ARCHIVED - Transcript, Hearing 14 April 2011
This page has been archived on the Web
Information identified as archived is provided for reference, research or recordkeeping purposes. It is not subject to the Government of Canada Web Standards and has not been altered or updated since it was archived. Please contact us to request a format other than those available.
Providing Content in Canada's Official Languages
Please note that the Official Languages Act requires that government publications be available in both official languages.
In order to meet some of the requirements under this Act, the Commission's transcripts will therefore be bilingual as to their covers, the listing of CRTC members and staff attending the hearings, and the table of contents.
However, the aforementioned publication is the recorded verbatim transcript and, as such, is transcribed in either of the official languages, depending on the language spoken by the participant at the hearing.
Abridged Rogers transcript
TRANSCRIPT OF PROCEEDINGS BEFORE THE CANADIAN RADIO-TELEVISION AND TELECOMMUNICATIONS COMMISSION
To consider the broadcasting applications for the group-based licence renewals for English-language television groups listed in Broadcasting Notice of Consultation CRTC 2010-952, 2010-952-1, 2010-952-2 and 2010-952-3
140 Promenade du Portage
In order to meet the requirements of the Official Languages Act, transcripts of proceedings before the Commission will be bilingual as to their covers, the listing of the CRTC members and staff attending the public hearings, and the Table of Contents.
However, the aforementioned publication is the recorded verbatim transcript and, as such, is taped and transcribed in either of the official languages, depending on the language spoken by the participant at the public hearing.
Canadian Radio-television and Telecommunications Commission
Abridged Rogers transcript
To consider the broadcasting applications for the group-based licence renewals for English-language television groups listed in Broadcasting Notice of Consultation CRTC 2010-952, 2010-952-1, 2010-952-2 and 2010-952-3
Konrad von FinckensteinChairperson
Joshua DoughertyLegal Counsel
Valérie DionneLegal Counsel
Sheehan CarterHearing Manager
140 Promenade du Portage
14 April 2011
- iv -
TABLE OF CONTENTS
PAGE / PARA
Rogers Broadcasting Limited (Cont.)283 / 2069
- v -
PAGE / PARA
Undertaking327 / 2425
Undertaking329 / 2441
Undertaking329 / 2443
Undertaking349 / 2592
--- Upon resuming on Thursday, April 14, 2011 at 1507
2067 THE CHAIRPERSON: Madame la Secrétaire, are we now in camera? The Internet screen is turned off?
2068 THE SECRETARY: Yes, we are now ready to proceed with the in camera session.
2069 THE CHAIRPERSON: Okay.
2070 Before we go into the numbers, let's go back to what we just discussed.
2071 MR. PELLEY: Okay.
2072 THE CHAIRPERSON: Let's go back to why we adopted the group policy.
2073 The group policy was basically adopted, number one, to give you more flexibility; number two, to make sure that we had decent Canadian content rather than you doing exactly what you said, Mr. Pelley --
2074 MR. PELLEY: Right.
2075 THE CHAIRPERSON: -- use the exhibition requirement by re-running stuff.
2076 Certainly, we want to stop the bleeding from the OTA because what was happening year after year, more money was being spent in Hollywood than here. I wanted to put that in some sort of relationship.
2077 We proposed 1:1. Nobody liked it and it was explained to me over and over again that it actually doesn't work, you can't do it.
2078 So we then looked at what have you actually done, what you have done historically and how can we wrap a policy around the historical. Now, it was clear what we were trying to do is basically take your historical behaviour and make that as the baseline.
2079 We wrapped it up. Obviously, nobody objected to the policy and so we thought we had it right and we were talking here about application.
2080 Now, you are coming forward and telling me, you know, that's all fine and dandy, but we have been losing money by the buckets over the last three years, our business model doesn't hold, so holding me to historical performance the way you measure it just means continuing losing buckets of money and that is not what we are going do. I understand that. Nobody wants to do that.
2081 What we really were trying to do is -- first of all, let's not talk about opting out. The policy didn't have a provision of opting out. It wasn't complementary, et cetera, et cetera. Let's figure out how we apply the policy, rather than saying here this is a non-policy and Rogers is not going to be treated as a group.
2082 Because you will grow, hopefully, very well, very quickly. Hopefully, your specialties will take off, et cetera, and you will have a more balanced portfolio.
2083 Let's go at the nub of it, which was freezing the OTA and making sure there is not a further erosion and making sure if you prosper, the OTA will prosper.
2084 If I understood it, that part you actually have no problem with, when you came to the 23 percent and you said you are willing to commit to that 23 percent? Did I understand you --
2085 MR. PELLEY: We said that we were prepared to commit to a fixed conventional with a floating group CPE. That is what we said that we were willing to --
2086 THE CHAIRPERSON: Right. Right.
2087 MR. PELLEY: And we are still willing to do that.
2088 THE CHAIRPERSON: Let's make sure we don't misunderstand each other here.
2089 I thought you threw out the figure of 23, saying the others are around 22. You are actually willing to commit to 23 percent on conventional; isn't that what you said?
2090 MR. PELLEY: No, I don't think I ever confirmed 23. xxxx xxxx was the number that we are in at 2011, and 22, I believe, was the number that we had said.
2091 And in fact I think what I said is if we went with a group CPE of 22 percent for conventional for Citytv and for Global, I think then I asked that even would you consider us bringing it down a little bit lower than our competitors to let us play catch-up. I think that was what I had alluded to.
2092 See, the interesting --
2093 THE CHAIRPERSON: We are talking about something different. I thought I heard you quite clearly it was not --
2094 MR. PELLEY: This is last week, correct?
2095 THE CHAIRPERSON: No, today. Today.
2096 MR. PELLEY: Oh, today.
2097 THE CHAIRPERSON: This morning, before we went in camera, basically saying on the conventional spend you were prepared to be basically, in terms of symmetry, in the same boat as CTV and Shaw.
2098 MS VALLIANT: Correct.
2099 MR. PELLEY: Yes. What I said was the way we got to the number of 22 percent, we looked at Shaw's, we looked at where CTV's was, and then we thought 22 was kind of fair if we were coming out of the group-based licensing. It might be at the low range, but based on where we are, we thought that was the number that was fair and equitable for us.
2100 MS VALLIANT: Our biggest challenge with a 30-percent group CPE is if we are in that framework, our conventional CPE has to be up at about 28 percent because we have so few specialty services.
2101 So people like Shaw and Bell have a lot of specialty services already at a high CPE and it is easier for them to get to 30 percent. We have to do it on the back of OTA.
2102 THE CHAIRPERSON: Oh, I understand that.
2103 MS VALLIANT: Okay.
2104 THE CHAIRPERSON: I understand your predicament perfectly.
2105 MS VALLIANT: Okay.
2106 THE CHAIRPERSON: I am trying to say: Wouldn't a solution be we say because of your asset mix --
2107 MR. PELLEY: Right.
2108 THE CHAIRPERSON: -- in your case, for group policy symmetry, we don't look at the overall spending on Canadian content but we look at the spending on OTA --
2109 MR. PELLEY: Yes. Yes.
2110 THE CHAIRPERSON: -- which for Shaw and CTV you say is roughly 22 percent, whatever it is --
2111 MS VALLIANT: In that range, yes.
2112 THE CHAIRPERSON: -- and we apply the same symmetry to you so that on your OTA you have to spend that?
2113 MS VALLIANT: Yes.
2114 THE CHAIRPERSON: Taking into account the fact that your asset mix is so disproportionate to the other ones -- the same as Corus is the other way around but it is the same issue --
2115 MS VALLIANT: Right.
2116 THE CHAIRPERSON: -- it doesn't make sense to apply the symmetry at the CPE level, we apply it at the OTA spending.
2117 MS VALLIANT: Correct.
2118 MR. PELLEY: Yes.
2119 MS VALLIANT: And if you look at our --
2120 THE CHAIRPERSON: And if I understand -- I'm sorry, I didn't mean to interrupt you --
2121 MS VALLIANT: Go ahead.
2122 THE CHAIRPERSON: -- but just to make sure I get this thought out before I forget it.
2123 That is something that is acceptable to you, I understood?
2124 MR. PELLEY: We would take the same CPE as the OTA. We would accept that. We --
2125 THE CHAIRPERSON: For conventionals?
2126 MS VALLIANT: Correct.
2127 MR. PELLEY: For conventional.
2128 THE CHAIRPERSON: Okay.
2129 MR. PELLEY: For the over-the-air, we would, Mr. Chair.
2130 THE CHAIRPERSON: Okay. Fine.
2131 MR. PELLEY: The only thing I did ask for is just if we would get just a little --
2132 THE CHAIRPERSON: Maybe it's a question of wording here, but if you say we will be playing in the group policy, but given our asset mix we want to make sure that the symmetry is applied at the conventional level, which, after all, was the heart of your policy in terms of CPE, making sure that the spending on conventional does not decrease and becomes even less than it has been, and so therefore we fix it on the same level as the others.
2133 MR. PELLEY: That's correct.
2134 MS VALLIANT: Correct.
2135 THE CHAIRPERSON: Then that leaves us with -- if we went along those lines, I would like you to think about how you would do that -- about the implications of that.
