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TRANSCRIPT OF PROCEEDINGS BEFORE
THE CANADIAN RADIO‑TELEVISION AND
TRANSCRIPTION DES AUDIENCES DEVANT
LE CONSEIL DE LA RADIODIFFUSION
ET DES TÉLÉCOMMUNICATIONS CANADIENNES
VARIOUS BROADCASTING APPLICATIONS /
PLUSIEURS DEMANDES EN RADIODIFFUSION
HELD AT: TENUE À:
Delta Bow Valley Delta Bow Valley
209 4th Avenue SE 209, 4th Avenue SE
Calgary, Alberta Calgary (Alberta)
February 14, 2007 Le 14 février 2007
In order to meet the requirements of the Official Languages
Act, transcripts of proceedings before the Commission will be
bilingual as to their covers, the listing of the CRTC members
and staff attending the public hearings, and the Table of
However, the aforementioned publication is the recorded
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either of the official languages, depending on the language
spoken by the participant at the public hearing.
Afin de rencontrer les exigences de la Loi sur les langues
officielles, les procès‑verbaux pour le Conseil seront
bilingues en ce qui a trait à la page couverture, la liste des
membres et du personnel du CRTC participant à l'audience
publique ainsi que la table des matières.
Toutefois, la publication susmentionnée est un compte rendu
textuel des délibérations et, en tant que tel, est enregistrée
et transcrite dans l'une ou l'autre des deux langues
officielles, compte tenu de la langue utilisée par le
participant à l'audience publique.
Canadian Radio‑television and
Conseil de la radiodiffusion et des
Transcript / Transcription
VARIOUS BROADCASTING APPLICATIONS /
PLUSIEURS DEMANDES EN RADIODIFFUSION
BEFORE / DEVANT:
Michel Arpin Chairperson / Président
Rita Cugini Commissioner / Conseillère
Barbara Cram Commissioner / Conseillère
Stuart Langford Commissioner / Conseiller
Ronald Williams Commissioner / Conseiller
ALSO PRESENT / AUSSI PRÉSENTS:
Jade Roy Secretary / Secrétaire
Peter McCallum Legal Counsel /
Marie-Claude Mentor Hearing Manager /
Gérante de l'audience
HELD AT: TENUE À:
Delta Bow Valley Delta Bow Valley
209 4th Avenue SE 209, 4th Avenue SE
Calgary, Alberta Calgary (Alberta)
February 14, 2007 Le 14 février 2007
TABLE DES MATIÈRES / TABLE OF CONTENTS
PAGE / PARA
PRESENTATION BY / PRÉSENTATION PAR:
Only Imagine Inc. 681 / 4284
INTERVENTION BY / INTERVENTION PAR:
Peace Arch Entertainment 827 / 5298
Association of Canadian Advertisers 836 / 5339
Canadian Media Directors Council 842 / 5378
Rogers Cable Communications 856 / 5450
49th Media Inc. 892 / 5655
Telco TV Association of Canada 903 / 5712
Canadian Association of Broadcasters 912 / 5757
Bell Video Group 941 / 5905
REPLY BY / RÉPLIQUE PAR:
Only Imagine Inc. 946 / 5939
Calgary, Alberta / Calgary (Alberta)
‑‑‑ Upon resuming on Wednesday, February 14, 2007
at 0830 / L'audience reprend le mercredi
14 février 2007 à 0830
LISTNUM 1 \l 1 \s 42724272 THE CHAIRPERSON: Order, please.
LISTNUM 1 \l 14273 Madam Secretary, would you introduce the last appearing item.
LISTNUM 1 \l 14274 THE SECRETARY: Thank you, Mr. Chairman.
LISTNUM 1 \l 14275 Before beginning, I would like to go over a few housekeeping matters to ensure the proper conduct of the hearing today.
LISTNUM 1 \l 14276 When you are in the hearing room, I would ask you to please turn off your cell phones, beepers, Blackberries and other text messaging devices as they are an unwelcome distraction for participants and Commissioners and they cause interference on the internal communications systems used by our translators.
LISTNUM 1 \l 14277 We would appreciate your co‑operation in this matter throughout the day.
LISTNUM 1 \l 14278 We will now proceed with item 11 on the agenda, which is an application by Only Imagine Inc. for a licence to operate a relay distribution undertaking.
LISTNUM 1 \l 14279 The proposed undertaking would insert commercial advertisements or promotional materials into the local availabilities of a number of non‑Canadian programming services distributed by various broadcasting distribution undertakings across the country.
LISTNUM 1 \l 14280 The Commission intends to discuss various issues related to the use of local availabilities and U.S. programming services for commercial advertising and any potential impacts on Canadian programming services and broadcasting distribution undertakings.
LISTNUM 1 \l 14281 Appearing for the applicant is Mr. Jeff Thiessen, who will introduce his colleagues.
LISTNUM 1 \l 14282 You will then have 20 minutes to make your presentation.
LISTNUM 1 \l 14283 Mr. Thiessen.
PRESENTATION / PRÉSENTATION
LISTNUM 1 \l 14284 MR. THIESSEN: Thank you.
LISTNUM 1 \l 14285 Mr. Chairman, Commissioners, ladies and gentlemen, my name in Jeff Thiessen, President and CEO of Only Imagine.
LISTNUM 1 \l 14286 It is a pleasure to be here today to speak to this application by Only Imagine for a new RDU licence in order to realize the tremendous potential for the Canadian broadcasting system of the currently under‑utilized avails on certain U.S. specialty services.
LISTNUM 1 \l 14287 Before beginning our presentation, I would like to introduce the members of our panel, most of whom are well‑known to you.
LISTNUM 1 \l 14288 On my right is Drew Craig, Chairman of Only Imagine and former President and owner of Craig Media Incorporated.
LISTNUM 1 \l 14289 To Drew's right is Jennifer Strain, a consultant to Only Imagine, formerly V.P. Corporate and Regulatory Affairs for Craig Media Incorporated and prior to that with WIC, Western International Communications.
LISTNUM 1 \l 14290 To Jennifer's right is Stephen Zolf, a partner in the Toronto office of Heenan Blaikie and our legal and regulatory counsel.
LISTNUM 1 \l 14291 On my left is Sandra Macdonald, President of Sandra Macdonald and Associates Limited, the consulting company advising public and private organizations on policy options and instruments in the cultural industries. She has an extensive broadcasting background and her involvement with Only Imagine is as an advisor on the design of the drama fund that will be created if this application is approved.
LISTNUM 1 \l 14292 To Sandra's left is Jack Tomik, a successful strategic sales and marketing consultant, specializing in traditional as well as new forms of media, whose clients include national media sales firms, cable channels and Internet companies. Prior to that Jack was 25 years with CanWest, most recently as President, CanWest Media Sales.
LISTNUM 1 \l 14293 At the back table, from your left to right, is Warren Olsen, consultant to Only Imagine and former Vice‑President of Finance and Administration for BCTV, CHEK TV and General Manager of CHEK TV.
LISTNUM 1 \l 14294 Richard Edwards, consultant to Only Imagine, has over 30 years of experience in broadcasting, including 20 years in various production and management roles at Videon Cable Systems Incorporated, including Director of Programming Service and Regulatory Affairs.
LISTNUM 1 \l 14295 Paul East, President of SBL, a leading Canadian broadcast and communications engineering firm. SBL has particular expertise in the design and implementation of fully automated and redundant systems used both in the broadcast and telecommunications industries.
LISTNUM 1 \l 14296 And Florence George, a Senior Media Director with 23 years of experience in the broadcast industry on media buying side, managing $200 million in annual media expenditures.
LISTNUM 1 \l 14297 Mr. Chairman, Commissioners, we will now begin our presentation.
LISTNUM 1 \l 14298 A tremendous opportunity exists for the broadcasting system and for Canadian drama. The time is now to harness the value of the local availabilities on U.S. satellite programming services, and this application is the right model to achieve it.
LISTNUM 1 \l 14299 Under our proposal Only Imagine will sell 70 percent of available spots on U.S. satellite programming services, about two minutes per hour, to national advertisers.
LISTNUM 1 \l 14300 If licensed, we will contribute 50 percent of our revenues to a new, independent and stable drama fund, $170 million in the first licence term. The fund will be independently administered and will provide matching production grants and bridge financing to support the creation of high quality drama. In addition to the $170 million, $5 million of advertising inventory over seven years will be made available to broadcasters and program distributors to promote new Canadian drama programs and theatrical feature films and $5 million of advertising inventory over seven years will be made available for the promotion of the digital specialty services.
LISTNUM 1 \l 14301 These promotional opportunities will be more valuable and efficient than they are today.
LISTNUM 1 \l 14302 First, broadcasters will be able to specifically select on which U.S. services they want their promotions to appear.
LISTNUM 1 \l 14303 Second, we will be accountable to them for the spots run.
LISTNUM 1 \l 14304 Third, promotions will specifically target new Canadian drama promotion, not just channels.
LISTNUM 1 \l 14305 Of the remaining avails, 25 percent will be made available for use by BDUs on an equitable basis to continue to promote their programming and non‑programming services and 5 percent of the avails will be used to promote the priority 91H services.
LISTNUM 1 \l 14306 Now back to the $170 million.
LISTNUM 1 \l 14307 Sandra.
LISTNUM 1 \l 14308 MS MACDONALD: Only Imagine's proposal represents one private sector solution to the crisis in funding Canadian drama. It is evergreen. It has no strings attached and it will benefit Canadian broadcasters by helping them create new drama that will generate audiences.
LISTNUM 1 \l 14309 It is the Commission's objective to increase the production of, viewing to and expenditures on high quality original Canadian drama. The $170 million contribution to drama that the Only Imagine would generate, when combined with licensees from broadcasters and the other available funding sources, such as tax credits, will trigger between 400 and 700 new hours of Canadian drama production.
LISTNUM 1 \l 14310 The difference, of course, would depend on the level of the fund's investment in any individual hour. And we are looking at that based on high budget dramas with average hourly budgets of about $1 million.
LISTNUM 1 \l 14311 This fund will enhance the Commission's drama incentive program. The kinds of productions eligible for the drama incentive are exactly the kinds of productions the new fund will support.
LISTNUM 1 \l 14312 This new fund will help broadcasters take advantage of the drama incentive by providing financing for hours of production that the CTF is currently unable to finance due to lack of funds.
LISTNUM 1 \l 14313 Further, because this fund is not the CTF, we assume it will permit broadcasters to obtain the maximum benefit from the drama incentive. It will therefore assist broadcasters to meet the targets the Commission has set for the drama incentive program.
LISTNUM 1 \l 14314 The Only Imagine application has set out basic parameters governing this fund. It is for high budget drama made by independent producers. It will require a broadcaster commitment to trigger funding. It will take the form of a straightforward contribution, not an equity investment, so it will help build stronger production companies.
LISTNUM 1 \l 14315 In terms of the details of exactly how the fund will work, however, we have spoken to all the major organizations in the production industry about how it would work and we have made a commitment to them that we will work with them if this application is approved to ensure that the design of the fund will produce an incremental benefit to Canadian drama programming.
LISTNUM 1 \l 14316 The Commission, of course, will have the opportunity to comment on the fund design before it begins operation.
LISTNUM 1 \l 14317 In addition to the drama fund, the Only Imagine commitment to Canadian drama includes, as Jeff mentioned a minute ago, promotional time in the value of $5 million over the licensed term. It also will provide an interim financing facility that will permit producers to take advantage of fund resources that are earmarked for future disbursement but available for short‑term bridge financing.
LISTNUM 1 \l 14318 This is a very, very valuable and useful dimension for producers because, as I'm sure you know, for many of them, even when they deal with governmental funding sources, the final amount of money they get doesn't come in until the production is completed, and there is a huge outlay that has to be covered in the meantime. I think this is a very attractive dimension of the fund.
LISTNUM 1 \l 14319 MR. THIESSEN: Now that you have heard about the significant benefits, let me tell you how it works.
LISTNUM 1 \l 14320 We will build a state‑of‑the‑art network operating centre that is using technology that is the same technology used for commercial insertion by companies in the U.S., such as Comcast, Time Warner and others. While the actual commercial insertion will be completed at the cable and DTH distributor headend, the process will be controlled remotely by Only Imagine.
LISTNUM 1 \l 14321 As outlined in our application, in order to provide a national buy for advertisers, we anticipate installing equipment at those BDU headends that service major markets. Importantly, the Only Imagine system will not change the way each BDU receives its program signal from the U.S. program providers and will not affect their ability to acquire their signals from whichever SRDU they like.
LISTNUM 1 \l 14322 Our business plan and our ability to generate the $170 million for drama is based on the ten U.S. services in which we understand insertion is now occurring.
LISTNUM 1 \l 14323 However, if one of the ten is dropped by BDUs or shuffled into the distribution tier or channel that subsequently affects the tuning to the service and thus the advertising dollars that can be generated, we would request the ability to substitute one service for another.
LISTNUM 1 \l 14324 This application meets your policy and Broadcast Act objectives. It yields a net gain for the broadcasting system and it can be effected using the statutory tools available to you under the Broadcasting Act.
LISTNUM 1 \l 14325 MR. CRAIG: Who are the constituents that the Commission need concern itself in determining whether to license this application?
LISTNUM 1 \l 14326 We would say firstly the consumers. They are unaffected by this proposal and in fact are better off because of the increased availability of high quality Canadian drama that will result.
LISTNUM 1 \l 14327 U.S. services. That the U.S. signals are distributed in Canada at all is because the Commission allows them to be here. They have already been granted the avails in question for the purposes of advertising and promotion. The licensing of this application will be seamless to them. They lose nothing by the licensing of our proposal. They will continue to deal with the BDUs as they always have and will continue to enjoy the substantial subscriber revenue they derive from being carried in Canada.
LISTNUM 1 \l 14328 If the Commission determines that this proposal is in the best interests of the broadcasting system, we expect that the U.S. services will agree with you. It is not in their corporate interest to do otherwise. Other than being assured as to the integrity of their signal and the nature of the advertising content, this proposal is completely immaterial to them.
LISTNUM 1 \l 14329 The BDUs. The BDUs' contractual rights to use the avails have always been circumscribed by regulatory policy. The BDUs' contracts with the U.S. services are only effective at all because the Commission has blessed the distribution of those services in Canada. It has been, and is, within the Commission's jurisdiction to determine the purpose for which the avails may be used. It is also open to the Commission to decide that a broadcasting undertaking independent from the BDU is required in order to monetize the U.S. avails.
LISTNUM 1 \l 14330 The Commission has the authority to impose conditions respecting the carriage of U.S. services. It could, for instance, add a "subject to" criterion in the Eligible Satellite Services Policy requiring that the providers of these foreign services adhere to any Commission policies respecting the use of the avails.
LISTNUM 1 \l 14331 The negative response from the BDUs to our application is completely disproportional to the potential value of the avails to them. These companies are large, financially solid entities whose core businesses are television distribution, telephony and broadband delivery.
LISTNUM 1 \l 14332 Our model represents a minuscule percentage of the revenues earned by the BDUs from their core businesses. The BDUs lose nothing in this proposal yet they continue to bank and hope that a mere year and a half after denying the CCTA proposal, the Commission will change its mind and let them into the advertising businesses. Indeed, we suspect that you are going to hear that very pitch later today.
LISTNUM 1 \l 14333 We expect they will argue that allowing them to do this is preferable because it eliminates the middle man and is the most efficient solution.
LISTNUM 1 \l 14334 First, we are not a middle man. We have tailored our proposal to effectively preserve the relationship between the U.S. service and the BDU affiliate. We will not materially impact that relationship between the BDU and the U.S. program supplier in contrast to other models which will be far more invasive.
LISTNUM 1 \l 14335 In any case, while intervenors decry the middle man, we think there is a distinct and valuable role for Only Imagine. The Broadcasting Act contemplates creating different classes of broadcast undertakings to achieve Broadcasting Act objectives. Our entire Canadian system is built on the so‑called middle man.
LISTNUM 1 \l 14336 Canadian television broadcasters use revenue opportunities inherent in American programming to help subsidize the cost of producing and broadcasting Canadian programming. We don't let HBO directly into Canada. We interpose the Canadian pay services that in turn make contributions to Canadian programming based on revenue generated from HBO and other programming.
LISTNUM 1 \l 14337 In this case there are sound policy reasons for using a third party to sell these avails, and we will be able to do this extremely efficiently.
LISTNUM 1 \l 14338 How exactly would cable BDUs sell spots nationally when they are licensed regionally? They would need a third party and additional infrastructure to aggregate the spots for the purpose of providing a national buy. Otherwise, cable would be selling locally in selective markets with a resulting detrimental impact on local broadcasters.
LISTNUM 1 \l 14339 Further, as we will have the infrastructure in place anyway to sell advertising, we are prepared to waive the cost recovery on the ten services for all promotion used by television program undertakings.
LISTNUM 1 \l 14340 We would also be prepared to do the BDU promotion at no cost to them, subject to their co‑operation and collocation.
LISTNUM 1 \l 14341 Paul.
LISTNUM 1 \l 14342 MR. EAST: Thank you, Drew.
LISTNUM 1 \l 14343 From a technical perspective, it will cost about $5 million in capital to provide a national insertion operation with equipment that is considered the gold standard for commercial insertion.
LISTNUM 1 \l 14344 Only Imagine will build a network operating centre that will control all aspects of the commercial insertions at all headends. This is the optimum model for achieving efficiency and maximizing the contributions to the Canadian broadcasting system and is far less invasive than creating a central aggregation point for all U.S. services.
LISTNUM 1 \l 14345 If BDUs were to sell the avails, they would have to duplicate many of the same operational infrastructure costs. In fact, the Only Imagine model is similar to systems used by large U.S. cable companies to insert commercials in these very same signals.
LISTNUM 1 \l 14346 To implement the RDU technical plan, Only Imagine only requires to the U.S. services to complete the insertion process. Ideally, this final stage equipment would be located at the BDU headend, but it does not have to be. What is required is access to the U.S. signals.
LISTNUM 1 \l 14347 When equipment is located at the BDU headend, Only Imagine will require physical access for the purpose of installing the equipment and maintenance visits a few times a year. Alternatively, Only Imagine can supply the equipment to the BDU for installation and maintenance by the BDU staff.
LISTNUM 1 \l 14348 As indicated in our application, Only Imagine is willing to work with the BDUs to ensure the installation of the Only Imagine equipment is consistent with their technical standards and takes into account any unique technical requirements at any particular headend.
LISTNUM 1 \l 14349 Only Imagine will also enter into agreements with them addressing such issues as compensation for rack space and power and to ensure the signal integrity of the U.S. services.
LISTNUM 1 \l 14350 In the unlikely event of an Only Imagine equipment failure, the U.S. program service will simply pass through unaltered to the viewer.
LISTNUM 1 \l 14351 MR. TOMIK: One of the underpinnings of the Only Imagine business plan is to mitigate the impact to television broadcasters. In my opinion, the impact of this proposal will be negligible.
LISTNUM 1 \l 14352 Consider the following:
LISTNUM 1 \l 14353 First, we are only selling on average three 30‑second commercials per hour on each channel. The tuning to these channels already exists and will not fragment the audiences of Canadian broadcasters. Because of this limited inventory, Canadian specialty services could never be displaced by this service. Only Imagine would just complement the Canadian broadcasters in an advertiser's campaign. Only national ads are being sold.
LISTNUM 1 \l 14354 Later in this process you will hear from the ACA and others who will tell you that this proposal will actually help prevent money from leaking out of the system and into unregulated media and in fact has the ability to add new revenues to the Canadian broadcasting system.
LISTNUM 1 \l 14355 At the end of the day the ad revenue realized by Only Imagine will amount to about 1 percent of all television broadcasting ad revenue in the country.
LISTNUM 1 \l 14356 As for the promotional commitments, Only Imagine is going to treat broadcasters and the BDUs like paying customers. The BDUs and priority services will have equitable access and distribution in a reasonable manner throughout the broadcast day. The services, their advertising inventory set aside, will have flexibility to place their promotions in the U.S. channels that allow them to most effectively access their target demographic.
LISTNUM 1 \l 14357 All services will have accountability in the form of affidavits that they don't have now.
LISTNUM 1 \l 14358 For advertisers, Only Imagine will provide new access to Canadian viewers. It will create a new point of competition in an ever‑consolidating market. The result: more revenues for the Canadian broadcast system.
LISTNUM 1 \l 14359 MR. THIESSEN: Mr. Chairman, as we stated at the beginning of our presentation, we believe the time has come to begin realizing the tremendous opportunities for the broadcasting system and specifically for Canadian drama that are available from the U.S. avails.
LISTNUM 1 \l 14360 Cable has asked over and over again for the right to realize the opportunities presented by these avails and has been denied, for good reason. You will always have the fundamental structural and policy problems of letting BDUs into the advertising business. As they continue to successfully expand our core business in our Internet and telephony, there is even less reason to open that door now.
LISTNUM 1 \l 14361 Moreover, two of the same BDUs wanting this privilege are responsible for the current crisis at the CTF. Surely an advertiser agency affiliated entity like 49th Media, selling 12 minutes an hour in partnership with the U.S. services, isn't the right solution.
LISTNUM 1 \l 14362 MR. CRAIG: If there is one common refrain in this industry, it is that we need more money for drama. Our proposal is simple and does not require structural changes to the broadcasting system. Where else is the Commission going to find a private sector contribution of $170 million to Canadian drama with a minimum impact on existing players?
LISTNUM 1 \l 14363 The cost of doing nothing is enormous, especially given the current funding crisis, and the benefits are undeniable.
LISTNUM 1 \l 14364 So what is the right solution and when is the right time?
LISTNUM 1 \l 14365 We strongly believe our application is the right model and that the time is now.
LISTNUM 1 \l 14366 Mr. Chairman and Commissioners, we thank you, and we now look forward to your questions.
LISTNUM 1 \l 14367 THE CHAIRPERSON: Thank you Mr. Craig; thank you, Mr. Thiessen.
LISTNUM 1 \l 14368 The first round of questions will be done by Commissioner Cram.
LISTNUM 1 \l 14369 COMMISSIONER CRAM: Good morning, panel.
LISTNUM 1 \l 14370 I have to say I think the Commission has spent more time in its history over two and three minutes than anything else.
LISTNUM 1 \l 14371 Anyway, I wanted to talk about ownership and control of these two to three minutes.
LISTNUM 1 \l 14372 If I have it right, in the U.S. the U.S. programming services owns it and controls it, but in Canada we control it.
LISTNUM 1 \l 14373 Is that correct, that the CRTC controls it, those two to three minutes?
LISTNUM 1 \l 14374 MR. CRAIG: Our view would be that the CRTC can control it through BDU policy.
LISTNUM 1 \l 14375 COMMISSIONER CRAM: And that is certainly subject to some constraint, I'm assuming. We can't control copyright, so it would be subject to copyright infringement issues and other laws.
LISTNUM 1 \l 14376 Would that be correct?
LISTNUM 1 \l 14377 MR. CRAIG: That's correct. And we are happy to talk more about the copyright issue, if you would like to.
LISTNUM 1 \l 14378 COMMISSIONER CRAM: Yes, I would like you to address that, if you could.
LISTNUM 1 \l 14379 MR. CRAIG: Maybe I will let Jennifer and Stephen just respond to the copyright issue.
LISTNUM 1 \l 14380 MR. ZOLF: Thanks, Drew.
LISTNUM 1 \l 14381 Commissioner Cram, yes, we think, as Drew said, through your jurisdiction over the BDUs you can cause this to happen.
LISTNUM 1 \l 14382 On the copyright side, the Commission's jurisdiction obviously is not over copyright. We think, however, that this is permitted under general copyright law. There is nothing in the proposal which would produce or raise the issue of an infringement of any copyright.
LISTNUM 1 \l 14383 The Copyright Act provisions, for example, on the rights over communication signal do not apply in this case, and I think there is nothing that would encumber the Commission under general copyright law to do this.
LISTNUM 1 \l 14384 I believe one of the intervenors raised a copyright issue. Unfortunately, they didn't put any specificity on that claim about copyright, suggesting neither that it was a third party's copyright or it was their copyright or the underlying program holders' copyright.
LISTNUM 1 \l 14385 In this case we think the narrow targeting of these two‑minute avails does not raise any infringement issue.
LISTNUM 1 \l 14386 COMMISSIONER CRAM: And our control obviously also would be subject to, I am going to say what I would call the contractual arrangements between the programmer and the BDU in the sense that they place restraints on the use of the avails in terms of not advertising a 900 number, a 976 number; essentially safeguards to protect the integrity of their signal and their brand.
LISTNUM 1 \l 14387 So that is also another restraint I guess on our abilities.
LISTNUM 1 \l 14388 MR. CRAIG: We believe that the U.S. channels have really two legitimate concerns with our proposal. One is signal integrity and the quality of the signal.
LISTNUM 1 \l 14389 As Mr. East mentioned, the equipment we are talking about is the gold standard that is used throughout the world and in particular in the U.S. to insert thousands and thousands of commercials each day.
LISTNUM 1 \l 14390 People like Comcast and Time Warner use that equipment. So we are assuming that the U.S. channels would in effect give us the spec that they want us to meet and we would have to meet that and exceed that.
LISTNUM 1 \l 14391 So that is one thing I think that we legitimately believe they have a concern with, and I think we can address that.
LISTNUM 1 \l 14392 The second concern, as you mentioned, is advertising content.
LISTNUM 1 \l 14393 It varies by channel. They have different parameters about which clients they will accept and which clients they won't accept, et cetera, and we respect that.
LISTNUM 1 \l 14394 In our application we indicate that we are prepared to abide by any of those rules and regulations that are set by the U.S. channels.
LISTNUM 1 \l 14395 MR. ZOLF: Commissioner Cram, just to add to that, it is not so much a legal issue. What Mr. Craig is saying is I think to make this thing as seamless as possible, we would adhere to those current restrictions that are there that you identify. But that doesn't change the position about the legalities of it.
LISTNUM 1 \l 14396 COMMISSIONER CRAM: I hear you, yes.
LISTNUM 1 \l 14397 I am going to suggest that if we were to license you, we would do a COL and I'm going to ask you to draft it in terms of the most stringent protection of a programmer's brand and the integrity of the signal.
LISTNUM 1 \l 14398 I saw one in ‑‑ I have four books here so you are going to have to forgive me in finding these things.
LISTNUM 1 \l 14399 I saw one in the affiliation agreements you gave us that was fairly thorough. I don't know if it is the most thorough.
LISTNUM 1 \l 14400 It is at page 8 of what was apparently faxed to us on October 9th. It is 6.4 and it refers to ‑‑ I'm sorry, no, it's not that.
LISTNUM 1 \l 14401 It is at page 16, and it refers to:
"not being offensive in nature; not suggesting affiliation between advertisers and the service; not relate to adult entertainment; not intentionally enable or exhort any customers to tune away; not advocate a position on any political or social issue unless they are legally qualified candidates."
