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Speech

Notes for an address

by Charles Dalfen

Chairman, Canadian Radio-television
and Telecommunications Commission

to the 2006 Banff World Television Festival

Banff, Alberta

June 12, 2006

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Good morning. As always it's a pleasure to join you at the World Television Festival. This is my fifth time in Banff as Chairman of the CRTC, and I'm looking forward to participating in this year's production as much as I have enjoyed being a part of the other four episodes.

I also pleased to have this opportunity to share ideas and observations with so many of you in the independent production industry. As the Commission goes about fulfilling our mandate of nurturing Canadian content in our broadcasting system, it's always mindful of the critical role of independent producers in the realization of that objective. They are an indispensable source of creativity, technical excellence and storytelling.

As many of you know, my previous speeches here have given particular emphasis to the state of Canadian drama on Canadian television. I've done that not because I think that other kinds of television content are any less important, but rather because of the set of special circumstances - social, cultural and economic - that pertain to Canadian drama.

On the social and cultural side, successful Canadian drama production helps to achieve so many of the objectives of Canadian broadcasting policy enshrined by Parliament in the Broadcasting Act . In particular, drama goes to the heart of the objectives that are most closely tied to ensuring that our broadcasting system is a place where Canadians will not only see the world on TV, but will also see themselves.

Think about it for a moment. Without home-grown drama productions, where would we be in relation to the Broadcasting Act 's objective of a broadcasting system that maintains our cultural sovereignty, while enriching and strengthening our social fabric?

Where would we be in relation to the objectives of reflecting Canadian artistic creativity, displaying Canadian talent and mirroring the circumstances and aspirations of Canadian men, women and children?

Where would we be in terms of maximizing the use of Canadian writing, acting and other creative resources; providing windows for Canadian independent producers; and creating a range of employment opportunities in broadcasting for Canadians?

These social and cultural issues are connected to the special economic circumstances that surround Canadian drama on television. Drama costs more to produce on a per hour basis than any of other genre of regularly scheduled programming. On top of this we have a small population dispersed over a large territory, living next door to a dominant, global supplier of TV drama productions, and to a huge audience for American productions. The realities of the market are unkind to Canadian drama - especially English-language drama.

All of this is to say that throughout my time as Chairman of the Commission I have taken a particular interest in Canadian drama precisely because of that combination of factors: not only is Canadian TV drama important to Canadians for so many reasons, but also its situation in our broadcasting landscape is, always has been, and always will be precarious. It has always seemed to me that we have to take extra care where drama is concerned.

And what is the situation of Canadian television drama today? We're now into our second year of the drama incentives program introduced in 2004. The program was intended to stimulate improvements in three areas: (i) spending on, (ii) broadcast hours of and (iii) viewing to original Canadian drama.

It's still too early to draw conclusions about whether the incentives are going to have a significant impact in any or all of those three areas. But I see grounds for cautious optimism. For example, Global, which opted in to the incentive scheme, aired 63 hours of original Canadian drama last year. And Global has indicated that next year it will continue its one-hour series " Falcon Beach ", and will launch a new 1/2-hour drama, "The Jane Show".

TQS and TVA, two French-language conventional broadcasters that participated in the program, aired 32 hours and 102 hours, respectively, of original Canadian drama in 2005.

And it's good to see that CTV, which chose not to participate in the incentive program last year, is participating this year. CTV continues to attract large audiences to Canadian drama series such as "Degrassi," Corner Gas" and "Robson Arms". The network also plans to air three new 1/2-hour Canadian drama series next year.

So this is encouraging. Having said that, I must also note that we haven't observed any significant movement in spending on Canadian drama. While spending by conventional broadcasters on all Canadian programming grew by 14 percent between 2001 and 2005, spending on Canadian drama grew by only 3 percent. And all of the increase in drama spending was in French-language productions; spending on English productions actually declined during the period.

On the other hand, viewing to Canadian English drama, as a percentage of viewing to all drama aired on private conventional services, rose from 9 percent in 2004 to 10 percent in 2005, a rate of increase in line with the targets we set for the five-year period covered by the incentive program.

So on the conventional side, the report card for Canadian drama is mixed. There are interesting signs of production activity and modest growth in viewing, but declining spending on the production of English drama.

And I would add a cautionary note: we're aware that a significant amount of new Canadian drama production for conventional television - "Corner Gas" is a good example - has been driven by an unusual and very large inflow of revenue resulting from the Commission's benefits policy. The industry cannot count on regular infusions of cash on that order of magnitude.

