ARCHIVÉ -  Transcript / Transcription - Gatineau, Quebec - 2003-05-26

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 TELEVISION LICENCE RENEWALS

DEMANDES DE RENOUVELLEMENT DE LICENCES DE TÉLÉVISION

HELD AT: TENUE À:

Conference Centre Centre de Conférences

Portage IV Portage IV

Outaouais Room Salle Outaouais

Gatineau, Quebec Gatineau (Québec)

May 26, 2003 Le 26 mai 2003

Volume 1

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 TELEVISION LICENCE RENEWALS

DEMANDES DE RENOUVELLEMENT DE LICENCES DE TÉLÉVISION

BEFORE / DEVANT:

Charles Dalfen Chairperson / Président

Andrée Wylie Commissioner / Conseillère

Joan Pennefather Commissioner / Conseillère

David Colville Commissioner / Conseiller

Cindy Grauer Commissioner / Conseillère

ALSO PRESENT / AUSSI PRÉSENTS:

James Wilson Legal Counsel /

Sylvie Jones Conseillers juridiques

Tandy Greer-Yull Hearing Coordinator /

Coordonnateur de l'audience

Pierre LeBel Secretary / Secrétaire

HELD AT: TENUE À:

Conference Centre Centre de Conférences

Portage IV Portage IV

Outaouais Room Salle Outaouais

Gatineau, Quebec Gatineau (Québec)

May 26, 2003 Le 26 mai 2003

Volume 1

TABLE OF CONTENTS / TABLE DES MATIÈRES

PAGE / PARA

PHASE I

APPLICATION BY THE NATIONAL BROADCAST READING 8 / 52

SERVICE INCORPORATED (VOICEPRINT) /

APPLICATION PAR THE NATIONAL BROADCAST READING

SERVICE INCORPORATED (VOICEPRINT)

Application No. / No de demande 2002-0702-3

APPLICATION BY CHUM LIMITED / 87 / 507

APPLICATION PAR CHUM LIMITÉE

Application No. / No de demande 2002-0952-9

APPLICATION BY ROGERS SPORTSNET INC. / 182 / 1105

APPLICATION PAR ROGERS SPORTSNET INC.

Application No. / No de demande 2002-0974-3

APPLICATION BY TELETOON CANADA INC. / 266 / 1645

APPLICATION PAR TELETOON CANADA INC.

Application No. / No de demande 2002-0942-0

Gatineau, Quebec / Gatineau (Québec)

--- Upon commencing on Monday, May 26, 2003

at 0930 / L'audience débute le lundi

26 mai 2003 à 0930

1 THE CHAIRPERSON: A l'ordre, s'il vous plaît. Order, please.

2 Good day ladies and gentlemen, and welcome to this public hearing.

3 Mon nom est Charles Dalfen, président du CRTC. Je présiderai cette audience en compagnie de mes collègues, Andrée Wylie, à ma gauche; David Colville, vice-président des télécommunications et conseiller régional pour l'Atlantique at my right; Cindy Grauer, at his right, conseillère régionale pour la Columbie-Britannique et le Yukon; ainsi Joan Pennefather, à ma toute gauche, conseillère nationale.

4 The Commission team working with us is composed of Tandy Greer-Yull, Hearing Manager; James Wilson, Legal Counsel; and Pierre LeBel, Hearing Secretary. Please see Monsieur Lebel if you have any questions about hearing procedures.

5 At this hearing, we will review the licence renewal for the national service, VoicePrint, as well as licence renewals for several specialty services. We will also examine an application from Rogers Broadcasting Ltd. to amend the licence of OMNI.2; an application from Crossroads Television System to amend the licence of CITS-TV; and, finally, an application from Bea-Ver Communications Inc. to amend the licence of CKUE-FM.

6 First of all, we will hear from National Broadcast Reading Service Inc. regarding the licence renewal of the VoicePrint English-language national audio programming service. The licensee has applied to amend its condition of licence relating to its wholesale rate by increasing the monthly charge to distributors from $0.01 to $0.04 per subscriber.

7 I should add for those who are visually impaired in the audience, we are sitting up at the front of the room, five of us. I am in the centre of the table. I have described where my colleagues are located relative to where I am. I trust that if you have any questions as to the location of various people, CRTC officials or otherwise, you will speak to Monsieur LeBel who is at a table to your right at the front side of the room.

8 We will then hear the applications for the licence renewals for specialty television services. As part of this process, the Commission will consider the renewal of 22 specialty television services that were approved in 1996.

9 This is the largest number of analogue services that we have ever dealt with at one time. It is valuable for us to hear from representatives of the major broadcasting groups holding specialty television service licences, and to discuss the status of the specialty television service sector in Canada, as well as the challenges and the opportunities that it is facing.

10 In the preamble to Broadcasting Notice of Public Hearing CRTC 2003-3, the Commission listed a number of issues that it would consider at this hearing, including the following:

11 Proposed increases in wholesale rates and the criteria used in evaluating such proposals;

12 The contribution of licensees to Canadian programming;

13 Proposals for amending conditions of licence governing the nature of service, including those with respect to Canadian drama;

14 Mechanisms and policies related to broadcasting adult programming during watershed hours in all time zones;

15 Making television programming more accessible to persons who are visually impaired;

16 Commitments to closed captioning;

17 Contributions to cultural diversity;

18 And finally, commitments to independent production and regional production and reflection.

19 The Commission will hear the licence renewal applications in the following order:

20 1. MuchMoreMusic

21 2. Sportsnet

22 3. Teletoon

23 4. The Score

24 5. The Comedy Network

25 6. Outdoor Life Network

26 7. CTV Newsnet

27 8. Home and Garden Television Canada

28 9. History Television

29 10. Prime TV

30 11. Musimax.

31 I note that CTV Newsnet, Sportsnet and The Score have also applied for wholesale rate increases.

32 We will then hear from the representatives of Rogers Broadcasting, who want to amend the licence of the OMNI.2 television station in Toronto-Hamilton. The applicant is proposing to add rebroadcasting transmitters for its OMNI.2 station at Ottawa and London.

33 After that, we will hear the Crossroads Television System application to amend the licence of CITS-TV Burlington, in order to add transmitters at Ottawa and London to rebroadcast its programming.

34 Finally, representatives from Bea-Ver Communications will present their application to amend the licence of CKUE-FM. The applicant is proposing to add a transmitter at Windsor in order to increase local weekly programming from 42 to 84 hours and increase its contribution to the development of Canadian talent. It also wants to broadcast up to 85 per cent hits.

35 The hearing will continue until June 3rd. Please note that the Panel intends to sit Monday through Friday this week to deal with the applicants' presentations and questions. Next Monday and Tuesday we will deal with interventions and replies.

36 Each day will begin at 9:30 a.m., but may run as late as 8:00 p.m. We will notify you of any changes in this schedule as they arise.

37 We would ask you to please turn off your cell phones and beepers while you are in the hearing room, as they tend to be an unwelcome distraction for participants and Panel Members. We are counting on your cooperation in this regard throughout the hearing.

38 J'invite maintenant le secrétaire, monsieur Pierre LeBel, à vous expliquer la procédure que nous suivrons.

39 M. LeBel.

40 MR. LeBEL: Thank you, Mr. Chairman.

41 Before we begin, just a few housekeeping matters.

42 First, I would like to indicate that the Commission's examination room is located in the Papineau Room adjacent to the hearing room. Public files of the applications being considered at this hearing can be examined there.

43 Secondly, there is a verbatim transcript of this hearing being taken by the court reporter at the table to my right. If you have any questions about how to obtain all or part of this transcript, please approach the court reporter during a break for information.

44 Finally, if you have any messages that you would like us to take, we would be happy to post them outside the public examination room. The phone number in our public exam room is (819) 953-3168.

45 If you have any further questions, don't hesitate to contact me or the examination room officer and we will be more than pleased to assist you where we can.

46 As you have indicated, Mr. Chairman, we will hear all the appearing applications in the order they appear in the agenda. On Monday June 2nd and 3rd we will hear the appearing intervenors. How they appear in the agenda has been changed slightly from numbers 37 to 47. The revised order is posted in the examination room and at the rear of the hearing room. We will hear the replies from the interventors following the appearing interventions.

47 Now, Mr. Chairman, we will proceed with Item 1 on the agenda, which is an application by The National Broadcast Reading Service Incorporated to renew the licence of the English-language national audio programming undertaking known as "VoicePrint" expiring 31 August 2003.

48 The licensee proposed to amend its conditions of licence relating to its wholesale rate, by increasing the charge to distributors from a monthly wholesale rate of $0.01 to $0.04 per subscriber.

49 Appearing for the applicant, Mr. Paul Thiele and I will ask him to introduce his colleagues.

50 You have 20 minutes to make your presentation.

51 Thank you.

PRESENTATION / PRÉSENTATION

52 MR. THIELE: Good morning, Commissioners, bonjour mesdames et messieurs.

53 My name is Paul Thiele. I Chair the Board of Directors of the National Broadcast Reading Service, NBRS. We appreciate your invitation to appear and speak today. It is our first time before you since VoicePrint was originally licensed in 1990.

54 I will introduce our panel and then hand things over to President, Bob Trimbee. In addition to Bob from our staff, we have Heather Lusignan, Vice-President Administration; Arlene Patterson, General Executive responsible for VoicePrint, Outreach and Programming; and John Stubbs, Vice-President Operations.

55 We are pleased to have with us also our legal counsel and former Director, Stuart Robertson, and Jeff Vidler, a partner in Solutions Research Group who did the research included with the application.

56 Also here today is Eric Rothschild, a long-time and valued supporter of VoicePrint and our advisor on all things regulatory. Eric will lead our team in replies to your questions.

57 I am pleased that the management team has chosen this renewal as the opportunity to develop the plan to see VoicePrint make the changes required to fulfil the promise of what Canada's national reading service should be. On behalf of my fellow Canadians with vision-related disabilities, we all eagerly await your decision.

58 Bob.

59 MR. TRIMBEE: Thank you, Paul.

60 Commissioners, to begin I would like to tell you about our background and how we came to be here today. It is a truly remarkable story.

61 NBRS was established in 1990 specifically to launch VoicePrint.

62 VoicePrint is very different from any other Canadian broadcasting service. Consider our programming. We read daily newspapers and magazines for people who can't see. Virtually all of our programming is read by unpaid volunteers. And we are a registered not-for-profit charity.

63 VoicePrint operates 24 hours a day, seven days a week, 365 days a year. We have an eight hour program wheel that is repeated twice each day.

64 The VoicePrint program schedule is a unique combination of news, basic survival information and entertainment.

65 We read newspaper articles verbatim, in their entirety. In addition to newspapers, we read complete magazine articles. For entertainment, we broadcast programs like audio theatre, dramas produced for radio.

66 Our prime objective is to allow those with vision-related disabilities the opportunity to read their daily newspaper. We are a vehicle for them to stay connected to their community.

67 In B.C., Alberta, Manitoba and Ontario we operate regional bureaus. The focus is regional news and events. Regional programming is filed to Toronto where it is added to the program wheel.

68 Each day two hours of our eight hour program wheel are programs produced at the regional bureaus. This allows a VoicePrint listener who lives in Halifax to hear about what is happening in other parts of the country.

69 At Niagara Falls and Kingston, Ontario we have a pilot program to produce local programming. It includes local news, of course, but we also read the birth notices and obituaries. We read about upcoming community events. We even read flyers that tell listeners what is on sale at local drugstores and supermarkets.

70 We have a staff of 18 who work out of our four regional offices and our national broadcast centre at Toronto.

71 CBC Newsworld distributes our signal via satellite coast-to-coast free of charge. It also allows us to use its SAP channel to provide us with a common home channel.

72 Our staff is made up of administrators, program producers and technical operators.

73 As I mentioned earlier, volunteers read almost all of our programming. Each of our readers donates his or her time and voice to read the material that is VoicePrint. Our active list of volunteer readers includes more than 500 people, ranging from the famous, like Wendy Mesley, Alison Smith and Peter Mansbridge, to the unknown.

74 We rely on the generosity of organizations like CBC Newsworld and our volunteer readers to allow VoicePrint to operate on just $1.5 million a year.

75 Just three years ago VoicePrint was in dire straits. We ran out of funding. We laid off all staff. Yet VoicePrint stayed on the air. There was no interruption of service.

76 The main reason that we were able to maintain service was because our staff continued to come to work, even though we couldn't afford to pay them. That continued for the better part of a year. Their dedication to VoicePrint is truly extraordinary, and is appreciated.

77 Three years ago we asked you to approve a monthly wholesale pass-through fee of $0.01 for VoicePrint. We also asked you to require BDUs to distribute VoicePrint as the SAP of CBC Newsworld.

78 We would like to take this opportunity to thank you for approving both requests. It has made a world of difference. It is no exaggeration to say that without those approvals we wouldn't be here today before you. VoicePrint just would no longer exist.

79 MS LUSIGNAN: Our $0.01 pass-through fee generates between $750,000 and $800,000 dollars a year, or about half our current annual budget.

80 When we asked for the $0.01 pass-through we told you that we would look for other sources to provide the other 50 per cent of our funding. We have worked very hard at that. Our efforts have paid off in terms of finding grants, donations and media benefits.

81 VoicePrint is a major beneficiary of consolidation in the broadcasting industry. Broadcasters have been extremely generous in including us in their benefit packages. Media Benefits now provide us with 25 per cent of our annual budget.

82 Another 20 per cent of our revenues come from grants and donations. About half our donations are "in kind" rather than cash: newspapers donate subscriptions; CBC Newsworld donates satellite distribution and the use of its SAP.

83 In terms of cash donations, Ontario's Trillium Foundation is currently our single largest donor. It has given us a three-year grant to underwrite our Ontario-wide pilot Outreach Program.

84 Outreach is an essential element of reading services everywhere. It is something we all must do to reach our constituents.

85 I am pleased to report to you that our Outreach Program has been recognized by our peers, reading services from around the world. It has been voted top Outreach Program for 2002 by the International Association of Audio Information Services. They have honoured us for our outreach efforts in Northern Ontario.

86 Unfortunately, we have not had the same success in generating advertising revenues or from fee-for-service. Only 3.5 per cent of our current budget comes from advertising and contract work.

87 Put another way, 45 per cent of our revenues are dependent on the goodwill and generosity of others. We believe in volunteerism. It provides an important connection to the community at large. We are grateful for the financial support we receive from donors, but we believe Canada's national reading service, a service that you have described as being of national importance, plays too vital a role in the Canadian broadcasting system to be reliant on handouts.

88 In the three years since we applied for a $0.01 pass-through fee, we have come to realize that VoicePrint will never become financially self-sufficient through activities like advertising or fee-for-service. We have also come to the realization that the era of public benefit monies is rapidly drawing to a close.

89 We are here today seeking renewal of the VoicePrint licence for a seven year term. The one proposed amendment from our existing conditions of licence is our request for a higher pass-through fee. We are asking for a $0.04 monthly pass-through fee.

90 Four cents would provide us with the stable, predictable funding we need to allow Voiceprint to fulfil the promise of a national reading service. It would give us the funding we need to offer a more complete service that includes local, regional and national programming. It would also allow us to address access.

91 Even with $0.04 we will still need to look for other funding sources to handle increased operating costs, inflation, further enhance our programming, increase access and lessen our reliance on our the goodwill of others.

92 MS PATTERSON: To fulfil the promise of a national reading service requires both programming initiatives and access initiatives that we have proposed in our renewal application.

93 In terms of programming, for the past 13 years we have focused primarily on the relatively simple and inexpensive part, our national programming. In the past few years we have turned our attention to regional programs and experiments in local programming. In our renewal we propose to fully address the need for local and regional programming.

94 A national reading service should serve to help blind, low-vision and print-restricted Canadians to fully participate in their communities. Their ability to do this begins with being connected to the world immediately around them -- their community -- then their region, then to the nation and the world.

95 VoicePrint can play a vital role to providing blind, low-vision and print-restricted Canadians this connection.

96 In our renewal we propose to build Local Program Centres in communities across Canada. We plan to produce local programming in each of these communities, local programming that would be heard on VoicePrint across Canada. Local programming that would be enhanced by accessible local Web pages.

97 We propose to expand our regional programming. We propose to open a bureau in Halifax to act as a production centre for Atlantic Canada. We propose to add additional staff to allow us to double the daily output of regional programming from our existing regional bureaus.

98 Regional programming heard on VoicePrint across Canada would increase from two hours a day to five hours a day.

99 We propose to increase original daily programming by 50 per cent, from an eight hour wheel repeated twice to a 12 hour wheel that will be repeated once.

100 The research filed with the application confirms there is strong demand for local and regional programming, as well as our proposal to increase our daily programming.

101 Fulfilling the promise not only depends on programming. Access must be addressed to fulfil the promise of a national reading service. Access is contingent on awareness and the elimination of technical barriers.

102 One of our greatest challenges is to make blind, low-vision and print-restricted Canadians aware of our service. In our renewal we propose an ambitious Outreach Program designed to increase awareness of VoicePrint. You have to know about us if you are going to use us.

103 Research filed with the application shows the need for an outreach program. The research shows that many of the people we were licensed to serve don't know we exist. VoicePrint cannot provide them with a connection to their communities if they don't know we are here.

104 However, awareness is only one component of the access challenge. Their vision disabilities make it very difficult for blind, low-vision and print-restricted Canadians to access VoicePrint.

105 MR. STUBBS: We asked for distribution, as the SAP of CBC Newsworld, to provide us with a common home channel to make it easier for people to find us regardless of where they live in Canada. We have achieved that objective.

106 However, what we didn't foresee was that manufacturers would move away from a single button to activate the SAP. Many TVs and VCRs no longer include a button. Instead they rely on on-screen menus. This has created new barriers to access.

107 First, you need to navigate a remote control that isn't tactile or user friendly. Then you need to be able to follow the on-screen prompts. Tough to do when you can't see the screen. Simply adding audio prompts to the on-screen menu would make a world of difference.

108 The barriers aren't eliminated even once you activate the SAP.

109 Let's assume for a moment that you are a Voiceprint listener. You have been able to activate the SAP. There is a power failure. It wipes out the memory of your TV or VCR. What happens when the power comes back? You need a sighted person to reset the memory of your TV or VCR. Until you get that help, you are cut off.

110 There doesn't even need to be a power failure. A visit from your grandchildren can create the same problem. The kids change the channel to watch TV and forget to reactivate the SAP before they leave. You are cut off.

111 We understand these challenges. That is why we developed an inexpensive, one-button receiver that allows users to access the SAP channel at the press of a button. Our one-button SAP receivers eliminate any reliance on others to activate the SAP channel to access VoicePrint. Independent access. It is another vital element in fulfilling the promise.

112 MR. TRIMBEE: Commissioners, some say you should deny our proposed pass-through fee increase, that we need more incentive to sell advertising, generate contract revenue or raise funding elsewhere. Others suggest we should have to make do with an extra penny.

113 What is interesting is that no one challenges our research, research that clearly demonstrates the need and demand for what we propose amongst those Canadians VoicePrint was licensed to serve.

114 Nor does anyone challenge the research we commissioned to determine how customers would react to a $0.04 pass-through fee. Fifty-seven per cent of those surveyed supported the pass-through fee. Amongst those who are aware of Voiceprint, 70 per cent supported the $0.04 pass-through fee.

115 In deficiencies you asked why we feel it is appropriate to use pass-through fees to support what you described as non-broadcasting activities like the SAP receivers. In interventions it was suggested that it would be unreasonable to use pass-through fees to pay for SAP receivers that we would then give away free-of-charge.

116 With all due respect, we believe the Accessibility Program and the SAP receivers are broadcasting activities. In our view, the SAP receiver is a broadcasting receiving apparatus, one that makes it possible for our constituents to receive VoicePrint. The SAP receivers allow reception by the public, the public that you licensed us to serve.

117 In our view, our proposed Outreach and Accessibility Programs are key elements in providing Canadians with disabilities access to VoicePrint.

118 Each of our initiatives was developed to address the unique needs of our constituency. Each of our initiatives is based on experience and our knowledge of the needs of our constituents. That need was confirmed through research filed with the application.

119 The importance of our programming initiatives seems obvious. Local programming is the cornerstone of the Canadian broadcasting system. Adding a regional bureau at Halifax will allow VoicePrint programming to reflect every region of Canada. Increasing our original programming simply makes VoicePrint that much more useful to our constituents.

120 Our access initiatives are equally important. They are intended to ensure that those we are licensed to serve, those who we want to benefit from our expanded programming, know that we exist, and that they have ready access to the service.

121 In our view, the debate should not be about whether we should use the pass-through fees for one-button SAP receivers.

122 In our view, the bigger issue is how to provide access for 2.8 million blind, low-vision and print-restricted Canadians.

123 We can tell you that we have tried other solutions. We have tried using an 800 toll-free help line. But you can't talk callers through the on-screen menu when they can't see the screen.

124 We have tried working through the VON, Meals-on-Wheels and Welcome Wagon to get their people to activate the SAP when they make house calls. But there are just too many different systems and too many people to train.

125 Our proposed Accessibility Program and its SAP receivers is the best and most cost-effective solution we have found.

126 That said, if you decide it is inappropriate for us to use pass-through fees for our Accessibility Program, we still would ask you to give us the full pass-through fee increase so we can implement an alternative approach.

127 In our reply to deficiencies, as well as the comments of intervenors, we spoke to the possibility of mounting a community-by-community effort. In recent weeks we have refined an alternative approach to leverage off our proposed Local Program Centres. It is a programming-based alternative that would allow us to deal with access, awareness and programming on a local level.

128 We would be pleased to implement this programming and access alternative if the Commission feels that would be more appropriate than our proposed Accessibility Program. We hope you will give us an opportunity to discuss this alternative during questioning.

129 What we can tell you is that anything that we have considered would be at least as expensive as the proposed Accessibility Program. VoicePrint would still require $0.04 if we are going to begin to address the access issue during the renewal term.

130 Commissioners, we are not here to defend our proposal to give away SAP receivers. We are here to put forward the best ideas we have found to meet the needs of our constituents, the 2.8 million Canadians who are blind, low-vision or print-restricted.

131 VoicePrint is a true success story, in great measure thanks to the Commission and the support of Canadian broadcasters. We have accomplished great things during the past 13 years with very limited resources. But we should be doing much more to achieve the objectives the Broadcasting Act for Canada to remain a leader in addressing the needs of those with disabilities.

132 Now is the time to take VoicePrint to the next level. Fulfilling the promise of Canada's national reading service means expanding our programming and addressing the access issue.

133 We are asking for your help to achieve the full potential of the Canadian broadcasting system, to make it more accessible and useful to all Canadians. We believe approval of our renewal initiatives is clearly in the public interest.

134 In closing, I would like to thank the almost 1,400 people and organizations who took the time to file positive interventions in support of our renewal. Their interventions spoke to the importance of our initiatives. We thank them for making it clear that what we do is important for our constituents and is important for Canada.

135 Commissioners, thank you for your time and attention. We would now be pleased to answer any questions you might have.

136 I will ask Eric Rothschild to lead us in answering your questions.

137 THE CHAIRPERSON: Thank you very much, ladies and gentlemen.

138 Congratulations on an excellent service that you have provided to the visually impaired in Canada for the time you have been providing it.

139 We have read your application and we have read the interventions, so you will forgive me if I don't ask detailed questions about material that I think we are satisfied we have information on.

140 I am going to start by asking you a number of questions that actually key off your oral presentation this morning and then move from there into essentially the justification for your $0.04 proposal, the economic underpinnings of it and various alternatives.

141 I will give you an opportunity at the end to address any other comments that you feel may not have been addressed as fully as you would like.

142 First of all, in paragraph 10 of your presentation this morning you say:

143 How many paid staff do you have (a), and (b), how many paid staff would you envisage having if you were given the increase of $0.03 to $0.04?

144 MR. ROTHSCHILD: Commissioner, I will ask Health Lusignan to just confirm the details.

145 I believe that right now there are 18 paid full-time staff and I believe that with the pass-through fee, that increase, that would increase to 31.

146 Heather?

147 MS LUSIGNAN: That is correct.

148 THE CHAIRPERSON: You say:

149 Does a paid person only do it if a volunteer doesn't show up?

150 MR. ROTHSCHILD: I believe it says "Virtually" because occasionally staff read a PSA. I know I have heard the dulcet tones of Mr. Trimbee reading the application on VoicePrint recently.

151 Besides that, perhaps Arlene can tell us if there is any regular programming read by paid staff.

152 MS PATTERSON: You are correct. No, it is all read by volunteers.

153 THE CHAIRPERSON: Right. So paid staff does coordinating. What else, if you had to list the tasks?

154 MR. ROTHSCHILD: I will ask Arlene to take you through, but it is the administration and technical support and program production for VoicePrint.

155 Arlene?

156 MS PATTERSON: That is correct. Paid staff manage equipment, they manage operations, they are responsible for selecting the articles for broadcast, recruiting, auditioning, training, booking volunteers, recording sessions and managing the recording and broadcast logs.

157 THE CHAIRPERSON: How many unpaid volunteers would you estimate that you have now?

158 MR. ROTHSCHILD: We have over 500 unpaid volunteers lending their voices and time to VoicePrint in various capacities.

159 What is truly remarkable, Commissioner, in terms of the paid staff -- and I think some of the Commission staff have had a chance to tour VoicePrint, as have I, and it is quite remarkable to watch sighted people there sitting there reading the newspaper articles, but it is a blind technician running the board, actually doing the recording and preparing the feed to air. It is something that you just don't see that anywhere else but at VoicePrint.

160 So an awful lot of those paid staff are people with disabilities. Some have vision-related disabilities, some have others, and it is truly remarkable watching what they do.

161 THE CHAIRPERSON: Thank you.

162 Turning to paragraph 29, Heather Lusignan's presentation, you say:

163 In our distribution order 2000-1:

164 How does it get to the headend of the cable and who pays for that?

165 MR. ROTHSCHILD: Commissioner, the signal from VoicePrint goes from the broadcast centre in Leaside, which is in eastern Toronto, and it goes from there to the telsat teleport where it is put on one of the unused stereo channels of CBC Newsworld. They have a mono audio services, although it is a stereo signal, and the VoicePrint signal is inserted on one of those channels.

166 In terms of how it gets to the teleport, I will ask John Stubbs. I believe it is a telephone line.

167 MR. STUBBS: That is correct. We use Bell Canada hard-wired to the teleport on Leslie Spit, which is at the Lakeshore of Toronto.

168 MR. ROTHSCHILD: That is a leased line that VoicePrint pays for.

169 THE CHAIRPERSON: VoicePrint pays for that. Then who pays for the uplink?

170 MR. ROTHSCHILD: The uplinking is done along with CBC. CBC is paying for the satellite. The uplinking, the satellite time, all of that is absorbed by CBC Newsworld.

171 THE CHAIRPERSON: So the cost to NBRS is only the leased line to get the signal to the teleport.

172 MR. ROTHSCHILD: Correct.

173 THE CHAIRPERSON: Okay. Thank you.

174 Paragraph 70, this is in Mr. Trimbee's presentation, you say:

175 Your proposal, the sixth part of your proposal, the accessibility initiative, would see the one-button decoder go to some 34,500 people.

176 MR. ROTHSCHILD: Correct.

177 THE CHAIRPERSON: I'm trying to link up the numbers, 2.8 million and 34,500 as what you call the bigger issue.

178 MR. ROTHSCHILD: Commissioner, the SAP receivers and the Accessibility Program as part of the initiatives, the initiatives are an integrated package of programming initiatives and access initiatives. If you are saying "Well, how is it that we are not giving 2.8 million receivers away", we look at it and say that we want to prime the pump by beginning to provide blind and low-visioned Canadians with the tools they need to be able to receive VoicePrint at the press of a button.

179 We felt by targeting 5 per cent of the blind, low-visioned population -- there are roughly 665,000 blind, low-visioned Canadians and 2.2 million print-restricted Canadians, which is where the 2.8 million comes from, and we saw as an ambitious objective with our Accessibility Program was to provide receivers to 5 per cent of people who are blind and low-visioned and that that was a good starting point in beginning to provide unfettered access to the broadcasting system, particularly unfettered access to VoicePrint through these receivers.

180 THE CHAIRPERSON: How do you see these 34,500 devices rolling out? As I go across the line of the cost of that initiative, it appears to be front-loaded $1 million roughly in each of the first two years, declining to 800 in the next two, and then some 735 in the next two and 576. Does this correlate with the roll-out of those 34,500 receivers?

181 MR. ROTHSCHILD: Yes, it does. And you are right, it is front-loaded that we want to begin producing en masse and developing a stock of them and getting them out to people. We see that gradually diminishing over the course of the licence term.

182 THE CHAIRPERSON: Forgive me, but I'm noting somewhat of a contradiction between your previous statement which is begin with a 5 per cent and then presumably reach the rest of the 680-some blind and vision-impaired on the one hand and then a declining roll-out of just the 34,500.

183 I guess a supplementary question to that would be: Why would it stop there? Why would the cost requirement stop there? Presumably the more successful you are, the more people hear about it, the more you are going to need to distribute more. How are you going to defray the costs of that?

184 So two questions.

185 One, the trend of the roll-out seems the opposite to that.

186 Secondly, whatever the trend of the roll-out, how are you going to stop at 5 per cent and how are you going to fund any more?

187 MR. ROTHSCHILD: Commissioner, the roll-out allows us to reach 5 per cent over the course of the licence term. We felt that the demand would be greatest at the beginning as people first heard about this. As you say, by the end of the licence term we would still be in a position to be handing out a significant number. Half a million still allows us to be providing SAP receivers to people.

188 So I'm not sure I share your view of that being a contradiction. We see it as starting with a large number because we see a pent-up demand. We are hoping that as people hear about it they will contact us and we will be able to keep handing them out and hand them out beyond the end of the licence term and that we have sufficient funding there to do that. You see that in year seven.

189 In terms of the 5 per cent over time, hopefully we can reach even more than 5 per cent if the cost comes down. We are hoping that as we begin to produce these -- we have budgeted on $150 for the materials required to do it. That was based on buying them in small quantities. We are hoping that the cost will come down as they are produced in quantity.

190 We are hoping that manufacturers may see the opportunity. Until now they have never felt there was an opportunity to produce these, or a market for them -- we are doing the programming of the tactile hand-held remote ourselves -- that perhaps manufacturers will be inspired to begin producing them.

191 We are hoping there is an opportunity that at the local level people can begin to get grants to buy these for themselves. But it starts by priming the pump, by putting these devices out there and showing (a) that they are useful; (b) that there is a demand for them, and hopefully showing the manufacturers that there is a market if they produce them themselves.

