TRANSCRIPT OF PROCEEDINGS
FOR THE CANADIAN RADIO-TELEVISION AND
TRANSCRIPTION DES AUDIENCES DU
CONSEIL DE LA RADIODIFFUSION
ET DES TÉLÉCOMMUNICATIONS CANADIENNES
SUBJECT / SUJET:
BROADCASTING APPLICATIONS AND LICENCES/
DEMANDES ET LICENCES EN RADIODIFFUSION
HELD AT: TENUE À:
Vancouver Trade Vancouver Trade
& Convention Centre & Convention Centre
Room 8-15 Salle 8-15
999 Canada Place 999, Canada Place
British Columbia (Colombie-Britannique)
February 25, 2000 Le 25 février 2000
In order to meet the requirements of the Official Languages
Act, transcripts of proceedings before the Commission will be
bilingual as to their covers, the listing of the CRTC members
and staff attending the public hearings, and the Table of
However, the aforementioned publication is the recorded
verbatim transcript and, as such, is taped and transcribed in
either of the official languages, depending on the language
spoken by the participant at the public hearing.
Afin de rencontrer les exigences de la Loi sur les langues
officielles, les procès-verbaux pour le Conseil seront
bilingues en ce qui a trait à la page couverture, la liste des
membres et du personnel du CRTC participant à l'audience
publique ainsi que la table des matières.
Toutefois, la publication susmentionnée est un compte rendu
textuel des délibérations et, en tant que tel, est enregistrée
et transcrite dans l'une ou l'autre des deux langues
officielles, compte tenu de la langue utilisée par le
participant à l'audience publique.
Canadian Radio-television and
Conseil de la radiodiffusion et des
Transcript / Transcription
Public Hearing / Audience publique
Broadcasting Applications and Licences/
Demandes et licences en radiodiffusion
BEFORE / DEVANT:
Françoise Bertrand Présidente/Chairperson
Présidente du Conseil/
Chairperson of the Commission
Andrée Wylie Conseillère/Commissioner
Stuart Langford Commissioner/Conseiller
Cindy Grauer Commissioner/Conseillère
Barbara Cram Commissioner/Conseillère
ALSO PRESENT / AUSSI PRÉSENTS:
Lori Assheton-Smith Legal Counsel/
Michael Burnside Hearing Manager/ Gérant de l'audience
Michelle Edge Secrétaire de l'audience/
HELD AT: TENUE À:
Vancouver Trade Vancouver Trade
& Convention Centre & Convention Centre
Room 8-15 Salle 8-15
999 Canada Place 999, Canada Place
British Columbia (Colombie-Britannique)
February 25, 2000 Le 25 février 2000
TABLE OF CONTENTS / TABLE DES MATIÈRES
PHASE II - INTERVENTION BY/PAR
Craig Broadcasting Systems Inc. 1327
LOOK Communications 1338
PHASE III - INTERVENTION BY/PAR
CFJC Television 1342
Steven Chan 1368
Surrey Public Library 1375
New Media B.C. 1386
Smooth Productions Incorporated 1392
Tsleil-Waututh Nation 1400
PHASE IV - REPLY BY / RÉPLIQUE PAR
LOOK Communications 1403
SkyCable Pacific/Craig Broadcasting Systems Inc. 1412
PHASE I - PRESENTATION BY / PRÉSENTATION PAR
Alliance Atlantis Communications 1416
PHASE II - INTERVENTION BY/PAR
Association of Canadian Advertisers 1494
PHASE IV - REPLY BY / RÉPLIQUE PAR
Alliance Atlantis Communications 1507
Vancouver, British Columbia / Vancouver (B.C.)
--- Upon resuming on Friday, February 25, 2000
at 0910 / L'audience reprend le vendredi
25 février 2000 à 0910
7152 CHAIRPERSON OF THE COMMISSION: Alors, good morning everyone. This is the last day of our hearing. We will start by introducing the next applicant.
7153 We are in Phase II, I believe.
7154 MS EDGE: Thank you, Madam Chairperson.
7155 I understand that, at first, Craig would like to clarify a matter that was discussed yesterday.
7156 MR. CRAIG: Yes, thank you.
7157 Yesterday, I incorrectly stated that we gave 5 per cent of our revenues to the Canadian Television Production Fund. Actually, it is a total of 6 per cent and 2 per cent of the total goes to a regional Manitoba fund.
