ARCHIVÉ - Transcription - Vancouver, BC - 2000/04/26
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TRANSCRIPT OF PROCEEDINGS
FOR THE CANADIAN RADIO-TELEVISION AND
TRANSCRIPTION DES AUDIENCES DU
CONSEIL DE LA RADIODIFFUSION
ET DES TÉLÉCOMMUNICATIONS CANADIENNES
SUBJECT / SUJET:
APPLICATIONS FOR TRANSFER SUBMITTED BY
CANWEST GLOBAL / CORUS / SHAW
DEMANDES DE TRANSFERT DE LA PART DE
CANWEST GLOBAL / CORUS / SHAW
HELD AT: TENUE À:
Plaza 500 Hotel Hôtel Plaza 500
Ballroom Salle de bal
500 - 12th Avenue West 500, 12e avenue ouest
British Columbia (Colombie-Britannique)
26 April 2000 Le 26 avril 2000
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
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.
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
Conseil de la radiodiffusion et des
Transcript / Transcription
Public Hearing / Audience publique
Applications for transfer submitted by
CanWest Global / Corus / Shaw
Demandes de transfert de la part de
CanWest Global / Corus / Shaw
BEFORE / DEVANT:
Françoise Bertrand Chairperson / Présidente
Chairperson of the
Commission /Présidente du Conseil
Andrée Wylie Commissioner / Conseillère
Joan Pennefather Commissioner / Conseillère
Cindy Grauer Commissioner / Conseillère
David Colville Conseiller / Commissioner
ALSO PRESENT / AUSSI PRÉSENTS:
Marguerite Vogel Secretary / Secrétaire
Karen Moore Legal Counsel /
Robert Ramsay Hearing Manager / Gérant de
HELD AT: TENUE À:
Plaza 500 Hotel Hôtel Plaza 500
Ballroom Salle de bal
500 - 12th Avenue West 500, 12e avenue ouest
British Columbia (Colombie-Britannique)
26 April 2000 Le 26 avril 2000
TABLE OF CONTENTS / TABLE DES MATIÈRES
PHASE I (cont'd)
PRESENTATION BY / PRÉSENTATION PAR
Corus Entertainment (cont'd) 315
Shaw Communications 495
INTERVENTION BY / INTERVENTION PAR
Hugh Delaney 524
Alberta Motion Picture Industries Association 529
Ray Peters 547
Craig Broadcast Systems Inc. 561
Canadian Film and Television
Production Association 627
CTV Television Inc. 656
CHUM Limited 684
Communications, Energy and
Paperworkers Union of Canada 707
Vancouver, B.C. / Vancouver (C.-B.)
--- Upon resuming on Wednesday, April 26, 2000
at 0758 / L'audience reprend le mercredi
le 26 avril 2000 à 0758
1557 CHAIRPERSON OF THE COMMISSION: Madam Secretary, could you introduce where we are at, so that we take the right page.
1558 MS VOGEL: Thank you, Madam Chairperson.
1559 Yesterday afternoon Corus completed their opening remarks and we are ready to start Commission questioning of the Corus panel this morning.
1560 CHAIRPERSON OF THE COMMISSION: Thank you.
1561 I would ask Vice-Chair Colville to start the questioning.
1562 COMMISSIONER COLVILLE: Thank you, Madam Chair.
1563 Good morning, Ms Shaw, Mr. Cassaday, gentlemen, and Ms McNair, sorry.
1564 We are going to follow this morning, I am going to lead off with the questioning and some general questions on overall strategy and then some questions with respect to the premium television, pay and specialty services. As our friends from CanWest Global indicated yesterday there was one question that they had prepared for and I know that there is one that you had prepared for too and you referred to it somewhat in your presentation yesterday, so we will pursue that one a little bit.
1565 Then, my colleague, Commissioner Pennefather, will pursue a number of questions with respect to the radio issues and then Commissioner Grauer will follow up with some questions relative to benefits and that should complete our questioning. There may be a few follow-ups at the end.
1566 I would like to start with actually just turning to the presentation that you did for us yesterday and talk about some overall sort of strategic issues, if we can, for a few minutes and just get a sense of where you see the industry going and Corus' position to deal with the future of this business. You referred to the tall trees and how you wanted to be a tall tree in this environment on a going forward basis.
1567 I guess I might like to start with the questions that you posed yourself at page 2 of your presentation when you talked about the consolidation front and the mergers that you noted at Disney and ABC, CBS and Viacom and Time Warner AOL, and then you went on to refer to Québécor, Rogers and Videotron and Rogers/Shaw asset swap and so on, and you posed three questions there of how are we positioned to compete? Do we have the right asset base and critical mass and vision to succeed and, if not, what can we do about it.
1568 I guess I would like to ask you in turn if you could tell us how you answered those questions and how you addressed it, what you think those questions tell you about where you should be going and where the industry in general is going.
1569 MR. CASSADAY: Thank you, Commissioner.
1570 When we look at the market that we compete in we look at it from the global perspective. As we indicated in our brief, there are really two supertanker trends, if you will, that have focused our intention. The first is as it relates to technology.
1571 Clearly, there are a number of things happening on the technology front that are causing us all to pause and reflect on the direction that we should go in the future.
1572 There are three elements that we wanted to touch on with you this morning. The first is the Internet and the impact that the Internet is having on our business.
1573 Certainly we are all aware of the phenomenal growth in Internet usage around the world, but also in Canada. Canada prides itself on perhaps being the most wired nation in the world, but it is a phenomena that will have a significant impact on our television audiences and our radio audiences. We estimate that there are thousands of radio companies on the Internet right now. In Canada there are probably 150 Canadian radio stations streaming onto the Internet. So, obviously, a question is what are the implications of that.
1574 We are also very mindful of the fact that there have been a number of changes in terms of the distribution platforms. Notable is the impact of digital. We are seeing it with the emergence of DBS in the United States and DTH here in Canada. We estimate there will be over 1 million DTH subscribers in Canada by the end of this broadcast year, substantial rates of growth there.
1575 We also are looking forward to the advent of full scale deployment of digital cable, which will again open up huge opportunities for growth, but also put intense competitive pressure on our various services.
1576 Then, of course, we also are looking out of the side of one eye at the possibility of satellite radio coming to Canada at some point in the future. As you know, there are two companies in the United States, Sirius and XM-Radio, who are poised to launch next year. They have significant arrangements with major automotive companies, and we suspect that there will be in some form the arrival of that technology in this country in the foreseeable future.
1577 Then, made possible through digital, of course, is the whole notion of interactivity and the ability of people to start interacting with our programming and with the technology that's in place, particularly as it relates to e-commerce, but also gaining in other forms of entertainment that will serve to fragment our audiences. So these are significant technological trends that present both threats and opportunities to us in our business.
1578 We also talked in our brief about the impact of consolidation. There have been a number of forms of consolidation that we have seen. The reasons for each deal have been somewhat different.
1579 For example, the ABC Disney deal we think was really about ensuring that a studio had access to slots and they were concerned that with the consolidation of major players that they wanted to ensure that the Disney studio had homes for its programming. Of course, we have seen the Saturday morning block on ABC now largely taken up by Disney programming.
1580 In the case of Viacom and CBS, a mega-merger which has resulted in a company with a positioning not dissimilar to ours and that is a company with a focus, to some degree anyway, on kids and music. They, of course, are being able to take advantage of huge integration possibilities with their asset base.
1581 Then, the Time Warner AOL activity which, you know, Heather referred to as the granddaddy of all deals. A question still arising there, did they do it because content is going to be the king in the future or because distribution, or was it just a marriage of content and distribution, but clearly a huge deal, notable for a number of reasons, but I think the thing that certainly surprised us the most was the fact that it was AOL buying Time Warner and not Time Warner buying AOL.
1582 In Canada, we have started to see the reaction of that with Rogers' attempt to consolidate their distribution framework into a cluster and then, subsequently, Shaw and Rogers agreeing to try to even refine the market a little bit more specifically, so that they can really approach the consumer with bundled goods, including video, telephony and Internet, which again bundling is another word which has become a popular term in our deliberations these days.
1583 So to your point about -- and then, of course, we need to of course mention the BCE-CTV proposal, which has occurred in the last couple of weeks.
1584 So what are the implications for us in Canada? We introduced the notion of tall trees yesterday because we as a country have put such a premium on the importance of protecting our cultural sovereignty that through the chorus of negotiations at both NAFTA and FTA, the one thing that was not on the table was culture. Cars were on the table, wheat was on the table, eggs were on the table, everything was on the table with the exception of culture.
1585 So our conclusion is if it was worth that effort, then it must be worth ensuring that we have companies that have sufficient strength to carry the ball down the field and do the job that needs to be done.
1586 We believe that going forward because of the fact that culture is going to increasingly be under pressure to be defined as trade, that we will have significant pressure exerted on us in the United States to take down many of the protectionist measures that we have in place, and that, of course, is going to mean that the people that are left in the Canadian broadcasting business are going to have to have the financial capability to withstand the pressure of more direct competition. We feel that our company, with its capital base, is such a company going forward.
1587 We also expressed in our vision the importance of beginning to look beyond Canadian borders to ensure our long-term success. Michael Porter has written extensively about what it takes to compete successfully internationally and his conclusion is to compete successfully internationally you have to be able to compete successfully at home.
1588 What we have said is critical to our vision of being viewed as positively internationally in the field of kids and music as Bombardier is today in their spheres of excellence, is that we develop a significant capability here in Canada, that we begin to establish the portfolio balance and the capability and the respect amongst our Canadian constituents that as we start looking at markets like the United States, Europe and Asia, that we have the staying power to compete and bring Canadian stories, Canadian artists to international audiences.
1589 We have been already trying to do that and we could perhaps talk about that later on in our discussions.
1590 But the bottom line is that our belief is that we have developed a company which has a very focused strategy. We know where we want to go. We believe that in the field of kids and music we can make a difference. We believe that two areas where Canadians have distinguished themselves already in the international field is in the area of kids and music.
1591 Our children's programming is doing extremely well throughout the world and our artists are also, as we all well know, doing extremely well around the world. So we think that our focus is extremely well placed for the future.
1592 Then, finally, we have we believe, with the moves that we have made recently to structurally separate our company and put in place its own capital base, we have the financial capability and the shareholder support through the Shaw family stewardship in particular, the capability to not only do well here in Canada, but to take our show on the road and demonstrate to audiences around the world what Canadians are capable of doing.
1593 COMMISSIONER COLVILLE: There seems to be a thread going through some of these deals that you referred to, the AOL, Time Warner and BCE and some of the others of the term that has been used for a number of years now of convergence of companies that are in the business of content, as you said, with the Disney one wanting to get access to slots or access to some means of distribution right into the home, or the basic carriage platforms or the companies that are in the business of pipes, to want to get into the content business. So the common thread that seems to be running through these seems to be convergence. Would that be your observation?
1594 MR. CASSADAY: I think there are certainly notable trends around the world and in the United States we are clearly seeing significant efforts in this whole area of convergence, putting together production, distribution and packaging as an entity.
1595 In Canada, I think the convergence is going to take a different form for some while because of our policies which generally don't encourage vertical integration. So what you are seeing in Canada is a somewhat difference response.
1596 In our particular case, what convergence means to us is the ability to apply multiple windows, cross-promotion and integration across numerous platforms to tell our stories.
1597 In the case of another distributor, whether it's a Bell or a Shaw or a Rogers, convergence to them might mean the ability to bundle video, telephony and Internet.
1598 What I think we are going to see in Canada is certainly a breaking down of the silos, but it is not going to be sort of the massive elimination of silos that we have seen in the United States. We suspect over time vertical integration in Canada will be viewed as a major benefit, but today given the environment that we compete in that vertical integration is not going to be as pronounced as it is in the United States.
1599 COMMISSIONER COLVILLE: When you say our policies discourage vertical integration, what exactly do you mean?
1600 MR. CASSADAY: Well, what I mean is that until, as was noted in the 1995 Convergence Policy, until there is a belief that there is sufficient capacity and access rules are clearly understood, that generally speaking the policy statement was that generally we would not encourage the ownership of content by companies that are in the business of distribution.
1601 COMMISSIONER COLVILLE: Do you perceive that as the general policy or as probably the exception to a policy, because if you reader broader the Convergence Report you would see, for example, that the Commission saw no problem with the telephone companies getting into the television business as a general policy principle.
1602 MR. CASSADAY: We certainly saw it as a policy, but we were certainly aware of the fact that the word "generally" was used. In fact, there had been notable exceptions to that policy. Certainly, the licensing of Treehouse would have been an exception to that where the public interest was felt to be best served by the granting of Treehouse to Shaw at that time.
1603 We saw the issuing of a licence to Sportsnet, which included a significant ownership position by Rogers, but in our particular case today, as you will have noted from the brief, we do not believe that what we are asking for would, in fact, represent an exception to any policy. We feel that we are in --
1604 COMMISSIONER COLVILLE: I didn't want to get into that just yet. My comment about the general policy wasn't within the context of that specific policy, but more is it your perception that there is a general prohibition against vertical integration as a policy principle in Canada, or would one look at that specific issue with respect to cable companies as being an exception to a general policy?
1605 I took it from your earlier statement that you were saying that as a general principle we are opposed to vertical integration in Canada in this industry?
1606 MR. CASSADAY: I guess to clarify the point that our understanding was that the distinction was being made between dominant BDUs and that the concern rested exclusively there.
1607 COMMISSIONER COLVILLE: Exactly. Yes.
1608 If we move on to page 5 of your presentation yesterday, towards the bottom you said:
"As CRTC Commissioners you have the responsibility to look into the future of this rapidly consolidating global market and make a number of very important decisions." (As read)
1609 Then, in the next paragraph you said:
"Then you must decide what structure will most benefit the Canadian broadcasting system in a radically changing world." (As read)
1610 Which is a pretty tall task for us to do. As a number of parties have pointed out, on one level I suppose one could look at this week as just another business day and another business transaction, but a lot of others have noted that there are some pretty significant issues being dealt with. It's a major transaction both in terms of the size of the dollars involved and also in terms of a number of the issues that fall out of this.
1611 So when you suggest to us that we must decide what structure will most benefit the Canadian broadcasting system in a radically changing world, and I noted yesterday I guess we didn't pursue it that much, but Global also suggested that we should be, I am paraphrasing here, radically reforming our regulation in the 21st century.
1612 What do you think if you were sitting on this side of the table you would be deciding as the structure that would most benefit the Canadian broadcasting system in this radically changing world?
1613 MR. CASSADAY: Commissioner Colville, the theme that we tried to introduce yesterday is the notion of tall trees and the importance of having companies that have the capability of providing the shelter and support for that ecosystem that exists underneath it. Clearly, when we made the comment we were referring to the decision that has to be made about our company.
1614 We have gone to great lengths to create a "yesable" proposition here with the structural separation of Corus from Shaw, and again I know we will talk about this later, but clearly there are parties that would still contend that it's not the time to allow a company like Corus to grow.
1615 We are going to present arguments to the effect that it is certainly the time to allow Corus to grow and that we can make certain contributions.
1616 As a Commission, we are going to have to weigh the concerns of those that feel there is still a risk of undue preference against the promise of a new company with Corus, with a strong management team, a stable ownership, great access to capital, of vision to focus on two areas of excellence in Canadian culture, being kids and music, and decide whether it is in the public interest to place your hands on the shoulders of Corus and say here's a company that we believe can make a difference in the future. That's the point that we were making there.
1617 In yesterday's deliberations CanWest was arguing that there should be an exception to the regulation regarding dual ownership of over-the-air stations in the market because of the benefits that they were putting forward. Again, I would imagine that as you go back and consider their application you will weigh the public benefits against the policy that's in place and make your decision as to whether or not Canada will be better served by granting Global that and whether Canada will be well served by saying to Corus, notwithstanding the concerns that people may have at this stage in the development of digital and so on, that Corus is a company that we want to nourish and endorse at this early stage of their development.
1618 COMMISSIONER COLVILLE: I guess perhaps I misread what you were getting at there. I thought it was perhaps a broader issue.
1619 Would it be then fair to say but for the policy statement on page 16 of the Convergence Report that you think the structure of the Canadian broadcasting system is just fine?
1620 MR. CASSADAY: I think that the structure of the Canadian broadcasting system is emerging. I believe that we are seeing the creation of large companies in Canada that are being created within the policy guidelines that are in place.
1621 We believe that large well-funded companies are critical to our ongoing success and there does not appear to be any limitation in the creation of those companies.
1622 There are some subtle limitations that relate to us that could in fact impede our progress going forward and that's going to be the focus of our conversation this morning I am sure.
1623 COMMISSIONER COLVILLE: So if Corus was -- I know you will argue that it is, but if Corus was indeed a totally separate company, had no involvement with the Shaw family whatsoever, you wouldn't be raising any structural issues here today? You wouldn't be challenging us to think about what structure will most benefit the Canadian broadcasting system in a radically changing world?
1624 MR. CASSADAY: In the case of this particular application that we are considering this morning, our proposal to acquire the 12 radio stations from WIC are in complete compliance with the recent radio policy decisions. So, of course, there would be no challenge whatsoever on that one.
1625 In the case of the pay television assets of WIC, Family Channel and Superchannel MovieMax and Viewer's Choice, again there would be no policy impediments to that acquisition either.
1626 The only policy issue that we believe is debatable here is the question of vertical integration and our affiliation with the dominant BDU.
1627 COMMISSIONER COLVILLE: No. I understand your point of the issue that you want to debate here, but just looking at the broader picture, you are satisfied that the broad policy framework is in place to allow Corus --
1628 MR. CASSADAY: I think in essence the capability exists within the policy to allow the creation of strong companies and we also believe that the whole notion of dominant BDUs is a notion that needs to be discussed and debated.
1629 My personal belief is that it is a misnomer and I believe that the competitive environment is markedly different than most people think, and that the impact of DTH is far greater than even a million subscribers would lead one to believe.
1630 COMMISSIONER COLVILLE: Okay. Let's talk about what you see then as the future for Corus, let's say in an unfettered world. Again, on page 4 you talked about:
"Our mission is to support the creation and exhibition of Canadian programming." (As read)
1631 And then you have gone on the next page, in keeping with this vision -- well, you said:
"Our vision for the future is to become as important and respected on the international stage in the field of kids and music as Bombardier is today." (As read)
1632 You have gone on to say:
"Corus is dedicated to building on the accomplishments of its existing services." (As read)
1633 You talked earlier this morning about I guess building a sense of excellence in kids and music, but if one was to look at Corus, say, three to five years down the road, yesterday we heard about the number of mega-broadcasting companies who might see in Canada which was five to ten in the morning and I guess by the end of the day we were down to three. I don't know whether Corus would end up being one of those three and what it might look like if we were looking at Corus in about five years. What's your sense of what you and Ms Shaw I guess are charged with the task of building this enterprise and having this vision? If we were sitting here five years down the road and we were talking to you about your accomplishments over the last few years, what would see and what would you be describing?
1634 MR. CASSADAY: I will ask my colleagues, Ms Shaw, Mr. Robertson and Mr. Strain perhaps to just talk from their particular perspectives, but perhaps a few overview comments.
1635 We have defined our business as being specialty television and radio. Those are the two sort of macro businesses that we believe are the areas that we want to focus our company on. The reason for that is that we believe that there is excellent growth potential and there is still an opportunity to participate in businesses that have room to develop and where we can help change the rules.
1636 We have more broadly defined our business as kids and music. So, in five years from today you will see a company which has developed its assets in those two particular areas. And while we might have assets that are broader than kids and music, the ultimate positioning for our company will be kids and music.
1637 I previously worked for a company called Campbell Soup. The positioning in people's minds was that we were a soup company, and yet we also owned Pepperidge Farm and Prego spaghetti sauce and Swanson dinners, so there was a broader array of services, but it was the soup business that drove the company.
1638 In our particular case, there will always be kids and music that drive our business. those will be the areas that we focus our research efforts on, that we develop our greatest core excellence against. Those will be the areas that we can make a difference in and the areas where we feel we will be able to compete successfully abroad.
1639 So that's the first part of it, which is the ultimate positioning and the focus of our company.
1640 The second thing is to develop a strong critical mass here in Canada, so that we have the portfolio balance and the insulation to begin to compete effectively abroad.
1641 Yesterday CanWest talked about their efforts to move into Chile and the expense of that and the staying power that's required to move into an international market and they used the comparison of Time Warner who has the breadth and depth to be able to stay the course and make it happen.
1642 So we are absolutely passionate and deeply committed to becoming a successful international company, but to do that, first of all, we feel it's absolutely essential to our vision that we establish a strong Canadian base.
1643 We think that we will be able to demonstrate, moving to the specific assets, that we will be able to have demonstrated in the next five years a true leadership potential in our business.
1644 We think, for example, that the key driver in the development of digital in this country is going to be movies. We are excited about the leadership that we can play in developing the WIC pay movie assets into a force that will cause digital to be ubiquitous in this country.
1645 I remind people that 10 years ago TSN was available in only 100,000 homes, and yet today it's available in every home. So the vision of having a digital set-top box in every home to me is not a stretch at all. In fact, we were talking to some people last week and they said, you know, digital is not a line extension. It is the core business and we believe absolutely in that.
1646 In the case of radio, we think that as the first operator to have the chance to consolidate our operations in major markets across the country is a unique opportunity for us and a tremendous responsibility to bring the vibrancy and growth to radio in Canada that we have witnessed in the United States.
1647 And radio after being quite stagnant in the U.S. has reversed its share decline, has started to generate market rate growth in markets in excess of 10 per cent per annum. If we can begin through good leadership and our marketing muscle to begin to elevate radio as a medium of choice for advertisers in this country and listeners in this country through diversity, then we will have achieved a great deal.
1648 So in five years a well-positioned company, strong at home, moving internationally and showing great leadership in the development of digital and in the growth of radio. Heather.
1649 MS SHAW: I think if you look five years down the road and currently we have strength in kids and music, we want to hope that the Canadian kids will look at us and say Corus is the place that I go for all my information, all my entertainment, whether it's the Internet they go to, they look to the YTV site or any other site. On television any other audio sources, we want to be the kind of their source of information and entertainment.
1650 We say the same thing for music. Look, our music audiences, whether it's radio broadcasting, whether it's television, whether it's Internet access, we want to be a music source of choice to that audience. So whether it's in Canada, in the U.S. -- I think in the U.S. we would hope to have cracked the U.S. market within five years and take some of our great content down there and be a forced to be not reckoned with, but we will be entered into that marketplace. So that's where we see ourselves in five years.
1651 I think maybe Terry and Paul can talk specifically about thoughts in that area.
1652 MR. ROBERTSON: I would like to build on both comments and talk a bit more about the kids side of the business.
1653 This is an area that YTV has really done a terrific job in terms of working with the independent production community to bring about an extraordinary amount of Canadian content, that has worked tremendously well for YTV. it represents about 70 per cent of our prime time schedule, but it has also been infinitely successful on a world stage, exportable Canadian content, kids programming represents about half of the top 10 or 20 of all the U.S. schedules.
1654 YTV is really proud of that history, but we are not looking at history. What we are doing is looking forward now and saying how can we move from that platform and continue to build on the success that we have had in this area. If you had dialled the clock back five years, you would find that kids' content outside of Canada was not a major factor. Today we are leading in that industry. And looking forward, where could we take that? Where could we take that with things like multiple windows across various services through greater co-operation? Where could we take it with outstanding marketing that cross-references these different services and can make new programs really successful?
1655 Could we even be in a position to export a service, so that we could have a home for Canadian programs outside of Canada? Can we make sure that we are so strong in the new media area in Canada that there is no way that any other country can come into this country and displace the important role that Canadian content has with our own kids?
1656 These are the sorts of things that we hold dear. These are the sorts of things that we think are important to kids, important to Canada, and that we can be part of a major contribution.
1657 MR. STRAIN: Commissioner, I think from a radio standpoint we want to be a strong, well-funded radio operator. We think that your policy, the decision you came out with in 1998 was a very sound, well thought out policy. I think you heard everything in that hearing, which was a long and lengthy one, from no duopoly at all to open skies. I think after careful consideration you have given us an opportunity proceed with duopoly in these markets.
1658 I think the policy decision that you came out with said two things, that you wanted to have economic strength within the radio business and by doing that and allowing duopolies it promoted diversity because we don't want to compete with ourselves.
1659 I believe five years from now we will see digital radio being a big factor. We were one of the original founders of the digital radio group. We are broadcasting digital currently, of course, in Toronto and Vancouver. We are currently in negotiations to get into digital in Calgary and that will probably be followed by Edmonton. So we think down the road that digital is going to be important to us.
1660 The other factor that John had alluded to is some concerns that we have. We just don't know where this U.S. satellite radio is going to come from and how it's going to have an effect on us. We feel we have to be strong to face that challenge.
1661 You can take something the size of a twoonie and deliver a hundred channels in your radio, virtually commercial free, then that's going to cause us some concern and they are going to have a footprint into Canada that goes north of Edmonton. So it's something that I think we have got to look at and something we have to address.
1662 We think with the strength of our radio we think we can continue to promote Canadian talent and have that exported internationally, and we will work hard to do that. We think the other most important thing is local service. If you don't serve your market well locally, you are dead, and we'll plan to do that.
1663 COMMISSIONER COLVILLE: I mean no disrespect in asking this question to any of your business professionalism and your expertise and certainly your interest in wanting to move forward, but what makes you think that Corus can be successful in the international field when it would appear to have been extremely difficult for Canadians in the past to move beyond our borders when it comes to this sort of product, with a few notable exceptions I guess in the specialty field? What makes you think that Corus can all of a sudden be successful in this international arena? What is it about your operation that is going to allow you to do this?
1664 MR. CASSADAY: There are a number of things. At the top of that list is committed and stable ownership. There is a desire, a willingness and a commitment on the part of the Shaw family to see this company become an international player.
\ Secondly, is management talent that has had significant international experience. Mr. Peddle and I, for example, have both been based in Europe and the United States. I think there is a clear recognition on the part of our management team that we can compete with the best anywhere in the world. I suspect that's not a feeling that is held by everyone in this country.
1665 Third, with respect to your comment about the players in our country, I think there have been some wonderful exceptions to that rule. I think our production industry in general has done an extremely good job in taking their focused product into the international marketplace. Nelvana would be a classic example of a company that has done exceedingly well.
1666 I think CHUM is a company that we look at with considerable admiration. They have taken their particular area of expertise and either licensed it or moved it abroad, so I think there is no shortage of examples of companies that can do it. A stable ownership, committed management are two of the things that cause you to go out and move forward on the international arena.
1667 The other thing is that we have a focus. We are not a mass merchandiser. We are a company that knows specifically what areas that we want to move ahead with. We are convinced that we can do it, that we can make a difference in that area.
1668 As we said earlier, kids and music are two areas that Canadians have distinguished themselves in, so why could we not be successful?
1669 Just one final comment in defence of Canadian broadcasters, is that the market structure has changed substantially. Historically, as broadcasters, I mean over-the-air broadcasters, we were really -- a former colleague of mine used the expression, we were basically publishers of first edition books. We took two runs of programming and then it was gone. There was no program library, so there was really nothing to go international with.
1670 In the case of YTV, many people have said why don't you take YTV internationally? It's as great brand. Paul and his people have done a wonderful in creating the interstitial elements and the connection to kids to make it go, but the programming has been a problem.
1671 When we launched Treehouse, we launched Treehouse with an eye to maintaining the digital rights for exposure into the United States. So we have made a number of efforts to launch Treehouse into the U.S. and have been on the cusp several times in the past few months, but have fallen short. I think one of the things we talked about here yesterday is the ability to bundle and perhaps bring a Canadian tear to digital in the United States, and that's something perhaps we can use our leadership to do.
1672 Then the final comments is that we had an opportunity as part of the WIC transaction to issue $210 million in equity and we had two choices to do that. We could go into the marketplace where there is significant demand for equity in our company, or we could find a strategic partner.
1673 We decided to go the latter route and we went and met with the people at Liberty in Denver. We met with them for principally one reason and that is their exposure to international markets. They are extremely active, of course, in the United States, but also in South America and China. We are hoping that by virtue of being a part of their broad network, if we work that network that we can begin to gain exposure to opportunities that they are involved in and, of course, provide windows for Canadian talent and Canadian programming.
1674 Heather, I don't know if you had anything to add?
1675 COMMISSIONER COLVILLE: You mentioned earlier in your comments when I asked you about what would happen over the next number of years, you talked about the development of digital and you mentioned that movies will drive digital. What do you see -- can you elaborate a little more on what your perception is about the importance of digital and the importance of what you are going to be doing over the next while in terms of driving digital, to use your words?
1676 MR. CASSADAY: First of all, on the importance of digital, we know that both Star Choice and ExpressVu have benefited substantially from the capacity that digital afforded them. Probably no one in the room could have anticipated the growth that those two companies have experienced and it continues. It is not a rural phenomena. It is a national phenomena. These companies are well developed in every province in the country. They are well developed both in rural and urban markets.
1677 So the growth of DTH in Canada is paralleling almost precisely the phenomena that we have seen in the United States. The benefit, of course, is the ability to offer a multitude of channels. So the silver bullet today is 200 channels and it may well be 500 channels at some point in the future.
1678 In the case of the cable industry, we are now seeing with the technological developments from GI and SA the more rapid deployment of digital set-top boxes. We have in the case of the WIC premium assets all of the pay television assets, all of the pay-movie assets have migrated to digital. In fact, about 90 per cent or 85 per cent of their subscriber base is on digital now and their business has never been better.
1679 We saw just in the last couple of weeks approximately 400 applications for new channels submitted to the CRTC, which indicates just the groundswell of support for new outlets. Producers involved in many of those applications, but just an industry-wide outpouring of excitement about the possibility of the new digital world.
1680 So we think digital is going to present tremendous opportunities for the expression of Canadian content, we think that digital deployment is going to be far more rapid than most people anticipate, and we think that digital deployment is going to be a good thing for our business. We are not worried about the impact of fragmentation. We believe that we have to reach out to people on whatever platform and with whatever niche they are looking for and, I think Leonard used the word yesterday, or maybe it was Ken Goldstein who used the word yesterday, about aggregating eyeballs, and that is ultimately the business that we are all in today.
1681 COMMISSIONER COLVILLE: So you say you figure that digital deployment will be a good thing for your business.
1682 Would you say that your business will be a good thing for digital deployment?
1683 I take it that is what you meant when you talked about movies and --
1684 MR. CASSADAY: Yes. Exactly. That is exactly where I thought you were going on that. Yes. Again, Paul and I, last week, went down to Denver to learn a little bit more about the pay television business in the United States and the biggest "aha" that we got, when we were down there, is the impact that movies are having on digital in the United States. We saw statistics that indicated that movies were a superior driver to sport by 20 to 1 and a superior driver to a variety tier by 11 to 1. Far in excess of what we would have thought.
1685 COMMISSIONER COLVILLE: Could you just go over those numbers again, for me.
1686 MR. CASSADAY: In terms of the impact of consumer choice on the move to digital, the key driver was movies 20 to 1 versus sport and 11 to 1 versus the variety tier. So by a huge, huge margin, movies are the key to the successful deployment of digital.
1687 COMMISSIONER COLVILLE: Okay. So I guess maybe this flows into the next question I had. Why this deal? Why was this deal -- given what you see as the future of Shaw's business, why would this particular deal be important for Shaw, or for Corus, or both?
1688 MR. CASSADAY: This deal was so complementary to the Corus assets, in our vision going forward that not only was it a good deal but it was the deal for our company. Under Terry, Shaw had built an impressive array of radio assets, but one of the first things that happened when I joined the company is we did a major study of the impact of radio consolidation in the United States and coming out of that study, we came to the conclusion that it was important that you make a decision whether you wanted to be a consolidator or a seller that, standing alone, was not a winning proposition going forward.
1689 So the WIC assets represented a perfect fit for our radio assets across the country. We moved from two to four stations in Vancouver, from two to four in Edmonton, from one to three in Calgary. We picked up two important stations in another major market in Winnipeg. We moved to three stations, from one, in the Burlington-Hamilton area. We moved from to three in the important Toronto market. So the complementarity of those assets was, without question, the best of any possible combination of assets of any other group within the country.
1690 The second and important area was the leverage that we think we can bring to the kid franchise in Canada, or the children's franchise in Canada -- and even though we would not control Family Channel or Teletoon, what we saw happening was the unique opportunity of taking WIC, you know, an outstanding broadcaster but with no particular kid expertise, and having Corus step in to WIC's shoes and bring to the table a both Family Channel and Teletoon, a passion for children's programming, a deep understanding of the target audience and the ability to cross-promote through multiple windows the assets that are in place through Family Channel.
1691 In the case of pay, this is a new business for us and, you know, obviously, the synergies are not there to the extent that they are in radio and television -- radio and kid's programming, but the marketing skills that we feel have as a company, we think, will be a key lever in the expansion of those particular businesses and as we said earlier, we believe that the pay television business could be a driver for the digital tier and that if the digital tier is successful, the Canadian system wins.
1692 COMMISSIONER COLVILLE: I will leave my colleague to pursue the radio issues, and I guess I might have some understanding of that. The piece that I guess I would question, given what we talked about in terms of your strategy for kids and music radio would, I presume, fill the music part as well as country music television.
1693 MR. CASSADAY: Right.
1694 COMMISSIONER COLVILLE: But getting half a Family Channel and, through that, another piece of Teletoon doesn't really seem to me to fit the strategy as well as you might have hoped.
1695 MR. CASSADAY: We believe that the 50 per cent interest that we would pick up on Family Channel is in fact a perfect complement to our strategy. Family Channel is largely in the business of entertaining children and their families. That is the business that we are in at YTV -- and even Treehouse, to an extent. Not surprisingly parents of kids two to six, I'm shocked as we talked to investment bankers how many of them talk to me about Treehouse because, along with their Porsches are three and four-year-old children and their Friday nights are spent watching Treehouse but it is, in fact, very much a core part of our vision to participate in Family Channel and also to the indirect position that they have in Teletoon, and perhaps Paul you may just want to expand on some of the synergies that we see between our kid business and the Family Channel and Teletoon business.
1696 MR. ROBERTSON: I would be pleased to.
1697 It's clear that we wouldn't control either service so that anything we're talking about would be done really synergy opportunities that we would work with management and shareholders to bring about, but we really see tremendous opportunities in things like windowing, for example. One of the most challenging things for -- I mean producers out there need two things, they need the financial support but they also need the on-air exposure. And as the industry evolves and fragments, windowing is becoming a lot more creative so that you might see a window on a conventional or a couple of windows on -- television and even, perhaps pay-per-view could all be combined together.
1698 This kind of creative windowing we see as a tremendous opportunity moving forward in the kids and family area. Now whether that's series programming or even a moving that could start off in pay-per-view, move through to pay, move to conventional, move to specialty. So if you could offer that kind of windowing support to a producer, you could enable a lot more Canadian production, which is what we're really here for.
1699 The ability to cross-promote across these services would really be extraordinary. We are in co-operation with Teletoon on a program called "Redwall", where they have a certain window and we have a certain window, but couldn't you take these programs and run them at different times in different windows, use all the resources that are available, in terms of kids' broadcasters, to drive the maximum audience.
1700 And I guess the third and really important area is, again, this area of new media. YTV's Web site get 10 million hits a week, and that would make the -- that would make it the biggest kids' Web site in Canada. Can we take the strength of that and cross-pollinate across some of the other services on a program basis and really drive interest and viewership of television programs across other services and link with other new media offerings from the different services.
1701 So these are the sorts of things that we foresee could really benefit the production of more kids' programming and the viewership of kids' programming.
1702 MS SHAW: I think another point is that we have got a company with western Canadian roots, WIC International Communications, and Corus' roots started in western Canada as well as have a western focus and maintaining that western focus in Canada is important to maintain a balance between eastern and western Canada, in terms of broadcasters and kids production and production.
1703 COMMISSIONER COLVILLE: I guess I just -- when you look at the overall deal on what your vision is, I might have thought that you would have tried to look around at a number of options and say, "Let's make a play for something that -- we really want to build this kids business, let's do a deal that gives us a control in more kids programming rather than a 50 per cent interest in Family Channel", the kids portion of all of this, that's what you end up getting at the end of the day is a half-interest in the Family Channel.
1704 MR. CASSADAY: What we get is an important stake in an important service and we get an opportunity to lend our expertise and, as Paul said, to create windows of opportunity for growth for Family Channel.
1705 So we -- in contrast to the question, we react with incredible enthusiasm to the prospect of assuming a 50 per cent interest in Family Channel and assuming an indirect 20 per cent interest in Teletoon. Because of the opportunity that it gives us to maintain the western presence that was in place at WIC to continue the origination of Family Channel from western Canada as it is today and, as Paul said, to provide the opportunities for cross-promotion and multiple windows to help ensure that that grows.
1706 As we mentioned earlier, we have a vision that perhaps, in combination with the owners/shareholders of Teletoon and Family Channel, that we could, in fact, put together an aggregation of the best of Canadian children's programming and providing an interesting digital television opportunity in the United States. Paul also alluded to the new media opportunity that exists. If we can find ways of co-operating -- and there's no question in our mind that we can work well with the shareholders of Astral and Teletoon that we can take the YTV Web site which, today, is the premier kid Web site in Canada with over seven million hits a week, and make sure that it's developed and cross-linked to Family Channel and Teletoon and make sure that we are keeping our kids within this new platform that's emerged and that, you know, the YTV team has done such an outstanding job in developing. So, you know, we -- Commissioner Colville, we are ecstatic about the prospect and can think of no better fit for our kid interests that assuming a 50 per cent interest in Family Channel.
1707 COMMISSIONER COLVILLE: Going back to the premium television services. At page 31 of your supplementary brief -- and you don't have to turn to these, I'm just going to read some short sentences so you don't need to fumble around with papers; I'm not trying to trap you here.
1708 You said, on page 31, the proposed transaction was strengthened -- this was one of the main rationales for this transaction that was -- you listed three near the bottom of page 31. And one was:
"The proposed transaction will strengthen the WPT premium television services and enhance their ability to compete." (As read)
1709 And then, over on page 34, elaborating on that a little more, you said, towards the middle of the page:
"It is a strong -- Corus believes that it is ideally equipped to take the challenge of owning and operating the WPT premium television services. It is a strong and vigorous new Canadian broadcasting company with a mandate to create and investment in the development, production and promotion of Canadian programming and media services under the guidance of a strong and experienced broadcast management team with an extensive knowledge of the discretionary television broadcasting industry in Canada." (As read)
1710 And then, over on page 47, then, you went on to say -- again talking about the premium services:
"Corus currently does not hold any significant interest in the premium television industry and if this application is approved would simply be stepping into the shoes of the WPT. There would be no resulting increase in concentration of ownership or any change in the terms and conditions under which these services are made available to consumers and distribution systems as a result of the approval of the application." (As read)
1711 So I was looking at all of that and thinking about this transaction. And then I noted, in response to an interrogatory or deficiency question -- the "interrogatory" term comes from my telecom side -- you were asked to provide, through TD Securities, evaluation of the assets that you were purchasing. And in the letter that TD Securities provided you -- I think this was -- I just tore this page out; I can refer to it here -- dated earlier in the year, on page 3, towards the bottom of the letter:
"TD Securities believes that the WIC pay television assets, including Super Channel, Movie Max and Viewer's Choice, are --" (As read)
And this is what I wanted to underscore:
"-- mature businesses with limited growth potential due to the subscription nature of the revenues, competing technologies and significant programming costs, therefore, appropriate valuation multiples are at the low end of the observed market multiple range. Family Channel is also a mature revenue business because it's not able to carry advertising and has extensive cable penetration." (As read)
1712 So I guess that's part of the rationale for my question earlier about "why this deal?".
1713 What is your comment on the nature of the TD Securities' observation that these are all mature businesses with limited growth potential?
1714 MR. CASSADAY: You started the questioning today, Commissioner Colville, with a broad overview of the industry and we came back in response with a description of some of the incredible technological changes that have ensued.
1715 TD made their assessment based on historical valuation.
1716 The fact of the matter is that if you were to have looked at the WIC Premium Television business even a year ago, the assessment that was made by TD would have been more than accurate. It was a mature business. Basically, the services were blocked by a glass ceiling of about 15 per cent penetration on these premium boxes and, you know, as a result, were severely limited in their growth potential. And then, you know, out of the blue comes the emergence of satellite television and virtually everyone -- and I think the number is as high as 85 per cent that has purchased a ExpressVu or Star Choice dish takes their gold or platinum or top-end service, whatever each company chooses to call it, which includes the movie services. So, you know, as we noted in our comments, last evening, you know, we talk about dominant BDUs. In a digital world, Shaw and Rogers are not dominant BDUs; they're playing catch-up. The dominant players in the digital world are ExpressVu and Star Choice and the largest customers for WIC Premium TV are ExpressVu and Star Choice, not a cable company.
1717 So this company, WIC Premium Television, has had a reincarnation as a result of digital and, you know, that is, in part, why we are so excited about this opportunity.
1718 In the case of Family Channel, it is true that Family Channel is a premium pay service without access to advertising. Again, however, given the synergies that are in play, we find tremendous appeal in that particular asset, as well.
1719 And I'd just like to finish my comments by just referencing the points that you hade made about our comments in our supplementary brief about strengthening the service and why we're ideally equipped. And the reason we believe that is that we believe the two key success factors for the operator of WIC Premium Television, in the future, will be marketing, the ability to bring to life the services to the consumer and, secondly, the financial capability to acquire from the major studios the product that's required to give the consumer the breadth of choice that they want to get excited about the movie business in Canada.
1720 MEMBER COLVILLE: Is it your perception there's a shortage of product now?
1721 MR. CASSADAY: It's our perception that the product is not being positioned properly to convey the variety. It's a subtle marketing point but the way the business is being marketed by Encore, for example, is thematically. So they may have 800 movie titles in their inventory, which is probably very similar to what WPT has, but instead of having those movies rotated through a service and giving the consumer the view that it's all one service, they have themed it into approximately 12 different genres, romance, westerns, adventure, and even though the movies can be cross-spun -- I mean you can imagine a movie perhaps fitting into four distinct genres, it creates the impression of infinite choice for the consumer; whereas the way the movie business is being marketed in Canada today, in my opinion -- and no disrespect to the operators of this business -- the consumer doesn't get the same sense of the breadth of their movie inventory as is possible by thematically operating these channels.
1722 COMMISSIONER COLVILLE: Taking your comments about the satellite and digital in movies and the interest in consumers, why wouldn't you think that more cable subscribers wouldn't have abandoned cable and gone to the satellite?
1723 MR. CASSADAY: Maybe just to talk a little bit about --
1724 COMMISSIONER COLVILLE: Maybe I can roll this in -- I'm sorry to interrupt. But why hasn't cable been more successful in moving digital along, then, with pairing up with these services?
1725 MR. CASSADAY: Cable has done, I think, a superb job in marketing to their customer and I think, you know, one of the reasons why cable continues to enjoy such good success is that, from a consumer behavioural point of view, you know, you have to go to pretty great lengths to cause a consumer to move away from you. I mean if you have been using Tide for the last 20 years, Tide's got to do something dramatic to get you to move away from it. So cable has done a good job in serving the customers and will fight, I'm sure, to the death to keep every customer that they have.
1726 Having said that, there is a choice out there for consumers now, and the choice is DTH, and the distinction that I think we need to make today about, you know -- and this gets back to this whole use of the word "dominant" which, you know, we disagree with -- is that DTH is available on every street, in every city and town in Canada. So the two constituents at play here, in this little piece, are the viewer and the programmer, and both of those participants, whether they live in a small town in Saskatchewan or a major market like Toronto and Vancouver, have a choice, and the choice is to say with their existing cable operator or move to one of the two major DTH operators in Canada.
1727 As a programmer, the concern has always been about, you know, how do we get distribution and how do we build our business case. A programmer now has the opportunity to secure carriage on a DTH operator. If, in fact, the cable operator refuses carriage, they afford a competitive advantage to the DTH operator.
1728 So, my view is that the balance of power has shifted to the point where there is equilibrium in the system today, regardless of the fact that the ratio of cable to DTH is still 10 to 1, because the fact of the matter is that you have a choice no matter whether you're in a small town or a big city or whether you're a dominant programming force or a small programming force, both of you have an alternative.
1729 COMMISSIONER COLVILLE: Looking at it from the eyes of the consumer, I don't imagine Mr. Robertson would see, necessarily, an equilibrium in his opportunity to get revenue from cable versus the satellite companies.
1730 MR. CASSADAY: No, I disagree because what -- if Mr. Robertson had an outstanding programming service and couldn't make a deal --
1731 COMMISSIONER COLVILLE: Let's take YTV.
1732 MR. CASSADAY: Okay. If -- well, YTV of course is established so, you know, what's happened for YTV of course is DTH has presented a new -- a growth opportunity for him because it's increased his penetration. But I don't -- I guess the point is that, you know, if we are talking about access, the fact that you have the opportunity to gain access on a competitive national distribution platform --
1733 COMMISSIONER COLVILLE: Actually, I wasn't talking about access. You keep wanting to go back to access. I'm not there yet.
1734 MR. CASSADAY: Okay.
1735 COMMISSIONER COLVILLE: Like Global, you're obviously preoccupied by this one question and keep wanting to go back to it.
1736 The question I was asking earlier was: why hasn't -- given your points about the premium pay services and their importance to selling satellite dishes, why hasn't that been -- why hasn't cable been more successful in getting consumers to convert to digital and, consequently, these premium movies services?