192 THE CHAIRPERSON: Who is the manufacturer? It may be in there, but I can't recall.

193 MR. ROTHSCHILD: The equipment used in the SAP receiver package is actually off-the-shelf equipment that you can buy readily available at any retailer.

194 I will ask John Stubbs to take you through what is involved there.

195 The part that we bring to it is programming the actual hand-held receiver so that at one button it can activate the SAP.

196 John.

197 MR. STUBBS: What we have is an off-the-shelf VCR, a set of speakers and an instructional audio tape that we include -- it is a video tape, but there is no picture with it -- and a tactile remove control that we have programmed and modified specifically to aid a person to activate the SAP with the touch of a single button that we have actually elevated to help them navigate it.

198 This remote control comes with tactile buttons so that you can tell which channel. There is a "1" for the "1" and a "2" for the "2". It is surprising that most remote controls, you can't tell what is up and what is down or what button you are pressing. So this is very tactile and user-friendly.

199 THE CHAIRPERSON: Do you do that? You adapt those devices?

200 MR. STUBBS: Yes. Yes.

201 THE CHAIRPERSON: So I am trying to find the link between manufacturer's costs coming down, if you are buying off-the-shelf product, and the VCR, and you are adapting those yourselves.

202 MR. STUBBS: I just bought these one of. If we could buy them in larger quantities, then surely the price would go down.

203 THE CHAIRPERSON: Larger quantities of?

204 MR. STUBBS: Of the VCRs and the remote controls.

205 THE CHAIRPERSON: Have you gotten any indication of that from manufacturers or retailers or wholesalers?

206 MR. STUBBS: Not yet, no.

207 THE CHAIRPERSON: Are you not --

208 MR. ROTHSCHILD: Commissioner, I think that is important to note, is that what we have priced it on, and we have said we can do 34,500, based on what we are paying buying them at retail or on sale at Future Shop. Surely if we can get them in quantity and at a discount we will be able to reach even more and have even more of an impact. So that is what we are really envisioning. That is number one.

209 Number two, I think it is important, you are asking about the manufacturer. It really isn't much of a leap. The manufacturer is already making a tactile hand-held remote. Clearly the manufacturers have recognized that tactility and user-friendliness of a remote control is an issue.

210 I think anybody who has tried to figure out their remotes, it is often a challenge. I know Consumer's Union, when they rate VCRs and TV sets, they talk about the user-friendliness of the remote.

211 Here is a manufacturer available at Future Shop or Radio Shack that has begun to address this problem. How much of a leap is it for them to go the next step and begin to actually program it at the factory for it to be able to activate the SAP of their TV set or VCR? It really isn't much of a leap at all, but the truth -- but they are not thinking that way.

212 It isn't a large enough market, from their perspective, to have gotten that creative to think about it. We are hoping -- when I talk about priming the pump, it is to open the imagination of the manufacturers. It isn't a hardware change for them. It is simply going the next step to programming these things as they leave the factory to be able to do it so that people can buy them on the open market.

213 In terms of giving them away, we are hoping to give away 34,500 or more over the licence term. We will also be making them available for sale at cost so that those who can afford to buy them will be able to buy them through us or through the CNIB Web site as well.

214 We obviously realize that giving away -- the proposal to give away 34,500 doesn't solve the access problem. Commissioner. It is an important first step. It is to try to create some momentum among manufacturers, among people who give out grants to individuals to provide them with the funding if they can't afford to buy them themselves, but it has to start somewhere. Right now there is nothing out there for any blind, low-vision or print-restricted Canadian to turn to.

215 THE CHAIRPERSON: The costing out, though, of the Accessibility Program is based on giving them all out, is it not?

216 MR. ROTHSCHILD: The costing is based on giving away 34,500. The costing is based on buying the raw materials, the speakers, the VCRs and the tactile hand-held remote at retail. As I said before, if we can buy in quantity and get them at a lower price, then obviously we will be giving away more than 34,500.

217 The shipping cost is paid for by Canada Post. Blind, low-visioned Canadians, Canada Post will ship these to them free of charge.

218 THE CHAIRPERSON: So in your projections you haven't taken account of the pump priming element where purchase acquisition at lower cost and purchase kicks in. This is all straight giving away?

219 MR. ROTHSCHILD: This is based on giving away all of them, giving away 34,500 based on a cost of the equipment at $150 purchased at retail.

220 THE CHAIRPERSON: Are you not concerned, though, that you could, if demand increased, be faced with, say, double that amount, which would still only take you to 10 per cent? How would you finance that?

221 MR. ROTHSCHILD: Commissioner, the intention isn't to solve the entire problem. We could have put forward a pass-through fee suggesting that we should be able to reach 10 per cent or 100 per cent. We didn't feel that was appropriate. We felt it was appropriate to come forward with a proposal that began to address the problem and would begin to show that there are options, demonstrable options, and hopefully, as I said before, encourage manufacturers to get involved and to begin to demonstrate that there is a way to deal with the access issue beyond simply the on-screen menus.

222 THE CHAIRPERSON: Thank you.

223 Turning to paragraph 77 of your presentation, Mr. Trimbee, you spoke of a programming and access alternative and you wanted an opportunity to discuss this alternative during questioning. Here it is.

224 MR. ROTHSCHILD: Commissioner, as we prepared the application we have put in front of you a range of programming initiatives and access initiatives and the need for those initiatives, this integrated package of initiatives, with the demand. We could see it through the people that VoicePrint works with every day. We also confirmed it through the Research that Solutions Research Group produced for us. So we designed our initiatives to meet that need.

225 On the other hand, we believe that the SAP receivers are a very effective, cost-effective, efficient way of dealing with access. They provide one-button access. It doesn't matter if there is a power failure. It doesn't matter if someone comes and changes the channel. At the press of a button the person has independent access and they can reactivate the SAP.

226 On the other hand, we understand that there is some concern about the boxes. It has been raised by the Commission, it has been raised by intervenors, the appropriateness of giving away equipment paid for from pass-through fees.

227 In looking at that, and as we talked about in our reply to deficiencies and in our replies to the intervenors, we said: Look, there are other ways to deal with this. You can deal with access -- and we talked about it in the deficiencies as dealing with it on a community-by-community basis. We have tried that, for instance through the VON, and we have tried that through Meals on Wheels. We know you can address access that way.

228 We have looked at it and said: How could we deal with it? We see our local program centres as being an opportunity to deal with it on a community level. We see expanding the local program centres and redirecting the monies from the Access Program.

229 If you had a problem with the SAP receivers we could take those monies and redirect it to the local program centres, that would allow us to put part-time people in at least 50 of the local program centres. Those people would be responsible for organizing the local volunteers in these communities to produce the local programming.

230 These people would be responsible for doing outreach on a local level in each of these communities where we have a local program centre. So they would deal with community groups, the United Way, the local CNIB office, the Rotary Club, the Lion's Clubs, to make them aware of VoicePrint and the service that it can fulfil.

231 They would also be tasked with dealing with access. They would deal with the local BDU and provide a telephone number so that BDUs would know: Here is a local number for people to call when they want to find out about accessing VoicePrint.

232 They would even make house calls to people in the community. If someone couldn't activate the SAP, they could call the local VoicePrint office and someone would go to their home and actually activate the SAP. They would also, by the way, tell them that SAP receivers would be available for purchase through the CNIB Web site or the VoicePrint Web site at cost, the SAP receivers that we have been talking about to this point.

233 But the notion is, we need to address access. These people could be on the ground at the community level doing programming, doing awareness and providing access.

234 It still doesn't solve the problem when there is a power failure or someone changes the channel. They would have to go back. But we estimate if they could make at least a couple of house calls a week over the licence term, we could reach at least 35,000 households over the licence term, a similar number that we had anticipated with the SAP receivers.

235 So it is a programming-based alternative, Commissioner.

236 THE CHAIRPERSON: Thanks. That's clear.

237 In your financial assumptions you have assumed a 1 per cent annual increase to the base of DTH and cable subscribers. You did, however, in reply to interventions, accept a higher figure of, I think 2 per cent. I don't believe you submitted amended financials.

238 Am I right?

239 MR. ROTHSCHILD: Commissioner, we didn't submit amended financials, that is correct. We did accept that -- we had anticipated --

240 I will ask Heather Lusignan to fill in if I miss anything on this.

241 For the renewal application we had anticipated a 1 per cent year-over-year increase in cable and satellite subscribers?

242 MS LUSIGNAN: Yes, we did.

243 MR. ROTHSCHILD: That is what we filed. In various interventions, CCTA suggested it should be 2 per cent in years one and two and 1 per cent thereafter; Cogeco suggested 1.7 per cent. If we look at some of the various other renewal applications in front of you, we see a whole range of growth projections.

244 We looked at it and said "Well, we are prepared to live with what the CCTA is suggesting of 2 per cent, 2 per cent and 1 per cent thereafter. It doesn't seem unreasonable." They are the ones who should know, as opposed to us.

245 But what is important here is to understand where do we get our subscriber base from. Where did we come up with our subscriber base? Those figures come from the checks that the BDUs submit to us each month.

246 Correct, Heather?

247 MS LUSIGNAN: That is correct.

248 MR. ROTHSCHILD: So every month Heather adds up how many subscribers we have and that is how we know what our subscriber base is.

249 What is interesting is that when you look at where we were originally when we filed our application, those figures at the time that came from the BDUs, we were four to six months behind in remittances at the time.

250 MS LUSIGNAN: Yes, that is the case.

251 MR. ROTHSCHILD: We were sitting there with four to six month old information. We have seen now, as we get more current, that our subscriber base is a little higher than that. So that is why we feel comfortable with the type of subscriber base increase that the CCTA projects over the first couple of years. It is in line with what we are seeing.

252 THE CHAIRPERSON: Right. So your revenue totals should be read as increased by 1.8 million, so roughly 24 million of subscriber fees over the seven years and roughly $29 million total revenues.

253 Is that right?

254 MR. ROTHSCHILD: Commissioner, I'm not sure we have actually looked at it in terms of what it adds up to over the seven years.

255 The difference in the subscriber base and the growth rate adds about a quarter of a million dollars a year if we were given the full $0.04 increase.

256 We would expect to spend those additional monies on programming, primarily in the local program service.

257 THE CHAIRPERSON: Maybe you could check it at the break or at some point and get back, because you did submit, in paragraph 109 of your response here, your reply to the interventions, a very specific difference that you were prepared to accept of 1,834,317. I don't know how that -- I see where you are coming from on the quarter of a million, but it is more than that. The difference is as on that line in that paragraph, so I will direct you to that.

258 I am just simply going to assume that your financials as submitted with the rate increase should include that number added to the revenues unless you tell me differently.

259 MR. ROTHSCHILD: No, you are absolutely right, sir.

260 THE CHAIRPERSON: Right. Okay

261 MR. ROTHSCHILD: Those extra monies would be spent on programming.

262 THE CHAIRPERSON: Right.

263 I think this has been addressed both in your application and in the follow up, but essentially the idea of giving you a "home" on Newsworld's SAP that we have discussed was to make it more appealing to advertisers and yet since '99 your advertising revenues have declined considerably and you project them to continue on, as we see here, at a very modest level of $20,000 a year.

264 Could you address why you think the move to Newsworld didn't have the anticipated effect and why your advertising revenues are as modest as they are? You indicated, I think in your oral presentation, 3.5 per cent. I haven't done the math, but I'm sure that is right.

265 Could you elaborate on those?

266 MR. ROTHSCHILD: Commissioner, I'm going to ask Heather Lusignan to deal with the advertising revenues, but what I can tell you in terms of our current budget is that the budget this year is $20,000. They have achieved something on the order of about $11,000 in advertising revenues this year. That is why we feel that -- and compared to previous years that is actually a significant increase.

267 So we tried to develop, for renewal purposes, a budget that was realistic and achievable.

268 Heather.

269 MS LUSIGNAN: Yes. Actually, over the last few years we have had a great deal of difficulty in generating advertising fees. Part of the reason is we have actually in the past tried three different rep houses to help us out. Basically, media buyers do not see us as a good buy because of our sort of fragmented audience and the fact that we don't have BBMs and it is not necessarily a target audience that they wish to reach.

270 That is why we feel that the $20,000 that is presented is the budget is achievable -- is ambitious actually for us, but it also is achievable.

271 THE CHAIRPERSON: So you have exhausted those other remedies. You don't have ratings, rep houses find you too small to really take much of an interest in. Is that basically it?

272 MS LUSIGNAN: Yes, that is correct.

273 THE CHAIRPERSON: Contract work. What about that as a source of revenue?

274 MR. ROTHSCHILD: I will ask Heather to also address that one.

275 The fee-for-service work, the 3.5 per cent of the revenues is a combination of advertising revenues and fee-for-service. The fee-for-service actually has been more successful traditionally than the actual advertising work.

276 Perhaps you can tell us what is the fee-for-service work and who is commissioning it and what are we doing?

277 MS LUSIGNAN: Actually fee-for-service work is reading. So if you get your newspaper and you read an ad in there from the federal government about upcoming changes to legislation or other things that may impact your lifestyle or what the government is doing.

278 What we do is we do do some contract work for the government, that we will read those advertisements on-air so that our constituents, our target audience will also have that information. Otherwise a lot of times they aren't going to get that.

279 An example would be a couple of years ago there was a change in the GIC in terms of social security for seniors in terms if they wanted to apply for the supplement. We read what the government put in the newspapers on-air so people who were seniors who were listening to VoicePrint also would have that information.

280 THE CHAIRPERSON: Thank you.

281 MR. ROTHSCHILD: Commissioner, if I could just come back, you asked before for me to confirm what was in the reply to interventions in terms of the increased revenue over seven years and we have found the reference.

282 It is over the seven years about $1.8 million. I can confirm that.

283 THE CHAIRPERSON: Right. In regard to that, to subscriber revenues, as I cost out the total cost of your key initiatives I come up with a number of about $15.5 million. We have talked about the accessibility program which is the largest element of that of about $5.8 million and $15.5 million would be the total.

284 Is that correct, the total of the initiatives?

--- Pause

285 MR. ROTHSCHILD: That is about right, sir.

286 THE CHAIRPERSON: Then when I look at your financials with and without the increase and I subtract total operating expenses with the increase of 25.9 and without of 10.4, that is the same figure. One derives the $15 million that way as well?

287 So the first way was bottom up, pricing out each initiative, the second was subtracting total expenses with the increase minus total without and getting that same number.

288 Is that correct, Ms Lusignan?

289 By the way, does the CRTC ever place ads on your service?

290 MR. ROTHSCHILD: No it doesn't.

291 MS LUSIGNAN: Not so far.

292 THE CHAIRPERSON: It doesn't. There is a prospect.

293 MR. ROTHSCHILD: Your two ways of going bottom up and top down seem about right, sir.

294 THE CHAIRPERSON: I am going to ask you to do the painful process of prioritizing for me so that if you don't get your full $0.03 increase applied for what falls out among the initiatives and what remains.

295 If you could do that for me at the $0.01 and $0.02 levels I would appreciate it, in terms of increases.

296 MR. ROTHSCHILD: Commissioner, I am going to ask Bob Trimbee to speak to that question, but I think that the way we have approached it -- you asked us a very similar question in deficiencies. In our reply to you at the time and what we will tell you today is --

297 THE CHAIRPERSON: But I'm hoping you will have a better answer this time.

--- Laughter / Rires

298 MR. ROTHSCHILD: I'm not sure you will like the answer any better than you liked it, sir. I'm hoping it is a good answer, and it is the realistic answer, which is that the renewal initiatives are an integrated package. We have looked at it and said: We need to address programming. We need to improve our programming. We need to address access through an Outreach Program and through these SAP receivers.

299 What is the point of producing this much better programming if we don't address this problem with awareness, this low level of awareness among our listeners or among our constituency? What is the point of doing the better programming if people aren't aware of us or can't access the service?

300 Bob, perhaps you can explain how we would approach getting less than a full $0.03 increase?

301 MR. TRIMBEE: Commissioners, the exercise that you would ask us to go through now is really a complex one.

302 As Eric has said, the way we have crafted the initiatives to, in our mind, reach the full potential of a national broadcast reading service involves -- for example, if we took just one point, opening a bureau at Halifax. If you said, okay, we would not get the full increase we requested, how would we look at that particular question.

303 You may be able to address the staffing issue by hiring somebody on a part-time basis, but you have to pay rent for the office. You are not going to probably get that on a part-time basis. You are going to have telephone service, you are going to have other facilities in that in terms of organizing the volunteers and that. If it wasn't done on a full-time basis you would be faced now with new problems that would make the whole decision-making process extremely complex for ut.

304 At the same time, we would also have to consider how we would roll back services at the various bureaus, how we would roll back services at the local program centres. What communities would go without a program centre if necessary? What would we do in terms of the control at our national office to make those centres viable in its operation? What would happen to the Access Program, the SAP receiver program?

305 All those present new challenges in terms of what would be fair, what would be reasonable. How would we do it in a cost-effective, efficient way if we were faced with doing things less than the way we have outlined here which, when we put the process together, as Eric had said earlier, we looked at what were the initiatives that we needed to get to the basic point where we could fulfil the promise of the national reading service. We said then: Okay, what was the cost and what could we do in the various efforts.

306 So that was the approach we took. If we had to go now the reverse way, it would be very difficult for us to be Solomon-like and say which part of the baby would we keep.

307 THE CHAIRPERSON: I understand that. That is the whole exercise of prioritizing, you go through those painful decisions whenever you have to do that, when your resources aren't sufficient to achieve your objectives.

308 So rather than tell me all the considerations I have sort of been asking you for the results of that prioritization, if you can help us with it.

309 Because you say here:

310 You mention the integrated approach.

311 That is kind of a high risk strategy. It is a sort of all or nothing strategy that you are putting to us. I'm trying to offer you the possibility of telling us in detail what exactly your priorities would be, having made those painful decisions and balances and come up with answers.

312 That isn't to say that we won't be inclined to give you the full rate increase, but I think we want to know what goes more precisely than just saying it is a difficult decision that we will have to make.

313 MR. ROTHSCHILD: Commissioner, what we are saying to you is we understand the question and what we are telling you is we haven't sat here and said "Well, what do we do with $0.03, what do we" -- we know what we would do with the full increase and you know what would happen if there is no increase. If there is a $0.02 increase or a $0.01 increase, there will be a cutback of each of the initiatives.

314 When you have made the decision and you have told us how much it is, we will look at it and say: Okay, what can we do with $0.02? What can we do with $0.01? Our approach will be -- it is not a clear: Well, we only got a third of the increase so we are going to do a third of what we said, or we only got two-thirds of the increase so we are going to do two-thirds of what we said.

315 We will look at the increase, what we have, and we will try to implement each of the initiatives in a scaled-back form. That is what our approach would be. We would scale back to be able to live within the means that you provide us with.

316 We will still try to do local programming. We will still try to do our regional programming initiatives. We will still try to double or original programming. We will still try to do an Outreach Program. We will still try to do our Accessibility Program. But there will be fewer boxes or there will be fewer people working in outreach. We will make those decisions based on what it is you decide it is appropriate to give us.

317 THE CHAIRPERSON: But you have given us an alternative to the boxes and we have discussed that.

318 I guess the strategy is not only high risk in terms of all or nothing, but we count on licensees, who are the experts in what they are doing, to give us the guidance to be able to not simply arbitrarily say "Well, you haven't helped us so cut out your local initiatives".

319 We would feel very uncomfortable doing something like that, so we need your guidance and I'm afraid you are not giving me much guidance, other than on the alternative to the boxes.

320 MR. ROTHSCHILD: I would suggest, Commissioner, we think we are giving you guidance and the guidance is that each of these initiatives in some form is needed to fulfil the promise of a national reading service.

321 When the parliamentary subcommittee in 1988 spoke to the need for a national reading service, the Parliamentary Subcommittee on the Status of People with Disabilities said that there should be a national reading service with a strong local programming element. When the Commission encouraged applications for a national reading service it said that it thought it was in the public interest and a matter of national importance.

322 NBRS came forward with an application for VoicePrint and you licensed it and you said that you thought that the licensing of this service and "La Magnétothèque" for Québec would provide ready access to vital reading services into the broadcasting system.

323 We are here sharing with you the experience of 13 years of trying to meet the needs of people with vision disabilities and saying to you these are all of the areas that our experience and our research tells us work should be done in.

324 There needs to be more local programming. There needs to be better regional programming. It isn't appropriate that there are regional bureaus in the west but there isn't one for Atlantic Canada. There should be more national programming so that people have access to the information that we are providing.

325 That is the guidance we are giving you, Commissioner. We are saying here is a game plan to begin to address all of these different issues and that awareness that -- the research shows you that a very small percentage of those with vision disabilities are aware that the service exists. When you do tell them about it, they become very interested in the service.

326 I am going to ask Jeff Vidler to talk to you about that.

327 But my point, Commissioner, is, when you say "What guidance are we giving you", the guidance we are giving you is that what this service should have to more forward and fulfil the promise is a $0.03 increase.

328 We are telling you also that the initiatives should be implemented on a scaled back form if you decide that it isn't warranted.

329 It isn't a matter of saying: Well, you will do this part, but not that part. That is the guidance we are giving you.

330 We are telling you that it is a lot more complicated than just saying: We will give you $0.02 and you won't have the money to do your boxes. We are saying we think that you have to address access and you have to address programming.

331 Jeff, perhaps you could talk to us, if the Commissioner would like to hear, about the awareness level among the blind, low-vision audience.

332 MR. VIDLER: Thank you, Eric.

333 Research showed that both awareness and access were really huge issues with the blind, low-vision target.

334 We sent out 1,400 surveys randomly selected from the CNIB client database. Of the responses we got back, only 39 per cent of the constituency within the CNIB client database, the blind, low-vision target, as we called them, were aware of VoicePrint prior to the survey being conducted.

335 Twenty per cent, or half of those people, had listened -- actually a little bit more than half had actually listened to the service, but only 39 per cent were aware.

336 In fact, those who weren't aware of the service were every bit as interested in the service once they were told a little bit about it in the survey as those who were aware of the service.

337 So if we assume that roughly half of those aware of the service would listen to it, and if we could take that 39 per cent awareness level, move that up to virtually 100 per cent awareness, increased usage of VoicePrint within that constituency would increase by as much as 250 per cent.

338 But beyond awareness, the other side of the access issue is the actual physical access of the channel. Looking at the data there as well, there is a huge difference. In fact, the biggest driver of usage, regular usage, usage in the past week, is ease of access.

339 An enormous difference between those in blind, low-vision target who felt that -- the past week users of the service, 63 per cent said they found the service easy to access. They were already accessing it. They had listened in the past week.

340 Of those who had listened to it in the past but not in the past week, whether they had listened a year or more ago, only 13 per cent of them found it very easy to access.

341 So the difference between those two groups -- and even bigger driver than interest in the service itself was the issue of access.

342 So those two things combined really tied together to suggest the need for outreach and the need for this access issue to be addressed through SAP receivers or through other approaches.

343 THE CHAIRPERSON: Thank you.

344 MR. ROTHSCHILD: Commissioner, the interventions spoke eloquently to this as well. I have a couple in front of me that spoke to the awareness and the outreach issue.

345 One from Harman Van Bergen(ph) in Saskatoon who talked about losing his eyesight five years ago and:

346 Or Ron Aziz who wrote to us from Waterloo. He is a Distinguished Professor Emeritus of Physics. He said he:

347 However, he couldn't find VoicePrint in Kitchener. He said:

348 The person hadn't heard of it at Rogers.

349 Clearly there is an awareness issue, an awareness issue among our constituency, an awareness issue among BDUs as well, in the staff level of BDUs.

350 It speaks to the need for the initiatives that we are putting forward.

351 So when you ask us "Make it easy. How would you make the cuts?", what we can tell you is it will be that we will look across the board and see how much we can do in the different areas to maximize the effectiveness of what it is you give us.

352 We think that the service requires $0.04 to fulfil the promise. If you decide that it should only have $0.03, we will do the best to maximize its effectiveness and to meet these needs on $0.03.

353 I think that the 13-year history of VoicePrint is a history of doing the best it can with whatever resources were available. I think that is the confidence you can take away, Commissioner, is that that is what they have done for the last 13 years and that is what they will do going forward.

354 THE CHAIRPERSON: Okay. I think I have your position.

355 By the way, I didn't say "Make it easy". I know it is not easy to do that exercise and I wouldn't have thought that I would have prefaced any question saying that.

356 I think I have your position on this.

357 Let me move to another area, which is the area of -- you say in your reply to the interventions at paragraphs 18, 19, and so on, about your national counterparts in Japan, Australia, U.S. and indeed in Québec, receiving public monies. Here of course you are asking for subscriber monies.

358 Could you comment on why public monies wouldn't be available to you here the way they seem to be in other jurisdictions?

359 MR. ROTHSCHILD: Commissioner, I am going to ask Bob Trimbee, who is the one who has actually over the last 13 years made the calls, made the visits and written the letters looking for funding at the federal level, the provincial level, the municipal level.

360 Bob, perhaps you can talk to us about who you have spoken to in terms of trying to get ongoing funding for VoicePrint over the last 13 years.

361 MR. TRIMBEE: Commissioners, at the outset when VoicePrint was established in fact the position that was outlined was that there should be some secured funding on an ongoing basis was really the policy and our seed money in fact was supposed to be the start of that. Unfortunately, the launch of VoicePrint coincided with an extremely steep recession and many programs were cut back and certainly the federal funding for VoicePrint came to an end.

362 Since that time we have approached individual departments for funding on an ongoing basis for our operations and have not been able to come up with a program. Departments like the former Communications Department, Industry, HRDC.

363 We then looked at the provincial possibilities. The difficulty we faced there was the fact that provincial governments were extremely reluctant to fund a national organization.

364 So then we turned our attention and our focus onto private foundations. Unfortunately, most private foundations really are not in the business of funding operational activities. VoicePrint, being a unique service, very few had sort of contemplated the possibility of providing our service.

365 We have, from time to time, been able to get small grants for a specific activity, for example in the original creation of the SAP receiver Industry Canada provided us with a $25,000 grant to put a prototype together to prove out the fact that that could be done.

366 We have gotten funding from various foundations in terms of $2,000 to $5,000, that type of range, for specific projects.

367 But, for example, in approaching the United Way, being a national organization as a local organization meant that we were not eligible to apply for funding.

368 One thing that Eric mentioned earlier, if there was an over demand of certain things perhaps some local organization for the SAP receivers could use that because they are a local organization and could do it, but our organization, on the basis that we are nationally incorporated, just would not qualify for that.

369 THE CHAIRPERSON: Thank you.

370 Again, we may return to this at reply stage, but I wanted to give you an opportunity at this stage to comment on Appendix 1 to the CCTA's intervention where they set out a number of different assumptions, just for the record to make sure we have this clear.

371 I know we have your reply and, as I say, you will be able to deliver that more fully.

372 Do you have that?

--- Pause

373 MR. ROTHSCHILD: Yes we do, Commissioner.

374 THE CHAIRPERSON: Right. So if you go through the subscriber numbers, I take it you accept the CCTA's revised subscriber numbers, based on our previous discussion?

375 MR. ROTHSCHILD: Commissioner, no we don't accept the CCTA's revised subscriber number and we did speak to that in our reply.

376 As I mentioned before, we can only go by subscribers based on the checks that we receive from the BDUs each month. We add up -- as I have said before, Heather adds them up and tells us how many subscribers we have.

377 We don't come up with anything near what they are suggesting as a subscriber base. It is a mystery to us how they came up with a subscriber base that was almost a million more than what we filed with.

378 What we did say was the figures that became available after we filed the application, several months later as BDUs brought their accounts up-to-date and filed the remittance, was that we had a base as of the end of August 2002 of 6.7 million.

379 Roughly, Heather?

380 MS LUSIGNAN: Yes.

381 THE CHAIRPERSON: Okay. Forgive me for interrupting you --

382 MR. ROTHSCHILD: So we do not accept the CCTA's financials.

383 THE CHAIRPERSON: No, I understand that. Okay.

384 If you have nothing to add to your reply, then I have read that and we will proceed on that basis. I thought there might be certain changes flowing from our earlier discussion, but if your reply is where it is at, then I have read that and we will give you an opportunity to address that orally and I won't take your time to go through this now.

385 Those are all my questions for the moment.

386 Thank you very much.

387 Colleagues? Commissioner Grauer.

388 COMMISSIONER GRAUER: Commissioner Colville can go first.

389 THE CHAIRPERSON: Commissioner Colville.

390 COMMISSIONER COLVILLE: It's day one, we will get it straight.

391 Just a quick question. I guess it is following up on this advertising versus awareness question.

392 With a potential market of 2.8 million people I guess I'm curious to know, when you mentioned earlier that it is not a target audience for the advertisers, but on the other hand a very small percentage are aware of the service, I guess I'm kind of curious to know that assuming your wildest dreams were achieved and you achieved all of these awareness targets and you were successful in reaching all or most of the 2.8 people, would this then become somewhat more attractive to advertisers?

393 MR. ROTHSCHILD: Commissioner, our feeling is the $20,000 a year that we projected for advertising revenues per year over the course of the licence term was based on the assumption that we would, through our outreach efforts, increase awareness. In other words, we think it is contingent on increasing awareness and increasing use of the service.

394 But the issue of what will it take to convince advertisers to spent money on VoicePrint, the real issue is being able to provide the media buyers with the type of audience data and the cost per thousands and the type of information that they are used to seeing.

395 The problem has been, and will be on a going-forward basis, that a service like this isn't measured by BBM. It isn't measured by Nielsen. Media buyers are sitting there looking at the type of data that they have in front of them for all other types of broadcasting services and they are saying there is nothing to support the decision to spend some of their media buy on VoicePrint. That is what we have experienced in the three different rep houses who have worked for VoicePrint over the last few years keep encountering that.

396 The best I can say is it is a concept buy and one will try to go in and say that there is this audience, they are aware, but to try to think that you will become part of a traditional media buy, we don't believe it is going to happen.

397 COMMISSIONER COLVILLE: I wasn't thinking so much of traditional media buy as would there be a substantial increase in advertising if you were able to deliver in excess of two million listeners?

398 MR. ROTHSCHILD: I'm not sure how we would be able to prove to people that we were delivering in excess of two million listeners. We can make the audience more aware. The question is: How do you measure when and who is listening? We haven't come up with a solution to that yet.

399 We plan to do, on a going-forward basis out of the renewal, more research to have a better sense of how many people are listening, but it won't be in the traditional form that we can say to an advertiser "We have two million listeners".