7158 CHAIRPERSON OF THE COMMISSION: Thank you.
7159 MS EDGE: We are now entering Phase II. I understand that Craig is ready to begin his presentation.
INTERVENTION / INTERVENTION
7160 MR. CRAIG: Thank you.
7161 Madam Chair and Members of the Commission, this is our intervention against LOOK's MDS application.
7162 Our intervention is based on our firm belief that LOOK has failed to develop a service offering that can compete successfully in B.C.
7163 The LOOK offering has several flaws -- the main one is its high price.
7164 We just don't see why B.C. cable consumers would switch to LOOK's higher-priced service plus pay $125 installation charge. A few customers may switch out of exasperation with the cable companies, or DTH providers, but no amount of marketing and packaging will convince the average consumer to pay a high switching fee to move to an, essentially, similar service with higher monthly rates.
7165 To provide a better sense of the pricing issue, I would like to ask Tim Kist to review our current and proposed BDU price levels in Vancouver.
7166 MR. KIST: Thanks, Boyd.
7167 We have done a comparison of BDU prices in the Vancouver market. Two charts summarizing that comparison are attached to the written copy of our interrogatory. I will focus on the one marked, "Net of Duplicates".
7168 The first thing you will notice from the chart is the absence of asterisks, conditions and fine print for our service, compared to all other BDUs. We have provided a simple, easy-to-understand and consumer-friendly proposal. We think that sells best.
7169 Now, let's look at the key prices that consumers will focus on.
7170 The basic monthly cable rate for Rogers, in Vancouver, is currently $19.17 for a package of 33 T.V. channels.
7171 SkyCable proposes to offer about the same, 32 basic channels, at a more competitive price of $17.99.
7172 LOOK, on the other hand, proposes to offer fewer basic channels -- 27 -- for a higher price: $20.95.
7173 Now, let's look at prices for customers who take basic plus discretionary service.
7174 Rogers offers 63 basic and discretionary T.V. signals for $37.89 per month.
7175 SkyCable offers 62 T.V. plus audio signals for a very competitive $33.98 -- a saving of over 10 per cent.
7176 LOOK, once again, charges a price that is higher than cable: $40.95 for a package of 71 video and 30 audio signals.
7177 Now, it is interesting to note that LOOK is also proposing higher rates than both DTH operators currently charge. Expressvu charges $36.95 for a basic plus discretionary package of 75 video and 43 audio signals. Star Choice charges about the same: $36.99 for 67 video and 30 audio signals. Both provide more signals for a lower price than LOOK.
7178 Now, let's go to installation charges.
7179 LOOK's own market research, conducted by Angus Reid, indicated that only 12 per cent of consumers would consider switching to MDS if they were charged an installation fee of $125, and only 3 per cent would definitely switch at that level.
7180 Despite this market evidence, LOOK has chosen to charge an installation fee of $125 for single family dwellings and $45 for multi-unit dwellings. At this hearing, it appears that LOOK has now proposed to drop its $45 installation fee for MUDs -- a move that we calculate would cost them $3 million, which doesn't appear to be accounted for in their business plan. But the main point is this: based on LOOK's own Angus Reid research, a $125 installation fee to non-MUD subscribers will doom LOOK's service to oblivion in the minds of the overwhelming majority of consumers. They simply won't switch -- especially to a higher priced service.
7181 The Commission may want to conduct similar price comparisons in other B.C. cable markets. We have done that, and found the same result: LOOK's service will simply not be price competitive with cable or other DTH providers.
7182 Now, there are several non-service price -- non-price service attributes, as well.
7183 LOOK's presentation made a point of saying that price alone will not assure success in the BDU market, and that quality and service are also important.
7184 We agree completely. However, we would draw to the Commission's attention that LOOK has provided no evidence that its service offering would be superior in other areas to SkyCable's service. In fact, the evidence supports the opposite conclusion. Consider the following:
7185 First: LOOK stated that customer care would be a key consideration for them. In fact, they made a big point of this. However, they provided no evidence that they are providing a high quality of customer care in their current operating areas. SkyCable, on the other hand, has provided results of its industry-tested customer satisfaction survey, which clearly demonstrates very high levels of customer satisfaction with its quality of service.
