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Speech

Notes for an address

by Konrad von Finckenstein, Q.C.

Chairman, Canadian Radio-television and Telecommunications Commission

to the Standing Committee on Canadian Heritage

Ottawa, Ontario

March 25, 2009

(Amended to include additional comments made during the appearance)

Good afternoon, Mr. Chairman and members of the Committee.

My name is Konrad von Finckenstein and I am the Chairman of the Canadian Radio-television and Telecommunications Commission (CRTC). With me today from the CRTC are Michel Arpin, Vice-Chair of Broadcasting, Scott Hutton, Executive Director of Broadcasting, and Stephen Delaney, Director of Industry Analysis.

Let me start by thanking you for your invitation to be here today. In the first two years of my mandate, I have had the opportunity to discuss with this Committee a number of matters related to Canadian broadcasting.

Today, you have asked us to contribute to your study on the future of Canadian television. This is a very timely study given that this industry is at a turning point. I will address the five issues you have identified in sequence, starting with the upcoming transition to a digital broadcasting environment.

1) Digital transition

The switchover from analog to digital is already well underway in many countries. Our neighbours to the south, for instance, had planned to turn off their analog transmitters last month, on February 17. As we have seen, they were not ready in time and have had to push back the cut-off date to June 12.

You may be aware that digital television makes a far more efficient use of the airwaves than analog television. The digital transition will allow the government to free up the 700 megahertz spectrum for public security as well as for other purposes. It will also allow viewers to benefit from sharper television images and better sound quality through digital transmissions.

In Canada, the transition will occur by August 31, 2011, at the latest. The CRTC established this deadline nearly two years ago after consulting with the industry.

Over 90% of Canadians subscribe to cable or satellite television packages. However, that leaves a small number of viewers who rely on analog over-the-air signals. How do we ensure these viewers continue to receive the local stations they currently enjoy after the transition?

Given the size of our country, would it make financial or common sense to force broadcasters to replace every single analog transmitter with a digital one? Likewise, would it be unfair to penalize viewers by taking away their access to over-the-air stations and forcing them to pay for cable or satellite subscriptions?

We brought together, late last year, the CEOs of the broadcasting and distribution companies and asked them to find a solution. They have formed a working group to study the possible options. The working group undertook to submit its report to us before the licence renewal hearings for private conventional television stations get underway this April. We will post the report on our website and it will be the focus of discussions at the hearings.

It is evident that the industry prefers a hybrid system. This scenario would see broadcasters upgrade to digital over-the-air transmitters in large- and medium-sized markets, while cable and satellite companies would provide access to all local television stations in smaller markets.

In December 2008, the Minister of Canadian Heritage indicated that he would be prepared to ask us, under section 14(2) of the Broadcasting Act, to review and consider any technical matter relating to an industry-led solution to ensure universal access to Canadian conventional broadcasting.

Up to this point, the process has been driven by the industry. We look forward to seeing its report and are confident that it will contain a workable solution to the digital transition challenge. We are prepared to take the necessary regulatory steps to implement a hybrid system and to support local broadcasting. Among other things, we will need to revise our definition of a conventional broadcaster to ensure that local stations qualify for mandatory carriage even if they do not broadcast their signals over-the-air.

Upon hearing from all interested parties, the Commission will carefully review the industry’s proposals and how they will affect Canadian viewers before giving the report its endorsement. Some of the proposals may require the support or participation of other government departments.

2) Local and Canadian programming

The broadcasting system is made up of many different elements, but conventional television has always been its cornerstone. The other services that came along, such as pay and specialty, were built around this cornerstone.

Conventional television stations are expected to produce, acquire and broadcast a significant amount of Canadian content, including drama series, documentaries and, in particular, local programming. In exchange, they benefit from regulatory support in five key areas. Conventional broadcasters:

  • enjoy mandatory carriage as part of the basic package offered by cable and satellite companies
  • are allowed to solicit and air local ads
  • have no minimum Canadian programming expenditures
  • can draw from a number of funds that support the creation of Canadian programming, such as the Canadian Television Fund (which will soon be replaced by the Canada Media Fund), and
  • benefit from simultaneous substitution. That is to say, cable and satellite companies must substitute the signal of a foreign channel with that of a Canadian channel when the same program is aired at the same time on both channels.

This model worked very well for many years. It helped sustain a healthy television industry that is distinctively Canadian. However, conventional television now finds itself under a great deal of financial pressure, which the industry claims is threatening the viability of local programming. I know that this situation is as disconcerting to you as it is to the Commission.