400 COMMISSIONER COLVILLE: Okay. Thank you, Mr. Rothschild.

401 Mr. Chairman.

402 THE CHAIRPERSON: Commissioner Grauer.

403 COMMISSIONER GRAUER: I have a couple of questions.

404 First, I am assuming that a lot of visually impaired people listen to radio and, with the advent of new services, Newsworld, news services on TV as well. I'm wondering the extent to which you have explored the use of PSAs in terms of building awareness on the specialty services, radio and whatnot?

405 MR. ROTHSCHILD: I'm going to ask Bob Trimbee what type of work we have done in that area so far. I know that PSAs have been produced and I think Bob could tell you about that. Certainly it is an avenue that we would see exploring.

406 Bob.

407 MR. TRIMBEE: Commissioner, we have, with the help of broadcasters, developed both video and radio PSAs. Video PSAs have been carried by many BDUs in spots that they are allowed to promote local services and it has had an effect in terms of relatives of persons who are vision-impaired calling us and asking us how they can get the service and what do they need.

408 Currently, with the help of Standard Radio, a series of radio PSAs involving our staff are being produced and will be shortly broadcast on all Standard radio stations across the country. As well, they will give us a copy so that we can include them in VoicePrint ourselves.

409 But the traditional way of attracting the target audience that we are most interested in serving really is, for us, a sale through their relatives and those who are sighted and passing along that way, because the traditional radio, TV and print ads just don't work in our case.

410 COMMISSIONER GRAUER: Just so I'm clear, the advent of a lot of new services and other services which maybe would be equally accessible, for instance Newsworld or NewsNet, these services I would think would be quite accessible to visually impaired people. Am I mistaken in that?

411 MR. ROTHSCHILD: No, the services are accessible to them in the sense that they can hear what is being said. But if you are suggesting -- I'm not sure --

412 COMMISSIONER GRAUER: What I guess I'm suggesting is that this would be a service that a visually impaired person would tune to. They wouldn't only turn to VoicePrint. They would take advantage of some of these services which provide news and information for one thing.

413 MR. ROTHSCHILD: That's true, but I would say that VoicePrint complements what these services do.

414 I think it is important to remember what the programming is. Those are all terrific services and provide an important role. A national reading service is intended to read the newspaper.

415 I get up every morning and I read three daily newspapers. The only way you can get that if you have a vision disability is to listen to VoicePrint where you are hearing the articles verbatim out of those newspapers as the national programming. That is the difference.

416 COMMISSIONER GRAUER: I'm sorry. What I meant was as a complementary source of information to promote VoicePrint and build awareness. That is really what I was thinking of.

417 Once other quick question.

418 It occurred to me that with the advent of digital and the growing penetration of digital boxes -- I have a digital box and it has raised numbers for my channel selection -- is it not possible to that this could replace the delivery of the service on the secondary audio program and that it could get its own channel on digital?

419 MR. ROTHSCHILD: On digital services like Bell ExpressVu or Star Choice -- VoicePrint is a discrete audio service. It isn't carried as the SAP of CBC Newsworld because they don't have an SAP in that type of a digital environment.

420 The issue with them is that the user-friendliness of the actual remote control, I seem to remember some rather colourful language from Mr. Stubbs in referring to the Bell ExpressVu remote control in spite of having sight and the fact that it perhaps would be difficult for our constituency.

421 John.

422 MR. STUBBS: The problem is they tend not to be tactile. In a range of remotes that I have on the table here, even finding where the power button is, whether it is on the top left or the top right, or where the menu button is is very complex to try to find out.

423 On the ExpressVu, it is a fine service, but to actually locate the channel and navigate to that channel, there is no aides on the remote control to help you with that.

424 MR. ROTHSCHILD: But to come back to your other part in terms of in a digital environment could VoicePrint then no longer be on the SAP and be as a discrete channel, I believe the answer to that is yes.

425 The question is: When will that penetration be achieved. I think there is a question in terms of: When will it be achieved and will this constituency be able to afford the boxes? Let's not forget that VoicePrint users are all cable or satellite subscribers. They are already paying for basic cable or the basic satellite package. But in the case of cable -- in the case of can they afford to go the next step to the digital boxes, there is a premium involved there and will they be able to afford it?

426 The research that Mr. Vidler did for us showed that the median household income for this constituency is significantly less than the median household income. The average Canadian household income I think is about $50,000 and for this constituency is about $30,000.

427 Can a digital box provide them with a discrete channel? I think it can. Would that eliminate the need to be on an SAP? It probably could. But the question is: Can they afford the box and when will that penetration level get there?

428 COMMISSIONER GRAUER: Thank you.

429 THE CHAIRPERSON: Commissioner Pennefather.

430 COMMISSIONER PENNEFATHER: Thank you, Mr. Chairman.

431 I just wanted to ask a couple of short questions about the local program centres.

432 I gather from your application there is about 100 you intend to establish?

433 MR. ROTHSCHILD: That is correct, Commissioner Pennefather.

434 COMMISSIONER PENNEFATHER: Now, what exactly are the local program centres going to be doing?

435 MR. ROTHSCHILD: Commissioner, the local program centres -- I will ask Arlene Patterson to speak to this and perhaps she can use our pilot programs in Kingston and Niagara Falls to tell you about the programming.

436 I assume your question is what is the programming that they are going to produce?

437 COMMISSIONER PENNEFATHER: I see a little technical problem here so we will have to work on my microphone after.

438 Actually, I would like to focus the answer on the accessibility role of the local program centre.

439 You said earlier in your presentation that part of your alternative plan is to use the program centres as another form of raising awareness. How exactly are they going to do that and why do you need 100 program centres to do that?

440 MR. ROTHSCHILD: The expanded local program centres, which would be if you felt it was inappropriate for us to be spending money on the SAP receivers, we would take that money and redirect it to the local program centres.

441 In the original vision of the local program centres we would use those to have volunteers produce local programs reading the local newspaper.

442 In the expanded role of the local program centre, as opposed to being directed by staff from Toronto who would be overseeing the local effort, we would have paid staff working in these communities on a part-time basis. They would organize the local volunteers and they would work with community groups like the Lion's Club, the Rotary Club, service groups and volunteer groups to make them aware that VoicePrint exists.

443 Then on the access level, specifically in terms of access, first of all, they would make sure that the local BDU -- and I read from that intervention from someone in Kitchener -- the local BDU, they would make contact and say: Here is our phone number. Here is our local number to call us and direct calls to us if there is a problem, if someone wants information or has a problem with VoicePrint.

444 We also see them making house calls. If you call and you are a blind or a low-vision individual and you can't activate the SAP, the person would make a house call and look at your TV and do the activation for you and explain it to you and tell you more about VoicePrint and tell you things like about the one-button SAP receiver you could buy.

445 COMMISSIONER PENNEFATHER: There are 100. How many per year would be established?

446 MR. ROTHSCHILD: We are envisioning establishing 100 local program centres. We are envisioning with the expanded local program centre initiative that we could staff at least 50 of them with part-time employees -- we worked that on a budget of about $12,500 a year per centre -- and we would have support staff for them in Toronto managing the process.

447 COMMISSIONER PENNEFATHER: You say the programming part would be heard across the country and available across the country. So that local reading would become part of the national program. Is that how it works?

448 MR. ROTHSCHILD: Commissioner, the local programming would be heard in the national feed. We envision it at the outset as being an hour a day of the national feed. We are hoping over the course of the licence term that that would expand to two hours a day of local programs.

449 What we are envisioning is, for a working title we called it "Cross Canada Community Check Up" -- and we are hoping the CBC doesn't take us to task for stealing that title -- but the notion is that people would hear one or two articles being read from different communities across the country and that would be assembled into a one-hour show each day. So if you were in Prince George and the local paper was read there, the top story out of the local paper in Prince George might appear in that day's edition of "Cross Canada Community Check Up" that everybody across Canada would hear.

450 But at the same time, there are probably eight or 10 local stories in the Prince George paper that would also be downloaded to Toronto where they would be put onto a local Web site for Prince George. So you would have two options, one, you would hear the top story as part of "Cross Canada Community Check Up", you would be able to go onto a local Web page, if you had access to the Internet, and be able to hear eight or 10 programs, all the different stories that had been read from the Prince George paper that day and posted to that Web site. So that would enhance what we were doing.

451 COMMISSIONER PENNEFATHER: In fact I was going to ask your paragraph 43 of the presentation refers to "local programming enhanced by accessible local Web pages". That is what you are referring to, listening to the reading on the Web as well?

452 MR. ROTHSCHILD: That is correct.

453 I will ask John Stubbs to talk a little bit about what it means to be an accessible Web site.

454 COMMISSIONER PENNEFATHER: Accessible, yes.

455 MR. ROTHSCHILD: But as I'm saying, what would happen is that these eight or 10 stories that might be read from the local paper would be packaged and posted to a Web site. Some of it would appear in the actual audio feed on the SAP as well.

456 John, explain an accessible Web site.

457 MR. STUBBS: Accessible is you lower the use of graphics, because the more graphics you use the harder it is to navigate. So having text elements and pointers that help text to speech software that most blind computer users use, you need to isolate the elements so that it is easy for them to access the different points of the Web page.

458 MR. ROTHSCHILD: Paul Thiele, the Chair of the Board, is an Internet user.

459 I'm wondering how you make use of the Internet, Paul.

460 MR. THIELE: Mostly through dedicated software that costs about $2,400-$2,500. It is software that literally makes all of the Internet information -- turns it into speech, also that finds the various links that pronounces icons, that deals with the problem that John has just outlined.

461 It is software that is complicated. It is called "JAWS" and it requires a great deal of learning, which I am still doing at this point. But it does allow a slow and meticulous approach to virtually everything that is represented on the Internet, with the exception of graphics. Graphics simply cannot be interpreted.

462 So the accessibility of a Web site for blind, vision-impaired and otherwise disabled persons, it really consists of a text-based system.

463 MR. ROTHSCHILD: So with the local Web pages, Commissioner, what we envision, as John said and as Paul talked about, there would be a minimal use of graphics and it would be easy for a user to navigate to activate. These are audio stories that will be read to them as an audio file off of the Web page. So they would be able to easily identify the stories that are there and hear the stories being read to them. So it eliminates the text and graphics part.

464 COMMISSIONER PENNEFATHER: Thank you very much.

465 Thank you, Mr. Chairman.

--- Pause

466 THE CHAIRPERSON: Further to your discussion with Commissioner Pennefather on the details of your alternative proposal, just so that we have it clear, if you look at Attachment 1 to your application it consists of your operating statement of revenues and expenses going forward.

467 Do you have that, Ms Lusignan?

468 MR. ROTHSCHILD: Yes, sir.

469 THE CHAIRPERSON: So I assume that under the alternative proposal, if we look at "06" under "Expense Accessibility Program", those expenses would be redirected to the lines 04-05 and above?

470 MR. ROTHSCHILD: That's right, Commissioner. If you just took year one, the $1,086,000 and moved it up a line to the $820,405 and added it to the $10,300, that is what we would be doing.

471 THE CHAIRPERSON: I was wondering about that, because that seems to overwhelm your budget for -- it makes it 100 times larger. I was wondering whether you didn't really intend to distribute it among the other categories as well, increased regional program. You mentioned outreach I think as well, so there wouldn't be a straight add on to what was a very modest expense but rather distributed among the other lines.

472 Is that fair?

473 MR. ROTHSCHILD: Commissioner, what we would do is develop an operating budget for the local program centres to allow us to put the staff in place. We envision that a large segment of that $1 million will be absorbed in staffing up to 50 of the LPCs. Expanding the role of the LPC they will take a higher operating budget.

474 Will it be the full $1 million in year one? Probably not. But over the course of the licence term all of those monies intended in line 06 would get absorbed in the local program centres.

475 THE CHAIRPERSON: Okay. I will take that as your answer. If you want to file a revised attachment before the end of the week you can feel free to do that, otherwise I will take your answer as you have given it here.

476 MR. ROTHSCHILD: We would be happy to put together a little more detail to show you exactly how we would redistribute those monies, Commissioner.

477 THE CHAIRPERSON: Thank you very much.

478 Counsel.

479 MR. WILSON: Thank you, Mr. Chairman. I just have two brief questions.

480 In your discussion with the Chairman with respect to the distribution of the SAP receivers you had mentioned the 34,500 which you would give away. I believe you also mentioned that you wanted to make available to those who could afford to buy them the ability to purchase them at cost.

481 My question is: What criteria do you plan to use to select who will receive one the SAPs, the 34,500 that you are planning to give away?

482 MR. ROTHSCHILD: I'm going to ask Bob Trimbee to respond to that, but in the main it would be on a first-come first-served basis.

483 Bob, is there anything you wanted to add to that?

484 MR. TRIMBEE: The distribution of the SAP receivers will be on a first-come first-served basis.

485 What we will use is that the requester will be asked to provide an eye practitioner's certificate saying that they have less vision than the legal definition of blindness.

486 We have been talking to the CNIB and they have client cards where people already are self-identified and CNIB is quite prepared to cooperate and also to help us with the awareness campaign. A CNIB client card would be satisfactory evidence that the person would qualify to get a free SAP receiver.

487 MR. WILSON: Thank you.

488 I just have one further question and this goes to the issue with respect to advertising.

489 I had understood from the discussion your answer that you feel you have exhausted the various possibilities in terms of developing advertising.

490 I guess my question is, though: The move onto the Newsworld SAP, has that had an impact, either positive or negative, on your ability to solicit advertising?

491 MR. ROTHSCHILD: I'm going to ask -- I guess I will ask Heather what have we seen in the last couple of years with our advertising.

492 We do know, the research indicated to us that there seems to have been some attrition since we moved to CBC Newsworld in terms of ability to access us. Jeff Vidler I think spoke to that previously. But I'm not sure if there is a correlation in terms of our ability --

493 Has our advertising revenue increased or decreased in the last couple of years, Heather?

494 MS LUSIGNAN: Actually, our advertising has sort of stayed pretty static over the last few years. We have had some program sponsorship revenue, but even that doesn't cover the cost of producing the program.

495 So basically no, advertising has been very little.

496 MR. WILSON: I have no further questions, Mr. Chairman.

497 THE CHAIRPERSON: Thank you very much. Thank you very much, ladies and gentlemen, for your presentation.

498 We will take a break now for 15 minutes. Nous reprendrons dans 15 minutes.

--- Upon recessing at 1117 / Suspension à 1117

--- Upon resuming at 1137 / Reprise à 1137

499 THE CHAIRPERSON: A l'ordre, s'il vous plaît. Order, please.

500 Mr. Secretary, would you please call the next item.

501 MR. LeBEL: Thank you, Mr. Chairman.

502 We will now hear the application by CHUM Limited to renew the licence of the national English-language specialty television service known as MuchMoreMusic expiring 31 August 2003.

503 The licensee proposes to amend its nature of service definition by replacing condition of licence 1(c) with the following:

504 A minimum of 65 per cent of the broadcast week shall be devoted to the exhibition of programming featuring music videos clips Category 8(b).

505 Appearing for the applicant, Mr. Jay Switzer and I will ask him to introduce his colleagues.

506 You have 20 minutes to make your presentation.

PRESENTATION / PRÉSENTATION

507 MR. SWITZER: Thank you and good morning, Mr. Chair, Madame Vice-Chair, Mr. Vice-Chair, Commissioners.

508 I am Jay Switzer, President and CEO of CHUM Limited. Before beginning our presentation, I would like to take this opportunity to briefly introduce our panel.

509 To my immediate left is David Kines, Vice-President and General Manager of MuchMusic, MuchMoreMusic, MuchLOUD, MuchVibe and MuchMoreRetro.

510 Seated to David's left is Sarah Crawford, Vice-President, Public Affairs.

511 To my immediate right is Peter Miller, Vice-President, Planning and Regulatory Affairs.

512 Seated to Peter's right is Stephen Tapp, Executive Vice-President, Television.

513 Behind me and in the back row, on the far left, your right, is Neil Staite, Director of Music Operations for our music channels.

514 Next to Neil is Sheila Sullivan, Director of Music Programming for our music channels.

515 Seated beside Sheila is Allan Schwebel, Vice-President Affiliate Sales and Marketing for CHUM Television.

516 To Allan's right is Peter Palframan, Vice-President, Finance and Administration.

517 Beside Peter is another David, Mr. David Kirkwood, Executive Vice-President, Sales and Marketing.

518 On the end, beside David is CHUM Television!s Director of Sales and Administration, Dave Caporicci.

519 Seated at the side table today are Bernie Finkelstein, the Chair of VideoFACT and PromoFACT and President of True North Records, Canada's oldest independent recording company.

520 With him, Beverley McKee who is the Program Director of VideoFACT and PromoFACT.

521 Finally, I would like to point out that with us today in the front row of the audience, the Vice-Chair of CHUM Limited, Mr. Ron Waters.

522 We are pleased to be here today to present MuchMoreMusic's licence renewal application.

523 When CHUM appeared before the Commission almost exactly seven years ago to present our proposal for an Adult Contemporary music video channel, we had lofty goals.

524 First, we thought the service could fill a void in the Canadian broadcasting landscape.

525 Second, we believed the service would make a significant contribution to the Canadian music industry.

526 And third, we envisioned a service that would reflect and celebrate music from all of Canada's regions and peoples.

527 As numerous written intervenors have pointed out, MuchMoreMusic has not only met these goals but exceeded them.

528 MuchMoreMusic was one of 22 English and French-language specialty television services licensed by the Commission in 1996. Since launching, many of these services, including CHUM's Space: The Imagination Station, have experienced tremendous growth and success.

529 As we celebrate such successes, it is almost easy to forget the significant difficulties that a number of the services had to overcome just to launch.

530 Of the five English-language licences CHUM was awarded in 1996, only Space was able to launch as part of the so-called third tier in October 1997. CablePulse24 launched almost six months later, knowing we could only get analog carriage in exchange for significant subscriber rate concessions. This had a dramatic impact on the service's revenues and, to date, the service has not achieved profitability.

531 MuchMoreMusic itself launched a full year after the majority of the 1996 services, again in exchange for considerable concessions. In order to secure carriage for MuchMoreMusic, CHUM had to defer launch of Star! and Canadian Learning Television until September 1999 and agree to distribution only on a hybrid analog/digital basis. As a result, Star! and CLT did not have the benefit of the same broad-based distribution.

532 Today, the 1996 services are an important part of Canada's television landscape, contributing significantly to the funding and exhibition of Canadian programming. As these services now reach maturity they do, nevertheless, face a set of challenges that will limit their potential growth and future success.

533 First, despite the best efforts by the industry, the Commission and the courts, specialty services and BDUs continue to suffer due to grey and black market satellite, with an estimated 700,000 Canadian households effectively disconnected from the Canadian broadcasting system. Absent stronger laws and enforcement measures, there is every indication that this number will continue to grow.

534 Second, the increasing number of Canadian and foreign programming options available in the system is accelerating the fragmentation of audiences and revenues. Many of the new digital services will reach a critical mass over the next seven years, and start to draw significant audiences and advertising revenues.

535 Also troubling are U.S. services that have become more directly competitive with Canadian specialty services. TNN morphed three years ago from The Nashville Network to The New TNN, a superstation-like service, offering a broad range of mainstream programming, much of it already carried by Canadian stations. It is now poised to rebrand itself again as Spike and broadcast even more movies and action and science fiction, the type of programs that many Canadian specialty services rely upon, including Space.

536 Third, uncertainty still exists concerning what rules will govern the migration of analog specialty services to digital. As and when the distribution environment moves from mainly "tier" carriage to a more self-select approach, there will need to be considerable discussion on the effect these developments will have on the revenues of Canadian services and their ability to meet Canadian programming commitments.

537 Fourth, new technologies such as PVR's, Video on Demand and streaming video over the Internet could have a profound effect on consumer viewing and spending patterns.

538 Finally, we would be remiss if we did not comment on the applications the CCTA and Shea Chez have filed with the Commission to use commercial breaks in U.S. programming services to sell advertising in Canada. We trust that the Commission will reject these applications, given the dramatic impact they could have on Canadian specialty services.

539 Even the CCTA's more limited proposal to use local avails "two minutes per hour" would result in $20 to $30 million being taken from the specialty advertising pie. It would also result in the loss of a vital cross-promotional tool for Canadian services that was introduced in an effort to counterbalance the impact of adding these foreign services to the eligible list.

540 Given the pressure these competitive forces place on both subscriber rates and penetration, we see little, if any, opportunity for real growth in subscription revenues.

541 In addition, the advertising environment is becoming increasingly fragmented. As a result, we anticipate much more modest annual advertising growth over the next licence term, with double-digit annual revenue increases a thing of the past.

542 MR. KINES: Despite these challenges, over the course of its next licence term MuchMoreMusic will continue to play a vital role in the Canadian television and music landscape.

543 Designed to serve the generation of Canadians that grew up, and out of, MuchMusic, every day MuchMoreMusic brings fans across the country the best in adult contemporary music videos, exclusive original programming, including top specials from both Canada and abroad, music news, information, movies and documentaries. Uniquely styled for Canadians with a passion for great music on television, MuchMoreMusic has grown to serve over six million households from coast-to-coast.

544 From the numerous supporting interventions MuchMoreMusic received from labels, artists and other key players in the music industry, it is evident that Much has made a significant contribution to Canadian music by providing valuable exposure to Canadian artists, exposure that has translated directly into CD and concert ticket sales.

545 At MuchMoreMusic, we treat our Canadian music video exhibition requirements as a floor, not a ceiling. Our condition of licence calls for 30 per cent music video Canadian content, but in fact we aired more than 33 per cent over the course of our licence.

546 If one were to apply the radio definition of a Canadian song to our overall playlist, MuchMoreMusic would have achieved a Cancon level of more than 38 per cent.

547 Canadian artists are celebrated on MuchMoreMusic, regardless of whether or not their videos qualify as Cancon. For example, in our current licence term 37 Canadians made it to number one on our countdown chart, while only 21 of them had videos that qualified as Canadian content.

548 MuchMoreMusic also takes pride in developing new artists and playing new releases first. We will often add a video before there is any radio airplay or retail sales. Since launch we have featured and broadcast over 100 Canadian independent artists in regular rotation.

549 Supporting artists and helping develop new talent has been a cornerstone of CHUM's music television services. In conjunction with its launch in 1984, MuchMusic created and funded VideoFACT, a fund dedicated to increasing the number and quality of music videos produced in Canada. Many prominent Canadian artists received funding from VideoFACT early in their careers before going on to national and international success. As noted in her supporting intervention, Victoria's own Juno and Grammy award winner and international success story, Nelly Furtado was one such artist.

550 With the launch of MuchMoreMusic in 1998, VideoFACT expanded its mandate with the creation of PromoFACT. PromoFACT provides funding for Canadian artists, independent record labels and management companies to produce electronic press kits and Web sites, expanding the range of tools they can use to promote Canadian talent, both here and abroad.

551 To date, VideoFACT has awarded almost $26 million to the production of over 2,400 projects. MuchMoreMusic's contributions to date total almost $1.8 million, with over $700,000 dollars of that being specifically allocated to more than 225 PromoFACT-funded projects.

552 MS CRAWFORD: MuchMoreMusic has always reflected the cultural diversity and expression found in all of Canada's regions and peoples, promoting and covering events and artists across the country. MuchMoreMusic takes advantage of east and west coast bureaus, the resources of CHUM Television's conventional stations across the country and sister stations Musique Plus and MusiMax in Montreal. Stringers in Alberta, Saskatchewan, Manitoba and the Maritimes also contribute to the diverse mix of stories on the channel.

553 True to CHUM's 30-year history of leadership in the area of inclusion, equitable representation and public responsibility, MuchMoreMusic is committed to reflecting its diverse audience, both on and off the screen.

554 CHUM was the first broadcaster in the country to put our commitment to diversity in writing. We voluntarily created the CHUM Television Cultural Diversity Best Practices, a document that codifies the successful practices developed at CHUM over the years and articulates the core values that MuchMoreMusic follows.

555 The CHUM Television Cultural Diversity Action Plan that was filed last year with the Commission describes our approach to implement, monitor the success of, and achieve the goals and objectives of our Best Practices statement.

556 CHUM is also an active participant on the Task Force for Cultural Diversity.

557 CHUM has always believed that cultural diversity is the mainstream. As a matter of course, MuchMoreMusic's regular daily programming consistently mirrors the diversity of its audience.

558 MR. SWITZER: Although MuchMoreMusic and the specialty industry will face a number of challenges going forward, we remain firmly optimistic about the future of the Canadian broadcasting system and MuchMoreMusic's role within it.

559 One of the reasons we applied for this licence was because Canadian adult contemporary artists were not getting enough exposure on music video services in Canada and we saw the need for a service to fill this niche. In the last five years, MuchMoreMusic has featured numerous adult contemporary artists on the service, many of whom have gone on to national and international success.

560 As we embark on our next licence term, we remain committed to helping Canadian artists fulfil their dreams of duplicating the achievements of stars like Shania Twain, The BareNaked Ladies, Deborah Cox and Diana Krall.

561 In addition to promoting Canadian artists on MuchMoreMusic, we will continue to give direct financial support to developing artists. As MuchMoreMusic becomes more successful, our contribution to VideoFACT and PromoFACT increases proportionately. MuchMoreMusic will contribute over $4 million to VideoFACT and PromoFACT during the next licence term, more than double what the service contributed over the last five years.

562 We are looking forward to the next seven years as MuchMoreMusic continues to both grow and mature and make a lasting contribution to the Canadian broadcasting system.

563 That concludes our opening remarks and we of course are pleased to respond to any questions you may have.

564 THE CHAIRPERSON: Thank you very much.

565 Commissioner Wylie.

566 COMMISSIONER WYLIE: Thank you.

567 Good morning, Mr. Switzer and your colleagues. I have a number of questions.

568 The first one is a more sophisticated or standardized condition of licence for your nature of service. You were licensed in 1996 and the Commission has become more sophisticated since in defining its conditions of licence. Of course it has become more important as we license more and more services.

569 You were asked, in a deficiency question at number two, whether you would accept an addition to your nature of service condition of licence that would describe the service as:

570 Do you have that?

571 MR. SWITZER: We do, Madam Vice-Chair.

572 COMMISSIONER WYLIE: You have agreed, but very reluctantly, that maybe this could be done if the goal was to standardize the condition, but mentioned in your response that it may have unintentional consequences.

573 I would like to ask you what those would likely be.

574 MR. MILLER: Vice-Chair Wylie, it is really just out of an abundance of caution that we note that while we can't see any problems with this definition we would hate to discover two years down the road that somehow inadvertently it limited us in a way we hadn't anticipated. So it is really no more than the normal fear of change and being concerned that perhaps something inadvertent happen.

575 But as we looked at it and as we noted in our deficiency response, assuming, as you have indicated in your question, that this is now a standard practice that the Commission wants to go forward with, we would accept it.

576 COMMISSIONER WYLIE: So you haven't thought of anything, but you are worried that maybe we will.

577 MR. MILLER: That is correct.

578 COMMISSIONER WYLIE: I like the idea that I am more imaginative than you, Mr. Miller.

579 MR. MILLER: It couldn't be any other way.

--- Laughter / Rires

580 COMMISSIONER WYLIE: The net result of this, then, would be that we would add this description and Part B of your current condition of licence would remain.

581 It uses the word "music-related":

582 We don't have a definition of "music-related", but we do have yours in Much, which you may recall is:

583 Would it be acceptable to you to add the description we just looked as well as your definition of "music-related" to the current condition of licence for nature of service?

584 MR. MILLER: The definition of "music-related" in the MuchMusic licence is a very restricted definition.

585 Again, given that there haven't been any complaints or any problems with the general language of "music-related" in our current licence, we would prefer that it remain the same.

586 COMMISSIONER WYLIE: You mean that it be absent.

587 MR. MILLER: Precise. That the term "music-related" be undefined.

588 In the alternative, what we could do between now and reply is have another look at it because there are, as the Commission is aware, some other definitions out there. If it was the will of the Commission to put something more specific there we might look at some other examples.

589 COMMISSIONER WYLIE: What do you find -- I forget the word you used -- limiting or restricted when it is about the music or recording industries, about musical artists, about concerts and musical performances, about compositions or about events? What is restrictive in that?

590 MR. MILLER: Again, we haven't had a chance to --

591 COMMISSIONER WYLIE: You can think about it and let me know later on.

592 MR. MILLER: Absolutely.

593 COMMISSIONER WYLIE: If so, propose a less restrictive one, which we may or may not like.

594 Another matter as well is there are no categories of service identified or listed which has become more common. Would you agree that the net result right now is that you are able to draw from any?

595 MR. MILLER: That is correct.

596 COMMISSIONER WYLIE: That would include games shows.

597 MR. MILLER: Yes.

598 COMMISSIONER WYLIE: Which seems to be a popular addition for some of the applicants.

599 All of that, of course, would be restricted by those definitions as well as the music-related one.

600 MR. MILLER: Correct.

601 COMMISSIONER WYLIE: Which of course we like to not be too broad so that you don't get outside of the adult music programming.

602 So you see what we would have then, we would have what is there as a condition of licence with a definition of "music-related" and then the description that you agreed to.

603 Your suggestion then would be that you would have a listing of all categories, except perhaps filler programming, 15?

604 MR. MILLER: Given the Commission's normal practice in respect of filler programming, then yes.

605 COMMISSIONER WYLIE: Well, we also have become more sophisticated on that. I used to be assigned the job of telling everybody in 1996 "You can't have Category 15" and now we say if you ask for Category 15 you have to justify. But you don't think you can justify.

606 MR. MILLER: We haven't found a need for it.

607 COMMISSIONER WYLIE: Or that there is a limitation you can always categorize under the other categories.

608 Other than that, in your application you say that you are applying to have your licence renewed on the same terms and conditions, but you add -- I think it is in your application at 1.6 -- that these proposals were made without the benefit on the decision on CHUM's complaint regarding MTV Canada.

609 Also in your supplementary brief at page 5, that you would:

610 You repeated that in your presentation this morning.

611 Is that a reference to the extent to which the one per genre policy is followed?

612 MR. MILLER: That is correct.

613 COMMISSIONER WYLIE: You also have, in your revenue assumptions and so on, again a reference to the current environment, et cetera. Considering that the MTV decision is out, were your revenue projections and commitments at the moment based on the licensing that has occurred and the Commission decision on MTV and you have taken the regime or the landscape as it exists at the moment and it is only the future decisions by us or actions by others that would cause you to have a different view of your assumption?

614 MR. SWITZER: Madam Vice-Chair, as we stated, we didn't have that decision in front of us when we filed this material, but the Connect/MTV decision did provide us with comfort that we were seeking and our plans, proposals and financials are in appropriate shape out of that.

615 COMMISSIONER WYLIE: That would also be true of the licensing regime as it exists now, the licences that the Commission has issued and the services that are on the eligible list?