7186 Second: LOOK's presentation seems to suggest that it will provide a larger package of services than SkyCable. This suggestion seems to be based on the inclusion of a few additional low-tuning T.V. signals, including distant signals, that are not on SkyCable's program line-up. But we must keep channel capacity in perspective. The MDS spectrum licensed to LOOK and SkyCable will be identical; that is, 15 carries -- and both of us have access to the same compression technologies. In other words, we can provide exactly the same number of channels.
7187 The only difference is that LOOK has chosen to fill its pipe immediately, in some case, with channels that are not particularly attractive or are problematic, from a contractual or regulatory perspective. For example, there have been complaints from local T.V. licensees about LOOK carrying new distant signals, such as some Vancouver signals and CITY-TV, into the B.C. interior. We note that the City of Kamloops has joined local broadcasters in opposing this move. A similar problem exists with LOOK's carriage of Detroit signals, which will cause serious problems with simultaneous substitution. These approaches blatantly disregard the role and rights of local broadcasters in the Canadian broadcasting system.
7188 In addition, we have been advised that WIC has not authorized LOOK to carry Movie Max on a discretionary tier -- something it proposes to do.
7189 Rather than fill our pipe immediately with U.S. channels, we have chosen to leave capacity for future services, particularly the Canadian specialty services which the Commission plans to license. We think these could be very attractive and we don't want to limit our flexibility to add them. As the Commission knows, it is very difficult to drop a channel once you are carrying it.
7190 Next, LOOK's presentation implies that its service will succeed because of its strong marketing initiatives. We agree with LOOK that brand-name advertising is important in creating consumer awareness. But let's look at the evidence of who will do this best.
7191 The applications indicate that SkyCable's advertising budget is actually about three times as high as LOOK's, over the seven-year licence term. Specifically, SkyCable's seven-year advertising budget is $14.7 million and LOOK's is only $5 million. In calculating that amount, we have counted LOOK's actual advertising budget and included sales expenses, which may include commissions and multi-level sales schemes. We are focusing on actual advertising expenses.
7192 MR. CRAIG: Now, let me turn, briefly, to a few other points of intervention.
7193 First, I will look at a possible driver of LOOK's high service prices; LOOK's cost structure.
7194 At SkyCable, we pride ourselves at being a high quality, but efficient, MDS operator. We know we need to be lean and mean to provide an attractively priced MDS service in today's markets. In comparison, we think that LOOK is spending far more money on numerous cost elements than a careful and efficient operator would ever spend. Consider the following examples:
7195 LOOK proposes to spend approximately $11 million over the licence term to acquire fibre optic trunking services from Telus. This is many times more costly and less efficient than SkyCable's approach of using proven in-band trunking technologies.
7196 LOOK is proposing $10.7 million on IT expenditures. Based on our operating experience, this budget proposal is highly inflated. We don't know how an operator could spend that much.
7197 LOOK proposes to spend about $212 on installation costs -- and amount about twice as high as SkyCable. SkyCable's proposal is already considerably higher than its actual installation costs in Winnipeg.
7198 More examples of LOOK's high cost structure are set out in a written reply to LOOK's written intervention.
7199 We simply don't understand why LOOK is proposing to build such an expensive system, with huge expenditures on items like IT or fibre optic networks. These may be useful for providing other non-MDS services, but they would not be part of the plans of an efficient MDS operator.
7200 Next, we have compared the service coverage maps filed by LOOK and SkyCable in support of their applications. We have provided an overlay comparison of the proposed service coverage areas with our intervention.
7201 As you will see, LOOK's proposed coverage does not appear to be as good as SkyCable's. In particular, the maps indicate that LOOK will not be serving the heavily populated Saanich Peninsula area north of Victoria, the City of Nanaimo and surrounding areas and a large area of the Okanagan Valley that will be served by SkyCable.
7202 MS EDGE: Excuse me. You have just exceed the 10 minutes. Could you wrap up, please?
7203 MR. CRAIG: Finally, we oppose the licensing of LOOK's MDS service in B.C. because we believe that there should be more than one DS operator in Canada over the long run. We truly believe in MDS technology. We think that it has the potential to provide Canadians with an increasingly wide range of attractive T.V., audio, Internet and data services at a price that will be very competitive to cable and telco offerings.
