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Prière de noter que la Loi sur les langues officielles exige que toutes publications gouvernementales soient disponibles dans les deux langues officielles.

Afin de rencontrer certaines des exigences de cette loi, les procès-verbaux du Conseil seront dorénavant bilingues en ce qui a trait à la page couverture, la liste des membres et du personnel du CRTC participant à l'audience et la table des matières.

Toutefois, la publication susmentionnée est un compte rendu textuel des délibérations et, en tant que tel, est transcrite dans l'une ou l'autre des deux langues officielles, compte tenu de la langue utilisée par le participant à l'audience.

 

 

 

 

 

 

 

              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 / SUJET:

 

 

 

CanWest MediaWorks Inc. (CanWest), on behalf of Alliance

Atlantis Communications Inc. (Alliance Atlantis) /

CanWest MediaWorks Inc. (CanWest), au nom d'Alliance Atlantis

Communications Inc. (Alliance Atlantis)

 

 

 

 

 

 

 

 

 

 

 

 

 

HELD AT:                              TENUE À:

 

Conference Centre                     Centre de conférences

Outaouais Room                        Salle Outaouais

140 Promenade du Portage              140, Promenade du Portage

Gatineau, Quebec                      Gatineau (Québec)

 

November 19, 2007                     Le 19 novembre 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

 

 

 

CanWest MediaWorks Inc. (CanWest), on behalf of Alliance

Atlantis Communications Inc. (Alliance Atlantis) /

CanWest MediaWorks Inc. (CanWest), au nom d'Alliance Atlantis

Communications Inc. (Alliance Atlantis)

 

 

 

 

BEFORE / DEVANT:

 

Konrad von Finckenstein           Chairperson / Président

Elizabeth Duncan                  Commissioner / Conseillère

Len Katz                          Commissioner / Conseiller

Michel Arpin                      Commissioner / Conseiller

 

 

 

 

 

ALSO PRESENT / AUSSI PRÉSENTS:

 

Jade Roy                          Secretary / Secrétaire

Lyne Renaud                       Hearing Managers /

Rachel Marleau                    Gérantes de l'audience

James Wilson                      Legal Counsel /

Neil Campbell                     Conseillers juridiques

 

 

 

 

HELD AT:                          TENUE À:

 

Conference Centre                 Centre de conférences

Outaouais Room                    Salle Outaouais

140 Promenade du Portage          140, Promenade du Portage

Gatineau, Quebec                  Gatineau (Québec)

 

November 19, 2007                 Le 19 novembre 2007

 


- iv -

 

           TABLE DES MATIÈRES / TABLE OF CONTENTS

 

 

                                                 PAGE / PARA

 

PRESENTATION BY / PRÉSENTATION PAR:

 

CanWest MediaWorks                                  4 /   20

 

 

INTERVENTION BY / INTERVENTION PAR:

 

Council of Canadians                              176 / 1061

Canadian Conference of the Arts                   192 / 1144

Directors Guild of Canada                         219 / 1289

Communications, Energy and                        246 / 1433

  Paperworkers Union

 

 

 

 


- v -

 

              EXHIBITS / PIÈCES JUSTIFICATIVES

 

 

No.                                              PAGE / PARA

 

CRTC-1        Document entitled "Reference          3 /  17

              materials for the CRTC hearing

              regarding control and fact issues

              on CanWest, Goldman Sachs,

              Alliance Atlantis."

 

 

 

 

 

 


                  Gatineau, Quebec / Gatineau, Québec

‑‑‑ Upon commencing on Monday, November 19, 2007

    at 0930 / L'audience débute le lundi

    19 novembre 2007 à 0930

LISTNUM 1 \l 11                THE SECRETARY:  Please be seated.  We are about to start.

‑‑‑ Pause

LISTNUM 1 \l 12                THE CHAIRPERSON:  Good morning, ladies and gentlemen.

LISTNUM 1 \l 13                This is a hearing on CanWest's acquisition of Alliance Atlantis.

LISTNUM 1 \l 14                The panel today consists of my colleagues, Michel Arpin, Vice‑Chairman of Broadcasting; Len Katz, Vice‑Chairman of Telecommunications; Elizabeth Duncan, Commissioner of the Atlantic Region; and myself, Konrad von Finckenstein, as Chairman.

LISTNUM 1 \l 15                The Commission team assisting us today includes:  Hearing Managers Lyne Renaud, Director of Ownership, and Rachel Marleau, Senior Corporate Analyst; Legal Counsel, James Wilson and Neil Campbell; and Jade Roy, our Hearing Secretary.

LISTNUM 1 \l 16                I think you all know what it is about, so without further ado, let's get down to business.


LISTNUM 1 \l 17                Madame Roy.

LISTNUM 1 \l 18                THE SECRETARY:  Thank you, Mr. Chairman.  Bonjour à tous.

LISTNUM 1 \l 19                First, I would ask that when you are in the hearing room please turn off your cell phones, beepers and BlackBerrys.  We would appreciate your cooperation in this regard throughout the hearing.

LISTNUM 1 \l 110               Please note that the Commission members may ask questions in either English or French.  You can obtain an interpretation receiver from the commissionaire sitting at the entrance of the conference centre.

LISTNUM 1 \l 111               Le service d'interprétation simultanée est disponible durant cette audience.  L'interprétation anglaise se trouve au canal 7, et l'interprétation française au canal 8.

LISTNUM 1 \l 112               We expect the hearing to be completed within the next two to three days.  We will begin tomorrow morning at 8:30 a.m. and adjourn each afternoon at approximately 4:30 p.m.  We will take one hour for lunch and a break in the morning and in the afternoon.


LISTNUM 1 \l 113               There is a verbatim transcript of this hearing being taken by the court reporter sitting at the table on my right.  If you have any questions on how to obtain all or part of this transcript, please approach the court reporter during a break.

LISTNUM 1 \l 114               Please note that the full transcript will be made available on the Commission's website shortly after the conclusion of the hearing.

LISTNUM 1 \l 115               Pendant toute la durée de l'audience, vous pourrez consulter les documents qui font partie du dossier public de cette audience dans la salle d'examen qui se trouve dans la salle Papineau, située à l'extérieur de cette salle, à votre droite.

LISTNUM 1 \l 116               During its questioning of the Applicant CanWest MediaWorks Inc., the panel will be referring to the document entitled "Reference materials for the CRTC hearing regarding control and fact issues on CanWest, Goldman Sachs, Alliance Atlantis."

LISTNUM 1 \l 117               The Commission will therefore enter this document into the record as Commission Exhibit CRTC‑1.  Copies are available in the examination room.

EXHIBIT NO. CRTC‑1:  Document entitled "Reference materials for the CRTC hearing regarding control and fact issues on CanWest, Goldman Sachs, Alliance Atlantis."


LISTNUM 1 \l 118               THE SECRETARY:  Now, Mr. Chairman, we will proceed with the presentation by the Applicant CanWest MediaWorks Inc.  Appearing for the Applicant is Leonard Asper.

LISTNUM 1 \l 119               Please introduce your colleagues and you will then have 20 minutes to make your presentation.  Thank you.

PRESENTATION / PRÉSENTATION

LISTNUM 1 \l 120               MR. ASPER:  Thank you very much.

LISTNUM 1 \l 121               Good morning, Chairman, commissioners and Commission staff.

LISTNUM 1 \l 122               My name is Leonard Asper and I am President and CEO of CanWest Global Communications Corp.

LISTNUM 1 \l 123               We are pleased to appear before you today to discuss our acquisition of the Alliance Atlantis Specialty Services.

LISTNUM 1 \l 124               I would like to begin our presentation today by introducing the members of our panel and also acknowledging the presence of a number of important people who are with us in the audience today.


LISTNUM 1 \l 125               First and foremost, seated in the front row is Michael MacMillan ‑‑ that is the front row behind me ‑‑ the former Chairman and co‑founder of Alliance Atlantis Communications.  Next to him is Phyllis Yaffe, the CEO of Alliance Atlantis.

LISTNUM 1 \l 126               As you know, it is through the leadership and the vision of both Michael and Phyllis and the many people who worked alongside them over the years that Alliance Atlantis has become a true Canadian success story.

LISTNUM 1 \l 127               I would also like to acknowledge the presence of the Chairman of the Board of CanWest Global Communications, Derek Burney, who is there in the front row as well; Peter Viner, beside him, the former CEO of CanWest Global Communications and also a director on the CW Media board; as well as Jim Macdonald, the independent trustee of the Alliance Atlantis Services.

LISTNUM 1 \l 128               Also with us today is Tim Hodgson, the CEO of Goldman Sachs Canada.

LISTNUM 1 \l 129               Now in the front row of our panel, seated to my immediate left, is Tom Strike, who is the President of Strategy and Implementation for CanWest.

LISTNUM 1 \l 130               Next to him is Richard Leipsic, the Senior Vice‑President and General Counsel.

LISTNUM 1 \l 131               Next to him is John Maguire, Chief Financial Officer of CanWest Global.

LISTNUM 1 \l 132               To my immediate right is Charlotte Bell, the Vice‑President of Regulatory Affairs.


LISTNUM 1 \l 133               Seated next to her is Kathy Dore, President of Television, CanWest MediaWorks.

LISTNUM 1 \l 134               Next to Kathy is Barbara Williams, our Senior Vice‑President of Programming, as well as Christine Shipton, Vice‑President of Original Programming.

LISTNUM 1 \l 135               Next to Christine is Walter Levitt, Senior Vice‑President of Marketing.

LISTNUM 1 \l 136               In the row behind me, starting from the left is Marlene Lock, the Vice‑President of Finance of CanWest Global.

LISTNUM 1 \l 137               Next to her is Colin O'Leary, a partner in the Valuation Services Group of Ernst & Young LLP, our independent valuators.

LISTNUM 1 \l 138               Next to him is Grant Buchanan, General Counsel at McCarthy Tétrault, who is acting as General Counsel for Goldman Sachs.

LISTNUM 1 \l 139               Seated next to him is Gerry Cardinale, Managing Director at Goldman Sachs.

LISTNUM 1 \l 140               Seated next to him is Ante Vucic, who is also Counsel for Goldman Sachs.

LISTNUM 1 \l 141               Next to him is Christine Cook, the Vice‑President of Finance for CanWest MediaWorks.

LISTNUM 1 \l 142               Next to her is Kathy Gardner, Senior Vice‑President, Research and Promotions for CanWest Media Sales.


LISTNUM 1 \l 143               Finally, next to Kathy is Steve Wyatt, Senior Vice‑President of News Information for CanWest.

LISTNUM 1 \l 144               Commissioners, this transaction represents an exciting and important phase in the history of CanWest.  It is the culmination of more than 30 years of building a company and bringing it to the next logical stage of growth so we can move forward and compete effectively in a rapidly changing media world.

LISTNUM 1 \l 145               When my father founded CanWest three decades ago, he moved a small TV station from North Dakota cross the border to Winnipeg to establish CKND, the first private local television station in that market.  Well, we have come a long way since then.

LISTNUM 1 \l 146               Over the years, through a series of acquisitions and start‑ups, we have created two strong conventional television brands:  first, the Global Television Network which is now available in 95 percent of Canadian homes, and more recently, a newly rebranded network of stations now known as E.

LISTNUM 1 \l 147               In the last decade we also entered the specialty television world and now operate a number of digital specialty services as well as one analog specialty service, TVTropolis.


LISTNUM 1 \l 148               Our core business is conventional television, which has matured and now faces many challenges due to several structural and technological factors, and while conventional television remains the cornerstone of the broadcasting system, it now has to compete within a sea of viewing choices, including a number of content providers that are new, both foreign and domestic, some of which are less regulated and many of which are not regulated at all.

LISTNUM 1 \l 149               Today, more than 95 percent of our broadcast revenues come from advertising.  However, in recent years, the largest revenue stream in the Canadian broadcasting system has shifted to subscription and up to this point CanWest has been largely absent in that area.

LISTNUM 1 \l 150               Advertising dollars continue to migrate to the specialty sector and the internet at the expense of conventional television.  In fact, virtually all of the growth in television ad spending has been and will continue to be in the specialty sector.

LISTNUM 1 \l 151               For CanWest to be competitive in this changing world, we need to diversity our revenue sources and reaggregate some of that audience lost to specialty by having a more prominent presence in that arena.


LISTNUM 1 \l 152               Commissioners, this transaction will allow us to achieve both of these goals and represents a necessary next step for both CanWest and Alliance Atlantis.

LISTNUM 1 \l 153               Collectively, we have created a world‑class television station group and specialty networks providing high quality information and entertainment programming to Canadian audiences from coast to coast.  In an ever‑changing and increasingly competitive media environment, both CanWest and Alliance Atlantis knew that the status quo was no option.

LISTNUM 1 \l 154               Last December, the owners of Alliance Atlantis and a special committee of their board of directors announced their intention to explore strategic alternatives for the company.  Following this review, the board of directors determined that the best way to grow the business was to sell the company.

LISTNUM 1 \l 155               For CanWest, this represented an opportunity to meet our long‑term business and strategic goals by expanding our presence in the growing specialty sector.  However, the combined assets of Alliance Atlantis also included the highly successful CSI franchise as well as the motion picture distribution business.


LISTNUM 1 \l 156               Our challenge therefore was twofold.  We had to find someone who would be willing to support our investment in the broadcasting assets of Alliance Atlantis while at the same time being prepared to acquire the remaining non‑broadcasting assets of the company.

LISTNUM 1 \l 157               We approached a number of financial institutions and eventually found the right financial backer in Goldman Sachs.

LISTNUM 1 \l 158               I am pleased that Gerry Cardinale of Goldman Sachs is with us today and I would like to ask him now to tell you about his company and their role in this transaction.

LISTNUM 1 \l 159               MR. CARDINALE:  Thank you, Leonard.

LISTNUM 1 \l 160               Commissioners, I am here today representing Goldman Sachs and I would like to take a few minutes to tell you about our company and our investment philosophy.

LISTNUM 1 \l 161               Goldman Sachs is a global investment banking firm.  Since 1986, we have invested over $23 billion of equity in companies around the world representing a wide range of industries.

LISTNUM 1 \l 162               Unlike other investment firms, we do not specialize in any one sector.  In fact, our investments in media companies worldwide represent under 8 percent of our overall portfolio.


LISTNUM 1 \l 163               As such, we do not see ourselves as a strategic investor in these broadcast assets but rather a financial backer supporting CanWest.

LISTNUM 1 \l 164               This is consistent with our overall investment philosophy in which we invest capital to help support clients like CanWest achieve their corporate objectives.  We have no intention of changing our approach with this particular transaction.

LISTNUM 1 \l 165               Our flexibility and partnership approach make us an ideal investor for private or public companies seeking additional capital to fund further growth either through acquisition or expansion.  Typically, we invest in companies that have a proven track record, an experienced management team and attractive growth prospects and this is certainly the case here.

LISTNUM 1 \l 166               Our investments are designed to support the long‑term goals of the companies in which we invest and to build value.  We believe that management is most qualified to run the day‑to‑day business and we assist by participating on the board of directors of companies we invest in.  We are not television operators nor do we wish to be.


LISTNUM 1 \l 167               We recognize the talent and expertise of this team of executives under the leadership of Leonard Asper and Kathy Dore and we are confident that they will run this business in such a way as to meet their regulatory obligations as well as their financial goals and ours.

LISTNUM 1 \l 168               Now let me turn to the issue of Canadian control, which we know is of interest to the Commission.

LISTNUM 1 \l 169               I want to assure you that Goldman Sachs does not wish to control any Alliance Atlantis or CanWest broadcasting entity.  This transaction has been designed so that CanWest is in control.  CanWest has the skill and the resources to manage this business.

LISTNUM 1 \l 170               We understood the regulatory need for Canadian control and we fully accepted that when we entered into our agreement with CanWest.

LISTNUM 1 \l 171               I will be pleased to answer any questions you may have when we get to that portion of this proceeding.  Thank you.

LISTNUM 1 \l 172               MR. ASPER:  Thank you, Gerry.

LISTNUM 1 \l 173               Commissioners, Canada needs strong integrated media companies to assert a Canadian presence on an ever‑evolving media platform.


LISTNUM 1 \l 174               The CRTC has recognized and accommodated this need through a series of policies and decisions that over time have enabled broadcasters to grow through necessity.  These decisions have been wise in acknowledging the importance of consolidation to the ongoing health and strength of the Canadian broadcasting system.

LISTNUM 1 \l 175               We believe that this proposed transaction meets the test of being the best possible under the circumstances and will lead to a strengthened and conventional television business for CanWest.

LISTNUM 1 \l 176               I would now like to turn this over to Kathy Dore and members of our operating team to speak to the specifics of our application.

LISTNUM 1 \l 177               MS DORE:  Thank you, Leonard.

LISTNUM 1 \l 178               Commissioners, beyond the many ways in which this transaction will help strengthen our ability to contribute to the system, our proposed benefits package is significant and unequivocal.

LISTNUM 1 \l 179               In fact, it will inject almost $137 million of new investment into the Canadian broadcasting system.  Of this, 90 percent or $123 million of the total package will be committed to programming initiatives that will result in many new hours of original Canadian programming.


LISTNUM 1 \l 180               We set out to develop a holistic production strategy that would maximize the potential of those benefit dollars and ensure adequate funds for development, production, promotion and new media content.

LISTNUM 1 \l 181               This is why we have proposed a spending formula that would extend to 10 years for our primetime programming initiatives in order to allow for adequate time to properly develop and test programming before beginning production.

LISTNUM 1 \l 182               We are proposing that the remaining 10 percent of the benefits package be targeted towards two key priority areas for CanWest:  training and diversity initiatives.

LISTNUM 1 \l 183               Our training initiatives will give new emerging talent an opportunity to refine their skills and learn from the best and will meet the needs of an oversubscribed market.

LISTNUM 1 \l 184               Our diversity initiatives will target a number of organizations, including the Innoversity Creative Summit, the National Aboriginal Achievement Foundation and the Canadian Council for Aboriginal Business.

LISTNUM 1 \l 185               We will also establish two training programs that we will run in‑house, one for a broadcast diversity journalism training program and the other for a CanWest internship for persons with disabilities.


LISTNUM 1 \l 186               We propose to allocate just over $2 million to support a variety of festivals celebrating Canada's diversity and creative talent across Canada.

LISTNUM 1 \l 187               Finally, as media literacy is also an important priority for CanWest, we have set aside funding to support three organizations that stand out in their efforts to promote media literacy in Canada:  the Media Awareness Network, Learning Through the Arts as well as Concerned Children's Advertisers.

LISTNUM 1 \l 188               I would now like to ask Barb Williams to tell you more about the ways in which this transaction will help enhance Canadian programming.

LISTNUM 1 \l 189               MS WILLIAMS:  Thanks, Kathy.

LISTNUM 1 \l 190               Commissioners, this transaction represents for us an exciting opportunity to combine the well‑defined and powerful specialty brands of Alliance Atlantis with the wide reach and mass appeal of our Global and E conventional television networks.

LISTNUM 1 \l 191               Bringing together distinct yet complementary television services under one roof will allow us to maximize our ability to commission, acquire, promote and broadcast quality Canadian programming across multiple platforms, including our print and web assets, in order to increase audiences.  Simply put, it will help us to build hits.


LISTNUM 1 \l 192               Three key reasons underscore this opportunity.

LISTNUM 1 \l 193               First, we will be able to expose bigger audiences to shows that have mass audience potential but have lacked the wide access to be as successful as possible.

LISTNUM 1 \l 194               Second, we will bring together the combined expertise from two of the strongest and most experienced programming teams in the country to ensure that the best ideas are coming in the door and that we are helping to make them the best they can be.

LISTNUM 1 \l 195               Third, understanding the role that foreign programming plays in supporting the budgets of our Canadian programming, this transaction strengthens our position with our foreign program distribution partners, allowing us to maximize the value foreign acquisitions bring to the Canadian equation.

LISTNUM 1 \l 196               Frankly, it allows us to get the greatest impact possible out of the hundreds of millions of dollars spent on Canadian programming each year with both our viewers and our advertisers.


LISTNUM 1 \l 197               It allows us to combine the strengths and reach of both our companies in order to maximize the potential of our respective program schedules and at its very core enhances our capacity to continue to meet the important cultural and public policy objectives of the Broadcasting Act.

LISTNUM 1 \l 198               The combined power of conventional and specialty television has already been proven.  One of the most evident successes is "Corner Gas," which was actually developed at Comedy Network and then moved to CTV when it became clear there was mass hit potential.

LISTNUM 1 \l 199               That same potential can be envisioned when one looks at the properties of Alliance Atlantis.  For example, "Slings and Arrows", the biggest winner at this year's Gemini Awards.  Imagine giving all of Canada a chance to enjoy that show on Global's prime time.

LISTNUM 1 \l 1100              Or from History Television, the opportunity to share a few of their spectacular documentaries that have been produced to commemorate our country's history, be they about Vimy Ridge or Remembrance Day.

LISTNUM 1 \l 1101              And it can work both ways.  Remember that a huge hit on conventional television delivers upwards of about 3 million people, but that is only 10 per cent of Canadians.  So think of our new hit Canadian comedy "DA Kink In My Hair" having another chance to be enjoyed by even more people on Showcase.


LISTNUM 1 \l 1102              We are acquiring channels that have delivered a full spectrum of quality programming in a variety of genres and, when used as strategically and selectively by aligning our programming commitments and expertise, we can ensure that Canadian shows are seen by more people, thereby growing ratings, increasing the likelihood of renewals and, hence, the building of long‑term hits.  And long‑term hits built on ratings success drives revenue which goes directly back into the Canadian production community.  Everybody wins.

LISTNUM 1 \l 1103              Walter.

LISTNUM 1 \l 1104              MR. LEVITT:  Thanks, Barb.

LISTNUM 1 \l 1105              Commissioners, as you know, the role of marketing and promotion is to take programs we have produced or acquired and turn them into hits.

LISTNUM 1 \l 1106              At CanWest we are fortunate to have a unique and powerful mix of media assets that would be the envy of any marketer.  Whenever we set out to launch a new Canadian program we have the ability to tap into these media assets to ensure our shows become hits.


LISTNUM 1 \l 1107              For example, we run ads in our CanWest newspapers across the country; we promote our shows on our popular websites, including Canada.com generating over 4 million unique visitors each month; we work closely with our colleagues at Entertainment Tonight Canada who always support our original Canadian productions; and perhaps most importantly, we strategically use our own content platforms including Global and "E" to aggressively promote our new programs.

LISTNUM 1 \l 1108              Because of the reach of our two conventional networks we can ensure our program launch messages reach millions of Canadians from coast‑to‑coast.

LISTNUM 1 \l 1109              Commissioners, before joining CanWest two years ago I spent eight years leading the marketing team at Alliance Atlantis.  I was fortunate to have the opportunity to launch numerous successful Canadian programs, including "Trailer Park Boys" on Showcase, "Pioneer Quest" on History Television and "Holmes on Homes" on HGTV.

LISTNUM 1 \l 1110              During my years at Alliance Atlantis, I can remember sitting in numerous meetings with the marketing team brainstorming the most effective ways to market our original Canadian programming.  No matter what the campaign, we always seem to face the same challenge:  there never seemed to be quite enough money or quite enough reach on our own specialty networks to effectively promote our new shows.


LISTNUM 1 \l 1111              I remember that in almost every discussion one theme always seem to emerge:  If we only had access to conventional TV airtime or newspaper space we could really make an impact with all of our new Canadian program launches.

LISTNUM 1 \l 1112              This proposed transaction will finally provide Alliance Atlantis with the reach, resources and impact to ensure more of its Canadian programs are hits.  If the 13 Alliance Atlantis networks were to join the CanWest family, the value we would bring to the marketing of their original Canadian productions would be without compare anywhere in this country.  Simply put, CanWest is the only company that can bring this kind of weight and exposure to these programs and networks.

LISTNUM 1 \l 1113              As an example, last year Showcase launched a terrific Canadian drama, "Billable Hours".  The show is now in its second season and is garnering respectable ratings, but isn't yet they hit it deserves to be.  To some extent this is because it doesn't have access to the promotional strength it needs to draw larger audiences.


LISTNUM 1 \l 1114              So if a show like "Billable Hours" were launched in a world where CanWest and Alliance Atlantis were one company, in addition to the campaign it would receive on Showcase itself, we would also promote the program on Global and E! for its 10‑week run.

LISTNUM 1 \l 1115              We would also provide coverage on Entertainment Tonight Canada and promote it during our morning shows and during news breaks.  We would also run ads in CanWest newspapers nationally and across the CanWest websites.

LISTNUM 1 \l 1116              Based on fairly conservative media estimates, the additional value of marking "Billable Hours" across CanWest conventional networks, newspapers and websites would represent about $5 million, whereas currently we estimate that the promotional campaign for the show was in the $1.5 million range.

LISTNUM 1 \l 1117              There is no doubt that the ability to increase the promotional weight of "Billable Hours" more than three times its current value would help grow audiences and viewing to this quality Canadian program.

LISTNUM 1 \l 1118              As a marketer, when I think about the combined impact of the Alliance Atlantis and CanWest assets I see tremendous upside for the promotion of Canadian programming.  There is no doubt in my mind that CanWest is uniquely positioned as the best and most logical buyer of these 13 networks.


LISTNUM 1 \l 1119              MR. ASPER:  Commissioners, you have heard all the reasons why we believe this transaction represents the best possible proposal under the circumstances.  Over the last three decades CanWest has grown from a small regional broadcaster to one of the largest integrated media companies in Canada.

LISTNUM 1 \l 1120              Seven years ago the Commission approved our acquisition of the WIC television assets and as part of the transaction we committed to spend over $89 million in programming enhancements, training, education and social benefits for the Canadian broadcasting system.  We kept our word.  We spent every dollar, as we said we would, and then some.

LISTNUM 1 \l 1121              As a result of CanWest ownership of the WIC stations, we restored local programming in both Hamilton and Victoria and we launched a much needed third national news voice in this country.

LISTNUM 1 \l 1122              Global National has now become the most watched national newscast in the country and, I might add, Commissioners, that it was a benefit in the transaction.  It was only supposed to go for five years, but despite that we have continued the program and it will continue well into the foreseeable future.

LISTNUM 1 \l 1123              This was no small accomplishment, given the strength and historical stronghold of both CBC and CTV in this area, but we did it.


LISTNUM 1 \l 1124              Our local newscasts are strong in every market in which we operate, benefiting from the strength of the national news‑gathering capabilities that we have in our company and the Global National team as well.

LISTNUM 1 \l 1125              CanWest's interactive group provided the technological support to expand our news presence onto the web and mobile platforms.  We have made major investments in infrastructure and Canadian talent in order to compete in the national news game.  In fact, since we launched our spending has almost tripled from the original investment we made in 2001.

LISTNUM 1 \l 1126              But none of this would have been possible without Global consolidating with WIC in 2000, and the same opportunity for the system exists here.  By uniting our distinct yet complementary television services we will be creating a combined entity that will be much better positioned to compete in a highly fragmented and integrated media environment and, at the same time, continue to meet important cultural and social goals for the benefit of our Canadian audiences, the independent production sector in Canada, and the system overall.

LISTNUM 1 \l 1127              Commissioners, we thank you for your attention and we look forward to your questions.


LISTNUM 1 \l 1128              THE CHAIRPERSON:  Thank you, Mr. Asper.

LISTNUM 1 \l 1129              Attached to your presentation are some charts.

LISTNUM 1 \l 1130              Can you explain to us what these charts are, why they are here and what purpose they serve?

LISTNUM 1 \l 1131              MS BELL:  The charts that we have attached are representative of the puts and calls and we just attached them for guidance when you are asking your questions.  We just thought they might be helpful.

LISTNUM 1 \l 1132              THE CHAIRPERSON:  All right.  Thank you.

LISTNUM 1 \l 1133              I always appreciate a picture.  It is much easier.

LISTNUM 1 \l 1134              This is a very complicated transaction so we will ask you about control primarily, programming synergies, valuation and benefits.

LISTNUM 1 \l 1135              Let me start with control, assisted by my colleague Mr. Katz.

LISTNUM 1 \l 1136              You have in front of you CRTC Exhibit 1, which on the very first page sort of tries to capture in one picture the entire transaction.

LISTNUM 1 \l 1137              Do you have it in front of you?

LISTNUM 1 \l 1138              MR. ASPER:  I'm getting it in front of me.  Just a minute.


LISTNUM 1 \l 1139              THE CHAIRPERSON:  Sure.

‑‑‑ Pause

LISTNUM 1 \l 1140              MR. ASPER:  Okay, I have it now.  Thank you.

LISTNUM 1 \l 1141              THE CHAIRPERSON:  As you can see it shows CanWest and Goldman Sachs putting in their respective investments and then it shows the Shareholders Agreement which governs the relationship with 66.7 per cent resting in CanWest and 33 per cent in Goldman Sachs.  Then you have the regulated entities, which is basically what you are acquiring from Alliance Atlantis.  On the left‑hand side you have the contributed business, which is your existing regulatory business that you want to contribute in 2009.

LISTNUM 1 \l 1142              Now, if I look at this chart it is clear that the Shareholders Agreement will govern the relationship between the two key shareholders, CanWest and Goldman Sachs.

LISTNUM 1 \l 1143              The Management Agreement, having looked at it, basically suggests that CanWest is going to run the regulated entities as well as the contributed.


LISTNUM 1 \l 1144              What I don't see as an Executive Committee.  Where exactly are you going to meet, discuss and do things?

LISTNUM 1 \l 1145              It strikes me that what you call it euphemistically a Reporting Committee is de facto the Executive Committee.  It will have five members, three from CanWest, three from Goldman Sachs.  To the extent there are issues you have to discuss, et cetera, that is a forum where it is going to take place.

LISTNUM 1 \l 1146              Is that correct?

LISTNUM 1 \l 1147              MR. ASPER:  There is no Executive Committee, Mr. Chairman.

LISTNUM 1 \l 1148              The Reporting Committee doesn't have any decision‑making power, it is really simply a committee that receives information.

LISTNUM 1 \l 1149              There will be four Board meetings per year and that is where any substantive matters would be discussed.

LISTNUM 1 \l 1150              Typically the Reporting Committee will meet prior to or just after the Board meeting.  Effectively they may be part of the same meeting, but any Board decisions would be taken as part of a formal Board session.

LISTNUM 1 \l 1151              THE CHAIRPERSON:  So they will be coterminous, the meetings of the Reporting Committee and the Board?


LISTNUM 1 \l 1152              MR. ASPER:  Yes, most likely.  I would not foresee any separate meeting of a Reporting Committee that wasn't going to take place at the same time as a Board.

LISTNUM 1 \l 1153              THE CHAIRPERSON:  I understood the Reporting Committee was the idea to monitor, to make sure what's going on here, what's going on in the contributed business, what's going on in the regulated entity, making sure ‑‑ Goldman Sachs obviously wants to make sure that their investment is being applied in the proper manner, et cetera.

LISTNUM 1 \l 1154              So if that's not the purpose, what is the purpose of the Reporting Committee?

LISTNUM 1 \l 1155              MS MARTIN:  Well, as I say, it is simply to receive information.

LISTNUM 1 \l 1156              CanWest has five members of that committee and Goldman has two, as you know, and the Board has three CanWest members and two Goldman members.  To say they would be coterminous may not be entirely accurate.  They would be back‑to‑back potentially, just for ease of travel.

LISTNUM 1 \l 1157              THE CHAIRPERSON:  Or in between.  Right?

LISTNUM 1 \l 1158              MR. ASPER:  Pardon me?

LISTNUM 1 \l 1159              THE CHAIRPERSON:  Or in between Board meetings?


LISTNUM 1 \l 1160              MR. ASPER:  No.  I doubt that there would ever be a reporting committee between Board meetings.

LISTNUM 1 \l 1161              THE CHAIRPERSON:  Is there anything preventing them from meeting in between?

LISTNUM 1 \l 1162              MR. ASPER:  No.

LISTNUM 1 \l 1163              Maybe I'm not ‑‑

LISTNUM 1 \l 1164              THE CHAIRPERSON:  Mr. Asper, I am not trying to fence with you, I am trying to understand how you are doing this.

LISTNUM 1 \l 1165              If I was Goldman Sach, I would be very worried that my investments are being applied properly.

LISTNUM 1 \l 1166              Where is the forum?

LISTNUM 1 \l 1167              One forum, obviously, is a Board meeting, and you said it meets every three months.  That is a long time in between, et cetera, unless you want to call an extraordinary meeting.

LISTNUM 1 \l 1168              You are going to have this reporting committee, and if there are issues, they are going to be discussed there.  And then you are only going to say, "Len, I am not happy with what you are doing here," or, "I think this is great," or whatever the issue happens to be, "Explain this to me."


LISTNUM 1 \l 1169              Isn't that what the whole idea of the reporting committee is about?

LISTNUM 1 \l 1170              MR. ASPER:  No, I don't think so.  I think the reporting committee is simply to be ‑‑ it may be a vehicle.  If there is a problem, it could be used more frequently.

LISTNUM 1 \l 1171              But, as far as we intend ‑‑ and I can't recall exactly what the agreements say about times of meetings, but, practically speaking, the reporting committee will not meet ‑‑ is not intended to meet between Board meetings.

LISTNUM 1 \l 1172              It is certainly not expected to function as an executive committee, as you suggested at the outset.  An executive committee is usually something that is delegated authority by a Board, and that is certainly not the case here.

LISTNUM 1 \l 1173              THE CHAIRPERSON:  If I understand correctly, the reporting committee ‑‑ there are no records being kept for this, and there are no rules of procedure or anything.  It is just, as you say, a monitoring committee.

LISTNUM 1 \l 1174              MR. ASPER:  I might, for the technical operations of the committee, turn to my left and ask if Tom or Richard have any comments on that role.


LISTNUM 1 \l 1175              MR. LEIPSIC:  Mr. Chairman, if I might ‑‑ I am Richard Leipsic, general counsel.

LISTNUM 1 \l 1176              In fact, the reporting committee has already met on one occasion.  It does keep proceedings.  It does keep records.

LISTNUM 1 \l 1177              The primary purpose behind the reporting committee is to recognize that the level of investment is at the CW Investment Co. entity, of which there is a Board of Directors which will make all decisions that one would expect of a Board.

LISTNUM 1 \l 1178              There is, however, obviously, the obligation of CanWest to contribute to the contributed business in 2011.

LISTNUM 1 \l 1179              To the extent that Goldman Sach would like to have some perspective and visibility into that business, because they do not sit on the Board of CanWest in this diagram, we recognized the opportunity for them to receive information and to have some insight.  Hence we created the reporting committee.

LISTNUM 1 \l 1180              But the reporting committee is, really, simply to be able to have insight and to be able to obtain information with regards to the contributive business, per se, that it wouldn't normally, for fiduciary obligations and confidentiality reasons, have by virtue of its sitting on the Board of CW Investment Co.


LISTNUM 1 \l 1181              THE CHAIRPERSON:  You just made my point.  That is exactly what I am getting at.  This is the way that Goldman Sach finds out what is going on with the contributed business that it doesn't get by virtue of being on the Board.

LISTNUM 1 \l 1182              Therefore, I think there should be some transparency here and some record.