2136 What do we do on PNI?
2137 MR. PELLEY: On PNI, on the --
2138 THE CHAIRPERSON: I mean if our -- I said I went back to basics. I said what this was really all about was, number one, making sure that OTA survives --
2139 MR. PELLEY: Yes.
2140 THE CHAIRPERSON: -- on a decent level of funding --
2141 MR. PELLEY: Right.
2142 THE CHAIRPERSON: -- and you don't blow your brains out in Hollywood. That was number one.
2143 And number two, how do we make sure that you produce quality rather than showing a lot of Canadian repeats, and we said, make you spend it on PNI because that is essentially Canadian programming of quality, whether it be drama, whether it be documentary, whether it be award shows.
2144 MR. PELLEY: Well, I think -- and I reiterate that I believe the expenditures rather than exhibition is totally the way to go.
2145 But our PNI is based on historical and we looked at it and said, you know, what are we planning to spend this year? I think it is 2.3 percent, I believe.
2146 And again, the biggest challenge that we have with PNI, outside of the lack of CMF funding, outside of the fact that we do not have any drama services, is we do not have anywhere to amortize those costs.
2147 You know, we are just not right now -- it might be different in three years, but we are not equipped to do PNI.
2148 "Murdoch Mysteries" airs on one channel, you know. I would be curious on how many channels some of their programming that they create airs.
2149 So that was -- for PNI we were wrapping it up to 3 percent based on the five-year, but --
2150 Any thoughts on that, Shannon?
2151 MS VALLIANT: I guess there are three things.
2152 Historically our spending on PNI has been about 2.5 percent. So what we are proposing is consistent with that.
2153 As Keith said, we don't have any drama-based specialties, so we can't take any of the dramas and air them in a bunch of places.
2154 And thirdly, we don't have access to CMF funding envelope to be able to do this type of things.
2155 I guess our key message on PNI is that it is simply a subset of the Canadian programming expenditures.
2156 So in terms of how we can best contribute to the broadcasting system, it is not in the area of drama. We could do not even an entire series of a drama.
2157 We could do three-quarters of a drama or we can take that same amount of money and invest it in our local programming and reflect communities back to the public, something we think is more valuable to the audiences and where we can add value.
2158 So it's more an allocation of money and we are prepared to show you we are committed to that by saying any difference from the PNI level you establish for others, we are prepared to commit that amount between what we spend in PNI and on local programming.
2159 MR. PELLEY: And if you believe that and you want us to be part of the group-based licence, why don't we just put in an evaluation after three years on the PNI so that we come back and we evaluate where we are?
2160 Maybe our asset mix is different. Maybe we then have networks that carry drama.
2161 It's just a thought rather than pretend --
2162 THE CHAIRPERSON: Now, you and I are talking -- we are both trying to make this thing work, rather than --
2163 MR. PELLEY: Right.
2164 THE CHAIRPERSON: So you are saying 3 percent PNI and evaluate it in three years?
2165 MR. PELLEY: Yes.
2166 THE CHAIRPERSON: That's what you are saying.
2167 MR. PELLEY: And then once --
2168 THE CHAIRPERSON: And the other kicker that you put in there is saying the difference between 3 and --
2169 MR. PELLEY: Yes, we would still --
2170 THE CHAIRPERSON: Let's say for argument's sake it's 5. Let's say it's 5. The other 2 percent you would spend on local?
2171 MS VALLIANT: Incrementally to what we are spending now.
2172 MR. PELLEY: Yes. Yes. So why don't we do --
2173 THE CHAIRPERSON: What do you mean incrementally to what you -- oh, incrementally to what you are spending, yes.
2174 MS VALLIANT: Right.
2175 MR. PELLEY: Why don't we evaluate the PNI and the local spending after three years, as opposed to pretending we are kind of Kreskin and we can kind of guess where we are going to be.
2176 THE CHAIRPERSON: This is all -- we are both flying by the seat of our pants here.
2177 MR. PELLEY: Yes.
2178 THE CHAIRPERSON: At least I am.
2179 MR. PELLEY: I -- yes.
2180 THE CHAIRPERSON: You might want to sort of in your final submission come along those lines. I mean (a) that you will still want to stay -- you want to take advantage of the group policy because the aims stated are -- we agree on them, you know, but given your asset mix, and which hopefully is in flux and will change --
2181 MR. PELLEY: Yes.
2182 THE CHAIRPERSON: -- you need temporary relief and this is the sort of relief that you are thinking of, which would then achieve the issue of, number one, of putting at least a flow on the OTA spending and would have the PNI or a variant of the PNI there to ensure that there is either Canadian quality programming or programming that reflects Canada and brings Canada to Canadians.
2183 MR. PELLEY: Right.
2184 MS VALLIANT: And I guess one final point just to clarify, Mr. Chair, is that we don't think it is a form of relief. We think it is more equitable in terms of looking at our circumstances and comparing it to the other bigger groups and where we can best contribute to the broadcast system.
2185 THE CHAIRPERSON: One size doesn't fit all, I understand that. On the other hand, I don't want to give anybody an unfair advantage just because, you know, they are small or they are poorly run or whatever. You are not suggesting you are, but that's --
2186 MR. PELLEY: No. No.
2187 MS VALLIANT: That's why I just don't want you to think it is a form of relief. I think it is an equitable way to approach the situation.
2188 THE CHAIRPERSON: That's why I said in my opening that we are talking about application of the policy and not changing the policy or letting you off the policy or whatever.
2189 So with that said, we have a lot of questions about numbers and I guess, Suzanne, we will let you start.
2190 Maybe you want to walk us through the numbers and then Suzanne will start.
2191 MS VALLIANT: We filed lots and lots of numbers, so where would you like to start?
2192 THE CHAIRPERSON: Somebody put in front of me something "Rogers Confidential," two pages.
2193 MS VALLIANT: All right. So this is --
2194 THE CHAIRPERSON: Why don't we start with that.
2195 MS VALLIANT: Okay. This is something that the Commission prepared based on the information that we filed and we are glad that you gave this to us because we did the same sort of analysis to see how we stack up versus the industry.
2196 So the very first page shows you just the revenue profile of the Rogers Group and you will see -- and I guess you did this with Bell this morning -- the conventional revenue is the green and the specialty is the orange.
2197 So this ties into our story about we are really not a group, we are primarily a conventional station. You know, of our group, 90 percent of our revenue is generated from City television.
2198 So in terms of historically, if you look at the KGAR for that first period to the end of 2011, our revenue growth through that period is almost xXXX percent. When you look back at the industry chart that was published yesterday, it's only 3 percent.
2199 And so what is equally interesting is if you look at the KGAR through the next licence period term, it's just over XXXX percent for us and it's only just over 2 percent for the industry.
2200 So it ties into what we were saying to you, is we have a very aggressive plan, much more aggressive than our colleagues, to grow our business to get us to a point where we are financially viable.
2201 Now, the other interesting thing I want to bring to your attention on this chart is if you look at our PBIT numbers, which are the second numbers from the top of each of the bars, you will see in 2008 the PBIT number was XXXX; it was XXXXX in 2009; it's xxxxx in 2010; xxxxx in 2011, this year.Xxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
2202 PBIT in Year 1 of the licence term is xxx xxxx xxxxx; next year 1.2; breakeven in the third year at 2.8 percent PBIT; the fourth year we are at 5.3 percent PBIT; and in the fifth year we get to 7.4 percent PBIT.
2203 So, you know, we are on a trajectory to turn the business around, but through the next licence term, if you look at the same data for the industry, the PBIT number for the industry is around 18 or 19 percent. So we are significantly behind the industry in terms of our business in the transition of our group, which is primarily City.
2204 Do you have any other questions on this first page?
2205 THE CHAIRPERSON: No. Go ahead, please.
2206 MS VALLIANT: And then --
2207 COMMISSIONER KATZ: I have dozens of questions. I just don't know when I should jump in or whether I should leave you to finish first and then we get questions.
2208 MS VALLIANT: If you have any questions on this page, why don't we look at that now before we get into the Canadian programming expenditures on the next, if you like.
2209 COMMISSIONER KATZ: Okay. All these numbers and all these PBITs are for the services that we have talked about, they don't include sports, which is a very profitable component of your portfolio as a group, notwithstanding the fact that it is not included in the group-licensing process simply because it is competitive?
2210 MR. PELLEY: You can include it. We would be okay with including sports in the group.
2211 COMMISSIONER KATZ: Well, the question I have is what does sports do to your PBIT as a media group, a media player?
2212 MS VALLIANT: To be honest, we didn't consider that in the context of this analysis because it was outside of the group. We could look at it. The sports part of our business is profitable, but we haven't analyzed it in this way, to be fair.
2213 MR. PELLEY: It would change it in a positive manner, yes.
2214 COMMISSIONER KATZ: Significantly positive or just positive?
2215 MR. PELLEY: Significantly.
2216 COMMISSIONER KATZ: So the issue here is that Rogers doesn't want to use its sports assets to subsidize the rest of its broadcasting business?
2217 MR. PELLEY: No. Why would we want to do that?
2218 COMMISSIONER KATZ: Well, the only point I am making is we are licensing as a group because we are trying to provide flexibility for many reasons.
