Paragraph

Introduction

1.

2.

• noted that the evolution of audio-visual technologies is profoundly changing how Canadians communicate, express themselves and interact with various media, bringing with it important economic and social implications and leading to a new communications and media environment;

• stated that the Government is of the view that the Canadian broadcasting system, using various audio-visual technologies, must remain relevant in a global digital environment; and

• stated that Canada should continue to play a leading role in the development and usage of world class communications technologies while fostering Canadian cultural choices and broadening public access to local, regional, national and international information and programming.

3.

4.

5.

6.

• a report prepared by Solutions Research Group Consultants Inc. (SRG), which provides a custom analysis of technology and media trends based on SRG's ongoing Fast ForwardT trend study (the SRG report);

• a report prepared by Michael McEwen entitled A Report to the CRTC on Digital Transition Strategies in a Number of Different Countries, which examines various countries' broadcast digital transition, including high definition television, regulations, policies and experiences that are relevant to the Canadian experience (the McEwen report); and

• a report prepared by Canadian Media Research Inc. (CMRI) entitled How Many Canadians Subscribe to Cable TV and Satellite TV, which provides cable and direct-to-home subscriber estimates, profiles of non-subscribers and special survey results (the CMRI report).

7.

8.

9.

• Section I addresses the current state of audio-visual technologies and their evolution over the coming years.

• Section II discusses how Canadians use the various technologies and the impact this usage will have on programming content and services.

• Section III addresses the impact that the adoption of these technologies will have on the Canadian broadcasting system in terms of consumers, broadcasters, distributors, independent producers and the provision of local, regional and national programming.

10.

Section I: Evolution of technologies

A. Broadcasting services' current state and predicted evolution

11.

12.

English language (1)

French language (2)

Third language

Total

36 (36)

20 (20)

- -

56 (56)

14 (14)

12 (10)

- -

26 (24)

2 (2)

2 (2)

- -

4 (4)

5 (4)

4 (3)

- -

9 (7)

5 (4)

4 (3)

- -

9 (7)

158 (189)

19 (17)

12 (9)

189 (215)

380 (216)

88 (65)

9 (6)

477 (287)

27 (n/a)

9 (n/a)

- -

36 (n/a)

42 (35)

9 (4)

7 (3)

58 (42)

11 (9)

34 (27)

- -

45 (36)

22 (13)

26 (19)

1 -

49 (32)

8 (n/a)

- (n/a)

- -

8 (n/a)

36 (33)

5 (5)

- -

41 (38)

9 (8)

- (1)

- -

9 (9)

1 (n/a)

1 (n/a)

- -

2 (n/a)

41 (32)

12 (5)

- -

53 (37)

41 (4)

25 (20)

1 -

67 (24)

96 (n/a)

13 (n/a)

1 -

110 (n/a)

934

283

31

1,248

2 -

- -

- -

2 -

1 -

- -

- -

1 -

5 -

- -

4 -

9 -

2 -

- -

- -

2 -

944

283

35

1,262

13.

14.

2003

2004

2005

Total

68

49

44

161

51

43

38

132

12

5

4

21

5

1

2

8

32

25

33

90

11

10

8

29

4

2

-

6

7

2

-

9

14

10

3

27

15.

b) Financial data

16.

2000

2001

2002

2003

2004

2005

2,454

2,547

2,595

2,821

2,939

3,013

1,731

1,678

1,684

1,696

1,751

1,784

1,001

1,048

1,080

1,171

1,209

1,310

805

845

900

950

994

1,028

820

836

849

862

875

883

293

310

321

338

356

404

110

97

117

237

364

519

7,214

7,361

7,546

8,075

8,488

8,941

13.9%

14.2%

14.3%

14.5%

14.2%

14.7%

17.

Radio type

2000

2001

2002

2003

2004

2005

English AM

270,599

263,608

253,029

259,804

259,506

264,730

English FM

563,274

607,066

641,676

701,416

740,698

825,222

Total - English

873,872

870,674

894,705

961,220

1,000,204

1,089,952

French AM

26,721

24,899

24,996

26,067

22,668

17,784

French FM

137,691

146,123

155,042

172,882

172,577

191,219

Total - French

164,412

171,022

180,038

198,949

195,245

209,003

Ethnic AM

17,798

18,280

18,705

19,602

20,321

21,326

Ethnic FM

9,418

9,629

9,284

9,834

10,551

13,085

Total - Ethnic

27,216

27,909

27,989

29,436

30,872

34,411

Total AM

315,118

306,787

296,730

305,473

302,495

303,840

Total FM

710,383

762,818

806,002

884,132

923,826

1,029,526

Total Canada

1,025,501

1,069,605

1,102,732

1,189,605

1,226,321

1,333,366

18.

19.

20.

2000

2001

2002

2003

2004

2005

English AM

-4.8 %

-6.1 %

-7.7 %

1.08%

1.9 %

6.5 %

English FM

27.3 %

26.7 %

25.9 %

27.6 %

25.9 %

28.2 %

Total - English

16.9 %

16.80 %

16.4 %

20.4 %

19.7 %

22.9 %

French AM

-12.6 %

-8.2 %

-7.5 %

-9.9 %

-20.9 %

-37.4 %

French FM

20.1 %

17.6 %

18.9 %

19.5 %

16.2 %

15.7 %

Total - French

14.7 %

13.8 %

15.3 %

15.6 %

11.8 %

11.14 %

Ethnic AM

7.8 %

5.9 %

7.6 %

9.5 %

15.6 %

12.8 %

Ethnic FM

4.1 %

2.08 %

-3.1 %

3.4 %

4.3 %

7.0 %

Total - Ethnic

6.5 %

4.6 %

4.0 %

7.4 %

11.7 %

10.6 %

Total AM

-4.8 %

-5.5 %

-6.7 %

0.7 %

1.1 %

4.4 %

Total FM

25.6 %

24.7 %

24.2 %

25.7 %

23.9 %

25.6 %

Total - Canada

16.3 %

16.0 %

15.9 %

19.3 %

18.3 %

20.8 %

21.

22.

23.