LISTNUM 1 \l 14402 If you could propose that in Phase II, perhaps, or if you need longer we will have to talk about that.
LISTNUM 1 \l 14403 What you are proposing then, because of section 9.2 of the Regs, is that we provide you with a permissive COL, which, if I have read it correctly, if I have the latest version, says:
"The licensee may, at its option, insert certain promotional and advertising material as a substitute for U.S. advertising, i.e. non‑Canadian advertising material, in non‑Canadian satellite programming services."
LISTNUM 1 \l 14404 Is that correct?
LISTNUM 1 \l 14405 MS STRAIN: Yes, Commissioner Cram, that is I think the most recent wording that we have on file.
LISTNUM 1 \l 14406 We have been thinking a lot about this. I don't think we have spent as much time trying to draft Conditions of Licence either. We have some alternate wording that we have also thought of that is also workable and we would be happy to provide that now or in reply.
LISTNUM 1 \l 14407 COMMISSIONER CRAM: It is probably best now.
LISTNUM 1 \l 14408 MS STRAIN: Okay. Do you want me to read it into the record?
LISTNUM 1 \l 14409 COMMISSIONER CRAM: Yes, if you could.
LISTNUM 1 \l 14410 MS STRAIN: We had here:
"Where the terms of the affiliation agreement between the licensee and any non‑Canadian satellite service permit the substitution of promotional and advertising material in its local availabilities and such service falls within the authorization of a relay distribution undertaking licensed to insert promotional and advertising material as a substitute for the local avails, the licensee shall provide the unencrypted signal of each service to the RDU prior to distributing the service to its subscribers."
LISTNUM 1 \l 14411 COMMISSIONER CRAM: Okay.
LISTNUM 1 \l 14412 MS STRAIN: This works. We also have specific Conditions of Licence that would be applicable to our service as well.
LISTNUM 1 \l 14413 This is a condition that would apply to the BDUs.
LISTNUM 1 \l 14414 COMMISSIONER CRAM: To BDUs.
LISTNUM 1 \l 14415 MS STRAIN: Yes, absolutely.
LISTNUM 1 \l 14416 COMMISSIONER CRAM: Yes. Do you have that in writing so we can look at it?
LISTNUM 1 \l 14417 MS STRAIN: Yes.
LISTNUM 1 \l 14418 COMMISSIONER CRAM: And think about it.
LISTNUM 1 \l 14419 MS STRAIN: Yes.
LISTNUM 1 \l 14420 COMMISSIONER CRAM: With the terminology of what I am going to call the last iteration, the one that the licensee may at its option, what would prevent anybody else applying for a similar COL?
LISTNUM 1 \l 14421 What would prevent you having competition in this?
LISTNUM 1 \l 14422 MR. CRAIG: In our application we have applied for a very specific portion of the U.S. avails. Our proposal is to insert commercial messages on the ten channels that are outlined in our application and monetize those availabilities.
LISTNUM 1 \l 14423 Our proposal is to live with I guess the parameter whereby we would sell on ten channels.
LISTNUM 1 \l 14424 As Jeff mentioned in the in‑chief, we would like the right to substitute one channel for another from time to time if one of those channels got moved to another tier and didn't deliver the required audience delivery.
LISTNUM 1 \l 14425 Effectively, what we are asking for is the right to sell on ten channels.
LISTNUM 1 \l 14426 COMMISSIONER CRAM: But the question is ‑‑
LISTNUM 1 \l 14427 MR. CRAIG: So to answer your question, if there was another proposal in the future ‑‑ and there have been other proposals that have contemplated different models beyond those two minutes ‑‑ nothing would preclude you from taking a look at those applications in another proceeding.
LISTNUM 1 \l 14428 I guess what we are saying is ours is very defined. It's for the two minutes. We would need exclusive access to the two minutes in those ten. Beyond that, we can see potential for more creative proposals to come along in the future that you may want to look at.
LISTNUM 1 \l 14429 COMMISSIONER CRAM: I am saying with the wording of your proposed COL, what would prevent anybody else from applying for exactly the same thing and why wouldn't we promote competition within it?
LISTNUM 1 \l 14430 MR. ZOLF: Commissioner Cram, the wording under the COL ‑‑ I mean, the COL turns on a licensed RDU for that purpose. I guess to pick up on what Mr. Craig was saying, we are talking about the market model contemplates one licensee in respect of the avails.
LISTNUM 1 \l 14431 To that extent, I don't think there is anything to be drawn from the added ‑‑
LISTNUM 1 \l 14432 COMMISSIONER CRAM: Your proposal is to be a monopoly.
LISTNUM 1 \l 14433 MR. ZOLF: You could describe it that way. However, I think this is a nascent undertaking.
LISTNUM 1 \l 14434 To go from zero to open entry competitive market model, I would submit may not be a prudent course of action but rather to see how the service proceeds as a one licensee model.
LISTNUM 1 \l 14435 COMMISSIONER CRAM: So we have the BDU affiliation agreements. You referred to one in your reply to the interventions at page 10, at No. 6 on advertising.
LISTNUM 1 \l 14436 You say in paragraph 20, in the last sentence:
"Thus, the circumstances arguably support the view that the cable BDU has the current right under its contract with the U.S. programming service to permit Only Imagine to perform the commercial replacement as contemplated."
LISTNUM 1 \l 14437 I'm going to put it to you that that paragraph above, entitled "Ad Time", the second line says:
"Network will make available to affiliate for insertion of any advertising."
LISTNUM 1 \l 14438 It does not say "affiliate or its agent".
LISTNUM 1 \l 14439 Isn't this what you are really talking about when you are talking about permitting Only Imagine to perform this? Aren't you really talking about putting yourself essentially in as an agent or an assignee of the BDU?
LISTNUM 1 \l 14440 MR. ZOLF: Commissioner Cram, that is correct. I guess it is an implicit argument or a sub‑licensee perhaps is another way of characterizing it.
LISTNUM 1 \l 14441 The point in paragraph 10 is that we took the view that that clause that was put on the record by this B Channel intervention supports the conclusion that the right in those avails having been given over to in this case the affiliate, because that is the contracted entity that is carrying the 24/7 signal ‑‑ but they are in the hands of the Commission itself, which we bolded in reproducing that condition, so conceptually the right is there.
LISTNUM 1 \l 14442 If the Commission were to change its policy in the way we have asked it to do, that structure of the contract has already conceptually permitted that activity.
LISTNUM 1 \l 14443 COMMISSIONER CRAM: My point is, though, that habitually in agreements such as this ‑‑ and I've seen it in your affiliation agreement ‑‑ there is in fact an explicit statement that there shall be no assignment of the benefits of the contract.
LISTNUM 1 \l 14444 You say this is permissive. I'm saying that there appears in the contract to be an explicit prohibition of assignment.
LISTNUM 1 \l 14445 MR. ZOLF: Do you mean elsewhere in this contract there may be ‑‑
LISTNUM 1 \l 14446 COMMISSIONER CRAM: I mean in general there are and in the examples you have given us there are explicit prohibitions on assignment of the benefits to contract.
LISTNUM 1 \l 14447 I'll tell you what. The Chair has asked if we could have a break.
LISTNUM 1 \l 14448 It is page 11 on your fax of October 9th and it is 10.4:
"not entitled to assign its rights or obligations under the agreement without the prior written consent"
LISTNUM 1 \l 14449 I would like you to look at that and answer to me the question of whether or not ‑‑ and you just said, Mr. Zolf, that this is an assignment or sub‑licensee or agency; and whether this would in fact prohibit.
LISTNUM 1 \l 14450 I will give you ten minutes to think about it, because somebody needs a break.
LISTNUM 1 \l 14451 MR. ZOLF: Thank you.
LISTNUM 1 \l 14452 THE CHAIRPERSON: We will resume at 20 past 9:00.
‑‑‑ Upon recessing at 0910 / Suspension à 0910
‑‑‑ Upon resuming at 0920 / Reprise à 0920
LISTNUM 1 \l 14453 THE CHAIRPERSON: Order, please.
LISTNUM 1 \l 14454 Commissioner Cram.
LISTNUM 1 \l 14455 COMMISSIONER CRAM: I wanted to add that I have a certificate of non‑practice, so I'm not a lawyer.
LISTNUM 1 \l 14456 The question was: How could this process of permitting Only Imagine to perform the commercial replacement not been seen as an assignment as discussed that clause in the affiliation agreement?
LISTNUM 1 \l 14457 MS STRAIN: Commissioner Cram, I will take a stab at this and hopefully Mr. Zolf will bail me out at some point.
LISTNUM 1 \l 14458 That provision you refer to is standard boilerplate language. Most of the contracts we have seen say "thou shalt not assign" unless you get consent of the U.S. party.
LISTNUM 1 \l 14459 That contract reflects the current practice in Canada right now. What we are trying to say is that it is open to you. We think you should change your policy to say that the avails can only be monetized by a party independent of the BDU, and that once you do that, the behaviour, the relative minor contract modification will follow, particularly given the Conditions of Licence or a contract that we will enter into that will make it clear that we are going to adhere to signal integrity as we talked about, and advertising content.
LISTNUM 1 \l 14460 What we are saying is we think you have some clout. You can change your policy and we think that the behaviour that we need will follow. They have already granted the what and the how much. It is just the who is doing it and under what circumstances.
LISTNUM 1 \l 14461 MR. ZOLF: Just the duo that is going on here, if I could add to that, there is a temporal issue here. Had you indicated in your policy, if we reversed the clock, to say that an independent broadcasting undertaking that we are proposing would do the two‑minute avails, I would venture to say that that contract would say something different now. It would say use of the avails subject to existing Commission policy.
LISTNUM 1 \l 14462 In fact, I think it is our understanding that in the U.S. third parties are often performing insertions all the time in any event.
LISTNUM 1 \l 14463 So I think market practice would follow your structural rule.
LISTNUM 1 \l 14464 COMMISSIONER CRAM: You say that in order to get BDU buy‑in, in your letter of October 9th you suggest that we would incentivize BDUs to exercise this option by saying that the affiliates of the BDUs would be ineligible for the funding and the promos.
LISTNUM 1 \l 14465 I guess that wouldn't apply to EastLink and MTS. That wouldn't be a good incentive for them.
LISTNUM 1 \l 14466 MS STRAIN: No.
LISTNUM 1 \l 14467 COMMISSIONER CRAM: What services does Rogers have that could benefit from the drama fund or promoting drama?
LISTNUM 1 \l 14468 MR. CRAIG: In terms of Rogers, they do produce drama.
LISTNUM 1 \l 14469 COMMISSIONER CRAM: Through what services, what affiliate?
LISTNUM 1 \l 14470 MR. CRAIG: Through their broadcast operations.
LISTNUM 1 \l 14471 COMMISSIONER CRAM: I can only think of where they ‑‑ they have sportsnet and I don't know if they can air drama there.
LISTNUM 1 \l 14472 MR. CRAIG: Well, OMNI does quite a bit of original drama in Toronto.
LISTNUM 1 \l 14473 COMMISSIONER CRAM: How much relative to the total drama produced?
LISTNUM 1 \l 14474 MR. CRAIG: I don't have the number but I know that over the last years they have made several significant drama commitments in terms of series, et cetera.
LISTNUM 1 \l 14475 To my recollection, they have made a commitment too. So I think it is another opportunity for them to promote that drama on the rest of the avails.
LISTNUM 1 \l 14476 COMMISSIONER CRAM: I'm sorry?
LISTNUM 1 \l 14477 MR. ZOLF: Commissioner Cram, is your concern that they are somehow worse off because of this new proposal?
LISTNUM 1 \l 14478 COMMISSIONER CRAM: That it wouldn't be a terrific incentive for Rogers.
LISTNUM 1 \l 14479 MR. ZOLF: However, as the application passes through the 25 percent current promotional right.
LISTNUM 1 \l 14480 COMMISSIONER CRAM: Yes. And I wanted to talk about that because at paragraph 33 of your application, as a further incentive to BDUs, you say:
"... if they want to continue to use their 25 percent of the avails..."
LISTNUM 1 \l 14481 It is paragraph 33, if you need to find it.
LISTNUM 1 \l 14482 So it looks somehow like you are saying that we should say they are not entitled to the 25 percent unless they buy in.
LISTNUM 1 \l 14483 MS STRAIN: That was the original Condition of Licence certainly.
LISTNUM 1 \l 14484 As I said earlier, the second Condition of Licence that I read into the record I think achieves the same thing, only I think it takes away from the leverage of the BDUs to co‑operate.
LISTNUM 1 \l 14485 We drafted the Condition of Licence and then we got the interventions and we started looking at how we might refine that Condition of Licence to make it a little more effective. So that Condition of Licence I think would obligate the BDU to carry our signal.
LISTNUM 1 \l 14486 They still get their 25 percent. That doesn't go away.
LISTNUM 1 \l 14487 COMMISSIONER CRAM: So your new COL is essentially telling them.
LISTNUM 1 \l 14488 MS STRAIN: Yes.
LISTNUM 1 \l 14489 COMMISSIONER CRAM: I am asking myself how we could have implemented the ineligibility for the 25 percent of the avails, because we implemented a policy that says they have the 25 percent. So would we not have to have another policy hearing to say these guys can't have the 25 percent?
LISTNUM 1 \l 14490 That was my concern.
LISTNUM 1 \l 14491 MR. ZOLF: I don't think so, Commissioner Cram.
LISTNUM 1 \l 14492 I think the way the condition is, as Ms Strain said, it is at its option. If you carry it through, if the BDU doesn't exercise the option in that way, then nothing would be on those avails except the original material and that would obviously be a sub‑optimal outcome.
LISTNUM 1 \l 14493 Therefore, once the BDU elects at its option to in fact use the avails, it would have to go to the RDU and then the outcome would be exactly as it is today vis‑à‑vis their 25 percent.
LISTNUM 1 \l 14494 So I don't think you need to amend another condition to accomplish that.
LISTNUM 1 \l 14495 COMMISSIONER CRAM: We have talked about incentives and I want to talk about a disincentive.
LISTNUM 1 \l 14496 The same agreement that I was referring to at 10.4, at 9.1 there is termination for breach of default and it refers to one of the termination bases being the other party "has breached any of its material obligations".
LISTNUM 1 \l 14497 Is it possible that assigning without consent ‑‑ and I hear your argument, but the contract says what the contract says ‑‑ could be perceived as a material breach and therefore the disincentive to the BDU would be the termination of the agreement or the stress of termination of the agreement by the programming services?
LISTNUM 1 \l 14498 MR. ZOLF: That is one way of looking at it. I take it you mean that fear of termination of an event ‑‑
LISTNUM 1 \l 14499 COMMISSIONER CRAM: I'm Turner and I see, my legal beagles see that Only Imagine has taken the avails and replacing them, and I see paragraph 10.4 saying you can't assign without our consent. I think I would have a fairly good reason ‑‑ although I don't practise law ‑‑ to say it's a material obligation and it's a breach of a material obligation and therefore they could terminate.
LISTNUM 1 \l 14500 MR. ZOLF: I think one could argue just on its face that in respect of those two‑minute avails, which are incidental aspect of the transaction, that perhaps it is not material.
LISTNUM 1 \l 14501 COMMISSIONER CRAM: A lot of lawyers would make a lot of money, Mr. Zolf, wouldn't they.
LISTNUM 1 \l 14502 MR. ZOLF: Right.
LISTNUM 1 \l 14503 COMMISSIONER CRAM: Not a bad idea.
LISTNUM 1 \l 14504 MR. ZOLF: That is a socially optimal outcome as well.
LISTNUM 1 \l 14505 COMMISSIONER CRAM: Yes.
LISTNUM 1 \l 14506 MR. ZOLF: I think it's not so much that we are saying use it as a carrot for them to avoid termination of their contract. It's a lot softer than that, I think. I think what we are saying is that if the Commission were to move forward on the application and say this is how the avails are going to be handled, it's not so much that they are going to go to the BDU to avoid the nuclear solution of a default. They are just going to go to the BDU and say well, this is now the Commission's policy and as a result we are going to need to modify this contract.
LISTNUM 1 \l 14507 COMMISSIONER CRAM: I tend to see American lawyers as Rottweilers, so I don't know ‑‑ I hope nobody here wants to sue me on that.
LISTNUM 1 \l 14508 I think there is another way to see it, but we will move on.
LISTNUM 1 \l 14509 I think at page 31 you were going through your conditions in your application and you said you would be responsible for program content.
LISTNUM 1 \l 14510 Let me find that.
LISTNUM 1 \l 14511 At page 31, at the very top:
"OII will be responsible for all programming content it distributes as a replacement to the U.S. advertising."
LISTNUM 1 \l 14512 Who are you responsible to? Everybody? The programming services, the U.S. programming services?
LISTNUM 1 \l 14513 MS STRAIN: That was just I think intended to get to the point that anything we broadcast in that two‑minute avail, whether it's advertising or promotion, we control it. We are accountable for that. So we are accountable to make sure that we are adhering to the Commission's various codes, et cetera.
LISTNUM 1 \l 14514 I think that is all it was meant to get at; just specifically with respect to the inserted material.
LISTNUM 1 \l 14515 COMMISSIONER CRAM: The agreements ‑‑ and I had to get new glasses because I read the agreements ‑‑ talk about liability and indemnification between the BDU and the programming service.
LISTNUM 1 \l 14516 Is that what you mean?
LISTNUM 1 \l 14517 MS STRAIN: Yes.
LISTNUM 1 \l 14518 COMMISSIONER CRAM: Here is my example. The BDUs are liable and have to indemnify Turner.
LISTNUM 1 \l 14519 MS STRAIN: Yes, we understand. And that is why we indicated in the application that we are quite prepared ‑‑ and these are sort of common industry type agreements. You have a contract. You need to pass obligations on to a third party.
LISTNUM 1 \l 14520 What we are saying is we would be absolutely prepared to observe the obligations in that master contract relating to advertising content, et cetera, and we would be ultimately on the hook.
LISTNUM 1 \l 14521 COMMISSIONER CRAM: What about the exclusivity clauses, the clauses where they say you can't use so‑and‑so to advertise because we have an exclusive agreement?
LISTNUM 1 \l 14522 Where is that?
LISTNUM 1 \l 14523 There is a notification of these exclusivity agreements ‑‑ it is essentially saying we have agreements that we shall not use these advertisers in a certain place.
LISTNUM 1 \l 14524 You know what I'm talking about.
LISTNUM 1 \l 14525 MR. CRAIG: Yes, we do.
LISTNUM 1 \l 14526 COMMISSIONER CRAM: How would you handle that? Would the BDU be required to tell you?
LISTNUM 1 \l 14527 So Turner would tell the BDU and the BDU would be required to tell you about those exclusivity clauses?
LISTNUM 1 \l 14528 MR. CRAIG: Yes.
LISTNUM 1 \l 14529 COMMISSIONER CRAM: Okay.
LISTNUM 1 \l 14530 MR. CRAIG: You know, we are quite familiar with those types of parameters in barter programming and other kinds of relationships we have had in the past. We know what it is like to deal with those kinds of rules and regulations from channel operators.
LISTNUM 1 \l 14531 COMMISSIONER CRAM: And you propose that we, of our own motion, amend the BDUs' COLs if the BDU licence has been around for longer than five years; that we would amend it by our own motion to add the proposed COL.
LISTNUM 1 \l 14532 I have to tell you my concern is, given the contents of the contracts right now, wouldn't that put us in a dicey situation? Would we be seen as inducing or assisting breach in terms of the assignment?
LISTNUM 1 \l 14533 Maybe I'm overly sensitive because of the CMT issue, whenever. But I'm wondering about the position of the CRTC doing something where there is a direct contractual obligation to the contrary.
LISTNUM 1 \l 14534 MR. ZOLF: That is a good question, Commissioner Cram, in the sense of I think Mr. Craig is saying we are happy to abide by those provisions or take on those obligations.
LISTNUM 1 \l 14535 I can be corrected in this, but I don't think the applicant is asking for you, the Commission, to order the contracts to be changed. I think we are asking the Commission to say that the avails shall be operated, if you will, only by this entity and that we will give assurance that we will not I guess prejudice ordinary commercial arrangements, if you will.
LISTNUM 1 \l 14536 COMMISSIONER CRAM: I am talking about of our own motion amending the COL in cases where we can, knowing full well that the contract includes a phrase saying "it shall not be assigned"; the avail benefits shall not be assigned.
LISTNUM 1 \l 14537 Where does that put the Commission?
LISTNUM 1 \l 14538 MS STRAIN: Actually, with that second Condition of Licence that we ‑‑
LISTNUM 1 \l 14539 COMMISSIONER CRAM: The new one.
LISTNUM 1 \l 14540 MS STRAIN: The new one, sorry.
LISTNUM 1 \l 14541 And given what you said earlier about sort of building into this, that we would comply with signal integrity, advertising content, et cetera, what this says is where the terms of the affiliation agreements between the licensee and any non‑Canadian satellite services permits the substitution. So we've kind of contemplated in there that we recognize there has to be some ‑‑ the contract has to permit what it is we are talking about.
LISTNUM 1 \l 14542 So we think that mitigates that concern of yours.
LISTNUM 1 \l 14543 COMMISSIONER CRAM: In terms of the liability issue, should we be ‑‑ well, I will talk about that later.
LISTNUM 1 \l 14544 I think in your reply you quoted the CCTA in their application as saying it was unlikely that the U.S. programmers would want an increased cut of the pie.
LISTNUM 1 \l 14545 You said, Mr. Craig, that the consumers win. My concern, though, is that they could lose in that programming services, a lot of them are public entities and they have rapacious shareholders and they want every cent they can get.
LISTNUM 1 \l 14546 What in the event that it is ‑‑ I mean, likely is not a guarantee.
LISTNUM 1 \l 14547 At the end of an affiliation contract, be it by premature termination or otherwise, how do we prevent the U.S. programmer from saying I want a cut of the pie, meaning that the BDUs pay more because they are the contractual people, meaning that the consumers pay more?
LISTNUM 1 \l 14548 How do we prevent that?
LISTNUM 1 \l 14549 MR. CRAIG: I don't think you can. I don't think anybody can regardless of whether this occurs or not. The channel operators in the U.S. will extract as much money out of this market as they can, and they have been quite successful at it so far.
LISTNUM 1 \l 14550 By all estimates, these channels take about $250 million a year out of the Canadian market, with nothing back, and they are very valuable services.
LISTNUM 1 \l 14551 I don't think that anything that we do with those avails has anything to do with the position that they would take on increasing rates because right now they derive no revenue from those avails.
LISTNUM 1 \l 14552 I think, just from a 30,000 foot level, we are having a very deep legal discussion here, and I'm not a lawyer.
LISTNUM 1 \l 14553 COMMISSIONER CRAM: Between non‑lawyers.
LISTNUM 1 \l 14554 MR. CRAIG: Yes.
LISTNUM 1 \l 14555 From my perspective, I think it is interesting that you have had some interventions from some of the channel operators who have said no way. In SPEED they said no way, but whatever the CRTC tells us to do, we'll do.
LISTNUM 1 \l 14556 Not everybody intervened. We did have discussions with channel operators in the U.S. and showed them our proposal and they said their general view was ‑‑ there has been pressure on these U.S. channels to make some sort of contribution. There has been talk of levies and different ways to make them pay.
LISTNUM 1 \l 14557 They view, the ones we have talked to, we showed them our proposal as a way for them to be seen to be contributing back to the Canadian system. I think some of them are very good corporate citizens and will do what is right for the privilege of being able to come to Canada and provide service and take significant amounts of money out.
LISTNUM 1 \l 14558 In terms of the rates and the consumer, I think with our proposal the consumer wins because what we do is we generate new Canadian programs. So that's a win for the consumer.
LISTNUM 1 \l 14559 I believe that the American channels will continue to push and prod and make the BDUs pay as much as they think they can get them to pay, whether or not we implement this Only Imagine proposal or not.
LISTNUM 1 \l 14560 I don't necessarily agree with the view that our proposal somehow triggers them to make the BDUs pay more.
LISTNUM 1 \l 14561 COMMISSIONER CRAM: Okay. I wanted to move on to the BDUs and their repercussions within the BDUs.
LISTNUM 1 \l 14562 Mr. East, you said in terms of the technology that it has to be maintained twice a year. Is that the idea? They have to go onto the premises?
LISTNUM 1 \l 14563 MR. EAST: The technology is absolutely designed to be remotely operated. One of the manufacturers we were talking to gives the example of a corn field in Iowa. No one wants to be out there every day or every week or every month.
LISTNUM 1 \l 14564 So we feel it is prudent to suggest that regular maintenance visits may be required, and I think we talked about four times a year.
LISTNUM 1 \l 14565 We also talked about the BDU staff, like Only Imagine providing the equipment to the staff. It's sophisticated, so providing the configuration information and documentation. There would have to be some work in concert to make sure it functions properly, but then they can maintain it. They can install it.
LISTNUM 1 \l 14566 So there are options there.
LISTNUM 1 \l 14567 COMMISSIONER CRAM: I think I read in your initial proposal that you said it was virtually maintenance free. You are very confident.
LISTNUM 1 \l 14568 My reaction to that is ‑‑ and I'm a Luddite so I like the old black telephone with the crank around it.
LISTNUM 1 \l 14569 Are you prepared to have sufficient liability insurance to cover the losses to the BDUs if there are problems?
LISTNUM 1 \l 14570 And I'm talking losses including even loss of goodwill.
LISTNUM 1 \l 14571 If the signal is interrupted ‑‑ and I know that all of the new‑fangled people in machinery say it's no problem. But if the signal is interrupted, it is the goodwill of the BDU that goes.
LISTNUM 1 \l 14572 I guess my reaction is: Are you prepared to have sufficient liability insurance to cover all of those losses?
LISTNUM 1 \l 14573 MR. CRAIG: I think the answer is yes, we would.
LISTNUM 1 \l 14574 In terms of signal integrity, we are going to be very concerned about that obviously and we will have certain specs to meet.
LISTNUM 1 \l 14575 The equipment we are talking about installing is redundant. It's like there's two of everything. In the unlikely event that it fails, I think the first thing I would say is that the signals passing through our equipment, we are inserting the commercial messages. A failure would simply mean that the signal passes through our equipment with the American commercial.
LISTNUM 1 \l 14576 COMMISSIONER CRAM: I read that.
LISTNUM 1 \l 14577 MR. CRAIG: I think that that does happen from time to time when I watch my local cable operator. So in terms of equipment failure, that's really what we are talking about. We are talking about, worst case, this passthrough of the signal.
LISTNUM 1 \l 14578 So if there is a Condition of Licence that said we had to maintain liability insurance, we would certainly accept that.
LISTNUM 1 \l 14579 MR. EAST: Maybe I could also add, if it is all right, Commissioner Cram, that these signals are engineered to achieve this very objective. Tens of thousands of commercials are inserted every day in the U.S. in these very same signals. A lot of the companies use this very same equipment.