2219 MR. PELLEY: Right.
2220 COMMISSIONER KATZ: I understand the issue of it's competitive, it's not included in the Canadian CPE equation.
2221 MR. PELLEY: Yes.
2222 COMMISSIONER KATZ: But as a player in Canada regulated under the Broadcasting Act --
2223 MR. PELLEY: Yes.
2224 COMMISSIONER KATZ: -- there is a balancing that needs to take place as well.
2225 And I guess the question is if every time someone has a profitable asset, they go, well, I am not going to use this to subsidize something else, they all have to stand on their own, then you run into this issue that everything that is not profitable is going to fall on its own and maybe that is where we end up at the end of the day with the ability to leverage these things.
2226 MR. PELLEY: Well, if that is the case, then we should put the sports into the group licence because you can't have one without the other. So if you are going to look at them in a holistic way, then you have to put sports in the group, and if you don't, then you have to look at them in isolation.
2227 MS VALLIANT: And I think in fairness when this policy started out, and Susie would know better than I, our interpretation was that Sportsnet would be in the group.
2228 MR. PELLEY: Right.
2229 MS VALLIANT: So that was our initial thought as it related to this. So if you were to put it back in, I think we would be comfortable with that. Is that right?
2230 MS WHEELER: That was our understanding.
2231 THE CHAIRPERSON: That has a huge impact in terms of CPE too, and obviously then you have to put TSN in on the CTV --
2232 MR. PELLEY: Yes, you would have to put TSN in.
2233 COMMISSIONER KATZ: At the end of the day, the reason we have taken them out is because they are categorized as competitive services, but the reality is they are competitive because they are profitable as well. If they weren't profitable, they wouldn't be competitive.
2234 So they go hand in hand, but the question is should there be a recognition of it in the overall group-licensing system or not?
2235 MS WHEELER: I guess we would be of the view that it's one or the other, you either have Sportsnet in and allow us to use Sportsnet to meet our CPE obligations or you keep it out, in which case, you know, it would be double jeopardy in the sense of, you know, penalizing us for having Sportsnet but not being able to actually use it to meet some of our regulatory objectives.
2236 MS VALLIANT: But your question made me think of one thing that I didn't mention when we were looking at this chart. We were looking at PBIT that is significantly behind the industry, but we were actually looking at PBIT as a group.
2237 If you look at our conventional PBIT through that same period, we are losing x xxxxx in Year 1 of the licence term; 5 percent in Year 2; we are still losing in Year 3, 1 percent; then we move to 2 percent in the fourth year and 5 percent in the fifth year. So, you know, our PBIT is almost inflated on this chart because our specialties are profitable.
2238 COMMISSIONER KATZ: No, I understand that very clearly. All I am saying is notwithstanding the fact your PBITs as a group don't turn positive until 2014, it's only for those services that we are talking about here --
2239 MS VALLIANT: Correct.
2240 COMMISSIONER KATZ: -- and doesn't include your sports franchise.
2241 MS VALLIANT: Correct, 100 percent.
2242 COMMISSIONER LAMARRE: On the same page before you turn it --
2243 MS VALLIANT: Okay.
2244 COMMISSIONER LAMARRE: -- if we are going to do this page by page.
2245 To continue on Commissioner Katz' point, your projection growths in there, do they include the new services that you were licensed for recently?
2246 MS VALLIANT: They do not.
2247 COMMISSIONER LAMARRE: They do not, okay.
2248 You mentioned that the growth that you are projecting is much higher than that of the other groups. So if I may ask, I mean what is going to be your secret recipe to be able to meet that growth in your performance objectives and get your bonus at the end of the year to meet those numbers?
2249 MR. PELLEY: Our advertising is aggressive at 8 percent and our competitors -- and I think it is 8 percent on conventional, 9 percent as a group, compared to 0 and 2, and 2 and 4 to our competitors. So it is aggressive.
2250 We believe it is attainable. We believe it is attainable based on the fact that we have the ability to grow audiences and a bigger gap than our competitors have. And we also believe that we have an opportunity to take share from them.
2251 And finally, we believe XXXXXX XXXXXXX XXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
2252 COMMISSIONER LAMARRE: Okay. Okay.
2253 MR. PELLEY: -- so overall that would lead to more market share and more going towards television.
2254 So we looked at quite a bit the 8 and the 9 percent and, yes, it is aggressive but we believe that it's attainable.
2255 MS VALLIANT: And since we started on this path to XXXXXXXX XXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX just for your reference, from 2009 to 2010 our total revenue xxxx xx xxxxxxxx which is somewhat inflated by the recovery in the economy. This year to the end of 2011 our projected revenue growth rate is XX XXXXXX.
2256 So we feel that our investment is -- actually, we are monetizing it in terms of revenue so unless we generate this type of revenue this business doesn't make sense for us. So we are on that path.
2257 COMMISSIONER LAMARRE: Okay, but you are clearly running a marathon here because you have to sustain the growth.
2258 MS VALLIANT: Absolutely. And it's daily market share because the market is certainly not growing that much.
2259 COMMISSIONER LAMARRE: Okay. Okay, thank you.
2260 COMMISSIONER KATZ: So here is my question on that. Your strategy is to grow yourself to profitability obviously --
2261 MS VALLIANT: Right.
2262 COMMISSIONER KATZ: -- one way or the other. Yet, when I take a look at the historical CAGRs for your foreign purchases on page 2 it's XXX XXXXX. It's XX XXXXXXX, whereas your CPE for Canadian it's negative. So you are spending an awful lot of money in the U.S. to buy programming.
2263 So your strategy really is to buy American programs and sell them into Canada to get your revenues up, as opposed to what I thought I heard you say, you want to spend more on local and be more local to differentiate yourself from everybody else.
2264 MS VALLIANT: I think we have to do both, frankly. We have to have a strong U.S. program schedule.
2265 And then our second big challenge, as Commissioner Menzies mentioned, is we have to get audiences to tune into our stations. So unless they are turning to Citytv in Vancouver they don't even know about what great shows we have there.
2266 So it's actually a dual-prong strategy where we have to improve our programming schedule but we have to make sure all of the local audiences are tuning into our channel or we won't be able to drive audiences, which is how we monetize that programming.
2267 MR. PELLEY: Alain, you wanted to add something?
2268 MR. STRATI: Thank, Keith.
2269 Just very quickly, Mr. Katz, and it ties in a little bit with what Commissioner Lamarre was saying, if you sort of think back just practically looking at a programming schedule, I think Malcolm talked about it when we were here last week, think of it in terms of filling the schedule.
2270 You have to remember we have acquired City Television. There was a lot of movie programming and in non-simulcast shows. So really there was kind of a significant under-spending.
2271 So part of the -- and I think Malcolm mentioned that. There is a spending up, a ramping up because we are filling in the schedule that wasn't really there before.
2272 So part of the growth opportunity is also that, quite frankly, their shows weren't there before. You know, City was not acting probably like a conventional broadcaster and taking advantage or trying to take advantage of simulcast opportunities.
2273 MR. PELLEY: The only thing I would say is what you are talking about in the U.S. and the growth in the U.S. is conventional because you look at our biggest specialty where our programming budget is xxx xxxxxxx. Of that xx xxxxxx on Outdoor Life Network I think XXX XXX is spent on Canadian and only XXX XX on American.
2274 So what you are really talking about is the high profile dramas simulcast. It's all about the simulcast and it's all about the simulcast in the biggest market which is the most television households which is Southern Ontario.
2275 COMMISSIONER KATZ: So your strategy is no different than Global and Shaw's -- and CTV at the end of the day?
2276 MR. PELLEY: Not in primetime, no. Not in primetime. Our primetime philosophy is similar. We are going to the L.A. buys. We are going to try to pick the best hits. We are going to try to take share.
2277 Last year was the very first summer that we ever won. We won with America's Got Talent which was the number one show 25-54, which is the key demo in Southern Ontario.
2278 We beat CTV. We beat Global. That's the -- that will drive the rest of our programming schedule and, quite honestly, that is what they are most worried about.
2279 COMMISSIONER KATZ: Okay, thank you.
2280 THE CHAIRPERSON: Do you want to continue going -- oh, sorry, Peter.
2281 COMMISSIONER MENZIES: No, that can wait for me.
2282 MS VALLIANT: Okay. So we will move to the second page.
2283 Now, in this page we are looking at programming expenditures. So the bars themselves are the Canadian programming expenditures and the numbers above are the foreign programming expenditures.
2284 So as Commissioner Katz mentioned, to the period to xxxxXXXX XXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXX in foreign programming to improve our schedule and drive revenues. But that manifests itself in the higher revenue through the next broadcast term.
2285 So if you look at the next five years where the CPE is graphed out at a 30 percent level, you will see that our CPE is increasing quite dramatically over the next five years and that's because revenue is growing quite dramatically.
2286 So if you look at the very top of the broadcast -- the next broadcast licence term, you will see the CAGR and foreign programming for Rogers is 3.3 percent. The number for the industry is actually 1.7 percent. So we are not that much higher than the industry on foreign programming.
2287 But what's more interesting is the Canadian programming cumulative average growth over that period for Rogers is 9 percent, whereas for the industry it's only 2.5 percent. So it's significantly higher.
2288 COMMISSIONER KATZ: Yeah, but that 9 percent is based on 30 percent CPE which you're not accepting.
2289 MS VALLIANT: Correct.
2290 COMMISSIONER KATZ: So that number has no real bearing on anything.
2291 MS VALLIANT: But even at a 25 percent CPE because we ran those numbers when we submitted our last model, it was not that different. It was 8 percent or something like that. It was significantly higher than the industry.