Commercial

CBC English

CBC French

Radio One

Radio Two

2

6

-

1

1

1

1

12

8

3

-

1

1

1

1

15

17

-

7

1

1

1

1

28

9

-

-

1

1

1

1

13

2

-

-

-

-

-

-

2

4

-

-

1

1

-

-

6

All Canada

24.

25.

26.

• Specialty audio services are radio programming undertakings, other than licensed over-the-air services, that are delivered by broadcasting distribution undertakings (BDUs) and are specialised with respect to their content and target audience.

• The Commission has approved eight specialty audio services: one is regional and seven are national. Of those services, three target ethnic communities and four target Christian communities.

• In 1995, the Commission approved two national pay audio programming undertakings, namely, Galaxie and Max Trax. These services offer 30 channels of commercial-free music. Each channel is devoted to a specific type of music, including classical, contemporary Christian, jazz, rap and rock.

• Galaxie and Max Trax are distributed across Canada on a discretionary basis by the major cable distributors and by the satellite distributor, Star Choice Television Network Incorporated (Star Choice). Subscriber revenue is the only source of revenue for these services.

• The following table sets out the tuning to pay audio in Canada according to an annual survey conducted by Media Technology Monitor (MTM) for the CBC.

Anglophones 18+

Francophones 18+

2004

2005

2004

2005

Past Month Usage

19%

21%

16%

21%

27.

28.

• The programming of Canadian Satellite Radio Inc. (CSR) and SIRIUS Canada Inc. (Sirius) is distributed primarily by satellite, with terrestrial transmitters as required to fill the gaps in coverage. Each of these North American satellite-based services provides a mix of Canadian and non-Canadian produced channels. CSR and Sirius services were launched in December 2005. As of 31 August 2006, CSR reported that it had 120,000 subscribers, and as of 22 November 2006, Sirius reported that it had over 200,000 subscribers.

• The programming of a third authorised service, an undertaking to be operated by CHUM Limited (CHUM), will be delivered entirely by terrestrial transmitters and all channels will be Canadian-produced. At the time of the writing of this report, CHUM had not yet launched this service.

• Currently, satellite radio's primary target market is the automobile. CSR and Sirius have concluded agreements with various Canadian automotive partners to have satellite radios installed in their vehicles. The latest figures in the press indicate that GM installed 50,000 units in its vehicles in 2005 and expects to install an equal number in 2006. Sirius anticipates that, by the end of 2007, there will be more than 150 vehicle models available with Sirius radios installed at the factory or dealer level. Both CSR and Sirius are also actively seeking to expand their market through carriage on cable, direct-to-home (DTH) and mobile wireless carriers. As noted above, such carriage would put SSR in direct competition with pay audio.

29.

English
language⁽¹⁾

French language

Third language

Total

15 (15)

8 (8)

-

23 (23)

4 (-)

4 (-)

-

8 (-)

77 (60)

23 (18)

4 (3)

104 (81)

5 (5)

- (-)

-

5 (5)

4 (4)

3 (3)

-

7 (7)

9 (10)

- (-)

-

9 (10)

10 (-)

3 (-)

2 (-)

15 (14)

30 (30)

14 (16)

5 (5)

49 (51)

15 (16)

3 (-)

-

18 (19)

49 (31)

3 (-)

26 (10)

78 (41)

5 (6)

2 (1)

5 (-)

12 (7)

9 (10)

2 (2)

- (1)

11 (13)

14 (3)

- (1)

-

14 (4)

133 (197)

33 (47)

-

166 (244)

11 (-)

1 (-)

-

12 (12)

1 (1)

1 (1)

-

2 (2)

83 (77)

6 (8)

45 (8)

134 (93)

474 (484)

106 (109)

87 (27)

667 (603)

(2) Includes satellite to cable services.
(3) Number of over-the-air transitional digital television approved as of 21 November 2006.
(4) Excludes private commercial religious stations.
(5) Includes only Category 1 & 2 services launched prior to 3 May 2006.
(6) Number of services licensed as of 21 November 2006.
(7) Excludes class 2 and 3 exempted BDUs.
(8) Carriage of authorised services is at the discretion of the BDU.
Sources: CRTC APP 1205 report dated 21 November 2006, CRTC Decisions and CRTC Financial database system as of 31 August 2005

30.

• There are 49 licensed analog specialty programming undertakings: 28 English-language, 14 French-language, five third-language and two bilingual (English- and French-language).

• The Commission has authorised 18 Category 1 digital specialty programming undertakings: 15 English-language services have been in service since Fall 2001 and three French-language services were launched in Fall 2004.

• The analog and Category 1 services were authorised on a one-per-genre basis and have genre protection against other analog and Category 1 services as well as all Category 2 specialty services.

• Over 200 Category 2 specialty programming undertakings had authorization for operation, as of May 2006, including 105 English-language, 13 French-language, 75 ethnic or third-language and eight bilingual (English- and French-language). Approximately 75 of these services have launched: 47 English-language, three French-language and 25 third-language.

• Category 2 services do not have access rights or genre protection.

• The Commission has authorised five English-language and one French-language pay television programming undertakings. In May 2006, the Commission authorised a new national English-language general interest pay television programming undertaking. The Commission has also authorised 24 digital Category 2 pay television programming undertakings.

• There are five terrestrial pay-per-view (PPV) services: three English-language, one French-language and one bilingual (English- and French-language).

• There are six DTH PPV services: four English-language, one French-language and one bilingual (English and French).

• As of May 2006, there were 13 authorized video-on-demand (VOD) programming undertakings.

2000

2001

2002

2003

2004

2005

1,519

1,538

1,515

1,684

1,693

1,764

1,006

1,183

1,312

1,399

1,521

1,618

48

100

116

143

1,006

1,183

1,360

1,499

1,637

1,761

361

366

378

409

422

434

230

272

301

338

363

366

34

36

40

42

48

50

1

2

3

7

34

36

41

44

51

57

31.