LISTNUM 1 \l 14580 The processes are really quite well understood. The methodology is well understood to make sure it is reliably done. I think we have tried to take it to the point where this is designed to be a big system. This isn't, you know, an Iowa corn field approach. Jeff and I went down to Time Warner in Manhattan and we talked with them and looked at what they do. They substitute on 52 channels and five HD channels thousands of commercials every day.
LISTNUM 1 \l 14581 I'm an engineer. I'm never going to say nothing ever fails. Things fail. In fact, good engineering is saying: Okay, what happens when that fails? What happens when that fails? And Only Imagine is taking the approach of let's engineer this well.
LISTNUM 1 \l 14582 And let's also make room for BDU input. They have particular concerns. We understand headends are different. Let's make sure the engineering solution addresses them.
LISTNUM 1 \l 14583 They are inserting promos right now. I think it's a reasonable engineering objective to say that we don't introduce any further risk to signal failure than what exists right now and has for years.
LISTNUM 1 \l 14584 That would be the technical approach.
LISTNUM 1 \l 14585 COMMISSIONER CRAM: You will forgive me, Mr. East, but I keep remembering the rings that engineers wear came from the wrecked bridge. I am somewhat sceptical.
LISTNUM 1 \l 14586 You would then agree to indemnify the BDUs for any and all losses associated with technical malfunction.
LISTNUM 1 \l 14587 MR. EAST: Yes.
LISTNUM 1 \l 14588 COMMISSIONER CRAM: You want control over placement of the ads.
LISTNUM 1 \l 14589 At page 3 of your letter of October 9, 2006 you said you would give the BDUs access to the inventory in a reasonable manner.
LISTNUM 1 \l 14590 Today you said, I think, in an equitable manner. There was a difference in terminology.
LISTNUM 1 \l 14591 Yes, at page 27, in the last paragraph:
"The BDUs and the priority services will have equitable access."
LISTNUM 1 \l 14592 As opposed to reasonable access. Throughout your application I read advertisers and the drama promotion and the digital promotions as having equitable access but reasonable access to BDUs.
LISTNUM 1 \l 14593 You agree that the BDUs, everybody will have the same access, the same equitable access.
LISTNUM 1 \l 14594 MR. CRAIG: Commissioner Cram, I am going to pass this off to Mr. Tomik. We have done a lot of thinking about this and I would like him to do that.
LISTNUM 1 \l 14595 But before I do, the short answer is yes, they get equitable access.
LISTNUM 1 \l 14596 I would like to pass it off to Jack here.
LISTNUM 1 \l 14597 MR. TOMIK: Sure. Thanks, Drew.
LISTNUM 1 \l 14598 In the case of the BDUs who still have 25 percent of the two minutes available, it pretty much means they are going to have a 30‑second commercial in every break every hour. So it is very straightforward.
LISTNUM 1 \l 14599 In the case of the other services where the $5 million has been put up for drama promotion and $5 million has been put up for diginets, what is going to happen is, unlike today, annual 52 week schedules will be placed for those allotments.
LISTNUM 1 \l 14600 The schedules will be divided, depending on the number of users, once a year. Then that schedule will be trafficked on a monthly basis for them. So they will have the ability to focus and concentrate on whatever it is they are promoting within the month or even within the week. So it will be very fair and equitable. We will treat them like paying customers.
LISTNUM 1 \l 14601 COMMISSIONER CRAM: Speaking of paying, today at page 21, you are waiving the cost recovery from a television program undertaking?
LISTNUM 1 \l 14602 MR. CRAIG: As we looked at this, Commissioner Cram, in my former broadcast days I spent some money with these BDUs buying different campaigns, and the pricing was all over the place. So we tried to do some analysis in terms of getting rate cards and trying to figure out exactly what the cost recovery number was.
LISTNUM 1 \l 14603 It was impossible to put a real number on it because it seemed to be all over the place. So we have basically said in view of that, we are just going to waive the cost recovery figure. We already have the equipment in place to do it, so we are telling the BDUs and the program undertakings that would get access to these avails that there is absolutely no cost to run the commercials.
LISTNUM 1 \l 14604 Just further to that ‑‑
LISTNUM 1 \l 14605 COMMISSIONER CRAM: Okay. In other words, there isn't that insertion fee.
LISTNUM 1 \l 14606 MR. CRAIG: There is an insertion fee and it varies dramatically. In Calgary and Edmonton the rates were quite high and in certain areas of the country, in central Canada, they were reasonable. So we are waiving that.
LISTNUM 1 \l 14607 The other big distinction with our system ‑‑ and Jack may want to talk about this ‑‑ is that right now when you insert on a BDU, if you are a program undertaking and you run a campaign, you have no idea where it runs. It's strictly ROS. It is very difficult to change creative. You get no affidavit confirming that the spots ran in certain shows at certain times. So it is really like throwing it at the wall.
LISTNUM 1 \l 14608 So a major distinction between our plan and the existing plan is we have a very sophisticated traffic and billing system where we effectively run this like a real network.
LISTNUM 1 \l 14609 So when we go to a Canadian programmer that wants to promote a drama program, as an example, we can target it to a specific demo. We can run it in certain channels. We can run the spot and actually give them an affidavit to prove that it did run.
LISTNUM 1 \l 14610 Jack, you may want to comment on the value of that.
LISTNUM 1 \l 14611 MR. TOMIK: I think you did pretty well.
LISTNUM 1 \l 14612 From my point of view, when you are promoting especially a new drama or a new service, it really is key these days to promote to specific consumers that you want.
LISTNUM 1 \l 14613 If it is a youth oriented drama, you want to promote towards 18 to 34 years old. If it is something more of a political or historic nature, older people.
LISTNUM 1 \l 14614 Certainly that isn't available right now in the promotion on the BDUs. It is up to two weeks lead time before you can get on air. Schedules rotate across all of the services. So you really can't target.
LISTNUM 1 \l 14615 In the case of Only Imagine, they put forward the notion that they will specifically target by channel and demographic days of the week and creative changes will be done as any other regular broadcast undertaking on literally 48 hours notice.
LISTNUM 1 \l 14616 So if there is release of a new theatrical Canadian movie and they want to say on Monday morning for their promotional time number one movie in Canada, we will be able to do that for them.
LISTNUM 1 \l 14617 COMMISSIONER CRAM: I am sorry, did somebody hit a microphone? No. Okay.
LISTNUM 1 \l 14618 So you have sold the issue of the insertion costs.
LISTNUM 1 \l 14619 Are you proposing that should you have problems with collocation and access that we would be resolving those issues?
LISTNUM 1 \l 14620 MR. ZOLF: Yes, Commissioner Cram. In our view, we think the existing infrastructure that the Commission has established for dispute resolution would apply in this case in the event of a dispute concerning that subject matter; for example, the dispute resolution process you articulated in, I think it was, 2000‑65 public notice which talked about a number of methods that that could be effected.
LISTNUM 1 \l 14621 We also think that the general undue preference provisions in the regs would apply as well.
LISTNUM 1 \l 14622 COMMISSIONER CRAM: There is no way that you could do this without having collocation. Is that correct?
LISTNUM 1 \l 14623 You couldn't do it remotely.
LISTNUM 1 \l 14624 MR. CRAIG: What we really need is access to the signal. As we looked at this, I mean collocation is sort of standard industry practice in our world. In fact, over the years again in my broadcast world we have lots of equipment collocated in cable headends. At the request they often times would say look, we want a direct feed from your plant to our plant. Can you spend the money to put in a microwave unit and maintain it and we will keep it for you. So I think it is standard practice.
LISTNUM 1 \l 14625 We did see the reaction from some of the BDUs in in the intervention phase, and I think there are some options here.
LISTNUM 1 \l 14626 Really what we need is access to the signals. One of the things we could do is we could move our equipment to another premises and pass the signal through and back to the cable plant. That is one solution. It is not maybe the most practical, but it could be done. It wouldn't materially affect our cost at all.
LISTNUM 1 \l 14627 One of the other options that may be more palatable is to have an arrangement similar to The Weather Network has with the BDUs, where they need a local box in the cable headend to get the local weather information over The Weather Channel.
LISTNUM 1 \l 14628 We could effectively do the same thing. We could effectively hand off our equipment to the BDU and allow them to install it and maintain it under contract, so we never have to go in their building. As long as it works, we are indifferent. We really don't care.
LISTNUM 1 \l 14629 The guts of our system resides in the network operating centre. So as we look at it, there are a number of options in terms of how we get our equipment into the headend.
LISTNUM 1 \l 14630 COMMISSIONER CRAM: Now the CCSA said that some of their members are still paying for equipment to make use of t he avails.
LISTNUM 1 \l 14631 Are you prepared to reimburse them for their unamortized amount?
LISTNUM 1 \l 14632 MR. CRAIG: Yes.
LISTNUM 1 \l 14633 COMMISSIONER CRAM: Okay.
LISTNUM 1 \l 14634 We have talked about BDUs. Now broadcasters.
LISTNUM 1 \l 14635 In your reply to the interventions you talked about the avails being underutilized. Any idea of the extent of underutilization?
LISTNUM 1 \l 14636 MR. THIESSEN: Do you mean in terms of how many avails are used by the broadcasters?
LISTNUM 1 \l 14637 COMMISSIONER CRAM: Yes.
LISTNUM 1 \l 14638 MR. THIESSEN: Versus the BDUs.
LISTNUM 1 \l 14639 COMMISSIONER CRAM: No. Let's talk about programmers first, their 75 percent. How much of that 75 percent is actually used?
LISTNUM 1 \l 14640 MR. THIESSEN: Well, we actually looked at that last summer, and very few actual spots were used in our anecdotal study. It was a very simple study.
LISTNUM 1 \l 14641 COMMISSIONER CRAM: You watched TV for seven days.
LISTNUM 1 \l 14642 MR. THIESSEN: I recorded seven days of the specialty channels and literally hired my daughter to go through and list every single time each spot was used and found that the broadcasters use only 15 percent of those spots at all. The cable company which my home is serviced by was using 51 percent of those spots for their telephone service.
LISTNUM 1 \l 14643 So as far as the impact on the promotions, very little was impacting the television. There was very few television, I think 3 percent television, and there was about 11 percent radio. There was very insignificant usage by the system during that study week.
LISTNUM 1 \l 14644 I think all of us have seen a lot of the usage of those spots by other people in various cities and found that they are sporadically used and most of the time by the services. The BDUs who own services that are broadcast make good use of those avails and especially if I were to look at the usage time periods, the best spots were always used by the BDUs to promote their services in prime time, not the broadcasters.
LISTNUM 1 \l 14645 COMMISSIONER CRAM: Okay.
LISTNUM 1 \l 14647 Just from my own personal experience in trying to use this, it is not the most efficient way to spend money.
LISTNUM 1 \l 14648 As we looked at it in our plant, we have tried to tailor this. We have tried to tailor the promotion to promote the diginets ‑‑ we believe they need help as they are growing their businesses ‑‑ and also to Canadian drama programming.
LISTNUM 1 \l 14649 With our system, we can tailor those announcements much more specifically and efficiently.
LISTNUM 1 \l 14650 The other point I would make is that radio at one point made good use, I would say, like years ago made pretty good use of this time. I noticed that in the interventions, even the CAB intervention, there was no mention of the lack of promotional opportunities for radio, and there were no radio interventions specifically on giving these up.
LISTNUM 1 \l 14651 Then that, coupled with the fact that now because the players are bigger and they have cross‑platform opportunities in the case of the Globals and the CTVs and they have specialty channels that are very targeted and they have newspapers and they have heavy web presence, et cetera, the use of these avails by those broadcasters is, I would say, dwindling.
LISTNUM 1 \l 14652 COMMISSIONER CRAM: In your informal survey, Mr. Thiessen, did you look at promotion of the 91H's and their utilization of those avails?
LISTNUM 1 \l 14653 MR. THIESSEN: 3.4 percent. I remember that number because it was identifiable.
LISTNUM 1 \l 14654 COMMISSIONER CRAM: 3.4 percent of the entirety of the time.
LISTNUM 1 \l 14655 MR. THIESSEN: That's correct.
LISTNUM 1 \l 14656 COMMISSIONER CRAM: So then you are going to say to me ‑‑ and staff has done calculations for me so it's not my own calculations, so they are far more reliable ‑‑ that on the ten services, if all the inventory was totally used, it would be 1,993.8 hours.
LISTNUM 1 \l 14657 This 15 percent ‑‑ is the 91H in addition to the 15 percent?
LISTNUM 1 \l 14658 MR. THIESSEN: Yes, that would be separate.
LISTNUM 1 \l 14659 COMMISSIONER CRAM: So to look at the loss to Canadian programming services, it would be 18.4 percent ‑‑ in other words, 20 percent ‑‑ of 1,993 hours, subject to check. You can figure out your own calculations.
LISTNUM 1 \l 14660 Would that be fair?
LISTNUM 1 \l 14661 MR. THIESSEN: What we are keeping separate, the 91H services and the 5 percent.
LISTNUM 1 \l 14662 COMMISSIONER CRAM: You are retaining that.
LISTNUM 1 \l 14663 MR. THIESSEN: We are retaining those 5 percent by policy.
LISTNUM 1 \l 14664 COMMISSIONER CRAM: That is true. So then we are only really talking about 15 percent times 1,993.8 hours of promotion time.
LISTNUM 1 \l 14665 MR. THIESSEN: This was a one week's study. I would hate to drive this on my own study; but, yes.
LISTNUM 1 \l 14666 COMMISSIONER CRAM: Yes. So that would be ‑‑ if I'm trying to figure this out mathematically, the 15 percent times the 2,000 hours would be what Canadian services would have to look elsewhere for promotion.
LISTNUM 1 \l 14667 But as you say, Mr. Craig, it is a relatively ineffective promotion anyway.
LISTNUM 1 \l 14668 MR. CRAIG: I would like Mr. Tomik to elaborate on this, please.
LISTNUM 1 \l 14669 COMMISSIONER CRAM: Sure.
LISTNUM 1 \l 14670 MR. TOMIK: Yes, it is ineffective because you can't target it from a promotion point of view and you really can't specify days or times.
LISTNUM 1 \l 14671 I think the important thing to note, especially going forward in the consolidations that are coming before you, in a market like Calgary, CanWest will have up to 43 minutes of promotion time available across their new proposed services in this market an hour. That's 86 spots.
LISTNUM 1 \l 14672 In the case of CTV, with their proposed merger, they would have over 70 minutes an hour across their television platforms to promote themselves in the Calgary market.
LISTNUM 1 \l 14673 In addition, certainly for CanWest, they have the largest daily here. CTV would enjoy radio cross‑promotion here.
LISTNUM 1 \l 14674 What I'm talking about in terms of the broadcast minutes are the extra two minutes an hour, over and above commercial, that they can use to promote Canadian.
LISTNUM 1 \l 14675 So with those kinds of powerful promotional forces for specifically those companies, or any large company, I think it speaks to time for a new use for this promotion time on the U.S. channels.
LISTNUM 1 \l 14676 COMMISSIONER CRAM: I want to move on to the $5 million worth of availability for the promotion of Canadian drama and films by broadcasters and program distributors; again, equitable access based on request and the hours of drama produced.
LISTNUM 1 \l 14677 Number one, define drama. It is ten point drama. Yes?
LISTNUM 1 \l 14678 MR. CRAIG: In terms of the promotion?
LISTNUM 1 \l 14679 COMMISSIONER CRAM: Yes.
LISTNUM 1 \l 14680 MR. CRAIG: No. Maybe I will ask Sandra to give you our definition of what drama is in terms of the promotion pool.
LISTNUM 1 \l 14681 MS MACDONALD: The three pieces that have to do with drama are not identical in every dimension because the needs are not identical in every dimension.
LISTNUM 1 \l 14682 The fund piece is ten point dramas because that is the deep need.
LISTNUM 1 \l 14683 There are lots of eight, nine point dramas, even six to seven point dramas, that are defined Canadian, meet all the rules of Canadian. We didn't see any reason why those should not be entitled to promotion.
LISTNUM 1 \l 14684 We don't actually have so many hours of any kind of Canadian drama that I think we would run out of time to actually offer as promotion. We don't have that many movies either. And many of the movies, of course, are not ten point depending on how they are made.
LISTNUM 1 \l 14685 So the short answer is that I don't think we believe that there are any compelling reasons to actually restrict the promotion minutes to ten point. We don't believe that there is necessarily all that many ten point dramas to use up all the time that might be available.
LISTNUM 1 \l 14686 COMMISSIONER CRAM: So six plus point? Or how would we define Canadian if we didn't have primarily a majority of points?
LISTNUM 1 \l 14687 MS MACDONALD: As you define it now. If it's Canadian for you, it should be Canadian enough to be promoted.
LISTNUM 1 \l 14688 COMMISSIONER CRAM: Okay. The access is decided based on the requests divided by the hours of drama produced.
LISTNUM 1 \l 14689 What does hours of drama produced mean?
LISTNUM 1 \l 14690 MR. CRAIG: Basically, as we have thought about this ‑‑ and there are a few points here.
LISTNUM 1 \l 14691 What we would do is we would go to the broadcasters before the broadcast here and say: What is your total output of new Canadian drama going to be for the broadcast season?
LISTNUM 1 \l 14692 So we would allocate the time based on their projected output.
LISTNUM 1 \l 14693 So if CTV says we are going to do 45 hours and Global says we are going to do 45 hours and Corus says we are going to do 15 hours and Alliance says we are going to do ten, or whatever the case may be, we would allocate the inventory on that basis.
LISTNUM 1 \l 14694 We would then put into the schedule a non pre‑emptable, effectively a buy. We would treat them like advertisers.
LISTNUM 1 \l 14695 Then we would go to them on a monthly basis and say: Give us your creative and we will run your time.
LISTNUM 1 \l 14696 Again, we have the ability to target those messages to specific demos. That is how we envision it working.
LISTNUM 1 \l 14697 It would be non pre‑emptable. It would be a 60 percent inventory run in prime time, 40 percent in French. It would be evenly spread throughout the year and we would treat these avails as if they were paid avails by an advertiser.
LISTNUM 1 \l 14698 COMMISSIONER CRAM: So it is production for the forthcoming year.
LISTNUM 1 \l 14699 MR. CRAIG: That's correct.
LISTNUM 1 \l 14700 COMMISSIONER CRAM: Okay. And what I can't figure out is how program distributors would get in the deal.
LISTNUM 1 \l 14701 MR. CRAIG: We have done some thinking about that. Typically on a Canadian feature film there will be a pre‑licence from a broadcaster. They want the theatrical release promoted because it drives awareness.
LISTNUM 1 \l 14702 So as we have thought about it, we would only make that available if there was a pre‑licence and we would make that availability of time to the person who pre‑licensed that film.
LISTNUM 1 \l 14703 So if citytv pre‑licensed a theatrical release with a window that was going to occur down the road and they were part of the financing structure, we would allocate the time to citytv.
LISTNUM 1 \l 14704 COMMISSIONER CRAM: Okay. I couldn't figure out how a distributor would get in there.
LISTNUM 1 \l 14705 One other thing. I really like the ineligibility if you didn't live up to your commitments and finish the production on the fund. Would that also happen in the promotion part?
LISTNUM 1 \l 14706 If you didn't finish up or if you didn't follow through on your production, for which you received an allocation from your fund, you were ineligible the next year.
LISTNUM 1 \l 14707 MR. CRAIG: Yes, and basically the same thing would happen with the fund. In other words, if you don't have anything to promote, we would then take your share of the revenue that we allocated in advance and prorate it to the rest of the broadcasters.
LISTNUM 1 \l 14708 COMMISSIONER CRAM: Would you be doing the same thing with the promotion, the $5 million?
LISTNUM 1 \l 14709 MR. CRAIG: Yes.
LISTNUM 1 \l 14710 COMMISSIONER CRAM: Okay.
LISTNUM 1 \l 14711 Now the RDU licence. The problem is we don't regulate necessarily RDUs under the Broadcasting Distribution Regs and you are originating some programming.
LISTNUM 1 \l 14712 So would you object to COLs saying no alteration or deletion save and excepting as authorized?
LISTNUM 1 \l 14713 MS STRAIN: Yes.
LISTNUM 1 \l 14714 COMMISSIONER CRAM: No illegal, abusive, obscene comments?
LISTNUM 1 \l 14715 MS STRAIN: Yes.
LISTNUM 1 \l 14716 COMMISSIONER CRAM: Section 9, the undue preference?
LISTNUM 1 \l 14717 MS STRAIN: Yes.
LISTNUM 1 \l 14718 COMMISSIONER CRAM: Section 12 to 15, dispute resolutions?
LISTNUM 1 \l 14719 MS STRAIN: Yes.
LISTNUM 1 \l 14720 COMMISSIONER CRAM: And the requirement of an annual return.
LISTNUM 1 \l 14721 MS STRAIN: Yes.
LISTNUM 1 \l 14722 COMMISSIONER CRAM: Thank you.
LISTNUM 1 \l 14723 The drama fund, Ms Macdonald, or anybody, who is going to be administering it?
LISTNUM 1 \l 14724 MS MACDONALD: What we have said to the production community as we have gone around and talked to them is that we will aim for the most cost effective administrations that will get us a quality result.
LISTNUM 1 \l 14725 So presuming that you do license this, we would look at actually various options, whether it would be something similar, for example, to the CTF which in fact does not administer its own funds ‑‑ it's Telefilm that administers them ‑‑ or the Cogeco fund which is administered by the Independent Production Fund.
LISTNUM 1 \l 14726 There are certainly opportunities that we would examine to talk to people who do the administration of funds to see what would be very efficient.
LISTNUM 1 \l 14727 It might be actually, once we priced it out, practical ‑‑ because drama is not a huge number of hours for the money that flows through, it might actually be reasonably cost efficient to have a few people who actually do the administration for the fund itself.
LISTNUM 1 \l 14728 But we would examine that from the perspective of ensuring that the least reasonable amount of money gets diverted from the screen into administration.
LISTNUM 1 \l 14729 COMMISSIONER CRAM: The issue, because there would only be one contributor, do you believe it would be necessary that it would be independent?
LISTNUM 1 \l 14730 MS MACDONALD: That is something that could be discussed certainly. The reason why we have opted, at least at this stage of the game, for an independent fund is that in fact the Commission has over the years in a variety of contexts supported the creation of a number of funds that stood alone and in fact many of those have been very helpful in the system. They have been well administered. They have been useful.
LISTNUM 1 \l 14731 Producers really do like to have a number of doors to knock on. So there has been real value to the system by having a variety of places to go. So we started from that perspective.
LISTNUM 1 \l 14732 If there were a desire on the part of the Commission to actually start narrowing the number in general of these things ‑‑ and this fund would be thought of in the context of all the other private funds that are out there ‑‑ then obviously we would follow the route that was determined to be the most effective for the ultimate outcome.
LISTNUM 1 \l 14733 COMMISSIONER CRAM: And in any event the fund would operate under all of the criteria, Public Notices 1997‑98 and 1999‑29.
LISTNUM 1 \l 14734 MS MACDONALD: Yes.
LISTNUM 1 \l 14735 COMMISSIONER CRAM: Thank you.
LISTNUM 1 \l 14736 Now there has been, of course, between the CAB and yourselves some issue as to whether you are going to use the avails on ten services or 17 services.
LISTNUM 1 \l 14737 You have said today that you would limit it to ten, if I have it correct, but that you would want the ability to substitute.
LISTNUM 1 \l 14738 Is that correct?
LISTNUM 1 \l 14739 MR. CRAIG: That's correct, Commissioner Cram.
LISTNUM 1 \l 14740 COMMISSIONER CRAM: So if we said ‑‑ I'm kind of concerned about sort of saying no more than ten services as COL. Would it be sufficient that we would name the services?
LISTNUM 1 \l 14741 I would think you would have to ‑‑ and I don't know how we would do it.
LISTNUM 1 \l 14742 Apparently Rogers is in the process of moving four of these to digital.
LISTNUM 1 \l 14743 MR. CRAIG: Right.
LISTNUM 1 \l 14744 COMMISSIONER CRAM: Shaw has already moved three, I gather.
LISTNUM 1 \l 14745 MR. CRAIG: Correct.
LISTNUM 1 \l 14746 COMMISSIONER CRAM: And I don't know whether ‑‑ I mean, depending on the capacity of the system, I don't know whether they have done it in all of their licence locations or not.
LISTNUM 1 \l 14747 So it would virtually be a COL in relation to each BDU headend, I guess, naming the specifics?
LISTNUM 1 \l 14748 MR. CRAIG: Well, as we have thought about it and as we keep referring to, to generate the $170 million to drama we effectively need 1 percent of tuning.
LISTNUM 1 \l 14749 So how we have arrived at these numbers is we have taken the ten channels. The audience delivery today when you take the tuning of the ten and the fact that we are only going to sell 70 percent of the inventory, two minutes an hour, that is equivalent of delivering 1 percent of the tuning. And that gets the $170 million into the system.
LISTNUM 1 \l 14750 That's why, as we looked at it, we said: Look, ten works but if one of them moves into another tier, it means we can't get access to that tuning to generate the $170 million.
LISTNUM 1 \l 14751 COMMISSIONER CRAM: The issue is more in the framing of how we do this.
LISTNUM 1 \l 14752 MR. CRAIG: Yes, I understand.
LISTNUM 1 \l 14753 MS STRAIN: What we thought of was that we identified these ten but we didn't want to be limited to these particular ten. We wanted to have ten in terms of number because that gives us the 1 percent of tuning that Drew just spoke of, but we wanted access to the eligible satellite services list to a maximum of ten that we would choose.
LISTNUM 1 \l 14754 So it wouldn't be per headend. It would apply to all the headends, and it would be those ten subject to ‑‑ the channel shuffles that have recently occurred don't really impact this business plan.
LISTNUM 1 \l 14755 COMMISSIONER CRAM: So for us control freaks, the broadcast nannies of the world, we would not even know which service from the whole list of eligible satellite ‑‑
LISTNUM 1 \l 14756 MS STRAIN: We would have to provide notice to the BDUs. We would do that.
LISTNUM 1 \l 14757 COMMISSIONER CRAM: Okay. Would you eventually want access to the French services ‑‑ Planète?
LISTNUM 1 \l 14758 MS STRAIN: I don't think we had contemplated that, but perhaps.
LISTNUM 1 \l 14759 COMMISSIONER CRAM: What about the non-American foreign services ‑‑ BBC?
LISTNUM 1 \l 14760 MR. CRAIG: I think that we keep coming back to 1 percent.
LISTNUM 1 \l 14761 Our model is based on ‑‑ and we understand the difficulty in trying to hem this thing in, but in terms of impact, what we are seeing is that 1 percent of the tuning has a negligible impact on the existing players in this business, because some of the money is going to be new and some is going to come from them, and we generate a significant amount of money for Canadian drama.
LISTNUM 1 \l 14762 Our whole plan is based on that 1 percent tuning. Right now, the way the 10 channels are situated on the dial, and the audience that they deliver, is the equivalent of 1 percent.