2292 MR. PELLEY: You know the interesting thing is the PBIT margin at 25 percent after Year 3 is 7 percent and the Year 3 industry average is 18. At a 30 percent CPE, Year 3 as a group would be a 3 percent compared to Year 3 from an industry of 18 percent.
2293 MS VALLIANT: So I think this chart is reasonably self-explanatory. We ran this ourselves as well just to see how we stacked up and it told the story we thought it would tell.
2294 So I'm not sure if you have any questions on this page?
2295 THE CHAIRPERSON: Okay. I have got it, thank you.
2296 Okay. Then Peter, go ahead, please.
2297 COMMISSIONER MENZIES: Are we on the CPE page?
2298 MS VALLIANT: Yeah.
2299 THE CHAIRPERSON: Yes.
2300 COMMISSIONER MENZIES: Yeah. I don't have a calculator so I can't figure out the percentages but it seems that your CPE is a percentage of your total production expenses. Is for instance in Year 5, the way you had it here, 105 versus 150 -- 40 percent.
2301 Thank you, Len.
2302 Yes, it's actually marked there. I can read it.
2303 COMMISSIONER MENZIES: Do you think that gives you a competitive advantage?
2304 MS VALLIANT: I am not sure I understand your question. In what sense?
2305 COMMISSIONER MENZIES: If others were -- you know, I mean this has been set up based on CPE as a percentage of revenue as opposed to as a percentage of programming expenses, right?
2306 I mean if Company X out there is spending -- using that same 255 million to send Company X and somewhere out there might be spending 150 million of it on CPE and 100 million of it on foreign.
2307 MR. PELLEY: But what about the economies of scale that that company has? The economies of scale from both an efficiency perspective, an amortization and the ability to actually air the programming on so many different networks?
2308 And when the -- I think that -- really, I think it comes back to what Shannon was saying there because if were at a 30 percent CPE, our conventional would be at 28 and our competitors would be at 22.
2309 Alain, did you want to...?
2310 MR. STRATI: Commissioner Menzies, my only caveat to that would be to look at -- I would be interested in looking at the numbers because I operate some specialty channels. I do know that the CPE costs are high and, relatively speaking, the foreign costs are low.
2311 I would be interested to see what the mix was because we often have a mix of assets, the mix in spending between Canadian and foreign for conventional and the mix between Canadian and foreign spending for specialty, because our mix makes it look like we are spending a lot because the foreign costs are much higher on conventional.
2312 I don't have the numbers in front of me, but that's the only caveat when I would look at this percentage that if we compared City versus other --
2313 MS VALLIANT: But I think you should be looking for --
2314 COMMISSIONER MENZIES: This is getting overly complicated. The whole purpose of going into this was to create flexibility and simplicity and now we are --
2315 MR. PELLEY: Well, I think one of the ideas was to be symmetrical, and I think what we said is 30 percent is not symmetrical, you know, because our conventional would be -- our conventional CPE would be at 28 percent and our competitors would be at 22 and that's just not symmetrical.
2316 COMMISSIONER MENZIES: So what if we set it at 25 for everybody? Would it still be symmetrical or do you always want a lower percentage? If we told Shaw and CTV that it's 25, would you still want 22 or do you want 18?
2317 MR. PELLEY: No. You know, we are here to talk about the challenges and our situation. I think we have said that a CPE, a conventional CPE.
2318 And we are totally comfortable with a conventional CPE that works for all sides, but that number for us right now is 22 percent. It's not 25 percent. It's 22.
2319 As I said --
2320 COMMISSIONER MENZIES: That's what I was asking. Do you want -- let's take it at just 22.
2321 MR. PELLEY: Right.
2322 COMMISSIONER MENZIES: This is just like I'm not offering or doing any of that. I'm just trying to get my head around what you are doing.
2323 If you -- and this is just me -- but if you -- if it was 22 for everybody, would you still want 22 or do you still want to be handicapped?
2324 MR. PELLEY: Well, as I said to the Chair, I would be prepared to accept the same conventional CPE at 22 percent. Do we --
2325 COMMISSIONER MENZIES: So you don't want handicapping. You just want that number.
2326 MR. PELLEY: That's correct. I asked for the handicapping but very quickly I agreed that there would be no handicapping.
2327 COMMISSIONER MENZIES: Okay, just one more point sort of along the lines.
2328 To what --
2329 MR. PELLEY: That's true.
2330 COMMISSIONER MENZIES: -- a concern of -- I said I can only speak for myself but a concern of mine is -- aren't we getting a little too -- I mean I guess you could argue that we are always doing this but are we getting a little too deeply into managing competition here?
2331 MR. PELLEY: No, I think what we are talking about --
2332 COMMISSIONER MENZIES: Fighting whose saddle gets how much --
2333 MR. PELLEY: You know, from our perspective we haven't looked -- sure, you want equality. Yes, you want symmetry. You want all of that. At the end of the day you want fairness.
2334 Do we want -- do we want our competition to have a 22 percent CPE on conventional while we have 28? No. Do we think that's fair? No, we don't think it is at all.
2335 It's the reason we don't think a 30 percent works with mix and I think we have kind of -- with our mix of assets. What we want is something that was -- that is equitable.
2336 Hence, the reason that we thought, well, we have got two buckets here. We have got the 30 percent CPE and the 5 percent PNI that you can opt into or you can opt into a 22 percent conventional CPE, the specialties as it is, a three-year term and you don't get the benefits of the group-based licence. And you could basically say, "Here are the two options. Which one do you want?"
2337 We know that all three of our competitors would not pick option number two, all right? But it was there for them but they wouldn't select it.
2338 If I'm CTV, I'm Shaw, I'm Corus, I'm signing up for the 30 percent CPE and the 5 percent PNI very, very quickly, right?
2339 COMMISSIONER MENZIES: Okay. Is there something that we have done in the regulatory process in the past that contributed to this or is this current situation that you describe just the normal outcome of competition between various companies?
2340 MR. PELLEY: I don't know if there is --
2341 MS WHEELER: In terms of Citytv's health, financial health?
2342 COMMISSIONER MENZIES: Yeah.
2343 MS WHEELER: Yeah, well, I think we referenced that Citytv is basically a combination of the former Craig stations and CHUM's Vancouver and Toronto stations.
2344 So those stations were very recently licenced within the last decade and because they have undergone so many ownership changes and because they were new licences as well, applicants went to the table as applicants tend to do and put a lot of -- you know put a lot on the table to get the licence.
2345 So there were some unreasonable obligations that the applicants accepted in order to get the licence and those weren't sustainable. We know what happened to Craig Broadcasting and then we know what happened to CHUM. They weren't able to, you know, to manage those television services.
2346 COMMISSIONER MENZIES: Yes, okay. I understand what your argument is. I won't argue with you about it.
2347 But I just wanted to know if there was anything specific because it's the imbalance obviously between conventional and OTA or specialty that's at the core of your argument and not --
2348 MR. PELLEY: The only thing that I will say and, again, as I talk overall about the group-based licensing framework and the concept of taking the specialties and kind of amortizing your costs, it's phenomenal for both the broadcaster and it's fantastic for the system.
2349 So if you are, for example, somebody as big like CTV they can take the CPE from Star or from Bravo or from Fashion, put it all together, create an unbelievable show that can rival anything that is done in the U.S. and air that on CTV.
2350 And, in fact, you watch -- well, you watch. Their CPE will even grow on conventional. But it is a huge advantage and what you are going to see is some real strong Canadian programming on a go forward basis from those powerhouses.
2351 THE CHAIRPERSON: And from you, hopefully.
2352 MR. PELLEY: Yes. Yes, absolutely, Mr. Chair --
2353 THE CHAIRPERSON: Okay. Let's go back to the numbers.
2354 MR. PELLEY: -- after three years.
2355 MS VALLIANT: Were there any other questions on the CPE page?
2356 THE CHAIRPERSON: Just the numbers that you filed here this morning with your undertakings. Is there anything that needs to be explained?
2357 MS VALLIANT: I don't think so. It's reasonably straightforward. We updated our projections. Revenue changed about XXX XXXXXX in the first year but it didn't have a significant impact over the term.
2358 So the same sort of story applies to our projections but I'm happy to take you through it in however as much detail as you like.
2359 THE CHAIRPERSON: Okay. Suzanne or Len, would you...?
2360 COMMISSIONER LAMARRE: I must say I like to look at the pictures and don't usually have much questions to ask about it.
2361 So I will let Len who has lots of questions go first.
2362 COMMISSIONER KATZ: Let me start by just asking a simple question. Somewhere in this deck, and the pages aren't numbered unfortunately, there is a table -- there is two tables -- in the upper left-hand corner it's titled "At 25 percent group CPE" and it's titled "Aggregate Financial Projections All Conventional Services". So we are looking only at conventional services.
2363 One of them is one, two -- six pages in the back and the other is --
2364 MS WHEELER: So those are our updated financial projections with the PBIT.
2365 COMMISSIONER KATZ: The other one is 10 pages from the back.
2366 They both should say "Aggregated Financial Projections All Conventional Services" as opposed to "All Qualifying Specialty" or something else.
2367 MS WHEELER: We broke it out so there is one for conventional, one for specialty and one aggregate.
2368 MS VALLIANT: And I think there are --
2369 THE CHAIRPERSON: I am getting totally lost. Can we number these pages, everybody, in their deck and then you tell me what page you are referring? Otherwise, I will start numbering mine now until you tell me what page.