The extent to which local programming is suffering in many markets was emphasized at several of the CRTC’s recent public hearings. In particular, television stations serving a population of less than one million are having a hard time maintaining the quality and quantity of their local programming. What’s more, Canadians told us in no uncertain terms how much they value their local television news.

In response, the Commission has taken the following steps:

  • First, in October 2008 we established a Local Programming Improvement Fund specifically to support this type of programming in smaller markets. Previously, cable and satellite companies were required to contribute 5% of the gross revenues generated from their broadcasting activities to support Canadian programming. We have now raised this contribution to 6%. The increase, which will amount to roughly $60 million in the first year, will be allocated to the new local programming fund. 

    One third of these funds – about $20 million – will be set aside for French-language markets. The remaining two-thirds, or $40 million, will be allocated to stations in English-language markets. Stations that qualify for funding must use it solely on local programming.
  • Secondly, we settled the question of distant signals. Better known as time-shifting, this is a popular feature that allows satellite and digital cable subscribers to watch local television stations from other provinces. We decided that conventional broadcasters should be fairly compensated for the retransmission of their signals.

    CTVglobemedia and CanWest estimate the lost revenues from time-shifting at $47.2 million annually. We have therefore given conventional broadcasters permission to negotiate with cable and satellite companies for their use. We hope the issue can be resolved through speedy negotiations and will result in an additional source of revenues for local broadcasters.
  • And thirdly, we decided to take a different approach to licensing conventional broadcasters, which I will explain in a moment.

3) Diversity of voices

Canadian pay and specialty channels have been far more successful than anyone ever imagined when they were initially licensed. That they have been gradually attracting more viewers is an indication of the strength of our television industry. On the other hand, it has resulted in a fragmentation of conventional television’s audience. This phenomenon has become more evident with the emergence of the Internet as a means to view high-quality programming.

Canadian broadcasters have responded by acquiring specialty channels in order to retain their viewership. The most recent ones – the purchases of Alliance Atlantis by CanWest and of CHUM by CTVglobemedia – amounted to over $3.5 billion.

The trend toward greater media concentration raises the concern that a large ownership group could achieve a dominant position through acquisitions. The inherent risk with having a small number of large companies is that it could lead to a reduction in the diversity of voices in the broadcasting system. A democratic system like our own depends on a range of perspectives in news and information programming.

At the moment, the broadcasting system provides Canadians with a wide variety of editorial voices and programming choices. The Commission developed new rules to maintain this diversity of voices, which can be summarized as follows:

  • A single entity will not be permitted to control all three main sources of local news serving the same market, i.e., a radio station, a television station and a newspaper. At most, a party would only be able to control two out of the three.
  • We will carefully examine transactions that would result in one party controlling between 35% and 45% of the total national audience share, and only allow them if they do not endanger the diversity of voices. Additionally, a single entity will not be permitted to control more than 45% of the total national television audience share as a result of a transaction.
  • And finally, a single entity will not be permitted to control the delivery of all television programming in a given market. There must be at least two providers.

The present environment suggests that we can expect more consolidation in the coming months and years. We will assess any future transactions against the rules we have put in place.

4) Cultural development funds

Canadians can take pride in having developed a broadcasting system that provides ample choice of programming, both homegrown and foreign. This is especially remarkable when you consider that we live next door to the largest producer of popular entertainment in the world and that a large proportion of our citizens share the same language.

Series like Flashpoint and Les hauts et les bas de Sophie Paquin show us that Canadian creators are more than capable of producing entertaining television, and that there is an audience for Canadian shows beyond our borders. 

However, it is just as expensive to produce such high-quality programming for a small market like Canada as it is for the American market. Financial assistance is necessary to help Canadian producers bring their stories to the small screen. Through regulatory measures, we have encouraged the creation of independent funds that provide over $50 million annually to independent producers.

The Canadian Television Fund (CTF) was also established to support Canadian productions. Earlier this month, the Minister of Canadian Heritage announced that the CTF and the Canada New Media Fund would be merged into a new fund – the Canada Media Fund.

In creating the Canada Media Fund, Minister Moore made the very wise decision that it should support the production of Canadian content for all platforms, including interactive digital media. We welcomed this announcement, and are pleased that cable and satellite companies will support the new fund with their financial contributions.

As you know, the Commission held public hearings in February and March to look at broadcasting in the New Media environment. While I cannot comment on our decision at this time, owing to due process concerns, one thing became clear: traditional television and New Media form a continuum. Supporting both not only makes eminent sense, but also means moving with the times.