616 MR. SWITZER: Yes, there is --

617 COMMISSIONER WYLIE: It is only the future you are worried about?

618 MR. SWITZER: We are worried about several things. One of them would also, of course, be implementation that would result out of your decision. But broadly speaking, yes, we are comforted.

619 COMMISSIONER WYLIE: Since we have raised this issue of the one per genre policy it would be interesting to ask you if in an increasingly competitive environment if it still remains something that is appropriate, necessary, required for the system to implement the objectives of the Act and afford a reasonable regime for those who operate within it to fulfil their commitments?

620 MR. MILLER: We think it remains all of those things that you mentioned. It is a vital policy framework that ensures diversity and ensures that services within their niche can contribute most fully appropriate to that niche. So we are one of the strongest, I believe, supporters of the one per genre policy.

621 COMMISSIONER WYLIE: Do you think that in certain categories of services for example its application should be more relaxed, for example music, sports, as the system develops?

622 As you know, we have many applicants who have applied to add categories and there is the perennial discussion of whether it moves them away from their service. You have given us a list of all the "Much's" becoming more and more refined. Would that make it difficult for you to arrive at definitions and for us to accept them and still keep the one per genre policy quite applicable just as readily to those services that are in a genre that keeps rarefying itself, such as music?

623 MR. SWITZER: I can begin, Madam Vice-Chair.

624 We are strong believers, as Peter Miller suggested, in the one per genre in that it sets our a groundwork structure, a framework for channels to remain specialized. This is specialty television and we believe the system is better served with unique, targeted niche individual channels that all together provide tremendous diversity.

625 When that gets blurred, when changes are made and channels can become many things to many people, we fear that the rush to the centre, if you will, the potential for blurring or smudging will create in fact more sameness. It is why for the most part we have not in any of our applications asked for fundamental changes or the rights to in any major way do anything differently than we have in the past. We remain big believers in specialty television.

626 COMMISSIONER WYLIE: I would take it that you would continue resisting such relaxation on the part of others?

627 MR. SWITZER: Yes.

628 COMMISSIONER WYLIE: So you are not prepared to discuss what would be the principles that would lead to relaxation, for example whether the system has been operating for a while, the service has been operating for a while, or not, which raises integrity of the licensing process, whether it is a service's ability to sustain competition, whether the genre is very strong in the market.

629 Those you would not see as excuses or criteria for saying: Well, you don't really have to be severe because the market is operating quite well in allowing everybody to develop his or her niche?

630 MR. SWITZER: We agree there are many factors as the business matures and changes, as young channels become more mature. There are all kinds of factors that are affecting many of the stakeholders here.

631 The only thing perhaps we could see, and share some common vision on perhaps, pertains to Canadian drama. We have spent quite a bit of time internally talking about the appropriateness or not of some relaxation in areas of Canadian drama, particularly new Canadian drama for Canadian specialty channels that are seeking to expand and do more. We share the view perhaps that there might be or should be more freedom and opportunities there.

632 That is probably the only thing we can agree with in terms of balancing all the things that we are facing.

633 COMMISSIONER WYLIE: Considering that is not really your forte I wasn't going to ask you detailed questions about how you would see that operating, but since you raised it I will.

634 So you would support more permissiveness in moving away from the nature of service condition of licence and the categories in the drama area, and you said new drama in particular.

635 MR. SWITZER: The reference was to Canadian drama, yes, Madam Vive-Chair.

636 These are important large issues that we would be happy to participate in broader policy discussions. This is a great opportunity to start. We are not trying to shy away from answering any questions you may have on any subject.

637 It is probably the first thing that we would acknowledge perhaps that the time, from a policy point of view, may be appropriate to review some of the conditions, not only on our channels but on other channels, in terms of an option basis, on a voluntary basis for those specialty channels that may wish to contribute and commission or produce new Canadian drama, that they be given, with some protections and limits, some right to do that.

638 We have not made that in any way a fundamental part of our proposals here, but we acknowledge there is value in some of the proposals we have heard and read from others.

639 It raises other questions, there are implications of course, but we think that is certainly the right direction.

640 COMMISSIONER WYLIE: Would you, in this case, for example if you decided to apply as well, that it would remain limited to the nature of service condition, which in your case --

641 MR. SWITZER: Absolutely.

642 COMMISSIONER WYLIE: -- would have to be music-related, and presumably adult music-related. So mostly Canadian and still limited by the nature of service condition.

643 MR. SWITZER: Correct. We have the ability on most of our services.

644 COMMISSIONER WYLIE: Yes.

645 MR. SWITZER: I don't want to get the exact condition of licence, but on our Star! service we have very difficult -- I'm sorry "difficult" is the wrong word. We have conditions of licence that limit our use of drama on Star!. If there were an opening up or encouraging a voluntary opportunity for channels to produce or Commission more Canadian drama, that as long as it was related to the genre -- and that adjective is a requirement from our point of view -- that a channel like Star! or perhaps a channel like TSN or even Home and Garden, if it was related to the genre and they volunteered and chose to commission or produce a drama, that that would not be discouraged.

646 COMMISSIONER WYLIE: But at the moment, considering that you can draw from all categories, presumably as long as you had music-related in the amount of programming that isn't music videos you could do drama at the moment.

647 MR. SWITZER: Yes, and that is why I say it doesn't --

648 COMMISSIONER WYLIE: And presumably you could do non-Canadian drama at the moment.

649 MR. SWITZER: Yes.

650 COMMISSIONER WYLIE: So you would like that changed to Canadian only?

651 MR. SWITZER: No. The question was what changes would we like to see perhaps from a policy point of view in terms of flexibility for many specialty operators.

652 While we perhaps have different opinions and disagree on many things, the one thing we do agree on in terms of increased flexibility, as long as it is genre-specific, is perhaps an opening up of --

653 COMMISSIONER WYLIE: But you would see any change to be one that enlarges your ability rather than reduces it.

654 MR. SWITZER: Yes, and perhaps it would be not a change to anything existing but a comma and an addition with flexibility for those who may wish to rise to that challenge.

655 COMMISSIONER WYLIE: So the way I see it, you wouldn't have much room to apply for that if it weren't to be restrictive.

656 MR. SWITZER: Perhaps not on MuchMoreMusic, but with other channels, yes.

657 COMMISSIONER WYLIE: Mr. Miller appears worried. Yes?

658 MR. MILLER: I'm not worried, I was just thinking through the logical consequence of the discussion we are having. I guess you raised a couple of related issues that I think are germane to this discussion.

659 One is integrity of the licensing process and the other is the contribution of the services.

660 I guess, first of all, we are a big believer in the competitive process that results in licenses being awarded. Given that competitive process, those who succeed should retain and stick to their commitments and their limitations.

661 Secondly, the balancing act that the Commission uses to determine what are appropriate contributions given the genre is something that is embedded in the licences themselves.

662 So a relaxation of the one per genre policy calls into question the contributions that the services have, it calls into question the competitive licensing process. So we find it hard to see, strictly separately from the issue of diversity and whatnot, how that would be either beneficial to the broadcasting system or appropriate.

663 So that is really the sort of philosophical underpinning to our view.

664 COMMISSIONER WYLIE: But the bottom line is that except for the definition of "music-related", the addition of description and possibly listing all the categories but 15, you are applying on the same terms and conditions at the moment for a seven year term?

665 MR. MILLER: That is correct.

666 COMMISSIONER WYLIE: Now, your revenue assumptions are based -- I look at Appendix 5D where you have financial assumptions. At the bottom of the first page under "Subscriber Fees" you state that your projected average penetration rates, and therefore your revenues, are:

667 Do you have any indication that such renewals will not be available on similar terms and conditions?

668 MR. MILLER: There is no doubt in our mind that the process of orderly renewals and obtaining affiliation agreements is becoming more and more difficult. A number of BDUs allow agreements to lapse and don't actively pursue renegotiation. There have been incidents where BDUs, through acquisitions and changes in ownership, have chosen not to honour previous affiliation agreements. So it is becoming more and more difficult.

669 I guess for us, we feel slightly less concerned because we believe our services have very good value for money. We tend to have lower subscription fees than many other specialty services so we are cautiously optimistic that we can continue to at least maintain existing levels. But as we outlined in our opening statement, we certainly don't expect to do any more than just that.

670 COMMISSIONER WYLIE: As you know, there are a number of applications that are asking the Commission to increase their fees, and no doubt before the end of this hearing we will hear that some fees should be decreased.

671 Is your regulated subscriber fee still relevant to your negotiations on discretionary tiers?

672 MR. MILLER: It is in that, first of all, a number of our services do have carriage on basic and therefore do receive the regulated rate. But the rate is also an important benchmark in terms of discussions, in terms of establishing what would be an appropriate tier or discretionary rate.

673 So we do agree and believe that it remains a relevant rate, but obviously it isn't precisely determinative.

674 COMMISSIONER WYLIE: As you know, and I indicated, there are I think four applicants asking for rate increases. Without focusing on these particular applications and the reasons they are giving for a wholesale rate, but taking into consideration the idea of raising them, or perhaps of reducing them, what, in your view, should the Commission use as criteria for establishing these rates either upward or downward or for settling disputes that may come before it regarding wholesale rates when negotiations are ongoing and not coming to a satisfactory conclusions?

675 MR. SWITZER: Madam Vice-Chair, perhaps I will begin.

676 We have been impressed with the vigilance of the Commission in the last few years over its careful analysis of every single rate increase.

677 We have not filed for any increases for any of our services. It is not our place to challenge or suggest what is or isn't appropriate for some of our fellow broadcasters.

678 But from a strength of the industry point of view in terms of price and value, in terms of expanding the distribution of the digital environment, in terms of the health of our system, we believe you should continue to be very vigilant in asking many questions of those who are asking for increases.

679 In general we believe, perhaps broadly speaking, this is not the time in our system to be pushing rates. There is lots we have to review. There are lots of problems facing both the distributors and the channel providers and price, particularly those that are at the high end and trying to get even higher, will be a major issue.

680 You must understand the service here today, MuchMoreMusic, is a $0.03 service. Most of our tier rates perhaps are in the $0.05 or $0.06. It is not as though we don't covet $0.40, $0.50, $0.60, or even $1.00 or think that the channel isn't worth it. In fact, the ratings that we are able to generate, the value, the numbers of viewers we are able to get per penny of subscriber rate is perhaps the highest or second or third highest in the entire industry.

681 So we have always believed that the less a channel can rely upon the regulated side of its business, the more it can rely on its relationship with viewers, the larger the share of total revenues are from advertising, the less of a burden it is to the system, the more market-driven it is, and ultimately the viewers will decide what services succeed and fail.

682 We encourage the system to continue to move towards a larger share of revenues coming from advertising as being ultimately the best way to grow and build Canadian services.

683 COMMISSIONER WYLIE: That will be more true in the digital environment I suppose. Right now on an analog basis in a tier the subscriber doesn't know whether you are getting $0.03 or you are getting $0.35, does it. You pay for a tier and you have a certain number of services in it.

684 MR. SWITZER: Of course. As we as an industry face the challenge of migrating from analog to digital, there will be more tools at our disposal and more tools in the distributor's toolbag with services that are high quality, innovative, creative, but lower priced than those which are higher priced and will cause that transition to be more problematic.

685 COMMISSIONER WYLIE: When it becomes more obvious to the subscriber you will have been trained already to charge $0.03. Is that your point? Because it is not relevant at the moment.

686 MR. SWITZER: It puts us in a more creative and flexible situation to handle the transition, yes.

687 COMMISSIONER WYLIE: In your assumptions I was looking at with you a minute ago, you give a breakdown of the base of subscribers into "analog", "digital", "DTH" and "Other".

688 What is in "Other"? Is it MDS?

689 MR. MILLER: That is correct.

690 COMMISSIONER WYLIE: This is the number of subscribers that you would have on MDS.

691 MR. SCHWEBEL: It would be wireless and telco. MMDS, wireless and telco.

692 COMMISSIONER WYLIE: I will now discuss with you your Canadian exhibition requirement for music videos.

693 So your service is a 60/50 Canadian content but with 30 per cent of all music videos per week to be Canadian.

694 Not surprisingly, the Commission, being imaginative, has asked you at Question 5 of the deficiencies, why not increase it to 35 per cent as in radio. You have given us a number of reasons why not. Also the fact that some numbers or songs that fit the radio definition of Cancon doesn't in the case of music video.

695 You have also talked about a shrinking supply of music videos and that it has shrunk by more than 5 per cent over the last four years on the chart that you have given us in the supplementary brief at page 10.

696 Why is it that supply has shrunk to that extent?

697 MR. SWITZER: Madam Vice-Chair, perhaps David Kines, the General Manager of the channel, could begin. There are important differences between radio and television of course and he can touch on the supply issue as well.

698 MR. KINES: There are a few factors.

699 I think the first one is the shrinking music business in Canada and around the world. Canada leads the world for high speed Internet penetration and CD burners and, consequently, has been somewhat of the canary in the coal mine for the music industry when it comes to piracy downloading.

700 The music business in Canada has shrunk 10 per cent a year for the last three or four years. Last year it is estimated 900 million songs were illegally downloaded without compensation, an estimated loss of about $1 billion to the Canadian music industry. So overall we have a substantially shrinking business that supplies the music videos to our channel.

701 The result of their financial challenges is they are signing fewer artists, they are taking fewer chances, they are waiting longer to make music video. They will wait until it really is climbing up the charts before they will rush out and make a music video.

702 So that is the primary reason for the shrinking supply.

703 The second reason I would give would be the competition for entertainment. Music videos no longer are the sole marketing -- the extremely popular marketing tool that they used to be. That is why we expanded VideoFACT to EPKs and Web sites, because there are other ways to reach consumers. So music videos aren't the only thing out there that artists and record companies are using to reach the public.

704 COMMISSIONER WYLIE: In that table that you supplied at page 10 of your supplementary brief, why is it so uneven? If I look at the line "Cancon Videos Excluding VideoFACT", for example between '98 and '99 is a drop from 405 to 364. How do these occur? What causes these? There appears to be fairly major or significant differences one year to the other.

705 MR. KINES: I couldn't give you any specific reason why there would be some variation year to year, other than that obviously, as you can see, it is overall a downward trend.

706 Possibly one of them -- I'm trying to remember when CMT was launched, but we stopped getting country videos, or had a diminished supply of country videos. But that is about the only other factor, other than the overall health of the industry and people watching their budgets. But I can't explain exactly why it is varying year to year.

707 COMMISSIONER WYLIE: These videos here, are they all music videos or only the ones that are suitable for this particular service? It's a total?

708 MR. KINES: These are everything that comes into our library.

709 COMMISSIONER WYLIE: What is the percentage of those that would be suitable for your particular service, this particular service, MuchMoreMusic? What would be the ballpark percentage that would be suitable?

710 What I'm trying to get at is, is this particular genre, adult music videos, having more difficulty or is it across the board?

711 MR. KINES: First of all, with respect to how we define a MuchMusic video versus a MuchMoreMusic video, that is a topic of great debate and discussion every single week in the Music Committee.

712 COMMISSIONER WYLIE: Let's not start that here.

713 MR. KINES: No. Trust me.

--- Laughter / Rires

714 MR. KINES: Although you might end up with a nice stack of free CDs on your desk.

715 COMMISSIONER WYLIE: You may end up with a problem with your one per genre philosophy.

--- Laughter / Rires

716 MR. KINES: Anyway, it is a topic of much discussion. People want us to play a song on Much and not MuchMore or vice versa. So it is difficult to categorize the library.

717 Overall, perhaps one way to look at it, a different way to look at it, it was VideoFACT. Most of their awards go to MuchMusic-type videos, not MuchMoreMusic videos. I think it is about 10 per cent probably of artists and songs that would be appropriate for MuchMore Music. That is probably a ratio that -- I don't know if 90/10 could apply to the library, but something like that.

718 COMMISSIONER WYLIE: You also give as one of the concerns you have -- in preparation I guess for us asking you why it shouldn't be higher -- that the burnout factor is getting hotter and therefore your rotation has to be altered because of that.

719 What would cause that?

720 MR. KINES: What we find is we are having to -- in order to meet our Canadian content video requirement, we are having to put videos into higher rotation than they might normally, if all things were equal, deserve. So something that should be a medium rotation is going into high rotation.

721 Because of the supply, there is a shortage, we are finding we have to keep stuff there longer. We have videos that have been in rotation for 30 to 40 weeks, like more than half a year the song is playing in rotation on the channel. So that is why they are burning out. And we are driving away audience by playing those.

722 COMMISSIONER WYLIE: It is a repeat factor problem.

723 MR. KINES: It is a shortage of supply that makes you burn out the video that much faster, hoping something will be coming along in the next few weeks.

724 COMMISSIONER WYLIE: In the quality of the service.

725 You have already many "Much's" and also Citytv. What help are the synergies between these service? How easy is it to use a video on MuchMore on one of the other services, or even on City, or even perhaps on Bravo!?

726 MR. KINES: Certainly from an overhead back office standpoint we have one library, one library that everyone in the building and across Canada can access. It is the biggest library in the world of music videos and all those channels can access it. So we are not having to have separate librarians for MuchMoreRetro and MuchLOUD and MuchVibe or Bravo! or Citytv, it is all one library, and all the infrastructure that goes along with that.

727 COMMISSIONER WYLIE: The Commission has licensed other music video services. Would that not spur the production of music videos, which you say is in a downslide instead, in the next few years?

728 MR. KINES: It may have slowed the slide a little bit. It could be worse than it actually is at the moment were it not for some of those channels. But those channels -- I'm not sure exactly which ones you are referring to, but the digital tier is not yet having an impact where an artist or a record company will make a video just for a digital channel.

729 COMMISSIONER WYLIE: Even in your case, either the services that you own or that you have an ownership in has increased since MuchMusic was licensed, so we now have MuchMoreMusic, we have MusiMax, we have Musique Plus, and you have expanded your conventional television as well. Wouldn't that -- and Bravo! I guess. Bravo! was licensed at the same time as MuchMore, but after Much.

730 MR. KINES: No, Bravo! is --

731 COMMISSIONER WYLIE: It is '96.

732 MR. SCHWEBEL: It's a '94 licensed service.

733 THE CHAIRPERSON: Ninety-four?

734 MR. KINES: Yes.

735 MR. SCHWEBEL: Yes.

736 COMMISSIONER WYLIE: But Much is older than that.

737 MR. KINES: Much is '84 and MuchMore is '98.

738 COMMISSIONER WYLIE: So there has been an expansion when you say which ones to I mean, even if you considered yours. Wouldn't that spur more production?

739 MR. KINES: Yes, although what we have found, to a certain extent with Bravo! and certainly with MuchMoreMusic, and I believe MusiMax echoes this in their application, is the older audience are not big music video fans. They are looking for -- it's nice background, but they are looking for stories, information, something with more of a story line to it. So they are not as ravenous for videos as the younger Much audience is.

740 The other thing to factor in, and we mentioned this before but I think I should reiterate it, is it is a good news/bad news story. But the core MuchMoreMusic artists such as Celine Dion, Shania Twain, Avril Lavigne, have had huge, huge international success. It is a great story for Canada that these artists have had such huge international success.

741 Along with that international success, however, has come that they are signed to U.S. labels and they are not making Canadian videos. So we are getting a lot of Canadian artists submitting videos, but they are not Canadian.

742 If you look at this week's MuchMoreMusic chart, which I have here, I did a quick number on it and Canadian videos on it, 30 per cent. When I add in the Canadian artists, Celine Dion is number one this week, Shania Twain is number five I believe, we are at 40 per cent on that chart.

743 It is great for Celine Dion and Shania Twain, it does hurt us when it comes to Cancon.

744 COMMISSIONER WYLIE: This of course leads me to the next question, which is if you think there are not enough music videos and that is harming your service, but you didn't apply to reduce your Canadian content, and even if I were not to suggest that it be increased, wouldn't the answer be to spend more on producing more music videos to --

745 MR. KINES: I was with you until "more". Producing more, yes. More music videos, no.

746 As I indicated earlier though, our audience, they are not as enamoured with music videos so we are finding greater success with our non-music video, music-related, but not music video programming, such as documentaries, concerts, profiles, news and stuff like that. That is where we think our money would better be spent.

747 COMMISSIONER WYLIE: If that is your suggestion, and my suggestion of course looking at your conditions of licence would be to look at the Canadian program expenditures which is based by reference to music videos only, and you have to have a number of -- the service has to be made up of, what is it, 65 per cent music videos?

748 MR. KINES: Yes.

749 COMMISSIONER WYLIE: So if you take all that together, you have applied not to change that. So you have to do 65 per cent music video adult programming. You have a problem that there aren't enough. So you wouldn't want the requirement of 30 per cent to be increased.

750 But isn't the answer, then, to spend more money on prodding the production of music videos?

751 MR. KINES: While we would love to see more music videos, I don't think there is anything that is going to get Shania Twain to make a Canadian video. She is signed to an American label. They are going to want to have that video shoot in their backyard or in Europe.

752 COMMISSIONER WYLIE: Is that the only thing that adults want to see, music videos by Shania Twain?

753 MR. KINES: Well, she is very, very popular. So that is --

754 COMMISSIONER WYLIE: I find her depressing myself.

--- Laughter / Rires

755 MR. KINES: Wow. To each his own.

756 Anyway, so we would rather not be prodding -- we would rather be prodding production, as I said earlier, of profiles, documentaries, news, that kind of programming which our audience is finding to be more popular than music videos.

757 MR. SWITZER: Madam Vice-Chair, if I might add, because it is an opportunity to touch on the monies that we are spending, the 5 per cent that is going to VideoFACT is also, according to the plans that we proposed here five years ago, going to PromoFACT.

758 Approximately $700,000 of the $1.8 million that MuchMoreMusic has contributed so far has actually gone into the promotion of artists and not just the production of music videos. It has gone into Internet promotion, it has gone into the production of electronic press kits. Those decisions are made by Bernie, by Julie and by the Board and, in fact, based on what they have seen in the last five years a good portion of the money was better spent on other promotional activities as opposed to just videos.

759 COMMISSIONER WYLIE: That raises the issue of course of what your condition of licence required.

760 You were to give $150,000 a year or 5 per cent of the previous years' revenue, according to condition of licence 5, to VideoFACT. It was noted in the decision, but outside the conditions of licence, that PromoFACT would be an additional vehicle. But one could question whether the 5 per cent should have been directed to PromoFACT.

761 In fact, if you remove the $700,000 from the $1.748 million, you are a bit short by about $162,000 of the money that should have been given to VideoFACT.

762 MR. SWITZER: Madam Vice-Chair, with respect, that is probably the first thing we have discussed today that I would disagree with. Bev is here and Bernie is here and our understanding and discussion, as far as I am aware, both on the record and in our decision, was that that was specifically discussed and eligible absolutely, and in fact a priority and one of the new innovations that we in the music industry came up with to help solve problems.

763 So respectfully, I would suggest that all of those monies were spent exactly as discussed and anticipated.

764 If Bev or Bernie want to add anything, I would encourage them.

765 MR. MILLER: I will also add, Madam Vice-Chair, that the language of the decision where it points out that PromoFACT is a program within VideoFACT certainly would appear to support our view that the funding to VideoFACT includes PromoFACT, and that has always been our understanding.

766 COMMISSIONER WYLIE: You can think about that and come back after lunch, but what I am hearing is that your Canadian programming expenditures, as far as you seem to suggest, even if we wanted to increase them, are not terribly well funnelled.

767 You say you have more success with the other type of programming, the other than the 65 per cent.

768 Right now your programming expenditures are directed, if I understand it, at 5 per cent -- let's assume VideoFACT and PromoFACT which puts you a bit -- even if we consider PromoFACT not slightly short but at more than 5 per cent, but that is the core of your service at 65 per cent. You are now saying that an increase in Canadian expenditures would be better to go to "Other", other than music videos, which means it would be outside your condition of licence where the additional expenditures would be found.

769 MR. SWITZER: Perhaps I can start. Madam Vice-Chair, it is a good opportunity to discuss this openly and completely, as always.

770 I do want to point out that our total Canadian programming expenditures for the service are more than just the 5 per cent, in fact are very, very high --

771 COMMISSIONER WYLIE: Well, of course.

772 MR. SWITZER: -- much higher than average. It is the nature of a music video service of course.

773 COMMISSIONER WYLIE: But they are not falling under the regulation, the condition of licence.

774 MR. SWITZER: That is correct.

775 COMMISSIONER WYLIE: You can have them up or down or --

776 MR. SWITZER: They have been a remarkable 74-75 per cent of all of our programming. Our non-Canadian programming costs as a percentage of all programming has averaged only about 25 per cent.

777 So we have grown. As the business has grown, our contribution to VideoFACT and PromoFACT within that has grown. As our business has grown, so has our in-house production, represented here today by Sheila and Neil and others, and although there is quite a bit of outside production there is also inside production in terms of the other documentaries and news and information, music-related programming, that the service has grown into.

778 So there is no question that our total Canadian expenditures have grown with the service.

779 And the formula by itself today, although the total is $1.7 million or $1.8 million over the past five years, will amount to more than $4 million over the next seven years.

780 COMMISSIONER WYLIE: But the 65 per cent of music videos, which is what defines your service in large part, is the part that you feel there is not much that can be done to improve the amount of Canadian content in those music videos?

781 MR. SWITZER: Well, everything helps of course. As an independent chair Mr. Finkelstein, I'm sure, would look forward to having more money to spend.

782 COMMISSIONER WYLIE: We have had this discussion obviously with MuchMusic and the net result was a 2 per cent increase in the CPE that goes towards music videos.

783 MR. SWITZER: Yes.

784 COMMISSIONER WYLIE: Obviously you were fully expecting we would have this discussion here.

785 MR. SWITZER: Of course.

786 COMMISSIONER WYLIE: There seems to be a shift that you spend more money on Canadian programming other than the music videos and you wouldn't want that part increased when it is actually the core of your service.

787 MR. SWITZER: We are not trying to --

788 COMMISSIONER WYLIE: On Canadian content.

789 MR. SWITZER: Yes. We are happy to discuss anything and are not in any way trying to avoid commitments, obligations, increases. We are here today as much to celebrate the performances and the successes and the over-performance, both in terms of dollars and hours and percentage of Canadian music video, by leaps and bounds. Of course we find ourselves every five or six in an awkward situation having to discuss openly sometimes potentially opposing viewpoints.

790 We ask today to look at this question, the question of 5 per cent or 7 per cent in the context of all the other things that we have talked about today.

791 COMMISSIONER WYLIE: When we come back after lunch -- if you can think of it during lunch which should be fun -- if you could tell us how you would allocate the amounts, the 5 per cent, as between VideoFACT and PromoFACT in the next licence term.

792 You know what the problem is here. When a suggestion is made that considering your success, which we will discuss later on, should you be doing more for music videos. You say: Well, that is not the best way to spend our money towards Canadian content.

793 So it is a little bit off the type of condition of licence you have by attaching the Canadian content spending requirement to your core area.

794 MR. SWITZER: We look forward to that discussion.

795 COMMISSIONER WYLIE: Thank you, Mr. Chairman.

796 THE CHAIRPERSON: Thank you.

797 We will take a break until 2:00 p.m. Nous reprendrons à 14 h 00.

--- Upon recessing at 1243 / Suspension à 1243

--- Upon resuming at 1400 / Reprise à 1400

798 THE CHAIRPERSON: A l'ordre, s'il vous plaît. Order, please.

799 We will continue with the questioning.

800 Madame Wylie.

801 COMMISSIONER WYLIE: Welcome back.

802 We left a little puzzled about your reluctance to consider spending more money on the production of adult music videos, or music videos for the MuchMoreMusic service because you considered that perhaps the way of the future is to increase more Canadian content in the other types of programming. Correct?

803 MR. SWITZER: In part.

804 Madam Vice-Chair, we are not here to be reluctant or disagree but to discuss all kinds of things.

805 We came today with an application that does not ask for a rate increase. We came today with an application that derives -- a channel that derives most of, more than three-quarters of its revenue from advertising. We did not come here today asking for relief or flexibility or changes in conditions of licence, although we had considered it. Early on in our analysis we had scenarios where we might have sought flexibility.

806 We are here to ask that going forward the licence that we have, the risks that we have taken, the way we have built a channel that was late to launch with some considerable risks that has grown to be a huge, successful Canadian force to support Canadian music, that the conditions of licence are appropriate to the model going forward.

807 But of course it is your purview, and you have many tools at your disposal, and we will of course live with and figure out a way to make work whatever decision this Commission comes to.

808 But it is important for us to, at least for the record, in as respectful way as possible, disagree with the notion that altering obligations has a way against perhaps profitability of a service when most of that service is not from the regulated side of our business and is at the at-risk part of the business, the advertising side of the business, is perhaps, from a policy point of view and an operational point of view, not appropriate. It is of course within your right to do so and we will have to make work whatever decision you come up with.

809 So we are not here to argue or disagree, but to put on the record fundamentally that we have not asked for changes in rates or conditions and would seek to go forward on a status quo basis.

810 COMMISSIONER WYLIE: Well, it won't surprise you of course that we came here today seeing how much more we can get into the Canadian broadcasting system through successful services, which is a slightly different perspective but should not be a surprising one for you, and that we are trying to discuss, based on your success, can we improve the Canadian component of your business.

811 The last 15 minutes of discussion we had led me to calculate just what are your projected overall Canadian programming expenses, because you suggested that it would perhaps be more fruitful to increase those.

812 Am I right?

813 MR. SWITZER: I didn't --

814 COMMISSIONER WYLIE: More fruitful to the success of your service at the moment for us not to increase what you spend on music videos.

815 MR. SWITZER: Let us be very clear --

816 COMMISSIONER WYLIE: Of course that leads me to look at --

817 MR. SWITZER: Let us be very clear, because in many ways if there are to be obligations they should be clear and visible and transparent and certainly the extraordinary work that VideoFACT is doing, it is a huge success. Should there be obligations that are new to us, it would probably be our number one choice in terms of the visibility and transparency of those funds.

818 COMMISSIONER WYLIE: Number one choice to increase to VideoFACT rather than overall Canadian programming expenditures. Because that is another possibility.

819 When I look at your total Canadian programming expenses in your projections and in the past, they hover around 28-27 per cent. Correct?

820 MR. SWITZER: They are approximately -- we have done our calculations according to all programming.

821 COMMISSIONER WYLIE: Yes.

822 MR. SWITZER: They account for approximately 75 per cent of all programming.

823 COMMISSIONER WYLIE: No, I was looking at it in a CPE perspective.

824 MR. SWITZER: Yes. In terms of --

825 COMMISSIONER WYLIE: By looking at your projected revenues of the previous year, would I be right that it is about 28 per cent?