2370 MS VALLIANT: Is it possible to get a copy of the deck you are looking at because we don't have it.
2371 THE SECRETARY: This is the deck.
2372 MS VALLIANT: Okay. I have it, just not in order.
2373 THE CHAIRPERSON: I have numbered until page 6 and then there is a --
2374 MR. PELLEY: What after page 6?
2375 THE CHAIRPERSON: No numbers.
2376 MS VALLIANT: Okay.
2377 COMMISSIONER KATZ: So I am looking at pages 14 and 18.
2378 MS VALLIANT: I am going to just number them.
2379 MR. PELLEY: Let's everyone take a second and number them.
2380 MS VALLIANT: Okay, sorry, and your question, Commissioner Katz?
2381 COMMISSIONER KATZ: Let's get everybody to the right pages first. Is this 14 and 18?
2382 MS VALLIANT: Okay. I have 14.
2383 COMMISSIONER KATZ: So these are your --
2384 THE CHAIRPERSON: Page 14 is a white page.
2385 COMMISSIONER KATZ: Yeah.
2386 MS VALLIANT: Yeah.
2387 THE CHAIRPERSON: 25 percent group CPE.
2388 COMMISSIONER KATZ: That's right, the white page, and so is page 18.
2389 MS VALLIANT: Yeah, so the only difference between these two is No. 14 is at a 25 percent group CPE and No. 18 is at the 30 percent group CPE.
2390 COMMISSIONER KATZ: Exactly. When I look at these two pages what I find is the only place things have changed is the expenses called "Programming and Production" where it's higher at 30 percent than at 25.
2391 MS VALLIANT: Correct.
2392 COMMISSIONER KATZ: That presumably is because you have put in more money into Canadian programming.
2393 MS VALLIANT: That's where that difference of the 5 percent in CPE would go.
2394 COMMISSIONER KATZ: Now, I would have thought and maybe this is just me, that what would happen under these two scenarios is you would spend the same money.
2395 The only difference is you would spend more of it in Canada and the U.S. and where you would see the impact is on revenues. And, in fact, you may have a lower revenue figure because Canadian programming doesn't attract as much.
2396 But what I'm seeing here is you have goosed up the expenses to make your business less viable by having all these higher costs in here.
2397 MS VALLIANT: Well, we have assumed that in both scenarios we would invest the same amount in foreign programming. And to your point, the only difference is we would spend less on Canadian programming.
2398 We don't think that that has a real impact on our revenue, to be honest, and that's why that's the only real distinction.
2399 MR. PELLEY: I think, to go back to the comment earlier, the focus in terms of primetime is our U.S. studio deals. So those aren't going to be affected regardless of the 25 or 30 percent CPE.
2400 COMMISSIONER KATZ: Yes, but what you have done is -- take Year 5. It doesn't matter. In Year 5 programming and production expenditures in the 25 percent group CPE you have got 214 million. In the 30 percent you have got 231 million.
2401 So what you are saying is you are spending $17 million more for programming with absolutely zero incremental revenue.
2402 MS VALLIANT: Correct.
2403 COMMISSIONER KATZ: Zero revenue. And that's logical?
2404 THE CHAIRPERSON: What are you spending that money on?
2405 MR. PELLEY: Well, that would be money that would be spent on Canadian programming.
2406 COMMISSIONER KATZ: With no return at all, zero return.
2407 MS VALLIANT: Correct.
2408 MR. PELLEY: Correct.
2409 THE CHAIRPERSON: Could you explain that?
2410 Why do you -- I appreciate -- I have heard you folks saying time and time again that Canadian programming makes less money but that it would be zero that I don't get.
2411 MR. PELLEY: No, that's something we can look at, but what we have done is we have put the U.S. dollars as fixed. We basically looked at all that we were going to spend that amount of money regardless of -- on U.S. programming regardless of whether we were going to spend it on U.S. or Canadian.
2412 Our advertising revenue is based on 8 percent. So we didn't actually look at it and say, "25 percent is this, 30 percent is this".
2413 We didn't look at it like that. We looked at it and said, "What is a fair..." We haven't gone through program by program by program or this is how much we are going to make on Canadian, this is how much we are going to make on American.
2414 We looked at it from a holistic perspective and said, "We are going to increase revenues by 8 percent".
2415 COMMISSIONER KATZ: But surely you recognized --
2416 MR. PELLEY: I totally understand your point but if -- for example, if you moved that number to -- I can't believe I'm going to say this -- 35 percent CPE, the Canadian -- your Canadian expenditures would go higher but your revenue wouldn't go higher.
2417 You are only going to take your revenue so much, so high. It's at an 8 percent increase. That's what we are going to take.
2418 If you put us at a 50 percent CPE the expenditures would go up but the revenue wouldn't go up.
2419 COMMISSIONER KATZ: Let me ask you the reverse question.
2420 If I told you, you weren't going to spend any more money, but you are just going to spend more on Canadian so that the expense line wouldn't change at all, how would the revenue line be impacted? Because you have less revenue, I would assume, but you are telling me you wouldn't change the revenue either.
2421 MR. PELLEY: Yes, sure. Hang on.
2422 MR. PELLEY: It's exactly what I had just articulated in terms of you are looking at your overall revenue of what you are going to bring into the channel. If in fact now you go the opposite way then, yes, your expenses would come down and your profitability would go up.
2423 COMMISSIONER KATZ: Is there some way of you providing us with an impact of an incremental -- I don't know -- million dollars' spend on Canadian programming versus American programming and what that would do to your bottom line?
2424 MS VALLIANT: Sure.
2425 MR. PELLEY: Sure.
2426 COMMISSIONER KATZ: Because presumably foreign programming makes a contribution and you are saying Canadian programming does not. So there is a delta there. You invest a million dollars and then you get back --
2427 MR. PELLEY: No, that's not what we are saying. We are not saying that.
2428 We are saying take your revenue number of where you are right now for 24 hours, right, based on where we are going to be in the marketplace, pick a number of 6, 7, 8, 9 or 10 percent and that's what it's going to be, okay?
2429 We are not looking at it show by show by show by show because so much is sold on run of schedule or so much is sold on non-specific shows but time blocks. So we have looked at advertising revenue as a holistic perspective as opposed to this show makes this, this show makes this, this show makes this.
2430 So in fact if we take this show out and add this show out and it comes with $10 million more costs --
2431 COMMISSIONER KATZ: If your board of directors gave you $10 million more and said, "What are you going to do with it" you would come back with a statement that says, "I can't make one cent of profit?"
2432 MR. PELLEY: If our board of directors -- well, first of all, you would have to take some programming out if you decided to do that and that would be -- there would be a cost to taking that programming out.
2433 But if the board of directors asked us to say, "We have got $10 million more, how much more revenue are you going to get?"
2434 Well, if you believe that you can actually now take your 8 percent and move it to 10 percent or move it to 11 percent, potentially, but now you are taking an aggressive revenue target and making it even more aggressive.
2435 At some point you can only move it so much, so high in one particular year.
2436 COMMISSIONER KATZ: It works the other way as well. If your board told you to cut $10 million, don't tell me you would tell them that you are going to keep the revenue the way it is.
2437 MR. PELLEY: I would not say that.
2438 COMMISSIONER KATZ: So it's got to work both ways consistently, but anyways you have got my point.
2439 THE CHAIRPERSON: But what is the follow up to your point?
2440 Are you going to re-file these sheets showing the impact on revenue on 25 percent as opposed to 30?
2441 MS VALLIANT: We don't think there is a significant impact but we will take it away and we can look at it again.
2442 COMMISSIONER KATZ: At a minimum you should be -- I would like to see what a million dollars more or less to foreign versus Canadian would do to the bottom line.
2443 MS VALLIANT: Okay, sure. Yeah, yeah.
2444 MS VALLIANT: And we did file some information that we might get to on sort of the return on investment in Canadian programming. So that will be indicative of the fact that we lose money on that, at least at this point.
2445 COMMISSIONER LAMARRE: Merci. Looking back at what now would be page 7, and thinking about something you said earlier about the difficulty you have with being treated as a group because you don't get that much flexibility with PNI because of the limited windows you have -- you have City which is over-the-air and then you have OLN and you have got G Tech -- sorry I don't know that one. I don't even see that on the model there.
2446 MR. STRATI: G4.
2447 COMMISSIONER LAMARRE: So you made the point that it was difficult for you to win the drama other places than the OTA.
2448 But what about documentaries, because the way I look at the split that you have right now, most of what you do spend on PNI is on drama. But a case can be made, in my opinion, that you could increase your production of documentaries and maybe it would be easier to show on more than one window.
2449 What is your view on this?
2450 MR. PELLEY: Alain?
2451 MR. STRATI: I'd be glad to, Commissioner Lamarre.
2452 The issues with funding for documentaries are the same as they are for drama, you know, in terms of cost and how much they cost and what you are looking to, to fund the show.
2453 So just very quickly, the available funding you have, the CMF you have always allows you to fund that kind of a big budget program.
2454 Secondly, when you look at different things, the inherent difficulty with documentaries or, as opposed to a series -- so if you have 5, 10, 15, 20 episodes of anything you actually have a better chance once you see the first episode you will see the second, you will see the third. So series are engaging. You have the ability to get a viewer's attention.