LISTNUM 1 \l 14763 As we approached it, we said that if one of these channels moves into a strange digital tier, we would like the opportunity to substitute that channel with another channel of equal value.
LISTNUM 1 \l 14764 COMMISSIONER CRAM: I am going to re‑think this. Is our policy of avails in relation to any foreign service other than American services?
LISTNUM 1 \l 14765 Mr. Zolf, help me.
LISTNUM 1 \l 14766 MR. ZOLF: Commissioner Cram, I think you are chasing the right issue, because I think the current position, that which is applicable today, is only in respect ‑‑ I think it actually has the language that the U.S. ‑‑ or the non ‑‑
LISTNUM 1 \l 14767 I'm sorry, does it have non‑Canadian?
LISTNUM 1 \l 14768 No, it is, actually, comprehensive. It doesn't refer to the U.S. services, it refers to the non ‑‑
LISTNUM 1 \l 14769 COMMISSIONER CRAM: Yes. We couldn't do that, because we would be discriminating, probably, against ‑‑
LISTNUM 1 \l 14770 MR. ZOLF: In any event, the question is a factual matter: Do those, for example, Planète, et al., have avails?
LISTNUM 1 \l 14771 COMMISSIONER CRAM: That's a question, too, yes.
LISTNUM 1 \l 14772 MR. ZOLF: I am not aware of ‑‑
LISTNUM 1 \l 14773 I am inclined to say that they don't, but I would think it is more something that reflects the U.S. market structure practice, giving over the avails for the local cable operator ‑‑ municipally franchised cable operators.
LISTNUM 1 \l 14774 COMMISSIONER CRAM: Okay. Why only 50 percent for drama? Why not 60 or 70?
LISTNUM 1 \l 14775 MR. CRAIG: The way we designed this thing from the very beginning was, we tried to be as efficient as we could. As we looked at the technical facilities that we would need, the sales infrastructure, the traffic infrastructure, the way to connect all of this together ‑‑ and we looked at a return on investment, if you will, for the business ‑‑ we kind of designed it, from the ground up, to be as efficient as we could.
LISTNUM 1 \l 14776 To take you back to our return on investment, it is about 15 percent of the licence. Our PBIT is about 15 percent over the licence term, compared to 25 to 30 percent for the specialty channel operators.
LISTNUM 1 \l 14777 Our objective was to make a reasonable return on investment and put in as much as we could and be as efficient as we could.
LISTNUM 1 \l 14778 As we looked at our plan, we followed the CCTA proposal very carefully, and where they put in, effectively, at the end of the day, 25 percent for Canadian programming, we looked at designing a more efficient service that delivered double that to the system.
LISTNUM 1 \l 14779 MR. THIESSEN: If I could add to Drew's comments, it isn't just the 50 percent we are doing. We looked at our sell-out rates for the first couple of years and realized there was unused inventory and thought that this would be a great place to use it for promotion.
LISTNUM 1 \l 14780 So we are sucking a lot of the inventory out of monetizing it and giving it back to the system in the way of promotions.
LISTNUM 1 \l 14781 COMMISSIONER CRAM: Staff, again, have calculated that, in terms of the inventory, it would add 18 minutes an hour of commercial inventory in the national advertising market.
LISTNUM 1 \l 14782 Would you agree, subject to check?
LISTNUM 1 \l 14783 Eighteen minutes.
LISTNUM 1 \l 14784 MR. CRAIG: Jack is doing the math.
LISTNUM 1 \l 14785 COMMISSIONER CRAM: We can come back to it.
LISTNUM 1 \l 14786 I am just saying subject to check, I am not going to ‑‑
LISTNUM 1 \l 14787 MR. CRAIG: We will check and be right back.
LISTNUM 1 \l 14788 COMMISSIONER CRAM: Okay. Staff tells me that this is equivalent to two analog specialties being put into the system.
LISTNUM 1 \l 14789 Could you look into that also, Mr. Tomik?
LISTNUM 1 \l 14790 Would you agree that this has the potential to devalue the national inventory?
LISTNUM 1 \l 14791 MR. CRAIG: We spent a lot of time talking about this, and I would like Jack to give you his perspective.
LISTNUM 1 \l 14792 Also, we have Florence George with us on our panel, and Florence has spent her career as a media buyer, and I believe that she has a very good perspective on the advertiser desire for these avails and what they can do to actually enhance the system.
LISTNUM 1 \l 14793 MR. TOMIK: In terms of the numbers you asked about, six of the U.S. services would be saleable inventory of 1.5 minutes per hour, because, obviously, it wouldn't be fair to count the 25 percent of promotional time that is going to the BDUs.
LISTNUM 1 \l 14794 So that would be a total of 9 minutes.
LISTNUM 1 \l 14795 And, then, four of the services are at 2.5.
LISTNUM 1 \l 14796 So, yes, 19 is correct.
LISTNUM 1 \l 14797 In terms of being comparative to two Canadian services, I would have to check those numbers, but in terms of the overall impact ‑‑ and I will ask Florence George to speak to the impact from her point of view, as a substantial television buyer in this market ‑‑ we feel, because of the nature of the services, and the fact that there was quite a pent‑up demand from an advertiser's point of view to use these services after such a long time, that of the original application, $30 million in Revenue Year 1, probably about 30 percent of that will come from new money ‑‑ advertisers who are excited enough to say "I can finally be on CNN" or "I can finally be on Spike", and it will bring new money into the system.
LISTNUM 1 \l 14798 If that sort of rationale holds true and about 70 percent is coming from other broadcasters across the country, that would amount to about $20 million, and that $20 million would be spread over, basically, $3 billion ‑‑ or, at that time, $3.3 billion in the television market.
LISTNUM 1 \l 14799 The impact, in my estimation, is so negligible that it is really hard to gauge who it would hurt.
LISTNUM 1 \l 14800 In fact, I noticed through the intervention process that no other intervenor who is a broadcaster could name a number.
LISTNUM 1 \l 14801 In my experience, when new services are put into a market, usually incumbents come with a very specific number, to the penny, of what they think it is going to hurt their business.
LISTNUM 1 \l 14802 I was surprised to see that nobody did that here.
LISTNUM 1 \l 14803 I think the reason is because it is such a negligible amount, spread across the system, that nobody could really measure it.
LISTNUM 1 \l 14804 Florence, do you have any comments?
LISTNUM 1 \l 14805 MS GEORGE: The comment I would have as a buyer is that this opportunity gives us the ability to reach a unique audience, which has been left out for the past years. That is a great benefit to the buyer.
LISTNUM 1 \l 14806 I am happy to see a little bit of competition coming into the marketplace. There is not too much there, but the inventory that is being put forth will create some viable competition in the marketplace, and we need that, considering what is going on in the overall broadcast industry.
LISTNUM 1 \l 14807 The other point that I would like to make is, I believe there is actually going to be new moneys, not coming necessarily from existing broadcasters, but new moneys coming from clients that have shied away from TV ‑‑ the beer business, for instance. We have been very frustrated finding appropriate programs for them, and they have gone off into other media, whether it's out of home, whether it's magazine, whether it's the internet.
LISTNUM 1 \l 14808 We find that that money has gone out of TV and moved to other vehicles.
LISTNUM 1 \l 14809 When they know that the opportunity is here to place advertising for their demographic ‑‑ let's say Labatts ‑‑ and they use the U.S. specialties, my feeling is that they will decide that, if we are going to go forward with TV and we are going to use the U.S., then we will create a campaign that will flesh out their weight.
LISTNUM 1 \l 14810 I think, actually, that it will grow a bit.
LISTNUM 1 \l 14811 Maybe I'm optimistic, but ‑‑
LISTNUM 1 \l 14812 COMMISSIONER CRAM: What is the value of the inventory?
LISTNUM 1 \l 14813 MS GEORGE: Pardon me?
LISTNUM 1 \l 14814 COMMISSIONER CRAM: Would it grow the CPR?
LISTNUM 1 \l 14815 MS GEORGE: Which CPR?
LISTNUM 1 \l 14816 COMMISSIONER CRAM: The national inventory.
LISTNUM 1 \l 14817 Would it raise the rates for national inventory?
LISTNUM 1 \l 14818 Is that what you are saying?
LISTNUM 1 \l 14819 MS GEORGE: No, I'm not saying that at all.
LISTNUM 1 \l 14820 COMMISSIONER CRAM: The question was, putting this commercial inventory into the system, would you agree that it has the potential to devalue the national inventory?
LISTNUM 1 \l 14821 MS GEORGE: It is such an insignificant amount that I don't think it will have any issue with the value of the existing inventory.
LISTNUM 1 \l 14822 MR. TOMIK: Commissioner Cram, to follow on that ‑‑ firstly, to answer your question, the revenues, in terms of advertising, are about the impact of two services, as you mentioned earlier.
LISTNUM 1 \l 14823 COMMISSIONER CRAM: I should thank staff. They are the ones that did it right.
LISTNUM 1 \l 14824 MR. TOMIK: Staff, you are on the money.
LISTNUM 1 \l 14825 But one thing I will put forward is, unlike new services, these viewers already exist, and they won't cause fragmentation.
LISTNUM 1 \l 14826 In terms of costings and the impact on the market, as Ms George said, it is not a big enough amount of inventory to impact a market in any way, shape or form. But, interestingly enough, I did do my own costings as I checked the numbers for Only Imagine, and, in fact, Ms George, based on her experience, went through cost-per-thousand costings for each one of these 10 services in order to give us a good look at what this would be.
LISTNUM 1 \l 14827 In fact, in all cases, because of the limited inventory that is available for sale, and the very niche nature of some of these program undertakings, like Golf or Spike, they would actually command a premium in terms of costing in some ways, because they are so limited.
LISTNUM 1 \l 14828 So it wouldn't hurt the costs across the country at all.
LISTNUM 1 \l 14829 MR. THIESSEN: If I could interject very quickly, just to put it on the record, whatever advertising we would sell would be compliant with whatever the U.S. services would allow on their services, in case there is any discrepancy about any comments about that.
LISTNUM 1 \l 14830 COMMISSIONER CRAM: All right.
LISTNUM 1 \l 14831 Would you agree that releasing this amount of inventory may impact the conventional and specialties, especially the smaller players?
LISTNUM 1 \l 14832 MS GEORGE: Your question was, again, whether it will impact the conventional or specialty.
LISTNUM 1 \l 14833 I believe there is no impact at all. It is such a small portion, and I think that, with new moneys moving in, hopefully, it will just equal out.
LISTNUM 1 \l 14834 MR. TOMIK: From my point of view, the amount of revenues in this country right now that are apportioned to specialty television and conventional television and network are very fluid. Those numbers are moving back and forth, and, obviously, specialty is growing quite quickly.
LISTNUM 1 \l 14835 I prefer to look at that as one big pool of television revenue. Local is very different, but certainly the specialty pool, the network pool, and the national spot pool are the same.
LISTNUM 1 \l 14836 I think that, again, if you accept impact at about $20 million in the first year, on a $2.6 billion pool without local, you are talking about a .7 percent or .6 percent impact.
LISTNUM 1 \l 14837 I think the ones that it will impact will be the large broadcast corporations. I don't think this is something that will hurt one of the small diginets, because they, in fact, are so targeted in what they do.
LISTNUM 1 \l 14838 You asked about the smaller ones. I don't think it would affect them at all.
LISTNUM 1 \l 14839 MR. CRAIG: If I could add one more point, I think that because there is such a limited amount of inventory on these channels ‑‑ and, as Florence said, it is a premium ‑‑ and because it is segmented into 10 different channels, it is not really the equivalent of having two networks, because it is so segmented.
LISTNUM 1 \l 14840 COMMISSIONER CRAM: And because of the niche markets and ‑‑
LISTNUM 1 \l 14841 MR. CRAIG: Yes, they are niche.
LISTNUM 1 \l 14842 In fact, as I have heard ‑‑ we have been out talking to advertisers in the community, et cetera, and the one thing for certain is, with this limited amount of inventory, if you wanted to run a campaign, you couldn't just run it on our service, you would use it to augment other buys.
LISTNUM 1 \l 14843 Typically, in the specialty world, when you buy, you buy five or six deep in terms of channels. So they would have to buy, let's say, BET, if they are targeting a young demo, and then go to MuchMusic and TSN and others to make up the balance of their buy.
LISTNUM 1 \l 14844 I think that is an important distinction. It is not like having two full‑blown channels, they are 10 very distinct niche channels.
LISTNUM 1 \l 14845 MR. THIESSEN: If I might throw in one more comment to the mix, if you go with 50,000 feet, again, this would allow for an enormous amount of money toward drama, which, if you were to license two analog services, and if they would run at 10, 12, 15 percent allocated toward drama ‑‑ or, in the case of some of the other ones, which are even higher than that, but only a couple of them have been licensed like that ‑‑
LISTNUM 1 \l 14846 This would put 50 percent back into Canadian drama, and you would have to license a lot of different services to get that much money into drama, if targeted for drama.
LISTNUM 1 \l 14847 COMMISSIONER CRAM: Mr. Craig, you made a point of saying that, on average, you would be making a 15 percent PBIT, and you made a point of comparing it to the PBITs of the specialties.
LISTNUM 1 \l 14848 I would take it back to something that used to be near and dear to you, the conventionals. Their PBITs aren't ‑‑ in fact, I would say that they are lower than 15 percent.
LISTNUM 1 \l 14849 We just had a hearing where they said they were in crisis, for various reasons, and 80 percent of their revenue comes from national.
LISTNUM 1 \l 14850 When we make our cost benefit analysis, we are certainly going to be looking at the frailty ‑‑ the supposed frailty of this sector, and we are going to be looking in terms of ‑‑ you know, especially in the smaller markets, in God's country in Saskatchewan, and the economics of those.
LISTNUM 1 \l 14851 We may face the potential of a loss of local TV programming, which is very, very, very important to consumers. As you know, the viewership is the highest to local programming. And we may face the loss of local TV stations.
LISTNUM 1 \l 14852 So convince me that that potential is worth the risk, when, on the other side, we are looking at $15 million to $33 million going into drama ‑‑ which, by the way, I should add, is normally produced outside the prairies, except in Saskatchewan now.
LISTNUM 1 \l 14853 Convince me that it is worth that risk.
LISTNUM 1 \l 14854 MR. CRAIG: Nobody understands the plight of conventional television better than Jeff and I.
LISTNUM 1 \l 14855 As we looked at this proposal, one of the big distinctions between our proposal and the CCTA proposal was that we stayed away from selling local advertising, because that is an important component in the mix of making a local television station work.
LISTNUM 1 \l 14856 So by staying at the national level with our service, we are really competing with network and specialty. Even on the national side of the conventional stations, they are selling selectively. They are selling a national selective spot to Labatts in Regina, in Winnipeg, in Victoria. We are selling, effectively, one commercial across the country.
LISTNUM 1 \l 14857 We are very cognizant that we wanted to stay out of their way, in terms of taking the revenue.
LISTNUM 1 \l 14858 The other thing that we contemplated when we designed this plan was to put money into a pot that would enable the broadcasters ‑‑ the lion's share of Canadian dramatic production is done by conventional broadcasters. In my view, they need high‑quality, distinct programs to survive.
LISTNUM 1 \l 14859 Right now they are aggregators of everybody else's stuff. If you own a program, you commission a program, and you build that program into your schedule and create an audience, and you are able to get it on the internet and maximize all of these other ancillary revenue potentials, you are going to make some money.
LISTNUM 1 \l 14860 This is designed to stay out of their way on the revenue side, and deliver a fund to the broadcaster to create original programming, which will ultimately be profitable for them.
LISTNUM 1 \l 14861 The other point I would make, in terms of conventional, is that I think the world is changing in terms of conventional. There are very few small conventional players out there, with all sorts of very critical challenges, obviously, with CBC network affiliations coming to an end, et cetera. Really, at the end of the day, despite a lot of regulatory issues, it looks like there will be two players.
LISTNUM 1 \l 14862 So I would say that the lines between conventional and specialty, when you get two huge consolidated players, become ‑‑ the lines between conventional and specialty become blurred, because you can defray costs, and you can move costs around, and you have the benefit of having multiple platforms.
LISTNUM 1 \l 14863 I think that our proposal does not affect conventional in a meaningful way at all. It is 1 percent of the total pie, and it, in fact, helps them.
LISTNUM 1 \l 14864 MS STRAIN: Commissioner Cram, just to add, the broadcasters that intervened against us were CTV, Alliance, Global and the CAB, but I don't recall that any of the smaller independent players or the small diginets intervened.
LISTNUM 1 \l 14865 COMMISSIONER CRAM: Notwithstanding, though, they are going to have a higher PBIT than the conventionals.
LISTNUM 1 \l 14866 Yes?
LISTNUM 1 \l 14867 MR. CRAIG: Agreed.
LISTNUM 1 \l 14868 COMMISSIONER CRAM: Conversely ‑‑ and you have referred to it, Mr. Craig ‑‑ at paragraph 39 of your initial application you say that you are not proposing to permit advertisers to select individual markets, but they are the buyers.
LISTNUM 1 \l 14869 You just referred to it, that the larger conventionals are now selling the top four markets, and I am presuming that is because they can't get a national buy.
LISTNUM 1 \l 14870 So how are you going to get a national buy?
LISTNUM 1 \l 14871 MR. CRAIG: I will let Mr. Tomik answer this question.
LISTNUM 1 \l 14872 MR. TOMIK: I think the intent of that statement was to clearly display that there would be no local sales of these signals into local markets, that it would function on a national level by all of the BDUs that were covered, at once, like specialty or network television.
LISTNUM 1 \l 14873 So that is really the intent, that there will be no specific avails sold in Calgary, for instance, to protect the local market.
LISTNUM 1 \l 14874 COMMISSIONER CRAM: Do you think that is feasible?
LISTNUM 1 \l 14875 MR. TOMIK: Do I think it is feasible technically to do that?
LISTNUM 1 \l 14876 COMMISSIONER CRAM: No, practically.
LISTNUM 1 \l 14877 MR. TOMIK: Yes. As a matter of fact, yes.
LISTNUM 1 \l 14878 Ms George could substantiate the fact that, when Canadian specialities are bought or when CTV network spots are bought, they are bought nationwide.
LISTNUM 1 \l 14879 COMMISSIONER CRAM: I have to tell you that CTV tells the undersigned that they can only sell the top four markets because they get coverage with DTH distant signals.
LISTNUM 1 \l 14880 That is my point.
LISTNUM 1 \l 14881 MR. TOMIK: Yes.
LISTNUM 1 \l 14882 COMMISSIONER CRAM: How are you going to force the buyers to buy a national buy?
LISTNUM 1 \l 14883 MR. TOMIK: In my opinion, what CTV is saying about the top four markets is that those are the four demand markets from an advertiser's perspective.
LISTNUM 1 \l 14884 I think, clearly, when they offer network spots in some of their programming, like Desperate Housewives, for instance, which is only available on a national network basis, that is how advertisers buy them.
LISTNUM 1 \l 14885 In the case of specialty channels, the Canadian specialties, they sell on a national basis.
LISTNUM 1 \l 14886 Maybe Florence could answer that, but there still is demand for national coverage on commercial buys, obviously.
LISTNUM 1 \l 14887 MS GEORGE: From my point of view, the buying community, and, actually, the advertising community, appreciate the specialties, and they always will buy specialties because it gives a national base.
LISTNUM 1 \l 14888 It will not be a hard sell to a buyer to be buying the U.S. specialties, because they are dying for it, and it reaches all of their markets.
LISTNUM 1 \l 14889 COMMISSIONER CRAM: Thank you.
LISTNUM 1 \l 14890 MR. CRAIG: Commissioner Cram, could I add one more point to this economic discussion?
LISTNUM 1 \l 14891 COMMISSIONER CRAM: Yes.
LISTNUM 1 \l 14892 MR. CRAIG: No one can deny the huge amount of money that is being spent on the internet ‑‑
LISTNUM 1 \l 14893 COMMISSIONER CRAM: And increasing.
LISTNUM 1 \l 14894 MR. CRAIG: -- and increasing, and Jack can give you some staggering numbers.
LISTNUM 1 \l 14895 But I would say that, if we are creating 30 percent new money ‑‑ and maybe it's more, because when advertisers come in they can buy other specialty channels to augment their buy.
LISTNUM 1 \l 14896 If we keep the revenue that we are projecting in the Canadian system and prevent it from leaking out to the internet, where it is non‑regulated, we are doing a fantastic thing.
LISTNUM 1 \l 14897 Because, for every dollar we keep in, 50 cents comes back to the system.
LISTNUM 1 \l 14898 I just make that point ‑‑ and Jack has a number, in terms of internet growth, that is quite staggering.
LISTNUM 1 \l 14899 MR. TOMIK: Yes. I am not here to speak on behalf of conventional broadcasters or specialty broadcasters, but in terms of what is happening in the advertising industry, certainly it is clear that one of the most attractive demographics or consumers for advertisers is young people, because that's when people start making their brand decisions for life.
LISTNUM 1 \l 14900 When people are young, they decide to use Crest forever. So it's a very important demographic, and that is the consumer that television, quite frankly, is losing. They are losing it to places like the internet, like DVDs ‑‑ a lot of places.
LISTNUM 1 \l 14901 We are finally at the long end of the tail of things that affect television advertising in this country, and the internet specifically, and what was really shocking to me was that the Internet Advertising Bureau of Canada, for 2006, was projecting a growth of internet advertising in this country of almost $240 million. The growth rate projected for television is $90 million.
LISTNUM 1 \l 14902 There are so many other advertising opportunities available, so many unregulated places that advertisers can spend money, and that is really the key issue for television and its revenues in the future.
LISTNUM 1 \l 14903 In terms of the system, which I am certainly concerned with ‑‑ and which all major players should be concerned with, because if the system is healthy, so will they be. It's about what things, both from a regulatory point of view and from their own business initiatives, can help bring money into the system. Certainly, Only Imagine qualifies.
LISTNUM 1 \l 14904 COMMISSIONER CRAM: Thank you.
LISTNUM 1 \l 14905 Organized Media say that your prices are overstated at paragraph 23. I would like to hear your response to that.
LISTNUM 1 \l 14906 MR. TOMIK: They are wrong.
--- Laughter / Rires
LISTNUM 1 \l 14907 COMMISSIONER CRAM: Okay. Can you tell me why?
LISTNUM 1 \l 14908 MR. TOMIK: Absolutely.
LISTNUM 1 \l 14909 Probably the easiest way to do this would be, again, to refer to Ms George, who has 20 years of buying experience in this country and knows what everybody sells for.
LISTNUM 1 \l 14910 And I will tell you that she actually went through the rationale of looking at each one of these U.S. channels and allocating costs to them, and she is the best to explain it. I am used to selling, not buying.
LISTNUM 1 \l 14911 MS GEORGE: I will go through the methodology that I used, in terms of computing what a CPM would be on a U.S. station.
LISTNUM 1 \l 14912 The first step I took was, I created an extensive cable listing, matching the Canadian specialties with their counterparts.
LISTNUM 1 \l 14913 The matching is based on two specific media characteristics, one being the demographic, and the second being audience popularity.
LISTNUM 1 \l 14914 I had a matching ‑‑ for instance, I looked at A&E and I looked at Discovery, and I saw that their place in their prospective marketplace is Top Gun. They have a similar demographic.
LISTNUM 1 \l 14915 I then took my knowledge and I created Canadian costings for the specialties, and what happened was that these Canadian costs formed the base of the U.S. costs.
LISTNUM 1 \l 14916 So we have our base Canadian costs, and then we have to recognize that the U.S. specialties have an inherent premium. Also, there is not too much inventory.
LISTNUM 1 \l 14917 So, in fact, there was a premium attached to it, recognizing those two facts. That was how the numbers came to be.
LISTNUM 1 \l 14918 COMMISSIONER CRAM: What kind of premium did you give them?
LISTNUM 1 \l 14919 MS GEORGE: It ranged. Depending on the service, it would range from, maybe, 1.1 to about 1.4, and that was across the listings.
LISTNUM 1 \l 14920 COMMISSIONER CRAM: Can you take 49th Media ‑‑ can you take that intervention and tell me how they are wrong at paragraph 23?
LISTNUM 1 \l 14921 MR. ZOLF: Commissioner Cram, did you say paragraph ‑‑
LISTNUM 1 \l 14922 COMMISSIONER CRAM: Paragraph 23.
LISTNUM 1 \l 14923 COMMISSIONER CRAM: Maybe you can come back in Phase II with that?
LISTNUM 1 \l 14924 MR. TOMIK: We are ready.
LISTNUM 1 \l 14925 COMMISSIONER CRAM: Okay.
LISTNUM 1 \l 14926 MR. TOMIK: I said earlier that they were wrong, and they still are.
LISTNUM 1 \l 14927 Clearly, 49th Media has an ownership position through OMD ‑‑ Omnicom ‑‑ one of the biggest advertising agencies in the world. They would probably rank as the largest buyer of advertising in Canada.
LISTNUM 1 \l 14928 And I am sure ‑‑ I can only assume from paragraph 22 ‑‑ that it is the Omnicom experience they are using to say "These are the prices".
LISTNUM 1 \l 14929 Clearly, being the largest advertising agency in the country, they are probably getting better prices than some of the other advertising agencies or advertisers. So I wouldn't question what they are saying here, but I would say, rather than it being a total view of what the market is for television, that it is an Omnicom view. Again, they are the largest in buying, for the most efficient, I would say, is the reasoning.
LISTNUM 1 \l 14930 MS GEORGE: I am going to add to that. I used a one-time rate, which goes back to Jack's comment. That's what I used.
LISTNUM 1 \l 14931 COMMISSIONER CRAM: All right.
LISTNUM 1 \l 14932 My final question ‑‑ again, we balance here in our lives. In our balancing, we would have to consider the possibility, when licensing you, of doing a double whammy to the advertising market, in terms of inventory, because we would have you, and then we would have the potential of increased advertising inventory as a result of the drama incentives.
LISTNUM 1 \l 14933 Tell me that I shouldn't be concerned about that, and why.
LISTNUM 1 \l 14934 MS MACDONALD: In terms of the drama incentive, I think, obviously, it is very new. As far as I am aware, there is only, on the record, at this point, one year of experience with it, but the one year of experience showed, in the French market, that only 60‑some percent of the inventory that was made available, on account of the incentive, was in fact used, and it was, I think, a slightly smaller amount, or something similar, in the English market.
LISTNUM 1 \l 14935 So, in fact, I think you are right when you say that the opportunity is there for a double whammy. It will, necessarily, be restricted, in the sense that we don't make that many hours of eligible Canadian drama, regardless.
LISTNUM 1 \l 14936 So, yes, there probably will be some incentive minutes created, but, if the experience of last year tells us anything, you shouldn't actually be calculating whatever the additional amount is on account of the incentive at 100 percent. In fact, it should be considerably less than that.
LISTNUM 1 \l 14937 MR. TOMIK: I have a few points to add.
LISTNUM 1 \l 14938 The drama incentive inventory ‑‑ I'm sorry, you had me there for a second ‑‑ was a great thing to put forward by the Commission's broadcasters.
