ARCHIVÉ -  Transcription - Hull, QC - 2000/08/16

TRANSCRIPT OF PROCEEDINGS

FOR THE CANADIAN RADIO-TELEVISION AND

TELECOMMUNICATIONS COMMISSION

TRANSCRIPTION DES AUDIENCES DU

CONSEIL DE LA RADIODIFFUSION

ET DES TÉLÉCOMMUNICATIONS CANADIENNES

SUBJECT / SUJET:

APPLICATIONS FOR LICENCES TO OPERATE NEW PAY AND SPECIALTY

SERVICES FOR DIGITAL DISTRIBUTION / DEMANDES DE LICENCES

VISANT LA DISTRIBUTION NUMÉRIQUE DE NOUVEAUX SERVICES DE

TÉLÉVISION SPÉCIALISÉE ET PAYANTE

HELD AT: TENUE À:

Conference Centre Centre de Conférences

Outaouais Room Salle Outaouais

Hull, Quebec Hull (Québec)

August 16, 2000 le 16 août 2000

Volume 3

Transcripts

In order to meet the requirements of the Official Languages

Act, transcripts of proceedings before the Commission will be

bilingual as to their covers, the listing of the CRTC members

and staff attending the public hearings, and the Table of

Contents.

However, the aforementioned publication is the recorded

verbatim transcript and, as such, is taped and transcribed in

either of the official languages, depending on the language

spoken by the participant at the public hearing.

Transcription

Afin de rencontrer les exigences de la Loi sur les langues

officielles, les procès-verbaux pour le Conseil seront

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

membres et du personnel du CRTC participant à l'audience

publique ainsi que la table des matières.

Toutefois, la publication susmentionnée est un compte rendu

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

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

officielles, compte tenu de la langue utilisée par le

participant à l'audience publique.

Canadian Radio-television and

Telecommunications Commission

Conseil de la radiodiffusion et des

télécommunications canadiennes

Transcript / Transcription

Applications for Licences to operate New Pay and Specialty

Services for Digital Distribution / Demandes de licences

visant la distribution numérique de nouveaux services de

télévision spécialisée et payante

BEFORE / DEVANT:

Françoise Bertrand Chairperson of the

Commission / Présidente

du Conseil

Andrée Wylie Chairperson / Présidente

Jean-Marc Demers Commissioner / Conseiller

Ronald Williams Commissioner / Conseiller

Martha Wilson Commissioner / Conseillère

ALSO PRESENT / AUSSI PRÉSENTS:

Secretary / Gérant de

l'audience et secrétaire

Alastair Stewart Legal Counsel /

conseiller juridique

Peter McCallum Legal Counsel /

conseiller juridique

HELD AT: TENUE À:

Conference Centre Centre de Conférences

Outaouais Room Salle Outaouais

Hull, Quebec Hull (Québec)

August 16, 2000 le 16 août 2000

Volume 3

TABLE OF CONTENTS / TABLE DES MATIÈRES

PAGE

PHASE I

PRESENTATION BY / PRÉSENTATION PAR

CHUM LIMITED 649

PRESENTATION BY / PRÉSENTATION PAR

LEVFAM Holdings Inc. 915

Hull, Quebec / Hull (Québec)

--- Upon resuming on Wednesday, August 16, 2000

at 0830 / L'audience reprend le mercredi 16 août

à 0830

9215 THE CHAIRPERSON: Good morning. Welcome to day three of our hearing.

9216 Mr. Secretary, please.

9217 MR. CUSSONS: Yes, Madam Chair.

9218 We will now hear applications by CHUM Limited for seven new Category 1 services, specifically Fashion Television: The Channel, the Suspense Channel, MasterMusic, IndieTV, Moods, Q! Television and Relationship Television.

9219 With seven applications, that means that CHUM has a maximum presentation time of 50 minutes and I will ask Mr. Fred Sherratt to introduce his team.

9220 Mr. Sherratt.

PRESENTATION / PRÉSENTATION

9221 MR. SHERRATT: Thank you, Mr. Secretary. Good morning, Madam Chair, Madam Chairperson, and Members of the Commission.

9222 My name is Fred Sherratt, Executive Vice-President and Chief Operating Officer of CHUM Limited. I am pleased to introduce the members of our team today.

9223 In the front row, on your far left, is Denise Donlon, Vice-President and General Manager of MuchMusic and MuchMoreMusic and one of the great drivers of Canadian music.

9224 Next is Peter Miller, vice-President Business and Regulatory Affairs, CHUM Television. Next to Peter is Moses Znaimer, President and Executive Producer of ChumCity. On Moses' left is Jay Switzer, Senior Vice-President, Programming, CHUM Television and next to Jay is Marcia Martin who is Vice-President, Production for Citytv and who has played a key role in the development of most of the trademark shows that we export all over the world and Marcia is also Vice-President and General Manager of Star! To marcia's left is Irshad Manji, Producer and Presenter of QT.

9225 In the second row, to your far left, is Sarah Crawford, Vice-President of Social Policy and Media Education for CHUM Television. Next to her is Maria Hale, Managing Director of ChumCity Interactive.

9226 To my left, Ron Waters, President of CHUM Television. Next to Ron is Paul Gratton, Vice-President and General Manager of Space and Station Manager of Bravo! and one of the most fervent supporters of Canadian movies. Next to Paul is Jeanne Beker, Host and Segment Producer of Fashion Television. Jeanne has hosted FT since its inception and, as you know, the show is a huge success now seen in over 120 countries.

9227 At the side table, to your left, David Kirkwood, Vice-President Marketing and Advertising Sales for CHUM Specialty. Next to David is Allan Schwebel, Director of Affiliate Sales and Marketing for CHUM Television and our interface with BDUs.

9228 Finally, we come to Peter Palframan, Vice-President Finance and Administration, CHUM Television, and then Mark Lewis, Director of Business and Legal Affairs and Legal Counsel, CHUM Television.

9229 CHUM Limited Overview.

9230 Madam Chair, Members of the Commission, we were pioneers in Canadian specialty. CHUM has participated in every English-language specialty round since becoming one of two original specialty licensees in 1984.

9231 Few will remember that those first specialty services, MuchMusic and TSN, were launched into an analog scrambled universe of about 100,000 homes, and Much had a sub rate of .90 cents.

9232 Specialty broadcasting is what we do. It's what we have done for over 40 years, first in radio and then in television. Citytv was Canada's first specialized TV service and it was from this background, and our close links to music through radio, that we created Much. In the intervening years we have fostered and developed eight other services, all carefully linked to what we do and who we are.

9233 We anticipated early the power and impact of specialty services. We knew that fragmentation would have a significant impact on our terrestrial operations, and that assembling a number of niche services, each with low audience shares, was the only effective response.

9234 As specialty revenue has risen and conventional revenue has decreased, we have certainly benefited on the specialty side, but it has also probably seen more dilution on the terrestrial side than anyone else. Niche, specialty, narrowcasting, no matter you call it, it is what it is and you only get critical mass by offering a number of services.

9235 Today, we play a unique role in the system as the only mid-sized broadcaster whose business is dependent on both terrestrial and specialty television. Fifty per cent of our television revenue, and a disproportionately larger amount of our operating profit, is from the specialty side of our operations.

9236 Thanks to your recent licensing of our Victoria station, our terrestrial stations will soon be available to 60 per cent of English Canadians. This will help bring CHUM's share of all English television revenues from about 8 per cent to something approaching 9 per cent, a lot lower than CanWest's 26 per cent and CTV's 30 per cent, but still a more solid base for a more competitive future.

9237 The seven applications we have before you today are our response to this new competitive reality. We designed these applications to maximize both diversity and contribution to Canadian programming, all based on business plans that reflect the tough reality of digital distribution.

9238 They build on our programming and operational strengths and reflect our long standing philosophy: If you are going to be fragmented, you must do the fragmenting given the base upon which Canadian television is structured. CHUM has been built on being Canadian "specialty" specialists. It's also our future.

9239 MR. WATERS: In the Public Notices for this proceeding, you called for significant contributions to Canadian programming and programming diversity. You also made it clear that you required reasonable business plans.

9240 Our business plans are not based on overly optimistic market research studies, but on something we believe is far more credible -- experience.

9241 In addition to having been in the specialty business since day one, today we are the only broadcaster to have launched new English-language specialty services -- Star! and Canadian Learning Television -- into a subscriber base of 1.6 to 2 million homes, rather than the 4 to 7 million homes of analog specialty services.

9242 We have learned a lot about the challenges and process involved in launching and operating services with fewer subscribers. Unlike Star! and CLT, these new digital services will not benefit from hybrid analog/digital carriage.

9243 Our business plan starts with a realistic approach to digital subscriber penetration, and from that, reasonable advertising and subscription revenue expectations.

9244 In an environment of 20, or more likely 40 to 50 new Canadian and foreign digital services with multiple packaging and à la carte scenarios, we see few, if any, services attaining even a 50 per cent digital penetration level which, bringing it back to real world experience, suggests that only the biggest runaway successes are likely to attain by the end of their license term, the 1.6 million household level of Star! today.

9245 Our experience has confirmed that such small subscriber numbers severely restrict advertising revenue potential. Star!, a very popular service with those viewers who can receive it, will generate less than $500,000 in advertising revenue this year. This is despite the fact that Star! was able to take full advantage of cross-promotion and synergies with our pre-existing services.

9246 The simple reality is that with a myriad of alternative choices, advertisers today have little incentive to purchase time on national specialty services that do not hit a critical mass of three to four million subscribers. While we can all hope that will change, CHUM projects that with subscriber levels more in the one to two million range and with an even greater number of digital choices, annual advertising revenues can be expected to peak at around $1 million.

9247 At the end of the day, we believe there is a business in digital specialty channels. But it is a business that will be much more challenging than anything we have seen to date.

9248 MR. SWITZER: The Canadian programming commitments made in our applications are substantial, but also realistic. They have been designed to match the revenue expectations and genres of each of our proposed services.

9249 All of our applications have Canadian programming expenditure promises in the generous 40 to 42 per cent of revenue range. We are in a position to attain these levels as a result of synergies with our existing services, despite the fact that our overall revenue expectations remain relatively modest. Thus, the Commission is assured that as our revenues grow, our contribution to Canadian programming grows as well.

9250 With one exception, which we will speak about later, we also propose to meet the Commission's aggressive expectations of 50 per cent Canadian content by the end of the license term, with a special commitment of 100 per cent Canadian content in the heart of prime for many of our services. We have a corporate track record of treating content as a business, be it through building relationships with independent producers and distributors or through exports of our magazine shows. And we will, as we have in the past, treat our Canadian content levels as a floor, not a ceiling.

9251 Commitments that sound too good to be true almost undoubtedly are. The Commission has already seen applicants in the current round of specialty renewals seek to abandon commitments that were central to their initial application and licensing, despite their market success. Similar, but even quicker reversals can be expected if any digital applicants succeed in being licensed on the basis of overly optimistic business plans and higher than sustainable commitments.

9252 MR. ZNAIMER: In the cover letter to our Category 1 applications, we said the most pertinent question to be asked at these proceedings was: How should the Commission adjudicate between the dozens of applications for only 10 available privileged Category 1 licences?

9253 We suggested that the Commission should use this perhaps last opportunity to shape the digital landscape by awarding Category 1 licences only to potentially popular and clearly defined alternative and socially useful services in unserved or badly undeserved genres or fields.

9254 As ownership and commercial appeal will likely be the primary considerations in a distributors' selection of Category 2 and foreign services, we suggested that it was up to the Commission to deploy its powers of selection in favour of Category 1 applications that address new communities or functions that are vital to Canada's social, emotional and educational health.

9255 We do not believe that you have any obligation to help those who opposed the emergence of specialty television to begin with and are now making desperate grabs for space, nor do we believe that it is time to abandon the field to the distributors. Indeed, quite the opposite! We feel it is absolutely necessary for the Commission to weigh in on the side of fair access and against the undue preference affiliated applicants will get from distribution ownership.

9256 Accordingly, we urge the Commission to give preference to, and to license as many, completely distributor unaffiliated Category 1 services in deserving genres as possible as this is the only sure way of truly guaranteeing access for unaffiliated services, especially given that there is no overriding need for the Commission to limit itself to the number 10.

9257 All of our applications propose distinctive and important genres that have real potential for success. Equally important, each of our applications constitutes a natural extension of our expertise that will:

9258 1. Maximize diversity as it is in our interest to make new services as distinctive as possible from our existing ones; minimize competitive impact on existing services, and hence safeguard their ability to contribute and maximize operational synergies and hence resources for Canadian programming.

9259 And now we would like to offer you a quick tour of our history and methods in this field of specialty, and give you a taste of our new offerings.

--- Video presentation / Présentation vidéo

9260 MR. ZNAIMER: Now that you have a little taste of the channels, I would like to present the people who will actually manage these services -- if we are lucky enough to get licensed -- and they will speak to each of their individual applications.

9261 Up first is Paul Gratton, with Indie, Canada's Independent Film Channel.

9262 MR. GRATTON: As a youngster growing up in Ottawa, no form of artistic expression inspired me in the same way that feature films did.

9263 Unfortunately, I very quickly determined that the mainstream fare being presented at the local Bijou was not nearly as interesting as the film festival selections that I could catch, every Sunday night, on television, on a show called "Cine-Club", on Radio-Canada. Despite the black and white of my television set and the French subtitles that frequently slipped just off screen, a love of quality alternative cinema was born in my heard and my soul -- and I owe it all to television.

9264 Some 30 years and some 17,000 movies later, I now appear before you and ask that you grant us the privilege of being able to carry on the noble television tradition that first inspired me to devote my life to the movies. I ask that you grant us the licence for Indie.

9265 It has been said that the major Hollywood studios are no longer a source of originality or innovation in film. Slasher films, effects-laden disaster movies and gross-out comedies designed to appeal to the lowest common denominator all too often represent the most heavily promoted, easiest to sell box office fare churned out by the majors.

9266 This is not an environment in which Canadian films can flourish. There simply has to be a mechanism for supporting authentic alternative filmmaking voices in this country. There has to be a home for film artists who want to tell personal stories about real people coping with real problems, in locations that are not all within a 10-mile radius of the Beverly Hills Hotel, in Los Angeles.

9267 Indie will be such a channel. At least 75 per cent of our schedule will be comprised of feature films -- and only feature films. This includes a minimum of 200 hours of Canadian motion pictures every year, exhibited in peak viewing periods, as well as a promise to exhibit 100 per cent Canadian programming in the heart of prime, from eight to 10 p.m. daily.

9268 We have proposed a 30 per cent level of Canadian content for this movie-driven service as the only level that is realistic, given the available supply of Canadian feature film material. Currently, about 400 films a year are released on Canadian movie screens. Fewer than 10 per cent of these new titles are certified as Canadian motion pictures. For an independent film channel to promise over 30 per cent Canadian content, which is a level consistent with the paid pay television movie channels in this country, is to set up an expectation that will result in a much higher repeat factor for Canadian movies and an overreliance on a lot of general entertainment news magazine shows that are already well represented on existing channels.

9269 Indie will act as a springboard to building a stronger Canadian independent film base with $525,000 in script and concept development; guaranteed distribution for these films on Canadian television; Canadian film prize support at all major Canadian film festivals; and a specific commitment to support 10 new Canadian independent feature films over the course of the first licence period at $280,000 per film.

9270 I cannot emphasize enough what an important initiative this commitment to 10 new Canadian movies represents.

9271 The Canadian film industry desperately needs more development monies to improve feature film script writing in this country, and another source for high television licence fees for the worthiest of new Canadian features. Taken together with the buying and the promotional power of Citytv, Bravo!, Space and Star!, Indie, along with our applications for the suspense and relationship movie oriented channels will crystallize the CHUM mission to be Canada's foremost market-makers and promoters of Canadian feature film in all of its various incarnation. It's a legacy that we would be honoured to pass on to a new generation of informed television movie watchers and it would allow me to do something with the notes I have taken on the 17,000 movies I have seen since I was a kid.

9272 MR. ZNAIMER: So next up with Fashion Television: The Channel are Marcia Martin, supervising producer, and Jeanne Beker, host of Fashion Television: The Show.

9273 MS BEKER: Napolean Bonaparte once said: "Fashion is a barometer of our times." To truly understand any society or culture, one need look no further than the costume of the day.

9274 Major museums the world over exhibit, study, and, indeed, celebrate both historic and contemporary dress. The media reflects the public's fascination with fashion and its related art forms: photography, visual art, architecture and design.

9275 As a personal expression, fashion mirrors social values. As a vibrant, visible industry, it strengthens our cultural identity. By having our creators help define who we are, we can express what's important to us, celebrating our own traditions without relying solely on U.S. and European influences.

9276 The clothing business in Canada generated $14 billion in sales last year. There are currently seven Canadian magazines that feature fashion and beauty, yet there are only a few television series in this country and no TV channel that specializes in this genre. Clearly, it is underserved.

9277 One of Canada's fastest rising designers, Joeffer Caoc, states:

9278 MS MARTIN: When we developed FT: Fashion Television in 1985, the program spawned a whole new television genre and its presence was felt across the globe. Now seen in over 120 different countries, FT has even become required viewing for many design students around the world. Over 50 schools in Canada alone have requested use of FT in their classrooms.

9279 Highlighting our own people and product in a global design context will give the Canadian fashion and design industries a fully-dedicated promotional engine. Just as MuchMusic, Bravo! and Star! have provided the stage and spotlight for our musicians, artists, film and television stars, Fashion Television: The Channel will showcase our designers, photographers, architects and visual artists.

9280 FT: The Show is the model for Fashion Television: The Channel. Based on the show's history and popularity, we know there is an audience for this genre. After 15 years, our archives are the largest and richest of their kind anywhere. Building on that library, our programming will feature magazine series, documentaries and fashion-related movies, drama and comedy series.

9281 This channel not only celebrates fashion and design, but as part of our Media Literacy Program we will examine the complexities and provide analysis and context. "What's wrong with fashion?" delves beneath the surface to reveal the mechanics of the myths and the grittier side of glamour. "Mind and Body" deals with medicine, wellness and longevity, particularly as they relate to beauty.

9282 We are intent on providing a broadcast runway worthy of the world's stage, for all our talented designers, photographers, architects and artists. Fashion Television: The Channel, it's more than what you wear.

9283 MR. ZNAIMER: Thank you, Marcia.

9284 Our next offering is the Suspense Channel and here, again, is Paul Gratton.

9285 MR. GRATTON: Suspense movies can largely be broken up into two broad categories: the suspense thriller and the suspense mystery. The former is designed to fill the audience with strong emotions, provide a roller-coaster rise of adrenalin and anticipation. Steven Spielberg's "Jaws" or Alfred Hitchcock's "The Birds" would fall into this category. TV series such as "The Fugitive" or "The Twilight Zone" would also fall within the thriller genre.

9286 The suspense mystery, on the other hand, creates its tension through the suppression of information, plot twists and turns and the revelation of the true identity of the criminal at the end of the film. Ellery Queen or Perry Mason mysteries fall squarely within this familiar tradition, but so would such nail-bitters as "Wait Until Dark" with Audrey Hepburn or Alfred Hitchcock's "Rear Window". It's worth noting, however, that Suspense will maintain CHUM's policy of no "slasher" films.

9287 Suspense's format will consist primarily of recent and classic mystery and suspense-related television dramas, features films and the best of mystery and suspense programming from independent Canadian producers. Most importantly, given the importance CHUM gives to feature-length production, we expect to finance six films over the licence term, or one film per year at $300,000, starting in year 2. This significant financing of six new films represents a much-needed kick-start to Canadian film in this enormously popular genre.

9288 Suspense Channel will help repatriate tuning to suspense and mystery programs from foreign signals, such as A&E, by significantly enhancing a Canadian presence in a genre heretofore left mostly to U.S. producers and services.

9289 Some of Canadian cinema's early successes fall squarely within the suspense genre. Garth Drabinsky's production of "The Silent Partner" and Bob Clark's "Murder by Decree", featuring Sherlock Holmes, are two examples that readily spring to mind. Unlike in Quebec, the genre seems to have fallen into disrepute in English Canada, not with audiences but with Canada's film funding agencies. And yet any hopes for a successful new era for the Canadian film industry will have to be founded on the three tent poles of comedy, romance and suspense. That's what audiences flock to see. And the triggering of quality Canadian productions within the suspense genre is the reason our Suspense Channel is an idea whose time has come.

9290 MR. ZNAIMER: First we give you the tension, and then we offer you relief. Here is Denise Donlon, who will take you through Moods.

9291 MS DONLON: Moods is a unique, ultra niche music television service unlike any other existing channel, featuring New Age, contemporary instrumental, light jazz and smooth music. A reliable oasis of meditative calm, the channel to escape to, an environment nurtured by tranquillity and in touch with the ambient world.

9292 Tune into "Awakening Ambience" and experience nature in all its forms: wind, mountain, forest, birds, waves lapping against the shore. "Experimental Environments" is a new creative opportunity for computer visual artists and animators to craft worlds beyond our own. Moods is beautifully edited and seemlessly synced to smooth and melodious soundtracks crafted by composers from Canada and around the world.

9293 Having enjoyed 20 years of popularity in Canada, the New Age genre is more viable and entrenched than ever. With international New Age stars, this genre today embraces themes of naturally ambient and atmospheric environments, is occasionally enriched by the human voice and is a potent expression of cultural diversity in music. CDs from Canadian composers such as Robert Michaels and environmental artist Dan Gibson achieve gold and multi-platinum status.

9294 There is evidence for the compelling nature and wide appeal of a truly alternative channel. Remember the national media coverage when a cable operator in western Canada took the metaphor of television as the "electronic fireplace" to a literal level and temporarily introduced the "log channel". It was an immediate success. When the channel was taken off the air, there was a real outcry.

9295 Moods isn't the log channel, though. Moods will offer not only exposure for established and emerging artists in this gentle genre, but will also offer a myriad of hitherto unexplored creative and economic opportunities for composers, filmmakers and computer animators by melding these disciplines.

9296 Moods offers an exceptional new opportunity to export Canadian music and visuals around the world as this genre transcends linguistic and cultural boundaries.

9297 Besides the pure entertainment appeal of this channel, there are even tangible health benefits to watching Moods. Moods is a calming, perpetual presence that will be of great benefit to health professionals, music therapists and patients in hospitals. Studies show that music influences our physical and mental processes measurably by triggering endorphins, lowering stress levels and reducing depression. It is perfect for public places, as well as private homes.

9298 Moods will be embraced everywhere the desire for a calm, healing atmosphere prevails. Here is a channel that will relax, refresh, restore and renew.

9299 MR. ZNAIMER: Well, now that we're in a calmer mood, open to positive emotions, here is Marcia with Relationship Television.

9300 MS MARTIN: Who doesn't have a love story to tell -- whether it is your own, one you have read, seen at the movies or just dreamt about? It is a conversation at dinner, on the phone, on the net and over a cup of coffee. We all have a fascination and opinion about dating, mating and relating.

9301 Romance is one of the most popular literary genres in the world. As mass market fiction, romance generates over $1 billion in sales annually, with one in three women reading romance. There is an appetite. We read it; yet we don't have a channel that specializes in it.

9302 Relationship television embraces the world of romance and relationships by featuring movies, soap operas, lifestyle, daily advice and information programming with real life stories from viewers across Canada. Speaker's Corner input will provide a diverse range of voices on advice and personal experience. The channel will be distinct and different, dealing with not just Harlequin type romance, but all types of relationships.

9303 We are movie driven and our schedule reflects our ongoing commitment to and strength in movie programming.

9304 Relationship Television is strong on new movies and light on repeats, showing more than 20 different movies a week. We will utilize our powerful arsenal of movies and our corporate ability to buy and schedule the best.

9305 Working with independent filmmakers, we will support and encourage the production of romantic feature films, a largely neglected genre, one that will now have a broadcaster actively behind it.

9306 Like our applications for Suspense and Indie, we will finance feature films each year. Starting in year 2, Relationship Television will finance one film per year with a licence fee of $300,000 per title. These six new titles will virtually double the current output of romance films made today in Canada.

9307 Our unique contribution is strength in feature film programming, but our program mix will naturally include information and advice series.

9308 Building on our 28 year history of women information talk shows like the original Sweet City Woman, Help and now CityLine, we will design programming to take advantage of that important demographic.

9309 With our experience in movie programming and our record in successfully launching boutique channels, Relationship Television will certainly be a popular, entertaining service, full of passion, romance and matters of the heart.

9310 MR. ZNAIMER: Thank you again, Marcia.

9311 Now on to Denise Donlon and MasterMusic.

9312 MS DONLON: The other day I overheard a young man who was visiting MuchMusic refer to me as the "head rock chick". I thought: If only he knew what was on my CD player at home.

9313 I am sure there are many in this room who seek out the classics by tuning in classical radio or by listening to their CD collections, basking in the most magnificent and celebrated music of all time. Classical music fans cherish their daily sources of classical music on the radio. Imagine now a whole new perpetual source for classical music, a television channel called MasterMusic.

9314 MasterMusic will celebrate and explore the world of classical music and classical dance, jazz and opera. It is a tightly focused, reliable destination channel, featuring everything from solo voices to orchestras, from classical dance and traditional jazz to long form concerts, specials and documentaries.

9315 We know there is a demand. There are radio stations devoted solely to classical and jazz. Classical CDs are consistent catalogue sellers and overall sales in Canada are growing. Season subscriptions to symphonies, ballets and festivals are strong. Audiences for TV specials on superstars such as Pavarotti and Yo Yo Ma are huge.

9316 Demand is certainly there, but we also know that the support for classics in Canada could be bigger. We will become a national force to galvanize stakeholders who care about the future of classical music.

9317 MasterMusic will be a partner and a catalyst for community action by building audiences, creating scholarship and incentive programs and supporting music education in the schools. Developmental psychologists know that the study of music builds all areas of the brain, enhancing not only intelligence, but self-esteem, communication skills, technological and mathematical competency.

9318 We will offer badly needed private sector support to organizations like the Coalition for Music Education in Canada as school music programs are being cut.

9319 Licensing MasterMusic will preclude foreign offerings such as the Classic Arts Showcase or BET on Jazz from taking the place of Canadian voices on screen.

9320 MasterMusic will contribute to our social and cultural diversity at home and provide substantial promotional opportunities for Canadian voices abroad.

9321 MasterMusic is a historical celebration, armed with a futures approach. It is as much about the preservation and celebration of our classical musical heritage as it is about the promotion and cultivation of new, soon to be classic masterworks. It is time we had a homegrown, fully dedicated television channel that super-serves the classical audience.

9322 MR. ZNAIMER: Here with our last application is Irshad Manji: Q! Television -- The Channel.

9323 MS MANJI: As producer and host of CHUM's gay and lesbian programs, QueerTelevision and The Q-Files before it, I would like to begin by letting viewers themselves explain the need for Q! Television -- The Channel:

9324 Another viewer writes:

9325 A third viewer phones in to say:

9326 These quotes come from public feedback through our Web site, which viewers visit to discuss and debate the issues raised by our show. Because we engage viewers, we know that our programming is socially useful.

9327 But does it have the potential to be popular? Consider the facts: planetout.com, the world's leading Internet company for gays and lesbians, and the exclusive webcaster of our show, receives 750,000 unique visitors every month. In Canada alone, the gay and lesbian population is conservatively estimated at 1.65 million.

9328 This past June, Toronto's Pride Parade attracted 800,000 people, gay and straight. Generating $45 million to $55 million during Pride Week, this well-disposed, well-defined constituency is the classic niche for the digital age.

9329 The question then becomes: What is queer programming?

9330 Q! Television will reflect the full human experience through a gay and lesbian prism. Already we are speaking with independent producers across Canada about a campy variety show, a documentary on the censorship battles endured by Little Sister's Bookstore in Vancouver, and Bi Blind Date, a concept tried by QueerTelevision earlier this year to huge response.

9331 Our uniqueness doesn't end there. Both on TV and on-line, CHUM's specialty is to take viewers to places ignored by other channels: dialogues with police, parents and pastors, live event coverage, youth advice columnists and straight talk specials that encourage candid questions from viewers in exchange for myth-busting answers.

9332 This view from Q! presents Canada with an opportunity to show global leadership. Having been the first in the world to regularly schedule gay and lesbian programming on terrestrial television, having been the first also to air a Pride parade live and now, as the only TV broadcaster to stream its entire gay and lesbian program on the Internet, CHUM recognizes the rewards of leadership.

9333 The Commission's own leadership in awarding Q! Television: The Channel, a Category 1 license will provide the platform to build on this Canadian success story. Independent testimony to that is the letter you received from Jack Shand, a management consultant to corporate Canada:

9334 ... fears that he witnesses first-hand in the business community.

9335 Commissioners, the fact that a Muslim refugee from Uganda now sits before you, proposing the planet's first digital service for gay, lesbian, bi, trans and curious straight people, bespeaks how Canada can celebrate differences without calcifying them.

9336 Licensing this channel to a creative team that has pioneered its content, and proven its appeal, would be one heck of a way to conclude our country's first year in the new millennium.

9337 "Thank-Q".

9338 MR. ZNAIMER: Well there you have them, our offerings for the digital domain. Now Maria Hale will speak about our approach to interactivity and Sarah Crawford will close with CHUM's approach to social responsibility.

9339 MS HALE: ChumCity Interactive was the first Canadian broadcaster to go on-line in 1994 with muchmusic.com and citytv.com. From the very beginning, our use of new media technologies and partnering strategies was innovative.

9340 We were a founding content partner in AOL Canada in 1994 and a select content partner in Microsoft Internet Explorer Active Channel desktop in 1997. In that same year, we conducted a global Intimate and Interactive which connected fans in Sydney, Tokyo and New York with a live concert and interview in Toronto.

9341 Our most recent successes include having muchmusic.com ranked as the number one destination for Canadian teens on the Web, by the largest ever survey of Canadian teens: Report on the Net Generation.

9342 Our viewership has hit seven million page views per month, and we have hundreds of thousands of unique users who stay for over 15 minutes a session to engage in our regular features, contests, celebrity chats, voting and exclusive Webcasts.

9343 We were the first Canadian broadcaster to stream an entire channel live to the Web with the launch of pulse24.com in April of this year. Since its launch, pulse24.com has become a real success story with well over one million page views per month and thousands of unique users.

9344 We have collaborated with streaming, hosting and encoding companies, Web developers and portal players. We have been able to monetize what we do to the point that we are profitable. We will continue our innovative use of, yet measured investment in viable technologies and build sustainable on-line business models around each application.

9345 However, an important caution. To become too immersed in the possibilities surrounding DigitalTV and the promise of on-line revenues would be to lose focus on what is still essentially a television channel. The reality is we will not be able to improve upon user experience significantly in the near term without a proliferation of a truly integrated platform. And, consequently, we need to be aware that our audiences may not embrace our expanded offering as quickly or as completely as we would like.

9346 Techno-optimists with their aggressive on-line revenue projections remain close to the technology, but not close enough to the audience. We are a pure broadcast company and our successful on-line endeavours remain focused as a logical extension of what we do. We maintain the position that we are in showbiz and we continue to concentrate on delivering quality content, formats and brands through all digital media.

9347 And although the promise of digital channels as a seamless vehicle for increased audience relationship-building and t-commerce remains just that, our current on-line successes can only begin to speak to what we predict for our on-line future.

9348 MS CRAWFORD: Contributing to the diversity of the system is one of CHUM's goals. As well as bringing programming diversity to television and computer screens, our company has pledged to reflect ethno-cultural diversity, both on and off the air.

9349 We are the first Canadian broadcaster to have created a Corporate Statement of Cultural Diversity Best Practices which articulates and codifies the successful practices developed most notably by our services Citytv and MuchMusic. The guidelines and philosophy described in our Best Practices Statement will be applied across all current and future -- the CRTC willing -- CHUM Television services.

9350 You are already aware that one of our major public service contributions is in the education arena. Our corporate commitment to support and promote Media Education is ongoing and will be further realized and extended at every opportunity in our new channels.

9351 We have made it our business to provide educators with training, programming and other tools to encourage the development of a critical and informed audience. We are happy to report that in May of this year, CHUM Television was recognized with the first CAMEO award for making outstanding contributions to the development of media education.

9352 You have heard today, and you have read about, our pledge to continue to use our channels in support of social issues and initiatives to serve the public interest. It is a key underpinning of our television operations. Our track record speaks to the message that we bring to you now. Our services are passionate, visible and engaged partners in the community, whether that community is local or national. We believe that is an important part of our unique contribution to the Canadian broadcasting system, and with new channels, we can do even more.

9353 MR. ZNAIMER: Madame la Présidente, Madame la Présidente du Conseil, membres du Conseil.

9354 Recently at another hearing our efforts were characterized as "David vs. Goliath". In these proceedings we as not only David, but also as Goldilocks.

9355 Within the space of one short year, the terrain on which we all operate has changed radically. New business combinations have been forged which shatter previous ideas of corporate scale.

9356 On the one hand, we have the new Canadian media giants: CanWest Hollinger, BCE/CTV --subject to your approval, of course -- and Really Big Cable.

9357 On the other hand, we have the siren call of the new small player. And yet everyone agrees this digital business environment will be the toughest yet and it is questionable, therefore, whether this is the right time to consider such an option.

9358 So it in that context we present ourselves to you once again as the "Goldilocks" option. That is us, that is CHUM -- not too big, not too small, but just right for this job. And we want to do this job. We have the strategic position, we have the people and we have the enthusiasm.

9359 We await your questions.

9360 THE CHAIRPERSON: Good morning and thank you, Mr. Znaimer and your colleagues.

9361 Commissioner Wilson, please.

9362 COMMISSIONER WILSON: I guess it is no surprise that I would be asking the questions since I have this whole table to myself, full of books and papers.

9363 Good morning to all of you. It's nice to see you here this morning.

9364 I don't imagine it will be a surprise, if you have been watching the coverage of the hearing on CPAC the last couple of days, I am going to start with some general questions, many of which you probably have the answers ready for.

9365 But I was actually trying to think of an interesting way to make the general questions -- or I should say I was trying to think of a way to make these general questions more interesting and I was thinking last night maybe we could just do a word association game where I would say, "Criteria" and you would say, "Canadian content".

--- Laughter / Rires

9366 I would say, "Filler programming" and you would say, "We don't need it" and we would just dispense with them all in a very rapid kind of a manner and then get on to each of the individual applications.

9367 MS DONLON: We are up to that.

--- Laughter / Rires

9368 COMMISSIONER WILSON: Yes. Actually, I am sure that we could probably dispense with them fairly quickly that way, but I am sure the lawyers would prefer that I could through them in a little more detail.

9369 So for the benefit of the public record, I am going to ask you a series of general questions which will include questions that you won't have predicted because what I have done is look at each of the applications and pulled out of these applications proposals that you have made that are quite similar for each one and I have pulled those into the general question area and then we will go to the individual applications and I will ask you some questions of clarification.

9370 I am sure I am going to be irreverent at times and challenging, but I think hopefully by the end of the questioning period we will have a fuller sense of what your applications are.

9371 So if we can begin with the general questions. You will know that the first area is selection criteria and in the public notice the Commission set out a number of criteria that it would be considered in awarding Category 1 applications and, as you know, the Category 1 applications bring with them a fair amount of regulatory support in terms of the must carry rules and the packaging direction that we have given the broadcast distribution undertakings.

9372 So it's, as you know, better to get a Category 1 where you know that it is going to be launched and you will have some hope of it reaching the Canadian audiences.

9373 The criteria that we listed in our public notice pertained to Canadian programming, exhibition levels, amount of regional production, Canadian programming expenditures, contribution to program diversity, attractiveness or demand for the programming genres and use of interactivity.

9374 I notice, Mr. Znaimer, in your letter, your cover letter -- and you referred to this this morning in your opening remarks -- that you set forth four criteria of your own, and when I was reading this letter, it sort of reminded me -- I am a big Star Trek fan, so when I was reading the letter it reminded me of the Star Trek movie when Captain Kirk relates the story about being a cadet at Starfleet Academy and how they issued the challenge -- I can't remember the name of it, it's some exotic name of the challenge -- and he beats the challenge by changing the rules.

9375 I thought it was quite appropriate that you would suggest different criteria from the ones that we suggested. So I just wanted to probe you a little bit on not only what you think is the most important criteria or in order of importance the criteria that we posed, but why you came back with your four criteria which were: potentially popular, clearly defined, socially useful and targeting unserved or badly undeserved genres because it is kind of an overlay to what we are doing. I am sure that you can relate those four criteria that you have proposed to the criteria that we have issued as part of the public notice. But maybe you can just speak to that.

9376 MR. ZNAIMER: Yes, thank you, Commissioner Wilson.

9377 We actually found the criteria suggested by the Commission enormously helpful and see these four as we have described them as really aspects of the six that you proposed.

9378 In our own preparations and deliberations, we had many raging discussions in actually trying to evaluate each of the suggested categories in the call and indeed over time we came to a kind of view in our group as to how they might be ranked in importance, and when I get to that and lay that out, you will see that in our opinion, the business of being potentially popular and clearly defined alternative and socially usefully in underserved or unserved really do then relate back to some of the categories laid out in the call.

9379 We divided the various criteria proposed in the call in two broad groups. We took three of them and decided that they were important, but in a way should be taken as a given and they were the notions of attractiveness, affordability and interactivity.

9380 COMMISSIONER WILSON: Sorry, I missed the last one there. Attractiveness, affordability and --

9381 MR. ZNAIMER: And interactivity, and we mean they should be taken as a given because in a way, it is what we all do in whatever product we are creating. Whether you want to make the television station, whether it's a conventional operation on terrestrial or one of the early analog specialties, you want to make them professional, you want to make them memorable, you want to make them attractive.

9382 And as to affordability again, it's what any, I think, reasonable business does. It wants to create the very best possible product for the very best possible price.

9383 And as to interactivity as you have seen in the tape that we rolled, it was not this call that stimulated our interest in this digital world, but in fact we have been there since 1994 and I think we have been there in a particularly robust way, very effective way and it is our opinion that all the applicants that are already in our business who come before you will be in the Web and as the Web develops into other platforms, whether or not it relates to this group of digital offerings.

9384 Which brings us to the second group of criteria because we thought that they were, as opposed to important and given, the essential ones. They were the ones that made the difference, they were the ones that we thought would actually motivate a consumer -- and I think of myself as a consumer -- to go out and take the trouble and put out the extra money and order to get that precious box. And those three criteria are: Diversity, diversity and diversity -- we think it's diversity by a mile -- followed by contributions to Canadian production, followed then by viability because at the end of the day you can't get anything out of companies that don't work and confusion and failure in the digital tier would not be a good way to build confidence of the general public.

9385 So what do we mean by diversity? We mean services that are not already being offered either to communities or to functions.

9386 When we think of Q! Television, we think of a community that is barely present in the most potent medium of our day -- potentially, the most potent in history -- and we were literally the pioneer in putting that community on the air, in the form of a television show, and we think that it's entirely appropriate and a perfect use of this opportunity in this medium to put such a community on the air 24 hours a day in a destination that they can call their own.

9387 Similarly, if you look at Fashion Television, there is a function, an important function of society, sometimes mistaken as something rather shallow but, in fact, beneath the surface, obviously, an important industry, an important cultural artifact and an important form of self-expression by many people in our society.

9388 And so, it's in that sense that we think diversity leads the three criteria which are essential in order to launch these new digital offerings.

9389 As to contribution to Canadian content, our thought, again -- and it relates back to diversity -- is that what's important here is not necessarily to make more units in genres that are already established -- some of the offers in front of you make very healthy propositions, in terms of manufacturing more stuff, but it's stuff in fields and genres that are already widely present. Our thought is that it's more important to put the right amount of money behind new products, in new genres; and that's where we classify or would put the three movie-based operations because, in our opinion, in Canada, it is now time to turn our attention to long form, to features. There has been 10 years of very intense development that has placed a good deal of support behind the manufacture of series and it is our proposition to you, both in our terrestrial operation CityTV and in these three movie-driven operations, that it is now time for long-form expression in Canada and, therefore, that is a contribution to the system.