1737 MR. CASSADAY: Oh, okay. Sorry. I do understand the question now.
1738 There are two reasons for that. First of all, there have been limitations in access to boxes. I think the desire has been there but there have been, you know, technological limitations. And, of course, as you know, both major operators have significant orders outstanding. I believe that, in the case of Shaw, their penetration of digital set-top boxes in the 150,000 range -- it may even be higher now -- so there's rapid deployment of those; it's almost a matter of just deploying them as quickly as we can get the boxes.
1739 But the second thing is content, and I think what's going to happen now, with the realization of the leverage of these movie channels, and also with the emergence of these new services that will be listed -- be licensed by the Commission, probably later this year, there will be a tremendous marketing impetus for the even more rapid deployment of digital set-top boxes.
1740 COMMISSIONER COLVILLE: So the primary driver is content?
1741 MR. CASSADAY: Yes. There's got to be a consumer benefit.
1742 COMMISSIONER COLVILLE: And you have indicated, so far, that one of the main drivers, one of the main content drivers is movies.
1743 MR. CASSADAY: Correct.
1744 COMMISSIONER COLVILLE: Twenty to one over sports.
1745 MR. CASSADAY: Correct.
1746 COMMISSIONER COLVILLE: So, I guess we can start crossing over the line, then, into this access issue. I guess you would acknowledge, then, that Shaw would, clearly, have an incentive to have Corus or promote the Corus pay movie services in order to develop the digital business and encourage more subscribers to take up digital services?
1747 MR. CASSADAY: Yes.
1748 COMMISSIONER COLVILLE: And you noted earlier, also, the commitment on the part of Shaw to support Corus and its activities to become an international player so it would be important for Shaw to support Corus in Canada.
1749 MR. CASSADAY: Well, just to make a distinction, I was referring to the Shaw family, as opposed to Shaw Communications. There is no Shaw Communications ownership in Corus. So that's the distinction I was making. And then, I guess, from the standpoint of the system, you know, one has to ask the question: if something is simply in the best interests of Shaw, as a cable operator, does that, by necessity, mean that it's not in the best interests of the system? And if, in fact, the system's interests are advanced by the rapid deployment of digital set-top boxes and digital set-top boxes are best stimulated by the effective marketing of movies, we would argue that's a win-win.
1750 COMMISSIONER COLVILLE: It may well be.
1751 So, I guess if we get to the heart of that issue, then, it isn't clear to me when -- in your brief, when you mentioned this issue about the affiliate and you referenced the convergence report and the issue of affiliate in the report, is it your position or would you take -- adopt the position that Corus is an affiliate of Shaw?
1752 MR. CASSADAY: Yes, we are an affiliate of Shaw Communications.
1753 COMMISSIONER COLVILLE: Would you accept that you're affiliate in the context as was understood in the convergence report?
1754 MR. CASSADAY: Yes.
1755 COMMISSIONER COLVILLE: So you do. Okay. Good.
1756 So when we raise the issue here, then, it isn't clear to me whether you're saying, "We don't fit the policy" or "The policy is no longer valid" or "We should be treated as an exception to the policy", for good reasons like perhaps the one you just gave.
1757 MR. CASSADAY: We believe that the events of the past five years have put Corus in a position where the policy is not a limitation to our growth. So we do not believe that the Commission determining that it's in the best interests of the system to allow Corus to acquire these WIC assets causes an exception to the rule. There were two issues that were identified in the 1995 convergency report; and the first issue was access and the second issue was capacity. And as it relates to access, subsequent to the 1995 report, the Commission has issued access guidelines which clearly lay out the terms of the gain. So that is a subsequent event.
1758 The second issue is, of course, capacity. And we believe, for the reasons that we mentioned earlier, in respect to the expansion of DTH and ExpressVu in their intervention, described the level of competition as being robust -- which I think is an apt description; I mean this is a very, very viable competitor that is offering capacity of up to 200 channels -- that the capacity issue is no longer an issue for the Canadian broadcasting system. We are also seeing cable roll out with their digital set-top boxes at a rapid rate.
1759 The third area, of course, is that, quite frankly, the issue of capacity is not relevant to these particular assets. In the case of the movie channels, they have already migrated to digital. So there is no analog issue there. And in the case of both Family Channel and Teletoon, where we are simply non-controlling or minority shareholders, they already have secure analog positions in a tier and the likelihood of that position changing in the foreseeable future is almost non-existent. So, you know, that is another factor for your consideration.
1760 And then, finally, the issue of structural separation, where we have established a company with a completely separate management team, a completely separate board of directors, a shareholder group which is significantly different and unique to the shareholding group of Shaw Communications and the fact that unlike other companies that have appeared before you there is no, zero, cable ownership in our company.
1761 So those are the reasons why we do not believe an exception is required but, rather, that we comply fully with the policy outlined in the convergence report.
1762 COMMISSIONER COLVILLE: But on that least issue, we have already agreed that Corus is an affiliate, as understood by the meaning of the word "affiliate" in the policy.
1763 MR. CASSADAY: The Shaw family has a controlling interest in both companies, the distinction being that Shaw Communications does not, and each board of directors has a separate fiduciary obligation to their shareholders, which puts the burden of responsibility on their shoulders to represent the interests of their shareholders expressly and to not provide a preference to any party that would, in fact, negate the benefit to their respective shareholders.
1764 COMMISSIONER COLVILLE: I understand your position on that; you have stated it here and it was written in your brief. But what I wanted to clarify, as we did earlier, is that, as I say, for the purpose of the policy statement, Corus is an affiliate and you have acknowledged that it is, and it is in the context of the policy statement.
1765 On the issue of capacity, you have also addressed that in your supplementary brief and again here this morning, but I guess -- I presume you would acknowledge that, for the time being at least, cable is the dominant player in the marketplace, in terms of BDUs, certainly in terms of shear numbers of subscribers?
1766 MR. CASSADAY: The word "dominant" has multiple layers, and what we would argue is that them has equilibrium because there is well-funded, robust competition that provides an equal opportunity for both the viewer and the programmer. Based on our definition, we no longer feel that the definition of "dominant", as it relates to cable, is relevant, that there is, in fact, competition, vibrant competition, in the system now that makes that term inappropriate in this environment, in our view.
1767 COMMISSIONER COLVILLE: You have applied for a number of digital licences -- and I don't want to get into the merits of the application but you and others have commented on the Commission's approach to dealing with that issue and you and a number of others have applied for a number of category 1 services.
1768 Do you have any -- well, maybe I should just say that, you know, part of the rationale that the Commissioner arrived at the two categories of digital services was because, looking out at the marketplace, we see right now that there is not capacity, even in the satellite world, if you add in the cable digital boxes for a program service to make much of a business case, at this stage, and recognizing that we're still going through a transition arrived at this category 1, category 2, with the category 1s having preferential access to digital because we're not there yet, we don't have the digital world that everyone would like us to get to, we're still very much in a cable-dominant analog world with limited analog channel capacity.
1769 Would you disagree with that?
1770 MR. CASSADAY: I would disagree that you don't have a business case. I think too many of us in Canada, particularly on the programming side, have come to the conclusion that if we can't be profitable in Year 1, we don't have a business case.
1771 TSN started off with 100,000 subscribers and, today, they have a business with over eight million subscribers. They have got a business that everyone would kill to have and --
1772 COMMISSIONER COLVILLE: Well, It's interesting you refer to TSN because TSN started off with 100,000 subscribers on a purely discretionary tier and very quickly realized they were going under, they were in the red, they only had 15 per cent of the subscriber base and had to come back to the Commission and get moved onto basic in order to get -- in order to build a thriving business. And they have done very well, as a result of being put on basic. Which it was the Commission decision to put that service on basic that made its business case. And now it's doing extremely well in the marketplace. And if anyone ever tried to take it off basic, you know the outrage that we would have. There was outrage right here, in this city, when TSN was moved onto a tier. So it would appear that it had been, probably still is, and may be for some time to come, basic, the first, perhaps the second, analog tier which is where a specialty service is going to thrive. And cable still has that lock on that marketplace right now. Would you not agree?
1773 MR. CASSADAY: When we put together our business plan, we made assumptions about what level of distribution that we would have, and we went into it with a recognition that it was going to take us, you know, not six or nine months, as it has in the past, to turn to profitability but a considerable period of time. I mean these are digital licences that we have applied for. We have not applied for maybe analog; we have applied for digital. We applied for digital with the full knowledge that, at the end of this year, there's probably going to be about a million four to a million five digital set-top boxes, you know. Anybody that has applied on that basis and then comes to you later and says, "Oops, you know, we made a mistake, we need some kind of break", I think you made it very clear in your call, "Don't come and see us again, you know, whatever you get, you get, and we don't want to talk for seven years".
1774 So, at least in our case, you know, we're not relying on -- we're not relying on anything more than the facts, which is that we have asked for a digital licence; we know how many digital boxes are out there and we have made estimates as to what the growth will be and we'll tough it out. And the one thing we know for sure is that there won't be 400 services launched. You know. There's going to be merges created and people are going to change their mind and --
1775 COMMISSIONER COLVILLE: But, as I said, I don't want to talk about the digital services. We're talking here today about the ones that you have applied for here, which are the WIC Premium Services and the 50 per cent interest in Family Channel.
1776 MR. CASSADAY: Right.
1777 COMMISSIONER COLVILLE: And the real issue comes down to, as you mentioned, about capacity. But as we said, in the convergence report, the capacity was the concern, because we were concerned -- as we said, the opportunity for preferential treatment, particularly in light of limited channel capacity, requires that more comprehensive access rules be established. Why? To deal with price, placement, packaging and related marketing issues. And the question then becomes whether Shaw has both an incentive and an opportunity, Shaw Cable, to favour Corus' services when it comes to price, placement,packaging and so on.
1778 MR. CASSADAY: Well, to your point, in the case of these particular assets, no, because their positions are secure. You know, the Family Channel and Teletoon positions are in place and the pay television assets have already migrated to digital.
1779 Heather, did you want to...?
1780 MS SHAW: Yes.
1781 I think, also, that there's a process in place. If Shaw chose to move Family or Teletoon to the detriment of any other programmer, they have an opportunity, I think, there's a 60- or 90-day period where they -- a notice period, the programmer has an opportunity to complain if they feel that they have been disadvantaged, and then the Commission also has an opportunity to look at that and see if there's any undue preference, you know, put upon Corus through Shaw's active moving it. So there's a process in place.
1782 And, also, I think Shaw has filed, previously, an access policy to try to alleviate the concerns about undue preference, in terms of preferential treatment on marketing or promotions or packaging and trying to provide some comfort in that area.
1783 COMMISSIONER COLVILLE: I don't know how to approach this issue, in terms of that code.
1784 Is it your view that that code, then, could be an effective mechanism to deal with any issues of alleged preferential treatment or, perhaps, head it off before it ever reached that stage?
1785 MR. CASSADAY: We believe that, in the particular instance of these assets, there is virtually no room for preferential treatment and we would remind the Commission that we don't control Family Channel or Teletoon. But we are of the belief that with the access code that is in place and the appropriate safeguards that the system can take comfort that there will not be undue preference and we would remind the Commission that we, as Corus, made an undertaking yesterday to you that we would not ask for or be a party to undue preference.
1786 COMMISSION COLVILLE: No, I take your point on that, but in several places in both, I think, the deficiency questions and in your supplementary brief, you indicated that -- and I think the words you used; I won't turn to it here, it'll probably take me a minute to find it -- was that if there were any residual concerns you felt that the Shaw's proposed code could deal with those issues and concerns. I take it you still have that view?
1787 MR. CASSADAY: You know, that would really be up to Shaw to address, but we are convinced that the appropriate safeguards are in the system in regard to your access code and their supplementary submission that the interests of the industry are well looked after in this regard. And as Heather said, with the mechanisms that you have for subsequent review.
1788 COMMISSIONER COLVILLE: Well, perhaps what we could do -- we are going to have one or two questions for Shaw, with respect to the Cancom issues, so perhaps I could pose some questions to Shaw with respect to that.
1789 Let me just switch back, then, to a couple of issues around the pay question.
1790 I noted in the Bell ExpressVu intervention, that they made reference to the notion of, rather than having two regional pay monopolies in this country, we should have national pay competition, and the whole issue of the pay business in Canada has been a bit of a struggle ever since it was -- well, even before it was ever started because I can remember the days when it was being touted as the engine that was going to drive the future of the cable television business, it was going to save the industry in the future and give it the growth that it needed, and then when it was launched, there were a flurry of services and, then, through a number of actions in the marketplace and regulatory decisions, it was pared down to what we have today.
1791 I guess I would like to know what your view is and perhaps I am stealing a bit of the thunder of the intervenor here, but I wanted an opportunity to pursue this issue with you because it has been an issue of concern for a long time about whether or not we should have two regional monopolies, national competition or a national monopoly indeed. What is the structure that is going to serve the future of the pay television business in Canada?
1792 MR. CASSADAY: Perhaps Kathleen would make a comment here from a policy point of view, but basically our thinking on this subject is that in all likelihood there would be a policy hearing on this and that that decision is best left for that day.
1793 We look forward to having intelligent comments to make at that time, but clearly today we are not in a position to provide you with expert counsel on whether or not there should be competitive forces in pay television, or whether the regional monopolies that are in place best serve the broadcasting system.
1794 MS McNAIR: We have certainly noted, even in the Convergence Report, the Commission's expectation that pay probably will become a more competitive environment, but I think that in our response to the Bell ExpressVu application we thought that this was more of a policy issue, that it's going to be obviously considered down the road and we would also note that in the call for digital applications there are pay-per-view and VOD applications certainly.
1795 A lot of the services, it appears to us, although they are applied for Category 1 or Category 2, might more be considered traditionally what would be a premium or a pay service focused on movies, but I think all of those issues will be resolved then.
1796 COMMISSIONER COLVILLE: What's your sense of the future of this spectrum of services, the pay-per-view and video on demand? You are stepping into this world as a new player, as you have acknowledged in your supplementary brief, not a lot of experience in managing these services, but do you think those three services will continue to survive, or will pay evolve to pay-per-view and then video on demand as digital emerges more? Will video on demand be the ultimate service that will kill off the other two?
1797 MR. CASSADAY: My colleague, Paul Robertson, will have some comments here as well, but we spent a fair bit of time on this issue in the last couple of weeks. The advice that we are getting, and we subscribe to it, is that video on demand is not a business; it's a platform. It's just another way of delivering movies to people.
1798 We think that the dominant forms of delivery will be pay-per-view and pay movies, thematically presented, and a hybrid that is gaining considerable appeal in the United States right now is called subscriber video on demand, which is a hybrid form of movie delivery. So, I guess in summary to answer your question, we believe that video on demand is just another way of delivering subscriber videos. It's an honest, separate business and will probably not be a separate window and, as a result, the structure will remain much as it is today.
1799 Paul, do you want to just talk a little more about what's happening in the world of pay movies?
1800 MR. ROBERTSON: I would be happy to.
1801 I think that pay-per-view and video on demand tend to interact a lot because you are just really talking about whether it's on the half hour or whether it's at that moment. It's a similar type of offering to the consumer, so there's probably going to be some blurring of the lines between those two. But we believe that there is still a very strong role for pay and to build on John's comment with respect to the subscriber video on demand, which is really taking the pay service offerings and within that window, say, for an extra $5 a month or something, giving the subscriber the opportunity to take any of the movies that are available in the pay window and start them and stop them as if they were using a VCR.
1802 This kind of functionality could be built into the digital boxes and could be built into TiVo type of platforms and that seems to be an approach of where the pay television business may go in the future. So you have the whole library of movies available to you and you can begin them whenever you like and stop and start throughout.
1803 So there is going to be a technological opportunity for the pay movies, the pay movie business to evolve and within a world where pay-per-view and video on demand will also be extremely popular.
1804 COMMISSIONER COLVILLE: Part of this deal gives you the EDD, electronic data delivery I guess it is, the video on demand licence which WIC had. How do you see that evolving in and of itself and relative to the fact that Shaw has an interest in video on demand service, and given what we have just talked about in terms of it being a platform is it likely that Shaw is going to carry two platforms or carry its platform and Corus' platform?
1805 MR. CASSADAY: Again, that's probably best a question for Shaw. From our point of view we are not sure video on demand is a separate business.
1806 The EDD technology has proven to be problematic. We received an update in advance of this hearing from the WPT people on the subject of EDD and they are still struggling with the technology.
1807 So whether or not we can ultimately bring that to the point where it can be deployed and whether there is a real business opportunity there still remains to be seen, but what the role of video on demand will be within various cable systems across the country is, quite frankly, not a question that we can address for you today.
1808 COMMISSIONER COLVILLE: So the future of that business is problematic at best?
1809 MR. CASSADAY: Whether the future of the EDD business is seemingly problematic, whether the future of the video on demand is problematic is a question --
1810 COMMISSIONER COLVILLE: Sorry, I meant EDD.
1811 MR. CASSADAY: Yes.
1812 COMMISSIONER COLVILLE: All right.
1813 Just going back then to this main issue again, I guess just to summarize and correct me if I am misreading this, we have agreed or you have agreed that Shaw is an affiliate in the context of the policy statement that we made in the Convergence Report.
1814 We talked about, and I don't know whether you have agreed, that at least up until now and perhaps for some time in the future insofar as cable is concerned, there are still capacity constraints on the system, certainly in terms of analog. Would you agree with that?
1815 MR. CASSADAY: I think we all agree that there is no more analog capacity, that the services that we have applied for already have secured positions on analog and there are no other services waiting for analog distribution. So our point is we don't see how it's a problem that there is no more analog capacity.
1816 COMMISSIONER COLVILLE: So going back to an earlier question I had, it appears to me that you fit within the policy. I am not sure whether you are asking for an exception to the policy, or whether it's your view that the policy isn't valid in general any more?
1817 MR. CASSADAY: Our view is that the concerns raised in the policy do not apply to us. Therefore, we do not require an exception. We are in complete conformance with the policy, that the access issue that was identified in 1995 has been addressed by the issuance of your code and, subsequently supplemented by Shaw in the case of their affiliation with us, that there are no capacity issues, that the services that we have applied for already have established positions and that we are a structurally separate company. That's our position on that matter.
1818 COMMISSIONER COLVILLE: The established positions, but the policy talked about ongoing, perhaps preferential treatment in terms of price, placement and packaging. So you are suggesting once a service is on and has a place it's not likely to get moved?
1819 We have seen in recent months a number of services and we have had to deal with a number of issues surrounding movement by cable operators of services from tiers onto another tier or a tier on the basic and so on.
1820 MR. CASSADAY: Well, in the case of Teletoon and the Family Channel, we don't control those channels, so there are other shareholders that would be involved in that. Again, because we don't control it we don't really see it as being an issue because these are all part of a tier, the impact on the tier would be significant. So we can see little likelihood that it would happen.
1821 Then, we have made a separate commitment to you that we would not be a party to preferential treatment, that we would not ask for Family Channel or Teletoon to be moved to a lower or higher penetrated tier or to receive preferential treatment as it relates to marketing support to build the tier.
1822 I mean, we will be there four score with every other party to that tier to help ensure it's success.
1823 COMMISSIONER COLVILLE: So you acknowledge that it could happen, but you would not be a party to it?
1824 MR. CASSADAY: We cannot think of a single reason why it would happen, but, Commissioner Colville, we won't debate with you that anything in this world is possible.
1825 COMMISSIONER COLVILLE: Okay. Fine. I think we can leave it at that then.
1826 Ms Shaw, did you want to make --
1827 MS SHAW: I wanted to build on John's point. We felt that there was adequate safeguards put in place through a number of things, the access policy, the additional policy by Shaw, our commitment not to be a party to that and if there is a concern on the part of any other programmers that they are disadvantaged there is a process in place to handle that if in fact they feel that those safeguards aren't doing the job that we feel they can do.
1828 COMMISSIONER COLVILLE: Okay. I don't know to best handle this. I had a couple of questions for Shaw and I understand Mr. Stein is prepared to come forward and just answer a few questions with respect to this code. Maybe we could do that now and then take our break and pursue with questions on the radio. So, if Mr. Stein could --
1829 MR. JOHNSTON: We are at the expert's table, Commissioners.
1830 MR. STEIN: Thank you very much, Madam Chairperson. I have with me Chris Johnston, legal counsel from Johnston and Buchan, just to make sure we are able to deal with the questions you pose.
1831 COMMISSIONER COLVILLE: So this is the code, Shaw's code of practice that you put forward, presumably to address concerns that have been raised relative to the policy that came out of the Commissioner's Convergence Report in 1995?
1832 MR. STEIN: Yes, and in light of the subsequent decisions by the Commission on particular applications.
1833 COMMISSIONER COLVILLE: And I note in a number of references here to -- well, the fact that this code came out before some subsequent decisions by the Commission, the digital policy and so on, and so I guess I would ask you whether there are any particular revisions or what your position would be with respect to this code today?
1834 MR. STEIN: Yes. When we prepared the code in the latter part of December 1998, we were working on it because we did have discussions with a number of individuals, with CAB, SPTV, CCTA about how we would deal with access. So when we filed the application in January we felt that it was appropriate to put forward a code.
1835 Now, since that time there have been a number of things that have taken place. The first is, of course, the creation of Corus as a separate structure, a separate company with different management, different focus and now, as it has evolved over time, different sets of shareholders, which took ownership of all of Shaw's existing programming services and also as part of that application to take control of those that would come to us under WIC.
1836 But in that code we also referred to the launch of the unlaunched services in January 1999. This, of course, is very much a very strong concern as to the status, as they were titled, the digital orphans. So at the same time we made the commitment to launch all of those services, the Commission subsequently came out with an order that made it clear that was to be done.
1837 We always understood that, that that had to be done by September and we have done that. We have licensed -- we have launched all of the services that were licensed by the Commission, the exception being Talk-TV where we do have an agreement and I understand that will launch this coming fall I think.
1838 Finally, we did reach an agreement with CanWest in terms of the transfer of WIC's radio and pay television services to be transferred to Corus. So those events took place.
1839 I think the other significant event, of course, was the establishment of the new digital licensing framework. A lot of the questions that come up in terms of our code and how it applies, and a lot of the interventions, of course, deal with this transition, which has always been a preoccupation between the analog world and the digital world.
1840 As Mr. Cassaday has pointed out, for Shaw the services that we are talking about on the pay side are, of course, distributed now on the digital side.
1841 Basically, the other process that I think is really helpful and Heather Shaw alluded to this, is the dispute process. Programming access is one of many, as you know, as the Commission well knows, is one of the myriad of access issues we deal with. I think that the way that we have worked this out on an industry-wide basis, whether it refers to terrestrial access or access to space capacity, transponder capacity has been an issue, buildings. There is a whole range of access issues. I think that the processes that have been developed, and that is to have a set of regulations that are put forward and an industry-wide process is to deal with that and deal with particular issues, I think has worked extremely well.
1842 I think it is notable that in Canada we don't seem to have the same degree of animosity about access issues that seem to exist in the United States, for example, and I think that is because the industry and the regulator have been able to work these things out.
1843 We think in particular that the undue preference rule put forward by the Commission is very clear. We think that the Commission's interpretation and how it has dealt with particular situations has built up a body of knowledge of how the Commission interprets that. Obviously, it relates to more than just access. It does relate to terms of carriage.
1844 So in a voluntary code where we had applied sections 4 through 6, we see those as very much being part of -- that we would see continue as part of what we would say would be our commitment to make sure that we live up to the Commission's expectations with respect to undue preference and to ensure that all programming services are dealt with equitably.
1845 So I think that in terms of how we proceed in the future, I think one of the key issues is the digital side and we would expect to -- that I think will also be taken up in industry-wide discussions as you move through the licensing process and we move into discussions of how to launch those services.
1846 So the code applies, as it sits, those categories 4 through 6 we think form part of the Commission's body of interpretation with respect to the undue preference rule. We think that the Commission and its digital framework did quite a good job of laying out exactly how to deal with the Category 1 and Category 2 licences.
1847 COMMISSIONER COLVILLE: I take your point about the other issues and the other, how shall I say, safeguards, I suppose, that have been raised and Corus raised them in several of its responses and in its own brief. So you are saying that with all of that Shaw would still, as I said earlier, noted that if there were still any residual concerns that Shaw would still be prepared to go with the original code and now you are saying clauses 4 through 6 --
1848 MR. STEIN: Seven.
1849 COMMISSIONER COLVILLE: Seven, okay.
1850 Now, CHUM in particular responded with comments related to individual aspects of the code. Perhaps I could just pose a general question about whether you have looked at that and whether you have got comments on their comments. Again, I guess I am perhaps stealing a little bit of their thunder, but maybe it gives them an opportunity to respond, having heard what your views might be on their -- I guess I've seen Corus' response to CHUM's intervention, but I would be interested since this is your code, not Corus' code, what your views would be on the particular amendments or additions that CHUM would propose.
1851 MR. STEIN: Yes. Well, CHUM is obviously going to intervene and can make their comments known and we have gone carefully over their comments.
1852 I think in general the comments that they make with respect to the code that we have proposed, I think first of all the fact that they recognize that it's an important step in terms of trying to resolve these issues. I think I would just make two comments about it without getting into detail on their specific recommendations, is that first I think one has to be very clear about the digital issues.
1853 This is very much an unknown type of territory moving into in terms of the digital framework and how are going to deal with those services and how we are going to launch it, those services.
1854 We think that the best way to approach that is on an industry-wide basis. So I have had discussions with Mr. Fraser of SPTV, with Michael McCabe, Janet Yale and, basically, we have indicated that in terms of how we approach a digital world that is something we would prefer to deal with in terms of an industry-wide kind of discussion.
1855 We participated in the digital framework discussions and we would obviously want to make sure that everybody is treated equitably. The most important point though, and this is actually a point that Michael McCabe made to me, which is that first and foremost the most important thing is the viewer, that as we move into a digital world there is going to be a huge expectation by viewers that they will have total choice over the kind of services that they receive and that they get.
1856 As a distributor, we are going to have to make sure that we give them, that we deliver. I think John made the point earlier that right now we believe that we are a very competitive, a very driven company because we are dealing with the kind of competition that's up there from the wireless side and from other arrangements that people are able to do.
1857 So we are going to have to deliver choice, very clearly, and we are going to want to have the best range of services here and we are going to want to be able to make sure that we treat people in an equitable way.
1858 I think the Commission's rules that they came out with, as it applies to Category 1, indicated that the safeguards are in place and that we will be able to do that. I think if we want to refine them or go into specifics about them that that's something we should try to sit down and do through the licensing process and further discussions when you take your decisions from August on. I would much prefer to deal with it on an industry-wide basis.
1859 Having said that, I have not yet heard CHUM's points that they may make orally. We are willing to discuss the points that they have raised, but again on an industry-wide basis.
1860 COMMISSIONER COLVILLE: So when CHUM proposes the new clause, which was clause 3, analog service is not affiliated with Shaw, should not be migrated to digital unless such services agree and until all pre-existing services affiliated with Shaw have been migrated, you would not agree to that?
1861 MR. STEIN: No, and the Commission made clear that is a very important issue. It is a significant issue that how we migrate services from analog to digital. I think that the Commission made it clear that it was an issue in your digital framework decision and indicated that there would be a process to deal with that. I think that's important and we would obviously participate in that process and sort it out on an industry-wide basis.
1862 COMMISSIONER COLVILLE: One other issue to perhaps pursue at this time briefly, with respect to the fifth one. CHUM was referring to the test for preference really be broadened to include all terms of distribution, not just whether you were on --
1863 MR. STEIN: I would make two comments about that. The first is that in terms of the undue preference rule I think that hatches under it. Anything the Commission wants to capture, I mean I think that the Commission has demonstrated that it looks objectively at a particular situation and makes a decision.
1864 You have just come up with four access decisions that relate more on the telecom side where you have gone through each of those situations and said, okay, based on the facts we find preference or we don't find preference. It's hard to predict exactly what the situations are, but in terms of the points made I think in 5, I think the key thing here is we don't want to get into a situation where we are locked in by what we call regulatory tiers or regulatory arrangements to the consumer.
1865 We at Shaw have a rule that we never ever say to a customer we do that because the CRTC tells us we have to do that. We do it because we try to design the most consumer friendly packaging that we can and we have always followed that rule, right through from -- I won't go through all the particular situations, but we have within our company particular rules that focus on giving the best possible service to the customer.
1866 So I would not want to have a code, an inflexibility imposed that wouldn't enable us to react, to be able to respond and deal with the consumer.
1867 Having said that, we recognize the right of any programmer to be able to feel that they are being treated equitably and if they don't feel they are being treated equitably to take advantage of the processes that you have established that I think work quite well. So that's one comment on that.
1868 The second comment I would make is that in this new world we are coming into with Bell and the satellite people and who knows who else in terms of offering these services, people may take advantage of different things. People may be able to use part of their capabilities and we may have to take advantage of certain of our capabilities, but in taking advantage of those capabilities we would make sure that Corus didn't receive any favourable treatment over anybody else because our shareholders wouldn't want us, would have made it very clear that they do not think that's in their interest for us to do that.
1869 So we would have to treat all the programmers equitably regardless of what the particular issues are.
1870 COMMISSIONER COLVILLE: Okay. Maybe we can perhaps pursue some of those issues through CHUM's intervention and, if need be, perhaps a reply by you subsequent to that towards the end of the proceeding.
1871 I think those are all the questions I have for now, Madam Chair.
1872 CHAIRPERSON OF THE COMMISSION: We will take a short coffee break and be back in about 12 minutes.
--- Recess at 0955 / Suspension à 0955
--- Upon resuming at 1016 / Reprise à 1016
1873 CHAIRPERSON OF THE COMMISSION: We will pursue with the questions of Commissioner Pennefather.
1874 MR. CASSADAY: Madam Chair, with your permission could we just address Commission Colville one last time on one issue? We know yesterday he only had one opportunity on the public record. We would like to give him another opportunity after the break.
1875 We just wanted to clarify some confusion that I think we have created and that is the whole issue of our asking for an exception in our supplementary brief to the Convergence Policy, and yet today we are describing why we don't feel we are an exception, but rather that we comply with the policy as it relates to the changes that have been made in terms of access code and capacity.
1876 All we would simply like to say for the record, if the Commission still feels that an exception is warranted, as opposed to acceptance of our belief that we are now in compliance with it, that you look towards the public benefits that we have offered and in particular the synergistic benefits and vision that we put forward as a means of acknowledging the appropriateness of that exception to the rule. That is all we wanted to offer.
1877 COMMISSIONER PENNEFATHER: Thank you, Madam Chair. Good morning.
1878 I would like to continue the discussion which you started with Commissioner Colville regarding the vision and, obviously, to focus a little more in on the radio undertakings per se.
1879 The context for the discussion then is one that is both broad and specific to the radio undertakings in your proposal, which I remarked earlier you said were in complete compliance with the policy and, therefore, there were no issues. However, there may be some questions and there may be some areas we can explore a little further over and above what is, and correctly so, as you say, in strict compliance with that policy.
1880 Stepping back for a moment, the vision you outlined earlier which you refer to in your oral remarks as an opportunity to lead Canadian radio, to level the market growth achieved in the U.S. from the benefit of consolidated ownership, that is certainly one issue that I would like to understand a little better what you mean by that.
1881 Secondly, you say in the same paragraph:
"The first major broadcaster to consolidate stations in Canada's major markets, we will ensure format diversity and distinct news voices for radio services." (As read)
1882 The following paragraph lays out some of the other areas you think your expertise is going to affect the radio market in Canada. I think those two paragraphs summarize well the discussion I would like to have with you this morning and go a little further on that.
1883 To be clear, and I think in fact your discussion earlier made it clear to me that you see this in the same way as I hope to question you this morning, is both at a national level and in individual markets and we will do both as we look through these various questions.
1884 Because it was my understanding that what you are setting out here is your vision for the future. The transaction as a whole includes the radio undertakings, but for very specific reasons and what I would like to understand a little more is what is your vision for the future regarding radio in Canada. Where does this transaction position Corus in that radio industry in Canada?
1885 You said this morning that this is a unique opportunity with intense responsibility to follow. So I would pose it over and above the strict clients, if you will, with the radio policy. You yourself have set a context where we could go perhaps beyond that and explore just to what point this transaction is going to change the radio industry in Canada, how that is of benefit, but not just to you as a corporation, but to Canadians.
1886 So I guess what I would like to do is start by you telling us a little more specifically about some of the points you mentioned this morning about radio, where is it going, why is it growing as you say it is? What are the drivers behind that growth? In that context, what will this transaction do in terms of benefits to the broadcasting system in this country? Why is it an advantage for us to, as we say here, as a country and as a radio industry accept this level of consolidation of ownership in the radio industry in Canada? What will that do for the broadcasting system?
1887 MR. CASSADAY: Let me begin and my colleague, Mr. Strain, who has a long tenure in running radio operations in Canada will have other comments as well.
1888 I think, first and foremost, radio is a dynamic medium that provides tremendous value to both listeners and to advertisers. On the listener front, highly targets and whether it is news or a particular genre of music, your station is your station and the loyalty that listeners have to a radio station far exceeds the loyalty that they have to any other medium.
1889 It would not be uncommon for a listener to our CFOX radio station here in Vancouver to spend 80 per cent of their radio listening time to that one station, which is virtually unprecedented in terms of any other loyalty to a medium, whether it's a magazine or a newspaper or a television station.
1890 Secondly, as it relates to advertisers, radio has the ability to target a specific demographic and even a specific time of day unlike any other medium, so there is an immediacy and a connectiveness to an audience, which makes radio of tremendous value.
1891 In terms of the public benefit, both Mr. Strain and in our comments this morning talked about a number of things that are on the horizon. I guess the real art in these hearings is to have a little eye towards what is behind us, but also to be really focused on what is in front of us. What's in front of us, as it relates to radio, is competition from satellite players in the U.S., Sirius and XM, and also tremendous amounts of radio activity on the Internet right now.
1892 So in terms of the public benefit that we feel we deliver here as it relates to a highly competitive future, is the ability to aggregate stations and ensure that there is the financial wherewithal to compete and go forward.
1893 When the industry came to you in 1998 for the radio hearing, 50 per cent of our radio stations across the country were losing money. We said to you to ensure a vibrant local broadcasting industry in Canada we need to look at consolidating ownership and you agreed with us and we are about to embark on that today with this being the first major consolidation to come before you.
1894 So, the first public benefit is that there is a recognition that we need to create greater efficiencies in our radio operations. Here in Vancouver we will have the opportunity to create numerous efficiencies amongst our four stations -- for example, consolidation of our facilities, consolidation of our administrative functions and the ability to develop research and fund research in this community across the revenues of four distinct stations. So that is a distinct public benefit that is afforded us all through the consolidation of these stations.
1895 The second and important benefit is diversity. In Canada today with essentially one shot at the ad pie in a given market, we all tend to migrate towards the most lucrative demos. As a result, what we get is variations on the same theme.
1896 What radio consolidation will allow us to do is look at our signals. So, for example, again here in Vancouver the Power station and the CFOX station have a tremendous amount of overlap in their playlist.
1897 Through research that we will conduct, if approved, we will begin to understand more clearly what the gaps are in the marketplace and ensure that there is an adequate degree of separation between those two stations, on the basis that there is no point in absolute duplication of those audience, so the playlists will start to diverge over time.
1898 COMMISSIONER PENNEFATHER: If I could just interrupt you for a moment. I will get to that and specific markets in our discussions about diversity in various forms, from news to music, but I was interested in stepping back a bit first and ask the policy. You well quote the policy in terms of the Commission's decisions regarding the benefits of consolidation. But I am also looking for your vision, spoken in words that are specific to radio.
1899 I think, as Commissioner Colville might have noted, kids and music, music may be the component that most suits the reasons for these radio assets being of interest to you.
1900 The balancing act which that same policy requires is being the consolidation and its benefits and the benefits to the community served and the benefits to the broadcasting system as a whole. So I am looking at that balancing act now.
1901 If we look at the broadcasting system as a whole, what's in it? Why is this transaction valuable to that broadcasting system as a whole? What will you add? What will be the enhancements that this transaction will bring to the broadcasting system and radio as we know it?
1902 MR. CASSADAY: Well, going back to the Broadcasting Act, clearly strong Canadian ownership. Secondly, the efficiencies. Third, diversity; and, fourth, I think the ability to adapt to new technologies.
1903 Terry talked earlier about the opportunity that digital radio offers Canada and the financial wherewithal that is required to make that migration to digital. So we think that there is tremendous opportunity for us all in terms of elevating the quality of the sound of our stations and really putting our AM stations on the same playing field in terms of sound quality as our FM stations are today, which again we think will significantly enhance diversity. So those would be national public benefits.
1904 Before I turn it over to Terry, just one final comment on the marketing side. One of the issues that we have had, this is one of the most fragmented industries anywhere. Virtually every market across the country, four or five robust competitors, and competition is essential and terrific, but as an industry we really have been guilty of eating our young.
1905 I think one of the things that we need here is the leadership that consolidated stations can provide in starting to build the market, as opposed to simply going after share.
1906 So start positioning radio as a more viable alternative to television, newspaper or magazines and to start to create a stronger flow of blood through the system by expanding the pie, as opposed to simply trying to carve up the slices in a pie that has basically been flat for the last number of years.
1907 COMMISSIONER PENNEFATHER: When you look at that though, from a business point of view I hear what you are saying in terms of the way you go about doing this and why, but the leadership in radio in terms of the Broadcasting Act I haven't heard you yet mention what the substance of radio is, music and news, or voices, talk, exchange among Canadians.
1908 But let's just take music. You haven't yet mentioned that the point of this whole transaction is Canadian content in radio. I think you did earlier, in fairness. Could you expand a little bit on what the challenges are to really support the music side of radio and the music industry in this country and how your transactions will add to our capacity to take our position as Canadians in that area?
1909 MR. CASSADAY: Well, certainly as it relates to the benefits that we are offering, approximately $12 million in public benefits will result from this transaction. The largest percentage of it going directly into the development of music talent and again I would ask Terry to comment on the funding mechanisms that we as an industry have put in place.
1910 But as we began to talk about research and the ability to create additional diversity that's where we were heading in that particular conversation, which is the importance of providing venues for more artists and more variety by separating and creating distance between the playlists on the various stations.
1911 Terry, would you like to add some --
1912 COMMISSIONER PENNEFATHER: Just before you do, to be clear, Commissioner Grauer will, of course, explore the specifics of the benefits that you propose under the policy and the structure that that sets up for us.
1913 What I'm interested in here is over and above that. This group of stations added to the stations that you already have given you considerable positioning in radio in this country and with important assets across the country like that, I think we are interested not just in what the benefit to policy your follow-through on that, and that's interesting and we will certainly want to discuss that, but over and above that, how, particularly in the area of music, will you add, will you just continue to do what is being done now, for example, in these stations or will there be more, will there be an emphasis on music, will there be music development? What do you see as the Corus vision that will really push that balance that we look for in our policy between consolidation, on its plus side, and some of the concerns we may have about the effect of that concentration. Is there a benefit to the system over and above the standard benefits that will say that this is a good thing for music, for example, in this country?
1914 MR. STRAIN: Commissioner, I think one of the benefits that we can ascribe to is when we began in the radio business a number of years ago, we did things -- and I hope this follows some of the thoughts that you may be having in this area -- one of the things that we did, for example, in Vancouver, in Calgary, in Edmonton, in Toronto, as part of our benefit package, was satellite vehicles, and I think we were one of the first companies in Canada to do that, and what it enabled us to do was to go out, particularly in an area like Vancouver where you could lose a signal, even you have some ghosting with your FM signal, but it allowed us to go out and cover Canadian talent and cover bands that -- I mean in a live format in those sorts of markets and to provide further exposure to Canadian talent.
1915 With this acquisition of stations that we would be looking at, you know, those vehicles would then be available to those stations to cover, in a different venue, other acts that would come into those markets. So we would make that available. We believe that to be an advantage. You know. We would have the opportunity of national exposure. We may break a group which is -- our station in Toronto, currently, The Edge, is noted for its new music. We may be able to break a group there and all of a sudden be able to break it on one of our stations here in Vancouver and also in Calgary and Edmonton, so there's -- and Winnipeg, as well -- so there's the opportunity for national exposure in those major markets where it hasn't existed before.
1916 The other thing that we will want to do is retain a strong local influence because local is what's going to drive the success of our stations. And we will have to examine the music, and we will do research, and I think there is an opportunity down the road, and it's going to take extensive research to do it and we are prepared to commit to it and have committed to it, I can tell you that today, to look and see other formats that aren't currently in existence in a market where we should be and we are prepared to do that and to make a commitment to you that that research will be done and we will examine that. So, you know, should we look at a jazz format, for example, in Toronto, or should we look at a jazz format in Vancouver? At this stage, I can't tell you that; those are the sorts of things that I think are important. And to face these competitive challenges, we need a strong industry, and I think that the policy that you brought in 1998 gave us that opportunity.
1917 So we think the development, the further development of Canadian -- I would take it a step further. One of our benefits when we got CFNY in Toronto was a storefront studio, which we now have on Yonge Street, in Toronto, in the Eaton Centre, and it gets crowds of people. We had one particular Canadian band where the police blocked off Yonge Street, at rush hour, so the band could play. Now, there were a lot of unhappy pedestrians and there were a lot of unhappy car drivers, but the band got the exposure. You know, with Q107, in Toronto, with that station playing in a different format, we would make that facility available to them as well, so that we will give further exposure to other Canadian acts. We would look at doing something like that here in Vancouver, as well, because we think it's worked very well for us in the Toronto area.
1918 So those are the types of things that we have been exploring and talking about. I hope that --
1919 COMMISSIONER PENNEFATHER: Well, you understand the nature of my question, at a broad level -- I thank you for that -- is also to connect all the parts and to see what the sum of all of it is, and I have picked the focus of music largely because you, yourselves, have placed it as the dual part of your vision of kids and music -- a connection I would like to explore further throughout this discussion.
1920 MR. STRAIN: Well, I think, Commissioner, if I may --
1921 COMMISSIONER PENNEFATHER: Yes.
1922 MR. STRAIN: -- as Mr. Cassaday alluded to, when you thought of Campbell Soup, you know, there were other sidelights, like Pepperidge Farms. With us, of course, WIC has a very strong presence in the talk and information and we are going to build on that.
1923 COMMISSIONER PENNEFATHER: I will come back to that when we look at, as far as possible today, on the format diversity and what we can foresee, in terms of how the new acquisitions will fit, as you say, to be complementary to where you are now and where you see yourselves going. But stepping back again strategically, you spoke, on page 15 of your application schedule -- supplementary brief, about the synergies and other aspects of the Corus vision, in terms of what you would bring as a benefit to the system.
1924 Does this approach apply to radio, as well?
1925 MR. CASSADAY: Just a couple of examples on the synergistic capability that we see. One would be the Canadian Country Music Awards, which last year, quite late in the process, lost its major broadcaster and we stepped forward and, in combination with the CBC, kept the CCMAs alive. Now we had a vested interest because we have, you know, a couple of very -- or three very strong country radio stations in Alberta, but we also had CMT, and what we were able to do is cross-promote Country Music Awards and take second runs of that award show and expose that to Canadians multiple times across the country, which was a substantial advantage to the Country Music Association and its artists across Canada, which again was a direct result of the synergy that we could bring to play.
1926 The other -- a couple of examples of synergistic benefits is we have talked about the Internet. We have developed a new media strategy where each of our radio stations will have a significant presence in their respective markets and our commitment is that each of these radio stations, whether they are in Red Deer or Winnipeg or Toronto or Vancouver, will have the same quality of look for each of its listeners across the country.
1927 A third area where we provide great synergy -- and Terry talked about the opportunity of breaking new artists and giving them national exposure -- we have yet another platform, which is our DMX business, where we have the opportunity to introduce artists that we have discovered, whether it's in a rock format or a country format, and give them exposure on our digital satellite music business as well.
1928 And, finally, in the case of YTV, we have had great success in cross-promoting the music that we play in the afternoons on YTV with our radio stations, particularly our Energy station and YTV, so there's tremendous benefits there that accrue to the --
1929 COMMISSIONER PENNEFATHER: You projected my next point.
1930 So it's fair to say that the multi-platform approach is very much the vision you have, in terms of kids and music?
1931 MR. CASSADAY: Yes.
1932 COMMISSIONER PENNEFATHER: And radio fits as part of that.
1933 MR. CASSADAY: That's right.
1934 COMMISSIONER PENNEFATHER: I have to look at, in terms of radio, per se, and the future of the radio industry and radio talent in this country and whether or not this horizontal strategy is a benefit to that or not and I think we should look at that as we get down to finding out some of the specifics of what you will do with these assets.
1935 But stepping back, again, as a general strategy, the cross-promotion cross-platform approach -- which I assume includes the Internet -- if we look at the target audience that you are focusing on, the use of this country, if we look at the assets in radio, for example, some of them, in particular in Calgary, we note that they are strong target audience successes with the 12- to 17-year-olds, along with the other projects that you had outlined earlier, this gives you quite a corner on, perhaps, on a market, the youths market in this country.
1936 Do you see that we should have any concerns about the fact that you are moving into a position where you may have a very strong, in fact too strong a dominance in the advertising market directed to youths in this country so that it becomes an anti -- if you will, it put other players at a disadvantage, players in the radio market at a disadvantage. Obviously, one of the questions asked in the radio policy is the balance, again, between consolidation and the capacity of one person to hold a corner on an advertising market to the detriment of others.
1937 So can you explain to me how you see, nationally, the advantages of this platform approach and how you would respond to the potential for market dominance, in terms of advertising to youths in this country.
1938 MR. CASSADAY: On a macro level. no, we do not see concerns about market dominance -- and, again, we can talk to you on a local level and we will have the same comment, no, we do not see concerns about market dominance.