LISTNUM 1 \l 14939 I would think, clearly, that inventory that is now available from that is going straight into Survivor and Desperate Housewives, and it is sold before it gets there.
LISTNUM 1 \l 14940 So I have no concerns about the usage of that inventory.
LISTNUM 1 \l 14941 In the case of the inventory that OII is putting on the market, I think it is pretty much going to be the same scenario. I think we have clearly demonstrated, and Ms George has demonstrated, that there is going to be good demand for these services.
LISTNUM 1 \l 14942 It will bring some new money, and that inventory will not negate or impact any of the other broadcasters in any measurable way.
LISTNUM 1 \l 14943 MS STRAIN: Commissioner Cram, if we are talking about balance, we want to look at the other side, too; that is, let's not forget that the drama fund is there to help the broadcasters create that high‑quality drama, which, in turn, will trigger the incentives.
LISTNUM 1 \l 14944 So, hopefully, it will help them meet those incentives.
LISTNUM 1 \l 14945 COMMISSIONER CRAM: Thank you.
LISTNUM 1 \l 14946 Thank you, Mr. Thiessen, Mr. Craig and panel.
LISTNUM 1 \l 14947 Mr. Chair.
LISTNUM 1 \l 14948 THE CHAIRPERSON: Thank you very much.
LISTNUM 1 \l 14949 We have further questions. This is only the beginning.
--- Laughter / Rires
LISTNUM 1 \l 14950 THE CHAIRPERSON: We will take a 15‑minute break, and we will return at 11:15 a.m.
--- Upon recessing at 11:00 a.m.
--- Upon resuming at 11:20 a.m.
LISTNUM 1 \l 14951 THE CHAIRPERSON: Order, please.
LISTNUM 1 \l 14952 We will continue with questions from Commissioner Cugini.
LISTNUM 1 \l 14953 COMMISSIONER CUGINI: Thank you, Mr. Chairman.
LISTNUM 1 \l 14954 I have a couple of clean‑up questions, asking for a bit more detail, and the first one is for you, Ms Macdonald, with regard to the drama fund and the eligibility of projects to access the fund.
LISTNUM 1 \l 14955 When you define "drama", do you include all categories within Category 7, and any such projects would, therefore, be in, including comedy and ‑‑
LISTNUM 1 \l 14956 MS MACDONALD: Yes, as defined by the Commission.
LISTNUM 1 \l 14957 COMMISSIONER CUGINI: So it would be the entire Category 7.
LISTNUM 1 \l 14958 MS MACDONALD: Yes.
LISTNUM 1 \l 14959 COMMISSIONER CUGINI: Thank you.
LISTNUM 1 \l 14960 Ms Strain, you mentioned which broadcasters did or did not intervene in this process. Does that suggest that the CAB's intervention is somehow diluted if its members don't participate also?
LISTNUM 1 \l 14961 Because, as you know from your former life, as well, the CAB represents the majority of private television and radio broadcasters.
LISTNUM 1 \l 14962 MS STRAIN: Yes, that's right, Commissioner Cugini. Although I know, in my experience, that when there is an issue of real concern for certain broadcasters, very often, in addition to the CAB intervention, broadcasters will register their own interventions to discuss the unique circumstances of an application to them.
LISTNUM 1 \l 14963 I noted that the CAB interventions, as I recall, seemed to focus more generally on specialty television, and I didn't note that there were particular concerns addressed by some of the smaller specialty members or the smaller television members ‑‑ the independent guys.
LISTNUM 1 \l 14964 COMMISSIONER CUGINI: Right, but the other side of that coin is that those smaller independent diginets may feel that the CAB had adequately addressed their concerns, and therefore did not feel compelled to submit their own comments.
LISTNUM 1 \l 14965 MS STRAIN: Yes, that's fair.
LISTNUM 1 \l 14966 COMMISSIONER CUGINI: Thank you.
LISTNUM 1 \l 14967 Mr. Craig, you talked about substitutability and that your ‑‑ essentially, the whole application is predicated on 1 percent of tuning of the U.S. services that you have identified in your application.
LISTNUM 1 \l 14968 MR. CRAIG: That's correct.
LISTNUM 1 \l 14969 COMMISSIONER CUGINI: You recognize that, since filing the application, some of these have, in fact, migrated to digital.
LISTNUM 1 \l 14970 What happens when they all migrate to digital?
LISTNUM 1 \l 14971 Would that substitutability include, therefore, 20 U.S. services in order for you to continue achieving the 1 percent tuning?
LISTNUM 1 \l 14972 MR. CRAIG: I think the digital tier is growing rapidly.
LISTNUM 1 \l 14973 Right now ‑‑ and I would like Jack to comment on this after I am done ‑‑ I think the changes that have been made so far to the one or two services that were on our list are not material and wouldn't impact our business plan.
LISTNUM 1 \l 14974 COMMISSIONER CUGINI: No, the one or two wouldn't, but perhaps in 24 months all 10 services that you have identified will have migrated to digital. What impact will that have on your business plan?
LISTNUM 1 \l 14975 That is, essentially, the question.
LISTNUM 1 \l 14976 MR. CRAIG: I guess it depends on when they migrate and what the penetration is of the digital tier when they migrate.
LISTNUM 1 \l 14977 I can't imagine that they would migrate in the next 12 months.
LISTNUM 1 \l 14978 COMMISSIONER CUGINI: But there are no guarantees.
LISTNUM 1 \l 14979 MR. CRAIG: There are no guarantees.
LISTNUM 1 \l 14980 COMMISSION CUGINI: Ms George, I have to say that I was quite surprised when you said that there would be no impact at all on Canadian specialty services if we approve this application, when, for the most part, they are solely dependent on national advertising.
LISTNUM 1 \l 14981 As far as I know, not every single Canadian specialty service is sold out 100 percent, 100 percent of the time.
LISTNUM 1 \l 14982 Could you please elaborate on why you think there will be no impact at all on specialty services?
LISTNUM 1 \l 14983 MS GEORGE: My belief is that there will be some extra moneys going into the marketplace, so it will cover off any dollars that might go to the U.S. cable stations. So we would have a bit of a healthier marketplace.
LISTNUM 1 \l 14984 COMMISSIONER CUGINI: But you also talked about how advertisers are looking to target audiences, and with the number of Canadian specialty services that we have available, are there not enough for them to be able to target just about any audience across the country ‑‑ for your advertisers to target the audiences that are being generated by the Canadian specialty services?
LISTNUM 1 \l 14985 MS GEORGE: There is a need for adults 18 to 34, and you have to get that from ‑‑ the U.S. will be very helpful.
LISTNUM 1 \l 14986 In the situation that perhaps there are two broadcasters, a lot of that demographic ‑‑ I am speaking about 18 to 34 ‑‑ will be under one roof, so the fact that there is some opportunity to buy that demographic on another service is actually a good thing for the buying community.
LISTNUM 1 \l 14987 COMMISSIONER CUGINI: Are you telling us that, if we don't approve this application, there will be advertising dollars left on the table because we have not licensed enough Canadian specialty, or OTAs ‑‑ over-the-air services ‑‑ to satisfy the demands of the advertisers?
LISTNUM 1 \l 14988 MS GEORGE: It is one specific target group, for sure. Eighteen to 34 is a very elusive target group.
LISTNUM 1 \l 14989 COMMISSIONER CUGINI: Then, Canadian specialty service providers may take note, and we may get some applications for that. Thank you.
LISTNUM 1 \l 14990 MR. TOMIK: I would like to add to that, if I could, with respect to your comment about 100 percent sold out. I noted in some of the interventions that some broadcasters talk about not being 100 percent sold out.
LISTNUM 1 \l 14991 I think it is a matter of what that means. If you are a 24-hour‑a-day broadcaster, does it mean that you are not 100 percent sold out because you have time available from midnight to 6:00 a.m.?
LISTNUM 1 \l 14992 If you are any kind of broadcaster, you always have time available in winter and summer, which are low-demand periods.
LISTNUM 1 \l 14993 One hundred percent sold out is kind of an elusive thing, even for the most successful broadcasters, and I don't think that really has relevance in terms of comparison.
LISTNUM 1 \l 14994 THE CHAIRPERSON: May I interrupt?
LISTNUM 1 \l 14995 COMMISSIONER CUGINI: Sure.
LISTNUM 1 \l 14996 THE CHAIRPERSON: Ms George, out of the list of 10 that you have provided us, other than BET and, I will say, Speed, what are the others that are aiming at the 18 to 34 market?
LISTNUM 1 \l 14997 They seem to be all 25 to 54, and maybe even older, with CNN surely being one.
LISTNUM 1 \l 14998 MS GEORGE: For 18 to 34, we find that there are actually quite a few that have a skew to 18 to 34, being BET, Speed, Spike. They are very skewed to that demographic, and they perform great in the marketplace.
LISTNUM 1 \l 14999 THE CHAIRPERSON: What is their current market share, those three together?
LISTNUM 1 \l 15000 MS GEORGE: The total we are talking about now is 1 percent.
LISTNUM 1 \l 15001 THE CHAIRPERSON: Yes.
LISTNUM 1 \l 15002 MS GEORGE: If I were going to put a percent on their share, I would probably say it is about .03 percent of that 1 percent.
LISTNUM 1 \l 15003 THE CHAIRPERSON: Thank you.
LISTNUM 1 \l 15004 MR. CRAIG: If I may, Mr. Chair, in the context of the impact on specialty channels, I believe we were talking about the digi channels, in terms of there not being any impact.
LISTNUM 1 \l 15005 COMMISSIONER CUGINI: Then the follow‑up question to that is, are you saying that there would, therefore, be an impact on the Canadian specialty services currently carried?
LISTNUM 1 \l 15006 MR. CRAIG: We would agree that there would be some, yes.
LISTNUM 1 \l 15007 COMMISSIONER CUGINI: How do you quantify that impact?
LISTNUM 1 \l 15008 MR. TOMIK: If you take Year 1 revenues of $30 million in the original application, which is really, in the deficiency application, 20 now ‑‑ or 21 ‑‑ and you assume that 30 percent of the $30 million will come from new money, for the reasons we explained, that would leave about $20 million, and that would come from other broadcasters. That would come from specialty broadcasters and conventional broadcasters, both in network and national spots.
LISTNUM 1 \l 15009 That's the answer.
LISTNUM 1 \l 15010 COMMISSIONER CUGINI: And I am sure that the CAB, when it comes up in its phase, will address that.
LISTNUM 1 \l 15011 I will ask one general question, and one of you may respond, or a number of you may wish to respond.
LISTNUM 1 \l 15012 Commissioner Cram earlier touched upon some of the things we heard at the TV review. I don't know how closely you followed those proceedings, but to paraphrase what we were told during that review, especially by the over-the-air broadcasters ‑‑ specialty services participated, as well, but primarily by the over-the-air broadcasters ‑‑ is that traditional advertising is threatened, which is reflected in their decrease of PBITs, and that they are looking for alternative revenue streams.
LISTNUM 1 \l 15013 In fact, they even went as far as to ask us for a fee for carriage in order to maintain their presence in the market.
LISTNUM 1 \l 15014 They told us that they need maximum flexibility in order to program their services to meet the needs and demands and wants of their viewers.
LISTNUM 1 \l 15015 Although they applaud the Commission's efforts and the community's efforts when it comes to Canadian drama, in particular, they essentially told us: Don't tell us how much to spend. Don't tell us how much of any one category of programs we should broadcast on our services.
LISTNUM 1 \l 15016 The bottom line is, what is the public policy imperative that you are asking us to fulfil, bearing all of that in mind ‑‑ all of what we heard at the TV policy hearing?
LISTNUM 1 \l 15017 What is that imperative that you are asking us to fulfil by approving this application?
LISTNUM 1 \l 15018 MS STRAIN: Commissioner Cugini, perhaps I will start, and then some of my colleagues will jump in.
LISTNUM 1 \l 15019 We have tried to look at this on a system basis: What is going to yield a net benefit for the system.
LISTNUM 1 \l 15020 We did follow the TV hearing, and we understand what some of the dynamics are for over‑the‑air television. We think that those challenges may be, to some degree, inevitable, because of the internet, et cetera.
LISTNUM 1 \l 15021 We think, as Jack and Drew said earlier, that there is an opportunity perhaps to prevent some of that leakage.
LISTNUM 1 \l 15022 And keep in mind that our total impact on all revenues, really, spread across the service, is very negligible. We are not going to precipitate a further decline. We are just not that impactful.
LISTNUM 1 \l 15023 Also, when we look at the broadcasting landscape, we understand that conventional television has its challenges, but that is one of the reasons, I assume, why the broadcasters are trying to consolidate even further. They need to diversify the media platforms they have, and for good reason.
LISTNUM 1 \l 15024 I think you need to look at the broadcasters, not just in terms of what their conventional PBITs or revenues are, but look at them as consolidated entities.
LISTNUM 1 \l 15025 As we, I think, said in our reply, when we looked at the CAB intervention and crunched the numbers, the system still benefits. There may be a loss of some revenue dollars, but at the end of the day our 50 percent targeted specifically to drama has a benefit for the system.
LISTNUM 1 \l 15026 MS MACDONALD: The focus on drama in this application follows 25 years of policy initiatives, both at the level of the government in general and at the level of the Commission itself, in saying that this is a critical area for Canadians to be present in, for cultural reasons, of course, but, beyond that, the drama category of programming is still the most watched category of programming on television.
LISTNUM 1 \l 15027 If Canadian broadcasters are facing a future where the current business model of essentially retailing other people's programs becomes a more difficult model to follow, because the program originators may find their own avenues to directly sell those programs to Canadian consumers, then we will be facing the situation for the broadcasting industry that the CAB has talked about for 15 years, to my certain recollection, which is that the future of Canadian broadcasting is in programs that are unique to Canadian broadcasters.
LISTNUM 1 \l 15028 If you are not making programs that are unique to you in the most watched category of programming, what is your business?
LISTNUM 1 \l 15029 The other thing I would say is, as we all know, drama programming ‑‑ any kind of entertainment programming ‑‑ is a high risk business. There are very, very few successes. In anybody's marketplace there are very few successes.
LISTNUM 1 \l 15030 You have to make an awful lot of programs to get the odds working somewhat in your favour. If we don't make enough programs, then we won't have successes.
LISTNUM 1 \l 15031 So I think that the public good that comes out of what we are discussing here ‑‑ and, as everybody says at every point, this is not a structural decision that you are making. This is a small amount of money and it will not generate a huge amount of programming. But it fits exactly in the orientation of: create more programming unique to Canadians, unique to Canadian broadcasters, in the most watched category of programming.
LISTNUM 1 \l 15032 Presumably, this should be good for your business in the long run.
LISTNUM 1 \l 15033 COMMISSIONER CUGINI: Thank you very much.
LISTNUM 1 \l 15034 Thank you, Mr. Chairman, those are my questions.
LISTNUM 1 \l 15035 THE CHAIRPERSON: I have further questions for you, Ms Macdonald.
LISTNUM 1 \l 15036 At the television review hearing we heard from representatives of various parties that one of the problems of Canadian drama is that we are only producing either mini-dramas or short-term mini‑series of no more than 13 episodes, because the CTF will not finance above 13 episodes, and that CTV was doing very well with Corner Gas because, obviously, they finance the series themselves and they produce each year 26 episodes.
LISTNUM 1 \l 15037 What will be the policy of Only Imagine regarding the financing of long‑term series?
LISTNUM 1 \l 15038 MS MACDONALD: We certainly would assume that most of what we do would be in series. Part of this, though, would, necessarily, be reactive. It will be, in part: What do broadcasters want? Do they want to put up the licences for more than 13 hours?
LISTNUM 1 \l 15039 One of the things that we certainly have out there as an option is that if, indeed, you have a broadcaster who wants to do more than 13 hours, and the CTF, for example, can only do 13, then there is no reason why this fund could not do 14 to 20, for example. That is perfectly possible to do.
LISTNUM 1 \l 15040 It would fit our criterion of being incremental and creating more hours, they just would be more hours of something that people really do appreciate and enjoy, and that seems like a good direction to go.
LISTNUM 1 \l 15041 THE CHAIRPERSON: Thank you.
LISTNUM 1 \l 15042 I would now ask Commissioner Langford to continue the questioning.
LISTNUM 1 \l 15043 COMMISSIONER LANGFORD: Thank you, Mr. Chairman.
LISTNUM 1 \l 15044 I have been listening, and kind of fascinated by this, and every once in a while Mr. Craig says, "We have to go up to 30,000 feet and look down." Every time I go up to 30,000 feet and look down, I have the same question, so I really want to go back to some fundamentals with you.
LISTNUM 1 \l 15045 A lot of the discussion that we have had this morning, it seems to me, whereas it is important, has all been on details assuming that you were to do this.
LISTNUM 1 \l 15046 The question I have is: Why should you do it?
LISTNUM 1 \l 15047 I don't understand. When I go to 30,000 feet, I don't know why you should do this.
LISTNUM 1 \l 15048 I understand what Ms Macdonald just said, why it would be nice to have it done, and give a bunch of money to programming, but I don't understand why you are the ones to do it.
LISTNUM 1 \l 15049 I was hoping you could help me with that, and that doesn't have anything to do with qualifications or good looks or hairstyle or anything, it has to do with the appropriate organization to carry on this plan, if it is a good one, and if it is in the public interest, and if it should be done for programming, or if something more important with these avails should be done.
LISTNUM 1 \l 15050 Can somebody take me through the history of the two minutes? Where did it start? Where did it come from? Who owns it?
LISTNUM 1 \l 15051 We don't have to go back to the dawn of time, but I am looking for a little trace. Somewhere, somebody, one day, in the United States, put two minutes of black in an hour of programming and shipped it out. Why did they do that?
LISTNUM 1 \l 15052 MR. CRAIG: That's a good question.
LISTNUM 1 \l 15053 I will start with what I think is the answer to the inception as to how this got started, and then I will pass it off to Jennifer to talk to you about it in the Canadian context.
LISTNUM 1 \l 15054 As I understand the history of the cable industry in the U.S., when the off‑air channels dominated every market, and there were five, six or seven channels, there was no real need for cable, and cable needed services, so people like MTV and Ted Turner started up their channels.
LISTNUM 1 \l 15055 In order to induce the cable operators to take their services for a fee, and an advertising component, they said: What we will do is, we will throw two minutes back into the pot that you, as a local channel operator, can sell to your local retail advertisers.
LISTNUM 1 \l 15056 COMMISSIONER LANGFORD: Could we stop there for a minute?
LISTNUM 1 \l 15057 I have always thought it a fundamental proposition of law ‑‑ I think they used to say in Latin ‑‑ this is my week for Latin ‑‑ "Nemo dat quo non habit" ‑‑ "One cannot give what one does not own."
LISTNUM 1 \l 15058 Are you telling me, then, that once Mr. Turner handed over the consideration for the carriage of his signal, he gave the cable company some money and he also gave them the ownership to those two minutes?
LISTNUM 1 \l 15059 MR. CRAIG: That's right.
LISTNUM 1 \l 15060 COMMISSIONER LANGFORD: That's what he did. So the cable company owned it.
LISTNUM 1 \l 15061 MR. CRAIG: That's right.
LISTNUM 1 \l 15062 Turner owned the service, but the cable company had the right to insert.
LISTNUM 1 \l 15063 In Canada, as I understand it, the common practice was, when the cable channels were introduced in Canada, the contracts that were entered into were, effectively, a replication of the contracts they had in the U.S., and those avails were there. Turner was interested in getting into Canada to take a subscriber fee out, which he has done for many years, and it has been very profitable for that organization.
LISTNUM 1 \l 15064 COMMISSIONER LANGFORD: Let's review it from 30,000 feet.
LISTNUM 1 \l 15065 First ‑‑ and correct me if I get it wrong, because I really do want to understand it.
LISTNUM 1 \l 15066 First, in the United States ‑‑ we will use Mr. Turner; we might as well keep one simple example ‑‑ sold off an hour of programming to ABC Cable and gave them some money ‑‑ or the rights to those programs to carry them ‑‑ and gave them some money, and because he didn't want to give them too much money, he gave them two minutes of empty space that they could sell.
LISTNUM 1 \l 15067 Is that accurate?
LISTNUM 1 \l 15068 MR. CRAIG: They gave him money.
LISTNUM 1 \l 15069 COMMISSIONER LANGFORD: Who is "they"?
LISTNUM 1 \l 15070 We have too many pronouns involved.
LISTNUM 1 \l 15071 MR. CRAIG: ABC Cable.
LISTNUM 1 \l 15072 COMMISSIONER LANGFORD: Okay. They gave money to Turner ‑‑
LISTNUM 1 \l 15073 MR. CRAIG: Right.
LISTNUM 1 \l 15074 COMMISSIONER LANGFORD: -- to carry the stuff, but got, as part of ‑‑
LISTNUM 1 \l 15075 That's right. Sorry. That's what happens with pronouns.
LISTNUM 1 \l 15076 -- but got, as part of the consideration, the two minutes, which they could sell and earn money on.
LISTNUM 1 \l 15077 MR. CRAIG: That's right.
LISTNUM 1 \l 15078 COMMISSIONER LANGFORD: They got the programming and they got the two minutes to sweeten the deal.
LISTNUM 1 \l 15079 MR. CRAIG: That's right.
LISTNUM 1 \l 15080 COMMISSIONER LANGFORD: Then, did the same thing happen in Canada?
LISTNUM 1 \l 15081 MR. CRAIG: To my understanding.
LISTNUM 1 \l 15082 COMMISSIONER LANGFORD: To your understanding.
LISTNUM 1 \l 15083 Are we now in the position where, at this stage in the game ‑‑ and maybe you could even put a date on it or a timeframe ‑‑ if Mr. Rogers, instead of ABC, or XYZ ‑‑ instead of the American cable company, if Canada Cable Company goes to Turner, they give Turner money and they get the right to carry the show and they get two minutes of black to sweeten the deal.
LISTNUM 1 \l 15084 MR. CRAIG: That's correct.
LISTNUM 1 \l 15085 COMMISSIONER LANGFORD: So who owns the two minutes of black in Canada?
LISTNUM 1 \l 15086 MS STRAIN: The BDUs have the right, right now, to use those two minutes, and have since approximately 1995.
LISTNUM 1 \l 15087 That right has, since 1995, been circumscribed by you.
LISTNUM 1 \l 15088 COMMISSIONER LANGFORD: Oh, I know. We regulate anything that we can get our hands on. There is nothing new there.
--- Laughter / Rires
LISTNUM 1 \l 15089 COMMISSIONER LANGFORD: That doesn't go to ownership; we just tell them what they can do with their stuff, but they still own it.
LISTNUM 1 \l 15090 MS STRAIN: But it has been your policy to dictate what can appear ‑‑
LISTNUM 1 \l 15091 They haven't been able to derive the value of those avails because you haven't ‑‑ "you" the Commission ‑‑ haven't allowed them to do that.
LISTNUM 1 \l 15092 COMMISSIONER LANGFORD: Dead right, but it's theirs.
LISTNUM 1 \l 15093 We have made their life a misery. We have taken their stuff, and we have told them what to do with it, and we won't let them do what they want.
LISTNUM 1 \l 15094 We could go back in history and I could tell you that part of it was a very, very poorly put together case, on their part, back in the mid‑nineties, but everybody shoulders a little bit of blame on that one.
LISTNUM 1 \l 15095 But you would agree that it is their two minutes. We go in there and tell them what to do with it, just like, when you make a salary, the income tax people come in and tell you what to do with some of it. Before they get their hands on half of it, it's all yours for that fleeting moment.
LISTNUM 1 \l 15096 MR. ZOLF: Commissioner Langford, could I take about two steps back in the history?
LISTNUM 1 \l 15097 COMMISSIONER LANGFORD: Yes, I want to get this right.
LISTNUM 1 \l 15098 MR. ZOLF: As Mr. Craig described it initially, I think that's right. He said that the same thing happened in Canada, but I don't know if it was exactly that way.
LISTNUM 1 \l 15099 I think the fact is that the economic structure of the market structure in the U.S. is such that local cable operators were able to sell advertising. So that bargain, which Mr. Craig so eloquently explained, was struck between the BDU ‑‑ sorry, the cable company in the United States and the program service.
LISTNUM 1 \l 15100 There is no such structure here.
LISTNUM 1 \l 15101 Really, it is an externality ‑‑ an economist would say that an externality was created by virtue of the moment you authorized the U.S. service to be eligible for distribution in Canada.
LISTNUM 1 \l 15102 There also happened to be these two minutes of dark avails that were floating out there for use in some way.
LISTNUM 1 \l 15103 There was a bit of, "Yes, me too. Throw it in," in that, but I think there is a wedge in terms of ownership because of that difference in market structure.
LISTNUM 1 \l 15104 That same bargain that you described did not take place in Canada ‑‑
LISTNUM 1 \l 15105 COMMISSIONER LANGFORD: How do you know, you weren't there?
LISTNUM 1 \l 15106 MR. ZOLF: No, I wasn't there, but I think, from my knowledge of the history of why the avails came to exist in the first place, that did not apply here. It was just a mere externality that came.
LISTNUM 1 \l 15107 Then, I would reiterate what Ms Strain said. Following that divergence, you then elected to start to treat applications by the BDUs, way back in the nineties ‑‑ in the early nineties ‑‑ the Shaw and Rogers ‑‑
LISTNUM 1 \l 15108 COMMISSIONER LANGFORD: I know about that, and we will get to it.
LISTNUM 1 \l 15109 THE CHAIRPERSON: Can I bring a small point?
LISTNUM 1 \l 15110 COMMISSIONER LANGFORD: You can bring anything, like Father Christmas.
LISTNUM 1 \l 15111 THE CHAIRPERSON: A small qualification.
LISTNUM 1 \l 15112 The two minutes were not blank. There were, and there still are, commercials that you received.
LISTNUM 1 \l 15113 And those who don't sell advertising, or if it happens that they haven't sold those two minutes in a given hour, the viewers are getting national advertising, generally speaking ‑‑ those 800 numbers that you call to buy a piece of furniture or cookware, or brooms, whatever, in three instalments of $29.99.
--- Laughter / Rires
LISTNUM 1 \l 15114 MR. ZOLF: I stand corrected. I didn't mean "dark" in the sense that they were blacked out, I meant that, for the purposes of this territory, they didn't have ‑‑ they were new cloth, if you will.
LISTNUM 1 \l 15115 To add one other thing, on the record of the last ‑‑ one of the many applications you have had from the CCTA, in terms of trying to ascribe a value to that, they actually, I believe, put on the record the fact that they would not have to pay any more for those avails ‑‑ for the services, I'm sorry, in terms of a wholesale fee for the use of those avails.
LISTNUM 1 \l 15116 COMMISSIONER LANGFORD: But there is a price.
LISTNUM 1 \l 15117 I think your argument is that they weren't using them.
LISTNUM 1 \l 15118 Maybe we wouldn't let them, but we will leave that out because we are good guys. We don't want to get into that.