• Total revenues for private conventional television stations increased 16.1% from 2000 to 2005 for an average increase of approximately 3% per year. National advertising revenues accounted for almost the entire increase as they rose by 18% while local revenues went up by only 0.3%. Of the total advertising revenues, national advertising's share rose 3 percentage points to 81% while local advertising's share fell 3 percentage points to 19%.

• English-language private conventional television revenues rose by 16.1% over the period while French-language revenues increased by 20.2%.

• Large private conventional television ownership groups continue to account for approximately 95% of the total revenues reported by private English-language conventional television stations. This percentage has remained roughly the same since 1998.

• Quebecor inc. (Quebecor) and Cogeco Inc. (Cogeco) accounted for 92% of the total revenues reported by private French-language conventional television in 2005.

• Specialty services' revenues rose by 72% between 2000 and 2005, for an average annual increase of approximately 12% per year.

• Specialty services have a revenue stream from both advertising and subscriptions. In 2000, subscriber revenues contributed 63% of total revenues while 37% came from advertising. By 2005, subscriber revenues declined to 57% of the total while advertising revenues increased to 43%.

• In 2005, 44% of the English-language and 36% of the French-language services' revenues were derived from advertising revenues.

• The shift toward increased advertising revenues for specialty services is consistent with the decline in viewing to conventional television and the increase in viewing to specialty services, as discussed in the next section of this report.

• Pay and PPV services rely entirely on subscription revenues, which rose by 78% between 2000 and 2005, due to increased viewing to these services.

2000

2001

2002

2003

2004

2005

14%

13%

9%

14%

11%

11%

18%

19%

21%

21%

25%

31%

12%

10%

11%

14%

12%

11%

17%

16%

17%

21%

21%

25%

16%

14%

17%

17%

26%

24%

• Both English- and French-language private conventional television PBIT margins declined from 2000 to 2005, due in part to the shift in advertising revenues to specialty services.

• In comparison, specialty services' PBIT margin increased from 18.5% in 2000 to 24.8% in 2005. Over this period, analog services' PBIT increased from 18.5% to 30.2%. Category 1 and Category 2 services first reported in 2002 and are still reporting negative margins.

• Pay and PPV services reported a PBIT margin of 12.3% in 2000, increasing to 27.3% in 2005.

• From a language perspective, English- and French-language pay and specialty services reported PBIT margins of 25.8% and 23.3%, respectively, in 2005.

• Ethnic pay and specialty services reported PBIT margins of 20.2% in 2005, compared to 11% in 2000.

Language

Actual or planned
start date

F

-

F

March 2005

F

September 2007

F

-

E

March 2005

F

January 2006

F

September 2006

E

September 2006

O/E

July 2007

O/E

July 2007

F

March 2005

F

September 2006

E

March 2005

E

July 2005

E

November 2004

E

-

E

January 2003

E

February 2004

O/E

October 2006

O/E

October 2006

E

-

E

February 2004

E

January 2006

E

-

E

July 2005

O/E

-

37.

• Canada's market place approach to the roll out of digital services, and the broadcasting industry's decision that a two-year lag behind the US roll out would save a great deal in the early adoption cost for broadcast, production and consumer equipment, has had some benefits for Canada. Canada has however fallen further and further behind the US and the two-year lag has turned into at least four years and maybe more.

• As the US and other countries focus on analog shutdown as early as 2009 through to 2012, Canada has only transmitted limited digital over-the-air services in Toronto, Montréal and Vancouver, with Ottawa and Québec due for CBC/SRC service this year. Canada's pay and specialty services have made modest beginnings with HD services but nothing in terms of the volume of their US counterparts.

• One of the reasons for this slow roll out is that, as broadcasters have said repeatedly, they do not see the value of building out digital transmission facilities across the country and going through the expense of simultaneous carriage of analog and digital systems, particularly when most of the markets are delivered by cable and to a lesser extent satellite. The CBC seems willing to build out digital transmitted service, but only if it is given additional funding for full coverage. The private sector would probably agree with that view if it applied to them.

• Commissioning of prime time drama programs, made for TV-movies, and, in particular, the production of sporting events has increased a great deal over the last two years and there is a visible effect on the screen. The challenge is to make a definable viewing experience for Canadian HD in the sea of US product ever the Canadian challenge.

• While Canada is challenged by the media colossus to the south, it does have a regulatory framework that protects Canadian broadcasters from competing foreign digital services. This situation may be a disincentive for broadcasters to embrace the digital transition compared to the other countries reviewed in this paper. There also is not the same kind of spectrum challenge in Canada as found in Europe or the same pressing need for analog broadcast spectrum for other services (although this latter point is now being challenged by service providers interested in supplying mobile and convergent services). In short, Canada has not had the same kind of market pressure as other countries to make the transition to digital, whether HD or not, in an efficient and effective manner.

• Digital HD displays have had a take-up in Canada similar to that of the US Close to three million displays will have been sold in Canada by the end of 2006 with growth trends in sales similar to the US. Projected through to 2011, Canadian households should all have HD displays - many of them with built-in over-the-air tuners and the cable plug-and-play capacity (currently not available from cable providers). However, hook ups to available HD services have been slow with only about 400,000 HD hook ups to cable and satellite with virtually no over-the-air viewing. This will change gradually as consumers understand what is available and how to get it. The availability of more Canadian services and better promotion by the broadcast community will drive consumers to these new services. As in the US, there is a hook up lag, and for the most part the better wide screen picture as displayed by digital video discs (DVDs) have pushed the market along.

38.

39.

Canadian services

Foreign services

Total

10

9

19

16

10

26

5

5

10

8

5

13

16

11

27

6

8

14

Weekly average of HD hours

Original

8.25

100%

11.5

17%

2.3

57%

10

55%

6

100%

75

0%

42

7%

11

9%

25

100%

53

4%

10

60%

40.

Chart 1 - Interest in HDTV

• Based on its data, SRG concluded that HDTV growth levels in Canada have underperformed in the past two years, primarily due to the following factors:

• until just recently, persistently high price points;

• consumer confusion about HD's features and benefits;

• lack of programming; and

• lack of clear and consistent communication by the consumer electronics and television industries.