LISTNUM 1 \l 1183              I don't understand why the reporting committee's minutes are not being kept and why there aren't very clear rules as to how the reporting committee functions, because it is another way that Goldman Sach has access to what is going on in the contributed business.

LISTNUM 1 \l 1184              MR. LEIPSIC:  You are right, Mr. Chairman, access, but the decisions associated with the way in which the contributed business is operated reside, obviously, with CanWest.

LISTNUM 1 \l 1185              THE CHAIRPERSON:  I don't dispute that, but if you have access you can comment on it, et cetera, and CanWest, having its biggest investor being concerned on something, presumably, will take that into account.


LISTNUM 1 \l 1186              That is why I said that it's a de facto executive.  They may not make decisions, but this is where the big issues can be raised, can be aired, can be discussed.  The decision later on may be taken formally at the Board level, but this is sort of ‑‑ exactly as you mentioned.  Information will be available to them, but it will not necessarily be available at Board meetings.

LISTNUM 1 \l 1187              MR. LEIPSIC:  That's correct, Mr. Chairman.

LISTNUM 1 \l 1188              As I noted earlier, there are proceedings and there are minutes taken of the reporting committee.  We had a meeting, I think, earlier in October, for the very purpose, as you point out, to be able to have some visibility.

LISTNUM 1 \l 1189              THE CHAIRPERSON:  I don't think I have to beat a dead horse.  I think you got my point.  I think the reporting committee, the way it's set up here, and the key role, needs a little bit more structure and transparency.

LISTNUM 1 \l 1190              Let's move to the main thing, which is the Board itself.  Everything is governed by the Shareholders' Agreement, and the shareholders, not surprisingly ‑‑ it's a given that Goldman Sach, having a majority of the investment but a minority of the votes, gives them some special rights.  Some of them are veto rights, et cetera.


LISTNUM 1 \l 1191              I am looking particularly at Section 4.7 of the Shareholders' Agreement.

LISTNUM 1 \l 1192              First of all, 4.7(b) essentially sets out what are the veto rights of Goldman Sach, and they require the approval of each of the directors of Goldman Sach, i.e., both members have to agree.

LISTNUM 1 \l 1193              The Board normally works by majority, but if any of these issues come up, both Goldman Sach members have to agree.  Why both?

LISTNUM 1 \l 1194              This is more than a veto, this is sort of a special veto.

LISTNUM 1 \l 1195              If you have a majority of one ‑‑ let's say there is a division between the two Goldman Sach directors.  That's not good enough.  You need both of them to agree.

LISTNUM 1 \l 1196              Can somebody explain to me why that is required?

LISTNUM 1 \l 1197              MR. ASPER:  I think, first of all, it is probably not germane whether it is one or two Goldman Sach directors that have the ability to block something.

LISTNUM 1 \l 1198              I think the overall philosophy underlying this section is that, to some extent, Goldman Sach has the right to have some protection over the asset in which it has invested in terms of what it invested in.


LISTNUM 1 \l 1199              It invested in something, and I think it is fairly standard and expected that they would have the right to ensure that what they end up with over time is roughly the same thing.

LISTNUM 1 \l 1200              From our perspective, there is a significant degree of latitude for us to operate the business and manage the strategy with these, and we found these vetoes in this section to be very de minimis from our perspective.

LISTNUM 1 \l 1201              So, yes, there are a few things, but I think, as a lender, if you will ‑‑ whatever you want to call their stake ‑‑ these are very similar to things that are found in banking debt covenants as well.

LISTNUM 1 \l 1202              THE CHAIRPERSON:  I will get to that in a second.

LISTNUM 1 \l 1203              First of all, if it's not germane, why is it there?

LISTNUM 1 \l 1204              You say that it's not germane whether it's one or both.  In that case, why do you specify that it has to be both?

LISTNUM 1 \l 1205              MR. ASPER:  The principle there was simply one to provide Goldman Sach with a veto.


LISTNUM 1 \l 1206              THE CHAIRPERSON:  Okay.  Secondly, I agree with what you just said.  There are standards and such things as changes in the articles of the bylaws, changes in the authorized issued capital, et cetera, and issues of allotment on redemption of the purchase.

LISTNUM 1 \l 1207              I quite understand that.  But then you have something which is very strange to my mind.  You have, first of all, a general one, which basically says that the incurrence of any material liability, other than indebtedness, other than the ordinary course of business ‑‑ with material liability not being defined.

LISTNUM 1 \l 1208              Anything material requires ‑‑

LISTNUM 1 \l 1209              On top of that, you have special demands, that are $15 million pre‑merger, $25.5 million after merger, and then $10 million with regard to any channel.

LISTNUM 1 \l 1210              What is the difference between material undefined under Section 4.7(b)(vi) and those thresholds?

LISTNUM 1 \l 1211              Why don't we have one threshold for ‑‑

LISTNUM 1 \l 1212              Let me just put it the way I see it.

LISTNUM 1 \l 1213              Goldman Sach is betting on your business acumen.  You know how to run a television network.  You are now acquiring specialty channels.


LISTNUM 1 \l 1214              I can see that they want to say:  This is the business we are investing in.  Now, before you sell any of those channels, or buy a new one, or you sell part of your network, or buy a new one, I want to have a say, because that's what I am betting on.  That is the co‑asset.

LISTNUM 1 \l 1215              These co‑assets, if you sell them, I want to have a veto.

LISTNUM 1 \l 1216              That is perfectly understandable and reasonable, but that is not what we have here.

LISTNUM 1 \l 1217              First of all, anything material you can't do; and, on top of that, we have the special thresholds regarding indebtedness or purchases; and, on top of that, we have a third category dealing with channels, where we take the threshold down to $10 million.

LISTNUM 1 \l 1218              I don't understand the concept, the theory, or how all of this fits together.  Maybe you could help me.

LISTNUM 1 \l 1219              MR. ASPER:  I will turn to Tom and Richard in a second, but I think the general philosophy, again, comes back to the issue of ‑‑ there had to be some line drawn somewhere, in terms of where our unfettered discretion ended, and this was simply a negotiated item and, effectively, a compromise between what we might want and what Goldman Sach might want.


LISTNUM 1 \l 1220              But, from our perspective, as you negotiate an agreement, you decide what is important to you and what you must have, and you decide what is not that important.  From our perspective, these thresholds give us a very, very wide latitude to do pretty much anything that we think we would foreseeably want to do strategically and operationally going forward.

LISTNUM 1 \l 1221              THE CHAIRPERSON:  Let me stop you right there.  If that gives you latitude, et cetera, why do you then have, over and above, the requirement for material, which is undefined and which does not have a threshold?

LISTNUM 1 \l 1222              MR. ASPER:  I will ask Richard to answer that question.

LISTNUM 1 \l 1223              MR. LEIPSIC:  Mr. Chairman, as I think we noted in one of the answers to the deficiencies, we indicated where the level of the liability could actually be put into monetary terms.  We indicated that it would be the actual threshold amount.

LISTNUM 1 \l 1224              For instance, pre‑combination was going to be $15 million.


LISTNUM 1 \l 1225              We also noted, however, that in certain instances you cannot necessarily translate a liability into monetary terms.  There may be a contract that has very onerous terms which commit the company beyond economic terms; for instance, to enter into a long‑time supply agreement at something that is not on market terms.

LISTNUM 1 \l 1226              Therefore, it was appropriate to allow the issue of materiality to have definition in circumstances when it could not be put into pure monetary amounts.

LISTNUM 1 \l 1227              THE CHAIRPERSON:  I notice that you don't have a definition of materiality here along the lines of what you are suggesting.

LISTNUM 1 \l 1228              MR. LEIPSIC:  I think that was on purpose, Mr. Chairman.  I think people know what is material in the context of the business, and it is usually on the basis of the particular facts.

LISTNUM 1 \l 1229              Clearly, we tried, for both of our purposes, to avoid long definitions and have something that people could, in common sense, appreciate.

LISTNUM 1 \l 1230              I think we have a very appreciative understanding, as I think does Goldman Sachs, when something happens to be material, you will know it when it happens.

LISTNUM 1 \l 1231              THE CHAIRPERSON:  That is relatively little comfort to me.  As a regulator, I am supposed to determine who is in control here.


LISTNUM 1 \l 1232              Do you know what is material?  I don't know what is material, and you don't give me any help by not giving me a definition or description other than the one explanation.

LISTNUM 1 \l 1233              I appreciate that not everything can be converted into money terms, but surely saying material ‑‑

LISTNUM 1 \l 1234              MR. LEIPSIC:   I think the other thing that you probably should appreciate, Mr. Chairman, is material is noted in the context of being outside the normal course.  The provisions where materiality typically arise speak about circumstances other than in the ordinary course of the business.  So, there actually has to be a threshold event which occurs before we even get into the issue about what materiality is.

LISTNUM 1 \l 1235              And that is that the activity contemplated is outside the ordinary course of these businesses, which is programming, which is putting audiences and programming together.  So, it has to be something typically that wouldn't involve the business as Alliance Atlantis is today operating.

LISTNUM 1 \l 1236              I think there is some protection and some comfort that you might find in those words that don't necessarily allow material liability issues to arise on every instance.


LISTNUM 1 \l 1237              MR. ASPER:  Mr. Chairman, just to add very briefly to that, to the extent one tries to define material liability, it would likely end up constraining CanWest more than not because we are the ones who are in control of the business day to day.  If we took a position that something was not material and Goldman took the position that something was, by operation of the agreement we would still be able to do it and their recourse at that point would be to trigger an arbitration section, which is something one does very rarely and very deliberately only when it's a last resort.

LISTNUM 1 \l 1238              THE CHAIRPERSON:  I am not trying to be difficult here.  I want you to succeed.  But I want to make sure that you can exercise your judgment and Goldman Sachs don't say, hey, this is material, you didn't consult me, I have a veto here.

LISTNUM 1 \l 1239              I hear you explanation; I hear the explanation of your counsel.  It doesn't give me much comfort, as I said.

LISTNUM 1 \l 1240              On top of that, these threshold amounts, how did you come to pick these amounts?  The transaction is $1.4 billion, and you are saying a veto right $50 million pre‑merger, $22.5 million post‑merger.  That is less than 1 per cent.


LISTNUM 1 \l 1241              That is material?

LISTNUM 1 \l 1242              MR. ASPER:  I think again, Mr. Chairman, this was a function of a negotiated number.  The transaction may be large, but it is comprised of a number of relatively small assets that together create a much larger entity.

LISTNUM 1 \l 1243              So, there are, as you well know, a number of very small and growing specialty channels that are part of the television stations within the Global and E! groups.  Again, it comes back to the overriding philosophy and objective of Goldman to not run the business but to at least have the security package over which they have an investment relatively protected within certain parameters.

LISTNUM 1 \l 1244              Again, when we look at the channels individually, the assets individually in the group, we find these thresholds are very manageable for us, and they don't constrain us in any way that we think would be damaging to our objectives.

LISTNUM 1 \l 1245              THE CHAIRPERSON:  When you go and make your annual trip to Hollywood to buy programming rights, et cetera, you stay underneath these limits?

LISTNUM 1 \l 1246              MR. ASPER:  That wouldn't be part of it because that would be the ordinary course of business.


LISTNUM 1 \l 1247              THE CHAIRPERSON:  You are telling me you are spending more than $10 million to buy programming rights for one of your specialty channels that wouldn't be caught by this?

LISTNUM 1 \l 1248              MR. ASPER:  For one of the channels or from?  Sorry.

LISTNUM 1 \l 1249              MS BELL:  Chairman, the threshold limits only apply to things that are outside of the ordinary course of business, and programming would not fall in that category.  Programming would be within the ordinary course of business, so it wouldn't apply.

LISTNUM 1 \l 1250              MR. ASPER:  I think that goes for a whole raft of things, a whole array of things that the business does as part of its routine of being operated.

LISTNUM 1 \l 1251              THE CHAIRPERSON:  Can I hear from Goldman Sachs on that point?  Is that their interpretation too?

LISTNUM 1 \l 1252              MR. LEIPSIC:  Yes, it is.

LISTNUM 1 \l 1253              THE CHAIRPERSON:  Then how did you arrive to $10 million per individual channel and $15 million pre and $22.5 million post?  There must be some reference point that you picked to come to these numbers.


LISTNUM 1 \l 1254              I appreciate it was probably a heated negotiation, and I don't ask you to disclose business confidentiality.  I would just like to understand the parameters.

LISTNUM 1 \l 1255              MR. ASPER:  I will turn the microphone over to the person who was actually in the room at that time.

LISTNUM 1 \l 1256              MR. STRIKE:  Chairman, the threshold amounts were decided by a fairly active negotiation between the parties and in the context of the overall agreement, and they were, quite frankly, traded for a variety of other financial advantages in the agreement for us.

LISTNUM 1 \l 1257              The threshold amounts, in fact, that Goldman Sachs was originally seeking were considerably lower than the ones that we have agreed upon here.  Just to be precise, the threshold amounts deal with three particular matters.


LISTNUM 1 \l 1258              One is the incurrence of debt outside the ordinary course of business; the acquisition of or investment in businesses outside the ordinary course of business; and the disposal of certain assets.  To put these things in context, I don't recall us very frequently selling businesses.  We are in the business of operating and owning them.  Everything inside the ordinary course of business is excluded from these particular matters and, therefore, not subject to any thresholds.

LISTNUM 1 \l 1259              The acquisition of businesses in this particular sector tend to be more than $15 million or $20 million.  In fact, the one that we are before you with today is $1.5 billion and no threshold amount that we would set would actually have not had us consulting with Goldman Sachs on that.

LISTNUM 1 \l 1260              So, I think it is just important to contextualize these particular things.

LISTNUM 1 \l 1261              THE CHAIRPERSON:  I understand that, but I am starting off, and my starting point is control in effect means your actually majority shareholder but minority holding rights holder here, does he have the ability to exert the size of influence over the strategy, management or operation of the business or the entity?

LISTNUM 1 \l 1262              That was a test when the initial Transportation Agency were pronouncing Canadian Airlines and that has been applied ever since.  Obviously I think nobody has any problem with the test.  It is a question of how you apply it and looking at the specific facts.


LISTNUM 1 \l 1263              Here, if you want to trade one channel for another, for instance, et cetera, that is a strategic decision that you make because you think it makes your lineup better.  If I understand it, each time you need the consent of Goldman Sachs, both members of the board, unless it happens to be less than $10 million?

LISTNUM 1 \l 1264              MR. ASPER:  That's right.  In the case you referred, I think the words are important because, remember, they can't cause us to do anything.  The only thing we are talking about here is some constraints on our activity.  So, when we talk about control, I think it is important to point out there is nothing that Goldman can cause us to do that they wouldn't otherwise want to do.

LISTNUM 1 \l 1265              There are channels certainly that do sell for less than $15 million.  They are probably going to be digital channels.  Again, if we wanted to do a major transaction of a group of what are currently called analogue channels, yes, that would be something we would have to go to Goldman to seek their approval to do.  But I would just make the point, and I know you are going to get to this, but we would have to go to our banks at the CanWest level and the banks at the CW Media level to do anything like that as well.


LISTNUM 1 \l 1266              These constraints are typical, again, of a security holder, and so we, again, felt that they gave us sufficient latitude to make almost all of the foreseeable strategic moves we would want to make going forward anyway.

LISTNUM 1 \l 1267              We have essentially made our bet and our major move in to specialty here.  From going forward, I would foresee that small add ons, small changes may come to us, but our focus for the next number of years is going to be to ultimately acquire 100 per cent of this business, but also to simply operate the business as we have.

LISTNUM 1 \l 1268              THE CHAIRPERSON:  As I say, I see no problem with Goldman Sachs wanting to protect its core investments, but you made it, it seems to me, very complicated and very difficult to appreciate.  If it had been written along the lines of, say, you can't buy or sell a channel or a station without their consent, because that is the core of it, that is fine.  But these threshold levels, at these levels, as low as they are, do cause problems for me.

LISTNUM 1 \l 1269              Let me point out one more thing.  Without the prior written consent of Goldman from April 1 '10 through the combination, you cannot sell, lease or otherwise dispose of any property or assets of the contributed business with a value in excess of $15 million or that contribute in any way to the generation of combined EDITDA of the regulated industries.


LISTNUM 1 \l 1270              There is absolutely no limit here of contributing to the EDITDA of the regulated industry and the contributed business for such year other than the ordinary course of business.  Why is that there?  That seems to me to basically cover anything that generates money is going to be caught by this.

LISTNUM 1 \l 1271              MR. STRIKE:  Chairman, that particular section which you are looking at, 5.5(d) applies only for the 12 months prior to the combination date, and it is really a subset of (c), which precedes that.

LISTNUM 1 \l 1272              THE CHAIRPERSON:  No, I understand that.

LISTNUM 1 \l 1273              MR. STRIKE:  The reason for that particular more ‑‑ a tighter constraint during that period was to provide some comfort to Goldman Sachs that CanWest would not do something to damage the value of the investment in the year of the combination, because this is the year preceding the combination date and they wanted to ensure that we weren't going to unduly negatively affect the value of the business in that year.


LISTNUM 1 \l 1274              THE CHAIRPERSON:  I understand that.  My point is why is that section there?  Why on earth would CanWest want to do that prior to the year?  It seems to me it puts the direct finger of control on CanWest.  You can't do any of these things, et cetera, because they contributed to ‑‑ I just don't understand why it's there.

LISTNUM 1 \l 1275              Why do you have ‑‑ what is the sort of behaviour of CanWest that you are trying to prevent which could possibly be in the interest of CanWest?  I just don't understand the business rational behind this.

LISTNUM 1 \l 1276              MR. STRIKE:  I think, though, there is a lot of sections and agreements that are drafted for perhaps ‑‑ would be called belts‑and‑suspenders approaches to ensure that parties don't act irrationally.  I can't conceive of a situation where we would want to do what is being proposed we can't do.

LISTNUM 1 \l 1277              But notwithstanding that, minorities who aren't in control of businesses do, I believe, require some comfort that irrational behaviour won't prevail in those circumstances.

LISTNUM 1 \l 1278              MR. ASPER:  Mr. Chairman, I think Mr. Cardinale would like to add something to that.

LISTNUM 1 \l 1279              THE CHAIRPERSON:  Okay.


LISTNUM 1 \l 1280              MR. CARDINALE:  Yes, Mr. Chairman, I think the purpose of it really was to ensure, as Mr. Strike was saying, that there is no gaming going on in terms of the ultimate ownership that would be realized in the combination.

LISTNUM 1 \l 1281              So it was really more to make sure that rational behaviour is prevailing in the ordinary course of business, that nothing outside of the ordinary course of operational activity would be going on in order to affect that ultimate ownership change ‑‑ ultimate ownership that's realized upon a combination.

LISTNUM 1 \l 1282              THE CHAIRPERSON:  Now, presumably you are investing in CanWest because you think it is being run by rational people.

LISTNUM 1 \l 1283              MR. CARDINALE:  Yes.

LISTNUM 1 \l 1284              THE CHAIRPERSON:  That is a rational business decision.

LISTNUM 1 \l 1285              MR. CARDINALE:  Right.

LISTNUM 1 \l 1286              THE CHAIRPERSON:  I mean I cannot conceive why you say a rational decision.  That's exactly what it would be.

LISTNUM 1 \l 1287              MR. CARDINALE:  Well, again, I think this aspect as well as your earlier question, I think, it just falls under the rubric from my perspective, from Goldman Sachs' perspective, of typical minority investor protections.


LISTNUM 1 \l 1288              And you know, as we have a fiduciary responsibility to our investors I think there needs to be just some codification of basic minority protections that certainly does not at all, you know, undermine our confidence in CanWest here being rational operator.  But it's more, I think, just a procedure from a minority investor protection standpoint.

LISTNUM 1 \l 1289              The thresholds that you talked about before, for example; yes, you know, this is a $1.4 billion transaction, as you point out, but I do think that if you look at the history here of CanWest's activity on a divestiture or on an acquisition basis, you know, they are really not tremendously in the business of acquiring or selling.

LISTNUM 1 \l 1290              And again, I think all we wanted to do outside of the ordinary course of their usual business activities is just ensure that, you know, we had some input if they were to get into things such as, you know, businesses, oil businesses, car businesses, anything else outside of their ordinary course of business.

LISTNUM 1 \l 1291              Again, more procedural in my view; more sort of minority investor protections but nevertheless something that I can in a straight face say to my investors that, you know, I have fulfilled my fiduciary responsibility.


LISTNUM 1 \l 1292              MR. ASPER:  If I can just ‑‑ sorry, Mr. Chairman, just to put a finer point on that; again, all of these clauses you are referring come back to Goldman saying, "We bargained to get this and we would like to get this with some" ‑‑ you know, not exactly this but something reasonably close to this, you know, what they bargained for.

‑‑‑ Pause

LISTNUM 1 \l 1293              THE CHAIRPERSON:  Mr. Cardinale said, and they underline it:

"...as such, do you not see yourself as strategic investors in the broadcast asset but rather as a financial backer supporting CanWest?"  (As read)

LISTNUM 1 \l 1294              THE CHAIRPERSON:  And that's what I am testing, you know, that he is truly a financial backer supporting CanWest.  He is not a strategic investor.  He is not trying to run the business.

LISTNUM 1 \l 1295              When you look at that clause you may say it's belts and suspenders but it basically says to me, let's say, that last year prior to merger they really have a major say in your business.


LISTNUM 1 \l 1296              But I made my point.  Let me come ‑‑ one other point I wanted to before I turn it over to Mr. Katz, is once the contributed business is contributed and it's together, if I understand it, the voting shares remain ‑‑ the voting powers remain the same.  You have 67 percent, Goldman has 33, but you at that point in time are a much larger equity partner than before because after all you have taken the contributed businesses and added it to the mix.

LISTNUM 1 \l 1297              Why doesn't that then trigger in a proportionate readjustment in the voting shares?  If Goldman Sachs can live with 66 ‑‑ 67 percent with you and 33 percent when you have a small investment, why when you now have a larger investment do they still need ‑‑ do you not get rewarded for that investment?

LISTNUM 1 \l 1298              MR. ASPER:  I think we would still be under the ‑‑ I don't think we would be at the 66 percent level anyway.

LISTNUM 1 \l 1299              THE CHAIRPERSON:  No.

LISTNUM 1 \l 1300              MR. ASPER:  We wouldn't even have the amount of equity even that matched our vote so we just saw no reason to change the voting.

LISTNUM 1 \l 1301              I mean, there would be no ‑‑ I'm not sure what the formula would be to how we increase our voting if we have that effectively absolute control to nil today.  It doesn't need to change from our perspective after the combination date.  We still vote more than our equity and we still vote the two‑thirds.


LISTNUM 1 \l 1302              THE CHAIRPERSON:  No, I understand that.

LISTNUM 1 \l 1303              Okay.  It doesn't answer my question but I understand.

LISTNUM 1 \l 1304              Okay, Mr. Katz.

LISTNUM 1 \l 1305              COMMISSIONER KATZ:  Thank you, Mr. Chairman.

LISTNUM 1 \l 1306              I am going to go back a bit before I go forward.

LISTNUM 1 \l 1307              With regard to the thresholds has the partnership, the relationship that you have with Goldman Sachs gone back the last, say, three to five years with Alliance Atlantis and seen how many times those $15 million or $22.5 million thresholds would have come up for review if you look back at Alliance Atlantis' business?

LISTNUM 1 \l 1308              MR. ASPER:  Well, their capital expenditures would be roughly in the $6 million per year range.  They might have jumped closer to eight or nine one year ‑‑ I think this last year or the year coming up for high definition conversion for some of their channels.  But remember, again, this comes back to the ordinary course of business question.


LISTNUM 1 \l 1309              I don't know of any time from any knowledge I have of Alliance Atlantis, and there may be others who have been from the operating side who can tell me where this would have been ‑‑ there would have been an expenditure outside the ordinary course of business that was this $15 million ‑‑ that the threshold can ‑‑ I turn to Barb or Walter or others who may know.

LISTNUM 1 \l 1310              COMMISSIONER KATZ:  It's always positive to go back and sort of see when this would have happened if it all.  If it wouldn't have ever happened at all that's one thing, but can I ask you guys to take an undertaking to find out whether this would have hit a situation where it would have come up for that threshold number, going back say five years?

LISTNUM 1 \l 1311              MR. ASPER:  Sure.  Yes, we will of course, Mr. Katz.

LISTNUM 1 \l 1312              Just as I think about it, the only thing I can think of might be an investment in a channel called "The Score" and I don't know what the amount of that investment was but it would be ‑‑ that may be the only ‑‑ that's the only one I can think of.

LISTNUM 1 \l 1313              Certainly from the operating perspective I can't think of anything, but we will undertake to answer that question.

LISTNUM 1 \l 1314              COMMISSIONER KATZ:  Thank you.


LISTNUM 1 \l 1315              Second question, just going back again, as I said the term "out of the ordinary course of business", have you folks taken a look as to what is in and what is out in terms of delineating those things?

LISTNUM 1 \l 1316              I heard oil and gas and banking, and I can appreciate that being out of the ordinary course of business, but as you start to bring it in on both sides is there something where you folks have sat down and said, "This is part of the ordinary course and this will be interpreted as being out of the ordinary course in case we have something in front of us?"

LISTNUM 1 \l 1317              MR. ASPER:  Yes, we have discussed it.  Certainly, what is within the ordinary course of business is anything that historically the business has been doing, which is the buying of program and the garnering of advertising contracts, the capital expenditures, the regular operating expenditures of the business and of course, you know, investments in specialty channels.  So that I think covers, you can tell, a very wide range of things.

LISTNUM 1 \l 1318              Again, businesses outside of specialty wouldn't be included.  Getting into the radio business, for example, may not be included.  That's about the extent of our discussions.


LISTNUM 1 \l 1319              And from our perspective again, that CanWest ‑‑ as I said earlier to a question, the less defined that is we think the more it favours CanWest because if you go back and look at jurisprudence on ordinary course of business it is a pretty wide definition and to try to constrain it into a specific set of activities does limit us because there could be things coming in the future that logically are part of the ordinary course of business that we wouldn't think of that might not be on that list.

LISTNUM 1 \l 1320              So I would describe it as things that historically the business has done and logically the business would do to continue its existing activities.

LISTNUM 1 \l 1321              COMMISSIONER KATZ:  Now, let me take that one step further and give you a for example.

LISTNUM 1 \l 1322              You touched upon radio, which I heard now is outside the ordinary course of business.  New media, brand new industry evolving.  We have no idea where it is going to be in 15, 10 years from now.

LISTNUM 1 \l 1323              Is new media and the things that CanWest would want to do in this face of new media come under the ordinary course of business or would it not?  Was it discussed at all?


LISTNUM 1 \l 1324              MR. ASPER:  Not to my recollection specifically, but I would ‑‑ certainly from our perspective it would be any new media that relate to the channels in the existing businesses that they have.  Websites for home and garden TV and any mobile or further applications of the extensions of these channels that we have would be certainly ‑‑ certainly within the ordinary course of business.

LISTNUM 1 \l 1325              Going and acquiring a totally unrelated website, for example, was not something we discussed and, again, it would depend ‑‑ it would depend on the characteristic of what that website is.  If it's a website that is, you know, one that gets audience, attracts audience and sells advertising or subscriptions I would think it would come very close to being, you know, within the ordinary course of business.  If it was trying to acquire a search engine it's a different business model and maybe that's not ‑‑ you know I have to confess we haven't gone as far as a discussion about every possible type of new media.

LISTNUM 1 \l 1326              COMMISSIONER KATZ:  Can I ask Mr. Cardinale if he feels the same way about new media and anything to do with vertical or horizontal relationships with linear broadcasting going out into new media space would equally be defined as being within the course of business?


LISTNUM 1 \l 1327              MR. CARDINALE:  Yes.  You know, I think picking up on something Mr. Leipsic said, you know it when you see it and I do think that ‑‑ you know, we are a financial backer to CanWest here.  Our interest really is aligned and not being obstructionist in any way.  It's to support.

LISTNUM 1 \l 1328              And, you know, I think Leonard makes a very good point which is something in a website associated with some of the channels, for example, defined as new media that is very supportive of branding and getting the ‑‑ helping these individual businesses, I think, is within the ordinary course.

LISTNUM 1 \l 1329              If it was an auction site, for example, a home lending site or something like that, it's not.

LISTNUM 1 \l 1330              So it's pretty easy to see what is in and what is out.  I certainly would think that, consistent with what they have said, I would agree with.

LISTNUM 1 \l 1331              COMMISSIONER KATZ:  It's always easy when you are first getting married ‑‑ my wife may not agree with me.  You always want to contemplate what happens if you have to get to the divorce stage as well when you get involved with another partner.

LISTNUM 1 \l 1332              So I think it's important to understand these issues beforehand as well.


LISTNUM 1 \l 1333              Grey areas sound great.  Two partners feel the same way about things as well until the rubber meets the road, and then sometimes you start misinterpreting or differently interpreting certain clauses.

LISTNUM 1 \l 1334              MR. LEIPSIC:  If I might, Mr. Katz, a marriage, as we all hope to be long and endearing ones, I think in the context of ordinary course too you have to put it into perspective in terms of where these businesses have been and where they are going to be, where we believe that there will be an exercise of a liquidity event, of which CanWest will then become 100 per cent owner.  That period of time is going to be between now and 2011 and 2012.  That's three or four years from now.

LISTNUM 1 \l 1335              I think the notion of huge changes that are going to make the definition of ordinary course difficult to comprehend or interpret in a span of three or four years are not going to be difficult ones.

LISTNUM 1 \l 1336              I would agree with you that ordinary course over the span of a marriage of 20 to 30 years might be more difficult.  But I don't think in this context, with all due regard, the analogy is necessarily completely appropriate.


LISTNUM 1 \l 1337              MR. ASPER:  I think, Mr. Katz, also if you look at the overall picture from CanWest's perspective, remember we are not fettered in that way with the CanWest assets, with the Global Television group.  We can acquire or get into other businesses freely until the combination date.

LISTNUM 1 \l 1338              Then whatever we do of course forms part of the contributed business.

LISTNUM 1 \l 1339              But again, because of the bifurcated structure of this transaction, we feel we again have enough latitude to pursue our strategic objectives.

LISTNUM 1 \l 1340              COMMISSIONER KATZ:  Thank you.

LISTNUM 1 \l 1341              I have one other question going back to Mr. Cardinale.

LISTNUM 1 \l 1342              Goldman Sachs talks about being a financial investor, not a strategic investor, yet I was directed to something called the GSEP Investment Philosophy.

LISTNUM 1 \l 1343              I will quote just one line from it.  I assume you know where it comes from, although I have a reference here off the Internet:

"We create value through meaningful involvement with the company's strategic decision‑making and operating philosophy."


LISTNUM 1 \l 1344              Can you comment on how that statement does or does not relate to your relationship with CanWest?

LISTNUM 1 \l 1345              MR. CARDINALE:  Yes, absolutely.

LISTNUM 1 \l 1346              We have been doing this for 25 years.  I personally have been doing it for 15 years.  I think our investment philosophy has been consistent from the very beginning.

LISTNUM 1 \l 1347              We are a very client‑oriented firm and we look to support our management teams and our partners.  If you go back and look at every investment we have made, it's been pretty clear that we do not hold ourselves out to be operators.

LISTNUM 1 \l 1348              Now just because we are not operators, my hope would be that Leonard and Kathy and the team would find me useful to them as a sounding board and as a financial backer in terms of a range of issues.  But it certainly doesn't mean that I'm directing in any way the strategy of the company.  I'm simply there to be a resource and that's the approach we have taken in all our company.


LISTNUM 1 \l 1349              We try to be as supportive as we can.  Obviously in this our whole approach here is to be more of a minority investor.  This was very much a strategy and a course of activity that Leonard and his team came up with and we were asked to try to help.

LISTNUM 1 \l 1350              And that's the spirit in which we are going to continue to be involved.

LISTNUM 1 \l 1351              The investment philosophy you have read I think is consistent with that.  We are just not operators.  We don't pretend to be managers.  We actually have a day job and we are there to support as much as we can.

LISTNUM 1 \l 1352              COMMISSIONER KATZ:  Thank you.

LISTNUM 1 \l 1353              Can I direct you all to one of your filings.  It is Schedule 3.1 of the Shareholders Agreement.

LISTNUM 1 \l 1354              There is a series of vertical companies listed on here, from C.W. Investments Co. to a numbered company, 4414624 Canada Inc., C.W. Media Holdings Inc., 4414641 Canada Inc. and ultimately C.W. Media Inc.

LISTNUM 1 \l 1355              Can you tell us what each of these companies do, how they differ from each other, and particularly how the board is composed?

LISTNUM 1 \l 1356              Are they exactly the same boards for each one of these and what are the roles of each one of those companies?

LISTNUM 1 \l 1357              MR. ASPER:  I will ask Mr. Leipsic to respond to that.


LISTNUM 1 \l 1358              MR. LEIPSIC:  Well, Mr. Katz, first of all, in regard to the issue associated with the board, the board, as you will know, is in regard to the Shareholders Agreement referring to C.W. Investment Co.  Its decisions are meant to be ones which are going to be binding on all the other subsidiaries below.

LISTNUM 1 \l 1359              I think the Shareholders Agreement specifically says that to the extent that boards have to be constituted in order to ensure that the decisions that will be made by the board, the C.W. Investments Co., they will be so constituted.

LISTNUM 1 \l 1360              So the idea is that all the decisions will flow down to the extent that they go down to C.W. Media Inc.

LISTNUM 1 \l 1361              For purposes of the reasons why the structure is there, there is really a combination.

LISTNUM 1 \l 1362              You will see, for instance, C.W. Media Holding Inc. is where the third party debt goes in there.  That entity is there in place to allow the debt holders to take a particular security position which is afforded to them.

LISTNUM 1 \l 1363              The other reasons for the various other companies were primarily tax driven because they came out of the reorganization and the arrangement.


LISTNUM 1 \l 1364              So there is nothing really beyond structuring the debt in the right entity for tax reasons and the overall structure for tax reasons for those entities to be interposed between C.W. Investment Co. and C.W. Media Inc.

LISTNUM 1 \l 1365              COMMISSIONER KATZ:  And the board of C.W. Investment Co. and C.W. Media Inc. are the same?

LISTNUM 1 \l 1366              MR. LEIPSIC:  Yes, they are.

LISTNUM 1 \l 1367              COMMISSIONER KATZ:  And they will continue to be throughout the entire term of this relationship?

LISTNUM 1 \l 1368              MR. LEIPSIC:  Well, certainly their entitlement to the nomination rights that are afforded CanWest and Goldman Sachs, as pursuant the agreement, will remain in place.

LISTNUM 1 \l 1369              I think there is a provision that indicates that if Goldman Sachs' position is decreased to below I believe 50 per cent, their two board seats will be reduced to one board seat.

LISTNUM 1 \l 1370              Other than through the terms of the agreement, the boards will have to remain in tact during the continuance of Goldman Sachs investment.

LISTNUM 1 \l 1371              COMMISSIONER KATZ:  And that reduction in board seats would apply to both companies at the same time?


LISTNUM 1 \l 1372              MR. LEIPSIC:  Yes, it would.  They are meant to be transparent in terms of their board positions.