LISTNUM 1 \l 15119 Let's say that I go and buy a car, and I am a single individual. I don't have a family, and I don't have any friends because I'm a regulator. I buy a car, and the car has four seats in it. I don't use three of them. Nobody likes me, and I don't have anybody related to me, so I never use three of the seats. They are still my seats, aren't they?
LISTNUM 1 \l 15120 They came with the car and they are mine.
LISTNUM 1 \l 15121 If I buy the program right and it comes with ‑‑ I like the idea of "black", it simplifies it ‑‑ it comes with these extra two minutes ‑‑
LISTNUM 1 \l 15122 I think, historically ‑‑ I did some research on this once, and I think that, historically, back at the dawn of time, it was "black", but I might be wrong about that, in the United States.
LISTNUM 1 \l 15123 Anyway, I have been wrong about a lot of stuff, and it's irrelevant what colour it was.
LISTNUM 1 \l 15124 Those spaces, those two minutes of time, came, just as the three extra seats in my car came with what I bought.
LISTNUM 1 \l 15125 So if the three extra seats are mine, although I never use them ‑‑ and there might even be a rule that I am not allowed to use them, for some bizarre regulatory reason ‑‑ they are still mine. They are nobody else's.
LISTNUM 1 \l 15126 Would you agree that the two minutes that come with the program that Rogers or Shaw or Videotron buys belongs to them?
LISTNUM 1 \l 15127 MR. ZOLF: The only thing I would say in response would be that if, indeed, it follows your analogy of the right of a property owner to enjoy the property as they see fit, and that includes to leave it fallow ‑‑
LISTNUM 1 \l 15128 If you have a farm, you don't have to use it officially. That is Property Law 101.
LISTNUM 1 \l 15129 Meanwhile, the Commission has said that, for those three extra seats, you have to put promos on, and you have to use them in a certain way, which implies that there is an encumbrance to it.
LISTNUM 1 \l 15130 I would only submit that the analogy perhaps falls apart in the sense that it isn't an unfettered property right.
LISTNUM 1 \l 15131 COMMISSIONER LANGFORD: There is not much that is unfettered any more. There are stacks of bylaws as to how I can use my house. There are tonnes of laws in the Ontario Highway Act about how I can use my car, whether my seats are fettered or unfettered.
LISTNUM 1 \l 15132 It is not "live free and die" any more, except maybe on that last back hill in New Hampshire somewhere.
LISTNUM 1 \l 15133 I take your point, but, to me, it doesn't seem to carry that much weight.
LISTNUM 1 \l 15134 I want to go forward now, and I want to use a 30,000‑foot humble analogy, because I am still trying to figure out why it should be you.
LISTNUM 1 \l 15135 Let me try another analogy.
LISTNUM 1 \l 15136 Was it Pound or Roscoe who said that analogies are the go‑carts of the mind, so I am probably on thin ice here.
LISTNUM 1 \l 15137 Let me try this.
LISTNUM 1 \l 15138 And I want you to know that I am taking this seriously. I am just trying to reduce it to basic concepts, I really am.
LISTNUM 1 \l 15139 Your idea is interesting, it is imaginative, it is well named, but I am having trouble with the basics.
LISTNUM 1 \l 15140 Let's assume that I own Bob's Dairy Universe ‑‑ BDU for short ‑‑ and I go to Al and Ed's Dairy ‑‑ that would be A&E's Dairy ‑‑ and I pick up a bunch of milk. I want to make a deal with them. I go to A&E's Dairy and I say: You guys have a lot of milk here, every day, and there are a lot of people in this town who want to buy milk, so I am going to make a deal with you. I will buy a lot of your milk and I will deliver it.
LISTNUM 1 \l 15141 We start dickering about price and terms, and as part of the terms the A&E Dairy says: For every 60 litres of milk, I will give you 2 free as part of the consideration. Keep the prices down of your delivery and whatnot. I will give you some milk, and you can do what you want with it. You can give it away, you can sell it, you can do whatever you want with it.
LISTNUM 1 \l 15142 Bob says: That's a good idea. I'll do it.
LISTNUM 1 \l 15143 So off he goes to deliver milk.
LISTNUM 1 \l 15144 Then, one day he opens up the back of the truck, and there you are, all sitting in his truck. You say: We have an idea. What we are going to do is, for every 4 free bottles of milk you get, we are taking 3 of them. But we are going to do good work with some of that, and with some of it we are going to buy houses and cars and stuff for ourselves.
LISTNUM 1 \l 15145 What do you think, Bob?
LISTNUM 1 \l 15146 I think that Bob might say something like: I don't think that's a good idea. I am already doing good work with milk. I give some of it away. The wife and I can't drink that much milk. I give it to the poor kids on the corner.
LISTNUM 1 \l 15147 We can take this analogy and the violins forever, but the basic concept, it seems to me ‑‑ when I go up to 30,000 feet, as Mr. Drew suggests I do, and get above all of the little problems and take the long view on the horizon ‑‑ I see you trying to take Bob's milk, and I don't know why we should let you.
--- Laughter / Rires
LISTNUM 1 \l 15148 MR. ZOLF: If Bob had just given us a ride in his car in the first place, we wouldn't have needed the milk.
LISTNUM 1 \l 15149 COMMISSIONER LANGFORD: But why you?
LISTNUM 1 \l 15150 If we want Bob ‑‑ instead of a CRTC regulator, if I am a milk board regulator and I want Bob to do something better with that free milk ‑‑
LISTNUM 1 \l 15151 He has been using it to water his flowers, or something, and I want him to do something better, for the public interest. Isn't it Bob I should be asking to do it?
LISTNUM 1 \l 15152 Why would I ask you to do it?
LISTNUM 1 \l 15153 MR. CRAIG: Let me start, and then I will pass it off to Jennifer.
LISTNUM 1 \l 15154 Our view is that you need a third party to do this, because it will be our core business. Our goal is to extract as much advertising revenue, out of the avails that we have, to put as much back in, and we have to do it in an efficient manner.
LISTNUM 1 \l 15155 We have looked at other proposals that are half as efficient, at best, as our proposal.
LISTNUM 1 \l 15156 We, as a third party, have no vested interest, we have no conflicts of interest, to do anything else with the milk.
LISTNUM 1 \l 15157 I would submit to you that this is an unused good.
LISTNUM 1 \l 15158 Your policy has been that BDUs should not be allowed to sell advertising revenue, and I think that everybody on the broadcast side of the equation backs that up, because it is a slippery slope, if you will.
LISTNUM 1 \l 15159 The way we see it is, every day that goes by, there is 8 percent of tuning leaking out of the system. So forget about the money that we are paying to A&E and Ted Turner, et cetera, which is in the range of $250-plus million a year ‑‑ and since they have been in Canada, it has been in the hundreds of millions, maybe billions of dollars. That tuning is there. It's not monetized.
LISTNUM 1 \l 15160 We would submit that every day that goes by is a lost opportunity to capture that tuning and turn it into something useful.
LISTNUM 1 \l 15161 COMMISSIONER LANGFORD: Okay. Here is what you are going to do. You are going to get in Bob's truck and you are going to take three out of four bottles of his milk.
LISTNUM 1 \l 15162 I am just going to make this rough, I know that your figures are more exact.
LISTNUM 1 \l 15163 You are going to take one of those home, and you are going to drink it, and then you are just going to utilize the other two in different ways.
LISTNUM 1 \l 15164 That's rough math, but I am just trying to make the analogy work.
LISTNUM 1 \l 15165 If we tell you to get out of Bob's truck, and we say to Bob, "We have already gouged you for your milk. You are used to us. You give all of that milk away, Bob. You sell it in the form of ads and give it all away," he doesn't even get to keep one bottle. We could get the whole three bottles out of him, because he is used to us really putting it to him.
LISTNUM 1 \l 15166 So why do we need a middleman?
LISTNUM 1 \l 15167 We didn't want him to sell ads for various reasons, and all kinds of stuff, but if we are going down that road anyway, why put in a middle person who is going to take one of the bottles of milk? Why don't we just deal with Bob and get all of the milk for production, or whatever we are going to do with it, and keep Bob mad at us, because he has been mad at us for years anyway? We tell him what to do with everything. We tell him to set up funds. We tell him what he can do with his money. We tell him what he can't do with his money. We tell him that he can't bring in HBO. We tell him that he has to have a list, and that he can only jump through 40 hoops, and that if he wants to have Al Jazeera, he has to have about six guys with AK‑57s walking around, censoring it every five minutes or whatever.
LISTNUM 1 \l 15168 We tell Bob lots of stuff, and he is used to us telling him stuff. So why would we put a new guy in there, who is going to take one of the bottles of milk, and there will be less to hand out to those wonderful funds that Sandra Macdonald tells us need things?
LISTNUM 1 \l 15169 Why would we do that? Why wouldn't we just have Bob do it?
LISTNUM 1 \l 15170 MS STRAIN: Can I say, to begin, that the only reason Bob was allowed to go to Al to buy the milk was because Farmer Langford told him he could.
LISTNUM 1 \l 15171 Secondly, Bob has had ‑‑
LISTNUM 1 \l 15172 We sort of look at this as ‑‑ there has been a 12-year call for applications to use these avails. Cable has been to you, the BDUs have been to you, time and time again, and each time you have said that it is not a good idea, for various reasons, one being that it creates ‑‑ it would create a structural impact on the system. You have never let BDUs into the business of advertising. That is in the domain of the broadcasters.
LISTNUM 1 \l 15173 COMMISSIONER LANGFORD: But some of the reasons we didn't let them in was because the technology wasn't very good, and we were worried about it ‑‑ and you people have reviewed those decisions, and so have the intervenors.
LISTNUM 1 \l 15174 Part of the reason we didn't let them in was because the silly beggars wanted to use their own stuff, and we didn't want that. We wanted them to give it away and be public spirited.
LISTNUM 1 \l 15175 So, then, they didn't come up with a good idea of how to give it away.
LISTNUM 1 \l 15176 But, now, you have come up with this brilliant idea of how we can take all of our milk and use it for the public good. So why don't we just steal your idea and make them do it?
LISTNUM 1 \l 15177 Thanks for coming out.
--- Laughter / Rires
LISTNUM 1 \l 15178 COMMISSIONER LANGFORD: I mean, life isn't easy, and life isn't fair. It happens all the time.
LISTNUM 1 \l 15179 You have come up with a brilliant, imaginative idea, but, unfortunately, it is going to cost us a hunk of the action, because you guys have to be paid if you start working. If you start riding around in the truck, you are going to want some of that milk.
LISTNUM 1 \l 15180 So why don't we just get you out of the truck and tell Bob, or the BDUs ‑‑ we can kill this analogy now. Why don't we just have the BDUs do it, if it's a good idea?
LISTNUM 1 \l 15181 There will be more money going to programming.
LISTNUM 1 \l 15182 It's not a good day for you if we do that. I understand that.
LISTNUM 1 \l 15183 MR. CRAIG: First of all, I would disagree that there would be more money going to programming.
LISTNUM 1 \l 15184 If you look at the last proposal from the CCTA, with a little arm twisting they got up to 25 percent, and they said: That's as efficient as we can be.
LISTNUM 1 \l 15185 So I would submit to you that, by having a third party in the middle of this process, more goes in.
LISTNUM 1 \l 15186 COMMISSIONER LANGFORD: Wouldn't the threat of a third party do it just as well?
LISTNUM 1 \l 15187 What if we put out a call and said: Okay, guys, this is the last kick at the can. We are going to do this. We are taking those two minutes and we are going to do something for it. And we have heard this story, and this one is available. So get out there and get your imagination rolling, and crank it up, because somebody is going to win this prize.
LISTNUM 1 \l 15188 What if we did that instead?
LISTNUM 1 \l 15189 It would be a sad day for you, again, but I am just trying to see how we can get the most out of this for the public.
LISTNUM 1 \l 15190 I am following Sandra Macdonald's lead. It's all her idea. She inspired me.
LISTNUM 1 \l 15191 Why don't we do that?
LISTNUM 1 \l 15192 MR. CRAIG: When you look at who the constituents might be that may take you up on that ‑‑
LISTNUM 1 \l 15193 We know that the broadcasters have their eye on this pool of inventory. We know that for certain.
LISTNUM 1 \l 15194 Are they the best constituent?
LISTNUM 1 \l 15195 COMMISSIONER LANGFORD: Wouldn't we find out if we asked?
LISTNUM 1 \l 15196 MR. CRAIG: They have had an opportunity.
LISTNUM 1 \l 15197 As Jennifer says, we look at this thing ‑‑ these avails ‑‑ this whole discussion on these avails, if we go back, there has been at least a decade‑long discussion on how we get some value out of the American tuning into the Canadian system.
LISTNUM 1 \l 15198 There have been talks about levies. The CAB has made speeches, saying that we have to make these guys pay somehow.
LISTNUM 1 \l 15199 Everybody has had an opportunity, and here we are with what we think is a highly efficient business that generates a new, stable, permanent stream of money to Canadian drama.
LISTNUM 1 \l 15200 We are saying: Why shouldn't you take a chance on this?
LISTNUM 1 \l 15201 The other thing I will say, as I said earlier, is that this is not, in my view, and in our team's view, an exclusive opportunity. You will hear other proposals ‑‑ the 49th Media concept to sell all of the minutes is another idea. That's another idea for you to consider, which would supplement and maybe be on top of our proposal, which could put more money in.
LISTNUM 1 \l 15202 Let's see what they can do.
LISTNUM 1 \l 15203 Maybe there is another group out there that wants to sell in VOD and come up with another innovative idea.
LISTNUM 1 \l 15204 This is 1 percent. This is the start of an innovative proposal, which we have put before you, that generates enormous impact. This is not exclusive in terms of coming up with other creative ideas to bring more money into the system, which we all need.
LISTNUM 1 \l 15205 COMMISSIONER LANGFORD: You are always eloquent, Mr. Drew, and you have convinced me before, as you know ‑‑ maybe to your lasting regret ‑‑ on your proposals.
LISTNUM 1 \l 15206 It is not that I am trying to have the last word, I just want you to know that, from my perch, as you sent me up to 30,000 feet, I have a stumbling block with the basic notion.
LISTNUM 1 \l 15207 I have no problem with your idea. Your idea is wonderful, and you folks are eloquent, and you have the public good in mind, and you are also going to make some money, but I have a stumbling block with the idea that you want ‑‑ whatever analogy we use, you are going to get something that belongs to someone else, and take it away from them, and do stuff with it.
LISTNUM 1 \l 15208 I have trouble with that. Whether it's the three seats in my car or the three bottles of milk in Bob's truck, I have trouble with it.
LISTNUM 1 \l 15209 MR. CRAIG: But when you are in your car, you own your car. Who owns the road?
LISTNUM 1 \l 15210 COMMISSIONER LANGFORD: We are not talking about the road, we are talking about what is being driven down the road.
LISTNUM 1 \l 15211 We are not talking about the road. You are not coming in trying to take all of their cable.
LISTNUM 1 \l 15212 MR. CRAIG: No, but what we are saying is, we are prepared to put a significant amount of money back into the Canadian system, which, structurally, the guys who own the milk can't do.
LISTNUM 1 \l 15213 You told them that they couldn't do it a year and a half ago.
LISTNUM 1 \l 15214 COMMISSIONER LANGFORD: We told them that they couldn't do something different a year and a half ago.
LISTNUM 1 \l 15215 They didn't come to us, Mr. Craig, with your proposal, which is a nifty one, and maybe we can leverage it into more.
LISTNUM 1 \l 15216 I just throw that out as a view from 30,000 feet. It is in no way meant to criticize your imagination, and what you have come up with, and what you have figured out you can do, both for yourself and for the public good.
LISTNUM 1 \l 15217 I think it is kind of an interesting concept. It's an exciting concept. I have been enthused by your concepts in the past, as you know, but I do have a bit of that stumbling block, and I guess I am beating it to death, and you have answered as best you can, and I am grateful for that.
LISTNUM 1 \l 15218 MS STRAIN: Commissioner Langford, could I add one thing?
LISTNUM 1 \l 15219 COMMISSIONER LANGFORD: Absolutely. Fire away.
LISTNUM 1 \l 15220 MS STRAIN: This may be a repeat of what was in our oral presentation, but the BDUs have some middleman issues, too. They would have to duplicate some of the same infrastructure that we have.
LISTNUM 1 \l 15221 I mean, the cost to roll these boxes out is pretty minimal in comparison ‑‑
LISTNUM 1 \l 15222 COMMISSIONER LANGFORD: I'm sorry, say that again. The cost of...?
LISTNUM 1 \l 15223 MS STRAIN: To roll the boxes ‑‑ the equipment to set up the technical plant is pretty efficient in this case.
LISTNUM 1 \l 15224 The BDUs would have to have a sales force, just like we would. In order to be able to expand what they are doing, they would have some costs.
LISTNUM 1 \l 15225 Also, if they were to do it, how would they sell nationally?
LISTNUM 1 \l 15226 I think their previous proposal contemplated local and selective advertising in particular markets, and that would have a significant impact, I think, on broadcasters.
LISTNUM 1 \l 15227 COMMISSIONER LANGFORD: Yes, but we are not talking about a bunch of unsophisticated rubes here, despite my Bob's milk analogy.
LISTNUM 1 \l 15228 MS STRAIN: No, I didn't say that.
LISTNUM 1 \l 15229 COMMISSIONER LANGFORD: In fact, I could make the argument ‑‑ I haven't given this a lot of thought, but off the top of my head, I could make the argument that they could do a much better job than you. It is not that they are more qualified, but they have the synergies.
LISTNUM 1 \l 15230 They have the buildings. They have the plant. They have people in administration. They have people in ad sales now. They have people in programming.
LISTNUM 1 \l 15231 There is no extra person that has to come in and dust the machinery four times a year, they can dust it themselves, and maintain it or whatever. They are right there.
LISTNUM 1 \l 15232 I could make the argument, I think ‑‑ and, as I said, I haven't given it a tonne of thought ‑‑ that your argument comes around and kind of bites you, because, with the synergies, they could probably bring it in cheaper.
LISTNUM 1 \l 15233 That means, if we are going to squeeze stuff out of their property for the public good of broadcasting, maybe we could squeeze harder on them.
LISTNUM 1 \l 15234 Anyway, that would be my quick reaction to your suggestion.
LISTNUM 1 \l 15235 Mr. Chairman, those are my questions.
LISTNUM 1 \l 15236 THE CHAIRPERSON: Thank you, Commissioner Langford.
LISTNUM 1 \l 15237 I only have one question, because many of the questions that I had have been asked, so that will help.
LISTNUM 1 \l 15238 My question picks up on the last discussion that Mr. Langford had with Ms Strain. At various public hearings we have heard applications for operators to install equipment at the head end of the BDU, and the concern from a technical standpoint has been that they were all looking to implement proprietary software. The concern of the BDU is: Will it work with our system?
LISTNUM 1 \l 15239 With respect to your proposal, would it be proprietary software, or would it be open software?
LISTNUM 1 \l 15240 How would you meet the concerns of the BDUs?
LISTNUM 1 \l 15241 MR. CRAIG: Mr. Chairman, I would like to pass that off to Paul East.
LISTNUM 1 \l 15242 MR. EAST: Mr. Chair, I would respond by saying that the signals themselves ‑‑ it is not the Canadian BDUs, but rather the U.S. services that have engineered the signals to accomplish this insertion.
LISTNUM 1 \l 15243 There are a couple of standard techniques, using tones and using embedded digital messages in transport streams. They are well understood because they want people to be able to successfully implement the insertion.
LISTNUM 1 \l 15244 If there is some software code involved deep down in their systems, it would be their property, but it would be exposed in an open format. There is a standard for embedded digital messages that triggers the insertion, and it is certainly open and well understood.
LISTNUM 1 \l 15245 I hope that answers your question.
LISTNUM 1 \l 15246 THE CHAIRPERSON: Yes, it does.
LISTNUM 1 \l 15247 Legal counsel?
LISTNUM 1 \l 15248 MR. McCALLUM: I have a couple of housekeeping matters, if I may.
LISTNUM 1 \l 15249 First of all, Commissioner Cram asked you to draft a type of condition of licence. My question is, will you be able to do that by the close of this process, which I expect will be today at some point?
LISTNUM 1 \l 15250 There will be interventions, and then your final reply.
LISTNUM 1 \l 15251 Will you be able to do that between now and then, or will you need more time than that?
LISTNUM 1 \l 15252 MR. ZOLF: Counsel, we actually can file that by the end of the process.
LISTNUM 1 \l 15253 MR. McCALLUM: Good. Thank you.
LISTNUM 1 \l 15254 At page 26 of your remarks this morning, I didn't understand the statement: "They are only selling, on average, three 30-second spots per hour on each channel."
LISTNUM 1 \l 15255 Could you explain that statement?
LISTNUM 1 \l 15256 MR. TOMIK: Sure. The average, for six of the channels that we are applying for, is 2 minutes per hour of commercial time available. Twenty‑five percent of that will go to the BDU, which leaves three 30-second commercials per hour for sale.
LISTNUM 1 \l 15257 MR. McCALLUM: But it is not for sale, per se.
LISTNUM 1 \l 15258 With the 75 percent rule and the 25 percent rule, they are not selling, per se.
LISTNUM 1 \l 15259 MR. TOMIK: It is our proposal to sell three 30-second commercials per hour in those 10 services.
LISTNUM 1 \l 15260 When I say "they", I am talking about Only Imagine. That may be the issue.
LISTNUM 1 \l 15261 MR. McCALLUM: I was confused, because I thought you were describing the status quo, and I didn't understand that at all.
LISTNUM 1 \l 15262 MR. TOMIK: No, not at all. "They" should be Only Imagine.
LISTNUM 1 \l 15263 MR. McCALLUM: All right. Thank you.
LISTNUM 1 \l 15264 The other thing that I wasn't clear on arises from page 18 of your presentation this morning, where you suggested that the Commission could add a subject to the criteria in the Eligible Satellite Services Policy.
LISTNUM 1 \l 15265 I wondered if you had done any further thinking on what might be involved, other than what is written on the page.
LISTNUM 1 \l 15266 MR. ZOLF: Yes, counsel. What we thought about ‑‑ and we would be happy to include it with the proposed condition.
LISTNUM 1 \l 15267 We thought, to kind of close the loop, if the Commission is going to implement this for transparency reasons, that on the list a notation could be made to the effect that, for example ‑‑ and we aren't 100 percent on the wording yet, but some sort of requirement that the providers of the non‑Canadian services ‑‑ that part of the criteria on which they would agree to come on the list would include a requirement that they agree that the use of the avails shall be in accordance with the policies, rules and regulations enacted by the Commission from time to time.
LISTNUM 1 \l 15268 MR. McCALLUM: I think it would be helpful if, in responding to Commissioner Cram's request, you could perhaps suggest the wording for that.
LISTNUM 1 \l 15269 I assume, in so doing, that it would be some sort of permissive wording in your mind, so that it wouldn't breach 9(2) of the Broadcasting Act.
LISTNUM 1 \l 15270 MR. ZOLF: Yes, we understand, and we will do that.
LISTNUM 1 \l 15271 MR. McCALLUM: The last question I have deals with what you said at page 15, where you request the ability to substitute one service for another.
LISTNUM 1 \l 15272 Of course, you had a discussion on that point with Commissioner Cram this morning, but what I didn't quite understand was whether the ability to substitute required regulatory action of some sort, or whether, if the Commission granted you an authorization, the authorization, in and of itself, would somehow allow that.
LISTNUM 1 \l 15273 I didn't understand whether, in the conditions being granted, they are large enough to allow for a substitution, or whether a specific condition is needed, or whether you need to come back with some process and ask each time.
LISTNUM 1 \l 15274 I didn't quite understand what would be involved in terms of regulatory action.
LISTNUM 1 \l 15275 MS STRAIN: Counsel, we contemplated that the condition would allow us to substitute without having to come to you.
LISTNUM 1 \l 15276 However, one of the things we have talked about, and we certainly think that we would put in the condition language that we will file with you today, is perhaps tying it to some kind of tuning factor, but we will come back to you on that.
LISTNUM 1 \l 15277 We didn't contemplate that we would be coming back to you throughout the licence term for substitutions, but that we would build that ability into the condition.
LISTNUM 1 \l 15278 MR. McCALLUM: Thank you, Mr. Chair.
LISTNUM 1 \l 15279 THE CHAIRPERSON: Thank you.
LISTNUM 1 \l 15280 Mr. Tomik, you had an earlier discussion, when Mr. Langford was looking at it from 30,000 feet, that currently, as I said, there are not blanks, there are commercials. But what will happen when that other time will not be sold?
LISTNUM 1 \l 15281 Obviously, there are 24 hours in a day, and I guess it would be tougher to sell national advertising at two in the morning than it would be in prime time.
LISTNUM 1 \l 15282 MR. TOMIK: Mr. Chair, we will bonus it for the Canadian services in drama.
LISTNUM 1 \l 15283 THE CHAIRPERSON: So you will fill all of the blanks. Whatever happens, if it is unsold, you will fill it in with promos or PSAs.
LISTNUM 1 \l 15284 MR. TOMIK: Absolutely.
LISTNUM 1 \l 15285 THE CHAIRPERSON: Gentlemen, we thank you very much for your presentation. We will hear the intervenors, and at the time for reply, we will give you two minutes to tell us, really, why the Commission, this time, should grant you the licence.
LISTNUM 1 \l 15286 MR. ZOLF: I hope it is more than two minutes, Mr. Chairman.
LISTNUM 1 \l 15287 Two and a half?
LISTNUM 1 \l 15288 MR. ZOLF: Oh, the wrap‑up.
LISTNUM 1 \l 15289 THE CHAIRPERSON: It's a wrap‑up.
LISTNUM 1 \l 15290 Not for the reply, for a wrap‑up.
LISTNUM 1 \l 15291 We will adjourn until 1:30 p.m. for lunch. We will reconvene at 1:30 p.m. for the intervention period.
--- Upon recessing at 1215 / Suspension à 1215
‑‑‑ Upon resuming at 1330 / Reprise à 1330
LISTNUM 1 \l 15292 THE CHAIRPERSON: Order, please. We are now beginning Phase II of this public hearing, which is the intervention period. We will surely go up to 3:30‑4:00 and take a break, then if there are other intervenors, we will continue with them and we will give the applicants 15 minutes for their reply.
LISTNUM 1 \l 15293 Mrs. Secretary.
LISTNUM 1 \l 15294 THE SECRETARY: Thank you, Mr. Chairman.
LISTNUM 1 \l 15295 We will now proceed to Phase II, in which other parties appear in the order set out in the agenda to present their intervention.
LISTNUM 1 \l 15296 For the record, the intervenors Manitoba Motion Picture Industry Association and Manitoba Film & Sound, Alchemist Entertainment, The Brick and the Canadian Film Television and Production Association, listed in the agenda, have informed us that they will not be appearing at the hearing.