826 MR. SWITZER: I would have to calculate that out, but it sounds about right.

827 COMMISSIONER WYLIE: So one other way the Commission could look at this, if it felt that considering the success, et cetera, financially, is that we could have a combination of a CPE and the leave the VideoFACT inside of that at 5 per cent.

828 MR. SWITZER: Of course that is an option.

829 COMMISSIONER WYLIE: So if I look at your projected CPE, let's say we did add a CPE to your licence so that you would have a combination. It is 28 per cent. If I look at, let's say, increasing it to 30 per cent it would mean in the first year $320,000, just to look at what is involved here, which would decrease your PBIT by 2 per cent.

830 MR. SWITZER: Madam Vice-Chair, of course that is an option. We would probably wish to put on the record that if the Commission feels it is appropriate to either add levels of obligation or increase what we are doing now, we would have -- and certainly of course we discussed the possibility of expected increases in obligations -- we would have, or could have, or might have sought flexibility in other areas as part of the pressures that we are dealing with. We chose not to do that.

831 If we are having an open and candid conversation about possible additional obligations, we would probably put on the record that some relief or some reduction in the 65 per cent music video programming that you referred to earlier this morning, perhaps down to the 50 per cent that you are going to hear from other applicants later in the week, would certainly be appropriate and helpful in our meeting these additional obligations.

832 COMMISSIONER WYLIE: So a reduction in the percentage of the programming devoted to music videos.

833 MR. SWITZER: Yes.

834 COMMISSIONER WYLIE: And keep the 5 per cent and then have a CPE.

835 MR. SWITZER: Yes.

836 COMMISSIONER WYLIE: So that it would presumably help the fact that you say you don't have sufficient music videos.

837 MR. SWITZER: That would go a long way to give us the tools and flexibility we need to solve our problems.

838 COMMISSIONER WYLIE: I know it is perhaps a facile way of looking at things, but when you came to us in 1996, if I compare your total revenues realized to date compared to what you projected in 1996, it is an increase of 62 per cent in the revenues.

839 If I look at the projected expenses realized as opposed to projected from launch to the end of 2002, the expenses have increased by 5 per cent.

840 You had expected to breakeven, I think in year three of operation as opposed to what is realized, which was immediate. So you are looking at a very successful service that succeeded beyond what you had projected yourself. Now you are here for another seven years and of course we would be remiss in not discussing with you whether in light of this success there isn't room there to have more expenditure on Canadian content and what is the way of doing that.

841 I came with the idea that I would suggest to increasing it to 7 per cent on the videos. I think the staff had put that question to you and your answer was that no, that was not reasonable, that it would equal to an additional $225,000 in the first year with a reduction of operating profit of nearly 10 per cent. I can't, for the life of me, understand how you got there. An increase to 7 per cent, which now you give other reasons why it shouldn't be that type of increase.

842 Let's look at that. How did you arrive at a decrease of 10 per cent in your profit as a result of an increase to 7 per cent in year one?

843 Do you have your financials handy?

844 MR. SWITZER: Yes, and I can --

845 COMMISSIONER WYLIE: Maybe I'm not doing these calculations as I should.

846 MR. SWITZER: Madam Vice-Chair, you are always correct.

847 COMMISSIONER WYLIE: That is dangerous.

--- Laughter / Rires

848 COMMISSIONER WYLIE: If I look at your first year revenues it is $12,774,000, if I take what you have as year one. You say that an increase from 5 per cent to 7 per cent would add $225,000 in expenses in the first year. Is that correct?

849 MR. SWITZER: Yes.

850 COMMISSIONER WYLIE: It is in Question 6 of the deficiencies.

851 MR. SWITZER: Yes. Madam Vice-Chair, perhaps I can answer your question by suggesting that the 2 per cent would represent almost 10 per cent of the 26 per cent operating margin the channel has enjoyed over its first four years or so. That is the average operating margin before taxes, and 2 per cent is approximately 8 per cent of that. That was rounded in a phrase approximately or almost 10 per cent.

852 That 2 per cent represents 8 per cent or 9 per cent of the historical operating margin of the channel, and I think that was the reference that you referred to.

853 COMMISSIONER WYLIE: Do you get the same calculation if you take, in your case, total operating expenses, because there is only depreciation.

854 MR. SWITZER: Yes, it is after depreciation and before --

855 COMMISSIONER WYLIE: Yes, over revenues.

856 MR. SWITZER: Yes.

857 COMMISSIONER WYLIE: And you add $225,000 to that. What do you get?

858 MR. SWITZER: Well, you don't have to because the --

859 COMMISSIONER WYLIE: A reduction of 10 per cent?

860 MR. SWITZER: A reduction of approximately 8 per cent. If the addition is 2 per cent and the operating margin historically is 26 per cent, it is 2 over 26, which is approximately 8 per cent.

861 COMMISSIONER WYLIE: Eight per cent, okay.

862 So let's discuss if the Commission decided that it made sense to increase your Canadian content expenditures. If your expenditures on Canadian content instead of 28 per cent overall, for example, were 30 per cent, as I said it would mean $320,000 in the first year and a reduction of about 2 per cent in your PBIT.

863 Is that a way of increasing your contribution more acceptable to you than increasing the percentage of revenues you have to give to VideoFACT?

864 MR. SWITZER: Yes, I think it is. I know Mr. Finkelstein may not want to hear that.

865 It would give us flexibility, while still fully providing VideoFACT with 5 per cent for that board to do its good work.

866 Please allow me just a few seconds to add the context of this, just so that I can add on the record that as you make these decisions and these deliberations you study and analyze not just the station but the context of our company overall.

867 Again, it is not my intent to be argumentative or push back in any way. We have been privileged by being given the chance to operate many great licences across Canada and with that comes special obligations.

868 We have, however, as a company, not been anywhere near as profitable as other companies, as the industry expects, as our shareholders expect. Although we are primarily here concerned about our viewers and about the creative community, every time we make a change or alter it has to come out of somewhere. Certainly we are a large enough company to be able to find this money and we will find it and make it work.

869 But I feel obliged, as the new President, to put on the record that we have some ways to go as a company to improve what has been sub-par profit performance across our television division and across our total company.

870 Perhaps I will leave it at that.

871 COMMISSIONER WYLIE: Yes. The difficulty with that, Mr. Switzer is that to date the Commission hasn't really looked at companies other than the aggregation of the television stations, and very recently at them as a whole. We are aware of synergies, you certainly have those, as we discussed earlier, but the actual exact detail has not been the manner in which we have looked at it, which has its downsides, as you can well imagine.

872 MR. SWITZER: Yes. Madam Vice-Chair, I might add to that, to answer that question and a previous one, one of the applications from the 1996 round is our CP24 news channel. We are immensely proud of its creativity and innovation and it has yet to become profitable.

873 The other point that I would hope you would keep in consideration as you balance these issue is what percentage of our revenues, how much of our business we rely upon from what we consider the regulated part of our revenue. With a $0.03 service and approximately 25 per cent of the revenues of this channel, only 25 per cent coming from the regulated portion, we are at risk for the other 75 per cent.

874 It flexes, it goes up and it goes down. Our contributions that are in place now obviously flex with the business and I would hope that that would be another factor that you would consider as you deliberate these important things.

875 COMMISSIONER WYLIE: When you suggest that we should look at all of your services, including Pulse24 that doesn't do well, reminds me of teaching high school where some parents would press you to teach to the lowest denominator.

876 What I'm looking at is a successful service that is doing well and how do you make it better and more Canadian.

877 Perhaps you could do the type of calculation that I was doing and by reply time you can -- I would be surprised if you haven't done these calculation -- tell us what combination could we have that would keep flexibility but put more into the production of Canadian product, whether an overarching CPE or whether to increase the amount of money given to VideoFACT for videos.

878 Until our conversation this morning I hadn't thought of the CPE, but you seem to think that is where you can improve your Canadian content.

879 Of course, Mr. Miller, the bottom line has to be an improvement overall.

880 Let's go back to PromoFACT and VideoFACT.

881 What do you expect the division to be between the two in the next licence term? I notice that the $700,000 you mention out of $1.748 million is about 40 per cent.

882 MR. SWITZER: Yes. David Kines or Bernie may want to comment, because the board of VideoFACT has the obligation to come up with those rules, broadly speaking. It was last reviewed when we were here in '95 or '96.

883 The work has been extraordinary and, as you say, it just so happens, although there have been no formal envelopes, to approximate a 60/40 ratio in terms of money going straight to videos and other promotional initiatives.

884 Do you want to add?

885 COMMISSIONER WYLIE: I'm looking at the description of what PromoFACT is. In light of your concerns, expressed in a number of places in your application and orally today, about the paucity of music videos available, do you think that that is a proper allocation between the two?

886 I see that PromoFACT is a program defined at page 24 of the supplementary brief, and in other parts of your application, as:

887 MR. SWITZER: It was and is hugely innovative and was a result of a collaborative process between the music industry, MuchMoreMusic and with the blessing of the Commission. It is a great success story.

888 Up to now they have not considered formal envelopes. I know based on discussions today, I think the board is happy to give comfort to the Commission that music videos remain the priority.

889 COMMISSIONER WYLIE: It would be 60/40.

890 MR. SWITZER: Please.

891 COMMISSIONER WYLIE: It may be a good idea if it is added, I guess, to make it clear that PromoFACT is a subset of VideoFACT. It is the same board, same organization. So it may not be.

892 Your expense submissions in Canadian content are based on 5 per cent of the previous year to both.

893 MR. SWITZER: In total 5 per cent.

894 COMMISSIONER WYLIE: To a combination of the two.

895 MR. SWITZER: Yes.

896 MR. FINKELSTEIN: Commissioner, if I may, just so you will understand, PromoFACT operates from the same board as VideoFACT and we don't really keep any envelopes for amounts because we want to have the flexibility to fund the best projects, to have the flexibility to look at regional issues, visible minority issues and all of those things. If we were to somehow have these in envelopes, we would have less opportunity to do the job that we do.

897 The PromoFACT program has been greeted by the music business as very cutting edge and very, very popular. It is one that is being emulated by others.

898 Web sites are now one of the very, very most important ways to promote Canadian artists and we have funded a considerable number of those now.

899 The electronic press kit program is something that is still growing. That is part of PromoFACT as well.

900 It is by coincidence, I guess, that the number looks like 60/40 because, to be honest, we have never really looked at it that way, nor did we have any instruction from the Commission to look at it that way.

901 We have an eight member board and that board operates entirely independent of MuchMoreMusic and MuchMusic and Musique Plus.

902 We have just three members that come from the CHUM group, two from MuchMusic, one from Musique Plus. So we tend to just make these decision, not in a vacuum because we like to consult and make sure that the work we are doing is of benefit, but we have just avoided wanting to have envelopes because it would rather put constraints, I think, on the work that we do.

903 But I think in the end we are very aware of what we think our obligations should be and we try to live up to those.

904 COMMISSIONER WYLIE: How many services contribute to VideoFACT?

905 MR. FINKELSTEIN: Three.

906 COMMISSIONER WYLIE: Only the CHUM services.

907 MR. FINKELSTEIN: MuchMusic, MuchMoreMusic and Musique Plus.

908 COMMISSIONER WYLIE: I guess I can see where an allocation that would be rigidly imposed of 60/40 doesn't seem the right thing for you, but it may be a good idea if an annual report was given to the Commission about what VideoFACT is indeed doing and the projects it has.

909 Would you have any problem with having this type of accountability built in?

910 MR. FINKELSTEIN: No, not all. No, we would be glad to do it. We are very proud of the work and we think it is very positive.

911 COMMISSIONER WYLIE: You could discuss with the staff just what would be the type of report that would be helpful for us as a method of accountability over the next seven years, not that you are really going full steam ahead. You have only been in operation four to five years now. So we will pursue that, then, with the staff.

912 Between now and the end of this hearing we would like you to look at whether to keep this 5 per cent but add a CPE that would be higher than the one you have projected. It seems to me, just a quick calculation during lunch of the first year, that somewhere between 30 per cent and 35 per cent would still keep your PBIT in a very healthy range.

913 I do have some difficulty in trying to use a service that is not doing well to say that the one that is doing well should be less Canadian or should not be more Canadian.

914 MR. SWITZER: We acknowledge a special obligation, Madam Vice-Chair.

915 COMMISSIONER WYLIE: Time shifting. There have been questions posed to all the applicants. You are on an 18-hour day.

916 MR. KINES: I believe we are on a 24-hour day.

917 COMMISSIONER WYLIE: Well, it is a 24-hour service, but calculations are made on 18 hours.

918 MR. KINES: Twenty-four. We do all our calculations on 24 on the music video channels.

919 COMMISSIONER WYLIE: So you do the calculations --

920 THE CHAIRPERSON: There is a little surprise in the ranks there.

921 COMMISSIONER WYLIE: So you do your calculations on 24 hours.

922 MR. KINES: I hope I'm not surprised with the answer.

923 COMMISSIONER WYLIE: That should be in your application somewhere. Let me look.

924 In the meantime, do you operate on a wheel?

925 MR. KINES: MuchMoreMusic, no. MuchMoreMusic does not operate on a wheel. It is a full 24-hour schedule.

926 COMMISSIONER WYLIE: You have only one feed.

927 MR. KINES: Correct.

928 COMMISSIONER WYLIE: So you get into the difficulty, of course, of the watershed hour, which at the moment is based on the origin of the program.

929 MR. KINES: We are conscious of it. I don't believe we get into difficulty. Sarah can speak more to that.

930 COMMISSIONER WYLIE: Yes. Perhaps you can explain to me in your response to Question 8 in the deficiencies that you try to put adult programming after midnight, but with the caveat of "whenever possible" and what that means.

931 MS CRAWFORD: We would be happy to talk more about that.

932 As a single feed national service we do exercise great sensitivity for the fact that we are telecasting across time zones. We of course do adhere to all of the industry codes and, as appropriate, we will decide to put a certain music video or a certain long-form piece of programming either post-9:00 p.m., with of course appropriate advisories, or post-midnight, depending on the specific piece of programming.

933 We have examples of both long-form programming and music videos where we have opted to go with the post-midnight scheduling because we deemed that piece of programming to contain adult-themed material that we really did want to ensure played post-watershed right across the country.

934 So we do use the variety of tools at our disposal as responsible broadcasters to try to inform our viewers so that they can make the most appropriate viewing decisions for themselves and for their families.

935 COMMISSIONER WYLIE: What is the level of complaints that you get about time shifting?

936 MS CRAWFORD: Very minimal.

937 COMMISSIONER WYLIE: About the lack of time shifting and the fact that what is the watershed hour here of 9:00 to 6:00 becomes 6:00 to 3:00 Pacific time, and Atlantic time 10:00 to 7:00 the watershed hour would have that effect.

938 MS CRAWFORD: The level of complaints we have is very minimal. We think that really does speak to the successful way that we have used the tools available to us.

939 For example, over our licence term we have received 12 complaints that have been sent by viewers to the Commission. Of those we were not found to be in breach of the codes in any one of them.

940 I think one of them specifically dealt with the issue of time zone difference, and it was in the case of a program that was a documentary by the artist Madonna called "Truth or Dare". We did schedule the program after 9:00 p.m. I believe the complainant in that case saw it at 8:00 p.m. in Winnipeg.

941 Again I hasten to add that we were not found to be in breach of the codes in that instance.

942 COMMISSIONER WYLIE: You have given us some costs as to time shifting in that response, which would appear to make it certainly, in your view, highly expensive to do.

943 Do you think that the Commission should review its watershed hour definition?

944 MS CRAWFORD: We believe that in looking at our own services certainly, and even at examples throughout the industry, that the system really does work. The self-regulatory system right now does provide a number of tools, the watershed being only one, to equip viewers with information to make appropriate viewing decision.

945 As the Commission is well aware, there are a number of issues that one must assess when looking at the effectiveness of the current system, including the current watershed.

946 One, I guess governing principle of the current system is that it is a balancing of interests. It is an effort to provide viewers with the maximum number of programming channel choices and ensure viability of the system.

947 I guess we also look at the issue of level playing field, when we look at the importation of foreign services, at distant signals, at PVRs, at Internet, increasingly because of technologies the issue of time zones and how to effectively restrict a consumer's programming choice to be only those which meet their time zone-specific requirements is difficult.

948 COMMISSIONER WYLIE: In part in recognition of these difficulties the Commission -- and the industry anyway with regard to violence and obviously for adult programming as well -- has stressed more encoding. But music videos were exempted in 1997 from this encoding. What problem would it cause if they were encoded so that they were classified?

949 That is another mechanism that would alleviate the difficulty, especially the difficulty of an adult music video service being available across time zones.

950 MS CRAWFORD: I guess first of all I should say that we are an adult contemporary music video service and the term "adult music video" shouldn't be interpreted to mean of course that all our videos contain adult-themed material.

951 COMMISSIONER WYLIE: No, but presumably they would just as likely. Although maybe not, they are more boring I guess.

--- Laughter / Rires

952 MS CRAWFORD: One could make that argument, but I certain won't.

953 COMMISSIONER WYLIE: Or it takes less to get enervated.

954 MS CRAWFORD: I count myself firmly among the MuchMoreMusic demographic, so I won't make that argument.

955 I guess given the fact that we haven't classified for AGVOT, according to the AGVOT codes, music videos we, as broadcasters, recognize that then we have a special responsibility to deal with this programming very carefully. That is exactly what we have done. We have done it since 1984 with MuchMusic and we have done it since -- when did we go on the air -- 1998 with MuchMoreMusic.

956 I think the proof is in the pudding, as it were, the very, very low number of complaints that we have had, not only about time zone issues but about any of the other content. I am talking now specifically about MuchMoreMusic but I am happy to talk about the other services as well. It speaks to, I think, the success of the system that we have implemented.

957 As the Commission is aware, we have an internal review committee that vets every single piece of music video programming that comes through our station. So rather than leave the decision about suitability in terms of content codes and our own programming codes to one programming executive, we do ensure that a team of 12 people, as representative as possible of the broad spectrum of viewers in Canada, vet the material, consider the material and make programming decisions on a case-by-case, video-by-video basis about its suitability in terms of time zone, in terms of viewer advisory, in terms of location of a specific video within the context of a larger show.

958 I think we have shown that system to be incredibly effective in meeting the needs of consumers and in meeting the goals of the broadcasting system.

959 COMMISSIONER WYLIE: Is "whenever possible" just for a margin of error? What does that mean, the caveat "whenever possible"?

960 MS CRAWFORD: I guess it does provide, to a certain extent, for margin of error. Not knowing at any given day or time what a program director has scheduled in terms of a longer form programming. We are pretty specific about the music videos and the longer programming that we have put on post-midnight.

961 To give you an example, we frequently will do different edits -- speaking now of a longer form program -- for a movie or a documentary. Actually, we have done three edits. One edit for a daytime pre-9:00 p.m. telecast; another edit or post-9:00 p.m., perhaps 14-plus telecast with appropriate viewer discretion advisories at the top of the show and coming out of each and every commercial break of course; and then a subsequent edit or, as the case may be, lack thereof perhaps, for a piece of material that would include perhaps some coarse language as appropriate to the context of the show that might be scheduled only post-midnight.

962 COMMISSIONER WYLIE: But I am right that they don't show classification at the moment.

963 MS CRAWFORD: Not music videos.

964 COMMISSIONER WYLIE: No. What would be involved in cost in classifying them, since you are using your committee to such extent?

965 MS CRAWFORD: The short answer is that it would be extremely laborious, that it would limit program scheduling flexibility to a huge degree because -- my colleagues can speak more eloquently than I can about what is involved in programming a music video service to ensure flow, to ensure context, to ensure audience retention. So it would limit flexibility to a large degree.

966 I guess the longer answer would be one that I would want to think about a little bit, because we would really need to sit down and do a logistical analysis about what exactly would be involved. What would the ramifications be?

967 Again, I guess my view is that most music videos -- well, all music videos that we air pre-9:00 p.m. on MuchMoreMusic are suitable for daytime. So in that sense there is a de facto classification that is implicit in the telecast of those music videos.

968 The ones that we screen, again one-by-one every week since we have started our music services, since 1984, those videos are determined on a case-by-case basis and scheduled accordingly, either in the appropriate post-9:00 p.m. or the appropriate post-midnight time slot, and with or without a viewer advisory.

969 COMMISSIONER WYLIE: Now if we can go back to these calculations of whether you have an 18-hour day. In your application you have Canadian content requirements for the entire day and then Canadian content requirements for 6:00 to midnight.

970 You are not on a wheel, so you mean you calculate the extent to which you meet your commitments on a 24-hour day period?

971 MR. KINES: That is correct.

972 COMMISSIONER WYLIE: So you would have --

973 MR. KINES: We have a prime time

974 COMMISSIONER WYLIE: For the midnight to six o'clock what is the Canadian content requirement in that case?

975 MR. KINES: I'm sorry, from what time?

976 COMMISSIONER WYLIE: I consider an 18-hour day simply because I am looking at the Canadian content in your application which is measured on the broadcast day, 60 per cent, that is 6:00 to midnight, and then -- 6:00 to midnight rather is the evening period and the other is 6:00 to midnight, right, the broadcast day, but you say you have 24.

977 So how does one calculation your Canadian content for example?

978 MR. KINES: We would calculate what you are calling 6:00 to midnight Cancon on 6:00 a.m. to 6:00 a.m. and our prime time is 6:00 p.m. to midnight eastern time.

979 COMMISSIONER WYLIE: So basically, like many other specialty services, you are on a 24-hour day calculation.

980 MR. KINES: Yes.

981 COMMISSIONER WYLIE: Closed captioning. There has been some back and forth with the staff. You seem to be less reluctant to reduce the length of time it takes to do closed captioning, in response to the questions than to increasing your Canadian content in response to mine. So I am a little bit confused as to what your commitment is.

982 Is it finally 90 per cent by the end of 2002-03 or '03-04?

983 MR. KINES: You are referring to the deficiency response

984 COMMISSIONER WYLIE: The closed captioning, right.

985 There were some commitments made, but I think the response to Question 11 to the staff you say:

986 Is the current year 2003 or is it --

987 Then you say:

988 Is this '03 or '04?

989 Where are you at with closed captioning of your non-music programming? Will you be at 90 per cent by the end of this operating year?

990 MS CRAWFORD: We intend to be at 90 per cent by the end of our seventh year of broadcasting.

991 COMMISSIONER WYLIE: Of the non-music -- so it is by the end of the current term -- of the coming term?

992 MR. KINES: No, the second year of the -- if we are relicensed, the second year.

993 COMMISSIONER WYLIE: Second year, yes.

994 MR. SWITZER: Because we launched two years late.

995 COMMISSIONER WYLIE: That's right. So is that '03, '04 or is it '02-03?

996 MR. KINES: It would be '04-05 actually.

997 COMMISSIONER WYLIE: So '04-05 --

998 MR. KINES: We are in the middle of our fifth year of operation.

999 COMMISSIONER WYLIE: -- 90 per cent.

1000 MR. KINES: Yes.

1001 COMMISSIONER WYLIE: You mentioned that that will be about $200,000 additionally beginning in the new licence term. So that is what is in your projections as to the very first year, which will be '03-04, $200,000 additional funds?

1002 MR. KINES: Yes.

1003 COMMISSIONER WYLIE: It is already in your projections.

1004 MR. KINES: Yes.

1005 COMMISSIONER WYLIE: And that is what it will cost on an ongoing basis?

1006 MR. KINES: That is our estimate.

1007 COMMISSIONER WYLIE: That is included in your Canadian content expenditures.

1008 MR. KINES: Yes.

1009 COMMISSIONER WYLIE: With regard to whether or not the videos that you get from VideoFACT that you contribute to, I think I recall you saying that 100 per cent of them would be closed captioned. Will that continue in the next licence term?

1010 MR. KINES: Yes.

1011 COMMISSIONER WYLIE: At least all those will be captioned.

1012 MR. KINES: Oh, yes.

1013 COMMISSIONER WYLIE: These are my questions.

1014 So sometime or other we expect you to tell us how we recognize your great success by making your service more Canadian.

1015 Thank you, Mr. Chairman.

1016 THE CHAIRPERSON: Thank you.

1017 Commissioner Grauer.

1018 COMMISSIONER GRAUER: Thank you.

1019 I have one question. It won't surprise you, it is about the time zone issue and the watershed hour.

1020 You mentioned there were 12 complaints. Was that 12 complaints specifically about your service that were pursued with the CBSC? Is that what you are referring to?

1021 MS CRAWFORD: Those are 12 complaints that were sent to the CRTC by complainants.

1022 COMMISSIONER GRAUER: Okay. Because I think one of the problems that we have, and certainly it is an issue that I hear constantly from members of the public about, and the response to them is that it is entirely appropriate. Because of the watershed hour it means that programming -- it applies to where the signal originates. So in fact it is a bigger concern than I think would be reflected in the 12 complaints.

1023 Part of the problem for me is, people ask me why is it that it is not okay to broadcast certain kinds of programming in one part of the country and it is okay in another part of the country, especially people with children.

1024 That is what I grapple with when I talk to members of the public and I just wondered if you could help me with that.

1025 MS CRAWFORD: First of all, I will elaborate by saying that in addition to any viewer correspondence we had outside of that which was directed directly to the Commission we did receive one additional complaint regarding time zone. That was vis-à-vis a program, a dramatic series, music-related drama series called "The Chris Isaak Show" which we telecast at 11:00 p.m. in the Province of Ontario and the complaint I guess was from a complainant who saw it at 8:00 p.m. in their time zone.

1026 Again, that was a case where I would say we did exercise sensitivity to the western time zone. Viewers obviously seeing it 8:00 is not seeing it at 9:00, but the show does have viewer advisories and is very clear about the nature of potentially problematic material within it to help the viewers make the appropriate decision.

1027 I guess I come back to our CHUM services obviously and say that it really hasn't been -- I think our history experience shows that the system works, that we do exercise our good judgment and put programming on at the late night hour when it is programming of a really adult nature and that the level of concern and feedback we have had from our viewers indicates that we have been doing a good job.

1028 So speaking for the operator of a number of specialty services that operate across the country, for us, we feel that we can make the current system provisions work in a way that does give good service to the consumer.

1029 COMMISSIONER GRAUER: Thank you.

1030 THE CHAIRPERSON: Thank you.

1031 Counsel.

1032 MR. WILSON: Thank you, Mr. Chairman. I have a few questions.

1033 I just want to first clarify this issue of the broadcast day and the 18 hours and the 24 hours. My question is directed sort of specifically for regulatory purposes, for the purposes of the conditions of licence that the service is subject to.

1034 My understanding is that for those purposes you are operating under an 18-hour broadcasting day.

1035 Is that not correct?

1036 MR. MILLER: That was my understanding, counsel, although we will absolutely double and triple check for when we get back in reply.

1037 MR. WILSON: Perhaps also you may want to consider then, in that context, whether for those purposes, for those conditions of licence, those regulatory purposes, whether you have ever considered moving to a 24-hour day as well.

1038 I also now would like to touch just briefly on PromoFACT.

1039 I think in your presentation and in the discussion in response to questions you have mentioned it is a very innovative, very popular program. My understanding, though, is that that particular program under VideoFACT is currently only funded by MuchMoreMusic.

1040 Can you confirm that is correct and perhaps explain why that is the case?

1041 MR. KINES: Your question is why is PromoFACT only funded by MuchMoreMusic?

1042 MR. WILSON: Correct.

1043 MR. KINES: MuchMusic, Musique Plus and MuchMoreMusic all contribute to VideoFACT. PromoFACT is a program within VideoFACT so the money all goes into a pool and the board divvies it up as they see fit.

1044 MR. WILSON: Thank you.

1045 Then I have one final question.

1046 In response to one of the earlier questions I think the response was that more of the VideoFACT grants tend to go to MuchMusic type of videos as opposed to MuchMoreMusic type of videos. Can you explain for us why that is?

1047 MR. FINKELSTEIN: I'm glad to get an opportunity to address that.

1048 It is not by choice, it is by the number of applications that we get. We just simply get less applications from the community that you had described a being precisely MuchMoreMusic-type artists. To put it another way, the kids like to rock.

1049 So we don't decide to only do 10 per cent, it has just turned out that the applications that are deserving about 10 per cent come from that community.

1050 I might say that it is a very, very great 10 per cent, some great names amongst those people like Hawksley Workman, Sara Harmer, Kathleen Edwards, et cetera. So we have had great success in doing it, but there is just simply more hip-hop applications, more rock applications.

1051 That is why. So it is not arbitrary.

1052 In fact, we try to reach out and to find those people that would be suitable for MuchMoreMusic, but that is the reason, it is not done by envelope.

1053 I could clarify one other thing, if I could, just to your last question.

1054 Of course, none of the Musique Plus money is used for PromoFACT. They don't participate in that program at all.

1055 I might also say, just to clarify when I said there is no envelopes, of course I was referring to the fact that there is no envelopes with the MuchMoreMusic money.

1056 But just in case you didn't quite understand that, we do have one envelope at VideoFACT -- the greater VideoFACT board -- and that is that all the money from Musique Plus is earmarked for Francophone videos, which is a number we exceed all the time actually, but nevertheless that is an envelope that we do have. Apart from that there are no other envelopes.

1057 Thank you.

1058 MR. WILSON: Thank you. I just have one final question then.

1059 If I could get, then, your comment on the impact of the Commission requiring MuchMoreMusic to move to 90 per cent on the closed captioning immediately as opposed to the commitment which you had mentioned, which was the end of 1004-2005.

1060 MR. MILLER: Well, the impact would be that that expenditure of $200,000 that we estimated would come forward in time and therefore presumably have up to a maximum of $400,000 additional over the licence term. But it probably won't be that much because of the ability to recycle programming in future years.

1061 MR. WILSON: Thank you.

1062 I have no further questions, Mr. Chairman.

1063 THE CHAIRPERSON: Thank you, counsel.

1064 In closing I would like to say how much I appreciated your presenting the challenges that you face in your opening address. You provide certainly food for thought going forward.

1065 I just wanted to take up one at this point, which is your reference to The Nashville Network morphing, as you call it, to The New TNN and showing more mainstream programming, and then you say poised to rebrand itself again as Spike, more movies and action and sci-fi shows of the types that will compete against Canadian specialty services.

1066 I notice that when you spoke of the grey and black market that you put forward the necessity for more enforcement and stronger laws as a solution to addressing it.

