ARCHIVÉ -  Transcription - Hull, QC - 1998/11/24

TRANSCRIPT OF PROCEEDINGS

FOR THE CANADIAN RADIO-TELEVISION AND

TELECOMMUNICATIONS COMMISSION

TRANSCRIPTION DES AUDIENCES DU

CONSEIL DE LA RADIODIFFUSION

ET DES TÉLÉCOMMUNICATIONS CANADIENNES

SUBJECT / SUJET:

PUBLIC HEARING EXAMINING NEW MEDIA /

AUDIENCE PUBLIQUE SUR LES NOUVEAUX MÉDIAS

HELD AT: TENUE À:

Place du Portage Place du Portage

Conference Centre Centre de conférences

Outaouais Room Salle Outaouais

Hull, Quebec Hull (Québec)

November 24, 1998 Le 24 novembre 1998

Volume 2

Transcripts

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.

Transcription

Afin de rencontrer les exigences de la Loi sur les langues

officielles, les procès-verbaux pour le Conseil seront

bilingues en ce qui a trait à la page couverture, la liste des

membres et du personnel du CRTC participant à l'audience

publique ainsi que la table des matières.

Toutefois, la publication susmentionnée est un compte rendu

textuel des délibérations et, en tant que tel, est enregistrée

et transcrite dans l'une ou l'autre des deux langues

officielles, compte tenu de la langue utilisée par le

participant à l'audience publique.

Canadian Radio-television and

Telecommunications Commission

Conseil de la radiodiffusion et des

télécommunications canadiennes

Transcript / Transcription

Public Hearing / Audience publique

New Media / Nouveaux médias

BEFORE / DEVANT:

David Colville Chairperson / Président

Telecommunications /

Vice-président,

Télécommunications

Commission / Présidente du

Conseil

Martha Wilson Commissioner / Conseillère

Cindy Grauer Commissioner / Conseillère

Joan Pennefather Commissioner / Conseillère

David McKendry Commissioner / Conseiller

ALSO PRESENT / AUSSI PRÉSENTS:

Carolyn Pinsky / Commission Counsel /

Karen Moore Avocates du Conseil

Ted Woodhead Hearing Manager / Gérant de

l'audience

Policy / Responsable de la

politique sur la

convergence

Carol Bénard

HELD AT: TENUE À:

Place du Portage Place du Portage

Conference Centre Centre de conférences

Outaouais Room Salle Outaouais

Hull, Quebec Hull (Québec)

November 24, 1998 Le 24 novembre 1998

Volume 2

TABLE OF CONTENTS / TABLE DES MATIÈRES

PAGE

Presentation by / Présentation par:

AOL Canada Services, Inc. 309

WIC Western International Communications Ltd., 392

and/et Canadian Association of Broadcasters (CAB)/

L'Association canadieene des radiodiffuseurs, (ACR)

Rogers Communications Inc. 477

Canadian Cable Television Association (CCTA)/ 539

Association canadienne de télévision par câble, (ACTC)

Canadian Broadcasting Corporation (CBC)/ 593

Société Radio-Canada, (SRC)

Hull, Quebec / Hull (Québec)

--- Upon resuming on Tuesday, November 24, 1998

at 0900 / L'audience reprend le mardi

24 novembre 1998 à 0900

1185. THE CHAIRPERSON: Good morning everybody. We will resume our proceeding looking at the issues surrounding new media now.
1186. A couple of administrative matters.
1187. Yesterday I had mentioned that we would probably adjourn the hearing today at 4:30. I lied. I am the only one here who has to go and appear before this Parliamentary Committee and try to convince them that your phones will all be working on January 1, 2000.
1188. So if we have not finished all of the parties by that time, today the Panel will continue on and we will pursue the issues with whoever is up at that time, probably CCTA or the CBC.
1189. On another matter, I just want to remind all the parties that along with all the written interventions that we have received and summaries of the comments filed on the Online New Media Forum, the public record of this proceeding to date includes three reports relating to issues being examined in this proceeding.
1190. The first by Wall Communications Inc., entitled, "Study on Mechanisms to Promote the Development and Distribution of Canadian Multi Media and Other New Media Content and Services," was prepared under a contract with the Commission, the Department of Heritage and Industry Canada.
1191. The second by Tim Denton Consultants, entitled "Distribution of Signals in Cyberspace," was prepared under a contract with the Commission.
1192. The third by Omnia Consultant entitled, "Backgrounder on New Media," also prepared under contract for the Commission.
1193. Of course, the contents of these reports reflect the views of the respective authors and do not necessarily reflect the views or opinions of the Commission.
1194. With that, I think that takes care of any administrative matters.
1195. So Madam Secretary.
1196. MS DIANE SANTERRE: Thank you, Mr. Chairman.
1197. The first presentation this morning will be done by AOL Canada Services Inc.
1198. THE CHAIRPERSON: Good morning.

PRESENTATION / PRÉSENTATION

1199. MR. S. BARTKIW: Good morning Chairperson and members of the commission.
1200. My name is Stephen Bartkiw and I am the Managing Director of AOL Canada. I would first of all like to introduce my fellow panellists. To my left is Marc Boucher, President of Maple Square, who will assist me in making our opening statements. To my right are Julie Garcia, Senior Counsel and Director of Canadian Policy for America Online. Julie is also a member of the board of Canadian Association of Internet Providers, and to her right, Greg Kane, our outside legal counsel. They will assist me in responding to any questions that you may have this morning.
1201. I would like to thank the members of the Commission for granting us the opportunity to appear at this important proceeding.
1202. As a preliminary matter, you have been provided with a hand out in lieu of a demonstration of the AOL Canada service. Later during these oral comments, and hopefully in more detail during responses to your questions, we will direct your attention to the material in the hand out.
1203. For the moment, I would note that the hand out provides you with copies of some of the screen displays that an AOL Canada member will see when accessing our service and will provide you with examples of the prominence of the Canadian content and the ease with which our members can access that content.
1204. In the time available for these opening remarks, I will focus on what we believe to be

three key themes emerging from the record of the first two phases of this proceeding.

1205. First, the nascent interactive new media market is vibrant, competitive and growing rapidly in an environment subject to free market forces and non intervention by government and regulators.
1206. Second, notwithstanding the absence of government regulation and content quotas, Canadians have access to a large quantity of quality Canadian content.
1207. Third, sound and responsible corporate practices such as those implemented and enforced by AOL, combined with existing laws of general application, provide all of the tools required to deal with inappropriate and unlawful conduct on the Internet.
1208. Let me turn first to the vibrant and competitive nature of the interactive media industry.
1209. When I joined AOL over three years ago, we had approximately 3 million members, all in the United States. Now AOL has over 14 million members and offers localized services in nine countries and in four languages.
1210. During peak times over 850,000 of our members are online simultaneously. Each day our members send over 34 million e-mails and access over 75 million stock quotes.
1211. The key to AOLs success at helping build this new mass medium is our total focus on the consumer. We have targeted the mass market and have developed our own success formula to serve the needs of these consumers.
1212. Content is and has always been the most important ingredient and acts as a catalyst for communications and in building community. We regularly conduct telephone surveys and detailed interviews with our membership in order to find out precisely what sorts of services they want and use.
1213. By way of example, we entered the Canadian market in January 1996. Within months we had developed a unique Canadian online service led by a Canadian management team with 13 categories of Canadian content. By September of this year, I am proud to boast more than 60 Canadian content partners and a paid membership in excess of 100,000 Canadian households.
1214. AOL, like many of the other parties in this process, is a firm believer in the rationality and effectiveness of market forces.
1215. AOL Canada launched our service because we believed, correctly in our view, that Canadians would be receptive to and avid consumers of high quality, reasonably priced Internet access and online content services.
1216. In our two and a half years in the Canadian market, we have spent tens of millions of dollars investing in network infrastructure, Canadian content and market development.
1217. The key point is that no government, regulator, advisory body or licence conditions compelled us to make these significant investments. We saw a market opportunity and by paying close attention to the needs of consumers, we have successfully capitalized on that opportunity by providing our members with the services they want and use.
1218. The second theme which I want to touch upon is the success which we have had in promoting the creation, production and distribution of Canadian new media content.
1219. What is particularly important is the fact that this uniquely Canadian content is not only easily accessed by AOL Canada members but it is also available to 14 million AOL members around the world.
1220. I would like you to hear about this theme directly from one of our valued partners and would ask Marc Boucher to tell you about the exciting work he is doing with Maple Square and his partner relationship with AOL Canada.
1221. MR. MARC BOUCHER: Chairperson and Members of the Commission, I would like to thank you for giving me this opportunity to express my views on the important issues being considered in this proceeding.
1222. Briefly, by way of introduction, Maple Square is a British Columbia-based online content producer that I created in 1992.
1223. We saw an opportunity to create the first national directory of Canadian Web sites and to give a priority and prominence to Canadian content.
1224. Expressing the views of many Canadians, the Networks Section Editor of the Vancouver Sun wrote in February, 1996, "Our hearts sang when we heard that Canada had its own search site, Maple Square."
1225. Simply stated, my job is to keep everyone singing about Canadian content.
1226. In 1997, Maple Square entered into a partnership with AOL Canada to bring our Canadian content to AOL members and Internet users worldwide. Right from the beginning, AOL Canada understood that to be successful, it was important to provide their members with content that was authentically Canadian. For this reason, they have partnered with 60 companies and individuals to help produce and promote Canadian content. They are clearly leaders in this regard.
1227. It is very important to emphasize that there are few barriers for new content producers entering the market and creating content. If an individual has access to a computer that is connected to the Internet, then they can publish content.
1228. With high quality content and a commitment to promote it, anyone can have a successful online business.
1229. Do we need incentives or funding from Government agencies to produce Canadian content? The answer is no.
1230. We have made great progress without incentives. In the nearly three years that we have been indexing Canadian Web sites, the number of sites has grown from a couple of thousand in 1995 to over 60,000 today with several million individual Web pages.
1231. The most popular product we help AOL Canada produce is AOL Canada NetFind which provides the most relevant Canadian search results available. You will be able to see examples at the tab with the same name in our hand out.
1232. Our latest product, still in development, is called "Active Listing". This product will help Canadian Web sites to promote themselves and their events within AOL Canada NetFind on an ongoing basis. This just adds further value to AOL Canada NetFind as a central information hub for Canadians seeking Canadian information and Internet users around the world seeking information about Canada.
1233. There is a great deal more I would like to tell you about the exciting and quality Canadian content that is available. However, we recognize our time is limited in these opening comments and perhaps I will get an opportunity to tell you more in response to your questions.
1234. I will now turn our opening statement back to Stephen.
1235. MR. S. BARTKIW: I will conclude these opening remarks by addressing the third theme that laws of general application, combined with our corporate practices, provide sufficient protection for consumers.
1236. As we stated in our Phase I comments, the new media industry sector is not immune from inappropriate, unlawful or otherwise criminal forms of behaviour present in society at large.
1237. We firmly believe, however, that as responsible corporate citizens there is much that Internet Service Providers can do and have done to discourage and reduce such behaviour on the Internet.
1238. AOL Canada is at the forefront of such measures. Our Terms of Service, a copy of which is in your hand out, apply to all of AOL Canada members and establish minimum requirements for appropriate online content and proper online conduct.
1239. Because we believe that building trust and creating a safe environment for all, especially for children, it is extremely important, we at AOL Canada have taken steps beyond simply enforcing our Terms of Service.
1240. For example, Parental Controls is a feature of our service that allows parents to tailor their children's access to both AOL and Internet content. AOL has moved progressively with our own online privacy policies and works in cooperation with industry associations around the world to ensure effective self-regulation.
1241. It is worth emphasizing that conduct illegal off line is also illegal online. AOL Canada believes that by working closely with law enforcement officials and community leaders through the application of existing legal mechanisms such as the criminal law, those who attempt to engage in such conduct will be stopped.
1242. Chairperson and members of the Commission, I would like to conclude these opening remarks by assuring you that we look forward, as the Commission has stated, to participating in a constructive dialogue that will compile a comprehensive record about the scope and impact of new media services and the benefits Canadians may reap from their evolution.
1243. As an entrepreneurial company, we believe that a vibrant online industry will promote investment in Canada, create jobs for Canadians and through these endeavours, permit Canadians to distribute information about this great country and communicate with fellow citizens around the world.
1244. All of this can best be accomplished by ensuring an equal opportunity for high quality access and by allowing market forces to foster the development of authentically Canadian content.
1245. New media is a global medium and therefore we need to look at global solutions. We are actively working on these public policy issues not only in Canada but also around the world.
1246. Thank you again for the opportunity to participate in this proceeding and to address you this morning.
1247. We would be pleased to respond to any questions that you might have about these opening comments and the written comments we have provided in the first two phases of this proceeding.
1248. THE CHAIRPERSON: Thank you, Mr. Bartkiw.
1249. For that I will turn to Commissioner McKendry.
1250. COMMISSIONER McKENDRY: Thank you, Mr. Chair. Good morning and welcome.
1251. I do not know whether you had an opportunity to listen to Commissioner Colville's opening comments yesterday but a point he made is that we are here to learn to in the course of answering the questions I have for you, if there is any related points that you think we should take into account, please don't hesitate to bring those up with us.
1252. Let me just start by trying to understand where AOL fits in to the kind of language that we are hearing in this New Media proceeding. We are hearing "Internet service provider", we are hearing "portal", we are hearing "online service". We may have even heard some other terms as well.
1253. Can you just position AOL for me in the world of ISPs, portals and online services?
1254. MR. S. BARTKIW: Certainly, Commissioner.
1255. We fall into, I think, a number of those categories. The way we describe our business is AOL is an Internet online service provider. That is to say, we provide complete access to the Internet, to our over 14 million members around the world. We also provide content and services that are specific to the AOL service itself so that others have considered that to be an online service provider. That is, content that is specific to AOL membership.
1256. Finally, with respect to portals, one would say that we are also in that segment of the market as well with our aol.ca Web presence and aol.com presence in the US.
1257. So I think we would follow under a number of those definitions.
1258. COMMISSIONER McKENDRY: The portal, aol.ca, that's not a membership-based portal, is it, or do I have to be a member of AOL to --
1259. MR. S. BARTKIW: No, it's not a membership-based portal. Any member or any consumer that has access to the Internet today can access aol.ca, and in fact, aol.netfind, which is our directory that we have partnered with, Marc Boucher and his company on, to develop a uniquely Canadian directory where we index -- mark indexes over 60,000 Canadian Web sites today and that is available to anyone that has access to the Internet.
1260. COMMISSIONER McKENDRY: In your business model, you have the online service model and you have the portal model, and I think it is obvious that in the online service model, there is a subscription fee and revenues would flow from that. I am sure there are other revenues as well.
1261. What is the business case or the business model underlying the portal approach?
1262. MR. S. BARTKIW: Well, Commissioner, I think it is fair to say that the business model in the interactive services, the new media arena evolves on a regular basis. However, today the business model associated with a portal, certainly for ours, is advertising electronic commerce revenues.
1263. So we partner with organizations that have an interest in reaching the market that we focus on and that is the mass consumer marketplace as opposed to the early adopter segment of the marketplace. We have advertisers and marketers that partner with us to try and reach consumers by putting content into context and that allows them to engage in one on one communications with consumers which is unique to this medium.
1264. COMMISSIONER McKENDRY: You said "putting content into context". Could you just elaborate on that for me, please?
1265. MR. S. BARTKIW: Well, certainly. Perhaps I will pass this over to Marc for some comments.
1266. But if a consumer comes to aol.ca to look for some uniquely Canadian content, then they would enter a search term and results would be displayed based on obviously what the criteria they defined in the search field. But then the results that are displayed would include content that is contextual and related to the search query that they put in.
1267. I draw your attention, if I could, to the hand out that we provided you this morning, and the AOL Canada Netfind tab, and it is towards the back, probably four from the back of the hand out this morning.
1268. Perhaps I will ask Marc to provide a bit of an overview of AOL Canada Netfind and how his company provides us with unique Canadian content for this.
1269. MR. M. BOUCHER: Simply, what we do is we index Canadian Web sites and promote them through AOL Canada Netfind. This provides a central hub for Canadians to find information on the Internet.
1270. As you may know, the Internet is infinite space. There are millions and millions of pages available and resources such as this which is similar in respect to white pages, yellow pages, provides easy access for consumers to find what they are looking for. They have the option at the top of our page on the hand out, you will notice, to enter a search term and query the data base, or they can follow, through our directory, and drill down to the specific areas that they are looking for.
1271. For instance, if you look at government and politics and federal, then flip over to the next page, you will notice that you will see a list of some federal agencies.
1272. COMMISSIONER McKENDRY: Sorry, do you want to add something?
1273. From a revenue point of view then for this kind of service, is the revenue flow from the relationship you have with AOL Canada, from advertising, from fees you charge with respect to indexing? How does that work?
1274. MR. M. BOUCHER: Our service is free to the consumer. The revenues that we generate are, as Stephen stated, from advertising revenues and from electronic commerce. There are no fees for indexing.
1275. COMMISSIONER McKENDRY: When you say "electronic commerce", this would be a commission in effect on transactions that are consumed using your service?
1276. MR. M. BOUCHER: No. If we were to offer some sort of product for sale, we would split in the revenue.
1277. COMMISSIONER McKENDRY: Let me ask you a couple of questions about your oral comments this morning before I turn to your written submissions.
1278. You referred to your 60 Canadian content partners. What are the criteria for becoming a Canadian partner with AOL?
1279. MR. S. BARTKIW: Well, quite simply, Commissioner, as mentioned in our opening comments, our focus is on consumers and the needs and interests of consumers. So when we engage in partnership discussions with organizations or individuals, we zero in on specifically what the partner has to offer that the AOL member will benefit from. Is it uniquely Canadian content? Is it products and services that our members will have an interest in?
1280. So that is the focus of our criteria for determining whether a partnership is appropriate for AOL Canada. So if this is something that our members will benefit from, we certainly will engage in a relationship.
1281. Let me tell you a little bit about how we work with our partners.
1282. What AOL Canada brings to the table are some core competencies. We have the existing infrastructure. That is to say we have made investment in the national network. We have the hosting facilities. We have the uniquely Canadian member software that is easy to use. We market our services across the country.
1283. So our partners can benefit from that existing infrastructure and investment that is made. We look to our partners that are specialists and experts in a specific community. In Marc's particular instance, it is in indexing Canadian Web sites.
1284. We have, as you mentioned, over 60 Canadian partners. They range from entrepreneurs right up through to the largest financial institutions in Canada.
1285. So we look to our partners to bring expertise and relationships and knowledge within a specific community of interest. They will either bring content or products and services to our online service. They also obviously have relationships with that community and have traditional marketing channels. And we have the opportunity to market together to let their existing community know that they are now providing Internet online products and services.
1286. COMMISSIONER McKENDRY: Do they pay a fee to AOL Canada to be a Canadian partner?
1287. MR. S. BARTKIW: Absolutely not, Commissioner. We do not charge any fees. The objective of our partnerships are quite clearly long term. AOL has grown as a result of partnerships around the world and in Canada it is absolutely no different. We will continue to grow as a result of strong, long-term Canadian partnerships.
1288. We partner and as revenues are generated, we share those revenues, again, advertising and e-commerce revenues. Typically, advertising revenues will go -- the majority of which will go to the seller, and depending upon the skill sets and core competencies of the partner that we have, they may or may not have a sales team. If they do not and wish us to sell advertising, we will do so, and again, the revenue share would be determined on who actually does the selling.
1289. COMMISSIONER McKENDRY: Yesterday we heard from some content producers, a concern that a trend was emerging with what they called content aggregators, which I would assume AOL would fit into that category as well, of charging for access or for a display or to be included in the content aggregation.
1290. Do you have any comments about that concern that was expressed to us?
1291. MR. S. BARTKIW: Yes, Commissioner.
1292. Quite clearly we do not and have not charged for distribution of content on AOL. I would add that Marc and his team spend an enormous amount of time gathering information about Canadian Web sites.
1293. Perhaps I would ask Marc to comment on how he and his organization go about doing that and the results of having a Web site indexed on AOL Canada Netfind.
1294. MR. M. BOUCHER: As Stephen was saying, AOL Canada Netfind, quite the contrary where producers may feel that their distribution is maybe limited to aggregators, AOL Canada Netfind is a free service which they can use to clearly promote themselves.
1295. As I mentioned in our opening comments, we have a new service called "Active Listing" under development which is even going to further that relationship between ourselves and the producers where, on an ongoing basis, they can interact with us to promote their content.
1296. COMMISSIONER McKENDRY: So I take it from your comments that that concern that was expressed to us yesterday would be misplaced, at least in the context of your business?
1297. MR. S. BARTKIW: That is correct, Commissioner.
1298. I would ask that I draw your attention, if you could turn to the AOL Today tab within the hand out this morning. I think it would be useful for us to provide an overview as to what the AOL Canada member sees when they sign on to our service today.
1299. The AOL Today tab, relatively close to the front of the hand out, is the first screen that a member sees when they sign on to the service. You will note along the left-hand side of that screen, there are 13 categories of content. This allows the consumer to navigate quickly to content that may be of interest to them.
1300. You will note along the right-hand side of the screen, there are promotions for content within the service itself. At the top of the screen there is a promotion for some personal finance resources that are available. Lower to the bottom there is a promotion for an upcoming live event. In this case, with the rock group KISS.
1301. Along the left-hand side is the latest news provided, and if you will note, it's both text and photo provided to us by Canadian Press. Below that is the weather. Depending upon where the member signs in from, the weather for their respective area will appear.
1302. I would note that weather is provided to us by Palmorex who presented to the Commission yesterday. They are a partner of AOL Canada's. Below that, financial information. In this case, summaries of the Canadian exchanges and the US exchanges.
1303. I would ask you to follow quickly to the finance tab. This is another example of how we work with our partners to give them prominent placement for their Canadian content.
1304. If you will note at the top left-hand corner of the screen, you will note that it's AOL Canada and sub branded with i/money. i/money a Canadian company that develops personal finance content and resources specifically for Canadian consumers. We look to them and their expertise to program our personal finance channel, that is to keep it up to date and present the most latest information and they do so by providing us with information that allows Canadians to make informed investment decisions and by providing tools that allow consumers to make informed investments as well.
1305. So quite clearly, we put our partners up front, that is to say, the content that will be of interest to Canadians is placed prominently, and as I mentioned, there are no fees charged to our partners for this relationship.
1306. COMMISSIONER McKENDRY: I notice on both of the screens at the bottom there are two tabs or buttons for AOL US and AOL INTERNATIONAL. I take it that a Canadian subscriber who wants to go out into the world, so to speak, clicks on those and they will go off into the AOL US or INTERNATIONAL domains?
1307. MR. S. BARTKIW: That is absolutely correct, Commissioner.
1308. Our AOL Canada members have access, not only to AOL Canada content but AOL content from around the globe.
1309. As I mentioned in our opening comments, we have services not only in Canada and the United States, but we have localized services in France, Germany, UK, Japan, Australia and our members have access to that content and can also communicate with members of each of those respective services.
1310. I would also add that one of the benefits of partnering with AOL is that our partners that provide content or products and services have access to that entire community of 14 million AOL members.
1311. So we have seen some excellent examples, and I will point one out. Under the sports tab of the hand out this morning and the third page in our sports tab, we had an excellent example of an entrepreneur, that leveraging this new medium, has gained international distribution of Canadian content.
1312. A partner of ours is Curt Harnett, and those of you who are sports fans may know Curt as a Canadian Olympic Medallist. We have partnered with Curt to provide an area called "Quick Release" which is an online area for cycling enthusiasts.
1313. Curt put together daily commentary and what we call a "slide show" which is a voice over commentary and photos associated with the Tour de France of this past season. Because he did such and excellent job of packaging on commenting on this event, he received excellent distribution throughout Europe through the AOL services. So this is an instance of a Canadian entrepreneur leveraging this new medium to get international distribution without having the expense of traditional media.
1314. COMMISSIONER McKENDRY: Why don't we just stay on this tab, the Quick Release page for a moment because it takes me a bit ahead of my questions for you. But while we are here, perhaps it is a good opportunity to ask you about the Broadcasting Act and Programs.
1315. One of the issues that we had discussion with people yesterday was whether or not there are programs on the Internet that would be programs as defined in the Broadcasting Act. The Broadcasting Act says that a program -- and I am sure you are aware of this but I will quote it briefly and I am quoting:

"A program means sound or visual images or a combination of sounds and visual images that are intended to inform, enlighten or entertain but does not include visual images, whether or not combined with sounds that consist predominantly of alpha-numeric text."

1316. Now, looking at the Quick Release Service, is that a program in accordance with the definition that I just read out?
1317. MR. S. BARTKIW: Quite clearly, Commissioner, this is not broadcasting and I think that it is important to note that interactive new media is a different paradigm from the broadcasting medium. There are a number of key differentiators. Number 1 being the low barriers to entry. Today, basically anyone with a computer and access to the Internet can develop and promote online content through the Internet today. I would add that another key differentiator is the fact that with the Internet there is no scarcity of valuable public resource.
1318. It is a global network, and as we have added in this particular instance, content from Curt Harnett, there is absolutely no reason that we couldn't add additional content related to cycling if that is what the members of this community wanted to see. So I think there are clear distinctions between interactive new media and broadcasting as defined today.
1319. COMMISSIONER McKENDRY: I want to come back to those points later, but sticking with the definition in the Broadcasting Act of a program, which, as I said, deals with sound or visual images. I think for the sake of our discussion this morning, I am assuming that there are visual images. At a minimum I don't know whether or not there is sound and that they "are intended to inform, enlighten or entertain."
1320. What is it about this particular service that would not conform to that definition? I am just trying to ensure that we clearly understand why this is not a program --
1321. MR. S. BARTKIW: Commissioner, I will ask --
1322. COMMISSIONER McKENDRY: -- and if you could frame your response, perhaps, using this as an example, that would probably be helpful to us.
1323. MR. S. BARTKIW: I will ask Greg Kane to respond to that, Commissioner.
1324. MR. G. KANE: Commissioner, McKendry, the example is a good one because while at first blush it appears that it does have visual images, it does have some sound, as Mr. Bartkiw has mentioned, but the most important factor is that it consists predominantly around alpha-numeric text, and as a result, it is not currently within the definition of programming under the Broadcasting Act. At some time in the future it may get closer to that, but quite clearly today it is not.
1325. COMMISSIONER McKENDRY: Are there any other services on AOL that would satisfy the definition of a program?
1326. MR. S. BARTKIW: No, Commissioner, we do not believe that is the case.
1327. COMMISSIONER McKENDRY: That is, I assume, for the reason that Mr. Kane just provided to us that they are combined predominantly of alpha-numeric text.
1328. MR. S. BARTKIW: Correct.
1329. COMMISSIONER McKENDRY: That would apply to the MuchMusic service as well?
1330. MR. S. BARTKIW: I think what you will find in the MuchMusic content in their online area in partnership with AOL Canada, what CityInteractive, which is the subsidiary of CHUM Limited that develops and promotes that online area, what they have done is they have leveraged that online area to extend the relationship with their viewers today.
1331. So what it allows them to do using Internet online is to have a one on one dialogue,if you will, with consumers as opposed to in broadcasting, just having a one-way flow of information.
1332. So they do leverage their online area to provide brief audio clips and short video clips. I would add though that at the stage of evolution of this industry that audio and video are far from broadcast quality when listening to or viewing audio or video or Internet online today.
1333. COMMISSIONER McKENDRY: In your Life channel, I think you refer to these services as channels, I notice that radio shows are available. Would they be programming under the definition of the act?
1334. MR. S. BARTKIW: No, Commissioner, we don't believe so.
1335. COMMISSIONER McKENDRY: Because?
1336. MR. S. BARTKIW: Well, I think if we were to look back to the working definition from the study referenced earlier by the Chairperson, and that was the Wall Study, I would like to recount the definition of new media from there, and I will quote:

"New media includes digital video, audio, images, computer graphics and alpha-numeric text, either individually or in combination capable of being received and manipulated by users through terminal devices such as personal computers and involving new forms of electronic distribution over networks that may be interconnected locally, nationally or globally and which may be enabled two-way interactivity in real time."

1337. I think that the sum of those comments help to draw distinctions between traditional broadcasting and new media.
1338. COMMISSIONER McKENDRY: You mentioned that the transmission of sound and video over the Internet is not of adequate quality yet. I am not sure you said "adequate quality" but that there was room for improvement was the message I think you were trying to convey.
1339. When do you think we will see broadcast quality video over the Internet?
1340. MR. S. BARTKIW: Well, Commissioner, I think there are a couple of issues related to that.
1341. First is the deployment of existing technologies in the market place today, that is to say, what do consumers have in their homes to access Internet online content?
1342. As mentioned earlier, we have over 100,000 Canadian households that are members of AOL Canada. The average connect speed is about 28.8 with a telephone modem. That does not make for a particularly pleasing video experience and audio is less than broadcast quality at that speed.
1343. So one has to look to what has been deployed in the market place as far as technology is concerned. So that is the one piece, the delivery technology is not in place in consumers' households.
1344. The second is with respect to the distribution networks themselves and the availability of broadband networks. They are quite clearly still in their infancy. They are by no means at a mass market level.
1345. So I think those are two issues related to the emergence of audio and video on a broadcast quality basis. I would estimate, and this is nothing more than a best guess on my behalf, that we are somewhere in the neighbourhood of five years away from seeing broadcast quality video over Internet online services.
1346. COMMISSIONER McKENDRY: I just want to come back for a minute to your previous comments about what constitutes a program.
1347. I take it interactivity is a key element or a key foundation of your view that the new media isn't programming as envisaged in the Broadcasting Act. Do I have that right?
1348. MR. S. BARTKIW: Absolutely correct.
1349. COMMISSIONER McKENDRY: Let me put this to you to see what your view is.
1350. The Commission has determined that video on demand programming undertakings -- in video game programming undertakings or broadcasting, I would assume that video on demand programming has an interactive element to it. What is the difference between video on demand programming and new media with respect to interactivity?
1351. MR. S. BARTKIW: Well, I think it comes back to some of the elements that I outlined earlier. In the new media and interactive services space, there is no scarcity of valuable public resources. That is to say, there is no limitation to the number of programs, if you will, that can be distributed on the Internet today. I think the fact, as you have clearly identified, that it is a one on one relationship or interactivity with a consumer is also quite unique.
1352. I think that it is important to try and make the distinction that interactive services is an emerging market place. It is a new medium. It is not broadcasting in the traditional sense. I think that trying to apply the old broadcast paradigm to this medium could negatively affect the growth of what is now certainly an emerging medium.
1353. By applying old rules to a new medium, I am not certain that anyone, including the consumer, will benefit from that.
1354. COMMISSIONER McKENDRY: I don't know whether or not you had an opportunity to hear the proceedings yesterday. Did you, in particular the presentation by Palmorex and NetStar?
1355. MR. S. BARTKIW: We had a representative here and we had a summary report, Commissioner.
1356. The Pelmorex representation asked us to create a set of expectations with respect to the display of Canadian content, by content the aggregators, and it adopt a supervisory role in the first instance to ensure that our expectations were put in place and if they weren't, I took the Palmorex submission to say that we should then regulate rather than supervise.
1357. I take it in light of your comments, that is not a position that you would agree with?
1358. MR. S. BARTKIW: No, Commissioner, we would not. I think if you would look at the Canadian market place today, the fact that there are over 600 Internet service providers, the fact that there is an absolute wealth of Canadian content available, much of it available, obviously through AOL Canada, through our partnerships, and the fact that through Marc and his organization's efforts, we have over 60,000 Canadian Web sites made available to Canadian consumers. Also noted in TELUS' Phase II comments on these hearings, they made mention of the fact that 5 per cent of all Web sites on the Internet today are Canadian, yet 5 per cent of the total population of the world -- 0.5 per cent of the total population of the world is Canadian.
1359. So if you were to look at it from that perspective, there does not appear to be a shortage of Canadian content.
1360. Perhaps I will ask Julie to elaborate on that.
1361. MS J. GARCIA: In addition to Stephen's description of why there is no need for something like this, it would continue to be AOL Canada's position that the question of jurisdiction remains unresolved.
1362. COMMISSIONER McKENDRY: You say "unresolved". Do you want to elaborate why it is unresolved?
1363. MS J. GARCIA: Well, my understanding is one of the purposes of this proceeding is to determine whether the CRTC does have jurisdiction over whatever the definition of new media services will be. It has certainly been our position in our pleadings and continues to be our position that that jurisdiction does not exist.
1364. COMMISSIONER McKENDRY: Thank you.
1365. Counsel for NetStar, Mr. Johnson, if I am recalling his comments correctly, took the view that -- and I think his comments were made not in the specific context of NetStar but of the context of the Internet that there are in fact programs available on the Internet and that programs are being broadcast on the Internet. Is that a view that you would agree with?
1366. MR. S. BARTKIW: Well, Commissioner, I think it is accurate to state that there is audio and video available on the Internet today. I think our partnership with MuchMusic is clearly an example of that.
1367. I would add, however, that I think that the interactive services and new media space provides a great opportunity for broadcasters. We have seen that in Canada with a number of the broadcasters extending their brand into the Internet online space with Internet and Web-based presence.
1368. As I mentioned earlier, what it does allow them to do is to extend the relationship with their viewers and build a more one on one relationship and to actually gather information from their viewers to tailor their programming to meet the needs of Canadian consumers. So I think that is particularly unique.
1369. So we have seen an extension of Canadian broadcasters into the new media space.
1370. I would also add that we have had an experience in the US, and I will point to a relationship that we have with CBS. We do distribute CBS content, not necessarily broadcasting as you would define it today, but information related to programs that they have on air. In fact, in the September timeframe, CBS leveraged the audience of AOL to promote and advertise the introduction of their new fall lineup. So I think that is an example of a broadcaster taking advantage of the new medium to support their existing broadcast product.
1371. MS J. GARCIA: We are coming at this from a little bit of a different mindset and so it is difficult for us to think of the content that we provide, an Internet content in terms of broadcasting and in terms of what is a program.
1372. So I just want to apologize on our behalf and say we don't mean to be evasive but we just come at the whole concept of regulation and the whole idea of what our content is and what our relationship with our consumer is, just from a new mindset, and just really aren't thinking in terms of a scarce public resource or limited availability or monopolistic distribution channels. The entire World Wide Web is community access.
1373. MR. G. KANE: If I may, Commissioner McKendry.
1374. There is a more fundamental point as well and that is that with great respect, you can't look at it simply from the perspective of "is this a program?" You are going to have to look at the definition of broadcasting, and the definition of broadcasting contains a number of key elements. All of those elements have to be present before something can be broadcasting and therefore under the Commission's jurisdiction.
1375. What this really comes down to, and the Commission itself did it very recently in a letter dated November 9 to the Public Interest Advocacy Centre, and this is going to sound like a little bit of a diversion but it really isn't.
1376. The Public Interest Advocacy Centre asked the Commission whether it had the power to award costs in a broadcasting proceeding. What the Commission had to do at that point, which it clearly stated in the letter, was to see whether or not it had the statutory authority to award costs and enable that to happen.
1377. Our submission to you is that when you look at new media, particularly in the manner in which Stephen Bartkiw and Julie Garcia have indicated, this is a totally different matter from conventional broadcasting.
1378. One way to restate that, and I thought it was a very interesting quote. Chris Johnson referred yesterday to Commission counsel, Caroline Pinsky's paper in 1996, and I would like to do it as well.
1379. There is a quote at the very beginning that I thought summarized all of this extremely well, and she quoted from an article entitled, "The Path of Cyber Law" by an individual by the name of Lesig.
1380. He posed the following question:

"Should this new space, cyber space, be regulated by analogy to the regulation of other space, not quite cyber, or should we give up analogy and start anew?"