LISTNUM 1 \l 15297 I would now ask Peace Arch Entertainment to present their intervention. Please introduce yourself, after which you will have 10 minutes for your presentation. Thank you.
LISTNUM 1 \l 15298 MR. HOWSAM: Good afternoon, Mr. Chairman, members of the Commission.
LISTNUM 1 \l 15299 My name is Gary Howsam and I am Chief Executive Officer of Peace Arch Entertainment Group of Toronto. I am pleased to be here today to support the Only Imagine proposal for a national relay distribution undertaking licence.
LISTNUM 1 \l 15300 I would like to thank you for inviting me to offer my comments and I have brought a colleague with me from Peace Arch as well.
LISTNUM 1 \l 15301 I would like to say that I actually met Drew Craig ‑‑
LISTNUM 1 \l 15302 THE CHAIRPERSON: For the record, could we have his name?
LISTNUM 1 \l 15303 MR. HOWSAM: Yes, Tim Gamble. I haven't been at these hearings before, so I apologize for my misses.
LISTNUM 1 \l 15304 I met Drew here in Calgary about 10 years ago. I was pitching Canadian films to him when he was setting up the A Channel in this city. In the last 18 months he became a shareholder of our company, joined the Board of directors and is today the Chairman of the Board of directors of the company, which is how I learned of his efforts to initiate this proposal, which I encouraged, coming from a producing background.
LISTNUM 1 \l 15305 Peace Arch Entertainment is a Canadian company involved in production and distribution of programming. We are located and based in Toronto, with offices in Vancouver, Los Angeles, New York and London. We create and produce mainly Canadian content programming.
LISTNUM 1 \l 15306 In the last year we did 23 motion pictures, of which 20 were Canadian content; a large mini‑series in co‑production with the Irish, which was roughly a $40 million 10‑hour series; and we produced, I think 26 episodes of lifestyle programming here in Vancouver.
LISTNUM 1 \l 15307 I think our company and myself are representative of other independent producers in this country who ‑‑ none of us, I think, matter much individually but I think collectively we are sort of like the small business backbone of this industry in terms of producing the programming that I think this application meaningfully concerns.
LISTNUM 1 \l 15308 I believe that the policy or my view as a comparative layperson is that public policy is to support the development and strengthening of a sustainable Canadian film and television business and with that to empower the community of producing and distributing, et cetera, to make increasingly quality Canadian drama programming and programming of all kinds that will be popular.
LISTNUM 1 \l 15309 In recent years, my observation is that the policy has shifted to a more commercial means test in respect of programming and now incentives as Telefilm funding and envelopes, et cetera, are increasingly allocated against popular reception of Canadian content programming and not just the very fact that it may be 10‑point programming.
LISTNUM 1 \l 15310 We have got a complicated system that I think actually works quite well in supporting Canadian programming being made, but notwithstanding that, it is a challenge.
LISTNUM 1 \l 15311 By example, if one was to produce a Canadian series or feature film and was able to get the initial support of a Canadian broadcaster, for instance, with the combination of the ‑‑ typically in my experience, the licence combination with CTF top‑up and perhaps a Telefilm allocation and an efficient utilization of Canadian content tax credit collateral, the producer may get anywhere up to 80 or even, if they are fortunate, 90 percent of the budget.
LISTNUM 1 \l 15312 The problem is that being Canadian content it is difficult to prove up the non‑Canadian value, the international value of the program, in advance of making it. It is often the case we have made good programs and I think there are some examples ‑‑ Tim will tell you but it is incumbent on the Canadian producer really to find that last 10 or 15 percent or the program does not get made.
LISTNUM 1 \l 15313 So what I think this speaks to here is that the addition of a top‑up, if you will, to the CTF money, which is how I see the Only Imagine Fund, in practical terms, it is a way to enhance that kind of support. Whether it adds from program 13 or not, it really makes programs that today aren't viable by the lack of 10 percent or so or 15 percent of the budget, it makes them viable.
LISTNUM 1 \l 15314 A television series of 13 at $1.5 million Canadian an hour can garner up to $1.3 million from the system but there are very few independent producers ‑‑ I am actually not aware of any ‑‑ in the country who have the wherewithal to put up $200,000 an hour for 13 shows of their own capital as a hedge against their ability to exploit those rights outside of this country.
LISTNUM 1 \l 15315 So I think there is an exponential effect to a small increase in funding in terms of every dollar that you can add to the existing system, I think, would trigger a significant multiple. People talk about 10 hours of programming for another $1. I think it is probably right in practical terms.
LISTNUM 1 \l 15316 I think that it is clear if you read around, and I am not an expert, so I won't set myself up to be one, but my observation is that the system is under pressure. In the newspapers these days we read about frictions within the CTF, resistance to the system. It causes some reduction of confidence in the stability of the system, and yet, the imperative to keep supporting our ability to tell our own stories and make viable and export, in fact, our own culture, I think, grows.
LISTNUM 1 \l 15317 I am impressed by two things here.
LISTNUM 1 \l 15318 First, I am impressed, frankly, by the commissioners, who I see as having a very good understanding of the various constituents. I have never been here before but I have to say I was quite impressed by my time listening.
LISTNUM 1 \l 15319 Secondly, I am impressed by the applicants. They have not only some skills and a good team but they are willing to put up their capital and their resources and they are, at the end, hoping to make a profit and buy houses with milk but they are willing to take a commercial risk.
LISTNUM 1 \l 15320 They are Canadians. They are part of us. They have been with us for a long time. They have created an innovative idea. I have never heard of an idea of anybody who had proposed to set up a business with risk capital and then give 50 percent of the gross to anything. I just think it is phenomenal and I hope that they sell twice as many minutes of these avails.
LISTNUM 1 \l 15321 I understand, I guess, that it is possible that there is some disenfranchising of parties who are selling competing inventory of commercials but I can't imagine that the intrusion of 1 percent against that is meaningfully as costly to the system as the benefit that would be created by 50 percent or half a point of that value.
LISTNUM 1 \l 15322 The other parties being those who get benefit today from 90 seconds an hour of promotion not used by the BDUs, I am persuaded that it is not very efficiently run and again would argue even to the extent they did get benefit from it, the public benefit would be outweighed by the value of what you would get in the community from the dollars that could flow through a successful effort of Only Imagine.
LISTNUM 1 \l 15323 I think that the team that they have assembled, Ms Macdonald in particular, give a great credibility to their ability to put together a good fund and to see that it is well administered to the benefit of the production community.
LISTNUM 1 \l 15324 I also would like to note that five years ago the top three Canadian producing companies were Alliance, Lionsgate and Fireworks, and today none of them are producing anything in this country. The reason they are not producing anything isn't because they don't want to, it is because they can't make any money at it.
LISTNUM 1 \l 15325 I think notwithstanding the tremendous support the system has put to making Canadian programming ‑‑ and frankly these companies were the best at extracting the money from the system as compared to the smaller independents who typically stood way behind these bigger companies in benefiting from government policy ‑‑ I think that there is a good need for support and I think there is a continuing need to see that it is managed equitably to the constituents.
LISTNUM 1 \l 15326 I actually think it is better for the community that those companies are not hogging all the money today and that it offers much more diverse opportunity in this country for regional participation.
LISTNUM 1 \l 15327 I will give Tim a minute. I have probably used up my time.
LISTNUM 1 \l 15328 MR. GAMBLE: I just want to take a minute, again, to thank you for taking the time to hear us.
LISTNUM 1 \l 15329 That last little piece of money is really important, especially now that a lot of these companies that producers could go to for distribution advances have disappeared. Where does a producer of what was "Da Vinci's Inquest" go to get a distribution advance without giving the asset away to an American or foreign company?
LISTNUM 1 \l 15330 I currently am distributing "Da Vinci's Inquest" in the U.S. and 4 million people a week are watching that show but it is only because early on there was a commitment on the part of the Canadian broadcasters and Telefilm and cable fund to stick with it. Now it is very difficult for those producers to find that last little bit of money.
LISTNUM 1 \l 15331 We also have a small bit of money that we invested in programming. In the last year it has probably triggered between $15 and $20 million worth of production because that last little bit is very, very hard to find.
LISTNUM 1 \l 15332 So when Jeff and Drew mentioned this program where you could basically take lost revenue and roll it into a program that would exponentially create jobs, create tax revenue, create business opportunity at a time when Canadian programming is doing better around the world than it ever has been and leverage that success into more success, I was really thrilled to be here and to be here to tell you that it is important that we do it.
LISTNUM 1 \l 15333 I think it is important that we do it now because the media and the world is changing so quickly that every day we don't do it we are losing dollars that can be going into Canadian content that ultimately is a benefit to everybody. It is a benefit to the broadcasters, it is a benefit to the producers, it is a benefit to us as Canadian citizens.
LISTNUM 1 \l 15334 THE CHAIRPERSON: Thank you. You may not be an expert in appearing before the CRTC but you are surely an expert at making all your points very well and they are surely very well taken. We don't have any questions because you clearly stated it. So for us, I think we appreciate you coming, Mr. Howsam and Mr. Gamble. Thank you very much.
LISTNUM 1 \l 15335 MR. HOWSAM: Thank you.
LISTNUM 1 \l 15336 MR. GAMBLE: Thank you.
LISTNUM 1 \l 15337 THE SECRETARY: I would now call the Association of Canadian Advertisers to come to the presentation table.
LISTNUM 1 \l 15338 Please introduce yourself and you will then have 10 minutes for your presentation. Thank you.
LISTNUM 1 \l 15339 MR. RHEAUME: Good afternoon, bonjour, Monsieur le Président, commissioners, Commission staff.
LISTNUM 1 \l 15340 My name is Bob Rheaume and I am Vice‑President, Policy and Research of the Association of Canadian Advertisers. I am very pleased to have this opportunity to appear and comment before you today to represent the views of advertisers in Canada.
LISTNUM 1 \l 15341 The Association of Canadian Advertisers is the only association solely representing the interests of advertisers in Canada. Our members, over 200 companies and divisions, represent a wide range of industry sectors, including manufacturing, retail, packaged goods, financial services and communications. They are the top advertisers in Canada, with collective annual sales of close to $350 billion.
LISTNUM 1 \l 15342 As we have pointed out to the Commission before, advertising is a primary resource sustaining the Canadian broadcasting system. In all its forms, advertising is estimated to represent an annual $13 billion investment in the Canadian economy.
LISTNUM 1 \l 15343 Of this total amount, approximately $3 billion is invested annually in television advertising. It is a substantial contributor of funds to the Canadian television broadcasting system and considering these substantial revenues the role of advertising is critical to a healthy and robust broadcasting system in Canada. It is advertising that pays for content, the programs that entertain, inform and educate Canadians. In short, advertising brings essential economic strength to the system.
LISTNUM 1 \l 15344 Canada's advertisers have had to cope over the years with increasingly restricted access to Canadian audiences. Approximately one‑quarter to one‑third of all viewing in this country is to signals that cannot be commercially accessed by advertisers in Canada.
LISTNUM 1 \l 15345 Only Imagine Inc.'s proposal, which would allow advertisers access to the so‑called local availabilities, helps to redress this inequity by repatriating audience and revenue to Canada's broadcasting system.
LISTNUM 1 \l 15346 We frequently hear complaints from advertisers who cannot access sufficient effective TV commercial inventory during certain times of the year. We believe that Only Imagine Inc.'s proposal will help grow TV advertising revenues in Canada and thereby contribute significantly to Canadian programming and will accomplish all of this without creating any new fragmentation of audience.
LISTNUM 1 \l 15347 The system is particularly imbalanced in English Canada as audience disappears hourly and continually into the American ether. What a wasted resource! It may seem like a simple point but it is worth repeating once more, that it is the audience that is the valuable thing and that Canadians have freely chosen to watch these programs.
LISTNUM 1 \l 15348 Only Imagine's innovative proposal accepts the reality of Canadian viewers' choices and opts to capitalize on it, not ignore it.
LISTNUM 1 \l 15349 At only 1 minute and 30 seconds per hour of commercial time on only 10 U.S. cable channels, the applicant is proposing to inject approximately the equivalent of merely one new channel into the marketplace. It will offer advertisers a new competitive alternative so especially important today as advertisers contemplate the competitive implications of no less than some 35 stations being absorbed by Canada's two largest broadcasters in the pending mergers.
LISTNUM 1 \l 15350 In summary, this is a modest proposal that faces facts and takes concrete steps towards repatriating Canadian audiences, turning an unused natural resource into much needed funding for Canadian content and does it all with minimum disruption and virtually no new fragmentation. It is not only good for advertisers, it is good for Canada and it is smart.
LISTNUM 1 \l 15351 Mr. Chair and commissioners, I want to thank you again for the opportunity to present our views on behalf of Canada's advertisers and we wish you well in your deliberations. Should you have any questions, I would be pleased to try and answer them.
LISTNUM 1 \l 15352 THE CHAIRPERSON: Thank you, Mr. Rheaume.
LISTNUM 1 \l 15353 Commissioner Williams?
LISTNUM 1 \l 15354 COMMISSIONER WILLIAMS: No, I have no questions, Mr. Chair.
LISTNUM 1 \l 15355 Thank you, your presentation was very thorough.
LISTNUM 1 \l 15356 THE CHAIRPERSON: Commissioner Cram?
LISTNUM 1 \l 15357 COMMISSIONER CRAM: Thank you, Mr. Rheaume. We heard this morning that the amount of advertising going into the internet in 2006 was ‑‑ and my mind is ‑‑ I am getting older ‑‑ either $240 million or $260 million in '06.
LISTNUM 1 \l 15358 Where does that money come from? Is it new money or where does it come from?
LISTNUM 1 \l 15359 MR. RHEAUME: I believe that figure, $260 million, was the increase year over year. It wasn't the total amount.
LISTNUM 1 \l 15360 COMMISSIONER CRAM: I'm sorry, okay, yes.
LISTNUM 1 \l 15361 MR. RHEAUME: The total amount is somewhere near $600 million a year.
LISTNUM 1 \l 15362 That money comes from a number of places. Some of it is redirected. Some advertisers feel that they must experiment with the internet because it is a new medium.
LISTNUM 1 \l 15363 I have said before you at this Commission that radio was my parents' medium, TV was my medium, but the internet is my kids' medium. So time spent is moving towards the internet and advertisers will be there.
LISTNUM 1 \l 15364 But I must tell you I think I differ with the applicant on this particular point in that I don't think there is tons of money leaving television to go to the internet and it is for this one reason, and that is the internet for advertising and marketing purposes is used in a different way than television is.
LISTNUM 1 \l 15365 Television is still sight, sound and motion, still in large part mass attraction and a quick reach medium. The internet can be that sometimes but is used in a different way by marketers.
LISTNUM 1 \l 15366 So I can't tell you that there is a lot of money leaving television to go to the internet right now but I can tell you that there is a lot of audience that is quite valuable that disappears every hour from this country that we could monetize and put towards good Canadian programming that Canadians would want to watch.
LISTNUM 1 \l 15367 COMMISSIONER CRAM: I am getting Mr. Strati's loss of voice. So can you put a percentage on it that is leaving television to go to the internet?
LISTNUM 1 \l 15368 MR. RHEAUME: It is very hard to do. I wish I could but I can't do that.
LISTNUM 1 \l 15369 COMMISSIONER CRAM: Mm‑hmm.
LISTNUM 1 \l 15370 MR. RHEAUME: We do know that advertising expenditures in total increase every year. They have in most media. Radio advertising has had a couple of very good years. Outdoor advertising is having a very good year. Magazines and newspapers perhaps not so much so.
LISTNUM 1 \l 15371 There are some shifts between the media but I have to tell you a lot of advertisers perceive television as still the jewel in the crown and as marketers they want to preserve that very strong marketing tool that television has become for them.
LISTNUM 1 \l 15372 COMMISSIONER CRAM: Thank you.
LISTNUM 1 \l 15373 Thank you, Mr. Chair.
LISTNUM 1 \l 15374 THE CHAIRPERSON: Thank you, Mr. Rheaume.
LISTNUM 1 \l 15375 Mrs. Secretary.
LISTNUM 1 \l 15376 THE SECRETARY: I would now call the Canadian Media Directors Council to come to the presentation table.
LISTNUM 1 \l 15377 Please introduce yourself and you have 10 minutes for your presentation.
LISTNUM 1 \l 15378 MR. CLAASSEN: Thank you.
LISTNUM 1 \l 15379 THE CHAIRPERSON: Could you open your microphone?
LISTNUM 1 \l 15380 MR. CLAASSEN: I am sorry.
LISTNUM 1 \l 15381 THE CHAIRPERSON: Okay.
LISTNUM 1 \l 15382 MR. CLAASSEN: Good afternoon, my name is Bruce Claassen. I am the President of the Canadian Media Directors Council. That is a long word, so I am going to shorten that to the CMDC and I will explain what that organization is.
LISTNUM 1 \l 15383 The CMDC is an organization that represents the interests of roughly 32 media agencies in Canada. Media agencies are basically those organizations, some of which are attached to ad agencies, that basically purchase media on behalf of advertisers and clients and agencies.
LISTNUM 1 \l 15384 The CMDC as an organization has been around for about 40 years and our members collectively purchase on behalf of their respective clients roughly in the vicinity of 80 percent of all commercial television time that exists in Canada. So if the television marketplace is roughly $3.3 billion, we purchase roughly $2.8‑$2.9 billion of that.
LISTNUM 1 \l 15385 We obviously purchase other media as well but certainly here since we are talking about television, that is what I am going to talk about here today.
LISTNUM 1 \l 15386 On behalf of our members, the CMDC mandate has been, since it started 40 years ago, to advance the interests of media in Canada. As an association we are unique. It doesn't really exist anywhere else in the world, certainly not even south of the border in the United States.
LISTNUM 1 \l 15387 We have 32 members that fundamentally are competitors but get around and meet every month and have a board and have all of that sort of things that you would have in an association. Our objective fundamentally is not to protect our interests as companies but rather to advance, as I stated earlier, the interests of media in Canada. A healthy medium marketplace in Canada, we feel, helps promote a healthy business market for what we do in our business.
LISTNUM 1 \l 15388 In that context, part of our role at CMDC is to help support and promote not only just a healthy marketplace but a healthy and competitive one and also to encourage the expansion of media opportunities that offer advertisers every opportunity to reach their respective customers.
LISTNUM 1 \l 15389 I think the Commission has been extremely helpful actually to all of our members. We are very fortunate in this country in that we have a fairly stable and a fairly healthy media marketplace and part of that is in fact because we have a very well developed set of rules and regulations so that everybody knows exactly how they operate and how it works and I think it has been extremely helpful to us.
LISTNUM 1 \l 15390 I am here today with the unanimous endorsement of our membership representing the CMDC as an intervenor in support of the Only Imagine Inc. application for a broadcast distribution licence.
LISTNUM 1 \l 15391 We are in support of that for six distinct reasons and I will try to be brief as I go through them.
LISTNUM 1 \l 15392 The first reason we are in support of it is because we are in support of a healthy, competitive marketplace and Only Imagine offers yet another opportunity for there to be another competitor in the marketplace and we think that is healthy for Canadian media.
LISTNUM 1 \l 15393 As Bob alluded to earlier, the Canadian landscape is increasingly concentrated with respect to players and the latest applications that are going to be in front of you look at a further consolidation of that particular industry.
LISTNUM 1 \l 15394 While Only Imagine is only a minor initiative in the area of adding another competitive player in the marketplace, it nonetheless is very important for our members and our clients in terms of its practical utility. We now have another independent supplier of valuable TV time with which to negotiate and in turn help ensure a healthier competitive TV marketplace.
LISTNUM 1 \l 15395 The second reason is because the channels that Only Imagine is representing are fairly unique. In fact, they are very important and they represent not just an audience and another set of eyeballs. They represent an audience that in many cases is very hard and very difficult to reach in Canada using any other broadcaster or television broadcaster in this country.
LISTNUM 1 \l 15396 As we probably all know, audiences to specialty TV have grown steadily since their introduction in Canada in 1984. Currently in many markets the combined tuning to the broad spectrum of specialty channels reaches over 40 percent of all TV tuning and in some cases that is even higher depending on the specific consumer target you might be looking for.
LISTNUM 1 \l 15397 As a consequence, specialty channels have played a key strategic role for virtually every major TV advertiser in this country. In fact for some who have very specific audiences they are going after or very specific subjects they want to be in the context of, specialty is in many cases their core TV strategy.
LISTNUM 1 \l 15398 However, since 1984, perhaps maybe not quite since 1984 but certainly near there, a major gap has always existed in executing specialty TV buys in Canada, the commercial unavailability of a large group of channels carried by Canadian cable and satellite distributors that cannot be purchased by Canadian buyers and advertisers. These are the stations that Only Imagine is proposing to make available to Canadian advertisers.
LISTNUM 1 \l 15399 Our members indicate that these stations have audiences that in some cases are both highly valued and have limited supply via current TV offerings in Canada.
LISTNUM 1 \l 15400 High concentrations of male audiences, for instance, are difficult to find except via either fairly high priced primetime inventory via conventional, sports programming such as Hockey Night in Canada or very limited other programming availabilities.
LISTNUM 1 \l 15401 The availability of channels such as Spike TV, Speed, TBS and even CNBC provides this type of access, certainly on a more affordable basis, on a more widespread basis than can be available in Canada for that kind of a target.
LISTNUM 1 \l 15402 Similar issues of access apply to the unique audiences for BET or typically overall Lite TV viewers that is reached by A&E, CNN and TLC.
LISTNUM 1 \l 15403 These are very valuable audiences that to date are viewing that programming but to date Canadian advertisers cannot have access to.
LISTNUM 1 \l 15404 A third reason is an opportunity to repatriate commercial audiences from Canada that are now only available to U.S. advertisers. The Canadian audiences for the channels Only Imagine is proposing to offer have to date, as mentioned, not been available to most Canadian advertisers or buyers. These audiences are Canadians and the channels they are watching both make up and take away from available commercial hours tuned to Canadian available commercial TV signals.
LISTNUM 1 \l 15405 This proposal therefore offers the opportunity to repatriate those audiences and give the Canadians watching the benefit of seeing advertising on those channels that are directly relevant to them because they are made by Canadian advertisers.
LISTNUM 1 \l 15406 The fourth reason is the production funding that benefits a healthy Canadian TV programming and production environment. Only Imagine is proposing to contribute a substantial portion of the revenues generated via the sale of commercial times towards Canadian TV production fund.
LISTNUM 1 \l 15407 CMDC, even though we are media buyers, we view this as extremely beneficial towards helping sustain and support a healthy Canadian TV program development marketplace.
LISTNUM 1 \l 15408 The value of genuine Canadian programming for advertisers is significant in so far as Canadian programming can provide the kind of audience, the kind of attitude and in many cases the kind of contextual platform not available via U.S. series and one that can help advertisers showcase their offerings in a manner that can be more deeply meaningful to Canadians.
LISTNUM 1 \l 15409 A fifth reason is because, as I mentioned earlier, in Canada we have the luxury of having a very well balanced media industry, in large part because in fact we have rules and regulations that help ensure all the players know how it operates. One of the benefits of this proposal is that it does little, if anything, to change the nature of that balance in this country.
LISTNUM 1 \l 15410 There is no impact in terms of current TV fragmentation. That fragmentation exists, those audiences already exist, there is no additional player in the marketplace that is going to slice the pie in ever yet smaller portions in terms of the number of eyeballs that are watching TV.
LISTNUM 1 \l 15411 The sixth is, again, with respect to the balance in the television marketplace, given the size of Only Imagine's proposal, it has very little impact to current Canadian broadcasters.
LISTNUM 1 \l 15412 In addition, as I mentioned, to the limited or no impact to TV fragmentation, this proposal is also extremely modest in the context of overall commercial TV revenues in Canada. It represents significantly less than 1 percent of what is out there in terms of commercial time being sold in this country, and spreading that across the spectrum of channels and media owners and broadcast owners in this country is virtually meaningless in terms of their ability to actually measure what the impact is going to be.
LISTNUM 1 \l 15413 There is a term I use, you would need pretty fine medical instruments to detect the impact that this is going to have on any individual broadcaster in this country.
LISTNUM 1 \l 15414 In conclusion, the CMDC looks forward with anticipation to the opportunity the Only Imagine application represents. In our view, it is a proposal that is fair‑minded, it is generous in its contributions towards Canadian TV content production, has little impact on the current TV marketplace, it offers healthy, competitive option and offers buyers and advertisers access to a valuable unique Canadian audience that views these channels but that have to date not been available to the great majority of Canadian advertisers.
LISTNUM 1 \l 15415 I want to thank you on behalf of my members of the CMDC for the opportunity to speak with you today.
LISTNUM 1 \l 15416 THE CHAIRPERSON: Thank you, Mr. Claassen.
LISTNUM 1 \l 15417 Commissioner Cram.
LISTNUM 1 \l 15418 COMMISSIONER CRAM: Thank you, Mr. Claassen. We heard this morning that the 18‑34 demographic is difficult to reach on Canadian TV.
LISTNUM 1 \l 15419 When you were talking about males, is it also true for females?
LISTNUM 1 \l 15420 MR. CLAASSEN: Sure, it can be. The younger demographics definitely can be, yes.
LISTNUM 1 \l 15421 COMMISSIONER CRAM: Yes. If you didn't have these ‑‑ well, I mean who do you advertise ‑‑ in order to get that demographic, who do your people advertise with now?
LISTNUM 1 \l 15422 MR. CLAASSEN: Well, it is a range. There are very few campaigns that an advertiser will create today that doesn't involve multiple media. Television can be a large component or a medium‑size component or a small component but usually there are multiple media in the mix and part of the reason is because, as we like to say, by the time I finish this sentence, a new medium will have been developed and the fact of the matter is it is exploding every day.
LISTNUM 1 \l 15423 So a media mix is in fact part of that plan, to try to be a little quicker in answering your question. You have to be selective. You have to pick the shows, not only the stations and the channels but you have to pick the specific shows, the specific types of inventory in television and you have to match that up with other elements within your media mix to be able to do a good job at reaching those kind of demographics.
LISTNUM 1 \l 15424 COMMISSIONER CRAM: Mm‑hmm. And would these 10 assist in reaching that demographics?
LISTNUM 1 \l 15425 MR. CLAASSEN: They could. For instance, the younger demos are hard to reach, males in particular, for whatever reason it might be. Stations such as Speed Channel, Spike TV do quite well against the male 18‑34 demographic and as a consequence, yes, sure, they provide an opportunity.
LISTNUM 1 \l 15426 COMMISSIONER CRAM: Thank you very much.
LISTNUM 1 \l 15427 Thank you, Mr. Chair.
LISTNUM 1 \l 15428 THE CHAIRPERSON: Legal counsel.
LISTNUM 1 \l 15429 MR. McCALLUM: You mentioned ‑‑ I think one your six reasons for supporting this application was you thought it would lead to a healthy, competitive marketplace.
LISTNUM 1 \l 15430 If this application is approved, what impact do you think approval would have on advertising prices overall?