When I turn from conventional television to pay and specialty services, the picture is more positive for Canadian drama as well as for Canadian programming in general.

Significantly, viewing to Canadian drama on Canadian English-language pay and specialty services is relatively high and growing. Canadian drama captured one-third of viewing to all drama on English pay and specialty services last year, up from 28 percent the year before. And the record in terms of broadcast hours is also noteworthy. Alliance Atlantis' "Showcase" channel broadcast 49 hours of original Canadian drama last year, while CHUM's "Space" channel aired 20 hours. Drama programs for children and youth are also an important part of the overall drama production scene. For instance, next year YTV is commissioning 12 drama series representing 115 hours of original programming. While most of this is animation, over 22 hours will be new, live-action drama programming.

The pay and specialty sector's spending on Canadian programming grew by nearly 40 percent from 2001 to 2005, rising to $725 million last year. Of that total, $163 million - not including CTF funding - went to Canadian drama.

And just last month we approved an application by Allarco Entertainment to launch a new English-language pay service. A key factor in our decision was our estimate that introduction of the new service would generate net new expenditures on Canadian programming of some $70 million over the term of the licence - the vast bulk of it likely to be spent on Canadian drama.

As I reel off these numbers, I can't help but think of a memorable comment made by Trina McQueen at this gathering four years ago. I had given a speech - my first to the Banff TV Festival as Chairman of the Commission - where I said it was time for the broadcasting industry to "go for the gold" and make a concerted push to attract large audiences to Canadian drama.

Afterward, Trina said - I don't remember her precise words, but the gist of it was that she admired the "noble pursuit of futile causes." That got a laugh, as you can imagine. But from where I sit today, thinking about the data I've just presented, I'd say that the cause is anything but futile, even if the battle has yet to be won.

Let me return for a moment to the positive record of pay and specialty service in Canadian programming and Canadian drama. This strong performance mirrors the healthy economic situation of the pay and specialty sector. Revenue grew 40 percent to $2.1 billion between 2001 and 2005, while the sector-wide profit margin before interest and taxes, rose to 25 percent, from 18 percent on 2001.

Meantime, we've seen a rapid increase in the number of operating pay and specialty services. In 2001, 61 services were operating; by the end of last year the number had more than doubled to 136. And growth in ethnic specialty services has occurred at an even faster pace - 21 such services were operating last year, more than a four-fold increase from the five that were in operation in 2001.

It's hardly surprising, then, that the market share of pay and specialty services is expanding. The sector accounted for nearly 36 percent of all TV viewing by Canadians last year, up from 23 percent in 1999.

The pay and specialty sector is obviously a success story for the Canadian broadcasting system. And looking ahead, the regulatory framework for digital migration issued by the Commission early this year will support the sector in making the transition to fully digital distribution. Pay and specialty services are, in my view, well placed to make a substantial contribution to original Canadian programming and Canadian drama, and to generate demand for Canadian independent production.

Having said that, it remains the case, today at least, that the primary driver of Canadian drama production is conventional television. And the conventional television sector, while certainly healthy, is not showing the kind of revenue growth or profitability seen in pay and specialty.

Conventional broadcasters, as a whole, saw total revenue reach $2.2 billion last year, an increase of 14 percent from 2001. The margin of profit before interest and taxes, which stood at 13 percent in 2001, had narrowed to 11 percent in 2005.

In view of these financial results and the mixed picture for Canadian programming - especially English drama - on conventional television, we're asking ourselves whether we have the entirely right regulatory environment to usher conventional broadcasters through the opening decade of the 21st century.

The phrase "rapid technological change" has become a tired cliché. But there's no doubt in my mind that, today, it is the key factor affecting broadcasting executives' decisions about spending on production and infrastructure that will shape Canadian programming for years to come.

We're well into the era of digital television, and that technological shift is forcing broadcasters, as well as the Commission, to rethink what have long been regarded as basic assumptions. Consider just a few of the ways in which the ground is shifting under our feet:

  • •The once easy distinction between conventional television on the one hand, and pay-and-specialty on the other, is becoming fuzzier by the day, as steadily fewer Canadians get their TV signal from an antenna as opposed to a cable or a satellite dish.
  • Consumer demand for high-definition television is growing.
  • The notion that a network scheduler decides when a TV viewer will watch a program is steadily becoming less relevant.
  • The television set is losing its monopoly as the viewing platform for TV programming.
  • New ways to advertise on television, apart from the traditional 15, 30 or 60 second "spot" are emerging.