1381. It is our submission to you that you should start anew. This is a fundamentally different matter from conventional broadcasting. We think that one of the difficulties is that people are trying to shoe horn in what is happening with new media into their mindset of conventional broadcasting and it doesn't work.
1382. I will conclude by saying one more thing about why it doesn't work. The reason it doesn't work is that conventional broadcasting is, as we have described it in our filings, a push technology. Somebody has something and they push it out to the public at large and the public is a passive receiver of that matter that is pushed out.
1383. New media is fundamentally different. It is a totally different dynamic because it is a pull technology. Everyone of us as an individual has the ability to go out and access the information and pull it in for own purposes and what we pull in is unique. It is unique in timing, it is unique in content but the most important point, which I will repeat and conclude on, is that it is a fundamentally different proposition.
1384. COMMISSIONER McKENDRY: This is a very nice lead into my next to next question because I just wanted to go back to a point you made, Mr. Kane, when you referred to the definition of broadcasting and I have been focusing on program. I am assuming that you are referring to the fact that there is a transmission element and reception by the public that has to be taken into account as well.
1385. MR. G. KANE: That is correct.
1386. But we could concede for the sake of discussion, Commissioner McKendry, that something is a program in the conventional sense of that, but unless you have all the other elements such as transmission of that program, you don't have broadcasting under the Broadcasting Act.
1387. COMMISSIONER McKENDRY: But you don't agree that there is programming in any event I take it?
1388. MR. G. KANE: That is correct.
1389. COMMISSIONER McKENDRY: Mr. Kane and Ms Garcia, your comments lead me nicely into my next question and my next question flows with an observation made by the US courts, and it was an observation made in the Supreme Court decision in 1997 that overturned the Communications Decency Act. The court observed that:

"The Internet is a unique and wholly new medium of world wide human communication."

1390. My question is: do you agree with that observation?
1391. MS J. GARCIA: We certainly do. Some of the elements of why it is different we have discussed and are probably worth additional discussion.
1392. One of the many things about the Internet that make it completely different is its complete accessibility to anyone who would choose to publish content. I mean, more than anything else, the Internet has made every individual -- it has given every individual the ability to be a publisher of information.
1393. Another aspect, I think, that is critically different from any previous form of media is that there is no need for a distribution channel. If you were to publish something on the Internet, create a World Wide Web page, you could certainly make the argument that if you did partner with AOL Canada or with another ISP, that you will have more distribution, that you will get to more people and that is probably true. But you don't need to partner with anyone to have your information accessible to everyone who accesses the World Wide Web.
1394. So for example, AOL Canada members do have a unique and special access to content that is provided on the AOL service by AOL content partners. However, AOL Canada members also have access to everything that is on the Web. So if they wanted to find a Canadian Web site, they could go to AOL Canada NetFind and everything that was available would sooner or later be indexed by Marc and would be available to them. So AOL Canada members also have access to everything that is individually published. It is not simply the partner content that they get. That, I think, is one of the very, very special things about the Internet and new media is it really is an incredible equalizer in terms of communicating messages.
1395. COMMISSIONER McKENDRY: When you discussed earlier that the Internet -- there was no scarcity on the Internet. Now, are you referring to simply bandwidth, capacity or is it the same sort of concept that I took the US Supreme Court to be expressing is that the Internet is not a scarce expressive commodity.
1396. MS J. GARCIA: When I was saying that there is no scarcity earlier, I was referring to a comparison with a broadcast model where there is a certain amount of spectrum or a certain number of channels and only a certain amount and more content is competing for the space than is available.
1397. With the Internet there is no competition for the space and for the distribution. Everyone who wants to participate can participate.
1398. I think Stephen wanted --
1399. MR. S. BARTKIW: I would just add, Commissioner, that obviously equal access to distribution networks for Internet service providers is important so that we can reach as many consumers as possible so that they have the opportunity to access Internet online services. I understand that there are hearings before the Commission with respect to third party cable access and I think that with respect to access to telecommunications networks, it appears to be fairly free and open though there are some questions with respect to broadband XDSL applications, if you will, and how they may emerge.
1400. Cyber space is located in no particular geographical location but is available to anyone anywhere in the world with Internet access. What problems, if any, does this create that the Commission should take into account in assessing whether or not it has a role to play in cyber space?
1401. MS J. GARCIA: I think it is something that the Commission and any government body looking at regulating the Internet needs to take into account when they consider what, if anything, it is they need to do.
1402. The issue of jurisdiction, for example, for any kind of illegal -- you know, other than a world crime like child pornography when you are looking at something like hate speech, for example, or crimes where there are different standards in different countries, obviously there needs to be some kind of international cooperation to determine the jurisdiction, whether it is going to be the source country or whether it is going to be the recipient country, whose laws are going to apply. There needs to be some kind of international cooperation if there is going to be a common denominator in terms of those laws.
1403. I think that any country that did want to forge ahead and to create a new law that would apply to Internet service providers or Internet content in their country in particular, is really going to -- well, they are certainly going to be a pioneer and they are going to face some difficult challenges with the industry in their country.
1404. COMMISSIONER McKENDRY: Is there a centralized point from which individual web sites or services can be blocked from the web?
1405. MR. S. BARTKIW: Sorry, Commissioner.
1406. Is the question, "Is there one today?"
1407. THE CHAIRPERSON: Yes.
1408. MR. S. BARTKIW: Not that I'm aware of.
1409. THE CHAIRPERSON: Thank you.
1410. MS J. GARCIA: I might be able to explain a little bit how material can be blocked and what ability there is to hide material.
1411. One of the -- I wish I could do this graphically -- one of the wonderful things about the Internet and the reason why it will survive a nuclear war when the rest of it won't is because there are so many points of entry or servers where the information and content is hosted and then served to individuals when they call for it.
1412. So for example, AOL has dozens and dozens and dozens of servers as would any ISP have anywhere from one to hundreds of servers to provide information to their members.
1413. So for example, if I wanted to see the CRTC Web site, I could call it to me through my AOL account and in coming to me from the CRTC, it would then have to pass through the AOL server.
1414. Let's say that there was some random illegal posting on the site that needed to be removed, well, I could say to AOL, "I've seen this site. There is an illegal posting. I want you to block it." AOL would have the ability to block it at the point right before it came to me to block it at the AOL server where it resided. If Stephen over in his office wanted to see the same CRTC page, he could call it himself and here it comes again on the AOL server. If Greg Kane also wanted to see that site and it came through his company server to him, there it is on his server.
1415. So you can -- an ISP can block specifically on its own server but only in the one location that that member has identified. So to block something universally would be to literally to have to block thousands and thousands and thousands of servers and it would be a coordinated effort, the nature of which has never been undertaken.
1416. MR. S. BARTKIW: I would add, Commissioner, if I could just point to a tab in the hand out this morning labelled "Parental Controls."
1417. These are tools that AOL members have that allow them to determine what their children have access to on AOL and on the Internet. This is something that is unique to AOL but there are software programs comparable that are made available on the Internet today.
1418. So I think that corporate citizens, we need to step forward and be leaders in this area and ensure that our members and consumers do have a safe online experience.
1419. COMMISSIONER McKENDRY: Thank you.
1420. The Canadian Charter of Rights and Freedoms states that everyone has a fundamental, and I quote:

"...freedom of thought, belief, opinion and expression, including freedom of the press and other media of communication."

1421. Some parties have suggested ISPs who create content should be required to give access and prominence to all Canadian sites. Do you consider that this type of measure raises any issues under the charter?
1422. MR. S. BARTKIW: Well, Commissioner, I think if the content is legal, then its availability should be made by Internet service providers and otherwise.
1423. COMMISSIONER McKENDRY: If the Commission found that some services offered by ISPs and online services are within its jurisdiction under the Broadcasting Act, could the Commission issue an exemption order that would apply to a non-Canadian entity, and if yes, what would be the basis for issuing an exemption order since the entity would not be eligible to hold a broadcasting license?
1424. MR. G. KANE: It is important for us to restate our position and we don't consider that there is jurisdiction under the Broadcasting Act.
1425. The difficulty I have with that approach, Commissioner McKendry, is that there certainly is a school of thought that the Commission cannot exempt what it cannot license, and as a result, we would be particularly concerned about an approach in which the Commission thought that it could address the issue through exemption orders.
1426. COMMISSIONER McKENDRY: Thank you. I would like to end up by asking you a question about loop rates, and my question is: unbundled loop rates and interconnection arrangements and collocation are only available to Canadian carriers. Would the availability of such arrangements assist AOL?
1427. MR. STEPHEN BARTKIW: I think fundamentally or generally, Commissioner, the answer is it would benefit AOL. It would give them more or greater choice with respect to service providers for network access.
1428. COMMISSIONER McKENDRY: Thank you very much. Those are my questions, Mr. Chair.
1429. THE CHAIRPERSON: Thank you, Commissioner McKendry.
1430. Mr. Kane, one of the questions that Mr. McKendry asked that I wasn't sure I heard the answer or maybe because you got off on the slightly different aspect of the question.
1431. I think at one point he asked to contrast the issue of the video on demand programming and the Commission's licensing of video on demand, and I think to some extent, it is related to your characterization of push versus pull technology here. But as I say, I think he asked you to contrast this from a legal point of view in terms of the definition of broadcasting or as a characterization of the new media and the Internet in the context of our determination with respect to video on demand programming.
1432. I am wondering what your view with respect to that determination of the Commission.
1433. MR. G. KANE: It is my position that that is not at all determinative of your finding with respect to new media.
1434. Video on demand is really just a variation on how the programming get delivered to a particular subscriber. It is still conventional broadcasting. It is still a transmission of a program and that is really why I have suggested that the difficulty in approaching new media from the conventional broadcast mindset is that the two are not transferrable. They are, quite candidly, not relevant, one to the other. As a result, the Commission's finding on video on demand, to my mind, simply does not take us any further one way or the other with respect to new media.
1435. THE CHAIRPERSON: I guess part of the difficulty we have with any discussion around this sort of thing is, and you, I think at one point or other have all referred to this sort of traditional mindset, if you will, which is the traditional mindset in terms of what we understand broadcasting to be as we see it on these television screens and what we have historically viewed it or listened to it, and the mindset in terms of the regulatory model that has been used historically, particularly in Canada in dealing with this thing.
1436. But as Commissioner McKendry has discussed with you, we have a couple of definitions in an act here that don't necessarily prescribe a particularly regulatory model in the definitions themselves.
1437. As you pursued the discussion with him in terms of program and referred in particular to the issue of the Quick Release example that you were talking about and said that -- I understood you to say, at least, that this particular example would not be because the image on the screen would be predominantly alpha-numeric text so was excluded from the definition of program.
1438. Then I think you went from there into a discussion around the MuchMusic issue. If we just look at the Quick Release example, if in fact the visual image was predominant, given the answer that you had to Mr. McKendry's question, would it be your view then that that would fit within the definition of program as contained in the Broadcasting Act?
1439. MR. G. KANE: It is possible, Chairperson. The point that I would make is that if that one small element was considered to be a program in the conventional sense, that in turn does not make what AOL as an Internet service provider is doing, broadcasting under the Broadcasting Act. We are still a long way away from that determination.
1440. That is why I indicated earlier that we could concede for the sake of discussion that some of the elements or some of the material that is on the AOL system for the purposes of a general description, does at times appear to be programming. But that does not make what is happening broadcasting under the Broadcasting Act.
1441. THE CHAIRPERSON: So if we go back to this one, if the visual image was predominant in this, would it in your view be a program? Because I took it your view was that in this case it is not because the alpha-numeric is predominant.
1442. MR. G. KANE: No, and we would have to look at the entire display and the manner in which it is created and what in totality it amounts to. It is for that reason that we are submitting to you that when you look at it in its totality, it is still predominantly alpha-numeric, even though elements of it appear to be, as I keep coming back to, conventional programming, but in the totality, it is still predominantly alpha-numeric.
1443. THE CHAIRPERSON: You mean the entire service?
1444. MR. G. KANE: Well, looking at it in two ways --
1445. THE CHAIRPERSON: The totality, the entire --
1446. MR. G. KANE: No, even looking at it in a subset of that in the manner that you are with that particular aspect of it, one part of it may appear to be programming in the sense of -- meaning that it is a visual image or sounds, a combination of sounds and visual images. Some part of it may be that, but in its totality, even within that subset, it is still predominantly alpha-numeric.
1447. THE CHAIRPERSON: Even in this Quick Release Program?
1448. MR. G. KANE: That is correct.
1449. THE CHAIRPERSON: Because your view is if I consider the totality of the Quick Release experience -- maybe I shouldn't use the term "program" here -- that the majority of that would be alpha-numeric and therefore not a program?
1450. MR. G. KANE: That is correct.
1451. THE CHAIRPERSON: But if it was, if the Quick Release experience was not predominantly alpha-numeric, would in your view that constitute a program?
1452. MR. G. KANE: I can see that at some point some part of it might constitute a program, yes. But I emphasize that that does not make it broadcasting under the Broadcasting Act.
1453. THE CHAIRPERSON: Well then if it was a program, what would bring it outside of the act?
1454. MR. G. KANE: Well, that was point earlier that you then have to look at the definition of broadcasting and all of the elements have to be present in order for something, whether it is programming, for example, to become broadcasting. There has to be transmission, there has to be reception by the public by means of a broadcasting/receiving apparatus.
1455. Our submission which we have made in more detail in our written comments is that all of those elements are not present and therefore you do not have the statutory power, the expressed power simply does not exist with respect to new media.
1456. THE CHAIRPERSON: So if the Quick Release experience was a program and it was conveyed to me, what element in the definition of broadcasting would not be there?
1457. MR. G. KANE: In my submission, there is not transmission and this takes me back -- I won't repeat it -- but to the push pull difference. We are pulling the program as the Internet service member. We are not receiving that program from someone who is broadcasting it. There is the issue of whether or not we are members --
1458. THE CHAIRPERSON: Sorry, sticking with that point, whether it is pushed or pulled, how does that affect the definition of transmission?
1459. MR. G. KANE: If you look at the Internet system itself, and the expression was used earlier that the information is served to the individual, there is reference in one of the filings and I think it is the Canadian Association of Internet Providers that explain that it is not transmission because what is actually happening is that there are packets that provide instructions on how to recreate or copy the original.
1460. I can't go an awful lot further in terms of the technical aspect of this but it is our submission that that is fundamentally different from the notion of transmission. That takes us back to the -- that is where we then get into the details of what is push and pull.
1461. THE CHAIRPERSON: Would that be fundamentally different than multiplexing a telecommunications signal?
1462. MR. G. KANE: Absolutely because the signal is being transmitted. There is a source that is being transmitted out to a recipient and our point is that all of this happens once an individual seeks out the information, seeks access to the system and then pulls the information back.
1463. Now, what might happen is that in the pull back, there is some analogy to transmission and packet switching and so on could there, at that point, provide some analogy. But there is a sufficiently fundamental difference that this does not constitute transmission as it is defined and we would have to have recourse, for example, to the Telecommunications Act in order to find out exactly what transmission means in the legal context, and it is our submission that this is not a transmission.
1464. THE CHAIRPERSON: Okay. So the next element would be your reception by the public?
1465. MR. G. KANE: At no point is there a central source pumping out information to reception by the general public. This is all an individual and user-motivated system. The end user on demand accesses the information and pulls it out for his or her own purposes and use, and as a result, it is an individual that is doing that. There is no one source which is making something available at the same time in the broad sense to the public.
1466. THE CHAIRPERSON: So your view is that reception by the public is a timing issue?
1467. MR. G. KANE: No, it is a numerical issue when you really get down to it because it means more than one individual. In the new media system, the focus has to be on that one individual who is in control of the information being accessed.
1468. THE CHAIRPERSON: Okay. The final element would be broadcasting/receiving apparatus but I guess that takes us -- that is rather circular arguments since the broadcast/receiving apparatus is defined as an apparatus capable of receiving broadcasts.
1469. MR. G. KANE: That is correct. It does not have very much and our view is that in the pull technology, it is a totally different concept so that -- to summarize this, Chairperson, it is out submission that this definition would have to be flipped on its head if we were to do it by way of analogy.
1470. It would have to be something along the lines of meaning broadcasting means access to information by means -- we could say by means of telecommunication. We would then have to say for manipulation or modification by a person utilizing apparatus design for such a purpose but does not -- and so on. But you would have to flip it right around because it's the pull as opposed to the push and that is the only way that it would work in the new media context.
1471. THE CHAIRPERSON: So in your view, it turns on really, the two issues of transmission and reception by the public and the transmission element fundamentally is the push versus pull distinction?
1472. MR. G. KANE: Just to be clear, that is a timing issue. Today we are saying that program is an issue. It may not become as much of an issue in the future but today program is an issue as transmission is an issue and for the public is also an issue.
1473. MS J. GARCIA: If I could add to the idea of -- I guess of transmission and reception to the public using the Quick Release example.
1474. If I went to the Quick Release area and, I don't know, went into mountain biking and then two minutes later, Stephen went into that area and went into mountain biking, we could be seeing something different which is another reason, I think, why it is hard for us to conceive of this as a program.
1475. Curt Harnett is constantly changing that material. It is not something that exists and sits constantly and people go and seek it out and then it gets pulled to them. It is going to be different. It could be different virtually every time somebody sees it. So that, I think, is another concept that is quite different from traditional broadcasting.
1476. THE CHAIRPERSON: Different from traditional broadcasting but may still fit within the definition of program.
1477. MS J. GARCIA: Well, it may, and I think that has sort of been, you know, Greg's point in providing the legal analysis, is that you could probably jimmy some of this into an existing definition of programming. There are still other elements there but overall it just isn't a paradigm that seems to work effectively.
1478. THE CHAIRPERSON: Yes, and I don't think -- you know, it is often difficult when one gets into this kind of discussion of a perception that we are trying to use your phrase of jimmy it into a definition. I think our concern is to be clear whether or not it is because the definition turns on only a few elements as we have seen in the discussion that you had with Commissioner McKendry and that we are having.
1479. Now when I think, one has to be fairly clear. You know, we know, for example, and then all of the discussion that turned on this Broadcasting Act which is relatively recent, was intended to be a phrase that was used at the time, technologically neutral, and then it wasn't necessarily restricted to a particular technology, and as I say, we have noted that it does turn on a few definitions. It is not because we are trying to necessarily fit it in and make sure that we grab it. It is whether or not the definition that we have to deal with in this act in effect captures this. Whether or not we have historically understood one model of broadcasting in our mind, either from the technological point of view or from a regulatory point of view. So I think we are trying to understand this better and try and satisfy where this does fit relative to the definitions here.
1480. Mr. Kane.
1481. MR. G. KANE: If I might just comment briefly, I think it is an important point that the notion of the Broadcasting Act being technologically neutral does not by that reason catapult you into jurisdiction with respect to something so fundamentally different from broadcasting that it wasn't intended to be the subject of that matter.
1482. That is sort of the last refuge for those who are asserting jurisdiction is to say, "Well, the Broadcasting Act is technologically neutral." That really was just to try to contemplate the different modes of transmission of programming so that it wasn't locked in time in 1991 but would anticipate LMCS or whatever that was forthcoming. But I think it is very important to point out that that does not in turn mean that suddenly you have the ability to regulate something that was not foreseen by parliament at the time of drafting the Broadcasting Act.
1483. THE CHAIRPERSON: No, I take the point on that. I wasn't trying to suggest that that term necessarily met that the net -- I didn't mean "net" in the Internet sense but that the net is cast that wide if you want.
1484. Chair Bertrand, I think, has a question on this issue.
1485. THE CHAIRPERSON OF THE COMMISSION: Yes, I was listening and the reception by the public, can't we make a distinction between a message like email that is meant to be private or to a few that we choose and in terms of to whom we address it. It is a private communication in comparison to the pages we were looking at, whether they are totally alpha-numeric or eventually when the bandwidth allows it totally, full motion and video, meant still for the general public and whether it is pulled individually at a time you choose as somehow an analogy with, for example, where you have time and you choose as an individual to watch Seinfeld whenever you want or the news whenever you want.
1486. Isn't there some analogy with reception for the public where you could make an argument for saying, "Yes, it is for reception for the public because it is for the general public." It may be narrow cast but it is not an individual conversation.
1487. MR. G. KANE: The first point would be that email is quite clearly alpha-numeric and so I understand you are making that distinction for that reason.
1488. THE CHAIRPERSON OF THE COMMISSION: No, for the private reason.
1489. MR. G. KANE: For the private reason, that is correct.
1490. When you look though at even something like Quick Release, again, it is not a program that is fixed or is in time and then is sent out to the general public for their reception. It is a constantly changing site. It is a constantly -- I think the better word to use is information. It is constantly --
1491. THE CHAIRPERSON OF THE COMMISSION: Yes, but isn't that the case of news?
1492. MR. G. KANE: It really is not. The substantial difference is that this information is constantly changing so what is pulled out at any one time will often bear no relation to what is pulled out even minutes later by another person and they have the ability to manipulate it and to deal with it in their own manner so this is just sitting there, yet one analogy might be the public library that we can all go at random into the library and start to access different bits of information.
1493. THE CHAIRPERSON OF THE COMMISSION: Well, if I push the thing and I take the VCR and with the VCR I make a copy and I kind of create a montage then I can make the same usage for my own needs, a broadcast piece in the traditional universe.
1494. MS J. GARCIA: I think that is true but you can only have received that transmission at the time when Seinfeld or whatever program it was that you are taping was being aired.
1495. When I think about the broadcast media and then the new media, I think that much of the regulation, and I imagine when this definition was being conceived as being technology neutral, it was still under the concept of -- and the idea of reception was attempting to capture transmissions over the limited public airways. So people receive from the airwaves and you can only do that when it is being transmitted by the broadcaster. You can't choose to receive Seinfeld at 1:30 if you are awake and you can't go to sleep and you want to see Seinfeld. You have to have received it when it was being transmitted to you.
1496. When I think of that broadcast definition in its totality of a transmission received by the public of a program, I really -- what is really brought to mind to me is the limited public airwaves, the requirement that something is transmitted and received at a particular time and all members of the public have to receive Seinfeld at 8:00 on Thursday or whenever it is being offered to you.
1497. THE CHAIRPERSON OF THE COMMISSION: Well, you know the BBM measures and Neilson now count the VCR recording and that you don't only have the obligation of watching it at the time they send it to you but you can store it and watch it in a different way.
1498. MS J. GARCIA: That is right, that is right.
1499. THE CHAIRPERSON OF THE COMMISSION: We know that Internet right now is still very much focused on the usage around information. Some statistics, although statistics are not quite valid as we speak of Internet because there is not really -- especially when you say five per cent of Canadian content is quite an achievement when there is only half a per cent of representation of Canadians in the world, well, I would say that is 60 per cent of termination of traffic on the Internet terminating in California is certainly not representative of the population of California and the world so statistics are to be handled very carefully.
1500. But when we get into a world where there is a more even balance between what is information and entertainment onto the net and eventually where we may have more entertainment to the Internet than we have information.
1501. Should we have the same look at things? Should it change anything in our way of conceiving?
1502. MR. STEPHEN BARTKIW: Well, Chair, I think one of the key differences, and I can highlight this by articulating what our members do online.
1503. I described content earlier as a catalyst for communication and community building. That is important because we have found that the content will bring together communities, communities of interest. So if I am a cycling enthusiast, I am likely to go to Curt Harnett's area.
1504. But the reality is what our members then do is they then communicate with one another. They will communicate through email, they will communicate through message boards, they will communicate through chat. So if you look at the aggregate statistics of what members do online, the majority of the time is spent communicating as opposed to pulling information, whether it is textual or video or audio. So I think it is important to make that distinction that this is a medium about communication and interactivity.
1505. THE CHAIRPERSON OF THE COMMISSION: But do you think when the bandwidth is developed that it will remain that kind of characteristic or will that evolve in such a way that it may become more passive again or will it keep that very interactive of chatting?
1506. MR. STEPHEN BARTKIW: Well, Chair, I think that what consumers will do is take advantage of the benefits of the new medium and the benefits today are the ability to communicate with like minded or not like minded individuals around the globe. That is unique about this medium and that is what -- that element has drawn consumers to it.
1507. If we look back to the fear of the radio industry when television was introduced. TV was going to kill radio. TV did not kill radio. What happened was a shift in consumer behaviour. I think that you will find that with the adoption of Internet online services and interactive services into the mass market, there will be a shift in consumer behaviour. We are seeing it today. There have been studies.
1508. A Neilson study, for example, that Internet online users tend to view less television. Does that mean television is going to go away? No, but it does mean that there is a shift in consumer behaviour. I would submit that because of the unique communications element that it will continue to be the underpinning of what consumers do online.
1509. THE CHAIRPERSON OF THE COMMISSION: Thank you.
1510. THE CHAIRPERSON: Commissioner Pennyfeather.
1511. COMMISSIONER PENNYFEATHER: Just to follow up on that, in terms of understanding completely your point about getting out of the broadcast paradigm and following up on Madame Bertrand's point, you have referred to the Internet as a mass medium in your remarks this morning. That indicates to me a description which would suit an intention to reach a mass audience. We could call it the general public.
1512. I just want to understand your term of mass medium.
1513. You also indicated that you might have 850,000 members online simultaneously. To stretch the point, we may be able to say that there are 850,000 Canadians watching a network simultaneously.
1514. Could you just clarify those two points?
1515. MR. STEPHEN BARTKIW: With respect, I will come back to what it is members do online.
1516. Our peak time happens to be in Canada 10:35 PM is when the majority of Canadian consumers want to get online.
1517. Again, I will draw it back to -- what are they doing when they get online? They come online to interact with one another. It is not a case of everybody turning on their PCs and deciding that they are going to Curt Harnett's area and chat about cycling. That is not the case. They all have a wide variety of activities that they are going to undertake when they come online today. So it is not a convergence of a mass of consumers going to one specific program in the example -- for example, Seinfeld.
1518. With respect to mass market, let me state where the industry is with respect to evolution in Canada. Depending upon the research study, you will find that anywhere from 40 to 50 per cent of Canadian households have personal computers yet approximately 13 per cent of Canadian households pay for Internet online services. Contrast that to the US, it's about roughly half the size of where the US is so we are probably three to four years behind the US as far as market development is concerned. So the industry is in its infancy.
1519. We believe that it is a mass medium because of the low barriers to entry, not just for consumers to access these services but for consumers and organizations to develop and distribute content. So it is mass in that it is acceptable to consumers around the globe.
1520. Has it reached a mass market? Certainly not in Canada today and we would certainly hope that it would do so over the coming years.
1521. THE CHAIRPERSON: Counsel Pinsky.
1522. COUNSEL C. PINSKY: Thank you, Mr. Chairman.
1523. THE CHAIRPERSON: Guess what she wants to talk about?
1524. COUNSEL C. PINSKY: Not the definition of broadcasting.
1525. I just wanted to refer back to your written submission and at one point that the AOL team sells much of the advertising on AOL Canada.
1526. First, can you just clarify with respect to that statement, who would be a part of this AOL team? Would this be AOL Canada or is this the AOL US?
1527. MR. STEPHEN BARTKIW: We do have advertising sales representatives in Canada, and really, it goes back to the preference of the partner. If the partner has an online area and they have an interest in selling advertising, of course, they are more than welcome to do so. If they do not have those skill sets within their organization, they may ask us to sell advertising within their online area and we will do so.
1528. COUNSEL C. PINSKY: Could you tell us what percentage of the advertising on AOL Canada can be attributed to Canadian advertisers?
1529. MR. STEPHEN BARTKIW: Absolutely I can. I would say the vast majority of online advertising on AOL Canada is as a result of Canadian advertisers. I would add that, of course, we take advantage of what we will call promotional spaces to notify our members about content that is available and products and services that are available from our partners about programming that we make available online about unique benefits and features of our service so we use the promotional space to inform our members of that but the vast majority of the advertising is targeted advertising for Canadians.
1530. COUNSEL C. PINSKY: In your view, I believe you have also stated that the cost of producing content and distributing new media content are much lower than the cost of producing and distributing traditional media content.
1531. Do you think that the cost of producing new media content will remain low as technology improves and bandwidth increases such that audio and video new media content is more available?
1532. MR. STEPHEN BARTKIW: Well, I think the answer to that is we are not certain but certainly broadband will add elements of audio and video which could certainly increase the production costs for creators of Canadian content.
1533. But I would ask Marc to comment on his view of not just barriers to entry, but how he views costs of Canadian content production today.
1534. MR. M. BOUCHER: I would say that right now that the barriers for becoming a content producer are relatively low. I can cite a few examples of some small Web sites in Canada. "icangarden" is a popular site which -- "icangarden" and "cranberryridge" Bed and Breakfast, which, in the second instance, spent less than a thousand dollars to create and promote their site and yet has seen a 70 per cent increase in bookings.
1535. I would also state that there is also availability for funding for content producers. Venture Capitol, Angel Financing, as well, the Business Development Bank of Canada has just set up a new fund called TechnoNet, which provides small businesses with the funding they need to get into e-commerce.
1536. COUNSEL C. PINSKY: Just on that technical point during the course of your submissions this morning, I think you mentioned that it was your view that audio over the Internet currently is not a broadcast quality.
1537. Yesterday we heard from IMAT that in their view, within even the past three to six months, the technology has evolved such that audio services are broadcast quality. I just was wondering if you can clarify that.
1538. MR. STEPHEN BARTKIW: Certainly. I think that our view is from a consumer's perspective and if we look at the computer hardware that our consumers use today, typically consumers do not have the bleeding edge technology. That is to say they are not going to have necessarily the most expensive, latest high performance computer, nor the most expensive, latest high performance modem, whether that is a telephone modem or whether that is a cable modem.
1539. Secondly, the average consumer is not likely to have a large pipe going into their household from a bandwidth perspective. So the average consumer doesn't have a T-1 plugged into their PC.
1540. So yes, it is possible to receive better quality audio if you have the network infrastructure and the latest technology to do so but I will come back to the fact that with over 100,000 households today, the average connect speed is 28.8 and that doesn't make for a particular memorable experience if you are listening to audio online.
1541. COUNSEL C. PINSKY: Thank you.
1542. You referred us today to your privacy policy that is attached and I have just had the opportunity to review it quite briefly so I may have missed something.
1543. It seems to me that as far as I can see, what it does, it sets out -- it advises consumers essentially what AOL might do or could do with the information.
1544. I was wondering and I couldn't find whether there were any provisions relating to, for example, the right of consumers to access the information that AOL might retain with respect to a particular consumer.
1545. MS J. GARCIA: Yes, absolutely.
1546. In addition to notifying our members of what we might do with our information, we give them the opportunity to opt out of any of those choices we might make in terms of sharing their information except, of course, our billing and business purposes that we have to use their information for.
1547. There is an online area called marketing preferences that we direct the members to and the privacy policy, and we also direct them to that area during the registration process, and then can actually choose to opt out of all communications short of billing and service communications or they can choose to tailor their communications like you can sell my name or use my name or share my information to anyone selling computer equipment or to anyone selling books and they can actually choose -- opt in and out of what they want to be contacted. They can also opt in and out of various methods of contact. "I don't want to see emails but I don't mind posts." We so give them a lot of opportunity to choose how they want to participate.
1548. COUNSEL C. PINSKY: If a consumer has not opted out, however, presumably AOL would then accumulate a certain amount of information about that consumer since it is advising the consumer that it might use it.
1549. Does the consumer have the right to review the information that AOL has collected with respect to that consumer?
1550. MS J. GARCIA: Well, we don't -- we certainly don't have dossiers on our members, which I think is a popular misconception about how we use information. You couldn't go into the AOL servers and find Julie Garcia and a list of everywhere I have been on the service. It just doesn't exist. We don't collect navigational information about individual members. We collect it only in the aggregate for our business purposes.
1551. So in terms of individual information that is available that members can access and correct, it would be their name, their address, their telephone number and their billing information but we don't have -- as I said, we don't have secret dossiers that indicate to us where people have gone online and how long they've spent in particular areas. We just don't collect that information and so it's not something that we would ever share with a third party.
1552. COUNSEL C. PINSKY: Also with respect to your policies relating to offensive content, has AOL actually ever terminated an account on the basis that someone has either -- on the basis of offensive content?
1553. MS J. GARCIA: Absolutely.
1554. COUNSEL C. PINSKY: Can you give us an idea of how often this occurs?
1555. MR. STEPHEN BARTKIW: I would comment that as we get out of the early adopter segment and move into the mass marketplace, and admittedly it's early in that stage, I think what we will find is that the online community will mirror the offline community. In the offline community there are individuals that may choose to participate in disruptive behaviour and we experience that today, and yes, we do terminate accounts.
1556. Quite frankly, that is typically -- we are alerted as a result of members and we provide them with the online tools to get in touch with AOL very quickly and very easily to notify us about members that may be behaving in a disruptive manner.
1557. COUNSEL C. PINSKY: Finally, I just have actually two more legalistic questions.
1558. In your Phase I submission at page 21, you indicate that AOL uses exempt transmission apparatus and for that reason it would not fall within the definition of a Canadian carrier, subject to the Commission's jurisdiction under the Telecommunications Act.
1559. Some parties have suggested that ISPs might now fall within the jurisdiction of the Commission pursuant to the recent amendments to the Telecommunications Act that were contained in Bill

C-17, and specifically with the new definition of telecommunications service provider.