9390 And, finally, viability. Well, as I said, it needs to be alive, it needs to be reliable, it needs to be robust; and that is, I think, the quid pro quo that you expect when you accept our arguments that companies that are already well-placed strategically have an advantage in extending their services to some of these channels. Once you give us the licences, you know we will be in it for the long haul and the consumer will not be faced with a spurting series of companies and signals that go on and then go off and then maybe come on again. And so, that, I think, in a way, closes the circle.

9391 Maybe one last word about the concept of affordability.

9392 As we approached affordability, we thought not only in terms of the viewer and the distributor but, also, of the system, of the system as a whole, and what we mean by that is: The offerings that contribute the greatest diversity, in a way, are the ones that do the least damage to what's already there. And if you look at our business projections, you will see that they are not at such a scale, that they would threaten the existing businesses of the many, many existing operations that are already in place.

9393 COMMISSIONER WILSON: I was just waiting to see if you were actually done.

9394 MR. ZNAIMER: I'm sorry. I should have put a ribbon --

9395 COMMISSIONER WILSON: No; I'm not suggesting that you were going on too long, but I just wanted to give you a chance to see if there was a bit more that was coming.

9396 I guess I want to pursue the Canadian content question because some of the intervenors against your applications have suggested that your levels of Canadian content are generally lower than the applications against which you are competing. And in your ranking of the essential ingredients, or the essential criteria that we should be looking at, you put diversity first, which is fine. But Canadian content -- which, of course, is our raison d'être, under the Broadcasting Act -- comes second. And we have heard, over the last couple of days, from Alliance Atlantis, and from CTV NetStar, yesterday, that their philosophy is that really strong Canadian content has to be present in these digital services in order to inspire people to go out and sign up for those boxes at $10.95 or $11.95 a month. And I guess I'm just wondering: How do we balance that if we are looking at your applications for Category 1 licence? And it's obviously with the regulatory support that comes with those licences, it's a privilege to have them, so what's your argument for "Take us over them" when their offering is sometimes quite significantly more Canadian content?

9397 I take the argument that you have made about the genres that you are looking at, in terms of film and music, and the availability of product in those genres, but other people who are proposing channels in similar genres are proposing a higher level of Canadian content.

9398 MR. ZNAIMER: Yes, they are, and that's what I was trying to get at when I said that perhaps, at this stage -- and in order to really underline the importance of diversity in the success of the roll-out of this new tier -- is that perhaps it's not a question of the largest amount of dollars to existing genres, to more series, to offer more windows for the same series that are already appearing on the networks, but interesting dollars, sufficient dollars to generate activity in new genres. And that's why, as I said, we put our emphasis on movies.

9399 One last word, on a general basis, and then I will unleash my colleagues. But, as we go through this, I think perhaps two overriding themes will emerge.

9400 One is: We are great exponents of the essential nature of diversity in order to achieve the best possible success, both in business terms and in social utility terms.

9401 And the second is realism -- which may not be a word that you expect to get from the "rock'n roll gang" who are usually there pushing the envelope and being the most radical. But we have had the most experience and so, the other tone that will run through our presentation to you is that we are realistic about what can be done -- and we think you should be, about what is being promised.

9402 Peter.

9403 MR. MILLER: Thanks.

9404 I think one of the fundamental differences between the way we approach this and the way it appears some other applicants may have approached it is twofold.

9405 I'm going to make the first, in this case, the business plan and the business projections.

9406 We believe the projections that we put forward, in terms of subscription revenues, in terms of interactive, in terms of advertising revenues, are far more realistic than any other applicant's. What that means, as a consequence, is our total revenue expectations for our services run in the order of 50 per cent or more lower than some of our competitors in other applications. That, obviously, is a huge difference, in terms of what one can project, in terms of Canadian content, for example.

9407 The great equalizer, however -- and also part of your criteria -- is Canadian programming expenditure levels. And to that extent, you will see that our proposals for Canadian programming expenditures of 40 to 42 per cent are very competitive -- not always the highest, but certainly higher than average.

9408 The second area that Moses alluded to is very important; and it's the notion not only of the genre but the type of programming within that genre.

9409 There are three competing applications for suspense and mystery channels, for the sake of argument, but they don't all do the same thing. We have invested considerable resource, or are proposing to invest considerable resources, in feature film. For a given dollar, there is less Canadian content that's produce that we believe, in the system today, that is a vital need and that's our strength as a company and that is where we want to put our investment.

9410 So our Canadian content level may not be as high as every other competing applicant, but, as a percentage of revenues, and with the resources we have, we think we are very competitive.

9411 MR. ZNAIMER: And, of course, if I can add, with that kind of approach, you, the Commission, in the public interest, has only up side. If everybody does better than projected, the percentages keep a lock step and we spend more money -- happily spend more money.

9412 On the other hand, if you are beguiled by someone's promises and things don't turn out as they project, then they will be back and they will ask for concessions and everybody will be embarrassed. Why take that risk?

9413 COMMISSIONER WILSON: Let me ask you this because yesterday, when we heard from CTV, Trina McQueen said that, when asked about the profitability of their proposed services, most of which become profitable in the sixth year out of seven years, they were taking a very long view of profitability and that they were going to allow their patients to temper their greed.

9414 Your services become profitable earlier, which is not a bad thing. I'm not saying that you shouldn't be profitable in this environment. And I am sure that you will say that is a more realistic view, but the notion that you would take a longer view of profitability might allow you to put more into the Canadian content side. So I am just coming at it from a slightly different angle.

9415 MR. ZNAIMER: I am laughing a little because my sense is even the largest companies get tired of losing money after a period of time. I would believe that more if it came from Ms McQueen's boss -- that assertion.

9416 COMMISSIONER WILSON: One of the other ways that we could look at the notion of the levels of Canadian content is something else that we have explored over the last couple of days, which is that when you are a group, you have a group of services already and the services that your proposing -- and your chart makes this quite clear -- are nested in the genres in which you already have services, that that allows synergies to support what you can offer in the other channels.

9417 And one of the questions that we have been exploring with people is whether or not we should expect more if you do have services that are nested, that are related, where there is going to be overlap in some of the programming and synergies in the operations, if we should be looking to organizations like you, as opposed to an independent who comes in here and applies for one or two channels and they have no other channels in the system. What is your view on that?

9418 MR. ZNAIMER: A fair question, Commissioner Wilson.

9419 We have actually taken those efficiencies into account in the actual applications themselves. In part, that is why we think we can do as much as we are going to do in this really thin atmosphere. That is an overriding thing that all of us should be conscious of. You are talking about desperately few subscribers. And so we have already taken in that leverage in the construction of these applications.

9420 A subset to that answer is: depending on the kind of success we have -- it depends which of these applications actually are returned -- then we would see whether there might be some other configurations. But we can't speculate about that and so the applications at this point stand each on their own.

9421 COMMISSIONER WILSON: Okay.

9422 In terms of the implementation of the services, one of the things that we have been exploring is the notion of whether or not there should be a minimum amount of time by which a Category 1 service would have to launch. And I think one of the dates that has been talked about fairly consistently is September 1, 2001. But if you don't meet that launch date, what do we do with your Category 1 licence, since it is such a privilege in this thin environment, as you describe it? What is your view on whether or not the Commission should impose a time limit and what should happen if the service doesn't launch?

9423 I think that all of us sort of recognize that occupying a space in digital in the early days is a part of what motivates you to come forward with these applications, so if someone gets the licence and doesn't occupy that space, what should our approach be? Should there be a limit and what should our approach be?

9424 MR. MILLER: I was going to say you should punish them, but you wouldn't have to. It would make no sense for any operator to go, except in step with the other successful candidates. We can certainly make that September date. We would like to make that September date. And it makes sense that all successful applicants in the first wave go together -- in fact as many services as can be offered to the public at one time and with one big bang, so much the better.

9425 What ought to be borne in mind, however, is that this is a dance in which it takes two tango. And, of course, all this assumes collaborative effort with the distributors. And in the past it has been a challenge to co-ordinate all of that. But we agree: it would be best if everybody went together and September is a doable date.

9426 COMMISSIONER WILSON: And what should we do if people don't launch their Category 1 services? Any ideas?

9427 MR. ZNAIMER: Peter, you are a regulatory specialist.

9428 MR. MILLER: I think the Commission has in the past, when it set a date, indicated that licensees would have to come back with fairly good rationale why they can't meet it. So if, for example, to give some margin for slippage, the Commission set the date for December 2001, then that would give some margin, or if the Commission could set the date for September, with an understanding that applicants had until some time before that to file with the Commission any reason why they can't make that date.

9429 COMMISSIONER WILSON: Let me just pursue a little bit the comments that you made in your opening remarks because you have sort of made a bit of a reference just now to your relationship with the distributors. And I am going to assume that is cable because that is who has the most subscribers.

9430 In your opening remarks you said, Mr. Znaimer, that you think the Commission should give preference to and license as many completely distributor unaffiliated Category 1 services in deserving genres as possible and that this is the only sure way of truly guaranteeing access for unaffiliated services.

9431 I wanted to remind you of what we had set out in the licensing framework. We talked about the convergence report from 1995, where we established the two criteria which would have to be met in order for distributors to hold equity in programming services, one being capacity -- sufficient capacity -- and the other being a set of clear access rules.

9432 And when we established the Category 1 and Category 2 services in the licensing framework, we referenced that fact and established some guidelines about how Category 1 services would be dealt with, and, based on that, felt that it was reasonable to allow distributors to have equity in those Category 1 services. And I am just wondering why you are not satisfied that will work.

9433 I guess one of the things that I am wondering about is whether or not, in this environment, which is very different from analog, and which is nacent, and in which the distributors have quite a large stake financially, in terms of getting the boxes into the homes, would that not make them more likely to...if we give them a stake in Category 1 licences, would that not encourage them to do something that will ultimately help you, which is to roll out digital and get it into the homes and get people on the boxes so that your subscriber numbers increase?

9434 Keeping that in mind, what is your continuing concern?

9435 MR. MILLER: Our continuing concern, which is born of experience, we can assure you --

9436 COMMISSIONER WILSON: In analog, though.

9437 MR. MILLER: Yes.

9438 COMMISSIONER WILSON: That is the distinction I am trying to make.

9439 MR. MILLER: Our continuing concern is the fact that distributors have tremendous preference in their ability to launch Category 2 services.

9440 It is our view, based on the rules that the Commission is contemplating for Category 2 services, that those will largely be distributor owned.

9441 COMMISSIONER WILSON: Even with the five-to-one rule?

9442 MR. MILLER: Exactly. Let me go through this for you in a little bit of an example.

9443 Let's just presume for the sake of argument that 10 Category 2 services get launched by most distributors. Let's say that based on the five-to-one rule on Rogers' systems there are two Rogers affiliated services. On Shaw's systems there are two Shaw affiliated services. Immediately it makes sense for those distributors to co-operate and to carry each other's services. So now you have four distributor services on Rogers and four on Shaw.

9444 Then you may have another operator, a Gogeco, that also launches its affiliated services -- its own services. Maybe they all do a deal. Now you have five cable-owned services on Rogers, Shaw and Cogeco.

9445 Then you have the other BDUs. You have Star Choice, which is owned by Shaw. So those same services are there. You have ExpressVu, which one could argue is going to be in a full competitive situation and will be launching their own affiliated services, which may be the same, may be different.

9446 It is very interesting to note that ExpressVu has expressed concerns about undue preference and not being able to launch or carry on the same terms some of the services carried by other BDUs. So there may be strong pressure for them to carry these services as well.

9447 So very quickly you have at least the majority of Category 2 services being fully owned by distributors.

9448 Now we go to your 10 per cent rule, which says that an unaffiliated service is one in which a distributor holds 10 per cent or less. So what that quickly becomes is a condition of carriage. A distributor will say: If you want to be carried by us, sell us 10 per cent. So you sell 10 per cent to Rogers, you sell 10 per cent to Shaw, you sell 10 per cent to Cogeco, you sell 10 per cent to ExpressVu. Pretty soon all of those Category 2 services become either majority distributor owned, or even those that are deemed unaffiliated by the Commission's proposed rule are in fact also likely to be majority distributor owned. So what you have is a field where the distributors have a tremendous advantage in Category 2.

9449 In our view -- and we are obviously taking some risks in even saying this -- the dynamic is not very favourable to unaffiliated services. So, for that reason, we are suggesting that if the Commission wants to truly give unaffiliated services a chance, give them some priority in your Category 1 selections, because that is the only way there is a guarantee that they will get on.

9450 COMMISSIONER WILSON: In that scenario that you are describing, what role does attractiveness of the service and the ability of that service to drive penetration of digital play?

9451 I am not discounting what you are saying. That could happen, I guess. But you are talking about the introduction of a new technology in Canadian households to deliver Canadian programming that is going to cost billions of dollars to roll out. So would I, as Shaw, carry only the distributor-owned services if they were not going to drive penetration of that billions of dollars technology into the home?

9452 I guess I am asking you how much of an emphasis do you think distributors are going to put on the fact that it is like: Oh, my pal Shaw owns those services, so I am going to carry those services.

9453 MR. ZNAIMER: Let me give you a concrete example. At one point -- Peter, you will have this history better than I would, but I thought rather the whole cable industry approached the CRTC and insisted it was vital that a channel called E! be brought in immediately from the United States.

9454 When a channel called Star! finally materialized, it didn't turn out to be an essential channel, even though the functions of the two channels are identical, and in fact we carry an enormous amount of the better part of E!'s programming in the ambit of that channel.

9455 The difference between those two situations, Peter, was...?

9456 MR. MILLER: The difference was timing and the fact that the distributors felt it more in their interest to carry a U.S. service than a Canadian one.

9457 But to come back to your other point, there are many, many services that are potentially popular that distributors can carry. You have had, as you well know, 450 applications. If the Commission were only to license 10 Category 1 services, there are many other genres you will not be licensing, and we are quite convinced that many of them will be popular genres.

9458 So we are confident the distributors would be able to launch Category 2 services that are very popular and, also, ensuring that those services got maximum distribution across the system, then obviously that allows them to generate higher revenues and increase the amount of content on those services.

9459 COMMISSIONER WILSON: Okay, thanks.

9460 I want to look now at the area of independent production. I just want to get your views on how we should be looking at the levels of independent production associated with these applications. I have, I guess, three questions that I want to take you through on this, and then more specific questions on your relationship with Sleeping Giant, sort of general questions about your approach to independent production with respect to your applications.

9461 Given that there are incredible challenges associated with launching a service in the digital environment and making a go of it, do you think the Commission should set limits on the amount of programming a broadcaster can acquire from an affiliated producer? Should we take the same approach in this environment that we take in the analog environment?

9462 MR. ZNAIMER: No, we don't think you should. This is very much a different world and a tougher world and it needs its own particular set of practices.

9463 The first thing that comes to my mind is that it is important to note that not all channels are the same. That is a truism. But, from the point of view of your question, looking at our roster of titles, some channels are commissioning channels, other channels are self-produced channels. A CityTV is largely produced internally. A MuchMusic is produced internally.

9464 I must say, Commissioner Wilson, just as a little aside, that the freelance market works when most of the industry is making much of the same thing for broadcasters that do much of the same thing. But if you are in the business of being really different, not just in a title but kind of fundamentally so, you can't really get that out in the freelance market. If you do, if you bring a freelancer along and teach them your way of doing things, all they can do with that is take it out to the marketplace and sell it to your competitors.

9465 In the case of our channels that are radically different, as City was in its day especially, and MuchMusic, we have to make those ourselves.

9466 Other channels, like a Bravo!, are commissioning channels. Space is a commissioning channel.

9467 As an example, the three movie driven services that we are proposing will be commissioning channels.

9468 The other point of distinction that I think is important is the difference between reality-based production and fiction. Generally speaking, we make the reality that we project, and we have become very adept at it.

9469 When it comes to fiction, the complexity, the scale, the size of those budgets, we have to turn to the independent production market.

9470 So our approach has been not to get caught in broad sweeping regulations which can't take into account particularities, but to offer up in the relevant applications extremely high commitments to the independent production sector. For example, the films we are going to make in the movie-driven channels.

9471 COMMISSIONER WILSON: How would you define an affiliated producer or an independent producer. I mean, yesterday we had a definition of an independent producer from Trina McQueen.

9472 MR. MILLER: Actually, I like your question because I think the two are different.

9473 In our view, an independent producer is one that is not controlled by a broadcaster and obviously there are various tests that control that, that can include voting equity, et cetera.

9474 An unaffiliated independent producer would in our view be one that there is no ownership of by a broadcaster. So when we made, as Moses referred to, commitments to the --

9475 COMMISSIONER WILSON: Sorry. Did you say an "unaffiliated"?

9476 MR. MILLER: An unaffiliated independent producer would be one where no broadcaster has any ownership interest. So just to complete, when Moses was describing our specific targeting commitments to independent production or our movie-based applications where Indie proposes ten feature films and suspense and relationship each of six, when we made those commitments, we mean those to be independent, unaffiliated producers. In other words, those would not be feature films that would go to Sleeping Giant in our case.

9477 COMMISSIONER WILSON: So what is an affiliated producer then?

9478 MR. MILLER: So Sleeping Giant, in our view, to use an example, would be an affiliated --

9479 COMMISSIONER WILSON: At 40 per cent ownership.

9480 MR. MILLER: -- independent producer, but we would argue that it is still independent because at 40 per cent we do not exercise control of Sleeping Giant.

9481 COMMISSIONER WILSON: I think the level that we were talking about yesterday was 34 per cent.

9482 MR. MILLER: That is one test, but again the Commission has in other instances used other tests of control and in our case our 40 per cent ownership interest in Sleeping Giant is not controlled.

9483 MR. ZNAIMER: So we are distinguishing between affiliation which begins at 1 per cent and control which can be interpreted in many ways at 40 per cent. We do not have control of the independent producer Sleeping Giant.

9484 MR. SWITZER: Commissioner Wilson, if I may?

9485 COMMISSIONER WILSON: So you would still consider Sleeping Giant an independent producer so when you talk about commitments that you are making to independent production, you could give all of your independent production money to Sleeping Giant and that would still qualify as --

9486 MR. ZNAIMER: No, no, quite the contrary. We said that we would give it to unaffiliated, only to unaffiliated. So we made the commitment that all those big film projects that we have provided for in the application will go to unaffiliated producers.

9487 MR. SWITZER: Commissioner Wilson, to reinforce and directly answer your question, we would define an affiliated producer as one in which a broadcaster has any interest.

9488 COMMISSIONER WILSON: Any level of ownership at all.

9489 MR. SWITZER: Even 1 per cent.

9490 COMMISSIONER WILSON: Okay.

9491 MR. MILLER: The difficulty with this question and the reason we don't favour --

9492 COMMISSIONER WILSON: The difficult with this question for me is that I am not a lawyer. There are lawyers on the panel, I am sure, that understand this a lot better than I do.

9493 MR. MILLER: I should say the difficulty to the answer to this question which puts the onus on me -- but I don't think there is a simple definition that one should apply in every case. To give an example, one could argue that a producer who gets most of its production from a particular broadcaster even though there is no ownership interest whatsoever is highly dependent and is a dependent producer.

9494 So again, we don't favour a simple kind of approach. We think, as we have done, applicants need to come forward with their proposals for Canadian programming, their proposals for the type of programming that is, the level of which that is independent and what they mean by that, and then obviously the Commission has the information it needs to make the assessments that it needs to make on each of the individual cases that are before it.

9495 COMMISSIONER WILSON: So you would see us applying again -- if we were going to cap the amount of production that you acquired from an affiliated producer, that we would apply that on a case-by-case basis as we do now.

9496 MR. MILLER: Absolutely.

9497 MR. ZNAIMER: Or in the alternative, on a positive basis, in the event that you licence our film-driven applications, say that as a condition of licence we must allocate X number of those films to the unaffiliated sector.

9498 COMMISSIONER WILSON: Okay. If we wanted to set a limit on the amount of programming that you could acquire from affiliated producers, what level would you suggest? I am saying, if we wanted to. I am not saying we are going to. I am just saying if we decided we were going to.

9499 MR. MILLER: Commissioner Wilson, we can go through each of our applications on a case-by-case basis, go through the levels of production which are original production versus acquired, and we could on a case-by-case basis indicate to you what we think would be appropriate, but again we suggest, particularly in this digital environment, that that is not the way to go.

9500 COMMISSIONER WILSON: So what you are looking for then is the maximum flexibility just to make the channels work.

9501 MR. MILLER: Yes.

9502 MR. ZNAIMER: Yes, but within the ambit of very particular commitments in the places where it matters.

9503 COMMISSIONER WILSON: Okay.

9504 In the commissioned channels as opposed to the produced channels.

9505 MR. ZNAIMER: Right.

9506 COMMISSIONER WILSON: Interactivity. You talked about your on-line experience and I notice that you said that you guys were the first ones to have Web sites in 1994. TSN has made the same claim and I know for a fact that CPAC had a Web site in 1994. So I guess it's a contest to see --

9507 MR. ZNAIMER: It's a three-way tie.

9508 COMMISSIONER WILSON: -- who had the first Web site for a Canadian broadcaster.

9509 What is your approach, your general approach to interactivity because I notice that in most of your applications you talk about the Web site being a full co-partner in the service and you talk about the possibility of introducing a higher level of true TV interactivity into your services as those capabilities come on-line through the set-top box.

9510 In yesterday's presentation, we saw that there is already some level of interactivity with the television that you could be using and I am just wondering, are you talking about launching individual Web sites only for each of these services or do you have sort of a more developed plan for how those Web sites will relate to the programming that you have on the channels, when you will actually get into having icons on the screen that subscribers can play with with the remote control and have some interactivity with the channel? I am just wondering if you could expand a little bit on that.

9511 MR. ZNAIMER: Just before I turn it over to Maria, a general background. Interactivity is branded to the bone of CHUMCity and people have come from all over the world to see how you can do interactive without digital because in the early days or digital, and even today, it can be fairly two-dimensional and dry on that screen and seven, eight years ago, we hit on the idea of having our windows open to the street. That's interactivity.

9512 COMMISSIONER WILSON: Phone-in shows are attractive.

9513 MR. ZNAIMER: Right and making use of the phone-in show, and then making use of the speaker's corner box, and so on. So it's very fundamental to our work.

9514 Specifically, I think one of the more interesting things we have been doing for quite a few years now is consciously building parallel and simultaneous programs which work to each universe separately. If you are in front of a television set, it's a great show. If you are simply looking at the on-line, it's a great show, but if you are one of these few people, but steadily growing people, who have your computer and your television in the same room, or perhaps on the same instrument if you have a TV card in your computer, then you can move between these two streams and get a particularly enriched experience. We have been doing that for a long time.

9515 And so, our view is: We are platform neutral and we will go to the platform when the platform appears -- and, as you heard yesterday, the platform is not yet clear and is not yet apparent.

9516 Despite that, we have been extremely active in this field and, I think, quite innovative.

9517 Maria, will you add something?

9518 MS HALE: I think the best way to answer and address that question would be to look at our history.

9519 As Moses mentioned, and as I mentioned in the opening, we do have companion Web sites, currently, that extend our broadcast brands, whether they are terrestrial or specialty, into the on-line space.

9520 In addition to that, we have programs that we currently air that are fully integrated with the Web, again, for that unique audience that is growing that simultaneously uses the computer screen and the television screen to get their entertainment.

9521 Shows that currently exist are a show on MuchMusic that runs, called "Go With the Flow". It's a two-hour program that fully integrates elements of the Web along with live performances in our environment, chats with the host, chats with the band. The audience can also submit JPEGs of themselves and participate, you know, and see themselves on T.V. that way, through that program. As well, with "Electric Circus", people at home are e-mailing and chatting with both our dancers and our hosts and our artists that perform live.

9522 Further to that, we have, on the news side, had a program called "City On-Line", since 1994, which, again, used the telephone, at the early stages, but, now, it has transitioned to include the Web as an important aspect of that talk show -- and "Pulse24.com", with its launch in April of this year, we became the first broadcaster to stream the simultaneous broadcast of the channel on-line and live to the Web. We receive e-mails from people all over the world who interact with that programming, and those are sort of expatriated Canadians who like to stay in touch with sort of what's going on back home, and do so on very timely real-time basis.

9523 Our view of interactivity is complete audience interaction with and in the content. We view that supplemental on-line text content is a given. I mean this is what will definitely appear on the new set-top box. And we will be taking things that we define as actual audience participation, some key elements of which are chat, e-mail, voting, game-playing, what we call visual audience participation, which is in the form of Web cams and the submission of JPEG photographs, as well as --

9524 COMMISSIONER WILSON: That would take "Speaker's Corner" to quite a different level.

9525 MS HALE: Exactly. And you will hear an example, later on, about how we are going to be integrating "Speaker's Corner", specifically, in one of the applications.

9526 And we also look at contextual audience participation, where you can actually, as a viewer at home, affect the actual outcome of a program or a broadcast segment.

9527 Another example of that would be the Tragically Hip who, I guess, are Canadian musical icons performed live in the MuchEnvironment in July and after we went off the air -- they performed 90 minutes live to air. After they went off the air, they still performed for an additional 30 minutes in the MuchEnvironment. We Web cast that performance and, now, are streaming that -- will be streaming that on the Web, on demand, and allowing the audience to choose what elements of that broadcast, the entire 120-minute streaming broadcast, they would like to see in the repackaged rebroadcast of the show.

9528 So, in essence, we are allowing the consumers, now, to become the producers of that rebroadcast segment -- because, again, we only have the 90 minutes on-air time.

9529 So, all of these elements will appear in each of our digital channels, where appropriate. And, again, our basic philosophy of the street-front store-front, you know, getting in touch with our audience and our communities, will be extended as effectively as we can, using the technologies available.

9530 COMMISSIONER WILSON: I was curious, when I looked through your applications, that you show some revenues from on-line activities, but there are no costs associated with any of your applications, and I'm just wondering if you could tell me why.

9531 MR. ZNAIMER: Yes. We don't really show any essential revenues, do we Jay?

9532 COMMISSIONER WILSON: No; they are quite -- they have been described as extremely conservative.

9533 MR. ZNAIMER: But we have a reason for that.

9534 MR. SWITZER: For clarification, Commissioner Wilson, those are listed in a merchandise line and those are our traditional merchandise revenues: goods and services, small royalties, and so on.

9535 COMMISSIONER WILSON: So those are not on-line --

9536 MR. SWITZER: No.

9537 COMMISSIONER WILSON: -- revenues, at all; those are from the product that you sell at your store --

9538 MR. SWITZER: And other assorted miscellaneous revenues, yes.

9539 COMMISSIONER WILSON: Okay. So, then, essentially, you are showing, still, no costs, no revenues, for your on-line activities.

9540 How come there are no costs? Isn't it going to cost you something to develop the Web sites for each of these channels and --

9541 MR. SWITZER: It's a two-part answer, Commissioner Wilson.

9542 First of all, there's a large engine that already exists. It's a very significant, very active production-driver Internet Web unit that re-runs that is up and running and allows for all of these things that we are talking about. We don't separate and separately cost because we are only looking at very small marginal increases in individual shows and channels where a Web component is seamlessly woven into that show's production. By far, the vast majority of costs are already there up and running in our interactive unit.

9543 COMMISSIONER WILSON: What about the cost of developing the Web site itself?

9544 I mean we got a similar answer from CTV NetStar yesterday.

9545 MR. SWITZER: Yes.

9546 COMMISSIONER WILSON: But they were showing, I think it was a $400,000 expense up front for developing the actual Web site associated with the channel, and then, on an ongoing basis, treating it, I guess, in a similar manner to you.

9547 MR. SWITZER: As a general comment, we obviously are going to be very active and very significant and have a large unit up and running. Our investment to date is in the many, many millions of dollars -- probably since its launch, close to $10 million. We take Web sites as a given. And we have never treated our interactive revenues, nor our interactive costs, as numbers that we filed in applications.

9548 COMMISSIONER WILSON: So you don't apportion them to each individual channel?

9549 MR. SWITZER: No.

9550 COMMISSIONER WILSON: That's sort of a corporate --

9551 MR. SWITZER: Correct.

9552 COMMISSIONER WILSON: -- activity that you --

9553 MR. SWITZER: And, in some small --

9554 COMMISSIONER WILSON: -- supply?

9555 MR. SWITZER: In some small cases, where production people in shows or channels are also involved, it's kind of woven in and already included.

9556 COMMISSIONER WILSON: Okay. Let me ask you about the revenue issues. Because, I guess, one of the things that I was thinking about, in the early days, when we were looking at the whole licensing framework for digital services, was -- and you said, in your opening remarks, "An important cost shouldn't become too immersed in the possibilities surrounding digital T.V. and the promise of on-line revenues would be to lose focus on what is still, essentially, a television channel".

9557 I looked at it in a slightly different way, which was that if this is such a challenging environment and I want to create a channel and I want to offer as much Canadian content as I possibly can, then maybe new business models are going to be required, and part of that model would be the on-line revenues associated with the service and on-line revenues generated through innovative, interactive elements that you tie in to the channel.

9558 So, I don't actually see it as being distracted because I think that there could be quite a direct relationship between the money that you generate through your on-line activity and the amount of Canadian programming you can put back into the system, as a result of finding an alternative revenue stream in an environment that's very difficult, in terms of the subscriber revenues and the advertising revenues which you talked about this morning, in your opening remarks.

9559 So, I'm just wondering -- I mean I can see the wisdom in what you are saying about not being distracted. But, somehow, I don't think anything could distract you from television, Mr. Znaimer, so I don't think that I'm really that worried about that.

9560 So, wouldn't this be an opportunity? Don't you see that as an opportunity?

9561 MR. ZNAIMER: Maria, did you want to add something? And then I will come back.

9562 MS HALE: I definitely do.

9563 This is definitely an opportunity. And I think what I mentioned in my opening was a caution, simply because the audiences, as I said, have not adopted the technology. For the people who have put in such aggressive numbers, they are not looking at our current history. And I don't know how long they have been on the Web, but I can speak to our past, and we have been there since 1994.

9564 We are seeing -- you know, there's 13.5 million Canadians that have access to the Web but only .2 per cent of revenues have come from retailers, have come from any on-line transactions.

9565 So, for people who are looking for some miracle to happen now -- because there are some first generation set-top boxes in some homes and the possibility of some second generation set-top boxes being deployed over the next what I would say is two years -- we still have to get up that adoption curve.

9566 So, to put in high projections for revenues now, I think, would be over ambitious.

9567 I am very optimistic, and we are putting in, currently, plans and strategies which we currently have in place and leveraging those onto the new and available technologies. But to put in estimates that I think would be a little overly ambitious, at this point, would be to misguide yourselves, and ourselves, as far as our business plans.

9568 COMMISSIONER WILSON: I am a little confused, then, because if Netstar has been on the Web since 1994, and they are projecting fairly healthy revenues from that stream, who should I believe?

9569 MR. ZNAIMER: You also heard yesterday from -- was it -- BCE. They own Sympatico. They said zero revenue. So I think our obligation here is to give the Commission good advice and to urge you not to be beguiled by fantasy projections against which there are commitments which will likely not materialize.

9570 So our approach has been to leave the Web business off the sheet because we are there, we are functioning, and the programs take advantage of this already-established unit that Jay has described. But we are not settling the future of this channel on the appearance of miraculous revenues, which we think will be a considerable time in materializing.

9571 MS HALE: I would also like to jump in with muchmusic.com.

9572 As I mentioned again, being the number one destination for Canadian teens in the world -- and that means where Canadians are going on the Web first is muchmusic.com. -- and if we are having trials and tribulations there.... I mean, we are making some money, it is marginal at this point. It is 7 million paid views a month, and that is increasing, but the revenues are marginal. And they are coming and there is the light at the end of the tunnel, so to speak, as advertisers have turned in the last, I would say, year to accept the Web as a viable mechanism for getting their brands and their messages out there, but we are not there yet.

9573 And I think as far as the set-top boxes go, we are starting again and we need to be cautious about that.

9574 MR. ZNAIMER: Again, I might add that is MuchMusic, 6.4 million -- major powerful brand.

9575 COMMISSIONER WILSON: Okay, I am going to ask a really easy question. This can probably be a one-word answer.

9576 Personal Information Protection and Electronic Documents Act, you will abide by it?

9577 MR. MILLER: Yes, we are already.

9578 COMMISSIONER WILSON: Okay.

9579 Closed captioning. You have taken a slightly different approach here -- once again, no surprise -- to most of the other applicants, who seem to heed our request for 90 per cent captioned programming by the end of the licence term. You have come back with dollar amounts in each of the years.

9580 I am just wondering, given that the Commission is adopting a more standard approach to English language speciality services, in terms of requiring the 90 per cent captioning by the end of the licence term, why do you feel that we should make an exception for you?

9581 MR. ZNAIMER: Sarah Crawford will explain our proposition to you.

9582 MS CRAWFORD: We think that the expenditure commitment, rather than a percentage, is the appropriate and realistic approach.

9583 First of all, we have hundreds of thousands of dollars in each application for closed captioning. It is a little over $2.5 million dedicated for all the applications combined.

9584 Our dollar commitments for each application are roughly tied to hours of production. We pledge to caption all original production, all originally commissioned Canadian programming, and we have even insured that we have set aside money in our budgets to caption all Canadian-acquired programming, as well.

9585 In view of the relatively sparse penetration of digital services and the use of some older uncaptioned material in some of them, it is really difficult to accurately project, on a percentage basis, the programming that will be captioned over the term of the licence.

9586 So we think that the expenditure approach, rather than the percentage is realistic. It also allows us to hit the ground running, without having to go through a steep ramp up. We don't want to make promises we can't keep, and we think that these dollar commitments are realistic and appropriate.

9587 COMMISSIONER WILSON: Do you have any idea at all what percentage of your schedule is going to end up being captioned? Did you try to do a calculation?

9588 MS CRAWFORD: It is tied, as I said, to the Canadian programming commitments we have made. So, at the very least, it will be the Canadian content percentage. In addition, acquired programming that is from a foreign source that arrives captioned will also exceed that percentage.

9589 The other thing that we have going for us in this regard is that, as you know, CHUM has been a leader in the development of an in-house captioning department. And we see that through economies of scale the hours that we will be able to afford to caption over the licence term will become more cost-effective.

9590 COMMISSIONER WILSON: When you say Canadian by the end of your licence term in each of your licences, that is 50 per cent, which is 40 per cent less than --

9591 MR. ZNAIMER: Plus.

9592 COMMISSIONER WILSON: -- what we asked for. That's at least Canadian, hearing Mr. Znaimer saying, "plus" -- "plus" other American-acquired programming that has captioning on it, I assume.

9593 MR. SWITZER: We share your concern, Commissioner, and it is something we have spent a lot of time on. It remains a priority for us.

9594 We found ourselves in a position in some of these ultra niche channels of coming forward in a way where we may end up or might be in a situation where we would be spending more money captioning some foreign programming than the licence fees cost. And we said, "What are the priorities?"

9595 We share the goal. That is our intent: to reach 90 per cent by the end of the licence term. We are going to hit the ground running on these channels with at least 40 per cent to match the Canadian content minimums and growing, for the most part.

9596 We are not troubled. We are dealing with the trade-offs of putting hundreds of thousands of dollars into something that is very important, and balance that against being able to do other things in Canadian programming that we want to do.

9597 And we have taken this approach. It is not done without thought. We are obviously open to continued discussions. This is the proposal that we think makes the most sense. Of course, it would have been very simple to just come and say, "Yes, of course, we'll meet your commitments." We don't want to be in a position to come back in five or six years and try to explain to you why hundreds of thousands of dollars are going to caption some foreign programming that may not have the same value.

9598 That is the problem we face and why we are trying to deal with this as constructively as we can and to confirm that we do support the conclusion here.

9599 COMMISSIONER WILSON: Okay.

9600 I will give you another easy question on filler programming. You asked for filler programming in all of your...are you ready for this question? You should have heard this question?

9601 MR. ZNAIMER: Yes, we have learned our lesson. If it is on topic, it isn't filler.

9602 COMMISSIONER WILSON: Right. Okay, so you will withdraw --

9603 MR. ZNAIMER: Yes.

9604 COMMISSIONER WILSON: -- the Category 15 request from all your applications.

9605 MR. ZNAIMER: Yes, indeed.

9606 COMMISSIONER WILSON: Okay.

9607 Maybe we could take a break. I have some questions on your business plan and then we will go into each individual application.

9608 THE CHAIRPERSON: I must say before we break that the grandmother among us is quite grateful that the comment on page 25...or the caution about becoming too immersed too quickly in the possibility surrounding digital TV was made by the allegedly most hip, most technophile of our licensees.

9609 We will take a 15-minute break and we will resume, then, at approximately quarter to eleven.

9610 Nous reprendrons dans 15 minutes.

--- Upon recessing at 1035 / Suspension à 1035

--- Upon resuming at 1050 / Reprise à 1050

9611 THE CHAIRPERSON: Welcome back to our hearing.

9612 I will ask Commissioner Wilson to pursue the questioning. Commissioner Wilson...?

9613 COMMISSIONER WILSON: Thank you.

9614 I wonder if I could ask you one other quick question on the topic of interactivity before I move into the questions on your business plan.

9615 I think for the channels which you produce and which have a higher level of that kind of programming in them that it is quite easy to see how the interaction between the on-line applications and the channel will take place. But for a channel like Indie TV, for example, how do you see on-line participation working where you are showing movies? You are not using the same kind of --

9616 I guess what we are talking about, then, is the flow between the programs.

9617 You see, I did learn something from that seminar I went to on television.

--- Laughter / Rires

9618 COMMISSIONER WILSON: But in between the independent movies that you would be showing is where you would integrate those elements of the on-line application?

9619 MR. ZNAIMER: Yes. Thank you for a very appropriate question. Again, I think you have put your finger on something important, which is that not every channel --

9620 COMMISSIONER WILSON: Lends itself --

9621 MR. ZNAIMER: -- lends itself, right, to the same level and depth of interactive application.

9622 On the other hand, Indie is a very rich field for such an endeavour.

9623 Paul, you had some ideas about how to extend into the on-line world.

9624 MR. GRATTON: Yes. It is obvious that if you have a movie driven channel, the movies are made for theatrical exposure and they will come to you as they are. You are not going to be able to put in alternative endings in everything.

9625 But I think the interactive component should serve the Canadian film industry as a celebration of independent filmmaking. That can be accomplished in a variety of ways.

9626 For example, we would see on-line streaming from our film festival coverage -- chats with film directors. I would love, quite frankly, to put a resource out there, which would be the notes on all of the Canadian films I have seen, cross-referenced by director and subject matter.

--- Laughter / Rires

9627 MR. GRATTON: I know, it is --

9628 COMMISSIONER WILSON: It would be like your own TV channel. Maybe we should change the name of it.

9629 MR. GRATTON: I think it is important, though, that we promote current Canadian productions with on-line streaming, with interviews while the films are being shot, while they are being presented in film festivals, information about where they will open, the dates, the theatres, the times. Hopefully at some point you will be able to purchase tickets to them on-line. All of this would be extremely effective use of the interactive capacity.

9630 Every time a film would end, during the interstices, there would be all kinds of icons that would come up and people could plug in to learn more about Canadian film, and I think that should be the interactive focus for that channel.

9631 MR. ZNAIMER: Paul, you had another good idea when we had this discussion the other day, though, that the channel would also come to represent the community of filmmakers and, therefore, our parallel and simultaneous enhancements, I think, could also help a lot in helping to create that marketplace.

9632 It is a particularly intense community and they like to be in touch with each other and pass the secrets of the trade on to each other. I think that is another utility that would be very applicable in this case.

9633 COMMISSIONER WILSON: It always fascinates me when we use the word "community" in relation to the Internet, where each individual is sitting at their PC at home, by themselves, engaging in a virtual community. You wonder what happened to the old fashioned kind of community where people actually sat on their front porch and talked to each other.