The Broadcasting Act requires the Commission to adapt to "scientific and technological change." Well, much has changed since the Commission issued its policy framework for Canadian television in 1999. The developments that we're seeing today - or, at the very least, the speed with which they have come upon us - could not have been predicted seven years ago.

Timing is everything, as they say. It just so happens that, coinciding with this sense that some of the foundations of the broadcasting world are shifting, we have the licences of all the major conventional broadcasting groups coming up for renewal. Circumstances are compelling all of the broadcasters to confront a common set of issues that could have a substantial impact on their cost and revenue structures. In view of all this, it seemed to us that rather than handle the regulatory response to these issues on a licensee-by-licensee basis, it would make more sense to treat them on an industry-wide basis, so that we will have prepared the ground for a fruitful discussion with each licensee at renewal time.

And so the Commission is releasing this morning, as I speak to you, a Notice of Public Hearing announcing a review of certain aspects of the regulatory framework for over-the-air television.

And just as a sidebar - let me assure you that it was pure coincidence that I am announcing this television review on the very day that final written submissions are due in our radio review. To those of you involved in both proceedings, my apologies.

Written submissions will be due September 27, public hearings will begin on November 27, and we expect to announce the results of the review by late spring of next year.

Our review has four major objectives. I want to focus on three of them in my remarks here. And the three objectives that I'm going to talk about are linked in the following way.

The Broadcasting Act says that broadcasters, as well as other players in the broadcasting system, "shall contribute in an appropriate manner to the creation and presentation of Canadian programming". Building on that foundation, our job as regulator is to ensure that broadcasters make the maximum feasible contribution to domestic programming. In order for broadcasters to be in a position to do that, the industry must be healthy, and industry executives must be able to predict with a reasonable degree of certainty how the Commission's approach to regulation will affect their costs and revenues. And although the Commission does not control the primary factors that contribute to the health of the industry, it must adapt its regulatory approach to account for the major external factors that have an impact on broadcasters' costs and revenues.

This is part of the basic "regulatory bargain", between the Commission and the broadcasters. We provide for a regulatory approach that bears in mind the realities of running a broadcasting business; and the broadcasters run their business in a way that contributes to the public interest as set out in the Broadcasting Act . Simple to say; not always easy to do.

And so, with this in mind, the first objective of our proceeding on conventional television will be to ensure that conventional television broadcasters contribute in the most effective way to the production, acquisition and broadcast of high-quality Canadian programming that attracts increasing numbers of viewers.

The contribution that over-the-air broadcasters make to Canadian programming comes in two forms. First, they present Canadian programming to audiences. Here, conventional broadcasters have to meet minimum regulatory requirements for Canadian content, as well as conditions of licence for priority programming.

The second kind of contribution comes from what over-the-air broadcasters spend on producing and purchasing Canadian programs. The policy change implemented by the Commission in 1999 removed the regulatory requirement for conventional broadcasters to spend a minimum amount on Canadian programs - a requirement that is still imposed on pay and specialty services. The CRTC's rationale for removing the spending requirement was that in a highly competitive market, it was expected that licensees would spend whatever was necessary in order to acquire or develop programming that would attract large audiences.

Because of the importance given by the Broadcasting Act to having broadcasters contribute to Canadian programming, we will, during the upcoming proceeding, revisit the question of requiring over-the-air broadcasters to make minimum expenditures on Canadian programming. We are inviting - and fully expect to hear - strong arguments on both sides of the issue.

The second objective is to give conventional broadcasters greater clarity regarding the regulations that affect costs and revenues so that they are in a position to propose maximum contributions to the production, acquisition and broadcast of high quality Canadian programming.

The logic is simple. If we want broadcasters to make the most significant possible contribution to Canadian programming, it's incumbent upon us to provide as much clarity as possible about our rules and policies that have an impact on their costs and revenues.

For conventional licensees, revenue comes almost entirely from advertising, and, as I suggested a moment ago, the very nature of advertising on television is changing. Alongside traditional advertising "spots", we're seeing increasing use of product placements, sponsorship and digital alteration.