1939 As we said earlier, radio is an industry which has a number of robust competitors. In addition to Corus, we have Telemedia with an excessive 90 licences, CHUM with approximately 27 licences, Rogers with about 30 licences, Standard with about 20 licences, NewCap also a relatively strong player. So, if you compare the market structure in this industry to virtually any other industry in Canada, it would be hard to identify a sector which has a greater level of concentration.
1940 The second point relates to the impact of advertising. As you well know, radio represents only about 12 per cent of the total advertising pie. So we are a relatively small player at about $950 million in revenue per annum. And we firmly believe that there are multiple substitutes for radio. Our biggest task, quite frankly, is to try to expand that share and build our business going forward.
1941 If you would like to look at this issue on a local basis, we can dissect it, you know, market by market --
1942 COMMISSIONER PENNEFATHER: Yes, we will come to that. I have some questions for you regarding each of the major market areas that you, yourselves, say, on page 19 of your supplementary brief, that:
"Although Corus is seeking to consolidate its ownership of radio undertakings in five major markets and to enter the Winnipeg market, approval of the application will not result in dominance of the advertising market." (As read)
1943 Let's get to the individual markets in a moment. But looking at it from the broad national point of view, it's not just the radio market. You, yourself, oppose the whole strategy here; it's the combination of television, radio, Internet and perhaps other platforms.
1944 Ms Shaw mentioned earlier a strategy which says, "We want kids in this country, in five years, to turn to Corus for all of their information".
1945 Obviously, there's a question of diversity of youths that's going to follow from that comment. But in terms of the advertising market, it's not just the radio piece, it's the combination of all of this, which one can certainly see the advantage in terms of your vision and where you're heading with kids and music. But at what point does that become a market dominance, in your view?
1946 MR. CASSADAY: Again, looking at the market broadly, there are many voices for advertisers who wish to reach children. Virtually, all of the major broadcasters have strong kid- and teen-oriented initiatives. CBC, this past weekend, has announced their recommitment to their children's programming. CTV has a strong children's block. The Global has a strong children's block. There is, again, significant players within -- in the children's market. So even looking at it from a broad Corus perspective, we would argue that there is no basis for concerns about the concentration of market power, even against that kid demo.
1947 COMMISSIONER PENNEFATHER: In your view, is there a point at which there are concerns where, you know, we should have some considerations or consider some mechanisms to balance that competitive playing field? Or is it as long as there's somebody else out there, the position of dominance -- the question of dominance does not occur?
1948 MR. CASSADAY: Well, again on a macro level, we have, you know, intense global competition in the kids' arena, Disney, Fox, Viacom, all strong players with multiple platforms who are affording, you know, significant competition. So when we think about the whole issue of market concentration, I think we need to think about it on a global and certainly on a North American perspective.
1949 There are a couple of ways of thinking about the whole issue of concentration, obviously, one is market share and the other is revenue share, and certainly in no instance, do we feel we are approaching a level of concentration that could cause concern.
1950 Paul, did you want to add...?
1951 MR. ROBERTSON: I would just like to add a couple of points to that.
1952 Your point raised about the potential -- I think the aggregate between television and radio, as it relates to the kid or teen demographic, and I think it's important to note that on the YTV front and kid-oriented services, the 2 to 11 is really the core demographic that advertisers are interested in, and that on the radio front, they really don't even start to measure the audience until they're over the age of 12. So there's really quite a distinction between radio and television, in terms of the demographics that they attract and that the advertisers are interested in.
1953 COMMISSIONER PENNEFATHER: So just to clarify, when you say your strategy is kids and music, "kids" is what?
1954 MR.ROBERTSON: What does "kids" -- what ages --
1955 COMMISSIONER PENNEFATHER: What does "kids" mean? I would have assumed kids and music, in your overall vision, not just YTV but the overall vision, is more like 2 to 24?
1956 MR. ROBERTSON: Well, no, kids, in our mind, would be a short form for 2 to 11.
1957 Now, I mean YTV's conditions of licence or nature of service goes to the age of 17, but I was really just referring that the advertisers, you know, 80 per cent of the advertiser interest in YTV relates to 2 to 11, which is demographics that are not of interest to radio buyers, so there really is no potential to aggregate on that demographic. That's the only point I was making.
1958 COMMISSIONER PENNEFATHER: So why are these radio assets so interesting, then, for your kids objective?
1959 MR. CASSADAY: It's two distinct positionings: kids and music. They are two distinct business interests. There are cross-promotion opportunities and cross-windowing opportunities, but they are two distinct areas of interest: kids and music.
1960 COMMISSIONER PENNEFATHER: There is no connection between kids and music?
1961 MR. CASSADAY: Oh, of course there's connection but, you know, it is not -- "kids and music" is not a word; it's two distinct business segments, two distinct areas of interest, as is specialty television and radio. And of course there are commonalities but --
1962 COMMISSIONER PENNEFATHER: It seems to run counter to the concept of platform and horizontal marketing that you raised earlier. I know in my house all those media are happening at once: music, television, Internet, and I'm sure that you have had these discussions at length, but it was my understanding of your strategy that, in fact, the point of this trans -- the why of this transaction, at least for most of its components, particularly radio, is it's complementary to your overall strategy for kids, and I think in the normal parlance that kids runs larger than 2 to 11; I think it usually covers a wider base. Certainly, in radio, if we look at target audience, a number of the assets that you are looking at do reach the 12- to 17-year-old market quite well, particularly in Calgary.
1963 So it was my assumption that it was part of an overall view you had that the radio component of this was an important part of your vision for the future, and that's why this transaction was important to you, because it would reach the youth audience. Radio being, to a large extent, music, it seemed to me there was a connection there. And in terms of advertising, there's where the link is at its most interesting, I would assume.
1964 MR. CASSADAY: The radio part of this is absolutely essentially, but it is a discrete part of our vision. Music is a discrete part of our vision. Kids are discrete part of our vision. Those are the two things that we believe we excel at. Those are two areas that we believe Canada uniquely distinguishes itself at.
1965 The fact that they are complementary to a degree is wonderful. But, you know, our radio division is headed up by a separate president, Terry Strain, our television division is set up by a separate president, Paul Robertson, most of our kid assets reside under Paul's auspices, most of our music assets reside under Terry's auspices and there is interaction and there is cross-promotion and there is horizontal opportunities but, you know, our interest in radio is distinct from our interest in children.
1966 COMMISSIONER PENNEFATHER: I understand your application to read and your conversation earlier to read that you, in fact, were looking at a multi-platform approach which was inclusive of the radio assets, in terms of your vision for kids and music. So that's why I'm trying to understand why you have it separate in one sense and yet all part of the same overall vision in another and how they fit together, and I think that's an important question when it comes to your approach to advertising.
1967 If we look at the share of the radio market, then, in specific markets, let's -- if we could stay with this question of dominance and your understanding of dominance, which you say is not the result of your acquisitions, in Calgary, we end up with, according to BBM-99, we end up with a revenue share of 48.4 per cent, audience share of 40 per cent; in Edmonton, revenue share of 51.6 per cent, audience share of 54 per cent; in Vancouver, revenue 40 per cent and audience share 33 per cent; and in Hamilton, although we could discuss the southern Ontario coverage issue a little differently as well but just in Hamilton alone it's 60 per cent of the revenue share and 29 per cent of the audience share. Why is this not market dominance?
1968 MR. CASSADAY: I will ask Terry to talk about the dynamics within the market itself, but if you look at, for example, at a market like Calgary, which I think the total market is about 500 million, we have about a five-share of that market. So within the context of the total advertising pie, we have a relatively modest share. And, again, you know, what we have to keep in mind here is that radio is a part of an advertising community of which it represents approximately 12 per cent.
1969 So, in terms of the individual markets perhaps, Terry, you could identify or isolate one or two markets for --
1970 COMMISSIONER PENNEFATHER: How you see your positioning in the radio market, in terms of revenues and shares, because what I see is, in Calgary, 40 per cent and 48.4, so perhaps you could discuss the radio market per se in each of the five major markets that you're entering --
1971 MR. STRAIN: Commissioner Pennefather, if I may, you had started with Calgary, and if you like, we would start there, if you would like to discuss that one.
1972 COMMISSIONER PENNEFATHER: Sure.
1973 MR. STRAIN: First off, I think we -- as I said earlier, in 1998, you brought out your policy on duopoly, which was an excellent one. We think it -- as I said earlier, also, that it did two things: it provided economic strength to the radio business and it demanded diversity, if there was going to be duopoly.
1974 We looked at the test of duopoly when we were doing this transaction and certainly we meet it, in terms of your policy. We looked at the number of radio owners in a market. And in a market like Calgary, if you take Corus and WIC and called them as one, now, you still have Standard, Rogers, CBC, and you have two independent stations, CJSI-FM and CHKF-FM. So there's still, in terms of radio, a large number of voices and owners.
1975 In addition, you have just proved a duopoly for Rogers who now have four stations in the Calgary market, and if you want to include Canmore then they have five stations. And I think that what we have to look at is the other players -- and there are other players, in terms of television, newspapers, speciality digital news that CTV and CanWest have applied for specialty digital news cables and we provided, in our addendum to you, a list of -- in our supplementary -- of all the competitive media.
1976 Radio is largely funded locally, 75 to 80 per cent of our revenues come from the local market, and while you can win on one side, there are times when you are going to lose. We as a -- Country 105, the radio station we currently own, was the dominant station in that market, for a number of years. But formats ebb and flow and country music isn't as strong as a format now as it was six years ago, when we had the Terry Clarks and the Paul Brants and the Garth Brooks -- and Garth Brooks has now crossed over to AC, so you get that cross-over thing happening. But I guess the point I'm making is that you can be a hero on one survey and a bum in the next. I mean formats really do ebb and flow. And CHR, which is the power station in Calgary and certainly in Edmonton, owned by WIC, really started to come into their own in, oh, 1995-1996, when CHR, as a format, started to take hold and, as I said a few seconds ago, the other formats, which is country, started to take a dip.
1977 So if you look at the market in total, the Calgary market is about a $417 million advertising market. We would have, in that market, 5.5 per cent of the revenue. That would be our share.
1978 On the radio side, you know, it's easy to say that, here's revenue that may or may not come -- and I will use our country station, for example. Our country station is largely -- its demographic is mainly women 25-54, adults 25-54. When the beer companies come along, they don't look at that demographic. They like the younger demographic. They will go with the Standards, who have a rock station, they will go with Rogers, who have a rock station, and we don't get a sniff of any beer business. So it -- and the dynamics of the market can change. We had a client not long ago that, historically, did a boxing day promotion and bought, generally, all the radio stations in Calgary and in Edmonton. This year they didn't like what they say, so they went newspaper.
1979 So things can change within a market and, you know, we have the threat of stations on the Internet, we don't know yet what that's going to do to us.
1980 COMMISSIONER PENNEFATHER: That's partly what is behind my question, yes, the -- I'm now coming back on the statement that you can change your formats and you may in fact do so. The assets in Calgary and certainly one of the stations in Winnipeg, for example, has very strong followings, very strong loyalty to these stations. The stations in Calgary, for example, are quite successful. So speaking of the market, the audience share, strictly speaking, in radio, they're doing well. But as you say, you might change formats. You might decide, at some point, that it's more beneficial to you to re-balance that act which currently, if you look at the Calgary market, you will have a country station and news and talk station and a CHR. One of the interesting points of this -- to connect the two pieces of this discussion on dominance, one of the things that interests me, though, is while we want to maintain a diversity of formats in a particular market like Calgary, considering the overall course of strategy which I still think is part and parcel of your application, but correct me if I'm wrong, that you're looking at kids, you're looking at music, you're looking at your expertise and your business plan in those -- with those targets across multi-platforms. As you look at that potential, you might approach the radio markets and the radio formats in such a way to change them to suit that overall advertising push, that overall strategic vision, and that's -- I was wondering if that's a reality that may influence the choices you make, in terms of formats of the future, not just a question of what is working -- what may or may not work in individual market but over time what can we expect in terms of that diversity, how will it change and how will this multi-platform strategy, the Internet, television services, after all in the same city of Calgary, of course, the specialty services are likely available to a great number of young people -- Miss Shaw mentioned earlier that it is the hope and fact of Corus' strategy that, in fact, kids will turn to Corus for all their information and entertainment. Wouldn't this influence the choice that you're making in radio in the future?
1981 MR. STRAIN: In terms of formats, I would say, no, Commissioner.
1982 You know, the easiest -- the easiest thing to do is to start changing your formats dramatically, unless you've got a good reason -- and you have to have the research to do that. As soon as you start changing your formats you're going to lose your listeners, and that's -- and the most difficult thing -- that's the easy thing to do -- the most difficult thing is to get them back. As I said to you earlier these formats do ebb and flow. We do continuous research in the markets, and we're going to expand upon that in all of the markets, just to see what the listeners' likes and dislikes are. You find some -- you find some interesting things, particularly in the music level, and you find some artists that you think you should be playing more of that are burning and you find other artists that you're not playing enough of that you think you have. So it's an interesting and -- interesting dilemma.
1983 But I think within the -- at this stage -- within the Calgary market -- and we have been talking about that so I will stay with that one for the moment -- within the Calgary market, I wouldn't see any change of our formats, at this stage.
1984 Now, you know, five years from now we could be back and saying, CHR is not the format, you know --
1985 COMMISSIONER PENNEFATHER: Well, as you know, we don't --
1986 MR. STRAIN: And you don't have --
1987 COMMISSIONER PENNEFATHER: -- handle that, at this point.
1988 MR. STRAIN: No, I understand that, no.
1989 COMMISSIONER PENNEFATHER: But I'm looking at it --
1990 MR. STRAIN: I'm talking internally --
1991 COMMISSIONER PENNEFATHER: Exactly.
1992 MR. STRAIN: -- we can take a look at it.
1993 So that, you know, that's possible to happen.
1994 But you have a core, your P1s or your core listeners, and you do your best to meet their needs and keep them happy and you don't want to do a lot to offend them.
1995 COMMISSIONER PENNEFATHER: Well, I appreciate the discussion. It's part of looking at how Corus will handle these radio assets, in terms of the future of radio, per se, in this country and where you see the challenges and the advantages for the Broadcasting Act in the future.
1996 Amongst the various questions, in terms of the future of radio is diversity formats and I just point to your responses in deficiency letters, I believe the letter sent January 6th -- we'll just speak to it generally, you don't have to look at it, but certainly in Questions 14 and 16, you do address the matter of format.
1997 In terms of the positioning, I'll put it, the leverage that you will have in terms of having many different stations across the country which -- and I think you mentioned earlier, Mr. Cassaday, the advantage of that in terms of cross-promotion of music, joint promotion of music across the country.
1998 At the same time, a number of the stations are not geared more towards the youth markets but, rather, the older Canadians. In fact, you make a point -- a second point that you have a diverse number of formats and this is a good thing and as a consolidation, one of the advantages is the owner would keep the diversity of formats. Those are two different things. One is the start to consolidate not only the ownership but the formats because it works from an advertising point of view and from a promotional point of view. The other to keep a variety of formats so you cover all the bases, if you will.
1999 Which way do you think you'll go?
2000 MR. STRAIN: Commissioner, as I said, I think two things -- or one thing, in particular. Your policy on duopoly will provide increased diversity. We will have diversity in our formats. We do not want to compete against ourselves. That would be silly for us to do that.
2001 Along the way, there are going to be other formats that come up, whether they come out of Great Britain or the United States or somewhere, that we're going to have to look at and we're going to say, you know, can we adapt those formats and make them Canadian, we do our 35 per cent Canadian content, and can we -- is there Canadian talent that we can develop in working to make those formats work. But that's part of the research that we will do.
2002 But I can tell you that it is our intention, and, you know, you come back to Vancouver, the CKMW is a very, very good talk station. Its demographic tends to be somewhat older. And I have been in talk radio for a number of years and I like the format, I appreciate the format, but I know how hard you have to work at it, and we don't see that format changing.
2003 COMMISSIONER PENNEFATHER: It's important, in terms of how we look at the future of choice, from the consumers' point of view, as well, in the future of radio and music, but also the whole area of news diversity, the same policy that you're quoting, does, I repeat again, reflect on the importance of balancing the advantages of consolidation with our questions surrounding format, diversity, media cross-ownership and news diversity, or the diversity of news voices -- I think in your application you call it "editorial voices", which I think is even more to the point -- and you say in your application, on page 46, actually in reference to the television services under discussion, that there will not be concern about diversity of opinion, information and ideas available to consumers.
2004 Would you say the same with radio and how would you assure that, in fact, amongst all the Corus assets -- and here I'm referring not just to the ones in this transaction but the assets your currently have inclusive of the recent assets acquired from Power -- how will you assure, specifically, these different news voices, these different ideas and opinions?
2005 MR. STRAIN: Commissioner, if I may, I would commit to you that each of our stations will have a separate program manager. I think, as you can appreciate, some of the -- as you look at the combination of the WIC and Corus assets currently, some of the stations are music-driven, less news -- those tend to be the rock stations, I would say -- and the other stations, like the talk stations, are more information-driven. We would have separate program directors for each of those stations. We would have a separate news director for all of our talk and information stations. So that will, I think, ensure the diversity of the news coverage that you would receive from those stations.
2006 COMMISSIONER PENNEFATHER: Just while we are on that point, Ms Shaw, I wonder if I could ask you to come back to your point which I have, I think, telegraphed to you a couple of times that I was interested in your comments that inclusive of this -- the approach on radio is also the approach that you're laying out as a vision for Corus, in terms of young people, and Corus as their source of information and entertainment. To you, is that diversity? Or is it not risking a singular source, a gate-keeping source, if I may dare use that term, in terms of information and ideas and opinions? And it's a rather big question; it's one which has many sides. But I wonder if you could give me your view on how, within a vision that I understand is an exciting one, in terms of Corus, how does it assure the consumers that, in fact, the results of that strategy are a variety of points of views?
2007 MS SHAW: I think our desire is to be number one with our audiences, that they look to us first. I think that the safeguard is that we have a number of robust competitors also with the same point of view, whether they're North American competitors, Disney, you know, Fox, I think they would all say, "We're number one with kids", as well. There's Nelvana, there's a number of other players in Canada, as well, that -- it's our desire to be -- have the kids look to us in that way. But with the competition and the diversity of players out i the marketplace, you know, I think the kids will have lots of places to look.
2008 COMMISSIONER PENNEFATHER: So in this, consolidation in and of itself can mean fewer voices. For example, once there was WIC; now there's Corus. Once there was WIC and Corus and everybody else, now there's one less, technically speaking. And you are clearly and forthrightly presenting to us the advantages of consolidation -- which can mean fewer voices.
2009 What's the cut-off point? Where should we begin to be concerned that, in fact, as we said earlier, we were at five major players and we're moving down to three, two -- I think this applies to radio as well and I think it applies in your overall strategy.
2010 MS SHAW: I think that there's fewer corporations with consolidation. There was WIC and now WIC has exited from the environment, but that doesn't necessarily mean there's fewer voices. For example, in radio, we will have stations that will have opposing point of views, they will have different audiences and they will have a different kind of editorial slant or personality. So those are diversity of voices even though they're in -- there's a consolidation on the ownership side.
2011 COMMISSIONER PENNEFATHER: Back to radio
2012 The policy issues you raised in your application, in your supplementary brief, are three: local service; Canadian talent development; and best technology.
2013 We have touched on them, but just to come back to some specifics. Page 24 in your supplementary brief, you describe local service, it's rather vague, and answers to the January 6th deficiency letter to Question 9, don't necessarily talk about local service but, rather, about quality of signals. It's more of a technical equipment answer. Also community activity and Web sites.
2014 What does local service mean to Corus, in radio?
2015 MR. STRAIN: Commissioner, I think local service, I think to my mind, is hopefully relatively simple. I think when people get up in the morning -- and we'll pick Vancouver as the market -- they want to know if it's raining, did the Canucks win, what's going to happen during the day, what's going on around town, do they need to take an umbrella with them -- hopefully not.
2016 COMMISSIONER PENNEFATHER: Usually do.
2017 CHAIRPERSON OF THE COMMISSION: Here.
2018 COMMISSIONER PENNEFATHER: I was going to say, also, you should have said the Senators lost, then you would have been --
2019 MR. STRAIN: And what is going on in the entertainment scene, you know, at the theatres, at the live theatres, wherever it may be. And I truly believe that it's almost that simple. And if you don't serve that interest, then you will not -- you will not have listeners.
2020 COMMISSIONER PENNEFATHER: So it was important to me to understand because the, again, the policy that you rightly say is well done, thank you, refers however to the balancing act consolidation against the benefits to the broadcasting system and to the community served. And what I see both the community and talent is basically status quo that, with these assets, you seem to be assuming that the services, as they are now known in each of these markets, will continue as they are now. Is that true? Or will you be adding something? Will you be enhancing local --
2021 MR. STRAIN: Well, by design, Commissioner, you know, we have not -- nor should we have -- interfered with the WIC operations, and we have not done that in any manner.
2022 At this stage, we would say that they are being quite well managed and that they have been successful in some of the things that they have been doing -- a lot of the things they have been doing. We would like the opportunity to take a look at it. We can see some areas where there can be further development of Canadian talent -- I referred to our storefront location in Toronto. We can see where we can help undevelopment in terms of our satellite vehicles, which I referred to earlier. But to -- if I'm answering your question, to say that are we going to specifically change formats or do anything on that vein, it's just too early at this stage to tell.
2023 We have an AM station, CKLG, which we own that really hasn't done very much in this market. You know, we're sitting at one share, and have been for the last 500 years I think, and, you know, it's of concern to us.
2024 With the strength that WIC has with CKNW does it allow us to go off in an area of some kind of information with that station? That is sort of research that we will do will bear that out.
2025 So we think there can be some additional voices in the market and providing some additional services that may not be there now.
2026 COMMISSIONER PENNEFATHER: This brings me back to I think the major theme of our discussion this morning. Let me try to summarize it again.
2027 In terms of the policy itself, which you say you filled to the letter, the consolidation of ownership in this particular instance is balanced against the benefits that you say you are bringing to the broadcasting system and specifically in terms of radio you outline those benefits in terms of the policy and what that policy demands.
2028 But, as I said earlier, it seems to me that what we have here, to quote you, Mr. Cassaday, is a unique opportunity, and a unique opportunity which is not only directed at radio, but has the advantages in your words of a multiplatform approach and one which, yes, reflects what the 1998 policy has put forward, but in your own terms this is an extraordinary moment. This is a moment of great change. This is a moment of challenge and competition, not only internally, but externally. In fact, the external competition was one of the themes you raised earlier.
2029 When it comes down to it in terms of consumers and in terms of those who supply the music for the radio system in this country, this extraordinary opportunity, which you say that this transaction offers, yes, there are $12 million in tangible benefits and intangible benefits which we have discussed. But in your opinion should this extraordinary opportunity not be an occasion for you to go further, not be an occasion for you to offer more in terms of promotion of Canadian music, for example?
2030 You have made the point and others have that content is driving the future and that content -- in fact, that content which is available through traditional radio and Internet is music. With all its troubles it is a certain renaissance in radio that is coming forward, I would suggest largely driven by music.
2031 Canadian music should take its place in that world. Don't you think this is an opportunity for Corus to go a little further, to offer on the table some, as you call it, leadership in terms of the support in terms of production and promotion of music, but I choose music since it is one of the main components of the radio world, but there may be others as well, and I am wondering if you would like to make a final comment on that because it is a theme which I think is important? It is part and parcel of the policy to ask you to counterbalance the consolidation benefits with those which will enhance the broadcasting system.
2032 You have fulfilled the letter of the policy, but considering the size of this transaction and considering its extraordinary nature, as you yourself have said, what more would you do?
2033 MR. CASSADAY: Commissioner, I would just like to reiterate our commitment to run the very best radio operations that we can. We have talked about a number of the intangible benefits that we are offering, which would include the opportunity to provide a consolidated or co-ordinated marketing orientation to the stations, the opportunity to provide the stations with greater access to research than they previously have been able to afford, the opportunity to afford the listeners in each individual market greater diversity by ensuring that we don't, as Terry said, compete directly against each other within each individual market, a recognition that it is local tastes that we are going to adhere to. We are going to be extremely sensitive to the interests in each individual market.
2034 We are not going to impose a cookie cutter approach on these stations, but rather make sure that we maximize the potential of each individual station and our commitment that again Mr. Strain made this morning to ensure that each station continues to have its own program manager, the defining person at each station to ensure that that happens.
2035 We also, and I know we will get into this in a minute, have put on the table $12 million in substantial and unequivocal benefits. And then we have talked about the broader opportunity that we have and we used the Internet, the Canadian Country Music Association and DMX as additional opportunities where we could bring muscle to play and help enhance and develop new talent, existing talent and really accentuate every opportunity that exists in our new portfolio.
2036 Terry also made the point that over time new ideas and opportunities will emerge. Clearly, we have developed for you a shared vision of what we can do with this company and there may well be an opportunity to integrate something, a new artist into a piece of animation that Paul is developing on AM. There may be opportunities to develop compilations that work.
2037 These are all the added intangible benefits that we think we can bring to the table and we would just like to reiterate how excited we are about the prospect of harnessing all of this capability under our stewardship.
2038 COMMISSIONER PENNEFATHER: You said in the response to an intervenor that there are no impediments t one owner owning several media outlets. In fact, I think this morning you went over the advantages that you feel that this cross-ownership entails. What specific advantages do you see that cross-ownership bringing to radio?
2039 MR. CASSADAY: Just to look, for example, at the Internet. The possibility of driving people to our radio stations. Let's say for example there is an absence of country music in Toronto right now. The ability to drive people to our country site off a consolidated web presence I think is a great benefit to country music artists in Canada. That would be one illustration of, again I use the word "muscle" that we could bring to elevate the interests of Canadian talent.
2040 COMMISSIONER PENNEFATHER: You mentioned your leadership in assuring the future of Canadian radio versus American radio, so I want to assure while we look at the strategy for Corus overall that radio has a future in Canada.
2041 MR. CASSADAY: We absolutely believe that there is the talent in Canada to continue to drive Canadian radio forward, that there is the opportunity to stimulate the ad markets, that we can take advantage of these new multiple platforms for radio to find new sources of revenue to keep our businesses vibrant. It will be challenging times. There will be road kill, but we believe that we can stand the test.
2042 COMMISSIONER PENNEFATHER: That is too negative a term on which to end, road kill, so I would pose one last question. It's my same theme about what the future will look like.
2043 What I haven't heard as well is an approach of substantially around cultural diversity and the way you will approach these multiplatforms. Do you have a comment to make on a Corus approach in terms of cultural diversity in the broadcasting system, which is where we started looking at the benefits to the broadcasting system.
2044 MR. CASSADAY: Certainly we can talk about regional diversity as an expression of that and perhaps Paul could just illustrate, for example, our record in this regard as it relates to providing windows for producers across the country, as an illustration of that point.
2045 MR. ROBERTSON: I think our record within YTV as it relates to cultural and regional diversity is really terrific. Dealing, first of all, with regional diversity, we really support producers in every region of the country. In western Canada we have been particularly proud of our record of building production in the west. We believe that we need to work with a lot of the best producers from across the country.
2046 Often those producers are small when we first start to work with them. Over time companies like Mainframe in Vancouver here have gone from teeny, tiny companies, into huge companies, so we have been part of that growth and their success.
2047 With respect to cultural diversity, it's part and parcel of the fabric of the way we do things. We believe it is important to reflect various cultures and backgrounds on the air which we work hard to do.
2048 With respect to what the producers develop on our behalf, there are very specific guidelines in terms of us desiring reflection within the programs that they deliver to us, so that it is part of our programming policy to help guide them towards delivering programs that have that sort of reflection.
2049 So whether it's regional or cultural, I think the approach that YTV has taken is now really the Corus approach in terms of how we go forward.
2050 COMMISSIONER PENNEFATHER: Does that apply to radio? Radio is part and parcel of this decision. Is there a specific example you can give me of how cultural diversity fits into the radio future?
2051 MR. CASSADAY: Again, radio, as Terry said, is largely a local business and our job is to appeal to the interests of each local market.
2052 We have until very recently been exclusively an English-language broadcaster. As part of the Power Broadcasting acquisition we take our first foray into Quebec, where we acquired six stations.
2053 We also have a minority interest in Tele-Latino which is an Hispanic and Italian service and, as you may or may not be aware, we applied for numerous ethnic channels, both on our own as Corus and with Tele-Latino. Interestingly enough, we have also made application to move into the Quebec market with new digital channels in French, focusing on youth.
2054 But as it relates specifically to cultural diversity, if we are not reflecting the communities that we operate in as radio operators, then we are not going to be able to build our business in those markets.
2055 So we think absolutely we are reflecting that.
2056 Terry, did you want to make a couple of comments on that?
2057 MR. STRAIN: Commissioner Pennefather, I think that it's incumbent upon us to continue to develop Canadian talent in this country.
2058 Our stations were involved with breaking the Bare Naked Ladies. We think we were successful. Our country station in Calgary was paramount in getting Paul Brandt's career going.
2059 We have recently done the Boom Tang Boys and they are now a big act.
2060 I can assure you that we take pride in that. While we may have $12 million worth of commitments in terms of benefits, that doesn't stop us from continuing to look and develop Canadian talent.
2061 I come back again to this studio on Yonge Street that is jammed all the time with live Canadian acts that we interview and it was a benefit. And our benefits are over and it's still going and we are paying the shot on it. And why? Because we think it's right. I am excited about it.
2062 In terms of cultural diversity, we are going to provide where we have more than one station for distinct voices out of those radio stations or three as the case may be. We want to be a strong Canadian radio company and we think that this acquisition helps us do that.
2063 We are facing, I think as you are aware, Commissioner, other multiple licence owners in Toronto and Calgary and Edmonton and Vancouver, and you've got a call for applications in Calgary certainly and in Vancouver, the Commission has made that known, and there are soon to be more licences, we trust, in Toronto. We expect a decision from you on Barrie shortly and Hamilton. So there is lots going on.
2064 I can assure you that I think Canadian talent and the development of Canadian talent is paramount to us. I can assure you that we will spend every effort to see that it continues and that we do a good job at it.
2065 COMMISSIONER PENNEFATHER: Thank you.
2066 Indeed, it is well said because I was looking at not just the acquisitions here, but the commitments that Corus is making in Canadian radio, inclusive of the acquisitions recently and I think it speaks well to the point that even though benefits may be over, even though benefits may be on the table, we are talking about commitments over and above that. As you know, the panel is also looking at what we end up with as a whole picture, not just the pieces of the puzzle.
2067 That completes my questions. Thank you, Madam Chair.
2068 CHAIRPERSON OF THE COMMISSION: Thank you.
2069 Commissioner Grauer will pursue the benefits, but first she has a question in the line of Commissioner Pennefather's.
2070 COMMISSIONER GRAUER: Yes. I wanted to follow up on the discussion that Commissioner Pennefather had with you because I am not clear with respect to Corus' radio assets in the merged -- what you are here to seek approval on and the specialty services and your philosophy as kids and music.
2071 When you outline your strategic vision for yourself and where you saw yourself growing and developing in these two areas, in building and focusing on that, it was as one. But when it came to talk about radio and then, for instance, the YTV Treehouse there was a disconnect with music. In other words, you said the advertisers are interested in television, I think it was 2:00 to 11:00, and they don't even start measuring in radio until after, so there is sort of a disconnect to me listening to this, because part of our goal with the new radio policy, for instance, as you well know, was consolidation and growth isn't a bad thing and it's a good thing and one of the things it will do is bring diversity, more diversity to consumer.
2072 The other thing it also does is allow an operator like you, who are looking to operate four stations in any given market, more formats to program.
2073 It seems to me, surely you have looked at what some of those other formats might be. I can't believe you have been sitting for a period of several years, even since the policy, and not given thought to what they might be.
2074 And there might well be, given your overall vision, somewhere a merging or an integration of the music and the kids in commercial markets across the country.
2075 So I wanted to have a sense if you had, and again what it really is is part of our whole approach, which is the whole is greater than the sum of the parts. I am not asking the question as a way to -- I am genuinely interested in how you see that, if you have thought about that and how you see that working to serve not just the growth of Corus, but also the interests of the Canadian broadcasting system and how all of us as Canadians can benefit from that.
2076 MR. CASSADAY: We think there is tremendous benefit to the system to the fact that we have a strategic focus. Perhaps the area that we have not made clear is our positioning of kids and music. We tried to use the illustration of a company, Campbell's Soup, that is positioned as a soup company and yet does a number of things. Despite the fact that they do many things, people think of them predominantly as being in that business.
2077 We see ourselves doing many things in the area of specialty television and radio, but the way people will think of us is as a company that has developed an expertise in children and music.
2078 We will continue to operate CKNW almost undoubtedly as a news station because it has a great news franchise, a great infrastructure and the fact that it doesn't create synergy between Treehouse is going to be of no concern to us.
2079 On the other hand, the fact that Energy, our radio station in Burlington, might offer great synergy to us on the kids' side will be something that we will try to leverage, perhaps through cross-promotion. We are sponsoring a music tour across Canada this year, where our more youth oriented radio stations will have an opportunity to participate with YTV in the presentation of that. So that's yet another example of how they come together.
2080 What we wouldn't want the Commission to think is that we are going to be totally driven to skew everything we do towards a target audience that is sort of 2 to 17. Our focus will be to try to create as much synergy as we can between our music interests and our television interests, but our job is to do the best job we can with each individual licence. I hope that helps clarify something that has been somewhat confusing.
2081 COMMISSIONER GRAUER: Yes, it does because I don't think that any of us would have the assumption that you would take what is clearly in the case of CKNW and some of these other stations, they are diamonds, and that you are shrewd business people.
2082 MR. CASSADAY: Absolutely.
2083 COMMISSIONER GRAUER: But I think it really is a question of -- again, and it's not a bad thing from our perspective, certainly it shouldn't be from your perspective because it's in our interest that the broadcasting spectre grows and is healthy. The question is what's good for everybody here and how can we have that discussion, but it's that again the whole is greater than the sum of its parts. With the radio acquisition this is a major transaction and the policy was designed to allow multiple licence ownership.
2084 With a transaction of this magnitude we want to say, well, is it serving the overall interests of the system as a whole and Canadians?
2085 MR. CASSADAY: Right. One of the expressions that I often use is you are judged by the company you keep. Terry used the example of CKLG. I want to just build on your notion here about the whole is more important.
2086 Terry used the example about CKLG, which could potentially benefit substantially by its association with CKNW. By the same token, CFPL-AM in London, CHML-AM in Hamilton, CFYI in Toronto could all benefit by virtue of being part of a group that has a news oriented radio station that is that committed to excellence in news.
2087 We hope that the bar will go up in each of those news oriented stations across the country by virtue of sharing and understanding what it takes to be successful in that particular mode. So we are not at all concerned about the fact that even though we have an overall vision of kids and music, that we have other jewels, as you said, within our crown. We hope that those jewels will continue to be developed and enhanced under our leadership. They are not going to be herded into a stream that makes everything in our group look the same. That is absolutely not what our intention is.
2088 COMMISSIONER GRAUER: Shall we just roll into benefits now?
2089 All right. I had better get ready here. I thought we were going to have a break, so let me get myself organized here.
2090 Can we talk first about the radio benefits. They are based on a valuation of $200 million, which is the mid-range of the valuation supplied by TD. Is that right?
2091 MR. CASSADAY: Yes, or another way of saying that's what we paid for the radio stations.
2092 COMMISSIONER GRAUER: That's what you paid for the radio stations. All right.
2093 I have no questions on the specific events. It is all complying with the policy. There is nothing there that --
2094 I wonder if we are looking at again it being that the whole is worth more than the sum of its parts, that the benefit policies that are set out is a minimum, that that might be for one station for another station. That you are in fact acquiring here perhaps a package of assets that would not otherwise be available and isn't going to -- nobody else will have this opportunity and neither will the system to benefit.
2095 And again, further to the discussion that Commission Pennefather had with you this morning and the discussion that we had yesterday with Global, and I mean we, all of us, are there other areas in which there can be a benefit, which is not necessarily -- necessarily upping the dollar value of the benefit. For instance, the legal staff may stop me if I get into trouble here, but you have a number of stations, CFOX, for instance, where the format is skewed to a younger audience and there are also very attractive demographics for advertisers.
2096 The most attractive for advertisers and skewed to a demographic where there is an abundance of supply of Canadian music -- in other words, you have spoken about how much and how supportive you are of the radio policy. Well, there are two elements to the radio policy.
2097 One is to allow multiple licence ownership to encourage consolidation and to grow these businesses and the other element is to develop Canadian talent.
2098 Are there specific perhaps non-tangible ways in which you can further develop Canadian content or show us that Canadian content will benefit maybe in how much Canadian music you play on some of these stations? Is that something you thought about?
2099 MR. CASSADAY: One opportunity that we think we have in the future is when digital is deployed to expose new forms of Canadian music and talent that are not available today. We talked earlier about the dynamic of the marketplace today with single ownership and the focus on the major veins, if you will, of revenue. Many of our stations tend to skew around 18 to 35 males or 24 to 54 adult or female audiences, so there is sort of a general skew.
2100 We believe that with patience and the arrival of digital that we will be able to provide substantially more diversity by taking advantage of the AM band to expose more Canadian musical talent.
2101 Terry talked about jazz. We are all proud of the success that Diana Krall has enjoyed internationally. How many other Diana Kralls are out there that aren't getting very much exposure because there is a limited amount of jazz available on Canadian airwaves.
2102 We have a radio station in Edmonton, CHQT, that is a combination of talk and music right now that could become a dynamic jazz station in the future when we have the ability to offer jazz with the sound quality that we will be able to on digital.
2103 So I think that we talked earlier about the importance of not only looking in the rear-view mirror, but also looking forward. We look forward in the not too distant future, we think that there is a huge intangible benefit with the arrival of digital and the ability to offer much more diversity on the musical front.
2104 MR. STRAIN: Commissioner, just following up on what John has said. If you go back and look at the history of the company in the radio business, we have purchased stations and I sense where your question was coming from, is there other things that we can do.
2105 As I said to Commissioner Pennefather when we were chatting, we take this development of Canadian talent pretty darn seriously and I know the Commission does. It's interesting to note, and I will come back, let me just go back for a second to CFNY in Toronto. When we bought that station we made a list of benefits that were acceptable to the Commission, as I recall, $1.8 million.
2106 We have completed our benefits package and we sent a letter to the Commission and, indeed, I have a reply back from Ursula Menke and in that letter what it said was that we had exceeded our benefits by over $200,000. The reason we did that, there are certain things that you have to do right and if doing some development of Canadian talent your budget is $40,000, but to do it right you are going to have to spend $50,000, this company has a record of doing that and will continue to do that.
2107 We have exceeded in pretty well every transaction we have made within the radio business, we have exceeded commitments that we have made to this Commission in terms of the benefit package. I think that we have some pretty exciting times ahead of us and things that we can do to continue and nurture Canadian talent. I think there are ways that the two radio stations, Q107 in Toronto and CFNY in Toronto, can work together to develop talent.
2108 We do a compilation disk of new rock music in Toronto, which has been very successful and this year for the first time the only way you can get it is to download it off the Internet and that has been very successful for us. So we are looking at these types of things and I just want to come back to it again because I just believe in it so much.
2109 COMMISSIONER GRAUER: It's not -- I don't want you to get the notion that this is not adequate. What you have proposed -- it meets, we ask for 6 per cent of the value and that's what you have given us. I don't want you to take it that there's any suggestion that you haven't in the past met and perhaps exceeded your commitments.
2110 What I am saying is this is an extraordinary opportunity, this particular acquisition. There aren't going to be many of them. Is it appropriate in this case, given the number of stations that you operate in the premier market, the English-language markets in Canada, and the assets you are acquiring in the premier English language markets in Canada, to be perhaps doing a bit more in that the whole is greater than the sum of its parts and it gets me back to not necessarily -- I am not necessarily saying put more money on the table because what we are interested in, as you are, is the development and exposure of Canadian talent, and are there some areas in which there are stations in this country that are 40 per cent? Is it appropriate that some of your stations might go to 40 per cent?
2111 MR. STRAIN: Commissioner, my sense on that at this time would be we have just completed -- you know, coming out of your policy was the switch from 30 to 35 per cent. I think one of the interesting things, and I say again I think this was a bold decision that you made as a Commission, one of the interesting things that came out of it I think was to have a further review of duopoly in the music industry and what's going to happen in five years.
2112 Well, we are darn near through I guess three years of it now, so it's not going to be long before that review comes up.
2113 We have just as a group of stations with the Corus stations kind of taken on the 35 per cent. We are finding some interesting things developing out of it and we don't know as yet just what it is going to mean to us.
2114 In answer to your question, I wouldn't want to make the commitment to go to 40 at this stage. We would like to examine it. You will almost have to examine it format by format.
2115 COMMISSIONER GRAUER: That's exactly my point, that some formats in particular, that younger demographic, we are told is a great --
2116 MR. STRAIN: At this stage I just don't have that information, nor am I an expert on the music scene to the extent that I could make a commitment like that.
2117 What I can you is that it is something that we will take a look at and have discussions with our programming people. We try to, both within the spirit and the letter of the law of the Commission's 35 per cent policy, we do run higher than 35 per cent. You have to be safe. We got caught one time with finding out that an Anne Murray song we played wasn't Canadian. So we have to be cautious on these things. They catch you sometimes.
2118 I think the last Celine Dion album I think there was only one or two cuts that may be Canadian. So it maybe bears another discussion at another time, maybe not, with the Commission, but it is something, Commissioner Grauer, that we would be prepared to take a look at down the road.
2119 COMMISSIONER GRAUER: Well, I am going to leave it for now, in any event.
2120 Now, with the benefits with respect to this pay and specialty acquisitions there have been concerns raised that a number of these would be considered to be somewhat self-serving, I think is the term that has been used, with respect to the fact that these programs are destined for the young family film project, teen drama project, Canadian children in the new millennium, et cetera.
2121 I think in your reply you offered to give the money directly to the fund. I think it's the Shaw Broadcast Fund. Is that right? But not everything. Can you tell me why you wouldn't have offered to give -- I mean, I am interested in the trouble you would be -- I mean accounting for the annual returns, the equity issue, any recoupment, wouldn't it be a lot simpler to just give these monies to the fund?
2122 MR. ROBERTSON: Yes. We are very supportive about the idea of having these independently administered and for both. Actually, when we first put the benefits together we were just trying to find the most efficient solution, so that the money would go onto the screen. We didn't really have any specific interest in trying to maintain that control ourselves, so we have said that the Shaw Program Fund seems to be a logical place to administer family films and teen drama, although we haven't really nailed that down with them. But we would certainly offer that and see if they could take that one on and they have agreed to do that.
2123 So then, on some of the other benefits we have not quite figured out exactly what the appropriate administration would be, but in all instances we would offer it up to a third party to administer whether it's the NFB or Telefilm or the CFTPA, in fact, has agreed to administer the Young Filmmakers Co-operative, so that has also been discussed and we are working out details there.
2124 So that really only leaves APTN and YTV initiative, where we thought that that would logically be a co-operative venture between the two enterprises and that we could work together on administering the $675,000 budget there. So I think those concerns about self-interest and how those funds are going to be administered are largely all resolved now.
2125 COMMISSIONER GRAUER: Our expenditure requirements for pay and specialty services are set as a floor and not a ceiling, and yet often times the broadcasters see them as a ceiling not a floor. Wouldn't some of these initiatives, APTN and YTV and the Young Filmmakers Co-operative and perhaps even some of the others, be projects you might be doing as part of doing business, given the benefits to you as a company in some of these acquisitions overall?
2126 MR. CASSADAY: I think one of the points that you made is an important one here, and that is that unlike conventional television we do have specific obligations as a per cent of revenue. So you do know what the floor is.
2127 Two applications that you have before you now, both CMT and YTV, you know that we haven't treated it as a maximum. We have exceeded our expectations on both of those fronts.
2128 So the simple answer to your question is that these funds will go, be managed by a third party fund manager. There will be licence fees negotiated. If they appear on our service terrific for us, terrific for viewers and terrific for the producers, but that would be incremental spending.
2129 In the case of the APTN initiative, quite frankly, that was initiated by them. That was a call from them to us to see if we would be willing to entertain such a thing because it was an opportunity for them to create a high quality children's oriented program, get the cross-promotion to their new service which they felt they needed and we were happy to accommodate. We thought it was a terrific idea and an interesting initiative.
2130 COMMISSIONER GRAUER: Further to your discussion this morning with Commissioner Colville and the fact that the valuation by TD on these assets was considered to be low, given the so-called maturity of some of these services, and the fact that that may in fact not be the case, and again that your benefits are based on what is the low end of the valuation of the assets by TD, notwithstanding the fact that APTN might have called you about this, you know what I am really trying to do is again this whole idea that there is nothing wrong with these proposals and we have dealt with the eligibility question by saying they will go into third party funds.
2131 But are there not some initiatives that you might be undertaking like APTN who has called you as part of the normal course of doing business and not necessarily as a benefit? Let's call it an intangible benefit, but not by our definition of intangible.
2132 MR. CASSADAY: I guess two comments. First of all, if you look at the total valuation of the company, there were values ascribed and I was a little flip earlier when I mentioned about the radio pricing, but there were values ascribed to these assets.
2133 In the case of the premium television assets, the policy determines that you pay benefits on licences that you control. We don't, of course, control Family Channel or the indirect 20 per cent interest that we have in Teletoon. So when we allocated benefits equal to 10 per cent of the total purchase price of the WPT assets, we really felt that we were not doing just the minimum, that we were going well beyond what the expectation was in recognition of the fact that this is an important transaction.
2134 So that point we hope that there is recognition and there seemed to be on the part of the intervenors that we have stepped up here and done the right thing.