• SRG also found that:

• One-in-ten Canadian households, or just over 1.2 million households, currently have an HD-capable television. Other studies have suggested slightly higher penetration rates, in the 14% to 15% range.

• The typical primary television in the Canadian household is about six years old. Just under one-in-ten primary televisions are replaced annually in Canada. SRG anticipated that 40% to 45% of primary televisions in Canadian households will be HD-capable by 2011. It is important to note, however, that this number does not include secondary HD displays such as new personal computer (PC) and laptop screens that are capable of displaying HD content.

41.

42.

43.

44.

45.

• The BDU industry as a whole continued to grow as total revenues in 2005 increased by 0.4%, from 2004 to $4.575 billion (7.5% average annual growth rate, 2001-2005).

• DTH, multipoint distribution system (MDS) and subscription television (STV) providers reported increased revenues of 8.1% in 2005.

• Class 1 BDUs' PBIT margins decreased slightly from 23.2% in 2004 to 20.3% in 2005, but still up from 15.2%, 15.4% and 17.5% reported in 2001, 2002 and 2003 respectively.

• Correspondingly, the industry's return on net fixed assets declined from 20.4% in 2004 to 14.4% in 2005 on account of a significant increase in capital expenditures. This 14.4% is comparable to the 14.2% the industry reported in 2003, and up from the 11.3% and 11.5% reported in 2001 and 2002 respectively.

46.

• 44% were "digital homes" (20% subscribed to digital cable and 24% subscribed to DTH, which offers only digital service);
• 43% subscribe to analog cable; and
• 13% do not subscribe to cable or DTH.

47.

48.

49.

Cable, class 1 ⁽¹⁾

DTH

MDS & STV

Total

6,857

81.0%

1,520

18.0%

87

1.0%

8,465

100%

6,617

72.4%

2,486

27.2%

32

0.4%

9,135

100%

• Competition, primarily from DTH, has reduced Class 1 cable licensees' overall share of subscribers, from 81% in 2001 to 73% in 2005.

• Statistics Canada figures for 2005 indicate that there were a total of 7.6 million cable subscribers in that year including approximately one million subscribers to cable systems that the Commission considers exempt.

50.

• The approximately 5.3 million subscribers to digital cable and DTH in the second quarter of 2006 are expected to reach 6.9 million by 2010.

• Cable distributors have invested more than $7.5 billion since 2000 to upgrade their networks to digital, switched, and two-way capable. Digital cable services are available to all households in the service areas of the four largest cable companies, or to more than 10.5 million households.

• Cable operators are aggressively encouraging their customers to upgrade to digital so that the operator can reclaim the bandwidth consumed by analog television channels. While each cable operator's plans will be different, it is likely that analog cable could be phased out by as early as 2010 and almost four in five Canadian households will be subscribing to some form of d DTV distribution service by that time.

Chart 2 - Digital subscribers in Canada

51.

52.

53.

54.

55.

• DTH is a one-way only platform and does not currently support VOD services.

• Subscribers to DTH increased by 178,000 in 2005, representing an increase of 7.8% for a total market share of 27.0%.

• ExpressVu offers more than 400 channels of programming, including over 20 true HD services. Star Choice reports offering 17 true HD services.

• ExpressVu and Star Choice reported combined total revenues of approximately $1.4 billion and some 2.5 million subscribers in 2005.

56.

57.

58.

59.

• IPTV is a relatively recent innovation in broadcasting distribution technology. Multimedia Research Group Inc. (MRG) predicts worldwide IPTV subscriber penetration to increase from 3.7 million in 2005 to 36.9 million by 2009, with global IPTV service revenues rising from $880 million in 2005 to $9.9 billion in 2009.⁽³⁾ Europe and Asia are leading the implementation of IPTV at this time, with North America close in third place.

• Bell obtained a licence to operate regional Class 1 terrestrial BDUs in Ontario and Quebec in 2004. Since that time, Bell has been developing its terrestrial network to allow for the delivery of audio-visual programming using IP over a DSL platform.⁽⁴⁾

• As of this writing, Bell Aliant (Aliant), Bell, SaskTel and TELUS are licensed as Class 1 BDUs to provide IPTV service using DSL technology. In August 2006, Allstream announced that it had begun to offer subscribers seven HD channels. Allstream reported that its BDU service is now available to more than 93% of homes in Winnipeg.⁽⁵⁾ SaskTel offers 27 HD channels. Bell's IPTV service is expected to be available to approximately 4.2 million households by 2008.⁽⁶⁾ It is estimated that, as of 2005, there were approximately 100,000 subscribers to IPTV services in Canada. This is higher than the 77,000 subscribers forecast referred to by The Canadian Coalition of Audio Visual Unions (CCAU). The number of Canadian subscribers is forecast to increase to more than 800,000 by 2010.⁽⁷⁾ As a comparison, Verizon, a telephone company in the US, offers up to 25 HD channels over its fibre optical video distribution network.

• The evolution of IPTV will occur in an expanded broadcasting context that features conventional and on-demand HD content being delivered to a multiplicity of receiving devices at any time and any place.

• This new broadcasting context will likely feature IPTV as just one of many applications covered by an umbrella brand for all of the services provided by a telco over its broadband network. Consumers are well-accustomed to "pulling" content from the Internet as their needs and wants warrant. This growing willingness, indeed preference, to control the scheduling of content consumption will ultimately translate into a critical mass of television subscribers who will increasingly welcome and exploit the interactivity of IPTV. In the future,

• It is clear that the network model of tomorrow will be consumer-centric in its ability to deliver personalized services:

• These personalized services will undoubtedly terminate on not only set-top boxes, which will characterize the initial IPTV implementation, but also other terminals such as cell phones, personal digital assistants (PDA), portable media players such as iPods, and gaming devices such as PlayStation and Xbox.

• IPTV will benefit the broadcasting system by facilitating competition in multiple dwelling units, residents of which are not always able to avail themselves of a competitive service because of line-of-sight constraints. It will also allow BDUs and programmers to work together on innovative, more effective targeted advertising.⁽¹⁰⁾ As well, IPTV technology may evolve to marry traditional linear services with the content available on the Internet on the same receiving apparatus (subject to viable business models and developing the technology and operating system support Operation Support System (OSS) to support it).