1560. Are you familiar with those amendments?
1561. MR.G. KANE: Yes, I am.
1562. COUNSEL C. PINSKY: Do you consider that ISPs would fall within the definition of a telecommunications service provider?
1563. MR. G. KANE: With respect to the amendments, only in terms of the possible provision of international services and the Commission has chosen not to require ISPs to apply for licensing at this point. So to that extent they are not captured.
1564. COUNSEL C. PINSKY: Yes. Aside from the Commission's decision relating to the licensing regime with respect to the specific definition of telecom service provider which is something to the effect of a person who provides basic telecommunications services.
1565. Would you consider an ISP to fall within that definition?
1566. MR. G. KANE: By reason of that definition, an ISP does not therefore become subject to the jurisdiction of the Telecommunications Act.
1567. COUNSEL C. PINSKY: Could you explain on what basis you come to that conclusion?
1568. MR. G. KANE: Well, fundamentally it is an enhanced service that is being provided. We can go into more detail on that but the definition that is contained in the amendment speaks in terms of basic service and our view would be that throughout the service offerings this is in the enhanced service category.
1569. COUNSEL C. PINSKY: Finally, I would just like to sort of clarify AOL's position with respect to the effectiveness of domestic laws and the ability to enforce them.
1570. In your Phase I submission at page 32, you indicated that recent jurisprudence demonstrates the effectiveness of the existing Canadian criminal framework in addressing the use of the Internet for criminal conduct. In response to some of the questions this morning, you were talking about actually the requirement for an international effort to coordinate enforcement. So I wanted to clarify where you were on that and I suppose more specifically, some other parties in this proceeding have suggested that some type regulation might be required or certain types of expectations ought to be imposed on ISPs or content aggregators, for example.
1571. So I was wondering whether -- I am sorry for taking a while to ask this question -- whether with respect to that type of expectation in let's say regulation to stretch it, would you consider that that could be effectively enforced in the same way that in your written submissions you appear to take the position that the criminal laws have been and are able to be effectively enforced in Canada.
1572. MS J. GARCIA: I think there are a couple of questions and let me know if I'm not getting to the point that you are interested in.
1573. I think in the first instance, I would like to say that there are many, many instances where the domestic laws apply and work and are effective and AOL Canada and I think most ISPs really do work very cooperatively with law enforcement officials. AOL Canada has regular liaison with RCMP. We have done seminars for them to assist them in learning what information we have and what information they can get to them and what the processes would be to get that information.
1574. In terms of needing international cooperation, I think that is my dream. I would love to have that. I understand that it is not certainly going to happen by the end of the year or anything.
1575. What we do do at this point as a multinational company is if law enforcement officials in a particular country are having a problem, they come to us and we work with them and we work with out Joint Venture Services in other countries and with law enforcement officials in other countries and attempt to be a liaison to resolve those issues and so far we have been fortunate to be able to do that effectively and to the satisfaction of the governments in the countries where we have been working.
1576. But I think importantly to the extent that you have a Canadian Web site or a Canadian ISP that is hosting content that is illegal under current criminal codes, then those laws -- and I think there have been a couple of very high profile examples in the past year -- then those laws are effective in dealing with that problem.
1577. I think child pornography is an excellent example of a world crime where current laws have been very, very effective. I think that those crimes have gotten a lot of publicity because they are horrible, because they are world crimes. But AOL and AOL Canada are very proud of our record in cooperating with law enforcement.
1578. In fact, we have had, in this past year, two or three big stings where upwards of 40 and 50 criminals, each time, have been caught. I think that getting those criminals caught and brought to justice has been actually one of the benefits of the online medium because we can help track them down.
1579. COUNSEL C. PINSKY: Thank you very much.
1580. I wonder, actually, if I could just ask one final question following up on the conversations that you had with various commissioners this morning.
1581. There was discussion relating to how you would envision the Internet to involve in the types of services that were available. I believe in response to Commissioner Bertrand's questions, you stated that the services would evolve according to consumer demand and that the essence seems to be some type of communication.
1582. But I wonder if we could be more specific. Would you see services evolving to the point where they become more -- the Internet becomes more of an entertainment medium or do you see that this will remain more of an information-gathering medium and a communication medium between individuals and groups of individuals?
1583. MR. STEPHEN BARTKIW: Well, I think I could only speculate on what is going to happen.
1584. I think that consumer behaviour tends to be relatively predictable, that is to say, if today they take advantage of interactive services to communicate with one another and that is one of the benefits of the medium. I think that that will continue to happen.
1585. As the industry evolves, as consumer behaviour changes, I think it will quite frankly be dependent upon how good a job we do of serving the needs of consumers. So if we are able to provide very entertaining content online, if we are able to provide them with information that saves them time, that saves them money, that makes their lives easier. If we are able to provide shopping services that are convenient and safe and easy to use, then yes, I think the behaviour will change. But I think because we are so early on in this industry that we are still learning how to provision those types of services effectively for consumers.
1586. I think that a lot speculation has been made and a lot of comments have been made that content is the "Holy Grail" and content is king in Internet online, and again, the only comment regarding that is if we look at what our members do online it is actually communicate.
1587. COUNSEL C. PINSKY: Thank you very much. Those are all my questions.
1588. THE CHAIRPERSON: Thank you, counsel. Thank you very much. I appreciate your participation here this morning.
1589. MR. STEPHEN BARTKIW: Thank you, Commissioners. We appreciate the opportunity.
1590. THE CHAIRPERSON: We will take our morning break now and reconvene at 11:00.

--- Short recess at / Courte suspension à 1045

--- Upon resuming at / Reprise à 1102

1591. THE CHAIRPERSON: Order, please, ladies and gentlemen. We will return to our proceeding now.
1592. Just to be clear, because somebody raised this issue out in the hall whether or not we were going to cover all of the parties who were listed to appear today. It is our intention to have all of the parties who are listed for today appear today, notwithstanding what I had said yesterday. I made a correction this morning, and so the CBC, if there was any doubt about that, will appear this afternoon.
1593. Madam Secretary.
1594. MS SANTERRE: Merci, Monsieur le President. The next presentation will be by WIC, Western International Communications and the Canadian Association of Broadcasters/L'Association canadienne des radiodiffuseurs. Merci.

PRESENTATION / PRÉSENTATION

1595. MR. M. McCABE: Thank you very much, Mr. Chairman, Madam Chairwoman, Commissioners. I am Michael McCabe, the President and CEO of the Canadian Association of Broadcasters. With me today are, to my immediate left, Jim MacDonald who is President and CEO of WIC Television and Chair of the CAB Board. Seated to Jim's left is Henry Eaton, Vice President, Strategic Planning and Business Development at Baton Broadcasting. Seated to my right is Peter Miller, Executive Vice President and General Counsel at the CAB for the time being.

--- Laughter / Rires

1596. To Peter's right is Glen O'Farrell, Vice President, Legal and Regulatory Affairs at the Global Television Network.
1597. In the back row, to my far left is Hal Blackadar, General Manager of The Edge 102 in Toronto, or as he says, everywhere. To Hal's right is Jill Birch, the CAB's Radio Vice President. To Jill's right is Josh Raphaelson, General Manager of CITY Interactive, a division of CHUM Limited. To Josh's right is CAB's legal counsel, Cynthia Rathwell, and finally Ken Goldstein, President of Communications Management Inc., a leading consulting firm.
1598. Mr. Chairman, we would like to congratulate the Commission for recognizing new media as a key part --

--- Technical difficulties / Difficultés techniques

1599. This has happened before.

--- Laughter / Rires

1600. THE CHAIRPERSON: I think you should begin to take it personal.
1601. MR. M. McCABE: So both Vice Chairs are against this. Is that it?

--- Laughter / Rires

1602. What am I to do? Continue or ...
1603. THE CHAIRPERSON: Usually there is an announcement shortly after this.

--- Pause / Suspension

1604. THE CHAIRPERSON: I am not sure whether we are going to get a message or not, but perhaps you can begin and run the risk of another interruption.
1605. MR. M. McCABE: Give it another try.
1606. Mr. Chairman, we would like to congratulate the Commission for recognizing --

--- Technical difficulties / Difficultés techniques

1607. This is the last time I congratulate you too.

--- Laughter / Rires

--- Pause / Suspension

1608. MR. M. McCABE: We had asked for 30 minutes, right. This is the way to get it.

--- Technical difficulties / Difficultés techniques

1609. THE CHAIRPERSON: The floors have been asked to evacuate; we do not have to. But I am not sure how long this alarm is going to keep ringing like this and it may well be ringing until they get this issue resolved. So I am going to suggest that we extend our break and let's say we will break until 11:30, and hope that this issue is resolved by that time.

--- Short recess at / Courte suspension à 1110

--- Upon resuming at / Reprise à 1130

1610. THE CHAIRPERSON: Order, please, ladies and gentlemen. We will return to our proceeding now and, Mr. McCabe, in order to avoid recurrence, maybe you want to skip over commending the Commission part.
1611. MR. M. McCABE: I would not try that again.
1612. New media are a relatively small part of the total environment today. But they will clearly have a major impact in a future that is closer than many appreciate.
1613. The CAB has submitted written comments in both phases of this process, as have many of our members. We are making this presentation here today with WIC and a number of other representative broadcasters. We also remind the Commission that the CAB represents three separate sectors -- radio, television and specialty -- and we will be addressing their distinct perspectives.
1614. The CAB commissioned and filed four separate research reports to assist the Commission. Two concern the competitive environments facing broadcasters, one concerns new media business models, and one details broadcasters' current new media activities.
1615. Today, we would like to talk about three critical areas. First, we want to tell you how broadcasters view the changing competitive environment.
1616. Second, representatives of our television, radio and specialty boards will talk about how broadcasters are initiating new media projects to meet their specific competitive situations.
1617. Finally, we will discuss the public policy approach that will take Canada and Canadian consumers where they want to go in new media and ensure that our traditional successes are not loss.
1618. Out of this discussion emerges a three-pronged new media strategy that the CAB urges the Commission to adopt.
1619. First, to recommend a policy approach that provides incentives for Canadian new media risk-taking and entrepreneurship. Second, to recognize that Canadian consumers, who are already used to a global new media marketplace, will not accept traditional content regulation of new media. Third, evaluate current broadcasting regulation in the light of new media developments to ensure the ongoing competitiveness of Canadian broadcasters.
1620. The third point of the strategy highlights the fact that regulation of traditional media cannot be considered in a vacuum without thinking about the big picture. Holding fast to old-style regulation in a new world will not preserve the excellent system we have developed. Instead, excessive regulation could inadvertently hasten its demise by leaving the system's key content providers -- radio, television and specialty broadcasters -- shackled by a business and regulatory model that drains them of their ability to respond to new competition, both in their traditional business and in the new media.
1621. The new media are already part of our competitive environment, and Canada is in the forefront of developments. It is now estimated that 5 per cent of all Web sites in the world are located in Canada. While we are proud of what Canadian broadcasters have accomplished, their Web sites number only about 400 among tens of millions worldwide.
1622. From a user perspective, approximately 2.5 million Canadian households have embraced the Internet and many more Canadians use it as part of their daily work. Going forward, the CMI and Multimediator Strategy Group study attached to our Phase One submission predicts that nearly 40 per cent of Canadian households will have Internet access in three years.
1623. Current levels of penetration make the Internet a competitor with traditional media in many ways.
1624. As we see it, competition between broadcasting and new media will roll out in two phases. The first, which we are in now, is competition for the audience's time. New media content is still basically text and graphics, but both sophisticated audio and some primitive video are offered.
1625. Josh.
1626. MR. J. RAPHAELSON: However, in Phase Two, new technical developments will bring much better audio and video to the Internet. When that happens, the Internet will truly be a mass entertainment medium -- directly competitive with broadcasting for audiences, revenue and program rights.
1627. Technically, a couple of developments are key to providing video on the Internet that is better than VCR quality.
1628. One is to reduce the bandwidth required for quality video. Some engineers estimate the current requirements could be cut by two-thirds within five years as compression technology improves. On the chart, you can see the downward slope of the "video bandwidth" line reflecting this improvement.
1629. At the same time, modem speeds are increasing rapidly. As modems improve, and as more users are able to afford high-speed, the chart's "average modem speed" line slopes upward until it intersects the downward-sloping video bandwidth line.
1630. Somewhere between 2001 and 2004, a critical mass of Internet users could have enough speed to receive video that is better than a current VCR.
1631. The other technical development that can make the Internet a mass entertainment medium is IP multicasting.
1632. Most Internet content is transported from source to user using the IP model -- shown on the left in the diagram. IP needs separate connections for every user. The IP Multicast model, shown on the right, splits the content into separate streams close to the users. This allows it to feed streams to many users without overloading the network.
1633. IP Multicasting is not ready for widespread use yet. When it is, combined with faster modem speeds and improved video compression, it will give the Internet the potential to be a true mass entertainment medium.
1634. Today, broadcasters are developing their own interactive technologies -- DAB and DTV. We will use our strong brands to establish a Canadian presence in the interactive world, transmitting program-enhancing information to smart sets and Internet appliances like Web TV. As this graphic illustrates, television and radio will be increasingly interactive, while new media will expand on a base of interactive graphics, text, and data to look more like broadcasting.
1635. When will the public think of the Internet as truly a mass entertainment medium? ITV.net, a US based net video provider, estimates that over 30,000 sites worldwide use streaming audio or video now, and that 30 million out of more than 100 million worldwide Internet users have a streaming audio or video player.
1636. A Gallup survey in March 1998 reported that among 18 to 24 year old's the first use of the Internet was for entertainment. That means that the next key consumer demographic already thinks of the Internet as a global entertainment medium.
1637. Phase 2 of competition will not mean total convergence of traditional and new media. As this graph shows, there will be considerable direct competition, but also areas where each medium retains its core strengths.
1638. On the far right, the Internet is shown as the ideal medium for activities like data searching and online gaming.
1639. On the far left, digital radio and television are shown as the places where the audience looks for the highest quality appointment and event programming, like championship games and popular sitcoms, and for local community connections.
1640. But there will be considerable overlap in the middle, including mass entertainment of which video-on-demand could be an early example. Competition for viewers, revenue, and program content will be intense.
1641. The ability of foreign services to serve Canadians directly over the Net will clearly threaten the whole existence of a separate Canadian rights market for many kinds of programming. Only those large enough to compete for North American or global rights will be able to acquire much of the most popular international content.
1642. MR. H. BLACKADAR: Canada's broadcasters are responding to new media challenges with new media initiatives of their own. These have been based on connection to the community, whether it be a geographic community, which is key to local radio and television broadcasters, or a community of interest around niche content, which particular radio formats and specialty broadcasters create.
1643. This diagram shows how most broadcaster Web sites started out as promotional sites for on-air radio and television programs. The next step was usually to re-use and re-purpose some content from the schedule. Posting the local newscast was a logical first step. That service often generated enough traffic to the site to attract some limited advertising.
1644. For radio stations, the next step is streaming audio -- putting their whole signal on the Net so they can be heard anywhere in the world. Now most of these sites have added net-specific content.
1645. Among traditional broadcasters, radio is at the forefront of change in new media, largely because of the lower bandwidth requirements of Internet audio technology. It is also the medium that faces the most immediate and significant competitive threats, and feels an urgency to respond.
1646. As recently as 1991, listeners in Toronto had roughly 35 stations to choose from. Today, they have over 2000 choices through 4 distinct new media options:
1647. First, over 1,700 streaming

audio radio stations from around the world;

1648. Second, countless unlicensed audio sites, born every day;
1649. Third, thousands of"pirate" sites where listeners can download CD-quality music at no charge and without advertising;
1650. Finally, Canadian listeners will soon be able to subscribe to US satellite radio, which will provide 30 stations receivable through a small, inexpensive satellite antenna installed in their cars.
1651. All of these are outside the regulated Canadian broadcasting system.
1652. With all of these new vehicles available, Canadian radio needs to offer digital sound and data features to keep listeners and advertisers engaged. We are therefore forging ahead with digital radio. As the study, "Canadian Private Broadcasters on the Internet" points out, Canadian radio stations have established a strong Net presence. But holding onto listeners and advertisers will not be easy.
1653. Local advertising, which represents about two-thirds of all radio revenue, remains the most competitive.
1654. New media entrants will continue to erode margins in local advertising diminishing potential consolidation gains. Business boundaries will also erode: radio will try to take classified ads from newspapers; newspapers, in turn, will stream audio to their Web-sites.
1655. New media will also cause radical changes for local retailers, as consumers circumvent them by e-commerce. The Web has become a major venue for consumers to research and even buy automobiles. This development is bound to have an impact on local car dealers. They may stop advertising; they may set up their own Web sites -- or they may simply disappear.
1656. To survive, media outlets, including radio, will have to consider becoming on-line retailers.
1657. Competition for audience time has already hurt radio. In the US, an Arbitron study found that radio listening time is almost three hours a week less in online households.
1658. Now, if Canada wants to preserve radio from here in the face of competition from audio from anywhere, then we will need regulatory policies that will help us grow our listenership, continue to invest in DAB and improve the profit margins for Canadian radio.
1659. MR. G. O'FARRELL: Comme les radiodiffuseurs, les services canadiens de television specialisee et payante font face a une concurrence croissante, qui ebranle les fondements de leurs entreprises -- et ils reagissent, en partie, en essayant d'etendre leur image de marque aux nouveaux medias.
1660. Leurs communautes desservies sont des communautes d'interet plutot que des communautes geographiques. Comme le reseau Internet est tres souvent utilise pour reunir de telles affinites, les services specialises ont trouve tout naturel d'etendre ce qu'ils font a la television au reseau Internet.
1661. Une fois leur image de marque bien ancree a la television, ces services ont de bonnes chances a reussir sur Internet. Le debordement sur le Web de canaux comme YTV et ceux de la famille CHUM - MuchMusic, Bravo, Space - sont d'excellents exemples de services de nouveaux medias canadiens qui sont en mesure de livrer concurrence a l'echelle mondiale. Ils ajoutent de la valeur a leur contenu televisuel grace a un contenu adapte au Web comme des jeux, des cybercontours et des activites permettant aux utilisateurs de communiquer entre eux et meme de faire part de leurs idees concernant les emissions televisees.
1662. Il est toutefois certain que la concurrence mondiale qui viendra des autres fournisseurs de contenu a creneau amenera tout son lot de defis, surtout lorsque le reseau sera en mesure de d'offrir du divertissement video de qualite.
1663. Nous avons mentionne que la video a la carte est sur le point d'etre offerte sur Internet. Cela aggravera un probleme qui est en train de se manifester, a l'heure actuelle, a l'egarde de certains contenus traditionelles: les telediffuseurs canadiens ne peuvent acheter de droits de diffusion canadiens -- ceux-ci sont offerts que sur une base nord-americaine ou mondiale.
1664. Les services canadiens de television specialisee et payante font deja face a des regles du jeu fondees sur l'etagement. Nous subissons la concurrence de services specialisees americains qui demandent des tarifs eleves aux consommateurs canadiens, detournant du coup des revenus de notre systeme sans rien donner en retour.
1665. Si le marche distinct des droits canadiens pour la programmarion etrangere disparait -- a la fois dans les nouveaux medias et les medias traditionnels -- la depandance actuelle du systeme sur l'interfinancement du contenu canadien grace aux revenus tires du contenu etranger s'effondrera. Les telediffuseurs canadiens eprouveront de la difficulte a produire les emissions don't ils ont besoin pour attirer un bon auditoire ainsi que des recettes d'abonnement et de publicite. Et tout cela aura evidemment d'enormes consequences a l'egard de la programmation canadienne.
1666. Autrement dit, des mesures d'encouragement et une grande souplesse sur le plan de la reglementation seront necessaires pour permettre aux telediffuseurs specialises de produire un contenu canadien pour medias traditionnels et nouveaux medias qui puisse soutenir la concurrence avec ce que le monde a de mieux d'offrir.
1667. MR. H. EATON: Canada's conventional television broadcasters clearly see the challenges that new media will present to our industry as an opportunity and as a threat.
1668. While most of us do not view new media as our current core business, we are not blind to what is coming. Large strategic investments yet to be made. We want to see the business case before we bet the farm on it.
1669. Broadcasters have some core strengths that they can use as their business changes. First of all, we know content. We are still the first choice for news and entertainment.
1670. The second great strength is that we know and connect with our communities. We have been a central part of Canada's towns and cities for most of this century, and we know those roots will assist us through the coming challenges.
1671. New Internet services have already started to compete for the audience's time. Broadcast.com offers, among other services, online access to 2100 CDs, play-by-play for over 400 college and professional sports teams, and 360 audiobooks.
1672. American Nielsen data shows that, while Internet households have not, as yet, reduced their overall use of television, there was a decline for viewers aged 12 to 24 in homes with online access.
1673. So the competitive impact of new media will grow -- and be strongest among those who will soon be the key consumer demographic.
1674. Clearly, if advertising declines, Canadian television will have to find new cost and revenue models.
1675. Even without factoring in the Internet, there is reason for concern about the advertising market.
1676. Several factors, including fragmentation of the market, consolidation of advertising agencies, interest rate levels, but most of all economic uncertainty, lead us to project lower advertising revenues over the next few years.
1677. Recent declines in share prices could not come at a worse time for broadcasters, who need new capital resources to make the strategic investments that will keep them competitive. DTV, DAB and new media content ventures are all expensive propositions with little prospect of immediate return.
1678. Nor can broadcasters count on good levels of profitability to help them meet these capital requirements as they continue to face greater and greater competition.
1679. And the Internet is clearly emerging as a formidable competitive advertising medium.
1680. Net advertising has increased at rates of over 200 per cent annually. Advertisers are attracted by its ability to provide detailed product information, target specific demographics, and even facilitate on-line transactions.
1681. As the graph shows, Canada is far behind the US. Our Internet advertising is 1 per cent of US totals, even though we estimate Canadian Internet activity at about 5 per cent of the global total. In 1997, we totalled 9.8 million Canadian dollars in advertising -- while the US reached 906 million US dollars. This imbalance may never correct itself since US Internet advertisers do not need Canadian sites to reach Canadians, and even domestic advertisers may choose larger US sites in the absence of compelling Canadian alternatives.
1682. Everything will depend on whether we can create sufficiently attractive Canadian new media content to keep traffic high on our sites. If we don't, and when the Internet encroaches on revenue from our broadcasting system, then Canadian content will be threatened from a lack of access to capital in both traditional and new media.
1683. MR. J. MacDONALD: Faced with this kind of competition, Canadian broadcasters will clearly have to build new revenue models to succeed in new media.
1684. Advertising is the first key area. Using successful program brands from television, which we hope will attract advertisers. These brands will be linked to Canadian programming, since the Internet rights for imported product will be hard to come by.
1685. The advertising we offer on the Web will also have to make use of interactive enhancements to target consumers by their interests. No matter how popular our Net programming, we will lose advertising revenue if we do not provide the most effective results possible for the advertiser's dollar.
1686. The World Trade Organization estimates the volume of e-commerce could rise to $300 billion by the year 2000. While few, if any Canadian broadcasters on the Web are making money from their Internet activities, we will have to continue to look for alternative revenue opportunities given that the lion's share of e-commerce is business to business.
1687. Subscription revenue has not yet been a big factor, but its importance in publishing and specialty make it too a model to consider.
1688. The public policy challenge for new media is fundamentally the same as it is for broadcasting. How do we create high-quality Canadian content that Canadians will want to use, with only the resources of a small market?
1689. In some ways, the situation will be worse.
1690. First, foreign competitors will have direct access to Canadian consumers. Second, as new media enters Phase 2 competition it will be more important for Canadian broadcasters to contribute to the system in traditional ways. Third, the lack of barriers to entry will mean that historical cross-subsidization of Canadian programming from the profits of foreign programming will simply not work.
1691. All of this points to the erosion and possible breakdown of the current obligation-based public policy model. In its place we will need to have a new relationship between the private sector and public policy -- one based on workable business models.
1692. The traditional content regulation model certainly will not work for new media. Canadians using the Internet already regard themselves as participants in a global entertainment and information market. There really is no acceptable way of controlling the access of Canadian consumers to global Internet content.
1693. Nor is the Internet the only factor bringing global competition into the Canadian broadcasting business. Cable and satellite services import increasing numbers of foreign services each year. In response, more and more Canadian services are created. This makes the production of high quality popular programming ever more difficult.
1694. Instead of debating the exact level of obligations broadcasters can sustain, we should be looking at a new model altogether. We should not inhibit growth and transformation.
1695. In our written submissions, we put our thoughts into 12 recommendations, which you will be pleased to know we will not repeat here. Out of those recommendations emerges a simple, three-pronged new media strategy that we urge the Commission to undertake.
1696. First, to ensure a public policy approach that encourages new media entrepreneurship and risk-taking among all players, including broadcasters, through appropriate incentives. Such incentives could include a $25 million annual equity investment program, loan programs, tax credits, and other mechanisms, or all of the above. All of these measures should be designed to encourage high value content that gets used. They should not focus simply on increasing the supply of content.
1697. Second, we should recognize that traditional content regulation of the Internet is unacceptable to Canadian consumers. In addition, it would discourage new media investment.
1698. Third, we need to evaluate current broadcasting regulation in light of new media developments to ensure the ongoing competitiveness of Canadian broadcasters. Such an evaluation should consider key indices of competition and the ongoing effectiveness of existing regulatory measures and, in that context, consider the "triggers" that are appropriate points for possible regulatory relaxation.
1699. In conclusion, let me repeat that we welcome this discussion of new media. Not only is it important in itself, but it highlights the issues in traditional broadcasting that we must address if we are going to succeed in the new world.
1700. Our old models will not work for much longer. If we are to achieve our cultural goals in new media, we must encourage those who have established successful content brands with Canadians, that is, Canada's broadcasters. To succeed, we must be able to work within a model that gives us the flexibility we need to adapt and compete. We must not put the system in a straitjacket.
1701. If we build on the strong foundation that Canadian broadcasting has created, we can build a system in which Canadians will still be able to see their communities, their regions, and their country, even while they enjoy unlimited access to the best the whole world can offer.
1702. Mr. Chairman, Madam Chair, members of the Commission, that concludes our presentation and we would be happy to answer any questions you or your colleagues may have. Thank you.
1703. THE CHAIRPERSON: Thank you very much, and I will turn the questioning over to Commissioner Wilson.
1704. COMMISSIONER WILSON: Good morning, ladies and gentlemen. This has been a particularly busy fall for you. I can well imagine that you are looking forward to having this morning's appearance over with since this is the only CRTC thing standing between you and a Christmas break.
1705. Before I start, I would just like to note that although my questions flow out of the CAB submission to this process, all of the issues that are raised in WIC's Phase One submission are covered by these questions in some form or another. So I think you will find the subject matter definitely overlaps.
1706. I am going to begin this morning by exploring one aspect of your Phase Two comments since that is the place where your views really seem to crystallize for this proceeding.
1707. Then taking a leaf from your consultants, CMI, who talked about the non-linear nature of the Internet and how that affected the organization of their report, I am going to go back and look at some of the issues you have raised in your Phase One comments, and then we will go back to Phase Two again and look at what you say about business strategies and the implementation of your suggested public policy framework, vis-a-vis incentives for the development of new media.
1708. On page 4 of your Phase Two comments, and this is something that you repeated again this morning in your oral comments, after summarizing some of the views expressed by other parties which coincided with yours, you state that:
1709. "Overall while Phase One submissions contained many different viewpoints, we believe that a workable consensus may be built around the ideas of incentive-based public policy support for high-end new media instead of content regulation and a more relaxed regulatory regime for traditional broadcast media as the two industries become more directly competitive in the services they offer the public."
1710. Before we get into the substance of that statement, I just wanted to ask you to clarify what you mean by "high-end new media"?
1711. MR. M. McCABE: I think, Commissioner, Wilson, this is an extension of a refrain which we have been at for some time, and that is -- I think it applies in spades to our approach to the Internet -- and that is, it is only the quality of the product of the content that will indeed make the difference between whether there is a Canadian presence, whether we succeed, indeed whether consumers pay any attention to what is presented to them.
1712. Again, it is there that we, in effect, centre our case here, and more broadly, and that is that we must as a system now focus on the quality of the product we bring to consumers and in the Internet where the choice is so broad this becomes essential to having a Canadian presence.
1713. COMMISSIONER WILSON: With respect to your second point where you suggest "a more relaxed regulatory regime for traditional broadcast media as the two industries become more directly competitive," I noted on page 12 of your Phase Two comments that you talked about the development of convergence occurring in two stages, and again you repeated this this morning:
1714. "The current competitive stage in which new media and broadcasting compete for the viewers' time and for advertising dollars and for subscription revenue and the future overlap stage in which new media develops as a mass entertainment medium."
1715. When you are talking about subscription revenue, you are referring to specialty television, is that correct or --
1716. MR. P. MILLER: Presumably more than that.
1717. COMMISSIONER WILSON: I just was not sure when I read that.
1718. MR. P. MILLER: First of all, I think we refined the stages. I mean obviously you can cut these distinctions right now. As we said today, currently there really isn't any subscription model on the Web -- at least not for new media content.
1719. So if we are in Phase One today, that is really competition for time. At whatever stage subscription revenue comes in, it may be as Hal Mark said yesterday, by virtue of sort of parallel sites that you allow subscribers to access only once they pay a fee. There are many different possibilities. I do not think anyone has quite figured out how it would apply.
1720. COMMISSIONER WILSON: Yes, I know. I agree with that. But I guess the point that I was trying to get at is if there is a subscription-based model in new media, what is the subscription-based model that would be impacted by that in traditional broadcasting?
1721. MR. P. MILLER: I think you are correct then that the primary impact then obviously would be with the specialty service.
1722. COMMISSIONER WILSON: Okay. I am just wondering, and really you have already answered my question, but I guess you are suggesting with this comment and with the comments that you made this morning, that in fact new media are now directly competitive with traditional media?
1723. MR. M. McCABE: Well, what we have suggested today in the first stage here is that there is direct competition for the viewers' and the listeners' time. Competitive in that sense. But I think you will find from broadcasters at this table that they are already seeing competition for advertising and for revenue. But I would say at the very beginning of that and it is in the second phase that we begin to -- that we have suggested here that we begin to really see that as a concern.
1724. COMMISSIONER WILSON: Well, I guess why I am curious about this whole notion of timing and at what stage we are at is because you premise your recommendations on the notion that new media are directly competitive with the businesses that you are engaged in right now, and you use these three things as being characteristic as the competitive stage: the competition for viewers' time; the impact of Internet advertising on conventional broadcast advertising; and the impact on subscription revenue.
1725. You also admit in your submission on page 13 at paragraph 82 that there really is not any hard evidence as yet that these trends or the growth in the Internet advertising have in fact hurt broadcasters' bottom lines.
1726. I note the Nielsen study that you referenced both in your submission and in your comments this morning, shows that there is a drop in viewership in homes where Internet access is present. But your footnote at the inspire type at the bottom of the page was that there was no causal relationship between that, that there was no evidence that because the Internet is present there is a drop in viewership. It just happens to coincide.
1727. So that is an assumption that you are making based on very preliminary evidence.
1728. MR. P. MILLER: I think that is correct. I think if you look at younger demographics, and all of us that have kids know this, they are much more comfortable with newer technology, be it the computer, be it the VCR, be it the CD player and DVD disc. So we think it is logical to conclude, although you cannot absolutely prove it --
1729. COMMISSIONER WILSON: Yet.
1730. MR. P. MILLER: -- yet, exactly -- that Internet is having an impact on viewing of television and possibly listening to radio on those younger demographics. Obviously we can talk a little bit about the numbers as to what kind of reductions you are seeing.
1731. But I want to go to the central point of your question, because it is, I think, the biggest challenge for the Commission.
1732. Does the Commission wait until you have absolute proof and then consider doing something, or do you recognize, to some extent, where things are going and consider whether or not you should be ahead of the game a little bit and whether or not you should, in a sense, encourage people to make that transition through some of your policy statements? That is obviously a profound decision.
1733. It is because that is complex that we recommended in our statement today that you have -- be it a process or be it an internal way you look at things -- that you start to consider what the trigger points are. We can discuss with you what they might be and how you might consider them, and we are trying not to be oversimplistic because there is a lot of considerations here. But I guess what may differentiate us from some others that you will hear from is some will say, "There is no impact so it is not an issue. Wait 5, 10, 15 years."
1734. We say there will be an impact. We do not quite know how soon. We have some ideas. So let's start the process of thinking what it means.
1735. COMMISSIONER WILSON: But starting the process of thinking what that means is slightly different than what you have suggested which is to accept the notion that new media is directly competitive with your businesses and proceed based on that?
1736. MR. P. MILLER: I hope we are not being inconsistent on that. I do not see any inconsistency.
1737. Again, I think the evidence suggests -- the weight of evidence suggests that the Internet is starting to be directly competitive. Is it hitting broadcasters' bottom line? That is pretty hard to say. I mean it would be very hard for anyone to look at their bottom line and say, "It has affected me." But again, when you look at the weight of evidence, there seems to be a strong suggestion that it is starting to have an impact. Again, all we are saying is --
1738. COMMISSIONER WILSON: Can I just ask you, the weight of which evidence?
1739. MR. P. MILLER: Well, the weight of evidence on viewing and the weight of evidence on advertising would be the two principal areas of it.
1740. COMMISSIONER WILSON: But your advertising actually has increased between 4 and 5 per cent every year since 1993, which is the year before the Internet really became -- or the Worldwide Web became ubiquitous. So I guess that is the point I am trying to make. And viewing, I am not sure if the Nielsen evidence that you have presented is the evidence on which we are supposed to reach this conclusion, I am not sure that it takes us there.
1741. MR. P. MILLER: Well, again, let's try and deal with those separately.
1742. In terms of advertising, we know that advertising is growing on the Web. In Canada right now it is very small. I think Ken Goldstein can allude to some of the things that advertisers and agencies have said that suggest that the Web is now becoming a consideration.
1743. When they have limited budgets, because everybody has limited budgets, and they make choices to put advertising on one medium, it has to have some kind of an effect on other media. It does not mean that advertising in print or in broadcasting or in billboards is not growing. But it may mean that that advertising is not growing as much as it could.
1744. But advertising, I think, to be very honest, it is harder to make that case. Again, we should discuss some of the evidence. But on viewing, I think the case is a little stronger. Because when you look at listenership trends to radio and you look at viewing trends to television, I think you do see among those younger demographics a drop-off.
1745. COMMISSIONER WILSON: That couldn't just be a result of all the wonderful media literacy work that has been done and kids just watching less television or listening to the radio less?
1746. MR. M. McCABE: It could be, but I think --
1747. COMMISSIONER WILSON: The point of that really is that it is very hard to tell what is driving the drop.
1748. MR. M. McCABE: I think that is precisely the point and that is precisely what this hearing presumably in consideration is about. We are all very much at the beginning here and I think it would be a great mistake to, in effect, because causal relationships cannot be directly and immediately inferred from the evidence there and because you do not see gross numbers dropping dramatically, that there is not an impact.
1749. I think the importance of a hearing like this is for you and we to think together so that we may continue to have a successful Canadian broadcasting system. One of the things we must consider is that on balance it is probably prudent to recognize that these impacts may be occurring in ways that today we cannot measure that much, but we best keep an eye on whether they are going to increase.
1750. It is precisely this concept that Peter has described, the triggers, where I think what we want to suggest is in some process going forward that you do say, "Well, forewarned, let us take a look at what we might think the indicators would be that would concern us having to do with subscribership to the Internet with drops, if they may occur, in radio or television viewing and listening to advertising on the Internet to advertising levels in broadcasting." But indeed perhaps eventually to and perhaps most worryingly to the question of the potential breakdown of the Canadian rights market if that begins to occur.
1751. I think it is worth setting these out in front of us a bit and saying, "Okay, there is some evidence now. But let's set out in front of us how we will decide what evidence is important to us and at what levels it is important to us."
1752. COMMISSIONER WILSON: I think that is a very good point.
1753. MR. J. MacDONALD: By the same token, Commissioner Wilson, we also, at the risk of sounding like the CAB always crying wolf, think that it is very important to bring to your attention the fact that we are cognizant that when the advent of television came along it was also heralding the demise of radio. As Marshall MacLuhan often referred to about new media succeeding old media, it would be reasonable to assume that the new media would in fact be drawn mostly from television.
1754. But as Michael McCabe said, we have to look at what are the trends. To a certain extent, if it walks like a duck and quacks like a duck, we have to be concerned that it might be a duck. We have seen, I think, a little bit more direct information, certainly on the audience point of view.
1755. But the trends that are happening on the advertising side are of great concern, and it is true that most of the information is anecdotal. It is -- we know that a lot of our clients like the one-to-one opportunity of the Internet. We know that they are experimenting. We know that that experimentation costs money because we, as broadcasters, have concluded that the only way that we can learn about the Net is to experiment.
1756. Then you say, "Well, where is that money coming from? Is that coming from your new business area? Is that coming from your research area? Is that coming from your promotion department?" No, that is coming our of our advertising budget. So that is clearly anecdotal.
1757. The second thing that is of concern and we have talked about here and we have talked about in previous hearings is sort of the North Americanization of the planning process. We have talked about North American program rights, but also we have talked about the fact that more and more advertising agencies are moving their planning back. Because, as you know, there has been a complete consolidation of the Canadian advertising market and virtually every major agency now in Canada is owned by a major international conglomerate. Certainly that planning is done on a North American basis, and clearly that is moving back into the States.
1758. That is why you see the fact that A&E, as the seventh most watched service in Canada, the spill into Canada is considered in every media plan. Because they are very cognizant of what that spill into Canada is.
1759. So what we are trying to do is make sure that we say to you in this information hearing and exchange is that these are things that we are concerned about, we are watching out for. We are not saying to you, "Relax all your policies because the sky is falling in", yet. But we are asking you to keep that in mind as we move forward. I just want to make sure that --
1760. COMMISSIONER WILSON: Okay. That actually was the point that I was trying to get at because in your written submission it is, speaking of causal relationships, there seems to be a very clear one between whether or not new media is directly competitive with your businesses and the relaxation of a regulatory regime.
1761. MR. M. McCABE: As we go into the next couple of stages of this, I would expect we would elaborate further on these as we develop our thoughts. Because what we are ourselves trying to do, as you are trying to do clearly, is think about how we can best maintain a presence in this new medium, and therefore we are looking at the concerns or threats and we are looking at the opportunities as well.
1762. But recognizing that the beauty of this hearing and what my interrupted congratulations were about was, that you are doing it early, which I think is the important point.
1763. MR. J. MacDONALD: I am just going to add maybe one comment if I could on content because we have really been trying to move along and say, "Where do we as broadcasters fit into all of this thing?" One of the ways, of course, is as content providers.
1764. Now, let's sort of dissect that a little bit and find out what does that really mean -- content providers -- and what content do we really own that in fact we can make available in that context? One of the great challenges for broadcasters is how do we get into the game with new content?
1765. Yes, we do have the ability to create content, but the vast majority of what we run in terms of acquired programming, we have no subsequent rights to and therefore certainly cannot run on the Internet. Even our newscasts are made up of components, some of which are locally produced and some of which are made up of services that we acquire from other third parties, i.e., US news services. So the rights to that content is not there.
1766. So it is going to be quite a challenge to us to take our ability to create content and tie that to actually producing content that is competitive and has a marketplace on the Net. So we look at all of those factors, and again, as Michael said, that is what is so great about this hearing is the opportunity to share with you in a fairly open manner some of the things that are keeping us up at night.
1767. MR. M. McCABE: Just to add the -- Jim is obviously talking television. On the radio side the content situation is somewhat different, or at least the rights to the content in that it is often music we are talking about. But there are some other kinds of content which again are part of our programming which are there which we do not necessarily have Internet rights to.
1768. COMMISSIONER WILSON: So your comment leads me to my next question which really was with respect to radio. You have stated in your comments this morning that "radio faces the most immediate and significant competitive threat" and you have given us some US numbers on page 6, I believe it is, with respect to the effect of the Internet on radio.
1769. I am just wondering in your looking at all of this how are you dealing with the threat to radio, the competitive threat to radio from new media?
1770. MR. M. McCABE: Could I ask Hal Blackadar to start and perhaps Jill to follow.
1771. MR. H. BLACKADAR: Commissioner, I think as you drill down into looking at the Internet it impacts on radio, as we said, more immediately than perhaps on television. I am going to talk about three general areas and I am going to ask Jill to talk about some of the specifics of it.
1772. But radio's capacity to be local is in fact one of the great features of what we have. When we take that locality and that much used expression, "global coverage for local content", old as it is, is really going to be the thing that will probably different us from some of the other Webcasters that are out there in audiostreaming. When we get into taking a look at the localness of radio, I am reminded as we were just talking to you moments ago since we have done all this talking, about the danger of how quickly that can sort of fall away.
1773. I am reminded in the last couple of weeks Coca-Cola -- truly one of the largest advertisers on radio over the years, the target group is 12 to 24. Until recently we dealt with the agency here in Canada on a market-by-market basis. This past year, in the recent two weeks, suddenly the buy is made out of Houston, Texas and it is an international buy. For those of us who live in markets that are big enough, radio markets big enough and those that happen to have a Web presence where they are seeking added value, we may be a winner in that kind of an environment.
1774. However, as we grow that kind of business there, there will be other smaller markets in Canada, radio markets that I suspect will suffer considerably. Those kind of local broadcasters who perhaps enjoy that advertiser base will no longer be there. The largest store for The Gap is on the Internet. That is how the local part of what we have comes into either conflict or it plays out in terms of the advertiser side.
1775. The other side is when you look at the demographics that we have provided for you, you can see that -- whether it is anecdotal or otherwise, I mean you can see that there is a clear trend, an understandable trend as to why young people are looking more than just the passive media that we have had.
1776. Now, I happen to be, despite my youthful appearance, I happen to be over 30.