2135 As it relates to these individual projects, all of these projects are new money to the system in categories that have been underserved. On that basis alone we feel that not only are they clearly and unequivocally tangible incremental benefits, but they are also going into areas that have been identified by the industry and the Commission as underserved areas, mainly family entertainment and, of course, the direction on our overall movie front is theatricals which the Heritage ministry has as well identified as an important initiative to begin to develop more family oriented theatricals.
2136 COMMISSIONER GRAUER: I hope you didn't misunderstand me. I am not questioning the merit of the proposal.
2137 MR. CASSADAY: No, I didn't. I was just clarifying because we are, of course, very proud to have these initiatives to go forward with and are looking forward to working with these groups.
2138 COMMISSIONER GRAUER: I just have one more question and that's with respect to the western orientation of what you are acquiring and I know you talked about retaining that. I just want to know the extent to which you will be retaining the western operations of these services and the creative control. I know you talked about regional diversity and again I just want to reiterate, as I did yesterday, I don't want to pro appeal about this and I am not asking for those reasons.
2139 It's really something that I think is part inherent in the Broadcasting Act and in the strength of this country, that there is in fact regional diversity in terms of what Canadians see on the screen that's about their country and it's also a matter of, you know, developing the infrastructure, you know, across the country. And so, that's the nature of it. It's either are we going to retain -- because if everything leaves, then there's not much left to retain. So if you could have a sense of what particularly creative control --
2140 MR. CASSADAY: Well, I guess just a couple of things. First of all, with Heather as our executive chair and with the heritage of the Shaw family in western Canada, we are deeply committed to maintaining our presence in western Canada.
2141 In the interventions from the employees' association, we undertook to them -- we indicated to them that it was our intention to maintain our operation in Edmonton. It certainly is our intention to have an executive presence in Calgary. So we are deeply committed to that.
2142 We also made reference, in our response to intervention, the fact that there was a recognition amongst all the intervenors that the Shaw fund -- which Heather can certainly expand on how they go about allocating money -- had always been quite fair minded in their allocation of projects and I think that, you know, all of the western constituents, I think, were comforted by the fact that we would maintain that sense of fair play that had existed up until this point in time -- and Heather could certainly expand on the criteria and approach that's used, if you would like.
2143 COMMISSIONER GRAUER: No; I'm very comfortable with the fund. It's really a matter of wanting the reassurance from you about the commitment, particularly with creative control -- and, again, as I talked yesterday with CanWest Global, funds are wonderful, they're great support, but without a broadcast licence they don't do much help. So, really, it's just wanting some comfort from you -- I know your record's good but this is an important priority, an important value, and it's something that you remain committed to.
2144 MR. CASSADAY: You have our assurance of that.
2145 COMMISSIONER GRAUER: I don't think I have any more.
2146 CHAIRPERSON OF THE COMMISSION: Thank you very much.
2147 I would now ask legal counsel.
2148 MS MOORE: Thank you, Madam Chair. I do have some follow-up questions for Mr. Stein and Mr. Johnston. I'm not sure if they're both in the room at the moment, but if they could come forward at this time, it would be helpful.
--- Pause / Pause
2149 MS MOORE: It appears that Mr. Stein is not in the room, so I will get to you after I ask some questions to Corus.
2150 Oh, now he's here.
2151 I just wanted to explore with you a few follow-up questions, further to Vice-Chair Colville's questions.
2152 First, if you could just elaborate. The word "voluntary" is used with respect to the code and I would just like to understand, is it used in the sense of a code that's voluntary because it's not imposed by the Commission but it is one to which all Class 1 licensees would adhere without exception? Or is it more that it's a suggested code of practices but there is an element of discretion in terms of how it's implemented by any given licensee?
2153 MR. STEIN: It's the first.
2154 MS MOORE: Since that's the case, could you just describe what steps have been taken to communicate the code throughout the organization and would that have included sales and marketing personnel, as well?
2155 MR. STEIN: Yes. Well, the way in which we operated with this approach is that -- and perhaps I could use an example of -- because we have been through a number of negotiations since we launched what we call "Tier 3", and what we have done within the company is we take very much a teamwork approach where the operations, marketing, business planning and the regulatory side try to determine exactly how we're going to launch the services and what approach we're going to take. And so, then, as we go through the negotiation, I guess the latest example being ROB-TV, as we go through that negotiation, we determine how we're going to accomplish our objective, which is to maximize the consumer response -- positive response by consumers to that service and try to treat it in a very equitable way. So we go through a list of things in terms of, you know, how we're going to promote it, what kind of promotional things we're going to do, what kind of free viewing period we will do, whether we are going to do joint marketing arrangements -- and, generally, we find, with each service, Tier 3 being the exception, because there we did it within the industry itself, but as we did it with a specific service, like ROB-TV, we tried to talk each of those issues through with the ROB-TV negotiating team. And different services dictate approaches to what they want to see happen.
2156 Now, I happen -- the one I know one best is ROB-TV because it just so happened, in the circumstances, I was the point person negotiating on that one. But in other ones, other people in the company do it and take an approach, and we just generally go through a checklist of things -- and the programming services have their own checklist. They have their own demands, and they know, generally, what's gone on in terms of the other negotiations, what other people have been able to achieve. They certainly know where they are located in the channel; they certainly know what the marketing arrangements are. And then we generally just work out an arrangement that's good for all parties.
2157 But each one -- the reason I talked about the flexibility -- we apply the code but we have to be flexible because the programming services may want different things, in terms of what their objectives are and what they hope to achieve in the marketplace.
2158 MS MOORE: Are there consequences internal to Shaw for non-compliance with the code?
2159 MR. STEIN: Are there -- pardon?
2160 MS MOORE: Consequences.
2161 MR. STEIN: Yes. Yes, there are consequences. We have had -- you know, there's pretty significant discussions with management who don't, we feel, put us in a situation where it's not to the best of the company.
2162 MS MOORE: Paragraph 1 of the code states that references to Shaw in the code refer to Shaw and companies affiliated with Shaw.
2163 Does Shaw consider Corus to be an affiliate?
2164 MR. STEIN: Yes.
2165 MS MOORE: What steps have been taken to communicate the code to non-affiliated specialty and premium television services beyond filing the code in this process and beyond the specific negotiations that you may have had with certain services?
2166 MR. STEIN: No, I think they take place within the negotiations itself. So, for example, with each one, whether it's TSN or -- you know, I'm just going through the steps in negotiations we have had. I don't think we have sent a general letter out. We have certainly -- I know for certain we haven't sent a general letter out to everybody but everybody knows what's on the record and how we behave, in terms of, you know, what our practices are in terms of those negotiations.
2167 MS MOORE: Paragraph 7 states that any program guides in cable systems owned by Shaw will not favour licensed Canadian programming services in which Shaw has an equity in trust over other non-affiliated programming services.
2168 Can you give examples of specific actions that this would rule out, in your view?
2169 MR. STEIN: Yes. I think that in terms of the programming guide, highlighting certain affiliated services, you know, using promotions that would highlight certain services to the disfavour of others, I think those are the kinds of things we're talking about, in terms of how we use the program guide. I think, for example, when we do the navigation system, particularly on the digital side, where we have more enhanced capabilities, where we are able to go through the navigation system by -- you know, each service is treated the same. So, for example, if a viewer picks the theme of sports, then all of the services are highlighted. Now, as boxes become more proficient at being able to do things, when we would say -- we would want to make sure that a program that was appearing on the Golf Channel got the same kind of promotional capabilities as something that was on, say, TSN; we really do want to make sure that -- it's not just -- it's actually not just in terms of the affiliated services, it's for all services, because we don't want to be seen to be differentiating between the services on that basis.
2170 But, at the same time, we also want to be able to -- if you take examples like Country Music Television, you would want to be able to use the service to promote Canadian performers, events that are going on, concerts that are going on within the areas we serve. That's a really important part of the service that we offer to our consumers and to the communities serve and we have got tremendous response to that and so, we -- you know, so, if we're promoting -- I wouldn't want to be seen as being -- trying to advantage Corus by promoting country and music events on our cable systems because we think that's very much part of what we do, in terms of our Canadian cultural obligations.
2171 MS MOORE: Perhaps you could comment on why the code doesn't address other issues specifically relating to terms of carriage, including, for example, rates packaging and channel placement.
2172 MR. STEIN: Well, that's the essence of the commercial negotiation and I think we feel that, in terms of those negotiations, obviously, they are part of the judgment about how we treat people on an equitable basis and, you know, I think that there are mechanisms that the Commission has in place to deal with those issues, and I think the Commission has been quite responsive to dealing with commercial issues and resolving any disputes that may arise and so we felt, in that case, that the process the Commission had in place was better than anything we could put in any code, and if we put it in a code there would probably be something we missed, you know, so we felt we dealt with the key aspects, the key issues in the code, and then we felt that the processes the Commission has in place are -- have proven to be sufficient, in terms of dealing with other issues.
2173 MS MOORE: Would it be possible to at least generate some type of general statement about those issues and no intention of any non-equitable treatment or any treatment in respect of those issues that could amount to or verge on undue preference?
2174 MR. STEIN: Well, the only problem I have with that is why would we want to limit -- I mean any definition you come up with is going to start limiting what undue preference means. That's probably a good thing. But I'm reluctant to say, yes, to that because I would like to have -- I would like to do that on a broader industry basis. I think that -- particularly because I think whatever we do now is really going to apply in a digital world and the discussions that I have had with people who actually want to see a code or think a code would make a difference -- which is a CAB and a CCTA -- I prefer to do that in discussion with them, with other members of our industry and with the broadcasters in programming services.
2175 MS MOORE: Could you comment on what the rationale is for providing that the code is only in effect until 31 December, 2002.
2176 MR> STEIN: Yes. Well, we felt that in the three -- I think that was when we were developing it, we saw that as being a three-year period and I think the -- we felt there should be an end to it, only because we thought it -- the landscape is changing quite significantly and one wasn't sure what was going to happen over the next number of years. We weren't sure what the Commission was going to do in terms of the digital framework; we weren't sure what's going to happen in terms of the technologies. But at the same time, it -- you know, it's up to the Commission. If the Commission wants to put it in place with a review period, that's fine with us. There was no real sort of intelligence that told us that this would apply to this point and there would be a cut-off; we just felt, though, that there should be a review of any kind of code like that.
2177 MS MOORE: Thank you. Those are my questions, Madam Chair, for Shaw. Perhaps now I'll turn and muster any follow-up to Corus.
2178 CHAIRPERSON OF THE COMMISSION: Vice-Chair Wylie has a question for Shaw, and then we'll pursue with the --
2179 COMMISSIONER WYLIE: Thank you.
2180 We have been told today that there is really no conflict of interest between Corus and Shaw in -- any real one, for a variety of reasons, structural separation, different boards, different ownership, the access rules, et cetera.
2181 MR. STEIN: Yes.
2182 COMMISSIONER WYLIE: So the reason that you offer a code, then, would be because, possibly, there's an appearance of conflict?
2183 MR. STEIN: Well, I think at the time we offered it --
2184 COMMISSIONER WYLIE: Or the possibility of conflict.
2185 MR. STEIN: Yes --
2186 COMMISSIONER WYLIE: Do you still think the code is a good idea and necessary?
2187 MR. STEIN: My view -- our view would be that -- our preference would be to see it -- whatever codes are in place, our preference is always for industry-wide codes with a dispute process.
2188 COMMISSIONER WYLIE: With nothing specific when there is affiliation?
2189 MR. STEIN: That would be our preferred route, yes.
2190 COMMISSIONER WYLIE: That would just simply apply to everyone?
2191 MR. STEIN: Pardon?
2192 COMMISSIONER WYLIE: That it would simply apply to every -- it would be a generally applicable code with no specific requirement to meet the appearance of the possibility of conflict where there's affiliation?
2193 MR. STEIN: Well, I think you have a point, in terms -- appearance is important, from a policy -- you know, from a policy perspective --
2194 COMMISSIONER WYLIE: And I suspect that that's -- that was my question, that the reason why you offer this code, given that we have heard Mr. Cassaday and you as to the reasons why there isn't any reality of conflict, or possibility, given the various steps in place, the code would simply be to reassure those who see a possibility or an appearance of possibility, to be comforted?
2195 MR. STEIN: Well, first of all, I wouldn't want to say that the code is there just for perception reasons. I mean I think that what was valuable to us as a company, in terms of developing a code, is that that's how we would then deal with all programming services that we negotiate with.
2196 COMMISSIONER WYLIE: Except that these clauses are specific to affiliation by saying, we will not do anything with regard to the services in which we have an ownership, or a cross-ownership interest, is particular to affiliation; it's not a code that would be generally applicable, because it's very specific: we will not put Service A on before Service B because Service A is affiliated. That's not a generally applicable code. It tends to meet a particular problem.
2197 MR. STEIN: Yes, and I --
2198 COMMISSIONER WYLIE: You may not believe there is one but perhaps you think we do and, therefore, you put it forward.
2199 MR. STEIN: Well, I -- yes, I agree with you because that's why -- yes, we put the code forward to deal with a particular situation. And I think that if you are making the point that it's better to have a code on that's generally applicable, I would --
2200 COMMISSIONER WYLIE: No, I'm not.
2201 MR. STEIN: Okay. Good. And we didn't develop it for that reason.
2202 COMMISSIONER WYLIE: I'll tell you why this question you why which just occurred to me when you were discussing Number 7 with legal counsel and your thing is that no product, no service in which Shaw -- affiliated to Shaw will be favoured in programming guides, and it occurred to me that that could put Shaw in a position where it won't do what's right commercially, or even what's right in the public interest, because of this artificial limitation. For example, let's say it's a service for grandmothers, and you wouldn't favour it --
2203 CHAIRPERSON OF THE COMMISSION: They're not interested in you.
--- Laughter / Rires
2204 COMMISSIONER WYLIE: -- even if it's a good idea, or children, of course, because of this artificial fear of perception by some parties.
2205 MR. STEIN: Well, that's why I mentioned Country Music Television or country music performers or music performers --
2206 COMMISSIONER WYLIE: I heard.
2207 MR. STEIN: -- and I neglected grandchildren, I apologize for that -- but I think that -- no, I would think that that clause would be interpreted to say that we treat all services equitably. But if we have to do things that are in the public interest, if there are promotional things that have to be addressed, whether it's elections or events that are taking place in the community, we would have to do that. And what we would have to do within our company is to be able to justify doing that. I think that's what's important is that in -- it's more important internally, perhaps, than it is externally, in that sense, to say, you know, "This is how we behave. You know. This is how we act as a company, in terms of dealing with our partners, the programming services", so it's --
2208 COMMISSIONER WYLIE: But justification for the company's action has not necessarily satisfied those who saw appearance of conflict. In fact, it just points out to the difficulty of the -- in the current context, unless we are to accept Mr. Cassaday's view that all the problems that there were in the -- mentioned in the convergence report have disappeared. If they have not disappeared, it points out to the artificial need which may not end up to be the best commercial or even public interest activity in order to wipe out this appearance of conflict.
2209 MR. STEIN: Well, I think --
2210 COMMISSIONER WYLIE: It really crystallizes that you would be limited in doing what may be the right thing in pushing a service, or whatever, whether it's for babies or grandmothers, simply because you're affiliated. So it really crystallizes the difficulty of the appearance of conflict when there's affiliation doesn't it?
2211 MR. STEIN: Well, I think, first off, that the separation was a significant event and did deal with the conflicts. I mean if we talk about voluntary, we did voluntarily what the Justice Department is trying to force Mr. Gates to do. So we did take that step and create a separate company with separate shareholders and management and focus. So we felt that that was important and that it was also important, within the company, for the manager of the company to recognize that ourselves, that we had to act in a way that dealt with Corus as a separate corporation -- and that's why codes are important, that's why principles in a corporation are important, because we say these are things that we adhere to. And we have had a number of instances, not just in this situation but other situations, where the code becomes a crucially important part of how we do our business, how we deal with our customers. And so, for that reason, it's important -- you know, whether it becomes, you know, a regulation or a condition or anything like that is almost a moot point in terms of it becomes part of how we act as a company. And I can just say that in terms of how we dealt with negotiations, in terms of launching the digital services, we very much governed ourselves by those principles that we had laid out in January, 1999.
2212 COMMISSIONER WYLIE: Thank you.
2213 CHAIRPERSON OF THE COMMISSION: Thank you.
2214 Now our legal counsel will address questions to Corus.
2215 MS MOORE: Thank you.
2216 The Commission may determine, in due course, that some form of divestiture is required and, accordingly, I will explore some hypothetical scenarios with you -- but of course no predisposition should be drawn from these explorations.
2217 Turning, first, to the Vancouver market, if you were required, as a condition of approval of the remainder of your application, to divest in the Vancouver market of one of the radio undertakings you propose to acquire from WIC, which one would be preferable to you, in terms of your business operations and strategy?
2218 MR. CASSADAY: In response to that question, we would, you know, we would wonder on what basis the request would be made. For example, if the request was to be made on the basis that we had a revenue share that exceeded a boundary that you thought was excessive or a share of tuning, we would probably explore the possibility of swapping an asset as opposed to selling an asset. So, in order to answer the question, we probably need more information as to what specifically the concern was that you had in mind.
2219 Our other reservation about answering a question such as you posed unequivocally is the Sophie's choice dilemma of identifying a specific asset that would be least loved by us, at some point in the future, in the likelihood that we were able to keep all of them and, on that basis, you know, what we would like to say in response to your question is simply that it would depend on the specific concern that you addressed.
2220 I think as a matter of course, we have indicated in our disposition of headline sports that we are extremely respectful of the wishes of the Commission and, you know, we, and you, should be mindful of the fact that we would be if such a scenario were presented to us. But, at this point in time, you know, we would respectfully submit that you accept our answer or give us a third box.
2221 MS MOORE: So if, in Vancouver, you were required, as a condition of approval, to divest of a station, would it be your intention to carry out with the rest of the application --
2222 MR. CASSADAY: Yes, it would.
2223 MS MOORE: -- that you received authority for?
2224 MR. CASSADAY: Yes, it would.
2225 MS MOORE: Okay. And I will ask the same question, in terms of the Calgary and the Edmonton markets: if you were required, in each of those, to divest of one in each, it would be your intention to carry out with the rest of the applications?
2226 MR. CASSADAY: Yes, we would.
2227 MS MOORE: And, finally, if you were required to, as a condition of approval, to divest of one or more of the four stations that you propose to acquire in Toronto and southern Ontario -- would it be your intention to carry out with the remainder of the application?
2228 MR. CASSADAY: Yes, it would.
2229 MS MOORE: Thank you.
2230 Turning, now, to the premium television properties -- do you have a further comment or...?
2231 MS SHAW: I think the issue is if we were asked to divest of one or two in Vancouver, Edmonton, Calgary and you add all those up together and all of a sudden half of the value of the transaction has been asked to be divested, then there is possibly a concern there.
2232 MS MOORE: Turning, now, to the premium television properties -- and you may have similar responses in the radio context but if you did have to divest of up to two of the pays, including the pay-per-views, are there two that would be preferable, in terms of your business operations and strategy?
2233 MR. CASSADAY: We believe that we are the logical purchaser for these assets. In the case of the Family Channel interest, we have another western Canadian broadcaster, with expertise in children's programming, sliding into WIC's former position and, you know, as we articulated in the case of pay, we feel we can bring benefits to bear on that, as well. So the answer that we provided you on the first, on the questions related to radio, would apply here as well, and that is that we would not like to indicate any specific preference, in terms of divestiture, but, rather, that given explanation and the opportunity to come back to the Commission and right whatever wrong is seen to have been in place, that we would of course live up to or abide by the Commission's decision.
2234 MS MOORE: If you were required, as a condition of approval, to divest of some or all of the WIC's premium television properties, would it be your intention to carry out with the remainder of the application?
2235 MR. CASSADAY: There are a number of complications associated with WIC premium television as it relates to rights of first refusal on specific assets that would complicate the procedure. So, again, generally speaking, our strong preference -- and we believe the benefits support this -- is that we be allowed to keep the entire WIC premium television offering that is --
2236 MS MOORE: Could you elaborate on the rights of first refusal --
2237 MR. CASSADAY: There are rights of first refusal as it relates to Family Channel.
2238 MS MOORE: And it's only in relation to Family Channel?
2239 MR. CASSADAY: That's correct.
2240 MS MOORE: So if any of the other properties were involved, those would not trigger --
2241 MR. CASSADAY: Well, as you know, the 20 per cent interest in Teletoon is an indirect interest, so that would indirectly be associated with a divestiture of Family Channel.
2242 MS MOORE: And there are similar rights, with respect to the radio properties?
2243 MR. CASSADAY: No.
2244 MS MOORE: Those are my questions. Thank you.
2245 CHAIRPERSON OF THE COMMISSION: Thank you.
2246 I think that completes our questions for you. Thank you very much.
2247 Do you wish to add a last comment?
2248 MR. CASSADAY: Well, we would simply like to say, in response to Commissioner Pennefather and Grauer that, you know, we are deeply committed to the development of Canadian talent. We did express a vision for you at this hearing about the creation of yet another tall tree for Canadian broadcasting and a very important part of that is a recognition of our commitment to the development of Canadian talent and we hope that you got a sense of that clearly in our discussion here today. So thank you.
2249 CHAIRPERSON OF THE COMMISSION: Thank you very much.
2250 Madam, we will be hearing the next applicants, then we will break for lunch, and then we will start the interventions.
2251 THE SECRETARY: Thank you, Madam Chairperson.
2252 Our third applicant in Phase I is Shaw. This is an application by Shaw for a change of control of Cancom through the acquisition of WIC's 21.18 per cent voting interest in Cancom that will be held in trust. The completion of the proposed transaction, if approved, would result in the acquisition by Shaw of more than 50 per cent of the voting interest and thereby acquiring effective control of the businesses carried on by Cancom and its subsidiaries.
2253 CHAIRPERSON OF THE COMMISSION: Alors, your turn now.
PRESENTATION / PRÉSENTATION
2254 MR. SHAW: Madam Chair, Members of the Commission, my name is Jim Shaw, President and CEO of Shaw Communications.
2255 At the outset, I would like to introduce our panel. To my right is Richard Stursberg, President and CEO of Canadian Satellite Communications Inc., or Cancom. To my left is Ken Stein, Senior Vice-President, Regulatory Corporate Affairs, Shaw Communications. Behind me, Chris Johnston, oldest partner, Johnston & Buchan, and Scott Gibson, Vice-President, Legal and Regulatory Affairs, Cancom.
2256 Madam Chair, before we begin, I would like to thank the Commission for its patience throughout this entire transaction.
2257 As the Commission is aware, this process began back in March of 1989. It was a complex negotiation involving several major communication companies. The discussions, at times, were difficult and involved some of Canada's best negotiators. There were major hurdles to overcome, including the need for a favourable tax ruling and intense efforts to conclude the commercial arrangements. These hurdles also meant there were a couple of false starts in bringing these applications before you today.
2258 We believe that the Commission and the Canadian Broadcasting System and, most importantly, its viewers will be amply rewarded for your patience. The applications in this proceeding will add strength and will provide focused leadership and diversity to the broadcasting system. They will also contribute to the Commission's competitive agenda and support the distribution of Canadian programming services and accelerate the role of digital.
2259 Madam Chair, the Commission has made substantial progress in implementing its stated policy objectives of encouraging a competitive environment for the provision of satellite, terrestrial and wireless broadcasting distribution services in Canada.
2260 In 1995, the Commission first licensed DTH undertakings to extend service to under-served Canadian households, compete with cable undertakings and repatriate Canadians from unlicensed and unauthorized U.S. DBS services.
2261 As the Commission will recall, these were very risky and turbulent times, for the new DTH companies had to contend with satellite failures, a shortage of vital Ku-band capacity and illegal services had already established themselves in the market. Of the five DTH companies licensed by the Commission, only Bell ExpressVu and Star Choice have survived. As the Commission will recall, Shaw's own DTH service that was licensed in 1997 was merged with Star Choice back then.
2262 In 1998, the Commission introduced competition among satellite relay distribution undertakings by ending Cancom's monopoly, creating open entry and issuing competing licences under a common policy framework. Just last year, the Commission approved a merger between Cancom and Star Choice, which has allowed Cancom to migrate to a common technical platform and provide greater competitive balance between integrated satellite service providers. The improved cost structure created by the merger has created a stronger Cancom and has produced important competitive benefits for Cancom's customers. Small cable systems, for example, are seeing the rates drop substantially.
2263 As we move forward, the objective is to build a stronger Cancom that offers excellent service to Canadians and is a strong competitive player.
2264 I will now turn to Richard Stursberg to address how this application, from Cancom's perspective, is crucial to achieving this objective.
2265 MR. STURSBERG: Thank you, Jim.
2266 Madam Chair, Members of the Commission, approval of this application is the next critical step necessary to ensure a competitive satellite services sector in Canada. Significant challenges must be overcome if Cancom is to maximize its potential.
2267 First, we must continue to meet the substantial financial requirements associated with growing the business.
2268 Second, we must maintain our rapid DTH growth which has seen us double our customer base since last year. This, I might add, is very expensive. Last fiscal year, every new customer cost about $500 to acquire. Adding over 160,000 new subscribers required an investment of $80 million. We are growing faster still this year and the costs of acquisition have risen to about $600 per subscriber.
2269 Third, we must also continue to compete with unregulated services in the grey market, notably, Echo Star and Direct-TV. Again, this has been expensive. We have offered a free swap-in program for people with grey market dishes and, in the process, between ourselves and ExpressVu, repatriated over 50,000 Canadian households. This program so far has required an investment of approximately $20 million.
2270 And, finally, we must acquire additional satellite capacity to allow us to expand our television offers and develop interactive TV, multi-media and Internet services. This, too, will be expensive and involves the development of sophisticated and speculative new initiatives.
2271 We need a strong partner to meet these challenges.
2272 The increase of Shaw's interest in Cancom will ensure that Cancom will continue to have access to the financial and strategic resources of Shaw. This will ensure that we remain a strong competitor in the SRDU, DTH and satellite delivery marketplace.
2273 With respect to financing, Shaw's commitment of support of Star Choice, of the merged Star Choice/Cancom, has been absolutely critical to the survival and success of these entities. Specifically, Shaw's investments, financing guarantees, loans and its ownership stake in Cancom have been central to accomplishing many of our goals. In particular, Shaw was essential in securing debt financing of $150 million U.S., in December of 1997, through the placement of a high-yield note in the U.S. market. This was made possible by Shaw's knowledge of these markets and its investment of $25 million U.S. in preferred shares that was a requirement of the transaction.
2274 Cancom's December, 1999, secondary equity offering, which yielded net proceeds of $117 million. In this case, Shaw purchased $35 million worth of the shares and that substantially reassured the other investors.
2275 Securing and financing 29 of the 32 transponders on Anik F1. In this case, Shaw provided letters of credit worth $37 million to guarantee the transponders.
2276 Securing $120 million loan facility. In this case, Shaw provided significant guidance and assistance in dealing with the banking consortium -- and I can assure you, we would not have obtained the amount of money, on the terms that we did, without Shaw's assistance.
2277 It's not an overstatement to say that without Shaw's ownership, investments and commitment to Star Choice and to the merged Star Choice/Cancom, there would not be any domestic DTH competition to Bell ExpressVu, nor a viable competitor to BCE Media.
2278 More generally, since the launch of Star Choice, almost $500 million has been committed to its success. Hundreds of millions more will be required.
2279 This is an enormously, enormously expensive business.
2280 Simply put, the acquisition of control by Shaw will provide Cancom with a strong shareholder to assist us in obtaining the ongoing financial resources necessary to sustain our rapid growth, fund our losses, acquire more satellite capacity and expand into new services.
2281 Let me say unequivocally that with respect to the Commission's objective for DTH service to compete with cable, Star Choice is a fierce competitor. Currently, Star Choice has over 375,000 direct-to-home subscribers. This represents year-over-year growth of almost 100 per cent. For the last two years, Canadian Business Magazine has named Star Choice Canada's fastest growing technology company.
2282 We are also growing twice as fast as the U.S. direct broadcast services did at a comparable period in their development, despite more extensive and cheaper availability of cable in Canada.
2283 Star Choice competes hard for cable subscribers. In fact, we market intensely in cabled areas. Currently, 65 per cent of our customers come from cabled areas. Over half of these subscribers have access to good-quality cable offering more than 50 channels. Star Choice is also very successful in Shaw's cable markets.
2284 We have also kept pace with Bell ExpressVu, having maintained a 45 per cent market share throughout the course of the last year, when we were operating at significant competitive disadvantages.
2285 Indeed, we are putting into place new plans now that we hope will allow us to take the lead. Cancom needs strong and committed ownership to meet its financial challenges and ensure its success.
2286 Approval of Shaw's acquisition of WIC's shares will ensure that we have access to the resources of Shaw and will ensure Cancom of the financial and strategic resources to fully achieve its potential.
2287 MR. SHAW: Thank you, Richard.
2288 Shaw Communications is enthusiastic about the opportunities afforded by satellite technology and is committed to Cancom. Our interest in satellite is tied directly to our corporate vision and strategy to focus on the distribution of content and the provision of services by all modes of technology. Our goals for Cancom are clear: we want it to become a successful, competitive and profitable company that will reward all shareholders and provide the very best services and innovations to Canadians.
2289 We believe that approval of this application will allow Cancom to maximize its contribution to the Commission's policy objective, to create a successful, competitive environment for the provision of satellite, wireless and terrestrial broadcasting distribution services in Canada.
2290 A stronger Cancom will contribute to the extension of the broadcasting and telecommunication services to Canadians in remote and under-served areas; provide new and innovative services, including the provision of a national, high-speed Internet access service; provide strong, competitive alternatives to cable; provide competitive pressure on analog cable systems to accelerate the roll-out of digital and improve the overall quality of their service; provide a strong and credible alternative to U.S. DBS services, which are increasing their channel numbers by the hundreds; strengthen the competitive abilities of satellite-reliance small cable operators; and create more capacity for new Canadian services; and provide a competitive balance to Bell ExpressVu and B.C. Media's integrated satellite services company.
2291 It is important to say that it is in Shaw's interest that Cancom succeed. A strong and successful Cancom will contribute to Shaw's corporate strategy to deliver a broad array of high-quality entertainment, information and communication services to customers, utilizing a variety of technologies. Shaw is committed to the satellite services sector. This commitment is evident in Shaw's early involvement in DTH, our other satellite initiatives and the financial support we have provided to Cancom and its strong results in the marketplace.
2292 Madam Chair, the Commission's policy framework for satellite services has proven to be the right one.
2293 With the approval of this application, Shaw can continue to help Cancom meet its current challenges, fulfil its potential and contribute to the Commission's competitive policy objectives.
CHAIR: Thank you very
2294 Again, we thank the Commission for its patience throughout this entire process and we would be pleased to answer any questions you may have.
2295 CHAIRPERSON OF THE COMMISSION: Thank you very much.
2296 I would ask Vice-Chair Colville to ask our questions.
2297 COMMISSIONER COLVILLE: Thank you very much.
2298 Good afternoon, gentlemen.
2299 Mr. Shaw and Mr. Stursberg, I actually only have a few questions related to this aspect of this overall application, so hopefully we won't take too long.
2300 First, I would like to start with, as you know, the Commission had a concern going back some time prior to you, Mr. Stursberg, but Mr. Shaw will be aware of the concern about the competitive nature of the Star Choice system service vis-à-vis Shaw's own cable operations, and put in place a number of structural safeguards, to use the term, that we have been using throughout the week on a number of different fronts, and I guess I would be interested in your views on those safeguards and what impact such conditions have had on the development of the DTH and SRDU business from your perspectives.
2301 MR. SHAW: Why don't I start and I am sure Richard has a comment.
2302 I think that overall they do put us at a disadvantage in that we are unable to utilize the full potential of maximizing efficiencies between companies in having these restrictions, but even given that our results have been tremendous. In fact, our results I think are better in the Shaw cable territory than they are in the Rogers. I mean, that's just the fact that it's a national service and we compete.
2303 So even with those safeguards in place there, they put us at a little bit of advantage because we are unable to get the maximum cost efficiency. We have been able to proceed ahead and do tremendous in the marketplace and in turn I think once we got through the satellite issues of space and that that our plan is to take the satellite lead and Bell ExpressVu can follow from there.
2304 Richard, do you have anything to add to that?
2305 MR. STURSBERG: Sure. I would just say that, frankly, it is not clear to me that the safeguards are necessary, in the sense that I think the principal safeguard in this area is the fact of competition itself.
2306 In the nature of the kind of competitive pressure that is associated with Bell ExpressVu requires that we compete flat out and that we compete flat out everywhere. The plain truth of the matter is if Shaw Cable is going to lose a customer to satellite, then they would be very ill advised, I would think to be holding back Star Choice under the circumstances because all that will happen is that instead of then getting a satellite customer on Star Choice it will go to ExpressVu, or they are substantially worse off.
2307 So I think that the biggest guarantee that the Commission can have is the sheer fact of competition itself. It requires them to conduct ourselves in a way that is fully competitive all the time.
2308 As Jim was saying, our results are really very good in his territory. I have occasional conversations with the head of the cable company there who calls me names and jumps around the room, and is, in fact, in the process of suing one of our agents who operates for us in a multi-unit building. So the competition is very intense, but I don't think it's a result, to be honest with you, of the structural safeguards at all. I think it's completely a result of the nature of the market.
2309 COMMISSIONER COLVILLE: So in spite of the conditions you have done quite well, and to use your words, Mr. Shaw, they have perhaps been a small impediment. So if they were to carry forward you wouldn't see it as a major impediment?
2310 MR. SHAW: No, we wouldn't see it as a major impediment at all.
2311 COMMISSIONER COLVILLE: Just on that point about you mentioned currently 65 per cent of our customers from cabled areas. Over half of these subscribers have access to over 50 cable channels.
2312 Do you have any sense of how many of those customers actually were cable subscribers?
2313 MR. STURSBERG: The number keeps going up. It would probably be -- we would probably be running around 30 per cent now, but that's gone up over time and our experience is that what's happening is parallel to what happened in the United States, which is we began in the more remote and rural markets, where people had very -- you know, they were kind of television deprived markets, if you will.
2314 As we come in we are putting more and more pressure on the cable companies and now, as I say, about 30 per cent of our customers seem to come from cable companies.
2315 I would expect that that number -- the difficulty we have had, of course, is that while we have an offer that is substantially larger right now and better than the cable offers, it is not highly differentiated, in the sense that we are offering CTV, but we are offering five CTVs. So it's not as though there are things that you can get right now that you really want to move on to satellite for.
2316 But I think as the offer gets bigger and as the Commission expands the number of digital channels that are available, whether Canadian or American, I think we are going to become intensely competitive with cable and we will do better than that again.
2317 I think that's going to happen fundamentally is that people are then going to say, well, you know, I want to go digital. I have to go digital to be able to get all of these new services and the choice that is then going to confront them when they decide to go digital is what am I going to do? Am I going to go digital with cable, where I am going to have basically 50 per cent digital and the rest analog, or I am going to go 100 per cent digital with satellite.
2318 So I think that what's going to happen then is that's when the pressure on the cable companies is really going to intensify dramatically.
2319 COMMISSIONER COLVILLE: I guess I could ask you to respond, Mr. Shaw, but we would probably be here all day.
2320 You talked in your brief this morning or this afternoon about the cost of acquisition and that's gone up by 20 per cent in one year. What are the costs of acquisition and why has it gone up by that much in one year?
2321 MR. SHAW: I was asking Richard and I was saying I was hoping it wasn't management fees, but basically it's the more intense competition between cable, satellite, the digital products. Bell ExpressVu is very active in the market. We have a large dealer network to contend with.
2322 I would think these costs continue to rise and we would see them go up. We are more than willing to make that investment, but it is a large commitment on behalf of that company.
2323 The good news is I think we can see some light at the end of the tunnel where we are hoping this company will break even in another year or so. So there is light at the end of the tunnel and we are shooting for a goal, but costs do continue to rise.
2324 COMMISSIONER COLVILLE: So besides advertising what are the major components of the cost of acquisition?
2325 MR. STURSBERG: The three big costs of acquisition are we put a subsidy into the box, so what you pay for the box at retail is heavily subsidized, number one.
2326 Number two, the fees to the dealers, the activation fees that we pay the dealers once the box is activated is compensation for selling.
2327 Thirdly, there are marketing and sales expenses associated with it.
2328 Now, what has happened is that the price of the service when you go out to buy the dish and the receiver has gone down dramatically and it continues to fall. So one of the reasons why the costs of acquisition are going up is, frankly, we have not been able to drop the cost of the box to us as quickly as the prices fall in the marketplace and as a result of that we have to be competitive in the market.
2329 COMMISSIONER COLVILLE: So your subsidy has gone up?
2330 MR. STURSBERG: Yes, it has, that's exactly right.
2331 COMMISSIONER COLVILLE: What is the status of the grey market situation? You noted here that between the two companies you repatriated over 50,000 Canadian households, but we had always understood that grey market was in the $400,000 to $500,000 range. So you have made a small dent in it. I am not accusing you. So what is the status? Are you continuing to repatriate those? Has the repatriation more or less levelled off? Is the grey market increasing again? What's happening there?
2332 MR. STURSBERG: I don't know how many grey market subscribers there really were out there. I heard a lot of different kinds of numbers. I think it is difficult to get a reliable number.
2333 But what has been happening over the course of the last number of months is both ourselves and ExpressVu had programs in place where people would bring in, if they brought in an Echo Star dish or a Direct-TV dish or even an old C-band that we would give them a free Star Choice service, and in the case of ExpressVu they would do a parallel thing.
2334 So these people were bringing these in and it's very interesting because I think it shows the extent to which there is actually demand for Canadian television among Canadians. So they were bringing them in and we were swapping out on this basis.
2335 Over the course of the last number of months, the program actually ran up until the end of November and then it stopped at the end of November, so we were getting a small trickle, but through October and November we were getting 25 per cent of our customers were coming from the grey market. We were really pulling them in. I presume that ExpressVu's numbers were about the same, I don't know though.
2336 Then the program ended at the end of November. Then we started it up again at the end of December, so it has been running through January and February. It has recently changed a little bit, in the sense that people no longer get the dishes free from us and ExpressVu. They now have to pay $99 if they bring them in, but it has been a very good program and it has been very good.
2337 It has been good, no only frankly for us. It has also been extremely good for the services because suddenly they are getting revenues that they never would have otherwise serene before, and we are pulling in lots of customers who essentially lost the broadcasting system.
2338 MR. SHAW: I think too that once we get some new products, some new channels after the digital hearing that will in turn rekick that into gear and hopefully repatriate even more. So people that are on the edge now because we don't have as many products on the satellite service now will come to us once we have a few more. So I think you will see this as a common offering by probably Star Choice and ExpressVu and the more product they have the better it will work.
2339 COMMISSIONER COLVILLE: Do you have a sense that the grey market is still getting new customers?
2340 MR. STURSBERG: I think my general sense is that we have kind of frozen it a little bit and started to shrink it. My worry is, however, that what's going on is that Echo Star and Direct-TV are now mounting enormous offers. I mean these are hundreds of channels that they are putting up, you know, with a whole lot of programming that you can't get anywhere else.
2341 It is very, very important for us to be able to move up and to make sure that our offer remains as compelling or more compelling than what's available from Echo Star and Direct-TV. So that's why, really to Jim's earlier point, it is very, very important for us to get those new services, get them up as quickly as we possibly can.
2342 I know I have said this to the Commission before, but you can't, I don't think, make them available too early. So that will be a big help and I think that will help us stay competitive and indeed pull in more people from the grey market.
2343 COMMISSIONER COLVILLE: You mentioned in your brief, and I can't find it here right now, this afternoon about the Internet. I am curious to know, I don't want you to give away some competitive information in the process of the hearing, but there has been a concern for some time about the availability of high speed Internet access in the rural areas where either cable modems or DSL service might not be available, either from the cable industry or the telephone industry. In a broad sense, I would like to know where you think that is going and when you might be able to be providing that kind of a service to the rural parts of Canada?
2344 MR. SHAW: I think there's kind of two parts to that question. There is a two-way Internet KU band and there's two-way Internet KA band.
2345 Currently, we are in the process of working on transactions in both of those areas and in turn are hoping to have the KA is a little more complicated and we wouldn't expect KA equipment to come on line for probably some years, Richard, but there is some KU product that is available now that we are just working on testing to bring out. So it is our intent to offer a fully two-way satellite based Internet service with a fibre backbone.
2346 We will have to regionally hub these, but they should come out. Later this year we are hoping to have an Internet product that would be deliverable.
2347 Now, it might not be the cheapest product you ever saw, but it will be a start and at least we can offer someone a solution.
2348 MR. STURSBERG: Maybe it might be the beginning of the next calendar.
2349 COMMISSIONER COLVILLE: So when you are talking not cheap, then you are probably targeting the small business market and in rural areas?
2350 MR. SHAW: Small business, or you know, it's not that we couldn't perceive a rural farmer wanting a $100 a month Internet service, but it's high speed and that would just be the cost it would cost us to get it there. So I think we are very interested in providing these products, even if they are at the front end a bit expensive we expect them to come down over time.
2351 COMMISSIONER COLVILLE: Okay. The last issue I would like to pursue a bit is the SRDU business because you noted in your presentation the Commission has been actively trying to promote competition in many areas and one of them was the SRDU business. Of course, the result of this transaction was the reduction by one player in that business.
2352 You have noted on page 3 of your brief:
"Small cable systems, for example, are seeing their rates drop substantially." (As read)
2353 And in one of the final bullets you said that you wanted to strengthen:
"A stronger Cancom will strengthen the competitive abilities of satellite reliance by small cable operators." (As read)
2354 I guess I would like you to comment on this competitive situation, and perhaps more specifically comment on those two statements.
2355 MR. SHAW: I will start first and then I am sure Richard can get right into the detail as he knows the numbers a little bit better than myself, but certainly when you approved the Cancom/Star Choice merger, while you did eliminate one SRDU competitor, the two competitors that remain are the two strongest and most fierce competitors in this arena. The competition between these two, being Star Choice and Bell ExpressVu has been just blood letting.
2356 I think rates are down in half from the decision time in only one year and it looks like they are going lower still.
2357 I mean these things, as contracts roll over, it's fierce competition between the two remaining competitors for this business and, you know, I don't see it letting up at all now.
2358 Maybe, Richard, you could expand on that, but --
2359 MR. STURSBERG: I think what Jim has said is exactly right. The pricing in the market has fallen by about half. We have indicated to our cable customers that we will be completely competitive. I don't want to talk about prices and conditions sort of with ExpressVu sitting in the room, but we are busy working away on that.
2360 The other thing that we have done is that we have rolled out a set of new products for small cable operators. We have rolled out a Hits product and we have also rolled out a product for very small cable operators called Cable Plus, for those operators that are too small to be able to afford to rebuild their systems to go digital, so they can nevertheless offer new television services to their customers and remain competitive.
2361 So what has happened is it's not just price. It's also innovation with respect to those kinds of services and I dare say the quality of customer relationships is improving as well.
2362 COMMISSIONER COLVILLE: What share of the SRDU business would you estimate that Cancom has now?
2363 MR. STURSBERG: We would have probably close to 95 per cent right now. That's as much and an effect of the way in which as the contracts become due then people begin to unwind and it creates an opportunity for them to be able to move out, and I would expect to see our share erode as ExpressVu continues to be put pressure on us.
2364 MR. SHAW: And I think also, Mr. Chairman, that as we see new digital suite products becoming out, as you approve new digital licences you are going to see a whole new level of packaging occur in the delivery form. The two easiest ways to have this delivery form happen is going to be through either the technology of Bell ExpressVu or the technology of Star Choice. So you are going to see a lot of products.
2365 So the market contracts and the traditional signal delivery goes away or reduces, a new suite. You know, as we package up digital because at a cable head end you want to get them in a certain configuration to keep your costs down, so there would be a new products entering this arena, I would expect, after your decision.
2366 COMMISSIONER COLVILLE: Did you want to add something?
2367 MR. STURSBERG: I was just going to say that you have already seen, it was announced recently that ExpressVu had signed a deal with the Canadian Cable Systems Alliance. I presume -- I haven't seen the deal, but I presume that the way it works is they have a price structure there that people can avail themselves of. They also have a deal with Star Choice I might add and Cancom will be, I hope, making some important offers to them.
2368 So they are going to have an array of opportunities for the small cable systems that they represent, whether to take this offer or to take that offer and there is no question that the prices are going to be going further down.
2369 COMMISSIONER COLVILLE: Mindful that as prices fall the relative share would change, but for your operation, Mr. Stursberg, what would the SRDU activity represent in terms of your overall per cent of business, let's say in terms of revenues?
2370 MR. STURSBERG: It would be about $50 million in revenues this year and probably this year we will do a total turnover of about $350 million or thereabouts. I would expect that the revenues, as a result of pricing pressure, would be lower next year than they are this year.
2371 COMMISSIONER COLVILLE: And growing competition?
2372 MR. STURSBERG: Exactly.
2373 COMMISSIONER COLVILLE: Thank you very much. Those are all of my questions.
2374 CHAIRPERSON OF THE COMMISSION: Thank you.
2375 Other questions?
2376 I had a question for the subscribers that go with Star Choice, what would be, generally speaking, the percentage of them who would at the same time be a subscriber of a cable company?
2377 MR. STURSBERG: Almost none of them keep it both now. That's partly because unlike the United States we have had local signals on the satellite all along.