60.

61.

62.

63.

• 44% of digital cable households, or 9% of Canadian households, used paid or free VOD at least once in 2006, up from 36% in 2005; and

• on-demand use via the cable or DTH platform will increase in the next five years to approximately 30% of all Canadian households. This growth will occur gradually, year-by-year, and will not be similar to the explosive growth in DVD penetration or Internet use over the last five to six years.

64.

• automatic recording of live programming at the time it is being watched. This feature allows the viewer to pause or rewind live programming at any time. Once viewing resumes, the fast forward button can be used to catch up to the live version by skipping through commercials; and

• viewers of recorded programs can also skip commercials, using the fast forward command or, on some PVRs, a 30-second skip-ahead feature. The ability to skip commercials has given rise to concerns on the part of advertisers and broadcasters that the revenue model for advertiser supported television may be in jeopardy.

65.

• PVR penetration in Canada is behind that in the US In 2006, 6% of Canadian households, or just over 700,000 households, had a PVR, up from 4% in 2005. Eight percent (8%) of US households had a PVR in 2005.

• Interest in PVRs is high with over 50% of subscribers to digital cable or DTH expressing an interest in obtaining one in the future.

• Households with teenagers indicated the greatest interest in obtaining a PVR.

66.

• Currently, an estimated three-quarter of a million Canadian households have a PVR, a relatively low amount compared to the 11 million plus households that have VCRs However, given how rapidly VCRs became ubiquitous in Canadian households, PVRs' penetration levels should rise over time as they become more affordable.

• According to Forrester Research, Inc., the Canadian market is lagging the US market somewhat, but is expected to follow the trend in the US market, which is forecasted to achieve 45% penetration by 2009.⁽¹¹⁾

• Projected growth in PVR penetration is further supported by survey results indicating that PVR owners expressed high levels of satisfaction with the service and have found that it substantially improves their viewing experience. An In-Stat survey in the US found very high satisfaction levels, with 86% of users reporting that they were very or extremely satisfied with their PVR.⁽¹²⁾ In Canada, SRG found that 62% of PVR users considered the device increased their viewing enjoyment.⁽¹³⁾

• According to Rogers, the forecasts and surveys indicate that a majority of consumers will acquire a PVR within the next five to seven years. With services such as VOD and PVR at their disposal, more consumers will adopt on-demand habits, creating a culture of convenience among television viewers. Consumers accustomed to on-demand convenience from the broadband platform are seeking the same convenience from their televisions. In response, television manufacturers like LG, Mitsubishi and Sony are beginning to market televisions with built-in PVRs. This behavioural change will displace viewing of linear scheduled programs on television channels, even while it stimulates overall viewing of audio-visual content on traditional media platforms. At the same time, this change will impact the traditional linear advertising model potentially causing advertisers to seek other vehicles for advertising placement.

• In its submission, Bell stated that some parties in the industry are concerned about the time-shifting opportunities offered by PVRs. Nevertheless, as Bell pointed out, PVRs are the next generation of VCRs, which have been used by cable subscribers for decades. Bell also submitted that it is generally acknowledged that digital set-top boxes incorporating a PVR will be the future norm in the industry. Because of the current niche market acceptance and the premium prices attached to these set-top boxes, PVRs currently have a relatively low penetration rate.⁽¹⁴⁾ According to Bell, however, the research indicates that PVRs users are generally pleased with these devices and the on-demand capability they offer. Some studies also report that PVR users increase their television viewing and are more likely to subscribe to additional optional services.

67.

CyberTRENDS

SRG

High-speed

Dial-up

High-speed

Dial-up

2001

30%

70%

-

2002

40%

60%

-

-

2003

50%

50%

61%

39%

2004

65%

35%

68%

32%

2005

74%

26%

79%

21%

2006

-

-

81%

19%

68.

69.

• Streaming

• Streaming is a technology that allows a consumer to view a video or listen to audio in a continuous stream as it is received over his or her PC.

• Streamed audio or video is not meant to be retained by the consumer.

• Streamed audio is like radio programming in that it is scheduled. In order to combat audience fragmentation caused by new media, many broadcasters have responded by streaming their OTA radio stations. In other cases, actual Internet-only radio stations have been created.

• According to the CBC, research indicates that about one in five Canadians listen to audio streamed over the Internet, with significantly higher percentages among youth and young adults. Internet audio streaming is also popular among Canadians with a non-North American or non-European ancestral background, presumably because they can easily access third-language audio services not otherwise available in Canada. While streaming benefits listeners by enabling them to access out-of-market stations and benefits the affected stations by enabling them to extend their coverage, it disadvantages local broadcasters by reducing their audiences.

• The CBC further noted that driven by consumer demand for the "wired home", several technologies have been built to take advantage of wireless home networks and establish a bridge between PCs and home audio equipment. This type of interconnection enhances opportunities to listen to Internet streaming and may permit Internet-based music to play an increasingly prominent role in consumers' listening habits both at home and at work. However, streamed audio's sound quality is not on par with that offered by most other broadcasting services. For some listeners, this will likely limit the attractiveness of this audio option.

• Podcasting

• Podcasting is a form of on-demand audio delivery involving the downloading of audio files to a PC or personal audio device for subsequent listening.

• Audio files can range from quick news clips to whole radio programs complete with songs and comment.

• Files can be downloaded and played on PCs and portable devices. A common way to receive these files is to subscribe to a feed that automatically notifies customers when a new file in a series is available, sometimes even incorporating files into a user's portable play list in an integrated interface such as Apple's iTunes.

• Some broadcasters are currently involved in podcasting and they make significant amounts of audio programming available to the public as a complementary service via their Web sites.

• Podcasting was virtually unknown two years ago, has a low penetration rate but is increasing in popularity, especially among younger Canadians. It allows broadcasters to tap into the new technologies to reach a new, younger audience, its future generation of listeners. Podcasts are generally available free of charge, although some podcasters have begun to charge for access.