9634 I am not saying that is not a good thing --

9635 MR. ZNAIMER: It is a little like this.

9636 COMMISSIONER WILSON: But I find it interesting that people are seeking this sense of community and they experience it in this virtual world. It's like: Why don't you go knock on your neighbour's door and have a conversation with them?

9637 MR. GRATTON: For filmmakers, especially those in the regions, there is a sense of alienation from Toronto on occasion. One of the great advantages of the Web is the instant communication.

9638 We have heard complaints about the $2,000 cup of coffee, where someone with a script or an idea has to come to Toronto to schmooze. In this day and age it is no longer necessary. You can put it out there, producers can search scripts, scripts can be matched with producers. There is an instant quality to it that essentially is ideal for Canada with its huge geographic challenges.

9639 COMMISSIONER WILSON: That is a very good point. It makes the Canadian community a lot more even, I think, in a lot of ways.

9640 We have to redefine the meanings of these words as we move into the future.

9641 I have another couple of quick questions. I am just starting on your business plan, and then I am going to ask you the big one about the market research issue.

9642 Script and concept development commitment: You have this commitment in five of your applications. When you look at the financial assumptions attached to those applications, there is a note on the second page of each of those assumptions which talks about an intern program and I am just wondering if you could explain to me what this is.

9643 Is it part of your Canadian programming expenditures? Are you going to hire people to come in-house to develop these concepts? Are you going to give the money away? How is it going to work?

9644 MR. SWITZER: Commissioner Wilson, you are very, very sharp. You have found a word that has crossed over into many of our applications that should not be there.

9645 COMMISSIONER WILSON: Intern?

9646 MR. SWITZER: Intern, yes.

9647 The intern plan was one of the many things that was considered in the Fashion Television channel application.

9648 The dollars, of course, are very significant. Over half a million in each channel. In the music channels we are committing 5 per cent of revenues to support appropriate musical pieces. And of course that grows to many, many hundreds of thousands of dollars a year.

9649 This is one area where we have taken a leadership position. We think it is very important. The genres that we have chosen for these channels are undeveloped, are greatly in need, and in script and concept development this is the area where we can make a huge difference. All of these funds, as described in each of the applications in great detail, will go to support traditional high-risk script and concept development with independent producers to support the feature films or other special projects that are connected and appropriate to each application.

9650 COMMISSIONER WILSON: So you do them with unaffiliated, independent --

9651 MR. SWITZER: Yes.

9652 COMMISSIONER WILSON: I was listening, Mr. Miller.

--- Laughter / Rires

9653 MR. SWITZER: Both independent and unaffiliated.

9654 The intern reference would apply as one of many things in the Fashion application.

9655 COMMISSIONER WILSON: So only to Fashion.

9656 MR. SWITZER: Yes.

9657 COMMISSIONER WILSON: So that is not carried through.

9658 MR. SWITZER: Correct.

9659 COMMISSIONER WILSON: Okay. Thanks for clarifying that.

9660 In terms of your subscriber penetration, you have included French subscribers in all of your applications, and I am just wondering what the assumptions are underlying those expected penetration rates into the French market. Are they in Quebec? Are they outside Quebec? Are they English subscribers in Quebec?

9661 Will you be carrying any French programming on your services that I didn't read about?

9662 MR. MILLER: That is an important question, Commissioner Wilson.

9663 We did a very detailed look, if you look at our charts, as to how we arrived at our subscriber levels.

9664 As we indicated at the outset, we started with the forecasts that were provided by the cable operators and the DTH operators, we took a look at them and we adjusted them in an appropriate manner, which Mr. Schwebel can describe, if you want to get into that level of detail.

9665 Then we also felt it important to look at the fact that, while perhaps not fundamental to the business plan, there would obviously be reach in francophone markets and we thought it was important to factor that in. So we have in our applications a very nominal pick-up, if you will, subscription penetration rate in francophone markets that is based somewhat on our experience to date, but also factored down due to this new environment, which, as you appreciate, is a different packaging scenario.

9666 COMMISSIONER WILSON: Yes.

9667 MR. MILLER: Also, you will see that in our pricing for francophone markets we have an average subscription rate which is lower than the average in anglophone markets. Our logic here was that we would assume the à la carte rate might be the same, but we would offer an incentive for packaging by providing a low rate for the packaging of our services with other services. That would be the little boost that we would get in terms of penetration level.

9668 COMMISSIONER WILSON: Okay, but you understand that we won't be requiring French-language distributors to carry English-language services?

9669 MR. MILLER: Absolutely understood.

9670 COMMISSIONER WILSON: That is why I asked if you had some French programming on these services.

9671 MR. MILLER: No. That is absolutely understood. It was simply looking at the business plan and trying to maximize where we would see revenue coming from, and looking at that in a realistic way.

9672 COMMISSIONER WILSON: Your business plans also include other subscribers with your MDS subscribers. What other kinds of subscribers are there besides cable, DTH and MDS?

9673 MR. MILLER: Again I will defer to Allan, if I am not correct from memory, but other would be MDS and Class 3 -- non-Class 1 systems.

9674 Is that correct, Allan?

9675 COMMISSIONER WILSON: Class 3, but Class 3 is still cable, right?

9676 MR. SCHWEBEL: Yes, Class 3 would still have come under cable and the MDS is really just a catch-all for all the wireless types of distribution undertakings.

9677 COMMISSIONER WILSON: Okay. All right. Let me go to your market research.

9678 Let me just ask you one quick question on this. You did, if I recall, file some market research with your Learning and Skills Television of Alberta application, did you not?

9679 MR. MILLER: That's correct.

9680 COMMISSIONER WILSON: You talked this morning in your opening remarks about generally your approach to market research. You said:

9681 And I certainly not discounting in any way your intuition and your experience about what is going to work. I also don't agree that all market research is overly optimistic. We have heard from some other applicants who have presented traditional formal market research studies with their applications in response to the criteria that we set out in the public notice relating to attractiveness and demand for the services.

9682 Considering that you did file some with the Learning and Skills Television of Alberta applications, the fact that you didn't file any formal research with any of these entertainment-related applications caused me to surmise that there must be some strategy behind this because I guess what makes it difficult for me as an individual looking at your applications is that market research is an acknowledged science. It has been around for a long enough time, it's something that the Commission asks for on a regular basis in relation to applications for new conventional television stations, for radio stations, for specialty channels and it is very useful in terms of gagging what genres might be attractive to people, how many people might be interested in taking the service as part of a package.

9683 So it gives us some confidence in the assumptions that you use on which to base your business plan, and I am just wondering if you could, as I said, not that I am discounting your experience because I think you are very knowledgeable operators in the marketplace, but you have to give me some comfort in terms of while you didn't file any and why we should feel confident in all of the assumptions that you have made which underlie your business plans.

9684 MR. MILLER: That's a very fair question. To us, first of all, the requirement for market research is not a requirement for formally newly commissioned public opinion research. We have always taken the view that the Commission's request for market research is a broad request that can take many forms. So in each of our applications we looked at it differently.

9685 I think the real question, which is a valid question, is why we didn't commission new original public opinion research for most of these applications. And the reason for that is very simple. In our view, in this environment there was very little context on which you could base that research. We don't know how many services will be launched. There have been discussion of the possibility of there being 40 to 50 channels, but this is the first hearing that we have been to where what you are up against is so completely unclear in terms of the total number of services.

9686 Secondly, there is a threshold for most subscribers to acquire these services that is very significant at $11.00 roughly a month box. So we looked at the utility of doing market research in that context and felt that that weighed against the fact that the genres that we were talking about were sometimes new and original or sometimes genres where there was a fair amount of experience, and it made us conclude that original market research wouldn't be that big a contribution.

9687 We have all been to hearings where people have produced research that says 70 per cent of people are interested in this channel priced at 90 cents or more, but again in this context, we felt that that wasn't particularly useful. So we put our priority in the choices of our applications and the genres in looking at it more creatively and perhaps this discussion is best held with respect to each of our applications. But certainly when you are dealing, for example, with Fashion or Q! Television, asking the question of a mainstream population and something that is a concept that may be difficult for you to define. We question --

9688 COMMISSIONER WILSON: Fashion is not a concept that is difficult to define.

9689 MR. MILLER: It is in the television concept because, again -- and Marcia will speak to this -- there is very little out there. There is a lot in other media, but not on television. So how to describe the broader concept of what we had in mind would be different. But again, we could get into this in each of our applications, but essentially we question the utility for this.

9690 If you looked at the LTA research, there were a couple of questions that were relevant for our applications because that was at a primarily exploratory stage. But generally speaking, you are correct. We felt relying on our knowledge of the genres, available audience data to the extent that was relevant and our experience with shows and productions was more relevant.

9691 COMMISSIONER WILSON: Well, okay, we can look at each of the applications individually, but I will give you an example -- and here where the relevance comes in because I am going to read you this little paragraph from an intervention against your Moods application. You are probably familiar with this. I don't know if you have read it but -- because for me the lack of demand research becomes most problematic when you are talking about micro niches of programming because for Category 1 licences, I think in my mind, what I am looking for, is I am looking for the most popular genres of programming that people are going to say, "I am going to pay 11 bucks for that box because I have to have those genres of programming and I can't get that programming in the analog world" because that is what is going to drive digital penetration and ultimately help all of the people who are going to get licensed through this process.

9692 So it becomes, as I said before not that I don't respect your experience or your intuition or your instincts, all of which are very good, but when you are talking about a micro niche like Moods, New Age Music, what should inspire me to give you a Category 1 licence for a micro niche like Moods programming where there is nothing to tell me, nothing formal to tell me that people are going to go out and spend $11.00 on a digital box in order to get that channel.

9693 And now I will read you the paragraph:

9694 So you see, they had a problem. I mean, you have to help me out here.

9695 MR. MILLER: Okay. Well we would certainly expect competing applicants to use their best shot. I think again, the key here is we disagree with the premise that the vast majority that subscribe to a box, that pay $11.95 are going to do it to get one channel.

9696 COMMISSIONER WILSON: I didn't say that.

9697 MR. MILLER: That's what the intervenor suggested, what you read to me. So first of all --

9698 COMMISSIONER WILSON: Okay. I am using the intervenor -- I don't want you to respond to this intervenor because you already did. But I am using that just as an example.

9699 I want you to respond to my question, which is: If I want to put together a package of approximately 10 Category 1 services which are going to, as a package, inspire people to run out and pay that $11 for the box, why would I include in that package a micro niche programming service like "Moods"?

9700 MR. ZNAIMER: Because that's the essential nature of this tier. The fact that an idea pops up as most popular will, typically, reflect the fact that it's already the most widely served and when you add to that the lack of clarity, in the sense of what will be the offering and what will be the price, the results are highly suspect.

9701 COMMISSIONER WILSON: You have applied for two of the most popular genres: Suspense and Independent Film.

9702 MR. ZNAIMER: Yes.

9703 COMMISSIONER WILSON: So, you want to be there, too. You want to be with the most popular. As well as the micro niche.

9704 MR. ZNAIMER: Yes. But, at the same time, we think that the popularity contest is not the sole criteria and that this is the opportunity to also insert in the mix services that are unique in their function, unique in their community of address, and also add something to the social dimension, because we are convinced that, in the rest of the package, there will also be commercial properties and other forms of drivers to create the bouquet which will induce the public to buy.

9705 I agree with Peter: No single service is going to drive this next wave.

9706 But if this next wave develops a reputation as being a place where you can get more drama series, just like you can get on Basic, and that kind of thing, then I believe people won't be interested -- and I take myself as a consumer, in this regard.

9707 COMMISSIONER WILSON: So, this is where the additional criteria that you suggested, in your covering letter, for each of these applications would come into play, that we would develop a package that does have some drivers --

9708 MR. ZNAIMER: Striking -- yes. Striking originality in it. Which will enhance the reputation of the tier, as well as the other offerings which are sure to be made.

9709 COMMISSIONER WILSON: So, it would have the popular ones and the ones that might have more difficulty getting launched, although they would make an important social contribution?

9710 MR. ZNAIMER: Yes, indeed. And if I might add one thing -- and I think it's very important -- as you get up the tiers, research will reveal to you what the public's view is of two clearly-defined choices. You offer this or that. They will tell you. And if you don't pay attention, you will get hurt.

9711 But research does not often help when you propose something that is radically new. That is the entrepreneurial act and that is the intuitive act, the artistic act, and that's how history moves forward. Until you had that first music video channel, it was, in fact, literally hard to describe. Until people come and visit CityTV and see it for themselves, it's hard to describe to them. And we think this tier will be best served if you have an interesting combination of those kinds of channels as well as the others.

9712 COMMISSIONER WILSON: So the next time a columnist accuses us of social engineering, you will be right there supporting us saying, Yes, that's what I want the CRTC to do"?

9713 MR. ZNAIMER: Denise, did you want to add something?

9714 MS DONLON: Well, just one small point, in terms of when a distributor is building their boutique of services, and which they are hoping will drive the tier. We know, from past examples, that, often, they will look for the most popular service and they will group them together, and they may take the demographics that they hope to serve and the advertising communities that they hope to serve and the audience they hope to serve and see quite a bit of overlap because they are very popular channels. And, occasionally, what they will do is they will add a micro niche channel into it, knowing it may only serve 5 or 10 per cent of the population. But if they are trying to increase their overall coverage, that extra 5 or 10 per cent, those people that desperately have to have those channels, will increase their overall penetration; and so, these micro niche services are very valuable in the whole boutique of the offering.

9715 COMMISSIONER WILSON: Okay.

9716 MR. MILLER: Just one other detail point.

9717 I would add that, in the case of "Moods", we actually asked two questions in the LAT study that were of relevance. We asked the interest in a package of channels, which could include a "Moods", a "Jazz", a "Classical" channel, which got very high ratings, and we also actually asked a question on inspirational music, which got a significant fairly low rating. So, in that case, we actually did see the benefit of including the question.

9718 COMMISSIONER WILSON: Okay. Thanks.

9719 Just a question on Canadian programming expenditures.

9720 Do you think that a condition of licence requiring minimum levels of Canadian programming expenditures is necessary for digital services?

9721 I mean you have made a commitment of between 40 and 42 per cent of the previous years' revenues. Do you think it's important to enshrine that in a CLL?

9722 MR. MILLER: Absolutely. We think that's the most important measure given.

9723 You have before you widely different revenue expectations from different services. It's obviously difficult for you to conclude what is correct. But, at least on a percentage of revenue basis, you are satisfied that a significant amount will go into Canadian programming -- and that's why we feel that that is a very important measure.

9724 COMMISSIONER WILSON: Okay. I imagine that you have been listening to some of the discussion that we have been having about how the percentage is calculated, over the course of the licence term, whether or not we should use the method that we use now or if we should calculate a percentage over all seven years or start calculating in Year 3 or 4 and calculate over the remaining four or five years.

9725 What's your view on what method is better? Or do you want maximum flexibility? Is that flexibility warranted, in this environment?

9726 MR. SWITZER: Commissioner Wilson, I guess, off the top, it would be fair to say we support the current way the Commission calculates these things, and we have based our business plans according to the current percentage of revenue approach, beginning in Year 2, based on previous years.

9727 We have listened carefully, in the last couple of days, to other constructive ideas, including the second one you mentioned, which was a seven-year average, and we find some advantages and some merit in that; in particular, some increased flexibility.

9728 There may be concerns of -- operational concerns of how to deal with life, in the seventh year, when you can't, perhaps, predict exactly what's going to happen. But, in general, I guess it's safe to say we have assumed and run our plans according to your current rules; we fully support them, and we are very open to discussing any creative --

9729 COMMISSIONER WILSON: You probably have a pretty good idea, by Year 5, where you are going to be in Year 7 if you -- I don't think there would be that big a surprise in the seventh year.

9730 MR. MILLER: I think, actually, the surprise could be in the advertising side. We mentioned in our opening statements some of the challenges here and, hopefully, that's an area we can get into, but -- you may be able to predict subscription revenue, but it may be less possible to predict advertising revenue and, obviously, interactive revenue.

9731 MR. SWITZER: But, to reconfirm, we think the principle is important. We think that --

9732 COMMISSIONER WILSON: The principle of flexibility?

9733 MR. SWITZER: No, the principle of increasing your Canadian program expenditures as your revenues grow. Flexibility is, of course, nice, but that certainly shouldn't be your priority, for us.

9734 So we are open to work with any new model, I guess; though, officially, we would support the current percentage of revenue approach.

9735 COMMISSIONER WILSON: Okay. Thanks.

9736 Those conclude my general questions. I will just turn it back to the Chair in case any of my colleagues or the lawyers have some questions for you.

9737 THE CHAIRPERSON: Madame Bertrand.

9738 CHAIRPERSON OF THE COMMISSION: I am interested to pursue one of the elements that Commissioner Wilson touched on; and that was the reflection you made about what it will be like once we make our decisions and the reality hits and the questions of access -- the comments you made on page 8 -- and the relationship with the BDUs.

9739 Certainly, we have given lots of thought to the framework we have established and we have no intention of moving back from the kind of general framework. But, certainly, through the hearing, not only are we looking for the best channels in order to really be successful in this roll-out but, also, any suggestions that we can pick on our way to help. A successful roll-out is certainly what we are looking for. And for us, access is not only about getting with the BDUs; there's also a whole question of access to content, access to talents. And, certainly, if the BUDs were here and were allowed to immediately respond, they would say, "Well, it's all very well to say that, in the worst case scenario" -- like Mr. Miller was describing earlier -- "certainly, there will be no place in Category 2 for any service that is not affiliated with the BDU".

9740 But on the other hand, you could say, "If I don't already have some conventional channels or lots of specialty channels, I will have no access to programs, to the distributors, to the talent."

9741 So what are the suggestions you would make, given the concern you have, but taking into consideration the framework we have established? What would be the suggestions that would be helpful to us in order to help for free access on both sides of the fence so that at the end of the day, the viewer there -- me, and all the Canadians -- will have really the best of what a new platform can bring? Because we are all focused on one thing, it is still the TV screen. Although it is with new technology, that is what we are talking about. We are not talking here about electronic commerce, we are not talking about...you know, there are all kinds of new possibilities, but, still, we are talking about the experience of the TV set.

9742 MR. MILLER: Perhaps I can start and others may want to fill in.

9743 Certainly, just speaking to CHUM for a moment, one of our biggest advantages, of course, is our existing strength in specialty and conventional and the cross-promotion we can bring to new channels. And probably our biggest leverage, and, I would submit, our only hope of getting Category 2 licences launched, if that was the services we were trying to launch, would be convincing BDUs that we are a vital part of the support they need to launch these channels.

9744 I would also parenthetically say that CHUM is in the position of being in genres that are very competitive and which BDUs have particular interests in. Local news, community channels are more and more involved. And music is obviously a priority, of course, and movies is now a priority, of course, given their pay per view and pay services.

9745 So we do feel vulnerable in that environment because, as we see the rules, particularly for Category 2. And given what will ultimately be a limited amount of shelf space, if you take, for example, a music suite, unless the Commission wants to require it, we think we would have great difficulty in launching our suite, if, for example, CORUS was launching a music suite of their own, because there's a limited number of channels, if we have each got a suite of four or five channels, how do we get on?

9746 So we are very concerned about that and we think the Commission should be concerned about that, in terms of diversity.

9747 In terms of how to address it in the framework, again, we are not suggesting you depart from your framework, we are just trying to outline the risks involved and have some frank discussion with you. By licensing as many distributor or unaffiliated services in Category 1 as possible, that helps alleviate the concerns; by licensing more than 10 Category 1 services that would also give you some assurance of being carried.

9748 Finally, and I think this perhaps goes outside the scope of this hearing, but in further defining the rules of equitable carriage, obviously, that will be a key part of what we need to grapple with. And, in particular, in respect of Category 2 services, if the Commission was prepared to set out some criteria as to what would be considered "undue preference", perhaps there should be a role that if a distributor carries an affiliated Category 2 service in one genre, they should be prepared to carry another one in the same genre by an unaffiliated company.

9749 These are the kinds of rules that could be developed and, presumably, are outside of the scope of your question, but there are things that can be done to further define and give clarity on "undue preference."

9750 CHAIRPERSON OF THE COMMISSION: And there goes diversity.

9751 MR. MILLER: I'm sorry.

9752 CHAIRPERSON OF THE COMMISSION: And there goes diversity.

9753 MR. MILLER: There goes diversity if you have two...well, this is the balancing act that the Commission has, exactly.

9754 CHAIRPERSON OF THE COMMISSION: But what about the idea that some gatekeeping or some undue preference can be played reversely. You are talking about the one as a program undertaking facing a BDU having to negotiate to get on and get access. But on the other way, given that you already have assets in the broadcasting system, you have the leverage. You are recognizing it yourself, so you have also some kind of possibility of preferring some BDUs versus others. Isn't there the reciprocity or the reverse proposition that is as worrying, in a sense, for us, the regulator, who has to make sure at the end of the day that it is a free market, that there is real access, and eventually that the viewer gets, really, the best quality possible?

9755 MR. MILLER: First of all, again, in terms of these channels, given that the subscriber base is so thin, it is unlikely that any one service would survive on the basis of one BDU alone. And so even to the extent that services did engage in that practice -- and the Commission has said that they can't -- the point is it is, we think, unrealistic to believe that services will survive on the basis of carriage by one BDU alone, as big as that BDU may be. And ExpressVU is the biggest, but they still only have 500,000 -- roughly -- subscribers today -- and that, in our view, may grow to a million -- but that's not enough, really, to sustain it any reasonable level of penetration the businesses that we are contemplating.

9756 When we speak to our corporate leverage, as you put it, it is our strength, there's no doubt about it, but, based on our past experience, and our experience with trying to launch two new channels, Star! and TLC, we have discovered, unfortunately, that leverage is no match for BDUs that are determined not to launch channels in a fair and equitable manner.

9757 So we raise this issue as a legitimate concern. We don't want a situation where three to five years from now the Commission...or two years from now, many not even...yeah, two years from now we are having another post mortem and trying to deal with the problem after the fact. We are suggesting that the Commission try and be proactive on this and, therefore, in licensing, take it into account.

9758 CHAIRPERSON OF THE COMMISSION: I will tell you, Mr. Miller, what I find difficult is not that you have a concern -- and I'm sure there will be other people who will have all kinds of concerns, and the one I was referring to from the BDU towards the program undertaking is a valid one, too -- but my concern is there is a framework. We won't change it at this point. We have no intention. So what we are looking for is much more ideas on how to live within that new framework and really create the space that is necessary to have better access.

9759 What you are talking about, when I hear you -- and I push your argument -- is: well, a solution would be to have a bit more than 10, but somehow you are challenging the idea that the Commission would consider in Category 1 to grant BDU a licence.

9760 We might not, we might. We are really too early in the process to know and we still have many hours and days of work to do, but I think it is important to recognize that the framework is there and what we need, in terms of collaboration, in terms of the exchange and the dialogue we want to have over the next few weeks, is what are your concrete suggestions in order to make sure, on both sides of the fence, that access will be happening.

9761 MR. ZNAIMER: Given that we understood that your framework was in place and that you weren't likely to change it, we are proposing this as a practical action that you can take: that you can license more than 10 and they could all be non-affiliated because the Category 2's will then take care of themselves.

9762 And you know from a public point of view, once the smoke has cleared there is no difference to the viewer between a 1 and a 2. That package will be right out there in front of the public and everybody will be on a level playing field.

9763 CHAIRPERSON OF THE COMMISSION: Well, it is not the spirit of the framework -- not at all. It wasn't. If we would have wanted to say BDU equity is acceptable in one kind of category, we would have said so. That doesn't mean at the end of the day we will give it. It is still open --

9764 MR. ZNAIMER: I understand.

9765 CHAIRPERSON OF THE COMMISSION: -- and we are holding the process for that. But I just wanted to clarify with you that your suggestion is somehow a challenge to the spirit of the framework.

9766 MR. ZNAIMER: We didn't understand that.

9767 MR. MILLER: And again, we say in a statement, we say in our interventions, that the Commission should license as many distributor or unaffiliated services as possible. We think that's entirely consistent with the framework and we think is vital for diversity. So we think that is a furtherance of your framework.

9768 Now, obviously, if you take that to the other extreme that we have said, that we have hinted at, that the Commission license no distributor-affiliated Category 1 services, then I would accept your point. But it is a balancing act. We recognize it and we don't envy you your position. But we are sounding what we believe to be a reality check on this, as we are on a number of issues that we have raised today.

9769 We are doing it, hopefully, in a responsible way, but we do really believe that the Category 2 area is so tilted in favour of distributor-affiliated services that the Commission should recognize that, and, therefore, in recognizing that, maximize the number of unaffiliated services that are licensed in Category 1.

9770 CHAIRPERSON OF THE COMMISSION: Thank you for your views on that question.

9771 I have another question. You had a discussion with Commissioner Wilson about diversity and the importance of diversity and how much you put diversity ahead of your priority list in terms of criteria. In that discussion you say: The way we count for Canadian programming is different from other applicants. We have a percentage, so the more revenues we will get, of course, the more money will go into it. But we have very specific commitments to some programs that are different. Of course, that is why that kind of proceeding is so interesting, because the personality of every player becomes apparent.

9772 But somehow it is like the underlying statement you are making is that diversity costs more. Because somehow when you would add the dollars and compare them on one application to the other, what you seem to be --

9773 And I just want to check if I have heard correctly. It could be my English. Is it what you mean, that when there is no potential other windows, then it costs more?

9774 I just wanted to understood what you meant by that, that diversity would explain some of the differences in dollars.

9775 MR. MILLER: That is a very important question.

9776 What we have suggested is that, based on the business plans that we have put forward, we have looked at what we feel is realistic in terms of Canadian content levels. Our issue, and our suggestion to you, is that if the Commission were to simply accept applicants on the basis of higher Canadian content levels, that has two immediate effects. First of all, given that we are dealing within a clearly defined genre, a limited amount of inventory if you will, it means that the services will be repeating programming far more than they would otherwise repeat Canadian programming. That does not, in our view, add to diversity. It can add to fatigue, in terms of over-repetition.

9777 Secondly, if a service doesn't have a clearly defined category, if it has, in a sense, a genre that can be somewhat open to interpretation, the natural tendency of that service will be to go into an already existing genre. So there will be more competition with existing services and, again, lower diversity.

9778 In our view, the great equalizer and one of the things that we paid a lot of attention to was the percentage of Canadian programming expenditure, because that is the Commission's assurance that money does get invested in Canadian programming.

9779 But we also did other things on our channels, and we are very proud of our 100 per cent Canadian peak hour commitment in those services, in which we felt that was a significant contribution.

9780 So we do see this as a balancing act between all of your criteria, and we think that diversity means clearly defined genres, and by clearing defining a genre it is much more challenging to present more Canadian programming, and, therefore, to fill a high Canadian content level. In most cases, but one, your 50 per cent minimum was what we felt was appropriate, and we will talk about the obvious exception a little later.

9781 CHAIRPERSON OF THE COMMISSION: Thank you.

9782 THE CHAIRPERSON: Commissioner Wilson...?

9783 COMMISSIONER WILSON: I actually want to go back to the distributor equity issue, because as you were talking I was sitting here thinking about who is really going to be the most important BDU in the digital world, and it is not going to be cable for the foreseeable future, it is going to be DTH.

9784 So when you say: Exclude them all from Category 1, you are talking about excluding any application that Bell might be involved in because they own ExpressVU and...

9785 MR. MILLER: In the absolute extreme that is correct.

9786 But, again, to look at how the digital world shakes out, if you combine Star Choice and Shaw, the number is equal to or at least very close to ExpressVu -- Star Choice and Shaw Cable, both Shaw companies. Obviously, as cable rolls out digital its relative importance becomes higher and higher, so that the three dominant players in different order today, and in different order in the future, obviously, are Shaw, Rogers and Bell.

9787 COMMISSIONER WILSON: Okay, thanks.

9788 THE CHAIRPERSON: Counsel, please?

9789 MR. McCALLUM: Just to deal for a second with the closed captioning and the discussion you had with Commissioner Wilson, you had made specific dollar commitments on closed captioning in each of the applications. I take it from your answers that if the dollar commitments were to be imposed as conditions of licence you would have no problem with that.

9790 MR. MILLER: That's right.

9791 MR. McCALLUM: But the Commission had an expectation, or, I guess, a requirement to require the captioning of 90 per cent of all programming by the end of the licence term. It set that out in the COL, I think, in the framework.

9792 I take it you would have a major problem with that if that were imposed as a condition of licence in all seven applications.

9793 MR. ZNAIMER: No, we would not walk away from these licences on that account. We are giving the Commission our best advice about how to go forward. We would accept as a condition of licence any final determination you made.

9794 MR. MILLER: I might add, counsel, that this expectation was set in the analog specialty universe, where final revenues at the end of year 7 are fairly healthy. This new digital universe is actually somewhat more analogous to smaller stations, and, as the Commission is aware, on the conventional side, where a station has less than $10 million, the 90 per cent closed captioning expectation is an expectation, not a COL. And in all but one of our applications we don't expect to hit the $10 million level before the end of year 7.

9795 So that is another consideration that may be relevant for you in reviewing this matter.

9796 MR. McCALLUM: Yes. I had noted that in at least one you did intend to hit the $10 million mark.

9797 MR. MILLER: Precisely.

9798 MR. McCALLUM: Thank you.

9799 On descriptive video, you addressed, I think, descriptive video at section 7.6 of the application form in all seven cases, and I think you had identical wording in each case. Will the proposed services be technically equipped to allow for the broadcast of descriptive video?

9800 MS HALE: Yes.

9801 MR. McCALLUM: And yet you make no commitment to descriptive video, I take it, from what you said in 7.6.

9802 MR. MILLER: That's correct. As has been discussed previously, this is a very new issue and in the U.S. we know that there are now requirements on the major conventional groups. We would assume that as the Commission examines this issue it will look first to the major conventional groups and then, perhaps on the basis of that determination, decide what is appropriate for specialty, and then, finally, what is appropriate for these digital services.

9803 So we think it is premature to make any specific commitments to descriptive video, but we have noticed your questioning on making sure that we are technically compliant, and we are happy to confirm that we will be.

9804 MR. McCALLUM: Do you have any sense of by what year you would be technically able to do that?

9805 MR. MILLER: As we understand the technology, these being new digital services, the ability -- the second audio feed -- is inherent in the digital technology. So, essentially, it would be technically compliant from day one.

9806 MR. McCALLUM: Thank you.

9807 If the Commission were to license Category 1 services with interactive elements via the set-top box, do you think, in your view, that distributors should be obliged to carry those interactive elements?

9808 MR. MILLER: I think the key issue is: Are those interactive elements integral to the programming. If they are, we think they should be carried, and in our case particularly, given that we are not expecting major revenues and certainly not profits from these elements.

9809 If interactivity is an important part of the framework and the Commission wants to encourage it, then ensuring the distributors pass through interactive elements that are integral to the programming is vital.

9810 MR. McCALLUM: So, in your view, we should look to the integrality of the elements in each individual case.

9811 MR. MILLER: Yes. The Commission has always looked at the difference between ancillary data and program related data, and what we are suggesting here is that this is clearly program related and it should be past through.

9812 MR. McCALLUM: Thank you, Madam Chair.

9813 THE CHAIRPERSON: Thank you.

9814 Commissioner Wilson...?

9815 COMMISSIONER WILSON: Thank you, Madam Chair.

9816 We are going to go to each of the individual applications now. I don't think we will be done by lunchtime, but I think we can cover off some of the questions that I have fairly expeditiously.

9817 Mr. Miller, you were just talking about defining your genres very well. If we look at Fashion Television, which is the first application that we are going to got through, one of the intervenors expressed a concern that the range of programming that you were going to offer on the service was too broad. Now you did come back, I notice in your reply -- there was some discussion in your reply, I think, of what constituted direct competitiveness and I think the range that you suggested was 25 to 50 per cent, but when you came back to Alliance Atlantis on the issue of overlap with Home and Garden Television in terms of the architecture and art and photography and design elements of the Fashion Television application, you lowered it to 15 per cent, or you offered, I guess, 15 per cent as the cap.

9818 So just out of curiosity before I pursue on the nature of service definition, how come you -- I mean, you start out by saying 25 to 50 per cent overlap would be okay depending on the individual channel and then when they came and said, "Ah, ah! You are doing too much of what we do", you said, "Okay, 15 per cent".

9819 MR. MILLER: In our view, there is a difference between defining the threshold as to what is directly competitive and meeting the objective of maximizing diversity and so while the 25 to 50 per cent range, as you said, depending on the nature of service and how broad the genre was, we think is an appropriate way of looking at directly competitive issues.

9820 We feel, particularly in terms of this channel, in order to indicate very clearly that we want this channel to be distinctive and entirely different from what is existing to enhance diversity on the system, we were comfortable with setting ourselves a more severe restriction of 15 per cent.

9821 COMMISSIONER WILSON: So for those intervenors who are concerned about the overlap, Home and Garden Television, women's lifestyle programming, that kind of programming, would you say that 15 per cent was an appropriate level to cap those genres of programming on this particular service?

9822 MR. MILLER: Just so I can make sure I have the right wording, what we did say is that we would limit the channel to no more than 15 per cent programming focusing on home and garden design. That was the specific proposal we made.

9823 COMMISSIONER WILSON: Right, to Home and Garden Television. But you also have women's programming and lifestyle programming in your menu of programming proposed for this service.

9824 MS MARTIN: Peter, if I might address that?

9825 I think the comment about the schedule being broad is true, but I think if you look at the types of programs we do they are quite distinct from what is being offered out there.

9826 Most of the programs that you are referring to are how to programs, there is a lot of information. I think a lot of the programs on Women Channel and Life deal with how to decorate or how to do a lot of analysis. The way we approach this schedule is to deal with fashion and photography and design, et cetera, all the other related art forms, but more in a profile, feature, report application. It's not specifically based on sitting down and deciding how to put an outfit together.

9827 There will be some of that, but it's those kinds of programs that could be dealt with in a 15 per cent limitation. But they are quite different on how we approach the subject matter and it's broad because it's underserved right now.

9828 If you look at design as being broad and fashion being broad, it does cover visual arts and photography and architecture, but there aren't programs like that available to the Canadian audience.

9829 So I think when we approached the application in the channel, it was to deal with fashion and design and that does include a number of art forms.

9830 COMMISSIONER WILSON: I think that, according to my notes, your definition of the nature of service only addresses fashion and style.

9831 MS MARTIN: No, we also address, and it's in the application, that that includes other art forms as beauty, architecture, photography. It is stated in the application, and it's important that there is a distinction. It is, as I said in the presentation, more than what you wear. Fashion is certainly predominant in the schedule, but it's the other art forms that we want to explore because they are not being explored right now on television.

9832 COMMISSIONER WILSON: You are right that you include all of those in your description of the service, but not in the nature of service which is Section 7.1. You say:

9833 And then you list categories.

9834 MR. MILLER: That's correct.

9835 COMMISSIONER WILSON: What I am trying to get at is would you be prepared to include all of those other descripters in your proposed nature of service definition.

9836 MR. MILLER: That would be appropriate.

9837 COMMISSIONER WILSON: Okay. One of the other applicants for a fashion channel, TVA, provided a breakdown of its programming, a sort of proportion of the schedule that each of the different types of programming would take up and I am just wondering if you are able to estimate what proportion of your schedule might be dedicated to the central themes of the service.

9838 MS MARTIN: Yes, what we have is percentages of perhaps categories of programming also. As I mentioned, predominantly we do feel that it would be fashion and clothing accessories types of programming in the general interest and human interest in general entertainment magazine format, and that would include programming in those other fields as architecture and visual arts. But I would say predominantly it would deal with fashion and clothing.

9839 COMMISSIONER WILSON: So you are just going to say predominantly, but not as a percentage of the schedule.

9840 MS MARTIN: Well predominantly to me says over 50 per cent.

9841 COMMISSIONER WILSON: Over 50 per cent.

9842 MS MARTIN: Yes.

9843 MS BEKER: If I could just add to that as well. Fashion for us is something that is always touched, and the way we perceive fashion since we started covering it officially on Fashion Television back in 1985, it is a subject that really touches every single aspect of our lives. We don't have never really looked at fashion in that very cut dried, nuts and bolts way, like this is the garment, this is the way it's cut, this is the silhouette, this is the colour.

9844 Of course, all those factors are taken into consideration, but more importantly fashion has become for us very much a reflection of an attitude in society and a kind of spirit and really reflects what is going on in terms of economy and political awareness and all those sorts of things -- social interaction -- and a lot of the programming that we are planning to do on the Fashion Channel would most definitely be that kind of analytical discussion of fashion sensibility, but of course it would be way beyond mere discussion of runway trends and well into the way fashion is affecting us in so many different aspects of our lives.

9845 COMMISSIONER WILSON: What I really want to know is who invented pantyhose because I hate them so much.

--- Laughter / Rires

9846 MS BEKER: Pantyhose are over, haven't you heard?

9847 COMMISSIONER WILSON: Yes, tights are in. I know the most difficult decision I make every morning is what I am going to wear. So you are right, fashion does affect us all.

9848 Program categories. You proposed in your application to air a range of drama programming, including dramatic series, sitcoms and movies. I guess in terms of movies, you would run something like Ready to Wear -- Prêt-à-porter to use the proper phrase.

9849 MS MARTIN: That's right.

9850 COMMISSIONER WILSON: What would define a drama, a comedy or a film as appropriate to this genre?

9851 MS MARTIN: I think it's programs that feature characters in situations from the world of fashion and design. So movies, as you mentioned, would be Ready to Wear, a Canadian movie called Model by Day which deals with the models and the fashion world, and that is how we would define the kind of programming that you would see in the comedy and drama movies.

9852 COMMISSIONER WILSON: Okay. What proportion of your program schedule would be allocated to dramatic programming?

9853 MS MARTIN: Well, our draw schedule right now does have two movies. It also has comedy and drama.

9854 COMMISSIONER WILSON: Two movies a week?

9855 MS MARTIN: Yes.

9856 MR. SWITZER: In total, Commissioner Wilson, those categories you ask, they would represent approximately 15 per cent of this draft schedule as we have shown it.

9857 COMMISSIONER WILSON: Fifteen percent?

9858 MR. SWITZER: Yes.

9859 COMMISSIONER WILSON: And would you accept that as a limit?

9860 MR. SWITZER: Absolutely.

9861 COMMISSIONER WILSON: Okay.

9862 You also include Category 70, Animated Television Programs in films, but it's not included in your proposed nature of service. Was this a mistake? Are there animated programs about the world of fashion?

9863 MS MARTIN: There might be. It does bring me to, actually, someone in Vancouver we were talking to about doing an animated comic strip on fashion. It hasn't been produced yet, but there could be. So to eliminate it would perhaps eliminate some creative output for independent producers.

9864 COMMISSIONER WILSON: Okay, so it is in -- it's in Schedule 10, but it's not in 7.1. So you want it in 7.1 in your description of nature of service?

9865 MR. SWITZER: It would certainly be helpful.

9866 COMMISSIONER WILSON: But that would fall under the 15 per cent.

9867 MR. SWITZER: Yes, and of course, it would still, as an overriding principle, have to deal with or be connected to fashion in the way Marcy just described.

9868 COMMISSIONER WILSON: Okay.

9869 In Schedule 1, you said that Fashion Television would include a lot of original programming. I'm just wondering if you could give us an idea of what proportion of your program schedule would be devoted to original Canadian programs.

9870 MS MARTIN: Well, we don't deal with the percentage. I haven't done it by percentage. But what we have allocated for in the draft schedule is over 170 hours of original program to be produced for the channel.