2378 Principally, in the United States I think people are keeping their local cable to get local signals.
2379 Now, as we roll out the cable plus offer I think you will see because what it is is an integrated box. So very small cable operators, there's a cable tuner in it and so the tiny cable operators who can't afford to digitize, as I was mentioning, can take the box. We will get the boxes to them and they are unbranded to us and then they basically make them available to their customers. They keep the basic revenue stream available to themselves on the cable and then they sell them the Star Choice tiers higher up and we do a revenue split with them.
2380 So that allows them to have something to use to compete against frankly ourselves and ExpressVu and to try to hold the basic service revenues as they go forward. So we will see how that works for the market.
2381 CHAIRPERSON OF THE COMMISSION: Thank you. That takes care of our questions.
2382 We will now break for lunch. We will be back at 2:30.
--- Upon recessing at 1310 / Suspension à 1310
--- Upon resuming at 1430 / Reprise à 1430
2383 CHAIRPERSON OF THE COMMISSION: Madame la secrétaire, we will start.
2384 We will probably go at least until 7:00 tonight and start at eight o'clock tomorrow and we might finish tomorrow. It depends. We won't push it, but that might be the case.
2385 MS VOGEL: Thank you, Madam Chairperson. We are ready to start on Phase II of the hearing. Phase II being the part of the hearing where we hear intervenors.
2386 We will be calling intervenors with respect to CanWest Global's application. I remind the intervenors that you have 10 minutes to make your presentation, after which there could well be questions from the Commission.
2387 So with that I would like to call the first intervenor, Craig Broadcasting Systems Inc. Would you come forward please.
2388 Not seeing any movement that has anything to do with Craig, I would like to invite Hugh Delaney to come forward.
2389 CHAIRPERSON OF THE COMMISSION: As usual, Madame, you will be calling them at the end of the day.
2390 MS VOGEL: Yes. I will recall people who are not here when I call them initially.
2391 At the front table please, sir, in front of a microphone.
2392 CHAIRPERSON OF THE COMMISSION: Not on the flowers. We haven't established where the flowers come from. We don't know if it's an intervenor or an applicant or the hotel, which is probably very happy to have us here for four days.
2393 Good afternoon, gentlemen.
INTERVENTION / INTERVENTION
2394 MR. DELANEY: Good afternoon, Madam Chairman.
2395 My name is Hugh Delaney. I should introduce another person with me, Mr. Bob Johnson. He is the former President of Lethbridge Television and he is, like myself, a retired employee of WIC. So, I have asked him to come here today because it's an important day for an awful lot of people.
2396 Today you are considering the merits of granting a large corporation the opportunity to become even larger. That doesn't have to be a bad thing, if the people who lead that company remember in their haste to get bigger and richer, that it was not equipment and buildings that accomplished the growth of the television industry, but people who through their dedication, loyalty, inspiration and perspiration did the work that provided for the actual growth of television in Canada and around the world.
2397 When companies come before this august body to seek approval of their acquisitive natures they rush to the communities of politics, arts, sports and charitable institutions to support their applications. And who are these organizations? They are indeed people like you and me who ask you to deliberate, consider numerous factors and decide on the efficacy of the application.
2398 One of the really important considerations must be how they consider the most important element in that transaction, you and me.
2399 When they make promises to convince you that they are worthy of your trust do they keep them, or do they try to find ways to escape their obligations in order to make greater profits? And don't get me wrong. Profit is not a dirty word. But the greed that supersedes the profit motive by attempting to deny employees and former employees their rights to fairness, especially when both parties have agreed to the concept of a fair day's wage for a fair day's work.
2400 I represent a large number of retired employees of WIC, who received a letter authorized by the then Chairman and members of the Board of Directors of that corporation to say that they were going to withdraw the health and dental benefits that each retiree had earned as part of their employment. This, I am certain, was nothing less than a grab for more money in their pockets off the backs of the people who had spent their lives to make that company successful, and who when WIC applied for the purchase of Selkirk Communications in the late 1980s promised that they would honour all the agreements in place.
2401 Then they have the audacity in early March of this year to send letters to all retirees saying they were going to cut those benefits.
2402 When my legal counsel informed them that they were indeed breaking the laws of Canada, another letter was forthcoming saying that their letter was sent in error, but not every retiree received that second letter. And it is my understanding that in fact the Board had decided that if the retired employee didn't have a letter from their employer to say that at retirement they would be receiving these benefits, then they would be excluded.
2403 Well, here's a double-dealing board with no remorse for its stupidity, compounding the situation by ignoring its promises given publicly to the CRTC and then making second or worse-class citizens out of people who can ill afford to fight them legally. If there is a more disgusting group I've never met them.
2404 Today I received written notice that the new Board, which under the changes that took place as of April 1st this year, has reversed the previous Board's decision and repudiated that action. Of course, next on that list will be the new company that will take over the WIC television operations, Global Television. They have said, or at least indicated verbally, that they support the action of the new Board and I feel that it's imperative that you as representatives of the people of Canada elicit from them their promise to not act in kind, to defend the honour of the people who worked to build a profitable television company and not the greed that encompasses the previous ownership.
2405 A lot of people in the industry today say there is no need any more for the CRTC, and I'm sure you've heard it. With deregulation of the airwaves and open borders that in fact the CRTC is somehow obsolete.
2406 Well, when powerful interests like WIC behave in this manner, it proves the necessity of a governing body like the CRTC to control and curb their egregious actions.
2407 Some of the most vulnerable retirees are women who have made major contributions to the industry, but are on the bottom rung of the economic ladder and people like former Chairman Classen of WIC only think of their pocketbooks to trample the disenfranchised by taking away what they earned.
2408 We have a paradox that says the greed will get richer and the lowly poorer. You have an enormous responsibility as a Board to make certain that the public of Canada have their rights protected. I beg you not to let companies trample the fundamental rights of those who have given their loyalty, energy and lives to provide reasonable profit to those who would crush them for a few more dollars.
2409 I am certain that your consciences will guide you to protect the interests of the Canadian public who look to you to fairly regulate with an even hand. I urge you on behalf of my fellow pensioners to put a true and faithful face on your decisions. We place our faith on your integrity.
2410 If you approve this sale, please make it a condition that Global performs responsibly, ethically and honestly to protect the people who helped to build a successful organization.
2411 Thank you, Madam Chairman
--- Applause / Applaudissements
2412 CHAIRPERSON OF THE COMMISSION: Thank you very much.
2413 I would ask legal counsel, Ms Moore, to ask the questions of the Commission please.
2414 MS MOORE: Thank you, Madame Chair. I don't have any questions.
2415 MR. DELANEY: Thank you.
2416 MS VOGEL: I invite Ray Peters to come forward next please.
2417 I understand he is not here yet, so we will recall him.
2418 The Alberta Motion Picture Industries Association please.
2419 CHAIRPERSON OF THE COMMISSION: Good afternoon and welcome.
INTERVENTION / INTERVENTION
2420 MS EDWARDS: My name is Connie Edwards. I am the President of the Alberta Motion Picture Industries Association and with me is Diane Janzen from Janzen and Associates.
2421 The Alberta Motion Picture Industries Association would like to thank the CRTC for the opportunity to intervene on the CanWest application involving nine television stations, four of them in Alberta.
2422 This application involves the largest broadcasting transaction in Alberta's history. Impact on Alberta and on the country will be significant. Over $250 million in Alberta assets, representing 31 per cent of the entire transaction are part of this transfer.
2423 For 26 years the Alberta Motion Picture Industries Association, AMPIA, has represented independent producers and members involved in all aspects of the film and television industry in Alberta. The mandate of the association is to ensure the growth and development of the indigenous industry at the producer, technical, talent and craft level.
2424 Central to this mandate is maintaining and environment in which Alberta producers can initiate, develop and produce films and programs over which they have creative and financial control.
2425 AMPIA plays an important role in this sector of the economy, representing film and television professionals, disseminating information to them, lobbying and marketing on their behalf and advocating for indigenous production. AMPIA currently has a total of 245 company members, representing a cross-section of almost 3,000 industry professionals, including producers, directors, performers, writers, crafts people, distributors, broadcasters, suppliers, exhibitors and students.
2426 Alberta producers, directors and crafts people have long produced numerous provincial, national and international award-winning programs. During the last several appearances before this Commission, we have stressed the importance of adequate funding and national shelf space for Alberta productions. It is our hope that through this intervention process key Alberta issues will be identified and ways to address them developed.
2427 We believe that through a benefits package which acknowledges the value of the Alberta assets CanWest and AMPIA can work together to ensure a strong local and regional television industry in a national context. In doing this we will all win. CanWest will have a strong Alberta base. There will be enhanced drama, children's, documentary and variety programming production and the issues of lack of regional programming will be addressed. Weaving these together we will achieve the CRTC's new television policy.
2428 In order to understand the potential impact of the CanWest transaction on the Alberta independent production industry and on local television, the overall context is vitally important to consider. The Western Canadian Television Production Report concluded that western independently produced Canadian content television production is on the decline as a percentage of Canadian English-language television production overall.
2429 It also concluded that Canadian conventional broadcaster licensing of western Canadian production was also on the decline, most notably in the drama category. The overall drop in Canadian conventional broadcaster financing of western Canadian content television production has resulted in the decrease in western production levels.
2430 The study concluded that without an ongoing commitment by Canadian broadcasters, total production levels could well continue to decline.
2431 The Alberta decline has been most pronounced of all western provinces. In the drama category, overall production has dropped from $24.5 million in 1993-94 to $3.3 million in 1998-99. The study went on to conclude that for the first time in six years Western International Communications did not contribute to financing production. WIC's spending dropped to zero.
2432 In considering this transaction, it is also important to look at Alberta television schedules. Alberta recently conducted an Alberta broadcasting review entitled "A Watchful Eye" which measured the representation of drama, children's, variety and other documentary programming produced by the Alberta independent sector on Alberta television screens in an average week. It found that in a typical Alberta broadcast week less than 1 per cent of all Canadian programming schedules on Alberta stations involved programming in the underrepresented categories of drama, children's and documentary programming. This situation is consistent with the Commission's overall assessment of television in a regional and local context.
2433 The CanWest transaction must meet the objectives of the CRTC outlined in "Building on Success - A Policy Framework for Canadian Television". The CRTC requires that a 10 per cent tangible benefit package be developed in transactions. The CRTC has also articulated an expectation that in the case of transfers and transactions significant benefits be offered to the community in question, as well as to the Canadian broadcasting system as a whole. The policy also requires the benefits proposed in the application be commensurate with the size and nature of the transaction.
2434 The CRTC has also recognized the need for the Canadian broadcasting system to better reflect in its peak time programming the different regions of the country. It also recognizes that there are few popular Canadian drama programs produced outside the major production centres of Toronto, Montreal and Vancouver and that it wishes to encourage the production of regional programs through priority programming, which is defined as other than news and information programming.
2435 AMPIA has undertaken an extensive review of the CanWest application. It has reviewed the benefits package, taking into account the mix of support and the overall level of support. In particular, AMPIA has reviewed the Alberta benefits against the $215 million Alberta asset value which represents 31 per cent of the total transaction value.
2436 AMPIA approves in principle many of the CanWest initiatives. It commends CanWest for developing an overall package that exceeds the 10 per cent tangible benefits requirement. The general mix of benefit instruments are strongly supported by AMPIA, including the National Promotion Fund, Western Independent Producers' Fund, the Canadian Film Centre, The International Marketing Fund, Canadian Star Minutes, the Geminis, Reading for the Blind, Historica.
2437 AMPIA also strongly approves the specific Alberta benefits that include the Edmonton Film Commission, Alberta Performing Arts Support, the joint CBC project, the Banff Television Festival, the Alberta Film Commission and, of course, the Alberta Motion Picture Industries Association.
2438 Within the Western Production Fund, AMPIA has provided a number of recommendations to improve on the fund. AMPIA recommends the allocation of a portion of the funds to script and project development, as this is a critical area for western producers. We also would be in agreement, of course, that licence fees would certainly be beneficial as those trigger other financing.
2439 AMPIA also advocates support for all genres of production and for any recouped dollars to go back into the fund.
2440 Regarding the issue of administration, AMPIA supports the CanWest announcement that the fund will be administered from Edmonton, Alberta.
2441 AMPIA also views this transaction in the long term. It recognizes that, if approved, CanWest will apply for a group licence. AMPIA has the expectation that specific commitments to Alberta will be made within that group licence that relate to the stations within the group.
2442 AMPIA has reviewed the CanWest application and is raising for the Commission's consideration the following key issues: AMPIA is concerned that many of the benefits identified as 100 per cent benefits to Alberta are in fact national benefits, with possibly as much as 98 per cent of these benefits flowing to the rest of the country. This potentially reduces the Alberta benefits package to as low as $4 million out of the $84.5 million benefit package. This represents a significant concern, given that the Alberta assets represent 31 per cent of all assets being transferred.
2443 It would also result in an Alberta benefit package that would be less than 2 per cent of the $250 million in Alberta broadcasting assets. Well below the Commission's 10 per cent benefit requirement.
2444 In real terms, the net difference results in a potential loss of more than $22 million to Alberta should the principle of matching assets to benefits not be followed.
2445 Secondly, the Alberta benefits package is valued at $22.55 million, or 10.49 per cent of the transaction. AMPIA recommends that the total Alberta package be consistent with the 12.18 overall benefit, which would move the Alberta benefits to almost $27 million or 12.18 per cent of the Alberta assets of $215 million.
2446 Finally, the national benefits do not guarantee funds for Alberta. As a result, it is possible that none of these benefits will flow to Alberta. While CanWest has maintained that it is unable to envelope funds for Alberta, it has identified a number of initiatives, including a $5 million Vancouver fund and a host of other city specific initiatives which envelope dollars for specific purposes.
2447 Our overall concern is that the Alberta benefits are neither significant nor tangible and that they do not reflect the nature and size of the Alberta assets in the transfer. It is also important to note that over and above the $215 million asset value, Alberta stations will contribute over $500 million in new revenue to CanWest's operations over the next five years.
2448 We have created a chart that you will find in our intervention on page 5. The table provides a detailed assessment of the current Alberta benefits as outlined by CanWest and includes valuations that separate national benefits from Alberta benefits.
2449 For example, the National Promotion Fund is strongly supported in principle by AMPIA. However, Alberta could likely only expect to receive 10 per cent of these funds in a best case scenario estimate.
2450 In a worst case scenario, the Alberta community has been given no guarantees of specific support levels and, therefore, could receive little or no support. This fund, as it is currently configured, will be delivered by the CTF. In 1998, the Alberta community captured only 3 per cent of all CTF funds.
2451 AMPIA has similar concerns about the International Marketing Fund, the Canadian Film Centre Promotion Fund, Canadian Star Minutes, the Geminis, Reading for the Blind and Historica.
2452 AMPIA respectfully submits to the CRTC a recommendation that if the Commission approves the CanWest Global application that it should be conditional on the establishment of an Alberta benefits package which recognizes the $215 million value of the asset and which commits to specific tangible Alberta benefits which are commensurate with that asset value.
2453 AMPIA further recommends that this be achieved through a combination of guaranteed support for Alberta of 10 per cent of the national funds, enhancing the total Alberta benefit package to 12.18 per cent and the creation of a new Alberta specific benefit. These are -- could be, a 10 per cent guaranteed allocation for Alberta from the national funds identified. The creation of an Alberta independent production fund totalling $21.7 million, which would include $9.6 million from the Western Production Fund.
2454 This overall allocation forms a key element in ensuring that the Alberta benefits are commensurate with the value of Alberta assets in this transaction. The fund would mirror the Western Production Fund's support instrument and be delivered from Alberta.
2455 Chairs and scholarships of $1.25 million would be as they are. The Banff Television Festival, CBC, $300,000 support for Red Deer as is, a guarantee of $250,000 for the National Screen Institute to the benefit of Alberta, AMPIA for $500,000 as it is, $250,000 to Alberta performing arts organizations as announced by CanWest, $250,000 to the City of Edmonton for the Film Commission as also recently announced, $250,000 to economic development to Edmonton, $250,000 to the Alberta Film Commission. And again, there is a chart in the intervention that outlines those numbers.
2456 Achieving the CRTC policy objectives of enhancing regional production, enhancing production outside Montreal, Toronto and Vancouver requires partnership of the independent production sector with all private and public broadcasters in the region. Without it the current trends will continue. With a strong partnership a new era of television production can emerge, which would see a significant increase in Alberta productions, an increased access by television viewers to drama, documentaries and children's programming from across the country, including Alberta, recognizing the value of the Alberta assets and developing a tangible benefits package that matches this value would have a profound impact on the Alberta television industry.
2457 Let me just say this: Alberta is open for discussion. We are open for negotiation and we are open for business.
2458 Thank you very much for allowing us the opportunity to intervene.
2459 CHAIRPERSON OF THE COMMISSION: Thank you very much.
2460 I would ask Commissioner Grauer to ask the questions please.
2461 COMMISSIONER GRAUER: Thank you, Madame Chair.
2462 I don't know if you were here yesterday when I had a discussion with Global about their production activity in western Canada in particular with respect to the acquisition of these assets which are predominantly in the west, in particular in B.C. and Alberta. I had quite a lengthy discussion. I am familiar with the Department of Canadian Heritage Report and the disturbing trend with respect to private conventional broadcasters' production in western Canada.
2463 So in that context I have a number of questions. I guess the first thing is, as you are well aware, the funding of drama documentaries, the priority programming is a complex affair in this country, given the size of the production budget, and it requires a number of different vehicles and elements. Certainly one of the things that has been competitive, if I can call it that, over the course of the evolution of funding programs has been the role of the provincial governments with respect to tax credits, and that has really had a big impact in driving production to one place or another, or incenting licence fees, if I can put it that way.
2464 I am not familiar with what, if any, programs exist in Alberta. I wonder if you could just let us know what those are?
2465 MS EDWARDS: Currently there is a program in Alberta, it's a grant program. Ten per cent is provided by the provincial government to Alberta production.
2466 COMMISSIONER GRAUER: So if what I wanted to see is if there is a level playing field, then you would say with respect to the ability to finance projects, indigenous Alberta projects, there is a level playing field with Ontario or B.C. or whatever or not quite?
2467 MS EDWARDS: I would say it's quite there yet. Are we certainly getting there? It is certainly better than what we had, which was zero per cent. So we certainly have seen a resurgence in our province of production.
2468 COMMISSIONER GRAUER: But this is still a challenge I would guess to the independent production community to --
2469 MS EDWARDS: Well, we have a dramatic children's series that is currently being produced in Alberta. They are into their third season.
2470 COMMISSIONER GRAUER: I know. I guess what I am just trying to understand is being an advocate for -- I support all of the goals and objectives you have outlined. I think all of us view it as important that the Canadian broadcasting system that there be a reflection of the country and all of its regional diversity. What the important thing is to just understand the various elements that come into play in making that happen in the various parts of the country.
2471 MS JANZEN: I think one of the major issues was when the Alberta Motion Picture Development Corporation was closed there was a serious impact on the industry. I think part and parcel, along with broadcast licensing has seen, as we alluded to, an incredible dip in production. With the new Alberta funds it's starting to come back.
2472 I think the tax credit system, for example, in British Columbia and Ontario do provide a bit of an advantage over Alberta. I think the value in B.C., for example, is around $15 million a year, so that makes a significant difference.
2473 But I think in terms of bringing the industry back, the Province of Alberta is now back in the game. I think together with a significant contribution we outlined our projections that if this kind of a strategy was followed there would probably be about $220 million in production activity in Alberta. So I think the two working together, along with Cortel Film and the other agencies could be very profound.
2474 COMMISSIONER GRAUER: My next question was if all things are equal and it doesn't cost a broadcaster any more to licence a project in Alberta than it does in Toronto it's going to be a lot easier to get them. So I discussed the issue of broadcast licences with CanWest yesterday and I think they are going to be coming back to us with something, but would a commitment to licence a certain number of projects in Alberta by CanWest essentially address the concerns with respect to the funds and whatnot? Because what I am really trying to say is they are reluctant to establish quotas on all of these things.
2475 The points you have raised with respect to the possibility of these funds could -- you know, 98 per cent could benefit outside also applies to British Columbia who have raised many of the same issues.
2476 So it seems to me, as I said to them, a fund is only good if you can walk to the fund with a broadcast licence.
2477 So, if there was a commitment to broadcast licences that would in and of itself trigger an Alberta flow of some of these benefits, would that satisfy some of your concerns?
2478 MS EDWARDS: It would certainly help in a very meaningful way. I think if they are meaningful licences, meaning significant, that they do help to trigger some of the other funds, the CTS, Telefilm because there are certain rules now that come into play. You need a certain percentage and so on. I think that would be absolutely beneficial. We would be very open for that discussion.
2479 It's always a number of factors, as I am sure you know. You initially need to have the development dollars for script. Script is everything, so the program is good. From there you develop the program and then you need to have that critical licence, so that your product is actually produced and seen.
2480 COMMISSIONER GRAUER: Did you see the reply to your invention that CanWest has done?
2481 MS EDWARDS: Yes, we did.
2482 COMMISSIONER GRAUER: Are some of your concerns satisfied in that with respect to script and concept development?
2483 MS EDWARDS: I noticed that they did put in script and concept development and we were very pleased to see that.
2484 COMMISSIONER GRAUER: Right.
2485 I think those are my questions actually. Thank you very much. I did want to sort of get your sense of whether you thought that licence fees might address your concerns about ensuring that these benefits flow to Alberta producers.
2486 MS JANZEN: I think it would be very helpful. I think one of the primary issues we had was linking the benefits back to the asset value because it is the largest Alberta broadcasting transaction. They are going to benefit substantially from the $500 million in revenues that are going to come out of there. So I think any way in which we could work in partnership with them, licences or however, they would wish to structure that.
2487 I think that certainly AMPIA would be open.
2488 COMMISSIONER GRAUER: I assume that really what you want, which is the same as what we want, is to develop a relationship and an industry that is going to have ongoing success beyond the time of the benefits, so that's why my question about licences.
2489 MS EDWARDS: Yes, very much so. We look forward to working together to establishing a long-term relationship and to give our independent production personnel an opportunity to show their best stuff, to produce quality programming that we are proud to have seen anywhere in Canada.
2490 COMMISSIONER GRAUER: Maybe you could use that with the provincial government.
2491 MS EDWARDS: We are working on it.
2492 COMMISSIONER GRAUER: Thank you.
2493 MS EDWARDS: Thank you.
2494 CHAIRPERSON OF THE COMMISSION: Madame Edwards, Madame Janzen, thank you very much.
2495 MS VOGEL: I would like to call Ray Peters to come forward please.
--- Pause / Pause
INTERVENTION / INTERVENTION
2496 MR. PETERS: Members of the Commission, good afternoon. My apologies for being late.
2497 CHAIRPERSON OF THE COMMISSION: You are not late. We are ahead.
2498 MR. PETERS: Thank you.
2499 I'm the retired President and CEO and Chairman of the Board of British Columbia Television and I am the retired President and CEO of WIC, Western International Communications.
2500 I retired in 1989 and that makes me part of ancient history at this point. However, I did want to express our views on behalf of my colleagues who are the group of retired employees at BCTV and of the individual television stations that WIC have across the country.
2501 Our intervention dated March 27th is in support of the application of WIC Western requesting the Commission's approval to transfer the ownership of nine television stations to CanWest Global Communications.
2502 Since I filed our intervention, all of the principal assets of WIC, Western International Communications, have been transferred into separate trusts. Those are the radio, television stations and all of the broadcasting assets, the trusts established for the benefit of CanWest Global Communications Corp. and Shaw Communications.
2503 On March 31st the operation of WIC Western was effectively concluded. The WIC interim Board of Directors and President resigned and were replaced by a new three man interim board, representing the trustee for CanWest Global.
2504 While this intervention is supporting the application, I must add that my colleague, God rest his soul, Frank Griffiths Sr., the founder of WIC Western would not be happy with this transaction today and it is a very sad time for me to watch the break-up of WIC Western.
2505 I know how much hard work and dedication and sleepless nights went into all of the hard work of the officers and staff in building this company. It had always been our dream to build a very strong broadcasting company here on the west coast of Canada, in order to add some balance to the ownership of broadcasting stations all of which were controlled by companies based in Toronto.
2506 It took over 30 years to build this company and less than 10 years for the Griffiths and the Allard and the Shaw families to destroy it, the company, by selling off the control of the company and the broadcasting assets.
2507 So while this intervention is in support of this application, we should not lose sight of the fact that if this application is approved, these nine television stations will be run from Toronto.
2508 For this reason we recommend three very solid conditions be attached to the Commission's decision. The reason we supported this transfer of ownership move to CanWest is this is the first time in almost 10 years a company has made a commitment to developing programming on BCTV Vancouver and CHEK Victoria. As I understand the benefit package proposed by CanWest Global, almost approximately half of the $84 million commitment will be spent in the Lower Mainland of Greater Vancouver and Victoria.
2509 Whether this is enough it's up to this Commission to decide. However, we think that this is a giant step forward because during the past 10 years the inexperienced CEOs and boards of directors of WIC Western continually cut the operating capital budgets of the entire company.
2510 In the intervention we filed with the Commission we gave several examples of the devastating effect of these cuts on BCTV in Vancouver and CHEK-TV in Victoria and CHBC in Kelowna.
2511 As I stated in our brief, the financial policies of WIC Western's board over the past 10 years has cut the creative heart out of the once proud BCTV, a station that was the leader in the Greater Vancouver community and throughout British Columbia.
2512 The fact that $35.4 million will be spent in the Lower Mainland on BCTV, $6.5 million in Victoria and $3 million in Kelowna by CanWest Global will go a long way to restoring programming that is needed to put leadership back into the operations of BCTV Vancouver, CHEK-TV in Victoria and CHBC in Kelowna.
2513 It will also restore the morale of the staff of these stations who have been totally demoralized over the past 10 years.
2514 While we support this application, the Global Television Network has a reputation for underperforming when it comes to producing Canadian local and regional and national television programs. It is for this reason that in our intervention we respectfully ask the CRTC to approve this application by WIC Western to transfer nine television stations in British Columbia, Alberta, Ontario and Quebec to CanWest Global Communications with the following three major conditions.
2515 The first one is that CanWest Global restore the local and regional programming on BCTV Vancouver, on CHEK in Victoria and CHBC-TV in Kelowna.
2516 As we indicated in our brief, with the exception of news, all of the social, cultural, economic and special Canadian entertainment programming has been cancelled over the past 10 years. If our Canadian television stations are going to compete with the 150 to 200-channel universe, it is the Canadian programming that will make the Canadian stations different from all of the other channels on the dial.
2517 The second condition that we are recommending is that CanWest Global produce significant Canadian prime time entertainment programming from the west coast for their new national network.
2518 The people of British Columbia do not need another Canadian network to feed us U.S. and Canadian programming from Toronto. They may think they are the centre of the universe, but in British Columbia we think it's the end of the universe.
2519 The third point, the funds be released by the board of directors to index the WIC/BCTV pension plan and that premiums for the extended medical benefits be restored to the level of 50 per cent paid by the company and 50 per cent by the retirees for present and past employees of the WIC staff across the country.
2520 As I stated in our brief, it is the retired officers and department heads and staff members who have built this company and these nine television stations. That did not happen overnight and it did not happen by accident. They have earned a pension of respectful level. The present pension plan at BCTV, CHEK-TV, for one example, provides annual increment increases based on the cost of living index.
2521 We are advised by the actuaries that ample funds are available and that these increases need only to be approved by the WIC board which, for some reason, have not been approved since 1992 and all our requests to have them dealt with have been ignored. This is a no-brainer. It's very easy for that board to approve these indexed increases.
2522 In the case of the extended medical benefits, this was set up originally to be part of the pension package for the retired employees. As Indicated in the material appended to our intervention, on January 21, 2000 the Human Resources Administrator of BCTV advised all WIC retirees that commencing September 1, 2001, the retirees would be responsible for 100 per cent of the medical plan premiums. The company would no longer share that cost.
2523 In addition, we have just learned from a copy of a letter that we received from Toronto, dated March 9, 1999 and it's enclosed to the material we handed out today and this letter is from Peter Classen, the then President of WIC Western, in which he stated that commencing September 1, 1999, all retired employees will not be eligible to participate in the WIC group benefits. In other words, they won't have any coverage at all once they retire.
2524 Here you have retired, hard-working employees, who made the WIC television stations into one of the most successful television operations in Canada living on a very modest fixed income, who have just been advised that they are now required to pay 100 per cent of their extended medical coverage.
2525 Now, I should point out that I received a phone call on the eve of this hearing, saying that the new board had met, the new three-man board had met and they have decided to rescind the letter of January 21st referred to above and that they are going to now pay 50 per cent of the premiums for the extended medical coverage for all those employees that are retired at the present time.
2526 However, the employees who retire after September 1, 1999 are left without any extended medical coverage at all, at a time in their lives when medical coverage is paramount.
2527 Finally, last week I received a call from Toronto from a very loyal, long-time dedicated employee, who is retiring in December of this year, who just found out that his extended medical coverage will end the same day he retires. He is a diabetic and his wife is visually impaired, so he will be unable to obtain any extended medical coverage from any other source.
2528 If the CRTC approves this application, the principals at this hearing, the Griffiths, the Allards and the Shaws, will walk off with millions of dollars in the event that this application is approved.
2529 The very loyal, dedicated and soon to be retired employees, who have built this company and these radio and television stations, are left to figure out how they can pay for their extended medical premiums and their increased cost of living on their very modest pensions.
2530 Now, I know what you are going to tell me is that it's not the practice of the CRTC to get involved with pension plans and medical premiums on extended medical plans. I am speaking not for myself, but for the retired employees of BCTV and WIC Western when I say that you are their only hope, and I will repeat that, you are their only hope. They don't have any money to hire expensive lawyers to start a class action or to take the company to court. However, they are continually ignored.
2531 As I indicated, in 1992 was the last time there was any indexing of the pension and each time the request comes in from the retired employees for the board to approve indexing of their pension they are ignored. It's put off for one reason or another. And, quite frankly, members of the Commission, the manner in which these retired employees have been treated is absolutely shameful and I am embarrassed that I was part of that board in one part of my life. Thank you.
2532 CHAIRPERSON OF THE COMMISSION: Thank you very much, Mr. Peters.
2533 Commissioner Wylie has a few questions.
2534 COMMISSIONER WYLIE: Good afternoon, Mr. Peters. I may not be as old as you, but I was around before you retired.
2535 MR. PETERS: Thank you.
2536 COMMISSIONER WYLIE: It's a pleasure to see you, although I can see you have some ambivalence about what is happening. On the one hand you support the application vis-à-vis the TV stations, and on the other you state that it's a sad day because it's the destruction of a company through the selling off of control of its broadcasting assets, especially to what you consider to be eastern companies.
2537 When you speak of destroying the company by selling its assets do you also speak of the devastation, do you speak of its programming because you often used the word to restore its programming as a condition of CanWest taking control?
2538 I see you have followed the pension plan problems quite closely, as you also followed the change in programming over the last while. And when you speak of restoring are you speaking of going back to a performance prior to this sale?
2539 MR. PETERS: Yes. In the brief I filed, the eight-page brief, I outlined in a fair amount of detail the amount of damage the board of directors have caused by cutting the budgets, both operating and capital, of the television stations, the WIC television stations. As a result of those cuts, they had to cut a substantial amount of local and regional programs in all of the regions throughout Canada.
2540 The ones we can see here are on BCTV and are on CHEK in Victoria and on CHBC in Kelowna, when I am there. It has really damaged the audience.
2541 So, as I said in I think the second or third paragraph of our brief, the financial policies of the WIC Western board have virtually destroyed the audience and the good will of these television stations.
2542 Now, the reason that we are supporting the CanWest brief is that they have come along and said for the first time in almost 10 years that they are going to spend some reasonable money on local and regional programming. This is terribly important to this region because, as I have indicated in my brief presentation today, when you have 150 to 200 channels on the dial, it is the Canadian programming which the people of British Columbia can identify with and relate to that is going to separate us from all the rest of the channels on the dial.
2543 I am coming out in support of the CanWest brief by virtue of the fact that they are at least going to spend some money and reverse the trend of the previous board of cancelling all of the regional and local programming.
2544 COMMISSIONER WYLIE: One of the reasons why I was asking you this question is yesterday, I don't know if you have been following our proceedings to date, but yesterday we went through the exercise of trying to see what is available at the moment, not in terms of the amount of money spent, but the number of hours that actually broadcast, and to try to determine whether CanWest's proposal would at least do as much as is now done and, of course, we are examining whether it would be more.
2545 So your view would be that using what's on the air as a threshold now would not satisfy your goal of restoration because to you what you want is what was there in a better time, prior to what is there now?
2546 MR. PETERS: We are at the very bottom of the plateau now. What I see from here is growth with the CanWest proposal, an increase in the number of local and regional programs.
2547 COMMISSIONER WYLIE: So your view would be to establish what's there now and require more?
2548 MR. PETERS: That's correct.
2549 COMMISSIONER WYLIE: Thank you, Mr. Peters.
2550 I don't know if my colleagues have questions. I can see that retirement has done very well by you.
2551 MR. PETERS: Thank you.
2552 COMMISSIONER WYLIE: I don't think you look any different from when I was first introduced to you.
2553 MR. PETERS: You're too kind.
2554 COMMISSIONER WYLIE: Did you send the flowers? Thank you.
2555 CHAIRPERSON OF THE COMMISSION: Thank you, Mr. Peters.
2556 MS VOGEL: I would now ask Craig Broadcasting to come forward.
2557 CHAIRPERSON OF THE COMMISSION: Good afternoon and welcome.
2558 MR. CRAIG: Good afternoon.
2559 Madam Chair, I apologize for losing our spot. We phoned over before lunch and were told you were still on Corus. So I guess the person on the end of the phone didn't know the difference between Corus and Shaw.
2560 COMMISSIONER WYLIE: We just put the last one in jail.
INTERVENTION / INTERVENTION
2561 MR. CRAIG: Good afternoon, Madam Chair, Commissioners. My name is Drew Craig. I am the President of Craig Broadcast Systems Inc.
2562 To my right is Peter Grant, our legal counsel, from McCarthy Tetreault. To my left is Jennifer Strain, Craig's VP of Corporate and Regulatory Affairs. To Jennifer's left is Mark Burko, VP Sales of Air Time Television, a TV representation firm from Toronto.
2563 We are here to urge the Commission to deny Global's request to acquire Ontv and CHEK. Approval of these proposals would amount to a monumental public policy shift that will have significant negative repercussions throughout the broadcast system.
2564 We would like to highlight the key points of our written intervention and address some of the issues raised by Global's presentation yesterday.
2565 We would like to start by addressing the suggestion made yesterday by Mr. Goldstein and others that the duopoly policy prohibiting common ownership of two conventional TV stations in the same language in the same market should no longer apply because of the impact of specialty services, the Internet and recent mergers. That suggestion is absurd.
2566 As the Commission noted in the TV policy decision released less than a year ago, and I quote:
"Conventional television will remain the cornerstone of essential support for the Canadian independent production sector and the core of the Canadian television broadcasting system." (As read)
2567 The numbers confirm this. Conventional television continues to attract 55 per cent of all viewing in Canada, compared with only 17 per cent for all the Canadian pay and specialty services combined. And, more important, conventional television in Canada garners $1.85 billion a year in ad revenue. All of the pay and specialty services combined receive only $304 million in ad revenue, less than one-sixth of the number for conventional.
2568 So don't let the numbers of specialty channels obscure the fundamental point. Conventional TV is still where the clout it. It's still the foundation of the system.
2569 Nothing has changed since the Commission reaffirmed the applicability of the duopoly policy last year and stated that it remains relevant to ensure a diversity of voices and competition in a given market.
2570 Global argues that they are a special case worthy of an exception to the policy, but the acquisition by Global of Ontv and CHEK does not even come close to fitting within the parameters of the past exceptions to the rule. These are not small market stations, nor is the continued viability of local service at stake in either Victoria or Hamilton.
2571 Moreover, the most profitable broadcaster in the country hardly needs a duopoly in each of the two largest markets in the country to remain competitive. This is not a rescue mission.
2572 This is simply about further entrenching Global's already considerable market clout to the detriment of other competitors and the broadcasting system.
2573 Frankly, if the policy does not apply here, it's hard to conceive of a situation where it would apply. It is true that broadcasters down south face similar competitive pressures to consolidate, but despite these pressures and despite a plethora of alternative media sources, the FCC decided just last August that it will continue to put constraints on the ability of companies to own more than one TV broadcast station in a designated market area.
2574 It is clear that CanWest would never be permitted to acquire CHEK or Ontv under FCC policy.
2575 Now let me address the importance of CHEK and Ontv in the system. Through its transmitters, Ontv has access to 40 per cent of English-speaking Canada in the most lucrative market in the country. CHEK has access to the second-largest market in the country and if divested it will have no network affiliation to hamper its ability to build a program schedule completely independent of CHAN and CTV.
2576 CHEK and Ontv are thus the building blocks for the emergence in Canada of a new national player. We do not begrudge Global becoming Canada's third network, but to also hand Global the keys to a possible fourth network would not strengthen the system.
2577 Instead, it would compromise competition, render your duopoly policy meaningless and reduce the diversity of voices and regional perspectives in the broadcasting system.
2578 Allowing Global to keep Ontv and CHEK would also give Global enormous clout in acquiring programming and amortizing the cost of foreign program rights. It's control of Ontv's advertising inventory, coupled with Global's in Ontario and its current strength in top-ten programming would give it enormous leverage with advertisers in that key market and unprecedented control over ad dollars in the market.
2579 Global has characterized its ownership of CHAN and CHEK as merely continuing the status quo that has existed for many years. This characterization is quite wrong. Under the current CTV Network constraints, the ability of CHAN and CHEK to differentiate themselves is limited.
2580 With this affiliation, however, the two stations will, for the first time since CHEK disaffiliated from the CBC in 1980, have entirely independent program schedules.
2581 Global itself has argued in the past that common ownership of CHAN and CHEK gave WIC an undue competitive advantage in the market. That advantage will become overwhelming if the stations are both awarded to Global and it's given the chance to have a completely different schedule on CHEK.
2582 Yesterday we heard Mr. Asper say that he has taken all the risk in these transactions, that no other buyers have stepped up to the plate, but instead have waited in the weeds to argue for divestiture.
2583 For the record, we would like to advise the Commission that we met with Global on a number of occasions before their applications were gazetted, to discuss the possibility of purchasing Ontv, but Global made it clear that they were not prepared to entertain a bid for Ontv. It was evident from the beginning that their strategy was to hold onto it.
2584 In short, despite numerous attempts to convince them otherwise, we encountered a brick wall.
2585 Mr. Reitmeyer said yesterday that WIC couldn't make a go of Ontv despite years of trying, but there was a specific reason why Ontv had difficulty in realizing its potential under WIC ownership. The mixed affiliations of the various WIC stations limited national rights program buying opportunities. This was one of the reasons Ontv chose to expand regionally just a few years ago, to more effectively lay off program costs. It has not yet had the opportunity to realize the full potential of that regional footprint.
2586 Mr. Goldstein tries to dismiss Craig as an alternative buyer on the basis of our current market share, which is completely irrelevant. Then he states that even if we had a station in B.C., as well as Ontv, Craig would not have the necessary purchasing power to acquire attractive programs for Ontv.
2587 The fact is that the combination of Ontv and CHEK just by itself would give any independent owner the ability to compete for attractive programming. CHUM acknowledges this in its written intervention. In fact, it seeks regulatory micromanagement to keep that combination from competing with them. So much for the notion that Ontv and CHEK couldn't survive under independent ownership.
2588 We also note Global's continued attempts to discount us as meaningful contributors to the broadcasting system. For 25 years Global has argued in front of the Commission that the Craigs are not up to it and has consistently been proven wrong.
2589 We heard this argument in 1985 when we applied to launch a four service in Manitoba. We heard it in 1996 when we applied to launch a four service in Alberta. Now they are saying we are not up to the challenge of Ontv.
2590 Frankly, Madam Chair, Commissioners, we have heard it all before and it's getting a little tiresome.
2591 In that connection, we want to note that the company with the deepest pockets is not necessarily the best custodian of a broadcasting licence, nor necessarily the entity that provides the most benefit to the Canadian broadcasting system.
2592 In our Victoria application, for example, we proposed more hours of local programming than Global is proposing now for CHEK.
2593 In conclusion, let me say that we have no problem with Global completing its national grid by adding stations in Alberta and trading up its station in Vancouver. These transactions will finally realize Global's goal of achieving close to 100 per cent penetration of English Canada.
2594 Our problem is not with Global reaching 100 per cent. Our problem is that Global has overreached. They are asking for 155 per cent of Canada, not 100 per cent, taking into account the additional second grid, which includes CHEK and Ontv and not taking into account the duplicate Alberta coverage possible through the Red Deer station.
2595 The Commission's duopoly policy is designed to protect against this kind of overreaching. As we move to larger and larger entities, the duopoly policy becomes increasingly important to ensure that would be purchasers do not swallow up potential competitors, and thereby close the door to a diversity of voices and regional perspectives in the broadcasting system. That is the danger here.
2596 We believe Global has utterly failed to show why or how these proposals warrant the Commission granting such a major exception to its duopoly rule. We therefore urge the Commission to deny the acquisition of CHEK and Ontv by Global.
2597 That concludes our presentation. We would be more than happy to answer your questions. Thank you.
2598 CHAIRPERSON OF THE COMMISSION: Thank you. I will have the pleasure to ask the questions and I will try to stay very closely to this hearing and not fall into the one that you and us had the pleasure of attending in February.
2599 For a more general position on the record, could you tell us, you have heard our exchange yesterday about what was the view of Global in terms of the potential number of players in this country going forward in this environment, that is constantly evolving. Can you tell us how you see yourself, and not really putting bids or will there be, but more describing what you see really the potential in this new universe?
2600 MR. CRAIG: Sure. From our perspective we think there are four -- actually three national groups surviving quite nicely right now and a secondary group. So really, currently you have four private groups, WIC, CTV and Global and ourselves and CHUM. So really there are four today.
2601 I think what we heard from Global yesterday is that they think there ought to be three. It's our view that the Canadian television industry is quite a healthy industry. Although there are challenges on the horizon, it's our view that conventional television is still a good business and will continue to be in the future. We think there is room in Canada for at least four full-blown conventional players in this country.
2602 CHAIRPERSON OF THE COMMISSION: But what do you answer to the kind of picture that is given in terms of I'm about to be -- you know, at one point I have said I don't want to hear about eyeballs any more and I am about to say I don't want to hear about the AOL experience as being the bench mark by which we have to measure everything. But yet we have to recognize that not only in the States but everywhere there is consolidation. I don't know if the trees are taller or bigger is better, but definitely there is a trend in all the businesses, not only in the domain that we are involved with.
2603 Why would that be happening everywhere and here that we would be in the situation where we would be staying with the same numbers, even being an approach where we would try to extend? Can you tell us what would be specific or particular to the situation of Canada that we should approach things differently?
2604 MR. CRAIG: Well, I think one of the key reasons is to create some diversity in the market. In our view, the best way to create diversity is to create competition, then you have true diversity.
2605 I think in Canada, and what sets Canada apart from the American situation, as an example, is the fact that we are in a very tightly regulated industry and we have to make major contributions back into the system. So we have always viewed it as very much a privilege to have a licence. I think as long as applicants can demonstrate that they have a viable business and they can make a contribution, that the Commission ought to encourage new players and emerging players that bring true diversity to the system.
2606 From our perspective it would be healthier for us as an emerging company to have more emerging players around us. I think that from our perspective we would like to think we are making as significant a contribution as anyone else in the industry, maybe more so when you look at the relative size of our company.
2607 So I think, from my perspective, it's something that we think the Commission should encourage, as opposed to just saying, "listen, there are three players, let's close the door and more on, that's all the room there is."
2608 CHAIRPERSON OF THE COMMISSION: But in a world where given the tradition in Canada where the capacity of buying at an interesting cost an American program has provided the revenues eventually to be providing Canadian content, that has been like the quid pro quo in this country, and when we heard that the costs are getting higher and more difficult to acquire in terms of content, what do you say to the argument of the necessity of becoming bigger because you want to have a better stature out there on the market, because that will be the basis by which you will be able to provide and pursue the development of the Canadian programs in this country?
2609 MR. CRAIG: Yes. I don't think we have an argument with saying that you need to get bigger. I think that's something we would agree with too.
2610 I just worry about a policy that closes the door on diversity by saying "listen, it's a closed shop." There are three players or there are four players and that's it. I think the Commission should keep an open mind about introducing new and emerging players into this circle.
2611 CHAIRPERSON OF THE COMMISSION: Well, is the way -- I don't know if I can ask that question. Is the way to get into a market strictly by -- you know, there's a duopoly, you have a very definite position on that element, but does that automatically close the door?
2612 If we take the Victoria situation, on one hand there is a transaction in front of us, but on the other hand there is another proceeding that went on for which we will have a decision, so there is not only one way to get into the market where you buy assets that are existing. There is also the way -- so, you know, if your point is there is a need for a fourth player and what kind of quality or characteristics that player should have is one thing, but the other thing is the fact of an existing player becoming bigger is it helpful in the accomplishment of the objectives of the Broadcasting Act, or is it detrimental I guess is another question?
2613 MR. CRAIG: Getting back to what I said earlier, I think that the best way to introduce diversity is to introduce competition.
2614 Yes, I think I think there is a point where one player gets so big that it is detrimental to all the other players. I think this is what we are faced with with this proposal that you have in front of you. It's a proposal that effectively creates two grids across the country and would have a severely negative impact, not only on us, but we believe on the other incumbent players in the system.