LISTNUM 1 \l 1373              COMMISSIONER KATZ:  The other three boards, are there active boards there as well?

LISTNUM 1 \l 1374              MR. LEIPSIC:  They are not per se active boards but they are boards there that have all been created with the same constitution.

LISTNUM 1 \l 1375              COMMISSIONER KATZ:  And the same membership?

LISTNUM 1 \l 1376              MR. LEIPSIC:  And the same membership.

LISTNUM 1 \l 1377              COMMISSIONER KATZ:  And presumably they all meet at the same time as well?

LISTNUM 1 \l 1378              MR. LEIPSIC:  There is obviously some recognition that for practical reasons they will be combined in meeting, so those will have not seriatim meetings but they will be deemed, for purposes of convenience, to be holding their meetings concurrently.

LISTNUM 1 \l 1379              COMMISSIONER KATZ:  Can we go to Shareholder Agreement 5.2, subsection (e).  It is part of the covenance.

LISTNUM 1 \l 1380              The covenance here reads:


"From the date of this agreement through the combination date CanWest agrees that neither it nor any of its affiliates will enter into any new financing or refinance existing debt or capital if the terms of such financing or refinancing would restrict, prevent or otherwise materially adverse the effect, the ability of the parties to consummate the combination transaction..." (As read)

LISTNUM 1 \l 1381              And then it continues on.

LISTNUM 1 \l 1382              Does this limit CanWest's ability to pursue other business ventures, both in North America and internationally?

LISTNUM 1 \l 1383              MR. STRIKE:  I think the answer is no.  What this is meant to do is to say that if we do so and if we wish to finance a particular venture with indebtedness, we have to be cognizant of the fact that we do have an obligation to combine the contributed business in 2011 and therefore that any new financing arrangement has to take that into account and be effectively carved out from any other covenance that may be associated with that financing arrangement.


LISTNUM 1 \l 1384              COMMISSIONER KATZ:  If there was an opportunity for you to make some investment in some aligned business, not necessarily coming under the CRTC's broadcasting jurisdiction, there would be a need for you to speak with Goldman Sachs and get relief from them.

LISTNUM 1 \l 1385              MR. STRIKE:  No.  I don't think that's what that says.  It just says that we recognize that if we want to pursue a transaction of that nature and if we decide to finance that transaction in whole or in part using debt, in crafting that debt it is not unusual to have in debt agreements covenants that say that you can't dispose of assets without the lender's consent.

LISTNUM 1 \l 1386              In this case, what this particular section is saying is that if we do finance with debt, we have to seek from those lenders an exception to that particular restriction so that it's not an impediment to the combination of the contributed business with the C.W. Media business in 2011.

LISTNUM 1 \l 1387              It's no more than that.


LISTNUM 1 \l 1388              MR. ASPER:  I think, if I can just clarify a little bit, currently the CanWest parent level, for example, there are high yield notes in place which restrict the ability of CanWest to sell Global, for example, without their consent, because Global is part of the security package over which their debt lies.

LISTNUM 1 \l 1389              So that's what this clause is trying to do.

LISTNUM 1 \l 1390              And that debt expires or reaches maturity in 2012.  So by 2011 when the combination date comes, for example, there may be a tiny penalty that we would pay to terminate that debt early to be able to make the contribution.  In other words, we are free to make the contribution just with a small payment to buy out that debt one year early.

LISTNUM 1 \l 1391              So from our perspective, that is one of the reasons why we couldn't necessarily do this transaction now and contribute the business today because there was this constraint in the parent company of the debt that is at the parent company.

LISTNUM 1 \l 1392              So what this clause is trying to do is say you can't go out and do that again and do something that would prohibit you from doing what you have contracted to do which is contribute this business.  So you can't go raise a bunch of debt at CanWest that has some constraint in it that stops you from contributing this business.


LISTNUM 1 \l 1393              COMMISSIONER KATZ:  But this goes to the point of refinancing existing debt as well and if you become a stronger company and you want to refinance and you are able to call your debt and reissue debts at a lower interest rate, this also says you have got to sit down with the Goldman Sachs folks, presumably, if I read it correctly.  If I don't, then tell me.

LISTNUM 1 \l 1394              MR. STRIKE:  With respect, I don't think you are interpreting this section correctly, Mr. Katz.  This is saying that we have covenanted not to enter into a new financing arrangement unless it does not impede the combination.  So it is really an issue for us and potentially new lenders.

LISTNUM 1 \l 1395              As I said before, it is not unusual for lenders to require restrictions on disposition of assets because they are in fact making investments, whether they are secured or not, over a package of assets that support that debt.

LISTNUM 1 \l 1396              And in fact we have in the past sought these kinds of exemptions successfully from lenders because we were contemplating transactions, either a divestiture or in this case it would be the combination of this asset.


LISTNUM 1 \l 1397              Whereas perhaps on day one when we were making this new investment that lender was looking to 100 percent of the contributed business as part of its comfort or security package, that lender would have to explicitly recognize that on the combination date in 2011 they would no longer have rights to 100 percent of the contributed business but to whatever the equity percentage was of the combined business at that date.

LISTNUM 1 \l 1398              So in fact they would be relinquishing their rights over a certain equity percentage of the contributed business but at the same time be receiving a percentage of the CW Media business which they would not have today.

LISTNUM 1 \l 1399              So this is really a matter not for Goldman Sachs.  This is really a matter that we have to be mindful of in doing any refinancings of our corporate operations between now and 2011.

LISTNUM 1 \l 1400              THE CHAIRPERSON:  Is that interpretation shared by Goldman Sachs?

LISTNUM 1 \l 1401              MR. CARDINALE:  Yes, it is.

LISTNUM 1 \l 1402              THE CHAIRPERSON:  Thank you.

LISTNUM 1 \l 1403              COMMISSIONER KATZ:  I want to spend a few minutes talking about the credit facilities and the bridge loan.

LISTNUM 1 \l 1404              THE CHAIRPERSON:  Before you do that, I think it is time for a break.

LISTNUM 1 \l 1405              COMMISSIONER KATZ:  Certainly.  We will take a 15‑minute break.

‑‑‑ Laughter / Rires

LISTNUM 1 \l 1406              THE CHAIRPERSON:  Thanks.


‑‑‑ Upon recessing at 1051 / Suspension à 1051

‑‑‑ Upon resuming at 1110 / Reprise à 1110

LISTNUM 1 \l 1407              THE SECRETARY:  Please be seated.  The hearing will reconvene.

‑‑‑ Pause

LISTNUM 1 \l 1408              THE CHAIRPERSON:  Commissioner Katz, I interrupted you, so please go back to where you were.

LISTNUM 1 \l 1409              COMMISSIONER KATZ:  Thank you, Mr. Chair.

LISTNUM 1 \l 1410              I wanted to pursue the issue of the debt financing.  I know that during the last two months or so Goldman Sachs has been trying to syndicate their debt.

LISTNUM 1 \l 1411              Perhaps we can get an update as to where things stand and where the financial investment of Goldman Sachs stands as of now?

LISTNUM 1 \l 1412              MR. MAGUIRE:  Maybe I will speak to that.


LISTNUM 1 \l 1413              You are absolutely correct.  In the period subsequent to the close of the transaction in August Goldman has been involved in the syndication of both the senior debt and the bridge.  At this point all but $40 million of the bridge has been syndicated and that $40 million that remains in Goldman hands is with a variety of Goldman entities and it is not with the original leverage finance group.  So they would say that that debt has been syndicated.

LISTNUM 1 \l 1414              With respect to the bridge ‑‑ sorry, that was the senior I was speaking of.

LISTNUM 1 \l 1415              With respect to the bridge, Goldman and Lehman have sold down the bridge with the exception of $48 million U.S. which also remains in Goldman hands.

LISTNUM 1 \l 1416              That represents about 16 per cent of the bridge remains with Goldman.

LISTNUM 1 \l 1417              COMMISSIONER KATZ:  So when you add the bridge in with their equity investment, where are we at, just so I understand.

LISTNUM 1 \l 1418              MR. CARDINALE:  Commissioner Katz, we don't think about it as adding in, mingling the two.

LISTNUM 1 \l 1419              Just to be clear, the entities affiliated with Goldman Sachs that own the pieces that Mr. Maguire spoke about, the $40 million on the senior debt and the $48 million on the bridge, are entities that I have interaction with at Goldman Sachs.  These are debt investors.

LISTNUM 1 \l 1420              So we could add up our equity and those debt amounts to answer your question, but I think where you may be going is that there is no interaction at all between that.


LISTNUM 1 \l 1421              COMMISSIONER KATZ:  No, I understand that.  I just want to get a better sense for the total investment by Goldman Sachs in total.

LISTNUM 1 \l 1422              MR. CARDINALE:  Yes.  I have to add that up.  I don't know.

LISTNUM 1 \l 1423              COMMISSIONER KATZ:  Well, there would be another $88 million roughly.

LISTNUM 1 \l 1424              MR. CARDINALE:  Right.

LISTNUM 1 \l 1425              THE CHAIRPERSON:  Before we leave that point, Mr. Cardinale, what is your role in both the senior debt and the bridge debt?

LISTNUM 1 \l 1426              You were the lead syndicator.  Right?

LISTNUM 1 \l 1427              MR. CARDINALE:  Goldman Sachs?

LISTNUM 1 \l 1428              THE CHAIRPERSON:  Yes.

LISTNUM 1 \l 1429              MR. CARDINALE:  In Goldman Sachs, yes, correct.

LISTNUM 1 \l 1430              THE CHAIRPERSON:  To the extent that anybody speaks for the syndicator, it will still be you if issues come up?  I mean, will you have any say vis‑à‑vis the operation not as shareholder but as lead syndicator?

LISTNUM 1 \l 1431              MR. CARDINALE:  One second, please.

LISTNUM 1 \l 1432              THE CHAIRPERSON:  Go ahead.

‑‑‑ Pause


LISTNUM 1 \l 1433              MR. CARDINALE:  Yes, from a representative basis on the syndication front I believe in the near term, in the ensuing 12 months I think, we will be the representative, Goldman Sachs will.

LISTNUM 1 \l 1434              THE CHAIRPERSON:  Your slice of the bridge is the largest single one?

LISTNUM 1 \l 1435              MR. CARDINALE:  I don't know.

LISTNUM 1 \l 1436              THE CHAIRPERSON:  I beg your pardon?

LISTNUM 1 \l 1437              MR. CARDINALE:  I do not know.

LISTNUM 1 \l 1438              THE CHAIRPERSON:  You don't know?

LISTNUM 1 \l 1439              MR. CARDINALE:  John, do you know?

LISTNUM 1 \l 1440              MR. MAGUIRE:  No, I don't know.  We don't have the breakdown.  All we know is that it has been sold down.

LISTNUM 1 \l 1441              THE CHAIRPERSON:  But surely you can let us have the breakdown?  Surely you can let us have the breakdown?

LISTNUM 1 \l 1442              MR. MAGUIRE:  We will undertake to obtain it.

LISTNUM 1 \l 1443              THE CHAIRPERSON:  What I'm trying to get at non too subtly here is whether you have any control ‑‑ not control, any way to exercise ‑‑

LISTNUM 1 \l 1444              MR. CARDINALE:  The answer to the question ‑‑


LISTNUM 1 \l 1445              THE CHAIRPERSON:  Any exercise or any power, leader on the bridge of the senior debt on the operation?

LISTNUM 1 \l 1446              MR. CARDINALE:  No.  I would think that the amount that Goldman holds is a minority percentage as you.  It is 9 per cent of the senior debt and it is 16 per cent of the bridge amount.

LISTNUM 1 \l 1447              THE CHAIRPERSON:  Yes.

LISTNUM 1 \l 1448              MR. CARDINALE:  So there are two things I would say.

LISTNUM 1 \l 1449              Those are minority holdings and so they cannot dictate the full debt amounts, number one.

LISTNUM 1 \l 1450              Number two, I have no interaction at all.  The equity side has no interaction at all with this side.  So it is not looked at on an equity basis.

LISTNUM 1 \l 1451              THE CHAIRPERSON:  I appreciate it is a minority from the overall, but I don't know the size of the others.

LISTNUM 1 \l 1452              MR. CARDINALE:  Sure.

LISTNUM 1 \l 1453              THE CHAIRPERSON:  If you are the single largest one then it is different than if there are others who are larger.

LISTNUM 1 \l 1454              MR. CARDINALE:  We will get to that amount, yes.

LISTNUM 1 \l 1455              THE CHAIRPERSON:  Thank you.

LISTNUM 1 \l 1456              MR. MAGUIRE:  Maybe I could just add on.


LISTNUM 1 \l 1457              On the senior debt there are 57 institutions that are involved in that syndication and Goldman, through three entities, holds their $40 million.  So it is widely held.  This is debt that trades all the time and it does not provide any control provisions.

LISTNUM 1 \l 1458              COMMISSIONER KATZ:  Are they unique rights that a lead lender has over any other lender?

LISTNUM 1 \l 1459              MR. MAGUIRE:  No, I would say there are not.  There are certain provisions of a credit agreement which require unanimous consent of all the lenders and then there are certain other provisions that require majority, "majority" being 50.1 per cent.

LISTNUM 1 \l 1460              COMMISSIONER KATZ:  Could you file what those rights are for the lead lender with us?

LISTNUM 1 \l 1461              MR. MAGUIRE:  Yes, we can do that.

LISTNUM 1 \l 1462              COMMISSIONER KATZ:  All right.

LISTNUM 1 \l 1463              MR. LEIPSIC:  Mr. Katz, if I just might reiterate.

LISTNUM 1 \l 1464              I think Mr. Maguire indicated there were no rights provided to a lead lender, it was only a question of whether there were unanimous decisions of all the lenders or a majority.


LISTNUM 1 \l 1465              COMMISSIONER KATZ:  There must be a role that they play in bringing the parties together and whether it is constituting a vote or a resolution or something.

LISTNUM 1 \l 1466              MR. MAGUIRE:  Well, there is an administrative agent for both of the credits, both the senior and the bridge.  Goldman Sachs is not the administrative agent under either facility.

LISTNUM 1 \l 1467              So the admin agent is typically the bank that will ultimately take the lead in organizing any type of response to the lender or any action taken by the lenders.

LISTNUM 1 \l 1468              COMMISSIONER KATZ:  Goldman Sachs is not that lead?

LISTNUM 1 \l 1469              MR. MAGUIRE:  No.  For the senior credit General Electric is, GE Capital, and Lehman Brothers is the admin agent for the bridge.

LISTNUM 1 \l 1470              THE CHAIRPERSON:  So you are going to tell us how it is sliced up, because we want to see whether Goldman is sort of the largest single one in either the bridge or the senior debt.

LISTNUM 1 \l 1471              Whether Goldman basically could lead the pack or not, that's what we are trying to find out.

LISTNUM 1 \l 1472              MR. MAGUIRE:  We will undertake to provide that information.

LISTNUM 1 \l 1473              THE CHAIRPERSON:  Thank you.


LISTNUM 1 \l 1474              COMMISSIONER KATZ:  I'm going to change topics now and go to the Programming Committee and the composition of Programming Committee.

LISTNUM 1 \l 1475              I understand that not withstanding the fact that the Programming Committee is composed of three people, senior executives of CanWest, there is a requirement in the Shareholder Agreement somewhere ‑‑ and I haven't found it right in front of me here but I'm sure you are familiar with it ‑‑ that indicates that the Board has some degree of influence on a change in membership of the Programming Committee.

LISTNUM 1 \l 1476              Can you give us some insight on that?

LISTNUM 1 \l 1477              MR. ASPER:  Well, I'm certain it's ‑‑ again that is a decision that would be a majority decision, not one which requires any unanimous consent or provides Goldman with any veto.

LISTNUM 1 \l 1478              It is section 2.2 of the Management Services and Administrative Agreement.  I think that's the only reference to it and it says:

"Decisions of CanWest in respect of the programming by CW Media and its subsidiaries shall not be subject to any review or revision by the Reporting Committee."  (As read)


LISTNUM 1 \l 1479              COMMISSIONER KATZ:  But yet I read somewhere ‑‑ and I can find it if I have to ‑‑ to remove somebody off the Programming Committee requires approval from the Board.

LISTNUM 1 \l 1480              MR. LEIPSIC:  I don't think so.  Let me perhaps refer you ‑‑ I can't unfortunately indicate to you, Mr. Katz.

LISTNUM 1 \l 1481              I think it was in response to Question 13 in the deficiency letter of the CRTC dated June 8, our reply was June 13, we filed a proposed resolution creating the Programming Committee wherein it specifically provides, under subparagraph (d):

"The Programming Committee shall consist of at least three members, all of whom shall be appointed by CanWest and shall be senior programming executives of CanWest and CanWest Media Inc."  (As read)

LISTNUM 1 \l 1482              COMMISSIONER KATZ:  All right.  I have it in front of me here.

LISTNUM 1 \l 1483              MR. LEIPSIC:  That hopefully will answer your question and may refresh you as to where you might have seen that language.

LISTNUM 1 \l 1484              COMMISSIONER KATZ:  All right.  So in clause (d) here:


"The Programming Committee shall consist of at least three members, all of whom shall be appointed by CanWest and shall be senior programming executives of CanWest and CanWest Media Inc."  (As read)

LISTNUM 1 \l 1485              When representatives on this committee turn over what is a protocol for their turnover, who has to ratify it?  Who has to approve it?

LISTNUM 1 \l 1486              MR. LEIPSIC:  It would continue to be as provided in the resolution.  It would be a CanWest appointment authority exclusively to appoint any replacements to fill any particular vacancies.

LISTNUM 1 \l 1487              COMMISSIONER KATZ:  Would it require approval by the Board?

LISTNUM 1 \l 1488              MR. LEIPSIC:  This would normally be a management decision of CanWest to have members of the Programming Committee established.

LISTNUM 1 \l 1489              THE CHAIRPERSON:  Mr. Campbell or Mr. Wilson, we are talking about section 117 of your opinion.

LISTNUM 1 \l 1490              Can you clarify?


LISTNUM 1 \l 1491              MR. WILSON:  Yes, just to clarify, to refer CanWest to their 29th June response letter, paragraph 17, wherein it was proposed that:

"Any decision respecting the removal of members of the Programming Committee shall be made by a majority vote of the Board of Directors of CW Media Inc."  (As read)

LISTNUM 1 \l 1492              I believe that is what Vice‑Chairman Katz is referring to.

LISTNUM 1 \l 1493              COMMISSIONER KATZ:  Yes, thank you for that correction, James.

LISTNUM 1 \l 1494              And that would be a simple majority of course over which CanWest obviously would have the opportunity to ensure that the resolution that we had filed earlier was put into place which would effectively mean the majority would be appointed by CanWest.

LISTNUM 1 \l 1495              COMMISSIONER KATZ:  To the extent that Goldman Sachs has no involvement at all in programming, why would it have to go to the Board?  Notwithstanding the fact that CanWest has a majority of the Board, why would it have to go to the Board for that approval?


LISTNUM 1 \l 1496              MR. LEIPSIC:  Well, we think it is probably important for the Board because of the significance of programming per se to have some input into the constitution of that.

LISTNUM 1 \l 1497              It's not an insignificant capacity and function that the Programming Committee runs.

LISTNUM 1 \l 1498              COMMISSIONER KATZ:  But to the extent that it goes before the Board, then there is dialogue and discussion and there is opportunity to balance interests and rights at a Board meeting that Goldman Sachs might bring to the table.

LISTNUM 1 \l 1499              I guess I'm just trying to understand, if the programming is totally independent and totally Canadian and totally within the rights of CanWest to manage, why would it have to go to the Board as opposed to a senior team of CanWest executives?

LISTNUM 1 \l 1500              MR. LEIPSIC:  Mr. Chairman, I think we can certainly take under advisement, if you wish, the notice of reconstituting the appointment authority to be one in which it was effectively available to CanWest alone, but ultimately ‑‑ and that would be, presumably, one of its added authorities that it would have under the management agreement, because that would be the appropriate place, I think, to contractually provide for it.


LISTNUM 1 \l 1501              We haven't consulted with Goldman Sachs on the issue, but I would dare say, because they appreciate that this is ultimately a CanWest decision, that they would have no particular objection to ensuring that the appointment of members to the programming committee was an exclusive CanWest decision.

LISTNUM 1 \l 1502              COMMISSIONER KATZ:  Between now and tomorrow, when you come back, you may want to think about that as well.

LISTNUM 1 \l 1503              MS BELL:  Vice‑Chairman Katz, may I interrupt for just a second?

LISTNUM 1 \l 1504              There is one clarification that we wanted to make with regards to the programming committee.  We did state that it was going to be three members of the CanWest executive team, but, in fact, it would be our preference if it could be five members.

LISTNUM 1 \l 1505              Also, the composition of the programming committee would be consistent with the direction on foreign ownership, which means that out of the five members, one of them could not be a Canadian citizen.


LISTNUM 1 \l 1506              It is to take into account the fact that Kathy Dore, the President of the operations, is not a Canadian citizen, and since all of the people who would be sitting on that programming committee would be reporting to her, ultimately, it wouldn't make a whole lot of sense if she wasn't part of that committee.

LISTNUM 1 \l 1507              And this is consistent with past practice.  The Commission has done this in the past, I believe, in the case of Fundy and ‑‑ there is another precedent out there.

LISTNUM 1 \l 1508              COMMISSIONER KATZ:  Perhaps you could put all of that in a package for us tomorrow.

LISTNUM 1 \l 1509              MS BELL:  Yes.  I just wanted to say that for the record.

LISTNUM 1 \l 1510              COMMISSIONER KATZ:  Thank you.

LISTNUM 1 \l 1511              On the issue of the Board and quorum ‑‑ I want to pursue the issue because quorum is necessary for Board ratification, but if I look at the two clauses in the Shareholders' Agreement dealing with quorum, if there is no quorum in the initial meeting, then it is reconvened upon a certain notification period ‑‑ five days in this case ‑‑ at which quorum shall be the majority of the directors.

LISTNUM 1 \l 1512              And I look at Clause 4.4, as well as the shareholder one a little further on.

LISTNUM 1 \l 1513              What that could imply, hypothetically, is a reconstitution, with two members of Goldman Sach and one member of CanWest.


LISTNUM 1 \l 1514              Can you comment on whether you folks see a problem with putting in an amendment that basically would insist upon and require a majority of CanWest representatives at a Board meeting that constitutes a quorum?

LISTNUM 1 \l 1515              MR. ASPER:  I will just make a general comment.  That clause is really there to ensure that Goldman Sach is not able to hold up a meeting of the Board.

LISTNUM 1 \l 1516              But, I think, again, in making any change, we will certainly take that under advisement.

LISTNUM 1 \l 1517              There are two parties to this agreement, of course, so ‑‑

LISTNUM 1 \l 1518              If I could clarify what you are asking, you are suggesting that it be changed to ensure that if the Board is reconstituted, there is a majority of CanWest representatives at that second or subsequent meeting?

LISTNUM 1 \l 1519              COMMISSIONER KATZ:  That's correct.

LISTNUM 1 \l 1520              MR. ASPER:  Richard, do you have any comment?

LISTNUM 1 \l 1521              MR. LEIPSIC:  No, I think that Mr. Asper noted properly that it is worthwhile for us to consider it, and we would obviously be in a position to respond to you later in the proceedings.

LISTNUM 1 \l 1522              COMMISSIONER KATZ:  Thank you.


LISTNUM 1 \l 1523              Could I refer you to Article 5.2(b) of the Shareholders' Agreement.

LISTNUM 1 \l 1524              The second half of that article reads as follows:

"The parties will work in good faith to attempt to obtain a step‑up in bases for U.S. tax purposes for the assets of the combined business, provided that doing so would not have any adverse consequences to CanWest, its affiliates, or the corporation and its subsidiaries."  (As read)

LISTNUM 1 \l 1525              It doesn't say "and the Government of Canada," and I am just wondering whether there is any situation here where, through this step‑up, there might be a situation where taxes are traded between Canadian authorities and American authorities.

LISTNUM 1 \l 1526              MR. ASPER:  I am hoping that someone has the answer to that question.

LISTNUM 1 \l 1527              I know you are not looking at me, which is a good sign.

‑‑‑ Laughter / Rires


LISTNUM 1 \l 1528              MR. LEIPSIC:  If we wanted to have all of the tax practitioners here who had an involvement in this agreement, we would need seven or more rows.

LISTNUM 1 \l 1529              I am not sure, Mr. Katz, what your question is.

LISTNUM 1 \l 1530              COMMISSIONER KATZ:  I think what is being asked for here is to try to do what is best for the parties in order to mitigate U.S. taxes, and I want to make sure that it's not at the expense of Canadian taxes.  That's all.

LISTNUM 1 \l 1531              If a dollar has to be paid, I would prefer that it be paid to our government than to the American government, speaking as a Canadian.

LISTNUM 1 \l 1532              MR. LEIPSIC:  There are a couple of responses.

LISTNUM 1 \l 1533              First of all, there are treaties, as you know, between the United States and Canada, in particular, tax treaties, so that, in effect, there is a recognition that the parties do have the ability to get credit in one country for taxes that they would pay in another.


LISTNUM 1 \l 1534              Secondly, this is simply an attempt to allow Goldman Sach, in anticipation of a divestiture of their interest, or one of the liquidity mechanisms, to the extent possible, and provided it does not cause adverse consequences to CanWest, to be able to legitimately, under the Internal Revenue Code, increase the cost base associated with any subsequent disposition.

LISTNUM 1 \l 1535              I think everybody ought to appreciate that every party to every transaction should have the ability to structure their affairs in a fashion so as to minimize the tax.  We actually made sure that we added the proviso that it should not, in any way, adversely affect CanWest or any of our affiliates.

LISTNUM 1 \l 1536              I think it was a fair compromise in terms of the relative positions of the parties as it related to tax.

LISTNUM 1 \l 1537              MR. STRIKE:  If I could add one thing, Mr. Katz, the section contemplates specifically that the combination would take place under the auspices of section 85 of the Income Tax Act of Canada, which allows us some latitude in effecting a combination on a tax deferred basis.

LISTNUM 1 \l 1538              So, I think, in answer to your question, this would not be transferring taxes otherwise paid in Canada to some other jurisdiction.

LISTNUM 1 \l 1539              COMMISSIONER KATZ:  Okay.  Thank you.


LISTNUM 1 \l 1540              My last series of questions deals with what I would call the "drag‑along" provisions, ultimately, and the proposal here that once the parties have gone through the calls and the puts and the IPOs and everything, there is an agreement by both parties that CanWest would put up their share of the business in a public sale, if, in fact, Goldman Sach needs to liquidate and chooses to liquidate and has used up all alternatives available under the agreement.

LISTNUM 1 \l 1541              I wanted to know from CanWest what their view is on being brought along in this drag‑along rights process.

LISTNUM 1 \l 1542              MR. ASPER:  I think the whole set of liquidity mechanisms is a package, and the first point to make is that it is designed so that every possible opportunity for CanWest to acquire the business, and for Goldman Sach to exit, has occurred.

LISTNUM 1 \l 1543              There are three calls and, effectively, two and a half put options for Goldman Sach.  We only get to that stage after, from our perspective at CanWest, we have had many, many opportunities to buy Goldman.


LISTNUM 1 \l 1544              If it gets to that stage, though, in order to be able to negotiate a call option, an absolute unfettered right to buy someone's interest, typically what one has to give, at least, in that negotiation is the opportunity for the other party, if one doesn't exercise the call, to have its own way to exit the investment.

LISTNUM 1 \l 1545              Again, I think the important thing from the overall perspective here is that all of this is designed to give Goldman Sach the most opportunities to exit their investment, and CanWest the most opportunities to acquire that before we get to this stage.

LISTNUM 1 \l 1546              But, as a last resort ‑‑ or a second‑last resort, because, of course, the initial public offering is the final stage in this series of liquidity mechanisms, that is what we found acceptable.

LISTNUM 1 \l 1547              We view it as a remote possibility, because we have four years to plan for what we need and what we would like to do in 2011 to 2013.

LISTNUM 1 \l 1548              Actually, we have, effectively, six years to do that.

‑‑‑ Pause

LISTNUM 1 \l 1549              MR. ASPER:  Just to put a finer point on it, we have seven chances to purchase their interest before we get to the potential sale of the business in which CanWest is involved.

LISTNUM 1 \l 1550              COMMISSIONER KATZ:  But at that point in time you are being dragged along the process, as well.

LISTNUM 1 \l 1551              MR. ASPER:  Yes.


LISTNUM 1 \l 1552              COMMISSIONER KATZ:  And you are accepting of that provision ‑‑

LISTNUM 1 \l 1553              MR. ASPER:  Yes.

LISTNUM 1 \l 1554              COMMISSIONER KATZ:  ‑‑ as part of the give and take.

LISTNUM 1 \l 1555              MR. ASPER:  Yes.

LISTNUM 1 \l 1556              Again, we view that as a very remote possibility.  Even in a situation where we haven't exercised the calls, or accepted their puts, or bought them on the first round ‑‑ because the seventh one ‑‑ there are three calls and two and a half or three put options.  Then they say, "We want to sell the business," and we have the right of first offer to buy it at the price they suggest ‑‑ that they state.  Only when we don't do that is there a chance for them to sell it, and they have the chance to sell 100 percent of the business, including our stake, at that time.

LISTNUM 1 \l 1557              That was, again, something very remote that we found acceptable.

LISTNUM 1 \l 1558              COMMISSIONER KATZ:  Those are my questions, Mr. Chairman.

LISTNUM 1 \l 1559              THE CHAIRPERSON:  Commissioner Arpin.

LISTNUM 1 \l 1560              COMMISSIONER ARPIN:  Thank you very much, Mr. Chair.


LISTNUM 1 \l 1561              I only have one line of questioning.  It has to do with your reporting committee.

LISTNUM 1 \l 1562              Usually, in an organization of the size that the new CW Investment will be, you would be producing monthly statements ‑‑ financial statements.  Generally speaking, will these monthly statements be made available to Goldman Sach?

LISTNUM 1 \l 1563              MR. LEIPSIC:  I will answer that question.

LISTNUM 1 \l 1564              The reporting committee is initially expected to meet on a quarterly basis.  I think we have taken the notion that a quarterly reporting is certainly ‑‑ and that is the way we report, typically, to our shareholders ‑‑ a frequent enough reporting opportunity.

LISTNUM 1 \l 1565              In the world that we live in, a quarter doesn't take very long to come around, and we think that is probably an appropriate frequency for reporting.

LISTNUM 1 \l 1566              COMMISSIONER ARPIN:  Even if you produce internally monthly financial statements, they will not be made available to Goldman Sachs; that is what you are saying?


LISTNUM 1 \l 1567              MR. LEIPSIC:  No, I can't say that.  I am saying the formality around the reporting committee is typically that it is going to meet quarterly.

LISTNUM 1 \l 1568              I think that we will typically give some opportunities, some insight into Goldman Sachs on some more frequent basis typically as to how sales on a monthly basis might be doing, how bookings might be doing.  Legitimately, I think we are anxious to be able to give information if it is one which meets the spirit of it, and that is to have some visibility into the business which they don't necessarily get through sitting on the board of CW Media.  I think it is appropriate.

LISTNUM 1 \l 1569              MR. ASPER:  I think the point here is we don't have to, but if we choose to, we may.

LISTNUM 1 \l 1570              THE CHAIRPERSON:  So we can hear from Goldman Sachs what they expect the reporting committee to do and how it is going to be functioning?

LISTNUM 1 \l 1571              MR. CARDINALE:  Again, I think it is consistent with what Mr. Asper and Mr. Leipsic just described.


LISTNUM 1 \l 1572              Again, for me to be able to satisfy my fiduciary responsibility to our investors, I need to be moderately current on how the business is doing and be able to report that.  So, I think it is really for those purposes that it is more fluid.  I don't expect, actually, to need this kind of information on a month‑by‑month basis, but, again, as I said to you earlier, I am really here to be supportive.

LISTNUM 1 \l 1573              To the extent there are things going on in the business, if they want a sounding board on or any kind of discussion, I am available.  Keeping me in the loop on a more regular basis certainly would be helpful in those circumstances than catching me cold.

LISTNUM 1 \l 1574              COMMISSIONER ARPIN:  So, if at any time in between the meetings of the reporting committee things really go bad, you won't be notified of that?  That is what you were saying?  You will not be able to intervene before getting to the reporting committee around the board meetings?

LISTNUM 1 \l 1575              MR. CARDINALE:  The nature of the relationship is such, to take your example, if things are ‑‑ quote/unquote ‑‑ really going bad, I think the professional courtesy that the CanWest team has exhibited to us is that they would let us know, not really needing to go back to look at what ‑‑

LISTNUM 1 \l 1576              COMMISSIONER ARPIN:  But it is only a matter of courtesy?


LISTNUM 1 \l 1577              MR. STRIKE:  Actually, the reporting obligations and the frequency of meetings are found at section 4.8 of the shareholders' agreement.  The obligation is for the reporting committee to meet at least once every financial quarter and to receive financial information at that time, at least once a quarter.

LISTNUM 1 \l 1578              Those are the obligations that we have to Goldman Sachs.  Anything beyond that, if we think that more frequent meetings are necessary or more frequent information is necessary would be a CanWest choice, not a CanWest obligation.

LISTNUM 1 \l 1579              COMMISSIONER ARPIN:  Thank you, Mr. Chair.

LISTNUM 1 \l 1580              THE CHAIRPERSON:  I think you heard us on the reporting committee.  We obviously have a difference of view here.  We think this is much more important.  It is very much a key linking committee to make sure that Goldman Sachs is informed, which of course they are entitled to.  They have a huge stake in this, et cetera, but I think the somewhat loose structure that you have and the lack of records and regular meetings and all of that is very troubling to us.  We might want to look at that.

LISTNUM 1 \l 1581              Before we leave this whole issue of control, can I take you back to section 4.7(b), sub 17.  First of all, it refers to schedule 9.2.  I think you mean section 9.2.  There is no such thing as schedule 9.2.


LISTNUM 1 \l 1582              MR. ASPER:  That is correct.

LISTNUM 1 \l 1583              THE CHAIRPERSON:  Am I correct that this clause gives Goldman Sachs really a veto in the acquisition that is subject to a CRTC regulation?  Is that essentially the intent of this section?

LISTNUM 1 \l 1584              MR. ASPER:  Mr. Chairman, because I was turning to the section when you asked the question, if you could just repeat it, please, just the last part.

LISTNUM 1 \l 1585              THE CHAIRPERSON:  I am referring to section 9.2, which, of course, is confidential.  Broadly speaking, am I correct to suggest that this clause gives Goldman Sachs a veto over the acquisition of other CRTC‑regulated businesses?  Is that what the point of this section is?

LISTNUM 1 \l 1586              MR. LEIPSIC:  Mr. Chairman, the language in that section is a little complicated.  If you will allow me to take you through it, the reference in subsection 17 is to a defined term, which says the acquired competing business.  In order to find the definition of "acquired competing business," you have to turn to section 9.2.