9871 COMMISSIONER WILSON: Over 170 hours a year?

9872 MS MARTIN: Yes.

9873 COMMISSIONER WILSON: Okay. And is all of that in-house or -- you have got $700,000 identified for independent productions. Is that for Sleeping Giant or is that --

9874 MS MARTIN: Unaffiliated, independent producers.

9875 MR. SWITZER: Commissioner Wilson, that $700,000, over the course of the licence is specifically earmarked for completely unaffiliated independent producers. And given the nature of much of the informational and magazine type programming that this channel relies upon, a large proportion of those hours, original hours we just mentioned will be in-house.

9876 COMMISSIONER WILSON: Okay.

9877 I have already dealt with this Home and Garden Television and with french language.

9878 Let's look at the issue of demand research with respect to this specific application. Let me just look at what you --

9879 Okay. You used the P & B research database and fashion publications and spending. Do you want to talk a little bit about why you're confident that it's a good indicator or a good barometer of the attractiveness of the service?

9880 MS MARTIN: Certainly. I think the fact that Fashion Television is now going into its 16th year, its longevity speaks to -- its staying power speaks to the popularity. If it wasn't doing well, we wouldn't still be producing it.

9881 It also is one of the driving programs in our syndication around the world of our programming. We mentioned many times it's seen in over 100 countries and it has been since we started syndicating it and one of the few programs that does enjoy a life on-air in the States, first on VH-1 and now with E.

9882 So what we're proud in doing in this show for 15 years is providing that global look at our Canadian fashion and design industry. So we do put a lot of weight on the staying power of Fashion Television. Knowing that it's popular and seeing what is being produced and offered out there right now, we know it's under-served. We know that there's an appetite for this and we feel that there would be an audience to watch this genre.

9883 But another thing that is dear to my heart, since I launched Star a year ago, is that there is no vehicle right now for the stars of fashion and design. I think very few people, if I mention Canadian designers, would know who they are. If I mentioned Lida Baday or even Joeffer Caoc, who we quoted today in the presentation, these are well known designers in the fashion world and do very well in Canada, but very few people know who they are.

9884 So this is an opportunity for us to promote our stars of the designer fashion world. That's why I think it's important, along with its popularity.

9885 MS BEKER: As the face of Fashion Television as well for the past 15 years, for better or worse, I have been really at the receiving end of so much of the public's comments and perceptions of the show and been really fortunate indeed to hear how much Fashion Television has become such a part of people's viewing habits.

9886 When I say people too, I mean, it runs the gamut. Our viewers are not just confined to, you know, women between the ages of 18 and 49. Really, I have teenage boys coming up to me, and for whatever reasons, they may find the show entertaining and edifying. They have been turned on to many things that they never quite expected to be turned on to by our show.

9887 COMMISSIONER WILSON: I don't know if that's the phrase you want to use!

--- Laughter / Rires

9888 MS BEKER: Including the art of photography and just a genuine appreciation for aesthetics that go beyond the human female forum.

9889 But as well, we have got little old ladies watching the show. Certainly, truck drivers, cabbies, doctors, lawyers, people -- It just really, really breaks through any kind of economic and social barriers and that has been the most gratifying thing.

9890 But the fact is that people are always saying that they want to see more, they want more. And they want us to go beyond the five or six minute features which we are really restricted to do within the context of our particular half-hour series. We would like to really delve beneath the surface to a large degree, and we have not been able to do so. I just think people are just so hungry for it. We're saturated with imagery of the fashion world, but very often, we don't quite understand it or even are given the kind of tools to dissect it and really know how the scene functions.

9891 COMMISSIONER WILSON: What are the ratings for Fashion Television?

9892 MS MARTIN: Jay, you can confirm it, but it does well. It does three and four points and has been for 15 years. It has a loyal audience.

9893 It's also stayed in the same time slot for City TV. It's done very well for us.

9894 MR. SWITZER: Commissioner Wilson, in Toronto, which, as you know, is an extremely competitive ratings market -- in fact, arguably, I think the most competitive commercial television market in the world -- Fashion Television, each week, totals between 200,000 and 250,000 viewers every week, and that's just in Southern Ontario alone. There are many national programs on national networks that would be happy with those kinds of numbers. We're very, very pleased. It's a hugely popular show and has been for a long time.

9895 MR. MILLER: Nationally, as was indicated in our filed research, it does on the order of 550,000 viewers each week.

9896 The other interesting thing about this channel which goes to the notion of research and how it's difficult sometimes to use public opinion research to assess something that isn't widely available, in this case, despite the fact there are very few fashion shows on television, fashion actually rates a respectable 15 per cent of Canadians watching it per week. So to us, it's a low number when you compare it to movies or suspense, those categories. Given how little there is, we think that's a very strong indication of support for our channel, should we be successful in launching one.

9897 COMMISSIONER WILSON: I heard once -- it must be four or five years ago -- that Fashion File was the most popular show on CBC Newsworld, maybe four or five years ago, but not according to what you have included in your application. But of course, those were the days when, you know, all those see-through clothing were really in.

--- Laughter \ Rires

9898 MR. ZNAIMER: If I could get my little artistic comment here, when we launched the show, there was no market evidence that the show would be popular. The idea of a fashion show on television was literally unheard of. Other than Helsa Clench's reports on CNN, there was nothing, zero. And when we put it on, I think we had many sceptics.

9899 But because we put it on, and because we stayed with it, and because we produced it well, it's become not only a phenomenon for us but for all kinds of others who are now climbing on-board.

9900 COMMISSIONER WILSON: I would be curious to know how many copies of "People Magazine" are sold when they do the Oscar gown issue. The week after the Oscars they profile all the clothing. I guess you would be covering that kind of thing, as well, Mr. Blackwell's worst-dressed list and --

9901 MS MARTIN: Absolutely. We certainly have an appetite for that kind of gossipy look at fashion.

9902 COMMISSIONER WILSON: People love to see other people embarrass themselves by wearing something really awful.

9903 MR. ZNAIMER: Jay reminds me of something, and I think it is worth mentioning, and that is it is extremely rare in television to have the same production team for the length of time that we have been doing this show -- and it is Marcia and it is Jeanne --

9904 MS MARTIN: And Jay, the producer of Fashion Television, sitting in the audience.

9905 MR. ZNAIMER: Yes, that's right. So same gang raring to go and they really know their stuff.

9906 MS BEKER: One other thing that I would also like to add -- and, interestingly, that you do point out how these magazines that feature the best dressed at the Oscars are just so lapped up by the public -- there hasn't yet been a format for our Canadian stars to be playfully dissed, perhaps, or analyzed in terms of their personal style, and that's something that we would be adamant about doing. If we can analyze the way people are dressing up to the Oscars, let us analyze the way our own Canadian stars are dressing up to the Gemini's or the Genie's. I think that, in turn, will build our own Canadian star system.

9907 COMMISSIONER WILSON: Not CRTC hearings, though.

9908 MS BEKER: Oh, it depends how nice you are to us!

9909 COMMISSIONER WILSON: I just wear black all the time, just like your boss.

9910 MS MARTIN: I would just like to add one thing, although Jeanne won't mention it, but she is a walking billboard for Canadian designers --

9911 MS BEKER: Oh, I know.

9912 MS MARTIN: -- so wherever she goes people often ask her what she is wearing and it is often a Canadian designer. So when she mentions who they are and they look at her and they say, "Well, who is that, I have never heard of it," we want to change that.

9913 COMMISSIONER WILSON: So you think there could be some positive spillover, in terms of promoting retail sales in fashion --

9914 MS MARTIN: Absolutely.

9915 COMMISSIONER WILSON: -- and sort of giving the Canadian fashion industry a boost.

9916 MS MARTIN: It is not even a maybe, it is an absolute.

9917 We know from our experience with Much and Bravo! and now slowly with Star! how important those specialty channels have been to the industry. And so there is no reason to feel that fashion wouldn't do the same thing to the fashion industry.

9918 COMMISSIONER WILSON: Now, you see, here is a good on-line possibility: you can have the viewer --

9919 MS MARTIN: Oh, I have some examples when you are ready.

9920 COMMISSIONER WILSON: -- click on Jeanne's dress --

9921 MR. ZNAIMER: We are there. We are there.

9922 COMMISSIONER WILSON: -- and then they have it.

9923 MS MARTIN: We are there.

9924 COMMISSIONER WILSON: And then it is delivered three days later.

9925 MS BEKER: One of the main problems and challenges that face all Canadian designers in this country, without question, is the fact that they have to compete with Americans and European, who are so heavily promoted, and that is something that just requires cold, hard cash most of the time and these people just don't have that kind of financial backing here in Canada to help them with that.

9926 But here we have a vehicle, or, hopefully, would have a vehicle with a fashion channel in particular, to really promote the heck out of these designers and really turn people onto our own from coast to coast.

9927 COMMISSIONER WILSON: I guess there is some parallel in the promotion of American television versus the promotion of Canadian television: there is such a huge machine out there for doing it.

9928 Now, is your prime time your 8 to 10? Is that 100 per cent Canadian?

9929 MS MARTIN: Yes, 100 per cent Canadian.

9930 COMMISSIONER WILSON: Is that consistent right across all the applications?

9931 MR. SWITZER: Almost all, but not all of them, no. There are four that have this special 100 per cent promise in the hard of prime.

9932 COMMISSIONER WILSON: And what are those?

9933 MR. SWITZER: Those are Indie, Fashion, Relationship and Suspense.

9934 COMMISSIONER WILSON: Okay. So I guess for the film genres, you would be programming a two-hour movie in that time block?

9935 MR. SWITZER: To a great extent.

9936 COMMISSIONER WILSON: Okay.

9937 In terms of developing your penetration rates, you didn't do any formal demand research, which is often used as the basis for figuring out what your penetration rates are going to be. How did you come up with them? Just a good guess, or...?

9938 MR. ZNAIMER: Peter Miller will start.

9939 MR. MILLER: Basically, the way we approached this is we looked at all of our channels and tried, based on the research we had, to give a bit of a relative ranking in terms of penetration. We started from the firm belief that the 50 per cent was absolutely an upper bound.

9940 COMMISSIONER WILSON: That 50 per cent was the...?

9941 MR. MILLER: Upper bound. That no service, given what we expect to mean as a lot competition for new channels, we took it as a given that no service would be higher than 50 per cent. Now, again, that is based on --

9942 COMMISSIONER WILSON: At the end of your licence term?

9943 MR. MILLER: At the end, precisely.

9944 Again, as you are aware, the third tier has just started to exceed that and each successive analog tier has performed less. In terms of penetration, we felt, looking at this environment, the likelihood of reaching anywhere near those levels was unlikely.

9945 COMMISSIONER WILSON: Suspense, though, you go to 68.

9946 MR. MILLER: And that is the --

9947 COMMISSIONER WILSON: A 20 per cent jump between years six and seven.

9948 MR. MILLER: That is because that is probably, if you will, the category killer of all of them, in that it is the only genre that CCTA itself reviewed a number of years ago which has yet to be launched in Canada. So that was the big exception to the rule.

9949 Then we, based on the research, essentially tried to determine what would be a reasonable level of penetration. And Mr. Schwebel can talk to the packaging options we have contemplated, but essentially we are assuming there will be a mixture of à la carte, theme packages and, to some limited extent, a large package. But we don't believe that is the way most people are going to get them. It is mostly going to be thematic packaging, which, again, keeps the penetration level down.

9950 COMMISSIONER WILSON: That is contrary to what Mr. Gourd said yesterday, though: that most of their subscribers do take the big packages.

9951 MR. MILLER: Today that is right. But, again, if we are talking about another 40 to 45 or 50, or however many channels, we think this motion of most of them taking the whole package begins to be weakened and we end up with more of a thematic or pick-a-pack approach.

9952 COMMISSIONER WILSON: Okay.

9953 Before Mr. Schwebel takes over, I just have to mention that he signed me up for cable in 1982, in the old days when he worked for the really big cable guys and when I was in university, before I ever got into the communications business.

9954 These comments that you are going to make, are they applicable to all seven applications?

9955 MR. MILLER: The general comments I have made, and then from that, again, we made specific targets for each of the applications. But the general comments are applicable, yes.

9956 COMMISSIONER WILSON: Okay.

9957 MR. SCHWEBEL: Just a couple additions. For the record, Suspense goes to 55 per cent penetration in year 7. Actually, we have maintained that consistently throughout the licence term, given the strong demand that we expect for the service out of the gate.

9958 And just a couple of other points, we built these penetration assumptions on our experience with Star! and CLT, particularly as it applied to distribution on a digital basis. And when we looked at the range of how well Star! and CLT did at those digital distributors, it went from anywhere from 28 to a high of 62 per cent -- and that is one year after launch.

9959 Clearly, the method of packaging had a major impact on the ultimate penetration or take-up model level for those services. And those distributors that were more in the customer self-select or à la carte model of service offering were typically at that low 28 per cent range; whereas, those distributors who offer digital services and were well-known for a top-down selling model that maximized the take-up of the full package of services were at the high end of the range of 62 per cent.

9960 So taking that proxy, if you will, we determined that was a very good reference point to come up with penetration levels that are typically in the 35 to 55 per cent range as the highest for Suspense Channel.

9961 So we have had some experience with digital distributors and their packaging and we know that the next wave will be distributed as part of new packages. We actually had the benefit in the last wave of being added in some of those digital distributors to existing packages, so we have had to back off of those high-end numbers of 62 per cent, taking into account that, as time goes by, we believe that consumers not going to be as predisposed to yet all the new channels that are added.

9962 As time goes on there will be an economic consideration and people will be more discriminating about what they can afford to add to their existing DTH or cable digital bills.

9963 COMMISSIONER WILSON: Thank you, Mr. Schwebel.

9964 I am going to move now to suspense. I will ask some questions on suspense, and then I think probably around 12:30 we will take a break.

9965 There are not that many questions, and some of them you have already answered, so I can eliminate them.

9966 For the nature of service, you have requested Categories 7(b), ongoing comedy series, and 7(f), programs of comedy sketches, improv stand-up comedy, but you have not included any of this sort of programming in either the programming grid or in the description of programming as part of Schedule 10. I am wondering why you included those categories and why you feel that comedy-related categories would be appropriate for a service which is programming mystery and suspense.

9967 MR. SWITZER: Commissioner Wilson, that is a very fair question. It is obviously a small part of the schedule plans, and Paul Gratton, I think, would like to add some background to understand how we got here.

9968 COMMISSIONER WILSON: Okay.

9969 MR. GRATTON: Basically, there is the possibility of crossover hybrids, and it is simply in anticipation of that as much as anything.

9970 Currently we don't really see tonnes of stuff in that category, but I am not at all certain that we are not going to come across a comedy series that won't have a strong suspenseful element built into it. It is as simple as that.

9971 The programmer is trying to keep the options open.

9972 COMMISSIONER WILSON: I was trying to rack my brains to see if I could think of one, and I couldn't, but I thought you might be able to suggest how that would tie in.

9973 On the issue of competitiveness, there are a couple of applications, of course, that are quite directly competitive: Shadow and 13th Street. But we are also considering a couple of applications for services which would provide justice-type programming. I am just wondering, since you are also proposing to offer some programming that could be characterized as justice-type programming, would you consider their applications to be competitive with yours?

9974 MR. MILLER: No. Justice-type programming would be a small percentage of the program schedule of suspense, so we think the two are not compatible.

9975 COMMISSIONER WILSON: So you think that the marketplace is big enough for a mystery-suspense channel and a justice-type channel?

9976 MR. MILLER: I think that is a different question, and I won't hazard to add whether the market can justify it. But in terms of your definitions of directly competitive, we think, theoretically, if a justice channel were there and licensed, then --

9977 COMMISSIONER WILSON: It would not be directly competitive.

9978 MR. MILLER: It would not be directly competitive.

9979 COMMISSIONER WILSON: But you don't think we should license one.

9980 MR. MILLER: No, I didn't say that. I am just saying, I think that -- I want to restrict my comments to the issue of direct competitiveness. Others may have comments on the market. I am just limiting myself to the issue of directly competitive.

9981 COMMISSIONER WILSON: Now I am asking you whether or not you think the marketplace is big enough for both.

9982 MR. MILLER: I will defer to Mr. Znaimer.

9983 MR. ZNAIMER: I think so, because I think the one channel will be, essentially, reality based and information based, and the other one, obviously, is given more --

9984 COMMISSIONER WILSON: What is reality?

9985 MR. ZNAIMER: The Justice Channel. It is your descriptor, but I am assuming it is kind of Law and Order and that kind of thing: courts, cops --

9986 COMMISSIONER WILSON: It could be, you know, court-related drama like Perry Mason or --

9987 MR. ZNAIMER: Understood. I think we could live with it.

9988 COMMISSIONER WILSON: Okay. On the question of diversity -- and I think this application, in particular, is a really good example of this, for me anyway -- there is a lot of similar programming to this in the system. In fact, one of the things that struck me when I was looking through your draft program schedule was that the programming that is on here -- Matlock, Quincy, Spencer for Hire -- this is really old stuff. This has been around for a long, long time.

9989 I am just wondering, for a suspense channel, wouldn't you be looking for something that people haven't seen before?

9990 I am just trying to understand your strategy.

9991 Yesterday I talked with CTV about the notion of repurposing programming, or pulling programming together that is already in the system and putting it all in one place so that lovers of mystery and suspense know they can go to that channel and they are always going to find a mystery-type show.

9992 MR. SWITZER: Maybe I could begin and Paul could --

9993 COMMISSIONER WILSON: Because there is some really good stuff that is on A&E, for example, and I know that you can't get the rights to that, but there has to be some other stuff out there besides Quincy and --

9994 MR. SWITZER: Your example, Commissioner, of A&E, is a particular, I think, irritant for many -- your example isn't an irritant; the programming is an irritant.

--- Laughter / Rires

9995 MR. SWITZER: The channel that you mention is an irritant for many Canadian broadcasters. In part, this genre will go a long way to repatriate the huge tuning to A&E in Canada, beyond their wildest dreams.

9996 It is a multi-part answer, but I think in part you have touched on the importance of bringing programs together in a space and in a channel and in a destination where viewers who want to be enthralled and involved come to it knowing what they are going to get. It is a multi-layer program experience. There are significant new program initiatives, and we have laid out the importance of feature film and a significant multi-million dollar commitment to new, independently produced Canadian feature films in this genre. That is very important.

9997 There is a significant new script and concept development to reinforce new Canadian movies in this genre.

9998 There is a significant amount of British mystery, which we think is important in this genre and adds to the layering of what makes this channel great.

9999 You mentioned when you began your questioning about your love of Star Trek, and I think and example of --

10000 COMMISSIONER WILSON: Well, Best of British Mystery at 6:30 p.m., but at 7:00 p.m. you have all of this other --

10001 I mean, obviously, my own bias is showing because I watch mystery programming and I am thinking: What would I like to see on this program?

10002 MR. SWITZER: You raise very fair questions, very important questions. I think it is good to see exactly what we have in mind. Not all of the applications before you have gone to this level of detail and specificity, title by title, to show you what these fine channel creators have in mind, and of course it is intended to be a demonstration of what we have planned, obviously, not individual titles.

10003 Our experience with Space as a destination -- and, in particular, to answer your question of diversity and how does it contribute to the overall diversity and program diversity in the system -- Space has been a huge stellar example.

10004 I could argue that the creative way that Marcia and now Paul have put the channels together as a destination, a blend of new, original programming, much of it Canadian, as well as shelf programming, packaged in a creative way and marketed as a brand, so you know what you are getting, by itself, as a silo of programming, adds a completely new layer of diversity in terms of choice.

10005 Paul may want to passionately talk about what he has in mind for individual titles or themes, but we are very proud of this channel and think that between the new programming, the development, the new Canadian feature films, the repatriation, to a great extent, from A&E, and in fact making this a destination for lovers of mystery -- it adds fantastic diversity.

10006 COMMISSIONER WILSON: Mr. Gratton, before you respond, I guess one of the point -- well maybe I will let you respond and then I will come back to you.

10007 MR. GRATTON: Well I think Jay covered off most of the points I would make in that area, certainly the new initiatives in the feature film area where mysteries have been greatly under-represented in English Canada. The British material that we plan will be largely unseen in North America, things like Linda Laplante's Trial and Retribution and series of that nature.

10008 As he pointed out, when you start packaging and repackaging material in a dedicated focus genre you end up with the perception of diversity on the part of the public. If I were to tell you, for example, that this October on Space we will be running for the first time ever all four Star Trek series in the order of production, you would say, "Gee, I have never seen that before" and although it's true, all four series have been available on other channels, it's the focus of these specialty channels that --

10009 COMMISSIONER WILSON: When am I ever going to get my work done?

--- Laughter / Rires

10010 MR. GRATTON: Well, obviously not on Saturdays, hopefully.

10011 MR. SWITZER: Of course, an additional layer is that in this channel we made an additional promise of 100 per cent Canadian in the heart of prime and although the titles may be different, they are strong titles that we think are illustrative. What we have in mind, we think that's another special promise to kind of reinforce how important this channel is to us and to the system.

10012 COMMISSIONER WILSON: I guess what I am looking at -- and I am sure that you have looked at your competitors' applications, you looked at Shadow TV, for example, with all this nice red Canadian content between 6 p.m. and midnight for a Category 1 licence, what tips the scales in your favour?

10013 MR. ZNAIMER: In our opinion, it's the emphasis on movies. This is not another consumer and another place to allocate the cost of making series which are the mainstay of convention networks.

10014 This is another piece in the puzzle of how to do something for and with the Canadian Motion Picture Industry, the long-form drama.

10015 COMMISSIONER WILSON: Okay, thank you.

10016 How much original Canadian programming does your schedule contain?

10017 MR. GRATTON: Fifty-two hours a year.

10018 COMMISSIONER WILSON: Fifty-two hours. And you show quite a few repeats, a fairly high repeat level. What is the strategy behind that?

10019 MR. GRATTON: I think it's the nature of a specialty channel to afford many opportunities to watch the programs that are available.

10020 COMMISSIONER WILSON: So just using different time slots to maximise the audience.

10021 MR. GRATTON: Correct.

10022 MR. SWITZER: Commissioner Wilson, in general our repeat factors across most of these channels are between six and eight and that would be the same for this channel as well.

10023 COMMISSIONER WILSON: How much product exists -- how much Canadian product exists in this genre?

10024 MR. GRATTON: Well, I mean there is some amount in terms of TV series. CTV pointed out yesterday that they have been fairly active in the last few years and have produced some and there have certainly been shows in the CBC catalogue over the years such as Seeing Things. There have been some hybrid Canadian shows that have shown up in the last few years, Canadian versions of Twilight Zone and Ray Bradbury and Alfred Hitchock and where there is very little, unfortunately, is the English feature film side and that is why we decided to put our resources into that particular category.

10025 COMMISSIONER WILSON: Sorry, I am having just a little bit of trouble hearing you.

10026 MR. GRATTON: I will get a little closer here.

10027 COMMISSIONER WILSON: Thank you. I am far away.

10028 MR. GRATTON: Where there is a paucity of product is on the Canadian feature film side. As I say, since the early days of the '70s when there was some interest in this category of programming, it's virtually a genre that has disappeared, not so in Quebec where we have seen films like Liste noire et la Conciergerie and it's a genre that is regularly produced with a fair amount of popular success in Quebec, but in English Canada you just don't see mystery thrillers being produced for reasons that are probably rather complex in terms of films that are financed in this country. But it is one of the things we wish to address with this channel.

10029 COMMISSIONER WILSON: Obviously, the film that you produce for the film-related channels that you proposed would also appear on Citytv, so there is the synergy set you will achieve in that way as well. That is one of the reasons that you have focused -- I know, I mean movies are one of your strands, or there are all sorts of different words floating around, but that is one of the genres that you really focus your attention and money on.

10030 MR. ZNAIMER: That's exactly right and the feature films relate to Citytv in much the same way that those series relate to CTV and the choice for the Commission is what needs the support at this time? What has had the support and what is on the priority list right now?

10031 MR. SWITZER: If I might add, Commissioner. These new films will be new films to the system. They will have theatrical release. They will appear on pay TV, they will appear on pay per view, and so on, down through the system and the entire system is going to benefit by these new films into the system.

10032 So we hope to benefit as well, but others, the theatrical distributors, the public. New films into the system helps everybody.

10033 MR. GRATTON: There is one exception to that and it's a plan I have to do a mystery thriller similar to something that I was involved with at First Choice which was called Murder in Space which was a mystery thriller that was presented without an end.

10034 COMMISSIONER WILSON: With?

10035 MR. GRATTON: No ending. You weren't told who done it. Instead there was a contest where you went off and got additional clues, and back int the '80s when we did it, you had to go to a gas station to get the additional clues, but now with the Internet, you will be able to plug in, get alternate takes in slow motion, and additional clues will be planted there.

10036 COMMISSIONER WILSON: The virtual gas station.

10037 MR. GRATTON: And then at a specific date, we would show the entire program including the ending and it would be contest winners who guessed the appropriate culprit. But that would be about the only one I could think of that would not have the traditional theatrical release and go through the orderly marketplace.

10038 COMMISSIONER WILSON: Everything old is new again. That sounds like a good way of engaging your audience, though, for people who like mystery.

10039 I do have a few more questions on this application. Should I just proceed? I am looking to the Chair for guidance.

10040 So I will. We will finish this off.

10041 Your 42 per cent Canadian program expenditures, would you accept that as a COL?

10042 MR. ZNAIMER: Yes.

10043 COMMISSIONER WILSON: Okay. That was fast.

10044 Your estimates for profitability for this channel -- and I think you described it, Mr. Miller, as a killer channel because it is the most popular genre that was identified in 1996 that was not licensed, and you actually include that research with your application -- given that demand, why are your projections so conservative on this particular channel? Do you think you could have been just a little more optimistic with this one?

10045 MR. MILLER: This is a question we would really to get into in terms of all of the channels. This is the highest revenue generating channel of all of our channels because it has the potential to be so popular, but there revenues for these channels are made up of subscription and advertising and I think the biggest difference you will find between ours and our applicants is not only the difference because of different subscriber base and a different penetration, a different pick up, but a difference in terms of advertising which Mr. Kirkwood could speak to if that is of interest.

10046 COMMISSIONER WILSON: Yes, because I would like to ask you a question about how advertisers are behaving in this environment.

10047 MR. KIRKWOOD: We are blessed with the opportunity of experience of selling digital on the street now for a year, both Star and CLT. The response has been less than enthusiastic. Our projections for revenue are based on the experience we had with those channels -- or are having. Star this year will do just under $500,000 in revenue and the projections for the future are modest increases over that time.

10048 COMMISSIONER WILSON: Do you think that the advertisers are on a bit of a learning curve themselves in terms of how to deal with digital and do you think that they might start taking a slightly different approach, maybe a more targeted approach in terms of reaching specific demographics that might be drawn to a niche channel, and do they need to be educated that way? Is that why they are slow off the mark?

10049 MR. KIRKWOOD: Yes.

10050 COMMISSIONER WILSON: I mean, you would think -- I understand the low number subscribers and are they interested only in audience and ratings?

10051 MR. KIRKWOOD: Mostly. We are hoping that the niche interest will counterbalance some of that, but to date they are most interested in the audience numbers, how many people are watching and there seems to be a critical mass of three million households before we get reliable audience data and that would be in the experience with Space. Star has a hybrid distribution with digital and analog households providing 1.5 million households and to date, I guess we just recently did 26 weeks of data with Nielsen to establish, to rationalize some average audience which is I think around 3,000 which is why we projected -- our licence is based on that kind of audience data.

10052 The CPM estimates too are based on our experience with Star and CLT and what the existing currency is for widely, more widely distributed specialty channels and the sale out rate as well. Those are the three main factors influencing the revenue projections.

10053 I was also told by the major buyer of media, in preparation for this, how much they could see investing in digital channels, and based on that, I would see, starting from a pool of about a million dollars over 10 Category 1 licenses, a full universal pool.

10054 COMMISSIONER WILSON: A million dollars split among the 10?

10055 MR. KIRKWOOD: Between at least 10 or at least 12.

10056 There's also the reality that Star and CLT are launched in a competitive environment that really involves no other digital channels. It's possible that this would be launched in an environment of 30 to 40 channels.

10057 History has shown us that each tier of specialties has caused a decline in the currency of the cost per thousand from -- and I guess we have been around since tier 1 and watched it go from $15 to $18, to $12 to $14, to $9 to $10, to now $6 to $7. So anticipation for this next tier, without measurement especially, would be below that mark.

10058 COMMISSIONER WILSON: Okay, that's very useful.

10059 MR. ZNAIMER: David mentioned, in passing, a point that I think we should underline, and that is it's not linear in the sense that there is a minimum threshold that you have to get to before really they put you on the list for any serious amount of money. That's the hard, tough reality.

10060 MR. KIRKWOOD: Yes, I suppose the point could be made that one million households does not get one-third of the revenue of a service that is distributed to three million households. There's a curve that moves up very rapidly when it reaches that critical mass. And typically, advertisers, when choosing specialty channels now use a ranker. When they are face with a universe of 25 channels, they list the top ten, often buying the top three to four, and less purchases further down the line.

10061 And also, this prominent buyer of specialty media told me that without the numbers, we wouldn't get the money. I don't think there's anyone that would tell you that we would have reliable measurement by Nielsen or BBM when they roll out the meters at anything less than three -- at least 2.5 million households before there would be anything on a week-to-week basis.

10062 And in answer to your other question about the -- I could go on forever. We are looking for creative media opportunities. That's what our clients are beginning to call these.

10063 In fact, it's mentioned in the article that this person wrote, in Strategy, that the new digital licenses will require advertisers to look at more opportunities like product placement and those sorts of things to rationalize their participation in the absence of the numbers and the value of that size of number or the existence of something they can attach their dollars to.

10064 COMMISSIONER WILSON: Thanks very much for that.

10065 Attractiveness and demand. I guess it's a little easier, considering how much people are talking about suspense to intuit that this is going to be popular.

10066 But I'm just wondering if you could talk about how you arrived at your penetration levels for this channel, considering that they are -- they start off higher than Shadow TV, for example, but they don't increase as rapidly. I'm just wondering if you could talk about how you develop those.

10067 Mr. Schwebel, I think this is one of your questions.

10068 MR. SCHWEBEL: Thank you.

10069 We come out of the gate much stronger than the other services, because we have had the experience of Star and CLT being launched on certain digital providers, like DTH and MMDS.

10070 We know that in a digital environment, we don't have the slow ramp-up of penetration levels as was typical in an analog trapped environment.

10071 As you know, depending on the particular BDU, we were typically looking at anywhere from a three to perhaps even more than a 12-month timeframe for customers that were not willing to subscribe to the service to ultimately be trapped out.

10072 In a digital world, following a preview period, the operator has the ability to immediately secure the signal. So we think that following an exciting launch phase, with the right promotional planning and joint effort by BDUs and programmers, that we can immediately secure a higher penetration level than some of the other programming services may have considered, largely due to their analog experience.

10073 COMMISSIONER WILSON: Okay, thanks.

10074 MR. SCHWEBEL: And we continue to -- I'm sorry, I just want to add that we continued the 55 per cent level, because we know that with each new subscriber coming on the digital platform, that there will be a multiplicity of offerings and they will be offered in terms of a big tier, offered in terms of theme packages, offered on a self-select basis and an à la carte basis. That will vary across all the different BDUs.

10075 I think that it's reasonable to expect that a majority will subscribe to the service, but I don't think it's reasonable to expect levels of around 70 per cent penetration by the end of the term as others have, particularly since we have seen that with each introduction of every new analog tier, historically, we have gone from 85 to low 70s to high 50s. And so, taking history into account and our experience on the digital platform with Start and CLT, that's how we get at our numbers.

10076 MR. MILLER: I would like to add one other comment.

10077 I think the other element -- and again, obviously, this is an area that you'll see a lot of different views -- is that we have -- we firmly believe a realistic estimate of the digital world by the end of seven years is about 3.4 million. Some applicants, including --

10078 COMMISSIONER WILSON: Three to four million?

10079 MR. MILLER: 3.4 million.

10080 COMMISSIONER WILSON: 3.4 million. Is that on the low end of the estimates that were filed?

10081 MR. MILLER: It is. Some applicants have projected as high as 4.9 million.

10082 COMMISSIONER WILSON: In the total universe?

10083 MR. MILLER: In the total universe. And I think the mid-range, you'll find, is in the 3.8, 3.9., so a little lower than some. But we believe the close to five million projections are just completely unrealistic.

10084 COMMISSIONER WILSON: Why is that? Why do you think that? I mean, having invested all this money in upgrading plant and, you know, making everything digital-ready, why would the BDUs not do something to try and roll that out after seven years?

10085 MR. MILLER: Well, it certainly will. We looked at it two ways.

10086 First of all, again, we looked at the penetrations -- the projections that were filed, and the thing that we think made it difficult for everyone, including ourselves, is that you had competing BDUs filing separate projections. There is a natural desire to suggest you're going to do better than the other guy. So you can't just add all those up.

10087 When we looked at it and we looked at what we felt were reasonable forecasts, we felt we had to bring it down.

10088 Then, I think there's the litmus test. I mean, look how long we have been talking about digital and look how long it's taken us to get to where we are. We have heard today that we are still in the first generation box world and there's another generation box that is coming. We think, and the market shows, that people are buying add-ons to their television and cable service. Right now, they are going out and getting high speed inter-access a lot quicker than they are getting these boxes.

10089 These are not going to be easy to sell. And we think, at the end of the day, seven years suggesting a third of Canadians, a third of Canadian households will have digital access is a pretty reasonable estimate. Suggesting that half is, we think, aggressive in the extreme. But Allan can add a bit.

10090 MR. SCHWEBEL: We looked at -- when we filed the plan, we looked at what number of digital households there were at the time. We projected to September 2000, and interestingly enough, if you look at the detail, we projected that we would be at 1.3 million and I think you have heard that that's the current level. We think we have been quite reasonable in growing from 1.3 million digital universal potential to two million in the first year of launch.

10091 So we're in the middle of the pack in terms of beginning of licence term, in terms of assumptions on digital penetration or digital roll-out.

10092 Where we differ is more on the back-end. We think that when you look at the projections that were filed in the March 7th report by CCTA, they only went out to 2005. They didn't even go out to 2007. Even in 2005, it had a very wide range. They said it would be anywhere from 1.3 to 2.5 million digital cable boxes. That range, in itself, suggests that it is a highly uncertain and variable number.

10093 So building our business case and building our business models we felt particularly, as time went out, it was more reasonable to go on the lower end. And given that our commitments, relative to Canadian contribution, are percentage-based, that gives us only up-side potential that can get reinvested back into the system. So we thought that was the more reasonable way to go.

10094 COMMISSIONER WILSON: Okay, thanks.

10095 How did you arrive at -- and maybe you can talk sort of generally across all of the applications, but, again, this sort of ties into the fact that you didn't supply any traditional demand research -- how did you come up with your wholesale fee for each of these services?

10096 MR. MILLER: I will pass it on to Peter and Allan, if they want to add detail.

10097 We set, as an upper bound, 50 cents, and then, again, we looked at the business plan, we looked at what we could reasonably achieve, in terms of penetration, we looked at what we felt we need to do, in terms of meeting our Canadian program expectations, and then we were able to arrive at a number under 50 cents. Most of them are in the 40-cent to 50-cent range.

10098 The thing we should point out, as is our practice, this is an average rate, dependent on the penetration assumptions that we have made. If we had higher penetration, in other words if we had the penetration levels that some of our competitors have suggested, our average rate would be considerably lower and very similar. So this is why one of the things --

10099 COMMISSIONER WILSON: Could it also be higher?

10100 MR. MILLER: I beg your pardon?

10101 COMMISSIONER WILSON: Could it also be higher?

10102 MR. MILLER: Could what also be higher, sorry?

10103 COMMISSIONER WILSON: The rate.

10104 MR. MILLER: No.

10105 COMMISSIONER WILSON: If your penetration is lower, would the rate go up?

10106 MR. MILLER: That is possible, yes. And that is why we feel it is very important to be on the reasonable side of things.

10107 Allan, Peter, anything to add to that?

10108 COMMISSIONER WILSON: Okay.

10109 What is the rate for Star!?

10110 MR. SCHWEBEL: The rate for Star! has a different rate structure for high penetration, analog distribution, versus the lower penetration, digital.

10111 COMMISSIONER WILSON: Okay, digital.

10112 MR. SCHWEBEL: On the digital, it is between the 50- to 75-cent range, depending on the method of carriage on that digital platform.

10113 COMMISSIONER WILSON: Okay.

10114 You have media literacy initiatives. Do they go all across the seven applications? I think Ms Crawford will --

10115 MR. SCHWEBEL: Yes.

10116 COMMISSIONER WILSON: -- for social issues.

10117 MS CRAWFORD: Wherever possible, we have extended our media literacy commitment, and perhaps as we go through the stations, if that is where you find it appropriate, they can be outlined. Or now, perhaps some of the would-be general managers could speak specifically, programmatically, to what they are committed to. But, essentially, that is a corporate commitment that CHUM has made. We are committed to it on an ongoing basis. There are corporate benefits that we bring to all these new channels, as well, including an existing platform on our Web site, where we have essentially developed a clearing house for all of our study guides that accompany all of our media education programming right through the CHUM group, as well as links to all the pertinent media education sites and individuals in the country.

10118 COMMISSIONER WILSON: Okay.

10119 And do you plan on initiating that program right from day one, so when your new channel goes on the air the --

10120 MS CRAWFORD: Absolutely.

10121 COMMISSIONER WILSON: -- the program will be there, the scanning television?

10122 MS CRAWFORD: Yes. The beauty of it is is that because of the corporate commitment a lot of the infrastructure is there and in place. The relationships exist through the genres with all of the people in the country who are specialist in media education to help us roll these out on a channel basis because, of course, we are extending the brands and the genres from many of our shows into channels, so the infrastructure is already there.

10123 COMMISSIONER WILSON: Okay, that's great.

10124 I don't think that we need to go through channel by channel and talk about how it would work. I think all of us are pretty familiar with the work that you have done in that area, so I would presume that you would just extend it through the different genres.

10125 MS CRAWFORD: I might add that one of the fundamental philosophies on which our commitment is based is to increase the value of television over all. And it certainly benefits the digital tier and all of the new channels that will come with it if we increase the perception by the consumer that television is of use, not only as an entertainment vehicle, but as a social vehicle and educational vehicle, as well.

10126 COMMISSIONER WILSON: Thank you for that.

10127 MS MARTIN: If I could just add one thing?

10128 COMMISSIONER WILSON: Sure.

10129 MS MARTIN: It is a perfect program to use our interactivity also. One of the ideas for Fashion -- I was hoping we could mention it -- is that although we do celebrate fashion and design, we also plan to take a critical look at it, too, and in some of the program ideas of: What's wrong with fashion? or What is beauty? we want to engage our audience with a guest panellist and have them interact with our audience, asking questions live and in real time. So it is an application of interactivity that we plan to use on Fashion right from day one.

10130 COMMISSIONER WILSON: Tied into literacy.

10131 MS MARTIN: Absolutely.

10132 COMMISSIONER WILSON: Okay.

10133 On independent production -- this is my last question, actually, on this application -- you have said that you are going to do 52 hours a year of original Canadian programming. The first question is: what is the nature of that programming?

10134 MR. ZNAIMER: The heart of it is the feature films that we were talking about.

10135 Jay, do you want to pick it up?

10136 COMMISSIONER WILSON: But there is one feature film per year, right?

10137 MR. ZNAIMER: Right.

10138 COMMISSIONER WILSON: Under your commitment you are doing one feature film per year.

10139 MR. SWITZER: Yes. Paul may want to expand on this. A great proportion of those hours are informational-based programming about --

10140 COMMISSIONER WILSON: Information-based?

10141 MR. SWITZER: Yes. We are obviously acquiring many other completed Canadian films and we are commissioning these six new films over the licence period, but on an annual basis, according to hours, it is primarily information.

10142 COMMISSIONER WILSON: Okay. So when you say 52 hours of original Canadian programming, are you talking about acquired original?

10143 MR. SWITZER: No, primarily in-house new original programs --

10144 COMMISSIONER WILSON: In-house.

10145 MR. SWITZER: -- that are being produced by the channel. Yes. With, obviously, the exception of the film per year that we have been talking about.