1067 I wonder whether you have any recommendations as to what might be done in this context. You are essentially presenting a situation where a one per genre regulatory regime is confronting a regime that doesn't have that equivalent rule and therefore stations can morph into whatever they feel the audience will be attracted to. That puts you, I am assuming by the fact that you call it a challenge, at somewhat of a disadvantage. Suddenly you are facing a competitor who, when it got on to the eligible satellite list, came in through another door.

1068 I don't know whether you have given it further thought, and I'm sure that you and we and others will be reviewing this as we go forward, but any comments you have at this point would be welcome.

1069 MR. SWITZER: Thank you, Mr. Chair, for that opportunity. It does pose a conflict between what we think is right and managing perhaps the art of the practical in terms of how difficult it can be to get something off a list regardless of change, regardless of fit, regardless of fairness or competition.

1070 As to the piracy question, CHUM is taking a very active role, a leadership role in terms of increasing visibility, actually funding some actions, going out of our way to help change the social acceptability of people understanding that theft of a signal and theft of a copyrighted material is no different than stealing anything else from a store.

1071 As an industry perhaps on the broadcasting side we didn't do enough quick enough. We certainly about a year and a half ago acknowledged that we had to take a more active role and do more than our fair share and along with other broadcasters and through the CAB are committed to do everything possible.

1072 These are things that may not be controllable. We can influence to some degree, you can --

1073 THE CHAIRPERSON: Excuse me, Mr. Switzer. You can comment on that if you like, my question wasn't addressed to that, it was addressed to the TNN situation in particular.

1074 MR. SWITZER: To the TNN. I'm sorry, Mr. Chair. You mentioned both.

1075 The TNN issue is, frankly, a huge irritant for us. We are reviewing all options and possible requests. Other broadcasters I know are reviewing, industry associations are reviewing, but we are at the same time sensitive to international issues and the difficulty of removing things once in.

1076 It drives home the point and reinforces just how careful we all must be in terms of things getting on this, because with a single store of a pen new American services can get access to six million homes and then for all practical purposes do whatever they want.

1077 That is a challenge that we all must face and is one of the challenges facing these channels that you are reviewing this week.

1078 It is serious and just adds to what we are dealing with.

1079 I don't want it to take away from our celebration of success on the strength of MuchMoreMusic and all the good work that people are doing here. I don't want to leave on a downer note, but you were kind enough to bring it up. We did table it and, as I say, it is one of half a dozen issues that are real, that are in the short term and that are facing us every day when we go to work.

1080 MR. SCHWEBEL: If I could just perhaps add to that query.

1081 The Commission has at its current disposal a number of mechanisms to deal with this type of morphing. When the service was originally added to the eligible list there was certain criteria, a description that was provided at that time and The Nashville Network evolving to The National Network evolving then to Spike clearly illustrates how it is no longer meeting its original description.

1082 So there is that aspect that the Commission can go back to the original description provided with that eligible service. Given the difficulty and the challenge of delisting a service, the Commission does have a number of options available to it given the fundamental change of the service in that it has become more of a superstation.

1083 So given that it is now competing with all services, with mainstream-type programming, there is an alternative solution and that is the consideration as to whether or not it should be treated as a superstation is and distributed only with other premium channels.

1084 So there are a number of options that the Commission could consider as it turns to this particular issue that we have identified.

1085 THE CHAIRPERSON: Thank you.

1086 Commissioner Pennefather.

1087 COMMISSIONER PENNEFATHER: Thank you, Mr. Chairman.

1088 I have a question regarding your presentation this morning and now this afternoon the CHUM Television Cultural Diversity Action Plan. I believe, Ms Crawford, you were speaking at that time.

1089 My question is: Does this cultural diversity plan address, and if so how, on-air presence of aboriginal Canadians and Canadians with disabilities?

1090 Can you be precise on those two areas?

1091 MS CRAWFORD: I guess I will start by saying that we talk often about when we appear here and when we appear and have discussions with the public about our commitment from the beginning to being an inclusive service that is dedicated to equitable representation and reflection and inclusion and to, frankly, celebrating and creating a climate of respect for all people.

1092 So our definition of diversity does include, of course, aboriginal people, and it does include people with physical disabilities, and it does include people of different sexual orientations and socioeconomic backgrounds and the full complexion of diversity.

1093 Does our action plan address it? I think notionally we have policies in place at CHUM that address all forms of diversity. The action plan per se was created specifically to address the Commission's request to file corporate plans and accountability and goals regarding the depiction and inclusion and reflection of people from visible minority communities and aboriginal communities. So the emphasis perhaps therein is to people in those groups.

1094 However, I can't underline enough that in everything we do, right from our recruiting practices to the composition of our workforce to the representation on-air, we are equally committed to all forms of diversity and that certainly includes people with physical disabilities and aboriginal people.

1095 COMMISSIONER PENNEFATHER: Thank you very much.

1096 THE CHAIRPERSON: Thank you all very much.

1097 We will recess now for 15 minutes and resume at 3:15 with the next item. Nous reprendrons à 15 h 15.

--- Upon recessing at 1458 / Suspension à 1458

--- Upon resuming at 1515 / Reprise à 1515

1098 THE CHAIRPERSON: A l'ordre, s'il vous plaît. Order, please.

1099 Mr. Secretary, please call the next item.

1100 MR. LeBEL: Thank you, Mr. Chairman.

1101 Item 3 on the agenda is an application by Rogers Sportsnet Inc. to renew the licence of the national English-language specialty television service known as Sportsnet expiring 31 August 2003.

1102 The licensee proposes to increase its monthly basic subscriber fee by $0.29, from $0.78 a month to $1.07 per month; to measure the amount of regional programming on each feed on a quarterly basis, instead of a weekly basis.

1103 I will ask Mr. Tony Viner to introduce his colleagues.

1104 You have 20 minutes to make your presentation.

PRESENTATION / PRÉSENTATION

1105 MR. VINER: Thank you.

1106 Good afternoon, Mr. Chairman and Members of the Commission. I am Tony Viner of Rogers Media.

1107 With me today from Sportsnet are: Doug Beeforth, President; Wayne Yutman, Vice-President, Finance and Administration; David Akande, Vice-President, Programming; Andrea Harrick, Program Manager; Joe Hurley, Vice-President, Sales; and Dave Rashford, Director, Communications and Promotions.

1108 From Rogers Media: Julie Osborne, Director, Television Distribution, and Alain Strati, Director, Business and Regulatory Affairs.

1109 In our presentation today we will focus on three key points.

1110 Point No. 1: Sportsnet has done what it said it would do.

1111 Point No. 2: The sports programming market in Canada has changed since Sportsnet was licensed in 1996.

1112 Point No. 3: Our proposed rate increase is designed to ensure continued effective sports broadcasting in Canada.

1113 Point No. 1.

1114 Sportsnet promised to give viewers more coverage of sports events involving their home town teams and athletes.

1115 Regional sports events are the heart of the schedule for each of our channels. Sports fans across the country directly associate Sportsnet with their home town teams and local sports heroes. They know that they can turn to Sportsnet to see more of the games that really matter to them.

1116 Sportsnet promised to produce sports news programming that would be reflective of the different tastes and interests of viewers from different regions across the country.

1117 Sportsnet now produces both national and regional sports news, with up to 12 different sportscasts a day, supported by reporters across the country and a number of news bureaus. The Pacific Region sportscast, produced in the Sportsnet studio in Vancouver, is the market leading sportscast in British Columbia.

1118 Sportsnet also committed to provide extensive coverage of under-represented sports. Under-represented sports such as soccer, lacrosse and rugby have a prominent place in the Sportsnet program schedule.

1119 This year, Sportsnet projects that under-represented sports will account for an average of 41 per cent of all non-news programming, well in excess of the 27 per cent commitment in the initial application.

1120 Sportsnet committed to spend not less than 54 per cent of its revenues on Canadian programming and has consistently exceeded that commitment. Expenditures on Canadian programming averaged 73 per cent of revenues over the licence term.

1121 Doug.

1122 MR. BEEFORTH: Our second point is that the sports programming market in Canada has changed significantly since Sportsnet was licensed in 1996.

1123 Our business plan was founded on the assumption that there would be plenty of regional sports rights available at a relatively low cost. TSN would continue to compete only in the national arena. The Score would be a sports headline news service only.

1124 Well, it hasn't worked out that way.

1125 In 1997, TSN was granted authority to split its national feed into regional feeds up to a maximum of 10 per cent of its total program schedule. Ten per cent may not sound like a lot of programming time, but in fact it works out to about six games a week, enough for TSN to offer a regional sports event almost every day.

1126 That 1997 decision allowed TSN to compete directly with us for the acquisition of regional sports rights. Not surprisingly, it also sparked a vigorous debate between Sportsnet and TSN with respect to the definition and implementation of our respective sports programming mandates.

1127 In a letter decision dated December 15, 1998 the Commission set out its expectations with respect to these programming mandates. The Commission stated:

1128 In other words, TSN and Sportsnet are complementary services in that TSN is predominantly a national service and Sportsnet offers four distinct regional channels. However, this complementarity in distribution does not preclude direct competition between the two for the acquisition of sports programming rights.

1129 This means that every sports rights negotiation is highly competitive. Even if TSN is not actively bidding against us, they are always "the ghost at the table". Sports rightsholders know that if we don't offer them a competitive market price, they can always turn to TSN.

1130 As a result, sports rights costs are now much higher than anticipated in our original business plan. These costs exceed Sportsnet's capacity to pay based on the current regulated wholesale rate. After five years of operation we have a cumulative loss of $33.2 million, clearly not sustainable over the long term.

1131 Our third point. Our proposed rate increase is designed to ensure continued effective sports broadcasting in Canada.

1132 Sportsnet is an entertaining and informative sports service, very popular with viewers and very valuable to the Canadian broadcasting system.

1133 Sportsnet is "must see TV" for sports viewers. Last fall we offered viewers nine of the top 10 sports specialty telecasts in British Columbia, in Alberta eight of the top 10, in Ontario four of the top 10. Ontario. Our average weekly reach is the same as TSN when you take into account our smaller subscriber base.

1134 Sportsnet drives the penetration of discretionary tiers and thereby supports the growth and development of other Canadian specialty television services. Sportsnet also plays an extremely valuable role in combating the growth of the black and grey market by offering a wide variety of popular home team sports that is just not available either over-the-air or on foreign satellite services.

1135 Our licence renewal application proposes a rate increase of $0.29, to give us parity with TSN. Without this increase, Sportsnet will not be able to continue to compete effectively for sports programming rights and make a profit. We will have to offer fewer major league games in each sport, or perhaps remove some major league games entirely from our schedule. Either way, we will be unable to maintain the quality and diversity of our sports programming.

1136 If we can't pay market rates for sports rights, the major league teams like the Vancouver Canucks will put more games on pay-per-view services or, like the Toronto Maple Leafs, on their own digital channels. This past year alone 11 Vancouver Canucks games were available only on pay-per-view. The cost: $10 a game. Viewers will either see many fewer Canadian major league sporting events or will have to pay much more to get them.

1137 In the process, the Sportsnet service will be greatly diminished and the Canadian broadcasting system will lose a very important and effective bulwark against US satellite services.

1138 David.

1139 MR. AKANDE: We are very proud of what we have accomplished over the past five years. From a standing start we have built an exciting new Canadian regional sports service. Ninety-five per cent of the Sportsnet program budget goes to Canadian programming. That is more than any other non-news specialty service.

1140 Sportsnet programming includes three key components: popular and exciting live sports events; respected and authoritative sports news, analysis and commentary; and innovative sports magazine programs.

1141 The core program offering for Sportsnet is live regional sports events.

1142 This year, regional hockey coverage on Sportsnet included all of Canada's National Hockey League teams. As a result, viewers in Ottawa, Calgary, Edmonton and Vancouver now have a chance to enjoy as much coverage of their home town teams as fans of the two original NHL teams.

1143 The excitement and enthusiasm that you saw here in Ottawa-Gatineau as the Sens did battle with the New Jersey Devils, happens all across the country in every NHL city. Sports is a tribal experience that draws communities together, and Sportsnet is an important part of that experience.

1144 We also cover many minor professional and amateur hockey games, including extensive coverage of the Memorial Cup Championship, which culminated last night with the final game between the Kitchener Rangers and the Hull Olympiques.

1145 From the beginning, Sportsnet has been a big supporter of Canada's amateur basketball teams. When the Canadian basketball team qualified against all odds for the 2000 Olympics, Sportsnet was there in San Juan, Puerto Rico to provide live coverage. We also carried all of the games when Canadian NBA professional and amateur players came together to represent our country in the 2002 World Basketball Championships.

1146 Expanded coverage of major league baseball, including the Blue Jays nationally and the Seattle Mariners in the Pacific Region, has strengthened our summer program schedule and means that we now offer great live event programming year-round.

1147 In addition to the three "big" sports, we offer extensive coverage of live events in under-represented sports, like soccer, a sport that is especially popular with the younger people and Canada's ethnic communities.

1148 Soccer has traditionally received very little television coverage. We have changed that.

1149 Sportsnet is the official broadcast partner of Soccer Canada. As such, we have covered virtually every significant game played by Canada's national soccer teams, including the thrilling performance of Christine Sinclair and her Canadian teammates at the under 19 Women's World Soccer Championships in Edmonton last summer.

1150 Sportsnet was the host broadcaster at those championships. Our promotion and coverage of that event gave Canadian women's soccer, and many talented female Canadian athletes, an unprecedented national television platform. More than 900,000 Canadians tuned in to the final game between Canada and the United States. This was the biggest audience ever on Sportsnet.

1151 We provide exclusive coverage of the National Lacrosse League. Just last week we covered the World Indoor Lacrosse Championships in Southern Ontario, where the final game was played between the Canadian national team and the Iroquois Nationals, a team comprised of aboriginal players from both Canada and the U.S.

1152 Rugby is another under-represented sport that is prominently featured in our schedule. We carried the Rugby World Cup from Europe and covered many games involving Canada's men's and women's national rugby teams.

1153 The second component of our schedule is sports news.

1154 High quality, informative and authoritative national, regional and international sports news is a central focus at Sportsnet. Our witty, and often irreverent approach, clearly distinguishes us in the market and is particularly attractive to younger viewers. Regularly scheduled sportscasts offer information on under-represented and amateur sports, including, for example, university sports, junior hockey, women's hockey, amateur baseball, softball, rugby and lacrosse.

1155 Sports magazine programming is the third component of our program schedule.

1156 We offer a wide variety of magazine programming covering the "big" sports, as well as many under-represented sports such as swimming, cycling, equestrian events, rodeo and chuckwagon events, freestyle and extreme skiing, varsity sports and Ironman triathalons.

1157 In addition, we have created innovative magazine programs to address the needs of young sports fans, such as "SlapStick" for hockey, "NBA xl" for basketball, "JZone" for baseball, and "Sport Divas" which profiles leading women in sports.

1158 Televised sports is often thought of as a male-dominated enclave with programming that poorly reflects the diversity of our country. We are changing that.

1159 Sportsnet has taken the lead in providing high profile on-air and program production opportunities for women in sports broadcasting. Two of our three daily sportscasts have women as their primary news anchors: Jody Vance and Hazel Mae. We are the only sports broadcaster with a woman producing NHL hockey games.

1160 In addition, we have established a comprehensive diversity plan, with industry-leading talent development initiatives such as Quick Start. Developed in association with BCIT, NAIT, Ryerson and Concordia, Quick Start is a million dollar initiative designed to support the development of broadcasting talent from under-represented groups, including women, aboriginal peoples, visible minorities and persons with disabilities.

1161 MR. VINER: Mr. Chairman, Members of the Commission, we recognize that the Commission will carefully assess the potential benefits and costs of our proposed rate increase.

1162 We believe that viewers will benefit because Sportsnet will be able to maintain the quality and diversity of its sports programming. Viewers will continue to have access to the sporting events that are important to them, and will pay much less for them than if they were available only on pay-per-view services or team-owned digital channels.

1163 Other Canadian specialty services will win, because a strong Sportsnet service strengthens the Canadian broadcasting system in the face of competition from U.S. satellite services.

1164 Without a rate increase, Sportsnet could find a different business model that would better fit the revenues now available to it. However, that model would not give viewers the high quality programming, and BDUs the competitive edge, that they have come to expect from Sportsnet. In our view, a much-diminished Sportsnet would not be in the best interest of viewers or the Canadian broadcasting system.

1165 Clearly, our preference is to continue to offer a first-class Canadian regional sports specialty service, with coverage of events and programming like that in the following video presentation.

--- Video presentation / Présentation vidéo

1166 MR. VINER: That concludes our presentation and we await your questions.

1167 THE CHAIRPERSON: Thank you very much, Mr. Viner, ladies and gentlemen.

1168 The two major elements of your application are, one, a rate increase in the basic monthly wholesale rate from $0.78 to $1.07, an increase of some 37 per cent, and a request to measure regional programming on each feed on a quarterly basis instead of a weekly basis.

1169 I will take you through a number of areas of questioning and I will let you know when I really need your help to understand some of these areas. Some of them I think I do, but I would just appreciate your confirmation.

1170 Beginning with your projected advertising revenues on your financials, you are projecting modest growth. You have presumably read the CCTA intervention. This isn't the time for reply, but you have replied.

1171 I simply wanted to get on the record why you believe that your achieved advertising revenues will not be as high as either the CCTA projects at about 10 per cent or indeed what you have achieved over the first term.

1172 MR. VINER: I will ask Joe Hurley, our Vice-President of sales to comment, Mr. Chairman, but I will just make a couple of points.

1173 The first is that we are in the first five years of our licence term and we started from zero. So the percentage increase, as you might expect, both in terms of our ability to sell the product and the addition of programming that occurs over the course of our first five years, would lead you to expect that those percentages would be higher than normal.

1174 We think that the schedule that we now have is fairly mature and fairly well set and so we are not expecting increases in the order of magnitude of that which we have already enjoyed. Advertisers pay money for audiences. When audiences increase, they pay more. When they decrease, they pay less. Our schedule is more or less set.

1175 The only other Canadian example that we have of a mature sports service like Sportsnet is TSN. If you look at them over the last four years, I think they have averaged 3.5 per cent. We are projecting 7 per cent for the first four years and then about 5.5 per cent for the final three years. I think those numbers are correct.

1176 So I hate to admit it in public, because Mr. Hurley will use it against me, but those we believe are aggressive advertising numbers.

1177 Joe, would you like to add? Just explain perhaps where we are on the advertising front.

1178 MR. HURLEY: Thank you, Tony.

1179 Commissioner, the one thing that in our view we believe is that we have been very successful to date in maximizing our ad revenue for the service.

1180 Probably the most objective information available to us to look at to assess where we are on the landscape is to look at something we provided in one of our responses to a negative intervention, and it is a revenue per share point analysis for all specialty services. In that analysis we rank -- although it is fifth we actually rank fourth if you add in some other revenue. But we rank fourth amongst all services, actually ahead of TSN, a service that has a 13 year head start.

1181 Really, we can augment our revenue, as Tony suggested, by adding programming, but you have heard that we are kind of at a level where the schedule is stable, or increasing rates.

1182 The issue right now is, we are pretty well at capacity and, therefore, expecting us to sell more inventory is rather daunting. Therefore, we are left with the option of raising our rates, which in today's competitive market is a very risky proposition indeed.

1183 So I would support the notion that 7 per cent is aggressive.

1184 THE CHAIRPERSON: Thank you.

1185 In your application you projected a number for the current year that is virtually -- the current year being '03 -- that appears to be very much almost flat vis-à-vis 2002.

1186 Was that deliberate?

1187 MR. VINER: I will ask Wayne Yutman to respond.

1188 MR. YUTMAN: From the current year ending 2002 to moving to the current year ending 2003 we would have gone from about 29 million for the period ending August 2002 to 32.2 million for the current year, which would show an 8 per cent increase on my calculations.

1189 THE CHAIRPERSON: It just may be the numbers we have. That isn't the number I have, but if those are the correct numbers that is the better information.

1190 Thank you.

1191 You mentioned competition for rights, for program acquisition and for Canadian programming. Could you go over with us what the most desired sports properties are and the extent to which they drive both subscriber and advertising revenues?

1192 MR. VINER: Certainly.

1193 I think I will ask Doug to respond, but I think without doubt if you watch Sportsnet at all you know that it is home town teams in general which are of most interest to viewers. In particular, in Canada it is home town team hockey, if it exists.

1194 Doug, can you add to that?

1195 MR. BEEFORTH: I would be pleased to.

1196 Commissioner there was a study done by Angus Reid in 1999 where they asked Canadians what the most important sports were to them. Across the board the information that came back was that people want to watch their own home town teams.

1197 I will give you a specific example. Of those who were asked in British Columbia, 64 per cent said that the team they most wanted to see was the Vancouver Canucks. The next highest number was 8 per cent and it was some other team.

1198 That example is across the board, that folks who live in southern Ontario want to watch the Maple Leafs and the Raptors and the Blue Jays, and so on and so forth.

1199 As such, that is fundamentally what the most popular week-in and week-out sports programming is, and that is the games and events that involve people's home town teams.

1200 People get up in the morning and usually they are concerned about what immediately impacts them. Is there a garbage strike? Is there a strike so that my kids are going to be able to go to school or are the teachers on strike? Then they tend to worry about more worldwide things.

1201 The same thing with sports. People get up in the morning and they want to know did the Senators beat New Jersey last night. That is what people are most compelled by in sports. So that tends to be the most significant sports programming for a sports broadcaster.

1202 You ask about what exactly that programming does in the way of subscribers, subscription revenue and advertising revenue.

1203 Wayne, you can confirm this if I am incorrect, but the events that we put on the air, 64 per cent of our advertising revenue comes from the home town events that we put on. So you can see that the majority of our advertising revenue comes from these home town games.

1204 The same thing applies for our subscription revenue. We find from research that we have done is that the people who subscribe to our service, for example in western Canada, in Alberta, the reason they subscribe to it is because primarily they can get 48 Edmonton Oilers games, 26 Calgary Flames games, and then, in addition to that, they can get sportscasts that are regionally tailored to what they want to know about.

1205 I talk about people getting up in the morning and wanting to know whether the Senators won. Well, our sportscast would lead with the story about the Senators. So it is all founded in the notion of people are most concerned about what is going on in their own backyard.

1206 THE CHAIRPERSON: Right. So 60 per cent of your advertising revenues, that is what your subscribers want. So you then have to go out and acquire the rights to those programs.

1207 Relate to me how that works in practice, in terms of what you need to get in order to get the Edmonton Oilers home games or the Calgary Flames for the regional feed that you want.

1208 MR. BEEFORTH: The process is one whereby the teams -- we will use the Calgary Flames for example. The teams own the right to a certain number of their own games. They own the right to broadcast those games in their regional territory. They then look to obtain as much revenue as they can from broadcasters who are prepared to pay them a per game fee for the right to show that game on the broadcaster's channel. The broadcaster then makes their revenue from subscribers that they would bring in subscribing to the service based on the games that they show, and also from the advertising revenue from those commercials that they can show in those games.

1209 Maybe I can take a couple of moments and take a historical perspective here because I think this is fundamental to the reason why we are here to see you today.

1210 When we were in front of you in 1996 with the notion of what was then called S3 and has since morphed into Rogers Sportsnet, at that time, as I referred to in the in-chief presentation, it was a case where there was virtually no regional sports broadcasting in Canada at all. The Vancouver Canucks at that time had about 24 games broadcast; the Calgary Flames had 20 games; Edmonton Oilers had 24 games; Ottawa Senators had something in the neighbourhood of 16 games.

1211 The teams weren't very happy because they weren't able to get the type of revenue that their business plans called for because there just weren't the broadcasters out there that were interested in showing the regional games. The fans weren't very happy because they ended up having to listen to the games on the radio, which in the 1990s, as you can appreciate, we were more a television society than a radio society. We figured when we came to the Commission that we would be able to obtain the rights. We would be able to go to the Senators and the Flames, the Canucks and the Oilers, and obtain their rights for reasonable amounts of money.

1212 That was the foundation of our business plan and it was on that basis that $0.78 made sense.

1213 Well, things have changed and there are now more people at the table who can buy those regional rights. Any time there is more people at the table, prices tend to go up. So, as a result, the amount of money that it takes to purchase the regional rights to these programs that people most want to watch has increased significantly.

1214 THE CHAIRPERSON: Who else would be bidding on those rights you are talking about for the Calgary Flames for that region against you?

1215 MR. BEEFORTH: This goes back to the ghost at the table. Sports and sports programming operate this way, that there really is -- even though there are 24 hours in a day, and even though we as a sports broadcaster program 24 hours a day, the beachfront property or the high rent district in sports is a very short window. It is between 7:00 p.m. and 10:00 p.m., because that is when games get played. The Calgary Flames don't play during the weekday in the afternoon.

1216 As such, that means that if you really want to be able to show the most compelling sports programming, you really only need to be able to purchase programs within that very narrow window. If you are able to buy games that occur between 7:00 and 10:00 at night you can corner the market if you really wanted to.

1217 If a sports broadcaster had the right to do 10 per cent of the programming regionally, that sort of works out to allowing them to do six nights of the week between 7:00 and 10:00.

1218 Where that leads me to, Commissioner, is the ghost at the table is TSN. Because TSN now can buy regional rights. In fact, they have bought the regional rights to the Toronto Maple Leafs. Frankly, we have no assurance that going forward they wouldn't also choose to pursue the rights to the Vancouver Canucks or the Calgary Flames or the Ottawa Senators. If that is the case, if they are at a significantly higher basic fee than we are, I think it would be very difficult for us to maintain the rights.

1219 THE CHAIRPERSON: So on the point about the bidding for the rights, your point is that the ghost at the table has a split feed and can therefore program up to 10 per cent of its time, which works out to 12.6 hours a week, with regional programming.

1220 MR. BEEFORTH: That's right.

1221 THE CHAIRPERSON: Two rather than four I suppose.

1222 So you are saying that the Flames, the Canucks, go across the country, that that nevertheless represents a strong competitor against you for the potential rights to the Flames. Because on the record we see, and I think you have acknowledged, that the only property that they have actually acquired regional rights for is the Maple Leafs in Ontario.

1223 You are saying that the potential is there for them to do others and that constitutes the ghost at the table?

1224 MR. BEEFORTH: Yes, it does. Our calculations actually are that 10 per cent would allow a broadcaster to do 16.8 hours a week, if you measure over the whole broadcast day.

1225 MR. VINER: The only point I was going to make, Mr. Chairman, is that it forces the market rates to the right level, because if we are in negotiations with a team, if we don't pay market rates, if we try to get away with less than market rates, then they can take it to our competitor. Our competitor may choose to take that if it was below market rate.

1226 That is what tends to keep the market rates up, even though they are not necessarily bidding on every single property, or we on theirs, incidently.

1227 MR. BEEFORTH: Perhaps I can give you an actual example.

1228 When we were first launching and we were in the process of attempting to acquire the rights to the Vancouver Canucks, at a point in that negotiation where the Canucks were unhappy with the amount of money that we had offered for rights, they specifically let us know that TSN was also interested.

1229 Whether that is true or not is a moot point, because as soon as we hear that we know that we have two choices: We can either keep our powder dry and stay at the level and potentially not get this very crucial sports programming property,m or we have to put more money on the table to acquire it.

1230 THE CHAIRPERSON: Right. I was going to ask you whether you played poker or not, Mr. Beeforth, but I won't.

1231 I am still trying to figure out, how much does TSN carry on its two feeds that is different one from the other currently?

1232 MR. BEEFORTH: I wouldn't have the exact number of hours, however I do know that they carry approximately 30 Toronto Maple Leaf games within the Leafs regional territory, which is Ontario except for the Ottawa Valley.

1233 THE CHAIRPERSON: Do you know what they carry on the other feed at that time?

1234 MR. BEEFORTH: I believe it depends on the given night. Some nights they show wrestling, other nights they can show magazine programming.

1235 THE CHAIRPERSON: But only you can carry the Canucks and the Flames on the same evening for example, and the Senators on your Ontario feed?

1236 MR. BEEFORTH: TSN could carry the Canucks and the Leafs on the same night because of the time zones.

1237 THE CHAIRPERSON: But not the Flames.

1238 MR. BEEFORTH: Broadcasters, in partnership with teams, quite often can get start times changed. So perhaps the Leafs would play between 7:00 and 10:00 eastern time and the Flames game could start at eight o'clock in the mountain time zone, which then would allow them to also show their games too.

1239 THE CHAIRPERSON: You are saying that the quantity of time that they have available to them they could delay starts and take advantage of time shifts, of different time zones in order to schedule two games on a night?

1240 MR. BEEFORTH: Yes. They could do six games a week.

1241 THE CHAIRPERSON: They could do six days a week.

1242 How did you get your calculation of -- I said 12.6 you said it was higher than that. You were basing it on what?

1243 MR. BEEFORTH: The 24-hour day. The 168 hours in the week times 10 per cent.

1244 THE CHAIRPERSON: So the bottom line for you, as you see it, is that they are in there bidding against you and virtually on all properties you have pay top dollar in order to acquire the properties?

1245 MR. BEEFORTH: That is correct. Whether they are there or not, we don't always know.

1246 You mentioned about playing poker. If the guy I am playing poker with who owns the team's rights, he can lead me to believe that TSN is at the table for the rights and then it is up to me to try to decide whether it is true or not. That is a difficult decision to make.

1247 THE CHAIRPERSON: Who has the rights to the Raptors currently?

1248 MR. BEEFORTH: Currently we hold the regional rights to the Raptors.

1249 THE CHAIRPERSON: What would TSN show typically opposite the Raptors?

1250 MR. BEEFORTH: Some nights they would show Maple Leafs and other nights they could show an NHL game from their national package, they could show curling. They could show a variety of sports, it just depends on what else is occurring during that 7:00 to 10:00 p.m. period on that given night.

1251 THE CHAIRPERSON: Have you bought the Raptors regionally for the other parts of Canada currently?

1252 MR. BEEFORTH: No, because the Raptors regional rights are -- the Raptors only own the Province of Ontario. That is the only area that they are permitted to sell the rights to show their games within. The league itself, the NBA, can sell a certain number of Raptors games that they withhold from the team. They can sell them on a national basis so that they can be seen from coast to coast.

1253 THE CHAIRPERSON: Do they do that?

1254 MR. BEEFORTH: Yes, they do. We show some of those games nationally and TSN also shows some of those games nationally.

1255 THE CHAIRPERSON: Right.

1256 You mentioned in your brief as well, I guess, pay-per-view that bid on some of these games.

1257 If you were to get your rate increase and have more in your war chest to bid on those rights, why would that not continue in escalation? Why would the other side of the table not say "Well, that's great, there is an extra $160 million in here now" and suddenly the rates have gone up further and we all end up contributing to rights escalation?