LISTNUM 1 \l 1587              I would point out that 9.2 speaks about a prohibition following the combination date.  There is no prohibition on CanWest competing at all from now until the combination date.  This section only applies to CanWest after the combination date, and specifically the section that we are referring to as to the acquired competing business, the definition is found in subparagraph (v) under subparagraph (b).  The acquired competing business is simply a provision that, first of all, says that there is the entitlement, notwithstanding the non‑competition provision, that allows CanWest to acquire a business that happens to have a component of it, but a small component of it, which is defined as the acquired competing business.

LISTNUM 1 \l 1588              This section allows, in effect, for CanWest to buy something which, as part of its conglomerate, might have something that would be a regulated broadcasting entity as a small component.  That allows CanWest to go ahead and do that, provided it is undertaken in order to effect that transaction first to try and sell the small subset of the competing business, but first offering it to the corporation.

LISTNUM 1 \l 1589              It is only in those circumstances where it is offering it to the corporation do you get back to the provision that says Goldman Sachs should be afforded the opportunity.


LISTNUM 1 \l 1590              THE CHAIRPERSON:  What is Goldman Sachs' goal in this situation that you just posited?  You are acquiring another business, which has a small subset which is subject to CRTC regulation.  It is found in 4.7.  It requires ‑‑ at 4.7(b), which I thought sets out basically the GS vetoes.

LISTNUM 1 \l 1591              MR. LEIPSIC:  Yes.  Then in order to acquire that larger entity which I spoke of, and then there was a smaller entity which happens to be a competing entity, there is an obligation first to try and sell the acquired competing business to the corporation so that it should have first opportunity.  But it should not be forced on the entity unless Goldman Sachs votes in favour of the acquisition.

LISTNUM 1 \l 1592              THE CHAIRPERSON:  It is the acquisition of the non‑regulated business is what you are talking about?

LISTNUM 1 \l 1593              MR. LEIPSIC:  It is a non‑television entity.

LISTNUM 1 \l 1594              THE CHAIRPERSON:  Right.  It has some television aspect.  So it is not the television aspect that you are concerned about.  It is the non‑television aspect.


LISTNUM 1 \l 1595              MR. STRIKE:  In fact, sir, the section is designed so that CanWest, after the combination date, can acquire a business, including a business that may be regulated by this Commission.  If a small part of that business is a television undertaking, then that television undertaking must, according to section 9, be offered to the then combined business.

LISTNUM 1 \l 1596              The reason that ‑‑

LISTNUM 1 \l 1597              THE CHAIRPERSON:  I understand.  So CanWest can't buy it on its own account.  It has to offer it to the combined business first of all.  That is what you are telling me?

LISTNUM 1 \l 1598              MR. STRIKE:  Right.  But what the section says is that if we are buying a larger business, part of that business is a television undertaking, that television undertaking naturally should reside within CW Media.  So, therefore, it should be offered to CW Media.

LISTNUM 1 \l 1599              What this provision in 4.17 is designed to do is that, of course, we are the buyer and the seller at CanWest, so we can influence both sides of the transaction.  This is meant to say Goldman Sachs should have a right to say yes because we are nominating the price at which to put this asset in.  They obviously want some protection against us putting an unduly high price on that.


LISTNUM 1 \l 1600              THE CHAIRPERSON:  Thank you.  I now understand how that provision works.  It is very complicatedly worded, I must say.  Until I heard Mr. Leipsic, I read it three times and I couldn't figure out what you were getting after.

LISTNUM 1 \l 1601              Thank you.  I think that finishes.  I will just reiterate where we started off with this morning, Mr. Asper.  We have no control at all ‑‑ Goldman Sachs as lead investor can protect the core assets.

LISTNUM 1 \l 1602              The way the vetoes are worded, it strikes us as very restrictive, and you might want to have another look at it.  As I say, I would prefer if you would have worded it in terms of core assets.  If you want to do it in terms of minimum thresholds, the way you have done it, it strikes us that 1 per cent is very low.  Presumably something like 5 per cent would be more appropriate.

LISTNUM 1 \l 1603              Secondly, I think the definition of "material," just saying you will know it when you see it, and if you have any problem, we will go to arbitration, that leaves it somewhat in doubt and I think you might want to see whether you can put some more flesh on the bones of "material."

LISTNUM 1 \l 1604              That is it for this section.

LISTNUM 1 \l 1605              Let's move to the next section.  Commissioner Arpin.


LISTNUM 1 \l 1606              COMMISSIONER ARPIN:  Thank you very much, Mr. Chairman.

LISTNUM 1 \l 1607              My first line of questions will deal with programming.  I will start with this one.  In your June 1st, 2007 reply to the first question, so at the top of page 2 of your reply, you wrote, and I am quoting here:

"Neither CanWest nor Goldman Sachs have taken any decisions to make any significant changes in any business of any regulated entity."  (As read)

LISTNUM 1 \l 1608              COMMISSIONER ARPIN:  End of my quote.

LISTNUM 1 \l 1609              My question goes to CanWest.  Should the Commission conclude from that statement that CanWest sees the purchase of the regulated entities of Alliance Atlantis only as an investment?

LISTNUM 1 \l 1610              MR. ASPER:  I am not quite sure what you mean by that but I ‑‑

LISTNUM 1 \l 1611              COMMISSIONER ARPIN:  Well, the letter ‑‑ the first sentence of the letter says:

"Neither CanWest nor Goldman Sachs have taken any decisions to make any significant changes in the business..."


LISTNUM 1 \l 1612              COMMISSIONER ARPIN:  So generally speaking, investors make the decision not to run the organization.  Obviously, my line of questioning will be based on ‑‑ based on the answers you are just going to give me.

LISTNUM 1 \l 1613              MS BELL:  Well, I think that perhaps it was our interpretation of the question that guided the answer and I think we may have thought that the Commission was asking us if we had any discussions with Goldman Sachs in terms of materially changing the nature of these businesses, either changing the regulatory ‑‑ the licenses, that sort of things, and we said, "No, we haven't done that."

LISTNUM 1 \l 1614              I think that's what we meant when we answered the question.

LISTNUM 1 \l 1615              COMMISSIONER ARPIN:  So you don't see yourself only as an investor in the Alliance Atlantis.  You are seeing yourself as the operator?

LISTNUM 1 \l 1616              MR. ASPER:  Yes.  We consider ‑‑ yes, we consider ourselves the active operators.


LISTNUM 1 \l 1617              COMMISSIONER ARPIN:  Now, obviously, that answer is dated June 1st.  Now, five more months have passed since then, so since that reply.  So now that you have had the chance to look into further into the operation of Alliance Atlantis, I will say, have you ‑‑ are you contemplating making any changes regarding the programming of any of the specialty services and what are these changes and what will be the impact that you will expect from those changes?

LISTNUM 1 \l 1618              MR. ASPER:  I will let Kathy Dore answer the question.

LISTNUM 1 \l 1619              In general, though, I think we have got ‑‑ acquired an asset that we think is run very well and is fulfilling a very important mandate for audiences and advertisers and so we ‑‑ we wouldn't foresee any major change.  Of course, programming is ‑‑ specific programs come and go and services evolve over time but I ‑‑ you know, I think what we bought is something that is in our view a Cadillac that drives very well.

LISTNUM 1 \l 1620              And so I will pass it onto Kathy Dore for anything she wants to add on that.

LISTNUM 1 \l 1621              COMMISSIONER ARPIN:  Well, as a backgrounder, and we will suggest that's what ‑‑ none of the replies that you stated says that you are contemplating sharing some programming with either Global or E!, programming that will go on either Showcase or History.  So as a background to your answer I would like you to take that into consideration.


LISTNUM 1 \l 1622              MS BELL:  Vice‑Chairman, I think there is a couple of components to that.

LISTNUM 1 \l 1623              The first part ‑‑ and I think we always read into your question ‑‑ that are you planning on changing the nature of services or that type of thing, and that the answer would be "no".  In terms of changing the programming, obviously if you are merging two companies together there are going to be some synergies and we have discussed those briefly in response to deficiencies.

LISTNUM 1 \l 1624              So I would ask Barb Williams to perhaps give you a little more colour on the programming strategy.

LISTNUM 1 \l 1625              MS WILLIAMS:  I think clearly we are excited by the opportunity to have brought these channels together and think of them strategically as a combined group of assets from the programming perspective where we are looking forward to using programming potentially differently on some services some of the time.  We are looking at enjoying the leverage we have in buying programming to see if we can help support all channels a little differently than they can each on their own.

LISTNUM 1 \l 1626              So we will look to make all of the channels collectively as successfully ‑‑ as successful as they can be in the competitive market.


LISTNUM 1 \l 1627              So we are looking to bring our programming expertise and our ‑‑ and our strength in the market to bear on growing these channels successfully.  But that said we understand the context in which these channels operate and the regulatory framework that they operate within and we don't anticipate adjusting that unless the framework were to change and encourage us to do so.

LISTNUM 1 \l 1628              COMMISSIONER ARPIN:  Thank you.  Again, in the first reply you have stated that you are planning to operate the acquired business in combination with your home business with the intent to achieve certain deficiencies and synergies.

LISTNUM 1 \l 1629              Can you describe for the Commission any programming synergies contemplated and what will be the impact of these efficiencies and synergies on viewership?  What are the financial implications of these efficiencies and synergies on the acquired services?


LISTNUM 1 \l 1630              MS WILLIAMS:  I think we clearly anticipate that the financial impact will be a positive one for all of the channels by taking advantage of some appropriate and selective program synergies.  I think we will see them in a few distinct areas.  I think one of the key things we think this transaction brings to bear is the opportunity to grow the success of Canadian programming.

LISTNUM 1 \l 1631              We have across all the services a vast amount of Canadian original programming made, most of it very selectively made to suit the brand and the channel that it's designed for.

LISTNUM 1 \l 1632              Occasionally, however, across that group of services you will find shows that actually have an opportunity to break out, to be bigger hits than they might have originally thought they could be, and that's where we look to bring to bear the power of the combined services frankly to either move a show from one service to another to allow a bigger audience to grow it or as well you can speak to just use the promotional weight; frankly, of our businesses to grow the potential of a program.


LISTNUM 1 \l 1633              I think what we believe is that conventional programming ‑‑ conventional television, as we have talked a lot at this hearing and others, is a bit of a struggling business at the moment.  Nonetheless, what it does still do very well and better than anybody else, is bring the largest audience possible to a single program.  It still does that better than anybody else does even though it does it less well, frankly, than it used to.  At the same time we are watching audiences and advertising dollars move more aggressively to the specialty side.

LISTNUM 1 \l 1634              What we see from a programming perspective is the opportunity to use what is that remaining power and conventional broadcasting to drive the success of specialty beyond what it could have been on its own.  So we really believe the financial impact will come out of the ratings when ‑‑ and hence the revenue end ‑‑ that will come out of using the power of conventional television to drive the success of specialty beyond what its expectation would have been and then at the end of the day we will have grown the financial impact of all the services by driving ratings.

LISTNUM 1 \l 1635              COMMISSIONER ARPIN:  So the synergies that you are contemplating are synergies of growing the business, not in making a rearrangement of the organization?

LISTNUM 1 \l 1636              MS WILLIAMS:  From a programming perspective?

LISTNUM 1 \l 1637              COMMISSIONER ARPIN:  Yes.


LISTNUM 1 \l 1638              MS WILLIAMS:  Yes, we are looking to grow the business.  We are looking to grow the investment in Canadian content and we are looking to use the investment, that we do make informed programming as wisely and as efficiently, effectively as we can.

LISTNUM 1 \l 1639              COMMISSIONER ARPIN:  Okay.  And will there be also efficiencies and synergies for the current business of CanWest?

LISTNUM 1 \l 1640              MS WILLIAMS:  Outside of programming?

LISTNUM 1 \l 1641              COMMISSIONER ARPIN:  No, inside it within ‑‑ still within programming because what we have dealt here is the ones that will apply to Alliance Atlantis and now I'm asking you a similar ‑‑ a very similar question but regarding your over‑the‑air operation or even TVTropolis or your current specialty digital service.

LISTNUM 1 \l 1642              MS WILLIAMS:  Yes, we think those opportunities flow both ways.  We think there are times when we can be more successful with our conventional businesses with some strategic support from programming on the specialty side.  We see that those opportunities can go both ways.

LISTNUM 1 \l 1643              COMMISSIONER ARPIN:  Do you have specific examples that you could give us?


LISTNUM 1 \l 1644              MS WILLIAMS:  Well, one that I mentioned in the opening remarks, actually, at the Gemini Awards this year.  Slings and Arrows was a hugely recognized program ‑‑ I think got more creative awards than any other and it is a program that currently doesn't have a conventional home.

LISTNUM 1 \l 1645              And so for us to offer the opportunity to put, you know, a very, very well recognized Canadian series from a critical acclaimed point of view onto a broader platform, I think, cannot only make that show more successful but would make Global more successful along the way.

LISTNUM 1 \l 1646              COMMISSIONER ARPIN:  Any other case that you could contemplate?

LISTNUM 1 \l 1647              MS WILLIAMS:  Well, I think one of the pleasures of programming actually is that they are hard to predict, that every year comes with its own creative opportunities and challenges and I think the strength of bringing these two programming teams together, frankly, is to allow us to you know strategically and selectively make those choices as every programming season goes by.

LISTNUM 1 \l 1648              COMMISSIONER ARPIN:  Okay.  My next line of questioning has to do with ‑‑ is based on again on your June 1st response, but this time to question 19 which is on page 11 of the reply in which you wrote ‑‑ and I'm quoting:


"This will allow us to extend Canadian drama from Global TV and E! to specialty services such as Showcase and History in order to reach wider audiences."  (As read)

LISTNUM 1 \l 1649              COMMISSIONER ARPIN:  Could you please elaborate with specific examples of programming that you have in mind to be moved from Global towards the specialty service, because the example you gave me is moving something out of Showcase to send it.

LISTNUM 1 \l 1650              MS WILLIAMS:  I think the example that comes most quickly to mind is a new comedy that Global put on its primetime schedule this fall, airs Sunday evenings, actually called "Da Kink in My Hair".  And it's an urban edgy sort of all black cast comedy that we think actually could be very well supported by the Showcase brand and would expose another layer of audience to that program.

LISTNUM 1 \l 1651              COMMISSIONER ARPIN:  Now, as you know, Showcase and History in rating terms are doing fairly well if you compare with other specialty services.  But you are also suggesting that you will ‑‑ well, you gave ‑‑ just gave the example of Slings and Arrows.  Aren't you afraid of weakening, say, Showcase?

LISTNUM 1 \l 1652              MS WILLIAMS:  No, I am not, actually for a couple of reasons.


LISTNUM 1 \l 1653              One, I think, we still need to acknowledge the vast difference between the reach of conventional broadcasting and the reach of specialty.  A hit on conventional television, you know, is anywhere from ‑‑ a true huge hit is two million, maybe three million at its max.  A hit on specialty television is maybe 250,000.  So even when a show is peaking on a strong and successful analog specialty station there is still an enormous audience out there that hasn't been exposed to that show.

LISTNUM 1 \l 1654              And I think the key to this is to do is strategically, not to just assume that one can automatically dump programming from one service to another and find success; but to be very thoughtful about the brands that those programs were first designed for, where the strength of those brands lie, and where the opportunity would be to expose an audience through another show that might ultimately drive audiences to try that brand out in a way before.

LISTNUM 1 \l 1655              So I think it is the very thoughtful combination of programming and marketing across the combined programming teams that will make this work when you are careful about it.

LISTNUM 1 \l 1656              COMMISSIONER ARPIN:  Okay.  And again in the same reply you wrote:


"We plan to broadcast some Alliance Atlantis popular lifestyle programming during the day time period of our conventional networks to supplement our Canadian programming offer."

LISTNUM 1 \l 1657              Could you give me some examples of what you have in mind.

LISTNUM 1 \l 1658              MS WILLIAMS:  Again, I think we look to the lifestyle programming, be it about health or decorating or food content, and see in those shows sometimes an opportunity for a show that has a star that could be really underscored and grown, or a program that actually in its breadth suits a conventional platform.

LISTNUM 1 \l 1659              We think about whether there might be opportunities to try selectively again some of those shows in the day time schedules of E! and Global.


LISTNUM 1 \l 1660              We know that viewers use television channels differently at different times of the day, and we know that a different audience comes to Global's prime time than comes to an Alliance Atlantis specialty channel prime time.  What we are looking to do is strategically schedule those shows so that you are not just crashing into audiences that have already seen it but are actively selectively putting shows at times of day on a different platform where you find a whole new audience for it.

LISTNUM 1 \l 1661              So that's what we would be trying to accomplish.

LISTNUM 1 \l 1662              COMMISSIONER ARPIN:  I am looking at your current program grid for Global E! and I see during the day time religious programming, game shows, high tech innovation, soap opera and on E! I see types such as Countdown, Entertainment Magazine, talk shows, infomercial as well.

LISTNUM 1 \l 1663              The lifestyle programming that you are contemplating giving a second life during day time on your current over‑the‑air services, which type of programming will they be replacing?

LISTNUM 1 \l 1664              MS WILLIAMS:  To be very honest, we haven't built those grids yet, so I'm speculating a little bit.  It would depend on the programming line‑up and the rights that were available to move from platform to platform.

LISTNUM 1 \l 1665              Ultimately, we need to be respectful of those rights and how they have been obtained.


LISTNUM 1 \l 1666              I think one of the opportunities potentially is to move away from some of the programming that is currently on the Global grid that has been maybe in place for a long time and maybe deserves a freshening and see if by moving some of the health related programming or decorating or cooking programming over, we  might entice a new audience to come to the day time of Global.

LISTNUM 1 \l 1667              COMMISSIONER ARPIN:  Mr. Chair, those are my questions regarding programming.  We will have later some questions regarding the benefit packages.

LISTNUM 1 \l 1668              Thank you.

LISTNUM 1 \l 1669              THE CHAIRPERSON:  You are right on time.  I see it is 12 o'clock.

LISTNUM 1 \l 1670              Why don't we take an hour break for lunch and we will resume at 1 o'clock.

LISTNUM 1 \l 1671              Thank you.

‑‑‑ Upon recessing at 1203 / Suspension à 1203

‑‑‑ Upon resuming at 1305 / Reprise à 1305

LISTNUM 1 \l 1672              THE SECRETARY:  Please be seated.

LISTNUM 1 \l 1673              THE CHAIRPERSON:  Before we proceed, Mr. Asper, we are going to see you again in 2011, if I understand correctly, when the merger takes place and the contributed assets are being rolled into C.W. Investments Company.


LISTNUM 1 \l 1674              At that point in time, if I understand it correctly, in effect the ownership goes from 100 per cent CanWest to 67, or the other way around; Goldman Sachs have required 33 per cent.  That needs our approval, so we will see you then again.

LISTNUM 1 \l 1675              MR. ASPER:  I am not sure because I think we would distinguish here between a change of ownership and a change of control.  I don't purport to know the rules exactly, but I had not contemplated that we would see you in 2011.

LISTNUM 1 \l 1676              I'm always happy to see you.  Dinner would be preferable.

‑‑‑ Laughter / Rires

LISTNUM 1 \l 1677              MR. ASPER:  I don't want to take too many things under advice ‑‑

LISTNUM 1 \l 1678              THE CHAIRPERSON:  I think we should clarify this because my understanding is that it would trigger a requirement for approval by the CRTC.

LISTNUM 1 \l 1679              MR. ASPER:  Could I ask Grant Buchanan, the specialist at large to help?

LISTNUM 1 \l 1680              THE CHAIRPERSON:  Sure.

LISTNUM 1 \l 1681              MR. BUCHANAN:  You are quite correct.  It will require your approval.  It was the turn of phrase "we'll see you" because often these are done administratively when it is something internal.

LISTNUM 1 \l 1682              THE CHAIRPERSON:  Okay.  By the way, we can do lunch too at the same time.


‑‑‑ Laughter / Rires

LISTNUM 1 \l 1683              COMMISSIONER KATZ:  Can I just follow up on that.  The 2009 asset transfer will not require approval, in your view?

LISTNUM 1 \l 1684              MR. ASPER:  Sorry, 2009?

LISTNUM 1 \l 1685              COMMISSIONER KATZ:  Yes, I'm looking at Clause 5.1.

LISTNUM 1 \l 1686              MR. ASPER:  Of the Shareholders Agreement?

LISTNUM 1 \l 1687              COMMISSIONER KATZ:  Yes.

LISTNUM 1 \l 1688              MR. LEIPSIC:  If I can answer that, the 2009 is the subsidiarization of the existing CanWest Media entities into a wholly owned subsidiary of CanWest.  So there will not be any change in the ultimate ownership as part of that subsidiarization process.

LISTNUM 1 \l 1689              We will obviously be informing the CRTC of the transaction, and there may be an administrative notion of the notion that the licensees have obviously been changed per se.  But it would not trigger a change in control because that event does not change in any fashion the ultimate control of the CanWest regulated entities.

LISTNUM 1 \l 1690              THE CHAIRPERSON:  Okay.  Thank you very much.


LISTNUM 1 \l 1691              Having clarified that, let's move on to evaluation.

LISTNUM 1 \l 1692              Commissioner Duncan.

LISTNUM 1 \l 1693              COMMISSIONER DUNCAN:  There has been a lot of questions and answers on the record, so I don't have a lot of questions but I do have a few.

LISTNUM 1 \l 1694              I'm going to be referring to the Price Allocation Schedule as at August 15th and the Audited Combined Consolidated Financial Statements for the broadcasting group for the year ended December 31, 2004 to 2006.

LISTNUM 1 \l 1695              MR. ASPER:  Just give us a second to access those, please.

‑‑‑ Pause

LISTNUM 1 \l 1696              COMMISSIONER DUNCAN:  I have an extra copy of the schedule if you would like it.

LISTNUM 1 \l 1697              MR. ASPER:  We have probably more than one.  It's just finding it.

LISTNUM 1 \l 1698              COMMISSIONER DUNCAN:  Thanks, Claude.

‑‑‑ Pause

LISTNUM 1 \l 1699              COMMISSIONER DUNCAN:  Okay?

LISTNUM 1 \l 1700              MR. ASPER:  All right.

LISTNUM 1 \l 1701              COMMISSIONER DUNCAN:  In that schedule you allocate slightly over $1.4 billion of the purchase price to the purchase of specialty television.


LISTNUM 1 \l 1702              I understand from your June 1st response that the purchase price itself is the result of an arm's length negotiation and that there is no opportunity to reallocate the purchase price based on a subsequent valuation.  We are not suggesting that that happen.

LISTNUM 1 \l 1703              In your September 17th response you indicate the purchase price was allocated 57.5 per cent to broadcast specialty and 42.5 to movie distribution entertainment.

LISTNUM 1 \l 1704              What we are trying to understand is the basis for that allocation.  For example, was it done on EBITDA the net book value of fixed assets or possibly tax considerations?

LISTNUM 1 \l 1705              We are just wondering if you are able to provide us with the details of the calculation and the assumptions.

LISTNUM 1 \l 1706              MS BELL:  I'm going to ask Colin O'Leary and Marlene Lock to answer that question.

LISTNUM 1 \l 1707              COMMISSIONER DUNCAN:  Thank you.

LISTNUM 1 \l 1708              MS LOCK:  I'm not sure I'm going to be able to answer the question to your satisfaction, and there are others here of course who were involved in the transaction itself and in terms of negotiating the relative purchase prices.


LISTNUM 1 \l 1709              My understanding is there was no mechanics to coming up with that allocation.  It was not simply a multiple VBDA or any other calculation.

LISTNUM 1 \l 1710              It was a result of the parties CanWest and Goldman Sachs caucusing together for a period of time and reviewing financial information and coming up with their own determinations of the relative values of the assets, at which time an agreement was made as to how they would be valued.

LISTNUM 1 \l 1711              I think I can safely say that the allocation of the purchase price to broadcasting had nothing to do with tax considerations and anything else and it is the only asset that CanWest has any interest in.  So there would be nothing in CanWest's interest to do anything other than to get the lowest price possible for the purchase of those assets.

LISTNUM 1 \l 1712              MR. O'LEARY:  It is Colin O'Leary.  If I might add to that.

LISTNUM 1 \l 1713              COMMISSIONER DUNCAN:  Sure.  Yes.

LISTNUM 1 \l 1714              MR. O'LEARY:  Our role ‑‑ I am with Ernst & Young.  I am a partner in the Valuation Group.  Our role was to value the broadcast assets portion of the business.  That was our mandate.  That is what we did.


LISTNUM 1 \l 1715              The work is affirmative of the transaction price.  We weren't asked to come up to the transaction price.  We did an estimate of fair market value.

LISTNUM 1 \l 1716              If we had been asked to value all three components, we would have still valued the broadcast portion in the same manner, the same way.  We would have had to look at them as three different business lines and three separate valuations.

LISTNUM 1 \l 1717              COMMISSIONER DUNCAN:  The amounts are slightly different than were on the valuation report but can I just go back to Mrs. Lock.

LISTNUM 1 \l 1718              Did you say the objective was to keep the price as low as possible for specialty?

LISTNUM 1 \l 1719              MS LOCK:  Well, that is CanWest's objective, yes, because that was the only operation that we have an interest in, so we had no interest in paying more than we had to.

LISTNUM 1 \l 1720              COMMISSIONER DUNCAN:  So there is nothing more that you can give us on that?  We have the valuation and we have the answers to the valuation and we were just trying to understand that number better but if that is all you can give us, that is ‑‑


LISTNUM 1 \l 1721              MS LOCK:  I think the valuation goes into a lot of indicative measures of how to determine value and I think it does support the value of broadcast.  So it suggests that it is fair market value for broadcast and certainly that is what we intended to negotiate with Goldman Sachs.

LISTNUM 1 \l 1722              COMMISSIONER DUNCAN:  Okay.

LISTNUM 1 \l 1723              MR. ASPER:  If I could just amplify.  Just going back to when the transaction started, it becomes a function of two parties, we and Goldman, sitting down and saying, what does it take to acquire the group and what can each of us afford to pay for the assets which we are acquiring, all or part of.

LISTNUM 1 \l 1724              The amount paid for the broadcast group simply reflects the highest amount effectively that we were prepared to pay for those assets in an arm's length negotiation.

LISTNUM 1 \l 1725              COMMISSIONER DUNCAN:  Okay.  I appreciate that and I can understand that.  I guess it is just when I look at a figure that comes down to $489, it infers that there is something more involved.  But that is okay, I will accept what you ‑‑

LISTNUM 1 \l 1726              MR. ASPER:  I am sorry, I am not sure what the reference to $489 is.


LISTNUM 1 \l 1727              COMMISSIONER DUNCAN:  You see the figure on your schedule.  If you read it out, $1,402,538,489 would infer there was more precision.  There was more involvement coming to that number rather than two parties saying, well, all right, I agree with $1,400,250,000 and you take the balance for the other two.  So that is the only thing.

LISTNUM 1 \l 1728              MR. ASPER:  Well, I think it does get to be a question of a multiple of earnings plus the exact debt figure which could be right down to the cents, dollars and cents, and then transaction costs as well.

LISTNUM 1 \l 1729              COMMISSIONER DUNCAN:  Would you have anything along those lines you would be willing to give us or you could give us?

‑‑‑ Pause

LISTNUM 1 \l 1730              MS LOCK:  Just in terms of the mechanics of the schedule itself, this is the mechanism that was built out on January 9th and then, as we have explained in the deficiency responses, there were certain changes to the numbers and we did at the end of the day ‑‑ that 57 and a half percent, that percentage carried forward and so that is, I guess, why we get the precision in the numbers as we simply did apply the percentage, with one exception, that there was an adjustment for $8.2 million that was added to the broadcast purchase price to reflect some cash that was retained at broadcast that was not available to repay debt.


LISTNUM 1 \l 1731              COMMISSIONER DUNCAN:  Okay, that is helpful.

LISTNUM 1 \l 1732              Mr. Asper, did you want to add anything more or are you okay with that?

LISTNUM 1 \l 1733              MR. ASPER:  No, thank you, that is fine.

LISTNUM 1 \l 1734              COMMISSIONER DUNCAN:  Okay.

LISTNUM 1 \l 1735              Then referring to the August 15th calculation, the total purchase price allocated to specialty services is slightly in excess of 57.64 percent.

LISTNUM 1 \l 1736              I am just curious to know if the same percentage was applied to allocate the $2.2 billion in equity and the amount in debt and the amount in cash.  It appears that it was but I would just like to know that it was, that the same percentage, 57.64 plus, was applied to each of the three components.

LISTNUM 1 \l 1737              MS LOCK:  It was.  It was applied to the total of those components.  The only adjustment to that was actually 57 and a half percent plus $8.2 million.  So that was ‑‑

LISTNUM 1 \l 1738              COMMISSIONER DUNCAN:  So that is how it gets to 57.64?

LISTNUM 1 \l 1739              MS LOCK:  That is right.


LISTNUM 1 \l 1740              COMMISSIONER DUNCAN:  All right.  So now when I take the ‑‑ we looked to those audited statements, which are confidential, so I will try not to say anything that I shouldn't.

LISTNUM 1 \l 1741              I understand that these are referred to as carved‑out audited financial statements.  We looked to these statements to verify the debt figure on this schedule.

LISTNUM 1 \l 1742              So the first thing that we did, we took 37 and a half percent of the current portion of the term loan and 37 and a half percent represents the months left in 2007.  Four a half months of 12, that is 37 and a half percent.

LISTNUM 1 \l 1743              So we took 37 and a half percent of the current portion of the term loan plus the long‑term portion of the current loan.  So that is the December 31st, 2006 long‑term portion.  So that related to the 2008 forward.

LISTNUM 1 \l 1744              When we added that, we got a number that is ‑‑ it is hard to know what substantially but it is quite a bit larger than the $304 million, $4.7 million shown on your schedule.


LISTNUM 1 \l 1745              I am just wondering, and you might want to go away and think about it and give us the detail but if you could just give us an explanation of why that would differ than what we see on the statement.

LISTNUM 1 \l 1746              MR. ASPER:  It may be a reference to the then existing debt on the Alliance balance sheet versus the proposed debt to be added but I think it is ‑‑

LISTNUM 1 \l 1747              COMMISSIONER DUNCAN:  It is possible that their debt changed from December 31st, 2006.  I don't know if term loans would have.

LISTNUM 1 \l 1748              MR. ASPER:  It would substantially, yes.  It would but I am not sure if you are referring to that specific change, so maybe we should ‑‑ we can't say the numbers here.  It is difficult to say what we will get back to you with but ‑‑

LISTNUM 1 \l 1749              COMMISSIONER DUNCAN:  Okay.  Well, let me just repeat what I did, okay?

LISTNUM 1 \l 1750              I took 37 and a half percent of the current portion of the long term on here plus the long term to come up with a number for total debt and it is slightly ‑‑ well, it is more than slightly larger than the $304 million.  So that gives you the ‑‑

LISTNUM 1 \l 1751              MR. ASPER:  Okay.  Well, we will undertake to provide you with an explanation of the discrepancy.

LISTNUM 1 \l 1752              COMMISSIONER DUNCAN:  All right.


LISTNUM 1 \l 1753              Then following along on that calculation, again, looking at these financial statements, the cash balance at the end of December 31st, 2005 and 2006 is pretty consistent, and that is not to say it is going to be consistent every time but at any rate the schedule that you have shown shows $113 million in cash.

LISTNUM 1 \l 1754              We would like to know if you could give us the detail of that cash broken out between specialty television and entertainment.  You don't have to give it to me right now.  If you could just give it to us later, that is fine.

LISTNUM 1 \l 1755              MS LOCK:  Just to clarify, you are looking at the carve‑out statements, the cash that is in the carve‑out statements?

LISTNUM 1 \l 1756              COMMISSIONER DUNCAN:  Yes.

LISTNUM 1 \l 1757              MS LOCK:  So 59 compared to 61 ‑‑

LISTNUM 1 \l 1758              COMMISSIONER DUNCAN:  Yes.

LISTNUM 1 \l 1759              MS LOCK:  ‑‑ which increased to $113 million?

LISTNUM 1 \l 1760              I guess we could endeavour to reconcile that.  One thing that is important to note is that the $113 million of cash included cash that was swept from the other divisions.


LISTNUM 1 \l 1761              The agreement was to accumulate the cash in Alliance Atlantis Communications Inc. and then use that cash to repay the debt.  So it was not exclusively broadcasting cash that was included in the $113 million.  There was cash repositioned from entertainment group.

LISTNUM 1 \l 1762              COMMISSIONER DUNCAN:  That may also explain the debt difference too then perhaps.  So if you could just undertake to give us ‑‑

LISTNUM 1 \l 1763              MS LOCK:  Yes.  The debt was ‑‑ they were making payments in excess of the required minimum repayment as well but we can endeavour to reconcile that, both the cash and the debt.

LISTNUM 1 \l 1764              COMMISSIONER DUNCAN:  Okay.  So they were making extra debt payments.  Well, that would help if you can confirm that.

LISTNUM 1 \l 1765              One other point on the statements that I just wanted to mention to you.  As you know, the Commission in determining the value of a transaction adds in the other commitments.  We are not here to discuss whether we should or shouldn't do that, that is for another forum, but we are intending to add the other commitments, as we normally do.


LISTNUM 1 \l 1766              Looking at Note 24 of these statements, we see that there is ‑‑ I will just turn to it myself.  That is on pages 25 and 26.  We see that there is an amount there for intellectual property rights and for operating leases.

LISTNUM 1 \l 1767              We would propose to go with those numbers, adjusting just to eliminate the eight months of 2007.  I just wanted to draw that to your attention in case you have any comment on that or why we should or should not use that number and maybe you will have since you had other things flowing into the cash.

LISTNUM 1 \l 1768              MS LOCK:  Yes.  We do ‑‑ we did anticipate that this might come up and I have prepared an updated schedule of the operating lease commitments.  I was not aware that you would also consider intellectual property commitments.

LISTNUM 1 \l 1769              I know you don't want to discuss it but I guess I would say that we don't agree with the inclusion of operating leases or other operating commitments in the purchase price.  They are operating expenses, they are not financing arrangements.

LISTNUM 1 \l 1770              We did have certain leases that were financing arrangements that we did acquire and those have been included in our net net figure but the operating leases are operating expenses and we don't agree with their inclusion.


LISTNUM 1 \l 1771              In addition to that, in terms of the amount, the $99 million that is shown for operating leases includes payments for common area charges, utilities, cleaning services, property taxes that are estimated in the future.  Even in a capital lease situation, you would not include those amounts when you calculated the liability.

LISTNUM 1 \l 1772              COMMISSIONER DUNCAN:  It refers to "leases", I am surprised to hear it includes things like that, but that's fine.

LISTNUM 1 \l 1773              If you want to give us a detail, that will help us in our arriving at a number.

LISTNUM 1 \l 1774              MR. O'LEARY:  From a valuation perspective I would comment that these are really operating expenses and when you look at transactions in the marketplace and equity caps and transaction values they are a detractor, a decreaser of value.  They don't add on.  They don't have the kind of a leash here that really transfers the ownership.  It's finite.

LISTNUM 1 \l 1775              COMMISSIONER DUNCAN:  The Commission, as you know, is trying to arrive at a value for the purpose of determining the tangible benefits.  For that purpose this has been the definition that has been applied.  So thank you for that, though.  I appreciate it.  I didn't mean for you not to be able to say it.  I appreciate you saying it, that's fine.