7204 LOOK's proposal would marginalize SkyCable and move toward a policy of licensing a single MDS operator in Canada. Such a policy would stifle technical and service innovation and reduce price competition. The U.S. has licensed more than one MDS operator and there is no reason Canada should opt for a monopoly.
7205 The MDS technology and opportunities are too important to entrust to one company. We think that LOOK has plenty of challenges ahead to complete a successful roll-out of its services in central Canada. LOOK's representatives, yesterday, indicated that they have built transmitters to reach 4.2 million homes. Since there are over 6 million homes in their licensed area, LOOK has a long ways to go to fulfil its present licence obligations.
7206 We don't think it would make good business sense, or good policy, to license LOOK in B.C. and to turn down a proven western MDS provider like SkyCable at the same time.
7207 Thank you very much for your time and attention, Madam Chair and Members of the Commission. That concludes our intervention.
7208 CHAIRPERSON OF THE COMMISSION: Is there elements you would like to add?
7209 MR. CRAIG: No. Thank you.
7210 CHAIRPERSON OF THE COMMISSION: I am looking at my colleagues; I don't think we have any more questions.
7211 Our legal counsel would have questions.
7212 MS ASSHETON-SMITH: Thank you.
7213 Just two brief questions following up from yesterday just to complete the record on two items.
7214 You have also asked for a condition of licence relieving SkyCable of distributing all local stations under section 22 of the Broadcasting Distribution Regulations, and it looks like this is a matter of capacity.
7215 Do you anticipate that there would be sufficient capacity over the course of a licence term to distribute these stations?
7216 MR. CRAIG: Definitely there are great strides being made every day in compression technology. At the moment, it would take up too much of our valuable spectrum. It is a very difficult question to ask; I know it is a hypothetical question. But if it ever became possible to put the local radio stations on our system, we would be the first to do that.
7217 MS ASSHETON-SMITH: Thank you.
7218 One final question. NBRS was here earlier in the week to talk to us about descriptive video services.
7219 Is there any technical impediment to carrying the DVS technology and signals on SkyCable's system?
7220 MR. CRAIG: I don't -- no, there is not.
7221 MS ASSHETON-SMITH: Thank you.
7222 CHAIRPERSON OF THE COMMISSION: Thank you very much, madam, gentlemen.
7223 MS EDGE: Thank you, Madam Chairperson.
7224 The next presentation will be by LOOK Communications. If they would like to come forward.
7225 CHAIRPERSON OF THE COMMISSION: Welcome. Good morning.
7226 MR. PARKES: Bonjour.
7227 CHAIRPERSON OF THE COMMISSION: Bonjour.
7228 MR. PARKES: Shall I begin?
7229 CHAIRPERSON OF THE COMMISSION: Yes, please.
INTERVENTION / INTERVENTION
7230 MR. PARKES: Good morning. As the Commission is aware, LOOK submitted a detailed written intervention to SkyCable's MDS application. Here, we merely wish to touch on the most critical elements of that intervention.
7231 At the end of the day, the reason for licensing a new MDS service in British Columbia is to provide a viable, sustainable, rigorous competitor to incumbent cable and DTH operators, thereby giving Canadians the benefits of greater choice, innovation and value.
7232 To do that, an MDS operator needs to establish a number of things: first, a reliable network with generous channel capacity; second, a realistic and well-funded financial plan; third, comprehensive programming and packaging choice; and, fourth, a dynamic and proactive marketing strategy.
7233 In our view, SkyCable's application does not contain these necessary elements and, therefore, cannot deliver the benefits of a true competitive alternative to British Columbians.
7234 On the technical front, we note that SkyCable has not clearly indicated its choice of equipment suppliers, manufacturers or vendors.
7235 Now, this omission makes it impossible for LOOK, or the Commission, to properly analyze SkyCable's system architecture or its business plan.
7236 LOOK also seriously questions SkyCable's low spending on head-end equipment and technology and its decision to employ in-band trunking to interconnect its distribution sites.
7237 Based on our experience, this latter decision will cause interference problems and signal degradation.
7238 With respect to the business plan, we believe SkyCable has underestimated and omitted significant costs. This calls into question the viability of SkyCable's business plan and their ability to provide an effective alternative in this highly competitive market.