2615 I think it gets back to the fundamental point about the role of conventional broadcasters in Canada. Mr. Asper and Mr. Shea conceded yesterday that we do have a special status and we believe that the future is bright and looks good for us in the future when all the dust settles from all this talk about Internet and convergence and everything else. At the end of the day we still do have a lot of clout and can drive people to those other platforms in terms of Internet activity, if you will, or radio or whatever.
2616 So I think it's important that the Commission keep that in mind when they are making this decision because there are only so many slots. It would be unfortunate, we believe, for anybody to have the ability to tie up too many of those slots because then it doesn't allow you to branch out into those other platforms, into specialty and to Internet, et cetera.
2617 CHAIRPERSON OF THE COMMISSION: We will come back to specialty in a minute.
2618 Let's take Hamilton. You made a recommendation in your written intervention that Global should have, if they are really interested in local roots, they should at the same time not have the rebroad for the region and strictly be a local station. Would that be sufficient for you if we were to say in our decision that we do grant CHCH, but we ask for divestiture of the retransmitter? What would be your reaction?
2619 MR. CRAIG: I will let Ms Strain respond to that, Madam Chair.
2620 MS STRAIN: Madam Chair, I don't think that was a suggestion that we made in our intervention. We don't think that returning or operating Hamilton as a local station and focusing on local programming as necessarily inconsistent with having a regional footprint.
2621 CHAIRPERSON OF THE COMMISSION: And if we were to say that that wouldn't be sufficient for you?
2622 MS STRAIN: No. I don't think we are advocating that they should have to give back the retransmitters.
2623 CHAIRPERSON OF THE COMMISSION: Well, you are saying that that should not be sufficient for you to be supportive?
2624 MR. CRAIG: That's correct.
2625 MS STRAIN: That's correct.
2626 CHAIRPERSON OF THE COMMISSION: You talk about the notion of markets and you come back to the idea that the market should not include the specialty somewhat position that is shared by CTV. Can you explain to us why that position, given and I recognize that still today conventional broadcasters, and it's true that we have said that in the TV policy and I certainly don't want to be seen as not sharing that that is the case today, but it's an evolving situation. We have all recognized that and we cannot pretend that everything is stable and will remain stable. Sometimes we wish, but that's not the case.
2627 So why would you see it very problematic to have an approach by which we consider the whole picture, conventional as well as specialty and, of course, in correlation with the revenues that it does generate and the expenses for programming that it can provide, but still why?
2628 MR. CRAIG: I think it gets back to our fundamental notion that in the specialty universe there are dozens of channels. In the conventional universe there is a very limited, finite number of channels on the basic band in Canada providing local service and that is a very enviable position to have.
2629 The specialty world is carved in so many tiny niches that to us it essentially -- I don't know how you would equate it, but I don't think there are too many broadcasters who would trade their position of having a national broadcast grid, as an example, for half a dozen specialty channels. I don't think anybody would make that trade.
2630 It is our position that the conventional channels allow you to branch into specialty. Our company's example filed in the last round of specialties that you called for, 19 applications for specialty service, we see that as an extension of what we already have and what we are able to do.
2631 So, to us the fundamental platform before you can do that is to have a significant base as a conventional broadcaster. If you look at the quote that we have as a conventional broadcaster, I think it far outweighs that of most specialty services that are licensed today.
2632 CHAIRPERSON OF THE COMMISSION: But what about the possibility of cross-promotion and eventually also kind of declining programs that can eventually even be interactive and, you know, use the platforms of Internet. You know, going into that world don't you think that it's true that more and more we will have to count the complete portfolio?
2633 MR. CRAIG: It is certainly true. One may look at it and say that's where you need to be. But in our case we're a pure broadcaster, in the sense that we don't have any specialty channels. We are still able to be competitive.
2634 If you look at the recent launch of our new Alberta services, which are two and a half years old and are doing quite nicely and are successful services, we take the position that you don't have to own those services to use those services to cross-promote.
2635 We are utilizing the opportunity, as an example in both Calgary and Edmonton, to make full use of the avails in the American cable services to promote our channel and cross-promote it.
2636 So our view is while it's nice, it's not necessary. You don't have to own the services to make use of them.
2637 Of course, when it comes to Internet services, our company, as an example, has a dot com strategy and an Internet strategy that we will be rolling out in the next six months on about four different platform levels. Again, they are an extension of what we do, but because we don't have to get a licence to do it, we can do it any way.
2638 CHAIRPERSON OF THE COMMISSION: Due to the wise decision of the Commission of course.
2639 MR. CRAIG: Absolutely.
2640 CHAIRPERSON OF THE COMMISSION: Can you talk a bit more in detail of what you perceive as being the undue competitive advantage that would be provided if we were to accept the transaction in terms of the national dimensions? Can you, because the calculation you seem to be doing and the one you have been following, replies and everything, what do you say on this?
2641 MR. CRAIG: I think there are two components to that. One is from a pure program point of view and I think it was confirmed yesterday by CanWest that what they plan to do is to have one program department that buys programming in bulk for both of these services, put the appropriate 25 to 54-year old content on the new grid and put the younger skewing material on the old grid, the existing grid.
2642 So it's apparent that they will use their muscle and their clout to buy programming. I think from a programming perspective, while it can be argued that Global will lower their own price because they are buying in volume, one could make the argument that for everybody else it's conceivable they may have to pay more because all of the quality product if one is given the clout of having two networks could effectively be purchased by the large player.
2643 So I think that's certainly a concern that we have in terms of their pure magnitude and the buying clout that they would have and the deals that they would be able to cut with the Hollywood studios to buy the A-grade stuff, the B-grade stuff and also the new risky stuff. You know, you can buy it for 50 cents if you are buying it by the pound and when it becomes a hit it all of a sudden appears on one of their services.
2644 So we certainly have deep concerns about what could happen to us in terms of program acquisition.
2645 I would like to ask Mr. Burko to elaborate on our concerns relating to the sales and marketing impacts. I should note, and I will just give you a little background on Mark. When we started our eight-channel operation in Alberta we were very lucky to be associated with Mark and his group. We formed a joint venture that we called Craig Air Time Sales. We have offices in Montreal, Toronto, Winnipeg, Calgary, Edmonton and Vancouver and so we effectively hooked up with Mark and formed a new company called Craig Air Time Sales. Mark sells time on our behalf nationally.
2646 Mark has 20-years experience in the business and in the Ontario market in particular. So I would like him to respond to that question.
2647 MR. BURKO: Thank you very much.
2648 Our feeling is this is a very unfair situation developing because television, as you know, is sold as a packaging vehicle. What you do when you sell television is take your top properties, which are very expensive, your top ten properties and package them with lesser quality shows to get a better cost for the advertiser.
2649 By Global CanWest having their own network, plus now Ontv, they will have the best of both worlds because Ontario is divided into two categories. CTV and CanWest control the bulk of the top ten programming and everybody else falls under that line, City, CKVR, CFMT and Ontv.
2650 Right now the situation is that if somebody were to buy "Friends" on Global on Thursday night, they would naturally either package it with something on Global or go to one of the other stations and package it together.
2651 The situation that CanWest wants now is basically they will control the high and the low end of the situation. They also represent inside their company, CFMT, which they will control an unbelievable amount of the advertising revenue in Ontario, making it very unfair to the other stations in the marketplace because it will kind of be one stop shopping.
2652 CHAIRPERSON OF THE COMMISSION: You heard Global yesterday and they were saying that those programs that they will be acquiring in I think it was to a question of Commissioner Colville, they were saying that they were already acquiring those rights. So, in terms of their capacity they might increase their capacity of negotiating the price, but this was the kind of programming that was already there.
2653 So, I am not sure how you see that as being different, the fact that they were reselling the programs to a third party or they are the owner of the station that will broadcast those programs where you see the difference?
2654 MR. CRAIG: I think the difference today is that WIC buys their programming on their own without Global. Now you are going to have effectively one buyer buying programs for two national grids and that's a fundamental change in the way business is done and in the way program acquisition is done in Canada. I think it would be to the detriment of the rest of us.
2655 CHAIRPERSON OF THE COMMISSION: About advertising power, don't you think that it might be helpful because it has been said many times that in Canada we don't have really the possibility of holding the bar to the advertisers and advertisers eventually get the viewers in Canada at the cheapest rate, or too cheap a rate? Don't you think that increasing not only the size, but the negotiation power of broadcasters is helpful in the market in order to improve?
2656 There is the argument you are making saying it's too important and the advertisers will not consider the other players because those two will be too important, but on the other hand if you have a better position in the market can it be helpful to increase the value of rates?
2657 MR. CRAIG: That's certainly an argument I have heard Global use in the past. I think there's a terrific example of this exact situation and that's in Winnipeg.
2658 I don't know if you are familiar, but CanWest and the CTV affiliate in Winnipeg joined forces many years ago and said "listen, the market needs to be propped up. We think that by consolidating the sales departments we can do better."
2659 We initially complained about it. They said, well, it will be good for you.
2660 The long and short of it is it has not been good for us. In fact, it has been detrimental to us because effectively the pie is only so big. So the pie didn't grow. All that happened was that they had more advertising clout to go into an advertiser and sell the number one station, the number two station and when they get to us it's a difficult, very tough sell.
2661 So I think on a much smaller level we have experienced the receiving end of that and it has not been a positive experience for us.
2662 CHAIRPERSON OF THE COMMISSION: But it's the chicken and egg too I suppose. It's also about having the programs that will bring the viewers there that kind of then create the position. If you had had the five top shows it would have been a different position.
2663 MR. CRAIG: Even if we had the five top shows and we were number two and they had number one and number three to package, my point is that they have the volume then to put it anywhere in those two schedules and the pie doesn't grow sufficiently to absorb the rate increase that they want. Then, when they get to us as the third player there is less money left over for us because they have the clout and the leverage to level, as Mark said earlier, the top good stuff with the secondary. It does hurt the smaller players. We have experienced it firsthand.
2664 CHAIRPERSON OF THE COMMISSION: I don't want to be the devil's advocate, but I am just trying to -- if the pie doesn't grow and there are other players and other windows that have developed and are developing in a very interesting way, isn't there an argument to be made and three players rather than four to make sure that you get a landscape that will provide the same kind of benefits to the system in terms of capacity of eventually producing Canadian programs?
2665 MR. CRAIG: I think to go backwards in terms of numbers of players would be detrimental to the system because I think if you go backwards you close the door on diversity, you close the door on innovation and you close the door on emerging players that want to bring new ideas to the table and it would be a tremendous mistake.
2666 Even in conventional broadcasting in the future, if we have to be happy making less margin, but it drives us to other platforms, i.e. Internet specialty services, it's still a good business proposition. So I think it's our company's view that going backwards would do a tremendous disservice to the Canadian broadcasting industry and the Canadian public.
2667 CHAIRPERSON OF THE COMMISSION: Thank you.
2668 I wonder if my colleagues have additional questions? No, we don't.
2669 Thank you very much.
2670 MR. CRAIG: Thank you.
2671 MS VOGEL: I would invite Concerned Children's Advertisers to come forward next please.
2672 CHAIRPERSON OF THE COMMISSION: Good afternoon.
2673 MS LOBLAW: Good afternoon.
2674 On behalf of Concerned Children's Advertisers I am Cathy Loblaw, Vice-President and Managing Director of CCA, joined today by Sunni Boot, President of Optima Media Canada and Past-President of Concerned Children's Advertisers, as well as by Linda Millar, our Director of Education and a 25-year educator for the Ottawa-Carleton School Board.
2675 We thank you very much for the invitation to participate in what we feel is a critical series of discussions about the Canadian broadcast system and the Canadian broadcast companies who are faced with the realities, challenges and responsibility of strengthening and ensuring the continued success of that system in an increasingly competitive and global marketplace.
2676 Today we are pleased to offer our support for CanWest Global's application from the perspective of contribution to and preservation of the Canadian broadcast system, economics of Canadian children's television and helping Canadian children to build healthy lives, both on and off the screen.
2677 As you are aware, Concerned Children's Advertisers is a non-profit consortium of 26 companies who market, advertise and broadcast our products and services to children and their families.
2678 Our mandate centres on utilizing the shared resources and influence of each member company in a manner that will keep pace with the media and social issues affecting children and, most importantly, provide thoughtful, credible and child centred solutions.
2679 MS BOOT: Thank you.
2680 From a media and advertiser perspective we are supportive of both of the applications before you because we genuinely believe that they will strengthen the Canadian broadcast system and ensure current and future choice.
2681 Ironically, we are talking about consolidation, but consolidation has actually given us greater choice, so we are enjoying more of that today.
2682 The process that we are undergoing right here now in this room, in our opinion, further guarantees that the consolidation does not become too heavy handed, thus serving the best interests of viewers and the public and perhaps most importantly it will form the strong underpinnings of the Canadian broadcast system, Canadian programming, that we are going to need as we face the 500-channel universe.
2683 Now, specifically, to the CanWest Global application. CanWest Global's historical contribution to the Canadian broadcasting system as it relates to child audiences is significant and indicative of future commitment made possible with the approval of this application.
2684 Consistent with the Broadcast Act, CanWest Global have long recognized the responsibility of serving the child audience through its programming. In fact, CanWest Global is a leader among conventional broadcasters, having made a very consistent, significant and measurable commitment to children's programming.
2685 For the 25 per cent of Canadian homes that do not have access to cable, CanWest is the primary children's television choice, and even for those with cable CanWest does provide an alternative in choice.
2686 Children's television operates on a limited economic model, driven by an advertising restriction of eight commercial minutes per hour, versus twelve, and the fact that children's television commands a lower absolute unit price.
2687 Until recently this economic model was offset by CRTC policies that provided a Canadian content incentive to children's programming.
2688 With the removal of that incentive, combined with the new priority category system that does not recognize children's prime viewing hours beyond the family seven to eleven, broadcasters no longer have the policy incentives to help balance the economic of children's television in Canada and, therefore, consistent with the new television policy must rely on business driven approaches.
2689 Today's application is, in our opinion, just that, a business driven initiative that will ensure CanWest remains a strong and viable entity that has the resources to finance, support and broadcast quality children's programming.
2690 We believe with the approval of this application CanWest will be able to contribute to a balanced Canadian television environment for children.
2691 MS LOBLAW: In terms of the benefits, we know first hand the positive and enriching impact this application will have on Canadian children and Canadian television screens. Specifically, through this application CanWest Global will make it possible for CCA to speak with Canadian youth about real life issues.
2692 As some of you may know first hand, current day society has given birth to a new generation of children, tweens, an illusive, engaging and exciting, empowered group of young Canadians between the ages of eight and fourteen.
2693 Tweens often travel through very difficult times as they are evolving during this time of transition. Our proposed project, entitled "Between You and Me" will make a significant contribution to helping tweens during these turbulent years. It harnesses our collective skills and resources to guide tweens and help them to better cope and manage.
2694 By reaching out to tweens we will create a forum for support, exchange and help. "Between You and Me" is a multimedia initiative that uses television and the Internet to engage, educate and empower Canadian children.
2695 Research states that tween's lives are comprised of four main components, home, school, peers and community. The more positive experiences that they have that connect them to each of these components, the less likely they are to engage in negative social behaviours. "Between You and Me" is a program intended to help strengthen, encourage and promote these connections, both internally and externally.
2696 The product itself will be centred on a tween directed series of shorts. With the creation of two-minute length television moments, tweens will be presented with slice of lifestyle messages on issues of self-esteem, body image, violence, conflict resolution, relationships and much more. Each short will deal with a different tween issue that is shared with tweens in a co-orindated multimedia format, utilizing Global Television and Global tv.com.
2697 On a designated launch date, Global Television will broadcast one short at the top of each hour beginning at 4 and 5 p.m., then a dinner break and then resume at 8 and 9 p.m.
2698 On the short and through advanced promotions, tweens will be directed that once the spot is aired to go to a designated website to participate in a live discussion with tweens from across Canada, talking about the issues addressed in the message. Each hour of the on-line discussion will be hosted by a hot tween start, supported by an issue expert.
2699 Beyond the launch date, the tween shorts will continue to air on Global Television and other broadcast partners for sustaining awareness and message delivery.
2700 Extending the message beyond television and the Internet, the shorts would also be captured in a CD-ROM. The CD-ROM would contain each of the tween messages, with practical and useful tools for coping related to each message, interspersed between the shorts.
2701 And, of course, a critical component to any program that involves youth is the tweens themselves. The old adage, you can't teach them if you can't reach them has never been more true. And as an integral part of this program we are proposing the creation of a representative tween counsel who can help, shape, guide and filter "Between You and Me".
2702 With the findings by the Institute for Social Research showing that television has increased to the third ranked activity in a Canadian child's life, second only to sleeping and school, we are reminded of our responsibility as advertisers, broadcasters and regulators to ensure that that TV time is as age appropriate, enriching and Canadian as possible.
2703 We urge you to support this application and to help strengthen CanWest Global to be in a position to commit and compete. Thank you.
2704 CHAIRPERSON OF THE COMMISSION: Thank you.
2705 Commissioner Pennefather.
2706 COMMISSIONER PENNEFATHER: Thank you, Madam Chair.
2707 Good afternoon and thank you for being here.
2708 MS LOBLAW: Thank you for having us.
2709 COMMISSIONER PENNEFATHER: Thank you for describing the project in more detail. I had a look at the description in the application and it was still called an idea in the making.
2710 It was not clear to me, though, who would be producing what's called here public service announcements, but they seem to have grown from that concept. Who is producing them?
2711 MS LOBLAW: We are very fortunate that over the years we have developed a model of what we called shared social responsibility, where we work with different issue experts, agencies, production houses and partners across Canada to benefit from the collective resources that contribute to creating programming that is really effective and relevant to the audience that we are speaking to.
2712 And in this particular case we would look to working with the Alberta production community and the B.C. production community to produce these shorts in a manner that are specific to the audience we are talking to, but that would reach out and utilize the benefits of those production communities. So we would look to agency partners and production houses within those arenas.
2713 COMMISSIONER PENNEFATHER: I am also asking because this benefit of $500,000 over five years which would be dedicated to this project, as I understand it, is what you are referring to and it was originally a tangible benefit in relation to Alberta and is now a tangible benefit in relation to Vancouver. Is that any concern to you, that it is now dedicated to Vancouver as a benefit?
2714 MS LOBLAW: Certainly from our perspective the benefit is to Canadian children and it will ultimately reach out to children right across Canada. Whether it originates from within the Alberta community or within the B.C. community, I think the important part is that it reach out to Canadian children and that there be an identified benefit and an identified means to use television as a powerful teaching tool and an opportunity to reflect and encourage and help strengthen our children.
2715 So from our perspective it is in terms of its impact a national impact. And whether it comes through the Alberta avenue or through the B.C. avenue.
2716 COMMISSIONER PENNEFATHER: You see it then as a national benefit?
2717 MS LOBLAW: Yes.
2718 COMMISSIONER PENNEFATHER: One last question, you mentioned this afternoon and in your brief CanWest's contribution in terms of children's programming in general. Over and above this project and your comment too that this approval will enhance CanWest's ability to serve the child audience, what is it specifically in this application as you see it going forward will be of benefit to children? What will be on the screen that is not there today?
2719 MS LOBLAW: Certainly. I will ask Sunni to comment a little bit more on that, but just in leading into that to say that children certain deserve to have as varied and as strong a variety of television landscape as adults, and by the combination of conventional and specialty we think that collectively it gives children the choice to find programming that suits their individual interests and needs.
2720 Children's television is an expensive commitment and a commitment that requires significant investments, and certainly from a broad perspective we see the strengthening of Global as providing them with the resources to be able to invest into the children's programming category and Sunni can build on it more.
2721 MS BOOT: Right, and I will just build on that.
2722 As we said, Global has consistently delivered children's programming for a number of years even before specialty cable. In fact, they were the lead broadcaster to do that.
2723 And interestingly, we look at their schedules and they provide it in day parts that we consider prime for children, that's early morning, after school, Saturday and Sunday morning. They don't just confine it to the fall, where about 70 per cent of child advertiser dollars come from. They have an equally strong schedule. I have both their fall and spring schedules in front of me. In fact, they are running even more hours in the spring in the early morning Monday to Friday hours.
2724 They also, in our opinion, have a very good balance of American programs. Some of the things that you talked about in other sessions of American programming and Canadian programming, so there's a good balance, it's how they schedule it. So we feel that granting this licence will continue that.
2725 And again, 25 per cent of homes don't have cable and even those with cable want the same choices we are offering to adults and maybe other target groups.
2726 COMMISSIONER PENNEFATHER: Thank you very much. I understand you are commenting on other applications and we have a few questions at that time too.
2727 MS LOBLAW: Thank you very much.
2728 MS VOGEL: I would invite Friends of Canadian Broadcasting to come forward next please.
2729 CHAIRPERSON OF THE COMMISSION: Good afternoon and welcome.
2730 MR. MORRISON: Madam Chairperson, thank you, and members of the Commission, for offering Friends of Canadian Broadcasting this opportunity to comment on the CanWest Global application.
2731 My name is Ian Morrison and my co-presenter today is Daryl Duke, who I believe is well known to each of you and a member of Friends steering committee residing in West Vancouver.
2732 We wish to concentrate on two issues in this presentation. One concern is with CanWest's proposal to acquire WIC's conventional television assets, one of those concerns is the level of concentration of ownership in the conventional television sector which would arise if CanWest Global's application were to be approved unconditionally.
2733 As CanWest Global has addressed the issue of the Montreal market by indicating its intention to divest of CFCF, Friends' concern focuses on British Columbia and Ontario.
2734 The second issue relates to investments in Canadian programming, including locally specific Canadian programming. I will speak to the first issue and my colleague, Daryl Duke, will address the second.
2735 Before WIC acquired CHCH a decade ago, CHCH had built a reputation as a broadcaster closely aligned with its immediate communities in the Hamilton, Niagara and I think we add Halton region of south central Ontario. Among CHCH's attributes were local news, documentaries, some current affairs programming and live news specials.
2736 However, during the 1990s CHCH has strayed from these roots in an attempt to build an Ontario-wide identity, turning its back on Hamilton, St. Catherines, Niagara Falls, Welland, Brantford, Simcoe, Burlington and Cambridge. Community programming and current affairs have all but disappeared from its schedule. All of this is a direct result of the Commission's decision to permit CHCH to distribute its signal province-wide.
2737 CanWest Global has announced plans to return CHCH to its Hamilton roots and Friends support this direction. Friends notes, however, that CanWest's application has not addressed the underlying reason for the dilution of CHCH's focus on its community, that is its province-wide distribution.
2738 In order to preserve the Commission's core policy that a conventional broadcaster should have no more than one station per language per market, and to align CanWest's business interests with its content promises for CHCH, Friends recommended in its March 30th submission that the Commission approve approval of CanWest Global's acquisition of CHCH be conditional on the licensee accepting that distribution of its signal no longer extend beyond the geographic reach of its core transmitter.
2739 As a result of CanWest's unwillingness to accept this condition, Friends recommends that the Commission require the divestiture of CHCH within 12 months as a condition of approval of the application.
2740 Friends understands that Commission approval of common ownership of CHAN and CHEK arose from a circumstance several decades ago of CHEK's impending insolvency. Multiple ownership in a single television market as an exception to the Commission's core policy has provided incentives to WIC to move in the direction of twin-stick programming, affording it scheduling and advertising market opportunities not available to other conventional broadcasters in the same market.
2741 My colleague, Daryl Duke, experienced this double-pronged attack every evening during his tenure as CEO of CKVU before its takeover by the Asper empire.
2742 The common ownership of CHAN and CHEK partially explains CHEK's abject failure to address the priorities and concerns of the southern Vancouver Island community. The occasion of WIC's dismemberment affords the Commission an opportunity to correct an abberation in a one station per market policy in southern British Columbia and Friends' recommends that approval of CanWest Global's application should be made conditional on CanWest's divestiture of CHEK within a 12-month period.
2743 Friends rejects CanWest Global's assertion that twin-sticking nationally levels the playing field between CanWest and CTV. If CanWest wishes to invest in specialty channels, it should do so through acquisition or through competitive licensing. This hearing should not be an occasion for CanWest to seek redress for its failure to persuade the Commission during recent competitive processes to licence CanWest's specialty applications.
2744 Allowing CanWest to operate two television networks in the Ontario and British Columbia markets, combined with opportunities to emulate this in Alberta through Red Deer and/or Medicine Hat, would put CanWest in a position of controlling two effectively Canada-wide conventional television networks with a consequent and unfair advantage in advertising sales and program acquisition strategies.
2745 Friends endorses CTV's and Craig's arguments, the 155 per cent argument, in their March 30 submissions on this point. We draw to your attention that any undue advantage accruing to CanWest Global -- this is the advertising pie of course, will arise directly out of disadvantage to its principal competitors, CBC-Television, CTV, CHUM and Craig.
2746 As well, Friends reminds the Commission of data from the Canadian Association of Broadcasters which the Commission released prior to the 1998 television policy hearings, which demonstrate that CanWest Global is a renegade among Canadian station groups because of its low levels of investment in Canadian programming.
2747 Those data revealed that during the 1997 broadcasting year, TVA invested 40 per cent of its on-air revenues in Canadian programming; CTV, then Baton, invested 33 per cent; WIC, 28 per cent and CanWest Global only 18 per cent.
2748 As Friends told the Commission during the 1998 television policy hearings, had CanWest Global invested even at the industry average an additional $60 million each year would flow into Canadian programming.
2750 MR. DUKE: Madam Chair, members of the Commission, attached to this submission and on large cards before you is an analysis of the British Columbia Canadian and foreign content of conventional television stations in the Vancouver/Victoria market during the first two weeks of March last year.
2751 Friends invites Commissioners to examine therein the record of CanWest Global's current Vancouver station, CKVU. Note that during the 7:00 to 11:00 prime time period, CKVU managed to air only 4.5 hours of Canadian programming weekly during this recent peak viewing season, less than any other station in the Vancouver market.
2752 This pattern is consistent with Friends' research for the same two-week period during preceding years.
2753 Our preliminary analysis of CKVU's March 2000 data suggests an increase to six hours per week in prime time. It is encouraging to note that what a CRTC hearing can do for prime time Cancom in Vancouver.
2754 In markets throughout Canada which Friends has surveyed, CanWest Global is consistently the low-ball player when it comes to Canadian content, especially local Canadian content. In Vancouver, for example, CanWest promised some 27 hours per week of Canadian programming when it acquired CKVU in 1988 and it broke that promise.
2755 On 2nd Avenue, not far from where we sit this afternoon in Vancouver, is CKVU and its largest studio, measuring 85 by 55 was once a bustling production centre, reflecting the life of the Vancouver community, but now under CanWest Global its main use is storage.
2756 If the Commission allows CanWest Global to take over CHAN, it is handing CanWest the second largest station in English-speaking Canada.
2757 CanWest has yet to demonstrate the broadcast maturity to warrant stewardship of such a jewel. The Commission would do well to hold CanWest to strong programming commitments commensurate with its possession of the most important media voice in British Columbia.
2758 As you may know, unlike its competitors, CHAN's signal enjoys blanket distribution throughout the province. As Vice-Chair Wylie said yesterday, the words in the applications have a nice ring to them, but they are inconsistent with CanWest's record.
2759 So through conditions of transfer of ownership the Commission should hold CanWest's feet to the fire. In British Columbia, for example, this means to raise the bar for CHAN and bring on air the people and the talent in music, drama, documentary and public affairs rooted in Vancouver, reflecting the linguistic, ethnic and cultural diversity of Canada's third-largest city and its third-largest province.
2760 All of this costs money, so Friends recommends that the Commission obtain commitments from CanWest Global to increase substantially its investment in Canadian and Vancouver programming as a condition of approval of its acquisition of CHAN and the Alberta licences contained within this application.
2761 Recently, this city has surpassed Toronto as the largest English-language audio/visual production centre in Canada. As Minister Waddell recently announced:
"Vancouver does more than $1 billion of film and television business each year. It is disturbing that most of this production activity is dedicated to the making of U.S. programming and that this large and creative pool of talent on the west coast is largely shut out by our broadcast institutions." (As read)
2762 Commissioners, you can do something to correct this today. CHAN has within its power to redress this situation overnight, but we know from the Asper record that this will not happen unless your Commission places appropriate, specific conditions upon its approval of the transfer of CHAN to CanWest control.
2763 CanWest's record is clear for all to see. It's all here in red, white and blue and I point to these in front of you and in your papers we gave you.
2764 CanWest's strategy is air American simulcast programming as much as it can get away with during peak viewing periods, supplemented by strictly limited amounts of industrial Canadian content with no, and I repeat, with no British Columbia specific programming in peak viewing periods.
2765 Therefore, Friends suggests to the Commission that the following conditions be attached to its approval of a change of CHAN ownership and control.
2766 First, significant Vancouver and British Columbia production in the categories of drama, music, public affairs and documentary.
2767 Next, productions of stature as befits Vancouver, Canada's second-largest English speaking city and its very diverse population and this country's gateway to Asia.
2768 And, thirdly, no less than five hours of this Vancouver-produced programming be scheduled each week during peak viewing hours.
2769 MR. MORRISON: Finally, we attach evidence to this presentation of an attempt by the applicant to intimidate Friends immediately in advance of this intervention.
2770 Thanks for listening.
2771 CHAIRPERSON OF THE COMMISSION: Merci.
2772 I would ask Vice-Chair Wylie to ask questions please.
2773 COMMISSIONER WYLIE: Good afternoon, gentlemen.
2774 Vice-Chair Wylie said a few things yesterday, some less significant than others, but she didn't say that the words in the application have a nice ring to them, but they are inconsistent with CanWest's record. I think my colleague is the one who said this.
2775 But I must say I knew the word low-ball player until now --
2776 MR. MORRISON: We apologize to both of you then.
2777 COMMISSIONER WYLIE: I hope that doesn't get in the newspaper.
2778 I knew the word "low-ball player" before, but "outrider" is new to me in this context. I thought this was what I saw when my husband watched westerns on TV.
2779 I suspect you mean here the record of CanWest in Canadian content and perhaps before we go further, I assume these charts are the same as the ones attached?
2780 MR. DUKE: They are the same, Madam Chair.
2781 COMMISSIONER WYLIE: And as I am trying to find the cowboy with the black hat on the black horse and I look at ETV, that is the outrider or the bad guy I suppose, and the Global performance in Vancouver between 7:00 and 11:00, you have Global at 4.5 hours of what I gather is priority programming and in the case of ETV we have four hours of priority programming and four hours of basketball. Is that correct?
2782 MR. MORRISON: In this presentation we are counting hours. This does not cover a period when the concept of priority program --
2783 COMMISSIONER WYLIE: No, but it's still relevant as to whether one is an outrider I suppose.
2784 But am I correct but for the four hours of basketball during 7:00 and 11:00, Global had .5 hours more of what would be priority programming and, presumably, the more expensive, possibly less remunerative programming. Is that correct?
2785 MR. MORRISON: Yes, if you discount the four hours of Canadian basketball that was aired in those two-week periods.
2786 COMMISSIONER WYLIE: Then the comparison would be four hours for BTV and 4.5 hours for Global?
2787 MR. MORRISON: But would you count it on a --
2788 COMMISSIONER WYLIE: So your outrider --
2789 MR. MORRISON: Sure, on a priority basis, Madam Vice-Chair, the CBC manages to come in with something in the order of 27 hours out of the 28, 7:00 to 11:00.
2790 The CHAN station during that sample period is well over 10 hours of Canadian programming in prime time and the Global is four and a half. Certainly, including basketball, a little bit of basketball, four hours and a bit of basketball I guess, CTV is eight --
2791 COMMISSIONER WYLIE: It has many hours of priority programming.
2792 MR. MORRISON: Yes, and CHEK is something in the range of seven.
2793 Then that is a sample, though, that is designed to illustrate something. On our website you would find 12, 16 of those similar charts and you will find a consistent pattern of Global as the outrider. I use that in the statistical sense of something that is not consistent with the pattern of the other data.
2794 COMMISSIONER WYLIE: Was the comparison I was making between Global and CTV a fair one, considering that neither are network affiliated, whereas CHAN is?
2795 MR. MORRISON: I guess it's a question for debate. It's where you achieve your Cancom. You could put on anything you like. We just noticed that continually we could show you in Ontario data that would show Global having similar bad performance in the volume of Cancom during prime time.
2796 Those data are on file with the Commission. You may recall from 1998 we shared similar data with you at that time during the policy hearing.
2797 COMMISSIONER WYLIE: With regard to CHCH you support the relocalization of CHCH, but advocate the shutting down of its retransmitters in Ontario by focusing on that regionalization via the transmitters as a reason for the regionalization of the station as well. You have been here I think throughout and you have heard the comments made by Global and in the discussion with the panel here of the argument that there is an advantage to keeping the retransmitters to the extent that the commitment made by Global would be that the eight hours of Canadian programming on Global, if I can call it this, in Ontario and on CHCH would be different hours, original different hours, and the programming on both stations would not be duplicated, except perhaps to the extent of 10 per cent.
2798 Is it not advantageous to someone in Sault Ste. Marie to receive this extra service, which would not be the case should the retransmitters be shut down?
2799 MR. MORRISON: I could see some merit in that argument.
2800 COMMISSIONER WYLIE: And, presumably, news as well would be different.
2801 MR. MORRISON: However, if we check the audience for programming, and we haven't gone into this in great detail in this brief presentation, but if we checked the Global record regarding audience for programming, we have found they are very, very successful in scheduling in order to maximize the audience for their American rather than their Canadian programming. Witness, for example, the positioning of Traders against ER in the data in front of you here.
2802 COMMISSIONER WYLIE: Given that you acknowledge the possibility that a person in Timmins would see more convenient programming because of the eight hours being possible and other programming, news for example, may give the possibility to a viewer to have more Cable choices, as well as American of course, is there not another way of enforcing the reorientation of CHCH to local, since you seem to accept that this is beneficial despite the dual ownership that would result? Are there not other ways of ensuring that that goal is reached, while not depriving the hypothetical Canadian viewer in Timmins of another choice of Canadian programming?
2803 MR. MORRISON: Possibly rather than comparing the status quo to that option, we should be comparing apples to apples. What would happen if somebody else had ownership of CHCH and they were able to program as well. They would, presumably, be delivering certain beneficial programming opportunities to people in Timmins as well, Madam Vice-Chair.
2804 So I am very sympathetic to and happy to consider from our point of view a situation where another party was given access to CHCH, rather than a breaking of your one language per -- one station per language per market policy.
2805 COMMISSIONER WYLIE: With regard to CHEK and CHAN, you would support the transfer of CHAN to Global -- to CanWest on the condition that they divest of CHEK, but nowhere, unless I am missing something, are you simply assuming that they would also divest of CKVU because I don't see anywhere in your written intervenor nor today, unless I am missing it, that you have a recommendation for the divestiture of CKVU?
2806 The reason I am asking is if there was a divestiture of CHEK, but not of CKVU as well, you'd have two stations in the same market anyway.
2807 MR. MORRISON: If we have a deficiency in this presentation and left you with that impression, I'd like to make it very clear that we think that the maximum number of stations that this entity should have in British Columbia is one. Presumably, it has a record of making rational economic decisions and, presumably, CHAN would be the decision it would take.
2808 COMMISSIONER WYLIE: And your assumption would be that CanWest, but foregoing through the divestiture of CHEK that it is not operating yet and the divestiture of CKVU that it is already operating in order to own CHAN and its retransmitters would be your assumption?
2809 MR. MORRISON: But another way to do it would be to say let them pick the station, whichever one they like.
2810 COMMISSIONER WYLIE: If they retain CHCH, which you seem to be prepared to support with the condition of the divestiture or the closing down of busy transmitters, but yet you support CHEK, the ownership of CHEK by CanWest, do you think CHEK would be as enriched or as appealing a station if it doesn't have CHCH as well because the proposal is to broadcast another eight hours of Canadian programming that is different, as well as a schedule that is 90 per cent different, if we were to hold them to that, then could you achieve as much on CHEK if you didn't have CHCH as well?
2811 MR. DUKE: But I think if one can address CHEK for a moment, Madam Vice-Chair, that there was other than we heard yesterday that was so compelling coming from CanWest that made it a Vancouver Island station addressing Vancouver Island programming, other than news, and that another player and another voice and another owner because I am a great believer in the hand that owns the shares rocks the cradle, is another owner could well see in Victoria and Vancouver Island program possibilities, both local and Vancouver Island based, plus making up on a national Canadian basis that would truly bring a range of voices and opinions and diversity to this market area.
2812 COMMISSIONER WYLIE: But your view would be that CHCH itself, which you are prepared to approve, that CanWest could make a go of it in the manner in which it has been presented even though it didn't have another station associated with it, that it could add the eight hours of priority programming, et cetera. You think that that's possible with CHCH as a lone station to do eight hours of priority programming separate from what it does on Global? Am I making any sense?
2813 MR. MORRISON: Yes.
2814 COMMISSIONER WYLIE: And that you approve of CHCH, not of CHEK, yet the proposal is for them to work together to have a second eight hours of priority programming available?
2815 MR. DUKE: Madam Vice-Chair, wouldn't they have then the choice of not taking up the CHCH offer and deciding that it was not a worthy risk without linking to something else, and again let another player onto the scene and perhaps do without CHCH all together?
2816 COMMISSIONER WYLIE: All hypotheses are possible. I am just trying to make sense of your proposal.
2817 MR. MORRISON: But we ought not to lose sight of something that is more important, which is the driver of this exercise.
2818 We have done some preliminary analysis of what we heard yesterday and some of the material laid before you. We see five years hence, if you just rolled over and played dead, if I can put it that way, five years hence --
2819 COMMISSIONER WYLIE: We are really getting into a western.
2820 MR. MORRISON: Yes. But that's a segue to what I am about to say, and that is we see some modest increases in spending on Canadian programming and we welcome that, but we see some huge increases in spending on American programming, and they will get from that spending something quite significant and I would like to just underline Mr. Craig's point because I think it's very valid. That is, I think he spoke of when you buy it by the pound you get a lot more.
2821 So what's you've got here with this two-network idea is people going down to Hollywood, buying the "A" shows that they want, getting a whole lot of other ones that in the past they would throw in a garbage can and run it on their second network, even if they have lower audiences they will achieve great returns because of the low cost of acquisition and the economics of this proposal has to be seen in terms of buying in the United States of America.
2822 MR. DUKE: That is what Mr. Morrison referred to that I faced when I was head of CKVU, that CHEK and CHAN were checker boarding purchased American programming against us constantly throughout the entire history of my ownership of that station, that this was one market but they were playing two stations in the single.
2823 COMMISSIONER WYLIE: That gives me a good segue, I can use that too, to my next question, which is you want on page 6 to hold Global's feet to the fire. You suggest that if they own even part of the stations involved in the proposal, even if not all of them, that that will be quite advantageous to them with regard to revenues derived from American programming. And I assume you mean they should be doing more Canadian programming as well, that's what you mean by holding their feet to the fire?
2824 MR. DUKE: And Vancouver programming and Vancouver-based programming.
2825 COMMISSIONER WYLIE: Do you have any particular advice for us as to how to hold CanWest's feet to the fire?
2826 MR. DUKE: Perhaps they needn't like Ben Johnson bulk up on so many steroids of U.S. purchased programming and let some simulcast hours during the week go by and replace it with some of the kind of programming we are talking about. It is not necessary to fill every available moment with a simulcast U.S. hour. Perhaps they can put some of their production capacity into shows that are produced here, made here with more than news and more than that 41 hours of news we heard about yesterday that are significant, Vancouver and British Columbia production in the categories of drama, music, public affairs and documentaries and are productions of stature and diversity as befits this city and as we suggested were five hours a week.
2827 I think that I have great admiration for many of the people at CanWest. Their sales team and their engineering team and their program purchasing people are first rate. What I don't have admiration for is the creative content and their creative personnel who put together both this application and have run their stations in terms of Canadian shows.
2828 I think if CanWest put some of its money to hiring the best talent and the best people they wouldn't be saying to Commissioner Grauer, as they did yesterday, that they couldn't do a drama out here as I heard when -- I'm on the board of directors of B.C. Film. I know that we decided to do and help support Cold Squad and help develop DaVinci's Inquest.
2829 I am sure there are many such dramas, musicals and documentaries that could be supported and be worthy of being in prime time on CHAN and be worthy of this city because they are getting a jewel of a station that has province-wide coverage.
2830 So I think there are many creative opportunities. I would just hope to mention to all of you on the Commission that it wasn't long ago that a person in England developed Who Wants to be a Millionaire and that became the year's big hit on ABC.
2831 So that with creative resources and creative talent and paying for writers and people in development the future is wide open. I have now been in this business a half a century and I am still a great optimist about tomorrow when it comes to programming. I hope to retain even after these hearings some optimism that the Vancouver scene could become an energetic and productive part of Canada's broadcast industry.
2832 COMMISSIONER WYLIE: With regard to the general question of dual ownership, you will seem to be prepared under some circumstances, that is the shutting down of the retransmitters, to live with it in the Greater Toronto area by supporting the ownership of CHCH by CanWest, despite the presence of Global. So I am wondering whether you have thought through in what circumstances, except what appears to be exceptions to the current policy are acceptable because you are supporting one at least, what are the criteria that would lead you to support it in that case, but not in others?
2833 MR. MORRISON: I would like to remind you just before making that answer that the applicant has totally rejected that in its response. That's not something that they have on the table as having thought of as a forward trial possibility.
2834 COMMISSIONER WYLIE: No, but it was a general question.
2835 MR. MORRISON: Yes.
2836 COMMISSIONER WYLIE: You are quite interested in this area and you have come to Vancouver to speak to us. We would like to get as much out of you as possible.
2837 MR. MORRISON: The Chairperson earlier talked about divesting the other transmitters and I thought that perhaps divest was not as good a word as unplug because I cannot imagine who would really want to buy those transmitters.
2838 But if we were seduced by --
2839 COMMISSIONER WYLIE: And you shutting down.
2840 MR. MORRISON: Yes. If we were seduced by the idea that a television entity might come back into existence that would focus on the needs of a very substantial number of Canadians who operate in the shadow of the great metropolitan centre, Toronto, and that idea as expressed in that application has some merit and it led us to consider that that had sufficient merit and that possibly it might warrant a limited exception. But recognizing that the retransmitters had totally changed the economic incentives of that market, we thought of that as a compromise, noting that they rejected I think our second position is just divest CHCH. That there are worthy other applicants around who would be very happy to keep that station on the air and who would not raise conflict of interest problems.
2841 COMMISSIONER WYLIE: Mr. Morrison, I gather from the agenda that you are not going to reappear as an intervenor in Corus, so I have a question --
2842 MR. MORRISON: My reading of the agenda is that we are appearing as No. 6.
2843 COMMISSIONER WYLIE: Reappearing?
2844 MR. MORRISON: Yes. We will be back later tonight or whenever it is.
2845 COMMISSIONER WYLIE: I will hold my questions until then. I will hold my question on a comment you have made in your written brief, but not in today's presentation.
2846 MR. MORRISON: If I might just say -- could we say one more word and that is -- you go ahead, Daryl.
2847 MR. DUKE: I don't know what your word was going to be, but my word would be, Madam Vice-Chair and Commissioners, that one of the reasons we wanted to put the schedules before you is not simply to castigate CanWest Global, but to draw attention to the very real condition in program terms and in content terms of the Vancouver market, that you have five stations here in which the Vancouver viewer is virtually exiled from peak viewing hours in terms of programming about his Canada and his city and his cultures and his outlook on the world.
2848 That whether it is the CBC, CTV, CKVU, BTV or CHEK, the situation pertains that with the redefinition of priority programming and that we have industrial type outer limits sorts of dramas here fulfilling the Canadian content requirements in those peak viewing hours, but at the time when most citizens of this city can watch television there is nothing addressing the cultural needs and the diversity of this very interesting population and this very interesting part of Canada. I find that a very disturbing thing. It's partly, if you will forgive the impertinence, it's partly almost a state sponsored media coup that the Commission condones regulations that have been used in your name to exile this entire part of Canada from access to their own airwaves.
2849 I think that you could go a long way towards -- with the CHAN decision and the CanWest decision, go a long ways towards redressing that by putting conditions of transfer into this very valuable application -- acquisition rather that CanWest is getting to say we must look for changes and we must also examine what kind of private broadcasters can this country entertain and afford for the future. What kind of private broadcasters are there going to be and some may have to be said and perhaps CanWest is the first one in getting this valuable jewel to be told your responsibility is greater and your responsibility is more than living by the priority program code and the regional program code, that something has to be done to -- I mean, if we can make a billion dollars worth of films and television and be so ignored by the broadcast institution centred in Toronto, then there is something askew.
2850 I think if there is one point from my aspect of appearing before you, it is to address not only CanWest but the totality of exclusion from B.C. of many interesting aspects of this part of Canada and also the kind of low threshold of creativity that goes into defining what makes drama, what makes documentary, what makes possible music and public affairs shows. That this has not been a very creative enterprise this last couple of days listening to what was presented to you.
2851 I found it of very low level on creativity and I think this schedule and on these big cards shows just how dismal the efforts are to solve that very real problem for the citizens of Vancouver. I think you could go a long way towards saying "all right, these are conditions of transfer that we must entertain and CanWest must hold."
2852 COMMISSIONER WYLIE: Thank you, gentlemen. It is always a pleasure to hear from you, Mr. Duke and Mr. Morrison.
2853 CHAIRPERSON OF THE COMMISSION: Thank you very much.
2854 We will now take a 10-minute break.
--- Recess at 1700 / Pause à 1700
--- Upon resuming at 1715 / Reprise à 1715
2855 CHAIRPERSON OF THE COMMISSION: ... for Global today, with the exception of the last one which is Placements St-Mathieu because they require translation -- I have offered myself to do it, but that won't do -- and the Director's Guild, we will do those two at 8:00 tomorrow morning and then hear the reply from Global. Then pursue with the intervenors of course and Shaw.