2455 Documentaries are difficult because they are one documentary on one subject, one documentary on another.
2456 Some broadcasters --
2457 COMMISSIONER LAMARRE: Unless if I'm -- yeah, unless you have a series of documentaries.
2458 MR. STRATI: Correct. There are some -- you know there has been some -- you know if you look at documentaries they are usually one-off documentaries. There are a few examples of series but they are usually one-offs.
2459 Where it does work and has worked and has the potential to work is if you have a very large envelope, a very large CMF envelope and you can create something like The Passionate Eye.
2460 I mean, if you have that engagement opportunity to say at a certain point in time you can watch an engaging documentary. But again it's very expensive and the need for the CMF makes that a significant issue.
2461 COMMISSIONER LAMARRE: But that issue doesn't seem to be as significant when we are talking about drama. When you are talking about drama you are telling me the difficulty you have is that you don't have enough number of windows. And looking at the specialty you now have, I get the point.
2462 But if you are talking about documentaries, you know, and telling me, "Well, it's the number of windows that is the issue. It's the funding"?
2463 MR. STRATI: Well, they are both the funding, so dramas and documentaries are still the funding.
2464 COMMISSIONER LAMARRE: Okay, they both have a funding issue.
2465 MR. STRATI: Right. And even if we have the distribution there needs to have that audience that is going to want to watch the documentary and advertisers that are going to want to pay for it. So distribution is important, there needs to have that ability to get a large audience for the documentary and to get advertising for it.
2466 So distribution, when Keith talks about distribution, for example this morning we talked about "Corner Gas", the distribution there is it plays on CTV, it then plays on Comedy. More importantly, exactly to your point, it gets an audience, a big audience on CTV and it gets a big audience on Comedy. So that's why the distribution helps. On documentaries it's much more difficult.
2467 COMMISSIONER LAMARRE: Okay. But while it is difficult don't you see -- because right now on page 7 what we have is the history -- I don't know if you have projections anywhere on what you would spend, drama versus documentary, can you not picture yourself, Rogers, at least changing the ratio between what you spend on drama and what you spend on the documentaries overall with that present mix of assets?
2468 MR. PELLEY: Can I just make the comment in terms of documentaries? The only thing I will say is similar to -- documentaries are more feasible to do then drama. With the PNI that we have and the lack thereof, the CMF, yeah, doing a couple of more one or two or three-hour documentaries would be feasible, yeah.
2469 The question is, again, we don't have as many outlets to put them on. OLN is not going to carry them, G4 and BIO is probably not going to fit with the same actual documentary.
2470 COMMISSIONER LAMARRE: Well a different type of documentary.
2471 MR. PELLEY: So the max you are going to have is two windows regardless.
2472 So the question is: Is it better for us to spend that money on documentaries or to spend it on local?
2473 COMMISSIONER LAMARRE: Okay.
2474 MR. PELLEY: We feel that it is best to spend it on local.
2475 COMMISSIONER LAMARRE: Okay. Thank you.
2476 Those are all my questions.
2477 MR. PELLEY: If I could, Mr. Chair, I just want to go back to Commissioner Katz and his question, which the answer is the same, but perhaps I didn't clarify one key point in that, is if you are to actually spend more money on Canadian then the U.S. program comes out, because you are replacing a Canadian program with a U.S. program, but we have assumed that the revenue for both that one hour show is the same. The cost just goes way up because you are actually producing it from a Canadian perspective. Hence the difference between the 25 and the 30 percent CPE.
2478 Does that explain it better?
2479 COMMISSIONER KATZ: I guess they call that a simplifying assumption.
2480 MR. PELLEY: Yes.
2481 COMMISSIONER KATZ: I have one more question for you when it's something you raised earlier not in the in camera.
2482 You mentioned Canadian specials that you were going to be focusing on.
2483 MR. PELLEY: Yes.
2484 COMMISSIONER KATZ: Can you expand on what is a Canadian special?
2485 MR. PELLEY: We did one on City Television just a month ago on concussions in hockey and the danger to players and to minor hockey players. So we took an issue that was more than just sports focused, it now became nation focused. The minute that Prime Minister Harper talked about how it's ruining our game and our game is being threatened, we took that.
2486 Gord Martineau, who is our City Television host, hosted the show. We did it out of the Citytv Studios and it drew an audience for us which was pretty good of just under a couple hundred thousand. So that's an example of a special.
2487 Another could be the Santa Claus Parade in -- or the New Year's Eve big party that we did in Nathan Phillips Square that we now look to see if we can make those commonplace across the country.
2488 THE CHAIRPERSON: Tom...?
2489 COMMISSIONER PENTEFOUNTAS: Yes. I'm really sorry to sort of flog a dead horse here and it goes back to what Vice-Chair Katz had to say.
2490 You know, your revenues don't change over the five-year period, your expenses between the 30 percent CPE and the 25 percent CPE are $10 million in the first year and it grows during the course of the license. The difference in your profits and/or losses between the first year and the fifth year correlate almost exactly with the difference in spending.
2491 I come to you with the same question: I understand Canadian programming is a loser financially, but are there no revenues whatsoever that stem from CPE spending?
2492 MR. PELLEY: Okay. Let's look at it like this. Take out the U.S. prime time, so for example the big shows like "CSI", "Harry's Law", "Body of Proof" and those type of shows. Now you are at a 6 to 7 o'clock slot or a 7 to 8 o'clock slot on a weekend. Those additional, if you were to put them in with U.S. programs you are going to quote/unquote get them for a dollar a holler. That's where you are going to be able to take a show or take a show that has been produced or we have gotten from somewhere else and it is very, very little cost.
2493 COMMISSIONER PENTEFOUNTAS: What is the low cost, the American show?
2494 MR. PELLEY: The American show.
2495 COMMISSIONER PENTEFOUNTAS: Okay.
2496 MR. PELLEY: So now you have to take that American show --
2497 COMMISSIONER PENTEFOUNTAS: The broadcaster's cost isn't that different between buying American and producing Canadian -- to the broadcaster.
2498 MR. PELLEY: The broadcaster?
2499 COMMISSIONER PENTEFOUNTAS: Yes.
2500 MR. PELLEY: Producing an acquired program? Producing a show as opposed to acquiring it, especially if it's off prime, it's significantly different.
2501 All right, for example, let's say on Saturday, you now Saturday, you are basically saying Saturday at 7:00 to 8:00 is a time slot that we can put in a U.S. show, we can pick it up for $5000 for an hour, instead of doing that, now we are going to create more Canadian content. The revenue for that is going to be sold basically on ROS, run of schedule, so it's going to be a certain number. So at some point you are going to take that U.S. show out, replace it by high-priced Canadian show and your revenue is basically going to be neutral.
2502 MS VALLIANT: I guess it all comes down to there are only so many hours we have on the schedule so it's a question of are you populating that schedule with U.S. programming or Canadian programming. In terms of our projections we assume that there are really no more incremental hours on the schedule and we have already been very aggressive with our revenue growth assumptions.
2503 MR. PELLEY: Yes. I agree. Yes.
2504 MS VALLIANT: Okay. I thought you were saying no.
2505 MR. PELLEY: No, no, I'm going to give you a really good example to hopefully clarify it for you.
2506 COMMISSIONER PENTEFOUNTAS: What if you invested additional CPE to morning shows --
2507 MR. PELLEY: Right.
2508 COMMISSIONER PENTEFOUNTAS: -- outside of Toronto --
2509 MR. PELLEY: Yes.
2510 COMMISSIONER PENTEFOUNTAS: -- to sort of build up those networks and use the morning shows as an un effet d'entraînement, like a snowball effect --
2511 MS VALLIANT: Right.
2512 MR. PELLEY: That's correct.
2513 COMMISSIONER PENTEFOUNTAS: -- on the rest of your schedule and the numbers for the rest of your schedule, isn't that a worthwhile investment --
2514 MR. PELLEY: Yes. And our revenue --
2515 COMMISSIONER PENTEFOUNTAS: -- and a way of taking advantage of CPE?
2516 MR. PELLEY: In fact our revenue could go up, as a result our CPE could go up as well.
2517 But if you take a look at OLN as perhaps the best example. We could replace all of our Canadian content -- if the Commission said you don't have an exhibition on OLN, you don't have a CPE, you can just do whatever you want on it. So now all of a sudden Alain goes and he goes and gets all the U.S. -- all OLN programming from "The World's Strongest Man" to "Eating Sharks in the Desert"
2518 COMMISSIONER PENTEFOUNTAS: Okay.
2519 MR. PELLEY: Right? That XX XXXXX that we spend on OLN goes from XXX XXXX down to XX XXX XXXX XXXXXX. We take $5 million out, right. But the revenue doesn't change. It doesn't change all. So now if you actually say to us: Fact, OLN has to be 90 percent Canadian, a CPE at 60 percent, our costs go to $12 or $13 million, but our revenue stays the same.
2520 MS VALLIANT: But your point was a good one and that's why we suggested in terms of what we couldn't do on PNI we want to invest in the local stations as it relates to BT or other programs to attract audiences, as you said, to be an entrée to want to watch our stations.
2521 COMMISSIONER PENTEFOUNTAS: The Chairman has spoken often about quid pro quo and that 30 percent is an essential element to allow you to have the flexibility to play around within your assets mix.