LISTNUM 1 \l 1776              MS LOCK:  I will just add one more thing in terms of the schedule that we will provide and the update, is the other thing that I think would be appropriate is to calculate the present value of those future payments.  The payments that are listed in the notes are the gross values.  A lot of these payments, that lease ‑‑ the primary cause of that balance is a lease that terminates in 2018, so to include that undiscounted value would be inconsistent with a capital lease kind of concept.

LISTNUM 1 \l 1777              COMMISSIONER DUNCAN:  Just to be consistent with what I have seen the adjustment to be, we haven't considered, I don't believe, present value, but if you want to set that out, that's fine.

LISTNUM 1 \l 1778              MS LOCK:  Okay.

LISTNUM 1 \l 1779              COMMISSIONER DUNCAN:  Set that out and we will consider it when we get it.  That's fine.

LISTNUM 1 \l 1780              MS LOCK:  Okay.

LISTNUM 1 \l 1781              MS BELL:  Can I just make one clarification on the operating leases?


LISTNUM 1 \l 1782              I hear what you are saying, that the Commission has been including operating leases as part of the value, but this is a very recent development because in the past the Commission didn't used to include operating leases.  This has occurred I guess in the last two or three transactions that I am aware of, but this is not an item that traditionally has been included as part of the value of the transaction.

LISTNUM 1 \l 1783              I just wanted to make clear I guess our objection is based on the fact that it seems to be a new departure from usual Commission practice in dealing with these things and it would have perhaps been appropriate to consider this type of thing in a broader context of a policy review or a review in terms of what should be included in a valuation.

LISTNUM 1 \l 1784              COMMISSIONER DUNCAN:  Thank you.

LISTNUM 1 \l 1785              MS BELL:  All right.

LISTNUM 1 \l 1786              COMMISSIONER DUNCAN:  The other thing I wanted to talk about was synergies.  Again that is part of the confidential information so we will try not to speak of the amount.

LISTNUM 1 \l 1787              But I'm looking at your letter of September 17th and the gist of it in the response to Question 21 is that the synergies you are feeling are attributed approximately equally to both Alliance Atlantis and to CanWest.

LISTNUM 1 \l 1788              But I think your argument is that the synergies shouldn't be added into the value of the transaction ‑‑ 100 per cent of the synergies shouldn't be added into the value of the transaction but only 50 per cent should be.


LISTNUM 1 \l 1789              So I'm having a little bit of trouble with that.  I'm just thinking we have been talking here earlier about the shows from Alliance Atlantis that might air on conventional stations and so I think there will be synergies obviously that CanWest will benefit from, but the whole group, I just find it difficult to justify not including the full amount for the purpose of calculating the tangible benefits.

LISTNUM 1 \l 1790              So if we could just hear your comments a bit on that, that would be helpful.

LISTNUM 1 \l 1791              MR. O'LEARY:  Yes.  We did answer that in the written response and I think I can elaborate and it may help crystallize this.

LISTNUM 1 \l 1792              Our objective in doing the valuation was to come up with fair market value for the business and its components.  That is the point as the highest price, which is consistent with the multiples.

LISTNUM 1 \l 1793              We did the same thing that we would do on any evaluation on this one.  You want to work with a forecast that for the subject business includes a fair allocation of synergies.  When you get into cost synergies for example they will ultimately be shared between different segments of the business because you are cutting things that they share.  If you don't do that, you end up with improper financial reporting going forward.


LISTNUM 1 \l 1794              So the valuation exercise is consistent with the way that the company would ultimately report.

LISTNUM 1 \l 1795              CanWest did retain an outside consultant to help them allocate the synergies and our firm was allowed to speak to them, speak to CanWest about how that allocation was made and to get comfortable with the forecast and that it was suitable for our purpose.

LISTNUM 1 \l 1796              What we were looking for was a forecast that included the subject company's share of the synergies.  That allows them to move forward in the right way.  Our valuation is consistent with the way that the company will report, assuming they achieve those results.

LISTNUM 1 \l 1797              We were satisfied that that allocation was done in a reasonable manner.


LISTNUM 1 \l 1798              When we do the valuation we look at more than one approach, we look a multiples as well.  You could argue the multiples are at the upper end of the scale here, but it is consistent with the size of the deal, the importance of the deal, and so on.  So we were comfortable with that, but it does serve as a check.  So you have  one approach that is based on purely historical data, no synergies.  You have another one that involves looking at the forecast which includes the Alliance synergies.

LISTNUM 1 \l 1799              There are some offsets.  Any buyer would expect to achieve synergies in their own business, but there is also a lot of risk around synergies, a lot of risk around integration of the businesses and the teams and what practitioners tend to do is use reasonably low discount rates that don't really say, "Well, there is this integration risk, a lot of risks around the deal that maybe we should add onto that discount rate".

LISTNUM 1 \l 1800              So you have a reasonably conservative discount rate which partly recognizes that if you don't achieve the synergies in one business maybe you are going to get some over here.  But the way businesses are priced, you just look at that subject company's forecast and you want to make sure that it is getting its fair share of the synergies.

LISTNUM 1 \l 1801              COMMISSIONER DUNCAN:  I am assuming from your comments, then, that in your opinion the synergies that we have been given are conservative?


LISTNUM 1 \l 1802              MR. O'LEARY:  No, no, that's not the case at all.  In fact, they are approximately a third of the existing EBITDA of the business and they need to do a lot of positive change quickly to hit their forecast.  There is a lot of growth in that forecast.

LISTNUM 1 \l 1803              CanWest did a very rigorous analysis of their forecast, they had senior management involved, they allowed us to review that forecast before it was complete to give our input, to compare it to historical growth trends, to compare it to other transactions that we are aware of, and we felt the overall growth was reasonable and we were comfortable that this forecast was suitable for our valuation.

LISTNUM 1 \l 1804              COMMISSIONER DUNCAN:  I'm just thinking, we are not trying to influence how these numbers will be reported in the future, that is not our objective.  We are just trying to arrive at a reasonable value for the purposes of calculating tangible benefits.  So that is the reason that we are thinking that the full amount of the benefit should be ‑‑ of the synergies should be added.

LISTNUM 1 \l 1805              MR. O'LEARY:  Yes.  That is not the way we would perform these valuations.


LISTNUM 1 \l 1806              On this deal, or any other deal, we look at what the results of the subject company are going to be and the market in the rates of return and so on does allow, by having lower returns and so on, like 8 to 8.5 per cent is what the whack was for this business, which is fairly conservative for the magnitude of what has to be done here to integrate them.  The market does account for that in many ways.

LISTNUM 1 \l 1807              We are comfortable that this is consistent with the way we do each and every valuation and it is appropriate to have a fair allocation and then to take that forecast cash flow for Alliance and come up with what we believe to be the appropriate discount rates and get a value.  That value does jive and is approximately the same as our multiples approach.  As I mentioned, we are at the upper end of the scale here, to a large extent, on the multiples that we used, but we felt that was reasonable given the size and importance of the deal.

LISTNUM 1 \l 1808              COMMISSIONER DUNCAN:  I gather from your letter, your response in September, that you don't feel that any of the synergies that are going to be realized by CanWest should figure into the calculation of the transaction value for the purpose of calculating tangible benefits.


LISTNUM 1 \l 1809              MR. ASPER:  From the buyer's perspective it's a bit circular, because the very existence of those synergies is what allows for a higher purchase price and therefore a higher benefits number.  So you are counting them one way or the other.  You are counting them, because there wouldn't be the $1.5 billion paid for the business, there would be a lower number if there weren't the synergies.

LISTNUM 1 \l 1810              I think it is also worth pointing out, further to your comment about programming, we would pay.  As we move programming back and forth to different networks there is a price.  The buyer, the user of that programming pays.  There is transfer pricing.

LISTNUM 1 \l 1811              The issue for us why we like the transaction is the access to those programs, the ability to even do that, you still have to pay an accountant for it.

LISTNUM 1 \l 1812              COMMISSIONER DUNCAN:  Just an aside to that, because I'm picking up on something that struck me when I was listening earlier.

LISTNUM 1 \l 1813              The promotion, when you promote on the other services, when you do cross‑promotion, do you bill there as well each other, even if it is on paper?

LISTNUM 1 \l 1814              MR. ASPER:  We do.  Yes, we do.


LISTNUM 1 \l 1815              Again, the benefit is just the access, the fact that one could do it.  What's better about these being ‑‑ today we could go to Alliance Atlantis as a arms‑length party and try to acquire promotion time and vice versa on their networks, but it would be a question of whether they felt like doing it.  The price might be higher.  I mean there are in‑house rates and there are most‑favoured‑nation rates.

LISTNUM 1 \l 1816              So that is the benefit of the transaction, is just the access.  We still have to fully account.  We have two different shareholders, or different sets of shareholders between Global and CW Media in this case.

LISTNUM 1 \l 1817              COMMISSIONER DUNCAN:  Thank you.

LISTNUM 1 \l 1818              MS LOCK:  If I may, sorry?

LISTNUM 1 \l 1819              I look at the value of the assets for benefits purposes in the context of the total purchase price, and the total purchase price did come down from the time at which Ernst & Young did the valuation from 1447 I believe down to 1402 million, $1.4 billion.  On that we have proposed to pay benefits on $1.369 billion in terms of the valuation.

LISTNUM 1 \l 1820              So in the context of the purchase price we propose to pay benefits on all the $33 million of the purchase price.  When you look at the assets required outside the assets that do attract benefits, $33 million does not cover the value of those assets, so I am not sure as to the relevance of the valuation of the benefits that are going to accrue to Global Television in terms of when we have proposed to pay benefits on the acquisition price of the business.


LISTNUM 1 \l 1821              COMMISSIONER DUNCAN:  I am sorry, I am just not quite ‑‑

LISTNUM 1 \l 1822              Just let me get my little schedule.

‑‑‑ Pause

LISTNUM 1 \l 1823              COMMISSIONER DUNCAN:  It seems that I have lost it.

LISTNUM 1 \l 1824              At any rate, I don't quite get your comment.  Maybe you want to just ‑‑

LISTNUM 1 \l 1825              MS LOCK:  I just refer back to the August 15th exhibit of the purchase price allocation, and in that allocation the purchase price associated with all of the broadcast assets is 1402, ending in 489, as you had pointed out earlier.

LISTNUM 1 \l 1826              That is the total purchase price of the acquisition, and we have, based on the valuation, proposed to pay benefits on all but $33 million of that purchase price.

LISTNUM 1 \l 1827              I am not sure ‑‑ I think the discussion of valuation of the synergies that may accrue to Global Television is a little bit academic, in that we have already proposed to pay the benefits on the purchase price.


LISTNUM 1 \l 1828              COMMISSIONER DUNCAN:  Except that in that letter ‑‑ not to belabour it, but in that September letter it sounded ‑‑ I think it is clear, and it is clear from the conversation here that the synergies realized by CanWest, which represent 50 percent of the total synergies, are not factored into the calculation.

LISTNUM 1 \l 1829              MS LOCK:  They are not factored into the valuation that was done by Ernst & Young.

LISTNUM 1 \l 1830              COMMISSIONER DUNCAN:  Yes, and they are not factored into the calculation at this point.

LISTNUM 1 \l 1831              MR. O'LEARY:  The valuation is the fair market value of the business, which is, again, the highest ‑‑ the definition, by itself, is the highest price payable by prudent parties.  That is the standard we used.

LISTNUM 1 \l 1832              COMMISSIONER DUNCAN:  Thank you, Mr. O'Leary, I understand that.  I don't think I am questioning that.

LISTNUM 1 \l 1833              THE CHAIRPERSON:  If I understood you correctly, Mr. Asper, you said that all of this is irrelevant because it is reflected in your purchase price.

LISTNUM 1 \l 1834              You wouldn't have bid that much if there weren't the synergies to your company.


LISTNUM 1 \l 1835              MR. ASPER:  Yes.  The way I would put it is, they are factored into the purchase price, but not the valuation.  But, effectively, they are the same thing.

LISTNUM 1 \l 1836              COMMISSIONER DUNCAN:  Thank you.

LISTNUM 1 \l 1837              Thank you, Mr. Chairman.

LISTNUM 1 \l 1838              THE CHAIRPERSON:  Okay.  That takes us to benefits.

LISTNUM 1 \l 1839              Commissioner Arpin.

LISTNUM 1 \l 1840              COMMISSIONER ARPIN:  Thank you, Mr. Chairman.  I have a few questions regarding the benefit package that you have put before us.

LISTNUM 1 \l 1841              My first line of questioning will deal with the issue of the period in which you want to have these benefits expended.

LISTNUM 1 \l 1842              My first question is fairly basic.  Could you elaborate on the necessity to increase the time period to 10 years, rather than 5 or 7 years as is customary for tangible benefits?

LISTNUM 1 \l 1843              MS WILLIAMS:  Yes, we would be happy to, actually, because a lot of time and attention, from our point of view, went into crafting this benefits package, and not just assuming either a historical guidance or a one‑size‑fits‑all strategy.


LISTNUM 1 \l 1844              I am actually going to ask my colleague Christine Shipton to take you through the specifics of the 10‑year plan.  Christine has probably touched more original Canadian drama in this country than almost anywhere else, so I think she brings a real perspective to what is needed and why this 10 years makes a lot of sense.

LISTNUM 1 \l 1845              MS SHIPTON:  Thanks, Barb.

LISTNUM 1 \l 1846              I have to say that when we designed the benefits package I actually welcomed the 10‑year range, only because, in my experience, especially with drama over the last 20 years in this country, it just hurts us if we rush the process.

LISTNUM 1 \l 1847              As we have said in our submission, Commissioner, we have taken the cradle‑to‑grave approach, which is not just starting at development, it is actually starting at training.

LISTNUM 1 \l 1848              Training and development means finding the right talent and the new talent that is in this country.

LISTNUM 1 \l 1849              We have allowed for and have proposed a payment plan over that 10 years that allows for initiatives to get out of the gate rather quickly.  We are not seeing that there aren't projects that couldn't start quickly, but, really, we want to make sure we are doing this right.


LISTNUM 1 \l 1850              The goal, as we have said, is to make sure that we have a sustainable infrastructure in our production community that is producing great drama and bringing other people through the system that will then produce great drama.

LISTNUM 1 \l 1851              MS WILLIAMS:  I think, sir, we also acknowledge that this is an interesting time in our industry.  There is a lot of consolidation.  There is a lot of change.  There is a lot of benefits money, frankly, that is out there.

LISTNUM 1 \l 1852              We are, again, looking to a sustainable production community, and looking to be able to manage the money to take advantage of the great projects when they are there; not putting a stress and strain on a community that is suddenly potentially overloaded, relatively, with dollars, but trying to be sure that we can sustain this industry as much as possible over a longer period.

LISTNUM 1 \l 1853              COMMISSIONER ARPIN:  I am looking at the table that you have attached to your reply dated June 13, where you spread it out over a 10‑year period. I note that, finally, if I could boil it down to, particularly, on‑screen and other related programming, there is an amount of $90 million, which, based on your 10‑year plan, will come up to be an average of $9 million per year.  Over a 7‑year period it would be $12.8 million.


LISTNUM 1 \l 1854              If I look at the CTV situation when BCE came into play, a similar amount was $140 million, committed over a 7‑year period.  So it would be an average of $20 million per year that CTV expended ‑‑ and still is, as a matter of fact.

LISTNUM 1 \l 1855              Could you tell us, taking into consideration the perspective that you just gave us, what you have seen as negative in the money that flowed from CTV at the speed of $20 million per year, and how negative it was?

LISTNUM 1 \l 1856              MS WILLIAMS:  I think there are a couple of thoughts.  One is, I think it would be fair to say that the money coming from CTV was coming at a unique time and was more alone in the system than the collective moneys that are going to be out in the system now.  I think that is part of the answer.

LISTNUM 1 \l 1857              I think part of the answer, also, is what Christine mentioned, which is that there is nothing in this plan that suggests that we can't go more quickly, or that we couldn't go and put $20 million right away in that first year, if that is what we found the creative process suggested we should do.


LISTNUM 1 \l 1858              But one of our experiences in this is that one actually can't manage the creative process on a nice, tidy, finance chart, despite the inclination of some parts of the company sometimes to suggest we should.

LISTNUM 1 \l 1859              And we really look forward to the opportunity to following the creative process here and being sure that when the right ideas are there we can properly develop them, and we can pilot them, which is something that, in Canada, we have not had the great luxury of doing.  It is something that we look at rather enviously to our partners in the south, their ability to pilot and take the time to see what really works and where a project might go.

LISTNUM 1 \l 1860              So to take the time to pilot, and then green light, and then be sure that we have the right timelines to allow us to market and promote properly, as opposed to meeting some deadline that says:  We have to rush some money out the door to hit a timeline that hasn't proven to be as supportive of the creative process as it would like.

LISTNUM 1 \l 1861              I guess we are pleading flexibility for the creative side of ourselves.

LISTNUM 1 \l 1862              COMMISSIONER ARPIN:  I am hearing the programming people saying that if the programming is right, they are ready to put in $20 million.  The business people ‑‑ the CFO, what is his view about putting up $20 million immediately to support new Canadian programming?


LISTNUM 1 \l 1863              MR. ASPER:  There is probably no point in asking the CFO at this point.

‑‑‑ Laughter / Rires

LISTNUM 1 \l 1864              COMMISSIONER ARPIN:  Or the CEO.

LISTNUM 1 \l 1865              MR. ASPER:  Every year we know that we have to spend money in various areas on programming ‑‑ the development of it, the training ‑‑

LISTNUM 1 \l 1866              We see as even valuable supporting those institutions that train the writers and directors of the future, and producers.

LISTNUM 1 \l 1867              But we know that there is a development budget in the company, and we know that there has to be, and we are betting by this acquisition that these channels can help Global, as well, in addition to Global helping them have a bigger development budget to find those hits.

LISTNUM 1 \l 1868              With the collectivity of these channels, we will be able ‑‑ everything comes back to scale.  The larger a company you are, the more you can put out there to try to get that home run.  It goes to programming, it goes to investment in infrastructure, in talent ‑‑ all aspects of the business.


LISTNUM 1 \l 1869              COMMISSIONER ARPIN:  You just raised another flag.  The general purpose of those tangible benefits is usually to help out the new organization that you are buying to develop themselves to have much better programming.

LISTNUM 1 \l 1870              Now, if what you are suggesting here is that part of that money ‑‑ and I know it is part of your plan ‑‑ is to be used by Global itself, which is that the news component is to the benefit of ‑‑

LISTNUM 1 \l 1871              There is no doubt in my mind that it is for the benefit of Global, because there are no news services in Alliance Atlantis, the purchase services.

LISTNUM 1 \l 1872              What is the rationale for making use of a portion of that money for the benefit of Global?

LISTNUM 1 \l 1873              MS BELL:  You are referring specifically to the news initiatives?

LISTNUM 1 \l 1874              COMMISSIONER ARPIN:  Yes.  That is the one that is the most obvious.

LISTNUM 1 \l 1875              In the other instances there might be other cases, but from the record it is not that obvious.

LISTNUM 1 \l 1876              In the drama area, I would probably think that there will be some benefits that could flow to Global, but it is not clearly laid out, while the news aspect is clearly laid out.


LISTNUM 1 \l 1877              MR. ASPER:  Just to clarify what I meant, I meant that a byproduct of the success of the development of Alliance Atlantis may be the creation of those hits that Barb and Walter talked about earlier that could get larger audiences on the Global television market or E! or something like that.  But there is no ‑‑ I don't ‑‑ there is no money development or money in that benefits package other than the news that is directly going to Global or any of the Global group stations.

LISTNUM 1 \l 1878              MS BELL:  In terms of the news initiatives, Vice‑Chairman, we think that it's completely within the benefits policy.  In fact, news enhancements or public affairs programs are in fact cited in the benefits policy as acceptable tangible benefits.

LISTNUM 1 \l 1879              The Commission also in its benefits policy takes a flexible approach in terms of how many of the benefits would be specifically attached to the assets being acquired or local benefits and system‑wide benefits.  We see news and public affairs as a system‑wide benefit.  It is not a large proportion of the benefits package but we think it's very much in the public interest and we feel that it's completely consistent with a benefits policy.


LISTNUM 1 \l 1880              COMMISSIONER ARPIN:  Is it really in the public interest or is it in the global interest to develop foreign bureaus so that they are in a better position to compete with the other incumbents?

LISTNUM 1 \l 1881              MR. ASPER:  Steve Wyatt, our Vice‑President, News, to answer the question.

LISTNUM 1 \l 1882              MR. WYATT:  We believe that it does benefit the system for a couple of reasons.

LISTNUM 1 \l 1883              Obviously, yes, it will benefit Global's news operations to expand our reach around the world.  But you know bureaus have come an important part of broadcasting generally in that we can use these facilities around the world to open access to corners of the world where our independent producers that work with us on documentary development can gain access to material, and we would use these bureaus to support that activity as well.

LISTNUM 1 \l 1884              In terms of benefiting the system, you know, we had a bull's eye with the development of Global National as part of our benefits package under the WIC acquisition.  And I think this is an extension of that, really, to demonstrate that by extending our region out globally, well, we don't really exist at all now.  You know, the growth of that program, the Canadian public has responded to in great numbers will, you know, take it to its next phase.  And again, we can use those facilities to give access to our independent producer partners to extend their reach as well.


LISTNUM 1 \l 1885              COMMISSIONER ARPIN:  The table that you filed with your June 13 report shows that ‑‑ and it's based on a calculation that Ernst & Young has made ‑‑ it equates to $70 million, expenditures of $70 million over a seven‑year period or $64 million over a 10‑year period.

LISTNUM 1 \l 1886              When I'm looking at the calculation that you have made are you somehow suggesting that CanWest is ready to immediately set aside that amount of money; either one or the other scenario?

LISTNUM 1 \l 1887              MS BELL:  I am sorry.  I am not sure what ‑‑ are you looking ‑‑ which schedule are you looking at?  I apologize.

LISTNUM 1 \l 1888              COMMISSIONER ARPIN:  Well, I'm looking at the June 13 letter; the attachment to the June 13 letter and that we were discussing a few minutes ago.

LISTNUM 1 \l 1889              MS LOCK:  I believe that that was in response to the Commission's request that we calculated was the present value of the benefits ‑‑

LISTNUM 1 \l 1890              COMMISSIONER ARPIN:  Yes.

LISTNUM 1 \l 1891              MS LOCK:  ‑‑ over seven years versus 10 years would be.

LISTNUM 1 \l 1892              COMMISSIONER ARPIN:  Yes.


LISTNUM 1 \l 1893              MS LOCK:  So that was simply the response, our response to the Commission.

LISTNUM 1 \l 1894              COMMISSIONER ARPIN:  So it's not a suggestion that CanWest makes that they immediately cut the cheque and put it into a fund?

LISTNUM 1 \l 1895              MS LOCK:  No.

LISTNUM 1 \l 1896              MS BELL:  No, and I think also when we did that exercise ‑‑ I don't have the chart in front of me, but I think we were asked to do this over a 10‑year period if they were equal payments, and that's not at all how we have planned this.  The strategy is not to be making equal payments.

LISTNUM 1 \l 1897              COMMISSIONER ARPIN:  No.

LISTNUM 1 \l 1898              MS BELL:  Yes.

LISTNUM 1 \l 1899              COMMISSIONER ARPIN:  That is clearly ‑‑

LISTNUM 1 \l 1900              MS BELL:  Yes, it's a specific exercise, yes.


LISTNUM 1 \l 1901              COMMISSIONER ARPIN:  Now, I need to ask you a question based on ‑‑ while we are not ‑‑ there is going to be an opportunity in early February to discuss the CTF report, but there is your recommendation in the CTF report that says that the CTF board should consider when establishing the broadcast performance envelope any self‑administered benefits money approved by the CRTC to be allocated during that year, because I know that you want to manage all the funds that ‑‑ except the money that will go to Hot Docs ‑‑ the other funds that you are contemplating to invest that has tangible benefits will be managed by CanWest.

LISTNUM 1 \l 1902              Now, could you comment on the proposed ‑‑ the proposed taskforce recommendation?

LISTNUM 1 \l 1903              MS BELL:  Just from ‑‑ and I will begin and then I will ask Barb Williams to chime in.

LISTNUM 1 \l 1904              But just from a procedural fairness issue you have had a number of other large transactions before you this year and both CTV and Rogers, for example, have large benefit packages that are going into programming that they are self‑administering.  So it would be from a fairness standpoint or a public policy standpoint, I think, a little unfair to ask CanWest then to take a different approach at this point in time.

LISTNUM 1 \l 1905              THE CHAIRPERSON:  I asked him the same question.  There is no question of unfairness here.  I put exactly that same question to Rogers.

LISTNUM 1 \l 1906              MS BELL:  All right.

LISTNUM 1 \l 1907              THE CHAIRPERSON:  So get ‑‑

LISTNUM 1 \l 1908              MS BELL:  Did they answer the same thing?


‑‑‑ Laughter / Rires

LISTNUM 1 \l 1909              THE CHAIRPERSON:  Well, they didn't talk about procedural fairness.  They didn't say anything was a good idea.  So that's why we are asking you.

LISTNUM 1 \l 1910              MS BELL:  Actually, it may not be procedural.  It may be the wrong term but it's certainly competitively unfair.  There you go.

LISTNUM 1 \l 1911              Barb?

LISTNUM 1 \l 1912              MS WILLIAMS:  We also think what we have suggested is a good idea and let me tell you why and Christine Shipton, I know, will want to add to this.

LISTNUM 1 \l 1913              We actually thought carefully about the self‑direction question and we thought carefully about drama versus documentary.  Again, I reiterate just to speak to the care and attention we took with the development of this benefits package, and we do see a difference frankly between what the drama community may best be served by and what the documentary community may best be served by.


LISTNUM 1 \l 1914              And specifically, in the area of drama we acknowledge that it is still a challenged area for us as a Canadian industry.  We do not ‑‑ you know, we have not yet reached the levels of success that I think we would all like to be at or that we think we can attain.  And in an effort to best use the substantial benefits dollars to get us there, we believe that in fact CTV has demonstrated with their benefit package why what they did works and, hence, why we are suggesting we do the same thing.

LISTNUM 1 \l 1915              It focuses all the time and attention on the creative process as opposed to the financing structure which is often where the emphasis ends up going when it's managed by a fund and has other financing pieces that have to be compiled to pull it together.  It's one stop shopping for the producer which, again, gives the producer the confidence that they can focus on the creative when they bring that project in the door and not be worried about any of the other surrounding issues that sometimes complicate things when you are working as part of a funding agency.

LISTNUM 1 \l 1916              It provides certainty for producers that the financing is really going to be there in its totality should the creative be the right project.  It keeps the emphasis, we believe, where it needs to be there and allows us to be most efficient with those dollars and most effective with those dollars.


LISTNUM 1 \l 1917              The documentary community, frankly, is in a bit of a different place and it's why we chose to do it differently.

LISTNUM 1 \l 1918              And Christine, maybe you want to speak to why we made that choice there.

LISTNUM 1 \l 1919              MS SHIPTON:  The documentary community is one that's flourishing, we believe, in this country and there is a real need for that gap financing and that kind of gap financing is best administered by a third party.

LISTNUM 1 \l 1920              And also, we also felt that it was important that all documentary producers benefit from that, whether their broadcast licence be with the CanWest or an Alliance Atlantis channel, but for any of the broadcasters attached.

LISTNUM 1 \l 1921              MS WILLIAMS:  There is an enormous amount of shelf space out there for documentary production which just makes it a bit of a different place than drama and there was this acknowledged organization called "Hot Docs" that the documentary community really supports and actively underscores that we thought was the right place to hold that money.  There is not a comparable organization, frankly, in the drama community.


LISTNUM 1 \l 1922              COMMISSIONER ARPIN:  Now, in your reply to one of the Commission's questions ‑‑ it was question 28 ‑‑ your reply of June the 1st, you are dealing with the documentary section and you say that you have put a provision for completion financing of independent documentary production and the creation of a $1 million development fund.

LISTNUM 1 \l 1923              And you have said in answer to 28(c), and you gave an example was ‑‑ you referred to closed captioning and stating that it's merely an example of the many elements that could be covered by this program.

LISTNUM 1 \l 1924              Could you for the record clarify what other elements will be ‑‑ could be found also by this initiative?

LISTNUM 1 \l 1925              MS SHIPTON:  I don't think it so much specifying specific elements.  It is when a budget is put together for a documentary it includes all it takes to produce that documentary, and closed captioning is one of the elements.

LISTNUM 1 \l 1926              And in our system today documentary filmmakers find that they are just ‑‑ they are often short the money.  Even though licence fees have been going up for documentaries in terms of accessing tax credits; other funds, they are continually finding that they have to defer their own fees even just to make sure the film gets made.


LISTNUM 1 \l 1927              So there isn't any specific elements.

LISTNUM 1 \l 1928              COMMISSIONER ARPIN:  The drama producers are making the same argument.

LISTNUM 1 \l 1929              MS WILLIAMS:  I would agree.  I think the difference is that the documentary community ‑‑ and I am going to make some generalizations here and there will be exceptions, I know, to what I am about to say, but generally speaking the documentary community has more financing options across more broadcasters' schedules than the drama producers do.  And generally speaking the drama budgets are far greater than the documentary budgets.


LISTNUM 1 \l 1930              And so generally speaking, that gap that the documentary producer faces is smaller.  The gap that the drama producer faces often is enormous and that's why a system that allows for some small gap financing on a fairly regular, predictable basis out of something like what we are suggesting with Hot Docs which serves the documentary community very well.  Whereas, what we are suggesting with the self‑directed funds when we need much larger chunks of money and the financing options are far fewer and the gap is much bigger, that self‑directing those funds and being sure we can really put significant amounts of money behind the right project at the right time makes much more sense for the drama community.

LISTNUM 1 \l 1931              COMMISSIONER ARPIN:  Now, am I right to understand that being managed by a third party like Hot Docs, anybody who does documentaries could go and ask for that financial support or is it only producers making documentaries for one of the components of Global or CanWest investment?

LISTNUM 1 \l 1932              MS SHIPTON:  It is for producers with broadcast licences from any broadcaster in Canada.

LISTNUM 1 \l 1933              COMMISSIONER ARPIN:  Both French and English or only English?

LISTNUM 1 \l 1934              MS WILLIAMS:  I'm not sure we asked ourselves that question, to be honest.

LISTNUM 1 \l 1935              THE CHAIRPERSON:  Well, maybe you could provide us the answer.

LISTNUM 1 \l 1936              COMMISSIONER ARPIN:  At some point in time.

LISTNUM 1 \l 1937              MS WILLIAMS:  We will provide that answer shortly.

LISTNUM 1 \l 1938              COMMISSIONER ARPIN:  I will deal with your response to question No. 23, which is on pages 14 and 15 of your June 1st letter.

LISTNUM 1 \l 1939              You dealt with the pilot projects for scripted drama and other priority programming, except that you did not define what qualifies as a pilot.


LISTNUM 1 \l 1940              Is it one episode or is it a number of episodes?

LISTNUM 1 \l 1941              MS SHIPTON:  A pilot is traditionally one episode, whether it's a 30‑minute scripted or a one‑hour scripted.

LISTNUM 1 \l 1942              COMMISSIONER ARPIN:  And in the event that a proposed program is terminated at the pilot stage, will this episode be broadcast at some point in time?

LISTNUM 1 \l 1943              MS SHIPTON:  Traditionally, it's not.

LISTNUM 1 \l 1944              COMMISSIONER ARPIN:  Similarly CS because they don't have CAFCP; they can't access their CAFCO.

LISTNUM 1 \l 1945              MS SHIPTON:  Then that would have to be taken into account, absolutely.

LISTNUM 1 \l 1946              COMMISSIONER ARPIN:  So whatever the quality of the pilot is?

LISTNUM 1 \l 1947              MS SHIPTON:  If the quality of the pilot is excellent and it stands alone and deserves to be broadcast, absolutely we would broadcast it.

LISTNUM 1 \l 1948              What I'm saying is it has to be taken into account.  When we go to approach the financing of the pilot with the producer, we would have to have that as a caveat.  There are no tax credits if we are not airing it.  We realize that.


LISTNUM 1 \l 1949              COMMISSIONER ARPIN:  Now, I have some questions regarding your program to digitalize archive footage.

LISTNUM 1 \l 1950              In your reply to question 34 of the June 1st letter, you said that this initiative shall be otherwise to CanWest since it had already been granted to CTV in the year 2000.

LISTNUM 1 \l 1951              Could you further expand on why a decision made in 2000 still applies today when it has become good business practice to digitize archives?

LISTNUM 1 \l 1952              MS BELL:  I don't think that it's ‑‑ many of the Commission's decisions in terms of what qualifies as benefits haven't changed dramatically in the last seven years.

LISTNUM 1 \l 1953              I think, as we said in our response, we are now digitizing all of our content or new content.  But in terms of the archives, we would not be undertaking that exercise because of the cost.

LISTNUM 1 \l 1954              I'll ask Steve Wyatt to expand on that.  We think it qualifies definitely as a benefit.


LISTNUM 1 \l 1955              MR. WYATT:  We are in the process right now of converting all our news operations to a digital processing platform.  What that means is that from the point that they are operating digitally, all of the material will be automatically archived in that format.

LISTNUM 1 \l 1956              We have vast libraries in our stations that are rich in history.  It would cost quite a bit of money to get that into a digital format, catalogue it and make it widely accessible, not only to us but again to our independent producer partners and documentary development and that sort of thing.

LISTNUM 1 \l 1957              We think there is a great benefit to that.

LISTNUM 1 \l 1958              Our first priority really is to get us to a level of digital production at our news operations first, and that's where we direct our resources.

LISTNUM 1 \l 1959              COMMISSIONER ARPIN:  If I hear well. Ms Bell's answer is that it only has value if there is a tangible benefit attached to it; otherwise, you are ready to scrap your archives.

LISTNUM 1 \l 1960              MR. WYATT:  Again, the benefit really is to make it accessible to a wide variety of people; to make use of it in the public airwaves.  That's where the real benefit is.


LISTNUM 1 \l 1961              MR. ASPER:  I think if I could just add some commentary about the process of capital expenditures and spending in our business, at least the way we operate is there would be a budget that someone like Steve and Kathy Dore and others would come forward with in any given year.  It would include a wish list of capital expenditures.

LISTNUM 1 \l 1962              I guess I can say quite clearly that this wouldn't make the list, at least the list that they walked out of the room with, because it would be behind all the high definition conversions, the creation of the digital newsrooms, the new software for the news service, the creation of the bureau in Ottawa that Kevin Newman and the Global national group are moving into, a long list of continuing expenditures on our sales system and other computer and IT related things.

LISTNUM 1 \l 1963              I think the point is this wouldn't be done.  We wouldn't scrap the archives.  They would probably sit there in a storage room for some time.

LISTNUM 1 \l 1964              When I look at how does this benefit the system, it comes back to if we do digitize it, there is a lot of good information, historical information and content there that will get to the screen, that Canadians will see, that will provide them more information about their country, and particularly its past, that they won't otherwise see.