--- Laughter / Rires

1777. MR. H. BLACKADER: But we have seen an incredible use of our Web site and our audio streaming to be used in ways much differently than what we have used them in a traditional sense. What we have to do is try to be there with those demands of that young audience. We are finding teens, who are totally interactive for the most part, are not any longer convinced that this one-way medium is going to work. We are also seeing that if we do not move in that direction, others are clearly taking the role.
1778. The other benefit that we have is the fact that we are not only local, we are immediate. So we bring that to the table as well. But against that challenge you have to ask yourself are there negatives where some of these people do not really care if you are terribly immediate in terms of the content. There are other reasons for being interactive. Seventy (70) per cent of people listen to radio in North America for music, and it is indeed one of those challenges that we have to face.
1779. I am going to ask Jill if she will just cover off with some of the specifics.
1780. MS J. BIRCH: A few of the specific areas -- thank you, Hal -- that we wanted to talk about specifically relating to the importance of radio being the local connector in the community, and there is certainly a threat there in the sense as advertisers begin to reconsider their split in how they communicate with consumers, that the local communities could suffer.
1781. When you look at, for example, VOCM in Newfoundland, which has a wonderful Web site -- Voice of the Common Man -- their niche really is dealing with the weather, getting that immediate information out. A similar situation in rural Saskatchewan with CFYN talks about the agricultural news, which is the heartbeat of that community.
1782. I think part of our concern is, is that there are a number of, I guess, threatening winds out there and they directly affect our ability to continue to attract loyal listeners, to continue to maintain our advertising revenues.
1783. I think the third element is the issue of music in the sense that with pirate radio there is an opportunity now for listeners to access music at no charge with no advertising. This is a parallel system really and I think that is why radio has had to be so nimble because the threats are much more present right now in the fact that you can tune into 2,000 stations right now. So we have had to think a lot quicker. We have had to try and harness DAB in a much more effective way and appreciate the speed with which our licenses have been approved.
1784. But clearly, with the decline in advertising that radio has seen specifically, it was 11.1 in 1998 and we are at 9.6 in 1996, we are feeling it. That caused a reaction amongst all of our members to think about new ways to approach this issue, and it will continue to be something that is on the top of our radar screen.
1785. COMMISSIONER WILSON: This morning when AOL Canada was appearing they talked about the fact that even though thousands of radio stations are available on the Worldwide Web that as a listening experience it is not the preferable way to listen to music. Does that work to your benefit right now?
1786. MR. H. BLACKADAR: Commissioner, we talk about the bandwidth. Today if you have got a real audio player, MPEG3 capability, you can download music and you have as good a copy sitting on your PC as what you will find if you go into HMV and buy the CD. Better still, you will have only the cuts that you particularly want rather than buying the CD, and the best part of it is, you do not even have to buy the darn thing and you do not have to pay any royalties for it. So there is a ton of those sites out there.
1787. I think that AOL is quite correct in that at some snapshot in time there is a limit to how much you take down through your pipeline. But that really is dependent on the pipeline into your house or into your office. It is also dependent on what is sitting on your computer. But clearly it is the way this technology is moving.
1788. Today, in fact, prior to this hearing, I took off a list of music from pirate sites that is huge where you can download the music and get it at CD quality. It is quickly moving in that direction.
1789. MR. P. MILLER: If I could just add to that example.
1790. One of the more interesting issues of use of real audio and radio is office use. What the real audio people will tell you is that a lot of their users are listening to real audio, that is audio streaming of radio stations, on their Pcs in their office.
1791. The good news is that according to their numbers 60 per cent of those people are listening to their local radio stations on real audio in their office on their computer. You say to yourself, "Well, why would they do that?" It is very simple. People do not have radios in their office any more. They have a computer and that is the appliance and that allows them to listen to their local radio station.
1792. So if you assume for the sake of argument office tuning now represents 20 per cent of radio tuning, the good news is if I am listening to radio in my office, I am probably still listening to my local radio station. But the bad news is that, at least according to these preliminary numbers from real audio, 40 per cent of that 20 per cent are now going elsewhere. And 40 per cent of 20 per cent is what? -- 8 per cent. If radio, local radio loses 8 per cent of its audience, that is significant.
1793. COMMISSIONER WILSON: But wouldn't it be gaining some audience during the day that they might not have otherwise because people are listening to it at work that did not have a radio?
1794. MR. P. MILLER: It may be.
1795. COMMISSIONER WILSON: I mean we could look at it from the flip side.
1796. MR. P. MILLER: But I think you will find through offices and workplaces over the past several years that there has been a growth in the number of radios and the amount -- at least I see it in our own office and so on.
1797. COMMISSIONER WILSON: Well, you are in the business. You should have radios in your office.
1798. MR. M. McCABE: Commissioner, if I may, the difference is, as we sited in Toronto, you had 35 stations to listen to in 1990. You have about 2,000 choices. If you happen to be from New York and you happen to working in Toronto, you can listen to an audio streaming out of a New York Station.
1799. I just took off some e-mail on my own site where we have people listen to us out of Toronto, Brazil, Chile, France, The Netherlands, just in this past week. The difficulty with this is, as great as that may seem, we have no measurement system to measure that. Quite frankly it is difficult with BBM to send a diary down to Brazil and say how many people listen to this particular station.
1800. So, yes, there may well be an audience out there and it may be worldwide. The problem with it is, how do you sell that?
1801. COMMISSIONER WILSON: It is probably not generating any revenues for you?
1802. MR. M. McCABE: Exactly. You are right.
1803. COMMISSIONER WILSON: I want to go to the Phase One comments briefly, and just explore a little bit about the nature of the Internet offerings by television broadcasters and this is a point that was expanded upon in the CMI report.
1804. You described in some detail on page 6 the various types of Web sites that your members are engaged in, most of which are what you call the sort of community-centred Web sites in that they have a clear relationship to the community they serve.
1805. But what I found really fascinating was the notion of the broadcasters moving into the portal sites and you gave three examples -- two American examples, Disney and NBC, both of which purchased interests in portal sites, and then you gave a Canadian example of "canoe", which was a site that was actually developed by Sun Newspapers.
1806. You state at paragraph 41 that:
1807. "Involvement in portal sites is one for traditional media companies to consolidate an early position as content advocators on the Web."
1808. It occurred to me in view of the comments that you have made about the competitive threat of new media that really that may be the ultimate preemptive strike for broadcasters, and certainly there seems to some indication that this is the direction that broadcasters are taking in the US. Is this the direction that you see for Canadian broadcasters, multi-station groups?
1809. MR. P. MILLER: Let me start and I am going to invite Josh and anybody else to follow and just to step back a bit.
1810. I think what is most interesting in this phenomenon is that packaging and marketing is king; not content. With so much content, people have to be able to find it and be led to it.
1811. So the packagers, the aggregators, the portals, the brands, anything that can serve a function of essentially saying to the users, "This is where you want to go. This is familiar to you. This is trustworthy. This is in sync with your way of living. This is similar to what you like," et cetera, et cetera, et cetera, anything that can help in that regard is going to be tremendous value-added and going to be a very competitive business but also a tremendous business opportunity.
1812. So as you suggest, the notion of using in a sense the traditional packaging role and brand that broadcasters have and extending that to the Web obviously makes tremendous business sense.
1813. Now, better equipped people than I can describe to you the difference between horizontal brands and vertical brands and how that plays. But certainly one is seeing it with YTV and with MuchMusic that they own their respective brands and that is of tremendous business value to them and they are building on that business.
1814. I would imagine, although I think it is more for Glen and Henry to comment, it is a bit more difficult to extend the Global and CTV brands in the same way. But maybe we could invite a bit of a discussion on this and lead with Josh.
1815. MR. J. RAPHAELSON: Commissioner, we started at CHUM with the premise that this was a unique platform with a unique audience and with its unique media characteristics. We created content based on following the user statistics and seeing what people used frequently and continued to use and stopped doing things that they were less likely to use.
1816. So I am proud to say that CHUM made a significant investment and for us that has paid off to the extent that we have a position that we can build on. That investment was by no means assured and I think you can appreciate that several broadcasters have invested in this area and have yet to see any kind of a pay-off.
1817. Again, when you tie it into the competitive pressures, I would think that those broadcasters who have not yet made extensive use of these new media are also looking at other areas where they are going to have significant expenditures like digital television and wondering exactly how they can make all of those investments work to their satisfaction.
1818. MR. H. EATON: I think that is exactly the case with ourselves as well, although at CTV we have been somewhat more conservative. We are evaluating various business cases including a portal strategy. We will adopt the strategy we feel that has the best potential return to our entire community, be that our shareholders, our viewers, what makes the most sense in the long run.
1819. I would like to point out that the largest and most successful portals in the United States are not the ones that are tied to the broadcast community down there. They have made these advancements well in advance of the reaction that some of the broadcasters have taken south of the border.
1820. In Canada we are in a slightly different position whereby the Canadian portal business has not gone to the extent whereby it would be impossible for someone to get into that at this stage, although the door is quickly closing.
1821. MR. G. O'FARRELL: Just to add to that, from a conventional broadcaster's point of view, not having a community of interest but a variety of communities of interest by way of all things to all people programming strategies that we have tried to adopt to attract the largest audiences, our evaluation to-date was such that we concluded we would not be able to create a profit stream out of any Web site that we would operate to support the programming.
1822. However, we are continually re-evaluating that conclusion for one. But also looking beyond that conclusion, particularly as we see the advent and the likelihood of a WebTV application coming sooner rather than later, and that appliance, if I can refer to it as such, being the opportunity for our current viewers to find other sources that either relate or do not relate to our programming streams.
1823. That leads to another point that I would just like to add to the record, and that is being advertiser supported only, what we notice particularly in the US is that a tremendous amount of interest, and large companies are investing significant dollars exploring opportunities with advertisers to see how they can better serve the advertisers' going forward needs, the future needs. What seems to be one of the keys is the interactive development.
1824. What advertisers seem to be attracted to is the information that comes when you have interactive exchanges. You can track your consumer/user, learn to know him, her or them much better and basically create a better and more intimate relationship and hopefully more profitable.
1825. So these are the issues that we look at when we come to a hearing like this. I am not going to congratulate anybody because the bell is going to go off, but we think it is formidable that you would do this and have the foresight to do it. Because while the causal relationship to which people were referring earlier is perhaps not crystal clear for anybody just yet, the writing is on the wall. There is absolutely no doubt. I think we all have to be mindful of that.
1826. COMMISSIONER WILSON: Would you agree that the ultimate competitive threat for you is that the programming that you currently offer to your viewers will be available through the Internet and thereby your role will be completely usurped? When we talk about the increase in bandwidth and the development of digital video compression and all of these things which would make it and the increase in the size of the pipe into the home, all the things that would make it possible for audio and video to be delivered live into an end-users home.
1827. MR. J. MacDONALD: The simple answer is yes, and it goes -- really speaks to the whole issue of DTV as well. Because what we have been talking about is a very special relationship that currently exists between ourselves and our viewers. By that I am talking about, if I can digress just a little bit and get into a marketing analysis.
1828. Marketing 101 says distribution is the key. Get your product to the market. Right now as television broadcasters, we have an incredible opportunity -- 99.8 per cent of our available customers can get our product. Not only that, but they actually go out and pay for the device to receive our product. It is kind of an interesting opportunity.
1829. As we move into the digital environment, we will be moving into a circumstance where those sets, those television sets are no longer television sets. They are effectively monitors. So they are capable certainly of receiving new television signals, but also capable, of course, of getting Internet. So we will be directly involved in that as a first wave technical fragmentation of what we do.
1830. But the product that we deliver, that we have been able to deliver exclusively over the air because we are the core broadcasters, because in the past it has been the only technological way of getting the signal into the home, is no longer an absolute. So there are a whole bunch of things that could happen.
1831. We have talked previously about networks in the United States who are now producing their own programming. If I am at NBC or ABC or CBS and I am producing my own programming post the syndication, financial syndication rules coming down, as you know, 48 per cent of the new schedule is in fact being produced by the networks. The networks all have virtually 100 per cent coverage in Canada. Why wouldn't they consider selling advertising, all of that programming for North America? That is a huge concern for us.
1832. But it could even go beyond the networks and there is no reason why -- because the networks themselves are only distributors and it could go back one level further to the actual content creators who could say, "Well, why do we need television networks when we can go direct?"
1833. So there is absolutely no reason why a production company like RC, Warner, as an example, could not ultimately provide their product directly to customers. Although I think in the near to medium term that is more unlikely and there is going to be an intermediary.
1834. But the loss of rights is a huge issue for us because it is really the engine that drives much of what else we are able to do as broadcasters.
1835. MR. P. MILLER: If I can just add. Those of us that have followed this debate for some time will know that early on there was this great search for the killer AP and in a way the debate, the corollary of that is what is the killer. I think the rights issue is a central concern but there are many other concerns. The whole issue of the change in the balance that we currently have. We have a system today that balances obligations and benefits of regulation and that is why it works.
1836. What happens when that balance is tipped, and there is an expression called "a tipping point" that has been used in the medical profession to describe the point at which an infectious disease becomes a plague. It is not just one of these things that goes linearly. You can reach some kind of critical mass where things change fundamentally. So what is the tipping point for broadcasting?
1837. Again, that could be rights. In other words, rights of acquisition. That could be advertising and the whole North Americanization of the advertising market. That could be simply access, ubiquitous access to high-speed audio/video. There are many different possibilities.
1838. Again, I guess going back to our suggestions on triggers, because we cannot tell you what we think it is, but we can tell you what it may be, is why we are saying let's track these things and let's determine over this next period what the best indicators are and how we deal with them.
1839. COMMISSIONER WILSON: What do you think is the best way to go about dealing with the rights issue?
1840. MR. P. MILLER: Well, let me suggest this.
1841. I think to keep a distinct Canadian rights market --
1842. COMMISSIONER WILSON: Is it even possible?
1843. MR. P. MILLER: Well, let me try and answer that.
1844. But to keep it depends on three separate factors. One, it has to be in the business interests of parties to keep a distinct and separate rights market, and currently that is the case because the rights holders get more money from a distinct market. Secondly, you need a law of some kind to help you -- you can enforce your contracts or however. Thirdly, you need a technology that either again allows you to enforce or makes it possible.
1845. The reason it has worked to now is of course our technology, our broadcasting infrastructure has largely allowed us to prevent others coming in with our rights. Obviously that is why simultaneous substitution works. So the technological barrier is going to be more difficult. But with the right legal framework and as long as the business interests are still there, it may be possible that to some extent we can preserve it.
1846. Again, we do not know. We know that we are losing in some areas distinct Canadian rights. But perhaps there are things we can do and one of the things we note is in the recent copyright bill there was a parallel importation provision designed to help Canadian publishers maintain the rights to Canada. It would be interesting to know whether the publishing industry thinks that is working, because perhaps there are lessons there.
1847. MR. G. O'FARRELL: Commission Wilson, I just would like to add a thought.
1848. Something that the Commission can do in our view and in the traditional media world is very much related to your eligible satellite services list, and that is something that we have advocated in another proceeding. But we think that there is a real opportunity there on the North American rights issue.
1849. We find that it is absolutely reasonable for the Commission to issue licenses to Canadian undertakings and have those licensees come back for renewables, whether it is after five years or seven years to plan the future and to see what the past -- how the past was.
1850. We think that it would be equally reasonable with due notice, proper notice given to the services that are on that list now, that they be advised that there is going to be a re-authorization process where again these issues, such as rights, could be investigated. That would be very much in the purview of the Commission to do so.
1851. COMMISSIONER WILSON: As you said, that is attached to another proceeding.
1852. The next area I would like to explore with you is the whole notion of business strategies. In the CMI report reference is made to a number of vertically integrated US media companies who are expanding into transaction-based Web activity. They have got fairly highly developed Web sites and they are increasing their presence and I guess their usefulness to their communities of interest by engaging in e-com.
1853. I am just wondering if this is the kind of strategy that you were talking about when you refer to global business strategies or are you drawing a parallel to the broadcasting industry where there are essentially two kinds of programming made -- one for export, one for the domestic market -- and is that an appropriate comparison?
1854. MR. P. MILLER: I am going to start broad and then I might have Ken or others join in.
1855. When we think about how the broadcasters and others figure out a business strategy for new media, and obviously that CMI multi-media strategy report was an attempt dealing with some of those issues and it came up with a menu and a look at it. Essentially we can look at it as four phases.
1856. The first phase, and for most of us the phase we are in is R&D. I mean you just got to play, and perhaps it is, as Keith Cocho said yesterday, we are doing too much "D" and not enough "R". But we have got to do more of that. One of, I think, the challenges for broadcasters is to develop a bit of an R&D culture to get into that notion of actually spending money on something that does not have a return. But to do it because you know you have got to experiment and you have got to learn some lessons from it.
1857. The second thing you have got to do is figure out what your business strengths are and Hal spoke of what they are for radio. Similarly, I think the Venn diagram we tried to show you gives some indication of what our thinking is for TV and specialty.
1858. Third, you have got to find what the revenue opportunities are and obviously we know they are advertising and subscription and transaction. You have got to see what kind of chunk of that you can get. Then, finally, you have got to come up with some kind of business model.
1859. So as we look at this, the one thing you quickly realize is that there is many different business models and as many different potential business plans as there are broadcasters. Each broadcaster has to look at its strengths and its appetite for risk and its fiscal conservatism versus its creativity and make that determination.
1860. So when we make the comments that you allude to in our brief, they are a way of thinking which continues to have some significance, particularly for public policy. Because obviously public policy has different views on content intended for the domestic environment versus content for the international market. I think that distinction in public policy will probably remain to some extent. So there may be some business parallels to that.
1861. COMMISSIONER WILSON: You mean in terms of traditional broadcasting, the distinction?
1862. MR. P. MILLER: No, I mean in terms of what is cultural policy most interested in and I think you asked Mr. McCabe that question and we talked about content being key. But obviously public policy has industrial-based measures, like advertising deductibility, and much more specific cultural measures like programming funds. So public policy has a range of measures, some much more industrially based, some much more targeted to quality of domestic content for Canadians.
1863. So some of those distinctions will remain. Our challenge, of course, in new media, as we said in our second phase brief, is not to just apply those old public policy models without reflection but to recognize that new media has two fundamental differences. It is extremely fast and it is a marriage of content and technology. So your public policy has to support both.
1864. COMMISSIONER WILSON: That is an interesting point and maybe I am just not understanding, but when you say don't apply the old models because the whole global domestic thing to be to me a bit of a carry over from the old model which is that there are two kinds of content that we create. What I took from your submission was that you are looking at new media in the same way where really it is not the same case at all because there are no geographic borders. Anybody, anywhere in the world can access this content.
1865. So why would we create one kind of content -- new media content for Canadian consumption and another kind of new media content for international consumption when actually what the Internet has done is create the term "Global Village". So we are all in the same town, we are all watching the same channel and we all have access to the same millions of sites around the world. That is what I was trying to get at when you talk about the two different strategies.
1866. I mean MuchMusic or CITY Interactive has developed sites which are very Canadian, but which you say yourself have been very successful on a global level. So I am just trying to understand why are these two business strategies, the global and domestic business strategies, talked about in the context of new media.
1867. MR. M. McCABE: Commissioner Wilson, granted the lines -- in new media the lines are going to be more difficult to draw clearly. But it seems to us, just as in traditional media, that there will be a kind of content that will be particularly of interest to us, that is to Canadians or to particular groups of Canadians or particular geographical localities in Canada. I think we have to think about that as we go forward certainly.
1868. The nature of the Internet is such that you are making programming for the world. But in a very real sense that is the nature of the world television market today given the economics of television.
1869. Yet, we have determined in this country, and you have been the key drivers and agents of that, that we best think about how we talk to ourselves about ourselves. I think all we are signalling at this stage, even though this is difficult to draw the line, more difficult in the new media, that we best think about this in the next stage too. That is all I think we are signalling at this point. The models may in fact run together.
1870. MR. P. MILLER: Can I just give two examples, and Hal and Josh may want to jump in, but to set the framework.
1871. As a radio broadcaster, your strategy may be local. You may decide that notwithstanding the fact that you are available worldwide, you want to remain key for your local audience. You want to be their source of information, entertainment, news. So notwithstanding the technical and technological difference, that is what your business strategy is. That is where your revenue comes from. Much, as you alluded to, may have a very different strategy which is increasing given that they are in Canada and the US.
1872. MR. J. RAPHAELSON: Commissioner Wilson, I will take this opportunity to just briefly raise a couple of issues that are near and dear to our hearts. Again, as Peter earlier pointed out, specialty channels like MuchMusic have a brand and that is a brand that we can exploit globally. In our little area today, we see our main competition has name like mtv.com.
1873. Something that we mentioned in our submission has to do with the current music rights situation in Canada, putting us at a terrible competitive disadvantage. So a company like us that is aggressively getting involved in this area could again be disadvantaged.
1874. For example, again as we mentioned, Elanis Morrissette premieres her new CD at MuchMusic. We are not able to put clips from that CD on to our Web site or whole songs because in Canada there is a freeze on these rights having to do with litigation surrounding Tariff 22. But people who have seen that show in Canada and want to get that music, they can go to mtv.com.
1875. Because MuchMusic is on in the United States, we frequently get e-mail from people saying, "We saw a great Canadian band on that network and we are here in Iowa and we would like to hear more of that music. We cannot buy it at stores here and your Web site does not have any more of the music. Why is that?" We have suggested on this issue there needs to be some study of this and perhaps some sort of harmonization to make sure that in trying to present Canadian content on a global scale that we are not hampered in that sense.
1876. The other thing I would point is, as others who are active in this area I know have mentioned, we are becoming reliant on the United States for our advertising revenue in this area. There is a 100:1 spending ratio and we are successfully able to get Americans to buy advertising on our Web site but it takes work, and potentially some regulatory action could cause punitive action that could be harmful to our ability to compete.
1877. MR. H. BLACKADAR: Commissioner, I think -- some of the difficulties, I think, in trying to describe this new and old media is that sometimes I think we try to do it vertically and we try to perhaps think that there is these two engines, search engines kind of going parallel. I think it is much more complicated than that. I think it is getting to be even more complicated. I am just not sure where content begins and ends and I am just not sure where the delivery system begins and ends.
1878. In my own case I think we are on our seventh iteration of a Web site. All of this comes without -- not without some cost. I think if I -- and I am embarrassed to admit this in public -- but if I had not put an economic model up, I would tell you this, it would be a long time before I expect to make a profit off of where this thing is going.
1879. But the issue I think is bigger than that. The issue is a fundamental shift. Because if we are not there, if we are not going to try to stay in lock step with that audience that is moving over, and particularly that younger audience, then we are going to become irrelevant and that is a major concern.
1880. There are trends that are there. Michael McCabe had alluded and Peter had alluded earlier to as you go through this process and incredibly complex as it is, I think that you should perhaps give serious consideration to some of these trigger points. Because I do not know how else we could -- we will get to a point somewhere along this road where we are going to have say, "Well, at what point do we deal with the content issue? At what point do we deal with when is the revenue moved to such a point that the broadcasters are having a tough time?"
1881. If you look at the Canadian radio industry, it is not exactly a prerequisite for profit taking. This industry lost about $160 million in 1993/1994. We had a pre-tax of something like 7 per cent in Canada last year compared with the US at about 19 per cent. So our margins are thin.
1882. That said, we know where we have to keep going. We have to keep going with our traditional media. We have to keep working on this new side. But there clearly are going to be issues that I think specifically you are going to have to come to grips with as you go forward that are going to have to take into consideration our obligations with respect to the present regulations as we have them for radio and for television, and how those will play out in this much bigger world for which, as you have said correctly, it is a global village and there are no rules at this point.
1883. MR. M. McCABE: I think you had a couple of points, if you would, Ken Goldstein.
1884. MR. K. GOLDSTEIN: Commissioner, at the outset of your questioning, you were talking, I believe in general terms about business models. Of course you absolutely, correctly observed the notion that it really makes us one big global village or even maybe one big collection of special interest villages, but they are global.
1885. There is of course another very fundamental factor at play here. Not only does the Internet wipe out geographic boundaries, it wipes out business boundaries. That bears on the nature of the economic model that broadcasters have to learn and experiment with.
1886. Because as we move forward and the banks and retail and manufacturing are all operating in the same electronic stream, they will increasingly take on media-like characteristics. You can see it already in some of the essentially text-based material that what you would call an advertiser has placed on the Web. It looks like nothing more than a magazine. It is not an ad. It looks like a magazine. So they in effect have gotten into the magazine business.
1887. I can foresee a period not too many years from now, perhaps as few as five, perhaps as many as ten, when it would be both feasible technologically and desirable from a marketing point of view for the Royal Bank to put reruns of Seinfeld on its Web site as a perk for dealing with the Royal Bank. It is that co-mingling of commerce and what we have traditionally called media that will signal to the media that if the people who do the transactions are getting into the media business, the people who do the media better think about getting into the transactions business.
1888. COMMISSIONER WILSON: I would just like to finish up, and I guess this goes to the public policy framework that you have suggested wherein there is a range -- you suggest a range of incentives for the development of new media. You identified six kinds of incentives that could be readily adapted.
1889. You went into considerable detail in sketching out eligibility criteria and all of that is very useful. So I am not going to go through step-by-step each program that you have suggested because I think that they are quite clearly outlined.
1890. But just talking about old rules and old paradigms and you said in your opening remarks this morning:
1891. "Our old models will not work for much longer if we are to achieve our cultural goals in new media. We must encourage those who have established successful content brands with Canadians, that is Canada's broadcasters."
1892. So on the one side we are talking about encouraging, encouraging you to involve yourself in this new media. On the other side we have Marc Boucher from Maple Square this morning saying we do not need government incentives and let the business unfold as it should, which really is quite a new paradigm. It is just it is quite healthy. It is happening out there. So they do not want incentives or funding from the government agencies to produce Canadian content.
1893. What if, when all is said and done, we agreed with them and said, "Okay. The business is out there. It is flourishing." How would that affect your recommendations? How would that affect your plans for dealing with the competition from new media?
1894. MR. M. McCABE: Perhaps I will start and Jim can follow.
1895. I think that again what we have -- the position we come from is that we have created in this country a powerful complex of policies and industry that has in effect ensured that there is a Canadian presence here. We are now talking about the development of a whole new area in which we have to think again what sort of impact that is going to have on Canadians and whether we are concerned as a country, whether you are concerned as the agency that is most directly involved as to whether there will be a Canadian presence there.
1896. I mean we have put forward a framework here and part of it has to do -- policy framework -- part of it has to do quite clearly with a structure of incentives. Because we believe that it is -- and as you will see they are not only content incentives, some of them are what I would call industrial or technology incentives.
1897. I think the point is that as a country we believe that it will be important for us together to develop the conditions in which there is innovation, not just by us, but by all of the players who wish to be in it. So to us, no matter there may be individual players who will feel that that is not useful. I think that as a matter of public policy it is useful.
1898. Second, we have talked again about no regulations as another part of this. No regulation of the new media.
1899. Again, it goes to the point, as a second point in our structure, it goes to the point about whether you can be effective with regulation and whether with regulation you would run smack into a population that already sees itself as able to play globally and is not going to entertain very happily any restriction on that.
1900. Finally, again, the third part again so that it is not just the incentives, although they are to help create the innovation. It is with existing media who are the major engines of the Canadian presence now that they have the flexibility that they are able to focus on quality, that they were able to make the technological moves that they have to make so that they can continue to be Canada's players in this game.
1901. MR. J. MacDONALD: Commissioner Wilson, I would only add but two comments.
1902. One is that if funding is contemplated through the government at any point, we certainly want to make sure that we articulate our position that the broadcasters should not be excluded.
1903. COMMISSIONER WILSON: That was quite clear.
1904. MR. J. MacDONALD: Thank you for that affirmation.
1905. The second thing from a regulatory point of view, is we do empathize with your situation and particularly the Chair has outlined about what this hearing was all about yesterday because there are clearly circumstances where regulation pros and cons do run head to head, and I will give you an example of that. One of the examples our colleagues were discussing is video on demand.
1906. Now, you have in fact issued I believe three video on demand licenses which have very specific commitments to them and Canadian content elements and so on and so forth.
1907. There is going to be a point where the net clearly, the Internet will clearly be able to offer video on demand services. So how do we balance those two issues? That is just one small example of some of the things that we see down the line.
1908. So again, we are advocating for the most part that this be regulatory neutral for all the reasons that we have contained in our submission. But there are going to be issues that are going to have to be addressed because they are going to conflict.
1909. MR. G. O'FARRELL: Commissioner Wilson, may I just add, and I may be breaking ranks with the troops here. This is a very personal view.
1910. But if I was offering you a point of view personally in response to your question, I would say that you perhaps should not be at the end of this process necessarily opining on your jurisdiction or not. It might be premature to do that.
1911. Because if you come to the conclusion that the friends you were mentioning earlier want you to reach, you can do so, I think in my view, without necessarily having to opine on the question of your jurisdiction. Because the possibility of regulation, I think, keeps certain forces within parameters that otherwise may not otherwise find themselves -- and I do not want to say confined, but I want to say properly framed from an industrial point of view.
1912. You might want to take a lead from the Premier of Quebec and threaten to regulate when winning conditions exist only.
1913. COMMISSIONER WILSON: I was just going to say, is that like threatening people and so they behave in a certain way in order to not be regulated?
1914. MR. G. O'FARRELL: It is a personal view.
1915. As to traditional media, what I would suggest that you think about is --
1916. COMMISSIONER WILSON: Canadians are so obedient.
1917. MR. G. O'FARRELL: -- absolutely -- is this process that we have talked about and that is a process that will allow you to have trigger points that we can have a public discussion on as to when we have to start adjusting things elsewhere. Because if indeed the writing is on the wall and the consequences begun to produce impact that is demonstrable and causal relationships can be clearly identified, I think that as a Commission you want to have a policy there or at least a framework for a process to allow you to adjust your policy accordingly.
1918. COMMISSIONER WILSON: Well, I hope that I did not give the wrong impression because the point that I was trying to make was that what if when all was said and done, I mean what -- you have said the old rules do not apply. What I am suggesting is that what you have offered has elements of -- at least to me -- what seem to be the old rules. So what if we just sweep that all away. As AOL Canada suggested this morning, do not regulate. Do not give incentives. They do not need it and away you go. I mean isn't that private enterprises.
1919. MR. G. O'FARRELL: I was responding in respect to the point of your question where you said how does that affect your plans. I was thinking about our plans as conventional broadcasters specifically going forward.
1920. COMMISSIONER WILSON: Okay.
1921. MR. P. MILLER: Maybe I can also address that question.
1922. I mean I think one of the reasons why we think the new public policy framework will have elements of the old or traditional public policy framework is because new media has elements of old media. I mean it is not a completely brand new ball game.
1923. COMMISSIONER WILSON: There are many who would argue with you on that point.
1924. MR. P. MILLER: Well, remember, I think, when you hear from everyone, people use terminology differently. People use the term "regulation" differently. People use the term "new media" differently.
1925. Obviously our interest is that part of new media that is analogous or competitive to our businesses. Those are not the interests of everybody that is appearing before you and therefore, while we may use the same terminology, we may be using it in very different ways.
1926. But I would just close this discussion by saying at the end of the day we have always got to remind ourselves of the purpose of public policy. I think traditionally in these areas and in particular in the areas of electronic media we have looked to at least four different purposes. One is to promote and provide Canadian content and to ensure it is there and to maximize its exposure and use.
1927. It is hard for us to imagine the public policy will not still be interested in that, in new media. In fact, given the nature of new media and the global nature of new media, an argument could be made that that is even more important in this new world.
1928. A second purpose obviously is competitive neutrality or fair and equitable competition, a central part of the government's convergence policy that will remain a concern and I would imagine a concern of the Commission.
1929. A third element of public policy is the economic or industrial part in supporting Canadian industry. It is clear from the government's connectedness initiative that that remains a major preoccupation of the government.
1930. I think the final element is the whole issue of reflecting Canadian standards and laws and whether you are talking about privacy or hate propaganda, again that is an issue and people have made comments on that. So one way or another you need some kind of a public policy, and one way or another, many of our traditional preoccupations will still apply.
1931. COMMISSIONER WILSON: Thank you.
1932. Those are my questions, Mr. Chair.
1933. THE CHAIRPERSON: Thank you very much.
1934. I understand counsel have one or two questions to take us up to the lunch.
1935. MS C. PINSKY: No, actually I just have two questions.
1936. In your Phase Two subsection, CAB states that ISP should be required or should not be allowed to discriminate against or among Canadian sites and services in terms of access conditions and that when navigation technology is used, that the ISP should ensure that the content of Canadian services is given priority exposure to Canadians. I am not sure if I said that -- that the content to Canadian service is given priority to expose Canadian services.
1937. This suggestion is sort of made under the heading "Telecom Regulation". Do I take it from your suggestion that you consider that the Commission would have the authority under the Telecommunications Act to impose these type of obligations relating to the content?
1938. MR. P. MILLER: As usual, counsel, you have incisively found an area of some vulnerability in terms of our position.
1939. MS C. PINSKY: It was page 19.
1940. MR. P. MILLER: It is page 19 of Phase Two.
1941. First of all, I think if we can present dilemma before we trip ourselves up on the law, it seems to us a bit bizarre that under the undue preference provisions of the Telecommunications Act, ISPs will be able to ensure that carriers do not confer an undue preference and therefore that ISPs can get high-speed access and all that stuff. But there would be no protection for those that want access to ISPs.
1942. We note your exchange earlier today with counsel for American On Line as to whether or not the Telecommunications Act now, given recent amendments, provides some area for the Commission to deal with that and I will not, unless my colleague, Cynthia Rathwell, chooses to opine on that. But we think there is a potential tool under the Telecommunications Act and certainly our simplistic view of the two acts has always been broadcasting in a sense as carved out of the broader scope of services that are encompassed by telecommunications.
1943. Cynthia, do you want to add anything to that?
1944. MS C. PINSKY: Just to clarify what your response was. Specifically in terms of ISPs subject to the Telecommunications Act, is it your view that ISPs would be Canadian carriers?
1945. MR. P. MILLER: We have not take a view on that yet.
1946. MS C. PINSKY: Another area where I noticed you did not necessarily take a view was on the broadcasting side of the house. In your Phase One submission you discussed what you meant by the term "new media" and you stated that -- and this is at page 3 at the beginning of your submission:
1947. "That the new media that concern us..."
1948. This is a quote:
1949. "...here are therefore mass oriented entertainment and communications whose content is substantially similar to or directly competitive with that of conventional media."
1950. I guess first I would like to clarify whether you would characterize digital television and digital audio as new media? I might as well ask my follow-up question to there is sort of if you could generally clarify then what types of these new media services would be subject to the Broadcasting Act?
1951. MR. P. MILLER: In terms of the first part of your question, we think digital television, digital radio and the Internet are all electronic platforms for new media. We hope that the diagram we showed in our presentation gives an indication of the strengths they come from and what they can gravitate to.
1952. In terms of jurisdiction, the CAB chose not to opine on whether or not many of these services are broadcasting. We chose that for two very particular reasons.
1953. First of all, given the broadness of our membership base, from the smallest of radio stations some of whom may own ISPs, to specialty services whose majority holder may be a production company, you can imagine that there are huge differences in view. We therefore chose at this point not to put on the table a definitive point of view.
1954. The second reason we did that was simply a practical one. We felt that the issue of jurisdiction -- first of all you would hear from a lot of people and we do not think our legal views are necessarily stronger than anybody else that you would hear from. But perhaps more importantly we wanted to make proposals that were independent of jurisdiction. So whatever you decide, you can proceed with what we proposed.
1955. So to close on this because I threatened to use this term, we give considerable weight to a paper on the subject written by another former counsel to the CRTC, Sheridan Scott, who in presenting her paper, I believe, a couple of years before you presented yours, essentially said -- and I am going to twist that to today's circumstances -- that broadcasting is what Carolyn Pinsky says it is.
1956. What that means is that given the huge scope of the act it is conceivable that the Commission could choose to claim jurisdiction and it is unlikely as a matter of practicality that the courts would overturn that. So we leave you with that thought and we certainly will be listening to what intervenors have to say through this proceeding and we may well be more definitive in oral or written argument.
1957. But we would leave you also just with one other matter and that is that this whole area of is new media broadcasting, has interesting consequences, both for trade law which has been raised, for copyright and for labour law. So in a sense one argument that could be made is that this calls out for some government involvement because it is not just a matter for the CRTC. The decisions that are made will affect potentially all those four areas.
1958. MS C. PINSKY: Thank you very much. those are all my questions.
1959. THE CHAIRPERSON: Thank you, counsel. Thank you very much, ladies and gentlemen. That concludes our questioning for CAB.
1960. We will take our lunch break now and reconvene at 2:30.