10146 COMMISSIONER WILSON: And, of course, you wouldn't do that in house.

10147 Okay, so the film would be two hours and the other 50 would generally be in house?

10148 MR. SWITZER: Correct.

10149 COMMISSIONER WILSON: And it would be informational-based, you said?

10150 MR. SWITZER: Yes. Our Schedule 10 lists, on a draft basis, some sample titles --

10151 COMMISSIONER WILSON: Okay.

10152 MR. SWITZER: -- primarily informational- and magazine-based about the genre and primarily in-house based, or in house involved in association with other producers.

10153 COMMISSIONER WILSON: Affiliated producers?

10154 MR. SWITZER: In this case, yes.

10155 COMMISSIONER WILSON: Sleeping giant.

10156 MR. SWITZER: Possibly, yes.

10157 COMMISSIONER WILSON: Okay.

10158 Those are all my questions, Madam Chair.

10159 THE CHAIRPERSON: I don't want to eternalize this, but I do have a question.

10160 The question of distinctiveness, and its flip side, diversity, has been raised and the Mystery Channel seems to be a good one to try to distinguish between the various services.

10161 Were you here yesterday when, as the dean of this hearing, I established a take-home question? No? Which was -- and considering the ability of producers to distinguish between crime and murder, suspense and thrillers, I thought you would give that to your accountant -- and it would be: which of your Category 1 proposals would you not implement, together with any other Category 1 proposal that we might license?

10162 I understand the concept of designation TV, appointment TV and calculating how much of existing services may be or not competitive or diverse vis-à-vis your proposal. But what is not so simply is what of the proposals would be competitive with one another. And I think if you gave your accountant the question, we may cut to the chase more quickly. Mr. Miller seems confused.

10163 As between the Category 1 proposals, would you accept a licence for your Mystery Channel if we licensed one other Mystery Channel? Another will give us an idea of just how easy it is to categorize a genre of service in a manner that is different from the other, which is what people are telling us, when you are dealing with Mystery, Lifestyle, etc.

10164 And I repeat, the question is to me quite different. When you are looking at is it going to be competitive on an existing service, because it is going to be designation appointment, as opposed to a portion of a service. But when we are looking at the 88 proposals...at the last phase of the hearing, you are supposed to come back, your accountant is supposed to come back with an answer, because then business plans and how many subscribers you can get, presumably will be divided if you have three slightly different channels, one doing murder and the other one doing crime. Understand?

10165 MR. ZNAIMER: The Dawn of Reason, I think I am beginning to understand. But you are not expecting this --

10166 THE CHAIRPERSON: Because this is going to happen with Fashion, it is going to happen with Lifestyle. I think it would be one index -- or do you disagree -- of whether there is a distinction between various services is what your accountant would think would be your ability to be viable or reach your business plan if we also license someone else who claimed that they were not competitive.

10167 It is easy to argue that and leave it to us to cut to the chase by ourselves in our lonely room, so we want your accountant to help and tell us which of your services you would not launch if we also licensed another one.

10168 MR. ZNAIMER: All right, and may I ask is this the same idea as was mentioned --

10169 THE CHAIRPERSON: You don't have to answer, except that when you don't come back with answers to take home exams you sometimes fail.

--- Laughter / Rires

10170 MR. ZNAIMER: But I did want to ask, is this similar to or the same as the idea that was advanced on the first day, that we would be asked at the end of rebuttals to express which were --

10171 THE CHAIRPERSON: To me, if you understand me, it is not the same. Tell us which of your two or three services you feel we should give priority to and why, and we would expect then for you to say, "Because it has more Canadian content, it's more diverse, it's more valuable, more attractive", whatever, which will help us again.

10172 This is another question. Of those two or three, if we said, "Yes, we will give you two", which one of the other two or one would not live with?".

10173 MR. SHERRATT: Madam Chair, would this be akin to mutually exclusive on frequencies in radio?

10174 THE CHAIRPERSON: Well, it's up to your accountant to decide.

10175 MR. SHERRATT: I mean, you can't do one because the other one is there.

10176 THE CHAIRPERSON: That's your view.

10177 MR. SHERRATT: No, no, I am asking you.

10178 THE CHAIRPERSON: You need not agree, you need not want to express it that way, but what we hear again is murder and crime are not the same, and fashion and design. It's going to be difficult, but once one really focuses on, "Can I live with this other service if the Commission in its wisdom licences both of them?". We might as well know right away, but it's up to companies. You don't have to tell us what you don't want to.

10179 MR. ZNAIMER: When would be the appropriate time to tell you?

10180 THE CHAIRPERSON: Well, we thought at Phase IV because at that time you will have heard how diverse and non-competitive all the other services are.

--- Laughter / Rires

10181 And then make your own judgement. But it's up to you. I am just putting you on notice that we will ask that question.

10182 MR. ZNAIMER: And we will have an answer.

10183 THE CHAIRPERSON: Because I think it may help us box things in a little.

10184 COMMISSIONER WILSON: I will just going to use the example: If we licence Indie and we also licence Alliance Atlantis' independent Film and Documentary Channel would you go ahead and launch against them?

10185 THE CHAIRPERSON: We leave it to you to find the examples.

10186 MR. GRATTON: Just before we close for lunch, out of fear of failing the exam, I thought of an example of a comedy series. If someone were to develop Inspector Clouseau into a weekly series I think that would probably be categorized as a 7(b) and that is where we would put that in.

10187 COMMISSIONER WILSON: That's a wonderful idea.

10188 THE CHAIRPERSON: The applications are available for view and we are having a hearing where everybody is telling us where these distinctions are drawn. So you are the business people.

10189 Counsel, did you have a question?

10190 MR. McCALLUM: Just a couple of very small points if you don't mind.

10191 You said in this application and in the previous application you be 100 per cent in the heart of prime, 8 to 10. I take it if that were made a condition of licence that would be okay by you.

10192 MR. ZNAIMER: Yes, for those applications where we made that offer.

10193 MR. McCALLUM: And the two that are yet to come, you made the offer as well.

10194 MR. ZNAIMER: Indeed.

10195 MR. McCALLUM: In terms of the Canadian program expenditure condition of licence, that would be okay with both this one and the previous one as well?

10196 MR. ZNAIMER: Yes.

10197 MR. McCALLUM: In terms of this one, in terms of the overlap with Category 7, would have any idea of the maximum amount there might be of Category 7 -- 7(b) and 7(f), the comedies, just to be precise.

10198 MR. ZNAIMER: Yes, we were talking about, if I am not mistaken, 7(b) and 7(f) and we would be happy to live with 5 per cent as a maximum.

10199 MR. McCALLUM: As a condition of licence.

10200 MR. ZNAIMER: As a condition of licence.

10201 MR. McCALLUM: Thank you.

10202 And on the previous one, Fashion TV, the commitment of $700,000 to unaffiliated independent producers, if that were made a condition of licence that would be acceptable as well?

10203 MR. ZNAIMER: Yes.

10204 MR. McCALLUM: And also on the previous one, the commitment of a maximum of 15 per cent to Home and Garden Design that you made discussing with Commissioner Wilson, that would be acceptable as a condition of licence as well?

10205 MR. ZNAIMER: Yes.

10206 MR. McCALLUM: And just on the previous one, you had mentioned Category 10 game shows and I wondered how that fit with the description of Fashion Television.

10207 MR. SWITZER: Yes, counsel. It's included for the same reasons as discussed on Suspense where we wanted the flexibility to include programs as they may evolve or develop. Of course, they would have to be connected with the same overriding definition to fashion, style and design as discussed earlier.

10208 MR. McCALLUM: And could there be a limit to that?

10209 MR. SWITZER: Yes. Just one moment.

--- Pause / Pause

10210 We would be happy to also live with 5 per cent in terms of that specific category.

10211 MR. McCALLUM: As a condition of licence.

10212 MR. SWITZER: Yes.

10213 MR. McCALLUM: Thank you. Thank you, Madam Chair.

10214 THE CHAIRPERSON: Thank you, Counsel.

10215 We will now adjourn until 2:30. We will resume then at 2:30 and examine the other five applications.

10216 Thank you.

10217 Nous reprendrons à 2 h 30.

--- Recess at 1305 / Suspension à 1305

--- Upon resuming at 1430 / Reprise à 1430

10218 THE CHAIRPERSON: Good afternoon.

10219 Mr. Secretary has a short announcement to make before we resume the questioning of CHUM.

10220 MR. CUSSONS: Thank you, Madam Chair. I would just like to announce that yesterday in fulfilment of its undertaking given to Commission counsel on Monday, 14 August, Alliance Atlantis filed a number of analog customers currently subscribe to the Health Network. This filing has been added to the public file.

10221 Thank you.

10222 THE CHAIRPERSON: Commissioner Wilson.

10223 COMMISSIONER WILSON: Thank you, Madam Chair. Welcome back.

10224 I am going to move on now to the remaining five applications and just to put my questioning into a bit of context, I am probably going to move a little more rapidly though each of these because there are a lot of elements of the applications that are fairly consistent across all of them and I think that we have explored a number of issues like the issue of how you have achieved your penetration rates or guessed what they would be based on what you know, what your experience is.

10225 So I am probably not going to repeat all of those questions for each one of the applications, but I will ask the ones that we and the staff feel are really important in terms of getting the information on the public record. So just so that you know that I am not trying to sort of do a quick romp through everything.

10226 At this stage we just want to get the information that we really need and put that on the record.

10227 So in terms of MasterMusic, I wonder if you could describe, Ms Donlon, exactly what the service is going to look like on the screen. Is it in any way a music video service? Is it sort of longer form musical programming. I have looked at your schedule and you have large blocks, great performances from 7:00 to 10:00 in the morning. I am assuming that those would be like concerts so that would be longer form.

10228 I guess I am just trying to figure out what a viewer would see in an average day. Will there be VJs for MasterMusic? I assume they would have a much different approach.

10229 MS DONLON: Well, they would dress differently, taking some notes from the Fashion Channel.

10230 No, we are not anticipating VJs on MasterMusic. What we are looking for is a real destination channel, a perpetual flow of music from a couple of different, yet highly related genres -- classical music, classical jazz, classically driven dance music, in particular. We are looking for a seamless flow throughout the day. If you look at the categories that we listed in the application, 1(a), 2, then 8(a), (b), and (c), 85 per cent of the programming would come from the Category 8. So we really are looking for a destination channel, much like classical radio where you turn it on and you can leave it on and you know that when you turn that channel in you are going to get that kind of music in it.

10231 There is obviously opportunity in the schedule to do long-form concerts as well as music videos. There are music video block shows. There are longer concerts. I guess if you chopped up concerts and symphonies and operas you wouldn't call them music videos -- well, we know from our Bravo! Fact experience that there is about 100 Canadian classical and classical jazz music videos out there in a shorter length, but generally classical music movements tend to be longer.

10232 So we are not chopping it up into three-minute bites, but a mix of long-form concerts, some documentaries and music video programming.

10233 COMMISSIONER WILSON: So it wouldn't be as frenetic as MuchMusic.

10234 MS DONLON: Not as frenetic, no. It's a whole different attitude there.

10235 COMMISSIONER WILSON: A whole different audience.

10236 MS DONLON: Well, not a completely different audience. There are people that will cross over, but those will be in the minority, yes.

10237 COMMISSIONER WILSON: Like you or me, for example.

10238 MS DONLON: You got it.

10239 COMMISSIONER WILSON: What proportion of your service would be music videos, if there are only 100 out there?

10240 MS DONLON: Well, there is 100, I said, that were funded by Bravo! Fact. There is actually about 400 right now in the library that we know of, and we are looking forward to, as you will see in the Canadian programming expense, financial there, that we are looking forward to producing a lot. We are producing a lot more music videos as well as concerts and those types of independent productions and in-house productions, many of which could be turned into music videos insofar as they were once a part of a larger whole.

10241 COMMISSIONER WILSON: What proportion of the schedule would you say would be videos? I mean, if you look at the schedule, the draft program schedule that you have provided? Would the show Classical Clips be videos for example?

10242 MS DONLON: Classical Clips is videos, absolutely. This is a draft schedule that is based on what we think and what we believe that we could deliver from day one. As we move through the schedule -- move through the term of the licence, the music videos would actually be increased because they would be more available and that is part of the reason why this licence has been applied for Category 1, to give us the penetration and the distribution and ultimately the revenue to be able to provide more opportunities for composers and performers to take advantage of the opportunity to make music videos and to do concerts and productions with us.

10243 COMMISSIONER WILSON: Would you think that having a condition of licence relating to the broadcast of music videos would be appropriate on this service?

10244 MS DONLON: I would say no, actually, yet. And the reason I am going to say no on that is because I am hoping that we are going to take some experience from our knowledge of running more pop music channels and get into some more creative partnerships with classical music composers and classical music performers and that we would encourage, just by the nature of our existence, and you know the old "build it and they will come", it's actually "build it and nurture it and they will come" that we will be able to do more and more of it over the term.

10245 So if you wanted to propose it in terms of a sliding and increasing, I think that would be a more effective look at it.

10246 COMMISSIONER WILSON: If we felt if was necessary, would you accept a condition of licence in terms of music videos?

10247 MS DONLON: Yes.

10248 COMMISSIONER WILSON: What would be an appropriate level?

10249 MS DONLON: I would probably say in the order of 30. As a maximum you mean?

10250 COMMISSIONER WILSON: What do the lawyers say? As a maximum? I am just looking to see what the staff has in mind. A minimum number? Do we want this to be a video channel?

10251 MS DONLON: Yes, it's a music video channel, but again we need to be a bit more flexible in our definition of music video. If we assume that music videos are not three or four minute clips with, you know, a verse, chorus, verse, chorus, as they exist in our traditional knowledge of them, then you could have a music video that could be 30 minutes. And that is why I am having some definition questions.

10252 COMMISSIONER WILSON: Me too. I am just looking our counsel to see what they are --

10253 MR. McCALLUM: I think it depends on the type of service and the focus of the service as to whether a condition of licence would be a maximum or a minimum. So I don't know how you want to propose it, whether it's more appropriately done as a maximum or more appropriately done as a minimum.

10254 MR. ZNAIMER: That would depend on whether you were seeking to encourage or discourage.

10255 COMMISSIONER WILSON: Exactly.

10256 MR. ZNAIMER: We are hoping you would like to encourage us because that is the nature of channel.

10257 COMMISSIONER WILSON: Yes, I would think a minimum.

10258 MR. McCALLUM: And if you are going to do it, you could propose it as a sliding scale, a certain percentage at the beginning and then moving up over time if that is the idea.

10259 Again if you are not sure on this one, we would accept an undertaking to come back. There is a Phase II where you people appear in the same order. If you are not sure of this at this stage, I think it would be acceptable to the panel to come back at Phase II and answer it then.

10260 MS DONLON: Yes. I am happy to come back with that and I would reiterate that the reluctance on it is that we would come back with a definition, a broader definition, of what we would say would constitute a music video versus our traditional understanding of that is. I am happy to do that, as a minimum and a sliding scale.

10261 COMMISSIONER WILSON: I guess I am not 100 per cent sure what -- I mean, if you look at the schedule, I am trying to imagine -- I hope you will forgive me for sort of thinking out loud here as a regulator which is sometimes hard to do -- think as a regulator, that is, thinking.

--- Laughter / Rires

10262 I think, often, conditions of licence are imposed because you have concern that the service might morph into something else. I'm not sure what we would be concerned it would morph into. A talk service? Talking about music or --

10263 So I'm just throwing that out there for the staff, really, to think about too. Because it's quite clear from the schedule, at least to me, that it's a performance channel.

10264 MS DONLON: And we did say that 85 per cent of the programming would be 8a), b) and c).

10265 COMMISSIONER WILSON: Eighty-five per cent of the programming would be 8a), b) and c)?

10266 MS DONLON: As filed.

10267 MR. ZNAIMER: In other words, only 15 per cent of anything else. That's the limitation. I think that's the limitation you're looking for.

10268 COMMISSIONER WILSON: Right. Personally, that satisfies me.

10269 MR. McCALLUM: In terms of that , maybe if that were acceptable as a condition of licence, maybe, the 85 per cent coming from groups a), b) and c), maybe that would be a satisfactory answer to the question.

10270 MR. ZNAIMER: Yes, we think so.

10271 MS DONLON: Yes, we would be quite happy with that.

10272 COMMISSIONER WILSON: That is satisfactory to me too. Excellent.

10273 MR. SHERRATT: Thanks for pursuing it.

10274 COMMISSIONER WILSON: This is really related to the same question and we may already have the answer. I will just ask counsel to listen to me as I'm asking this, to make sure he's getting what he needs.

10275 In your narrative description of the channel, you propose that MasterMusic provide programming consisting primarily of classical music and dance, jazz and opera music video or music related programs.

10276 I'm just wondering why you would use the word "primarily" as opposed to the word "exclusively". And again, if you think about it in terms of, I guess, a competitiveness issue and whether it would compete with other genres of music. You have music related programs. It's primarily. So what other kinds of music related programs would you squeeze into that schedule?

10277 MS DONLON: Those would come from the categories 1 and 2, which would be documentary features. For example, we would do, you know, a travelling documentary with Diana Krall, for example, through her concert series, some news, concert calendar information about an upcoming concert or a review of an upcoming concert, you know, music education in the schools kind of information, that sort of thing.

10278 So I guess if the question is about the word "primarily", if you want to change it to "predominantly", -- or you could even say "exclusive", yes.

10279 MR. ZNAIMER: Commissioner Wilson, I think it was simply a way of reflecting the 85-15 split. But it's all about music.

10280 COMMISSIONER WILSON: Well, the 85-15 split relates to the type of programming but not necessarily to genre of music, as I understand it. So are you saying that 85 per cent would be classical music and dance, jazz and opera music video?

10281 MS DONLON: Yes, we would say exclusively in those areas: Classical music, classical dance, jazz and opera.

10282 COMMISSIONER WILSON: Okay.

10283 MS DONLON: It's really finely focused as a destination channel. Even the classical jazz or the classical music and the jazz, we know that there's a very heavy overlap in terms of the lovers of those kinds of music. We feel that we can nest them very effectively together on one channel.

10284 COMMISSIONER WILSON: Regulators love to try and predict what could happen, you know, in the far future. I think that's the purpose of COLs, it's to fence you in.

10285 MS DONLON: That's why we kept our numbers really short; one, two and eight. One could take out 15, if you want, actually.

--- Laughter / Rires

10286 COMMISSIONER WILSON: That's a very generous offer. I think we'll take you up on that.

10287 MS DONLON: Can I swap you for a 14? We have got --

--- Laughter / Rires

10288 COMMISSIONER WILSON: Would there be any overlap between this service and MuchMore Music?

10289 MS DONLON: Not MuchMore Music. We see it more as an extension of Bravo! than anything else.

10290 If you look at Bravo!'s overall programming, they tend to program from about six related disciplines. And if you look at jazz and classical music, classical dance together, it equals about 15 or 16 per cent of their overall service. So there would be some overlap from those services. We would be able to nest it more effectively in a more destination driven service, and that's where you would see the overlap.

10291 Into MuchMore Music, highly minimal. The odd Diana Krall, I think --

10292 COMMISSIONER WILSON: I was just going to say Diana Krall.

10293 MS DONLON: -- depending on the visuals of the video and depending on how it's shopped. If it looks, you know, one way versus another way, it will lend itself more to one channel than the other. But the crossover between those two channels is very, very minimal.

10294 COMMISSIONER WILSON: Sorry, I think I missed this, but what proportion of programming might overlap on Bravo! and MasterMusic?

10295 MS DONLON: I would say about 15 per cent of Bravo!'s schedule, yes.

10296 COMMISSIONER WILSON: Okay. If the Commission felt it was necessary, would you accept that as a COL?

10297 MS DONLON: Yes.

10298 COMMISSIONER WILSON: Okay. Now, your nature of service definition includes dance. As you know, there's another application for a Category 1 service for the Dance -- I think it's called the Dance Channel by Stornoway.

10299 Have you taken a look at that application? I'm just wondering how competitive you consider that to be.

10300 MS DONLON: Well again, I think it all comes back to the idea of a finely focused destination channel. The type of dance that we are envisioning for this channel is really classically music driven dance. It's from the classic composers, the Tchaikovskys, the Swan Lakes, the Nutcrackers, Sleeping Beauty, etc. You know, a lot of dance, especially modern dance, tends to borrow musically from, you know, very modern disciplines. That's not the type of mood and ambience that we are trying to develop on this channel. It really is more classically, traditionally oriented.

10301 COMMISSIONER WILSON: Guess what the next question is.

10302 MS DONLON: I can't.

10303 COMMISSIONER WILSON: If the Commission felt it was necessary to impose a condition of licence respecting your dance programming, what would you propose?

10304 MS DONLON: I would say 25 per cent.

10305 COMMISSIONER WILSON: 25 per cent. Why 25 per cent? If we licensed both services -- this relates to that question that the Chair --

10306 MR. MILLER: Subject to check, I think when we looked at it, we thought that would be the maximum that would be classically driven jazz. And again, because our dance would be music oriented, then it would be a different kind of dance. You wouldn't necessarily have exactly that level of overlap between the two services.

10307 We could consider other levels, but we felt that was a reasonable level, and again, back to your point that consistency with directly competitive services, we felt that that threshold was a good way of looking at it between two services you might licence together.

10308 COMMISSIONER WILSON: And yet, for Fashion, you said 15 per cent home and garden design. Was that just because it didn't fit?

10309 MR. MILLER: It was because -- Yes, it wasn't part of the concept for fashion in the same way, so it was easier for us to limit it. But if that was an issue, we could look at that again.

10310 MR. ZNAIMER: On the other hand, 15 is fine.

10311 COMMISSIONER WILSON: Fifteen would be fine. So anything between 15 to 25?

10312 MR. ZNAIMER: Yes.

10313 THE CHAIRPERSON: No decimals!

10314 COMMISSIONER WILSON: No decimals.

--- Laughter / Rires

10315 COMMISSIONER WILSON: The Chair has spoken.

10316 Your Canadian content levels for this channel, they are essentially the same as most of the other channels that you filed for, except Indie.

10317 MS DONLON: Forty to 50 per cent.

10318 COMMISSIONER WILSON: Yes, 40 to 50, over the life of the licence.

10319 Does that have to do with availability of product as well?

10320 MS DONLON: Precisely.

10321 COMMISSIONER WILSON: And what's the nature of the foreign programming that would take up the remainder of the schedule?

10322 MS DONLON: The foreign program would be drawn from a variety of sources all over the world. BBC has a lot of offerings -- In fact, it's really interesting, you know.

10323 When you try and put a channel together like this, that is a 24-hour focus channel, and you actually start going through all the countries and all the programming that is offered, from opera to ballet to jazz, and you pull a country like Switzerland, for example, and in one year they are offering 50 selections, hour-length concertos, operas, the whole thing, and then you look through and you find, "Oh, well, how much Canadian is there?" and there is very minimal that is available out there on the world stage, that is part of the thing that we want to deal with this channel: is engage in those independent partnerships and those in-house productions and to provide another home for acquired Canadian programming so that we can put a foot up here out into the world market. There is no reason that San Francisco should be offering 15 offerings a year and Canadians are offering one or two.

10324 COMMISSIONER WILSON: So you expect that you would be sourcing that material from --

10325 MS DONLON: All over the world.

10326 COMMISSIONER WILSON: Not just from the U.S. --

10327 MS DONLON: No, not just from --

10328 COMMISSIONER WILSON: -- but from all over?

10329 MS DONLON: Yeah.

10330 COMMISSIONER WILSON: What proportion would come from the U.S., do you think?

10331 MS DONLON: Again, difficult to put it into an actual percentage, but if you look at the history of classical music and the great houses and the performance house and the orchestras actually reside with a lot of history --

10332 COMMISSIONER WILSON: It is mostly European.

10333 MS DONLON: -- you are going back to Vienna and Switzerland and Germany. So that is where an evolving and a continuing life of classical music is. Canadians are really strong in this field, but we could be so much stronger, given another opportunity.

10334 And, as you know, Commissioner, classical music, classical jazz travels really well. There is no real language barriers. In fact, opera lovers are really used to reading subtitles and understanding what is going on in a German opera when they are watching in Norway. So this is the kind of thing that I think has a really strong export opportunity for Canadian voices abroad.

10335 And in terms of the foreign mix, I would say it would be from a wide number of sources all around the world, including south Asia and places, because classical music really is at the bed of a lot of culturally distinct music, as well.

10336 COMMISSIONER WILSON: Okay.

10337 In section 7.4 of your application form, you show Master Music ramping up to 30 per cent Canadian music video content, but you 10-point plan and Schedule 1 both say 20 per cent.

10338 MS DONLON: Yes, that is an inconsistency, and I would be happy to file. It is 20 per cent.

10339 COMMISSIONER WILSON: It is 20 per cent?

10340 MS DONLON: Yes.

10341 COMMISSIONER WILSON: Okay.

10342 The 40 per cent commitment to Canadian programming expenditures, you would accept that as COL?

10343 MS DONLON: Yes.

10344 COMMISSIONER WILSON: And the commitment to BravoFact?

10345 MS DONLON: Yes.

10346 COMMISSIONER WILSON: You would accept that as a COL, as well?

10347 MS DONLON: Yes.

10348 COMMISSIONER WILSON: We will skip the demand research because I think that we have explored that in enough detail with respect to the other applications.

10349 MS DONLON: I just will throw one thing into the demand. We talked a little bit about in another channel earlier, but I was kind of saving it until we got to the specific channels.

10350 COMMISSIONER WILSON: Okay.

10351 MS DONLON: In this case, what we hear from the viewers on Bravo! in particular is they want more of it all the time. It is not necessarily, although it is with the big stars, the Pavarottis, the Yo Yo Mas, definitely an "Appointment" tune when you are going to go home and say, "I got to catch that at eight o'clock." But if you take a cue from classical music radio stations in the country, "Take Five", for example, on CBC and "Classical '96", even in smaller markets or regional markets like southern Ontario, these are shows that are drawing 300,000 people, listeners, as a weekly reach. And I think that, and we believe that, and that's, again, part of the reason why a Category 1 for this service is that it is probably the last of the known musical genres that doesn't have a fully dedicated channel to it if you just follow the simple formula of radio.

10352 COMMISSIONER WILSON: Did you look at tuning to radio?

10353 MS DONLON: Yes.

10354 COMMISSIONER WILSON: And did you include that in your application?

10355 MS DONLON: Not in there. I can you tell you what it is. The "Take Five" reach, for example, in the afternoon with Sheila, is 208,000 in Toronto only each week; "Classical '96" weekly reach is 355,000 listeners every week. And we know that tuning into Bravo!, as a TV show, "Classical Chronicals" every week is 100,000 viewers. There is an audience there. They are thirsty for more and we would love to supply it.

10356 COMMISSIONER WILSON: You were just waiting for the hearing to tell us about that, right? That would have been good in your application. But it is good to have it on the record, nonetheless.

10357 Okay, independent production. The commitment that you have made through Master Music is the estimated $1.37 to BravoFact over the life of the licence. And just explain to me who gets that money. Is BravoFact...you set that up, right?

10358 MR. ZNAIMER: Yes. We set that up with --

10359 COMMISSIONER WILSON: And does it operate sort of at arm's length from you or...?

10360 MR. ZNAIMER: Yes, indeed. It operates with its own board and independent chairman.

10361 COMMISSIONER WILSON: Okay.

10362 MR. ZNAIMER: And the members of the board represent most of the important disciplines in the so-called "high arts".

10363 COMMISSIONER WILSON: Okay. And so they would be taking that money each year and deciding who would get it --

10364 MR. ZNAIMER: Oh, exactly.

10365 COMMISSIONER WILSON: -- and the resulting programming would end up on the channel?

10366 MR. ZNAIMER: Yes.

10367 COMMISSIONER WILSON: Okay.

10368 MR. ZNAIMER: You know that when those videos are made, they also are made available to the artists themselves, who have free use of the material for promotion or any other use that they can conceive of.

10369 COMMISSIONER WILSON: That is great.

10370 Those are the only questions I have on this application. I don't know if any other commissioners have questions, or counsel.

10371 MR. McCALLUM: When we calculated the Canadian programming expenditures, we actually came up with, I think, 40.8 per cent, as opposed to 40 per cent -- which I would round at 41 per cent -- which is just slightly over what you had calculated. If it were 41 per cent as a condition of licence, that would be acceptable, I take it.

10372 MR. ZNAIMER: Yes.

10373 MR. McCALLUM: And the one thing I wasn't clear of is whether that 40...or let's say 41 per cent and the 5 per cent to BravoFact are separate commitment, or if the one is included in the other?

10374 MR. SWITZER: The 41 per cent is inclusive of all eligible Canadian programming expenditures, including the 5 per cent.

10375 MR. McCALLUM: So it includes the 5 per cent to BravoFact?

10376 MR. SWITZER: Yes. And that's the way the plan was built and that is the way it has been expressed throughout the application.

10377 MR. McCALLUM: Thank you.

10378 COMMISSIONER WILSON: Okay. So we will move onto Indie TV.

10379 The first area of this application that I want to deal with relates to the intervention from WIC Premium Television.

10380 Mr. Miller, I am sure you will want to be on this file because it relates to your nature of service.

10381 WIC Premium Television in their intervention proposed a definition that should be applied, which relates to restrictions on the exhibition of feature film, which is what this service all about. And your reply to that intervention was fairly definite in its view that the proposed definition by WIC Premium Television was unreasonable and too rigid. I wonder if you would just like to take a few minutes and talk about that. Somebody.

10382 MR. GRATTON: I am not sure I accurately recall every detail of their intervention, but I think one of the key questions that came up was essentially the definition of an "Indie film" --

10383 COMMISSIONER WILSON: Right.

10384 MR. GRATTON: -- and I couldn't --

10385 COMMISSIONER WILSON: Let me just read to you what they have suggested --

10386 MR. GRATTON: Okay.

10387 COMMISSIONER WILSON: -- to give you the framework. They said that:

Oh, sorry, let me --

10388 MR. GRATTON: I think it is the reverse.

10389 COMMISSIONER WILSON: That is the reverse. I am reading from yours, so let me just read from theirs.

So the Art House affiliates would be allowed.

10390 MR. GRATTON: Let me explain why that does not work.

10391 THE CHAIRPERSON: I was just going to point out that it may not be fair to the intervenor to have you reply at this stage.

10392 COMMISSIONER WILSON: Oh, okay.

10393 THE CHAIRPERSON: They may not be paying attention.

10394 COMMISSIONER WILSON: Okay. I'm sorry. A little too zealous.

10395 THE CHAIRPERSON: So I think it better to leave it to the reply.

10396 COMMISSIONER WILSON: Okay.

10397 THE CHAIRPERSON: Make a note to yourself, Commissioner Wilson, to do it at reply.

10398 COMMISSIONER WILSON: All right. So sorry.

10399 MR. GRATTON: You might want to ask me what my definition of an "independent film" is.

--- Laughter / Rires

10400 COMMISSIONER WILSON: I think I will wait!

10401 Okay, we will move on from that topic and we will wait till the next phase or the phase after that -- I can't remember which one it is. I'm still pretty new at this. The Chair has this chair of the panel, both chairs.

10402 Do you consider Indie TV to be directly competitive with the other proposals for independent film channels that we are looking at for Category 1 licences?

10403 MR. MILLER: The other four proposals for so-called independent channels, yes, but not competitive with the two documentary channel applications.

10404 COMMISSIONER WILSON: Okay.

10405 You have said that 75 per cent of Indie TV's schedule would be film. What proportion would be devoted to documentary?

10406 MR. GRATTON: We have basically broken it down in the following fashion: 75 per cent of the schedule would be Category 7(b), theatrical movies; 5 per cent would be the rest of Category 7; and 20 per cent would be the remaining categories, which would include documentary.

10407 We only proposed two kinds of documentaries for this channel. One is theatrically released feature-length documentaries, such as "One Man's Grass", "Twist", "Toxic Steam", because we feel that is legitimate, underserved and important part of the independent film scene, something Canadians have been good at and it has become increasingly difficult to get these films to market.

10408 And the second category would be the documentaries that specifically relate to the subject-matter of the channel: profile of filmmakers, retrospectives of film genres, etc. Those are the two kinds of documentaries that we see on this channel.

10409 MR. MILLER: To be specific, we did indicate in reply that we would be prepared to limit long-form documentary, Category 2(b), to less than 10 per cent.

10410 COMMISSIONER WILSON: Okay, that is great.

10411 Actually, staff did want me to ask you the question about your definition of "independent", but let me just check with the chair.

10412 Go for it. What is your definition of an "independent film"?

10413 MR. GRATTON: Obviously, the channel exists to represent the movies that are not released by the major studios. That is the definition of "independent film".

10414 The problem is in the details. In fact, I would not be able to program a retrospective of Fellini films because Universal owns Fellini's "Casanova". I would not be able to program a retrospective of François Truffaut films because "La nuit américaine" is owned by Warner Brothers and "Une si belle filles que moi" is with Columbia Pictures. And so to say you could never show a major studio picture is not in the spirit of an independent film channel. By the same token, we are all in agreement that the channel is not about showing Steven Segal, Clint Eastwood -- major studio pictures. And so I think in our...never mind. No reference to that. I think --

10415 COMMISSIONER WILSON: Thank you.

10416 MR. GRATTON: -- a nice control against the channel becoming a mainstream American Hollywood channel would be the say no more than 10 per cent could come with a mainstream studio logo at the front end. That would essentially guarantee that it couldn't transform itself into some other kind of channel.

10417 Even "Roger and Me", the Michael Moore documentary that defines independent documentaries and was discovered at the Toronto Film Festival, is owned by Warner Brothers and would a legitimate film on this channel. So to say no major studio pictures have ever play is incorrect, but to put a very strong impediment about a large volume of studio pictures playing on the channel, I think, is fair and reasonable. That is why we had agreed to a 10 per cent limit on films that would have a major studio logo at the front end.

10418 The definition proposed by the Distributors' Association is far too legal and technical and was in anticipation of legislation that would break up the Canadian marketplace. And no studio is going to tell us who financed what, and everything else, which was part of that definition. That is why I think a straight 10 per cent would guarantee the purity of this channel.

10419 COMMISSIONER WILSON: Okay.

10420 When we issued the licensing framework, we said that we would not license a digital service that would be directly competitive with an existing payer specialty service. And I want to look at Showcase because their nature of service descriptions states that:

I'm just wondering what your views are on the notion that your channel, or any independent film channel, might be competitive with Showcase.

10421 MR. GRATTON: It is my view that there are thousands and thousands and thousands of movies to choose from.

10422 COMMISSIONER WILSON: Most of which you have written notes about!

--- Laughter / Rires

10423 MR. GRATTON: All of which I have written notes about!

10424 About half the title that I have seen in my life would fall in the Indie film category and I just fail to understand why there isn't room in the marketplace for both.

10425 Remember, Showcase focuses specifically on recent theatrical independent pictures. If you look at our program schedule, there is a portion of that, certainly, because that is attractive, but there is also a huge section on classics. And so there would be the history of the cinema wading through this channel. The non-American cinema -- I mentioned a referenced to Ciné Club -- and that is something that Showcase doesn't touch at all.

10426 I don't think in the specialty area that any one channel can say that they are the only outlet for the thousands of movies that are available.

10427 MR. MILLER: If I could add, Commissioner Wilson, I think on this whole issue of direct competitiveness, we are sympathetic to the concerns that a group like Alliance Atlantis raises, but I think, from our perspective, and in applying the test that we proposed, Showcase has a relatively broad mandate for drama, of which independent film is one component. So their core mandate is drama, not independent film, I think that is the first thing; and secondly, they have chosen to make independent film a large portion of their schedule, and that is to their credit, and they indicate that it represents something on the order of 30 per cent. But given the broad mandate, we think that is not a sufficient overlap to preclude the emergence of a true independent film channel.

10428 That being said, what that channel does and what else it has is relevant, and that is why we feel our proposal, which is so focused on independent film, and anything else that is geared to independent film in the remaining 25 per cent, that that distinguishes us even more from them than other applications.

10429 MR. GRATTON: I should point out that they have applied for an independent film channel, as well. So, clearly, they feel that there is enough product around for two channels. And I am sure no one would suggest that only one company should be the outlet for feature films on television.

10430 COMMISSIONER WILSON: Part of their argument is that if they are controlling both channels, they can ensure that direct competitiveness won't become an issue.

10431 MR. GRATTON: They do control a fair amount of the theatrical independent market theatrically, so they have an enormous amount of control. Currently, Alliance Atlantis has 16 per cent of theatrical marketplace in Canada, which makes them bigger than any single American major operating in this country. So they have an enormous capacity to control whether they get an Indie film channel or not. I really don't have a lot of sympathy for their argument, I'm afraid.

10432 THE CHAIRPERSON: I will have to stop Mr. Gratton from intervening!

--- Laughter / Rires

10433 THE CHAIRPERSON: That is why perhaps when everybody answers their take-home exam, we will get a bit more clarity as to: could both these services, for example, focus the mind?

10434 COMMISSIONER WILSON: In your application, you have indicated that Indie TV would broadcast independent films from Canada and around the world. I was just wondering if you could give me a breakdown of the Canadian versus non-Canadian and how much would come from the U.S. and how much from other countries.

10435 MR. GRATTON: I estimate that this channel will need to purchase about 500 to 600 films a year to be viable and interesting, which sounds like a lot, but out of 17,000 movies there is a lot available. Of those, about 50 to 60 Canadian films a year would be purchased, roughly 10 per cent of the inventory, which, of course, would make up 30 per cent of the air time. And that is why we chose not to go higher, in terms of Canadian content commitments.

10436 In terms of the breakdown between, say, American and other countries, I haven't really thought it through at that level. My feeling is that generally the foreign language portion of the schedule would probably represent about 15 per cent, which is three times higher than it represents in the English theatrical marketplace. But I think it is important to show alternative films from other countries and other cultures.

10437 The remaining would probably be split 50:50 because the American independent cinema movement is what is really driving these channels and this renewed interest in alternative Hollywood fare. So I would be reluctant to put a major cap on American fare in the context of an Indie film channel, which already has a condition of licence which eliminates most of the major studio stuff.

10438 COMMISSIONER WILSON: My next question is not if the Commission felt it was necessary, so I am not proposed a cap, just asking out of curiosity what the source of the programming is.

10439 MR. GRATTON: Where the programming would come from?

10440 COMMISSIONER WILSON: Yes, just where it would come from: how much from the U.S., how much...but I think you have given me a good idea.

10441 MR. GRATTON: The majority of the titles would be purchased from independent Canadian film distributors, who represent the Canadian rights even for foreign titles, and American titles. These are the people we have relationships with, these are the people who supply us with most of the films that we run on Bravo!

10442 COMMISSIONER WILSON: No, I meant country of origin.

10443 MR. GRATTON: Country of origin. Well, again --

10444 COMMISSIONER WILSON: Didn't you just tell me?

10445 MR. GRATTON: Yes, I thought I had answered that question as vaguely as I could.

--- Laughter / Rires

10446 COMMISSIONER WILSON: I was just saying that -- because you mentioned the word "cap" and I was not proposing one.

10447 MR. GRATTON: No, and I am not trying to be cute. The fact of the matter is at any point in time, there is a national cinema that will take off. Right now, for example, the world is discovering Iranian films. At this year's Cannes Film Festival, most of the big award winners came from Asia. Five years ago both of those countries probably wouldn't have been of great interest to this channel.

10448 I would say today if I was programming that channel, you would have a focus on Iranian cinema because it's winning awards everywhere and it's some of the best films anywhere in the world much to everyone's surprise. It would be impossible to break down the different countries because at any point in time what is hot and what is not, and what country is producing interesting alternative cinema varies depending on a whole bunch of conditions which nobody can quite figure out.

10449 I really say it kind of moves around the globe depending on where interesting films are being made at any point in time.