--- Pause / Pause
2856 CHAIRPERSON OF THE COMMISSION: I just thought there was a misunderstanding, that you were waiting for me and I was waiting for you.
2857 MS VOGEL: Thank you for your patience. I want to introduce the Canadian Film and Television Production Association and for the record, Madam Chair, the Association will not be appearing as an intervenor on the Corus list tomorrow. With consent of Corus their one intervention will serve both purposes and Corus will have the right to reply to this intervention tomorrow. Could you go ahead whenever you are ready please.
INTERVENTION / INTERVENTION
2858 MS McDONALD: Thank you.
2859 Madam Chair, members of the Commission, my name is Elizabeth McDonald and I am President and CEO of the Canadian Film and Television Production Association. With me on my left is Guy Mayson, who is Executive Vice-President of the CFTPA.
2860 We are delighted to be here today to emphasize the Association's support for the acquisition of the WIC asset by both CanWest and Corus Entertainment.
2861 As we noted in our intervention, Canadian independent producers believe strongly that the uncertainty that has surrounded the ownership of WIC has not been good for the Canadian broadcasting system. The only way that the television properties involved will be able to fully realize their potential within the system is to finally have stable ownership and management.
2862 The CFTPA is a national association that represents the interests of over 300 independent producers working in every region across Canada. Our membership is diverse, with the vast majority being small and medium-size entrepreneurs. The CFTPA has three offices to serve its members, in Ottawa, Toronto and Vancouver.
2863 I will begin by first addressing some strategic or policy issues that were raised in our two interventions. However, I would like to acknowledge and thank both CanWest and Corus who have made commitments in their benefits packages that promise positive growth to the CFTPA's Youth Mentorship Program. I will address the importance of these commitments in the final paragraphs of this intervention.
2864 As I was preparing these remarks I was considering how I would frame our interest or concerns. I then remembered two comments that I found in a document recently released by the Competition Bureau, entitled "Amending the Competition Act - a Discussion Paper on Meeting the Challenges of the New Economy".
2865 While they both may seem to be observations and rather obvious truths, they point exactly to the concerns that many of our members have as they watch the rapid pace of change that is taking place within the Canadian broadcasting system.
2866 In the first quote:
"Small businesses are increasingly concerned about current trends in the structure of the retail and distribution marketplace and the potential for abuse of market power when the markets, both domestic and international, are dominated by a few." (As read)
2867 But later in the same document they note that:
"...such strategic alliances allows small and medium-sized firms to compete more effectively in global markets." (As read)
2868 Many of the proposals made by both applicants with regard to the establishment of funds and other programs, including commitments to the CFTPA Mentorship Program to support content creators are important signs of strategic alliances.
2869 CanWest proposed safeguards and code of content is another indication of its good faith. We particularly note their willingness to guarantee the eight hours of Canadian priority programming in prime time, carried on CHCH and CHEK, will have no duplication on the Global Television Network. This was a request we made and we applaud their agreement.
2870 We also note their proposal to organize advisory boards in both CHEK and CHCH and to report to the CRTC on the public record annually.
2871 Clearly, growth, consolidation and vertical integration are critical elements of the business plans for these and many other broadcasters, distributors and producers.
2872 However, for many of the smaller and medium-size production companies these business strategies also mean more market power resting in the hands of a few large-scale companies.
2873 Looking not only at the present, but also to the future, we are asking the CRTC to endorse mechanisms that will promote more strategic alliances between broadcasters and content producers and offset some of the imbalances that may be coming into the Canadian television marketplace. These include encouraging broadcasters, as what's done in the CBC's licensing decision, to negotiate terms of trade agreements between broadcasting entities like CanWest and Corus and independent producers, and following through on the sections of the Canadian Television Policy Review that states that broadcasters with interest in production should be prepared to address the issues arising from this type of vertical integration.
2874 Production companies with an interest in broadcasting have established safeguards to assure the Commission that their programming acquisition policies would not be based on who owns the company. This has been a winning and effective strategy for all concerned. We believe that it is only fair and reasonable to expect the same from broadcasters who also have an interest in production.
2875 While the basis of these acquisitions have been to foster significant growth strategies, the ability of the Canadian broadcasting system to flourish and grow will depend on the quality of the programming available.
2876 We believe that by asking the Commission to encourage the establishment of strategic alliances and strategic agreements we will all be assured that the programming available to the Canadian television system will be from as many diverse sources as possible.
2877 It has often been observed that it is the small and medium-size producer who has the freedom and the nimbleness to pursue more inventive and interesting programming ventures. Vertical integration and growth should not prevent them from being able to access the Canadian television marketplace.
2878 Turning to the benefits. I would like to reiterate the comments made in our written submission, where CFTPA recognized that the amount committed of 12.16 per cent is greater than the 10 per cent of the purchase price of the regulated assets set out in the CRTC's 1999 Canadian Television Policy.
2879 We felt that they were commensurate with the size and nature of the transaction and are, in the parlance of this hearing, an indication of the whole being greater than the sum of its parts.
2880 The commitment by CanWest to support new interns in B.C. and Corus' willingness to allow CFTPA to administer its $1 million national initiative designed to encourage the development and exhibition of the works of young filmmakers provides an incredible opportunity for Canadian youth. For the past five years, CFTPA has been active in the area of training and mentorship. However, in the past two years we have stepped up our activities in our program in response to industry's need for trained and effective personnel.
2881 The importance of the industry fostering training and mentorship was enthusiastically acknowledged and praised by Canadian Heritage Minister Sheila Copps when she spoke at our Prime Time Conference in February this year. To date our partnerships have been with the federal government. These commitments by Corus and CanWest turn a new page for the Association as they become our first private-sector partners.
2882 We have enjoyed incredible success with our two existing Youth At Risk Programs funded by Human Resources Development Canada and the Department of Foreign Affairs. To date an overwhelming 95 per cent of the interns that participated in our 1999 program have either found jobs in the industry or will return to school to upgrade their skills, so they can be eligible for higher-level positions.
2883 Without any advertising promotion we have already received over 500 intern applications and 130 company proposals with approximately 55 intern positions available in the year 2000 to HRDC and DFAIT funding.
2884 CanWest and Corus will help us build and expand on our success today and they will be able to share in the excitement of helping young people that important first job which has a built in training component.
2885 They will also see their producer colleagues in a new light as they work shoulder-to-shoulder with their interns and, in some cases, even open their homes to reduce their living costs, or their homes and refrigerators to help reduce their living costs.
2886 I listened with great interest yesterday when you asked a series of questions on the benefits. First of all, quite clearly, a mentorship program like the one CanWest is assisting us with is not on the screen. Rather, it affects the quality of what will go on the screen in the future.
2887 As I said earlier, we established these programs because the growth of this industry has resulted in a shortage of skilled and knowledgeable workers. We decided to partner with other interested parties to try to address that skills shortage through on-the-job training. It's not easy for a production company to successfully win one of these priceless internships. They have to apply in a competitive process. They are interviewed. We have 10 selection panels, one per province, made up of local industry and youth training experts. They have to commit to moving the candidate through the full cycle of production. They have to spell out specifically who was in their organization working with the young person and we check up on our interns and their mentors to ensure that the full benefit of the program is being realized.
2888 In the case of the mentoring program being supported by CanWest, these candidates are the young filmmakers of tomorrow and we need to invest in them now and allow them to benefit from the expertise that has been developed and nurtured in Canada today.
2889 I would also like to point out that the CanWest program is a local benefit. It will allow us to add five new interns annually to our program here in B.C. The only companies that will be eligible will be B.C. production companies for B.C. based productions.
2890 We plan to work with APTN to ensure that at least one of the five chosen annually will be aboriginal, again from B.C., working with a B.C. production company.
2891 The Corus Young Filmmakers Program is national and will create product that will be on the screen. The idea is to try to pair young emerging filmmakers with experienced producers, so that the programming that they will produce with the support of Corus will have every opportunity to become a screen success.
2892 I would like to thank the Commission for this opportunity to express the views of the Association and I would be happy to answer your questions.
2893 CHAIRPERSON OF THE COMMISSION: I will be asking the questions, but, frankly, after reading your written intervention, but mostly hearing you this afternoon, I think your mind is quite made up on this and it's quite clear. Frankly, my impression after listening to you is mostly support on the mentoring program which was certainly an excellent initiative, but I would like to move back on that and talk more about -- because in your written intervention you had a few comments about consolidation bringing some, not necessarily unbalanced, but certainly creating a more stronger position at the negotiation table. What do you see really as being either the benefits that can be gained as a counterpart to this or the safeguards that could be put in place to allow not only the producers, but the system to grow in a manner that will really allow us to still be strong in our capacity of producing and developing programs in the coming years?
2894 MS McDONALD: First of all, I said more about the mentorship program than I intended to because I got a little worried yesterday and you can tell from all of the spelling mistakes that I might have done this in the middle of the night, so I made some changes.
2895 In terms of the benefits, and I will as Guy to comment as well, when you look at consolidation clearly what we see is an opportunity for a national window. We said that to you before, and also the ability to invest significantly in Canadian programming.
2896 If Canadian programming is going to -- it competes every day against American programming at any time. So, if a broadcaster is in a position to invest significantly, then they put the money in the screen. It's there and the position to do it. Then people will choose to watch it.
2897 If there is a distinct difference in the quality of that programming then they won't. But it's also the ability to put that programming over a number of windows.
2898 I think of WIC who did Emily of New Moon and, of course, they did a programming deal with CBC and that was just because the WIC windows on their own couldn't provide a significant audience for that story. So they dealt with it by going through CBC.
2899 In this kind of an environment an Emily-type program would have all the windows and it would have been quite clear to the producers right at the beginning.
2900 So I think there is that kind of opportunity. Frankly, as people become vertically integrated and get involved in areas such as new media, et cetera, they can work on a project of greater span I guess, where you might have a program, you might have an Internet or website that would completely explore new opportunities. You might have a music component.
2901 So as you deal with companies you have a vast array of interest and that product can have a greater span, a greater creative span and perhaps have access to other windows.
2902 Before I ask Guy, I guess in terms of safeguards the big issue is how do you negotiate. You are absolutely right, that's why we talk about the terms of trade agreement because it sets out a framework.
2903 This arose actually in the United Kingdom at the suggestion of their Competition Bureau, where they felt that there were many small producers and large broadcasters. So how can you ensure that there was a level of independent production, that that competition was fair and equitable and so they inspired the terms of trade. They exist not only with the BBC, but in fact with private broadcasters as well. And the idea is to set certain frameworks. For example, that you can't demand distribution rights in exchange for the window, and those kind of issues which you hear about all the time that are problems, to try to set out a framework where you are not always coming back to a regulator or other body, but where you have both agreed to a contract that exists between the parties on how your arrangements will go forward.
2904 The same in the terms of trade is true with say the Internet rights which are becoming very important. It's not we will buy your programming, but you have to give us all the rights in perpetuity. This is an important issue for independent producers, not only if they are small or medium size, but of any size because we are responsible for negotiating the union agreements with the directors, the writers, the actors, et cetera, and those people are all looking for their rights to be recognized and they are looking towards the Internet, et cetera. We have to be made sure that we don't make agreements that would not recognize that we have a responsibility within the system and that these rights are going to be important.
2905 So there has to be a way to develop that kind of agreement in a business-like fashion, that would ensure that all parties act appropriately.
2907 MR. MAYSON: The only thing I would really add to that I think is just in terms of your media question on sort of the benefits of consolidation or integration. The immediate benefit would be more flexibility on the financing side. The independent producer is always looking for additional avenues to finance production. I think that with larger, well-financed players, one can negotiate broadcasting distribution agreement or co-venture arrangements there, but certainly the optimistic aspect of it and there is real potential there I would say.
2908 CHAIRPERSON OF THE COMMISSION: Is it your view given that you are supportive of the transactions that bigger is necessary in this country to support Canadian programs and do you see that in the future there will be like three independent players?
2909 MS McDONALD: I don't think I would want to guess what would be in the future because over the last few months so many things have happened that I hadn't guessed on. I don't think that's necessarily true.
2910 First of all, our support of this transaction is to solve a problem that has been in the system of assets that have just been sitting there, have not been active really in the Canadian programming. So from our perspective to have players come up and say we are interested, we are willing to acquire them, we are willing to make safeguards, et cetera, that that and when we discuss some of our concerns about, for example, CHCH, and owning those markets in Toronto, we got the safeguards we were looking for, which is important to Ontario producers as well who are looking for outlets.
2911 So I think what we were saying, that this transaction has been long time in the waiting. I think Jim Shaw said it quite well, it has taken a long time for it to come here and that has established an uncertainty in the marketplace for a long time and just had a non-player. So at least there will be some coherency added.
2912 Whether there will only be three large players I have no idea. I mean, I think we are looking at -- people will continue to watch television, but they will also seek other forums. Whether they will continue to always be conventional, whether my sons will start doing a mixture of specialty television and the Internet, I just don't know how people will make those choices or what we will define as a large player in 10 years.
2913 So I think that's up to be said. We are at the moment probably looking at it by transaction by transaction, but we are also seeing changing patterns in terms of how people are seeking to entertain themselves. I think it is going to be hard for any of us to guess what that's going to be in 10 years or even five years..
2914 CHAIRPERSON OF THE COMMISSION: Well, you say in your presentation this afternoon, the first page, that:
"To fully realize their potential within the system is to finally have stable ownership and management." (As read)
2915 Do you think Global is the only one that can provide that stability of ownership and in management at this point in time?
2916 MS McDONALD: Well, when I look at the transactions, these are the people acquiring these assets that have been sitting there for quite a long time, inactive in the scene to all intents and purposes. So Global is the one that has come up.
2917 To us, to continue having those assets sit there I think doesn't make sense at this point. I think from the point of view of independent producers they'd like to see this resolved.
2918 There is a major issue, a producers was saying to me that having WIC out of the picture has been a major loss in Alberta and British Columbia. So I certainly understand why the Commission is pursuing to ensure that there will be programming acquired and exhibited from Alberta and British Columbia, but it's better than the figures that AMPIA gave, where it was nothing in 1999. They have got to move on. There is a huge creative community in all of the prairie provinces and British Columbia.
2919 WIC was an important part of it. CanWest has come forward. They are talking about the commitments they are willing to make in terms of where and when and certainly you are pushing them to get as much as you can. It is important to get that going, so that next year we don't have nothing coming out of Alberta, for example, in some areas.
2920 CHAIRPERSON OF THE COMMISSION: You are satisfied with what was the commitment of Global yesterday and the distinction between CHCH and C3 and what would be CHAN and CHEK-2 as to two eight hours that would be totally different in prime time?
2921 MS McDONALD: We have had long discussions about whether we should get involved into that ownership issue. Ultimately, for independent producers what's important is the diversity of programming. So that to ensure that those -- what we saw also as I think the Friends said, two sort of networks are being operated. One I think was called the independent and the others. If they acquire separate and distinct programming in those priority programming areas that satisfied the condition that we put forward.
2922 CHAIRPERSON OF THE COMMISSION: Because for you it will bring the diversity and you will have like --
2923 MS McDONALD: I believe if it's their intent to work with as many producers as possible -- I guess I am being punished for having my phone ring before --
2924 CHAIRPERSON OF THE COMMISSION: It's your phone?
2925 MS McDONALD: We see diversity coming from buying your programming from a variety of sources. I certainly believe that is the intent that CanWest wants to do, which is to buy from a variety of independent producers and certainly if you are not satisfied, if you haven't made that point, I've heard most of it, then I would ask you, but that's certainly in the discussions they have had with us what they intend to do.
2926 Certainly 16 hours is at least meeting those basic priority eight hours and eight hours and distinct programming is a great step forward and would be a net improvement to the system.
2927 CHAIRPERSON OF THE COMMISSION: I remember the reaction of your Association the day after the TV policy, your concern over certain genre in particular. Do you feel that the eight hours that are kind of proposed to be differentiated for the two, what we could call the two networks, that that would be an appropriate environment in which the kind of concerns you have could be developed?
2928 MS McDONALD: Well, we hope so. We understand that there may be less Canadian drama on the air over this next upcoming year and we are concerned about that. I guess we will have to see when the seasons are announced and what's on the air, but you have also promised that you will be monitoring it and we believe you. So I think we are in a position to wait and to see what will happen.
2929 I think those hours, we have some concerns about expenditures and through some of the questions that were asked here -- I believe I heard from Commissioner Grauer also a concern that there is spending through sort of conditions of licence, if I understood your questioning well, and that does make a big difference.
2930 It becomes very important to ensure that the broadcaster actually makes the expenditures, yes, in the area that's an important issue for us.
2931 CHAIRPERSON OF THE COMMISSION: We have been talking about Global, but given that you are appearing only once and that there is the Corus matter as well, you have raised in your written intervention the question of the code of access. You were here this morning and you heard Corus. What is your view on the code of access and their position that it used to be a problem and it's not a problem any more, and if there is to be a solution it should be an industry solution. Have you got any questions?
2932 MS McDONALD: I don't disagree with them. I may be wandering farther from the CFTPA and more into my knowledge of having worked for the cable industry, that an industry solution may be the best way.
2933 I think there is enough cross-ownership of -- if I looked at some of the applications and some of the existing, they are not the only ones who have an interest in programming services by a long shot. There are a lot of other cable companies, a lot of other producers, there is a lot of people out there very interested in that.
2934 So I think an industry code may be the way to go. I believe they are sincere about how they operate and certainly from our members' point of view and any business that we do, whether it be with Shaw, with Corus they operate as separate companies.
2935 But, on the other hand, I think it is becoming a more ubiquitous problem and perhaps could be dealt with through an industry code.
2936 CHAIRPERSON OF THE COMMISSION: Commissioner Grauer.
2937 COMMISSIONER GRAUER: I just wanted to go over with your briefly your position with respect to independent production, particularly in western Canada. As you know, almost all of these assets are in B.C. and Alberta. Are you familiar with the Heritage Canada study on western Canada production that I talked about yesterday?
2938 MS McDONALD: Yes.
2939 COMMISSIONER GRAUER: You are. So what I would like to know from you is what I talked to Global about was licence fees. I referred in particular to the steady decline of private broadcaster financing overall and certainly CanWest Global in particular, but's a bigger problem than just them in terms of the overall budget.
2940 As a national organization to what extent is it important to you and your members that you as an organization -- do you have a position with respect to the importance of regional diversity on our screens as an important element of both the Broadcasting Act and our policy, and the fact that, you know, I mean licence fees are key to achieving that. The funds, of course, are very important, but without a licence fee you don't trigger the funds.
2941 Canadians across this country, from coast to coast, pay taxes. Cable subscribes pay subscriber fees that contribute to all the funds. So it is not just a matter of an equitable allocation of funds. It's equally important that, you know, as Mr. Duke pointed out that the television that people in Vancouver see on their screens is the second-largest English speaking market, that they see their community reflected in dramas, documentaries and news as well, but the whole spectrum.
2942 So do you as an Association have any views on that?
2943 MS McDONALD: Yes, we do. We are a national Association and we have members on our board of directors and our incoming board from every region and so we believe quite strongly in regional diversity. We have worked hard to support our regional producers.
2944 I would like to note I was also on the board for many years of the Canadian Television Fund and I note now that over 50 per cent of the funds are now spent in the regions.
2945 I agree with you and I find it difficult right now because it's the licence fees. I remember appearing, not here, but in Hull in front of the Commission on the Canadian Television Policy Review and listening to everyone and trying to get people from the regions to come forward to say that to you and they didn't.
2946 So I will tell you again, yes it is a licence fees, I agree with you, and if broadcasters are encouraged to produce in the regions, that will be more important, if it's met with funding, than the quality of the program. It won't be just a commitment, it will be a success like Cold Squad is, like DaVinci's Inquest. But it's a partnership and you are playing an essential role to encourage, push and cajole the broadcasters to licence here.
2947 Also, if you look at what is happening in British Columbia, B.C. Film has been very active and gotten development money and if you look at our profile, you will see that B.C. is now becoming -- is increasing its activity in indigenous programming in a way, while Toronto is going the other way.
2948 And so the problem we have running a national association is that I now have producers with t-shirt that say, "My Canada includes Toronto".
2949 So it's difficult to take a position on this, but we support regional diversity, we have been actively supporting our producers. I think it's really important, the most important thing is to encourage broadcasters to licence across the country, right across the country so those stories are there. That also does include Ontario too, though.
2950 COMMISSIONER GRAUER: Absolutely, no question, and I think that that is why it's really important to look at balance with this. I mean that is key.
2951 I agree with you that it's a partnership and the question is: To what extent do we have a role when it comes to quotas? And what I am saying is that these projects work whether they are in Toronto, whether they are in Halifax or whether they are in Vancouver, when there is a will and a belief and a commitment on the part of the broadcaster to making it work.
2952 MS McDONALD: Yes.
2953 COMMISSIONER GRAUER: I think that Mr. Shea or Ms Mawhinney yesterday about traders. It took time, you know. They worked with it to make it work over a period of years and I think that that is often true.
2954 I think that in many ways we want to get away from so much detailed regulation. So how do we encourage the broadcasters to view this as an important element, and part of it is taping into the resources that are available outside central Canada where it's so easy if at your head offices to pick up the phone, to go have lunch for someone to go pitch. I mean, there is no question it's easier and that's reality.
2955 So I take your point.
2956 MS McDONALD: I think, though, I mean I think what probably happens, as has happened say with the development of Cold Squad and DaVinci's Inquest, that was by putting pressure on specific broadcasters. They came out, they set up offices, they found the creative people and they are going to continue to work with it. That is one of the ways to do it. I think the problem with quotas, I think the licence fee issues and encouraging people to work or forcing commitments, or whatever the right verb is, is important.
2957 The broadcasting industry --producing is very cyclical. There are in fact other issues. There are the tax credits, and I think we have said in meetings with the Commission, there is now almost -- I don't know if "war" is the word. I mean, there is this competition of incredible proportions.
2958 COMMISSIONER GRAUER: Regional tensions, we call them. Is that it?
2959 MS McDONALD: Over tax credits, it's a competition and Guy is actually the expert on it, on tax credits, and that has an effect as well, and it's important that you look at where those tax credits work and how they are working, what role they play and what they. It's a whole picture.
2960 I mean, I think one of the issues is how do we get all of the provincial agencies, the CRTC and everybody to talk to each other, other than at a hearing where it becomes somewhat more confrontational.
2961 But it does take time. The opening of local offices will make a difference. There is no question that that will make a difference. You don't necessarily have to live in Toronto to be plugged in any more -- I don't, but I think the opening of regional offices, establishing those relationships and encourage them will make a difference and I believe they want to do this.
2962 The other issue is that part of the decline has also been the inactivity of WIC and that has been critical.
2963 COMMISSIONER GRAUER: I understand that, but part of that and part of the reason I pointed out that this is a western transaction is that to lose WIC as they declined over the years, and to not have whoever is going to acquire those assets which makes them a major player in British Columbia an Alberta, at least as, if not more committed, particularly given the rationale for the consolidation is that they are bigger, to ensure that we start rapping up that activity here. That's all.
2964 MS McDONALD: Well, yes.
2965 COMMISSIONER GRAUER: And I take your point about the provincial programs. I don't think there is anything we can do about that. I know it's a reality and I think that it's the story of this country, frankly, these regional tensions.
2966 MS McDONALD: Oh, absolutely, and it's one of the tough issues we deal with because you can look at the sort of decline. I mean, there was a decline in Alberta at one point and there was no tax credit. And then it went up.
2967 COMMISSIONER GRAUER: Yes.
2968 MS McDONALD: Over this past year, there has been a decline in Saskatchewan and that is because Manitoba became more active and it's really interesting because it's also how active the provincial agencies are in attracting Canadian productions, working with the broadcasters, et cetera. They play a very important role. B.C. Film has played an incredible role here very successfully and that's important to help the local production community.
2969 So all of it is of a part, but certainly making sure that there are commitments to production in the regions would make a big difference.
2970 COMMISSIONER GRAUER: And, as I say, I think our principal interest is what is on the screen and that it reflects the diversity of this country as much as anything else.
2971 MS McDONALD: Thank you.
2972 CHAIRPERSON OF THE COMMISSION: Madame, Messieurs, merci.
2973 MS VOGEL: For the record, Madam Chairperson, Dinosaur Soup Productions Inc. will not be able to appear at this hearing. That would be intervenor No. 7.
2974 CHAIRPERSON OF THE COMMISSION: That is really too bad. Dinosaurs, we know that!
2975 MS VOGEL: And I understand that the Directors Guild will not be in Vancouver until tomorrow. They are No. 8 on the CanWest Global list, so we will recall them at our first opportunity.
2976 CHAIRPERSON OF THE COMMISSION: I was just alluding to the dinosaurs, what we say at the CRTC. That is what I was referring to.
--- Laughter / Rires
2977 MS VOGEL: So with your leave, Madam Chairperson, I would like to call CTV Television Inc.
--- Pause / Pause
2978 CHAIRPERSON OF THE COMMISSION: Alors welcome.
INTERVENTION / INTERVENTION
2979 MR. FECAN: Madam Chair, Mesdames et Messieurs Vice-Chairs, Commissioners.
2980 For the record, my name is Ivan Fecan, President and CEO of CTV Inc. Joining me on the panel this late afternoon, Trina McQueen, Executive Vice-President of CTV, Kathy Robinson, a senior partners at Phillips Goodman -- whatever it is these days.
--- Laughter / Rires
2981 MS McQUEEN: Vineberg.
2982 MR. FECAN: And a member of our board.
2983 COMMISSIONER WYLIE: They pay your bills.
2984 MR. FECAN: They pay our bills, that's right.
2985 Jon Festinger, who runs our operations out in B.C., Steve Armstrong of Steve Armstrong and Associates who, I think, is very familiar to you, and Robin Fillingham, our CFO.
2986 Let me begin by saying that CTV is not here to oppose Global's long-held dream of becoming a national network.
2987 We do not oppose the acquisition of stations in Alberta, the CBC affiliates or for that matter 50 per cent of ROBTv. We do not object to Global getting bigger. It will be a tough competitive challenge for us. After all, Global is the richest, most profitable broadcaster in Canada, an international powerhouse and good for them!
2988 What we do oppose is granting Global CHAN, CHEK, CHCH and in the process two policy exemptions which would create a second national network.
2989 While we welcome competition, we do not welcome market dominance which is precisely what Global is trying to achieve in the field of prime time U.S. simulcast. We are objecting strenuously because we are the most affected.
2990 I would also like to correct for the record one of the statements made by Global yesterday. Global said we turned down an offer to buy CHAN and CHEK. While there were vague discussions with no concrete pricing attached, there were no substantial negotiations, no investment bankers. We were given no solid offers. To say otherwise is misleading. The CFCF situation provides insight in this regard.
2991 Last fall, we were offered CFCF at a price. We expressed interest, but the offer was withdrawn by Global. CFCF was given over to an investment banker to run an auction. This is an understandable course of action to truly gage whether there is interest from others.
2992 Last week, Global sent us this letter offering to maybe sell us CFCF if we a) sold them out interest in SportsNet; b) if we dropped our right of first refusal on BCTV, and c) if we dropped our intervention at this hearing.
--- Laughter / Rires
2993 MR. FECAN: We still want to buy CFCF, but I suppose they could say we turned down CFCF because we exercised our right to appear here in front of you.
2994 Global is asking you for two exemptions to your policy against owning two stations in a market, a policy reaffirmed less than a year ago. The burden of proof to get exceptions lies with Global. The first exemption is for CHAN and CHEK. These are healthy stations. CHAN is among the most profitable station in the country. It's the jewel in WIC's crown with provincial-wide coverage and a great newsroom.
2995 At the time the original exemption was granted, CHEK was in trouble. Neither of these stations are in trouble today. The imaginative and robust applications for new licences in Vancouver and Victoria are evidence that willing buyers exist, willing buyers that have put more on the table and benefits for Victoria than Global has in this application as an inducement for a policy exemption.
2996 Global's principal reason for owning both CHAN and CHEK is to stop the uncertainty of WIC ownership. If Global has a solution for that problem, they are also the cause. WIC's uncertainty is due to being the object of a hostile takeover and prolonged negotiations about the divisions of its assets.
2997 The second exemption they are asking for is to own two stations that are seen throughout Ontario. There is no precedent for owning two stations throughout Ontario and the examples they cited are not remotely applicable.
2998 As we have noted in our written intervention, CKCO Kitchener and CFTO Toronto have identical program schedules except for local news and neither are carried throughout Ontario.
2999 The greater problem with the CH exemption is the sum of the parts. The addition of CHCH to CHEK creates a second national Global network which we call Global 2. This is not just a departure from the policy. It's an entirely new policy.
3000 MS McQUEEN: It is a policy that will enable Global to have market dominance in the most lucrative, higher margin programming gender of all: U.S. network simulcast. It will give Global the most glorious revenue opportunity in the history of Canadian television.
3001 Mr. Shea confirmed yesterday that the combination of Ontario and Vancouver accounts for about 80 per cent of national rights cost. When he was asked if he would use the program leverage he would get, he said absolutely, yes. Now Mr. Shea is a master television strategist and he probably has better ideas than I do, but here is how I think he could use this leverage.
3002 First of all, his two networks, Global 1 and Global 2 would have scheduling flexibility to simulcast any and all of its American programming. No one in the market can do that now. Simulcast boosts revenues by 30 per cent. What a windfall for Global!
3003 Second, Global gets to play its covers. Covers are one of the arcane procedures of buying American programming.
3004 COMMISSIONER GRAUER: There are too many American programs to fit into Canadian schedules. The distributors require that we cover or purchase their unsold properties if we want to have the hits like Friends or E.R. Often Canadian networks just can't play this inventory and it is written off. The average cost of a cover is $2 million.
3005 With two national systems, Global will never have to write out a cover. It's a breathtaking bonus to their bottom line. Wow! And there is more.
3006 In years past, three buying groups went to Hollywood and competed for programs. Next year, there will still be three, but Global will own two of them. CTV will have to outbid a competitor with twice its buying power and that buying power is huge. The figures that they submitted to you indicate that they have put in a $65 million increase for their U.S. programs. They can raid our biggest hits and have the pick of the best of the new shows. And when they bring back their armload of U.S. goodies, they have the ability to package and sell them over two national systems.
3007 As the Craigs said, one-stop shopping. No wonder they chirp, "Yes, yes" to everything you asked for on Tuesday. What the broadcast system gets with all their commitments pales beside what Global gets.
3008 Meanwhile, CTV will have to compete somehow, and no, even if you approve their takeover, BCE won't just hand us the money. They will expect us to act in a businesslike and profitable way and that means we will have to find the extra money for increased U.S. product costs and that means a truly serious blow to our plans to provide the highest quality Canadian priority programming.
3009 Like it or not -- and we don't -- U.S. simulcast product is the engine that drives conventional television and conventional television is still the foundation of the broadcasting system. The application by Global gives them control of the engine.
3010 MR. FECAN: Global will only get this windfall if you exempt them from the policy which they justify by saying they took an entrepreneurial risk.
3011 The entire risk they took was whether you would make the exceptions to a policy that they knew was in place when they did the transaction and they knew had been reaffirmed when they submitted the application. That is their risks.
3012 As Global suggested, if you don't bend your policy to suit their financial interest they say you are voting against free enterprise and gee maybe even the entire democratic system!
3013 CanWest has admitted the impact of their market dominance by proposing a series of safeguards which CHUM suggested in their detente with Global. These safeguards ensure that Global will not compete on foreign movies with CHUM, just with CTV.
3014 Global says that there are not better solutions than what they propose. How do they know? Remember the burden of proof lies with Global. Did they hire an investment banker as they did with CFCF? No. They say the Craigs can't do it. Isn't that what Global said in the Alberta hearing? Aren't the Craigs doing rather well with the A channel? Aren't there many other players like TVA, Québécor, Power, Holintzer Thompson, Alliance Atlantis, Rogers or a possible combination of the above who could step forward?
3015 Global says they are the only ones who can do this. What if they are wrong? Who could have predicted BCE buying CTV?
3016 If the Commission is going to create a new policy and let one group own two conventional stations and dominate a field, let everyone bid, including us, for CHEK and CHCH. By changing the policy at this hearing, the system loses. How do we know someone won't put more than 8 hours on the screen? We would put much more on the table than Global has precisely because the sum of these parts are much greater than the whole. How do they know? And if they don't know and if they can't prove it, how do you know?
3017 The argument that the Commission needs to give Global two networks because they were not "lucky" in the specialty hearings is an insult to the process and the merits of the applications approved. To compare our specialties to convention television is specious. Only NewsNet and the Unlaunched Talk are 100 per cent owned by CTV and none of our specialties are in the business of carrying U.S. simulcast entertainment programming. And specialties, while growing, pale compared to the universal reach and the two to one economic might still exhibited by convention stations.
3018 In summary, Global started this deal before the media mergers and before specialty got a little stronger. They did this deal to eliminate a competitor for U.S. product and severely hamper the remaining competitor.
3019 This deal is not about additional Canadian programming, it's about additional American simulcast. They did this deal to shut the door forever to anybody else who might wish to make a national contribution.
3020 Finally, Global talked about programming very little in their application. They were pretty vague about what priority programming they might do for Global 2. They complained about the difficult of finding producers outside of Toronto and they spoke with pride about going to Hollywood to find Canadian writers.
3021 Cold Squad, which was a result of your decision on our Vancouver application, found writers and producers right here in Vancouver. Where in their application are their Milgaards, their Sheldon Kennedys or Lucille Teasdales. We have heard instead about minutes of drama. They talked about having the top rated prime time Canadian programs, but the Nielsens for the past season tell a different story.
3022 In short, give them their network. Let them prove their worth. Deny the exemptions, deny the second network and the damage this would create to the broadcasting system.
3023 Thank you. We await your questions.
3024 CHAIRPERSON OF THE COMMISSION: Thank you.
3025 Will we be able to get a written copy of your --
3026 MR. FECAN: I will transcribe the chicken scrolling.
3027 CHAIRPERSON OF THE COMMISSION: Thank you. That would be helpful.
3028 I will not really comment on your presentation of this afternoon. I will leave to Global to do tomorrow and for us to pursue with them given what you are putting forward. I will go more in line with your written intervention and I would like to know why is it that you have chosen, in order to establish the market in Hamilton and Ontario, to chose strictly conventional broadcasters and not take into account specialty channels?
3029 I think it's important because there is a reply from Global about this that is on the record, but it's an important factor to take into consideration for our analysis and frankly reading this, and reading the reply of Global, I would like to know why in one case you do take into consideration only the conventional, but in other circumstances you go for a broader picture.
3030 MR. FECAN: You may have anticipated that we would have an answer on that given Global's response. So I will start and then pass to Trina and then pass to Steve.
3031 I think the Commission uses, we understand, many different measures and the numbers I think we put forward are one view and the numbers Global put forward are another view. Both of the numbers are correct. They are just different approaches at how to look at a situation.
3032 I think the relevance of our assumption has to do with the same stations of the same class and the same language market and they have to do with a dominance or predominance of a certain type of programming content that defines that particular market.
3034 MS McQUEEN: To compare specialty channels and convention channels is one way of saying how big a company you are. For instance, when we had our application of NetStar, we showed a whole bunch of different communications companies ranging from, if I may be permitted to say, AOL/Time-Warner, right down to --
--- Laughter / Rires
3035 MS McQUEEN: I am sorry.
3036 CHAIRPERSON OF THE COMMISSION: Well, there were some people who still reach for our eyeballs talking about viewers. So I guess exceptions are allowed sometimes.
3037 MS McQUEEN: Right. Ranging from great big companies to smaller companies, and it was just a way to doing a variation of how big a communications company might be.
3038 But when you are looking at the damage or the benefits that come to a system from a change, it's our belief that you have to look at conventional vis-à-vis conventional. They do very different jobs, they have very different responsibilities, they have different kinds of advertising sales, they are a different beast. The only way our conventional specialties relate to each other, for example, really is in cross-promotion. For instance, comedy does not do any kind of U.S. simulcast programming.
3039 So when we are looking at how this application affects our business, we look at conventional versus conventional. When you look at how big the company is, you can look at different ways to measure that company.
3040 But Steve, perhaps you could, as the numbers man, explain why.
3041 MR. ARMSTRONG: Sure. I would just add that I think it is useful and I think it has been the practice of the Commission when it's trying to assess the impact of a transaction to look at it from various perspectives and certainly CanWest in that application put certain information on the record from one perspective, and I think it's useful to put other information on from another perspective, looking at another market.
3042 When I looked at the numbers, the transaction will result in increasing Global's share of television revenues from 28 per cent to 41 per cent of the English-language private television market and it's on that sort of significant change in the structure of the market that CTV based its specific comments with respect to impacts.
3043 CHAIRPERSON OF THE COMMISSION: The simulcast reference you were making, it seems to me I recall that yesterday it was mentioned by Global that today it might not be for specialty channels as easy but more and more we will see simultaneous substitutions coming and eventually I suppose the balance we have will be different between the revenues generated by conventional broadcasters and specialty channels.
3044 What is your reply to that? Or you knew about this and you have both. So you know, it's one thing to say, "In the year 2000 the revenues that are generated don't allow for more and all it allows is cross-promotion". Well, it's more than that, it's also other windows. For example, you have used it in a fashion that has been very helpful to some of the programs you have with the Comedy Network to take one.
3045 MR. FECAN: We recognize the point, but when you look at our particular specialties and practices as opposed to the general philosophy of your question, I don't think that simulcast option is really available for NewsNet. It's not available for Discovery. It's really not available for Outdoor Life. TSN runs many things, but not prime time U.S. Network Entertainment products so it's not available for them, and by the nature of the kind of material we do on comedy, it's really not available for comedy.
3046 So we understand the theory, but it's not applicable in our case. I think it is true, however, perhaps for CanWest with a licence like Prime TV which is basically a repeater of older run U.S. network programming. So I can see why they might look at it that way, but it certainly is not something that really comes into effect with our particular collection of licences.
3047 CHAIRPERSON OF THE COMMISSION: Well, I will leave it there and certainly we will be able to pursue that tomorrow with Global.
3048 Oh yes, I meant to ask you. In your written intervention, you refer to the relationship with Global but as Global being -- the affiliation here in Vancouver, that there were problems in terms of the respect of the network programs and all that.
3049 Are there new facts that you would like to provide us with on the public record?
3050 MS McQUEEN: Yes. We have had some very pleasant talks with our friends at WIC and our friends at Global and we are very happy to announce that they will remain an affiliate, at least CHAN and CHEK will for the next year and, as Mr. Shea said, we are looking forward to an orderly transition when your decision is made and we know what is going to happen.
3051 CHAIRPERSON OF THE COMMISSION: Thank you. I was about to ask if we needed to have something written.
3052 MS McQUEEN: I believe we have tabled a copy of the affiliate agreement with the Commission.
3053 CHAIRPERSON OF THE COMMISSION: It has been tabled? Okay. Thank you.
3054 One element I would like to ask as well is the measurement of benefits and you might be interested in that discussion.
3055 In your experience, and having heard our discussion yesterday, and your expertise what do you think should guide the Commission -- and being respectful and, you know, I think we have said many times yesterday and today again, it's not about whether the benefits to respect the policy. I guess it's a learning curve too and it's evolving and the dimension of the transactions brings another type of "regard" on things.
3056 So having said that, what do you think should be our way about approaching it and what should be the indicators we should be using or the parameters we should be using in terms of measuring what is incremental?
3057 MS McQUEEN: I am not sure whether it was Commissioner Grauer or yourself, Madam Chair, who said that the heart of the system is the viewer and when you had the discussion --
3058 COMMISSIONER GRAUER: I am sure it was me.
--- Laughter / Rires
3059 COMMISSIONER GRAUER: It might have been her, but it was probably me.
3060 MS McQUEEN: I am sure this is something that evolved out of mutual discussions.
3061 CHAIRPERSON OF THE COMMISSION: No, no. It is not what she said. She said a B.C. viewer is the --
--- Laughter / Rires
3062 CHAIRPERSON OF THE COMMISSION: That is what she said. I remember it very clearly.
3063 COMMISSIONER GRAUER: Okay.
3064 MS McQUEEN: And I guess we haven't really talked about this so I was very intrigued by that notion as a criteria for looking at the benefits. In other words, how does the Canadian viewer becomes advantaged from a benefit? That could be in the short term by the creation of a program or it could be in the long term by programs like education, mentorships, training and development. But to me a good criteria would be how does the Canadian viewer who is at the heart of the system benefit from what is tabled at a licence hearing?
3065 Perhaps my boss would like to tell me whether that is a good idea or not.
--- Laughter / Rires
3066 MR. FECAN: I think it's a great idea and I think you do have an established policy for a percentage for normal kinds of transactions. But in this particular application, you have, I believe, an extra amount of money -- five or six or seven million dollars, or eight million, or whatever it is -- to induce you to consider breaking two exemptions, granting two exemptions, and creating an entirely new policy.
3067 I would submit to you, that is a fraction of what CanWest will gain if you do this -- and nowhere near enough.
3068 MS McQUEEN: And I guess I would add that whatever the policy is the people who are putting forward the benefits should know what it is. One of the things that is very difficult when you are in this situation -- and I think this, with the BCE thing, although it's their money to give away, it's the third or fourth time we have been in this position, and we have had raging debates about what would be acceptable to the Commission or what would not be acceptable to the Commission.
3069 It would never have occurred to us that you could sort of put a benefit for licence exemption trade and it was a good thing or would have been acceptable. Maybe we should have thought of that, but we thought that this was a detached thing, in other words, the benefits were really detached from whatever. The application stood on its merits, the benefits stood on their merits as well.
3070 CHAIRPERSON OF THE COMMISSION: We will have certainly at another hearing an opportunity to discuss further the benefits concerning CTV.
3071 But in this case, one of the dimensions that is in front of us in the benefits is program, for example, national news which was whether it is a total addition or is it enhancement.
3072 Do you think that is an interesting concept to consider in terms of valuable benefits from your experience? Do you think it's something that can be measured? Because that is the key, I guess. If it cannot be measured, it is very difficult to assess and to really make a judgement in terms of its appropriateness and whether it's commensurate.
3073 MR. FECAN: To follow Trina's lead, I think anything that enhances the viewer's experience in what is available on the screen is a terrific thing. You know, I mean CanWest has a program they currently call First National which is billed as an alternative to the 11:00 p.m. newscast, but it comes out of Toronto.
3074 So on some level, they already have a national newscast, but if by providing a western voice and a western point of view and putting in the infrastructure to do that, I can certainly see that that part of it would definitely be incremental and I think it would be an asset to have that in the system, a truly western point of view on a national newscast. So great for them and terrific.
3075 But the challenge, I agree with you, is in figuring out what part of that is part of their normal business and what they already do. If you look at the ads, First National says -- and I will turn to the 11:00 p.m. newscast. First National, one might assume, is a national newscast, but the incremental part of it in doing it in the West Coast and bringing a different perspective to the thing, and if you approve CHAN utilizing the fantastic newsroom that CHAN has, I can see a good part of that as being incremental and
would support that.
3076 CHAIRPERSON OF THE COMMISSION: The measure of that incremental, do you think it would be a good thing to count on the annual returns to have like a report on the annual expenditures to measure those benefits? Because isn't the accountability -- you know, we can have the discussion, we will make a decision, but there is a follow up here in terms of accountability. There is not only the CBC that has to be accountable. Besides that, we are still talking about public ways. There are obligations.
3077 Do you think it would be interesting or valuable?
3078 MS McQUEEN: Absolutely, you have to have some kind of measurement. I mean, your requirement is the 10 per cent. So you have to be able to count what goes into the 10 per cent. Good luck! It's a difficult situation, but I think it can be done and I think there are a number of ways that it can be done.
3079 I guess what we as applicants would like is simply a clarity, a form, a reasonable understanding of what would be incremental so that we don't get to a hearing and find ourselves in a situation where we have read the tea leaves wrong and what we put on the table is not what was wanted or expected.
3080 MS ROBINSON: If I might just add on that, to come back to a point that Ivan made earlier and that is that in these circumstances with applications that come before the Commission in changes of ownership, the onus is on the applicant to satisfy the Commission that it meets the policy.
3081 Certainly one of the difficulties that we have had as intervenors in this process in commenting intelligently on the benefit package that has been proposed, is there has been somewhat shifting sand during the course of the hearing. At this point in time, as we make our intervention, we are not sure of what exactly what it is that Global is proposing as their benefits.
3082 That creates difficulties for the process. But we would say that when the Commission takes a look at applications for change of control, there is a responsibility for the applicant to come forward with the benefit package and to show the Commission that it is incremental.
3083 We appreciate the struggle that the Commission is having. Quite frankly, we are having the same struggle as intervenors in commenting on it.
3084 CHAIRPERSON OF THE COMMISSION: Thank you. Commissioner Wylie has a question for you.
3085 COMMISSIONER WYLIE: I couldn't find quickly enough the definition of a policy, but when transfers are brought before the Commission, yes there is a policy. There is the tangible benefit expectation, but the Commission, I think at the end of the day, has to decide whether that particular application is in the public interest as filed and in some circumstances, as we discussed yesterday, perhaps the Commission could come to the conclusion that it would be in the public interest and commensurate to the transaction to ensure that the viewer will get as much or possibly and preferably more, certainly not less, than he or she had before the transfer. Because that would seem to be to be in the public interest, if you look at it by reference to the Broadcasting Act.
3086 In your intervention, if I recall, you raise the example of les Jeux du Canada and les Jeux du Québec. Well that is a perfect example to me of enhancement.