• The CBC stated that, like on-demand video services, podcasting can be considered to be indirectly competitive with traditional broadcasting. However, the CBC submitted that, given podcasting's limited commercial element, it is perhaps better viewed as a complementary service that can be used to raise the profile of a broadcaster's other audio services and lead to the development of new audiences.

• Internet downloads

• Internet downloads consist of downloading music to computers or personal audio devices, generally for a fee.

• Internet downloads are a form of on-demand access that is only indirectly related to broadcasting, being more akin to purchasing a CD than listening to radio. Nonetheless, Internet downloading does represent a significant new source of audio content and, as such, competes for listening time with both conventional radio and other audio platforms.

• As with audio streaming, Internet audio downloading is popular among Canadians with a non-North American or non-European ancestral background.

• As noted earlier, SRG's survey results indicate that one-in-three Canadian Internet users actively download content. The rate more than doubles among those aged 15 to 19 years.

70.

71.

72.

73.

74.

75.

• Recent advances in broadband wireless technologies and in digital video compression have made it possible for mobile television to be provided by cellular telephone network operators. Specialised handheld devices can download pre-recorded or live audio-video services such as VOD, live television and music videos. Since the limited capacity of cellular networks is shared among users and digital video requires high data capacity, low resolution images and a limited number of available programs to a restricted number of users have characterized mobile television so far. Future wireless networks and possibly new spectrum allocation may, in the future, permit the delivery of higher resolution images and more programming to more users.

• Mobile television receivers are expected to become integrated with existing portable devices such as personal players (e.g. iPods), cellular phones and portable computers.

• As noted above, small-size portable devices generally characterize mobile television, resulting in small size displays. Given mobile television's growth, it appears that consumers are willing to trade picture quality for access to video services anytime, anywhere. Experiments have shown that simply down-sampling broadcast material to accommodate the resolution of mobile television is not the best way to provide this service. Mobile television services are more suited to broadcasting news, short video clips, previews, music video, etc., rather than longer programs such as full feature films. Content must be properly re-packaged to accommodate this new delivery medium. From this point of view, mobile television does not directly compete with regular television broadcasting, but may represent an opportunity for broadcasters and program producers to reposition their program material for another market.

• Mobile television services' growth in Canada may be supported by continuing allocation of spectrum by the Department for flexible use within or outside the television frequency band. This new spectrum would be of interest, not only to existing broadcasters and to cellular network operators, but also to new players.

76.

77.

• Growth over the next five years will shift to personal digital technologies driven by broadband connectivity, including digital music and video players, ultra-portable PCs, digital cameras, mobile and smart phones and associated content and services.

• As more consumers choose personal digital technologies, growth will slow for some household technologies such as digital cable and DTH.

• Between 2000 and 2004, the number of households with access to digital cable or DTH quadrupled from 10% to 40%. Since then, growth has been relatively slow: from 40% to 44% between 2004 and 2006. SRG's research suggests that most of the consumers who have the greatest interest in digital television have already switched. Accordingly, digital cable and DTH is expected to experience slow growth in the medium term, i.e., from 2006 to 2011, with a projected combined ceiling of 58% to 60% penetration of Canadian households by 2011.

• Without question, television's ultimate future is on-demand. However, it is still questionable whether Canadians will choose to receive their on-demand television programming by means of a set-top PVR, by cable VOD, or on a PC or screen connected to the broadband Internet.

• In the absence of a super-brand such as TiVo in the Canadian marketplace or aggressive deployment by distributors, growth in PVR penetration will likely continue to be slower than what has been observed in the United States.

• On-demand use via the cable or DTH platform (e.g., PVR or VOD) will increase in the next five years to approximately 30% of all Canadian households. This growth will be gradual, year-by-year, contrary to the explosive growth in DVD penetration and Internet use over the last five to six years.

• Given the significant number of Canadians who are part of the boomer generation, traditional linear media, which are generally the choice of older generations, will continue to co-exist in the medium term with on-demand media, the choice of younger generations. It will take about ten years before the present generation exerts its full influence as the dominant segment in the Canadian consumer landscape.

78.

79.

• iPod makes television programs available, as do all the wireless companies, and Blackberry has followed suit. With new features, PVR are growing in use. All the distributors are enhancing the performance of their networks, and so on. The environment that is emerging is a multiplatform one, characterized by the development of on-demand services that are financed by advertising, syndication and subscriptions.

• The mobility of consumers and their flexibility in terms of time of consumption are at the root of the growth of the new platforms. Service providers no longer monitor the habits of consumers as they did in the past; rather, consumers dictate the conditions for delivery of the products they receive. Their ever-increasing autonomy is the result of constantly changing technology.

• Broadcasters must keep up with these changes or, better still, be the agent for them. Cultural content and the adoption of new technologies are two necessary and essential conditions. One cannot progress without the other. At the centre of this progress are the consumers, who, through their choices - both in terms of the quality of products and the technology that delivers them - will ensure the success of our cultural enterprises.

• QMI indicated that it has no choice but to make massive investments in order to offer the consumer the services that can be obtained elsewhere and to do so under the best conditions possible, i.e., to make audiovisual content available on all developing platforms.

80.

• According to Shaw, these technologies will allow Canadians to create their own content and become their own broadcasters; to access and package content of their choice across national boundaries and without regulatory restriction; to unsubscribe from basic cable and access mainstream broadcast content on a pay-per-view basis without mandatory Canadian content; to bypass cable and other DTH networks to access broadcast content on other types of broadband networks; and to access broadcast content on a variety of devices other than televisions. Televisions face the distinct possibility of becoming a secondary choice after personal computers, PDAs and multimedia mobile telephones.

• For the future, all of these technologies will continue to improve rapidly. In addition to these technological advancements, new types of competitors and new business models that compete with traditional broadcasting distribution undertakings will be aided by the increased availability of new technologies, and the increasing familiarity and comfort of Canadians with the use of technology.

Section II: Usage of audio-visual technologies by Canadians

81.

Chart 3 - Percentage of Canadian households with selected technologies, 1996 and estimates for 2006

82.

83.