7239 Turning to programming. We note that SkyCable's proposed channel capacity is only 120 channels due, directly, to their choice of technology. This will simply not be enough to adequately compete with cable and DTH offerings going forward and, furthermore, it allows little room for the addition of the new Canadian and foreign services yet to come.
7240 Likewise, as the Commission has heard from many sources, the British Columbia marketplace is ethnically, culturally and linguistically diverse. SkyCable's omission of several key multi-cultural networks will prevent them from effectively marketing their service to certain large cultural communities.
7241 And, finally, it is our belief that SkyCable's marketing approach and relatively low levels of spending would simply not allow them to build a strong brand, support multiple distribution channels and fund realistic customer acquisition costs.
7242 As a result, we don't believe they can achieve their subscriber projections or their business plan.
7243 In addition, SkyCable has not prepared a realistic business strategy to enter the increasingly competitive B.C. MDU marketplace.
7244 As this sector represents over 30 per cent of all households in the coverage area, success in this arena is absolutely critical.
7245 Once again, this makes it clear that SkyCable will fall short of providing a viable, competitive alternative.
7246 After all, increased choice, value and innovation for consumers is what it is all about. The successful applicant in B.C. needs to have the plan and the resources to provide true competition to the incumbents.
7247 I thank you for your attention and we would be pleased to answer any questions you may have.
7248 CHAIRPERSON OF THE COMMISSION: Thank you. I don't think my colleagues have any. Legal counsel may have -- no, we don't have any.
7249 Thank you very much.
7250 MS EDGE: Thank you, Madam Chairperson.
7251 We will now enter Phase III with the intervenors appearing.
7252 Our first intervenor today is CFJC Television.
7253 Would you like to come forward.
7254 CHAIRPERSON OF THE COMMISSION: Good morning.
7255 MR. ARNISH: Good morning, Madam Bertrand, fellow --
7256 CHAIRPERSON OF THE COMMISSION: We apologize that you had to stay until this morning.
7257 MR. ARNISH: Well, we had a good night's sleep last night, as well.
7258 CHAIRPERSON OF THE COMMISSION: Yes, and I hope a pleasant dinner.
INTERVENTION / INTERVENTION
7259 MR. ARNISH: That, too. Thank you.
7260 Good morning, Madam Bertrand, fellow CRTC Commissioners, Madam Secretary and Commission personnel.
7261 My name is Rick Arnish, President of The Jim Pattison Broadcast Group, as well as President and General Manager of CFJC Television, with main studios in Kamloops, British Columbia, providing local and regional programming to 170,000 viewers in our broadcast area. With me, this morning, is Mr. Dave Somerton, CFJC Television's Operations and Program Manager.
7262 We appear before you today to explain that the application by LOOK Communications Inc. for approval to bring distant signals into our marketplace has the very serious potential of putting Kamloops/Cariboo's only local domiciled television station out of business.
7263 As stated in our written intervention regarding LOOK's application, the Commission has, on a number of occasions, recognized the fragile economic balance that exists in the interior and northern television markets of British Columbia. It is imperative to CFJC-TV and the other B.C. CBC affiliates that the Commission continues to recognize this fragile balance and the steps that are needed to be taken to preserve this balance.
7264 LOOK Communications, according to their application, seeks Commission approval to distribute in Kamloops distant Canadian signals CHAN-TV, CKUV-TV, CIVT-TV from Vancouver, as well as KSTW (UPN in Tacoma/Seattle) and KVOS (Bellingham independent). They state the incumbent cable distributor offers these same services on basic cable and LOOK would be at a competitive disadvantage if it could not distribute these signals as part of their basic package as well.
7265 Again, I must reiterate this is simply not true. None of these stations are offered by Shaw Cable in Kamloops/Cariboo or the Okanagan Valley. I submit if the Commission did approve LOOK's station line-up as requested, it would be followed immediately by the incumbent cable operator for approval to offer the same line-up.
7266 Approval of the distance signals CFJC Television is opposed to will severely exacerbate the future viability of our television station. As the Commission is well aware, our audience ratings, along with our airtime revenue, have declined significantly from fiscal 1998 to 1999.
7267 In fact, our advertising revenues have declined by some 16.6 per cent due to the addition, over the last three years, of significant numbers of specialty and pay T.V. channels in our broadcast region, which has seriously fragmented the television audiences in the B.C. Interior. The Commission also knows that over the last two to three years the majority of regional/national advertising has moved exclusively to the major markets and specialty, much to the detriment of the secondary markets like Kamloops/Cariboo.