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--- Upon resuming at / Reprise à 1322

1961. THE CHAIRPERSON: Order please. I apologize for being a few minutes late. It is sometimes hard to run a hearing and conduct business at the same time.
1962. Madam secretary.
1963. MS SANTERRE: Thank you, Mr. Chairman.
1964. The next presentation will by Rogers Communications Inc.

PRESENTATION / PRÉSENTATION

1965. MR. K. ENGELHART: Thank you.
1966. Mr. Chairman, members of the Commission, I am Ken Engelhart, Vice President, Regulatory Law, Rogers Communications Inc.
1967. To my left is John Tory, President of Rogers Media. To my right is Brian Segal, Vice President, Rogers Media. In the back row, to my immediate right is Nyla Ahmad, Director of Content, Rogers New Media. Beside Nyla is Mike Lee, Vice President, Technology and Business Development, Rogers New Media. Beside Mike is Alek Krstajic, Vice President and General Manager, Rogers@Home. On my far left in the back row is Hugh Stuart, Managing Director, @Home Canada. @Home Canada, as you know, is jointly owned by Rogers, Shaw and Cogeco.
1968. Rogers is a leader in the emerging broadband Internet access market. We pioneered the introduction of cable modems in Canada. Today, through Rogers @Home and @Home Canada, we offer consumers a superior Internet access service that combines the high speed and high capacity of broadband with unique Canadian new media content.
1969. However, Rogers is more than just a distribution company. Rogers Media is actively involved in the radio and television broadcasting industries and is a major Canadian publishing company. Rogers Media has built its business on creating opportunities for Canadians to tell Canadian stories and our strategy is the same in new media.
1970. MR. J. TORY: We believe that Canadians want and need outstanding, state-of-the-art Canadian new media services that inform, entertain and enlighten. These online new media products require significant investments, but we believe that we can build a strong business by serving Canadians.
1971. Our existing content resources provide a firm foundation for the creation of high quality, competitive Canadian new media services that present Canadian ideas and reflect Canadian values and that is exactly what we are doing.
1972. Of course, we also are thinking globally. We have partnered with various international companies to gain access to the best software and new technology or to benefit from an association with an industry-leading brand name but always with the goal of maximizing the market presence and consumer attractiveness of the Canadian new media content that we provide.
1973. We have prepared a short presentation that highlights the active involvement of Rogers in the Canadian new media industry.

--- Video presentation / Présentation vidéo

1974. MR. J. TORY: We are excited about new media services because they involve much more than just making the print version of a publication available in an electronic format.
1975. As you saw in our video presentation, Macleans, in partnership with the Writers Development Trust, has invited members of the Canadian literary scene, such as Susan Musgrave, Richard Van Camp, Ann Ireland and Andrew Pyper to post thought-provoking pieces on its Web site and to moderate an on-line discussion. This month, for example, there are two pieces by Esta Spalding, entitled "Poetry and Television" and "The Cost of Imagination".
1976. The "Writer in Electronic Residence" forum uses the strong market position of the Macleans brand to extend a program originally targeted to students to all Canadians.
1977. The creation of exciting Canadian Web sites is just the first step. Like companies around the world, Rogers is actively seeking other new and innovative ways to take advantage of synergies across the content distribution chain. For example, Macleans TV is a half hour public affairs program that appears weekly on CTV. It reflects the content of the upcoming Macleans magazine. Rogers also has applied to the Commission for licences to launch Chatelaine TV and Today's Parent TV.
1978. We believe that the ability of larger integrated media companies, such as Rogers, to amortize the cost of producing high quality Canadian content across a number of different market segments is critical to the development of a strong and successful Canadian new media industry.
1979. MR. K. ENGELHART: We have the following general comments on the three key issues identified by the Commission.
1980. First, we believe that it is too early to draw any firm conclusions with respect to the potential impact of new media on conventional media.
1981. Second, we do not believe that all new media services necessarily fall within the purview of the Broadcasting Act. To the extent that some do, we believe that the Commission should adopt a very light-handed regulatory approach through exemption orders.
1982. Third, we do not believe that it is necessary at this time to establish additional new media funds. However, if such funds are to be established, they should not be based on a special levy on Canadian Internet access service providers. Such a levy would inhibit consumer access to the Internet by increasing prices and would impair the ability of the industry to deploy infrastructure.
1983. Mr. Chairman, members of the Commission, that concludes our presentation.
1984. We look forward to any questions that you may have.
1985. THE CHAIRPERSON: Thank you, Mr. Engelhart, Mr. Tory.
1986. For those questions I will turn to Commissioner Grauer.
1987. COMMISSIONER GRAUER: Thank you. Good afternoon, gentlemen.
1988. My first question, I guess, is related to your role as more than just a distribution company and the fact that you are an integrated company actively involved in radio television and publishing.
1989. We have heard a lot here, and this morning, in particular, about really, the potential impact on traditional media of new media with respect to the advertising market. I thought that you as a company are uniquely positioned to maybe comment on the advertising industry in Canada and what are the trends emerging there? How is it impacting on your existing businesses and how do you see it, the role it is going to play in new media?
1990. I know that is a very general question but I thought you might have some unique insights.
1991. MR. K. ENGELHART: I am going to ask Brian Segal to answer that question.
1992. MR. B. SEGAL: I listened to some of the comments that were made earlier by the Canadian Association of Broadcasters and would certainly echo a number of facts that they brought to the table which in themselves I think reinforce essentially the nascent nature of the industry.
1993. We have -- the data that CAB put up actually does reflect the current state of the advertising market in Canada, the 1998 projected numbers for advertising spent on the Internet in Canada are approximately 27 million and that has been produced by the Internet Advertising Bureau of Canada. The projections for 1999 are somewhere between 35 and 38 million.
1994. As you saw earlier that in the US market it probably will break a billion in '98 and grow further in '99 so that one of the questions is generally speaking we run about 6 per cent. The advertising spend in Canada is about 6 per cent of the advertising spend in the US and obviously we are currently running substantially about that.
1995. So the question is why and is that likely to remain stable or is that likely to change.
1996. There is no magic formula as to why we seem to be running behind. The best evidence that we can bring to bear essentially suggests a number of factors. One, that in the US, Internet spending is finally making it on to media plans, media buy plans. It has really yet to make it on to media buy plans in Canada. To the extent that it does not make it on to media plans in Canada, that means that the amount of discretionary income available for experimentation in the Canadian marketplace is not high particularly relative to the American marketplace.
1997. So in the US marketplace, two things are happening. One, it is beginning, not for all clients but for some of the larger clients to make it onto the media plans and there is a whole group of other clients in the US that are experimenting on the Internet. When you have a client that spends a billion dollars of advertising in the US market, to take 25 or 30 million of that to experiment does not have a significant impact on their overall spend but the availability of that in Canada is much lower.
1998. Having said that, our view would be that over time, the Canadian marketplace for advertising for direct response advertising for sponsorship will continue to grow. The question, obviously, is at what rate will it grow? Will it ever essentially catch up to the spend in the US marketplace? I could not answer that but our view would be that over time, as the Internet captures more and more users and greater audiences, that it will start to attract similar kinds of numbers as in the US.
1999. MR. J. TORY: May I just add one thing to that Commissioner, and that is that we have decided not to wait for that day to come. We have decided to invest in this area. We see our job and our role as the content part of our company or just as a content company as a stand alone basis as to package content and make it available. As we started to see people and as we continue to see people migrating to the Internet, whether they be people who are migrating away from our other products which we don't frankly see too much of at the moment or just people who happen to prefer to get their information online, we are repurposing that content and putting it online and selling advertising online as well. So that we are, as opposed to waiting for the market to develop, we have made the investment in repurposing the Canadian content. We are selling the advertising and frankly one of the advantages of an integrated media company is that you can sell the advertising in an integrated fashion. You can go out and offer advertisers a package of properties and say that you can reach them anywhere they happen to get this content, whether it is on the Internet or in a published product or on a radio station. It is one of the advantages that allows you not only to sell the advertising in that manner but also to amortize the cost of the content in many cases over the different businesses which makes it more economic to produce more Canadian content.
2000. COMMISSIONER GRAUER: So are you doing that? Then you are packaging your products and selling them as a package --
2001. MR. J. TORY: Yes, we have two people whose job it is to coordinate the activities throughout all of our properties, broadcasting, television, radio and the Internet in selected instances. We do not do it for every client every day but we are doing it obviously because we think it makes business sense for us but also because we believe it will help to introduce, for example, our Internet services to the advertising community and to try to increase their support and as they increase their support it will strengthen our ability to produce more content in that area and to pay for more Canadian content across the board.
2002. COMMISSIONER GRAUER: Mr. Segal, when you said that Canada runs 6 per cent behind, do you mean with respect to the size of the advertising market in total?
2003. MR. B. SEGAL: Sorry, to clarify, what I meant was that the total advertising dollars spent in the Canadian marketplace is about 6 per cent of the total advertising dollar spent in the US markets.
2004. COMMISSIONER GRAUER: On a per capita basis?
2005. MR. B. SEGAL: On a per capita basis.
2006. COMMISSIONER GRAUER: Yes. So if in fact they are ahead of us in the United States with respect to the amount of advertising that is taking place on the Internet, are there any trends there that we can learn from with respect to -- is there any migration taking place from what would have been other vehicles? Is the total pie growing? I mean, is there anything we can learn from that?
2007. MR. B. SEGAL: I guess in the last number of years, because of the buoyant nature of the economy, the pie has been growing. Whether you could attribute it to the fact that economy is more buoyant and there are more clients and customers, companies that wish to advertise or the expansion of the economy, I think it is probably a variety of factors.
2008. One of the things we can -- a number of things we can learn from the American environment is that increasingly, we are seeing a number of collateral trends to the advertising spend. One is increasingly advertisers are looking for, because it is more a mature market, they are looking for greater value from their spend in the Internet and they define greater value as reaching more targeted audiences and getting more activity from those audiences as a result of the advertising. So we are also seeing an increasing trend towards personalization in the content side of the products that are being offered so that people can get to the content they want more quickly. I think we are also seeing more targeting, if you will, in terms of advertising buys so that it is not just buying run of site but it is saying, "Well, we are going to buy the automotive part of the site and we want to go after a vertical site like personal finance and focus in our dollars there."
2009. So it is not dissimilar from what happens, if you will, in traditional media where there is mass vehicles and there are vertical vehicles.
2010. COMMISSIONER GRAUER: So I guess it is possible then that this could evolve -- I realize it is far too early to say, but could it evolve as an additional vehicle for advertisers as opposed to replacing one with another?
2011. MR. B. SEGAL: Our hope is that is what will happen. There tends to be -- it is the same issue that you struggle with when you say, "Well, now that you have got the Internet plus television, radio, magazines, newspapers, et cetera, where do we find the time to use all of these media?" By and large, people continue to find the time to use all of that media. So our sense is that yes, you will see a growth. You may actually see some migration.
2012. I am not sure it is going to come from traditional media. If, for example, the Internet becomes as it is, a more effective direct response media, then you may see dollars coming out of the direct mail direct response budgets rather than the traditional advertising budgets.
2013. COMMISSIONER GRAUER: Thank you.
2014. Along those lines, I know that you stated that is premature for the Commission to establish mechanisms to try and manage these uncertain and not yet fully developed new media services. But let's assume that the Commission felt that we needed to monitor the ongoing impacts of the new media on traditional media.
2015. I would appreciate hearing your views on what we might monitor and how we might determine when the impact of new media on traditional media became significant enough to warrant a second look at this area.
2016. MR. K. ENGELHART: Well, i guess we think that people are going to continue to watch TV and continue to listen to radio so the concern, I know, is that radio and television will be broadly distributed on the Internet and the point that we are making in our brief is we do not think that is going to happen all that quickly.
2017. The CABs brief created the impression that this was a fairly imminent development but when you listen to their presentation and read their brief, they were very upfront about the fact that there was some serious technological developments that have to take place first. The Internet is going to have to become a lot more broadband and as they said, it is going to have to move from a point to point transmission, like to a point, the multipoint or broadcast mode.
2018. When you listen to Internet today, each and every person that is on the Internet listening to the radio is getting a unique stream of packets coming to their computer. A radio station needs a T-1 line for every 75 listeners, approximately, around the globe. Most radio stations only have a T-1 line. A

T-1 line costs about a thousand dollars a month. This is niche service right now. It is not an economical way of distributing radio. That may change. You know, I am not going to sit here and tell people to just don't worry about technology because nothing is going to change. Of course things might change but we have some serious technological developments before we get there.

2019. Once we overcome those technological barriers, there is business case issues. I mean, radio, as the CAB pointed out, gets their money from local advertising, having more listeners in Peking doesn't help you much there. So there is business case issues. So we think that the arrival of radio and television in a cost effective way on the Internet is far enough in the future that it shouldn't really drive policy today.
2020. But I agree with you completely when you say that the Commission has to be attuned to this and has to monitor it and has to watch the situation. I guess the first thing I would recommend is that you do watch those technological developments very carefully. See if Internet radio and Internet television move from beyond being sort of poor quality services to becoming good quality services and you will see when that happens that the advertising dollars start to go with it.
2021. Beyond that, I am not sure that there is that much value in monitoring the growth and scope of the kind of new media products that you saw on our video here because as Brian said, we do not anticipate a huge migration of advertising from traditional media to those sort of products. We see them co-existing.
2022. I don't know, John, if you want to --
2023. MR. J. TORY: I would only add -- of course, Ken meant to also say that we hope people will continue to read magazines as well as watch TV and listen to the radio. The publishing side of our house would be unhappy if we didn't mention that.
2024. But I think that the other thing that obviously you would want to watch and which we don't believe is a problem at all at the moment is if there was in any way some diminished level of production of new Canadian content in the new media area. I think when you look at the reason why in Canada we regulate things on the broadcast side, it relates to the desirability of, as I think the CAB mentioned this morning, ensuring that there is a substantial amount of Canadian content available to Canadians.
2025. Secondly, that there are in the broadcasting area, limitations on the spectrum as to how many channels there are to put that Canadian content through.
2026. In this case, meaning new media, there seems to be no shortage whatsoever, in fact, there is a huge supply that is updating itself every day of Canadian content. One of the search engines advertises that it has 15 million pages of Canadian content on its service alone.
2027. Secondly, of course, there really are no technical limits theoretically on the number of new media services that can be developed at any given point in time and put on to the Internet, unlike conventional broadcasting where there are definite limitations.
2028. So I think that those things are unlikely to change, just given the nature of the Internet and I think that the existence of those two sets of circumstances distinguishes it perhaps from other areas that the Commission has responsibility for.
2029. COMMISSIONER GRAUER: You know, let's for the sake of this discussion, assume that we were to choose to not intervene in any regulatory way in the new media activities, that we were going to watch and see what was happening and how the market developed, that what we are going to need to do is monitor the effects on the industries we do regulate with respect to reviewing perhaps that regulatory framework.
2030. Now, what are the things you think we should be looking at? Is looking at advertising revenues sufficient or are there other things we need to be considering or is it just -- the reason I am curious is -- well, if you have anything to add -- if in fact there isn't going to be a migration from the traditional media as this new media grows and if then, it is not an issue frankly.
2031. MR. B. SEGAL: The landscape -- none of us have a crystal ball but the landscape is likely to change. One of the revenue streams that we didn't talk about today on the Internet deals with commerce and we conceive today of the Internet not exclusively as a publishing medium but as an information medium and the medium for the transaction of business. That will transform over the next number of years. That could have interesting implications for traditional media, whether that be broadcasting, newspapers, outdoor magazines, et cetera, to the extent that if more and more retail business is conducted on the Internet, then what you may end up seeing is you may end up seeing radio advertising retail Internet sites or advertising retail products available on Internet sites.
2032. So it may not actually change the economics because one of the real issues ultimately is that I think that the evolution of commerce on the Internet and the ability to conduct normal business that one does in other ways on the Internet, if one just looks at the plethora, for example, of banking activities that are currently available on the Internet, and that will grow over time, is that perhaps not the amount of advertising but what is advertised. It might actually change because you have this massive aggregation, if you will, somewhere on all of these servers of thousands of Web sites and the marketers need to get their products, i.e., the Web sites understood and how to find them and how to use them out to the public which is actually no different than a store front, if you will.
2033. I just think that you will some of that migration. I don't know whether it will have a negative impact on revenue however.
2034. MR. J. TORY: Just one last thing. I think it sounds "clicheish" to say it because it is always said but when radio came along it was going to be damaging to the print business and when television came along it was going to be damaging to radio and so forth and so on. I guess parallel to that is the argument that is often advanced with regard to new entrants that come in and compete in a sector and it has been proven many times, I guess, that often one of the impacts can be a growth in the overall level of activity, whether it is advertisers or people phoning or doing whatever they are doing.
2035. So I think we would only add to advertising revenue, I suppose, on the list of things you might look at, what I will call media habits of Canadians which include consideration of viewership, consideration of readership, but I think, unfortunately, we know and you know from watching this business that these changes take place over fairly long periods of time. I mean, very rarely do things happen suddenly where things go up or down in large measure in a year or two years but I think that those kinds of things, the media habits of Canadians would obviously be something worth monitoring, to be responsive to your question.
2036. COMMISSIONER GRAUER: Thank you.
2037. Another subject that is of considerable interest and has been talked about quite a bit is the role of marketing promotion and branding. Again, as an integrated country that is both an advertiser and owner-operator companies who depend on people advertising in your vehicles, so I would appreciate your comments on that. The only thing I would add is that further, to a comment this morning from the CAB when they said, "packagers and marketers are king," it seemed to me to say when we are are in a world of limited choices, I don't think marketing packaging and branding are that important but in a world of rapidly expanding choices and maybe unlimited choices, that the reverse is true, that those -- it seems to me those factors become fundamental to and essential to success, I wonder.
2038. MR. J. TORY: I might start off only by saying that I would agree with that and that we believe again it is one of the advantages that one has operating in an integrated circumstance whereby not only do you have two or things that are kind of resident inside a company that has other properties other than new media, namely established brands, publishing and packaging and content development skills and the ability to sell advertising, the ability to organize content.
2039. But you also have an opportunity to kind of cross pollinate inside that organization and thereby, as I mentioned earlier, amortize the cost because one of the key inhibiting factors in terms of the production of Canadian content that is competitive with what is coming from in the world of unlimited choices, a lot of foreign services is that we make sure that we have, yes, a whole range of Canadian content from one end to the other but that we have enough of the high quality, the particularly high quality and sometimes by definition that means more expensive content that is available on these other services and that involves the investment of money which is more difficult. I mean, like everything else in this country, more difficult in a smaller market.
2040. So I think that it is not only the ability to have the brands. I mean, for us to have, whether it is the MacLean's brand or the Medical Post brand or l'Acualité or any one of these different brands in the publishing side, to be able to help us to take content in various forms onto the Internet is immensely helpful to have the marketing expertise that you have inside a media company to do that which many of our -- all of our colleagues in the CAB and other places have is helpful.
2041. To have the packaging skills is essential because it is just another way of packaging content on different medium. So I think that you are right. I mean, those are going to be essential skills in order to take Canadian content to the fore and cause Canadians to want to go and look at this content because they find it compelling and interesting.
2042. COMMISSIONER GRAUER: It was interesting. We had IMAT here yesterday, Keith Cocho from Digital Renaissance, and one of the things that certainly they raised with us is the importance of promotion marketing branding, how expensive it is when -- it is one thing to develop a product, it is quite another to be able to market it, promote it, brand it because it costs a lot of money, and how difficult it is for these emerging young companies to access capitol.
2043. Now, they have identified that as a problem and also talked about the need for a variety of tax incentives, perhaps some funds that can really put them on an equal footing to a lot of other industries in Canada, film and television for one.
2044. I know that in your submission, you have really refrained from supporting any sort of additional tax incentives for new media and have limited your recommendations to supporting amendments to the Income Tax Act, I think, to allow Internet advertising to be deductible.
2045. So I am wondering if you sort of can give me any comments in that area.
2046. MR. K. ENGELHART: I guess we see the new media as being in a very powerful way, fundamentally different from the old media or the traditional media and we think there is a fundamentally different economic model because of the different costs of distribution.
2047. In a conventional media product you had real difficulties once you have written your book or prepared your magazine, you have got -- printing costs are very high, distribution costs are very high, the cost of preparing and distributing a motion picture or television program are very high.
2048. New media is not like that. You develop your software or you develop your product, you stick it on a server, you let all the search engines know that you are there and you have got a worldwide distribution.
2049. That is a fundamentally different proposition than the traditional media and I think that is one reason why you find such a proliferation of entrepreneurs on the Internet doing all sorts of exciting things, not to say that entrepreneurs do not have a tough time of it, even with those reduced distribution costs but we believe that fundamentally different economic model is one reason why we may not need to have the same kind of funding and the same kind of protections as we have had traditionally in the cultural industries.
2050. I am going to ask John Tory to add a little bit to that and then perhaps Brian.
2051. MR. J. TORY: Two thinks, I think, Commissioner.
2052. First, we are trying to do what we can to identify and promote other Canadian content not produced by ourselves.
2053. For example -- Nyla may wish to comment on this -- we have a person working in Yahoo Canada who spends a lot of their time searching on the Internet, surfing and looking for Canadian content that should be added what we hope is the broadest possible array of Canadian content that we have in our directory.
2054. We have a person who is working basically on a full-time basis for Electric Library Canada, trying to source new Canadian content to add to that archival service.
2055. I think if you add to that fact, which is a small contribution we can make to help others, and it also helps our own business but it helps others to get that content in the window, as it were, if you add to that the fact that there is a funded place that has only been around, I think, for about a year -- I am referring to the telefilm multimedia fund and I think that a large portion of that funding is to be available for promotion of Canadian content and I believe it is correct to say that those funds are not available to people like us. We kind of looked through the papers and didn't see any invitation whatsoever for us to apply because we were hoping we might find some modest invitation there but there wasn't any. So I am assuming it is meant for people who are smaller than us.
2056. I think it is too early to say whether that fund is too much or enough or whether it is directed in the right way because it has only been around for a year and I think perhaps after the fund has been in existence for a period of time, it will be appropriate at that time to see if there are other mechanisms that are necessary and whether this fund is good enough or not good enough and so on. But we think at the moment that it certainly seems to be directed to the right people and a lot of it directed to the promotion of this content that people are producing today.
2057. MR. K. ENGELHART: Nayla, why don't you add if you want and then Brian.
2058. MS N. AHMAD: Yes. I mean, I agree with what John is saying that there is a wealth of Canadian content on the Web right now and we see it every day.
2059. I mean, in the case of Yahoo Canada, we quite frankly just can't keep up with the amounts of Canadian sites that we discover and keep adding them to the directory fast enough.
2060. In terms of promotion, it is quite ironic in some senses that the nature of the network itself, of the Internet being a network of networks, it is fairly -- it is easier to promote yourself within the Internet than it is in traditional medium because if you are proper listed in search engines and the nature of the network of sites linking to each other, if your site is a site that has really good content, the cream on the Web seems to rise to the top.
2061. I think it is part of the difficulty is really knowing how to promote yourself on the Web. The sites that are discovered by our Yahoo staff, I mean, they don't have any more or less dollars than the next person building a Canadian Web site and they do get noticed.
2062. COMMISSIONER GRAUER: Thanks. I am going to come back to this.
2063. What I would like to do is actually talk a little bit about portal search engines and content aggregators and I am not quite sure I understand where all the lines are between all of them.
2064. So I guess my first question is about Yahoo. If I chose to search Canadian sites, it will give me all the Canadian sites. How are those sites prioritized? Is it just random or is there any --
2065. MR. B. SEGAL: Unlike other search engines, Yahoo has classification experts that actually do an analysis of the content of the site and based upon the sites that come to either .ca or .com, there are classification experts that look at the sites and say, "Oh, that belongs under education or that belongs under women and that belongs under both, as an example.
2066. It is essentially then put into the data base on the basis of how it is classified so that when you search it, depending on what your query was, it will always try and get you closest to the query that you raised. So it is not as if there is some built in priority system. It is really a function of -- it drives off key words so it depends on the key words that you put in that would tend to bring up -- that would closely match.
2067. MR. M. LEE: Actually, within the Yahoo Canada service there actually is a segmented component of the data base that is just exclusively Canadian sites so that you can actually request only Canadian search results come back or that they be weighted and come back first before you get out to the broader end of that.
2068. The way the search engine works basically is beyond the search of the directory structure within the Yahoo environment, it actually goes out to a second search engine which then basically does a search against -- if it is a single word it tries to understand how many times that word appears on that destination page and the more times it appears, the higher it gets weighted. Or if it is a multiword sentence, the proximity of the words, so if they are right beside each other, it is a better match than if they are further away.
2069. COMMISSIONER GRAUER: Thank you.
2070. With respect to your portal or content aggregator, you sell advertising on those sites and presumably there is another rationale for people to find themselves prominently displayed on, I don't know, I guess the @Home or one of these home pages. What I am really trying to get at, we have had some concerns expressed about the possibility of high charges for prominent placement and the possibility of ISPs acting as gate keepers in this respect. I am just trying to get a sense of is this an issue now in terms of how you choose what is --
2071. MR. K. ENGELHART: We are very grateful for that opportunity because I think that there were some confusing things said about that yesterday. I am going to ask Brian to answer that question with respect to our properties generally and then Hugh may wish to add with respect to @Home.
2072. MR. B. SEGAL: The current situation is actually quite the opposite of the concern. The new media -- our new media group will spend literally hundreds of thousands of dollars this year buying content of every sort and it is all Canadian. So whether it is from Canadian press or whether it is from Canex or whether it is from the weather service or a whole range of other services, we are actually paying substantial amounts of money for content. So that is the current situation. I don't --
2073. COMMISSIONER GRAUER: So you buy this content to go on your sites and -- like give me an example of what you purchased, for instance.
2074. MR. R. SEGAL: Well, for example, if you go to the news component of Yahoo and you go -- it's Canadian news, well, you are getting a Canadian press news feed. We pay for that news feed. If you go to the Quicken site and you go to the mutual fund performances or stock quotes, those are all feeds that we pay to access and there may be -- Michael may have some other examples of areas where we do that.
2075. COMMISSIONER GRAUER: No, that is good and what I was curious then is -- and then your revenue comes from the selling of advertising on that site?
2076. MR. B. SEGAL: Correct.
2077. COMMISSIONER GRAUER: Okay.
2078. MR. K. ENGELHART: Commissioner, if I could just maybe provide a little bit of clarification.
2079. If you take a look at a typical portal site which is something like a search engine is a good example and Yahoo is a good example of a search engine and I am going to ask Mike to speak after I am done because I am probably going to make a mistake but there are sort of three things going on there.
2080. One is the search engine itself which has been described to you how the query results in the certain Web sites being pulled up.
2081. We put each and every site that we are aware of on that search engine. Nothing gets excluded, nothing gets left out. We don't pass judgment on them. Some of these are not recommended. We are putting them on. Nobody gets charged for that. That is something that we do free of charge. No one charges for it and I think if we started to charge for it, not that we have any plans for it, we would very soon whither away as a search engine and all the other search engines that we compete with would take the market.
2082. There is no effort whatsoever to tamper with those computer programs that Mike talked about in terms of giving anybody priority or lesser priority. It is all done mathematically based on word counts and based on the analysis by the human beings that Brian talked about.
2083. The second thing that is going on is there is on the Yahoo page there are other ways of getting at the sites. You can hit social studies or sports and you can find your sites. Again there, we are not excluding and we are not offering any sort of judgment as to what goes ahead of something else.
2084. I guess the final thing is to try and get people to come to the site we also have inducements that Yahoo, for example, there are games. You can play cards and whatnot online. As Brian said, we pay for a lot of the content that we put on there as inducements.
2085. So contrary to, I guess, the suggestions that were being made yesterday, we don't see these search engines in any way charging for this access or being able to impede access.
2086. I don't know, Mike, if I got that right.
2087. MR. M. LEE: I would just add that if we were to tamper with the search results and actually extract a fee for paid placement or paid weighting what it would do is it would bring into question the validity of the search itself and then people would go out to another search engine and use them. So it is actually not in our interest to actually do that.
2088. COMMISSIONER GRAUER: Yes. My question really about fees is more to do with sort of the content aggregation and portal role as opposed to search engines. I was just curious about how it sorted with search.
2089. I want to ask some questions about Rogers @Home. It is, what, a hundred times faster than narrow band and I know that it is still a fairly new service. It is available to 1.9 million of your customers. How many customers do you have at this point?
2090. MR. K. ENGELHART: I will ask Alek Krstajic to answer those questions.
2091. MR. A. KRSTAJIC: Commissioner, you are right in that it is approximately a hundred times faster. You are correct in the 1.9 million figure. Presently 1.9 million of the Rogers cable households are rebuilt for the two-way network and presently we have 35,000 subscribers to Rogers @Home.
2092. COMMISSIONER GRAUER: At that speed, is the quality of video transmitted approximately, the quality of traditional broadcast?
2093. MR. A. KRSTAJIC: I am going to actually ask Mike to answer that.
2094. COMMISSIONER GRAUER: Yes. It doesn't need to be exact.
2095. MR. A. KRSTAJIC: I am not sure whether it is a full 30 frames per second.
2096. MR. M. LEE: No, the quality of video images that are transmitted is not of broadcast quality at this point. Further to that, it is also only available in a small window size so it is not as if somebody would be in a comparative situation with a television screen.
2097. COMMISSIONER GRAUER: What about -- sorry.
2098. MR. K. ENGELHART: I was just going to say I am one of those 35,000 happy customers and I do look at the streamed audio. There is C-SPAN, for example, in the States has streamed audio. It is a tiny picture and it is a terrible picture, even when you are looking at it on the @Home service. That is why I was saying before, we have got a long way to go before this is prime time.
2099. COMMISSIONER GRAUER: I am just wondering if --
2100. MR. K. ENGELHART: Excuse me, Commissioner.
2101. COMMISSIONER GRAUER: Yes.
2102. MR. K. ENGELHART: Having said that, I am not sure I would describe it as a terrible picture, but --
2103. COMMISSIONER GRAUER: No.