2522 MS VALLIANT: And we were prepared to forgo that flexibility because the 30 percent CPE is, we believe, not equitable given our mix of assets and the fact we don't have specialty, something like the even OTA CPE percentage we think is fair and something we could live with.
2523 MR. PELLEY: But to the Vice-Chair's point, if in fact our asset mix changed dramatically and we could capitalize on the advantages that the group-based license allows, where out other competitors do, then that's something that we were prepared to look on a go-forward basis.
2524 But we just take out all our finances, take out all of our asset mix, it's just not equitable for us to have the exact same group CPE as CTV, Shaw and Corus.
2525 COMMISSIONER PENTEFOUNTAS: Would --
2526 MS VALLIANT: Because it drives the higher OTA CPE.
2527 MR. PELLEY: Not only does it drive that, it's the benefits that they actually have to put them all together.
2528 Well, you take a look at it, you have all the specialties now, you have 35 and 40 percent and now you have a conventional and then all of a sudden, you know, you want to get to 30, it's way easier to get to 30.
2529 COMMISSIONER PENTEFOUNTAS: But they are claiming -- I'm not going to get into numbers, but --
2530 MR. PELLEY: They are not claiming the mix doesn't -- you know, we listened to Bell Media today, I didn't hear them say anything about mix because they know that the mix is a huge advantage to them and a huge disadvantage to us.
2531 MS VALLIANT: And there are some advantages to economies of scale and economies of scope. We didn't want to focus our argument on size, but when you are that big and you have somebody specialties to bicycle programming around between, its much more advantageous the group-based framework than it would be for a smaller group.
2532 COMMISSIONER PENTEFOUNTAS: It's XX XXXX here year one. It's 25 as opposed to 30 percent CPE.
2533 Is that correct?
2534 MS VALLIANT: Correct. And it goes right to the bottom line because, as we said, we can't really monetize that any more than we have already projected.
2535 COMMISSIONER PENTEFOUNTAS: Okay. Thank you.
2536 THE CHAIRPERSON: Peter...?
2537 COMMISSIONER MENZIES: I'm just going to ask, how do you normally, for your internal purposes as opposed to regulatory purposes, forecast revenues et cetera, for years ahead.
2538 Just looking back at the last five years for instance, I rather doubt that most people five years ago would have budgeted revenues accurately for how the last five years turned out.
2539 MR. PELLEY: Right. Yes.
2540 COMMISSIONER MENZIES: It's a long ways out for any business person to do.
2541 MR. PELLEY: Yes.
2542 COMMISSIONER MENZIES: Would you normally internally at Rogers just be budgeting -- in terms of your normal business practices, budgeting for the next year or the next two years or three? I mean you might have plans beyond that --
2543 MR. PELLEY: Yes.
2544 COMMISSIONER MENZIES: -- but I'm assuming you would have to refresh them every year.
2545 MR. PELLEY: Yes. And it's totally different depending upon the network.
2546 COMMISSIONER MENZIES: Right.
2547 MR. PELLEY: Like sports is budgeted advertising revenue completely different than the other networks. The other networks, specialty and conventional, usually move on a percentage basis. On sports it is more based on a property. So you are actually -- if for example you have acquired 50 Leaf games or the CFL rights your revenue tends to go up a little bit more
2548 COMMISSIONER MENZIES: What would be the --
2549 MS VALLIANT: Just to answer your question in terms of cycle, we have a three-year business plan, but we have a much more granular one-month budget where we would actually be looking at shows and programs and ratings and we roll that out sort of like a rolling 12-month forecast, but beyond that we are projecting growth at an aggregate basis much like we have done here, you know, an 8 percent growth for revenue and total.
2550 COMMISSIONER MENZIES: Sure. So just a last question: In your experience and speaking of the industry, what would you estimate the give or take would be on somebody's forecast of revenue four years down the road? Plus or minutes 20 percent, 25 percent?
2551 MS VALLIANT: It depends so much on the nature of the business you are forecasting in terms of whether it's a mature business with not much market growth or whether it's a growth business. It's really variable.
2552 COMMISSIONER MENZIES: Suffice to say --
2553 MS VALLIANT: But it's pretty tough to peg it down.
2554 COMMISSIONER MENZIES: Suffice to say this is best guess stuff.
2555 MS VALLIANT: Absolutely. Absolutely.
2556 COMMISSIONER MENZIES: Thank you.
2557 THE CHAIRPERSON: Steve, did you have a question?
2558 COMMISSIONER SIMPSON: Yes, I did. I thought this would be an interesting question to end things on.
2559 OTAs have a lot of viability but they also have a lot of burden and in hearing your arguments today, your very effective arguments about how you need critical mass, critical size to be able to really start extracting value out of the kind of programming commitments you are being asked to make with respect conventional television.
2560 At what point does the OTA not become worth it as opposed to just going strictly specialty?
2561 You know, we are in camera, I'm curious, given all the pressures OTA is under from obligations, from digital conversion and the like, do they really still play a really fundamental part of getting value back for your programming dollar or is it, to your point earlier, about going more niche?
2562 MR. PELLEY: It's an excellent question, Commissioner.
2563 They are more difficult, there is no question. I can't claim --
2564 MR. PELLEY: Everything I say here will be disclosed? I'm sorry?
2565 THE CHAIRPERSON: Disclosed if you chose. You are the editor of what's in camera and what's not.
2566 MR. PELLEY: Right.
2567 MS WHEELER: In fairness --
2568 THE CHAIRPERSON: But it's your replies to business confidential, yes.
2569 MS WHEELER: I'm restricted by what's in the practices and procedures in terms of what the Commission will give confidentiality to and what they won't and I just need to give him some --
2570 THE CHAIRPERSON: Susan it's not. Under the new rules you are the editor, not us. Under the new rules --
2571 MS WHEELER: Under the guidelines within the rules of procedure.
2572 THE CHAIRPERSON: Of course. It basically applies to business confidential information.
2573 MR. PELLEY: Just financial numbers I thought.
2574 MS WHEELER: That's right, just financial.
2575 MR. PELLEY: So we can continue this off-line of course.
2576 THE CHAIRPERSON: Why don't you do that, I think that's probably the better place to do it than do it on here.
2577 MR. PELLEY: That's fine. That's fine.
2578 THE CHAIRPERSON: Now, I'm sure you know, you have read it, there is also a major monkey wrench in our proceedings so let's see whether we can get it back on track.
2579 Number one, you are going to sort of rethink along the lines of what you and I discussed earlier about trying to achieve symmetry at the OTA level, a three-year evaluation and also on the CPI if you come in at 3 percent investing the difference in OTA on an incremental basis.
2580 MR. PELLEY: Correct.
2581 THE CHAIRPERSON: The other option that I wanted to touch on, which was by my colleague Len Katz, is saying you are a group, we truly want to treat you as a group. You are in broadcasting and broadcasting includes sports. We appreciate your competitively engaged in sports, et cetera, but shouldn't we not -- in order to take you as a group also think of sports and bring it in for the purposes of CPE obligation? Because, after all, you do produce a lot of Canadian content on your spot, et cetera.
2582 I have absolutely no idea what that meant and I haven't asked the other groups that, et cetera, but it would also -- if we went that way I think we would have to procedurally reopen the proceedings or enlarge them or something.
2583 But just now, have you ever done this? Have you got any idea what the impact would be if you were to bring Sportsnet into this CPE calculation?
2584 MR. PELLEY: I don't think we --
2585 MS VALLIANT: It would be considerably easier for us to get to a 30 percent CPA.
2586 MR. PELLEY: Yes, but we didn't -- but we have not done that math, no.
2587 MS VALLIANT: Right.
2588 MR. PELLEY: We have not done that. We didn't do any numbers in any preparation.
2589 THE CHAIRPERSON: Maybe you could do that and file it with us on a confidential basis so we just can appreciate --
2590 MR. PELLEY: On a confidential basis we will.
2591 THE CHAIRPERSON: -- what the impact of that would be.
2592 MR. PELLEY: On a confidential basis we will do that.
2593 MS WHEELER: Will this same request be made of other licensees that hold some of the sports services?
2594 THE CHAIRPERSON: That's what I said, you know, before we even go down that road -- obviously I would have to do it across the board, which would mean we would probably have to have an expansion of this hearing -- or a suspension of this hearing, issue and addition, ask people to -- but I don't know whether I want to go down that route or not, I wanted to see --
2595 MR. PELLEY: Okay.
2596 THE CHAIRPERSON: If we go down that road we say we haven't even solved Rogers problem anyway, then why are we doing this.
2597 MS VALLIANT: Okay.
2598 MR. PELLEY: So, Mr. Chair, we will commit to expediting that on a confidential basis.
2599 THE CHAIRPERSON: I would very much appreciate that.
2600 MR. PELLEY: A.S.A.P.
2601 THE CHAIRPERSON: Okay. I think those are all our questions.
2602 I think we should go back on the record and read out the undertakings so the world knows what we have done.
2603 MR. PELLEY: Okay.
2604 THE CHAIRPERSON: Okay.
2605 MR. PELLEY: Can I just --
2606 THE CHAIRPERSON: Just hang on a second.
2607 THE CHAIRPERSON: More time to caucus?
2608 MR. PELLEY: No, no. No, she can articulate it better my thought.
2609 THE CHAIRPERSON: Okay. Go ahead.
2610 MS VALLIANT: Just so we are clear, I think what we are collectively talking about is that we will have an OTA of 22 percent --
2611 MR. PELLEY: A fixed OTA CPE.
2612 MS VALLIANT: A fixed OTA and then when you factor in the CPE for all of your specialties you would set the group CPE based on a fixed OTA and then that, whatever that number is, would stay consistent through the term, whether it's 25 percent or 30 percent depending on your mix of assets.
