school programming, and, of course, Treehouse doesn't have as broad a distribution base as YTV.
2450 So in the past when we have talked to the Commission about reducing the amount of pre-school programming, we have been discouraged from doing that because of the lack of accessibility of pre-school programming in some communities.
2451 So you are right, I mean we would be perfectly happy to eliminate the duplication, we just don't think it is in the public interest to do that.
2452 THE CHAIRPERSON: But you are actually asking for the opposite. I am looking at what you are asking for. You are asking for the duplication. You are not making any attempt to eliminate --
2453 MR. CASSADAY: No. We think it is in the public interest to continue to offer pre-school programming on YTV. We do not sell commercials in there. There is really no -- there is no financial benefit to Corus to continue to offer pre-school programming on YTV. We really do that as a public benefit.
2454 MS COURTEMANCHE: We are looking to reduce the number of hours that we do target that. But, you know, to Mr. Cassaday's point, yes, we still think that there is some room early in the schedule for that.
2455 THE CHAIRPERSON: I guess I am getting lost here. You are appealing two separate things. On one hand you are saying you want a separate genre with some flexibility. Yet here, as I say, as far as I can see, there is a complete overlap and you say you are doing it out of public interest.
2456 There is no commercial advantage for you?
2457 MR. CASSADAY: On occasion, when the kids are home from school during holidays, we will pre-empt pre-school programming and rely on Treehouse to do that. But generally speaking, the pre-school programming provides a service to those households that don't have access to Treehouse.
2458 THE CHAIRPERSON: Okay. I hear you. Thank you. Go on.
2459 COMMISSIONER LAMARRE: Yes.
2460 The last item, Madame Courtemanche, you agreed to table with us the scheduling of the Oprah Network.
2461 Could you also provide us with your criteria base to determine what is formal education and what is informal education within that grid, please?
2462 MS COURTEMANCHE: We will. Thank you.
2463 COMMISSIONER LAMARRE: Thank you very much.
2464 THE CHAIRPERSON: Peter, you have a question?
2465 COMMISSIONER MENZIES: I am going to use the Oprah example but it applies to other stuff again.
2466 How can we, if we accept this and we accept your definition of learning, that all of this content is learning -- I mean just about everything I watch on TV I could categorize down as learning, right?
2467 I mean I learn something when I watch "Ice Pilots." I learn something when I watch "Braveheart," a movie. I learn something when I watch "James Bond." I mean I learn something when I watch "Rick Mercer."
2468 How can we continue with a straight face to protect you in that genre from somebody who comes up and approaches us with an application to create a channel that has, I don't know, a series of lectures on quantum physics or something, but something that is educational or fits a definition of learning, and we tell that person: I'm sorry, that might be a good idea but you can't. Your innovation, your investment, your competition is not acceptable in this Canadian system because those people over there with the Oprah Network, they are doing learning and you can't.
2469 How is that not anti-competitive of us to allow that to happen and block out other people from that genre?
2470 MR. CASSADAY: We would never ask you to say that. As we said --
2471 COMMISSIONER MENZIES: Would you be willing to give up your genre protection?
2472 MR. CASSADAY: Yes.
2473 COMMISSIONER MENZIES: Thank you.
2474 THE CHAIRPERSON: Tom?
2475 COMMISSIONER PENTEFOUNTAS: Yes, I do my most learning while watching "Call Me Fitz," but I --
2476 THE SECRETARY: Sorry, please open your microphone, Mr. Pentefountas.
2477 COMMISSIONER PENTEFOUNTAS: I was saying that most learning I do while watching television is during the "Call Me Fitz" show, but I am not sure about what I am learning.
2478 MR. CASSADAY: Perhaps that is something we can talk about in camera. We can't put that on Oprah, though.
2479 COMMISSIONER PENTEFOUNTAS: I am certainly not learning as much the Chairman. I didn't know he was such a loyal fan of The Oprah Network.
2480 But what would you -- we have had other colleagues in this group licensing speak to us over the last couple of days and there seems to be a certain consensus that you may be unfairly advantaged by the fact that you have almost, for all intents and purposes, no conventional services. I mean you are at 2 or 3 percent.
2481 And given that you are a specialty and pay service, your CPE should be a lot higher than 30 percent.
2482 MR. CASSADAY: Well, I think the facts are that the recommended CPE that we have come into is in fact higher than what we have spent in the past. I think we demonstrated that we have been more than living up to our commitments under the Broadcasting Act. I think we have been an exemplary broadcaster.
2483 So those would be, I guess, probably the two things.
2484 And I guess the other thing I would say is that everybody is special in some way and I know a lot of people who think it is very special to have conventional television assets, particularly those that have them in major markets.
2485 So we are all different and I think, you know, the message that we are having, we have not been critical of anyone else's plans, we simply want to tell you what we think we need to do to be successful going forward and in fact to build on the success that we have enjoyed thus far.