LISTNUM 1 \l 1965              They might have some reference to it by a news announcer but if some event takes place now that has its roots back in ‑‑ I can think of a certain inquiry that might be taking place that's in the news today that involves a lot of footage that's 20 years old.  That now gets to the screen.

LISTNUM 1 \l 1966              COMMISSIONER ARPIN:  I'm cross‑referencing a good number of answers that you have given today.  At the outset you said that the WIC benefit package has served Global because it has allowed them to come up and build a big news operation that today is number one.

LISTNUM 1 \l 1967              Now comes the time that the technology allows to digitize the archives and the news gathering archives that you have, but the investment into programming that you have done so far has not benefited you enough to contemplate archiving, digitizing the archives for future use as a going concern.

LISTNUM 1 \l 1968              MR. ASPER:  Well, I guess it comes back to the priorities.  We would like to have 20 years of archives digitized, or 30 years.  But it is costly.  It ranks lower down on the list of things that we have to do and that are urgent in the sense that they are most relevant to our business success going forward.


LISTNUM 1 \l 1969              COMMISSIONER ARPIN:  It is costly but it is surely relative because, first, the amount that you have allocated to that program is not that big an amount.  I think if my memory serves me well, we are talking here $3.5 million over a seven‑year period.

LISTNUM 1 \l 1970              MS BELL:  It is five.

LISTNUM 1 \l 1971              COMMISSIONER ARPIN:  Five million.

LISTNUM 1 \l 1972              It is somehow labour intensive, but you have been talking about capital investment.  If we were to say yes, where will the money go: capital investment or manpower?

LISTNUM 1 \l 1973              MR. ASPER:  I guess I would put it in a basket of non‑usual operating expenses, whether it's capital or ‑‑ there's always a labour component to something that might get called a capital expenditure, as I say, whether it's high definition conversion or anything else.

LISTNUM 1 \l 1974              In a budgeting process it would be under a non‑operating expense, a capital expense effectively.

LISTNUM 1 \l 1975              COMMISSIONER ARPIN:  You have said in your reply that if the Commission was to approve the digitization of the archives that you would make them available at no cost to educational institutions and not‑for‑profit organizations.

LISTNUM 1 \l 1976              In not‑for‑profit organizations, are you including the CBC and TVO in that category?


LISTNUM 1 \l 1977              MS BELL:  No.

‑‑‑ Laughter / Rires

LISTNUM 1 \l 1978              MR. ASPER:  If it's mutual, if they were willing to do the same for us, certainly.

LISTNUM 1 \l 1979              MS BELL:  No.  And it's only rights‑cleared material obviously.

LISTNUM 1 \l 1980              COMMISSIONER ARPIN:  What type of not‑for‑profit organization were you contemplating when you wrote that reply?

LISTNUM 1 \l 1981              MR. WYATT:  We would share our material with educational institutions, journalism schools.  In cases where we would work with an independent producer in documentary development, we would make the archives available for that sort of thing.

LISTNUM 1 \l 1982              COMMISSIONER ARPIN:  As long as the documentary producer is working on a product for one of your operations.

LISTNUM 1 \l 1983              MR. WYATT:  Yes.

LISTNUM 1 \l 1984              COMMISSIONER ARPIN:  And if the Commission was to say no to that initiative, saying that it doesn't qualify as a tangible benefit, have you taken into consideration other initiatives to which you could allocate that money?


LISTNUM 1 \l 1985              MS BELL:  No, we haven't.  We thought you would accept it so we haven't given any consideration to that.

LISTNUM 1 \l 1986              If the Commission were to not accept any of the initiatives, we would have to get back to you and identify where we would reallocate those funds.

LISTNUM 1 \l 1987              COMMISSIONER ARPIN:  Regarding your social benefit now, you have identified some categories of recipients, but in some instances you haven't mentioned who will be those recipients.

LISTNUM 1 \l 1988              Could you provide us with an update with the one recipient that you have already agreed to support through this type of tangible benefit?

LISTNUM 1 \l 1989              MS BELL:  I believe that the only area where we did not identify recipients was the $2,010,000 that was going into festivals.

LISTNUM 1 \l 1990              The reason that we have done that, as we explained in the application, was simply because a lot of the festivals ‑‑ actually, festivals pop up from one year to the next; some of them discontinue.

LISTNUM 1 \l 1991              We felt that we would be I guess unfairly restricting ourselves if we identified all those groups.  And we would provide funding to a number of festivals over the period, including a number of diversity festivals.


LISTNUM 1 \l 1992              As you know, Vice‑Chairman, in the last few years especially in terms of diversity of organizations and festivals a lot of new initiatives have come up and they are very worthwhile.  We were concerned about locking people out if we gave you a definitive list.  That is the only initiative where we have done this.  Everywhere else, we have provided the name of the recipient.

LISTNUM 1 \l 1993              COMMISSIONER ARPIN:  Another social benefit that you have proposed is the broadcast diversity journalism program.  I understand from reading the submission that you have made and answering earlier questions that it is a project that will be made available to Global's news employees and you could expand it to include maybe APTN, as you say in one of your replies.

LISTNUM 1 \l 1994              If the Commission was to say that this is an interesting program but it doesn't fit the definition of a tangible benefit, would you still contemplate doing it only for your own employees?

LISTNUM 1 \l 1995              MS BELL:  Well actually, it involves local students, so it is not just for employees.  I think it would involve some employees but it actually is open for students to come and share ideas with people who work in journalism and broadcast journalism.


LISTNUM 1 \l 1996              But I am not in a position to answer the question as to whether or not we would go ahead with that project if it was not accepted as a benefit.

LISTNUM 1 \l 1997              COMMISSIONER ARPIN:  As you know, there was a similar program ‑‑ well, not similar because that one is tailored towards journalism but in the Astral/Standard acquisition, there were two training programs where the Commission concluded that they didn't meet the spirit of the benefit policy.

LISTNUM 1 \l 1998              I don't know if you have had a chance to see what the Commission said regarding the Astral/Standard project and if you have further comments to have your own projects qualify.  The Commission just a few weeks ago said that the training program presented by Astral didn't meet the letter and the spirit of the notion of tangible benefit.

LISTNUM 1 \l 1999              MS BELL:  Vice‑Chairman, I will look at that decision again and we can get back to you in the last phase if you like.

LISTNUM 1 \l 11000             COMMISSIONER ARPIN:  Okay, fine.  Thank you.

LISTNUM 1 \l 11001             So obviously, if we were to say that it didn't meet the spirit, you don't have today an alternative program?

LISTNUM 1 \l 11002             MS BELL:  That is correct.


LISTNUM 1 \l 11003             MR. ASPER:  I think I would make the comment that there is no shortage of those who would wish they were included in this package.

LISTNUM 1 \l 11004             COMMISSIONER ARPIN:  Well, Mr. Chair, those were my questions.

LISTNUM 1 \l 11005             THE CHAIRPERSON:  Thank you.

LISTNUM 1 \l 11006             Commissioner Duncan.

LISTNUM 1 \l 11007             COMMISSIONER DUNCAN:  I just have one question with regards to your response of August 20th to question 67 and it is dealing ‑‑ I am sorry, it is paragraph 67.

LISTNUM 1 \l 11008             MS BELL:  I was going to say I know we got a lot of questions but not that many.

‑‑‑ Laughter / Rires

LISTNUM 1 \l 11009             COMMISSIONER DUNCAN:  Paragraph 67.  In the third bullet there you say that you are willing to commit a minimum percentage of 60 percent to 10‑10 drama and then you go on to say that the remaining 40 percent will consist of scripted drama category programming below the 10‑10 threshold.

LISTNUM 1 \l 11010             I just wanted to clarify because on to the next sentence it mentions the 8‑10.  Can we read that 10‑10 to be ‑‑ that that would be the limit, you wouldn't go below 8‑10?


LISTNUM 1 \l 11011             MS SHIPTON:  We actually hadn't contemplated that.  We were hoping for flexibility to go as low as 6 out of 10.

LISTNUM 1 \l 11012             The rationale behind this is to somehow extend this amount of money to as many hours of drama as we can and that may mean having partners or other financiers that only allow us to do a 6 out of 10 drama.

LISTNUM 1 \l 11013             COMMISSIONER DUNCAN:  Would it likely ever be less than that?

LISTNUM 1 \l 11014             MS SHIPTON:  It would never be less than 6 out of 10, absolutely not.

LISTNUM 1 \l 11015             COMMISSIONER DUNCAN:  All right.

LISTNUM 1 \l 11016             COMMISSIONER KATZ:  It doesn't qualify.

LISTNUM 1 \l 11017             COMMISSIONER DUNCAN:  Six out of 10 is the lowest you can go?

LISTNUM 1 \l 11018             COMMISSIONER KATZ:  Yes.

LISTNUM 1 \l 11019             COMMISSIONER DUNCAN:  Okay.

LISTNUM 1 \l 11020             MS SHIPTON:  That is the lowest we can go.

‑‑‑ Laughter / Rires

LISTNUM 1 \l 11021             COMMISSIONER DUNCAN:  Okay, thank you very much.


LISTNUM 1 \l 11022             THE CHAIRPERSON:  Let me go back to the term of 10 years.  I am not too sure I understood your answer.  We traditionally ask for a benefits period of seven years.  You want to go 10 years and you give us a table setting out 10 versus seven years.

LISTNUM 1 \l 11023             What am I supposed to make out of this table?  If the Commission says, sorry, 10 is not on, it is seven and this is how you intend to spend the money?

LISTNUM 1 \l 11024             MS BELL:  I think we would have no choice at that point.

LISTNUM 1 \l 11025             But you are referring to the tables, the latest tables, not the present value tables because that is different?  The tables you are referring to are the ones where it is our proposed schedule?

LISTNUM 1 \l 11026             THE CHAIRPERSON:  Yes.

LISTNUM 1 \l 11027             MS BELL:  Okay.  Yes.

LISTNUM 1 \l 11028             THE CHAIRPERSON:  And in terms of the creativity, which is your point for wanting to stretch it to 10, run that by me again.  Why can you not exercise your creativity over seven years?  Why do you need 10 years?


LISTNUM 1 \l 11029             I mean we hear from the creative community here in every single hearing that there is a dearth of funds.  There are thousands of opportunities but money is not available.  So I find it somewhat difficult to accept that you need more than seven years to spend that money.  Obviously, there is a disconnect between the two sides and I am trying to figure out where it comes from.

LISTNUM 1 \l 11030             MS WILLIAMS:  I think the key point for us is that we are really trying to be sure that the money gets spent in the appropriate order to take us to the best chance of success.

LISTNUM 1 \l 11031             So we are really trying to take full advantage of the development phase, of the pilot phase, of the pre‑production phase of the process and not leap into commissioning too fast so that we are sure that when projects do get green‑lit that they are fully and properly developed and possibly even piloted so that we are sure they have the best chance of success.

LISTNUM 1 \l 11032             And even in advance of that, we are trying to do our very best to grow what is an important part of the whole community, which is the show runner and writer community, which many, many programs over the years have dedicated time and dollars to growing those aspects of the creative process and great results have come out of those training programs and there is a strong and flourishing community of writers in this country and a group of show runners.


LISTNUM 1 \l 11033             But as we put our money into the system, as other benefits money comes into the system, as we all aggressively start to put a lot of dollars into these projects, we want to be sure that they have the right creative teams behind them and they have the right time to be able to ensure that those projects develop at an appropriate phase.

LISTNUM 1 \l 11034             So we are really trying to slow the thing down a little bit, if you will, in an effort to put the real important emphasis in the upfront phase of this.

LISTNUM 1 \l 11035             All of which to say if that brilliant project comes through the door and it is our job to identify it, there will be no reason to stop, there is nothing to stop us from leaping in and leaping fast where we think there is suddenly something that deserves it.

LISTNUM 1 \l 11036             But we are recognizing that those huge, fantastic, instant hit projects, frankly, don't come through the door on a nice tidy timeline and they don't necessarily come in the door in huge, huge amounts either.  They take time and care and nurturing and crafting to get them to where they need to be.

LISTNUM 1 \l 11037             MR. ASPER:  Mr. Chairman, if I can just add one point to that.


LISTNUM 1 \l 11038             I think that we have to come back to what Barb said earlier in the answer, which is that this elongates the amount of time in which there is money in the system funding these kinds of projects because with these recent transactions there will be a seven‑year period where these benefit moneys come into the system and then there will be a sort of cliff that they fall off because that is the end it.  We thought it would be in the interest of the production community to stretch it out.

LISTNUM 1 \l 11039             So yes, while the quantum never quite meets the demand ‑‑ there really is infinite demand for production money ‑‑ at least it provides a longer period of time when some money is in the system.

LISTNUM 1 \l 11040             THE CHAIRPERSON:  I am not as bold as you as to predict what will happen in seven years, so I am quite prepared to work on a seven‑year timetable.

LISTNUM 1 \l 11041             But coming back to your point, surely, these are minima under your plan here.  So if you spot a hit that requires a lot of money, there is nothing preventing you from accelerating and making more money available?

LISTNUM 1 \l 11042             MS WILLIAMS:  That is right.

LISTNUM 1 \l 11043             THE CHAIRPERSON:  Secondly, you are going to self‑administer it but you are not going to charge a fee for self‑administration?

LISTNUM 1 \l 11044             MS WILLIAMS:  No.


LISTNUM 1 \l 11045             THE CHAIRPERSON:  I just want to confirm that because there has been some confusion about it.

‑‑‑ Laughter / Rires

LISTNUM 1 \l 11046             MR. ASPER:  It is a good idea though.

LISTNUM 1 \l 11047             THE CHAIRPERSON:  We have said on several occasions categorically that self‑administered funds can't charge a fee for self‑administration but there seems to be a difficulty in receiving the message.  That is why I wanted to confirm.

‑‑‑ Laughter / Rires

LISTNUM 1 \l 11048             THE CHAIRPERSON:  Okay, I think that ends our questions for you.  Thank you very much.

LISTNUM 1 \l 11049             We will take a break while the next intervener sets himself up.  Let's take a 10‑minute break.  Thank you.

LISTNUM 1 \l 11050             MR. ASPER:  Mr. Chairman, I just want to add one final point.

LISTNUM 1 \l 11051             I just want to let you know that we have heard your concerns very loudly and clearly and that we will endeavour over the time period between now and when we get back in front of you to address those in a very constructive way.

LISTNUM 1 \l 11052             THE CHAIRPERSON:  Thank you.  I hope I was sufficiently clear, especially on the issues of control and what our concerns are.


LISTNUM 1 \l 11053             MR. ASPER:  You were, thank you.

LISTNUM 1 \l 11054             THE CHAIRPERSON:  Thank you.

‑‑‑ Upon recessing at 1422 / Suspension à 1422

‑‑‑ Upon resuming at 1436 / Reprise à 1436

LISTNUM 1 \l 11055             THE SECRETARY:  Please be seated.

LISTNUM 1 \l 11056             THE CHAIRPERSON:  Madam Roy, go ahead.

LISTNUM 1 \l 11057             THE SECRETARY:  We will now proceed to Phase II in which intervenors appear in the order set out in the Agenda to present their intervention.

LISTNUM 1 \l 11058             We will now hear the presentation from the Council of Canadians.

LISTNUM 1 \l 11059             Please introduce yourself and your colleague and then you will have 10 minutes to make your presentation.

LISTNUM 1 \l 11060             Thank you.

INTERVENTION

LISTNUM 1 \l 11061             MR. NEIL:  Thank you very much.  Thank you, Mr. Chairman, Commissioners.

LISTNUM 1 \l 11062             My name is Garry Neil, I am a Toronto‑based Cultural Policy Issues Consultant and a Member of the Board of Directors of the Council of Canadians.  John Urquhart is the Council's Executive Director here in Ottawa.


LISTNUM 1 \l 11063             The Council is a citizen's movement which brings together tens of thousands of Canadians who are working for social justice, human rights and democracy.  The Council was formed in 1985 with the objective of maintaining Canada's political, economic and cultural sovereignty.

LISTNUM 1 \l 11064             Our core campaigns are around fair trade, public health care, water as a human right and Canadian energy security.  We continue to oppose efforts to integrate Canada into the United States, the latest iteration of which is found in the guise of the Security and Prosperity Partnership and in the North American Competitiveness Council.

LISTNUM 1 \l 11065             The Council supports efforts to build a strong broadcasting system that meets the needs of Canadians.  Some of the key elements are:  diversity in ownership; diversity in news, information programs and editorial content; strong well‑resourced and effective public service broadcasters, and a reasonable supply of high‑quality Canadian programming choices in every genre.

LISTNUM 1 \l 11066             We need to have access to our own stories, music and dance in the most powerful media that exists today.


LISTNUM 1 \l 11067             We do not intervene regularly in the CRTC public processes ‑‑ John was pointing out it is about a decade since he was last here ‑‑ because we have other priorities.  Many of our members and partners are closer to the issues, have the technical expertise and are doing a good job raising the relevant concerns, and Canada's Broadcasting Act provides a sound framework to support the kind of broadcasting system we want.

LISTNUM 1 \l 11068             However, the present application raises an issue of such fundamental importance we felt we had to add our voice.

LISTNUM 1 \l 11069             While the federal government has begun to question the limits on foreign ownership of Canadian broadcast cable telecommunications and cultural industry firms, the present laws and policies are clear:  The Canadian broadcasting system must be effectively owned and controlled by Canadians and the Commission is prohibited from issuing or renewing a licence to any company that is owned or controlled by non‑Canadians.


LISTNUM 1 \l 11070             The reasons for this strong policy are clear:  Canadian owners are more likely to be interested in our culture and our stories.  More importantly, since market forces alone cannot provide Canadians with a reasonable supply of Canadian television shows, news, information, movies books and magazines, we need to regulate the marketplace through public policies and support programs.

LISTNUM 1 \l 11071             There are a few constraints on our ability to regulate Canadian firms.  Our ability to regulate those that are owned and controlled by non‑Canadians is increasingly proscribed, particularly by trade and investment agreements.

LISTNUM 1 \l 11072             Let's turn now to why the Council is concerned about the present application and I will ask John to begin.

LISTNUM 1 \l 11073             MR. URQUHART:  Thank you, Garry.

LISTNUM 1 \l 11074             Like many others who intervened in this process, we believe that Goldman Sachs and its subsidiary companies which are non‑Canadian will have de facto control of the Alliance Atlantis Broadcasting assets.  What's more, as a result of the convoluted deal Goldman Sachs may well end up owning and controlling the broadcasting licences currently owned by CanWest since these will be contributed in 2011 to the jointly own company.

LISTNUM 1 \l 11075             While the lawyers appear to have found a way to ensure that the day‑to‑day management of the combined operation will be in Canadian hands, two factors point to Goldman Sachs and its affiliates having de facto control of the jointly owned company.


LISTNUM 1 \l 11076             One, a non‑Canadian investor will own 65 per cent of the equity and therefore will have most of the risk and reward from the financial performance of the company.  Among other things, this also means that 65 per cent of the profits earned by the company will flow out of the country and be unavailable for reinvestment in the digital transition, the development of new distribution systems, among other priorities.

LISTNUM 1 \l 11077             Two, the complicated financial deal requires CanWest to contribute its own Canadian broadcasting assets to the company in 2011.  Since the final equity stake of each partner depends on the financial performance of the regulated assets over the next four years, CanWest must maximize cash flow, minimize debt and achieve the rate of return needed by Goldman Sachs.  While these objectives are fine for Goldman Sachs, they may not be the same ones that the Commission will set for CanWest over the same period.

LISTNUM 1 \l 11078             Because they use public airwaves and benefit from other policies, CanWest, Alliance Atlantis Broadcasting and others are required to fulfil public policy objectives enunciated in the Broadcasting Act and these sometimes may be contradictory to maximizing profits.


LISTNUM 1 \l 11079             I will ask Garry to conclude our remarks by briefly talking about the potential implications under the North American Free Trade Agreement of permitting Goldman Sachs to own and control a Canadian broadcasting company.

LISTNUM 1 \l 11080             MR. NEIL:  Thanks, John.

LISTNUM 1 \l 11081             Before I do that let me just say that when the deal was first announced many months ago a senior broadcasting executive said to me "Garry, this deal is not about CanWest taking over Alliance Atlantis, this is about Goldman Sachs taking over both CanWest and Alliance Atlantis."  I think that is really a summary of the concern the Council has about this specific application.

LISTNUM 1 \l 11082             We obviously don't have time to explore fully the international trade implications of permitting foreign ownership of Canadian broadcasters or cable companies, however we do have enormous concerns about the implications of NAFTA's Chapter 11 which provides foreign investors with a right to sue the Canadian government and seek compensation for government actions, including those of regulatory agencies such as the Commission, which investors believe violate their rights under NAFTA.


LISTNUM 1 \l 11083             The only case to date addressing a cultural matter is the action launched by UPS alleging that Canada Post was cross‑subsidizing its courier business from its monopoly over mail delivery.  In the case UPS challenged the Publications Assistance Program of the Department of Canadian Heritage which subsidizes the costs of delivering Canadian publications through the mail.

LISTNUM 1 \l 11084             In a May 2007 decision the Tribunal ruled against UPS on this issue, however there are several worrisome factors.

LISTNUM 1 \l 11085             First, the Tribunal felt it had jurisdiction to consider the issue in the first instance, despite the so‑called cultural exemption which it categorized as a cultural industries exception.  Thus, it would feel free to hear and rule on any future case involving broadcasting or cable and we would have trade experts deciding on potentially sensitive cultural issues.

LISTNUM 1 \l 11086             The WTO panel decision in the Canada Periodicals case is a striking example of what can happen in such circumstances.

LISTNUM 1 \l 11087             Two, when UPS entered Canada it was, or at least should have been, fully aware of PAP.  If the government were to have changed the rules after UPS established in Canada the case may have played out differently.


LISTNUM 1 \l 11088             Three, the NAFTA cultural exemption is limited in any case to the cultural industries as they were defined in the original Canada‑U.S. Free Trade Agreement.  Importantly for our purposes today the definition may well not include new media since that medium was unknown in 1988.

LISTNUM 1 \l 11089             Finally, in a minority statement one of the Tribunal Members concluded that Canada did indeed violate its NAFTA National Treaty obligation in respect of the Publications Assistance Program.

LISTNUM 1 \l 11090             We have urged in our written submission that the Commission study the potential implications of trade agreements in Chapter 11.  However, in the shorter term we believe the Commission must reject the current application because Goldman Sachs will control in fact the regulated assets of Alliance Atlantis, thus the concern should remain hypothetical for the moment.

LISTNUM 1 \l 11091             Thank you, Mr. Chairman.  We would be happy to answer your questions.

LISTNUM 1 \l 11092             THE CHAIRPERSON:  Thank you very much.

LISTNUM 1 \l 11093             Point number two on page 2 of your presentation where you say:


"CanWest must maximize cash flow, minimizing debt and achieve a rate of return needed by Goldman Sachs.  While these objectives are fine for Goldman Sachs they may not be the same ones the Commission will have CanWest over the same period."  (As read)

LISTNUM 1 \l 11094             If instead of Goldman Sachs we put the Royal Bank of Canada, wouldn't exactly the same thing apply?

LISTNUM 1 \l 11095             MR. NEIL:  I'm sorry, I didn't hear that.

LISTNUM 1 \l 11096             THE CHAIRPERSON:  Instead of talking about Goldman Sachs we talked about the Royal Bank of Canada, would the same thing apply?

LISTNUM 1 \l 11097             The investor wants to have its money back, et cetera, and it happens to be in a U.S. bank not a Canadian bank.  But I don't see anything here that gives me reason to sort of see the concern that you see.  This is a normal tension between a company and its lender.

LISTNUM 1 \l 11098             What is the point you are trying to make here on point two?


LISTNUM 1 \l 11099             MR. NEIL:  First of all, it is not a company and its lender, it is a company which will be ‑‑

LISTNUM 1 \l 11100             THE CHAIRPERSON:  And it's investor, okay.  All right.

LISTNUM 1 \l 11101             MR. NEIL:  ‑‑ which will be 65 per cent owned by Goldman Sachs.

LISTNUM 1 \l 11102             The second thing is, let's consider that the Commission in its upcoming hearings when it's looking at renewing the licence for CanWest Global and the Global stations decides that it wants to introduce some very strong new regulations that would require them to spend substantially more money on Canadian drama and to broadcast that Canadian drama at times when Canadians are going to be watching it, then that could in fact, since scheduling U.S. drama is substantially more profitable for CanWest, it could affect its profitability.

LISTNUM 1 \l 11103             Similarly, if it were to impose new licence conditions on the Alliance Atlantis specialty services ‑‑ but I'm not sure when they come up for renewal ‑‑ then that could have an impact.


LISTNUM 1 \l 11104             That is the kind of thing that we are saying may in fact be what the Commission wishes the regulated assets to be doing in the future between now and 2011 that would be contradictory to the wishes of Goldman Sachs to maximize its investments in the new company.

LISTNUM 1 \l 11105             THE CHAIRPERSON:  I understand that point.  I see that potential conflict.

LISTNUM 1 \l 11106             My question was:  Wouldn't the conflict be just the same if the potential investor was a Canadian investor rather than a U.S. investor?

LISTNUM 1 \l 11107             MR. NEIL:  The Canadian investor would be, yes ‑‑ if it were simply a bank investing and having an equity stake would likely have the same kind of interest, but it is substantially easier then for the Commission to continue regulations because you are not dealing with the added burden of having a foreign investor with all that that implies.  But there is some ‑‑

LISTNUM 1 \l 11108             THE CHAIRPERSON:  Your real point is not the difference between Goldman Sachs and CanWest here, it's the fact you are worried about, as you point out in a later part of your presentation, it being a foreign investor and that foreign investor somehow engaging the trade agreement and rights thereunder in order to thwart the legitimate regulatory goals of the CRTC?


LISTNUM 1 \l 11109             MR. NEIL:  We also are concerned about the degree of control, in fact, that Goldman Sachs could exercise over the regulated asset.  We are far from being the experts in this process amongst the intervenors who will be tackling this issue, so we do have a concern there.

LISTNUM 1 \l 11110             But the additional concern that we have that, I think, has not been raised by other intervenors in this process is to look at the potential implications on the international trade side.

LISTNUM 1 \l 11111             THE CHAIRPERSON:  You heard Goldman Sachs this morning saying, as such:  We do not see ourselves as a strategic investor in the broadcast assets, but rather as a financial backer supporting CanWest.

LISTNUM 1 \l 11112             I had a long discussion with CanWest about control, and what is control, et cetera.

LISTNUM 1 \l 11113             If ‑‑ and it is a big "if", obviously, but if we can satisfy you that, in effect, they are a financial backer and not a strategic investor, would you then still say "Block this deal"?

LISTNUM 1 \l 11114             MR. NEIL:  I think it would be very difficult to satisfy us in a context in which the equity stake that they have in the company is so great.


LISTNUM 1 \l 11115             Also, when you consider that after 2011, with the merger, you will have at that point Canada's second largest private broadcaster which would have this enormous influence from a non‑Canadian entity.

LISTNUM 1 \l 11116             So it would be, I think, very difficult to satisfy us, given the current balance of investment from CanWest versus the investment that has come from Goldman Sachs.

LISTNUM 1 \l 11117             THE CHAIRPERSON:  But we have a host of companies in Canada where the voting rights and the equity rights don't correspond, and where the voting rights are weighted in favour, usually, of a family or a group of individuals, totally out of proportion to the equity rights that other people hold.

LISTNUM 1 \l 11118             I don't think anybody suggests that those people who hold the voting rights do not run their company.

LISTNUM 1 \l 11119             Ted Rogers is a perfect example.  His voting rights and his equity are completely disproportionate, yet there is no question that he runs the company, and that is one of many.

LISTNUM 1 \l 11120             So, surely, it can't be the mere fact that we have discordance between the equity rights and the voting rights that gives rise to your concern.

LISTNUM 1 \l 11121             There are lots of other companies where you have 65 percent equity, but the voting right is sometimes as high as 90 percent for somebody else.


LISTNUM 1 \l 11122             MR. NEIL:  We grant ‑‑ and our brief, indeed, states ‑‑ that, on the face of it, the lawyers would appear to have done a very good job at meeting the strict legal conditions with respect to what goes with the equity rights.

LISTNUM 1 \l 11123             I have to note that, obviously, like all other intervenors, we do not have access to all of the information that we would need to really be able to thoroughly analyze what the potential consequences would be, because much of that has been maintained confidentially.

LISTNUM 1 \l 11124             I would observe further on that point that it seems funny to me that what CanWest was seeking confidentiality on before July 31st from the Commission ‑‑ and the Commission granted such confidentiality ‑‑ an awful lot of that went out the window when they issued a press release and made it public in any case.

LISTNUM 1 \l 11125             To go back more specifically to your question, it is really difficult for us because we don't have access to the full range of information.


LISTNUM 1 \l 11126             And your discussion this morning about the new reporting committee, which seems to have come not from any of the hundreds and hundreds of pages of documents that I have read, leads us to be in a position where we are not fully able to look at the details and find out where those concerns of ours might be felt more strongly.

LISTNUM 1 \l 11127             THE CHAIRPERSON:  Vice‑Chairman Katz, do you have questions?

LISTNUM 1 \l 11128             COMMISSIONER KATZ:  Certainly.  Thank you, Mr. Chairman.

LISTNUM 1 \l 11129             On page 1 you emphasize the importance of having a strong broadcasting system, and you indicate that there needs to be a reasonable supply of high‑quality Canadian programming choices in every genre.  Then you say:

"We need to have access to our own stories, music and dance in the most powerful media that exists today."  (As read)

LISTNUM 1 \l 11130             If you were here earlier, you probably heard the panel talk about the programming committee, and the independence of that programming committee, and the fact that Goldman Sachs has no influence over it.

LISTNUM 1 \l 11131             Does that not give you any comfort at all?

LISTNUM 1 \l 11132             If it doesn't, why doesn't it?


LISTNUM 1 \l 11133             MR. NEIL:  That part gives us some comfort.  We accept that CanWest will have responsibility for managing the day‑to‑day operations and for making the decisions about the programming choices.

LISTNUM 1 \l 11134             Our point here is that, like many others, I suspect, who are still in this room, we have a concern about the programming that is currently available on CanWest.  What we really need in the system are new regulations or new requirements that would see CanWest spend more money on some of the more expensive kinds of programming that simply aren't available at the moment on Canadian television, when Canadians are watching.

LISTNUM 1 \l 11135             We are not referring here to any element specifically in the relationship; we are referring here to the need for the Commission, going forward, to be creating new rules and regulations to ensure that more money flows to high‑quality Canadian programming.

LISTNUM 1 \l 11136             COMMISSIONER KATZ:  So the fact that they have created an independent programming committee that is uniquely CanWest executives looking at Canadian content and Canadian programming gives you some degree of comfort.


LISTNUM 1 \l 11137             MR. NEIL:  Yes, but these are the same people that bring us the American ‑‑ the popular U.S. drama programs in the 8 to 10 time slot, five days a week.

LISTNUM 1 \l 11138             COMMISSIONER KATZ:  Thank you.  Those are my questions.

LISTNUM 1 \l 11139             THE CHAIRPERSON:  Okay.  Those are our questions for you.  Thank you very much for your intervention.

LISTNUM 1 \l 11140             MR. NEIL:  Thank you.

LISTNUM 1 \l 11141             THE CHAIRPERSON:  Madam Roy?

LISTNUM 1 \l 11142             THE SECRETARY:  I will now call the Canadian Conference of the Arts.

LISTNUM 1 \l 11143             Please introduce yourselves.  You will have 10 minutes to make your presentation.  Thank you.

INTERVENTION

LISTNUM 1 \l 11144             MR. PINEAU:  Thank you.  Good afternoon, Mr. Chairman and Commissioners.  May name is Alain Pineau, and I am the National Director of the Canadian Conference of the Arts.

LISTNUM 1 \l 11145             Appearing with me today is our legal counsel in this matter, Ms Monica Auer.


LISTNUM 1 \l 11146             The Canadian Conference of the Arts is a non‑partisan organization, founded more than 60 years ago, and is Canada's largest cultural umbrella organization, dedicated to cultural policy development at the federal level.

LISTNUM 1 \l 11147             As you well know, over the past two years we have been following quite closely, and intervening frequently, in the numerous important reviews that the Commission has been conducting on issues crucial to the pursuit of the objectives of the Broadcasting Act, whether it was the commercial radio policy review, the impact of new technologies on traditional broadcasting, the over‑the‑air TV policy review, the Canadian Television Fund, the Diversity of Voices Hearing, or the major consolidation files in the audio‑visual sector.

LISTNUM 1 \l 11148             Our priorities include the production of and making available Canadian cultural expression, particularly in the audio‑visual sector, which is, by far, the most commonly consumed form of cultural expression.

LISTNUM 1 \l 11149             We welcome the opportunity to appear before you today in this hearing, which raises important questions about the ownership of sensitive elements of business infrastructures which play a crucial part in the delivery of the cultural objectives inscribed in the Broadcasting Act, of which the Commission has been appointed steward by Parliament.


LISTNUM 1 \l 11150             At the outset, we want to thank the Commission for giving intervenors more time to review the many, many documents filed by CanWest after the August 10th deadline for interventions about this transaction.

LISTNUM 1 \l 11151             As we have said before, we believe that transparency and accountability are best served when the public has sufficient time to access, review and analyze transactions such as these, but we will not belabour this point here today.

LISTNUM 1 \l 11152             The CCA has reviewed CanWest's replies to the interventions.  We still have two fundamental concerns about this application, like many other intervenors.  The first is control and foreign ownership, and the second involves benefits, and, more specifically, the production of additional quality Canadian programming.

LISTNUM 1 \l 11153             Let's deal first with the question of foreign ownership and control.

LISTNUM 1 \l 11154             We note that CanWest itself has not explained how its application meets the test of effective control that the CRTC's own regulations spell out.


LISTNUM 1 \l 11155             We understand that these regulations require broadcasters to notify the Commission when ownership changes.

LISTNUM 1 \l 11156             One such change involves effective control.  Specifically, Section 10.3 of the Specialty Services Regulation of 1990 states that:

"Effective control of a licence or its undertaking includes situations in which a person has the ability to cause the licensee or its board of directors to undertake a course of action."  (As read)

LISTNUM 1 \l 11157             This regulation was developed in Public Notice CRTC‑1993‑115.  In this notice the CRTC specifically wrote:

"An individual not in control of a licensee, but owning 50 percent of the common shares of the licensee, possibly a combination of voting and non‑voting common shares, would certainly have the potential to significantly influence the affairs of the licensee."  (As read)


LISTNUM 1 \l 11158             With respect, Mr. Chairman, and acknowledging, as we do, that we are not financial experts, we simply do not see how it will be possible for CanWest's foreign investor, Goldman Sachs, to not significantly influence the affairs of CanWest's programming services.

LISTNUM 1 \l 11159             Goldman Sachs will own 65 percent of the total shares in the final corporation that holds the Alliance Atlantis programming licences.

LISTNUM 1 \l 11160             CanWest itself has told the CRTC several times in the past that Canadian programming is very expensive and very risky, so wouldn't it be in the best interests of Goldman Sachs to object to it and object strongly if CanWest decided to spend more than the absolute regulatory minimum of Canadian content.