1258 MR. BEEFORTH: It is a case, Commissioner, that like any business a professional sports team has certain revenue targets that are set and they have to meet. A portion of their annual revenue target comes from broadcast revenues.

1259 Sports, like any business, is competitive. If a team feels as though they are not able to reach the revenue target for the section of their revenue goal that is in broadcasting, if they can't get that from a sports specialty broadcaster such as us, they will -- because they have to for their business model, they will find other ways to bring in those dollars.

1260 When we sat here in '96, seven years ago, the whole notion of pay-per-view was fairly distant. Also, the concept of teams owning their own channels was not even a gleam in anyone's eye at that point.

1261 Well, here we are in 2003 and teams have the ability, if they can't get the type of revenue that they feel they need from broadcasters, they can, and they have, put games on pay-per-view and they can put games on their own controlled channels.

1262 Now, they prefer not to. If they can get the revenue from us they prefer not to go the pay-per-view route for a number of reasons. The most compelling is that teams prefer to -- we call it nest. They prefer to have their games on an all sports channel. What happens is, they then get the benefit of that channel's 24-hour schedule to promote the team and to support the team in other areas.

1263 The Vancouver Canucks are a large part of our programming schedule in Vancouver, but the Canucks have a profile on our station much larger than just the three hours when they are playing hockey. We do a weekly independently produced Canucks show. We do a lot of involvement in the community with the Canucks. So there is a value to the team to stay with us.

1264 But if the money is significantly different between what we can put on the table and what they need, that becomes a consideration for them that they won't --

1265 MR. VINER: If I can just add two quick points, Mr. Chairman.

1266 The first is that I am a little afraid that we are coming across as vilifying TSN. This is just the way it is. They are tough competitors and we like them and good for them.

1267 So I just wanted to be on the record, but we compete with them.

1268 With respect to your particular question: Why won't this just lead to further escalation in rights fees? I tried to respond earlier that I really do think they are the ghost at the table, and we are the ghost at their table.

1269 There was all kinds of speculation when the CFL rights were being renewed that we were being in a pact with the CBC and we were going to compete against TSN. All entirely fabricated by the CFL. But we are there.

1270 So I guess what we are trying to say is that we think market stability has been achieved. What has happened in Sportsnet is we have paid market rights for those rates. What we haven't gotten is any profit. Our shareholders have foregone profit in order to assure that we would have premium programming for a premium service.

1271 If you look at our projections for programming, they go up but then they stabilize. We think that we are fairly close to market stability now. So we don't think this is going to lead to some sort of an escalation in rights.

1272 We think we are pretty close to market stability, just for clarification.

1273 THE CHAIRPERSON: Analysts on the stock market have been saying the same thing for about two years.

1274 MR. VINER: That's right.

1275 THE CHAIRPERSON: I'm surprised you can say that with any degree of confidence.

1276 MR. VINER: But we do compete now so we have some sense. Some prices are going to go up, there is no question. If they do, we are going to have to do what we can do to maintain our position.

1277 THE CHAIRPERSON: You mentioned the CBC, Mr. Viner. Where do they fit in? Under what ghostly guise do they appear in these negotiations?

1278 MR. VINER: Again I will ask Doug to respond, but we are mostly in regional sports.

1279 MR. BEEFORTH: That is exactly right. The CBC deals in national rights and the programming that we spend the majority of our money on and the majority of our program time is regional.

1280 THE CHAIRPERSON: But don't the CBC do exactly what you said TSN could do, which is have western teams on western feeds, and so forth? In other words, regional split outs of their national rights?

1281 MR. BEEFORTH: They could if they chose to, however they have never displayed an inclination to program that way.

1282 THE CHAIRPERSON: That surprises me. Just as a viewer I frequently think I hear them say "Viewers in the west will watch the Canucks game after this and viewers in the east will watch the" --

1283 MR. BEEFORTH: Yes. I think that is the case, Commissioner, of on a given Saturday night the CBC would hold national rights to the NHL but they may choose to show different games in different parts of the country. So that the people in Toronto would see the Leafs against Senators, the people in Montreal would see Canadiens.

1284 THE CHAIRPERSON: I see. So to the best of your knowledge they are exclusively acquiring national rights.

1285 MR. BEEFORTH: Yes.

1286 THE CHAIRPERSON: Perhaps now is the time to raise with you the issue we listed in the Notice of Public Hearing and that is the criteria that you think ought to govern wholesale rate increases. Because as I hear you -- and if I am over simplifying you will correct me -- you are saying basically the reason we need this increase from $0.78 to $1.07 is that we have to compete for rights and make a profit and, with the market being what it is, if we don't have that source of revenues we can't make a profit and it is as simple as that?

1287 Does that sum it up?

1288 MR. VINER: It is very close. I would say it slightly differently. I would say that it is clear that $1.07 is the amount of money that we need in order to continue to provide a premium sports service and make a profit. We do compete with TSN and that is their level and so that is a good example to take, yes. That is a good benchmark.

1289 THE CHAIRPERSON: I take your point about nobody, I think, had understood you to be vilifying TSN, but you put that on the record.

1290 Let me ask you this question: If it had not been for the amendment to the TSN licence that allowed them to do the 10 per cent regional, would we be in the situation we are in today and would you be here before us?

1291 MR. VINER: No.

1292 THE CHAIRPERSON: That's a simple answer.

1293 MR. VINER: I can't say whether we would be here before you, but I can say that we wouldn't be in the position that we are.

1294 The Toronto Maple Leaf rights, we don't know what the cost escalation was. I was on the board -- we weren't in control, but I was on the board when Doug came to us and said "I would like to bid for the Toronto Maple Leaf regional rights. We think they are going for `X' and we think we will have to pay 1.5 `X'", and we understood that it went for 2 to 2.5 times "X".

1295 I'm not blaming anybody for that, but the ability to do one game a night six nights a week is an important factor in the competition.

1296 THE CHAIRPERSON: I'm trying to elicit criteria for wholesale rate increases from that and it seems to me we -- were you here for the previous applicant's presentation?

1297 They made the point which I took up in questioning about one of the stations on the satellite carriage list that has morphed, as they put it, into something that now competes with them for programming rights.

1298 By that logic I suppose you would say that that service that is now being competed against should be able to now come forward with a new rate criterion, which is: I am competing against those other guys in the marketplace, rights are escalating, they are the ghost a the table or I am the ghost at the table, and therefore I need what they get -- even though they are not a Canadian service, but this is what they have. You begin a completely competition-driven criterion, which is essentially: I need what it takes to compete.

1299 MR. VINER: We have tried to think of some things, Mr. Chairman, and it is not an enviable position that you find yourself in but, in any event, I think the three criteria that the Commission should look at are the popularity and the value of the service, the value of the service to the Canadian broadcasting system, is it a tier driver, is it a defence against grey and black market, and how widely popular is it.

1300 The second I think that is important is the cost of acquiring and producing Canadian programming. How much does Canadian programming cost you? How expensive is it? I think that is reasonable.

1301 I think the third criteria is sort of what is a reasonable return, within broad ranges. I don't expect that you would say 15 per cent or 22 per cent, but within broad ranges what is a reasonable return that ensures a high quality service, that ensures that there is a strong expenditure and what the cost is for Canadian programming and the profitability, the return to the shareholder.

1302 So those are the three that I would suggest. There might be many others.

1303 MR. YUTMAN: If I could just answer one of the concerns that you had mentioned about our competitor, would they be back at the table because of a rate increase.

1304 I think what Tony had mentioned earlier on was that we are already paying those rates and are competing with our competitor right now, so that won't change. In that essence we are not bringing a bottom line into our position.

1305 THE CHAIRPERSON: You are not asking for $1.08. I didn't ask that question and that wasn't my question. I suppose the ghost at the table could suggest that the acquisition of national rights is much higher because they have to compete against the CBC as well and therefore -- but that is for the future and that is hypothetical at this point.

1306 The escalation was in program rights as a result of a concrete decision. I think Mr. Viner answered that.

1307 Your third criterion: What is a reasonable return?

1308 MR. VINER: Boy, I would like to duck this if I can.

1309 Let me begin by saying we don't have one. We have lost $31 million over the course of our first five years.

1310 You know, specialty channels in Canada have margins that range from ours to 50 per cent, so it is hard to know. I think one distributor suggested 25 per cent. I failed to find in that particular intervention the suggestion of what theirs would be capped at. I may have just missed it. So that was sort of interesting.

1311 I can't say 20 per cent margin. It is difficult.

1312 Certainly you don't want to take away the incentive for us to be efficient operators and to, frankly, sell as much advertising as we possibly can. So I think that's tough.

1313 I guess you would have to satisfy yourself that we were running an efficient operation, that we were doing all we could to sell the advertising and -- perhaps that is not very helpful. I'm sorry.

1314 THE CHAIRPERSON: No, it is.

1315 To what extent should one take into account -- the CCTA raises this in their intervention, as I'm sure you know -- the relative balancing that one should do with respect to your reasonable return and their reasonable return in regard to the wholesale rate? To what extent should their situation be taken into account as well?

1316 MR. VINER: Well, I have great sympathy for the CCTA.

--- Laughter / Rires

1317 MR. VINER: I think if you read that back it will sound perfectly reasonable.

--- Laughter / Rires

1318 MR. VINER: Many of the distributors have margins that are 40 or 45 per cent, some of them do, and I do know that because of competition the Commission has deregulated retail rates. Some distributors have raised their retail rates and we would argue that part of those rate increases have been on the strength of the excellence of the programming that we have provided.

1319 We don't have the opportunity to recoup our expenditures and our investments, except at a hearing such as this and ultimately in negotiations with distributors, so it is a difficult situation when we are regulated and they are not.

1320 A hard question to answer.

1321 THE CHAIRPERSON: No, you are right about the basic rate by and large.

1322 They raise in their intervention at paragraph 3 -- and, again, they will have an opportunity to present it and you will have an opportunity to reply, but I wondered whether you wanted to comment at this point on their point an increasing imbalance in financial performance as between the specialties and the distributors. They say that:

1323 And they claim it is not sustainable.

1324 In the context of criteria now, do you have any comments, beyond your comments in reply?

1325 MR. VINER: Mr. Chairman, I would only say that I think that those comments generally are probably correct. I would equally say, though, that they don't apply to us.

1326 But no, it is difficult for me to comment.

1327 Again, I do point out the fact that the distributors aren't regulated in terms of their retail rates and we are with respect to our wholesale.

1328 I think it is a difficult decision, but I think the Commission has to look at all of the things that I said and then try to make a determination as to if a particular specialty service is making a big margin is it making it because of it is working hard or is it making it because it is sold cleverly or is efficient or through subscriber fees. Those are all things I think --

1329 THE CHAIRPERSON: What do you estimate a $0.29 increase would be passed through to the subscriber on in that unregulated world?

1330 MR. VINER: I'm not trying to duck the question, but I honestly don't know.

1331 There are some who would say that it has already been passed through because the retail prices have been raised and ours have not.

1332 But it is the Commission's view, and one I share, that the distributors are in a competitive market. They will pass through or not as much of that as the marketplace allows them to do and I think that is the reason why the Commission chose to deregulate.

1333 They may choose to pass through none of it or they may choose to pass through $2.00 of it.

1334 THE CHAIRPERSON: I guess you don't have the knowledge they have about what their intentions may be and that is the best you can do.

1335 MR. VINER: Absolutely. Again, I'm not trying to vilify the distributors, they have their own issues and they have their capital expenditures they have to make, the return on investment.

1336 THE CHAIRPERSON: Right. Do you think that the same criteria should be used for the alternate dispute resolution process under the BDU regs that is used -- the same criteria that you have enunciated here for me, should be used in that process as well?

1337 MR. VINER: Probably something close to that. I think in our system where there is both a right to access and a right to carriage I think the alternate dispute mechanism works.

1338 I think, as I understand it, both parties in any of those disputes argue to the Commission or to the staff the important elements and they bring into it what they think are important to the argument. That could be what is happening elsewhere, their treatment by other parties, the value of the service because of its popularity or lack thereof. But I think those criteria are helpful, yes.

1339 THE CHAIRPERSON: I should know this but I don't. What percentage of your subscribers receive service from BDUs as part of the basic tier and what a part of a discretionary service tier?

1340 MR. VINER: Thirty-four per cent. Julie knows the exact numbers.

1341 Julie.

1342 MS OSBORNE: It is 34 per cent.

1343 THE CHAIRPERSON: And 34 per cent is?

1344 MS OSBORNE: Basic.

1345 THE CHAIRPERSON: Thirty-four per cent is basic.

1346 So this rate that we are now talking about is the rate that governs the price at which the distributors acquire the service from you for 34 per cent of your subscribers?

1347 Is that right?

1348 MR. VINER: I would like Julie to add to this, but I think, as Mr. Switzer or Mr. Miller had said earlier today, it is the benchmark. Julie is the one that negotiates with the distributors.

1349 Julie, maybe you could talk about the wholesale rate on basic.

1350 MS OSBORNE: Yes.

1351 As Tony mentioned, it is 34 per cent of our base. That is largely Rogers and part of Shaw.

1352 On the tier carriage, we do find whether it is done absolutely direct calculation the numbers are grossed up from the basis to some kind of make whole-type calculation which establishes what a sensible tier rate might be. That seems to be sort of the starting point for rate discussion.

1353 THE CHAIRPERSON: Grossed up in what way?

1354 MS OSBORNE: To find out what would happen with a reduced number of subscribers that you lose from the basic carriage --

1355 THE CHAIRPERSON: To get make whole?

1356 MS OSBORNE: Yes.

1357 THE CHAIRPERSON: Okay. Thank you for that.

1358 Now, as part of your proposal I think you are suggesting that, in regard to sports at least, the one per genre policy of the Commission no longer has validity -- is that too strong -- or should be reviewed or should be changed?

1359 MR. VINER: Like music, Mr. Chairman, I think there are currently a number of players in the sports genre. Each has tried to address a particular niche. Each has provided the Commission with assurances that they are complementary to the other. So we do have, I think, more than one player, but I think that the Commission has tried to set out conditions of licence that ensure that there is differentiation between the players.

1360 That is a fact of life. There are a number of sports-oriented specialty channels, but each has a different constituency, or would argue that it does.

1361 THE CHAIRPERSON: You are not suggesting that your service changed from being a regionally oriented service to some general sports service?

1362 MR. VINER: On the contrary. On the contrary. We think that the success of the service, the success that really Doug and his team have built, is entirely -- it is called your home team. Our whole marketing is on the home team.

1363 Our strength in British Columbia is because we are a British Columbia service to those viewers. They don't think we are a national service, they think we are a home team service.

1364 THE CHAIRPERSON: Okay. So you are basically not asking for a change in your nature of service conditions, you are not asking for a change in your service orientation, so what are we to understand by your comment about the one per genre service no longer being pertinent in sports? How are we to take it for purposes of this application?

1365 MR. VINER: Mr. Chairman, I think that we have established our place within the sports genre. My comments were an acknowledgement of what I think. But the Commission has carefully set out conditions of licence as they relate to Sportsnet and TSN and The Score and Maple Leaf hockey and all of the others, and I think that has been done in an appropriate way.

1366 So we are not asking to change that balance or become a general sports service. We are not -- the difference between ourselves, the sports genre and music, is that music is sort of one owner. CHUM controls a large number of those licences and does very well. In our case there is different ownership and I think that is strong and healthy for the system.

1367 So I have no complaint with it, nor are we asking for a change in our condition.

1368 I think that the Commission has carefully set out checks and balances and they are working. They are working to ensure that we are not all duplicating one another.

1369 THE CHAIRPERSON: Right. But the border patrols are sometimes exhausting.

1370 MR. VINER: I'm certain of that.

1371 THE CHAIRPERSON: Turning to your other request, which was for quarterly assessments rather than weekly.

1372 How will this affect (a) your daily schedule and (b) your financial situation?

1373 MR. VINER: I'm going to ask David Akande to respond to you, Mr. Chairman.

1374 MR. AKANDE: Mr. Chairman, with respect to our request and our schedule, the request comes basically to gain flexibility.

1375 There are occasions with some frequency, once a year, twice a year, where there are international tournaments, the Women's World Cup, for example, or the World Cup of Rugby, where over a month period there are a series of matches. Under our current reporting structure it is somewhat difficult to get all those matches in because, admittedly, we telecast those matches national.

1376 So in terms of the effect of our schedule, generally it would have no effect because the occasions aren't frequent. But when these occasions do arise, such as the World Cup of Rugby, which is coming up this October, for a month period we would like to gain the opportunity to get as many games in as possible, but still at the end of the quarter we would still have the same amount of regional content as previous, as if we were measured weekly over that cumulative period.

1377 THE CHAIRPERSON: So this would be for your live sports as distinct from your news features and presumably magazine features that you discussed earlier, Vancouver Canucks, and so forth. Those would continue, it would just be for the live sports coverage that you would be able to bunch them up, so to speak, within the period in which they are carried and then spread the regional carriage over the rest of the quarter?

1378 MR. AKANDE: It's a combination of them, yes. The events such as rugby, yes, it would be the live event over that month period in the example. We would still -- well, I will use rugby as an example.

1379 In October we will still be carrying regional NHL hockey, so in Pacific they will still have all the Canucks games, in the west they will still have all the Oilers and Flames games.

1380 During the day, because it is an international event taking place in Australia, we would like to get in as many games as possible, including coverage of Canadian games. So what this affords us is the opportunity to take in all those games.

1381 THE CHAIRPERSON: So this would give you a competitive bidding opportunity against, say, TSN, which under the present situation, if you carried all that, you would be off that week on your regional requirement.

1382 MR. AKANDE: That is correct.

1383 THE CHAIRPERSON: Okay. So again, regional and national converging in a kind of way, decision-by-decision.

1384 MR. VINER: I know that you would want me to point out, Mr. Chairman, I believe that TSN's regional responsibility is quarterly.

1385 THE CHAIRPERSON: Right. Thank you for pointing that out.

1386 I think I understand your point on that on. That is basically it.

1387 As a programmer, Mr. Akande, you are satisfied that that wouldn't upset viewer's expectations about regional coverage. They would think of it as a special bonus, wouldn't they?

1388 MR. AKANDE: Oh, absolutely.

1389 THE CHAIRPERSON: Moving to closed captioning, apparently you are not willing to commit to 90 per cent captioning immediately. Why is that?

1390 MR. VINER: Perhaps I could ask Andrea Harrick to describe our closed captioning efforts. It is a little different when we have four channels, but --

1391 Andrea.

1392 MS HARRICK: Yes, thank you.

1393 Currently we are at an 80 per cent captioning rate. The difficulty that we are having is the fact that our physical plant won't enable us to caption more than two events simultaneously. So at any given time, if there are more than two live events going on at the same time we are only able to caption two of them.

1394 But currently we are at an 80 per cent captioning rate.

1395 THE CHAIRPERSON: Eighty per cent?

1396 MS HARRICK: Yes.

1397 THE CHAIRPERSON: You reach the 90 per cent level when?

1398 MS HARRICK: I believe we are going to be reaching the 90 per cent rate by the end of the licence term.

1399 THE CHAIRPERSON: By the end of the term.

1400 MR. BEEFORTH: Just for clarity, the proposal we are making is years one to three at the 80 per cent and then we would be up to 90 per cent by year four.

1401 MR. VINER: We have a particular challenge, Mr. Chairman.

1402 THE CHAIRPERSON: On all feeds? On all four feeds?

1403 MR. BEEFORTH: Yes.

1404 Sports is a challenge to caption because so much of it happens in real time. A broadcaster in another genre has the ability to bring in a program, a drama program, because it is complete before it goes to air and they can take the time required to properly caption it. So much of our programming happens at the same time as it has to be captioned and it is a challenge.

1405 We are prepared to step up and do it, we are just looking for a three-year ramp up to the 90 per cent.

1406 THE CHAIRPERSON: Is the basic reason cost?

1407 MR. BEEFORTH: Cost is a large part of it but, as Andrea says, it is also infrastructure. We have four feeds that are 24-hours a day, seven days a week. Right now our set-up enables us to do two live events at a time.

1408 Another part of it too is just expertise that is out there. There aren't a lot of people out there right now. We are hoping that we will be able to help this area develop, but there aren't a lot of people out there right now that do live captioning.

1409 MS HARRICK: If I could add to Doug's point too, currently we program over 13,000 hours, 80 per cent of which needs to be captioned. That is 11,000 hours. Compare it to that of a single-service feed, they program over 6,500 hours and 80 per cent of that is 5,000. So there is a significant difference in captioning there.

1410 THE CHAIRPERSON: Are you factoring in the overlap of the four channels?

1411 MS HARRICK: Yes.

1412 THE CHAIRPERSON: You are. So you are just taking the increase, the regional difference and adding it to the core two-thirds roughly.

1413 MS HARRICK: Yes.

1414 THE CHAIRPERSON: Sensitivity to children in terms of scheduling and viewers and viewer advisories.

1415 Do you have any guidelines in place for that, with respect to potentially problematic programming like WWE?

1416 MR. AKANDE: WWE admittedly initially was a challenge, but we specifically scheduled to adhere to guidelines, both externally set and our own interpretation of such. Specifically what I mean is programming WWE product, for example, late in the evening, Saturday evenings post nine o'clock.

1417 "You Gotta See This" is another program that we have programmed with notices before the airing of the program.

1418 THE CHAIRPERSON: I'm sorry, did you answer my question about guidelines?

1419 MR. AKANDE: Specifically we have scheduled it post nine o'clock to adhere to suggested guidelines.

1420 THE CHAIRPERSON: But other than that, you don't have internal guidelines beyond that, that one-off for WWE?

1421 MR. AKANDE: Generally the nature of our programming is such that WWE is about the only content that I can think of that might be of concern.

1422 So broader guidelines, no, we haven't created broader guidelines.

1423 THE CHAIRPERSON: Turning to your under-represented sports category, you made a commitment last time to carry 27 per cent. I think you said, Mr. Viner I believe, that you had met that.

1424 MR. VINER: We did.

1425 THE CHAIRPERSON: You said 41 per cent of non-news programming. What does the "non-news" part mean?

1426 The 27 per cent didn't relate to non-news programming, did it?

1427 MR. VINER: I will let Doug and David expand on this, but essentially it is difficult to first analyze the news programming. I think David and Doug will tell you that we easily surpassed the 27 per cent in non-news programming, but it is hard to pick it out of the schedule unless you play back every newscast. So that is why we have tried to be precise with respect to the non-news programming.

1428 The decisions that we make on a daily basis with respect to news relate to what is of interest to the audience.

1429 Doug.

1430 THE CHAIRPERSON: If you assume that all your news programming is not under-represented, what would be your worst case? What would the number be overall?

1431 MR. VINER: If there was no under-represented in the newscast?

1432 THE CHAIRPERSON: Yes. Assume that just for purposes of this.

1433 Would you have complied with the 27 per cent?

1434 MR. VINER: Doug tells me no, so I don't know the answer.

1435 THE CHAIRPERSON: So you have to factor in the bits of the news that may cover under-represented sports.

1436 MR. BEEFORTH: Commissioner, we are very confident that we would be at, within those news shows over the course of the year if we went through the exercise, at the 27 per cent.

1437 It depends, as Tony says, on what is happening on a given day.

1438 Last week under-represented sports on some of our sportscasts would have had a high position in the editorial line-up because the World Indoor Lacrosse Championships were on. Canada was playing, playing very well. There was a team from the Iroquois Nation that was playing in it. So that is an under-represented sport that not only would it get exposure in the sportscast but it would be near the top of the sportscast.

1439 We are pretty confident that we are onside in this area.

1440 MR. VINER: I think, Mr. Chairman, it makes sense that if 41 per cent of our schedule is under-represented sports, we are going to have to report that in the news. If we are carrying the event, we are going to consider it newsworthy.

1441 THE CHAIRPERSON: So in keeping with time-honoured Commission tradition, is that your new floor for the next licence term, 41 per cent?

1442 MR. VINER: The 27 per cent, absolutely.

1443 THE CHAIRPERSON: Forty-one per cent non-news and --

1444 MR. VINER: In keeping with the time-honoured broadcast response to this, we require the flexibility to ensure --

--- Laughter / Rires

1445 MR. VINER: -- that from time to time -- fill in the blanks.

1446 We think we have demonstrated that I think we have done a good job and we would like to continue.

1447 THE CHAIRPERSON: So your commitment is to that level going forward?

1448 MR. VINER: To the 27 per cent, yes. And we will continue to try to exceed that whenever possible.

1449 THE CHAIRPERSON: Those are my questions at this stage. I will have more on reply.

1450 Other Commissioners. Commissioner Colville.

1451 Commissioner Colville.

1452 COMMISSIONER COLVILLE: Thank you, Mr. Chairman.

1453 In responding to one of the early questions from the Chairman Mr. Hurley talked about, I believe it was some sort of survey that was done in which Sportsnet, if I recall correctly, beat out TSN in terms of advertising revenue per rating point.

1454 I guess this relates to the issue that the Chairman was pursuing in terms of this question about how we arrive at appropriate benchmarks, I guess if you will, for testing the reasonableness of rate increases and the extent to which you or other services have, shall we say, maximized the opportunities from other sources of revenue before we might consider granting a rate increase.

1455 I appreciate it is somewhat taxing for you and your colleagues to have to appear before us perhaps once every seven years, but once it is over you can say "We did our job". But presumably the sales guys and girls are on the front line every day.

1456 I guess thinking about that I was wondering about that benchmark and other similar benchmarks that either you, Mr. Viner, or Mr. Beeforth might use to measure how successful we are operating as a business, setting aside the regular revenue we can count on from our feed.

1457 Are there other benchmarks that we can look to to try to satisfy ourselves that you, or other service for that matter, are doing all they can and should in order to be able to maximize their revenue opportunities from other sources than the fee itself?

1458 MR. VINER: I would certainly ask Doug and Joe to comment on this. It is difficult, there is no question.

1459 The nature of the programming that is on a particular service sometimes it has a broader audience and so the amount that they may relatively bring in from advertising may be greater or less. The revenue per point we thought was a reasonable way. There are a certain number of rating points that we generate and what we sell them for is sort of indicative of the fact that we have made an investment in trying to promote these.

1460 I don't know if there is any other criteria on which we might base it.

1461 Joe, I don't know if you have a comment on other benchmarks that you might use?

1462 MR. HURLEY: Maybe I could ask the Commissioner for a little more clarity. I just want to understand exactly what was being asked.

1463 Is this additional benchmarks that we might have within the framework --

1464 COMMISSIONER COLVILLE: That one. Is that a reasonable benchmark for us to be considering. Even with that one, the fact that you beat TSN, could you have even done better on that one?

1465 MR. HURLEY: Okay, I understand.

1466 The reason I really like that particular one is because it levels the playing field and it really speaks to capacity for maybe other capacity or rate for the channels that are below us. So somebody well down the list either is selling their inventory a lot cheaper or has a lot more inventory out there available to sell.

1467 Judging by the fact that specialty has been growing at a fairly significant and robust level over the past few years, that is to me the sign that there is more inventory available to sell.

1468 So for us, if you are close to the top of that particular chart, it means either you are maximizing your rate or you are very close to capacity or maybe even both. In our case I would suggest to you to get to the top you have to be selling almost all of your inventory, and that is currently where we sit.

1469 That is why I made the comment about rate. That is another opportunity, but one that is incredibly risky.

1470 Did I answer your question?

1471 COMMISSIONER COLVILLE: Yes. I am just having trouble trying to listen and think at the same time, that's all.

--- Laughter / Rires

1472 COMMISSIONER COLVILLE: So do you think that is a good measure for us to be considering, then, in terms of thinking about whether your service in particular -- and say you relative to TSN -- are doing all that you can or should relative to maximizing your opportunities there so that we can have that sort of satisfaction before we say "Okay. Well, they seem to be running an efficient operation, they are maximizing their revenue opportunities and we can think about whether a fee increase is appropriate or not."

1473 Because maybe it is too easy to just come for a fee increase. Not that you probably find it easy here today.

1474 MR. VINER: No, look, we absolutely agree, it certainly is a good benchmark. Should it be the only one? There are probably people more expert than myself to answer that, but it is certainly a good benchmark. It does take into consideration, as Joe has said, the rating that you actually generate. I think it is a good one.

1475 Cost per point is sort of something that the advertising industry looks at. It is an abundance of caution just to say it is the only one, but it is one we would use.

1476 When we evaluate how successful we should be that is a criterion that we use.

1477 COMMISSIONER COLVILLE: Thank you.

1478 Thank you, Mr. Chairman.

1479 THE CHAIRPERSON: Thank you.

1480 Vice-Chair Wylie.

1481 COMMISSIONER WYLIE: Thank you, Mr. Chairman.

1482 You filed projected subscriber revenues on the basis of the status quo and on the basis of a 29 per cent rate increase. It is divided as between basic, discretionary and DTH.

1483 For basic I assume you have used the $0.29 increase in the rate increase and multiplied it by your approximately 34 per cent of the subscribers. When you do the calculation it is about right, the difference between the two.

1484 What did you use to calculate the difference with a 29 per cent rate increase in the case of discretionary?

1485 MR. VINER: Wayne you can correct me, but that entire model is based on parity with TSN. So it is based on the parity on basic and what we understand is the rate that TSN charges on --

1486 COMMISSIONER WYLIE: It is parity with TSN in the sense of -- do you know what the BDUs negotiate with TSN on discretionary in all cases?

1487 MR. VINER: No, we don't know in all cases. It is based on our very best guess.

1488 COMMISSIONER WYLIE: To what extent is it the make whole of looking at the number of subscribers and saying "Well, at the end of the day we want to make as much money as if you were on basic at $1.07?

1489 MR. VINER: I think that is the basis of the calculation, but I believe there is a premium related to the lower advertising that you might attract with the fewer viewers.

1490 COMMISSIONER WYLIE: Would that show in those calculations or is it a straight calculation of an additional more than $0.29 where you have fewer and you want to end up with a $1.07 for each?

1491 MR. VINER: It is essentially what we believe is parity and the parity essentially is a make whole calculation. I think there are other factors that go into that "make whole" calculation, but that is essentially where the numbers for the tiers come from.

1492 COMMISSIONER WYLIE: You say 35 per cent are on basic and largely Rogers. Are there other BDUs who have you on basic?

1493 MR. VINER: Julie, can you give us the list?

1494 MS OSBORNE: Of the major distributors it is on basic with Shaw in Vancouver and Access in Regina.

1495 COMMISSIONER WYLIE: Yes. In which cities, Regina --

1496 MS OSBORNE: Regina. And there are a couple of smaller communities around there which is Access Communications.

1497 COMMISSIONER WYLIE: In Saskatchewan. And that's it?

1498 MS OSBORNE: Yes.

1499 COMMISSIONER WYLIE: And then the Rogers system.

1500 MS OSBORNE: And a number of very small markets that really don't affect -- some of the smaller Persona systems and places like that, but of the top 10 that is it.