-- Laughter

2104. MR. J. TORY: We have some way to go before it is prime time. I will agree with that part.
2105. COMMISSIONER GRAUER: I understand what you are saying.
2106. MR. H. STUART: Actually, with CBC NewsWorld in the room, I think it is quite a good picture.

--- Laughter / Rires

2107. COMMISSIONER GRAUER: Just to get back to my question about incentives, I am just wondering if the demand from your customers now is largely for primarily alpha-numeric services, news information and sports.
2108. I guess my question whether, when we move to a world in which there is going to be the ability with a higher bandwidth to receive full motion video, whether there is an expected demand for higher production values and a more expensive product. Do you see that?
2109. MR. K. ENGELHART: I will ask Hugh Stuart to respond.
2110. MR. H. STUART: I think right now the demand for the @Home service is based on speed and the other message that is being marketed is that you don't need a second telephone, that it is always on, that there is an economic value there.
2111. As the person responsible for building or managing the content experience for the three cable companies, it is important to note that the @Home experiences are based from a content standpoint on two things. One is that it is a gateway to information. If you hear of a Web site that is marketed to you -- I saw something for UK Access -- UK Connect, I should say, on a wall on the way here, you can find that. You can go to that.
2112. We have a search directory that you can use wherever you wish. We have a list of top sites that our editors and producers compiled so that it points people to useful Canadian information.
2113. Then by the structure of the service itself, it is organized into channels and our editors and producers are daily determining interesting stories and pointing people to useful information. That is pretty alpha-numeric. I mean, between that and offering financial services and offering wire service information and offering pathways to useful sites and information. That is pretty much a give. You have to have that.
2114. Now, our mandate is also though to provide value to people like Alek Krstajic to my right who is marketing the service to Canadians and from that standpoint, it is very important that we come up with content that has sex appeal for Canadians that proves the value of broadband access.
2115. So we are canvassing the Canadian Internet community, the community of developers and programmers trying to find content, multimedia content, interactive content that we think is of value, and where there is an economic model around it that proves its worth.
2116. In the end, is that broadcast quality to your question? We don't know. We are not seeing any evidence that we are near that position at this point. I do know that it will be rich. I mean, I think that it will be an interesting and new kind of experience. It is actually very exciting to be involved with but we have a long way to go, I think, before we are in the broadcast kind of realm.
2117. COMMISSIONER GRAUER: Thank you.
2118. MR. J. TORY: May I just add, Commissioner, that even in these early days, the investment by the three cable companies that are part of @Home in Canada in developing this content is very substantial, it is in the millions of dollars. Some of that is being allocated to working with partners like CBC NewsWorld and TSN and others to developing a multimedia application so that you can get whatever the quality of the picture may be, this video content available through the broadband service.
2119. It is also interesting to note that the advertisers have to make some investment too. If they want to take full advantage of the broadband platform to put their advertisements on, they have to make an investment as well because obviously they can't just run a television add per se -- or they could but I think it would be less effective. So that I think there are going to be investments -- there are investments required. We are making them because we believe it is not only good business down the road but it is a learning experience for us and we are only going to figure out how to make use of this platform if we try and do it now, but the investment is substantial.
2120. COMMISSIONER GRAUER: Thank you.
2121. Now, I have some questions with respect to the Broadcasting Act.
2122. Your position about whether or not new media services or new media falls within the jurisdiction of the Broadcasting or the Telecommunications Act appears to have evolved somewhat between Phase I and Phase II comments.
2123. Your Phase II comments to support those who have argued that much, if not all new media content falls outside the jurisdiction of the Broadcasting Act because it is not a program, not transmitted or is not for reception by the public. Is this an accurate --
2124. MR. K. ENGELHART: That is it exactly, yes.
2125. COMMISSIONER GRAUER: With regard to the Telecommunications Act, you appear to support the position that new media services are not telecommunication services within the meaning of the Telecommunications Act although the service is used to transport them are and therefore new media services will only be subject to regulatory oversight where they are provided by a Canadian carrier. Is that --
2126. MR. K. ENGELHART: Yes. I mean, the structure of the Telecom Act is it regulates the providers of transmission facilities so I think that obviously an alpha-numeric service or email service, that is obviously a telecommunications service but the Telecom Act only cares about the person providing the transmission facilities which, in some cases, the carriers providing the Internet backbones have been foreborn and in some cases they are still regulated.
2127. COMMISSIONER GRAUER: You take the position that if the Commission were to find that a regulatory framework is required, a light hand would be appropriate and you suggested the Commission could issue an exemption order exempting individually receivable transmission programs.
2128. Could you give me a little more detail and perhaps an example as to what this definition would capture and what the characteristics would be?
2129. MR. K. ENGELHART: Yes. We tried to come up with some ideas because if the Commission decides that well, they believe that the new media content on the Internet is broadcasting and if the Commission decides, "Well, we don't think we need to regulate it but we want to keep regulating what we are doing now in radio and TV," how do we draw a line? How do we somehow draw a line between new media and radio and television? It is not easy. I mean, you couldn't -- I don't think you could say, "Well, we are going to exempt the Internet because you are talking about a communications network based on IP packets."
2130. That might include a lot of different things. So we focused on the idea, it was the best idea we could come up with of individually receivable transmissions.
2131. That gets back to what I was talking about before with Internet radio. In traditional broadcasting, that radio transmitter sends those signals out to everybody. If a hundred extra people turn on their radios, you don't need to send out more signals. It is already there and everyone gets it. It is the same thing at the same time.
2132. Internet radio is quite different. I have an individual stream of packets that are coming to my computer and the way that audio streaming works, I will get that at a different time than John will if he is dialling in on his computer. It won't arrive at the same time. It is not simultaneous.
2133. So it seemed to us that idea of an individually receivable transmission might be a way that you could draw lines with the old and the new.
2134. COMMISSIONER GRAUER: Thank you. I just have two more questions.
2135. Some people have suggested that there should be requirements for ISPs to provide a preponderance of the links of their Web site, their home site for their subscribers to sites of Canadian content providers and that such links should be adequately and prominently presented.
2136. I am wondering if you could tell me if you think that is -- how that could be accomplished, whether it could be accomplished, and if so, how?
2137. MR. K. ENGELHART: I guess before I answer that, I would say it doesn't make a huge amount of sense to me, that recommendation, because I think it ignores the fact that we have a massive amount of content out there, in excess of 50,000 Canadian Web sites, probably in excess of 14 million pages of Canadian Web site information.
2138. As Tim Denton pointed out in his paper, it has spawned -- it may have been the Ellis paper -- I think it was the Ellis paper -- it has spawned a kind of "cooption". We advertise our competitors' products on our Web sites. I mean, there is a huge amount of content out there and the exercise is to try to help customers to get to it. So this idea that we would have some sort of mandatory referral service of ISPs referring their users to Canadian products, I think ignores the fact that there is a huge amount of Canadian product out there that ISPs are already referring customers to.
2139. So I am not sure that the idea makes that much sense and the problem with mandating it is now we get into a whole regulatory structure of telling people what to do and figuring out if they are complying when I don't think there is a problem.
2140. And I guess to illustrate, I might ask perhaps Hugh, perhaps Nyla to talk about some of the things that we are doing at some of our sites.
2141. MR. H. STUART: Sure, Ken, I will start.
2142. I think the good news is that the market is driving us to offer access to that kind of information anyway. This is democracy, this is the free market and what you find in this medium and what I found at "canoe" where I was producer before coming to @Home Canada is that your users are driving what you do. I mean, your users are only a mouse click away from telling you that you need to put up more CFL on your site or you need to offer local movie listings or that you need to offer links to what hours the library is open. I mean, I think that that is driving a lot of what @Home as an ISP is doing.
2143. In terms of how the interface works, any number of sites from our search engine to our top sites guide to our channel pages, are being highlighted every day on the service. It is a mix that is changing. I think that to Ken's point, I mean, we are making life easier for Canadians and we are stimulating the Canadian Internet marketplace, content and creation marketplace at the same time.
2144. MS N. AHMAD: I would also just like to add further to that is the idea of mandating ISPs to put a certain amount of Canadian content upfront meaning that when the user would log onto the net they would see this collection of content up there. It is a little bit backward because I think Canadian content has to be where the people are and it is important that we understand what Canadians want to do online. So if Canadians, an overwhelmingly large amount of them are going online to book their flights, we need to make sure that there are Canadian travel sites that are there. If they want to go and track a portfolio online, we have to make sure that there are Canadian stock portfolios there.
2145. So mandating a collection of Canadian sites in front of the face of Canadians is something that we have learned is not what Canadians want. Canadians, yes, they want Canadian content, but they don't want it to stand in the way of them getting access to international content. They particularly want Canadian content in areas where they need they need the relevancy or they need the Canadian context. So I think it is more important for us a group to really understand what do Canadians want to do online. For each and every activity, the functionality that they are doing, we make sure that we have a Canadian offering.
2146. COMMISSIONER GRAUER: Thank you for that. I don't think anybody was suggesting that access to other sites would be denied and I think the answer to my question is that there is no necessity for that given the demand of Canadians for Canadian information and sites.
2147. I think that some of these suggestions flow from the concern which is related to the suggestion that there are going to be vast amounts of money paid for sites on ISPs and that perhaps a large American advertiser could purchase for millions of dollars -- the sites on the Canadian Web site. So this, I think, is what has driven a lot of these concerns and I think it is very useful to hear that this business is consumer driven and that what the consumers want is access to local information, if this is what you are telling me.
2148. MR. J. TORY: It is exactly the point I was going to make which is that the business case for this, if you look at it from the standpoint of our own self interest is driven by Canadian content. We are not going to make a business out of offering people foreign content on our services. They can get that themselves by going to those sites on their own. They don't need any help from us and many of them do. But the business case for us is to be made by making sure we make Canadian content the kind of relevant local content that Nyla and Hugh have talked about, available to them, and that is where we get a business because otherwise we really don't have one. I mean, there is no business for us offering a foreign content which is offered elsewhere.
2149. MR. B. SEGAL: Just back to the point, Commissioner. I think you made a superb comment that power has shifted. If you look a the historical marketplace, the marketer, the brand, the new innovation had all the power. If you look at kind of a contemporary marketplace, the channel had all the power. If you look at the new marketplace and the new media is the new marketplace, the customer has all the power.
2150. As people who are trying to respond to the Canadian customer and the Canadian customer's needs, what we don't want to do is put up what we think they should have because they won't buy it. We have got to respond to what they want. That is just the nature of this marketplace.
2151. The good news, by the way, from our point of view, the good news as my colleagues have said is they do want timely, interactive Canadian content but they don't want to have obstacles to look for other content. So I mean if a woman is looking at health sites in Canada to get more information about breast cancer and she wants to see the Canadian sites first, she doesn't want to have to go through hoops when she has done that to find other sites in the world to be able to get other information.
2152. COMMISSIONER GRAUER: Thank you. I have one last question for you, Mr. Engelhart.
2153. What I would like is your general thoughts on an area I believe you are familiar with due to your participation in various telecommunications proceedings.
2154. As you know, the current telecommunications regulatory framework distinguishes between resellers and facilities-based carriers in various ways, including the fact that various interconnections and other arrangements are now available to carriers and not to resellers. Many ISPs, of course, operate on a resale basis.
2155. What are your general thoughts on whether such distinctions continue to be appropriate in a new media environment? In your view, would the provision of access by Canadians to new media services in the development of new media generally be facilitated if ISPs have access to arrangements now available only to carriers?
2156. You don't have to answer it.
2157. MR. K. ENGELHART: Let me just start off by saying that just to muddle matters a bit, I know there are some in the ISP industry who take the view that they are not resellers. They take the view that they are even less than a reseller. They are like a customer so in the same way that a florist shop will use a telephone line to wire a request for a floral arrangement to a distant city, some ISPs and their legal counsel take the position they are not even resellers. They are just simply customers who happen to use phone services as part of offering their business.
2158. I offer no opinion one way or the other but I am just letting you know that that view is out there.
2159. The interconnection arrangements that are available for facilities-based carriers would involve -- collects data and various interexchange carrier or long distance arrangements although the long distance arrangements are all pretty much available to resellers as well as the facilities-based providers.
2160. So the only interconnection arrangement that would be available to a facilities-based provider that wouldn't be available to an ISP would be to become a CLEC or a local exchange carrier.
2161. I do not believe that providing a PST and gateway is currently a major issue for a lot of the Canadian ISPs. I don't know of anyone who is doing it. If a Canadian ISP did want to do it, I suspect that there are ways that they could provide that PST and gateway without being a CLEC so I suppose the only sense in which there could be a problem with their reseller status would be if you had a non-Canadian ISP that wanted to offer a local exchange services as part of their offering. They might need access to interconnection arrangements that are not available to them. That is the only time I could think of it.
2162. COMMISSIONER GRAUER: Thank you Mr. Engelhart.
2163. I am finished with my questions but if you have anything to add in closing?
2164. MR. J. TORY: Only to say that we view the opportunity to produce and develop and acquire and package and put out Canadian content as a fundamental part of the continuing sort of mission that we have had as company, the media company inside of Rogers. Somebody used the expression about betting the farm on this this morning. We haven't bet the farm on it but I would say that we have probably placed a modes mortgage on the barn at the very least because we believe it is necessary to do it and to step up and do it now in order to make sure that Canadian content is properly represented on a medium that is growing.
2165. We believe that probably some of the things we are doing are going to be successful and some are not but that it is important that it be done and we think it is easier for us to do it as an integrated media company because of some of the advantages that gives you in terms of amortizing costs and integrating your advertising sales and so on.
2166. So that we think that the industry is working now. There is a huge amount of Canadian content being produced at all different levels of all different kinds and I am sure there are shortcomings in some areas and I am sure that the market forces will rectify those. We think that the best thing that we could all do for the moment is probably to let those market forces continue to operate to let people, all of the people that have come in front of you and many others continue to invest. Some will make mistakes, including us, I am sure, but all in the cause of making sure that Canadian content is available to Canadians.
2167. As I said a moment or two ago, the compelling business case is there for people that are going to be in front of you to make that content available because there is no business case for really making foreign content available. We are going to continue to do that. We are going to continue to make those investments, probably not betting the farm, maybe increasing the mortgage a bit, and we hope it will pay returns in two respects.
2168. One is we want it to be a successful business and we view these things as viable profit making businesses down the road; and secondly, because we think it continues the mandate that we have fulfilled in many different ways, publishing, television, radio and so on of providing Canadian content, making Canadian stories available and so on.
2169. So we will continue to do that and we look forward to being back here another time to tell you of what we have done since we were last here today.
2170. COMMISSIONER GRAUER: Thank you.
2171. THE CHAIRPERSON: Before you leave, I think counsel has a couple of questions.
2172. But just a quick follow up. In answering Commissioner Grauer's question about the flows of money here and dealing with the issue about whether or not people pay to get on the service and you mentioned that you would pay to acquire the use of content.
2173. What is the nature of the contractual arrangement you have with the content seller in terms of your acquiring the right to use that content?
2174. MR. B. SEGAL: It has two components to it. It has a base payment and an advertising revenue share, the larger of which is the base payment. And of course, we are buying the one time rights for that information.
2175. THE CHAIRPERSON: The one time --
2176. MR. B. SEGAL: We can use the stream of data as it is presented. That would be on our online -- not on Electric Library -- nonarchival sites. On Electric Library, the arrangement is a different arrangement where we pay a royalty for the archival content because that is what is on that site is our content.
2177. THE CHAIRPERSON: Okay.
2178. Counsel Moore.
2179. MS. K. MOORE: Thank you.
2180. Some parties have taken the view that the American new media producers have significant economies of scale that will give them advantage in the long term over producers from smaller domestic markets.
2181. Do you agree with that view?
2182. MR. K. ENGELHART: We don't think so. There are -- if you can think about three components producing any media product whether it is old media, new media. There is gathering the content, there is producing the content, there is distributing the content and the thing that has really created the huge economies of scale in traditional media have in large respects been the economics of distribution. It is, in a print media, once you have printed a million copies, then to print an extra couple of hundred thousand is very cheap. Once your movie is reaching a million eyeballs it doesn't cost any more to reach those extra eyeballs.
2183. It is in that respect that Hollywood has come to dominate in the production of cultural products. In the United States it has dominated in many respects the traditional media. The great thing about the new media is that doesn't happen. You can get on the Internet. You can put your product on a server and have a global reach and the whole economics of distribution are fundamentally different. So we don't see the same kind of economies of scale existing in the new media that is going to give the Americans the same kind of dominance.
2184. Now, that is not to say there is no economies of scale in content aggregation, that is not to say there is no economies of scale in production, but we think they are modest enough that Canada will continue to be well served.
2185. The other point that is really important is economies of scope. When you are dealing with information products and entertainment products, it is a natural that companies that are in the information and entertainment business are going to repurpose that content into new media as we are doing.
2186. MR. J. TORY: I wanted to add one thing. I am not sure it has to do with economies of scale but the one reality that has caused us to look, as we said in our opening statement at forming alliances with international and global people in this business is technology. I don't think that is as much a question of economies of scale as it is, I guess, there are -- just because it is a bigger country and with a very well developed industry that is larger in size than the Canadian industry. There are more people and in some cases, bigger entities developing technology and software in the United States, that if we can take it, acquire the rights to it and then make Canadian content available using that technology and software.
2187. So for example, we have used Quicken technology and software on our own Quicken site to make available RRSP calculators and mortgage calculators that don't feature mortgage deductibility since we don't have that here, then it allows us to use technology developed elsewhere which one would argue may be the best or the most advanced, make it available to Canadians and in so doing, allow us to use to produce Canadian content or unique Canadian content that can then be used by our customers, by our users.
2188. MS K. MOORE: Thank you.
2189. We have heard some discussion so far of suggesting that at present, the costs of producing new media content is relatively low but I wonder what your view is as to whether, as more bandwidth is made available to accommodate more audio and video components, whether those costs will continue to stay relatively low.
2190. MR. K. ENGELHART: I would ask Hugh Stuart to respond.
2191. MR. H. STUART: It is interesting in the area of advertising for instance that Mr. Tory alluded to earlier, we have General Motors Canada advertising on the site and they have created what is called a micro site for us where if you click on their ad it brings up an experience that is much like a CD-ROM. It includes the ability to change the colours of the car that you are looking at, to see different features of that car and a number of other interactive things. That was very challenging for them to build.
2192. But I remember back in the early days of the Internet, which was probably about two years ago, that when we were creating content, it was a very manual experience as well to do. Over these past two years, tools have emerged that have made the job entirely easier and created a new set of skills.
2193. I think the same thing is going to happen in the broadband space where right now you might see a few challenges in terms of purposing multimedia content to broadband. I think over time and not over a long time that it will become much more easier, that there will be tools, skills, incentives to produce it. So I think -- I am not too concerned about that. I think if you want to play, you are going to be able to play.
2194. MS N. AHMAD: Can I just add something to that.
2195. Just the two questions that you have asked, the first one being about the economies of scale and now about the costs of producing, I guess this is probably more of a comment than anything else.
2196. There is a lot of talk about whether or not new media is going to cannibalize from traditional mediums and talk about leverage that big integrated media companies have with their brands. Let's not forget that it is entirely possible in the future that we have a brand that starts off on the Web and that migrates itself back into traditional mediums. We have seen examples of that in the case of Yahoo that started a magazine called "Yahoo Net Life." We have seen CNet, a popular Web site that launched into television and more and more of this can happen.
2197. So when you look at -- when you sort of take your two questions about the economies of scale and about the costs of producing something, we can in the future see the costs of that being amortized over the different mediums which just starts in the Web whereas now we are re-purposing content, where the Web is sort of our fourth rendition of that content, but it could very well be the first.
2198. MS K. MOORE: Have you developed any services or site enhancements that address the needs of persons with disabilities, for example, to improve the accessibility of new media services for visually impaired people?
2199. MR. J. TORY: I do not believe the answer to that specifically is yes. We have tried in different ways to contribute to diversity in terms of what we are doing in the new media area, both through I guess our first mandate which is to organize content and make it available and we are obviously trying to make as broad a range of content available as possible. We have now moved into developing Canadian content for more specific groups, though we have started off with fairly broad groups.
2200. For example, I think we have taken considerable initiative to address an area that is under served which is French speaking Canadians to make available to them some of the kinds of services that we have made available to English speaking Canadians, such as the Quicken French site which you saw earlier on the presentation, to focus on women in particular who I think have often been seen as being under served in this area. But I am not aware, unless Hugh and Nyla will correct me, that we have done anything as yet to make Canadian content more accessible to disabled Canadians.
2201. MS K. MOORE: You have stated that in your view new media services are not programs, they are not transmitted and they are not for reception by the public. I am just wondering in your view whether it is the non-simultaneous nature of the reception that takes this material outside the scope of broadcasting or whether it is some other additional characteristic perhaps such as interactivity?
2202. MR. K. ENGELHART: Yes. The non-simultaneous nature in the interactivity of the content leads to the argument that these things are not for reception by the public. The idea is if you go on to the Web and book a vacation to the Barbados, if I go on to the Web and book a vacation to the Barbados, we end up looking at a lot of different screens and we end up seeing a lot of different images. You are not getting the same program that I am getting.
2203. So the argument there is it is not for reception by the public. I think that is a combination of interactivity and non-simultaneity, although I think the interactivity is really perhaps the bigger issue there.
2204. The other arguments are that because of all the text and because it is more about reading than it is about viewing, it is predominantly alpha-numeric text, at least some of it, and so those things would not be programs. Then the third argument is that if downloading falls outside of the dictionary definition of transmitting then perhaps it is not transmitting. So those are the three arguments that I guess myself and every other communication lawyer is looking at in analyzing this problem.
2205. MS K. MOORE: In terms of interactivity, I wonder at what threshold in your view it does take it outside of broadcasting? For example, if there is a service where any user has a choice between affecting the content in two ways, so for example, I could choose two endings, is that a sufficient degree of interactivity to take it outside of their own programming or do you think that it is a much broader range of ability to affect the content?
2206. MR. K. ENGELHART: I guess another way of restating that question is, what exactly is the program? When I watch Seinfeld, I think I know what the program is. When I am clicking on a Web site and there is a lot of text and I click on a little video image, is that little video image by itself the program? Is the whole Web site that I am on the program?
2207. This question gets sort of metaphysical. It is how many Web sites on the head of a pin.
2208. My own view is that I would see the Web site as the program. So as long as -- if the entire Web site was I guess a motion picture, I guess you would say, well, that is a program. But if the Web site was the kind of Web sites we see with text and pictures and lots of interactive features and lots of different pages to view, I would not see that as for reception by the public.
2209. The answer to your specific question, if there was a program on the Web that had two different endings, would I consider that to be for reception by the public? I suppose I would.
2210. MS K. MOORE: One last question. With respect to a potential exemption order, you have referred to the type of program that you would see captured in terms of individually receivable. But I just wonder if you had any views on what the undertakings would be that would fall within the scope of such an exemption order?
2211. MR. K. ENGELHART: I think when we talk about regulating the new media, I think the undertakings that we are talking about are the Web sites. I do not think it is the ISPs because if the ISPs are anything, they are telecom resellers.
2212. So I think if somebody is broadcasting out there, that somebody is the owners of those Web sites. So if we are going to regulate the new media that is, I believe, who the broadcasters are.
2213. MS K. MOORE: Thank you. Those are my questions.
2214. THE CHAIRPERSON: Thank you, counsel. Thank you very much, lady and gentlemen.
2215. We will take a break now and reconvene at 4:15.

--- Short recess at / Courte suspension à 1603

--- Upon resuming at / Reprise à 1603

2216. THE CHAIRPERSON OF THE COMMISSION: We will start and I will replace, as much as I can, the Chair of the Panel who went to discuss matters of Y2K and we will turn our attention to the here and now.
2217. MS SANTERRE: Thank you, Madam Chair.

So now we will hear the presentation of the Canadian Cable Television Association/ Association canadienne de télévision par câble. Mr. Stursberg.