2486 COMMISSIONER PENTEFOUNTAS: Would you agree that it is easier to do 30 percent as a specialty service as opposed to conventional?
2487 MR. CASSADAY: You know, again, it depends on the assets. If you have a Cat B asset with, you know, a million households, no, I think that is almost impossible.
2488 So again, what we have done is we have tried to reflect the array of assets that we have, the capability of those assets to contribute to the system and came to you with a proposition that we think is fair and, in fact, over the course of this licence is going to result in a $53-million increase in our spending on Cancon, and it will be more if in fact we are right and some of the scheduling moves we want to make result in us increasing our audience beyond what our current expectation is.
2489 COMMISSIONER PENTEFOUNTAS: Historically your PNI is at 10 percent. Would you be willing to commit to maintaining that percentage over the course of your licence?
2490 MR. KNIGHT: Our actual historical is at about 9.2, so it is a little lower than that -- semantics.
2491 But the issue with Corus, again -- and it goes to, you know, every group is different -- our PNI spending is basically on two of our services, which is Movie Central and our YTV services.
2492 So inherent in the group-licensing model is the ability to move things around, but with a PNI that high you have essentially locked us into doing what we have done in the past and not been able to benefit from that inherent flexibility that is in the group licensing to be able to direct more dollars to the networks that are into bigger productions and could benefit from the most.
2493 We are not saying that we would change anything at this point, but what we are saying is that we take away some of that flexibility if you lock us into a high PNI.
2494 COMMISSIONER PENTEFOUNTAS: Thank you. Yes? Sorry.
2495 MR. MURPHY: I was just going to add. I mean the benefit of the group-licensing recommendation is to sort of level the playing field across the system, which we applaud, and our view is that, you know, let us have a level, competitive playing field and work with this PNI of 5 percent.
2496 There are strategic benefits, as John said moments ago, for having a large-scale conventional system that, you know, we don't have. So I mean look at the various mix of assets. You know, there are benefits or puts and takes all across the system, but in our view, this part of the policy is to treat the system on a fair basis, a level playing field.
2497 COMMISSIONER PENTEFOUNTAS: Do you perceive the 5 percent as a minimum?
2498 MR. MURPHY: Yes.
2499 THE CHAIRPERSON: Maybe we should go into this in more detail in camera because I think we want to see how your 9 percent is made up. So I suggest we take a 10-minute break and clear the room so after that we will continue in camera. Thank you.
--- Upon recessing at 1520, to resume in camera at 1530
--- Upon resuming at 1610
2500 THE CHAIRPERSON: Okay, Madam -- Josh, would you read out the undertakings, please?
2501 MR. DOUGHERTY: We have eight undertakings. We would ask that these be provided -- the following information prior to Corus' reply on Friday, April 15th.
2502 - The first undertaking is to a response to the questions placed on the record regarding the use of actual accrual versus cash for recording CPE expenditures.
2503 - The second undertaking is to provide your --
2504 MS COURTEMANCHE: Just slow down. I'm sorry.
2505 MR. DOUGHERTY: Yeah.
2506 MS COURTEMANCHE: Thank you.
2507 MR. DOUGHERTY: -- to provide your comments --
2508 MS COURTEMANCHE: Sorry --
2509 THE CHAIRPERSON: He will give you a print out later on which is --
2510 MR. DOUGHERTY: An electronic copy will be provided for you.
2511 - To provide your comments on the following condition of licence:
"Only for services in which 50 percent or more of the programming comes from Category 7, 2(b) and/or children's programming, the licensee will, by condition of licence, provide described video for a minimum of four hours per week of programming of which 50 percent must consist of programming broadcast with described video for the first time." (As read)
2512 - The third undertaking is to provide the programming grid for the Oprah Winfrey Network and the formal education rationales for each of the educational programs contained in the grid.
2513 - The fourth is the criteria used to determine what is formal and informal, educational programming on the Oprah Winfrey Network.
2514 - The fifth is to provide the impact of incrementally increasing the amount of described video for programming for each year of the licence term.
2515 - Sixth, provide the impact of increasing the percentage of original programming being described to 75 percent from 50 percent.
2516 - And seven, regarding the proposed conditions of licence for YTV and Treehouse, file a proposal to address the concerns regarding program sharing between the two services.
2517 - And eighth, given your historical spending a revised proposal for your PNI expenditures.
2518 Thank you, Mr. Chairman.
2519 THE CHAIRPERSON: Okay. That's it for today.
2520 Thank you very much.
2521 I guess we will resume tomorrow at nine o'clock, madam?
2522 Yeah, thank you.
--- Whereupon the hearing adjourned at 1613, to resume on Wednesday, April 6, 2011 at 0900
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