1501 COMMISSIONER WYLIE: On the Rogers system that have Sportsnet on basic, where is TSN?

1502 MS OSBORNE: First tier.

1503 COMMISSIONER WYLIE: Your other request is to calculate the regional programming monthly rather than -- is it monthly or quarterly?

1504 MR. VINER: Quarterly.

1505 COMMISSIONER WYLIE: Quarterly rather than monthly.

1506 MR. VINER: Quarterly rather than weekly.

1507 COMMISSIONER WYLIE: Rather than weekly.

1508 Give me some examples of how that has made it difficult for you, this calculation. Of course, unless I can do this myself you probably won't offer it, what would be the outside result of the ability to have no regional programming in one week?

1509 Would you be prepared to do that? What would be a result in one week, let's say, that would mean that there would not be a regional program, there would not be a regional service during that week.

1510 What has caused this request and what is the worst thing that it can produce in terms of not having regional programming?

1511 MR. AKANDE: It would never happen. In terms of our audience, we love being a regional service. It delivers a strong audience.

1512 In the example that I used with the Chair, the World Rugby Championships, we would still have at that time -- it coincides with the start of the NHL season. We would still have all our regional hockey with the Vancouver Canucks, the Calgary Flames, the Edmonton Oilers, the Ottawa Sens, and so on and so forth.

1513 In terms of delivering our audience, our best performance comes out of our regional product. So we would never have an instance where we would not have regional programming.

1514 MR. BEEFORTH: Perhaps I can give you a specific example of how the situation stands now and how if we could get a quarterly measurement we would be able to make good use of the flexibility.

1515 If we right now were looking at a rugby tournament that was taking place over, let's say, a three-week period, and if it was an international tournament, there would be no question that we would show the games that involved Canada.

1516 But then once we get to the games in the tournament that involve, for example, France against New Zealand, we would have a dilemma on our hands because it could be that we would say "Well, we can't show that game between New Zealand and France because if we do we will be offside this week with our regional programming."

1517 As a programmer that gives me heartburn because I'm saying to myself "I'm not sure that is the best way to program the channel for my viewers. I'm not sure that is the best thing for under-represented sport because now this rugby game that is at a very high international level between New Zealand and France won't make it to air because I have this regional obligation that I have to pay attention to. That doesn't serve the people of Canada who may have some kind of connection or affinity for France or New Zealand's rugby team."

1518 If we can do it quarterly, then we would say "Yes, we will put that game on between France and New Zealand. Nobody on the regional side is going to be shortchanged because we would still do, over the period of the quarter, the same amount of regional programming. It just allows us to do a better job, frankly, with under-represented sports.

1519 That flexibility will just allow us a more expansive horizon to make decisions about programming. Regional programming will not be hurt because we will still do the same number of hours, but we will be able to do a better job than the already good job we are doing on the under-represented.

1520 COMMISSIONER WYLIE: Have you considered a monthly basis instead? Why go to three months if the concern is to ensure that you continue to be regional most of the time, especially if you get more money to trip your ghost?

1521 MR. BEEFORTH: The quarterly measurement was actually to line up with some of the other measurements Tony talked about earlier with some of our competition, that some of their requirements are measured on a quarterly basis.

1522 COMMISSIONER WYLIE: You choose quarterly not because you looked at whether monthly would give you sufficient additional flexibility.

1523 What would be your reaction if the Commission thought, well, we will have greater comfort that this will keep to its mandate if we calculated it monthly, not as restrictive, but not as flexible?

1524 MR. BEEFORTH: Monthly certainly is better than what we have now.

1525 Looking into my crystal ball I would say would there ever be an instance, then, where there would be two elite-level world tournaments that happen within the same three month period, because if that did happen -- let's say for example between July and October of a year if you had a rugby tournament and a women's international soccer tournament, if we are doing it monthly I'm not sure we would have the flexibility quarterly. We may have.

1526 Certainly monthly is better than weekly.

1527 COMMISSIONER WYLIE: Has that instance occurred where if you had had monthly you would still be stymied in not being able to do what you wanted?

1528 MR. BEEFORTH: No, not in the history of our channel.

1529 COMMISSIONER WYLIE: It hasn't happened?

1530 MR. BEEFORTH: No it has not, no.

1531 COMMISSIONER WYLIE: How likely is it to happen?

1532 MR. BEEFORTH: I would never say never, but probably less likely than more likely.

1533 COMMISSIONER WYLIE: Would you agree if you were sitting in our place that it would be a greater level of comfort that your mandate would be followed each and every week?

1534 MR. BEEFORTH: I guess, Commissioner Wylie, the thing I would like to be kept in the forefront of the Commission's mind is our lifeblood is regional programming. It is what makes our advertising revenue, the lion's share of our advertising revenue, it is our point of difference, it is what makes us in British Columbia the number one sports channel. It's what we are. For us to step away from regional, I would have a difficult time understanding why we would do that.

1535 I just sort of lay that out to try to give you some comfort that regional isn't something we are trying to back away from here. We love being regional because we have found that it really has rung the bell for Canadians.

1536 If a monthly measure of the under-represented is better, then fine.

1537 MR. VINER: I'm the only one who can do that.

1538 MR. BEEFORTH: Okay.

1539 MR. VINER: Yes, sure, a month would be fine.

--- Laughter / Rires

1540 COMMISSIONER WYLIE: What you are really saying is your service is where it is at financially because TSN is allowed to bid on regional programming and you wouldn't be here asking for a rate increase if TSN didn't have that power.

1541 MR. VINER: It is certainly one of the factors. It has driven up the cost. I said I wasn't sure that I would be here. I don't know whether I would be here or not.

1542 Sports programming costs have escalated, there is no question about it. Sports teams need more money, more revenue.

1543 What we are here trying to preserve in the system the place for sports specialty programming so that it doesn't migrate to pay-per-view. There are a number of factors that have driven up the costs of sports programming.

1544 I may have been too flippant in my response to the Commission.

1545 COMMISSIONER WYLIE: When you are talking about gravitating to pay-per-view, et cetera, we are talking about losing the subscriber who, as the world develops -- and this was one of the positions of CHUM earlier today -- every time we allow a rate increase, especially for those who have it on basic, they absorb the cost basically.

1546 MR. VINER: We think that absorbing a $0.29 cost increase is preferable, in our view, to the viewers in Canada who would be faced either with a $10 game -- again, we don't always constantly want to use the B.C. example, but there was an example of a Toronto and Vancouver game that was on pay-per-view on New Year's Eve and the controversy that it created. Equally, there are now digital channels owned by sports teams.

1547 So the viewer might be faced with a $10 cost on a pay-per-view, or a $10 subscription to a digital channel if they wanted their Toronto Maple Leafs or their Calgary Flames. So we are aware that, yes, this is a big increase and that some of this cost is passed along to subscribers.

1548 But on balance we believe that subscribers are better served by paying an extra $0.29 for a service that gives them Blue Jays, Leafs, Ottawa Senators, than having to sort of pick and pay for a $10 pay-per-view or subscribe to an extraordinarily expensive service owned by the teams.

1549 COMMISSIONER WYLIE: I live in Ottawa, it is $0.29 this time, it was $0.78 the last time for a sports channel. So positioning in the future, the subscriber eventually -- there is a problem, but that is your business sense and you are the ones who decide, and so does the BDU, whether to pass all of it, as you said earlier, or not.

1550 I was curious by your comment when you said "We are regulated and BDUs are not." But your wholesale rate is only regulated on basic.

1551 MR. VINER: That is absolutely correct.

1552 COMMISSIONER WYLIE: So you are not really regulated on discretionary, it is just the way things are negotiated.

1553 MR. VINER: That's right. I think, as Mr. Switzer said earlier today though, the wholesale rate is at least the place from which they start. That has been Julie's experience in talking to BDUs.

1554 COMMISSIONER WYLIE: Of course he looked good with his $0.03.

1555 MR. VINER: Mr. Switzer always looks good has been my experience.

1556 COMMISSIONER WYLIE: Thank you.

1557 Thank you, Mr. Chairman.

1558 THE CHAIRPERSON: Thank you.

1559 Commissioner Pennefather.

1560 COMMISSIONER PENNEFATHER: Thank you, Mr. Chairman.

1561 I understand that in responding to questions or in your application regarding described video you take the position that it is a form of programming a genre in which described video is less necessary because of the commentary, et cetera, although some of the categories that you have would perhaps allow for described video.

1562 In that discussion you say that described video would require a third audio channel, if I understand, and that this would be of great expense.

1563 Can you give us a sense of what that expense would be?

1564 MR. BEEFORTH: It goes to this issue, Commissioner, and that is that on regular satellite feed there are two audio channels which we use now. For us to do what you are referring to, we in fact would have to then buy additional satellite time for the third audio subcarrier and that would be multiplied by four because of our four feeds.

1565 I don't have the exact amount of money that it would cost right in front of me right now, but satellite time on a permanent basis is not cheap. It is a significant cost for us on an annual basis.

1566 That is where the requirement for the money would come from, would be we just can't add it onto what we have now, we actually have to buy more transmission time in space.

1567 COMMISSIONER PENNEFATHER: Okay. It seems to be a point that is raised frequently and I am curious to know, particularly from your position, if you had any further detail -- on not just the technical answer which I realize is the third audio channel, but what the cost of that is.

1568 MR. VINER: We could certainly file that with you, Commissioner.

1569 I think our point only is that the vast majority of the programming that is on Sportsnet is accessible because it is described because it is play-by-play or it is news. I think that was our main point.

1570 COMMISSIONER PENNEFATHER: I understand. I was also asking from perhaps a corporate point of view. Being the major player in the business that you are you may have that information.

1571 One other question.

1572 I think I understood the response on the WWE question as one that said that "We deal with this matter by scheduling WWE late in the day".

1573 Was that your answer?

1574 MR. AKANDE: Yes, that is correct.

1575 COMMISSIONER PENNEFATHER: And that there are no guidelines regarding this kind of programming generally to guide programmers in terms of the timing of this kind of show.

1576 Is that correct? You don't have any internal guidelines to that effect?

1577 MR. AKANDE: That is correct.

1578 MR. VINER: We adhere to the CAB guidelines of course.

1579 COMMISSIONER PENNEFATHER: My concern was, would you care to comment on the fact that it is possible however, even if you schedule wrestling, WWE or any other version of WW, late in the day, with the possibility that digital viewers may get four different feeds this programming, although scheduled late on one feed could be seen earlier on another. Do you think scheduling, then, is a sufficient enough way to deal with the possibility that children could be watching WWE at 4:00 in the afternoon?

1580 MR. AKANDE: Well, it wouldn't be as early as 4:00 in the afternoon. At earliest it would be 6:00. But it is certainly something that we would look at in terms of the out-of-market, the possibility of out-of-market viewership,

1581 COMMISSIONER PENNEFATHER: The wrestling that is on the schedule of November 18 to 24, 2002 at 5:00 in the afternoon, is that WWE or another version of the wrestling phenomenon?

1582 MR. AKANDE: There is some replay of wrestling from time to -- on Sundays. The original airing is Saturday evening. In the past there has been, on occasion, replays on the Sunday afternoon.

1583 COMMISSIONER PENNEFATHER: That is what I have for east and Ontario schedules that I was looking at, 5:00 in the afternoon on Sunday. Is that WWE that is played late, at 11:00? Is it the same programming, the same version of WWE?

1584 MR. AKANDE: The WWE product with disclaimers does receive three airings, you are correct.

1585 COMMISSIONER PENNEFATHER: Thank you.

1586 Thank you, Mr. Chairman.

1587 THE CHAIRPERSON: Thank you.

1588 Commissioner Grauer.

1589 COMMISSIONER GRAUER: Thank you.

1590 I have a couple of questions. The first thing is this whole issue of parity with TSN.

1591 Do I understand correctly with your four feeds you are the only service in the country that can sell those four feeds discretely, individually and that arguably that enhances your revenue generating opportunities through advertising?

1592 MR. VINER: I can't speak to the only ones that -- the only one that has four. I think that others do sell discrete feeds.

1593 But you are quite right, Commissioner Grauer. I would only point out that we have 1/4 of the country. So we can sell four feeds, but they are only shown in one-quarter of the country. So if you add it all together it is like TSN or anybody else.

1594 It doesn't confer, in our view -- it doesn't confer a huge advantage. It confers a huge advantage because the programming is of particular interest to the people in that region and so that is important to us.

1595 But in terms of just heavyweight numbers, you can sell separately in B.C. in the west, Ontario in the east, or you can sell it across Canada, the numbers are the same. And we do sell a combination of national and some regional.

1596 COMMISSIONER GRAUER: In talking to advertisers, they will tell me that it is the only service in which they are allowed to buy separate feeds and that this is very attractive to them. They would like more of that. So they would consider that an advantage.

1597 I just wanted to make sure that was --

1598 MR. VINER: And we consider it an advantage, but it is an advantage to an advertiser who wants to buy British Columbia but doesn't want to buy the whole country.

1599 COMMISSIONER GRAUER: In an earlier response to the Chairman -- and I just want to make sure I understand this -- he asked would you be here but for the amendment that was granted to TSN with respect to this regional programming. I think you said, no, we wouldn't be here but for that.

1600 MR. VINER: I amended that under questioning by the Vice-Chair.

1601 COMMISSIONER GRAUER: Oh, you did.

1602 MR. VINER: Look, it is clearly the sort of watershed event but I, as I often do, get into trouble for being flippant.

1603 There is the spiralling cost of sports programming, not just in Canada but all over the world globally, that wasn't anticipated and hasn't been anticipated. So I apologize to you and to the Commission.

1604 COMMISSIONER GRAUER: Oh no, that's fine. Because what had occurred to me when you were talking about the examples of the scheduling was that TSN, absent that, could still have bought the regional rights for a Toronto Maple Leafs game, scheduled them at 7:00 p.m. live -- if I am correct. No?

1605 MR. VINER: No, they can only show them in Ontario. They can't show them nationally.

1606 COMMISSIONER GRAUER: The same would apply to the Canucks?

1607 MR. VINER: The same would apply to the Canucks.

1608 COMMISSIONER GRAUER: I'm glad I asked this question. Now I understand it.

1609 Those are my questions.

1610 THE CHAIRPERSON: Thank you.

1611 Counsel.

1612 MR. WILSON: Thank you, Mr. Chairman. Just two things to clarify.

1613 In the response to the Chair's question with respect to the 90 per cent closed captioning, I think there was a reference to either physical plant or infrastructure difficulties that prevented moving immediately to that 90 per cent figure.

1614 Can you elaborate on what those are?

1615 MR. VINER: I will ask Andrea Harrick to do that.

1616 MS HARRICK: Currently if there are more than two live events going on at the same time we are only able to caption two events. That is just because of the technical infrastructure that we have in place.

1617 That has since been amended. We are not able to caption three live events simultaneously.

1618 MR. WILSON: Just one further question to follow up on.

1619 With respect to your discussion with the Chair about the 27 per cent commitment to under-represented sports, do you have any comments of the possibility of the Commission making that 27 per cent a condition of licence?

1620 MR. VINER: No.

1621 MR. WILSON: I have no further questions, Mr. Chair.

1622 THE CHAIRPERSON: Mr. Viner, just one final question.

1623 In the Notice of Public Hearing we said we would examine the criteria to be used in setting wholesale rates. You and I did that before. We discussed substantive criteria and you offered some.

1624 We didn't discuss procedural criteria, where instead of setting the wholesale rate by condition of licence we perhaps allowed it to be settled by the process set out in sections 12 to 15 of the BDU regs, namely by some form of dispute settlement resolution where typically each of the parties would propose a rate and that would be the rate that would be established.

1625 I take your point that you made before about the benchmark, but what would be your views about letting market forces prevail subject to dispute resolution at the end of the day if you couldn't reach agreement?

1626 MR. VINER: Certainly an interesting concept.

1627 I guess I get back in a context of right to access and right to carriage these disputes will inevitably wind up in an alternate dispute resolution mechanism.

1628 I think is this the right forum for you to discuss with us the things that we have done and haven't done and our plans and have that in part guide your thinking, or is it better to be done in a dispute resolution setting?

1629 We are fine with either.

1630 In the event that it was a purely commercial negotiation, where there weren't rights to access and there weren't rights to carriage, sports services have done very well indeed.

1631 I'm just concerned we might end up back in the same place, but that is an interesting concept.

1632 THE CHAIRPERSON: Thank you.

1633 Those are all our questions. We will see you again in reply.

1634 Thank you very much for that very thoughtful presentation.

1635 MR. VINER: Thank you for your time.

1636 THE CHAIRPERSON: We will break now for 15 minutes and resume at 5:30 with the next item. Nous reprendrons à 17 h 30.

--- Upon recessing at 1710 / Suspension à 1710

--- Upon resuming at 1730 / Reprise à 1730

1637 THE CHAIRPERSON: A l'ordre, s'il vous plaît. Order, please.

1638 Mr. Secretary.

1639 MR. LeBEL: Thank you, Mr. Chairman.

1640 Item 4 in the agenda is an application by Teletoon Canada Incorporated to renew the licence of the national English and French-language specialty television services known as Teletoon/Télétoon expiring 31 August 2003.

1641 The licensee proposes to add some programming categories to its condition of licence and to maintain the condition of licence that states:

1642 And to amend the definition of "evening broadcast period" from the period of 6:00 p.m. to midnight to the period 2:00 p.m. to 8:00 p.m.

1643 Mr. Len Cochrane is going to introduce his colleagues and you have 20 minutes to make your presentation.

1644 Thank you.

PRESENTATION / PRÉSENTATION

1645 MR. COCHRANE: Thank you, Pierre.

1646 Good afternoon, Mr. Chairman, Vice-Chairs and Members of the Commission. My name is Len Cochrane and I am the President of Teletoon.

1647 We are pleased and proud to be here before you today to address our application for renewal of Teletoon's broadcasting licence.

1648 Before we begin our presentation, I would like to introduce our team:

1649 On my far right is Hillary Firestone, our Vice-President of Marketing and Promotions.

1650 On my immediate right is Carole Bonneau, our Vice-President of Programming.

1651 On my far left is Natalie Talsky, our Director of Business and Legal Affairs and Corporate Secretary.

1652 On my immediate left is Stephen Zolf, our legal counsel, and partner at Heenan Blaikie.

1653 In the row behind me, starting from my far left, is John Cassaday, Member of the Board of Teletoon and President and Chief Executive Officer of Corus Entertainment.

1654 Second is André Bureau, Chairman of the Board of Teletoon and Chairman of the Board, Astral Media.

1655 Third is Trent Locke, our Director of Finance and Treasurer.

1656 And fourth is Darrell Atherley, our Vice-President of Affiliate Sales.

1657 Mr. Chairman, Members of the Commission, we are pleased to address our application for the renewal of Teletoon, Canada's animation station!

1658 We are a 24-hour-a-day animation service offering both brand new animation and classic cartoons from Canada and around the world. We are a national service with operations in Toronto, Montreal and Edmonton. We broadcast across Canada in both English and French.

1659 Teletoon Canada has three shareholders: Astral and Corus each with 40 per cent, and Cinar with 20 per cent. The company operates independently and reports to its Board of Directors. Since launching in 1997, Teletoon has quickly grown into a household name, a favourite destination for Canadians from coast to coast to coast. The service has come so far in just a few short years.

1660 The most impressive evidence of the strength of Teletoon's brand is the fact that just one and a half years after launch the Teletoon brand had almost 100 per cent awareness among both kids 6 to 12 and their parents!

1661 And people are tuning in! In terms of viewership, Teletoon French is a major success story of specialty television in Quebec. For the past five broadcast years, among the 2-plus audience we have achieved the number one share over all Canadian French specialties. Looking at our core demographic of kids 2 to 11, Teletoon ranks as the number one French service among both specialty and conventional television.

1662 Teletoon English also has reason to be proud. For the past five broadcast years it has ranked third among all Canadian English specialty channels in terms of 2-plus viewership. And among kids 2 to 11, Teletoon is the number two English service among both specialty and conventional television.

1663 Our audience loves us! In fact, our core viewers, kids 2 to 11, tune in to Teletoon for more hours per week on average than any other national Canadian service. This makes Teletoon number one among this demographic in terms of viewer loyalty.

1664 Needless to say, over our first licence term Teletoon has far surpassed all of our expectations.

1665 This success has not been an isolated incident. In fact, the results of Teletoon's success have been widespread. More specifically, success has meant that Teletoon has been able to make a significant contribution in supporting a strong and viable Canadian animation and production industry.

1666 By playing a key role as partner, marketer and broadcaster, Teletoon has driven overall demand for Canadian animation. The creation of Teletoon has stimulated the growth of several production houses, such as Studio B in Vancouver, Collideascope in Halifax and Dynomight of Ottawa.

1667 The number of strong Canadian animated properties is probably the best measure of the strength and success of our national animation industry. Canadian original productions consistently rank as Teletoon's top-rated series with our core audiences. In fact, in our last full broadcast year among kids 2 to 11, seven of the top 10 programs on Teletoon English, and eight of the top 10 programs on Teletoon French, were Canadian original productions.

1668 Canada is renowned the world over for great kids' animation and Teletoon is thrilled to have played a crucial part in its growth.

1669 Now, Carole Bonneau, our Vice-President of Programming, will provide some details on Teletoon's financial support for Canadian animation.

1670 Carole.

1671 MS BONNEAU: Thank you.

1672 Comme Len vous a mentionné Teletoon a surpassé toutes nos attentes lors de la première licence du service.

1673 Teletoon constitue maintenant un soutien important au secteur de la production originale canadienne. Jusqu'à présent plus de 60 de ces séries originales ont été diffusées pour une première fois sur Teletoon. Ceci représente plus de 2 000 demi-heures de programmation. Une liste de séries canadiennes de qualité dont plusieurs titres se sont mérités des prix prestigieux.

1674 Au cours de la période de licence qui se termine nous aurons consacré $92 millions de dollars à la production télévisuelle canadienne, soit plus du double des $42 millions de dollars prévues pour cette première licence. En conséquence, le montant accordé par Teletoon aux licences de diffusion des productions originales a presque triplé au cours du terme de la présente licence. Teletoon investit et participe aussi au développement d'émissions auprès des producteurs canadiens non-affiliés. Le développement est une étape importante à la production d'émissions de qualité et les résultats sont impressionnants avec plusieurs projets qui sont devenus des séries diffusées sur Teletoon.

1675 La totalité du montant de $92 millions de dollars a été investie auprès des producteurs canadiens d'animation d'un bout à l'autre de notre pays. En tant que service national Teletoon acquiert et diffuse partout au Canada et cela dans les deux langues officielles. Nous sommes constammement à la recherche de petites sociétés ou de sociétés émergentes ainsi que de producteurs régionaux ailleurs qu'a Montréal et Toronto, afin de travailler avec eux. Au terme de cette licence nous sommes fiers des relations que nous avons établies avec des producteurs qui sont de petites entreprises régionales indépendantes, tels que  Cellar Door  de l'Île du Prince Edouard et Atomic Cartoons de Vancouver.

1676 Notre programmation canadienne est vraiment canadienne! Elle s'inspire des différentes régions de notre pays. Des régions comme l'Île du Prince Edouard, avec la série  Eckhart  ou encore de la Colombie-Britanique avec la série  Pourquoi Pas Mimi ? Nos émissions s'inspirent aussi de personnages de littérature bien encré dans la culture comme  Caillou  au Québec. En français Teletoon encourage l'utilisation de voix de chez-nous comme celle du comédien  Marcel Sabourin  dans la production  Simon au Pays de la Craie  ou encore lors d'acquisition d'émissions américaines comme  Les Simpson  et  King of the Hill ,  Henri Pis sa Gang  dont le doublage a été fait au Québec.

1677 La diversité culturelle du Canada se reflété totalement dans la programmation de Teletoon. En effet, en tant que réseau d'animation, Teletoon peut porter la diversité culturelle à son extrême. Teletoon est l'endroit ou l'imaginaire régne et ou les stéréotypes n'ont pas leur place.

1678 Over the next licence term, we expect to play an even bigger role in supporting the Canadian independent animation industry.

1679 All things remaining equal, we expect to continue Teletoon's success in the next licence term. In fact, we expect to nearly double our Canadian program expenditures with nearly $185 million flowing to the Canadian animation industry. And again, all of this support will go to Canadian independent producers. This growth in our commitment will allow Teletoon to trigger the production of a much greater number of original Canadian productions.

1680 We look forward to continuing Teletoon's role as the largest supporter of the Canadian animation industry.

1681 Now, here is Hillary Firestone, our Vice-President, Marketing and Promotions, to tell you about our many other types of support.

1682 Hillary.

1683 MS FIRESTONE: Merci Carole.

1684 Our passion for animation takes Teletoon beyond just financing great cartoons. We recognize how important it is to give wide exposure to Canadian talent and so Canadian programming has always played a prominent role in Teletoon's marketing and promotional efforts.

1685 A good example is Teletoon's annual Canada Day promotion, which originally started as a one-day celebration of Canadian animation. This initiative has proven to be so popular that it has since evolved into a long weekend filled with non-stop Canadian programming. In addition, our scheduling, on-air promotions, contests, off-air advertising and online interactive content proudly feature Canadian titles all year round.

1686 So then why is Teletoon requesting a change in the definition of its primetime period as it relates to Canadian content?

1687 As an animation service, Teletoon's core audience is comprised of preschoolers, kids and tweens, meaning that our peak viewing hours are predominantly afternoons and early evenings. Naturally, our programming reflects this reality. In other words, the majority of our new Canadian productions target this core audience and are scheduled during these peak times in order to maximize exposure.

1688 However, animation is not just for kids. Therefore, once the children are in bed our focus turns to the older, secondary audiences which are tuning in. Sourcing animation programming for these audiences is not as simple as one would think.

1689 The challenge lies in a lack of world demand for teen and adult-oriented animation and a resulting shortage of this type of Canadian programming. The high-cost nature of animation means that Canadian producers are dependent on global sales to make such a production viable.

1690 Teletoon's support alone is not enough. In fact, over our first six years of operation Teletoon has only been able to acquire four Canadian series targeted to its older audiences. And although they have been quite successful on our service, to date only one has been able to produce more than one season of 13 episodes.

1691 It is easy to extrapolate that we have been airing an exceptionally high level of repeats within the 6:00 p.m. to midnight period in order to meet our Canadian content requirements. As you would expect, this has been causing a significant decline in viewership.

1692 As such, the unique characteristics of an animation service dictates that a more non-traditional view of primetime be taken. Both Teletoon and the Canadian animation industry will benefit from the recognition that Teletoon's real primetime is 2:00 p.m. to 8:00 p.m., when the core audience for animation is watching.

1693 First, it will allow us to best showcase our Canadian product when the bulk of our audience is watching.

1694 Second, it will allow for a reduction in the level of repeats in our secondary, evening blocks, thereby improving viewership and viewer satisfaction. This in turn should translate to improved advertising revenues, 40 per cent of which will flow into acquiring new original Canadian animation.

1695 At the same time, as we have previously confirmed in response to the concerns raised by some intervenors, we commit to reasonably schedule Canadian content throughout the remainder of the day.

1696 As we move forward, we will continue to build on Teletoon's strong content and on-air environment to create larger audiences for original Canadian productions. The more successful we are in achieving this, the more successful we will be in helping to ensure a thriving domestic animation industry.

1697 Teletoon's extensive reach and appeal are also used to benefit our community. Both Teletoon English and French have donated air time to various community organizations in order to bring key messages to viewers on a number of important issues, such as education on alcohol, drug abuse, media literacy, bullying and healthy active living, to name a few. We are also actively involved in a number of industry organizations, such as Concerned Children's Advertisers and l'Alliance pour l'Enfant et la Television.

1698 Teletoon also plays a prominent role in developing new animation talent. As such, we proudly support the art of animation through two key in-school programs.

1699 The first is Canada's only formal national scholarship award for students of animation. This competition currently provides French and English-speaking Canadian students with the opportunity to apply for one of 12 scholarships every year. Through this program, which launched in 1997, we will have awarded almost 70 scholarships by the end of this broadcast year to up-and-coming artists from all across Canada.

1700 Our Creative Sparks program targets younger students and is a free bilingual program for teachers of grades 4 to 6. This initiative is designed to teach curriculum-based arts, language arts and media literacy studies through animation. The program has proven to be wildly successful, with close to 1,100 teachers participating from all across Canada in 2002. This means over 30,000 students will benefit from Creative Sparks this year alone.

1701 All of our efforts are definitely paying off. As Len mentioned earlier, Canadian programs dominate our list of overall top performers.

1702 And not only are Canadian programs popular at home, it is worth noting that many children's animated series which had their start on Teletoon have moved on to become international success stories.

1703 MR. COCHRANE: Thank you, Hillary.

1704 We are looking forward to the prospect of being able to financially support, as well as broadcast and promote, a greater number of Canadian animation productions and we are passionate about continuing to support a strong Canadian animation sector.

1705 We see great potential to build on the successes of our first licence term and to continue broadening Teletoon's appeal and profile with all viewers.

1706 Teletoon has gone far beyond its initial expectations to become a key player in the Canadian animation industry and we intend to continue in that role. In our next licence term, Teletoon will: maintain the growth of our total licence fees for Canadian independent producers and we will contribute all program development funds to non-related parties; and continue our current role as a key promoter of Canadian animated productions.

1707 This support comes at a time when the animation industry is in a state of flux. On a global level, industry-wide problems in Europe are having a negative impact on the ability of Canadian animation companies to obtain needed financing. At the same time, here at home animation producers, like all Canadian producers, are facing a possible reduction in federal and provincial government funding. In such an uncertain environment, Teletoon's role, now more than ever, is crucial to the health of the Canadian animation sector.

1708 We are excited at the prospect of continuing to build upon our successes and we look forward to continuing to provide Canadians with a service dedicated to animated programming of the highest quality and to maintaining our role as a leading supporter of the Canadian animation industry.

1709 We thank you very much for your attention and the privilege of appearing before you this afternoon.

1710 We would be pleased to answer your questions.

1711 THE CHAIRPERSON: Thank you very much.

1712 As the secretary no doubt told you, we will begin the questioning tomorrow morning at 9:30.

Nous reprendrons demain matin à 9 h 30.

--- Whereupon the hearing adjourned at 1752, to resume

on Tuesday, May 27, 2003 at 0930 / L'audience

est ajournée à 1752, pour reprendre le mardi

Date de modification :

2003-05-26