5) Licence renewal hearings

Finally, you asked us to comment on the Commission’s upcoming public hearings to renew the licences of the private conventional television stations. Our normal practice is to issue licences for a seven-year period. In doing so, we attach a number of conditions having to do with programming commitments and closed captioning, among other requirements.

However, as I mentioned a few moments ago, the global financial crisis is having a pronounced effect on conventional broadcasters. They live off advertising revenues and economic conditions have resulted in belt-tightening by the major buyers. One of the biggest buyers of ad time is the automotive industry, and as you all know General Motors and Chrysler are facing possible bankruptcy.

With ratings down in Canada, conventional broadcasters face an acute revenue crisis and must find ways to drastically reduce costs.

Given these exceptional circumstances, the Commission is willing to ease their regulatory obligations in the short term. Last month, we reduced the scope of the public hearings to only a few points:

  • We will renew the licences for one year only, given the impossibility of making long-term plans under existing circumstances. We will thereafter issue licences for seven years on a group basis rather than a category basis (i.e., all specialty and conventional channels owned by one group will be licensed at one time).
  • We will consider lower levels of local, priority and independent programming that each station will be required to broadcast over the 12-month transition period.
  • We will explore whether a condition requiring a 1-to-1 ratio between Canadian and non-Canadian programming expenditures should be introduced for conventional broadcasters for the upcoming broadcast year and/or on a seven-year basis for the broadcasting groups starting in 2010.
  • We will discuss with the industry, and hopefully endorse, the digital transition report I mentioned earlier.
  • And we will finalize the terms of the Local Programming Improvement Fund, particularly those relating to eligibility and the allocation of funds. Our aim is to begin distributing the funds in September 2009.

Let me now say a few words about fee-for-carriage, which you have no doubt heard about. Certain broadcasters have renewed their calls for a fee for the carriage of local conventional television signals. It is quite likely that their representatives will appear before you to make the case for such fees. They argue that fee-for-carriage is necessary to provide stable revenues.

The Commission turned down this request on two separate occasions, most recently in October 2008. The conventional broadcasters were unable to give us a solid commitment on how the fees would be used to improve the Canadian broadcasting system, and specifically local programming. We also took into consideration the fact that their overall revenues had been stable in recent years, yet their expenditures on foreign programming have been climbing steadily. Furthermore, they had just completed major multi-billion-dollar transactions, indicating that lenders had confidence in their business plans.

That being said, we realize that there is a major problem in non-metropolitan areas as far as local content by conventional broadcasters is concerned. That’s why we created the Local Programming Improvement Fund. In our view, that fund is part of the answer to the revenue problem conventional broadcasters face. Of course, the question that always arises is: What is the appropriate amount? This is one of the issues that will no doubt be raised at our April hearings.

As an aside, let me add that the CRTC decided this morning to issue a public notice specifically including in the scope of the April 27 hearings:

  • the adequacy of the 1% for the Local Programming Improvement Fund, and
  • the date on which the distribution of distant signal provisions will come into effect.

Need for a systemic solution

While our short-term focus is quite clearly set on helping the industry weather the storm, the combination of the arrival of New Media as a possible alternate system of distribution and the onset of the global financial crisis have shown us that the current model is in desperate need of a systemic solution. Here we have an opportunity and obligation to rethink our traditional assumptions and to move forward with a long-term vision for the Canadian television industry.

This is not something that the Commission will be able to do alone. It is a process that will require everyone to step up to the table with bold and creative ideas.

During the summer months, we will initiate a public process to find a more effective way to achieve the Broadcasting Act’s objectives, taking into consideration the new economic and technological realities. This new approach will then be used to assess future licence renewals on the basis of ownership groups.

Let me conclude by sharing with you the exact words I spoke at the Canadian Film and Television Production Association in February:

“We need to face the new reality squarely:

  • Conventional television is no longer the cornerstone or the centrepiece of our broadcasting system; however, it is still the best way to reach a huge audience in one go.
  • Conventional television can no longer bear the largest part of the obligations under the Broadcasting Act.
  • We have an industry that consists primarily of a few integrated broadcasting groups, and there may be further consolidations.
  • These integrated groups will create, acquire and deliver programming in every possible way, over every available platform.
  • We need to define the appropriate role of the public broadcaster in this new environment.

Our current model is a jumble of differing rules for different categories. What is required is not a piecemeal fix, but a systemic structural solution. That’s what the process of the coming months is all about.”

The Commission has been proactive in addressing the challenges facing the conventional television sector. We appreciate that it is under a great deal of financial pressure and we are committed to providing whatever help we can.

We appreciate the opportunity to appear before you and will be happy to answer your questions.

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This document is available in alternative format upon request.

Date Modified: 2009-03-31

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