2613 Is that what you were thinking?
2614 MR. PELLEY: Is that where we were going?
2615 THE CHAIRPERSON: You are switching gears on me now. I thought I left you on sports, so you went back to --
2616 MR. PELLEY: No, no. All we were trying just before we broke the in camera, what I saying is okay, we have agreed that a fixed OTA CPE would be consistent for all the over-the-airs; right.
2617 THE CHAIRPERSON: Right. Right.
2618 MR. PELLEY: We were able to do that.
2619 THE CHAIRPERSON: Right.
2620 MR. PELLEY: So then the question that I had, so then the specialties stays kind of the same CPE's, i.e. like OLN I believe is 41 percent, that stays --
2621 THE CHAIRPERSON: Yes.
2622 MR. PELLEY: -- and whatever, if you have a 35 percent CPE specialty, that stays, and you get all the advantages of the group-based licensing and whatever that ends up to, that's what I mean with the floating CPE, that becomes your overall CPE. Adding them all together with conventional, but you can still take the advantages of the group-based license.
2623 I was just curious if that's where we were --
2624 MS VALLIANT: We are proposing that you would calculate the CPE for the term of the license based on the same fixed OTA for all of the broadcasters, you take into consideration their existing CPE on all of their specialties, you calculate what it is and it could be 25 percent for us, it could be 30 percent for Shaw, 28 for Bell, whatever that math works out to then that's your group CPE for the term.
2625 That's what our proposal is. We think that makes the most sense and is equitable.
2626 MR. PELLEY: I was just curious if that's what we were kind of --
2627 THE CHAIRPERSON: I'm not sure whether --
2628 MR. PELLEY: No, that's not what were talking?
2629 THE CHAIRPERSON: We were talking about trying to apply symmetry --
2630 MS VALLIANT: Right.
2631 THE CHAIRPERSON: -- and making sure the groups don't get an undue advantage because of asset mix.
2632 MR. PELLEY: That's right.
2633 THE CHAIRPERSON: I said why are we going through all of this, because I thought we wanted to get flexibility. The whole idea was to make sure that OTA doesn't get neglected and bears the cost.
2634 MS VALLIANT: Right.
2635 THE CHAIRPERSON: And you said that roughly your OTA spending is at 22 percent or something --
2636 MR. PELLEY: Yes.
2637 THE CHAIRPERSON: -- and you think that Shaw and Bell are roughly at the same area, too.
2638 MR. PELLEY: Right.
2639 THE CHAIRPERSON: So we assume that's true and we actually fix an amount saying 23 percent of your whole group has to be on OTA.
2640 MR. PELLEY: Okay.
2641 THE CHAIRPERSON: And that would be the symmetry that applies to everybody across the board.
2642 MR. PELLEY: I'm with you.
2643 THE CHAIRPERSON: Secondly, we said there has to be a PNI, let's say for argument's sake it's 5 percent. You say 5 percent is too high, I can't do that because of my asset mix again, because I can't offload it on specialties, but I'm willing to do 3 percent and spend the other 2 on incremental local.
2644 MR. PELLEY: Correct.
2645 THE CHAIRPERSON: That's what you said and that's what I thought notionally was your proposal.
2646 MS VALLIANT: It is.
2647 THE CHAIRPERSON: And I said, well, file it in that written way so I can look at it and see whether it makes any sense. That was where I left off.
2648 MR. PELLEY: Right.
2649 THE CHAIRPERSON: I don't know whether that's the same thing as what you said?
2650 MR. PELLEY: Yes, yes. We are totally on page, yes.
2651 MS VALLIANT: Yes.
2652 THE CHAIRPERSON: Okay. All right.
2653 MR. PELLEY: So then my only question is: But the specialties would stay on their current CPE?
2654 THE CHAIRPERSON: Yes.
2655 MR. PELLEY: Yes, okay. Then we are --
2656 THE CHAIRPERSON: And you would have the flexibility, obviously, of moving back and forth within the group.
2657 MR. PELLEY: Correct. I understand.
2658 THE CHAIRPERSON: I mean I think we said even in our policy that the existing -- it isn't totally clear I must confess, but we did comment on it on the existing specialty --
2659 MS WHEELER: That's correct, and that was our assumption.
2660 MR. PELLEY: Yes.
2661 THE CHAIRPERSON: Yes. Right. That's the assumption, existing specialty stays the same, yes.
2662 MR. PELLEY: Yes.
2663 THE CHAIRPERSON: Okay.
2665 MR. PELLEY: Vice-Chair, you --
2666 COMMISSIONER PENTEFOUNTAS: But the group CPE on OTA may not be 22 percent, it may be higher --
2667 MR. PELLEY: Yes.
2668 COMMISSIONER PENTEFOUNTAS: -- and you will have to live with that.
2669 MR. PELLEY: The group.
2670 THE CHAIRPERSON: For all groups. All groups. Every group.
2671 COMMISSIONER PENTEFOUNTAS: The group CPE spending on conventional --
2672 MR. PELLEY: Just the conventional component.
2673 COMMISSIONER PENTEFOUNTAS: Yes, may be higher than 22 percent.
2674 MR. PELLEY: Yes.
2675 COMMISSIONER PENTEFOUNTAS: You will have to live with that.
2676 MR. PELLEY: I understand.
2677 THE CHAIRPERSON: I said --
2678 COMMISSIONER PENTEFOUNTAS: We are doing apples and apples.
2679 MS VALLIANT: Yes.
2680 MR. PELLEY: Right. Yes, well we -- yes.
2681 COMMISSIONER PENTEFOUNTAS: Right?
2682 MS VALLIANT: Lower is better.
2683 COMMISSIONER PENTEFOUNTAS: You are conventional, they are conventional; you are OTA, they are OTA.
2684 MR. PELLEY: We talked --
2685 COMMISSIONER PENTEFOUNTAS: It might be 24, it might be 25, it might be 26; I don't know.
2686 MS VALLIANT: Yes.
2687 THE CHAIRPERSON: The OTA spend for all groups will be the same.
2688 MS WHEELER: We understand that the number will be consistently applied.
2689 MR. PELLEY: We understand that.
2690 COMMISSIONER PENTEFOUNTAS: And you will have to live with what the group averages.
2691 THE CHAIRPERSON: Yes.
2692 MS WHEELER: We understand that.
2693 MR. PELLEY: We understand that.
2694 COMMISSIONER PENTEFOUNTAS: And you are willing to live with that?
2695 Hypothetically, we are not --
2696 MR. PELLEY: Hypothetically, yes.
2697 COMMISSIONER PENTEFOUNTAS: -- anything here today.
2698 MR. PELLEY: Hypothetically, yes.
2699 THE CHAIRPERSON: Right.
2700 MR. PELLEY: You know, if it becomes 26 percent as you said, then, you know, the business --
2701 COMMISSIONER PENTEFOUNTAS: You will have to live with it.
2702 MR. PELLEY: Well, yes, we would --
2703 COMMISSIONER PENTEFOUNTAS: Okay.
2704 MR. PELLEY: -- but the business becomes difficult.
2705 COMMISSIONER PENTEFOUNTAS: I understand, but you can't come back and say we didn't understand.
2706 MR. PELLEY: No. We understand.
2707 COMMISSIONER PENTEFOUNTAS: If we had known what we know now we wouldn't have said 30 percent, ba-ding, ba-ding, ba-ding.
2708 MR. PELLEY: We understand.
2709 COMMISSIONER PENTEFOUNTAS: Okay.
2710 MS WHEELER: We know we have to live with all of your decisions.
2711 THE CHAIRPERSON: Okay.
2712 COMMISSIONER PENTEFOUNTAS: I'm sorry?
2713 MS WHEELER: We know we have to live with all of your decisions.
2714 COMMISSIONER PENTEFOUNTAS: No, no. It's your suggestion. This is your suggestion, not ours.
2715 MR. PELLEY: Yes, that is correct.
2716 THE CHAIRPERSON: You will file something and, as I say, purely on an information basis, on a confidential basis would you do the spot?
2717 MR. PELLEY: Yes, we will. Yes, we will.
2718 THE CHAIRPERSON: Okay. Thank you.
2719 MR. PELLEY: On a confidential basis.
2720 THE CHAIRPERSON: Are we ready now to go on the record?
2721 MR. PELLEY: Yes. Listen, I just -- yes, absolutely.
2722 I just wanted to thank you for the candid conversation.
2723 THE CHAIRPERSON: This is the beauty of in camera. We found it already the last time I remember when we first did it, it allows --
2724 MR. PELLEY: It's fantastic.
2725 THE CHAIRPERSON: -- a more meaningful exchange between us.
2726 MR. PELLEY: It was great.
2727 THE CHAIRPERSON: Okay.
2728 Madame la Secrétaire, let's go back on the record.
--- Upon recessing at 1630 to resume in public immediately
- Date modified: