ARCHIVED - Transcript, Hearing 15 April 2011

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Abridged Shaw 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


Outaouais Room

Conference Centre

140 Promenade du Portage

Gatineau, Quebec


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 Shaw 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

Leonard KatzCommissioner

Rita CuginiCommissioner

Suzanne LamarreCommissioner

Peter MenziesCommissioner

Tom PentefountasCommissioner

Stephen SimpsonCommissioner


Jade RoySecretary

Joshua DoughertyLegal Counsel

Valérie DionneHearing Manager

Sheehan CarterHearing Manager


Outaouais Room

Conference Centre

140 Promenade du Portage

Gatineau, Quebec

15 April 2011

- iv -





Shaw Media Inc. (Cont.)361 / 2735

Gatineau, Quebec

--- Upon resuming on Friday, April 15, 2011 at 1147

2729  THE CHAIRPERSON: Madame la Secrétaire, are we cut off from the internet?  Has the room been cleared, just to make sure?



2732  THE SECRETARY: We are now ready for the in camera session.  We will just close the door.

2733  THE CHAIRPERSON: Okay.  We will start now the in camera.

2734  Len, you have the floor

2735  COMMISSIONER KATZ: Thank you.

2736  You have before you two pages in pink which is a summary of the data that we have collated, your data, which has four years of actuals, one year of 2011, which is a hybrid, and then the forecast years.  The second page is your forecast of CPE and FPE, foreign programming, historical as well as going forward.

2737  The question that I have -- the first question I have is actually on page 2, it's with regard to the cutover between 2011 and 2012.  As you can see there, at that point your investment in foreign programming appears to ----------------------------------------- to $281 million in 2012, --------------------------------------------------------.

2738  I guess I would like you to comment on that from the perspective of you identifying that CPE investment is not making money for you and it appears under this data that you will be spending ------------------------------------------------------------, yet if you look at the previous page your PBITs ----------------------------------------------------------------------------------------------------------------------.

2739  Is there a correlation that I'm missing, or should I not be correlating at all?

2740  MR. FRENCH: Here, I will take this, Vice-Chair.

2741  So if we first take a look at the second page and just talk about what we are seeing in the foreign spend moving from 2011 to 2012, and then if you take a look at the foreign spend going throughout the forecast period, you know it's really growing at a 1 percent rate in the outer years.

2742  But what's happening between 2011 and 2012 is we have ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------.

2743  Again, if we look at 2012 onward from a foreign programming perspective, you do see marginal growth of about 1 percent.  One could argue that that's a very aggressive assumption that it's only going to grow 1 percent over the forecast period, these forecasts were prepared prior to the increased presence of Netflix in the economic environment and in the industry.  We all know that could put price pressure on our foreign spend.  So the 1 percent growth in the outer years, you know, may be aggressive, we may see a bigger number because of that, which will erode our PBIT margin.

2744  From a CPE perspective you do see a ------------------------------------------------------------------------------------------------------------------------------------------------------.

2745  So we have created some ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------.

2746  If we take a look at page 1 and from a PBIT standpoint -- so what you do see from a specialty standpoint is you do see our specialty PBIT in the 41 range throughout the term of the license that we are projecting out.  ---------------------------------------------------------------------.

2747  Really what we are seeing there is that the growth within our specialty ad revenue, you know if you take out our projections they are growing at about 5 percent, so growing nicely, we have our Canadian growth modelled in the current 29 percent, which will increase if we land on a 30 percent, and we have good cost control going throughout the term of our forecast, thus maintaining the PBIT margin in the 39 to 41 percent, so a good projection.

2748  Again, these projections were done before Netflix arrives and we do have some risk in the revenue number, that revenue number may come down, and we have some risk in the foreign spend number as well, too.  So we will do our best to manage costs to ensure that this business can deliver a PBIT in that range.

2749  From a conventional standpoint, we take a look at the growth rate that we have in our projections going out to 2016 and we are projecting that conventional is going to be flat and it's not going to grow.

2750  You take a look at historical performance, you take a look at our competitors, you take a look at what's going on in the industry, you take a look at what is going on from an OTT perspective and one could argue that again that flat growth rate could be aggressive.

2751  If you take a look at some of the third party statistics that are out there, looking at where they see conventional going and I believe we are realistic and we are in the range of what their projections are.

2752  From a margin perspective, you do see the margin going down and again all that is tied to the fact that our foreign costs are going up.  We have a flat revenue stream and we have our foreign costs increasing, and again we have an increase of 1 percent in our 5-year projections and one could argue that that 1 percent may be low, which would put more pressure on our PBIT margin going outwards.  But we as a business and a management group will continue to take a look at costs to ensure that we can protect the PBIT percentage within the conventional business, but as we look at increased spend within this side of the business it is putting pressure on a very thin margin business.

2753  As you see there, we have a very strong PBIT in specialty and conventional, it's in the mid single digits dropping.

2754  COMMISSIONER KATZ: If you look at the CAGR, the Cumulative Average Growth Rate, on the CPE page for the first four years there, 2008 to 2011, ---------------------------------------------------------------------------------------, and when you go over to the forecast years the foreign is only growing by 1.7 percent, almost the same as the Canadian.

2755  So there is a radical change in your plans obviously when it comes to purchasing of foreign programming.  Am I to assume that you are not going to be as aggressive in purchasing foreign programming?

2756  MR. ROBERTSON: I will take that one, Vice-Chair.

2757  We look forward to the May screenings and future years of transacting business in Hollywood and it is our believe -- and hopefully it's not just wishful thinking -- that the amount that we spend on U.S. programming can be kept within a reasonable range and this thinking really reflects that.

2758  You know, things change from a competitive standpoint.  Michael, in his comments, mentioned Netflix a couple of times, that's not just thrown in for effect.  It does have the potential to really change the competitive pressure in the market when a new entrant comes in and can take out a deal that you thought was only between the kind of major players.

2759  So things can change, that can put more pressure on the U.S. spend side, but based on the competitive profile that we have been dealing with to date and when we put these projections together, we thought that it was reasonable to reflect kind of a slow growth in terms of the U.S. spend.

2760  The only other thing I would comment on in terms of the shape of the curve that's before you on the CPE chart is that if I was in the production community or was in your shoes, I would feel awful good about the shape of the orange bar that has shown some variation in the past and now it's firmly fixed at the 30.  I mean, you must say wow, that's what we were looking for.


2762  I asked this question of the other parties as well.  When you purchase programming for your OTA and the historical long tail kicks in and you start to show that on your specialties, how do you account for the revenues and is it consistent with your expenses, because you expenses are incurred when you purchase that program, it's an OTA program and then it shows up in, I don't know, history or wherever it shows up.

2763  MR. FRENCH: Sure.  When we purchase a program for Global and actually it airs on History, so first there will be a cost on the Global network and there will be an agreement between Global and History on the number of runs and when the runs could happen.  We have a transfer price agreement in place which actually transfers part of the costs over from Global onto history, and so there is a fair market value in effect transaction that happens that moves the costs over to History and then once History starts playing the program we start amortizing it.

2764  So it is amortized on a systematic basis, on a per-play basis.  So every run that happens on History, History will get a charge to their P&L from an amortization standpoint.  Errol who was here last week will go out and look at the audience and sell the audience on History and that's how the revenue comes through.

2765  So you will have a cost sitting on your conventional side and as you play your product on conventional you will incur that cost in your P&L and you will actually receive revenue as you sell that audience.

2766  Again, when you transfer over the piece that's going to be played on specialty you transfer it over at a fair market value and you start taking the costs when you play the program.

2767  MR. ROBERTSON: If I could just add one other thought on that.  We have a lot of minority partners on these channels and so the test of fair market value is really crucial in those relationships so we spend a lot of time developing a sophisticated model that reflects the fair market value because it has to -- you know, we have the fiduciary responsibility to make sure our partners are fairly dealt with.

2768  COMMISSIONER KATZ: So these PBITs are as pure as they possibly can be?

2769  MS WILLIAMS: Yes, they are.  But I would just add for clarity that when we purchase a show from a U.S. network for prime time on Global, we don't automatically have that right to decide to run it on History or Showcase or somewhere else, that's a unique and separate right that needs to be negotiated and usually in the deals it's acknowledged what the cost is of that, if you are going to take a cable play.

2770  So Mike is right, if for some reason the deal is all inclusive, we have a right to play it but without a specific cost attached, then we have our own transfer policy that deals with that.  But in many of our agreements it's laid out for you in the deal because you don't just get to run it wherever you want.  Those are very specific individually negotiated rights.

2771  COMMISSIONER KATZ: No, I understand that from a foreign perspective, I was more concerned about a Canadian because you are paying for it upfront presumably, you are financing, you are paying for it, you are buying it for Global, and then you decide there is an opportunity there to use that long tail opportunity and put it on specialty channels.

2772  MS WILLIAMS: Canadian, you're right then, that's the transfer policy that kicks in to be sure that the costs are appropriately spread.


2774  Those are all my questions, Mr. Chairman..

2775  THE CHAIRPERSON: Thank you.  Tom...?


2777  I'm probably educating myself more than educating anyone else, but what happened between -- what is going to happen between maybe -- Vice-Chair Katz spoke to this issue.  ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

2778  MR. FRENCH: Yes, Vice-Chair --

2779  COMMISSIONER PENTEFOUNTAS: Besides spending 30 percent on CPE?

2780  MR. FRENCH: What we see is, given the uncertainty in the marketplace for the new competitors, again being Netflix, being Google, being Apple, ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

2781  --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------.

2782  MS BELL: Just one point on the specialty side, and it was mentioned earlier today, the digital migration that is going to happen in September.  We assume it is going to have an impact on specialty revenues, but we don't know to what extent when we all become discretionary services, as you heard earlier.


2784  MS BELL: So it's difficult for us to predict what that impact is going to be, but we know there is going to be an impact, there is no doubt about it, it's just a matter of what will it be and where will it happen.

2785  COMMISSIONER PENTEFOUNTAS: So it's just cost management, because your PBITs are quite healthy.

2786  MR. FRENCH: Yes, definitely.  We are managing costs as tight as we can.

2787  COMMISSIONER PENTEFOUNTAS: Can you also explain to me what happened between 2009 and 2010?  --------------------------------------------------.

2788  MR. FRENCH: Yes, definitely.

2789  So I think if you go back and you think about the economic environment that we were living within --

2790  COMMISSIONER PENTEFOUNTAS: It's strictly recession?

2791  MR. FRENCH: Yes, exactly.

2792  THE CHAIRPERSON: Well, how come you see that and everybody else shows a gross.  I don't get this?

2793  MR. FRENCH: I'm sorry, can you repeat the question?

2794  THE CHAIRPERSON: I have your numbers --

2795  COMMISSIONER PENTEFOUNTAS: The aggregate numbers for the group show --

2796  THE CHAIRPERSON: The aggregate number for all the groups show a 3.7 percent growth from 2011 to 2012; you show ---------------------------------------------------------------------.

2797  -----------------------------------------------------------------------------------------------------------------------------------------------

2798  MR. FRENCH: ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------.

2799  -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------.

2800  THE CHAIRPERSON: -----------------------------------------------------------------------------------------------------------------------------------------

2801  MR. ROBERTSON: ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

2802  -----------------------------------------------------------------------------------------------------------------------

2803  COMMISSIONER PENTEFOUNTAS: --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

2804  MR. ROBERTSON: -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------


2806  MR. ROBERTSON: -----------------------------------------------------------------------------------------------------------

2807  COMMISSIONER KATZ: ------------------------------------------------------------

--- Laughter

2808  THE CHAIRPERSON: Okay.  This didn't have to be in camera, but just kind of going back for one second to the terms of trade.

2809  Couldn't we just make it very simple and straightforward in saying that Shaw will adhere to the terms of trade agreement with CPE through the license term.

2810  You have one, if you want to amend it you amend it, if they agree to it, that's fine.  Basically you have that deal.  That deal has a lifetime, so why don't you agree to adhere to it?

2811  MS BELL: Could we think about that --


2813  MS BELL: -- and provide a response?

2814  THE CHAIRPERSON: Actually, let me repeat that question to you when we are out of camera so the others can reflect on it as well.

2815  MS BELL: That would be great.

2816  THE CHAIRPERSON: So there are no more in camera questions, let's turn the internet back on.

--- Upon recessing at 1206


Johanne Morin

Jean Desaulniers

Monique Mahoney

Sue Villeneuve

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