2218. THE CHAIRPERSON OF THE COMMISSION: Bonjour. Good afternoon.

PRESENTATION / PRÉSENTATION

2219. MR. R. STURSBERG: Good afternoon. It is a pleasure to be here.
2220. I would just like to make a little apology. Fred Wagman who is the Chair of our association was supposed to be with us, but he has a flight he had to catch because he has his annual general meeting tomorrow in Regina. So he apologizes. He was here, but he just left. So I apologize on his behalf.
2221. I am joined today on my immediate right by Steve Guiton who is the Vice President for Telecommunications and New Media at the CCTA; and on my left by Jay Thomson who is the Vice President, Broadcasting Regulation and law.
2222. We are particularly pleased to be here since, as you have just heard, our members are active players in the area of new media and are exploring a number of important initiatives in the areas of new media and Internet content.
2223. We would like to use this opportunity today to focus on what, for the cable industry, are two of the key new media challenges. First, we would like to describe how we see the new media areas of the Canadian cable industry developing over the next 5 years. Second, we would like to offer our views on how the Commission can be instrumental in ensuring that this five year period of development is as productive and successful as possible.
2224. As you have just heard, and as you will continue to hear over the next several days, the new media industry provides a host of services. These include e-mail, browsers, portals, information databases, games, e-commerce, public services and so on.
2225. Increasingly, and in the future, expanded Internet transmission facilities will support advanced audio and video applications that will dramatically improve the existing services and create completely new ones. The services that are emerging from the industry and the Internet itself will continue to grow in usage and importance in our lives and become an increasingly important part of the Canadian economy.
2226. Cable companies in Canada will be participants in this industry through a number of avenues.
2227. First, we will participate through the provision of access to the Internet, that is by being an Internet Service Provider or ISP.
2228. As you know, the ISP market is dynamic and highly competitive. Firms in this market are constantly being pushed to deliver new services and innovative applications to their customers. The market is very risky with new firms emerging, growing and -- in some cases going bankrupt -- almost every day.
2229. Despite these challenges, we are confident about the future of our Internet service. We are confident because cable's Internet service is not only very fast, as you heard earlier today, it also provides Canadian consumers with unlimited connect time and is always on.
2230. Our estimates are that by the end of the Year 2000, high-speed Internet service over cable networks will be provided to nearly 500,000 homes in Canada. In addition, over the next five years, cable companies of all sizes will have upgraded their networks, at significant cost, in order to offer high-speed Internet service to almost all Canadians.
2231. This is being done without government subsidy, and without any guarantees of return. These investments are being undertaken because we believe that we have a product that Canadian consumers value, both in terms of its price and in terms of its quality, in giving them reliable and speedy access to the Internet.
2232. Our second avenue for participating in the new media industry will be through the provision of Internet access via television.
2233. The growth of personal computer ownership by Canadians is slowing. This could leave the majority of households without access to the Internet. In order to respond to this issue, the North American Cable industry through CableLabs, which is the R&D arm, is pursuing the development of open digital set-top boxes that will enable the Internet to be accessed through the TV. This will be made possible by having high-speed modems integrated directly into the digital set-top boxes.
2234. The Open Cable digital boxes will provide not only access to the Internet and a greater number of cable TV channels, but also telephone service, as well as video conferencing and messaging. The open boxes lay the technological basis for the creation of extremely interesting new media services involving the integration of TV programming and interactive information services.
2235. Over the next five years, the core business of cable will still be what it is today: cable television. The difference will be that with the roll-out of the set-top box, a tremendous variety of new services will be available for the PC and the TV, and both terminals will become important multi-media devices.
2236. Since TVs are owned by 99 per cent of Canadian households, our hope is that this initiative will lead to greater "connectedness", use and awareness of the Internet for all Canadians.
2237. Again, this initiative presents us with significant risks. As we have described to you on a number of occasions, set-top box technology is very new and involves significant economic challenges.
2238. Therefore, adoption of the set-top boxes is a balancing act for the cable industry. On the one hand, we are moving as quickly as possible to adopt this new technology, and deliver the associated services to our customers. On the other hand, we are cognizant of just how revolutionary the introduction of this completely new technology will be for all aspects of our business. We have described these developments in considerable detail -- I hold it up to you -- in our little paper entitled "The Internet and Beyond", which actually has very nice graphs and charts in it that speak to penetrations and such like and was in fact filed as part of our submission.
2239. The third avenue of Cable company activity in this industry is in the area of new media content creation.
2240. As you have just heard from Rogers, some of the larger Cable companies in Canada are extremely active in the content area. The medium and smaller sized companies -- and I am sorry that Fred Wagman is not here to speak to this -- but they too are also exploring ways of providing content in order to enhance the attractiveness and viability of their Internet services.
2241. This is necessary because of the financial and market penetration issues faced by cable companies. Consumers are not interested in and will not pay for cable modems and set-top boxes simply in order to own these devices; consumers will purchase cable modems and set-top boxes only if these devices enable them to obtain attractive and interesting new media services.
2242. The content that is available through modems and set-top boxes is an important element in the overall attractiveness of the Internet service, and a direct determinant of consumers' willingness to purchase these devices. I thought it was extremely interesting actually the observations that were made by the Rogers panel as to how central Canadian content is to the acceptance of their services.
2243. At the same time, the financial ability of Canadian cable companies to invest heavily in new content, depends on the available base of Internet customers that are being served. As the base is limited -- and right now very limited for high-speed services -- there is only a small market from which to recover the cost of developing new products.
2244. The problem is further complicated by the difficulty that all new media firms are facing in discovering a successful revenue model for selling content in this marketplace. Despite the Internet's fantastic growth and popularity over the past five years, nobody has yet been able to produce a reasonable return for their investment in content on the Internet.
2245. All of these issues together -- the challenges of financing modems and open digital box roll-outs, as well as the problem of financing new media content -- result in increased costs and greater risk for all companies. As a result of the costs and risks in this industry, firms are being pushed to discover the best combination of technologies, market and service development that will allow them to thrive.
2246. In our view, if Canadians are to succeed in the new media marketplace, it is essential that Canadian companies be permitted and encouraged to establish content production and distribution links that keep costs as low as possible, while providing the broadest possible market opportunities.
2247. We believe this can be accomplished by building innovative partnerships and alliances within Canada that will allow both small and large Canadian companies to compete with the world.
2248. Let me now turn to what we consider to be a second key challenge: The role of the Commission in ensuring that the next five year period of development is as productive and successful as possible.
2249. As I mentioned earlier, most of the work associated with new media involves activities that are risky and uncharted. ISP's are coming and going; the underlying technologies are changing rapidly; and the formula for making the production of new content profitable remains a mystery. As a result, the most appropriate industry strategy is still unknown. Firms everywhere are exploring the linkages between different types of content, both traditional and new, as well as the relationship between content and distribution in order to meet the challenges of this market.
2250. In addition to being very risky the new media marketplace may also be the most dynamic and global market ever to exist. It forces us to compete not just among ourselves in Canada, but between ourselves and firms located throughout the world. Geography and national boundaries no longer offer any protection.
2251. When we take all of these factors together, we know that a lot of our activities in the area of new media are speculative. But like all of the other Canadian companies that are investing money in this industry, we know that we cannot wait on the sidelines. This is a global market that will leave Canada behind if we do not fight to keep up with our international competitors.
2252. In this environment, regulation can have a big impact on our activities both with regard to our ability to offer Internet and other enhanced services across Canada, and with regard to our ability to produce attractive content. In view of this potentially large impact, we believe that the single most important role for the Commission to assume over the next five years is that of an enabler.
2253. As you know from our submissions, we are not proposing that the Commission try to regulate new media, nor are we suggesting that you need turn your back on this industry. We see your role as enabling the development of a Canadian industry by monitoring its development and its interactions with traditional media and traditional regulatory rules, while providing Canadian business with the greatest possible regulatory flexibility to explore the challenges ahead of them.
2254. We believe that you can do this by pursuing the following agenda.
2255. First, it is important to recognize that there is no immediate need to apply regulation broadly to this industry. Second, it is important to reduce business uncertainty in this industry either by determining conclusively that new media services are not broadcasting, or, in the event that you conclude that some new media services are broadcasting, by proceeding to exempt them from regulation, for a fixed period of time, such as 5 years.
2256. In our view these are important steps. It is important that the Commission recognize that new media services will not undermine existing broadcasting services and your existing regulatory structures for some time, if at all. While audio and video availability over the Internet will increase in keeping with the increased quality of the transmission and the increased connectedness of the audience, traditional media will continue to operate predominantly over traditional broadcast distribution facilities.
2257. The second step in the above agenda is equally important. Given the nascent nature of this rapidly changing industry, the Commission can be extremely helpful by creating a climate of regulatory certainty. In particular, you need to make clear that for the next five years at least, you will not impose any regulations on new media operators. If not, the danger arises that the regulations will slow investment, increase costs, create rigidities in partnering arrangements and freeze present industry structures in a way that may be inappropriate for the future.
2258. Instead, the Commission should apply no regulation to the Internet for the next little while. It should allow entrepreneurs to take risks, the market to orient investments and Canadians to show they can compete with the best in the world.
2259. After five years, once we have a better idea how the Internet and new media will evolve we can take stock again and see whether greater intervention is required. At that time, we can see whether new policies are required by the Commission and the government. But we will then be deciding on the basis of a much deeper understanding of the forces at work and with a clearer sense of where these developments are taking us.
2260. Thank you very much.
2261. THE CHAIRPERSON OF THE COMMISSION: Well, thank you very much for that presentation. I had had the pleasure of reading the material as well and I have a few questions. I do not see any discrepancy from what I have read in your presentation today.
2262. MR. R. STURSBERG: That is reassuring.
2263. THE CHAIRPERSON OF THE COMMISSION: So it is more a kind of dialogue very much along the same kind of path that Commissioner Gauer was having a dialogue with the Rogers people. So you will see some similarity in the questioning.
2264. But let me first get your views about some elements that we have heard. Your members have great experience already what is new media, they are Internet providers. They have even transformed some of them their community communications to really make the best use of those new technologies. So I would like to pick your brain in the sense of other than the financing your view about branding, which seems by other intervenors to be a problem or question in itself that is close to the marketing issues, and the R&D and the cost for R&D, which is not totally covered neither in your presentation this afternoon and your written presentation.
2265. Have you had through the experimentation from your members any contact with those issues?
2266. MR. R. STURSBERG: Well, maybe I will take marketing first and then go on to branding issues.
2267. The R&D costs associated with the development of these new technologies are formidable. So what we have done in terms of the North American cable industry is we have established a group called CableLabs. CableLabs is responsible for pursuing the collective R&D agenda of the cable industry throughout North America, although I might mention there are now significant members from South and Central America and European members are starting to join.
2268. The way in which CableLabs tends to operate though is it has a kind of core R&D operation that specifies what it is that the cable industry wants to purchase and the nature of the kinds of services it wants to offer. So for example when the cable modem itself was being developed or the work that is going on associated with the open set-top boxes, the role of CableLabs is to specify in detail what precisely those devices are supposed to do and the nature of the applications they are supposed to support.
2269. Then the way they have been working so far is they will issue requests for information and requests for proposals to the major vendors so they will release them to -- well, for example, in the open set-top boxes practically every significant participant in the communications industry, the computer industries, the consumer electronics industries and the software industries in North America have responded to these requests. What they will do is they will take up either certain components of the device that is being produced or the integration of the device as a whole and so on and so forth.
2270. So a huge amount of the R&D expense is borne not just by CableLabs, but it ends up being borne by the vendors themselves. So for example the participants in this activity -- Microsoft, General Instruments, Scientific Atlanta, et cetera, et cetera, et cetera -- are themselves bearing very large amounts of the costs associated with the R&D, which is in fact normal in the communications industry.
2271. As far as brands are concerned, I think brands are going to be fundamentally important. As content on the Internet becomes more mass oriented and I think it is going to remain true that obviously there are going to be, for the foreseeable future, thousands, millions of small Internet sites with very specialized kinds of information and so on and so forth.
2272. But if the Internet is going to emerge as a large cultural industry like the kinds of cultural industries we have seen in the past -- books, movies, television, what have you -- then there is very little doubt that brands are going to be very, very important in terms of authenticating the quality and character of the content that is being offered, and that the brands become themselves one of the most formidable and important marketing devices that are available to people.
2273. One thing the Rogers people said which I think is true the way they were answering the question is, you asked -- I think Commissioner Gauer asked whether there were economies of scale associated with distribution. The answer was no, which is true of distribution in a physical sense. But we also speak in the cultural industries of distribution in a different sense.
2274. So for example we have talked about film distribution or television distribution or whatnot which is really not about physical distribution. It is really about making arrangements for products to be marketed and sold. There I think we will discover, as we have discovered in most kinds of cultural industries in the past, that there are significant economies of scale associated with distribution in a marketing sense.
2275. So I tend to think that brands will be important and they will be very important in that context for Canadian companies to establish powerful and attractive Canadian brands for content that appears on the Internet.
2276. THE CHAIRPERSON OF THE COMMISSION: How do your members see their role in the support? Are they the brand themselves? Are they the support to those brands? Are they the enabler of those? Where does cable see itself in that respect?
2277. MR. R. STURSBERG: Well, it varies a little bit depending on what we are doing. For example, in the case of @Home the service is co-branded as between at home and the individual cable company that is offering it. So for example the Rogers brand for at home is Rogers @Home, whereas if it is being offered by Shaw it is Shaw @Home.
2278. Now, within that there are other -- so that is really on the almost -- it is a bit unfair to say that at home is just an ISP. It is obviously more than that because it includes the @Canada sites as well.
2279. But as you saw from the Rogers presentation, the nature of the brand will vary a little bit depending on who has got the most powerful brand to begin with. So the use of the Macleans brand, the "La280" brand and so on, those brands themselves become important brands as they cross media, as they move out of magazine brands and into being brands associated with the Web.
2280. I do not think it is clear yet how that is going to work as a whole. Certainly for many of the cable companies they are becoming increasingly preoccupied about defining the brand of the company as being larger than cable itself right now. So you have seen these branding exercises. The two or three largest that are going on are the VideoTron branding exercise, the Rogers and the Shaw branding exercise. They are not branding the Internet content. They are branding the companies as communications companies in the broadest sense from whom you can get an array of different kinds of communications services.
2281. THE CHAIRPERSON OF THE COMMISSION: But doesn't that model imply an ownership on the rights to really take full advantage of the brand and really to be able to decline it totally and be able to have a business case there. I noted while the Rogers group was here that they said that they were buying one time for all or that it was like quite contrary to the world of rights in the world of television where you buy for that many pass and you cannot free the entire rights forever, for a lifetime unless you own them or you have made it yourself. You buy the acquisition for a certain time.
2282. I heard that it was for life and then advertising is shared. Do you see that as a very important element of the business case in order to make the brands a success and the members of the cable industry really partie prenante of that...
2283. MR. R. STURSBERG: Well, I think to the extent that they own their own properties then obviously the control of the rights to the properties that they own directly themselves will be important. To the extent that it is important to have proprietary content to be able to compete in this market, then that will be important.
2284. But I would really like to pass it over to Jay who in fact doubles as our copyright lawyer, because this whole question of rights associated with the Internet is a matter that is currently in front of the Copyright Tribunal where we have been arguing extensively about it.
2285. MR. J. THOMSON: Certainly some aspects are in front of the Copyright Board right now, in particular how the use of music will be treated on the Internet. But there will be certainly other issues that will be raised and dealt with over the next few years including reproduction rights and neighbouring rights.
2286. But as far as the matter goes as to purchasing rights on the Internet, as you identify it, it is a whole different ball game than from the traditional broadcasting spectrum. It depends on whether you are dealing with archival rights or one time live rights.
2287. THE CHAIRPERSON OF THE COMMISSION: But my question was less on the side of the copyright, to whom I will leave the full authority. But it was more to understand the importance for the involvement of cable into that new world of being a content owner or a content producer. Is that a component that makes for the business case on the mid-term or long-term? That was more my question in terms of the business case.
2288. MR. R. STURSBERG: Well, I think it depends again on which business we are talking about. For the ISP business branding, which is really less a question of content rights than it is a question of marketing, is obviously important.
2289. When it comes to the content business it also requires that you distinguish, I think the way they were doing before, between different kinds of content activities. Content aggregators of one variety or another, whether they are portals or search engines or various other kinds of aggregators will not necessarily themselves own the underlying rights but may well find themselves in a situation, as Brian Segal was describing, of licensing those rights for the uses associated with the portal or for the aggregation or for whatever it is that they happen to be doing.
2290. Then you will have a third situation where there may well be underlying rights associated with the content properties themselves that may be owned by the cable companies. So for example, the one that was being used earlier on was Macleans magazine. Macleans magazine has very important rights associated with the articles it produces. I think they were showing on the screen the database that they have assembled with respect to the ranking of Canadian universities and your ability to be able to interact with that.
2291. So I think it depends on where you are in the chain what the nature of the rights regime is going to be and the kind of impact that is going to have on the cable company or cable group.
2292. THE CHAIRPERSON OF THE COMMISSION: But I guess my question is it is like a chain and you see yourself involved in many parts --
2293. MR. R. STURSBERG: Yes.
2294. THE CHAIRPERSON OF THE COMMISSION: -- the chainon.
2295. MR. R. STURSBERG: Yes.
2296. THE CHAIRPERSON OF THE COMMISSION: I am asking is the content part, an important element of the business proposal in making it a business success at the end when it runs and is in an adult stage?
2297. MR. R. STURSBERG: Yes, I think the content part is going to be a very important part. But my only point is I do not think, I absolutely do not think that the cable company through its Internet arm needs to, wants to own a great deal of that content completely in terms of all of the underlying rights.
2298. They may own some of it. But my guess is 97, 98 per cent of those rights that are going to be important will be owned by other parties and either licensed to whatever the aggregator is going to be that the cable company is going to be operating through, or simply going to be available as you move through to be able to access those Web sites directly.
2299. THE CHAIRPERSON OF THE COMMISSION: So that the element that will be interesting will be then the advertising revenues more that will be shared?
2300. MR. R. STURSBERG: This is part of the problem. When it comes to content, as I was saying earlier, one of the difficulties that people are having is trying to figure out how to make money at this business. There are different ways in which people have been trying to deal with it. I think it is fair to say that nobody has figured this out yet. There are arrangements in which you pay per unit of information that you buy. So you sign up for a service and you pay for it when you buy it.
2301. So for example if you sign up for a proprietary financial service, then you pay for what you get. There are arrangements in which people make money by the placement of advertising on pages. That is another kind of activity.
2302. But people are still having a lot of trouble figuring this out. Figuring out how to make money at it. I do not know whether that is completely a market sizing question. I think it is only partly a market size question. I think it is more fundamentally that people -- this is a medium that is so new that people really do not yet understand its economic characteristics.
2303. THE CHAIRPERSON OF THE COMMISSION: That is where you have that proposal about a five year period to see how it evolves and then to come back after those five years so that the experience is more thorough in terms of learning some lessons from it.
2304. When you think about those five years, what would be for you elements that you would expect would inform us better? What would be for you the elements where the Commission should, if we are to take your words where for now we are to be creative, open and flexible, in five years if we have to change our behaviour and attitude? What would be the elements or criteria over those five years that would have to occur for you to say, "Well, we conclude there is no more lessons to be learned and the Commission can disappear totally," or move forward. What would be the elements that would trigger a different?
2305. MR. R. STURSBERG: Well, maybe just before answering that, I just might make one observation. I think people have been a little bit afraid that if they do not -- sometimes if they do not do something now, that the horse will be out of the barn and there will be nothing that you are able to do about it later if we discover that somehow or another that something has gone wrong.
2306. I was actually thinking about this on the weekend and I was thinking about previous circumstances in which the Commission had had to act or not act. I was thinking about radio.
2307. The Commission did not make its first content rules on radio, if memory serves, until 1969. Radio at that time had been around for 50 years, was overwhelmingly the most dominant and successful medium of the 1920s, 1930s, 1940s and early 1950s, and yet the Commission's powers to act were completely unimpaired and the Commission used its powers and used them successfully in the area of radio to create the Canadian popular music industry.
2308. So I am not sure that I am too worried about the sort of the horse getting out of the barn question. I do think, however, that there are a number of things that you would want to think about. I thought some of them were touched on by Ken Engelhart and the Rogers panel and Brian Segal when they were talking about how, you know, follow the money. So you follow how the advertising revenues are moving around and the extent of which they are both moving between media, if they do, and between Canada and the United States as to whether they are draining in some sense.
2309. The second thing that I think that would be interesting also to spend some time on would be to look at peoples actual viewing habits. That there is some preliminary evidence in certain kinds of demographic groups that people are watching television slightly less, mostly young people, and there is a feeling that that may be being displaced on to surfing the Web and whatnot. I do not know if that is true and that is something you would want to know.
2310. The final thing you would want to know of is access to the Web and what was the nature of that access by household throughout the country by language and whether that access was high-speed or low-speed access.
2311. MR. J. THOMSON: If I could add to that.
2312. I suppose another way you could look at is if you determine that new media is not broadcasting, it is not broadcasting, then over the five year period you would assess whether there have been significant changes to bring it into the realm of broadcasting. Technological changes or whatever they may be.
2313. If you determine it is not broadcasting now -- or sorry -- that it is broadcasting and you follow the recommendations of a number of parties, including ourselves, that would be exempted, then after five years you can reassess whether licensing is necessary to meet the objectives of the Broadcasting Act. Whether licensing and regulation is necessary to ensure that the Canadian content objectives are met if they are not being met to that point, or if you can assess at that time that there is a significant impact on existing players, and therefore you need to take a different approach.
2314. THE CHAIRPERSON OF THE COMMISSION: But is making a determination -- you are not making recommending we are making one at this point in time. I recognize that. But how would a determination, if we were to exempt for example, would be impairing. I would reverse your proposal and say, if we were to do it, how would it impair for example the cable industry to get at the business plan they are putting forward here?
2315. MR. J. THOMSON: If you were to make an exemption?
2316. THE CHAIRPERSON OF THE COMMISSION: Yes.
2317. MR. R. STURSBERG: It would not impair us at all. I think that is precisely -- it would be the reverse. I think that the concern would be that if the Commission were to regulate now -- well, what would have to happen is you would first of all have to make a finding that these things were broadcasting or some of these things were broadcasting. Then you would have to say, and having found that they are broadcasting, we now believe that we want to regulate them.
2318. I think our general feeling would be first of all that there would be so much difficulty and so much confusion about figuring out what was broadcasting to begin with and then having decided what they were you would be starting to create compartments within which certain kinds of activities could go on, but outside of which other kinds of activities could go that would be very, very difficult to allow the market to evolve in the kind of way that we have been talking about. Because as I say, we do not know. I mean the levels of uncertainty are so great that we think that people should be able to experiment and that they should be able to make new arrangements and new partnerships and pursue new products and so on and so forth without regard to kind of legalistic or traditional circumventions of their activities.
2319. So we said the best thing you can do is if you do find that they are broadcasting, then just say, "Fine. They may be broadcasting but we are not going to regulate them for five years. We are just going to exempt them or we are just going to say do what you like for five years and then we will come back and we will have a look and we will see what has happened. We will see whether there have been important consequences," along the lines that Jay was talking about, "or not."
2320. If you decide at that point that there have been, then you can say, "All right. Should we be looking at other measures or what we should be doing." I mean if you found out earlier on that you were getting important effects, then presumably you could accelerate the time at which you want to have a look.
2321. But right now we think that it would be premature and that it would retard the development of the market, which we do not think is a good idea because it is so risky and also because we are going to be competing against people internationally.
2322. THE CHAIRPERSON OF THE COMMISSION: Tell me, given the risky nature of the business as we speak, and you mentioned that in your oral presentation, many intervenors have been talking about that, and at the same time the necessity to create more certainty, at least regulatory certainty given all the other type of uncertainties, isn't your position of making a decision for five years and revisit the proposition, especially when we talk about a huge amount of money. For example, access to capital, not only financing one project but really financing a company or a venture.
2323. Don't you think that it is somewhat of a contradiction to talk about given the uncertainty we go with the five year approach and then we revisit there?
2324. MR. R. STURSBERG: Do you mean as opposed to exempting things in perpetuity?
2325. Yes. I guess it would be more certain if you just simply said the Commission will never ever regulate any of these objects. But maybe I would turn it around and say, I do not know if you want to be quite that radical. It seems to me you would want to say, "Certainly we understand that we do not want to do anything about them for the time being," but I do think you would want to keep just an eye on them. Because I think you would want to just have a feel for where these things are going, what their potential implications are for the other businesses are that you are so deeply involved with.
2326. Because I think that, you know, it is hard to tell now but there may well be consequences associated with some of this stuff further down the line.
2327. THE CHAIRPERSON OF THE COMMISSION: Tell me, in that kind of approach you are thinking, the five years, there is some element in your presentation, the written and the verbal, that refers to the fact that this business about new media is not strictly about small ventures and small companies and you made that clear, especially in your Phase Two comments. That it was also about consolidation and the necessity to consolidate and that what we were facing in Canada was the global situation for which there were really big players and that we had to create some Disney kind of model.
2328. Tell me, the proposal you are making of the five years we hold our breath somewhat and we monitor, how can it help and what do you see evolving to kind of compete with those models?
2329. MR. R. STURSBERG: Well, I think as you know our view about the requirement to build large scale media companies in this country is not just about new media content. It is a view that is more general.
2330. When we look at what is happening in the international marketplace whether it is European companies or American companies, Time Warner or TCI or Berlesman or whoever it happens to be, these companies, there is a good reason why they are in fact trying to assemble a very large array of media properties all under one roof and those -- the economics of those assemblages are twofold.
2331. One of which is to maximize the economies of scope across their product sense. What people have called re-purposing content or rerunning it through multiple windows to be able to maximize the amount of economic gain you can get it from what. Or secondly, to be able to achieve the kinds of economies of scale that I was talking about in terms of marketing and branding. Or thirdly, to be able to get the kind of synergies associated with being able to understand how to operate in new distribution environments with new content when you are operating in environments that are extremely risky where nobody really has any clear idea how they are going to come out. So that is why people are doing that.
2332. Our general sense is that if we do not do that kind of thing, if we create rules in Canada that are more restrictive than the rules in Europe or the United States with respect to these kinds -- building these kinds of companies, then we are going to be faced with a double whammie. Whammie number one, we have a very small domestic market by international standards. On the English side it is completely unprotected by linguistic barriers and is doubly exposed certainly to the United States and to other English speakers.
2333. But if we then compound the difficulties associated with small market size with restrictions on the ability of companies to be able to achieve the same economies as their international counterparts, we are concerned that it will be obviously to the detriment of the creation of Canadian content.
2334. That is sort of a long roundabout way of saying that with respect to these kinds of properties what we would see going on during the interim period where there is no regulation is first of all that there would be literally no regulation. That people would be able to start any kind of a new media content service that they wanted to. There would be no cross-ownership rules with respect to being able to get into those kinds of businesses. That you would maximize the flexibility of the companies to be able to invest in those sorts of properties and take those kinds of risk.
2335. What will happen ultimately? I do not know. I think what we should hope will happen is that we will be able to build companies which obviously will never be as large as Disney or Time Warner or Berlesman, but which will be able to internalize the same kind of economies that those companies can. Because if we do not, I think we are going to find ourselves, as we move into greater and greater levels of international competition, harder and harder pressed to maintain high levels of Canadian content.
2336. THE CHAIRPERSON OF THE COMMISSION: How can you see that especially if there are the same players who are involved in telecom and broadcast who are involved or not strictly or exclusively, but if there are many of the same players, what you are kind of asking for in the approach you are putting on the table for those kind of larger groups is the kind of a different set of rules or no rules at all to create different partnerships. For example, with no restriction for example on ownership. How can harmonize with the more conventional or traditional universe of telecom and broadcast if you have an approach of the rules shall be different? How does that impact the kind of industry structure that we have built over the years?
2337. MR. R. STURSBERG: Well, I do not think that there are any -- there are not any limitations that I know of with respect to being able to own both broadcasting and telecommunications properties. The rules are really within the broadcasting area.
2338. As I understand the rules, the rules are that broadcast distribution undertakings can own conventional broadcasters. They cannot own specialty broadcasters.
2339. What our concern would be here is that if you define some of the new media properties as being broadcasting, that they would then get caught in the second set of cross-ownership rules. We do not think that would be a good idea.
2340. Obviously we think that the idea that there are cross-ownership rules with respect to specialties is itself not a good idea. We think that the better way of dealing with the Commission's concerns about undue preference is precisely to deal with the question of undue preference squarely and to have a proceeding on undue preference and to establish undue preference rules that are fair on all parties and then to abolish the cross-ownership rules.
2341. That would be our view as to how best to go at this because of the reasons that I was citing earlier on. I do not think that -- you know, this is a tricky area. I think the general position we have taken is that it is wholly appropriate to establish undue preference tests. Absolutely. As it is equally appropriate to establish diversity of voice tests. Absolutely. But what is not appropriate is to have artificial rules with respect to cross-ownership that limit the ability of Canadian companies to grown and to compete internationally.
2342. So our concern here, just to bring it right back to the new media proceeding and the issues associated with whether this is broadcasting or not, and obviously our fear would be that if it were broadcasting and you were to regulate it as broadcasting, our worry is that what would be imported into it is the set of restrictions that currently obtain, which we do not think are good for the industry or for Canadian public policy.
2343. THE CHAIRPERSON OF THE COMMISSION: You answered another type of question, but thank you for the comment. I will not comment myself, but I was more thinking of foreign ownership.
2344. MR. R. STURSBERG: Oh, foreign ownership rules.
2345. THE CHAIRPERSON OF THE COMMISSION: Which is another interest.
2346. MR. R. STURSBERG: We have thought about this a little bit and if you like, I will bore you with our views on this too.
2347. The difficulty is this. If you were to accept our exemption approach, then the problem that you have is that for things to be exempted they must be licensable in the first instance. They would not be licensable in the first instance if they flunked the foreign ownership tests.
2348. So it might be that in order to be able to exempt certain kinds of activities, you would also have to modify slightly the foreign ownership rules. Now, I do not know if that is what you are alluding to.
2349. THE CHAIRPERSON OF THE COMMISSION: Yes, though I was asking you what you felt in terms of a universe where for five years you would like to have like, if I may describe it, the way I understand it, it is almost like a lab situation where we monitor, not intervening, not rejecting the possibility of eventually intervening. But during that time I was wondering, since you talk about partnerships and you talk about creating some industry player in the new media universe that could be of a size that is similar to what we find elsewhere, I was wondering if you were kind of challenging by this the foreign ownership rule that we find in broadcasting and in telecoms.
2350. MR. R. STURSBERG: No. I was making a slightly different, more technical point about things. But I do not think that -- if the exemption provides that existing Canadian media players, ourselves or the broadcasters or whomever else, is allowed to be able to venture in these areas without essentially any regulation from the Commission, I do not think you should have any concerns about foreign ownership issues because we are ourselves, as are the broadcasters, right now subject to the foreign ownership rules. So I do not see that problem arising particularly. I meant something slightly different.
2351. THE CHAIRPERSON OF THE COMMISSION: Well, I was seeing it more as a partnership, the creation of new joint ventures.
2352. MR. R. STURSBERG: Where you mean if the Canadians were to be venturing in the Nordic positions vis-a-vis American content providers?
2353. THE CHAIRPERSON OF THE COMMISSION: Yes.
2354. MR. R. STURSBERG: I am not sure that that is a particular problem. I think that you would want to encourage those kinds of ventures now. I am not sure frankly how you would get around that.
2355. The sort of model that comes to my mind is I am thinking about production of television programming.
2356. MR. J. THOMSON: Well, the question may come ultimately to whether the end product or the end partnership is carrying on an undertaking in Canada, and in many cases maybe those partnerships if they are related to the development of content are not actually carrying on an undertaking in Canada and therefore have to be licensed.
2357. THE CHAIRPERSON OF THE COMMISSION: Then you have not thought that it was like neither an enabler in itself and neither a barrier in terms of capacity of developing?
2358. MR. R. STURSBERG: But I thought your question was -- I am trying to understand where the question goes to. If it goes to an ISP type arrangement that would be one thing. Or whether it goes to the question of creating --
2359. THE CHAIRPERSON OF THE COMMISSION: Content.
2360. MR. R. STURSBERG: -- content or portals or aggregators of one variety or another.
2361. THE CHAIRPERSON OF THE COMMISSION: Well, I have understood from your presentation that you see your capacity of being -- so it is not a matter of where you are. It is really the whole perspective for you is being capable of really being involved in each mais ont and then for that is there ways where the foreign partnership would be a levy and facilitator or have you not considered that?
2362. MR. R. STURSBERG: Well, I mean I think that some of the things that have happened already with respect to partnerships between Canadian and foreign companies have clearly been very advantageous. I am thinking of some of the examples that were talked about earlier on today in terms of the Canadianization of Quicken, the Canadianization of Yahoo. These kinds of arrangements that have been made to be able to guarantee that extremely sophisticated and popular Web sites of one variety can be made available to Canadians and reflect Canadian information in them.
2363. It is not clear to me that one would want to impose foreign ownership rules on those kinds of arrangements, because I think those would discourage that kind of partnering. Precisely what you want to do to the maximum extent possible it seems to me in a world that is increasingly globalized is to ensure that the most popular Web sites or most popular arrangements are made available in a way that is relevant to and speaks to Canadian concerns and Canadian culture.
2364. MR. J. THOMSON: Of course, if none of it were broadcasting, then we would not have to worry about the foreign ownership rules at any level.
2365. THE CHAIRPERSON OF THE COMMISSION: That is the question it is for us to pursue in terms of analysis, but you are right indeed. That is why I was asking you if you had any views of that. But let's leave that and let's talk about rights.
2366. You mentioned a bit earlier that the question that is in front of the Copyright Board right now, and in your written submission you talk about the position taken by the Canadian Association of Internet Providers. You have not taken any position yourself. I was wondering if you have a point of view on the question? The fact that it is not a question that involves copyright because it is packets that are transmitted from one computer to another so that it would kind of be another question. Are you quoting that just to show that there is parity of opinions or that is because it represents your own opinion on the matter?
2367. MR. R. STURSBERG: I think that our general view is, I mean we provide a bit of a survey as to what different people think about some of these things as to whether this is broadcasting or not. Our only point is there can be some doubt as to whether this would hit the tests that are set up in the act to define it as broadcasting.
2368. But the bigger point we want to make is at the end of the day, even if it does hit the tests, then you should still exempt it. There is a lawyer's feast to be had here to decide whether this is broadcasting or not and that is fine. If the Commission concludes it is not broadcasting, then basically there is nothing to be done. If you decide that it is broadcasting, all we are saying is that is fine too but then just exempt it so we can move ahead.
2369. THE CHAIRPERSON OF THE COMMISSION: So if I translate leave it alone --
2370. MR. R. STURSBERG: Precisely. One way or another leave it alone. If this is not broadcasting, fine. But if you are not, then exempt it.
2371. THE CHAIRPERSON OF THE COMMISSION: But the five years that you are proposing I am not sure what you are hoping to achieve. Isn't that strictly to postpone the question? I am trying to see, I am not pretending we know very much about it and that we know all about it as we speak, but is it healthy for that industry and for Canadians at large to say, "Well, we will revisit it in five years"?
2372. MR. R. STURSBERG: Well, the way to do it if you were concerned about that would be to say, we will make a presumption that we will exempt this in perpetuity and that we will not -- that would be our plan is not to regulate this ever.
2373. If you were also to say, however, that in five years time you want to have another look at it, that would seem to me to be a reasonable thing to do. Is the date right? I do not know. I mean it is just that we do not know.
2374. THE CHAIRPERSON OF THE COMMISSION: It is like the boxes.
2375. MR. R. STURSBERG: Well, we do not know. That is exactly right. The Commission sort of chooses five years. A lot of times its decisions are kind of around five years.
2376. THE CHAIRPERSON OF THE COMMISSION: The Chair's mandate.
2377. MR. R. STURSBERG: The decline of contribution payments, availability of unbundled loops. I mean, I do not know. Five years.
2378. I think to the extent though, I think the general point we want to make is that to the extent that you can give the markets confidence that none of this will be subject to some new form of regulation, then it makes it easier for people to invest and that is all.
2379. THE CHAIRPERSON OF THE COMMISSION: Before I have a question on telecom, I would like to maybe do a little parenthesis that is maybe more directed to the fund than to the CCTA. But there has been many intervenors who have suggested that in order to support production of new media and that we have a wide array there and so that in five years or seven or ten that we can really assess the situation better and have more money that we devote some of the funds and that Canadian expenditures should be devoted to new media, that it should be either made for television or made for new media.
2380. There is nothing in your brief about that. But do you have any views on that? Would you wish to comment?
2381. MR. R. STURSBERG: Which hat would you like me to wear in terms of --
2382. THE CHAIRPERSON OF THE COMMISSION: Well, the one you -- we always have, you know, all the hats together often. You have to converge, Richard.
2383. MR. R. STURSBERG: Well, I would say that with respect to the availability of money to finance Canadian television production, the money is still limited. Although it sounds like a lot of money -- $200 million -- as it turns out, it is not a great deal of money.
2384. Now, how much money will be required will be a function in part of the nature of the rules that you make. Certainly when we have looked at it from the point of view of the fund we expect to be dramatically oversubscribed and we expect that if the distinctiveness tests, if people were obliged to do sort of ten out of ten Canadian programming for every piece of the old Canadian content rules, for all that are associated with the old rules, you know you would need a fund in excess of six or seven hundred million dollars.
2385. There is a problem about money just for television production. So I am not sure that it would be a good idea to kind of rob Peter to pay Paul.
2386. As far as other funds are concerned, people have pointed out the government has already put some money up for five years. I think that is a good thing to do. I think that the government's fund is a good idea. I do not think it would be a good idea to suppress demand for Internet service provision or the wiring of people to the Internet, because all you would do then is make the market smaller than it would otherwise be and therefore when you have a smaller market, it is more difficult for people to recover their investments. So you inhibit investment in content as you move forward.
2387. THE CHAIRPERSON OF THE COMMISSION: Do you think from your experience on the cable side as much as on the fund that it would be a good thing to the development of both television as we know it and new media as we do not know it yet but in five years we will, that it would be the same kind of organization or people that will look into the investment in terms of determining what should go and what would be the best projects? Do you think the nature of it should remain together, converged or separate in terms of for the best chance of development?
2388. MR. R. STURSBERG: I do not know the answer to the question because I do not know the answer to the former question which is what are the economic determinants of success for new media content.
2389. I think we know the answer to that question for films and television. We know the answer very well so we understand what the basis is on which we can make those kinds of judgments. But in terms of new media stuff, I just -- I do not have the feel for it at all and I do not know that many people have a terribly good feel because the revenue streams are so unclear.
2390. So whether you would want similar people looking at it, I just do not know to be honest.
2391. THE CHAIRPERSON OF THE COMMISSION: Thank you. For telecommunications following questions that Commission Gauer and the legal advisor had earlier, what is your view on, as you well know, the approach in creating the architecture for competition in local telephone with a view to favouring facility based. But what is your view about treating reseller and ISP as carrier and giving them some advantages of the arrangements that have been up to now and with the view we had at the time, kept for the facility-based carrier?
2392. MR. R. STURSBERG: I think that -- maybe I will just back up.
2393. The way I read the decision with respect to local competition, local telephone competition is the same way that you read it. The decision is designed precisely to incent people to build facilities. What you have done is you have said, except in those very remote bands, in the near bands even though the telephone companies facilities are non-essential, we will ask them to unbundle their loops but only for a limited period of time so that people can get on with getting into the business, but that they will be deeply incented to build facilities. Because at the end of the day, the only sustainable competition will be based on the ownership of facilities rather than anything else.
2394. Now, I think that to a certain extent we may want to think about ISPs the same way. That it seems to me that you do want to encourage ISPs to be facilities based.
2395. I think that one of the things that we learned from the long distance markets is that a resell opportunity is not really much of an opportunity at all. What it is is it a -- at best it is a short-term opportunity that allows you to build some revenue while you are building facilities, which is why I think that the logic of the local telephone decision was so good to limit the period of time while unbundled facilities were available to incent people to build.
2396. What we saw in the long distance markets was precisely that as soon as you opened the markets in 1992 there was a ton of resellers out there who were essentially involved in an arbitrage play. Those resellers proved to be unsustainable in the long term and they are now rapidly converting. They have either gone out of business. They have been consolidated with larger companies and those larger companies are now converting themselves into facilities-based companies, which is a good thing.
2397. It is a good thing because it means that there is extensive investment in Canada. These facilities are very expensive. It is a good thing because it means that there will be long term competition.
2398. My own view is that that is probably a good thing as well from the point of view of ISPs, that ISPs should be incented to build facilities.
2399. Now, where all this takes me is that I think that the model that was laid out in the local telephone decision was a very good model. I think that there is a discussion that is going on right now about access to cable plant by ISPs. In that discussion you have found to date that these are not -- well, you have made no findings with respect to essential facilities, but clearly your conclusion is that they are not essential facilities.
2400. If there is going to be unbundling of the cable companies to provide access for Internet services to the ISPs, that access should be as it is for the telephone companies, limited in time. It should be made very clear to the ISPs that you expect them to build facilities to guarantee that there will be sustainable long-term competition in this area.
2401. I might add that I do not think that this particularly much of a problem. The number of different ways in which you can build ISP-type facilities in this country is dramatically greater frankly than the number of ways you can build telephone facilities. I was reading the Merrill Lynch report on "Broadband to the Home" and there looking at the investment by Bell and the one megabyte modems. They think that Bell is going to do very, very well. They think that the penetration of the Bell modem is going to go extremely well. They think they are going to give the cable industry an excellent run for their money.
2402. They anticipate, and I quote, "We anticipate a roughly even market share split" as between the telephone companies and ourselves for high-speed access to the homes. Indeed the growth projections that Merrill Lynch has is that they think in seven to ten years we believe that perhaps three-quarters of homes in Canada will have some kind of Internet connection. Three-quarters of the homes. That is the total number of the homes right now that have cable connections, and that three-quarters of these will have a high-speed link.
2403. That is quite apart from any considerations with respect to things like microwave, LMCS type services. I mean, as you may know, my general impression is that Max Link and various others are desperately out there encouraging people to come and use their facilities.
2404. So there is a whole series of different ways in which the ISPs can become facilities-based, and my own personal view is that you should actively encourage them to become facilities-based.
2405. THE CHAIRPERSON OF THE COMMISSION: Thank you. Those are all my questions. I turn now to legal.
2406. MS C. PINSKY: Thank you, Madam Chairperson.
2407. I just have a couple of questions. First of all, as you know, several parties have suggested that ISPs that create content ought to be required to give preference to Canadian sites or give fair and equitable access to all Canadian sites. Can we have your response to that proposal and to discuss whether or not you consider that to be appropriate and/or feasible?
2408. MR. R. STURSBERG: Well, I think that to be honest with you I think you got a pretty good answer from the Rogers people that people actively want to do that. That what draws people to a site is information that is relevant and important to their lives. So long as the sites that are established are demand driven, I think you are going to see that in any event.
2409. On the other hand, I am not sure frankly as a practical matter what you would do about trying to make rules. I mean would it be the first page that comes up? I do not know. It is very obscure to me as to how a rule like that would actually work as a practical matter.
2410. MS C. PINSKY: In your Phase One submission and over to a paragraph on page 40, you submit that:
2411. "...certain multimedia content like interactive games include significant audiovisual elements, for example, introductory thematic material, background artwork and like, which would be transmitted to every member of the public and would not change with interactivity in which case the transmission could be for reception by the public."
2412. Or actually you said "would be for the reception by the public." I wonder if I could just understand this statement better in terms of what are the factors are this type of service that would make any transmission for reception by the public?
2413. MR. J. THOMSON: Well, as you know, counsel, this was a quote from a submission from 1994 that we included. It was something that we had put on the record at that point in another proceeding.
2414. But nevertheless, we included it here because one, we had said it before, and two, it still seemed to make some sense in that where there are significant -- and I do not know how you would define significant -- but where there are significant portions of a Web site that are common and they are commonly provided to everyone who accesses that site, then arguably that portion is for reception by the public. Everyone who accesses that site gets that visual image or gets those sounds or whatever.
2415. Now, once they are there maybe they can move on to other portions, but that aspect would still be arguably for reception by the public.
2416. MS C. PINSKY: So presumably then you were just looking not at the interactive nature, but you were looking at sort of the visible appearance of the Web site as to whether or not it incorporated audiovisual material?
2417. MR. J. THOMSON: That is right.
2418. MS C. PINSKY: Those are all my questions. Thank you.
2419. THE CHAIRPERSON OF THE COMMISSION: Thank you very much.
2420. MS SANTERRE: Thank you, Madam Chair. So now we will hear the presentation of the Canadian Broadcasting Corporation/Société Radio-Canada à faire cette présentation.
2421. THE CHAIRPERSON OF THE COMMISSION: Good afternoon or almost good evening. Welcome and we apologize for being a bit late on our schedule, but at least we will be able to hear you today rather than tomorrow.