LISTNUM 1 \l 15431 MR. CLAASSEN: I think I also mentioned that the size of this proposal in terms of what it represents both in revenue and in terms of available television time is relatively modest. The size of this isn't going to upset any apple cart. What it will do is it represents access to but this is not going to put pricing pressure.
LISTNUM 1 \l 15432 When you are talking a venture that represents perhaps $30‑$40 million of potential revenue against a marketplace of $3.3 billion, this is not going to apply any significant pressure on pricing up or down.
LISTNUM 1 \l 15433 MR. McCALLUM: But it does add some inventory?
LISTNUM 1 \l 15434 MR. CLAASSEN: It does add some inventory but it adds inventory ‑‑ I mean if we were to look at even only a 2 percent increase in total revenue for television, that would more than cover even just a 2 percent increase in terms of availability.
LISTNUM 1 \l 15435 MR. McCALLUM: Do you think that advertising expenditures might increase or decrease if this application is approved?
LISTNUM 1 \l 15436 MR. CLAASSEN: It is possible.
LISTNUM 1 \l 15437 MR. McCALLUM: I am sorry, is it increase or decrease, possible that it is increased?
LISTNUM 1 \l 15438 MR. CLAASSEN: It is possible that it could increase and in that sense I mean that there is a possibility that there are advertisers currently in which television is not part of their mix where they might consider it.
LISTNUM 1 \l 15439 The cost of entry for television is getting fairly expensive. If you are an advertiser, for instance, that is going after a specific niche target, and perhaps that niche target is one that some of these stations particularly do well against ‑‑ let's even take a very well educated high income demographics ‑‑ CNN, for instance, would be probably pretty good and so would A&E. However, it would be a little bit more costly to try to find that using conventional television or some of the other sources.
LISTNUM 1 \l 15440 It is possible that advertisers with fairly modest budgets might now actually consider contemplating television as an option because they have very highly targeted stations and channels now that they could utilize that to date they haven't been able to.
LISTNUM 1 \l 15441 MR. McCALLUM: Are you suggesting that all of these 10 would be niche targets?
LISTNUM 1 \l 15442 MR. CLAASSEN: Not all of them but a good selection of them would be.
LISTNUM 1 \l 15443 MR. McCALLUM: Which ones might not be in your view?
LISTNUM 1 \l 15444 MR. CLAASSEN: Well, A&E might be fairly broad‑based because it has got a fairly broad programming mix. Spike TV might be fairly broad in terms of the range of ‑‑ I mean it is not just demographics but socioeconomic issues ‑‑ fairly broad in its range, skewed towards male but fairly broad. TLC might be fairly broad as well in terms of the range of demographics that it goes after. But then again within each of those channels are individual shows that will talk to specific niches.
LISTNUM 1 \l 15445 MR. McCALLUM: Thank you, Mr. Chair.
LISTNUM 1 \l 15446 THE CHAIRPERSON: Thank you, Mr. Claassen.
LISTNUM 1 \l 15447 Mrs. Secretary.
LISTNUM 1 \l 15448 THE SECRETARY: I would now call Rogers Cable Communications to come to the table, please.
LISTNUM 1 \l 15449 Please introduce yourself and you will then have 10 minutes for your presentation. Thank you.
LISTNUM 1 \l 15450 MR. LIND: Mr. Chairman, members of the Commission, my name is Phil Lind, Vice‑Chairman of Rogers Communications.
LISTNUM 1 \l 15451 With me today are Ken Englehart on my right, Ken Englehart, Vice‑President Regulatory Affairs of Rogers Communication Inc.; Pam Dinsmore, Vice‑President, Regulatory Affairs of Rogers Cable; Michael Allen on my extreme left, Rogers Cable's contract negotiator; and Robert J. Buchan of the law firm of Johnson and Buchan LLP.
LISTNUM 1 \l 15452 Mr. Chairman, I decided to appear personally today to speak in opposition to the application of Only Imagine Inc. because I feel very strongly about this proposal. I do not understand why the Commission allowed the application to get this far. It should have been returned to sender last summer.
LISTNUM 1 \l 15453 There are many reasons why Rogers believes the Commission should not approve this application. There are also several reasons why the Commission cannot approve it.
LISTNUM 1 \l 15454 These reasons, which are both of a policy and legal nature, are outlined in some detail in Rogers' written intervention. They are also expressed in the large number of opposing interventions that are on the public file.
LISTNUM 1 \l 15455 I will ask others with me today to expand if the Commission wishes on the reasons.
LISTNUM 1 \l 15456 The one fundamental point I wish to make is that the OII application is based on a very false premise. The two‑ or three‑minute local avails that are the subject of this application are our local avails, that is, the cable companies' local avails. We acquired them in negotiations with U.S. programming services. They belong to us.
LISTNUM 1 \l 15457 Current CRTC policy allows the cable companies to use only 25 percent of each of the two‑ or three‑minute local avails to promote our own services and we use the other 75 percent to promote Canadian programming services. However, we expect over time to convince the Commission to amend its policy on local avails and to let us sell the entire two minutes, as cable companies have done in the U.S. for over 20 years.
LISTNUM 1 \l 15458 For many years, Commission policy did not permit Canadian cable companies to use any portion of local avails. Nevertheless, some cable companies, including Rogers, negotiated with U.S. programming services whose signals we distributed in Canada for the contractual right to access the local avails. We then attempted to persuade the Commission to adopt a more forthcoming and enlightened policy with regards to the use of those avails.
LISTNUM 1 \l 15459 So Rogers has consistently played a leading role in this file, in part because of our early exposure in the U.S. to the concept of local avails.
LISTNUM 1 \l 15460 We were able to persuade the Commission 12 years ago to allow us to make at least partial use of the local avails assigned to us contractually by the U.S. programming networks. We then invested in and installed the necessary signal curtailment and insertion equipment in our headends and for the past 12 years we have managed our local avails in compliance with the BDU Regulation and Commission policy.
LISTNUM 1 \l 15461 We do not need a third party middleman like OII to come into our cable headends to replace our equipment with its own. Its business plan indicates that it plans to pocket over $60 million in profit. This is after making capital investments and paying salaries and commissions, expenses that to a large part have already been incurred by cable companies. That is a lot of money to be extracted from the Canadian broadcasting system by a third party middleman.
LISTNUM 1 \l 15462 In comparison, cable operators would reinvest these funds to further strengthen the broadcasting system.
LISTNUM 1 \l 15463 Mr. Chairman, I was surprised to say the least when I heard that the applicants had proposed to the Commission that it authorize them to confiscate our local avails without seeking our consent or the consent of the U.S. programming networks. Because there seems to be a fundamental misunderstanding on the part of the applicants about who owns the local avails and because I was personally involved when local avails first came into being, I would like to try and set the record straight.
LISTNUM 1 \l 15464 Mr. Chairman, you and some of your commissioners may remember that Rogers Cable was very active in the 1980s with cable franchising in the U.S., cities such as Portland, Oregon, Minneapolis, Orange County, California, and San Antonio, to name a few. Rogers Cable built cable systems in those markets and at one time we were the fourth largest cable operator in the U.S.
LISTNUM 1 \l 15465 In those days, the popular satellite to cable programming networks such as CNN, A&E, ESPN, USA Networks were all rapidly expanded. Initially, those networks charged either minimal or no wholesale network affiliation fees to cable operators. In fact, even in San Antonio at one point, ESPN paid us to carry it. They wanted to rapidly expand the programming of their services into cable homes and to increase the advertising revenues of their networks.
LISTNUM 1 \l 15466 When those U.S. networks began to introduce wholesale fees or increase them from their modest per sub introductory levels, there was an understandable resistance from U.S. cable operators, including Rogers.
LISTNUM 1 \l 15467 A negotiating process ensued and some programming networks offered to make two minutes per hour of their advertising available in their network signal. They also offered to allow cable operators the option of selling and inserting local ads into those two‑minute windows. The idea was that the revenues earned from the sale of local advertising by the cable companies would help to offset the new or increased network wholesale programming fees.
LISTNUM 1 \l 15468 That is how cable operators came to be offered the right to buy and use these local avails. We negotiated for them as part of an overall package that was reflected in our network affiliation agreements.
LISTNUM 1 \l 15469 What is clear is that there was no regulatory obligation on the U.S. networks to create these local avails and there is none today. Avails are only made available to those distributors who negotiated for them and who paid for them. The U.S. networks simply don't give these avails away. They are not some kind of free or public good.
LISTNUM 1 \l 15470 The situation is no different in Canada. We are not given the right to access and use the local avails in U.S. network programming signals. The U.S. networks sell pre‑emptible national advertising time. In other words, they broadcast either their national ads or promotions for their own network programs in the same time slots when local avails may be exhibited.
LISTNUM 1 \l 15471 If a cable operator in a given market does not acquire the right to access and use the local avails, then the network pre‑emptible national ads or other programming material are exhibited to subscribers in that window. The cable subscriber does not view a blank screen. There is no local avails programming or network programming. There is either local avails programming or network programming exhibited in that two‑ or three‑minute window.
LISTNUM 1 \l 15472 In other words, if the cable operator does not use the local avails advertising opportunity, the U.S. programming network does. The local avail time has value. It does not go to waste. I repeat, it is not a free public good.
LISTNUM 1 \l 15473 Mr. Chairman, when I began these remarks, I mentioned that there were several reasons why Rogers believes the Commission should not and also cannot approve the OII application. I am not going to go into detail regarding the primary legal and jurisdictional reasons. I am flanked by colleagues who are more than happy to go on on this.
LISTNUM 1 \l 15474 However, with respect to whether the implementing of the OII proposal would involve a violation of the no commercial deletion provisions of the Canada‑U.S. Free Trade Agreement and subsection 9.2 of the Broadcasting Act, I would stress it is simply not responsible for the applicants to try and dismiss these arguments as mere red herrings.
LISTNUM 1 \l 15475 I was with Rogers Cable in the seventies when we helped to defend the Commission's regulatory jurisdiction before the Supreme Court of Canada in the 1977 CAP Cities case. This case revolved around the practice of commercial deletion.
LISTNUM 1 \l 15476 I followed closely the subsequent discussions between the government of Canada and the United States as they related to ending the practice of commercial deletion and I can assure you that in the minds of the U.S. trade representative, the USFTR or the State Department, this issue is not a mere red herring.
LISTNUM 1 \l 15477 As to the legal issue, whether or not the undertaking proposed by OII would be licensable as a relay distribution undertaking under the Broadcasting Act, I would defer to others.
LISTNUM 1 \l 15478 However, it strikes me that an undertaking which receives programming signals from a distribution undertaking at the BDU's headend, then deletes and inserts ads into those signals at that headend, and then immediately returns those signals to the BDU for distribution is not a relay distribution undertaking, at least as I know it.
LISTNUM 1 \l 15479 Mr. Chairman, my colleagues and I thank you for the opportunity to appear before you and to speak to Rogers' written intervention in this proceedings and we will be very happy to answer any questions that you may have. Thank you.
LISTNUM 1 \l 15480 THE CHAIRPERSON: Thank you, Mr. Lind.
LISTNUM 1 \l 15481 Commissioner Cugini.
LISTNUM 1 \l 15482 COMMISSIONER CUGINI: Thank you, Mr. Chairman.
LISTNUM 1 \l 15483 Mr. Lind, Ms Dinsmore and gentlemen, thank you for being here this afternoon.
LISTNUM 1 \l 15484 You are right, Mr. Lind, when you said that your written intervention went into some detail, as did your oral presentation here today. So my questions anyway ‑‑ my colleagues may have more but my questions will really refer to more specifically some of the comments that were made by Only Imagine this morning.
LISTNUM 1 \l 15485 One of the things that they said is that the true value ‑‑ in essence, the true value of those local avails is not being fully realized in the market because neither the BDUs nor the programmers make full use of the 75 percent and 25 percent. So I would want you to comment on that remark, please.
LISTNUM 1 \l 15486 MR. LIND: That is true.
LISTNUM 1 \l 15487 Ken.
LISTNUM 1 \l 15488 MR. ENGELHART: I think the reference was that the 75 percent isn't used up and the 25 percent isn't used up for their current uses.
LISTNUM 1 \l 15489 In the case of Rogers, I can assure you that is not the case. The full 25 percent is filled with our spots. The full 75 percent is filled with broadcaster spots. So this notion that it is not used is in the case of Rogers incorrect.
LISTNUM 1 \l 15490 COMMISSIONER CUGINI: And that is used equitably amongst over‑the‑air broadcasters ‑‑ no, not over‑the‑air, I am sorry ‑‑ specialty, radio ‑‑
LISTNUM 1 \l 15491 MR. ENGELHART: And over‑the‑air.
LISTNUM 1 \l 15492 COMMISSIONER CUGINI: And over‑the‑air broadcasters.
LISTNUM 1 \l 15493 MR. ENGELHART: There is a wheel. It all gets inserted in the wheel and goes around and around.
LISTNUM 1 \l 15494 COMMISSIONER CUGINI: Okay, thank you.
LISTNUM 1 \l 15495 One of the things they said in their oral presentation was that we will not materially impact the relationship between the BDU and the U.S. program supplier, in contrast to other models which would be far more intrusive.
LISTNUM 1 \l 15496 Again, do you agree with that statement?
LISTNUM 1 \l 15497 MR. ENGELHART: I don't know what other models could be more intrusive than this one. Obviously, it does affect our relationship with the programming services.
LISTNUM 1 \l 15498 As Commissioner Cram pointed out, there is a no assignment clause in that contract. This is an assignment.
LISTNUM 1 \l 15499 There is also ‑‑ when you contract with a programming service, they specify in that contract who you can deliver that signal to. You can deliver it to your subscriber. You deliver it to someone else and I believe you are offside of that contract.
LISTNUM 1 \l 15500 I don't know if my colleague Mr. Allen has anything to add but I believe it would be disruptive.
LISTNUM 1 \l 15501 MR. ALLEN: I do have a couple of thoughts to add.
LISTNUM 1 \l 15502 Commissioner Cram this morning referred to an affiliation agreement that had been filed by the applicant and I would like to read to you a portion from an affiliation agreement, which I believe is from the same company that they filed. I can't, of course, identify the company, but this is the right that we are granted. This is the only right we are granted:
"Networks hereby grant to Affiliate the non‑exclusive licence and right to cause the Systems..."
LISTNUM 1 \l 15503 And Systems is with a capital "S"; it is a defined term.
"...to cablecast the service to Subscribers." (As read)
LISTNUM 1 \l 15504 And it ends. Subscribers is also with a capital "S", a defined term, and those defined terms, Systems and Subscribers, do not include an entity like OII. The Systems are our cable systems and the Subscribers are those subscribers on those cable systems who subscribe to this service.
LISTNUM 1 \l 15505 So that is the extent of the right where granted. Consequently, under the terms of that contract, we would be unable to provide the signal to OII without being in breach of this contract.
LISTNUM 1 \l 15506 This morning there was a comment made by one of the applicants that the assignment clause was just boilerplate. I can assure you that the assignment of a fundamental right and the restriction on that assignment is not boilerplate, it is a fundamental constraint on a right we have.
LISTNUM 1 \l 15507 Similarly, our right with respect to the availabilities is as follows:
"In this particular case, Affiliate shall have the right to utilize up to two minutes specifically identified by Network in Network's sole discretion in each hour of the service to be inserted by Affiliate on the systems." (As read)
LISTNUM 1 \l 15508 In other words, even our insertion right is restricted.
LISTNUM 1 \l 15509 Beyond that, Ken has touched upon the assignment clause. It seems to me that if we were to provide the signal to the applicant, under the terms of this contract we would be in fundamental and material breach.
LISTNUM 1 \l 15510 Beyond that, it is not clear to me ‑‑ I have not had this specific negotiation but it is not clear to me that even if the applicant were to indemnify us with respect to the use of the avails that that would somehow let us off the indemnity that we must provide to the service with respect to the use of the avails. In other words, we would still be liable.
LISTNUM 1 \l 15511 So there are a number of things in the relationship that would be severely affected.
LISTNUM 1 \l 15512 COMMISSIONER CUGINI: Well obviously, you were prepared for that question and I thank you for providing us with that clarity.
LISTNUM 1 \l 15513 You touched upon it in your oral presentation today and that is the issue of access to your facility and co‑location.
LISTNUM 1 \l 15514 What specific concerns do you have with that whole aspect of the application and then, of course, allowing them access for the maintenance of their own equipment?
LISTNUM 1 \l 15515 MR. ENGELHART: Commissioner Cugini, it is just one more thing that can go wrong, you know. Our cable engineering people are pretty much control freaks themselves when it comes to their care of the network. We have certain blackout periods, for example, during the Olympics where no one is allowed to touch anything because we just can't afford to have an outage even for a minute. If a third party wanted to come into the headend during that time it would be a problem.
LISTNUM 1 \l 15516 Obviously, I would put it under the category of just one more thing to worry about, just one more thing that could screw up, just one more headache that we don't need if they had their equipment in there.
LISTNUM 1 \l 15517 COMMISSIONER CUGINI: Thank you. But I should say, do you feel that or do you think that a successful negotiation could be accomplished between you and Only Imagine so that any concerns that you may have with co‑location and maintenance of the equipment could be allayed?
LISTNUM 1 \l 15518 MR. ENGELHART: I mean if we had to do the negotiation, the negotiation we would try for is that we do everything and they stay out.
LISTNUM 1 \l 15519 COMMISSIONER CUGINI: One of the areas of discussion that occurred this morning between Commissioner Cram and the applicant was whether or not the applicant thought that the cost of the U.S. service to the BDUs would increase, in other words, if they would ask for a bump‑up in their wholesale fees if we were to allow this.
LISTNUM 1 \l 15520 Do you have any comment?
LISTNUM 1 \l 15521 MR. ENGELHART: Mr. Allen does the negotiations, so I will let him answer.
LISTNUM 1 \l 15522 MR. ALLEN: I don't necessarily agree. There are a number of elements with respect to negotiation, a number of rights that programmers grant, a number of things they want, certain types of distribution might be more favourable than others, certain levels of promotion.
LISTNUM 1 \l 15523 I can say that because the U.S. programmers recognize that we cannot monetize these avails to the same extent as they are monetized in the United States, we do in a number of cases enjoy lower rates than are paid for these services in the United States by U.S. cable companies who can use these in a fully monetized way.
LISTNUM 1 \l 15524 That being said, we are now in a situation where these U.S. programming services for the most part have been distributed in Canada for some period of time and are enjoying broad distribution and have a steady revenue stream with respect to that distribution, which places a fair amount of negotiation leverage in our hands, which is not to say they have none. However, it is entirely possible that the negotiation will focus upon the nature of the distribution.
LISTNUM 1 \l 15525 You heard earlier on this morning that Rogers moved several services from the analog tier distribution to digital. That in itself involved a negotiation for each of those services and none of those negotiations necessarily focused upon the avails but it focused upon a number of other elements in the negotiation, length of the contract, degree of promotion I have suggested. So it doesn't necessarily follow that there will be higher rates.
LISTNUM 1 \l 15526 COMMISSIONER CUGINI: You do have in fact an established relationship with the U.S. services.
LISTNUM 1 \l 15527 What is the issue with the U.S. services if we approve this application, in granting their consent to Only Imagine for the insertion of commercial time?
LISTNUM 1 \l 15528 MR. ALLEN: I think a number of the services have filed interventions indicating what their issues are and I could certainly refer you to those. I don't think it is really my place to speak for them. Certainly, I can tell you that integrity of signal is one, brand is another, what type of advertisements will go in there.
LISTNUM 1 \l 15529 And then there simply is a relationship because we are a very large distributor and they, from that basis, have no interest in seeing us lose a right that we have negotiated from them. As partners in distribution they wouldn't want to sort of see that taken away from us.
LISTNUM 1 \l 15530 MR. BUCHAN: If I could just add, Commissioner Cugini, I actually act for five of the 10 services that are proposed by OII for carriage and I helped them to prepare their interventions. They wrote their own interventions but I worked with them on this and discussed this issue with them and I would say that signal integrity is the first and most important consideration.
LISTNUM 1 \l 15531 I am not here to speak for them, I am here with Rogers. But certainly from A&E's point of view, the concern about when that chop would be made or when the insertion would be made and whether it could come at the wrong time or be too long and cut into the next program coming down and/or the advertising that would be shown along with the programming that is broadcast by A&E.
LISTNUM 1 \l 15532 And I think the Speed Channel intervention is fairly clear on the issue of ‑‑ they made reference to 976 services and also, I think, to liquor and tobacco and whatever. They have concerns. They want to be dealing with ‑‑ if anyone is going to have access to the local avails, they want to be dealing with the party that they contracted with, the question of privity of contract. They don't want to be going ad referendum to what Commissioner Cram referred to, I think, as the BDU's agent and that is their concern.
LISTNUM 1 \l 15533 TBS has similar concerns and I think TBS has got three services, CNN, Headline News and WTBN, who are three of the five services and their intervention speaks for itself.
LISTNUM 1 \l 15534 I would just like to say on behalf of these services ‑‑ I have acted, for instance, for the Turner Services since 1984. I was retained in 1984 when they were put on the list. They didn't apply to go on the list to come into Canada.
LISTNUM 1 \l 15535 I just think it is important for the record to remind people that they came in after the early failure ‑‑ the Chairman and our panel certainly remember the early days of pay television.
LISTNUM 1 \l 15536 COMMISSIONER CUGINI: The scary thing is so do I.
‑‑‑ Laughter / Rires
LISTNUM 1 \l 15537 MR. BUCHAN: I think a few people in this room may. The problems of pay television and even TSN as it then was, as a newly launched service, they were having attracting subscribers in Canada and these services were brought into Canada as tiering and linkage partners to be put into packages to bolster those services in the Canadian broadcasting system.
LISTNUM 1 \l 15538 I can speak for the clients that I represent in that respect, for Turner. They have always cooperated with the Canadian broadcasting regulatory system. I remember a tricky issue over the Homolka affair, for instance, on an embargo of news and we had to get Fox's cooperation and they are, of course, associated with Speed Channel.
LISTNUM 1 \l 15539 They have always cooperated. They have done what they have been asked to do. They have followed the rules, the tiering and linkage rules and everything else. They have been here. They have had a good business. They appreciate being in Canada, there is no question about that.
LISTNUM 1 \l 15540 But for someone to stand here and say, well they have taken X million dollars ‑‑ I don't know how they have quantified that figure ‑‑ out of the Canadian system and never put anything back, that doesn't tell the whole story and I had a little trouble sitting there listening to that and not putting that on the record. Thank you.
LISTNUM 1 \l 15541 COMMISSIONER CUGINI: Well thank you very much. As I said at the outset, your submissions were quite clear and detailed.
LISTNUM 1 \l 15542 Those are all my questions, Mr. Chairman.
LISTNUM 1 \l 15543 THE CHAIRPERSON: Commissioner Cram.
LISTNUM 1 \l 15544 COMMISSIONER CRAM: Thank you, Mr. Chair.
LISTNUM 1 \l 15545 I was taken somewhat aback in reading the CFTPA intervention where it appears we have not forbidden the advertisement of American programming on Canadian television in these avails. So in other words, Global would advertise "24" or "Prison Break" on the avails.
LISTNUM 1 \l 15546 Are you aware of that happening and how much of it is happening?
LISTNUM 1 \l 15547 MR. LIND: Well, those avails are made available to the broadcaster to sell his or her service, so what programming they have to sell, they are going to sell it on the avails.
LISTNUM 1 \l 15548 COMMISSIONER CRAM: It is a strange quirk.
LISTNUM 1 \l 15549 Now listening this morning to Mr. Craig, he was talking about how right now the avails aren't a particularly good buy because the scheduling isn't ‑‑ you don't do anything with the scheduling. You just said, Mr. Englehart, you put it on a wheel.
LISTNUM 1 \l 15550 MR. LIND: That is nonsense.
LISTNUM 1 \l 15551 COMMISSIONER CRAM: Okay.
LISTNUM 1 \l 15552 MR. LIND: We do ‑‑ I mean we may not affidavit it but we record ‑‑ every time a spot comes on, it is recorded when and on what network, et cetera, et cetera. So that is all available to all the users.
LISTNUM 1 \l 15553 COMMISSIONER CRAM: Could I buy ‑‑ sorry, go ahead.
LISTNUM 1 \l 15554 MR. ENGELHART: No, as Mr. Lind said, everything that they are proposing to provide to the broadcasters we do provide to them other than, as Phil said, it is probably not an affidavit but they are told this is when your sponsor ‑‑
LISTNUM 1 \l 15555 COMMISSIONER CRAM: Could I come to you and buy between 8:00 and 9:00 on A&E on Thursday?
LISTNUM 1 \l 15556 MR. ALLEN: Commissioner, I think when we applied for the Commission licence there was a question as to how the spots would be allocated and we indicated at the time that we would allocate the spots on a run of schedule basis and the reason we suggested to do them on a run of schedule basis ‑‑
LISTNUM 1 \l 15557 COMMISSIONER CRAM: I didn't hear that word.
LISTNUM 1 \l 15558 MR. ALLEN: I am sorry, run of schedule. Pardon me.
LISTNUM 1 \l 15559 COMMISSIONER CRAM: Run of schedule?
LISTNUM 1 \l 15560 MR. ALLEN: Yes. In other words, to answer your question, could you buy A&E at 8:00, the answer is no.
LISTNUM 1 \l 15561 COMMISSIONER CRAM: Mm‑hmm.
LISTNUM 1 \l 15562 MR. ALLEN: Your sport will run across all channels, across all day parts, and the reason we propose to do it that way ‑‑
LISTNUM 1 \l 15563 COMMISSIONER CRAM: The wheel?
LISTNUM 1 \l 15564 THE CHAIRPERSON: And based on availability?
LISTNUM 1 \l 15565 MR. ALLEN: Yes, and the reason we proposed to do it that way is to ensure that there will be no preferential treatment. It is fairness. There would be no preferential treatment of the cable company spots. Anyone who got spots would get the same treatment on the schedule.
LISTNUM 1 \l 15566 However, in distinction to the applicants, you can buy in local markets, and when I say buy, this is obtaining the spots on a cost‑recovery basis. So we actually have five different insertion points: Toronto, Ottawa, Grand River, London and New Brunswick.
LISTNUM 1 \l 15567 We do this because some of the broadcasters that want to avail themselves of these promotion spots are local radio stations and it is of no value, for example, for a London radio station to buy time in Toronto. So this is a flexibility there that allows you to buy the market but not necessarily the day part.
LISTNUM 1 \l 15568 COMMISSIONER CRAM: Mm‑hmm. Would you agree with me that this is not ‑‑ even given that it is not commercial, it is not the best way we could help Canadian programming because of the equitability issue, I mean if they could buy ‑‑ if somebody could do a media program around a particular program on A&E, for example?
LISTNUM 1 \l 15569 MR. ALLEN: Well I don't know what would be the best way but there are distinct advantages ‑‑
LISTNUM 1 \l 15570