Chart 4 - Percentage of Canadians With Cable/DTH vs Off-Air Reception, All Canada, Persons 2+, Fall 1995 - Fall 2005

Canada Excluding Quebec

Francophone Quebec

Satellite

Cable

Off-Air

Satellite

Cable

Off-Air

Area Population

1,000,000 +

14%

77%

8%

18%

59%

23%

100,000 - 1,000,000

22%

67%

10%

19%

69%

12%

50,000 - 100,000

39%

52%

9%

31%

60%

9%

< 50,000

50%

37%

13%

40%

50%

10%

(CBC / Radio-Canada, page 41)

86.

87.

88.

1999-00

2000-01

2001-02

2002-03

2003-04

2004-05

22.4

21.2

19.4

12.6

13.1

12.8

77.6

78.8

80.6

87.5

86.9

87.2

-

-

61.5

58.7

52.7

50.0

-

-

8.2

13.4

14.5

16.2

-

-

10.9

15.4

19.7

21.0

30.0

29.7

29.9

22.8

20.9

20.4

70.0

70.3

70.1

77.2

79.2

79.6

-

-

56.2

53.8

47.7

46.8

-

-

4.7

6.7

10.9

12.4

-

-

9.2

16.7

20.6

20.4

89.

90.

91.

92.

93.

Average weekly hours tuned per capita

BBM Fall 2000 - 2005 - all persons 12+, Monday to Sunday, 5 a.m. to 1 a.m.

Adults

20.3

10.5

18.1

20.6

21.8

21.9

22.8

22.4

20.1

10.1

17.3

20.5

21.6

21.6

22.7

22.3

20.2

9.4

16.7

20.1

21.7

22.3

23.1

22.8

19.5

8.5

16.3

19.3

21.3

21.8

21.9

22.3

19.5

8.5

15.7

19.3

21.5

21.6

22.1

22.3

19.1

8.6

15.2

18.1

21.0

21.5

21.9

21.6

2000 to 2005

-1.2

-1.9

-2.9

-2.5

-0.8

-0.4

-0.9

-0.8

94.

95.

96.

BBM Fall - all persons 12+, Monday to Sunday, 5 a.m. to 1:00 a.m.

2000

2001

2002

2003

2004

2005

Increase/
decrease
2000 to 2005

126.6

126.2

122.2

117.6

114.1

111.2

-12.1

15.9

15.4

14.6

12.7

11.3

10.1

-36.5

267.5

267.0

276.2

275.9

283.5

280.2

4.7

92.5

94.5

99.5

97.4

101.2

100.3

8.4

29.3

29.8

28.0

26.0

28.0

29.8

1.7

531.8

532.9

540.5

529.6

538.1

531.6

-0.04

97.

BBM Fall - all persons 12+, Monday to Sunday, 5 a.m. to 1:00 a.m.

23.8

23.7

22.6

22.2

21.2

21.0

-11.8

3.0

2.9

2.7

2.4

2.1

1.9

-36.7

50.3

50.1

51.1

52.1

52.7

52.7

4.8

17.4

17.7

18.4

18.4

18.8

18.9

8.6

5.5

5.6

5.2

4.9

5.2

5.6

-1.8

100

100

100

100

100

100

531.8

532.9

540.5

529.6

538.1

531.6

-0.04

98.

99.

Chart 5 - Full coverage reach and share of CBC English-language radio station

Chart 6 - Full coverage reach and share of CBC French-language radio station

100.

101.

102.

2001/02

28.7

19.3

20.9

30.9

25.0

26.5

27.7

2002/03

28.6

18.8

21.1

30.6

24.4

25.9

27.3

2003/04

28.6

19.3

21.3

30.7

24.6

26.0

27.5

2004/05

28.1

20.5

21.3

29.9

23.3

25.0

26.5

2001/02

2002/03

2003/04

2004/05

BBM Metered data
2002-03, 2003-04 and 2004-05 broadcast years⁽¹⁾
for all persons 2+, Monday to Sunday, 2 a.m. to 2 a.m.

2.0

2.4

2.2

10.0

30.6

38.1

30.1

-16.3

8.2

9.0

9.4

14.6

147.8

152.8

161.0

8.9

7.3

8.8

8.4

15.1

155.8

184.3

191.1

22.7

1.0

1.3

0.4

-60.0

9.0

11.4

14.8

64.4

18.5

21.4

20.4

10.3

342.7

385.1

396.5

15.7

19.5

21.3

27.3

40.0

0.5

1.1

0.5

-

67.5

72.4

75.9

12.4

1.0

0.5

0.5

50.0

4.5

4.8

7.5

66.7

0

0

0

-

44.8

53.4

60.2

34.3

1.0

1.1

0.5

50.0

0

0

0.8

-

0

0

0

-

136.3

150.4

171.8

26.0

2.5

2.7

1.0

-60.0

0.5

0.6

0.8

60.0

5.5

6.5

7.1

29.1

0.2

0.2

0.2

-

2.5

3.3

3.3

32.0

0

0

0

-

0

0

0

-

0.7

0.8

1.0

66.7

8.0

10.3

10.4

15.6

0.0

0.2

0.0

-

0.5

0.5

0.5

-

155.6

172.7

193.2

24.2

353.7

398.6

409.1

15.7

6.0

6.1

5.7

-5.0

56.6

57.1

50.9

-10.1

0.8

0.6

1.0

25.0

8.0

8.2

7.7

-3.8

3.7

3.5

2.9

-21.6

66.6

62.0

61.9

-7.1

10.4

10.1

9.6

-7.7

131.3

127.2

120.5

-8.2

7.8

6.3

0.6

-90.6

23.5

19.6

17.0

-27.7

0.8

0.9

1.2

50.0

12.0

13.6

14.2

18.3

167.0

184.1

204.0

22.2

501.0

543.8

547.7

9.3

104.

• viewing hours to Canadian English-language conventional television services increased by 8.9% while viewing hours to French-language conventional television services increased by 12.4%;

• viewing hours to Canadian English-language pay and specialty services increased by 22.7% while viewing hours to French-language pay and specialty services increased by 34.3%; and

• for all regions excluding Quebec, viewing hours to US conventional television decreased by 10.1% while viewing hours to US pay and specialty services decreased by 7.1%.