10450 COMMISSIONER WILSON: For your Canadian program expenditures, I think it's quite clear why your exhibition levels don't meet what was issued in the call because it's film and there just isn't the product available. So in terms of your Canadian program expenditures, would you accept -- I think you said 42 per cent of the previous years. Would you accept that as a COL?

10451 MR. ZNAIMER: Yes.

10452 COMMISSIONER WILSON: What kind of programming will you be producing yourselves for this channel?

10453 MR. GRATTON: I mean, all of the programming would be related to the themes so it would be focused on directors, live reports from film festivals, a very particular focus on independent films seen in general, but more specifically the Canadian film festivals, Canadian filmmakers and Canadian movies.

10454 COMMISSIONER WILSON: And that would all be done in-house.

10455 MR. GRATTON: Not exclusively.

10456 COMMISSIONER WILSON: Not exclusively?

10457 MR. GRATTON: I mean largely. We have an incredible archive because of movie television which has been in production for what, ten years, where, for example, if we were to do a current interview with a Tom Agoyan on the set of his movie, it would be wonderful to go back and bring out previous interviews on the same subject and actually watch him mature in age before your eyes as a Canadian filmmaker.

10458 We have an incredible resource there that I don't think anybody else in Canada has in the area of movies, so the natural tendency would be to produce a fair amount of this stuff in-house. We do it as a matter of cause.

10459 COMMISSIONER WILSON: Would there be a role for independent producers in any of the programming that goes onto the channel?

10460 MR. GRATTON: Certainly the 10 feature films with unaffiliated independent with huge licence fees attached.

10461 COMMISSIONER WILSON: The documentaries?

10462 MR. GRATTON: The feature length documentaries would be in the same category.

10463 COMMISSIONER WILSON: Okay. That's it for Indie. Moving right along.

10464 Moods. Ms Donlon, again, just talking a little bit about what the service will look like on air. I guess the word "seamless" comes in again. When you talk about "an oasis of calm" -- and I actually had to smile when I read that because it's a concept that I have heard talked about before especially in terms of television and grazing and music videos and rapid cuts and sound bites and everything is happening so fast that sometimes it's nice to have a place where you can go where you can just kind of go "Ahhhh!".

10465 MS DONLON: Well, that is precisely what this channel is intended to do. This channel is not difficult to describe. I think it's difficult to test for and that is why we brought up the log channel example, not because we were after a giggle here, but because consumers didn't know what they were missing until it got taken away and in this case Moods is precisely focused as relaxation, the four R words we used in the tape -- restore, renew, relax. That is what it's about. It's not about abrasive music. It's about putting together an oasis. It is the perfect word to describe it. It's not necessarily vocally oriented, although there would be vocal performances on the channel given the availability of music videos, and it's actually more focused to the abundance of music research that is out there, available. Thick, thick studies for decades have been going on about the effect of music on ourselves emotionally and physically, how it can trigger endorphins. I mean the studies are just fascinating to read. You have every music to reduce stress, reduce anxiety, reduce depression, reduce pain when you are in the dentist's chair. They even have studies that say it can reduce migraines. It really is designed to be a true alternative. I mean, I would expect that if the channel was up now and we all left this room, it might be the first thing you would turn on in your hotel room when you got back.

10466 It has tremendous social benefits, we believe, and as well as tremendous opportunities for really unexplored areas of creativity for composers and filmmakers and people who are involved in the ambient and natural world and in the new age world for sure.

10467 COMMISSIONER WILSON: Will there be VJs?

10468 MS DONLON: You may find the occasion voice over, but there won't be VJs, there won't be VJs introducing clips. You may not know when one clip ends and another begins except for that we will be day prodding the show, so that when you wake up in the morning it will probably -- what we envision for the channel is that it will be a more natural environment. In the middle of the night or after midnight, we could get into more of the experimental opportunities where you could use more of the surrealistic computer-animated wonderful visuals that are coming out of a lot of the community colleges as well as computer-animaters all over the planet, not to mention the Canadians.

10469 So it's about a place to go when you want to relax.

10470 COMMISSIONER WILSON: So when you say "seamless" you really mean that it will be flowing.

10471 MS DONLON: Yes.

10472 COMMISSIONER WILSON: And you will have a part that starts at 6:00 and goes until 9:00. How much talk? Will there be talk involved in that lock of programming at all or will it be completely seamless?

10473 MS DONLON: There might be the very occasional interview with maybe one of the international stars carefully placed because we really don't want to interrupt the seamless flow. But again, the whole idea and concept of interactivity and what we have been doing on our on-line sites really comes into play here. If the consumer and the viewer wants to click into a certain part of the videos and say, "Who is that and how can I buy it and how do I get more information" about, you know, the subject of the music that they are watching, they can easily go to the on-line site and find all that biographical catalogue material, et cetera.

10474 COMMISSIONER WILSON: Once again, in your narrative description, you propose that Moods would provide programming consisting primarily of new age.

10475 MS DONLON: You are not liking that word. We can say "exclusively".

10476 COMMISSIONER WILSON: Okay.

10477 MS DONLON: And be happy with that.

10478 COMMISSIONER WILSON: Good. In Schedule 1 you talk about programming on the channel that would not fall under the proposed categories and as a specific example you mentioned documentaries and I am just wondering if you could talk about what kinds of documentaries would appear on the service and whether or not the categories you have actually proposed are an accurate reflection of what you would be doing.

10479 MS DONLON: I think what is more clear in here is in 7.1 the nature of service where we actually detail the categories. We are looking exclusive 8(a), music and dance, 8(b), music and videos, 8(c), music and video programming, 13 PSAs.

10480 COMMISSIONER WILSON: But no documentaries.

10481 MS DONLON: No documentaries.

10482 COMMISSIONER WILSON: But in Schedule 1 which is your executive summary or supplementary brief.

10483 MS DONLON: I see that. That is an inconsistency there. You know, as we write the channel, we become more and more understanding of what is available and what can be put and what has a place on that channel. It is intended as a seamless music flow.

10484 COMMISSIONER WILSON: So you wouldn't be doing documentaries.

10485 MS DONLON: No.

10486 COMMISSIONER WILSON: Okay. Canadian content in this genre. Now, maybe you can talk about what the availability of the product is.

10487 MS DONLON: There has not really been an opportunity to create a lot of music videos per se and again, harkening back to earlier discussions about what constitutes a music video in these extended forms, there are music videos available from a number of Canadian artists already, but the real wonder of this channel is to create a whole new opportunity.

10488 When we would be commissioning, both through VideoFact and through independent production and in-house commissions, we would be asking composers to come up with seamless music, music that is in sync with the scientific research that we have talked about earlier to put together the sonic landscapes, much as you would ask a film-maker to score a film and say, "We envision this to be an hour in length; here is the kind of visuals, and let's compose to those visuals".

10489 That is why I am saying in the schedule that there is a whole new world of opportunity for creativity here.

10490 There are music videos available. Again, we would be select in terms of what kind of music videos would be appropriate for this channel, regardless of who the artist is. There are New Age artists out there that can write very ambient melodic smooth music, and there is also a side of them that would reach into their Celtic roots, and suddenly we would be having a quite active music that would not necessarily be appropriate for this channel too.

10491 COMMISSIONER WILSON: Michael Jones has a cottage in the same place that I do. Sometimes he gives concerts up there, so I am quite familiar with some of this music.

10492 The Cancon expenditure, 40 per cent of the previous year's advertising, you would accept that as a COL?

10493 MS DONLON: Yes.

10494 COMMISSIONER WILSON: And the 5 per cent or the $100,000 a year or 5 per cent to VideoFact, you would accept that as a COL, although it is part of the 40 per cent?

10495 MS DONLON: Yes.

10496 COMMISSIONER WILSON: Moving right along, Q! Television is our next one.

10497 MS MANJI: Commissioner, before you begin to ask your questions, may I take a stab at naming the exotic sounding character test from Star Trek that you referred to earlier?

10498 COMMISSIONER WILSON: Yes.

10499 MS MANJI: Is it Kobiashi Maru?

10500 COMMISSIONER WILSON: Yes. I could not remember the second word, though. I was thinking "Kobiashi", and I could not remember. I knew it began with an "M", but...

10501 MS MANJI: Do I get brownie points for that?

10502 COMMISSIONER WILSON: That remains to be seen. We have to wait and see how you answer the question.

10503 THE CHAIRPERSON: You can share a documentary licence with Alliance!

--- Laughter / Rires

10504 MS MANJI: Not while I am here on behalf of CHUM!

10505 COMMISSIONER WILSON: I wonder if you could describe for us the criteria that you use for determining what qualities programs are targeting the gay or lesbian community.

10506 MS DONLON: We do have quite a firm definition for what qualifies. We would say that they are programs that feature gay, lesbian, bi, trans characters or situations, or programs of particular interest to that community.

10507 COMMISSIONER WILSON: Okay.

10508 In your Schedule 10 you have listed news programming, which falls under Program Category 1, but there does not seem to be any indication of how news programming would factor into your schedule. I am just wondering if you could explain that.

10509 I think the same thing happens with the sports program categories, 6(a) and 6(b).

10510 MS DONLON: There is a show in our schedule called "Q! News" --

10511 COMMISSIONER WILSON: Okay. Of course.

10512 MS DONLON: Just so I can explain a little bit, it is not necessarily a news program of just headline news, it is news and information, that runs throughout the week.

10513 That is our flagship show of the channel.

10514 COMMISSIONER WILSON: And what about sports programming?

10515 MR. ZNAIMER: Commissioner, I was just going to add, it is not news in any catholic sense, it is news about that world, in the same way that Bravo! news is about the world of the performing arts, and space news is about...

10516 COMMISSIONER WILSON: "News in the catholic sense", is that news for Catholics?

--- Laughter / Rires

10517 MS DONLON: And, Moses, to bring it back tot he definition I just gave, news that has a particular perspective on the gay and lesbian scene. For example, if we were to give an update about a particular political campaign, we would very much do it through the prism that we just described.

10518 COMMISSIONER WILSON: You have also stated that you would be drawing programming from gay oriented sporting events, but you have not listed the sporting categories.

10519 Would you be showing those entire events on the channel, or just clips of them, as part of Q! News? How would you be using that? Obviously if they are clips, it's news, it's not sports, but if you are showing the entire event, then it's sports.

10520 MR. SWITZER: Commissioner Wilson, can I just clarify something? I am certain you are right, of course.

10521 We cannot find where we included sports or in fact hard news in our 7(1) Nature of Service. Our Q! News program we think we correctly logged as Category 11, because although it is informational, it is entertainment as well, and that was the general indication from the Commission.

10522 We included various Category 7s, 2(a) and 2(b) in terms of analysis and interpretation, but in our 7(1) we did not file Category 1 news, to the best of my knowledge, and we did not file sports. So, if we have made a mistake, I apologize. We are having trouble --

10523 COMMISSIONER WILSON: I am just actually talking to our staff person, who is responsible for this application, and apparently that is the problem. It is that you have described, in your Supplementary Brief, programming that is news or sports, but you have not included those categories, and you should have. That's the problem.

10524 THE CHAIRPERSON: Or sometimes the derivation is from schedules 9 and 10 -- the program schedule is 9, if I recall, and 10 is probably less dangerous, because there is a description.

10525 Sometimes what happens is we pick up, either in those two or in the Supplementary Brief, a description that is not found in the category, so then we want to know, do you want to add that category, or is that not what you intended.

10526 MR. SWITZER: Now I understand. Thank you, Madam Chair.

10527 If any words in the narrative section use the word "news" or "sports", it is not our intent nor in the Schedule 10s did we categorize anything as traditional hard newscast or full live sports. That is not our intent. That is not what the channel will do.

10528 There may be elements of discussion, analysis and interpretation and indirect coverage of some elements, but we think we have categorized those in the other categories that we did ask for.

10529 COMMISSIONER WILSON: Okay. Thank you. I think that's fine with us.

10530 MR. ZNAIMER: Just to clarify again, to make sure that we are all on the same page, the gay games in Sydney, we would be interested in this channel in covering the games, talking about the games, featuring some of the participants in the games, but we would not be showing the games in their entirety as a sporting event.

10531 COMMISSIONER WILSON: Okay.

10532 If the Commission felt it were necessary to tighten your proposed nature of service in order to prevent you from becoming a general interest service, how would you propose that we do that? Or do you think that it is narrowly enough defined as it is?

10533 MR. MILLER: I think what we have tried to craft is a definition, that Irshad gave you, that makes it clear that what we intend by this channel is not merely a channel with programming of interest to gay and lesbians, but one which is specifically targeted to them.

10534 When we looked at how we could advise her in this regard, we did actually take a look at the nature of service definition of WTN, by way of example. We thought that picking up the same wording there, i.e., "of particular interest to women", which is how that service is defined, was appropriate.

10535 If there are other suggestions from counsel, we would be happy to look at it, but what we have tried to capture is the notion that it cannot be a channel that is of interest to everyone, including gays and lesbians. It has to be something with a particular focus and a particular interest or featuring, as we have indicated, gay and lesbian characters or personalities.

10536 COMMISSIONER WILSON: In your draft programming schedule, a lot of the time slots have descriptions of programming, followed by "TBA" -- "to be announced", I guess.

10537 Is that because there is a lack of existing programming that is appropriate for this audience, and one of the things you will do with the channel is develop that programming genre?

10538 MS MARTIN: Yes, that is absolutely the case. One of the reasons we felt that this was such a needed specialty service is because this community is not being served. When you do look at putting your schedule together, you realize that there is not a lot of programming made by the gay and lesbians or for gay and lesbians.

10539 We are hoping that, obviously with the money that we are putting into independent production, we are going to be stimulating that resource of production for this channel. We have already started to talk with a number of producers that are very anxious that a gay and lesbian channel is launched, because they are waiting for an opportunity, that they have not had in the past, to create and express what they want to express for television.

10540 MS MANJI: Commissioner, if I may add, we recognize that in Canada there is no shortage of gay and lesbian material broadly defined, from hi-8 videos to experimental art exhibits but, while respecting the community roots of these projects and envisioning time spots for many of them, we underline that much of our programming has to be of broadcast quality, precisely because we intend to provide a service that Canadians will want to watch and pay for, otherwise it would be counterproductive for us to be applying for a digital specialty licence.

10541 Just to finish off the point, I have a letter, which you too have received, from the Multimedia Director for "gay.com", which is one of the world's two largest web portal for gays and lesbians, in which he writes:

10542 COMMISSIONER WILSON: Okay. That is useful.

10543 In terms of your Canadian Content exhibition numbers, over the term of the licence for daytime, for the 18-hour-day you showed the level increasing, but for the evening time period, it stays static, at 40 per cent. Why is that?

10544 MR. SWITZER: This schedule was crafted in a way to get as much content on the screen as early as possible. Rather than coming with a lower number for prime, we decided to take what we thought was a very aggressive and very acceptable 7-year target of 40 per cent, and come out of the shoot with that commitment day one, and we are quite proud of that.

10545 COMMISSIONER WILSON: Your commitment to Canadian programming expenditures of 40 per cent, starting in year 2, you would accept that as a COL?

10546 MR. SWITZER: Yes.

10547 COMMISSIONER WILSON: Let me just go through a couple of these questions that I don't need to ask you.

--- Pause / Pause

10548 COMMISSIONER WILSON: MS DONLON: The sort of anecdotal evidence that you have provided of interest in Q! Television, it seems to be drawn essentially from the Toronto area. I am wondering if you can either correct me if that impression is wrong or talk to me about how the level of interest in Toronto might be represented as the level of interest across the country, and whether or not you looked at statistics as they pertain to other parts of the country, where the service would be available.

10549 MS MANJI: Let me start by saying that in the letters of support that you have received for our Application, those voices come from all across Canada, from Vancouver, Winnipeg, the Prairies, small towns in Ontario, eastern Canada, and so forth. So we believe that for those who have written in, they represent significant voices that would be interested in subscribing to this channel.

10550 No question, because we already do gay and lesbian programming, we have an automatic feedback mechanism that we believe is more transparent, more honest and more authentic than any Commission studies, and that is the hundreds upon hundreds of e-mail messages and phone calls and handwritten letters that we get from the public, including, by the way, the on-line chats that we do every week based on our show, participants of which come from all over Canada and much of the United States as well.

10551 Our belief in the value of experience also leads us to do constant community outreach, including organizing response sessions with market researchers and media buyers and so forth, many of whom also represent companies and clients who come from across the country.

10552 If I may sort of finish off by saying that these insights have very much animated our application. Just to ensure that we were indeed on the right track with this application, on Pride Day in Toronto, to be sure, this past June we questioned a random sample of attendees and followed up with an on-line initiative with the general public and found an overwhelming amount of support, both for the channel as well as for us as operators and, above all, for the fact that people are willing to pay for a channel like this.

10553 I should point out that Toronto Pride Parade is widely recognized the most multicultural and the most diverse pride parade in the country, "diverse" meaning regionally as well, people from all over the nation and, again, internationally.

10554 To the degree that we can do this, we have done it, and I think we have test marketed this well.

10555 MR. MILLER: Commissioner Wilson, if I can just add one other dimension of that.

10556 It is actually remarkably difficult to get an estimate of the gay and lesbian population of Canada. We took what appears to be, from what we have seen, a sort of mid range and reasonable estimate at around 1.65 million. The significance particularly of Toronto is how, in this market, what has been demonstrated is an interest in non-gays and lesbians in that programming. What the Pride Day demonstrates in particular is a lot of individuals that participate and get involved, who don't identify themselves as gay or lesbians, but who are interested in the lifestyle and the culture.

10557 So, why the Toronto experience I think is particularly relevant is because it demonstrates how this market can be developed, because it is probably being done best in Toronto than anywhere else. Just to put a figure on the Pride Day, we understand it is generating in the order of 45 to 55 million dollars in terms of money that goes to downtown businesses.

10558 That is why we think that that Toronto experience is particularly relevant for us in how this channel can be developed.

10559 MS DONLON: I would just like to add one more thing, in terms of CHUM Television's experience in this kind of programming, because MuchMusic, for the past couple of years, have done six hours that repeats on a show called "Much comes out", where we have a float in and participate in the Pride Day Parade and play music videos, as well as doing interactive concerts with artists, like k.d. lang, for example.

10560 Just to add to what Irshad was saying earlier, e-mails and the phones and faxes that we get from coast to coast, from straight people and the gay and lesbian population, is just they are thanking "thank you, thank you", "thirsty for more", "appreciate taking the stand", and all of that.

10561 So it is a national experience that we have experienced on a different national channel.

10562 COMMISSIONER WILSON: What has been your experience with advertisers, in terms of your programming for the gay and lesbian community? I am just curious. Have they embraced it?

10563 MR. ZNAIMER: It is challenging. We are at the beginning of a journey, but I think slowly the problem will yield.

10564 MS MARTIN: I would like to add that for the past two years Citytv has aired and broadcast live the Toronto Pride Parade and Gay, and both these specials were sponsored -- I won't mention who, but they were both sponsored both years.

10565 As Moses said, it is a challenge, but the advertisers are now coming to us, asking how they can do it. They don't want to necessarily alienate the mass market. They realize that they have to position their advertising differently and in often cases produce something different for that audience, but they are coming to us asking how they can do it with us. So we are optimistic and feel that it would be very soon before the show itself has its own sponsors.

10566 MR. ZNAIMER: David Kirkwood has something to add, but before he does, I do want to say that first you must place the medium into motion, and then advertisers and the agencies that work for them begin to figure it out, and there is always a lag time until they recognize the presence of the new medium and then begin to plan for it and so on.

10567 David.

10568 MR. KIRKWOOD: We are just beginning to see evidence in the mainstream trade press of advertisers interested in ways to reach this community.

10569 Advertisers haven't been known to lead the way in many of these areas, but I think over the next few years we will see a lot change.

10570 MS MARTIN: Just one other thing I would like to add is, they really didn't want to come on board until they saw what we were going to do. That is the other --

10571 There is a big question mark when you talk about gay and lesbian programming. What is it going to be? What is it going to look like? How are you going to deal with the subject matter?

10572 The reason they are coming to us now is that we just launched Q! Television, although we had Q-Files on the air two years ago. They wanted to see what we were going to do with it. Now that they have seen it, they are now interested in taking part.

10573 It is a brave step for a lot of advertisers.

10574 MS MANJI: And precisely because it takes so much courage, I go back to what the management consultant whom I cited in my own presentation said, Jack Shand. He pointed out that despite the fact that QueerTelevision has a huge straight-identified audience, fears still loom large in this country's boardrooms that a mainstream backlash will come to haunt and hound those who are seen to be associated with that gay show. It will take time to educate. We are committed to doing it, and, as one of my colleagues pointed out, finally advertisers are beginning to come to us and not just to them. But it will take more time.

10575 That is why the Commission's leadership is something that Mr. Shand underlined.

10576 COMMISSIONER WILSON: Thank you.

10577 The $700,000 that you have allocated to the production of new shows and documentaries, I guess it is, over seven years, how much of that is in-house as opposed to independent production?

10578 MR. SWITZER: One hundred per cent of that will be to independent, completely non-affiliated producers.

10579 COMMISSIONER WILSON: We are developing a lingo around all of this.

10580 In our licensing framework we said that Category 1s would have to be offered as a package, rather than on a stand-alone basis. You have just talked about the challenges of the advertisers coming to the program and the channel. Do you foresee any problems in terms of finally packaging partners for Q! Television?

10581 MR. MILLER: We did look at this quite closely, and it was one of the reasons why our estimates, in terms of penetration for this channel, are the lowest of any of the applications we have filed.

10582 What we would envisage is that this channel would be available, obviously, à la carte, in a pick-a-pack, but also we think there are some thematic packages that could bring together lifestyle oriented channels, perhaps a fashion channel. In other words, those that are more on the high creative end of the scale, and that appeal to an audience that is looking for something different.

10583 So there are some packaging opportunities, but we recognize that this channel isn't going to be in every package, or be something that everyone will want to subscribe to.

10584 COMMISSIONER WILSON: Okay. Speaking of relationships, we will talk about Relationship Television, the final --

10585 Nature of service: Your proposed nature of service is, again, fairly broad, particularly when you think about human relationships, and it could permit you to air a broad range of programming like Friends or Jack and Jill. So many programs out there are about relationships, so you could draw those programs into your schedule and certainly they would fit the name of the channel.

10586 I wonder if you could just comment on concerns that it may be competitive with a whole range of other services. And what would prevent this service from looking like a general interest service?

10587 I guess what we are doing is, we are asking for some assurance that it is not just a general interest service where you are going to bring in programs like Friends, Jack and Jill ...

10588 MR. MILLER: Marcia can speak to the creative element. From a regulatory perspective, we took note of the fact that WTN, which currently does a fair amount of this programming, classified their current percentage on their channel in the 30 per cent range -- I don't recall the exact, precise percentage -- which, given that they are already a fairly broadly defined service, didn't seem to, in our mind, take up a disproportionate amount of that channel, and, therefore, left room for another channel to emerge that was totally devoted to this.

10589 I don't recall many other interventions or comments to this effect suggesting that this was a category that was not well-defined or too competitive with other services, but --

10590 COMMISSIONER WILSON: Probably us sitting in our offices thinking "Hmm".

10591 MR. MILLER: That may be, but Marcia can speak to it from a creative point of view.

10592 MS MARTIN: It is true, the channel is called Relationship Television, and it will involve relationships of all kinds. However, it is a movie driven service.

10593 If you look at the percentage of movies that we have on the channel, we are comfortable in saying that the movies themselves will be romance driven and be about interpersonal relationships.

10594 Because we are so movie oriented, I think you will know what you are getting from the movies in most of our schedule.

10595 COMMISSIONER WILSON: Let me just ask you about that, because the movies that you are showing, according to your draft program schedule -- and maybe you could just explain how you got here. You are showing movies at 9:00 a.m., Monday to Friday, 9:00 to 2:00 p.m. on Saturdays and Sundays, and at 1:00 a.m. So how can you say that it is a movie driven service when you are showing movies at times --

10596 Unless there is something particular about the audience that you are trying to attract, why would you schedule the movies at those times?

10597 MR. SWITZER: Let me clarify, because this is probably a movie-heavy service. And you are quite right, we have movies weekdays at 9:00 a.m. --

10598 COMMISSIONER WILSON: Oh, all right. One o'clock, too. I'm sorry, you have movies there.

10599 MR. SWITZER: Yes. We have themed movies every afternoon --

10600 COMMISSIONER WILSON: One o'clock, yes.

10601 MR. SWITZER: -- costume romance, romance adventure, romance musical, and so on, at 1:00 p.m. every afternoon.

10602 We have double features late morning on weekends, Saturday and Sunday; true stories and real romance movies late afternoon Saturday and Sunday; additional movies in early evening twice a week. Greatest romance films of all time. Epic romances, as well as, between 10 and 12, romance films, late-night at 1:00 a.m.

10603 This is significantly movie driven, and we think that for all of the reasons we have been talking about today it is an area, in terms of Canadian independent production, where we can again add something significant, something that isn't now in the system, and something that can make a difference.

10604 COMMISSIONER WILSON: But you have series that you are running in the evening hours in prime time.

10605 You know, when you say to me that it is a movie driven service -- and there are a lot of movies, you are right, but if you say that it is a movie driven service, then why wouldn't there be some movies on in prime time when most people are at home watching?

10606 MS MARTIN: Let me start with that.

10607 We are also very proud of the fact that from 8:00 to 10:00 p.m. we have 100 per cent --

10608 COMMISSIONER WILSON: A hundred per cent Canadian, which you would accept as a COL.

10609 MS MARTIN: Yes, we will. And we are hoping that, although you don't see movies there yet, you will. I mean, where we are putting our money with independent producers is to produce romance movies, which we don't have a lot of in Canada. So you will start to see those movies as we start to produce them in that prime time slot.

10610 COMMISSIONER WILSON: And your 42 per cent Canadian programming expenditure? You would accept that as a COL?

10611 MS MARTIN: Yes, we will.

10612 COMMISSIONER WILSON: Okay. As a proportion of total broadcast expenditures, your foreign programming expenditures seem a bit higher than the norm, and I am wondering if you could just explain that.

10613 MR. SWITZER: Certainly. I will add clarification or explanation, if I can.

10614 In general, obviously, it is our preference to spend as much with Canadian suppliers and, frankly, as little with American suppliers as we possibly can.

10615 It is important for us to generally work to a rule of thumb where our foreign acquisitions, or the amortization of our foreign acquisitions, over the course of the licence, are less than the Canadian amortization. And that would be the case with this channel as well. Approximately $11.5 million over the first licence term to foreign amortization, as compared to close to $15 million for the amortization of Canadian acquisitions, in addition of course to an additional $5.5 million of in-house production.

10616 So roughly $11 million and a bit of foreign acquisitions out of a total programming number of $31 million. Eleven out of 31, we think, is not high at all. In fact, it is proudly on the low side.

10617 COMMISSIONER WILSON: I wonder if you could just take me through the draft program schedule that you have here. Some of these are obviously Canadian, but I wonder if you could just tell me what the Canadian programs are.

10618 MS MARTIN: Yes, we can. In the drama category --

10619 COMMISSIONER WILSON: Riverdale

10620 MS MARTIN: -- Riverdale.

10621 We have City Line, which is one of our women information talk shows, because part of this schedule is going to have also information and analysis along with the movies. People are going to want to talk about their -- maybe give advice and opinions on love tips and talk about problems they might be having. That will also be part of the flow in between our programming. We will produce short segments made up from Speaker's Corner units that will go across the country, finding those voices of Canada, Canadians, and bringing back their opinions about certain romantic moments they have had.

10622 So the schedule will continue on that line of information and tips.

10623 We have another show called Passages, which will be home movies from across Canada; really first-time romantic moments. Like the first kiss, or someone's prom, or weddings or anniversaries. That, too, can be done with home movies and also with segments from Speaker's corner.

10624 The Relationship comedy is to be announced. It is something that perhaps independent producers are going to come to us with some ideas on what to do with relationships and some comedic approach to it.

10625 COMMISSIONER WILSON: So that could be Canadian.

10626 MS MARTIN: It could be, yes.

10627 COMMISSIONER WILSON: Okay.

10628 MR. SWITZER: And in addition, of course --

10629 COMMISSIONER WILSON: And your Speaker's Corner and the one Canadian movie as part of romance matinee --

10630 MS MARTIN: That's right.

10631 MR. SWITZER: And other Canadian movies that we can acquire that have already been made form part of that movie rotation as well.

10632 COMMISSIONER WILSON: Okay. Those are, I believe, all the questions that I have.

10633 I would just like to ask you if you feel -- and actually Commissioner Williams asked this yesterday and I thought it was a good question -- if you feel that you have had a sufficient opportunity to talk about your services and to sum up --

10634 THE CHAIRPERSON: Counsel is not yet finished with you. You may feel unfairly treated after --

--- Laughter / Rires

10635 THE CHAIRPERSON: Counsel...?

10636 MR. McCALLUM: Thank you.

10637 There may be just a couple of cases where in calculating the Canadian programming expenditures we were within 1 per cent, and by rounding the percentage it might be 1 per cent higher than what you have committed to by condition of licence. I think it may arise in MasterMusic, Indie and Moods. It may be 1 per cent higher. That would not be a problem if that is the way the staff have calculated the Canadian programming expenditures?

10638 MR. SWITZER: No, we would agree with your rounding.

10639 MR. McCALLUM: Thank you.

10640 In the case of Indie, in that particular one, you agree to a type of condition of licence that no more than 10 per cent would come from some sort of mainstream studio, and I wondered again if we could just tie down mainstream studio. Is that meaning a Hollywood studio? Was that the idea?

10641 MR. GRATTON: Not only is that the idea, but I have a list for you, if I could read it into the record: Warner Brothers, 20th Century Fox, Metro Goldwyn Mayer, Columbia, Tri Star, Dreamworks, Paramount, Touchstone, Disney Hollywood -- which is the same company -- and Universal Pictures. Those would be the major studios whose logos would be limited to 10 per cent of the programming selections. Not their classics divisions that are specifically focused on independent films, but their mainstream releases with their logos on the front end.

10642 MR. McCALLUM: Thank you.

10643 THE CHAIRPERSON: If you will excuse me, Mr. Gratton, are you aware of the list that was given to us by Alliance for the same purpose?

10644 MR. GRATTON: I heard reference to the list. I know there are eight studios on it.

10645 THE CHAIRPERSON: You can't say whether it is the same?

10646 MR. GRATTON: I assume it is the same --

10647 THE CHAIRPERSON: Yes, I think so.

10648 MR. GRATTON: -- because all great minds lead to the same point.

10649 THE CHAIRPERSON: I think there was seven, to which he added Dreamworks.

10650 MR. GRATTON: I mentioned Dreamworks.

10651 THE CHAIRPERSON: No, but...so I think it is the same. But anyway, you can have a look because that was what they proposed, as well, on the public record.

10652 MR. GRATTON: I am sure we would agree on that point.

10653 MR. McCALLUM: In the case of Q! Television, I believe at the beginning of the questioning by Commissioner Wilson you proposed a definition of "gays" and "lesbians".

10654 My question is if you would accept the, I guess, incorporation of that definition into the "nature of service" definition or "condition of licence" as it is set out?

10655 MR. ZNAIMER: Yes.

10656 MR. McCALLUM: Yes, you would. Thank you.

10657 And finally, with respect to the $700,000 commitment to unaffiliated independent production that was discussed a few minutes ago, if that were imposed as a condition of licence that would also be acceptable?

10658 MR. SWITZER: Yes. You are referring to the discussion we had on fashion?

10659 MR. McCALLUM: No, I think it was on --

10660 MR. SWITZER: On Q!.

10661 MR. McCALLUM: It was on Q!.

10662 MR. SWITZER: Yes, we would, as well.

10663 MR. McCALLUM: Thank you, Madam Chair.

10664 THE CHAIRPERSON: Thank you.

10665 I only have one question. Ms Donlon, how do you think the log channel would fare in an expensive survey?

10666 MS DONLON: You mean the log channel?

10667 THE CHAIRPERSON: The log channel.

10668 MS DONLON: Good. I just wanted to make sure there was no confusion between Moods and the log channel.

10669 THE CHAIRPERSON: You don't have to answer that.

10670 MS DONLON: Okay.

10671 THE CHAIRPERSON: I was just curious because it seems to have created a furore when --

10672 MS DONLON: The log is actually --

10673 THE CHAIRPERSON: I don't know how it would have fared if one had tested it through an expensive survey.

10674 MS DONLON: Exactly. But you could get the log channel at Home Video, if you really want it.

10675 COMMISSIONER WILSON: Actually, I know a channel that did some log programming, went to Montebello with the eight-sided fireplace and eight different sides of the fireplace.

10676 THE CHAIRPERSON: I know what the log channel is. My question was how would it have fared if one had tested it in a market study?

10677 Mr. Znaimer, you may have a few minutes to wrap up, if you want to answer questions that weren't asked, although I doubt that that would be the case.

10678 MR. ZNAIMER: Thank you, Commissioners, and thank you for the opportunity to sum up.

10679 The last little while we have gone at things in very minute detail, so perhaps the tone became a little more sombre than we would like to convey to you, in terms of --

10680 THE CHAIRPERSON: That is why I referred to the log channel.

--- Laughter / Rires

10681 MR. ZNAIMER: Thank you very much! Thank you very much. Because we would like to convey to you our enthusiasm for this work. And perhaps there is some symmetry in finishing the way we began.

10682 There are things that are important and there are things that are essential. The important things are good services, low prices, smart people. We are not the only group that can offer that to you.

10683 The essential difference -- the essential difference -- is that our offerings are targeted at that diversity, that precious diversity, in detail, which we think will motivate the public to come to this very new experience.

10684 And in terms of the offering and in terms of the commitments we make to you, we hope you take away the fact that our enthusiasm is tempered with realism born of experience, so that whatever we have told you we will deliver will, indeed, be delivered. Thank you very much.

10685 THE CHAIRPERSON: We thank you for your patience. It has been a long fruitful day and we will see you again, no doubt, exam in hand!

--- Laughter / Rires

10686 THE CHAIRPERSON: We will now take a 15-minute break and resume with LEVFAM at...well, 15 minutes from now. I can't see the clock. Thank you.

--- Upon recessing at 1605 / Suspension à 1605

--- Upon resuming at 1630 / Reprise à 1630

10687 THE CHAIRPERSON: Welcome back to our hearing.

10688 Mr. Secretary, please.

10689 MR. CUSSONS: Madam Chair, we will now hear applications by LEVFAM Holdings Incorporated for two Category 1 services: PrideVision and Wellness Network and since they applied for two services, LEVFAM is entitled to 25 minutes maximum presentation time and we have Mr. John Levy and his colleagues.

10690 Mr. Levy.

PRESENTATION / PRÉSENTATION

10691 MR. LEVY: Thank you. Thank you, Madam Chair.

10692 Good afternoon, Madam Chair, members of the panel. My name is John Levy and I am the President of LEVFAM Holdings.

10693 Our presentation today is divided into two portions. The first addresses our Wellness Network application and the second, our PrideVision proposal.

10694 I will introduce the panel for the PrideVision application at the conclusion of the Wellness presentation and we ask in advance for your indulgence while we reconfigure the panel slightly at that time.

10695 With me on the Wellness panel are Dr. Harvey Weingarten, Provost and Vice-President, Academic, McMaster University. In business terms, Harvey is the Chief Operating Officer of the university and he will ensure that the Wellness Network is accessed to all of the Faculty of Health Sciences considerable resources.

10696 Gillian Howard. Gillian is a key member of our team. She will coordinate the ongoing liaison between McMaster and the Network in developing programming and accessing, leading health and wellness personnel and information.

10697 Debra McLaughlin, Senior Associate with PricewaterhouseCoopers and she will address the research issues that we have filed.

10698 In addition, Rob Malcolmson on my left, Executive Vice-President, Sarah Hughes behind me, Vice-President of LEVFAM and Tony Keenleyside, our counsel, a partner at McCarthy Tétrault and myself are available to answer questions that you may have about either application.

10699 I will now begin the Wellness Network application.

10700 The concept of Wellness Network is an inclusive approach to the growing interplay between traditional and complementary medicines delivered in a responsible evidence-based fashion. It is driven by a research results which indicated that 84 per cent of Canadians believe that such programming is a necessary addition to the Canadian broadcasting system.

10701 They have cited such factors as our aging population, our public health care crisis, and a growing emphasis on individual responsibility for health care and wellness. Moreover, all of our research has led to one refrain: Programming must have a Canadian context to be relevant to the viewers. This in turn led to our choice of a unique Canadian partner, McMaster University.

10702 Our partnership with McMaster will provide programming research capability and a capacity for the delivery of professional development for the health and wellness professionals that is unprecedented.

10703 This relationship assures a truly made in Canada total look and feel to the health and wellness program.

10704 Madam Chair, I would now ask Dr.

10705 DR. WEINGARTEN: Thank you, John.

10706 Good afternoon. I really want to start by conveying the unequivocal and enthusiastic support of McMaster University and its faculty of Health Sciences for the Wellness application and McMaster's role on the service.

10707 At McMaster we believe that this is an unparalleled opportunity to offer an informed Canadian point of view to the public on matters of health and wellness.

10708 We see this partnership as a chance to lead when it comes to the transmission of health and wellness information to the world outside the walls of the university.

10709 This partnership is entirely fitting and ideally suited for a university such as McMaster with an outstanding history in the field of health and wellness education and the education of health care professionals.

10710 McMaster's faculty are known throughout Canada and around the world. The Wellness Network will work with individuals who lead their field and I am referring to such individuals as Jack Gauldie, an international leader in the field of gene therapy; May Cohen, a Canadian pioneer in the world of women's health; Steve Collins, one of the world's leading experts on gastroenterology; Salim Yousuf, a cardiologist of international acclaim and Andrea Baumann, our Association Dean of Nursing who has implemented teaching programs for nursing in a variety of international settings.

10711 The university's leadership role in the fields of cardiology, mental health, paediatrics, nursing, rehabilitation sciences, kinesiology, oncology, lung disease and gastrointestinal disorders is well known.

10712 McMaster is also a leader in the study of the rapidly emerging world of complementary and alternative medicines.

10713 We are also extremely excited in the possibilities provided by the overnight professional programming concept. We will work with the Wellness Network to develop a line-up of course that could be taken by health care and wellness professionals.

10714 We will also work with Wellness to foster and broker good working relationships with other organizations that wish to take advantage of this opportunity.

10715 We see this channel as a place for all Canadian health care and wellness organizations to offer they very best, just we at McMaster intend to do from the very outset.

10716 MR. LEVY: Thank you, Harvey.

10717 Members of the panel, by entering into this partnership with McMaster we have created a truly win-win situation.

10718 We have obtained access to ongoing made in Canada expertise. This gives us additional credibility and allows us to provide more cost-effective delivery of our own in-house productions and those of independent producers. This also reduces the learning curve for the producers and creates a better product.

10719 We have conservatively estimated that if we had to seek out this expertise and acquire it, we would need to add at least $2 million per year to our Canadian content expenditures, and even then we would not have the ongoing in-depth level of expertise that McMaster offers to us.

10720 Our approach in developing our Web portal strategy is consistent with that of our programming: Build our content within a Canadian context and assure 100 per cent by co-developing our strategy and our database with the cooperation of our partner, McMaster.

10721 We thoroughly researched these programming and portal concepts before putting out plans to paper. Debra will explain exactly how we did this.

10722 MS McLAUGHLIN: The research concluded that Canadians want useable health and wellness information.

10723 In the focus groups we conducted, we found a high level of frustration with information dominating media coverage of services and treatments that exist beyond Canada's borders. Quote:

10724 This concern is found in all the research supporting the applications in this category. It is clear from these studies, and our own, that a critical aspect of any service you licence must be Canadian-relevant and Canadian-based content.

10725 Extensive program testing demonstrated not only the range of content this type of service needed to cover, but also the necessity of having a credible Canadian partner. McMaster meets this need.

