ARCHIVÉ -  Transcription

 

 

 

 

 

 

 

              TRANSCRIPT OF PROCEEDINGS BEFORE

             THE CANADIAN RADIO‑TELEVISION AND

               TELECOMMUNICATIONS COMMISSION

 

 

 

 

             TRANSCRIPTION DES AUDIENCES DEVANT

              LE CONSEIL DE LA RADIODIFFUSION

           ET DES TÉLÉCOMMUNICATIONS CANADIENNES

 

 

                          SUBJECT:

 

 

 

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

 

 

 

 

 

Transcripts

 

In order to meet the requirements of the Official Languages

Act, transcripts of proceedings before the Commission will be

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

and staff attending the public hearings, and the Table of

Contents.

 

However, the aforementioned publication is the recorded

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

either of the official languages, depending on the language

spoken by the participant at the public hearing.

 

 

 

 

Transcription

 

Afin de rencontrer les exigences de la Loi sur les langues

officielles, les procès‑verbaux pour le Conseil seront

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

membres et du personnel du CRTC participant à l'audience

publique ainsi que la table des matières.

 

Toutefois, la publication susmentionnée est un compte rendu

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

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

officielles, compte tenu de la langue utilisée par le

participant à l'audience publique.

               Canadian Radio‑television and

               Telecommunications Commission

 

            Conseil de la radiodiffusion et des

               télécommunications canadiennes

 

 

                 Transcript / Transcription

 

 

 

            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 /

Conseiller juridique

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

 

PHASE I

 

 

PRESENTATION BY / PRÉSENTATION PAR:

 

Only Imagine Inc.                                 681 / 4284

 

 

 

PHASE II

 

 

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 14646             MR. CRAIG:  If I could add to that, Commissioner Cram, I think one of the inherent problems of using these avails, as I talked about earlier, is there is no affidavit.  There is no way to target your advertising.  And that's problematic in terms of use.

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.

--- Pause

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?

--- Pause

LISTNUM 1 \l 14921             MR. ZOLF:  Commissioner Cram, did you say paragraph ‑‑

LISTNUM 1 \l 14922             COMMISSIONER CRAM:  Paragraph 23.

--- Pause

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