BBM Metered data - 2002-03, 2003-04 and
2004-05 broadcast years⁽¹⁾ for all persons 2+
Monday to Sunday, 2 a.m. to 2 a.m.

All Canada

Quebec

All regions excluding Quebec

Inc./
Dec.

Inc./
Dec.

Inc./
Dec.

4.9

5.6

4.3

-0.6

1.2

1.3

1.1

-0.1

6.1

7.0

5.5

-0.6

23.2

22.0

22.7

-0.5

4.9

4.9

4.6

-0.3

29.5

28.1

29.4

-0.1

24.3

26.7

27.1

2.8

4.4

4.8

4.1

-0.3

31.1

33.9

34.9

3.9

1.4

1.7

2.0

0.6

0.6

0.7

0.2

-0.4

1.8

2.1

2.7

0.9

53.8

56.0

56.1

2.3

11.1

11.6

10

-1.1

68.4

70.9

72.4

4.1

3.0

2.8

3.6

0.6

11.7

10.9

13.4

1.7

0.1

0.2

0.1

-0.1

10.2

9.9

9.8

-0.4

40.4

39.3

37.2

-3.3

0.2

0.1

0.1

-0.2

0.7

0.7

1.0

0.3

2.7

2.6

3.7

1.0

0

0

0

0

6.9

7.4

7.7

0.8

26.8

29.0

29.5

2.8

0.2

0.2

0.1

-0.1

0

0

0.1

0.1

0

0

0.4

0.4

0

0

0

0

20.8

20.8

22.2

1.4

81.6

81.7

84.2

2.6

0.5

0.5

0.2

-0.3

0.9

1.1

1.1

0.2

0.3

0.3

0.4

0

1.1

1.2

1.3

0.2

0.4

0.4

0.4

0

0.1

0.1

0.1

0

0.5

0.6

0.6

0.1

0

0

0

0

0

0

0

0

0

0

0

0

1.3

1.5

1.5

0.2

0.4

0.4

0.5

0.1

1.6

1.9

1.9

0.3

0.1

0.1

0.1

0

0

0.1

0

-0

0.1

0.1

0.1

0.1

76.0

78.4

79.9

3.9

93.2

93.8

94.7

1.5

70.6

73.3

74.7

4.1

9.4

8.6

7.7

-1.7

3.6

3.3

2.8

-0.8

11.3

10.5

9.3

-2.1

1.3

1.2

1.2

-0.1

0.5

0.3

0.5

0

1.6

1.5

1.4

-0.1

10.5

9.0

8.7

-1.8

2.2

1.9

1.4

-0.7

13.3

11.4

11.3

-1.9

21.2

18.8

17.6

-3.6

6.2

5.5

4.7

-1.5

26.2

23.4

22.0

-4.1

4.9

3.6

2.4

-2.5

4.7

3.4

0.3

-4.4

4.7

3.6

3.1

-1.6

1.9

2.0

2.0

0.1

0.5

0.5

0.6

0

2.4

2.5

2.6

0.2

100

100

100

100

100

100

100

100

100

667.9

727.9

751.7

83.7

167.0

184.1

204.0

37.0

501.0

543.8

547.7

46.7

105.

• Canadian English-language conventional services, including the CBC, captured a 27% share of total viewing in 2004-2005, down slightly from 28.1% in 2002-2003. French-language conventional services, including Radio-Canada, achieved a 50.6% share of total viewing in Quebec in 2004-2005, also down slightly from 52.1% in 2002-2003. The viewing share to all conventional Canadian English- and French-language television declined to 40.4% in 2004-2005 from 41.3% in 2002-2003.

• Canadian English-language pay and specialty services, including digital services, captured a 29.1% share of total viewing in 2004-2005, up from 25.7% in 2002-2003. French-language pay and specialty services, including digital services, captured a 29.9% share of total viewing in Quebec in 2004-2005, also up slightly from 26.8% in 2002-2003. The viewing share to all Canadian pay and specialty services actually increased to 36.9% in 2004-2005 from 32.6% in 2002-2003.

• US conventional television saw its share of total Canadian viewing decline to 7.7% in 2004-2005 from 9.4% in 2002-2003

• US pay and specialty services saw their share of Canadian viewing decline to 8.7% in 2004-2005 from 10.5% in 2002-2003.

1996

1998

1999

2000

2001

2002

2003

2004(¹⁷⁾

2004

2005

2006

-

49%

53%

55%

63%

64%

64%

68%

71%

74%

-

48%

53%

-

62%

-

-

69%

-

-

78%

80%

106.

• According to CyberTRENDS, significant ownership increases were noted among individuals between 55 and 64 years of age (7%) and those 65 years of age or greater (12%).

• Also, according to CyberTRENDS, income continues to be a determining factor in computer ownership. In December 2005, 96% of households with an income over $80,000 owned computers, whereas only 49% of households with an income under $20,000 owned computers.

Chart 7 - Overall Internet access and Internet access by location

107.

108.

Chart 8 - Usage of the Internet by Canadians, in terms of amount of time spent per week

109.

110.

111.

112.

% of Canadian adults who connected to the Internet at least once a month most or some of the time

High-speed

53

32

41

37

32

21

25

18

54

41

46

40

46

37

35

35

26

20

17

14

16

15

11

14

29

27

27

29

17

11

13

13

20

23

30

26

12

13

16

11

25

28

32

30

16

21

26

27

-

-

7

4

-

-

3

2

-

-

5

5

-

-

2

1

113.

114.

Fall survey

Total hours tuned via
the Internet (000)

Share of total
tuning (%)

2000

454

0.1

2001

634

0.1

2002

942

0.2

2003

778

0.1

2004

1,285

0.2

2005

1,728

0.3

115.

Devices

59%

52

48

3%

75

25

7%

66

34

12%

60

34

4%

70

30

8%

60

40

2%

72

28

3%

75

25

7%

72

28

4%

97

3

116.