3087 Why should that be removed and put into the pot of the tangible benefits and removed from the screen and the viewer by virtue of the transfer? Perhaps the owner wouldn't have continued, but there it is. We have a transfer which overall we have to find to be in the public interest and I find the notion that it's bad regulation to examine that over and above a policy that has a percentage of tangible benefits a little bit surprising. We have the general discretion and responsibility to look at transfers against the test of the public interest.
3088 MR. FECAN: And while we certainly have learned from the NetStar process and decision, I think our position here in front of you today, is that this is not just another hearing. Two exemptions from a policy reaffirmed recently as a year ago are being asked for and the consequence of those two exemptions is effectively creating an entirely new policy, two national networks out of three for one player.
3089 I think our position here is that the burden of proof is on the applicant here to demonstrate why this is good for the system, why they are the only choice in having these good things happen and that in fact there are no other people that can come forward and give at least as much or more to the system without forcing you to grant exemptions.
3090 So in this particular situation, we are delineating this further kind of thing that we really feel is necessary, this burden of proof, and I guess just to be clear, I don't think that burden of proof has been reached.
3091 MS ROBINSON: If I might just add one thing to that, and that is with respect to the 8 hours of priority programming.
3092 When you released your policy decision from the Canadian programming hearing a year ago, you said that for the three major groups, for CTV, for Global and for WIC, there would be 8 hours of priority programming commencing September 1 of this year. That, in our minds, was the benchmark and anything that was to be considered a benefit would have to be incremental to what the Commission had established as a requirement.
3093 So a year ago, you said, "We are getting 8 hours of priority from Global, we are getting 8 hours of priority from WIC and we are getting 8 hours of priority from CTV". We find it difficult against that backdrop to understand an argument that it's incremental for the system that there be a different 8 hours of priority on CH and CHEK than there is on the rest of Global because, as we read your policy from a year ago, that is what you established a year ago that you were going to be getting.
3094 So with respect to that 8 hours, we wouldn't see that as incremental or something that could be argued in this proceeding to be a benefit.
3095 MS McQUEEN: May we make one remark about a previous intervenor's explanation of our schedule?
3096 CHAIRPERSON OF THE COMMISSION: Yes.
3097 MS McQUEEN: We were, I guess, hurt slightly that the Vancouver schedule that was displayed suggested that, in fact, we are not living up to certain commitments or that we are not taking care of priority programming. The week that was selected was, in fact, the week when there was a Grizzly's game on, but that is not the typical schedule and I would just, if you would indulge us, ask Jon Festinger to explain that in fact VTV does live up to its Canadian priority programming commitments.
3098 MR. FESTINGER: Thank you for the opportunity.
3099 As Trina mentioned, these were unique weeks because they were heavy in sports and there was also a rather notorious Monica Lewinsky-Barbara Walters' special on that week. But what is really illustrated is the problem of taking a two-week snapshot six months into the television season.
3100 VTV's condition of licence is to provide 7 hours of 7, 8 and 9 programming between 7 and midnight. Obviously, that does not include news or sports. At February 28th, when the snapshot was taken, VTV was so far ahead of our 7, 8 or 9 commitment that we only had to average 5.5 hours a week of 7, 8 and 9 for the rest of the year to make our commitment and that is why we had room for sports.
3101 We ended up the year 35 hours over in 7, 8 and 9. If I may be permitted just two quick additional points. Of our commitment to 21 original local hours of programming a week, we are doing about 35 hours currently, and that was about the same last year.
3102 And lastly, of just looking at the schedule that friends have tabled, of 7.5 hours of CHEK's Canadian programming between 7:00 and 11:00, 5.5 hours was provided by our parent CTV, and a half hour of that was Double Exposure, which is in fact an independent production that is done out of VTV. Similarly, of 10 and 3/4 hours on CHAN, 6.5 hours was provided by CTV, including a half-hour of Double Exposure as well.
3103 MS McQUEEN: So there.
3104 MS McQUEEN: Mr. Festinger, CTV must break its code of silence and speak to Mr. Morrisson.
--- Laughter / Rires
3105 MR. FESTINGER: As soon as we can find him.
--- Laughter / Rires
3106 CHAIRPERSON OF THE COMMISSION: Thank you very much.
3107 MS VOGEL: I would now like to invite CHUM Limited to come forward for their intervention.
INTERVENTION / INTERVENTION
3108 CHAIRPERSON OF THE COMMISSION: Good afternoon, or good evening. I am not sure which one is more appropriate.
3109 MR. SHERRATT: We know that it's going on evening. I am sure after your day, you are not even sure what day it is having been up there since eight o'clock this morning.
3110 COMMISSIONER WYLIE: Don't be so sure.
--- Laughter / Rires
3111 MR. SHERRATT: Madam Chair, Members of the Commission.
3112 For the record, I am Fred Sherratt, Vice-President and Chief Operating Officer at CHUM Limited.
3113 To my immediate left is Moses Znainer, Vice-President, Corporate Development of CHUM and President of Citytv Division, then Jay Switzer, Senior Vice-President, Programming CHUM Television and General Manager CHUM City, and besides Jay, Ron Waters, President of CHUM Television.
3114 Madam Chair, members of the panel. We are pleased to have this opportunity to be before you once again in Vancouver. And while this is a considerably different hearing than the one we had here in February, it too requires the Commission to address key underlying issues confronting Canadian television.
3115 First and foremost, maximization of the Commission's television policy objectives in programming, in diversity and in local reflection, and second, ensuring the future of local conventional television service by not weakening existing players in the already fragile system.
3116 At the end of the day, it's by looking at these issues that the Commission can best determine what is in the best interests of Canadian broadcasting.
3117 For us that means healthy competition between distinctive players, all of whom contribute significantly to Canadian programming in their own unique way. This, in turn, means avoiding structural dynamics that result in the excessive flow of programming dollars south of the border.
3118 We tried to make sure that our comments in this proceeding are consistent with those we made in the context of the Vancouver-Victoria hearing and at the Commission's policy hearings.
3119 Having argued in February that Victoria and the Island need better local service, we are not going to now argue against CanWest's proposal for greater local service on CHEK. Our applications before you for new stations in Vancouver and Victoria are in no way inconsistent with CanWest's plans.
3120 We agree with both CTV and CanWest's position at this hearing that in assessing market impact, the Commission must address system-wide as well as local aspects, including the relative position, strengths and assets of the players concerned, not just local impact, as each of them argued at our hearing here in February.
3121 Tuesday's Financial Post reported that we had signed, and I quote, "A non-aggression pact with Global". This is categorically untrue. In fact, an examination of the record, I am sure, would prove that CanWest has intervened against us at virtually every turn through the years. So we are certainly not here under the pals' act.
--- Laughter / Rires
3122 MR. SHERRATT: The position we are putting forward is not support for CanWest but rather a structural one. We would be taking exactly the same position if the applicant were CTV.
3123 MR. SWITZER: In our written intervention, we commented on the negative impact that common ownership of CHEK and CHCH would have on the revenue and profitability of CHUM's television stations and hence our ability to sustain our distinctive contribution to Canadian programming.
3124 We proposed to CanWest safeguards that would limit that impact and thereby ensure ongoing diversity in the system. CanWest have stated that they are prepared to accept these safeguards as conditions of licence and that CHEK and CHCH will not broadcast non-Canadian content feature films, non-Canadian content programs on what are called "U.S. conventional mini-networks", such as the WB and UPN, and non-Canadian content syndicated mini-series.
3125 We believe these safeguards will preserve the ability of Citytv to maintain its feature film focus and CHUM's unique contribution to Canadian long form programming while allowing our Ontario NewNet stations to fill out their programming mix with frankly left-over U.S. series. These safeguards are imperative even if the CRTC were to require the divestiture of CHEK.
3126 Tuesday, there was some discussion with CanWest about program licence fees for top U.S. series programming going up significantly over the years under the CanWest-CTV-WIC competition model.
3127 You have with this decision the potential to slow down or even reverse escalating U.S. licence fees, leaving more money in the Canadian system to support new Canadian programming. We believe this is a key factor -- perhaps "the key factor" -- that must be part of your decision. The stakes for the Canadian broadcasting system are huge.
3128 Although it is hard to be absolutely precise, based on applicants and intervenors' comments and on some considerable buying experience in the U.S., we estimate the program spend in the U.S. by Canadian broadcasters to be something in the order of $350 million per year.
3129 By allowing CanWest to keep CHEK and CHCHC, you can help ensure prices will not rise in the future, as there would only be two national buyers of traditional U.S. series rather than three. In fact, prices may even fall over time.
3130 Even if this transaction only stopped the damage of price increases in the future, this could, as an approximation, represent a saving to the Canadian system of 35 or perhaps 45 million dollars each year growing over time -- monies that would be left in the Canadian system to support Canadian programming.
3131 MR. ZNAIMER: As we have previously indicated in several policy hearings, CHUM's vision of an optimum Canadian broadcast system is one in which the competition for imports is sufficiently moderated so as to retain in Canada money that has otherwise gone, and will otherwise go, to the Hollywood studios as a result of too many Canadian buyers chasing too few American hits.
3132 In our view, the Canadian programming objectives of our system will be best served by a more rational television marketplace composed of a refocused and less commercial CBC. Two and not three private national commercial conventional television networks. CHUM Television, in association with others, focused on alternative formats such as feature films and related long-form and left-over third and fourth tier U.S. series and Canadian specialty channels taking a greater role in original Canadian production commensurate with their increased audience.
3133 This will serve to keep the cost of top U.S. imports from spiralling uncontrollably as CHUM has complementary and harmonizable import program needs vis-à-vis CTV and Global that a new player would not.
3134 International experience also suggests that one more big buyer for Canada is unrealistic and potentially very damaging. The U.S., with approximately 260 million people, has four established commercial conventional networks and two struggling mini-networks. Taking these last two together as one, the U.S. has plus or minus one mainstream conventional commercial network for every 50 to 55 million people.
3135 In the United Kingdom, with a market of over 55 million people, there are two mainstream commercial networks, ITV and channel 5 and only lately so with channel 5, or one for each 25 or 30 million people.
3136 In France, with a market of approximately 60 million, there are again only two mainstream private terrestrial networks, TF1 and M6. In other words, about the same situation as the United Kingdom.
3137 So by comparison the likelihood of Canada sustaining more than three national private terrestrial English-language buyers against an English-speaking population of 23 million is exceedingly slim.
3138 Pursuing such a course would therefore be highly speculative and any possible benefits that might be offered would not outweigh the clear harm that would result.
3139 For all these reasons, CHUM finds itself in the somewhat unexpected position of recommending that the Commission approve the CanWest applications, subject to implementation of the safeguards proposed by CHUM as well as the other safeguards promised by CanWest as conditions of licence in each market where two licences are granted, and further review of the impact of these safeguards and the potential need for additional safeguards in CanWest Global's upcoming licence renewal.
3140 Thank you.
3141 CHAIRPERSON OF THE COMMISSION: Thank you very much. I would ask Vice-Chair Wylie to ask the questions, please.
3142 COMMISSIONER WYLIE: Good evening, gentlemen.
3143 We don't want to be completely non-aggressive. That would become boring. Well, there is one other area of clarification that I would like, over and above the points you have made that have been satisfied by the reply of CanWest subject to our attaching them as conditions of licence, or conditions at least of approval at the moment.
3144 But the third area which I find interesting which is the last paragraph of your written intervention which is the need in your review to have conditions of licence that would make sure that CanWest's commitment to strong distinct regional voices is maintained and you have focused on the local programming proposals and asked that they be at least very specific 22.5 hours on CHEK and 33.5 hours of local programming on CHCH.
3145 So I think I have the same 22.5 hours of local programming on CHEK, but I have difficulty finding out how -- it may not be details that you have with you -- you arrived at 33.5 hours, and more particularly, would it be your view that the threshold that we should require from them is what is on the air at the moment in terms of local programming?
3146 MR. SWITZER: Vice-Chair Wylie, if I might begin, I think the intent was to encourage CanWest to make specific and firm commitments, the promises that they expressed in the application, and it was obviously not our intent to change or in any way alter what we believe they were promising, but to take our best ability to recap what they promised. I apologize if it's in any way inconsistent with what thy filed.
3147 COMMISSIONER WYLIE: No.
3148 MR. SWITZER: But the intent was to say we, in many ways, applaud the intent of what you are doing in terms of focusing locally. We believe it would give comfort to others, particularly in Ontario on the broadcast side, to make those commitments firm and if that were the case, we would applaud that.
3149 COMMISSIONER WYLIE: So it's based on the commitment they make, not what is available on the air and you didn't look at how it compared with what is available at the moment.
3150 MR. SWITZER: No, we did not.
3151 COMMISSIONER WYLIE: Would it be your view that it has to be at least as a minimum as much as there is?
3152 MR. SHERRATT: Yes, indeed. I am talking off the top of my head because we don't have the numbers, but as we heard the application in the process that you went through on Tuesday, they clearly indicated that what they were proposing to do was much more, particularly in the case of Victoria and really in Hamilton, because they both have been under performing in that area. So we are assuming that the commitment is more, and we think it's imperative, in this case with having two stations in adjacent markets, because there is some argument whether they are the same markets exactly because they are both Canadian communities, but it's imperative that they provide local service.
3153 One benefit we see is keeping prices of foreign programming down. The other is that we get intensely local television stations in Victoria and the same in Hamilton, both of whom need local television.
3154 COMMISSIONER WYLIE: Yes. My question was it's maybe what has been promised, depending on how you calculate it, is more than the 33.5 hours in the case of CHCH.
3155 But your position is, however calculated the local news and local non-news should be required and at a minimum the requirement should be what they promised and you would share the view that it has to be at least as much and hopefully more.
3156 Now, it may well be that at some time in the future, heaven knows that things are moving very quickly, that you will be before us on a transfer.
3157 What is your view, if you were, of the discussion we have been having about possibly looking at program enhancements as something that can be expected on an important transfer that gives more clout to the applicant as a player in the industry separately from the more, not artificial but tangible benefit test. But to also say, what's going to happen to this station and what is the viewer going to benefit from if he is not or she is not eligible for a scholarship?
3158 MR. SHERRATT: Well, first of all, Madam Wylie, it's our hope that we wouldn't be before you on a transfer and that perhaps we would be before you down the road for a licence renewal and two to three years, I believe was the time frame we discussed in February.
3159 COMMISSIONER WYLIE: Never say no.
--- Laughter / Rires
3160 MR. SHERRATT: But having said that, we heard the discussion that you had yesterday and we applaud the Commission for going down this road. Clearly, your interest and our interest and all of us together who collectively make the Canadian broadcasting system are interested in viewers and what the viewers and the citizens of Canada get when they turn on their sets and their turn on their radios. That is the number one consideration that we share in common.
3161 One of the great things -- and you alluded to it this afternoon -- about the way our system works is that we are dealing with a policy, not a regulation, and clearly the way the system is structured gives the Commission flexibility to move with the punches, to be there as things change and you have used that very effectively and I see you using it here at this hearing. This is a good place to start. You haven't got a policy hearing. You have looked at it, here is a major transaction, can we get more immediately on the screen for the viewers in a rapidly changing world?
3162 I think there are ways you can devise that we together, all of us in the industry, and with the Commission working together we have done it in other areas, to find ways that you can quantify and you can find out that it really is incremental to what would have normally happened.
3163 It will take some work, as Trina McQueen said a few minutes ago, but it's doable. It would be a wonderful way to take new money and channel it into the system right now to the benefit of the viewer. So we totally agree with that approach.
3164 COMMISSIONER WYLIE: Thank you. Have a nice evening.
3165 MR. SHERRATT: Thank you.
3166 CHAIRPERSON OF THE COMMISSION: Vice-Chair Colville has a question for you.
3167 COMMISSIONER COLVILLE: I was struck by your outline of your ideal framework for the Canadian system, this managed marketplace, if I can call it that.
3168 Others today have suggested that, in fact, approving this transaction the way it was applied for, and indeed the way it appears you support, would be giving Global two national networks in effect.
3169 So your second point is two not three private national conventional television networks, but what has been suggested to us is that there would be three, two in the hands of one player. I guess I take it it's your view that the advantages that we would gain from reducing the price war in the U.S. for U.S. rights are worth it to reduce the diversity that one would have if you, in fact, had three separate networks rather than three networks, two in the hands of one player.
3170 MR. SHERRATT: I will start and I know Moses wants to comment on it.
3171 You use the word "diversity" by introducing more players. Undue competition doesn't normally increase diversity. We have seen it in radio where it tends to send everybody to the middle of the road and chasing the same kind of programs, the same kind of programming and the same audience. That clearly has been the case in the buying patterns of American programming and that is why the prices have escalated as much as they have.
3172 So getting diversity in the system, there are other ways to do that rather than chasing people down the middle. Having the buying clout of the Hamilton-Toronto market and the Vancouver-Victoria market clearly is an advantage, but having those two stations alone doesn't give you a national network and by not having a new buyer chasing the rights for those markets, but doing the add-ons and the tag-alongs we think will reduce the amount of money that flows south.
3174 MR. ZNAIMER: I would like to add to that by stating that I have been trying to make this point about escalating prices for many years and consider it one of the great slow motion tragedies in Canadian broadcasting.
3175 The motive is heartfelt and well-meaning. It's to create more Canadian programming, but we must always remember that the first 50 million, maybe the first 100 million, goes south and if we could have kept that over, take the 25 years that I have been in the trade, I think there would have been another billion dollars spent on Canadian programming which probably would have created considerably more diversity and considerably more creative vitality than was created by this rather more American and I think more destructive system.
3176 MR. SWITZER: If I might add, Vice-Chair Colville, to give you some context to this. This session today is a very hot ticket in Hollywood at some great personal risk. I will point out that many of the Hollywood studios have representatives here today. They are afraid that with one stroke of the pen their world will change and Canada won't be the golden cow, the embarrassment -- in Hollywood they used to laugh about us, 7 million English-language homes paying hundreds and hundreds and hundreds of millions of dollars for programming? They are here today because they are worried that the party might be over.
3177 We believe that this will instantly and ultimately benefit what we are here to talk about which is Canadian programming. It is something that has always been talked about on the edges, but never dealt with straight up. Three buyers becoming two, apart from the other legitimate promises and tests that you have to deal with, fundamentally change the relationship between the buyers and the Hollywood studios.
3178 MR. ZNAIMER: If I can get back at it again. There are a number of anomalies that get repeated in the course of many years and sometimes they need to be exploded. One of them is that local ownership gives you local programming. Obviously, we have heard even today that local ownership of CHAN or of CHEK for years and years didn't give the local programming that was wanted. Local programming is a corporate specialty, it's something that a particular company sets itself to do, devotes itself to do and figures out how to do.
3179 Similarly, competition doesn't necessarily give diversity. One of the intervenors here today kept repeating that phrase, and Mr. Sherratt has made the point and we see it in radio that sometimes too much competition drives everyone to the centre whereas as in a slightly less heated environment you see that companies can take particular niches and stick to them, thereby giving much more diversity to the Canadian viewing public.
3180 MR. SHERRATT: We are not advocating, incidently, that you change your policy as you did in radio. It's different in radio there are more players, but even there we are quite different than the United States. We don't have as many players to consolidate. Clearly, in television we don't.
3181 But the fact that it's a policy let's you deal with it on a case-by-case basis and that is the way you have done it and that's the way we think you should continue to do it.
3182 COMMISSIONER COLVILLE: So for that reason, for the U.S. rights reason, you think it's worth it to have us allow one owner to have two national networks at the possible risk of having more diversity of Canadian programming by having that third network.
3183 MR. ZNAIMER: In the context of the promises and with the substantial safeguards. Put the cuffs on them.
3184 COMMISSIONER COLVILLE: Well, in the context of the promises then --
3185 MR. SHERRATT: We thought of bringing a lot of handcuffs in here and putting them on the table. But we remember somebody did something like that a few years ago at the hearing and it didn't play very well.
--- Laughter / Rires
3186 COMMISSIONER COLVILLE: Well, in view of your non-existent non-aggression pact --
--- Laughter / Rires
3187 COMMISSIONER COLVILLE: In view of the discussion we had, I guess I must say that I might be a bit surprised that you would be supporting their application as proposed and I take your point that you have observed carefully the discussion we have had over the last day and a bit on this benefits issue, going beyond simply the "tangible benefits".
3188 What should we expect as the benefit to the system if we are prepared to grant two national networks to one owner to recognizing that we gain that benefit, but is there something more one should expect then if we are going to have that kind of market control or market limitation on the system in Canada. Should one be expecting more from the player that you are going to give that benefit to because you are getting this other benefit on the side?
3189 MR. SHERRATT: The answer to your question, Vice-Chairman Colville, is yes, you should expect more.
3190 One thing though, I don't believe that it will develop a second national network. It's giving them two stations in the Toronto-Hamilton market and a station in the Vancouver-Victoria market, which gives them the ability to program those stations and add on to what they have, but they clearly -- and you could make this a condition -- have said they will make those programs available to other players in other parts of the country.
3191 So it's not disadvantaging the other parts of the country and it's not a national network. It sounds like I am trying to make their case for them, I am not and I don't intend to, but we see the benefit of keeping the escalation of foreign program rights as a real benefit and that is the number one benefit that we see to us as operators in the system and to the system. That is why I said at the outset it wouldn't matter if it was CTV that was here or CanWest. We think the principle is a good one, and based on experience it's a good one.
3192 The other thing that they must do to get that trust from you have been a part of the discussion you have had, and undoubtedly you will have before they leave. But the benefits and the commitment to localism, to providing Hamilton service and Victoria service, those are commitments which we think you should really handcuff them on.
3193 COMMISSIONER COLVILLE: I started off my question to you to say others had alleged that this was in effect going to create two national networks and I took it from your answer to my question that you were accepting that view. I guess you don't.
3194 MR. SHERRATT: No, I don't.
3195 COMMISSIONER COLVILLE: You take this as a network and two separate --
3196 MR. SHERRATT: Two television stations for which they will have to buy national rights, just as we have to buy national rights in Toronto for Citytv and have nowhere else to play them. They have an advantage over us in that because they will have these programs being acquired in concert with the other programs that they buy. But it clearly takes the escalation and the drive of competitive buying, it takes a layer off of it and will keep prices from escalating.
3197 When I first got in the television business, back in the days when you and I met in the Maritimes, CTV was -
3198 COMMISSIONER COLVILLE: Mr. Peters told us that that is beyond the end of the earth.
3199 MR. SHERRATT: I am not as old as Mr. Peters.
--- Laughter / Rires
3200 COMMISSIONER COLVILLE: The end of the earth, I think it was Toronto.
3201 MR. SHERRATT: But CTV was buying hour-long programs for $1,200 and then I remember it doubled, it got up to $3,000 an hour. We were paying $750 for half-hours. That's $750.
3202 CHAIRPERSON OF THE COMMISSION: Canadian.
3203 MR. SHERRATT: Canadian. Of course, it was a little better currency back then.
3204 MR. ZNAIMER: Commissioner Colville, we are all aware this is not an ideal solution, but it is the case of the devil you know and if you could contemplate the situation where you turn down this proposition, put those stations in play, the spiralling effect of that and the impact of an aggressive new player who must register some ratings and what that will do to the price of the import stuff will make Arab oil look cheap.
3205 COMMISSIONER COLVILLE: I appreciate your saying that because would that be then your greater fear, that if those stations were put in play then the result would be the third network without the constraints on it.
3206 MR. ZNAIMER: It's a certainty and I beg you to keep this in mind. We sometimes spend many hours talking about benefits in terms of millions or a few tens of millions on the positive production side of the Canadian ledger. This involves literally billions, I think and it is a kind of hidden byproduct of this particular discussion and one that we hope you pay a great deal of attention to.
3207 COMMISSIONER COLVILLE: And you are satisfied that the three constraints that you have listed, that you understand they would accept as a condition of licence would confine those stations to not becoming a third network in fact.
3208 MR. SHERRATT: No, I don't think it will do that. What will confine them from becoming a third network is not having stations in the rest of the country and they would undoubtedly sell those programs off as they have agreed that they would. They have committed to sell those programs off to other players in other parts of the country. But I don't think we are going to see it develop into another network. But to put them in play and have those two stations go to a single owner clearly would result in that owner moving to cover the country and becoming a third network.
3209 MR. ZNAIMER: Especially if that owner already had stations.
3210 COMMISSIONER COLVILLE: Thank you, gentlemen.
3211 COMMISSIONER WYLIE: Mr. Znaimer, you mentioned the devil that we know. We are trying very hard to put a bit of a halo on it.
--- Laughter / Rires
3212 CHAIRPERSON OF THE COMMISSION: Thank you very much. Thank you.
3213 Madam Secretary.
3214 MS VOGEL: I would like to call the Communications, Energy and Paperworkers Union of Canada to come and make their presentation.
3215 CHAIRPERSON OF THE COMMISSION: Good evening and thank you for your patience.
INTERVENTION / INTERVENTION
3216 MR. LUMGAIR: Thank you, Madam Chair, also it's good morning -- afternoon. We thought it might be tomorrow, but --
3217 Anyway, good evening, Madam Chair and members of the Commission. My name is Robert Lumgair. I am national representative for the Communications, Energy and Paperworkers Union. To my right is someone who is a little bit more recognizable to B.C. audiences. Harvey Oberfeld is a veteran award-winning reporter with BCTV and currently CEP Vice-President of that local. To my left, is Susan Lea, CEP local Vice-President for CFCF Montreal.
3218 Madam Chair, CEP represents the vast majority of employees at both WIC and Global Television and these are the people who provide both the technical and production skills at the stations affected by this application.
3219 I would like to begin our oral presentation by handing over to Harvey for some initial comment.
3220 MR. OBERFELD: Thanks, Rob.
3221 Members of the Commission, our members -- of course I speak on behalf of the people at BCTV so I am fairly narrow in my focus -- were very happy to hear the Global proposal because we have been through some very, very, very difficult times at BCTV in recent years and we weren't sure where it would all end and with the Global proposal we do see a light at the end of the tunnel.
3222 I would like to address specifically -- we do have some concerns, of course. I want to talk about the national news program that they talk about. Our members were so enthusiastic about that idea that about two weeks ago we went out and bought 200 shares with Global, one for each of our bargaining unit members because we wanted to show that we have a sincere interest in investing in our own future and we see that national news program as one of the ways that we can invest in our future and indicate support for that plan.
3223 I have been there. I have been a reporter for 30 years, 20 years at BCTV, eight years on Parliament Hill. I have see what Ray Peters talked about earlier and I have been to too many farewell parties, and the national news program, in our point of view, gives us a chance to show the nation what we can do.
3224 Really it's an opportunity that was denied us, many of us feel, by the CRTC a couple of years ago when we applied for a 24-hour all news channel and we didn't get it. Well, now we have another opportunity. But apart from the jobs it would provide, apart from the influx of money that they say they are going to put into our station, I think it's very important from another point of view as a Canadian.
3225 Comme j'ai dit, j'ai travaillé sur la Colline parlementaire pendant huit ans. Je suis complètement chez moi quand je suis à Ottawa, and les banlieues d'Ottawa, aux Terrasses de la Chaudière, la Place du Portage, même quand je voyage à Toronto. Je ne connais pas Hull tellement, mais...
--- Rires / Laughter
3226 Mais Toronto et les banlieues je suis complètement au courant, et à Montréal, les banlieues, les environs de Montréal, Québec, même à Chicoutimi.
3227 So we and our crew we have travelled throughout that area and we know what it's like and we know what it is to be a Canadian. We don't think you see what's it's really like to be a Canadian on the national news that you now get from either CTV or the CBC.
3228 You get news coverage of British Columbia or the west when there is a specific news item that pertains to British Columbia or the west. For example, a story on forestry, the fishery or rusty ships that come from China, we get coverage. But whenever there is a national story, of national importance to all Canadians, something seems to happen to the national newscast in our country. They see if from the perspective of Quebec and Ontario. The experts come from Quebec and Ontario, the commentators come from Quebec and Ontario, and people don't understand how we feel out in the west, and they certainly don't understand how we feel in British Columbia.
3229 I have seen it when I have travelled because I talked to people. Some of them aren't even interested, but those who are interested they don't get it. They are not getting it from their news, they are not getting it from their national news. We believe that a national newscast based in Vancouver can do that. Just imagine the possibilities. Imagine a discussion of national issues with a panel that just doesn't include Hugh Segal, Gerald Caplan and Michel Vastel. Imagine, if you want, a discussion of something that is of national importance -- in deference to CTV, Tom Clark and Mike Duffy.
3230 But imagine a discussion with universities, if they need some university people to talk about issues. Instead of just being from the University of Toronto, Carleton, Université de Montréal or Laval, just imagine if we used experts on a national show from the University of British Columbia or Simon Fraser University, and yes, God forbid, on occasion from the University of Alberta.
--- laughter / Rires
3231 MR. OBERFELD: We believe that a national newscast based in Vancouver would allow us to do that. We think it's important because we can teach something to the rest of Canada. You might say, "Well, BCTV, a little station". But, as you know, we have 650,000 to 700,000 viewers on average for our new show. That's just in B.C. That's half what the national newscast gets across the entire country with a budget that is probably 20, 30, 40, 50 times what we operate under.f
3232 We believe we can show them what we can do and we think this application gives us an opportunity to do that so we support it especially with regard to the national show.
3233 But we have a number of concerns. We have some very serious concern because the record of Global Television in the past in dealing with Canadian programming we don't think has been good enough and we want you to really make sure that if they do get this licence, that they are forced to keep the promises they made. That it's not a pie in the sky offer, that they will come to you and say, "You know, we tried it. Now we are slashed for cash like the rest of them.
3234 If they get this licence, they should be required, as a condition of the licence, to keep the promises they made to operate a national newscast and to fund it adequately and with the resources it takes to make it a success.
3235 There are a number of other issues that are more national in nature that give us great concern also as a union because, as you know, CEP represents WIC employees across the country.
3236 For that aspect, I would like to turn the parole back to Rob and he can explain some of our issues that way.
3237 MR. LUMGAIR: Thanks, Harvey.
3238 As Harvey has just said, there are aspects of the Global application that are clearly positive and have our support. However, there are two major concerns that we want to touch on on this part of our presentation. The disappearance of local programming and the ongoing centralization of operations.
3239 It may well be that the Commission would find the upcoming hearings in September a more appropriate forum for these particular concerns. Well, you can be sure we will take another one at it in the fall.
3240 In our view, these issues are not only applicable to the application before you, but symptomatic of the direction that the entire industry is taking. In the CRTC policy document Building on Success, the Commission affirms that one of the five tenants that the policy framework is local and regional reflection whether it's a news or non-news programming.
3241 We couldn't agree more. However, the decline of local television's connection to its audience and involvement in the community over the past five to ten years has been dramatic to the point of being absolute.
3242 In medium and small markets virtually all locally produced programming that was not mandated as a condition of licence has been eliminated. That, of course, has meant that the only product to escape the cuts was the news.
3243 We in no way suggest that local news programming is not important. Indeed, it is absolutely vital, but it does not encourage or promote the type of community reflection contemplated in the policy -- or what we believe is contemplated in the policy.
3244 In our view, broadcasters must return to programming that in some way reflects the particular interests and aspirations of the community, provides a forum for the voices and a stage for the talent in that community and promotes the geographic area that it is intended to serve.
3245 That kind of programming did exist in most markets not long ago. At page 16, No. 64, again in the Building of Success document, the Commission makes this observation, and if I could quote yourself back to you for a moment.
"The Commission notes that the amount of non-news local programming has declined over the past ten years. There appear to be two major reasons for the reduction. First, as a result of the regulatory emphasis on expensive, peak-time entertainment program, the largest broadcasters have had fewer resources to devote to local programs. Second, the consolidation of the ownership of local stations in the hands of a few corporate groups has encouraged management to effect operational efficiencies that have reduced resources at the local station level". (As read)
3246 We absolutely concur with the Commission's conclusions.
3247 However, with respect, Madam Chair, we disagree with the Commission's final conclusion that this kind of programming can best be achieved by establishing incentives to provide it during peak viewing periods.
3248 We submit that peak viewing periods are much too expensive a real estate for the kind of local programming we are referring to and have referred to with respect to A, B and C. It would require broadcasters to produce and air products that could not come close to commanding the advertising revenue that is currently enjoyed.
3249 That does not mean that local and regional programming scheduled in day time or non-peak hours could not be profitable. If broadcasters go back to reflecting their community with interest and energy, they will attract an audience that is loyal and home-grown. One of the major concerns recently expressed by Mr. Asper was the possibility that American programming at some point may no longer be available to Canadian broadcasters. It's a well-founded and real concern. These programs are currently available to almost every Canadian household by way of American cable channels and will soon be available from other sources.
3250 One of the obvious answers to that threat, in addition to quality prime time programming, or peak viewing programming, is to get in touch and reflect your community during non-peak periods. It is a unique market and one that belongs to the local broadcaster.
3251 With respect to the application before you and Commission policy, we ask that you provide significant incentives to produce this kind of programming in day time or non-peak viewing periods, or even better, make it a condition of licence.
3252 Only then does it have a real opportunity to succeed. We understand that a return to local broadcaster involvement will require some real commitment. Many stations, including the current WIC stations, have virtually eliminated all production staff with the exception of news.
3253 Indeed, even the technical capabilities would have to be upgraded at many locations. As an example, the programming for CHAN actually comes from the master control operations at CHEK. CHAN in that respect is no longer a stand-alone television station and we think that demonstrates how far the drive to centralize has gone.
3254 Having said that, the comments yesterday by Mr. Asper with respect to CHEK and CHCH are a breath of fresh air and welcome news. I am referring specifically to his pledge to give back to the community and to reestablish a local focus.
3255 However, our members would like to see that commitment expanded to all of the stations involved in this application.
3256 Much has been made of how CHEK has been lost in the shadow of its big sister, but in our view, CHEK as it is currently programmed, reflects its community as much or perhaps more than most other television stations.
3257 The fact that it does not reflect its community to the extent that it could and should is not the exception with respect to the stations in this application but sadly the rule.
3258 What we are asking both Global and the Commission to consider is the possibility that a vital part of what makes a television broadcaster a meaningful and relevant part of the community that they serve is being lost and if the industry continues on its current path it will be lost entirely.
3259 Programs such as Your Say, Okanagan Now and Hamilton Sunrise, to the extent that it has some non-news content, are a step in the right direction, but do not go near far enough to reverse the negative trends in the industry over the past ten years.
3260 That concludes our submission and thank you for the opportunity to present our perspective. If the Commission has any questions, we will do our best to answer them.
3261 Thank you.
3262 CHAIPERSON OF THE COMMISSION: Thank you. I would ask Vice-Chair Colville to ask the questions.
3263 COMMISSIONER COLVILLE: Thank you, Madam Chair.
3264 I don't have a lot of questions. Your opening comments I think are pretty clear and your written brief that you sent in before and your statement here.
3265 I guess, one question I would pose is: Given what you have read in the application and what you have heard here for the last day and a half, two days now, what specifically would you like to see? You have talked in your written brief just about getting a commitment to more local non-news programming and again this afternoon you asked, on the second page of your presentation which you just made, we asked that your provide significant incentive to produce this kind of programming in day time or non-peak periods or even better, make it a condition of licence.
3266 What would the condition be? What would the incentive be specifically that we should be considering?
3267 MR. LUMGAIR: By way of policy, Commissioner, the definition or the proposal from our perspective or the benefit that one might seek with respect to this application is that the kind of programming that we have tried to sort of define with respect to giving a voice to the community, giving a reflection, specific local programming, that that, in fact, be mandated as a condition of licence with respect to the stations involved in this application.
3268 MS LEA: And I would just like to add, Commissioner. We are also seeing the quality, the quality of local programming slowly erode. We are seeing the one-man band operation, the journalist with the camera. So it's a one-man show, the internships. We are seeing an erosion, just get the product on the air and it doesn't really matter how the product is being presented. The quality is being eroded and if I could just talk about an example at CFCF.
3269 Lately, we lost all our local programming in terms of non-use, it all went, and we recently lost our hour-long morning show that sort of reflects the community concerns, music, artists, that left too. And what happened was we were no longer living up to our terms of licence.
3270 So basically, we had more news, we had yesterday's news a day later in the morning. That is being rectified now. But basically, what we are seeing and what we see everywhere is an erosion of local programming that reflects the artists, the community involvement. All we are seeing is daily reporting, news, news, news, and that's a real concern.
3271 So when we talk about what we want to see, we want to see promises as terms of licence. We want to make sure that we are not just filling air time because we said we would devote an hour here, or an hour there, but we are filling it with quality programming as a terms of licence.
3272 COMMISSIONER COLVILLE: What isn't clear to me is whether the promises that are here are satisfactory. You just don't trust them and want to make them a conditional licence, or whether the promises are not enough and you want more to make it a condition of licence.
3273 MR. LUMGAIR: In our view, the promises with respect to specific local programming are not enough. We think the commitment and the promise with respect to CHEK and CHCH, and in terms of returning that to the community, the comments that Mr. Asper made specific to those two stations we think, as it relates to this kind of programming, should be applied to all of the stations in this application in some form.
3274 COMMISSIONER COLVILLE: So you are satisfied with CH and CHEK, make them COLs.
3275 MR. LUMGAIR: Yes, I think that's fair.
3276 COMMISSIONER COLVILLE: And then you would like to see similar commitments to all the other stations involved in the transaction?
3277 MR. LUMGAIR: We would.
3278 COMMISSIONER COLVILLE: All the other WIC stations?
3279 MR. LUMGAIR: Yes. We would love to see that, but all of the other WIC's stations, yes.
3280 MS LEA: And may I add again? We want to make sure that when they say it's locally produced -- like I think there was a reference to certain local shows, I guess sports shows, et cetera, but when it says it's a local show that it is a local show and it's produced locally at that local television station by the people who live in that community. That is what we are looking at and we want to make sure that that is spelled out, that it's not sort of about local events but produced somewhere else.
3281 MR. OBERFELD: Mr. Commissioner, if I could say something. I have been at BCTV for 20 years and we pride ourselves on our news package. In the 20 years I have been at BCTV I have never seen a greater reaction to anything we have ever done than a few months ago when we decided for whatever reason not to run the Remembrance Day ceremonies live from Vancouver. There were thousands of calls. I have never seen the viewers as irate as that one item.
3282 Now, some people say well it was the slash for cash mentality that we have laboured under for the last few years. Management said they had other reasons, it was more complicated than that. Whatever the reason was, it was a disgrace from the point of view of our public relations with the community that we try to serve.
3283 What it taught me was that wherever you are in Canada, like Leonard Asper said, people relate to what is within about a kilometre, a kilometre and a half from their house. You know, it really matters to them what is going on in the parking lot, what is happening, whether it's a discussion of the sky train, it's issues like that people care about rather than frankly watching 20 Pamela Wallin interviews with people that also classifies as Canadian content. People want to see more than the newscast. They want to see what is going on in their community explored by the stations that are their community, taking money out of their community.
3284 COMMISSIONER COLVILLE: I don't want to try to make excuses for anybody, but do you think that was perhaps more a result of the unfortunate situation that these stations were in with the uncertainty over the ownership, and so on. Like that and perhaps other programming has been reduced.
3285 MR. LUMGAIR: No, I think -- and I certainly could stand to be corrected, but from our perspective the same kind of reductions with respect to involvement in the community, the kind of programming that gives a voice to that community, that reflects it in the ways we suggest, has been reduced in any number of other stations. There are exceptions, clearly, but I don't think it's simply confined to in any way just the WIC station.
3286 I guess I would like, with respect to making where we are coming from in terms of the benefit or what we are looking for from the Commission with respect to this, is we think that the magnitude of this deal provides or requires some significant -- and we think there are significant benefits, but we think that this kind of requirement with respect to specific local programming does a couple of things.
3287 It does produce on screen programs, on screen programs that people can relate to and it does it in a realistic fashion. We are not chasing prime time peak viewing dollars with respect to this and we don't think it's practical. But it does it in a realistic way.
3288 We think this effect, the effective of this kind of regular reflection, provides a real benefit to Canadian viewers in those markets.
3289 MR. OBERFELD: You know, at BCTV I have said goodbye to more than 50 people in the last couple of years, the last few years. It's a very sad thing to go through. And it's not just BCTV. You know what has happened at CJOH. Look at their complement of staff a couple of years ago, what happened there, and I am sure when they didn't, when they came for their licence application, said, "Give us our licence renewal and we are going to slash as many jobs and get rid as many people as we can".
3290 Each one of our people has a name, and each one of our people have families, and I think if the broadcasters won't take the responsibility of putting something back into the community more so than just using the community as a distribution point, I think the CRTC has to take that responsibility to force them to do it.
3291 COMMISSIONER COLVILLE: Thank you. Those are all my questions. Your position is very clear.
3292 CHAIPERSON OF THE COMMISSION: Thank you.
3293 Commissioner Grauer.
3294 COMMISSIONER GRAUER: I just want to follow up on the line of questioning without revisiting or giving full weight to everything you said with respect to local programming. I don't know if you were here yesterday when I spoke to Global about -- well, the broadcasting system is made up of a number of elements, as is any station, and you have discussed the local programming component which is not peak time.
3295 What I spoke to them about was the issue of Canadian priority program production in peak time and the stated intent of the Broadcasting Act and our policy that in fact Canadian programming in peak time reflect Canada and all its diversity and that includes regional.
3296 Further to your point about a B.C. perspective on the news, it's equally true that a show like Cold Squad is indigenously a story about Vancouver, and Traders is a story about Toronto, and really challenge them with respect to -- and I think it's true about all private broadcasters and their broadcast licences -- so a very long way of saying, you have spoken about the local programming per se, and I wonder if you have any views on the issue of the commitment of a broadcaster taking on these assets, which are important western Canadian assets, and their role in the independent production community, both here and in Alberta. We are not talking about station produced programming, I guess is what I am saying.
3297 Where does it fit in your order of magnitude?
3298 MR. LUMGAIR: It's fair to say we think it's extremely important. I neglected to mention that we also represent a very sizeable portion and number of freelance independent producers, technicians and production people, both here and in Toronto.
3299 We think it's extremely important. We think that the Commission has turned its mind to that in terms of policy. It can always get better, there is no question about that, but it's very clear that a lot of energy and a lot of thought has gone into the requirements, in particular the policy requirements that are coming up for the group relicensing and the minimum number of hours.
3300 So not to minimize that, we certainly think it's the most -- perhaps if you try to get them in some sort of order -- the most important part that exists. That is when most viewers are watching television. What we have done here and what we have gotten from our members, and what we get from the public, what we get from viewers and communities like Lethbridge, like Kelowna, like Victoria, is a loss of identity and broadcaster identity in those communities.
3301 We have tried to focus on something that we think realistically can be done with respect to this application and we hope policy across the board. We hope that in policy hearing in the fall that the same kind of thing can be addressed.
3302 COMMISSIONER GRAUER: I guess the day is getting long for me and I won't go on. I guess what I was saying and also part of my question is, does the production of this kind of priority program which clearly originates from somewhere aid in what you are talking about the viewers' desire to identify and see themselves reflected. That is part of my question.
3303 The other part is your point of seeing, British Columbia for instance, not just in a crisis -- you know our stories.
3304 MR. OBERFELD: Well, we have seen that diminish. We seldom travel. Our shows do trips around the province once or twice a year, but on a day to day basis our reporters and cameramen, unless there is very major news, we don't travel the way we used to in the golden days of BCTV. You know, it doesn't have to be prime time programming. I am sympathetic to the broadcasters when they have that golden opportunity at night, they want to maximise their returns because you can put some Canadian content on it, but if everybody is watching Who Wants to be a Millionaire, you have a problem.
3305 But, you know, you may remember at BCTV we had the Jack Wester show.
3306 COMMISSIONER GRAUER: I do.
3307 MR. OBERFELD: It wasn't on at prime time, it was on at nine o'clock precisely and it had fantastic ratings at nine o'clock, ten o'clock in the morning. Why can't we do something like that? Because it takes staff, it takes people and that costs money.
3308 So I mean, I think if their feet are held to the fire they will produce quality programming. But it's cheaper sometimes to run cartoons, frankly.
3309 MR. LUMGAIR: I am not sure that I understand this, but I think I do now. I think I may be getting it -- better late than never. I think it does help in terms of reflecting that kind of prime time programming.
3310 But I would say that DaVinci's Inquest, to use any number of examples, for a lot of people could be taking place -- if you were watching it in Hamilton or Halifax, it makes no difference. It is a drama that is generic to its plot and its content and it's produced for exactly those reasons. I mean, you need that kind of audience.
3311 I think it is helpful, but I don't think it substitutes for in any way.
3312 MS LEA: I am sorry, if I may add, Commissioner. I see that kind of program content as extremely important. I come from Quebec, I see what the French networks are doing, I see the quality program being produced there and how many people are watching, and it's sad that the rest of the country doesn't do that, I don't know what the problem is.
3313 But one thing that drama and entertainment programming doesn't do, is involve the community. So it can't focus on sort of local community talent or offer a forum for the children either. I mean, the kids want to participate in some television show, you want to air your concern to the community group, that's the kind of stuff we are talking about in terms of servicing the community and all ages of that community.
3314 COMMISSIONER GRAUER: Thank you.
3315 CHAIPERSON OF THE COMMISSION: Madame, Messieurs, merci.
3316 That will conclude our work for today. We will back at eight o'clock to pursue with the intervenor and we will then stop for the reply.
3317 Thank you. Goodnight.
--- Whereupon the hearing adjourned at 1945 to resume
on Thursday, April 27, 2000 at 0800 / L'audience
est ajournée à 1945, pour reprendre le jeudi
27 avril 2000 à 0800
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