10726 MR. LEVY: The Wellness Network programming responds directly to this demand for useable information. We have chosen an unprecedented, non-commercial partner in McMaster University, a partner that will play a key supporting role in much of our Canadian programming. Together, we will create useable health and wellness programming such as Ask Wellness, which will feature roundtable discussions on health and wellness-related topics that are of great interest to Canada. Ask Wellness will also involve viewers directly as they call in to participate in lively discussions with Canada's leading experts.

10727 Canada Health Discussion which features long-form documentaries, many from independent Canadian producers will be integrated with the follow-up panel discussions from carefully selected experts.

10728 HealthWatch News, a first-run, half-hour daily news program focusing on the latest research and health wellness-related breakthroughs, both in Canada and abroad.

10729 In Natural Healing, we will collaborate with McMaster on the naturopathic and homeopathic remedies, together with investigative research into home-based remedies.

10730 And finally, Shaman's Secrets which will look at the aboriginal health and wellness methods and how they are being used today.

10731 Our overnight program schedule will be 100 per cent Canadian content and dedicated to assisting professional health and wellness associations and organizations and their members across the country who want to upgrade their skills or take an educational course for interest or for credit.

10732 We have heard much in recent years about distance education and telemedicine. The Wellness Network overnight programming is a solid example of that in practice.

10733 Gillian.

10734 MS HOWARD: The Wellness Network's programming is a unique mix of health and wellness news and information programming, blended with lifestyle and wellness-based entertainment programming. McMaster's programming role will be to ensure that all of this programming is grounded in credible, evidence-based health and wellness information. Our role will be to provide the Wellness Network with full access, both to our own network of leading health and wellness experts and to other leading Canadian health experts outside McMaster.

10735 McMaster's involvement will also enable the Network to explore the growing interplay between traditional and alternative medicines in a responsible fashion. In order to ensure that this partnership works as effectively as possible, McMaster will be dedicating two full-time positions to this project. One position will be assigned to the overnight professional programming portion and the other to the daytime segments.

10736 These are the people who will actually liaise with the McMaster professionals to ensure that the commitment remains at all times, and that the appropriate personnel are made available for the Network's requirements. They will coordinate their activities on an ongoing basis with the Wellness Network's Vice-President of Programming.

10737 I should add that these resources will be made available both to the programming that the Network produces itself and also to independently acquired productions that the Network refers to us.

10738 MR. LEVY: The key, therefore, to the Wellness Network approach is to focus on Canadian solutions. We have partnered carefully and in a cost-effective manner. We think that the Wellness Network brings you the best mix of independent ownership and control coupled with truly Canadian solutions to matters of concern to Canadian viewers.

10739 Madam Chair that concludes our presentation on Wellness and we will now turn to PrideVision. Please give us a moment while we just reconfigure our panel.

10740 THE CHAIRPERSON: We will. Let us know when you are ready.

--- Pause / Pause

10741 MR. LEVY: We are ready.

10742 THE CHAIRPERSON: Go ahead, Mr. Levy.

10743 MR. LEVY: Thank you.

10744 With me today for the Pride portion are: Shane Smith, PrideVision's Vice-President of Programming; Laura Michalchyshyn, Vice-President, Programming, Showcase Television; Carmela Laurignano, Vice-President of CKMW Radio and the driving force behind Rainbow Radio; Debra McLaughlin who has previously been introduced to you and Dale Buote, Vice-President of Operations and Programming of Rainbow Connections and who comes to us with 25 years of experience in broadcasting, most recently as a VP with Rogers Broadcasting.

10745 Before beginning our presentation, I would just like to note that when referring to the gay community, we include in this community gays, lesbians, bisexuals, transgenders and their supporters.

10746 Madam Chair, Members of the Commission. PrideVision is a network whose time has come. Before beginning our oral presentation, we would like to give you a brief glimpse into the heart and soul of PrideVision.

--- Video presentation / Présentation Vidéo

10747 THE CHAIRPERSON: Perhaps we could stop this video and see if we can correct the sound.

--- Pause / Pause

10748 MR. LEVY: Madam Chair, I think we ran it earlier today and there was some audio problems and I think they were trying to correct it with the equipment, and unfortunately I think they couldn't.

10749 THE CHAIRPERSON: Would you prefer rolling the whole of it regardless.

10750 MR. LEVY: Yes, if it's not too painful for you.

10751 THE CHAIRPERSON: Okay that's fine. Sorry, I was trying to be helpful. We will continue running it, please.

10752 MR. LEVY: I think you will just get a flavour for it.

10753 THE CHAIRPERSON: We have no problem doing that.

10754 MR. LEVY: It's fine with us.

10755 THE CHAIRPERSON: You are sure?

--- Video presentation / Présentation vidéo

10756 MR. LEVY: We are grateful to the many hundreds of individuals across Canada who took time to write in support of our application. In fact, we were overwhelmed by the level of their support. From religious groups to educators, corporations and other media, many of these people had also been supporters of the Rainbow Radio request.

10757 Licensing this genre is clearly consistent within the broadcasting policy that Parliament has established. In fact, we believe that that policy calls for it. Prior to filing this application, we received existing body of research, including the Rainbow Radio application and we reviewed it in considerable detail. Then we commissioned additional studies that have been filed with you.

10758 The importance of our research, from my perspective, is that it all concludes that our programming will find widespread and substantial subscriber and advertiser support on a national basis. It will appeal to this community across Canada and not just to those who happen to live in downtown Toronto.

10759 In addition to this extensive market research, we offer the experience of our partners at Alliance Atlantis who have been creating and developing programming of interest to the gay community, both in specialty television and in feature films for many years.

10760 We extensively research the type of programming that we would offer and we deliberately chose a format that we believed to be inclusive and bridge it. So what does that really mean?

10761 Inclusive means that everyone is welcome at PrideVision, be it members of the gay community or one of the one in three Canadians who knows or who is related to a member of that community.

10762 Bridging. Bridging means that our programming will always try to increase understanding and tolerance of the gay community rather than isolate or stereotype. PrideVision has no intention to be in your face TV. Frankly we think it's somewhat irresponsible and does nothing to help Canadians understand one another better. We want to bring Canadians together with our programming, not polarize them.

10763 PrideVision is about a distinct part of Canadian culture that is yet to have a home in today's television spectrum. This is a community that is diverse, established and mainstream. Our mission will be to reflect the quiet confidence of this community, both to its members and to Canadians at large.

10764 Debra.

10765 MS McLAUGHLIN: Research in the public domain profiling the gay market is limited. it was not until last summer, through the efforts of Rainbow Radio, that a solid body of public work began to take shape that documented both the media usage habits and the consumer preferences of the gay market.

10766 The attention of the radio application focused on the community, generated increased interest from both advertisers seeking to reach its members, and from businesses eager to develop products to serve it. Subsequently, several preparatory studies have been commissioned.

10767 All of this data was used to develop the initial program schedule and then PrideVision invested in custom research to shape and tailor the service.

10768 Focus groups were used to explore and vet the content and sequencing of programs.

10769 The final test of this concept was a national consumer survey, which was designed to capture the interest in the service among both the gay and the general population and to project audiences.

10770 PrideVision was encouraged with the positive support indicated by the national survey and PWC believes that the interest levels are significantly understated.

10771 MS MICHALCHYSHYN: PrideVision starts off with, and continues with, 50 per cent Canadian content during the evening broadcast period and a full 65 per cent throughout the broadcast day, from the outset. First-run Canadian original programming comprises 481 hours in Year 1. No competing application for this genre even comes close to these absolutely fundamental commitments.

10772 This programming commitment is substantial. As the application indicates, John has committed more than $31 million to Canadian content over the first term of the licence. Again, that is nearly double what any other applicant in this genre is prepared to commit.

10773 It is our sense, at Alliance Atlantis, that PrideVision will be an innovative driver in the brave new digital world. At 35 cents, it is the least expensive of the three applications. And the inclusive bridging approach to programming will produce the highest penetration levels for this type of genre.

10774 Showcase, itself, has considerable experience with programming that is targeted to the gay community. We are proud of our partnership with John and his team.

10775 Our experience has driven home to us, in spades, the huge appetite that exists for exactly this type of programming that PrideVision will indeed bring to Canadian viewers.

10776 Since 1995, we have offered viewers thematic Monday nights, featuring films of interest to gay and lesbian viewers. And, for the past three years, Showcase has also offered gay and lesbian programming during Pride Week.

10777 Viewership of these regular programming windows overwhelmingly proves that PrideVision is a service whose time has come.

10778 MR. SMITH: I come to PrideVision after four years with the Toronto Lesbian and Gay Film and Video Festival, the largest festival of its kind in Canada, and one of the largest in the world. For the last two years, I was the programmer for that festival and, in that time, I have had the pleasure of working with various groups in the larger gay community.

10779 I bring to PrideVision relationships and ties to the lesbian, transgendered and bisexual communities, gay parenting groups and various gay ethnic communities, including francophone, Italian, Latino, Asian, Portuguese, First Nations and black communities.

10780 Not only are these groups traditionally under-represented within the mainstream media, they are also virtually ignored within the wider gay media. The programming at PrideVision will address this imbalance through the commissioning of original Canadian programming, both news and entertainment, which will not only be diverse, in terms of the faces onscreen but also in terms of the issues and stories that are presented. In addition, documentary and movie programming will be reflective of this diversity.

10781 The lifestyle and entertainment programming in the existing PrideVision schedule is a response to our research, bringing together various genres, including health, fitness, cooking, current affairs, travel and comedy that potential viewers found of interest to them.

10782 Specifically, PrideVision will broadcast the award-winning PBS news magazine "In the Life", the cult soap opera "Brookside" and the lesbian-produced lifestyle program "Dyke TV".

10783 It is in our original programming, however, that PrideVision will be truly groundbreaking. In addition to commissioned programs like our biography series, profiling prominent community members, past and present, PrideVision will introduce a daily live newscast focusing on issues of importance to our viewers.

10784 Working in conjunction with our programming advisory committee, PrideVision's programming will be flexible and responsive to viewer comments and feedback -- both through our Web site and via our regional video booths -- expanding and developing in collaboration with our viewers.

10785 There is an abundance of North American and international gay programming which has never been seen in Canada. PrideVision will offer an outlet for this work, providing much needed perspective on gay life in other countries. In addition, 65 per cent of our programming will be Canadian and will be drawn from both the wealth of independent film and videomakers within the country and established Canadian distributors and production houses.

10786 By committing $17.4 million to original Canadian programming and $13.8 million to acquired Canadian programming, over the licence term, PrideVision promises to become a leader in the support and development of emerging and established producers within the gay community.

10787 MR. BUOTE: Rainbow Connections is a Canadian-owned Vancouver-based Internet company targeting the gay and lesbian community and their supporters -- a community that's very much a part of my life.

10788 We have entered into a strategic alliance with PrideVision that will create, for the first time ever, an interactive partnership between a Canadian gay and lesbian television network and Canada's first gay and lesbian Web portal.

10789 Within the first quarter of 2001, we will launch a gay and lesbian Web portal called "Rainbow Connections" -- we will be the "Gay-Friendly Yahoo".

10790 Rainbow Connections will offer our community offer our community information, entertainment and e-commerce, with the ability to make charitable contributions to the Rainbow Connections Foundation, which will then provide funding for AIDS research, breast cancer research and a 24-hour help line for gay youth.

10791 The strategy of the Rainbow Connections Web portal is to offer products and services that appeal to the entire spectrum of the gay and lesbian community -- a consumer group known to be loyal affluent -- and the same market targeted by PrideVision.

10792 There are currently numerous and profitable ways for a gay and lesbian Web portal to work with a specialty channel like PrideVision -- cross-promotion, sharing of specific revenue streams and event-co-branding to name just a few. Together, we will pursue these opportunities and create a truly interactive Web-based and television medium for Canada's gay and lesbian culture.

10793 I spent 25 years in the broadcast industry and it's clear to me that media convergence is the new reality and enhanced interactive television is the next big thing. It will really make the Internet frenzy of the last couple of years pale in comparison.

10794 We at Rainbow Connections take great pride, personally and professionally, in this partnership: a truly Canadian gay and lesbian programming and Web-based initiative.

10795 MR. LEVY: PrideVision will be a realistic, non-sensationalist reflection of the gay and lesbian communities all across Canada. We will celebrate the gay and lesbian culture as it should be celebrated in the mainstream: openly, proudly and responsibly.

10796 Thank you for your attention and we look forward to your questions.

10797 THE CHAIRPERSON: Thank you, Mr. Levy and your team.

10798 Commissioner Williams, please.

10799 COMMISSIONER WILLIAMS: Good afternoon, Mr. Levy and panel members.

10800 During your opening remarks, I was impressed with both your partnership with McMaster University on the Wellness Network application and the estimated value of the Canadian content expenditures of two million.

10801 You have, of course, included that in your application?

10802 MR. MALCOLMSON: No, Commissioner Williams, we have not included that number in our Canadian programming expenditures.

10803 COMMISSIONER WILLIAMS: It's just worthy of mentioning, though.

10804 Your presentation and video on PrideVision was an excellent introduction to this unique news service, both inclusive and bridging for a distinct portion of Canada's culture.

10805 I'm going to begin my questions, as you have in your presentation, on the Wellness Network application and then move on to PrideVision so we could learn more about your channel and "gay-friendly Yahoo" portal called "Rainbow Connections".

10806 So, I will move on, now, with questions on the Wellness Network.

10807 First, let me thank you for your complete and concise applications. It does make it easier for us, as a Commission, to go through them. We have a bunch of standard corporate questions, and then some service-specific questions, just to fill out some areas of the application that we would like a little more elaboration on.

10808 I'm going to begin with a question that everybody has received, so far. Out of our selection criteria, what do you think is the most important criteria in licensing of the Category 1 service?

10809 MR. LEVY: As you are aware, we are here today applying for two Category 1 licences and, in so doing, we reviewed the criteria set out in the Commission's call very carefully.

10810 For a company such as ours, it's very important for us to take a very focused approach in this process. We are not a company with multiple licences. We have one, "Headline Sports". And we are very proud of the fact of what we have accomplished in a very crowded and competitive world of sports.

10811 In the applications that we have in front of you today, one being the Wellness Network and the other addressing the gay and lesbian community, being PrideVision, we have chosen two genres which we feel are clearly underserved and deserving of contribution to the diverse landscape within the Canadian broadcasting system.

10812 What I would like to do now is turn it over to Rob, who is going to take you through precisely the criteria which we believe should form the basis of the framework policy.

10813 MR. MALCOLMSON: Thank you, John.

10814 Commissioner Williams, we clearly agree with the criteria set out in your call for applications. Clearly, the traditional and the basic criteria of Canadian content level spending on Canadian programming expenditures and original Canadian production are all critical elements, and we believe that our applications within the particular genres stack up quite favourably with the others.

10815 We also believe that there is an opportunity to amplify on some of your criteria. If you will permit me, I will take you through you some of key selection criteria for us, from a smaller broadcaster standpoint.

10816 First of all, with these ten slots of limited Category 1 real estate, clearly the new genres have to be occupied by networks that offer truly distinctive programming formats and we think that, with the PrideVision format and the Wellness format, we have met that criteria.

10817 Secondly, obviously the genres have to be attractive. They must not only be new and different, but they have to be attractive to drive the digital roll-out. They can't be spin-offs, we don't think. They need to be something new, something original, something different, to properly drive the digital roll-out.

10818 The next point and, in our view, one of the most important if not the most important selection criteria, is the issue of diversity. For us, diversity involves a number of factors.

10819 First, it must be recognized that true diversity involves both diversity of programming, but also diversity of ownership. We are watching the broadcasting industry consolidate, and we are sitting with one specialty undertaking and we look at larger ownership groups and we say to ourselves: Unless new players, with broadcasting track records, are given an opportunity to grow and offer new and different programming perspectives, there is a risk that diversity will be diluted. We would ask you to consider that in your deliberations.

10820 Diversity of ownership also provides Canada's independent production community with greater opportunities. Again, as the industry consolidates, our independent production community are looking for more and more opportunities with different broadcasters, with non-affiliated broadcasters.

10821 The third point under Diversity is we believe that it can be adversely affected by what we call sort of a branch plant approach to specialty television. As formats spin off new formats from an existing base -- i.e., MuchMusic begets MuchMoreMusic, begets MusicMaster -- there is a risk that true diversity of programming in perspective can be diluted. We think that is an important consideration.

10822 The other point that we would like to elaborate on is synergies. We have heard a whole lot about synergies in this proceeding so far -- synergies from nesting new formats within existing multi station ownership groups. Our view is clearly that while it is good business to achieve synergies, synergy should not be at the expense of new and different programming but, more importantly, synergies exist, and those synergies have to be passed on to Canadian viewers. By that, I mean that if there are efficiencies from nesting, then they need to be contributed back into the system in the form of Canadian content, in the form of Canadian programming expenditures, and in the form of lower wholesale fees.

10823 If that does not happen, in our view, the Canadian broadcasting system is not being well served. We think you should take a look at that in assessing these applications.

10824 The next point is affordability of the service. I will not spend much time on it, but obviously the wholesale fee has to be reasonable so that distributors can create affordable packages that drive the digital roll-out. I am sure we will talk more about this. Our two services we think are reasonably priced.

10825 Finally, I think it is important for an integrated TV/web strategy to be put in front of you. Interactive TV through the set top box is not here yet, but it will be. We think our job as programmers is to create programming that is compelling and capable of migrating from the television to the Internet in a seamless fashion when the technology permits.

10826 Finally, it is essential that we identify revenue opportunities offered by the Internet, and seek to achieve them aggressively. We believe that there are opportunities in the Internet space, and we would like to talk about them with you through web portal strategy, and that traditionally broadcasters have not yet recognized those, and there is great untapped potential. You will see in our business plan that we have progressively pursued that potential.

10827 Those are our amplification or additional criteria we would ask you to take a look at in this process.

10828 COMMISSIONER WILLIAMS: In terms of an implementation of service date or a drop-dead date, should the Commission impose a minimum amount of time buy which a category licence must implement its service?

10829 MR. LEVY: I think we heard in earlier discussions, when this question was broached with the other applicants, the date it was approached was September 2001 for the launch of these 10 new services.

10830 We are absolutely committed to meet that date. We think it is smart that we try to get all of the licences that are granted to go forward on the same date. Coming from my history in the cable business -- I am not sure if you are familiar, but up until a year ago, I was a cable operator -- I was involved in the launch of the last round of specialty services and involved in all of the specialty services and Pay Television.

10831 I can tell you that as those services came on one by one, packages were realtered, hundreds of thousands of dollars were wasted in marketing dollars. I think we have a real opportunity here, in the formal launch of digital in September 2001, to create a very strong new basic digital package. I think it is not only necessary, but it is critical that all the services get on board. Hopefully our two will be part of them and form part of the launch at that time, so that we, as the program service providers, can work in conjunction with the distributors, be it cable distribution or be it satellite distribution or MMDS. I think it is very important.

10832 COMMISSIONER WILLIAMS: I agree. I was also in the cable business for almost 20 years, and participated in many of those launches as well.

10833 The common launch date is important to your service, you say. Other applicants have suggested September 1, which you agree with. Is that an achievable date by your service?

10834 MR. LEVY: Absolutely.

10835 COMMISSIONER WILLIAMS: What distribution options have you negotiated, should your application for Category 1 be approved? Have you met with any distributors?

10836 MR. MALCOLMSON: No, Commissioner, we have not met with any distributors. We have no distribution arrangements. Assuming the licensing decisions are issued in November or December, there will be ample time to have discussions with distributors regarding the launch.

10837 COMMISSIONER WILLIAMS: Okay.

10838 I am going to spend a bit of time on independent production.

10839 Given the challenges inherent in the digital environment, do you think the Commission should set limits on the amount of programming a broadcaster may acquire from an affiliated producer?

10840 MR. MALCOLMSON: Commissioner Williams, we have followed the discussion with interest when you were talking to those broadcasters that have independent production affiliations. We are a little bit of a different animal. We do not have any sort of ownership position in independent production companies.

10841 The first observation we would make is that probably the best way of ensuring the widest possible array of opportunities for the independent production community is to license ownership groups that are independent and that are willing to make appropriate commitments to the system. We think that in that respect we offer you a new and different alternative.

10842 In terms of the response to your specific question "Should there be limits for broadcaster-affiliated independent production companies?", we think the answer is yes, and we think that the interest should be limited to something in the range of 29.9 or 30 per cent, which is what we have heard discussed.

10843 COMMISSIONER WILLIAMS: That was actually my third question. So it would be 29 per cent. It also answers the second one. It is your definition of "affiliated", it would be the 29.9 per cent.

10844 MR. MALCOLMSON: That is correct.

10845 COMMISSIONER WILLIAMS: Given the competitive operating environment that the new Category 1 services will be operating in, and the uncertainty related to digital distribution and requirements related to minimum Canadian content levels, do you think it is appropriate for the Commission to impose conditions of licence requiring minimum levels of annual Canadian programming expenditures?

10846 MR. LEVY: I think the answer is if it's achievable, yes. If you can get it, now that I'm out of the cable business, go and get it. I think we are building our model and our business case on the basis of we pick two genres that are underserved and have tremendous interest in the public.

10847 First and foremost, we are going to be relying on creating exciting programming that we believe distributors are going to want to carry as part of their package. However, if there is an opportunity to ensure that, then I think that obviously the answer is yes.

10848 MR. MALCOLMSON: I thought your question was do you think it's appropriate to impose minimum Canadian program expenditure levels. If that was your question, the answer is yes, and our commitment is 49 per cent of total revenues for PrideVision and 43 per cent for the Wellness Network.

10849 COMMISSIONER WILLIAMS: Thank you. If we -- moving into the area of interactivity, if we license the Category 1 Service with interactive elements via the set top box, do you think distributors should be obligated to carry those interactive components?

10850 MR. MALCOLMSON: We think that distributors should be encouraged to carry those interactive components. It may be impractical or perhaps even premature to mandate it at this point in time because I think we have heard discussion about the functionality of the set top box and it may not be sufficiently advanced to have a general requirement, but we think it should be encouraged.

10851 COMMISSIONER WILLIAMS: Okay. This next question deals with Personal Information, Protection of Electronic Documents Act. It's a new Act. We have asked this question several times. Do you have a position on it?

10852 MR. MALCOLMSON: The answer is we are familiar with the legislation and prepared to abide by it when the time comes.

10853 COMMISSIONER WILLIAMS: What are your views on the possibility of program suppliers and BTUs sharing the cost for set top boxes or certain components or technologies that would facilitate interactivity?

10854 MR. LEVY: If I understand your question, which is that the distributor share in the cost of the distribution system itself -- could you --

10855 COMMISSIONER WILLIAMS: Yes. Program suppliers and distributors sharing in the costs of the equipment.

10856 MR. LEVY: I think that when we are putting together our programming schedules and our costing, clearly that currently does not take part of the business model. Traditionally the responsibility of putting together the distribution network has been the distributor itself, including the final terminal device being the box that goes into the home. I presume that's the last cost that you are looking at that you were suggesting perhaps that the program supplier shares in.

10857 I think that's something that you would have to look at in terms of rebuilding your model because I don't think it's something that has been probably been contemplated. It certainly hasn't been part of the mix traditionally in the relationship between the distributor and the supplier programming.

10858 COMMISSIONER WILLIAMS: Okay. Thank you for your views on that.

10859 Do you have a timetable in your applications for the developments you propose in your applications that would lead to full television interactivity?

10860 MR. LEVY: I think it's dependent upon the boxes. We looked at the CCTA surveys in the context of where the boxes are now in terms of their -- first of all in terms of the number of boxes in the field, where they will be.

10861 We have heard all sorts of discussion about the capabilities of these boxes and I think the conclusion we have heard over the last few days is that although there is some interactive television capabilities in these boxes today, we are not there yet.

10862 We are building our model for interactive TV basically on two platforms. I'm sure we are going to elaborate on that during the course of the discussion. We can do that now or later at your wish, but our approach is that we are building in both genres and attacking the provision of Internet through a two prong approach. I would be delighted to talk about it now.

10863 COMMISSIONER WILLIAMS: I think now would be an excellent time.

10864 MR. LEVY: Okay. Terrific. First of all, let me just briefly talk about, and then I am going to flip it over to one of our partners who is involved in helping us develop our portal strategy and we will get some insight into how we are going to be developing this for that particular genre and our other one as well.

10865 Let me just speak first to the two genres that we have because this was part of the decision-making process in determining to go both for health and wellness and representation of the game as being community.

10866 In wellness, for example, we are developing programming where the technology will allow medical practitioners and a viewer to interact as they never have before. One of the cornerstones of our application in the context of the wellness application is to ensure that the information and data that we collect is complete and accurate and that we are able to disseminate it. It is through these vehicles that we are going to be able to facilitate that.

10867 With respect to PrideVision, we are looking at allowing the community itself, friends of the community and the community at large to connect in a way that they never have before. All of our programming is being designed to accommodate that.

10868 What I would like to do now is turn it over to Dale who is responsible with us and is our partner at Rainbow Connections. Dale, if you would take us through a bit of our development on our portal strategy.

10869 MR. BUOTE: Thank you, John.

10870 Commissioner Williams, if I may begin by briefly pointing out the differences between a Web site and a Web portal because I think it's important.

10871 A Web site is basically a static, non-engaging, I guess at best, primitively interactive series of pages similar to a book. There will perhaps be a few single links that will allow for limited participation in e-commerce or e-business. I guess an example of a page that would do that would be Chapters, Chapters online.

10872 A Web portal is a fully integrated gateway to e-commerce, e-business and communication, offering instant access to both a national and global market. By the term fully integrated I mean that you can shop, you can ship things, you can make payments, you can book travel, you can seek advice, you can gather news and information. You can participate in a wealth of other services and activities with many different businesses and it's all done in one stop. For reference, I would refer to AOL or Yahoo!.

10873 A simple Web site doesn't have the depth to create loyal or even steady consumers a Web portal does.

10874 What we have heard so far at these hearings regarding interactivity has focused on the set top boxes and simplistic Web site platforms. To date broadcasters have used fairly non-engaging, non-interactive Web sites, as I described, a few pages with a few links, and it really hasn't worked.

10875 In fact, there was a recent headline in the National Post that said "Television giants flop in the Web world". Why did they flop? Because they just didn't understand the Internet as a separate business model.

10876 PrideVision has developed a more comprehensive Internet strategy by forming a partnership with Rainbow Connections. As I said, we are a Canadian owned and operated Web portal whose business is strictly in the Internet space.

10877 This will be a somewhat more involved process than the simulcasting Webcasting chat room partnership that we heard about earlier this morning from one of the other applicants -- earlier today rather.

10878 PrideVision and Rainbow Connections will embark on a fully Canadian, cross-promotional, revenue sharing agreement. There are three key components to the interactivity of our partnership.

10879 First is content sharing. Second is advertising and promotion. The third is revenue streams.

10880 Rainbow Connections is a content aggregator, gathering news and opinion from centres large and small all over Canada. That information can then be fed directly to PrideVision. Promotionally, Rainbow Connections will co-brand with PrideVision, offering their viewers participation in interactive contesting.

10881 Through the partnership with Rainbow Connections, PrideVision will be able to offer their advertisers a unique one stop advertising solution, television and online media. The most innovative aspect of our strategic partnership is our approach to e-commerce and the sharing of revenue streams. We don't intend to just sell T-shirts.

10882 We have developed a revenue-sharing model, based on predetermined affiliate commissions on select revenue streams. There are at least 20 different and viable revenue streams that we will share, such as the Rainbow Connections' "Affinity" Visa card -- and we are currently in discussion with both MNBA and Citizens' Bank for distribution -- the Rainbow Connections' travel store and we are talking with Canada 3000 and American Express Travel.

10883 We think it is clear that Pride Vision has taken a real innovative and proactive approach to interactivity and we feel that they are best suited to service our community.

10884 MR. LEVY: Commissioner Williams, can I just add something to that for a moment?

10885 The licence that I was referring to earlier, being headline sports, was a service that started out as a content play. It was nothing more, nothing less, than a collection of sports information that we collated from all over the country: Canada, States, the world. And what we did is we took that raw data and we turned it into programming. And the reason we did that is because we couldn't do programming because we didn't have a licence. So we had to take content and make it interesting. And we were very good at it and we got very successful at it. And we got so good at it and got so much of a following that we ended up being able to come to you and turn it into a real licence.

10886 But the essence of that network really remains exactly the same today as it was when we started: it was data, it was content. And what we did is we got creative. We hired creative young people, who took this collection of just bits and bites and information and turned it into a programming service.

10887 What we are talking about here, with our partners, is that sort of creativity in turning new programming efforts to be suitable to this converging technology.

10888 We are very excited about Information TV and being able to do the things that we are talking about currently. And we are very interested and excited about streaming video.

10889 In fact, just one other aside, in terms of streaming video, with our existing network, once we got very good at it and started to stream all these video highlights, what we did is we ended up selling that into the States. There is a company called seasonticket.com in the States which basically buys our content, this data, and we are streaming on a daily basis into a U.S. portal site. So if you hit that Web site, we are going to see our Canadian talent, our Martine Gaillard, or Steve Kouleas, or Greg Sansone -- these are all homegrown talent that are distributed.

10890 So I think that is the kind of thing we are talking about here, is creating something that doesn't exist today. And although we have spent a lot of time on the digital box -- and that is very important and it is a source of revenue for us in the context of our strategies -- I think we all have to unleash a lot of this creativity to develop the new type of programming that five years from now we will look at and say, "Well, what we were thinking back then?"

10891 COMMISSIONER WILLIAMS: I appreciate the presentation on your Web portal.

10892 Have you spoken with box manufacturers, equipment manufacturers, to see how you can integrate this? And if the interactive components of your proposed services don't work on, say, some aspects -- maybe they don't work on DDH or MDS -- what impact will this have on the availability of your service to these subscribers? Have you given thought to that?

10893 MR. LEVY: I think the first answer is -- back from my cable days again -- it is going to work in the box. It was supposed to work when we were telling you it was supposed to work a couple of years ago, and it wasn't working then. They have to make it work because that is the future of their existence.

10894 Whether you can force it or whether it just happens because they understand there are other competing technologies that are going to be able to do that and if they don't keep up with it then they are going to lose the potential for some of this programming and potential for some of the revenue streams, I think, from our perspective, when we build our Web portal strategy, we are not taking any chances. We are going to have people calls on an old twisted pair of phone lines, if that is the only technology they have to get through to us. If they are Internet savvy, which, quite frankly, a lot of the community in both our applications is, they will use the Internet. And if the information technology is available in the box, then we are designing it so it is capable of doing that.

10895 We are trying to build this thing and our programming efforts so that it is not dependent entirely upon any one technology.

10896 COMMISSIONER WILLIAMS: Okay.

10897 Well, that completes most of my general questions and I will move now into service-specific questions.

10898 If none of the other commissioners have any questions, I will turn it back to Chair Wylie.

10899 THE CHAIRPERSON: I have one questions.

10900 Mr. Malcolmson, I am not sure that I understood your answer when you were asked about independent production.

10901 Did I understand you to say the best way is to not have a shareholder 29.9 per cent, but I am not sure what you meant by that. Considering that in the case of PrideVision your shareholder is the producer, at 29.9 per cent, what difference do you make between having a producer shareholder, who may have less than 30 per cent -- here it is a partnership, which is difficult, but let's say it is not, it is a company -- and the licensee, having an investment of 29.9 per cent or more in a production company? Do you not make a difference between the two? And do you not find it difficult to not focus on the fact that a very shareholder of your company, at 29.9 per cent, is a controlling shareholder in a production company? Am I making sense?

10902 MR. MALCOLMSON: I think you are making sense, maybe I didn't.

10903 What I was trying to convey was when you have a choice and when you have an option between a broadcaster that is not directly affiliated with a production company, then that is a consideration you should take a look at. In the context of our Wellness application, we are completely unaffiliated.

10904 The other point I made was that an appropriate level --

10905 THE CHAIRPERSON: Yes. And you will recall I did not focus --

10906 MR. MALCOLMSON: Right.

10907 THE CHAIRPERSON: -- on Wellness. You passed the test 100 per cent.

10908 MR. MALCOLMSON: Good.

10909 THE CHAIRPERSON: Here you are kind of short by 29.9 per cent.

10910 I may not have made myself clear because Madam Bertrand says she didn't understand.

--- Laughter / Rires

10911 THE CHAIRPERSON: Oh, apparently she was teasing me.

10912 You are not allowed to tease the chair.

--- Laughter / Rires

10913 CHAIRPERSON OF THE COMMISSION: Remind me in due time.

10914 THE CHAIRPERSON: Okay, so we all understand there is a big difference, isn't there? Let us call you PrideVision Inc., of which 29.9 per cent of the voting equity is owned by the largest producer in the country, and PrideVision Inc. itself having an interest in Alliance is a different story, isn't it? The test, surely...to achieve your goals, the test should not be the same, with the goal of encouraging or discouraging PrideVision Inc. from using Atlantis Alliance, let us say -- we are talking generalities -- to do all its independent production, it is so-called out-of-house.

10915 MR. MALCOLMSON: I think the question Commissioner Williams asked me was: what should be the equity threshold --

10916 THE CHAIRPERSON: No, I am asking one now.

10917 MR. MALCOLMSON: And I'm trying, but perhaps not doing a very good job of answering it.

10918 Our view of affiliated independent producers is that the test for broadcaster ownership should be 29.9 per cent. So if an independent production company has a broadcaster investor in it in excess of 29.9 per cent, then your test would be tripped and whatever safeguards you see fit to create around that should be implemented. That's what I was saying.

10919 In terms of PrideVision, you are right, Alliance Atlantis is a 29 per cent partner. We believe that is entirely appropriate. My answer to your question, hopefully, didn't suggest that we think that Alliance Atlantis is an inappropriate partner as a result of its connection to the independent production community.

10920 One thing I can tell you in the context of PrideVision is there is not programming output deal or no agreement between Alliance Atlantis' production arm and PrideVision, with respect to the provision of programming. It is completely independent and --

10921 THE CHAIRPERSON: Okay. So if I understand you, then, your view would be that at below 30 per cent of equity there would be no need to examine the possibility of putting a cap on the amount of independent production that you would farm out to Alliance. You could have 100 per cent of your so-called independent production farmed out to Alliance without us showing any concern.

10922 MR. MALCOLMSON: It is certainly not our intention to do that. I think that 29 per cent is a good threshold for you to sort of decide when alarm bells go off and don't go off. If it is in excess of 29 per cent, you need to take a close look at the relationship. If it is less than 29 per cent and the relationship isn't otherwise characterized by evidence of control by the minority shareholder, then we think it is a fair trade-off; it is a fair threshold.

10923 THE CHAIRPERSON: And that would be your advice to us with any other participant before us, that when we see a production house or company as a voting shareholder in the proposed licensee, we shouldn't concern ourselves with limitations. If you were looking at a test. I think we have been asking that question in a general fashion.

10924 MR. MALCOLMSON: We think that 29 per cent, absent other indications of control, is a fair threshold.

10925 THE CHAIRPERSON: Well, yes, but --

10926 So that is your view overall. Thank you.

10927 Counsel, did you have questions on the general part of the --

10928 MR. STEWART: Just to follow-up on that question, thank you, Madam Chair.

10929 With respect to PrideVision, will Alliance receive any of the $14 million that you have committed to independent production?

10930 MR. MALCOLMSON: As I said, there is no arrangement in place -- there is no agreement in place. That $14 million is earmarked for the independent production community at large.

10931 MR. STEWART: So the answer is yes or no?

10932 MR. MALCOLMSON: There are no plans currently. Alliance Atlantis may very well come forward and have product that they wish to provide to us, and LEVFAM, as the controlling shareholder, would look at it and decide whether or not it is appropriate for the PrideVision Network.

10933 MR. STEWART: So Alliance, potentially, could have access to those funds.

10934 MR. MALCOLMSON: Potentially they could, but there are no plans.

10935 MR. STEWART: Thank you.

10936 Thank you, Madam Chair.

10937 THE CHAIRPERSON: Commissioner Williams?

10938 COMMISSIONER WILLIAMS: Thank you, Madam Chair.

10939 In your application you propose a unique public/private partnership, what we spoke about earlier with McMaster, and the service will be targeting a professional audience. Could you define the professional audience that you refer to?

10940 MR. MALCOLMSON: The professional audience that we hope to target in the overnight programming includes all manner of health care professionals, wellness professionals, associations like the Canadian Nurses' Association, which has a diverse membership across the country, and who, at the present time, have difficulty communicating. We see this as a perfect medium to allow those types of sparsely populated associations to communicate with one another through the overnight programming component.

10941 So it is medical professionals, it is health care professionals, and we also think there are opportunities for distance learning and telemedicine.

10942 Dr. Weingarten, I don't know whether you want to add to that...

10943 DR. WEINGARTEN: I would simply say that there is a tremendous demand for education -- continuing education -- from health care professionals. And by health care professionals I mean that broadly defined. It includes physicians, nurses, social workers -- people who are generally involved in the delivery of health care and the promotion of wellness.

10944 It is very difficult because of the time constraints of many of these people, and the constraints of their profession, in fact for them to get access to these kinds of services, and a channel of this type provides in many ways an ideal opportunity to target programming, specifically for people interested in the promotion of health, in a way that they in fact can find accessible.

10945 COMMISSIONER WILLIAMS: Thank you for that.

10946 Based on calculations by our staff, it would appear that 23 per cent of the proposed programming will be of a lifestyle genre. Can you explain how this programming will be different from what is currently available?

10947 MR. MALCOLMSON: I haven't calculated the exact percentage of lifestyle programming within our schedule. There is a component of lifestyle programming, but the other key components of our schedule, which are entirely different, include the news and information, current affairs and educational components. We are going to air a daily health watch newscast, for example.

10948 We have a show in our sample program schedule called Canadian Health Discussion, which will include health related documentary titles, followed by leading health experts discussing the content of the documentaries.

10949 We have a cross-Canada show called Ask Wellness, where members of the Canadian public can phone in and communicate with leading health care experts.

10950 So we think there is a blend of news, information, current affairs and lifestyle programming that is appropriate for this genre. And that says nothing of the overnight component. The overnight component is entirely distinct and different, as you have just heard.

10951 COMMISSIONER WILLIAMS: Mr. Levy, you have also proposed quite a substantial commitment to Canadian programming. Is there enough Canadian content available in this type of programming to enable you to meet these commitments, especially during the early years of the licensing term?

10952 In your answer, could you please indicate what your weekly and annual repeat levels for Canadian programming during the first, second and third programming wheels would be -- the 6:00 a.m. to midnight? If the repeat levels are considered high, how do you think this will affect the attractiveness of your service?

10953 MR. LEVY: Let's start off with where is the programming coming from.

10954 One of the advantages of creating a network such as this from scratch and establishing a new relationship and forging ahead is that in creating this relationship with our partners at McMaster we have unleashed the capabilities of a network that spans all across the country.

10955 We are not talking about limited forms of expertise that just come from the university itself; we are talking about the capability on a 24 hour a day basis, which we have broken up into two segments, as you are aware. We have discussed the overnight programming, which we can talk about specifically, and we can talk about the programming during the day, in terms of the lifestyle.

10956 When that source of information and content is out there and the independent production facilities are available to us, we are very confident that we are going to be able to produce, excluding the overnight professional programming, the 643 hours that we have committed to, and we are very confident that we are going to be able to do that within the first year of operation.

10957 In terms of the repeat factors that we talked about, in our Canadian original programming our repeat factor is five times, and in the acquired Canadian it is three times, and it is very close to that in the non-Canadian acquired. It is approximately two and a half times, as our repeat factor, and that is throughout the entire broadcast schedule.

10958 COMMISSIONER WILLIAMS: How do you think that repeat factor will affect the attractiveness of your service?

10959 MR. LEVY: What is interesting is that repeat factor is actually pretty low compared to some of the others. So it is always a balance when you are setting up your programming schedule, and you are creating a lot of this programming from scratch.