Under the rules that exist today, the Commission should, in most cases, count non-traditional advertising when monitoring the 12 minutes per hour limit on advertising faced by licensees. But in practice the Commission normally only counts minutes of traditional commercials. As non-traditional forms of advertising become more prevalent, broadcasters would no doubt benefit from certainty on what will, and will not "count" for the purposes of the 12 minute limit, and we will invite comments on this point.

The fact that conventional broadcasters are almost entirely dependent upon advertising revenues is a key regulatory feature that distinguishes them from pay and specialty services. Not only are specialty services allowed 12 minutes of advertising per hour, but they also collect subscriber fees. Some conventional broadcasters have argued that there is no longer a good reason for this distinction, and that they too should be entitled to collect subscriber fees. We are inviting discussion on this.

The regulation of costs - especially costs borne by conventional broadcasters in making the transition to high-definition programming - is another matter that we want to address. Broadcasters have told us that they do not expect over the near term to recover - through higher advertising rates or larger audiences - the significant cost increases entailed by converting transmitters to HD, acquiring new HD production equipment and purchasing HD programming.

As I've indicated on many other occasions, I am convinced that Canadian broadcasters must move as quickly as possible to offer a wider variety of HD programming. Canada is regarded by some industry analysts as being about four years behind the US in its transition to HD programming. But while the supply of HD programming may be weak in Canada , the demand for it is not. About 2.5 million HD television sets have been sold in Canada to date, and it's projected that 10 million will have been sold by the end of the decade. Canadian owners of HD sets who don't see enough HD programming on Canadian channels will simply tune into American ones, and it may be difficult for Canadian broadcasters to win them back.

I would add here that we expect to release our decision on a framework for the licensing and distribution of high definition pay and specialty services before the end of the month.

The third objective is to examine the most effective means of delivering HD television to Canadians.

We are inviting discussion on whether the public interest would be best served by having over-the-air broadcasters convert or replace their analogue transmission networks. Licensees have said that the costs involved are prohibitive and the resulting digital over-the-air network would be a poor investment given that more than 4 out of 5 Canadians now get their TV signal from a BDU instead of an antenna.

We are therefore inviting discussion on the pros and cons of not requiring over-the-air broadcasters to transmit digital signals.

The fourth objective of the review, which I just want to note but not discuss this morning, is to examine the current and future economic status of small market television, a sector that has felt a particular impact from the changes in the broadcasting environment over the past decade and more.

As I trust you can appreciate from my brief summary of the proceeding on over-the-air television, our goal is to have a discussion that addresses the relevance of our current regulatory approach to some key and immediate operational issues affecting conventional broadcasters. Our mandate is to advance the objectives laid out in the Act , and changing circumstances may well mean that advancing those objectives requires us to do things differently - even very differently.

For me, the bottom line is that the completion of the review, and our responses to the issues, will set the stage for the licence renewals of the over-the-air broadcasters. We would hope and expect that broadcasters will be in a position in their renewal applications to make substantial commitments to home-grown programming of all types, and especially to drama.

Finally, let me point out that our process of examining key aspects of the regulatory framework for television will not stop with conventional TV. In 2007 the Commission plans to launch a similar review for pay and specialty services.

As you heard yesterday in the address by the Honourable Bev Oda, Minister of Canadian Heritage and the Status of Women, the government has asked the Commission to provide it with a report on the technological environment facing the Canadian broadcasting system.

We have been asked to gather and synthesize information on a series of questions related to the themes set out in the Order in Council. In order to meet the government's target date we are releasing Broadcasting Public Notice 2006-72 today, seeking submissions from the public by September 1st . The Order in Council is appended to this Notice.

We expect that the material contained in the parties' submissions in response to the Order in Council will form part of the basis of their filings in our proceeding on over-the-air television, thereby avoiding unnecessary duplication of effort and resources.

We invite producers, creators, broadcasters and other stakeholders to provide us with compelling submissions, grounded in the best data available from Canadian and international sources.

Our aim is to ensure that our broadcasting system is able to play its role of entertaining and informing Canadians, and to do so in a way that gives pride of place to Canadian ideas, Canadian talent and Canadian circumstances.

What's very clear to me is that the coming year or so is going to test the capacity of all players in the system to adapt to change and carve out, amid technological ferment and much uncertainty, the best way forward for Canadian television. Everything I've learned over my 4-1/2 years as Chairman of the Commission makes me feel confident that we are all up to the challenge.

Thanks very much.

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Date Modified: 2006-06-12

 

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