PRESENTATION / PRÉSENTATION

2422. MR. P. BEATTY: Merci, Madam la presidente.
2423. Je suis heureux de prendre part à cette importante audience qui influencera certainement la future politique canadienne sur les nouveaux médias. Les personnes qui m'accompagnent aujourd'hui sont John Lewis, Directeur exécutif des nouveaux médias pour la Société Marie Pinsonneault, Directrice générale, Développement des Affaires et des Nouveaux médias pour la télévision française, Ian Alexander, Directeur, Planification et Nouveaux médias, radio anglaise, Mark Hyland, Directeur, Développement des Affaires et des Nouveaux médias, télévision anglaise, et Pierre Bélanger, Directeur des Nouveux Médias, Radio Française.
2424. Madam la présidente, Radio-Canada est déterminée à démeurer au premier plan de la révolution des nouveaux médias. Je veux vous expliquer pourquoi, vous démontrer l'étendue de notre présence sur Internet, et conclure par quelques réflexions sur la manière dont les nouveaux médias devraient être gérés dans le cadre de la politique publique.
2425. While no one knows exactly where technology will take us even five years from now, Canadians cannot afford to simply sit on the sidelines and let others decide our future for us. That is why the CBC launched its first Web presence four years ago and why we were the first national public broadcaster to offer audio on our site. In addition to offering about 50,000 pages of Web content, we currently provide more streaming audio and video than any other site in Canada -- some 7,000 hours a day.
2426. Now, the obvious question is, "Why?" Does this make sense, given the CBC's new, leaner economic reality, the dominance of multi-nationals on the Web, the difficulty in developing a realistic revenue model for the Internet, the threat of cannibalizing audiences, and the limitations of current bandwidth?
2427. Madam Chairman, it is precisely for these reasons that the CBC is taking an aggressive approach to new media. Our ultimate goal, partnering with dozens of other players, is to be the premiere source of Canadian news and culture on the Web. Four cardinal points guide all of the CBC's new media activities: service, choice, Canadian content and innovation.
2428. First, our job is to serve our audiences, wherever they are and whatever technology they are using. Although many broadcasters react with fear to the possibility of thousands of new programming sources becoming available, a bigger and better Web can be good news for those who are prepared to take a risk on the future. In some ways, it holds even greater promise for public broadcasters who can take the long view of where technology is leading our audiences. We are on the Web, not in the expectation that we will generate substantial profits in the next quarter, but because that is where we will find new audiences.
2429. We believe that the national public broadcaster should be investing public funds in this new medium, just as in conventional media. That is the only way we can realize its potential for telling Canadian stories, celebrating Canadian talents, and reflecting Canadian realities.
2430. Notre deuxième objectif est d'augmenter les choix offerts aux Canadiens. Quand nous avons comparu devant la Commission durant les audiences portant sur le contenu canadien à la télévision, nous avons présenté une série de propositions faites en fonction d'accroitre substantiellement l'accessibilité et la cote d'écoute des émissions canadiennes. Nous avons fait valoir que les Canadiens étaient en train de modifier la façon dont ils consommaient les médias. Ils exigeaient de nouveaux services ainsi qu'un choix plus étendu, façonnant un monde ou les radiodiffuseurs et les decideurs ne pouvaient plus partir du fait que les auditoires captifs accepteraient ce que les programmeurs leur offraient. Les auditoires insistent pour avoir des choix de contenus qui les intéressent et y accéder au moment ou ils le veulent.
2431. En notre qualité de radiodiffuseur public national, il nous incombe d'offrir aux Canadiens des nouvelles et de l'information pertinentes et de qualité supérieure et de leur donner acces aux histoires qui les concernent. Nous devons etre la ou se trouve l'auditoire.
2432. Si les radiodiffuseurs n'évoluent pas au même rythme que celui-ci et s'ils ne revendiquent pas de nouveaux creneaux, ils seront rapidement relegues aux oubliettes de l'histoire. Les châines spécialisées, les nouveaux services radio et une présence importante sur Internet, voila autant d'éléments de ce qu'est le nouveau Radio-Canada, soit une constellation de services nous permettant de mieux répondre aux besoins de nos auditoires et proposant un contenu canadien distinctif.
2433. Canadian content is our third guiding priority for the CBC. As choices proliferate and Canadians change how they consume media, they will require abundant distinctive Canadian content. The CBC, through its sixty-two years of history, has become the proud steward of Canada's largest collection of Canadian audio and video assets, in English and in French. We are putting them to good use on our Internet sites. On the Web, as in conventional broadcasting, the CBC brand is recognized for its quality, credibility, and Canadian values. It is a safe place for kids. It is a credible Canadian source. It is the door to a vast living resource of Francophone culture. It is a Canadian reference, a link to other Canadian content.
2434. Our presence on the Web helps us maintain and improve our dialogue with Canadians. It helps us offer new programming and reach new audiences. Through it, we can extend and strengthen our radio and television journalism, and create up-to the minute news for the Internet in audio, in video, in text and with interactive components, or commentary from own new media journalists. For Canadians, this means accessing high quality Canadian news wherever they are and whenever they want it. In practical terms, it means getting the latest local Halifax news, as it happens, in Paris. It means getting The World at Six at three in the afternoon if you happen to be in Vancouver.
2435. It simply makes good business sense to build a strong Canadian presence in both conventional and new media. At CBC we have found that, far from cannibalizing each other, they strengthen each other, through cross-promotion, more efficient use of resources and creative synergies.
2436. Ultimately, being on the Web, or for that matter in specialty television, is all about being distinctive and available. Our competitors today are the multinational media giants like Microsoft or AOL. They will be present in Canadian markets, just as they will be present throughout the world. The question is whether Canadians will also be present, whether we will have the vision and the courage to stake a Canadian claim to the future.
2437. The Wall Street Journal today quotes George Bell, Chief Executive Officer of Excite, Inc., as saying that AOL's plan to buy Netscape, in his words, "accelerates the notion that there is a Microsoft Web and a non-Microsoft Web dominated by AOL." As the Journal states in its article, "(t)hat noise you heard yesterday was the race to make deals as the Web starts to consolidate into the hands of a few giant powerhouses." Will Canada have its own place on the Web, or will it simply be relegated to the back corners of sites controlled by multinational giants?
2438. If Canada is to benefit fully from the promise of the new technologies, we must offer our audiences content and services that they want and that they will not find elsewhere. In the global cultural battle, our distinctive truly Canadian content can give us a great advantage.
2439. We have to capture our own piece of the Web early and invest for the long-term future. We also have to strengthen and promote our corporate and program brands, since the Web is every bit as much a contest over brands as is the battle for TV audiences.
2440. And yes, we expect to generate revenue on the Internet. In fact, we are already doing so. And we are entering into an increasing number of New Media partnerships. Our partners value us for our expertise, our audiences, and above all our content. The CBC is open for business on the Web.
2441. Our fourth principle is innovation. These new technologies require fresh thinking about every aspect of our business. To remain relevant, we must continually innovate.
2442. For the first time, audiences, and not the media companies are in control. They can choose the content that they want and design their own schedules. New technologies allow the computer or the television set to become studio and control room rolled into one.
2443. This new technology also provides us with an interactive laboratory to learn and to do our job as Canada's public broadcaster better. For example, a Radio-Canada reporter did not need a studio, a team or a dedicated phone line to file a story from Hong Kong during its transition from British to Chinese rule last year. The item was edited on and filed from a laptop computer through the Internet and was aired on national radio minutes later. Clearly, new media have expanded our business in providing content. They have also become an important component of our existing constellation of services.
2444. We want to highlight where they fit in the following presentation. This presentation, developed using advanced Internet graphic technology, will be available on our Web site at cbc.radio-canada.ca

--- Video presentation / Présentation vidéo

2445. MR. P. BEATTY: There is no doubt that new media's potential for truly linking and uniting people across Canada and around the world is very real.
2446. The goal of public policy in this new environment -- to promote Canadian jobs and prosperity, to offer our citizens new services and choices, and to support and enrich our country's culture -- are as valid today as ever, but we need to find new tools to achieve those goals.
2447. In our view, public policy must promote content and access, not restrict it. Reacting too quickly in extending existing regulations to new media could impede its development. Indeed, attempting any form of regulation beyond ensuring fair and equal access would be fraught with problems, given the global nature and geographic transparency of the Internet.
2448. As the Broadcasting Act states, the regulation and supervision of the Canadian broadcasting system should "not inhibit the development of information technologies and their application or the delivery of resultant services to Canadians."
2449. Le Canada a besoin d'une politique d'encadrement pour élargir les valeurs et les principes contenus dans la Loi sur la radiodiffusion. Nous avons besoin d'offrir du support aux radiodiffuseurs ainsi qu'aux autres producteurs de contenus pour qu'ils puissent pénétrer dans cet univers des nouveaux medias, et donner aux distributeurs les moyens de mettre au point le plus rapidement possible des services d'accès à grande vitesse aux nouveaux médias. Nous avons aussi besoin de garantir aux fournisseurs de contenu canadien qu'ils aient le plus grand accès possible aux utilisateurs d'Internet. Nous devons encourager tous les radiodiffuseurs canadiens à contribuer à ce que le Canada conserve son role de chef de file dans les nouveaux médias.
2450. Nous reconnaissons que, entant que radiodiffuseur public, nous avons une responsabilité spéciale par rapport aux nouveaux médias. Nous avons l'intention de jouer pleinement notre role, d'être la pierre angulaire du contenu canadien sur Internet.
2451. Now, both the Interactive Multimedia Arts & Technologies Association, representing new media producers, and the Canadian Conference of the Arts, representing Canadian artists, believe that the CBC should be playing a significant role as the primary aggregator of Canadian content.
2452. We accept that challenge. Here is our commitment.
2453. First, we will continue to build new partnerships with other content producers and service providers.
2454. Second, we will work with them to dramatically increase the range of content and services available to Canadians.
2455. Third, we will strengthen the Canadian new media industry and champion its development.
2456. Fourth, we will project the face of Canada abroad.
2457. Simply put, our goal will be to create a critical mass of content and services to ensure that Canadians can never be relegated to a back corner of the Web.
2458. The users of new media themselves will determine what they want and how they want it. Our responsibility is to ensure that they have abundant and attractive Canadian choices when they make that decision.
2459. Thank you, Madam Chairman.
2460. THE CHAIRPERSON OF THE COMMISSION: Thank you very much and thank you for this presentation and your active participation and I see that you are really contributing your experience with the Web because you have been quite active. You will forgive me if I do not associate any of my questions with some specialty applications that are presently in front of us or what is the role of the CBC generally speaking or things that will come with renewal of license at a further date. I will really try to concentrate on the matter of the proceeding.
2461. MR. P. BEATTY: Does that mean, Madam Chairman, that I am not allowed to smuggle any reference to --

--- Laughter / Rires

2462. THE CHAIRPERSON OF THE COMMISSION: As I have said many times, there are never any questions that are indiscrete, only the answers.
2463. I would first start with the thing that we have tried to reconcile with many intervenors where they say it is important that certainties give there for the industry digital world and the people involved in the new media universe, and yet many, and just as the cable before you said five years, you say yourself in the first page actually of your presentation in section 1 that on one hand we have to really take away the uncertainty in the paragraph on 13 an immediately after you say, well, there should be a governmental policy that would cover a period of from three to five years. There is that magic figure of five years again.
2464. What would be your answer to the fact that on one hand we try to see if we cannot alleviate some uncertainty there and yet you recommend a period of three to five years before we make any further determination?
2465. MR. P. BEATTY: Madam Chairman, we tried to be quite clear in our presentation that we do not favour regulation of the Web, but that does not mean that there is not a place for public policy.
2466. What I have tried to indicate in my presentation today is that the goals of Canadian public policy, cultural public policy remain as relevant today as ever. To try to create Canadian jobs and opportunity, to try to ensure a strong Canadian presence, to ensure that our children have a chance to be exposed to values that represent this country. The question is the tools that we use to achieve that. I happen to think that this hearing, why the Commission. I know there has been a good deal of discussion about it and whether the Commission should even have entertained discussion of its role in new media.
2467. I happen to believe this initiative was an important one and a good one on the part of the Commission. It was made clear by the Commission from the outset that you were not simply looking at where you could regulate to effect public policy, but rather that you would want to stimulate a debate about where we should be going as a country and what role each of the partners should play.
2468. I think there is a role that government should play, whether directly on the part of the Commission in terms of ensuring that we do not get bottlenecks in the system that limit access to the system or on the part of government itself in terms of encouraging Canadians to get on to the Web to become suppliers of new media, to provide services and new content in new media. There is certainly a strong public policy role for the public broadcaster to play in terms of championing that cause and ensuring a presence for Canadians in new media.
2469. THE CHAIRPERSON OF THE COMMISSION: That does not give me my answer of why the three to five years. What is magic about the three to five years? What do you think will be happening in the next three to five years that will be elements that would make us all the more knowledgeable and more capable of having a more firm position in that still quite strange universe?
2470. MR. P. BEATTY: We used the figure three to five years simply because the horizon is so short when we attempt to look at where this technology is taking us.
2471. Today, Madam Chairman, this morning we had the announcement by NetScape and AOL of a massive merger, where the two most heavily visited sites on the Web, or two of the top four, are merging under control of one organization. This is such a fast moving environment, both in terms of the commercial aspect and in terms of the technology, that to pretend that we can appear way beyond five years, ten years down the road or wherever and predict where we are going to be at that time is I think simply realistic -- unrealistic.
2472. If you take a look at where we have come from in the last three to five years with the advent of streaming audio and streaming video on the Web with the tremendous increase in the number of pages available, with the development of new search technologies, this is an environment that is completely different from what we would have anticipated even five years ago. So the reason why we said that in terms of a policy framework we should be looking at a three to five year period, is that I think probably strains our capacity in terms of predicting where we are going for the future.
2473. THE CHAIRPERSON OF THE COMMISSION: Tell me, what should be, if we are to monitor and not regulate for the next five years, what should be the elements by which the Commission should say we have to review. There has been so many things happening. The impacting, for example, the traditional media, that we should do something. What would be for you the elements that should keep us on our toes?
2474. MR. P. BEATTY: The single most important concern that I have relates to the issue of bottlenecks on the Web. I am concerned about the development of the sort of bipolar world that was mentioned by the CEO of Excite in the Wallstreet Journal today where he talked about the Web dividing into Microsoft and their allies and the non-Microsoft world led by AOL.
2475. If that were to become the case, then the issue would be access to those sites. How can you ensure if those are the gatekeepers that you in fact have a presence there?
2476. But from our point of view it would be intolerable for us as Canadians to assume that we would be getting our Canadian news, that our source of Canadian news would be a Canadian section in the New York Times. It would be intolerable to us to believe that we would get our television news as a section on the NBC nightly news and it should be intolerable to us as well to assume that we would be relegated to only a corner in a large multinational corporate site. Our goal must be to ensure that where bottlenecks develop that we find ways of ensuring that they cannot control the market.
2477. Now, in some cases this will involve the ability of the Commission to intervene. For example, the carriers involved in developing that. In other instances it may require that other policy interests be used, possibly not by the Commission but by government or others.
2478. THE CHAIRPERSON OF THE COMMISSION: But from the presentation we had earlier this morning with AOL and with cable, most of the players see that the relationship they are building with the consumer, the viewer, whatever name we find, but the citizens that we are, is such that it really compels almost the use of Canadian content. So the bottleneck that you are describing, I wonder if it is by experience or more anticipation if it was to be played differently than what we have observed up to now?
2479. MR. P. BEATTY: I certainly welcome the incorporation of Canadian content on to multinational sites. Nobody would seek to prevent that any more than I would prevent the New York Times from covering Canadian news. I read the Times every day and I am quite fascinated by their take on Canadian issues. But I would hate to see the Times becoming the major source of my information about Canada.
2480. We supply -- at CBC we supply a video to CNN. I would hate CNN to become the major source of information about what was taking place in Canada. The same applies here.
2481. I certainly welcome the presence of major international players in Canada. I welcome the fact that they have an incentive to add Canadian content to their sites. But I hope that we do not put all of our eggs into that basket and we do not assume that we can entrust our future to a mega corporation outside of our borders to put our interests first. This is not Canada On Line we are dealing with. It is AOL. It is important for us to ensure that there is a strong Canadian presence and that we have Canadian players dedicated to ensuring that Canada's interests come first.
2482. One of the public policy instruments that are open to government views is of course the national public broadcaster, the CBC.
2483. THE CHAIRPERSON OF THE COMMISSION: Don't you find it a bit strange that not very many intervenors have suggested as you are suggesting the role for the CBC to become an aggregator? That in the public tools or the funding that has been discussed, no regulation or regulation has been discussed. But the kind of partnering with the CBC is something you have put forward but has not been kind of put forward by many intervenors. How do you explain this?
2484. MR. P. BEATTY: If you are drawing a comparison to say hearings that we have on broadcasting, you have a very closed universe there and clearly any time anyone talks about their position in the broadcasting universe, the CBC's name gets invoked as well.
2485. In the case of the new media environment you are dealing with something that is very open and where there are dozens of suppliers doing their own thing on the Web, many of whom partner with us. Many of them whom look to us to provide leadership.
2486. What has been encouraging to us has been the number of people who have contacted us saying they would like to build that sort of a partnership with us and indeed my understanding is that in the context of these hearings that indeed some of the intervenors have suggested that. I do not know whether Mr. Lewis wanted to add to that.
2487. MR. J. LEWIS: Well, maybe I could just add, as we indicated I think in either our presentation or in the oral -- the opening remarks, that just as one example in our English language info culture site we have in excess of 300 partners. We are encouraging it. We are being open and we are finding a very strong response back. It may not have appeared in the hearing today, but certainly our experience is very strong in that fact.
2488. THE CHAIRPERSON OF THE COMMISSION: Given what has been filed with us in terms of written intervention and what seems to be verbally defended that there is enough material out there that there is really, you know, what is more missing is financial support either to have access to capital or financing of projects, why would you see that public institutions have to get involved at this point in time rather than the private sector taking care of the matter and maybe needing much more tax incentives or some direct funding?
2489. MR. P. BEATTY: It should be both. We are certainly not arguing that only CBC should be a player for example among broadcasters on the Web; far from it. We would encourage our colleagues from the private sector to get actively involved. All you have to do is look south of the border.
2490. I just came back from speaking at the UN forum on television and on the panel were representatives of CBS and of NBC. They are making massive commitments to new media. They certainly see a business plan that justifies their being there. I would hope that our private sector colleagues in Canada would find the same, that we do not simply allow the space to be occupied by others.
2491. So I would argue in the case of new media, as I would in the case of broadcasting, that we should have a mixed system, that both public and private players should be present. But the special obligations fall upon the CBC to help to provide leadership and to assist in the development of the industry and in the health of many of the partners involved.
2492. It is perhaps in some ways even more important in the case of new media where so many of the players are new entrants into the market where they do have that difficulty in terms of getting access to capital, getting publicity, having people even recognize the fact that they exist. It is why that we have been looking for ways that we can partner with them to promote their efforts in new media, whether it is in CD-ROMs or in shared partnerships that we would have with them and providing material on-line as in the case of Info Culture.
2493. THE CHAIRPERSON OF THE COMMISSION: If I put aside your proposal of being that aggregator and your already quite important involvement in that universe, do you think a public broadcaster today has the choice of getting involved or not involved in the new media universe?
2494. MR. P. BEATTY: I do not believe that we do. I believe that to miss the opportunity to move into new media is to consign yourself to the past. I think, Madam Chair, that we are seeing something as profound taking place as when FM came along. We saw broadcasters at that point with AM licenses, sitting on their AM licenses saying that, "Nobody has FM receivers, why should we bother applying for an FM license. In any case, if people get -- if new FM stations open up, all they will do is decannibalize the audiences that we have today for AM."
2495. Those people who had the vision and the courage to go ahead and to move into FM, to use the new unproven technology and to develop the market are the ones who are surviving today. Those ones who sat on their AM licenses and refused to budge and who denied reality, are the ones who are disappearing.
2496. I would argue from my perspective as a broadcaster, whether public broadcaster or private broadcaster, that if we confine ourselves only to conventional media, we confine ourselves to the past, that the way in which our audiences consume media is changing and that we have an obligation to change with them. If we lock ourselves into old models from the 1960s and 1970s, we will be left back in the 1960s and 1970s.
2497. That is particularly the case for a public broadcaster where I think we can provide leadership in helping the industry develop and in taking a long view and saying, "We do not have to turn a profit on this in the first quarter, but we do have an obligation to ensure that there is a strong Canadian presence there," and that our voice is being heard that would not otherwise be heard and help with the development, not simply the public presence, but also help the development of a private sector presence on the Web at the same time.
2498. THE CHAIRPERSON OF THE COMMISSION: What is your assessment of the current supply? There was some discussion that is about although we do not have real measurements of the situation of the net, there is assessment that probably five per cent of what is to be found is Canadian. Do you find that it is an acceptable level? Do you find that supply is not really a problem? Right now as we speak, I understand that you say in the future the bottleneck situation can occur, not that it is there yet, but it could, but as we speak, given your implication and involvement, what is your assessment of the Canadian supply?
2499. MR. P. BEATTY: First, the share of pages on the net and the share of content on the net that Canada has today is not acceptable to me. It is something that I believe should be considerably higher. I am worried that unless we work at it very aggressively, we will find that that share declines.
2500. But having said that, that is the menace, the threat. I take a look at new media and all I see is opportunity. Opportunity for the CBC and opportunity for Canada.
2501. It is particularly the case on the French side. There is a dearth of French language material. The leaders of the Francophonie have mentioned a very deep concern that they have that there is so little French language material. Here is an opportunity for Canada to provide a position of leadership ensuring that French language material from a Canadian perspective is front and centre on the Web.
2502. Secondly, if you take a look at the penetration of the Web into Canadian homes and offices, Canada as usual is in a position of leadership in terms of adopting these new technologies. If you look at the development of new software, again, Canadians are front and centre. If you look at the need for us to use these new technologies to knit our country together and to communicate with the world, Canada again is front and centre.
2503. If I were looking at designing an industrial strategy for Canada, I would look at those areas where we have first of all the expertise, and secondly, the requirement to have a strong presence. I would see that as a great opportunity for us to assert Canada's place in the larger world.
2504. So yes there is -- if we miss this opportunity, we can be pushed back and we can lose our place. If we seize the opportunity, this is a wonderful chance for Canada to move into a position of even stronger leadership in communications.
2505. THE CHAIRPERSON OF THE COMMISSION: I hear you and I see the will of the CBC to be a partner and to help creating visibility for Canadians. But you are saying somehow that the supply is not quite there and you were mentioning earlier that the financing is not there. What would be the means in order to support? Because even if you are willing to get involved, if I recall correctly, you do not have endless resources, financial resources that you can devote to that. Who is going to be the missing piece here? The money, where will that come from and where will that nourish?
2506. MR. P. BEATTY: Does the government have a role to play? Sure they do and many people you have had before you have suggested the possibility that government can provide assistance for the development of content.
2507. We chose our words fairly carefully in our brief in saying the government should consider or should look at what is being done in terms of providing incentives rather than taking what people might have expected which was being approached, simply saying, "There is a problem. The government should write a cheque and solve the problem." I think we have to live in the real world and recognize that government has serious restraints on its ability to simply write a cheque.
2508. That makes it all the more important. If I can make my attempt to smuggle in reference to other matters, whether here or in conventional media, it makes it that much more important that we leverage the resources that we have today, our existing resources, in partnership and in terms of developing new channels of communication with audiences to get maximum value for what we are doing.
2509. We know that CBC is not rich enough to go it alone. To develop -- if you look at the size of the budgets that are being poured into this by our counterparts south of the border, there is no way we can hope to match anything like that. The only way that we can develop the critical mass that is necessary to be successful on the Web is by partnering with dozens and dozens of others each of whom bring content.
2510. I understand this comes from working together with others will allow us to build something which will extend considerably what any individual could do by himself. Will there every be enough money? No, there will not. Can we expect the government will simply write a cheque to solve the problem? I do not think it is realistic to think so.
2511. But that is not an excuse for us to not do what we can do together to ensure that strong Canadian presence.
2512. MR. J. LEWIS: I wonder if I might -- excuse me, Chairman.
2513. THE CHAIRPERSON OF THE COMMISSION: Yes.
2514. MR. J. LEWIS: I wonder if I might throw a concrete example of that. You saw in our video presentation our CBC For Kids site. That in fact is done by an outside company commissioned by us in order to be able to respond to what we felt was a need and what we felt was an area where we could provide programming that responded to our mandate and responded to what Canadian children are looking for.
2515. That initiative we had sufficient funds to be able to pay for the development of the site. But in addition to that, what we offered the independent producer was marketing on the CBC facility. So we do on our Internet site and on our radio make reference to this site.
2516. In addition to that, we have worked with a company to develop a CD-ROM that is a spin-off from that that the company expects to be able to benefit financially from. In addition to that, the CD-ROM has been spun off into a board game.
2517. So you can see if we take one product, we can provide the incentive for a third party to come in and lever up what it is that they do well.
2518. MR. P. BEATTY: Madam Chairman has the CD-ROM to which Mr. Lewis was referring.
2519. THE CHAIRPERSON OF THE COMMISSION: But why that approach rather than for example the one of Bell that has a fund that supports new media products or adventures. Why the choice you have made of being the one producing, choosing? Why do you find that it is -- and I am not here, you know, I do not want to discuss the role of the CBC here. What I want to discuss is more beneficial for the flourishment of the new media environment.
2520. Why did you feel that what was more important was to pick and choose and have partnerships rather than do like a fund and say, "Well, we will choose that many a year"?
2521. MR. P. BEATTY: In the case of the Bell it is easy to understand why they would feel it is appropriate for them to provide assistance to others to develop content rather than developing it themselves. They are not first and foremost in the content business.
2522. In our case we are, and our first obligation is to ensure that we commission or produce ourselves material which is high quality Canadian content for Canadian audiences. So that what we have been doing whether it is in new media or in our conventional media, is to contract where it makes sense for us to do so, or to partner with others in other instances where they can bring special strengths to us to ensure that we can develop content for Canadian audiences that we can offer in our role as a content producer, packager, promoter or distributor. Their function is essentially -- as a carrier is fundamentally different from ours as a content producer.
2523. MR. I. ALEXANDER: I wonder if I might as well, the way that the new media organization is structured within the CBC, as you can see with the four folks from radio and television, English and French, the conventional media form very much a key element of our new media strategy and the structure. So that that allows us to take advantage of the assets that we have in radio and television.
2524. So we are leveraging those assets up. So that would tend towards, as Mr. Beatty has said, the notion of CBC as a content provider.
2525. MR. P. BEATTY: The other point I think I would make, Madam Chair, and it is a scenario where conceptually my own thoughts are developing, and I would invite colleagues if they disagree at their peril to intervene as well.
2526. But my sense is that as we see Web sites grow and develop, like the development of the Web itself, there is an exponential increase to the value of the site or the value of the Internet as you add bulk, as you add critical mass. As we are able to partner with others, either commissioning work from them to go on our site or developing partnerships, such as in the case of Info Colture where we have links to other cultural sites, it increases the value of everything that we are doing and increases the critical mass, the --
2527. THE CHAIRPERSON OF THE COMMISSION: I understand that. I understand why you are doing it from a public interest point of view and business point of view. What I was asking is from the point of view of the development and the growing of the new media environment, is this the best way? The receiver end rather than the --
2528. MR. P. BEATTY: I guess my answer on that is that we are not primarily a funding agency. If the government chooses in its wisdom to establish new funds for the production of new media, God bless them. Or if they do not, we are not going to oppose that. We are strongly in favour of anything that generates new Canadian content. But we have got to do our part as well and we are looking to partner with others in the way that is most appropriate to us and to our mandate to make a contribution to strengthening Canadian new media. This is the way that we as one player in the system can best make our contribution.
2529. THE CHAIRPERSON OF THE COMMISSION: Okay. Given your experience in both worlds, the new media and the conventional one, some intervenors have suggested that expenditures for Canadian content on television could be devoted to the new media production or content. What is your view about this proposal?
2530. MR. P. BEATTY: At first blush my response would be that I would not favour that. Money is too scarce as it is now for the production of Canadian television. We are in a pitched battle to ensure that we have both the quality and the quantity of Canadian programming on Canadian television to ensure stronger Canadian audiences.
2531. The same argument could have been made or could be made today about Canadian radio programs. Why don't we have a production fund for Canadian radio programs or use part of the Canadian television fund for radio or for new media or for any other activity?
2532. What we do, I think, if we were to do that, is simply dilute our ability to ensure a high level of high quality Canadian content for TV. If the government feels that it is desirable to inject new money into the system to ensure the flourishing of new media, it should in my view be an earmarked separate fund that would do that.
2533. THE CHAIRPERSON OF THE COMMISSION: Okay. My last question before I turn to -- given your concern about filter and the fact that a global system that has been imagined to be totally open can have a situation of bottleneck, do you think that we should consider the possibility of regulating or having a special eye on the aggregator and the ISP and the ones you feel that might be the filter in this system?
2534. MR. P. BEATTY: I am certainly not advocating intervention at this point or regulation at this point. I think all of us have to keep a watching brief on how the industry develops.
2535. The nature of the industry is that we may very well see choke points developing that we cannot even imagine today. Three days ago we did not anticipate the merger taking place between AOL and NetScape. That may very well have very significant impacts down the road. There may be other developments that we simply cannot anticipate today. Whether the Commission, or government more broadly, it certainly makes sense for all of us in the system to keep a watching brief on this and to ensure that it is functioning well.
2536. I do not think that when the Commission called these hearings that they anticipated that they would have a package neatly tied with a bow on the top and there would be no loose ends on it at all. My starting point is that Bill Gates keeps on getting it wrong. A couple of time she has attempted to add --
2537. THE CHAIRPERSON OF THE COMMISSION: Rich, but wrong.
2538. MR. P. BEATTY: A couple of times he has attempted to move into content on the Web, not terribly successfully with the Microsoft network, a questionable success so far. But I do not think I am smarter than Bill Gates. I think with all of his resources and with all of his success and with the fact he keeps on getting richer, he probably knows as much as any of us does about where this is going. If he gets it wrong, how can any of us expect that we will have some sort of perfect view of where the world will be five years from now.
2539. So simple prudence would suggest to me that we look at the trends, we look at the issues that we see today. We try to ensure that public policy plays a role in terms of guiding the broad direction in which we are going. We ask all of the players in the system to make their unique contribution and we continue to work together as individual players in the system to ensure that it develops in the future in a way that is healthy. As problems develop, as inevitably they will, we will have to, from time to time, come together and discuss how best to deal with those.
2540. THE CHAIRPERSON OF THE COMMISSION: Thank you very much.
2541. MS K. MOORE: Thank you, Madam Chairperson.
2542. I just have one question and I note that your Director of Regulatory Affairs is not with you today, is that right?
2543. MR. P. BEATTY: Our legal counsel unfortunately fell ill this afternoon. He was here yesterday. He was here this morning.

--- Laughter / Rires

2544. MS K. MOORE: I will pose the question but you may prefer to address this in your final written argument and that would be fine as well.
2545. You have stated at page 25 of your written submission that there are not currently any Internet related undertakings whose primary function is the transmission or the reception and retransmission of programs. So in other words, in your view I take it that it is that there are no Internet related undertakings whose primary function is broadcasting.
2546. I was just wondering if you had any views as to -- at what point the primary function of an Internet related undertaking would be broadcasting? Is there a threshold percentage of an operation that would have to be devoted to that to constitute primary function? Then finally, what would you consider the primary function of sites currently offering access to radio signals via the Internet to be?
2547. MR. P. BEATTY: John.
2548. MR. J. LEWIS: I will take a crack at it, but we will do it in our final submission as well.
2549. MR. P. BEATTY: Can we see how he does and then reserve the right to get back to you if does not sound good?

--- Laughter / Rires

2550. MR. J. LEWIS: Actually, we thought you would never ask. You know, we were waiting in anticipation for the question that you have been asking.
2551. I guess in our discussion of this we looked at it as a continuum. At one end you have e-mails and surely that does not fall under any of the definitions that are in there. It is pure alpha-numeric text. In the other end you have streaming media, which we would acknowledge is in effect program and subsequently falls into the -- just as a program, would suggest that it falls under the jurisdiction of the Broadcasting Act.
2552. However, there are the three elements that have been talked about numerous times yesterday and today. One of the three areas that would cause the greatest concern would be reception by the public. Is this one on one? This is interactive? Is it simultaneous? What differentiates it? In our mind you have to explore that to be able to answer the other questions that you have in terms of primary function.
2553. MR. P. BEATTY: How did we do?
2554. MS K. MOORE: I will just say thank you and those are my questions, Madam Chairperson.
2555. THE CHAIRPERSON OF THE COMMISSION: So before we let you go, if I resume correctly what your thoughts are, there is no real role for the CRTC but there is an important one for the CBC.
2556. MR. P. BEATTY: Madam Chair, I would never suggest that. I would certainly agree with the second half of your proposition. I would never suggest that in the first half. I think that these hearings themselves are an important initiative taken on the part of the Commission and they were launched by you as a means of stimulating a public debate and ensuring that all of the players played their role. I think that in itself is important and I believe as well that when we talk about the bottlenecks that could develop that there may very well be an important role for the Commission to play in ensuring that that does not take place.
2557. THE CHAIRPERSON OF THE COMMISSION: Thank you very much for participating. Thank you.
2558. MR. P. BEATTY: Thank you for having us.
2559. THE CHAIRPERSON OF THE COMMISSION: That concludes our day, and tomorrow we return at nine o'clock with Chair Colville.
2560. MS SANTERRE: Maybe you wish to announce that Microsoft will not be appearing tomorrow. So we will start with the next appearance.
2561. THE CHAIRPERSON OF THE COMMISSION: So the first intervenor tomorrow will be?
2562. MS SANTERRE: Will be Canadian Independent.
2563. THE CHAIRPERSON OF THE COMMISSION: Okay. So have a good evening and see you tomorrow.

--- Whereupon the hearing adjourned at 1825, to resume

on Wednesday, November 25, 1998 at 0900 /

L'audience est adjournée à 1825, pour reprendre le

mercredi 25 novembre 1998 à 0900