LISTNUM 1 \l 11161             Just as the CRTC has a duty to Parliament to implement its broadcasting legislation and ensure that its cultural objectives are achieved as best as possible, so too will Goldman Sachs have a duty to its own investors to maximize their profits from the CanWest/Alliance Atlantis deal.  And if Goldman Sachs cannot maximize those profits to its satisfaction, just what will prevent it from requiring a huge divestiture in our broadcasting system in a few years time?


LISTNUM 1 \l 11162             With respect, Mr. Chairman, based on what we heard this morning after your questions, short of installing a CRTC staff member or a commissioner as an ex‑officio member of CanWest board, we do not see how any condition of licence the CRTC might consider will have the desired effect of eliminating the influence of this foreign investor or of CanWest programming decisions.

LISTNUM 1 \l 11163             We think the simplest solution is to deny the application and to call for other applications to use the licence.  In short, let the marketplace solve this problem for you.

LISTNUM 1 \l 11164             Let's now turn to the issue of benefits.  And I cannot help but to say that the balance of interests seems to be self benefits on the part of CanWest rather than public benefits which is supposed to be the case here.

LISTNUM 1 \l 11165             We still have not heard any explanation from CanWest about what we see as a remarkably low per hour cost of some of its programming proposals.


LISTNUM 1 \l 11166             We can't understand that in its efforts to close this transaction which lasted from December 2 '06 to late August 2 '07, tangible programming benefits were not very high on CanWest's own agenda.  But programming is very high on our agenda.  Without substantial and unequivocal commitments to Canadian programming, our broadcasting system will continue to decline in importance not just domestically but internationally.

LISTNUM 1 \l 11167             Without the mandated investment in Canadian content that regulation alone seems to be able to extract from private broadcasters, Canada will fail in the international programming marketplace.

LISTNUM 1 \l 11168             Mr. Chairman, despite the clear evidence from the hundreds if not thousands of pages in this application, as it now stands, of the CanWest company's financial and writing ingenuity, we are perplexed that it has offered Canadian concrete plans for what itself recognizes may be as little as five hours of new Canadian continuing drama a year for over a period of 10 years.

LISTNUM 1 \l 11169             As we have said on several occasions before, it is simply unacceptable for private broadcasters such as CanWest to claim year after year that they cannot afford to properly finance new and original Canadian programs and then to lament the lack of such programs to fill their schedules.


LISTNUM 1 \l 11170             Foreign ownership aside, this application's timid support to our broadcasting industry, to our culture and to our country's creativity should itself suffice to give you reason to deny the application.

LISTNUM 1 \l 11171             Before I conclude I would again like to thank you and your colleagues for granting intervenors more time to participate in this particular process.  CCA strongly supports the role of an independent properly‑funded regulatory body such as the CRTC.  We appreciate the Commission's effort to maximize transparency and accountability by welcoming public participation.

LISTNUM 1 \l 11172             In fact, one of the hallmarks of the CRTC's proceeding historically has been the Commission's effort to engage public discussion.  CCA believes this is entirely appropriate because balancing private interests and profiting from broadcasting against the public's interest in Canadian content, diversity in news and information, increased employment opportunities and the reflection of Canada and Canadian broadcast programming, this is not an easy task and we wish you well in your deliberation.

LISTNUM 1 \l 11173             The difficulty of the CRTC's mandate is naturally complicated by many ideologically‑based calls for you to intervene in what can never be a truly competitive marketplace or even an approximation of such a marketplace.


LISTNUM 1 \l 11174             Broadcasters who argue for loosened regulation to reduce their expenses are obviously entitled to defend their position and the interests of their shareholders.  But so too are those who champion our cultural sector.

LISTNUM 1 \l 11175             The audiovisual sector is an important component of our economy.  It benefits most when Canadian employment grows, when Canadian professions cross develop and thrive and when new creative Canadian ideas are explored.

LISTNUM 1 \l 11176             And even more importantly, access to programming; additional new Canadian programming, particularly English drama and entertainment programming, should be of paramount importance in your decision in this case, as in so many others.

LISTNUM 1 \l 11177             I thank you for your attention and we can answer questions if you want to.

LISTNUM 1 \l 11178             THE CHAIRPERSON:  Thank you very much.  You heard me this morning quote from the Canadian Airline case which is the seminal case in terms of control and effect.  And that control effect is the ability to exert decisive influence over the strategy and management and operation of the business of an entity.


LISTNUM 1 \l 11179             Here is a new company who will have a board of directors of five; three of which will be CanWest and a lot of talk this morning about quorum requirements and those things.

LISTNUM 1 \l 11180             We talked about programming.  We were sure that the programs must totally enhance of employees of CanWest.

LISTNUM 1 \l 11181             We talked about the reporting committee and I pointed out what I thought were the shortcomings and then, lastly, about the vetoes.  And, as I said, a financier which Goldman Sachs wants to be ‑‑ they said they want to be the financier in this ‑‑ is entitled to protector's investments and so therefore obviously a veto in terms of letters, patents or bylaws is perfectly acceptable.

LISTNUM 1 \l 11182             And what are the assets?  The assets are television channels and television stations and therefore saying a veto in terms of selling or buying those seems to me perfectly legitimate.  Anything more than that that goes into strategy of management.


LISTNUM 1 \l 11183             I don't know what CanWest is going to reply.  We will hear that tomorrow or the day after tomorrow, but I want to know if they accede to that will you still feel as negatively about this transaction as you just set out, because I mean here we have a Canadian company, albeit financed by an American, having a majority, running its enterprise and obviously trying to maximize its returns so it can pay off its investor and its shareholders but isn't ‑‑ I mean, where do we draw the line here?  What is it about this transaction that you find so objectionable?

LISTNUM 1 \l 11184             MR. PINEAU:  I think it's ‑‑ as has been expressed by others, it's sort of thin edge of the wedge that we see there.  I support and ‑‑ the concerns expressed earlier by our colleagues from the Council of Canadians about the impacts.  While not being a specialist on this issue I know just enough to be worried.

LISTNUM 1 \l 11185             As you did this morning, I mean we wish ‑‑ we wish CanWest would succeed.  We are not against concentration of ownership.  We do believe that it is important to reach a critical mass and if we have the regulation to counterbalance what are purely and legitimate self‑interests on the part of broadcasters that's okay.


LISTNUM 1 \l 11186             The problem here is that the cost or the danger seems to be very high.  And quite frankly, we are not sure at all that they can satisfy us.  We really considered supporting this with a number of conditions maybe and asking you to really be tough on this or this or that and, quite frankly, I don't believe that this is worth the risk.  I mean, I'm honest; no offence to you or to any of the current members of this Commission, but you know the Commission has not got a very impressive track record of having its conditions of licence observed.

LISTNUM 1 \l 11187             And in terms of ‑‑ to go from the foreign ownership issue to what is really of concern to us ‑‑ because the foreign ownership issue per se if it can be regulated we don't have a problem with it, except that we don't believe that it can be in a satisfactory fashion and there are all those trade agreements that may be triggered.  But what is a concern to us is what we see on our screens and what we hear on our radios and what we see on our cell phones these days.

LISTNUM 1 \l 11188             And given the track record of this particular company and even when you read the transcript of what was ‑‑ you know, you asked questions today about the benefits and when the money runs out.  You know that is the end of the commitment.

LISTNUM 1 \l 11189             So it is a very clear illustration that ‑‑ of what we were saying earlier.  It's only when forced that Canadian broadcasters will invest in.  It's telling to me at least that, you know, CanWest could point out to success programs from other companies in terms of Canadian content and to none of their own.


LISTNUM 1 \l 11190             THE CHAIRPERSON:  Thank you.  That's a frank answer.  I appreciate that.

LISTNUM 1 \l 11191             Commissioner Duncan, you had some questions?

LISTNUM 1 \l 11192             COMMISSIONER DUNCAN:  No, I do not.

LISTNUM 1 \l 11193             THE CHAIRPERSON:  Arpin, Commissioner Arpin.  I'm sorry.

LISTNUM 1 \l 11194             COMMISSIONER ARPIN:  Yes, thank you, Mr. Chairman.

LISTNUM 1 \l 11195             In your oral presentation you said that Goldman Sachs will at the end of the day own 65 percent of the shares, and that's the word you used "shares".  And obviously there is non‑voting and voting shares but I think the 65 percent relates more to equity rather than to the shares?

LISTNUM 1 \l 11196             MR. PINEAU:  Yes, I think you are ‑‑

LISTNUM 1 \l 11197             COMMISSIONER ARPIN:  Not in ‑‑ sorry, did you want to?


LISTNUM 1 \l 11198             MS AUER:  Based on the time that we had to review the documents it was our impression from the different agreements that in fact this would represent the total share allocation, voting, non‑voting, class A and B shares.  We just looked at it as a percentage of the total shares available or published in the documents and calculated out what Goldman Sachs might be holding.

LISTNUM 1 \l 11199             COMMISSIONER ARPIN:  But as you pointed out in ‑‑ Mr. Pineau pointed out in his oral presentation referring to Public Notice 1993‑115, the Commission is obviously concerned about the equity but all the rules and the regulations that have been put in place or dealings with voting stock, not with the non‑voting portion of it.

LISTNUM 1 \l 11200             MS AUER:  You are absolutely right except for Public Notice 1993‑115 in which the Commission writes that:

"An individual who doesn't have specific control of the licensee but does have 50 percent of the common shares which might possibly be a combination of voting and non‑voting common shares, would certainly have the potential to significantly influence the affairs of the licensee."  (As read)

LISTNUM 1 \l 11201             MS AUER:  So I'm simply referring to the Commission's words.


LISTNUM 1 \l 11202             COMMISSIONER ARPIN:  And I think that's been the purpose of the hearing to try to ascertain ourselves that it is not the case.

LISTNUM 1 \l 11203             MS AUER:  Are you asking us a question?

LISTNUM 1 \l 11204             COMMISSIONER ARPIN:  No, well ‑‑

LISTNUM 1 \l 11205             MS AUER:  Do you want our opinion?

LISTNUM 1 \l 11206             COMMISSIONER ARPIN:  Yes, absolutely, yes.

LISTNUM 1 \l 11207             MS AUER:  I guess the concern is that obviously it is a very difficult concept to define and pin down tightly.  I think you would have to be an absolute master of statutory interpretation to be certain that you have every wrinkle and twist that Parliament originally envisaged and the Governor in Council originally envisaged in their direction.

LISTNUM 1 \l 11208             The fact remains it is a big risk.

LISTNUM 1 \l 11209             If you are saying that the term that you want to base your decision on is "control" rather than what the Commission has previously referred to, which is "significant influence" and a concern about changing to control through the exercise of significant influence, it's an open question.

LISTNUM 1 \l 11210             Is that a risk that should be taken with the broadcasting system in the absence of clear direction from Parliament that yes, indeed, it should change control requirements in our broadcasting system?


LISTNUM 1 \l 11211             MR. PINEAU:  I guess at the end of the day what we are saying is:  Is it really true that this is the best possible deal that we can get for those very important specialty channels?

LISTNUM 1 \l 11212             It may be the best deal that CanWest could come up with, given its circumstances.  But is it really the fact that if Alliance Atlantis is on the block, this is the best deal that we can get from a public interest point of view?

LISTNUM 1 \l 11213             We have serious doubts.

LISTNUM 1 \l 11214             When we add that to the danger of this thin edge of the wedge of foreign ownership in what is a very sensitive cultural industry in a country which has no language barrier against its neighbours, I think it's enough for us to say you should not allow this.

LISTNUM 1 \l 11215             COMMISSIONER ARPIN:  Now, to the previous intervener, the Council of Canadians, the Chairman asked them if their concern would have been the same ‑‑ well, surely not foreign ownership, but if Goldman Sachs has been substituted by say the Royal Bank, to take the example that he used.


LISTNUM 1 \l 11216             MR. PINEAU:  Well, my understanding of the issue ‑‑ and it is limited, I will grant you at the outset ‑‑ is that first of all it would not breach the direction that is in existence that we have quoted.  That's true.

LISTNUM 1 \l 11217             We would have other issues that we haven't even tackled here, which deal with concentration of ownership and everything, and production of Canadian content.  But that's another issue.

LISTNUM 1 \l 11218             COMMISSIONER ARPIN:  But you said, in reply to the question that the Chairman asked, that you were not against concentration of ownership.

LISTNUM 1 \l 11219             MR. PINEAU:  No, not ideologically.  We don't have a problem with concentration of ownership per se, because we recognize that it is important to have the critical mass in the current environment to be able to indeed leverage various platforms and everything.

LISTNUM 1 \l 11220             Our concerns with concentration of ownership come from the lack of strong regulation being applied in order to make sure that the cultural objectives of the Act are delivered upon.


LISTNUM 1 \l 11221             The same thing about foreign ownership apart from the implication which, as I said, I'm not familiar enough but I'm certainly familiar enough to be concerned about the implications on NAFTA.  That's a very important issue, because the cultural exemption is something that the CCA values very dearly, like most cultural organizations in this country.  We are very concerned about anything that may weaken it because we believe it is not strong enough as it stands now.

LISTNUM 1 \l 11222             MS AUER:  If I might just add to Mr. Pineau's comments about whether the Royal Bank would be more acceptable in a way than Goldman Sachs or any other foreign component of the transaction, I guess the first question for the purposes of this hearing would be:  Would it reach the direction in eligibility?

LISTNUM 1 \l 11223             Clearly perhaps not.  It would certainly be a qualified corporation, I assume.

LISTNUM 1 \l 11224             I guess the secondary question then would be:  Who would be the actual licensee?  Who would in fact hold control of the licensee?

LISTNUM 1 \l 11225             Of course, the Commission has in the past actually denied licence renewals when it was unable to ascertain who in fact was in charge of the licence that had been granted.  That's a separate issue.

LISTNUM 1 \l 11226             THE CHAIRPERSON:  I'm sorry, I don't follow this at all.


LISTNUM 1 \l 11227             If you just substitute a Canadian investment company for Goldman Sachs, Royal Bank or Onyx or whoever, the share structure and everything is the same.  Surely the issues in terms of control would be exactly the same.

LISTNUM 1 \l 11228             MS AUER:  What I was trying to get to was yes.  Then who is in control of the licensee?

LISTNUM 1 \l 11229             If we have concerns now that through the veto rights, for instance, the foreign investor can actually exercise a level of significant influence on CanWest, surely we would also be concerned if the Royal Bank where the Commission has expressed that in other decisions involving Canadian companies.

LISTNUM 1 \l 11230             THE CHAIRPERSON:  My concerns would be the same whether it is a Canadian company or a foreign company in terms of control.  But when you have both of them Canadian, you don't have to worry about it because it is going to be Canadian control.  It doesn't make a difference which one you take.

LISTNUM 1 \l 11231             MS AUER:  But who is the licensee?  I had understood that hypothetically it would be CanWest with Royal Bank as the investor.  So I'm thinking is CanWest truly the licensee if in fact it's the Royal Bank that would be exercising the influence over decisions?

LISTNUM 1 \l 11232             That's a separate issue.  That's different from this issue.


LISTNUM 1 \l 11233             THE CHAIRPERSON:  That issue we have to deal with, in any event, because that's a form of Canadian ‑‑

LISTNUM 1 \l 11234             MS AUER:  Yes.

LISTNUM 1 \l 11235             THE CHAIRPERSON:  But my question to Mr. Pineau or I think it was the Canadian Conference of the Arts:  What is it at the core that bothers you?  An investor will always want to get its money back and will insist on as onerous terms as he can to make sure he gets his money back.  And that is perfectly normal.  That is part of the marketplace.

LISTNUM 1 \l 11236             I tried to sort of get my finger on what was really concerning them more than anything.  Besides NAFTA, if I understood it ‑‑ well, you heard his answer.  Let me not interpret it for you.  You can determine it for yourself.

LISTNUM 1 \l 11237             It struck me, the same question I'm asking you.  There is a difference between an investor protecting his investments and in exercising control; as I said, exerting a decisive influence over things.  Surely that's the line that we have to draw, not whether it's a foreigner or a Canadian.

LISTNUM 1 \l 11238             MS AUER:  Well, this is a very good question, one for which we are completely unprepared.


LISTNUM 1 \l 11239             What I will say is this:  that Parliament clearly in 1968 had the intention to ensure foreign ownership was not just limited but reduced substantially.

LISTNUM 1 \l 11240             As you know, at the time a number of American companies were controlling Canadian broadcasting services and Parliament at that time clearly decided it was not in Canadians' best interests to have non‑Canadians in control of those services.

LISTNUM 1 \l 11241             What Parliament's objects were, what its motives were in deciding to reduce foreign control, we would be happy to submit a research memo to you on that, with footnotes.

LISTNUM 1 \l 11242             In the absence of that, it comes down to I suppose cultural sovereignty, cultural jurisdiction, our ability to ensure that Canadians are in charge of the audio‑visual services that provide content to Canadians.

LISTNUM 1 \l 11243             Would you like the research memo?

LISTNUM 1 \l 11244             THE CHAIRPERSON:  We are straying here.  My whole point was I was trying to figure out ‑‑ we are just trying to make sure that as the law demands that the person who has control in fact is a Canadian.  That's clearly what it is.


LISTNUM 1 \l 11245             But determining what is control doesn't make a difference whether it's a Canadian or an American who is the investor.  That was my whole point.

LISTNUM 1 \l 11246             It is you have to look at the circumstances, the documentation and see is that person capable of exerting control or not, because that's what is really turns on.  We want to make sure that the licensee in effect exercises control.

LISTNUM 1 \l 11247             MS AUER:  Well, I think if ‑‑ there are a couple of points.

LISTNUM 1 \l 11248             Yes, I think a thorough review of the documents is required, and I think a number of intervenors would have liked to have had the opportunity to review all the documents, including the redacted documents, to try to form the same opinion.  And they would have liked to have had certainly somewhat more time to review the documents in a period where there were not perhaps quite so many important transactions in the CRTC's regulatory business occurring simultaneously.

LISTNUM 1 \l 11249             But if the question really is does it matter whether it's foreign or Canadian, yes, I believe it does.

LISTNUM 1 \l 11250             Does it matter who the Canadian would be?  I still think it does because you come down to the issue of control and your ability to ascertain who really is in charge of the licence.


LISTNUM 1 \l 11251             So I'm afraid I'm still not responding to the question in the manner that might be better, but that is as far as we've got in this phase unless you are going to have a second phase at this point in which we could submit additional replies, which we would be happy to give more thought to at that time.

LISTNUM 1 \l 11252             THE CHAIRPERSON:  I think we have exhausted the topic.

LISTNUM 1 \l 11253             Back to you, Vice‑Chairman Arpin.

LISTNUM 1 \l 11254             COMMISSIONER ARPIN:  You just said that you needed more time.  Mr. Pineau in his oral presentation thanked the Commission for having allowed you more time.

LISTNUM 1 \l 11255             How much more time would you have needed?

LISTNUM 1 \l 11256             MS AUER:  Well, I guess ‑‑

LISTNUM 1 \l 11257             COMMISSIONER ARPIN:  A life?

LISTNUM 1 \l 11258             MS AUER:  Probably with this transaction.  I think you would have to get an MBA to understand its complexities.

LISTNUM 1 \l 11259             MR. PINEAU:  It has been a moving target.

LISTNUM 1 \l 11260             MS AUER:  It has been a moving target.


LISTNUM 1 \l 11261             MR. PINEAU:  It still is, maybe.

LISTNUM 1 \l 11262             MS AUER:  The fact that the final transactions shareholders agreement was closed five days after the intervention period, certainly that was a bit unfortunate.  I think it would have been appropriate, as for example CCA certainly asked, if there had been an extension granted when it became known that the shareholders agreement would only be disclosed on August 15th and then ultimately in fact later on in August, it might have been useful then to give intervenors the appropriate period of time.

LISTNUM 1 \l 11263             Instead, it's always sort of a constant hurry up and stop, hurry up and stop, hurry up and review these documents now and then move on.

LISTNUM 1 \l 11264             I don't think that this is any single person's fault.  It's just that that is where we are.

LISTNUM 1 \l 11265             COMMISSIONER ARPIN:  Anyhow, we are here today.

LISTNUM 1 \l 11266             MS AUER:  We are here today.

LISTNUM 1 \l 11267             COMMISSIONER ARPIN:  There was a second area that Mr. Pineau covered and it has to do with the benefits.

LISTNUM 1 \l 11268             You did mention a few things about the proposals that we have before us.


LISTNUM 1 \l 11269             A question that you didn't cover but I think somehow you alluded to it:  Should the on‑screen benefits go to the Global stations or to the Alliance Atlantis stations, or both, in your view?

LISTNUM 1 \l 11270             MR. PINEAU:  I'm not sure that I can answer your question in a satisfactory manner, but I have to go back on this whole issue of benefits.

LISTNUM 1 \l 11271             You asked some very pointed questions, I think, that were interesting of the CanWest people earlier, about where the advantages were going to be applied.

LISTNUM 1 \l 11272             There is a lot of self‑interest there.  In terms of making sure that we see more ‑‑ and I go back to our main concern here, which is see additional quality programming in English television, particularly with regards to drama.  I mean we have got no guarantees.

LISTNUM 1 \l 11273             We heard about repeats going from one channel to another, from Alliance to Global and maybe from Global to specialty channels, although it is not quite clear what that would be.


LISTNUM 1 \l 11274             We have heard of a 10‑year commitment of programs that may or may not make it to the air, and there is a clause, if I understand this whole business correctly, that would allow Goldman Sachs to pull the plug on some of the activities of CanWest currently.  So the promise is longer than actually some of the other provisions.

LISTNUM 1 \l 11275             I don't know if you want to add something to this particular issue as to whether it should go to Alliance or to CanWest.

LISTNUM 1 \l 11276             As long as it leads to Canadian programming, quite frankly, I am quite indifferent and as long as it leads to Canadian programming that is available within my lifetime that would be nice.

‑‑‑ Laughter / Rires

LISTNUM 1 \l 11277             COMMISSIONER ARPIN:  Okay.  Those were my questions, Mr. Chairman.

LISTNUM 1 \l 11278             THE CHAIRPERSON:  Vice‑Chairman Katz?

LISTNUM 1 \l 11279             COMMISSIONER KATZ:  I have one question, Mr. Pineau.

LISTNUM 1 \l 11280             You mentioned, I believe, that we should allow the market to solve the problem for us.

LISTNUM 1 \l 11281             What gives you the confidence that if there was a scenario where the market would come back with a new player that we wouldn't be sitting here, 18, 24 months from now in a similar situation with a public company who has obligations to shareholders and debt‑holders, trying to do what is right and balance his obligations within the confines of the Broadcasting Act?


LISTNUM 1 \l 11282             MR. PINEAU:  I am afraid I don't have any guarantees about that but I can tell you that we couldn't be much worse off than we are today from our perspective, quite frankly, because we don't believe that this is the best possible deal ‑‑ we find it hard to believe that this is the best possible deal for 18 specialty services like this.

LISTNUM 1 \l 11283             I mean that is the public interest aspect that we get?  That is the public benefit that we get for these channels that are licensed to provide Canadians with quality programming?

LISTNUM 1 \l 11284             I think there would be other ‑‑ I mean Alliance Atlantis is a nice package and if these people cannot come up with better ways of making a public benefit out of it and their own benefit on top of it, I am sure somebody else will.  But I don't know anyone and I don't have any business cards to hand over.

LISTNUM 1 \l 11285             THE CHAIRPERSON:  Thank you very much for your intervention.

LISTNUM 1 \l 11286             Madame Roy, who is next?

LISTNUM 1 \l 11287             THE SECRETARY:  I would now call the Directors Guild of Canada.

‑‑‑ Pause


LISTNUM 1 \l 11288             THE SECRETARY:  Please introduce yourself and your colleagues and you will then have 10 minutes to make your presentation.  Thank you.

INTERVENTION

LISTNUM 1 \l 11289             MR. ANTHONY:  Mr. Chairman, commissioners, staff.

LISTNUM 1 \l 11290             My name is Brian Anthony and I am the National Executive Director and Chief Executive Officer of the Directors Guild of Canada.

LISTNUM 1 \l 11291             I am very pleased to be here today in my new role at the head of the DGC.

LISTNUM 1 \l 11292             With me today are Monique Lafontaine, General Counsel and Director of Regulatory Affairs of the Guild, and Robert Buchan from the firm of Fasken Martineau, who is our legal counsel with respect to the issue of ownership and control.

LISTNUM 1 \l 11293             The DGC is a national labour organization that represents key creative and logistical personnel in the film and television industries.  The Guild is also a member of the Coalition of Canadian Audio‑Visual Unions.


LISTNUM 1 \l 11294             In August, both the DGC and the CCAU filed written interventions with the Commission which identified a number of serious concerns that we have with respect to the application by CanWest and Goldman Sachs to acquire effective control of the Alliance Atlantis companies.

LISTNUM 1 \l 11295             In October, CCAU filed a supplementary intervention that reiterated the concerns expressed in its August intervention.

LISTNUM 1 \l 11296             The submissions of the DGC and the CCAU focused on three key issues.

LISTNUM 1 \l 11297             The first, which was addressed in detail in the CCAU submission, is the ownership structure proposed in the application.  It does not comply with the direction to the CRTC on the ineligibility of non‑Canadians.  It is our view that under the proposed ownership model a non‑Canadian, Goldman Sachs, will exercise effective control in fact over the Alliance Atlantis companies and CanWest's other broadcasting assets.

LISTNUM 1 \l 11298             The second issue outlined in the DGC's submission related to the nature of the tangible benefits proposed by CanWest.  CanWest has not devoted a large enough percentage of the on‑screen benefits to the production of high quality Canadian drama nor do we believe that the applicant has proposed a benefits package that fully complies with the Commission's benefits policy.


LISTNUM 1 \l 11299             The third issue, also addressed in the DGC intervention, is incrementality.  If the benefits proposed in an application are not incremental, then they are not benefits.  It is absolutely essential for the Commission to establish the test to ensure that the benefits are indeed incremental.

LISTNUM 1 \l 11300             Given these issues, it is our respectful submission that the Commission cannot and should not approve the application as it currently stands.

LISTNUM 1 \l 11301             Monique.

LISTNUM 1 \l 11302             MS LAFONTAINE:  In its written replies and indeed today, CanWest failed to adequately address the ownership and control concerns highlighted in CCAU's interventions.

LISTNUM 1 \l 11303             In addition, CanWest has misstated or misunderstood some of the practices of the Commission and Industry Canada with respect to assessments of control in fact.

LISTNUM 1 \l 11304             We have attached to the text of our oral remarks a public document issued by Industry Canada that we believe is a more accurate statement of the approach taken by that department when assessing issues relating to control and fact.  We understand that the same approach is followed by the Commission.


LISTNUM 1 \l 11305             It is clear from the Industry Canada document and past CRTC decisions that both Industry Canada and the Commission consistently examine the level of equity and debt held by a foreign entity when control in fact is being assessed.

LISTNUM 1 \l 11306             CanWest's suggestion in its reply to interventions that this is not the case is without foundation.  There is no doubt that Goldman Sachs and its affiliates are contributing a majority, nearly two‑third of the equity funding.  It has also contributed a significant amount of the initial debt funding required for the acquisition of Alliance Atlantis.

LISTNUM 1 \l 11307             Goldman Sachs and its affiliates are also assuming the greatest risk and have the potential to reap the largest reward in relation to the acquisition of the Alliance Atlantis broadcasting undertakings.  As such, the significant interest Goldman Sachs and its affiliates will hold in these undertakings must be considered in the assessment of ownership and control in fact of the undertakings.


LISTNUM 1 \l 11308             The concerns expressed in the CCAU's intervention remain valid.  In particular, we believe that the approval of this application by the Commission would allow non‑Canadians to exercise control over both Alliance Atlantis and the existing broadcasting undertakings operated by CanWest.

LISTNUM 1 \l 11309             The agreements filed with the Commission in this proceeding by CanWest, Goldman Sachs and its affiliates indicate that a strategic direction for these undertakings has been established.  The course has been set.

LISTNUM 1 \l 11310             Recall that the test for determining control in fact is established by the National Transportation Agency as follows:


"In reviewing the Canadian ownership status of an air carrier, the Agency considers various factors in making a control in fact determination.  There is no one standard definition of control in fact but generally it can be viewed as the ongoing power or ability whether exercised or not to determine or decide the strategic decision‑making activities of an enterprise.  It can also be viewed as the ability to manage and run the day‑to‑day operations of an enterprise." (As read)

LISTNUM 1 \l 11311             De facto control over these undertakings rests with Goldman Sachs and its affiliates regardless of the mechanisms adopted by CanWest and Goldman Sachs to demonstrate legal control of the day‑to‑day operations of Jointco and its subsidiaries.  No amount of tinkering with such mechanisms will resolve the fundamental problem of the de facto control held by Goldman Sachs and its affiliates.

LISTNUM 1 \l 11312             In its written reply, CanWest argument that it is simply renting the capital of Goldman Sachs, that it can pursue its own strategic direction.  Sadly, a review of all of the evidence filed in the case would indicate that the opposite is true.  What is really happening here is that Goldman Sachs is using its money to rent CanWest management to pursue Goldman Sachs' strategic direction.

LISTNUM 1 \l 11313             DGC does not oppose CanWest's objective of growing its business and remaining competitive.  We do, however, oppose its proposal to cede effective control over the Alliance Atlantis and CanWest broadcasting undertakings to non‑Canadians.


LISTNUM 1 \l 11314             Apart from the legal requirement to enforce the ownership direction, it is vitally important for the Commission to ensure that Canadian broadcasting undertakings are owned and controlled by Canadians.  The Canadian ownership and control requirements are, after all, cornerstones of our broadcasting system.  They are absolutely essential to ensuring that Canadian ideas and values are represented in the programming that is distributed by Canadian broadcasting undertakings.

LISTNUM 1 \l 11315             If this application is approved, an unfortunate precedent will be set and the floodgates will be opened.

LISTNUM 1 \l 11316             MR. ANTHONY:  The second issue we wish to address relates to the deficiencies that exist with respect to certain aspects of the tangible benefits package proposed by CanWest.  None of the concerns expressed in our written intervention have been adequately addressed by CanWest.

LISTNUM 1 \l 11317             For starters, we believe that the amount of on‑screen benefits CanWest intends to devote to high quality original Canadian drama is not sufficient.  In our view, a minimum of 64 percent of the on‑screen benefits proposed by CanWest should be directed to the production of high quality Canadian drama.


LISTNUM 1 \l 11318             Canadian drama is a vital aspect of the broadcasting system.  It is the primary means by which Canadians can access our nation's culture, values, ideals, stories, passions.  The limited amount of high quality drama produced in this country is consistently lamented.  It remains woefully underfunded.

LISTNUM 1 \l 11319             The Guild believes that requiring applicants such as CanWest to commit to contributing a minimum of 64 percent of their on‑screen benefit expenditures to the production of high quality Canadian drama will assist in meeting the funding shortfall.

LISTNUM 1 \l 11320             We also continue to have concerns about CanWest's proposal to spend a majority of the benefits moneys over the course of a 10‑year period rather than the maximum seven‑year period that has been established in respect of every other benefits package of which we are aware.

LISTNUM 1 \l 11321             CanWest has failed to provide any compelling rationale for this extension and, as such, we believe that the Commission should require CanWest to fulfil its benefits package requirements within the standard seven year time.


LISTNUM 1 \l 11322             I should mentioned that we have heard earlier the response to Commission questioning in this regard and we do not agree, indeed strongly disagree, with the stated rationale for amortizing the benefits over 10 years instead of seven.

LISTNUM 1 \l 11323             As for the specific tangible benefits proposed by CanWest, the DGC remains of the view that a number of those funding initiatives do not comply with the Commission's benefits policies.  These are:

LISTNUM 1 \l 11324             One, $4 million for new media support.  The funding of new media broadcasting content is an appropriate benefit.  The funding of applications to facilitate those broadcasts as proposed by the applicant are clearly normal course costs and thus ineligible pursuant to CRTC policy.

LISTNUM 1 \l 11325             Two, $4 million for a weekly current affairs show called "Canada In Focus".  These types of programs are common fare on most OTA television networks.  It is therefore a normal course activity, and not eligible.

LISTNUM 1 \l 11326             Three, $1.5 million for the Canadian programming "New Media History Project".  The lack of detail here provided concerning this initiative could allow CanWest to use these monies to fund normal course new media activities, contrary to the CRTC benefits policy.


LISTNUM 1 \l 11327             Four, $13.5 million to the "Red Carpet Awards Show" initiative.  This benefit should only be eligible if the applicant demonstrates that it will in fact support Canadian talent, including new, emerging and seasoned talent in a new and incremental way.  The total amount dedicated to this initiative should, however, be reduced to $2 million and the rest should be directed to original Canadian programming, particularly drama.

LISTNUM 1 \l 11328             Finally, five, $5 million or 3.6 of the benefits package to digitize CanWest's archival footage.  We find this excessive, given the lack of funding in the system for original Canadian programming.  This benefit should be reduced to 1.5 per cent of the benefits package, that is $2 million, which is consistent with the BCE/CTV precedent.

LISTNUM 1 \l 11329             As an aside, I should say that were it not for that precedent we would recommend that this be zero rates and the $5 million put into new Canadian programming.

LISTNUM 1 \l 11330             Monique...?

LISTNUM 1 \l 11331             MS LAFONTAINE:  The final area of concern that we wish to address relates to the incrementality and the need for the Commission to establish an effective benchmark mechanism for benefit expenditures.


LISTNUM 1 \l 11332             An incrementality test is critical to the integrity of the Commission's benefits policy and is necessary to ensure that new money is being spent in the broadcasting system following an ownership transaction.

LISTNUM 1 \l 11333             The Commission's tangible benefits policy is very clear on incrementality.  It requires applicants to ensure that expenditures proposed as benefits be truly incremental to the system, yet the Commission has not yet to date consistently applied an effective and transparent benchmark test to determine whether an applicant's benefit expenditures are in fact incremental.

LISTNUM 1 \l 11334             Without a benchmark in place the benefits proposed by an applicant might not result in any incremental funding for the Canadian broadcasting system.  An applicant could simply reduce its existing spending on programming initiatives in one part of its broadcasting business and redirect those funds to the initiatives set out in its benefits package.

LISTNUM 1 \l 11335             If the Commission does not establish effective benchmarks in this case to measure CanWest's benefit expenditures, it will not be in a position to evaluate whether those expenditures will be truly incremental to the system.


LISTNUM 1 \l 11336             DGC believes that the most effective mechanism for ensuring incrementality is for the Commission to require CanWest to ensure that its benefits expenditures exceed an amount equalling the average annual expenditures on Canadian programs telecast by CanWest for the years 2004, 2005, 2006 and the CPE for the Alliance Atlantis specialty services.  This approach is consistent with the Cabinet Directive on streamlining regulation which requires government departments and agencies to measure and report on existing regulations and to evaluate programs to demonstrate results for Canadians.

LISTNUM 1 \l 11337             In view of the above noted concerns, the DGC respectfully requests that the Commission deny the CanWest application unless these deficiencies are rectified.

LISTNUM 1 \l 11338             MR. ANTHONY:  Mr. Chairman, Commissioners, thank you for the opportunity of appearing before you today.

LISTNUM 1 \l 11339             We would now welcome any questions you might have.