10960 One school of thought would be the less repeat the better, because it is all fresh and new programming. Obviously that is impossible.

10961 The other side of the coin, though, in the specialty world, is that you are attracting rather small audiences and you want to have availability of this programming on an ongoing basis.

10962 And when we have compared our repeat factors to the ones that are out there today, we think we have struck a nice balance.

10963 MR. MALCOLMSON: If I could just add, Commissioner Williams, that having familiar programming within a new program schedule and within a new specialty channel can also be quite beneficial in terms of driving ownership.

10964 If, for example, you have some second window Canadian health programming within our schedule that viewers are familiar with, you have an opportunity to combine that and create lead-ins with your original first-run programming.

10965 So it is important to have that second window programming that is already out in the marketplace that is drawing viewership in order to attract it to your new network.

10966 COMMISSIONER WILLIAMS: Okay. I am going to move on to drama.

10967 In your application you propose using programming from Categories 7(a), (c) and (d), which are drama, comedy and film. Would you accept limits for these categories as a condition of licence? If so, what limits would you recommend?

10968 MR. MALCOLMSON: Percentage limits on the amount of dramatic programming? Is that --

10969 COMMISSIONER WILLIAMS: That's correct, yes.

10970 MR. MALCOLMSON: First of all, our schedule certainly isn't dominated by dramatic programming. We have some movies on Saturday and Sunday evenings. We think there is a useful place for drama programming within the health and wellness genre, because it enables you to program around it and give health perspectives on the dramatic programming that you are showing.

10971 I think we would accept limits, if the Commission wanted to place those limits, and I think a limit in the range of 15 per cent would be acceptable.

10972 COMMISSIONER WILLIAMS: Fifteen per cent. Thank you.

10973 Religion. Category 4. You have also indicated that the service would use programming of a religious nature. You have not included in Schedule 10 program descriptions, however, any programming from this category. What type of programming are you contemplating, and how will it fit within your proposed service?

10974 MR. MALCOLMSON: When we were crafting the nature of the service condition of licence we included religious programming strictly because of the aboriginal wellness programming that we hope to include in our schedule.

10975 There is a show in there called Shaman Secrets, which is about wellness, but it is also about aboriginal spirituality, and we felt that we needed that program category included in order to cover that off in the nature of service condition of licence.

10976 COMMISSIONER WILLIAMS: Thank you.

10977 I will now move into advertising revenues.

10978 What kind of advertisers -- and include in the definition of advertisers infomercials and broker time -- do you anticipate obtaining during the fourth wheel of midnight to 6:00 a.m.? And what percentage of avails sold will this represent?

10979 MR. MALCOLMSON: I am going to turn this over in a moment to Sarah Hughes, our V-P of Finance.

10980 It is not anticipated that the evening broadcast period -- the midnight to six period -- is going to be a significant advertising revenue generator. It is there more, quite frankly, for the health professionals and for the education programming. It is not a key component of our business model.

10981 Sarah, can give you --

10982 COMMISSIONER WILLIAMS: Not sponsored by large pharmaceutical firms or --

10983 MR. MALCOLMSON: No, and I think there are --

10984 COMMISSIONER WILLIAMS: -- medical supply houses, or any of that type of advertising?

10985 MR. MALCOLMSON: No.

10986 COMMISSIONER WILLIAMS: Thank you.

10987 MS HUGHES: Thanks, Rob.

10988 We feel that we have used very, sort of, conservative sell-out rates, in terms of our advertising, to reflect the fact that it will be mostly in the sort of 6:00 a.m. to midnight schedule where we would sell primarily most of our advertising.

10989 In terms of specific advertisers?

10990 Rob, do you want to talk about that?

10991 MR. MALCOLMSON: We haven't targeted any pharmaceutical companies or sponsors for that programming. That programming is there more as a public service educational component.

10992 COMMISSIONER WILLIAMS: Okay. Thank you.

10993 Have you obtained any commitments or agreements from distributors -- and we may have covered this already -- to carry interactive? You have not met with any yet, have you?

--- No audible response / Réponse inaudible

10994 COMMISSIONER WILLIAMS: That basically covers the questions I have on the Wellness application.

10995 Chairman Wylie, perhaps some of the other commissioners, or counsel...?

10996 THE CHAIRPERSON: Counsel...?

10997 MR. STEWART: Thank you, Madam Chair.

10998 Just for clarification, I believe that in your application you said you would spend approximately $5.2 million on acquired Canadian programming.

10999 Is that your commitment to the independent production sector?

11000 MR. MALCOLMSON: Our total spending is $27.3 million. That is broken down between Canadian acquired programming and Canadian production: $5.1 million for Canadian acquired; $22 million for Canadian production.

11001 Of the $22 million, we estimate that approximately 50 per cent of that will be spent on the independent production community. So that would be in the range of $11 million.

11002 MR. STEWART: Would you be willing to accept that commitment as a condition of licence?

11003 MR. MALCOLMSON: It's difficult to accept a hard dollar commitment as a condition of licence. What may be more appropriate is a percentage -- a percentage to spend on Canadian production be devoted to the independent production community.

11004 MR. STEWART: And would that percentage be 50 per cent, consistent with your application?

11005 MR. MALCOLMSON: Yes.

11006 MR. STEWART: Thank you.

11007 Just to clarify on the independent production front again, the role of Alliance, I believe, Sportscope will be managing the Wellness service. Is that correct? And, of course Alliance has a significant participation in Sportscope. Would you care to provide any comments with respect to the concern about -- well, not the concern but the issue of independent production?

11008 MR. MALCOLMSON: Sure. With respect to the Wellness Network, it's an application by LEVFAM Holdings. Alliance Atlantis has nothing to do, whatsoever, with the Wellness Network application; in fact, they have a competing application in front of you.

11009 So, on the Wellness side, it's -- the controlling shareholder is LEVAM. LEVAM also has a controlling interest in Sportscope. But Alliance Atlantis has nothing to do either with LEVFAM or with the Wellness Network.

11010 MR. STEWART: But Sportscope will manage the proposed service?

11011 MR. MALCOLMSON: No.

11012 MR. STEWART: There's no relationship, whatsoever?

11013 MR. MALCOLMSON: No, there is not.

11014 MR. STEWART: Thank you.

11015 Can I just clarify your statement about a willingness to accept a condition of licence with respect to, I believe it was 15 per cent, concerning Category 7(a), (c) and (d) and drama.

11016 That's 15 per cent of what exactly?

11017 MR. MALCOLMSON: It would be 15 per cent of the schedule.

11018 MR. STEWART: Thank you.

11019 Those are all my questions, Madame Chair.

11020 THE CHAIRPERSON: Thank you.

11021 Commissioner Williams has one more question on this application, and then we will move on to the next, if that's acceptable.

11022 Do you need some time to change panels? Or are you all here?

11023 MR. MALCOLMSON: We are all here.

11024 THE CHAIRPERSON: You are okay. Thank you.

11025 Commissioner Williams...?

11026 COMMISSIONER WILLIAMS: I neglected to spend time on the interactivity of your site. We learned so much about your Rainbow Connections that we didn't talk much about the Wellness Web site.

11027 Perhaps you can give us an overall description of the Web site and how it works. And then, at the end, if you could tell us a bit about -- at least to us, the interactive elements appear to be concentrated mostly on the Web site, and we would be curious as to how access to the set-top box from Web site would be made. How is that going to be facilitated?

11028 MR. MALCOLMSON: I will first speak to the Web strategy and then John will speak to the set-top box.

11029 With respect to Wellness, our long-term strategy is the same as it is in PrideVision; and that is, not only to develop an associated Web site with the Wellness Network but, also, to partner with a Canadian-based Web portal -- and we have had some discussions to that effect.

11030 In the Wellness genre, reliable on-line information that is relevant in the Canadian context is the key factor. Two of the other health applicants have partnered with U.S. programmers that have U.S.-based Web portals. We think the better approach in the Canadian context is to find a Canadian Web partner -- and, as I said, we are doing that.

11031 In terms of the relationship between the T.V. network and the Wellness Web site, it's all about information flowing back and forth between the television program and what's on the Web site, and we have designed our programming schedule with programs like "Ask Wellness", "Cross-Canada RX" and "HealthWatch News" to be able to take full advantage of that interactivity.

11032 So, for example, our Wellness Web site will really have three key features. One is: Viewer feedback will be incorporated into the television programming, directly, by communicating with our viewers through on-line e-mail -- and that's extremely important in the health context. People want information and the programming spawns more and more questions.

11033 Similarly, we hope to have a system whereby experts can answer questions by e-mail on air -- and that's one of our plans for the "Ask Wellness" show.

11034 The other thing that's important in the health genre is advance input by viewers into what's going to be on the network next, and our Web site will have a viewer's forum which will constantly be asking viewers what health information they want, what topics they want to hear covered in "Ask Wellness" or the "Cross-Canada RX" show. That's the type of interactivity we are talking about.

11035 MR. LEVY: Just to finish it off. Our comment with respect to set-top boxes is obviously the same as I commented earlier, with respect to the other service: We are coming into the same environment and our impressions and attitude is the same.

11036 COMMISSIONER WILLIAMS: I said one, but it must have been 1.5 questions.

--- Laughter / Rires

11037 COMMISSIONER WILLIAMS: Are the interactive elements of this service going to be in place by the proposed September 2001 launch?

11038 MR. LEVY: Yes.

11039 COMMISSIONER WILLIAMS: Thank you.

11040 That concludes questions for the Wellness panel, Chairperson Wylie. So, if they want to shift chairs...

11041 THE CHAIRPERSON: No; I think that they are ready. Is that correct?

11042 MR. LEVY: We are fine.

11043 THE CHAIRPERSON: So they can go ahead.

11044 COMMISSIONER WILLIAMS: Okay. With the PrideVision questioning, can you describe your criteria used for determining what qualifies programs as targeting the gay and lesbian community?

11045 MR. MALCOLMSON: The criteria we employed are -- first of all, they have to be -- to the extent that there is programming that involves gay and lesbian characters or bisexual transgendered community members, that would clearly qualify the programming as being of interest.

11046 But, also, you know, the gay and lesbian community is part of our larger community, and there are people who are not within the gay and lesbian community but who are directly connected to the gay and lesbian community. In fact, our research showed that 36 per cent of Canadians, I believe, reported a direct connection through a friend, a family member or co-worker to the gay and lesbian community. So the spectrum is very wide, and the programming has been designed to appeal to that spectrum.

11047 In terms of how we define it so that -- I think you asked the other applicant, you know, "What's to prevent you from becoming a general-interest television service?" We think we have looked after that, in the nature of service condition of licence that we proposed which describes the programming categories as being designated to meet the needs of the gay and lesbian community and to those Canadians that are connected to the gay and lesbian community. So we think we have done it in the nature of service condition of licence.

11048 COMMISSIONER WILLIAMS: Okay. Thank you, Mr. Malcolmson.

11049 How much drama and feature films do you intend to broadcast and how much gay and lesbian programming from these categories is available?

11050 MR. LEVY: Let me turn it over to Sarah to give the breakdown, and then perhaps I will turn it over to Shane to describe the content within the programming.

11051 COMMISSIONER WILLIAMS: Very well.

11052 MS HUGHES: Thanks, John.

11053 In reviewing the content and the areas of which our programming is allocated, we noted that, you know, a large percentage -- or not a large percentage, but we do have an amount designated for news -- that, certainly, is one of ours -- as well as analysis and interpretation shows, such as "One-on-One", Q! TV. So we do have sort of a wide range across all of sort of the categories that we listed.

11054 MR. SMITH: I will just jump in and say that, in terms of the programming that is out there, movies and dramatic programming, as an example, I can say in my previous job at the Gay and Lesbian Film Festival, after watching 800 films and videos by, for, about or of interest to the gay and lesbian community, I can tell you, unequivocally, that there is the work out there.

11055 By way of reference to Canadian content, this year, at the festival, one-third of the 320 works that we screened were Canadian, and there is a huge -- an ongoing development, an increasingly amount of gay and lesbian feature film being made both in Canada, slowly but surely, but definitely there's been a boon in feature filmmaking by gay and lesbian filmmakers in the last five years. So there is plenty of work out there.

11056 MS HUGHES: In terms of the number of hours, in terms of Canadian titles, we have 312 programming hours, for film.

11057 COMMISSIONER WILLIAMS: Thank you.

11058 Mr. Levy, could you comment on how PrideVision might benefit from the synergies relating to the partners involved?

11059 MR. LEVY: In the context of partnership that -- if I understand your question, you are talking about the synergies of the partnerships that we have --

11060 COMMISSIONER WILLIAMS: Yes.

11061 MR. LEVY: -- currently in place with our partners out west?

11062 Well, we are very excited about the partnership that we have with Rainbow Connections. As I described before, it obviously enhances our ability to come forward and take advantage of the work that they have done, in terms of the portal strategy. But we also see it as a stronger relationship in the context of what I was talking about in terms of the new spirit and the new creativeness that's going to be involved in creating the content. These people are thinking about that every day. Our people are sort of still thinking in the context of traditional programming efforts, and what's going to be the success in the future is when we are able to marry these two ways of creating new ideas and creating new content and making it applicable to this converged technology.

11063 So we have a lot of confidence in our partnership; so much so that we are actually going to be taking a position in that company, in terms of an equity position. So, that's -- we believe it's integral to our go-forward strategy.

11064 COMMISSIONER WILLIAMS: Thank you.

11065 I am now moving to a question with respect to the fact that you have projected 65 per cent Cancon from year 1. Can you address the issue of availability of programming in the gay and lesbian genre and to what extent will you have to depend on repeats to achieve your Cancon commitment, especially in the first few critical years of the licence?

11066 MR. MALCOLMSON: I will answer your repeat question and then pass it on to Shane to talk about the variety of programming that is available.

11067 You are right, we are at 65 per cent from day 1. We believe there is a wealth of Canadian programming within the gay and lesbian genre. That is why we have proposed in our sample program schedule approximately 481 hours of original Canadian programming in the first year. The repeat factor on the original programming is nine times; on the acquired Canadian programming it is two times; and on the non-Canadian acquired it is two times.

11068 Shane may want to speak to some of the titles and the variety of programming that is out there.

11069 MR. SMITH: In terms of ongoing series, Canadian-produced work, there is the Rogers community cable program, 10 per cent Q! Television, which will be an integral part of our schedule because that also serves part of the mandate of PrideVision, which is to provide community access to our facilities, and also to eventually, hopefully, broadcast some of the work that is created during that community access to our facilities.

11070 In terms of feature films, there are quite a lot of feature films out there. Laura could possibly talk to that Canadian-content-wise. And also in terms of other programming, there is original CBC comedy programming, featuring gay and lesbian performers; there are also some series, some short-run series, featuring gay and lesbian sketch comedy that is available. And, of course, with our commitment to Canadian content -- $17.4 million over the term of the licence -- we believe that we have the resources to be able to create a lot more original Canadian programming, and that is one of the prime tenants behind PrideVision.

11071 MS MICHALCHYSHYN: I will just quickly speak to some of the films that are available that are either directed by gay and lesbian directors or include themes of gay and lesbian interest or subject-matters -- their directors, including John Greyson, Patrician Rozema, Jeremy Podeswa, Tom Fitzgerald-Leopold, to name just a few -- who are currently making/creating feature-length films and dramas that would be absolutely available to PrideVision and, I think, of interest to the audience.

11072 MR. MALCOLMSON: Just to amplify on a point that Shane made, within our program schedule and within our application, we made a substantial commitment to spending on Canadian programming. It is $31 million cumulatively over the licence term -- $13.8 million of that is for acquired Canadian programming; approximately $17.4 million is for Canadian production -- and if you look into our program schedule you will see a significant number of original productions, such as a live daily gay newscast, a show called "One on One", which is interviews with prominent members of the gay and lesbian community, a current affairs program. So there are substantial commitments to Canadian production within this application and that is reflected in the spending levels.

11073 COMMISSIONER WILLIAMS: Thank you, Mr. Malcolmson.

11074 When you describe your commitments to independent producers, does this include Alliance Atlantis? And will Alliance Atlantis provide programming to this service?

11075 MR. LEVY: I think we had a brief discussion about that earlier.

11076 COMMISSIONER WILLIAMS: On the other channel, yes.

11077 MR. LEVY: There are no arrangements in place with Alliance Atlantis to supply us with programming -- and Laura can confirm that. There's no output deal, there is no agreement. I think I said earlier, to the extent that Alliance Atlantis had programming that LEVFAM, as the controlling shareholder, thought was relevant and germane to the programming mandate of the network, we would certainly take a look at it and pay for it in an arm's-length transaction.

11078 COMMISSIONER WILLIAMS: Thank you.

11079 Even combined with this dated secondary audience of friends and family of gays and lesbians, and the packaging assumptions, as stated, is it reasonable that you anticipate a penetration rate of 50 per cent in year 1, even though your demand research indicates that 21 per cent of respondents would watch the proposed services?

11080 MR. LEVY: The answer is, yes. And if you could bear with me, I will take you through how we arrived at that. This is all based on the research that we did. And in fact, the end result is that our estimates, we believe, are conservative, in terms of the numbers that we are going to be able to achieve.

11081 We are working with a Canadian population assumption of approximately 30 million people. The research that are dependent upon is basically stating that specifically in the gay and lesbian community 10 per cent of the Canadian population falls within that community. So there are 3 million; in the gay-friendly community, our research has said that over one in three -- and the precise number was actually 36 per cent of that community. So that is an additional 10.8 million people. Combined, that is 13.8 million. Okay?

11082 That is a bit tedious, but I want to take you through this.

11083 Our research also told us that of the gay-friendly community, 53 per cent of those people were likely to watch a programming schedule such as ours. That amounts to 5.7 million people. In the community itself, it is obviously much higher. It is 88 per cent. That is 2.6 million. When you add those together, that means there is 8.3 million Canadians likely to watch this service.

11084 I am taking a little bit of assumption here. We have to translate that into homes because we don't get measured by people, we get measured by homes. We are assuming three people per home, on average. And that would allow us to talk about a universe of 2.8 million gay and gay-friendly households.

11085 Digital penetration, according to CCTA -- and we agree with that -- will be approximately 20 per cent by September of 2001. That is 2 million households. If we take that same percentage, if we are assuming that the digital universe inside the gay and gay-friendly homes are the same as the digital universe in general, you take 20 per cent of the 2.8 million homes and that amounts to 560,000 gay and gay-friendly homes on day 1, in year 1.

11086 Our analysis and our business plan called for a subscriber penetration of 50 per cent of the 2 million digital boxes, or 1 million subscribers in the digital universe.

11087 If you look at the end result, what we are saying is from the empirical data that we have approximately over 50 per cent, or 560,000 homes, out of those million homes come from the community we are talking about alone.

11088 Now, we don't think that is reasonable. We think that is low for a couple of reasons. Number one, if that is right, then it really is the driver of this new digital-basic tier. That is saying, basically, almost one out of every two people buying a digital box is buying it because they are coming out of the gay and gay-friendly community. That is something we would like to talk about with the distributors, but it is hard to believe it is going to be even that high in the context of: that means the rest of the universe is coming from people interested in the other seven or eight services.

11089 So we think that number is conservative.

11090 The other reason that number is conservative is because of this: even though the accepted research is that 10 per cent of the community falls within the gay and lesbian community, there is other research out there that says that is very conservative. There was a study done -- I think we filed it as part of our evidence -- from the University of Toronto, Sex Education Department, that said that number is actually closer to 25 per cent lives within that community itself. We didn't use that number. If that were true, then, obviously, the numbers we are presenting are very conservative.

11091 So I know it was a little tedious, but what our evidence shows is that in this new digital world, if we, as the program suppliers, and the cable world and the satellite guys get their act together and put a terrific package together and are able to market this thing, we think that we are a very strong contributor in that tier of 10 packages.

11092 We heard a lot of pessimism this morning about the whole future of the digital world and how many boxes are going to be out there and how are we going to sell this new Canadian digital tier. People are talking about comparing it to the old analog tier in the last round of services. Well, the last round of analog tiering was tier 3, and that was tier 3 on top of tier 1 and tier 2 and people were paying a lot of money for this.

11093 What we are having the ability to create here is really a new basic offering. It is a basic digital offering. And I think it is a very exciting opportunity for us. And I think the numbers that we are looking at, in fact, are very conservative. I think we are going to see much higher penetrations than what we are talking about. But these are the numbers that we submitted.

11094 MR. MALCOLMSON: If I could just get Debra McLaughlin to speak to the research. We commissioned numerous amounts of original research as part of this application, and Debra may wish to shed some light on that in terms of demand from subscribers.

11095 MS McLAUGHLIN: Thanks, Rob.

11096 Yes, in fact, I did want to clear up the 21 per cent figure that you are referring to. It does, in fact, state in the research that there is 21 per cent interest. But as I said in the opening remarks, PWC feels quite strongly that is underestimated.

11097 This is an extremely difficult category to research for the simple reason that some people, members of this community, and in fact some people outside of this community but related to this community, may be hesitant to declare either their interest or their actual participation in the community.

11098 The manner in which the question was asked in this survey would elicit members of the community who were very comfortable and very open about their involvement with the community, we asked very directly "Are you a member of the gay community?"

11099 I have done other research in this area and typically only if you are trying to get to the core market would you ask the question in that manner. There are several approaches that are less harsh and actually enlisted a greater response.

11100 The estimates of the population, as you can see from the study I believe, are sitting at 1 per cent. That in fact is erroneous. All counts show this population to be between 10 and 25 per cent. We won't know in fact the actual numbers. We will get closer to the actual numbers when StatsCan conducts its next census, but even then there will be a natural hesitancy to commit.

11101 The response there, the 21 per cent, therefore is of a group -- actually it is of the entire population and within the group it is only the core population. We believe based on our focus groups that the high interest will come from people, members of this community, who are actually not entirely comfortable as well. In fact, we believe the response based on our focus groups will be higher.

11102 In addition to this, there is a propensity for members of this community to be focused and dwell in higher population areas, in major urban areas. This survey was done as part of a multiple format test and for this reason was done on the complete Canadian population.

11103 If you isolated the survey into urban areas where the population concentrations are greater, not only of members of this community but in fact people who are "gay friendly", you would have a higher response rate.

11104 It wasn't possible in the context of the survey to do that, but in the terms of Rainbow Radio when it was offered to a community that is self-deprived and underserved, the responses were in the high eighties. So 21 per cent is the floor in terms of interest. It is not the maximum.

11105 COMMISSIONER WILLIAMS: Okay. Thank you for that. Other television channels directed at the gay-lesbian community in other countries have been introduced. In your experience, what has been their experience in terms of percentage of population?

11106 MR. SMITH: In fact, to my knowledge there are no existing services which are completely focused on programming for the gay and lesbian community and their supporters. There are networks, channels, particularly in the U.K., that do a significant -- present a significant amount of programming for that community, but at this stage, with the exception of the U.S. station, I believe I was -- yes, it was introduced last week. It hasn't actually gone to air. There are no existing networks out there focusing specifically on this audience and PrideVision will be a world leader in that.

11107 In terms of the work, the programming that Channel 4 in the U.K., the specific example I am thinking of for a heavy amount of gay and gay friendly programming, the response based on research that I have read and contact that I have had with the people at that station has been overwhelmingly positive for that programming and they continued to build on that.

11108 A case in point is "Queer as Folk", a series that took the U.K. by storm when it aired there and continues to pop up at film festivals all around the world, lesbian-gay film festivals around the world, to sell-out houses because there is such a demand for this original programming and "Showcase", Laura can also testify to the success that "Showcase" has had with their themed programming for gay and lesbian audiences and also their airing of "Queer of Folk".

11109 Laura.

11110 MS MICHALCHYSHYN: As I mentioned when we presented earlier, Monday nights on "Showcase" have been dedicated since 1995 to gay-lesbian theme films from around the world. In the last three years, "Showcase" had presented a week of theme movies around gay and lesbian pride, usually in June.

11111 We have noted a significant audience interest and (b) an American interest from the ratings. It ranges from 20 per cent as a low to a 60 per cent high for an overall average increase in our audiences from a typical film or movie night on "Showcase", so we have had great success and will continue to program such programming on the network.

11112 COMMISSIONER WILLIAMS: Okay. Now, in the Commission's licensing framework policy for this proceeding, we stated that Category 1s must be offered as a package rather than on a stand-alone basis. Do you anticipate any problems finding the packaging partners for a gay and lesbian channel?

11113 MR. MALCOLMSON: No, we don't, Commissioner Williams. If you look at some of the genres that have been proposed in this process, independent films, Signature, the Biography Channel, even the Health and Wellness channel, we think that the gay and lesbian genre fits well with all of those proposed genres. They will make a very, very attractive package.

11114 As John said, our research which we spent a lot of time and money on indicates to us that the gay and lesbian genre will be a real package driver.

11115 COMMISSIONER WILLIAMS: You in fact may be the dance partner of choice for the driver of the new digital roll-out then.

11116 MR. LEVY: We were talking just waiting for our turn here. You know, I was looking at the schedule of the categories. You know, we did all the research, we paid all the money. There aren't two better distinguished genres than the two we presented here.

11117 We don't have any problem with any other licensees. We don't overlap on anybody else. These are truly, both of them, the health and representation within the gay and lesbian community, are truly distinctive, they are truly diverse. We are not sitting here making this up. These are clearly underserved communities within the Canadian society.

11118 When you ask about are we good packaging partners, these other guys should be lucky we are here. They are all picking little pieces out of everybody else's programming schedule. They are all begetting, one begets another, begets another, like Rob was saying, spinning stuff off from what they are doing. That's easy.

11119 You talk about this whole synergy discussion and saving costs and then not even putting them back into the broadcasting system. That's another whole argument. You know, in our case, we are not out there throwing a whole bunch of them at the wall and saying "Geez, I hope two or three of them stick and maybe the Commission will be good enough to give us some".

11120 This process was about looking into the system and finding out which ones are out there that need to be served, what communities are served? With Health and Wellness, quite frankly I'm surprised nobody has put in an application prior to now. I mean that's one.

11121 With PrideVision, obviously it's our view and hopefully the Commission is going to agree, the time has come for that type of service to be licensed. In terms of how we differentiate ourselves on both of them -- I'm skipping back forth here a little bit because I have got these two kids, four kids really, but these two kids, and I think they are both worthy --

11122 COMMISSIONER WILLIAMS: It's all right. You have lots of time.

11123 MR. LEVY: Having the cheering. You want to go? I will wrap up fast.

11124 COMMISSIONER WILLIAMS: No, no, you have lots of time. That's what I'm telling you.

11125 MR. LEVY: I think they both have independent wealth within them. I know by partnering with McMaster, nobody else is going to do that. This is a huge opportunity. When we talked about Harvey last night, what we were talking about in terms of the evening, in terms of the day programming, you know, if another licensee gets it, they are not going to get this opportunity from somebody else. It's going to look a whole lot different. It's probably going to look a lot like what you are accustomed to seeing in the States. This thing isn't going to look like anything you have seen before.

11126 In terms of PrideVision, you can see what the gay and lesbian programming looks like today. You see it on other programs. We are talking about a complete, comprehensive, 24 hour a day channel that allows these guys and girls and transgenders to express themselves in a way that they can't do today and by living their day lives every day and by communicating with one another -- anyway, I'm going to get off my horse here.

11127 I think that we would be pretty good packaging partners for any of these other guys that are trying to put together services and make them make sense. Ours makes sense in and of themselves.

11128 COMMISSIONER WILLIAMS: You will get another chance to do that. You have an opportunity at the end once we are finished the questions, so if you want to --

11129 MR. LEVY: Sorry.

11130 COMMISSIONER WILLIAMS: -- remake some of those points -- no, there's nothing to be sorry about. You felt strongly about it and it's good that you expressed yourself.

11131 In the Commission's licensing framework proceeding -- I'm sorry, I have covered that one.

11132 What impact do you expect interactive subscriber input to have on the programming development of PrideVision?

11133 MR. LEVY: Everything. That's the universe.

11134 COMMISSIONER WILLIAMS: That's what it's all about.

11135 MR. LEVY: That's what it's all about. I mean, it isn't us guessing what they want. It's them telling us what we should provide to them and that's the whole nature of both applications, but I should say particularly because with PrideVision where they really have no outlet for that.

11136 COMMISSIONER WILLIAMS: Yes. These questions are specific to PrideVision.

11137 When do you as an applicant expect to integrate your interactive strategy with the set box? That's again a similar answer to the last time: when the manufacturers are ready?

11138 MR. LEVY: Yes.

11139 COMMISSIONER WILLIAMS: Let's talk a bit about your programming advisory board. Can you describe the nature, relationship and influence that this board will have in programming decisions and is this expected to be a permanent fixture of PrideVision?

11140 MR. MALCOLMSON: The programming advisory committee in the PrideVision context is critical. We expect it to be a permanent fixture over the life of the business. We have prepared programming advisory committee guidelines and a constitution which we would be happy to file with you.

11141 It will be representative of members of the component parts of the gay and lesbian community, the gay community, the lesbian community, bisexuals, transgendered, gay parenting groups, the widest spectrum because we believe that it is absolutely vital for those groups to have day to day, ongoing input into the type of programming we are putting on the air. It's absolutely essential in this genre.

11142 COMMISSIONER WILLIAMS: If I can sum up what I have learned in a few words and you can help me if I have missed someone. PrideVision, it's a service focused on a currently unserved diverse portion of Canadian culture. It will be targeted, focused, it's needed and as soon as technology permits it will be interactive. Would that in a few words summarize your application on PrideVision?

11143 MR. LEVY: We could have used you helping to write this.

11144 MR. MALCOLMSON: If I could add, we did a lot of research on PrideVision. We took this very seriously. We did three pieces of original research. We looked at the existing body of research which was out there and what came back to us in terms of what this network should look like from the gay and lesbian community was that in today's spectrum there is a total lack of variety. There is a total lack of realistic depictions of gay men and women living every day lives.

11145 The coverage tends to be more negative than positive. The coverage tends to be stereotypical and what PrideVision is all about is changing that, is being realistic, is being responsible and reflecting that community back to itself as it exists in the mainstream. That's really what PrideVision's programming will be about.

11146 COMMISSIONER WILLIAMS: I heard our Chair earlier today, so I won't ask if you feel your application has been given a full and fair hearing because I am going to turn it back over to her and she is going to pass it on to fellow Commissioners and legal counsel, but I am sure she will ask you that at the end of the day.

11147 Thank you very much. I have enjoyed posing the questions.

11148 THE CHAIRPERSON: Commissioner Wilson, please.

11149 COMMISSIONER WILSON: Mr. Levy, I want to probe you a little bit on your business plan and I am interested to do that because you were a cable operator, so maybe you might have some insight into how this is going to roll out. You kept referring a little bit earlier to the basic digital offering and the new digital tier in the singular.

11150 I just checked our Public Notice and it said that Category 1 services would be afforded protection in terms of packaging and equitable treatment. It didn't say that they had to be offered in a single package. So I am curious about what happens to your business plan if there are three or four packages which are similarly offered to subscribers, but the take-up rates might be different for each of those packages. What effect does that have if it is not digital basic, as you described it earlier? How does that affect your financial projections?

11151 MR. LEVY: When we did our modelling and we based it on a percentage penetration that wasn't strictly dependent upon a specific 10-channel package, things are different now. There are multiple distributors there. The direct-to-home guys have tried some pick and pay scenarios and in the old days in the cable business we used to say they tried to trick the consumer by saying there truly was pick and pay, but they had the same constraints that we did.

11152 I don't think there is going to be one package. I was really talking primarily from the cable perspective. If I were, and I hope we will be sitting down with the distributors and talking about how to package these things, I think that the large package and creating a solid base in the digital tier which really doesn't exist yet. I mean, we launched digital with no programming services, for all intents and purposes.

11153 There are a few. There's Star. We were talking about information, interactive guides and that's how we sold it. We talked about better quality and that's how we sold it. We didn't have a heck of a lot -- we had expanded pay per view, which you know. We had a couple more pay-TV channels, but we didn't have a tier.

11154 We were supposed to have a tier the last time.

11155 COMMISSIONER WILSON: I love the guide.

11156 MR. LEVY: Yes, the guide is -- we were supposed to have a tier, but we sort of woosed out on that and some people were able to negotiate down onto the analog tier. So we lost that basic tier at that time, that basic digital tier.

11157 Our model is not predicated on a big package. I think our services, both of them, are significant enough, as I said before and I may be being a little presumptuous, but I think we are a good partner, quite frankly, in any of those packages.

11158 You know, whether in our lifestyle package or in a big package, we truly think that our communities are so dedicated to our service that we really will be drivers. Our viewers are going to buy the package, quite frankly, wherever it's in. So, the vision that we sort of talked about, which is a big tier, is probably the worst cast scenario because big tier means usually a little bigger bucks to get it.

11159 Our viewers are going to buy this service. So if it's on a smaller tier, our numbers probably go up.

11160 COMMISSIONER WILSON: Thanks.

11161 THE CHAIRPERSON: Mr. Levy and Mr. Malcolmson and perhaps your lawyer, this business of independent production, when we ask the question everybody gets very defensive. We are just trying to get on the record advice as to how we handle this. Really, we have been trying to ask three questions. One is: Does it matter in this environment -- it has mattered before. We have imposed requirements before. Is that still valid for you, for your competitors in our role in encouraging diversity of sources for programs?

11162 The second question we have asked, well, the minute you say yes you should be concerned. Then you have to say, well, are you concerned with 1 per cent or you have put on the record 29.9 per cent. We have had other numbers put forward, some more restrictive even.

11163 Then, the third question is once you have decided that it's still a good idea to monitor it, then you identify what is not an independent production company or an independent producer. Then what level of restriction should there be on the licensee.

11164 So, on the last question, am I right that when I look very generally at your Canadian expenditures that that $2 million is close to half of your Canadian content expenditures yearly that would go to the independent production sector? It's a little less as you go forward. Right?

11165 MR. MALCOLMSON: That's correct.

11166 THE CHAIRPERSON: If I read like $4.2 million Canadian content expenditure in year one and then it goes up higher, so it's not always half. But, in any event, should the Commission decide that, one, we haven't really heard you on whether you think it's a good idea. We have heard you on what the definition should be. Should the Commission define it more restrictively than 29.9 per cent and decide that a restriction is still a good idea, what would you be prepared to commit to of that $2 million that would go to an independent production company as defined if it were to exclude Alliance?

11167 Would it be an amount of money? Would it be -- because I know you have told us we have no plans and we have no contract, but for over a seven-year licence that really doesn't answer that third question.

11168 I am not sure I have heard you either on whether it's still necessary to worry about it in the digital environment or whether perhaps yesterday's sins are today's virtue in that context. I don't know if you have anything to add and we certainly would like to have you on record should a more restrictive definition be chosen as to what you are prepared to commit to independent producers as defined by us.

11169 You don't really have to. You can readdress this at the reply stage because there are other people thinking about it as well.

11170 MR. LEVY: It's also difficult for us because normally the people in front of you are the people who are reaping the benefit of that. They are in the production business and they are applying for licences. So, you know, they are offloading some of their inventory and some of their product and they stand to gain from an ability to move and sell basically into themselves.

11171 THE CHAIRPERSON: Except that the independent production sector, which is a sector of the industry which is particularly or expressly addressed in the Act, could say: Well, all you need to do is get 29.9 per cent of a big producer like Alliance and that's the only producer that is going to benefit from this licensee's production money, Canadian content expenditure.

11172 MR. LEVY: Right.

11173 THE CHAIRPERSON: That's one of our concerns. You see, we are looking at it from a regulatory perspective as to is there a need to do anything in order to further the objective of the Act in this environment.

11174 We have done it before. Some has been restrictive, some less, but perhaps you can just try to think of those three questions. We are open to being convinced that it shouldn't matter. If it does matter, which has been the answer of a number of applicants that it still should matter, we will have to settle on an applicable definition across the board and then, generally, I think licensees have said it differs in each case what our commitment should be. And that's not a bad idea to get people to say: Well, in my case for the following reason even if Alliance were to be considered non-independent, this is what we are prepared to -- and you don't have to answer today.

11175 MR. LEVY: I think we are sort of bantering percentages here back and forth and I think it's probably not appropriate. I think we do want to think about it and come back to you with a logical approach.

11176 THE CHAIRPERSON: I just wanted to make sure you understood how we are coming at this in these three levels.

11177 MR. LEVY: Right. Just a last comment on it, it's just from our thinking this whole discussion would make much more sense if we owned 29.9 per cent of Alliance Atlantis.

11178 THE CHAIRPERSON: Well, that was the point I was trying to make to Mr. Malcolmson before.

11179 MR. LEVY: Right. Exactly.

11180 THE CHAIRPERSON: It was that perhaps there is a different way of looking at it. We are open to being told. There is a difference between the two.

11181 MR. LEVY: The old saying is the shoe is on the other foot in our particular case, so from our perspective all that's important is to have as many outlets as possible, to have as much flexibility as possible and not restrict our ability to deal with any independent producers.

11182 THE CHAIRPERSON: That means then from our perspective you are keeping the freedom to spend all your $14 million on one producer.

11183 MR. LEVY: Right. Obviously, in this particular case that may not make sense and we will think about it and we will come back to you with something which imminently fair.

11184 THE CHAIRPERSON: I just wanted to try to make sure that you understood where I was coming from because everybody immediately gets very defensive and says "we're not going to deal with that." We have 88 applications before us --

11185 MR. LEVY: We are going to think about it before we do it.

11186 THE CHAIRPERSON: -- and a lot of incest.

11187 MR. LEVY: Careful.

11188 THE CHAIRPERSON: Counsel, do you have any questions?

11189 MR. STEWART: No, Madame Chair, except that Commissioner Williams will not be able to ask the question about filler programming, the Category 15 on this occasion, given the nature of service description that has been supplied.

11190 COMMISSIONER WILLIAMS: It's because they neglected to fill out that square.

11191 THE CHAIRPERSON: I don't know if you have been following the hearing, but that has been one of the more difficult questions to answer.

11192 CHAIRPERSON OF THE COMMISSION: But everybody seems to be converted now.

11193 THE CHAIRPERSON: Yes.

11194 MR. LEVY: That is one we had an answer for.

11195 THE CHAIRPERSON: I want to make sure as well that someone has been following -- and it's relevant probably to you, has been following the hearing and you know that there is a take-home question for the reply stage because there is possibly a service that you would find in competition with yours and you may not be prepared to launch if we were to decide to give a licence to it.

11196 We thank you very much. We have kept you a bit late. We thank you for your patience and I do hope you feel you have been given a fair hearing. You are welcome to use a few minutes to wrap up, if you wish.

11197 MR. LEVY: I'm certainly not going to take much time and I do believe that we have had a fair hearing. Perhaps we should just conclude with where I was going earlier on in my sort of dissertation because that's really the heart and soul of what we are talking about.

11198 This is a young company. It's an independent company. We have got a proven track record. You entrusted us once by allowing us to grow and develop from an alphanumeric service to headline sports to something now that is effectively competing in a very competitive marketplace.

11199 We responded to the call. We looked very, very carefully at what was out there. We deliberately didn't take a shotgun approach to this thing because, first of all, it wouldn't make any sense for a company like ours to come in trying to convince you that we could handle seven or eight licences. Regardless of that, it made sense because these are the two areas that are absolutely underserved.

11200 We are confident that we could provide the level of expertise in programming to live up to the commitments that we have said. So we want to thank you very much and we look forward to seeing you in the next phases of this hearing. Thank you for your time.

11201 THE CHAIRPERSON: Good evening to everyone and we will resume tomorrow morning at 8:30.

11202 Nous reprendrons demain matin à 8 h 30. Bonsoir.

--- Whereupon the hearing adjourned at 1835 to resume

at 0830 on Thursday, August 17, 2000 / L'audience

est ajournée à 1835 pour reprendre le jeudi

17 août à 0830