LISTNUM 1 \l 11340             THE CHAIRPERSON:  Thank you very much for your submission.

LISTNUM 1 \l 11341             On page 2 you make a rather startling categorical statement.  You say:


"The agreements filed with the Commission in this proceeding by CanWest, Goldman Sachs and its affiliates indicate that a strategic direction for these undertakings has been established.  The course has been set.  De facto control of these rests with Goldman Sachs."  (As read)

LISTNUM 1 \l 11342             Where is that evidence of the strategic direction having been set, et cetera?

LISTNUM 1 \l 11343             I mean, that is a pretty strong statement you are making there.

LISTNUM 1 \l 11344             MR. BUCHAN:  Mr. Chairman, if I might start the reply, it is a very strong statement, but there are two things.

LISTNUM 1 \l 11345             First, I would like to ‑‑ I feel a bit like a preacherman quoting from section 3 of the Broadcasting Act.  I hate to give my friends at McCarthy Tétrault credit by quoting from their Regulatory Handbook, but ‑‑

LISTNUM 1 \l 11346             THE CHAIRPERSON:  I think it is the Parliament of Canada that should get the credit, not your friends at McCarthy Tétrault.


‑‑‑ Laughter / Rires

LISTNUM 1 \l 11347             MR. BUCHAN:  In any event, Mr. Chairman, section 3(a), the first objective in the Broadcasting Act, says:

"The Canadian broadcasting system shall be effectively owned and controlled by Canadians."  (As read)

LISTNUM 1 \l 11348             A lot of us in this game, in the broadcasting regulatory game, have asked for years:  What is the distinction between control and ownership and why are they both there?  Why are they both there in section 3?

LISTNUM 1 \l 11349             The Coalition's written intervention in this proceeding is very clear.  We didn't go to the issues of control.  We didn't think there was a "gotcha" somewhere in the control elements of those agreements where we could say because of minority shareholder protection, as they have referred to them, that was inappropriate in those agreements they were offside the direction or they were offside the regulations.


LISTNUM 1 \l 11350             We didn't go that way.  We didn't think that there necessarily was a bright line.  We are not taking a position one way or the other.  You had questions appropriately this morning about a number of elements of those agreements.

LISTNUM 1 \l 11351             What the intervention of the Coalition stresses is that this is basically an ownership issue.  It is not one of day‑to‑day control.  Because under the direction from the Cabinet to the CRTC this Commission doesn't have a discretion on this application if the Commission determines that there is control in fact in the hands of a non‑Canadian.

LISTNUM 1 \l 11352             When you were asking about what difference if it was the Royal Bank rather than Goldman Sachs, to us it's a day and night difference because Goldman Sachs is a non‑Canadian.  If it were the Royal Bank that were in this situation we wouldn't have the same control.

LISTNUM 1 \l 11353             We are prepared to accept or we are not challenging that CanWest is going to control on a day‑to‑day basis, on a going forward basis day‑to‑day for the next four years, these broadcasting undertakings.


LISTNUM 1 \l 11354             But because there is a non‑Canadian source of financing at 65 per cent ‑‑ or 64 per cent, I will take 64 per cent ‑‑ because there is a non‑Canadian at 64 per cent of shareholdings, we think that the strategic course has been set through the elements of those agreements, and the agreements call for them.  We have been through all that this morning, you can look to the CTV intervention in particular which is very helpful on this point ‑‑ I think the Coalition's intervention on this point, which I didn't draft but I think it is particularly helpful as well ‑‑ there are three things that CanWest cannot do.

LISTNUM 1 \l 11355             It is not going to be able ‑‑ if it wants to reach, in that date in 2011 to 2013 when this deal is going to come to an end, it better not increase its debt.  It better maintain high EBITDA levels, and it has to in the end satisfy Goldman Sachs rate of return test.

LISTNUM 1 \l 11356             Now, because of confidentiality ‑‑ and we are cavilling with that.  We don't know what the Goldman Sachs guaranteed rate of return is, but we can assume in these capital markets that the rate of return would be satisfactory to most bankers.  They have the capital and other people are in need of the capital and so they are there.

LISTNUM 1 \l 11357             So we think that the agreement set a course for CanWest where they have to proceed in a way to get to where they want to be in 2011, otherwise they are going to lose control of CanWest.


LISTNUM 1 \l 11358             We have looked to an analogy ‑‑ and I don't know, it's not maybe a very clever analogy, but the cleverest one that I can think of is an ocean liner leaving New York and coming out of the Hudson River and the Captain being told "You have to get to Southampton.  You have to get there in four days, and you have to get there with the tanks half full.  You can go whatever way you want to go to get across there, but if you go down to Bermuda or you go over to the Azores you are not going to get there in four days and your tanks aren't going to be half full.  So you can tick or tack or whatever you have to do depending on the winds in the short term, but you better be there in four days."

LISTNUM 1 \l 11359             That is basically the situation that we think CanWest is in now with Goldman Sachs and reliance on foreign capital at 64 per cent.

LISTNUM 1 \l 11360             You made reference to the Canadian Airlines and the test that was in Canadian Airlines.  You had a slightly different quote than Madam Lafontaine, but it's the same decision, it's the same quote I guess.  We are all quoting from a different section.

LISTNUM 1 \l 11361             But there is another quote in Canadian Airlines that is very apposite, I think, and that was that:


"The Agency finds that as the economic interest of a shareholder as reflected in the ownership of voting and non‑voting shares increases above 25 per cent, such shareholdings become of increased importance in determining where control in fact lies.  The greater the economic interest, the greater the likelihood that the owner of that economic interest will be able to exercise control in fact.  This matter becomes of major importance as the economic interest reaches and exceeds 50 per cent.  (As read)

LISTNUM 1 \l 11362             THE CHAIRPERSON:  Are you saying that anybody who has more than 50 per cent equity is controlled by the person, regardless of how the voting structure is construed?


LISTNUM 1 \l 11363             MR. BUCHAN:  I'm not saying necessarily.  I think what you have to have was referred to also in the Canadian Airlines test, you have to look, as you have done, look at all of the agreements, all of the understandings, all of the potential control points.

LISTNUM 1 \l 11364             But if this deal is approved as it is there is a new benchmark.  It is going to be 64 per cent non‑Canadian equity.

LISTNUM 1 \l 11365             The question of why we have to have ownership, Canadian ownership, there are either one of two explanations that have been given historically.

LISTNUM 1 \l 11366             One is the old fruits of the tree doctrine from corporate law that the investment initially was Canadians, Canadians got the licences, it was a privilege to have the licence and that the earnings or the dividends and the growth in the system should come back to Canadians to be reinvested back into the system.

LISTNUM 1 \l 11367             But the other one is a much more practical one and a much harder one to put in plain language.


LISTNUM 1 \l 11368             I think everyone understands it, but it's hard to express it, and that's a regulator's ability to control the undertaking.  It is much, much easier for the regulator to control a Canadian‑owned undertaking that is truly under Canadian ownership, and through the ownership comes the control, when the Canadians have to come up and appear before it rather than then they leave this place and go to the top of a black tower in New York City.

LISTNUM 1 \l 11369             That is basically, in plain language ‑‑ and it may be overly plain language, but that's the position.

LISTNUM 1 \l 11370             THE CHAIRPERSON:  It may be plain, but it certainly wasn't short.

‑‑‑ Laughter / Rires

LISTNUM 1 \l 11371             THE CHAIRPERSON:  Going back to what I was asking you, you are saying that de facto control over this undertaking rests with Goldman Sachs and its affiliates, regardless of the mechanism of CanWest to demonstrate legal control.

LISTNUM 1 \l 11372             On what basis do you say "de facto control"?

LISTNUM 1 \l 11373             Do I understand correctly that it is the 65 percent equity ownership that you translate into "de facto control"?

LISTNUM 1 \l 11374             Don't give me another speech, point to me and tell me what it is in this deal that makes you say this very categoric statement:  de facto control with these undertakings rests with Goldman Sachs.


LISTNUM 1 \l 11375             MR. BUCHAN:  It is de facto control because they have 65 percent.  They have been able to negotiate the terms and conditions that they have negotiated in those agreements, which say that, at a certain ‑‑

LISTNUM 1 \l 11376             THE CHAIRPERSON:  Okay.  Fine.  Doesn't that mean, if the agreements are changed, that we are taking away some of the control factors which you allege they only negotiated because they had the economic power?

LISTNUM 1 \l 11377             Then, in effect, we take away de facto control again?

LISTNUM 1 \l 11378             Regardless of 65 percent ‑‑

LISTNUM 1 \l 11379             I am trying to see what is the cause and what is the effect.

LISTNUM 1 \l 11380             MS LAFONTAINE:  The big problem for us is 2011.  It is what CanWest and Alliance Atlantis ‑‑ what those undertakings must achieve by 2011 for CanWest to increase its equity in the joint co.

LISTNUM 1 \l 11381             So it is the 65 percent.  It is that part of the deal.  And we believe that the fact that CanWest is required to achieve a certain cash flow, and the rate of return, that will impact on the programming decisions that have to be made.


LISTNUM 1 \l 11382             We have heard here today ‑‑ and I am sure you have heard many times since you have been appointed ‑‑ that Canadian programming costs a lot of money.  What we have also seen is that broadcasters don't generally spend money on Canadian programming unless they are required, by regulation, to do so.

LISTNUM 1 \l 11383             As sort of an aside, there is no evidence ‑‑ there is no statement to this effect, but we suspect that the proposal for the 10‑year plan helps CanWest achieve the cash flow that they would like to achieve by 2011 much better than if it were a 7‑year period.

LISTNUM 1 \l 11384             So we can see it already.  It is like the smell test.  We can see it already with the proposed benefits package, and we can see that translating into the year‑to‑year programming expenditures.

LISTNUM 1 \l 11385             THE CHAIRPERSON:  Let me attempt to put it in my words to make sure I understood you.


LISTNUM 1 \l 11386             In effect, you are saying that the financial obligation imposed on CanWest by this deal and its commitment to meet the covenants given to Goldman Sachs are so onerous that they will have to come at the expense of Canadian programming and Canadian benefits, et cetera, and that translates into Goldman Sachs' priorities being first, and Canadian priorities being second, so, therefore, control ‑‑ de facto control is with Goldman Sachs.

LISTNUM 1 \l 11387             MS LAFONTAINE:  That is exactly right.

LISTNUM 1 \l 11388             Or, at least, it may influence ‑‑

LISTNUM 1 \l 11389             You know, maybe at the end of four years CanWest will come before you ‑‑ or maybe it won't, maybe you will have lunch ‑‑ and it will not have.  But there is an absolute potential for that to happen.

LISTNUM 1 \l 11390             THE CHAIRPERSON:  Okay.  Thank you.  I now understand your point of view.

LISTNUM 1 \l 11391             Vice‑Chairman Katz, do you have some questions?

LISTNUM 1 \l 11392             COMMISSIONER KATZ:  Thank you, Mr. Chairman.

LISTNUM 1 \l 11393             I am going to get into some of the nuts and bolts.

LISTNUM 1 \l 11394             You cite 64 percent as the percent that should be reinvested in specific areas, such as on‑screen benefits ‑‑

LISTNUM 1 \l 11395             I am looking at page 6, particularly, five lines down:


"DGC believes that requiring applicants should ask CanWest to commit to contributing a minimum of 64 percent of on‑screen..."  (As read)

LISTNUM 1 \l 11396             Where did the 64 percent come from?

LISTNUM 1 \l 11397             MS LAFONTAINE:  The precedent for that is ‑‑ that was the proposal by CTV last spring in the CHUM transaction.

LISTNUM 1 \l 11398             Then, last summer, Rogers committed to 65 percent of its on‑screen benefits to drama.

LISTNUM 1 \l 11399             That's where it comes from.  It is not really a magic number.  In our view, there should be a predominant amount of the on‑screen benefits directed to Canadian drama, because this is the most costly type of programming to be made, and we view that as a reasonable number.

LISTNUM 1 \l 11400             Certainly, if the Commission were to ‑‑

LISTNUM 1 \l 11401             COMMISSIONER KATZ:  I guess, being the new kid on the block, I can ask this question from a naive perspective.

LISTNUM 1 \l 11402             What was the number before these two transactions took place, and was there something in policy or in regulations that was being used before that?

LISTNUM 1 \l 11403             MS LAFONTAINE:  I can't cite all of the decisions.


LISTNUM 1 \l 11404             I can think of, for example, the BCE/CTV decision.  I would have to go back to it, but I believe that the on‑screen was for priority programming generally.  I don't know that there was something specific for drama.

LISTNUM 1 \l 11405             COMMISSIONER KATZ:  And it was in the 60 percent range, as well?

LISTNUM 1 \l 11406             MS LAFONTAINE:  No, I believe it was just generally for priority programming.

LISTNUM 1 \l 11407             My apologies, I can't take you through the trajectory of where it came from, but, generally speaking, I think there has been an emphasis for Canadian drama because of the need for this type of programming within our system, and the lack of support for Canadian drama ‑‑ original Canadian drama by conventional broadcasters.

LISTNUM 1 \l 11408             COMMISSIONER KATZ:  The other issue is the issue of incrementality, which I think we all support as well, and, at different times, we are all groping with how we could actually create a benchmark test and something that becomes a blueprint, so that everybody understands the rules of the game and how to work the rules of the game to comply.


LISTNUM 1 \l 11409             Have you put anything down on paper or done anything more than just simply say:  We have to have a process, we have to have a process, we have to have a process?

LISTNUM 1 \l 11410             MS LAFONTAINE:  Certainly in our written submission, and certainly in our oral presentation here, and in past submissions, our position is that it's not just that there needs to be a process, there needs to be a benchmark.  There needs to be a measurement as against the purchaser's expenditures and the purchasee, or the undertaking that is being purchased.  Otherwise, there could be hydraulics, and there is the potential for no new benefits to the system.

LISTNUM 1 \l 11411             Ultimately, that is why we are here, as part of this transaction, looking at the ownership component.

LISTNUM 1 \l 11412             COMMISSIONER KATZ:  The example you give is ‑‑ you are using CanWest for the last three years ‑‑ 2004, 2005 and 2006.

LISTNUM 1 \l 11413             What you are saying is, "Go back three years and take an average," as opposed to, "Go back two years," or one year or five years, or whatever.

LISTNUM 1 \l 11414             MS LAFONTAINE:  As an example, yes.

LISTNUM 1 \l 11415             COMMISSIONER KATZ:  As opposed to a proposal.


LISTNUM 1 \l 11416             What I am looking for is something more concrete from you folks coming in, rather than saying an example ‑‑ that this is something you have prepared to support ‑‑

LISTNUM 1 \l 11417             MS LAFONTAINE:  This is a proposal.  We are proposing this.

LISTNUM 1 \l 11418             COMMISSIONER KATZ:  Thank you.

LISTNUM 1 \l 11419             Those are my questions, Mr. Chairman.

LISTNUM 1 \l 11420             THE CHAIRPERSON:  Commissioner Arpin?

LISTNUM 1 \l 11421             COMMISSIONER ARPIN:  I have only one question.

LISTNUM 1 \l 11422             On the benefits, you are asking that a minimum of 64 percent of the on‑screen benefit will go to drama.  Drama on Global or drama on the Alliance Atlantis specialty services?

LISTNUM 1 \l 11423             MS LAFONTAINE:  We don't necessarily take a major issue on that point.

LISTNUM 1 \l 11424             For the DGC what is important is that the money be new incremental spending to the system, and that the largest number of viewers have access to or can see the programming.

LISTNUM 1 \l 11425             COMMISSIONER ARPIN:  Thank you.

LISTNUM 1 \l 11426             THE CHAIRPERSON:  Thank you very much for your intervention.


LISTNUM 1 \l 11427             Madam Roy, let's take a five‑minute break before we deal with the last intervenor.

LISTNUM 1 \l 11428             MR. ANTHONY:  Thank you very much.

‑‑‑ Upon recessing at 1557 / Suspension à 1557

‑‑‑ Upon resuming at 1604 / Reprise à 1604

LISTNUM 1 \l 11429             THE SECRETARY:  Please take your seats.

LISTNUM 1 \l 11430             THE CHAIRPERSON:  No, I wasn't talking to you, Mr. Murdoch ‑‑ your colleague.

‑‑‑ Laughter / Rires

LISTNUM 1 \l 11431             THE SECRETARY:  We will now hear the last intervenor of the day, the Communications, Energy and Paperworkers Union.  Please introduce yourself and you will then have 10 minutes for your presentation.

LISTNUM 1 \l 11432             Thank you.

INTERVENTION

LISTNUM 1 \l 11433             MR. MURDOCH:  Thank you, Mr. Chairman and Commissioners.

LISTNUM 1 \l 11434             My name is Peter Murdoch.  I am the Vice‑President of Media for the Communications, Energy and Paperworkers Union of Canada.  We represent workers in a number of broadcast and print outlets including Global television stations and some of their newspapers.


LISTNUM 1 \l 11435             With me today is our legal counsel in this manner, Monica Auer, who you met before, and behind me are some of the employees of CanWest at stations across the country, some of whom will be losing their jobs very shortly.

LISTNUM 1 \l 11436             CEP is one of Canada's largest unions.  We have more than 150,000 members overall and 25,000 of whom work in the media.  We also are a major stakeholder in the Canadian communications system.  CEP is also, by the way, a member of the CCAU.

LISTNUM 1 \l 11437             We appreciate your allowing us to appear before you today and would also like to express our thanks for granting intervenors additional time to review the many documents filed by CanWest well after the original August 10th deadline for interventions.

LISTNUM 1 \l 11438             As you may recall, CEP specifically asked that this hearing be moved from September to a later date and we are very glad you did.

LISTNUM 1 \l 11439             Mr. Chairman, today I have four main points.

LISTNUM 1 \l 11440             Reviewing the materials made public so far demonstrates of course how complex this transaction is, some of which we heard this morning and of course some of which we really don't know because many of the documents are confidential.


LISTNUM 1 \l 11441             But the fact that Mr. Asper has brought forward an extremely complex transaction must not hide its four very simple problems.

LISTNUM 1 \l 11442             The first problem is that CanWest is in such poor financial shape now that it puts all the public plans for the future in doubt and its ability to meet thresholds under the agreement.

LISTNUM 1 \l 11443             CanWest Canadian television segment recorded a 3 percent increase in its airtime revenues over the past year but because the national inflation rate for the same period was 2.5 percent, CanWest's effective real growth was barely half a percentage point.

LISTNUM 1 \l 11444             For the same period the annual outstanding consolidated debt of CanWest grew by more than a third from $2.6 billion in 2006 to $3.6 billion in 2007.  CanWest's long term financial obligations now exceed $9.3 billion.

LISTNUM 1 \l 11445             These very basic financial woes may explain why share prices in Mr. Asper's company have dropped 44 percent from their 2007 high of $12.04 per share to $6.66 per share last Friday.  They also explain just why CanWest so desperately wants you to approve this transaction "to remedy a conventional heavy broadcasting portfolio".


LISTNUM 1 \l 11446             CanWest's very serious financial problems explain why the CEP cannot share this gamble, a gamble that CanWest will somehow surmount its staggering debt by raising revenues higher than it has for many years.

LISTNUM 1 \l 11447             We submit that it cannot be in the public interest to risk granting a debt‑laden, over‑extended company yet more licences.  The real truth is that a decision to approve this application can only serve to meet the private interests of the two companies involved.

LISTNUM 1 \l 11448             The second simple problem is that CanWest still has not proven how a foreign company that controls over two‑thirds of its transactions' debt, two‑thirds of CanWest investments' total shares and its own company's financial future will not have significant influence and effective control over more than 50 important programming services in Canada.  I will speak to that a little bit towards the end of the presentation.


LISTNUM 1 \l 11449             We know that the CRTC has allowed high levels of foreign debt and equity in a very small number of decisions but never for television, radio or specialty programming services for very good reasons.  Foreign control and influence over these special undertakings has been limited since the early 1900s and it was because of directions to the CRTC from the Governor in Council that by 1973 non‑Canadians finally divested themselves of their influence over 80 broadcasting undertakings in Canada, including 13 television and 11 radio stations.

LISTNUM 1 \l 11450             CanWest has argued in its reply to our intervention that unanimous board approval requirements in its deal are benign but the truth is we believe they are malign.  In reality, because of the weak financial condition of CanWest these requirements magnify foreign director's control and significant influence over the company.  This influence is specifically prohibited by the direction not just in English but even more clearly in French.

LISTNUM 1 \l 11451             Regardless of any conditions of licence you impose, it defies rational belief that CanWest will not be acting to protect the interests of its largest and foreign investor, just as it simply defies rational belief that Goldman Sachs will not do everything in its power to maximize the return on its investment.

LISTNUM 1 \l 11452             The clear fact is this; approving this application opens a door to foreign control in our broadcasting system without Parliament's express consent.


LISTNUM 1 \l 11453             The third simple problem is that CanWest plans for these valuable licences, and for its existing licences, neither strengthen or enrich our broadcasting system.  CanWest replied to our written intervention and ignored our concerns about the plans.  Quite frankly, we were staggered that CanWest answered our serious concerns about its application by saying that it will operate the Alliance Atlantis services, "on an integrated basis with CanWest's own broadcasting undertakings".

LISTNUM 1 \l 11454             As you and your colleagues know, CEP has already filed a detailed letter with the CRTC in which we have asked for a public inquiry about the plans CanWest announced in early October to abandon local television production in breach of the Act, the terms and conditions of its licences, your regulations and the CRTC's local advertising policy.

LISTNUM 1 \l 11455             If CanWest's October announcement foreshadows its management of the Alliance Atlantis licences it seems reasonable to assume then in a few years CanWest will make some new announcements explaining how it will maximize and strengthen Canadian program content by centralizing all its productions perhaps in Los Angeles.  Granting this application will award CanWest's outright regulatory non‑compliance.


LISTNUM 1 \l 11456             Finally, Mr. Chairman and Commissioners, and very briefly, we believe there are better and more qualified applicants waiting in the wings for the chance to use these extremely valuable licences and to offer Canadians the unequivocal and significant benefits they should have from a transaction of this magnitude.

LISTNUM 1 \l 11457             I am sure that by now you are familiar with this particular hearing process.  Usually by this stage in their oral remarks intervenors offer up their bottom line, what they would accept to get this deal done.  Then the applicants return and either ante up or hold their hand.  We obviously considered this strategy.  We thought about the different conditions of licence you could impose to minimize foreign owners' control and to maximize CanWest's program commitments.

LISTNUM 1 \l 11458             To be blunt, if CEP has a bottom line, it is this:  that like hundreds of thousands of other Canadians, we fundamentally oppose foreign ownership of our broadcasting system in general and in this very specific case significant foreign influence over the lucrative 22 specialty services of Alliance Atlantis, and in the future the specialty services and 22 TV stations now held by CanWest.


LISTNUM 1 \l 11459             So we urge you and your colleagues to consider very carefully all the implications of approving Mr. Asper's application.

LISTNUM 1 \l 11460             I want to touch just on two points that were made this morning: one by CanWest in terms of putting some import on training and diversity.

LISTNUM 1 \l 11461             I want to say that we have a problem with that when it's only been less than a month that 200 people in their Global television stations have lost employment.  So we don't know where these jobs are being created because these jobs are being eroded out of the Global television stations, as well as their newspapers.  But I know this is not a newspaper commission, so I won't go into that.

LISTNUM 1 \l 11462             Finally, I want to say that I'm not a Bay Street lawyer.  I don't have the sophistication that a lot of the people here today do.  But neither do Canadians.

LISTNUM 1 \l 11463             Canadians, through their MPs, brought the Broadcast Act to life and there are basic tenets and principles in that that we think Canadians want to be kept.  It's not up to Bay Street lawyers, and with all due respect I don't think it's up to this Commission to change that basic tenet and that basic principle of maintaining broadcasting in the hands of Canadians.


LISTNUM 1 \l 11464             Our fear is ‑‑ and I think it's a real one ‑‑ that in approving this, that is precisely what will happen.

LISTNUM 1 \l 11465             I want to let you know that regardless of the decision, we will continue to be taking this issue to Canadians.

LISTNUM 1 \l 11466             Our polling has shown over the years that Canadians want their telecommunications and broadcasting system in the hands of Canadians.  We think they are still firmly in that belief.  It is only, it seems to me, the will of the current government that wants to change that.

LISTNUM 1 \l 11467             As I say, it is certainly not up to Bay Street lawyers to make that change.  It will be up to Parliament and we think that is where this decision should inevitably be.

LISTNUM 1 \l 11468             Thank you for your consideration.

LISTNUM 1 \l 11469             THE CHAIRPERSON:  Thank you, Mr. Murdoch.

LISTNUM 1 \l 11470             What is your bottom line test here?  Is it the equity; that Goldman Sachs will have more than 50 per cent of the equity?

LISTNUM 1 \l 11471             MR. MURDOCH:  Right.


LISTNUM 1 \l 11472             THE CHAIRPERSON:  For argument's sake, if Mr. Asper came around and said no, I'm going to retain 51 per cent of the equity, would your concerns go away?

LISTNUM 1 \l 11473             MR. MURDOCH:  You know, whatever this line would be, let's say it was 10 per cent.  Would I be as concerned if Goldman Sachs had 10 per cent?  Probably not.

LISTNUM 1 \l 11474             There has been some discussion here about strategic versus effective control and de facto control, et cetera.  I think that Canadians would suggest that the broadcasting system itself is strategic.  It's strategic for the wider interests of this country.  And if that in any way, whether it's through equity or de facto control, appears to be in the hands of foreigners, I think you are going to have a very loud and significant response on the part of the public.

LISTNUM 1 \l 11475             THE CHAIRPERSON:  I think we all share the view that the broadcasting system should be in the hands of Canadians.  I'm just trying to figure out is it a dollar game?  Is it the amount of capital that CanWest has tied up as opposed to Goldman Sachs?  Or is it the nature of it; that it is equity rather than debt?

LISTNUM 1 \l 11476             What is it about this deal that you are so clearly opposed to it?


LISTNUM 1 \l 11477             Put aside what you said about CanWest living up to terms of licence.  That is obviously not for discussion here.

LISTNUM 1 \l 11478             I just want to understand what it is that so very clearly offends you about this deal.

LISTNUM 1 \l 11479             MR. MURDOCH:  Well, there are a couple of things.

LISTNUM 1 \l 11480             One is the amount of equity, the amount of debt, as we say and others have said, seems to us to put control in the hands ‑‑ as they say, if the bank holds 65 per cent of my mortgage, I know the bank has control of that house, regardless of what pride I might tell my neighbours.

LISTNUM 1 \l 11481             So that's a problem.

LISTNUM 1 \l 11482             And the percentage, if you want me to come up with a percentage, I can get back to you on a percentage that might make me.  So the debt is a problem.

LISTNUM 1 \l 11483             But the thresholds are also a problem as well, because now we have CanWest in an agreement, and we only outlined part of where we see CanWest's financial concerns.  I think it is a huge, huge gamble and a risk that is too big to take right now.


LISTNUM 1 \l 11484             By the way, I wish CanWest well too.  We have our members work for CanWest and we want that company to do well.  But this is too big a risk.

LISTNUM 1 \l 11485             THE CHAIRPERSON:  Okay.

LISTNUM 1 \l 11486             Commissioner Katz, do you have some questions?

LISTNUM 1 \l 11487             COMMISSIONER KATZ:  I do; thank you, Mr. Chairman.

LISTNUM 1 \l 11488             You cited four reasons why you felt that this was not in the best interest of Canada and Canadians.

LISTNUM 1 \l 11489             The first one ‑‑ and correct me if I go wrong here because I was writing while you were talking:  CanWest is in poor financial shape I think was your first one.

LISTNUM 1 \l 11490             I'm not here to question what their financial shape is, nor should any of us.  The real issue here is:  What does that have to do with a willing buyer and a willing seller ‑‑ forgetting about the Canadian‑U.S. issue here ‑‑ between a willing buyer and a willing seller coming together under a relationship to form a partnership short term, medium term or long term?

LISTNUM 1 \l 11491             MR. MURDOCH:  I mean, I don't think we can put aside what for us is the critical issue, which is that the buyer if you will in this sense in many ways is a foreign investment company.


LISTNUM 1 \l 11492             COMMISSIONER KATZ:  But if it wasn't ‑‑

LISTNUM 1 \l 11493             MR. MURDOCH:  Let me finish and answer your question there.

LISTNUM 1 \l 11494             So aside from that, the ability and meeting these thresholds, at least in just the brief figures that we gave you, give reasons for concern that those thresholds will not be met.

LISTNUM 1 \l 11495             If it was just simple here, I've got twenty bucks and away you go, and it was a Canadian company, we wouldn't be here probably raising our voice so loudly.

LISTNUM 1 \l 11496             But there is a lot of things to this agreement:  the debt, foreign investment and the threshold that now puts a large piece of Canada's broadcasting system at stake.

LISTNUM 1 \l 11497             And I don't see how we can kind of pull those together and just say you know it would be nice if this was a very simple straightforward deal.  It's anything but that.

LISTNUM 1 \l 11498             COMMISSIONER KATZ:  But I think I heard you say now if it was a Canadian company, not an American company, is one reason why you wouldn't have identified it as an issue.


LISTNUM 1 \l 11499             So I guess the question is:  It's not an issue of the poor financial shape of the company necessarily that you are citing; it's the fact that it's an American person investing in it as opposed to a Canadian.

LISTNUM 1 \l 11500             Again, back to the Chairman's comment:  If it was the Royal Bank of Canada putting the money under these terms and conditions, would you cite the same reason for recommending that this transaction be denied?

LISTNUM 1 \l 11501             MR. MURDOCH:  Well, two things.  If it was the Royal Bank of Canada, it might very well meet Parliament's test.  So that would put an end to a large concern.

LISTNUM 1 \l 11502             However, in terms of its ability to meet the thresholds, I'm not sure I want the Canadian broadcasting system to be in the hands of the Royal Bank of Canada either.  So we would have similar concerns about its ability to meet this threshold.

LISTNUM 1 \l 11503             But the concerns about the foreign ownership would probably all but disappear.

LISTNUM 1 \l 11504             COMMISSIONER KATZ:  I think your fourth reason was:  There are more qualified applicants waiting in the wings.


LISTNUM 1 \l 11505             Are you saying this from knowledge or are you saying this because of opportunity that you are aware of?

LISTNUM 1 \l 11506             MR. MURDOCH:  Well, it's not me.  I suppose there are industry rumours maybe.

LISTNUM 1 \l 11507             Can I tell you right now that Rogers definitely wants a piece of this?  I can't.  I have learned from my journalism days that I probably shouldn't be saying those things if I didn't have credible sources.

LISTNUM 1 \l 11508             COMMISSIONER KATZ:  Okay.

LISTNUM 1 \l 11509             MR. MURDOCH:  However, on the other side of it is we really don't know, do we.  At the same time I can't give you a name but we really don't know in fact how many there are.

LISTNUM 1 \l 11510             What we do know is every time any company in the media comes up for sale, we have a whole crew of people hungry to buy them.

LISTNUM 1 \l 11511             COMMISSIONER KATZ:  My comment leads into something I read in your submission dated ‑‑ it was the first one, August 10th, in your introduction, in paragraph 4.  I will just read it to you.


"Even if CanWest's application were not prohibited by the direction, it should be denied because it has not met the burden of the CRTC's current test for ownership transfers because it has not demonstrated that its application is the best possible use of these valuable licences."

LISTNUM 1 \l 11512             Is that, from your perspective, the CRTC's current test of ownership:  that it has to meet the best possible use?

LISTNUM 1 \l 11513             MR. MURDOCH:  Well, I would like to think that it is a test.  As I say, we have come up here and made arguments in front of you before and I'm not sure that that test has in fact been applied.

LISTNUM 1 \l 11514             But it should be, shouldn't it?  Shouldn't it be applied, that a good use of these on behalf of Canadians is part and parcel why we have a Commission indeed to say yes, we think there is something that new ownership should bring to these broadcasting endeavours?

LISTNUM 1 \l 11515             COMMISSIONER KATZ:  And presumably there are rules for that as well.  What I was trying to push on was the issue of the best possible test.

LISTNUM 1 \l 11516             How do you know what is best unless you have something in front of you?


LISTNUM 1 \l 11517             MR. MURDOCH:  That's true.  I guess if we had a more open bidding process, we might be able to find out a little bit more.  If we have Company A saying we can do this and Company B saying we can do that and Company C saying we can do something else, we might have a better idea about what the best is.

LISTNUM 1 \l 11518             At this point people come in and say we've got the deal, here's the deal.  Commission, approve it.

LISTNUM 1 \l 11519             COMMISSIONER KATZ:  So are you suggesting that whenever a company wants to sell their business, they should return it to the government and the government should auction it off?

LISTNUM 1 \l 11520             MR. MURDOCH:  I am not sure auction it off.  My understanding is that in some countries a similar process, not quite the process you defined but a similar process is in place over a period of time.  So it is not an extreme example.

LISTNUM 1 \l 11521             I think the idea of auctioning it off is a bit hyperbolic, but the idea of having perhaps an open bidding process ‑‑ you know, I've sat here through a number of cases and we've had just one company say:  You know what, I've found this to be absolutely the best buy around.

LISTNUM 1 \l 11522             Well, we don't know that.  We have no idea what another company might be able to do or might not be able to do.


LISTNUM 1 \l 11523             I guess in reply I would say I don't know, and in this case I doubt very much that it's the best purchaser and provides the best benefits to Alliance Atlantis.

LISTNUM 1 \l 11524             COMMISSIONER KATZ:  But usually the vendor would go through a quasi option process or an option process, particularly if they are a public company, in order to get the best value for their shareholders.

LISTNUM 1 \l 11525             MR. MURDOCH:  Right, of course.  And that's I think where the rubber is hitting the road here.  The best value for its shareholders might be your priority, Commissioner, but I think there are other priorities as well, which is what is in the best benefit for Canadians, for consumers, for audiences, not simply shareholders.

LISTNUM 1 \l 11526             COMMISSIONER KATZ:  Thank you.

LISTNUM 1 \l 11527             Those are my questions.

LISTNUM 1 \l 11528             THE CHAIRPERSON:  Thank you very much, Mr. Murdoch.  You have given us food for thought.

LISTNUM 1 \l 11529             I think we will close for the day.

LISTNUM 1 \l 11530             MR. MURDOCH:  Thank you.

LISTNUM 1 \l 11531             THE CHAIRPERSON:  Madam Secretary.

LISTNUM 1 \l 11532             THE SECRETARY:  Thank you.  The hearing will resume tomorrow morning at 8:30 a.m.


LISTNUM 1 \l 11533             Thank you, Mr. Chairman, and good night.

‑‑‑ Whereupon the hearing adjourned at 1626, to resume

    on Tuesday, November 20, 2007 at 0830 / L'audience

    est ajournée à 1626, pour reprendre le mardi

    20 novembre 2007 à 0830

 

                      REPORTERS

 

 

 

______________________          ______________________

Johanne Morin                   Fiona Potvin

 

 

 

______________________          ______________________

Jean Desaulniers                Barbara Neuberger

 

 

 

______________________          ______________________

Sue Villeneuve                  Monique Mahoney

 

   

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