7268 Clearly, LOOK Communications' application is confusing as to what they are really after.
7269 On one hand, their written application states they are to be in competition with the local cable distribution undertaking while, on the other hand, their written response to CFJC Television's intervention has them stating they are in competition with DTH providers. Which is it? If they want to compete with DTH services, then LOOK should be applying for a DTH license, which has a totally different set of criteria set down by the CRTC for the launch and establishment of direct-to-home satellite television services in Canada.
7270 I must point out that Kamloops/Cariboo, as well as the Okanagan, are not under-served television markets with an already full complement of Canadian and American services.
7271 LOOK states, in their written intervention, that the addition of CKVU, CIVT, KVOS, KSTW, would be attractive to viewers in the Interior. Having worked in the Kamloops television market for over 30 years, I, to this day, have not heard or seen a built-up desire for these distant signals to be available in our marketplace.
7272 Indeed, other than local Lower Mainland programming, CFJC-TV, BCTV and American stations are able to provide the vast array of non-Canadian programming these stations would provide.
7273 LOOK states, in their written response to CFJC Television's intervention, that the inclusion of CIVT, CKVU, KVOS, et cetera, have built-in safeguards, such a promise not to solicit local advertising and the substitution and deletion requirements adequately safeguard local broadcasters clearly shows they don't understand the television market in British Columbia. I say "so what" to their proposed safeguards as CIVT, CKVU, KVOS, et cetera, don't care about Kamloops/Cariboo local advertisers, but what they would focus on is national/regional advertising.
7274 If LOOK's application is approved, these distant Canadian and American stations will throw in, as added value, the Kamloops/Cariboo market for national/regional advertisers shutting out CFJC-TV from this revenue stream that is equivalent to approximately 60 per cent of our total sales budget.
7275 As far as substitution deletion requirements, CFJC won't have to worry about requesting simulcasts because the proposed distant signals will purchase regional program rights which, once again, shuts the door to our ability to purchase programming that helps supplement our revenue budgets which generates local Canadian programming in our marketplace.
7276 How can all this be in the best interest of serving the public and the future viability of Kamloops' only local television station?
7277 If this were to happen, we would have no other alternative but to significantly reduce our local and regional programming, cut our overheads and considerably reduce staff levels to balance our loss of audience and advertising revenues.
7278 LOOK communications is quoted in one of the Kamloops newspapers that they hope to pick up about 15 per cent of households in the market.
7279 Surely, for 15 per cent market share, the Commission does not want to destabilize the delicate structural balance that exists in Kamloops/Cariboo and, for that matter, all of the B.C. Interior.
7280 I note, with interest, that the Lower Mainland/Bellingham stations have given LOOK approval to carry their signals in our marketplace. My response to their approval is, if CKVU, CIVT, KVOS or KSTW, or any other Lower Mainland, Victoria or Bellingham station desires to extend their signal into the B.C. Interior television market, they should be prepared to invest heavily on rebroadcasting sites and perhaps partner with the B.C. CBC affiliates.
7281 An agreement with the five CBC affiliates, similar to the one that CHAN-TV has had with us for over 30 years, would then allow these same stations to apply to the Commission for domiciled rebroadcasting transmitters throughout the Interior, as is currently the case with ourselves and BCTV.
7282 For over 40 years, CFJC Television has spent millions of dollars on maintaining our own, as well as community-owned, rebroadcasting sites to provide local service to smaller communities in our broadcast region. This commitment that we have maintained year over year will cease to exist if Lower Mainland stations are simply allowed to come into our marketplace without having invested millions of dollars to provide over-the-air rebroadcasting sites like ourselves and BCTV.
7283 In conclusion, I noted, with interest, yesterday, that LOOK Communications also states, in front of the Commission, for the public record -- and I wish to have this on the public record, as well -- that, in a question to counsel, they did not want to offer local radio services in the Kamloops market, or Vancouver, or the Okanagan market, as well, because there was no desire -- according to LOOK -- from the stations in those local markets to be on their system.
7284 Just for the public record, The Jim Pattison Group has stations in Vancouver, Kamloops and Kelowna and, at no time, was there any request from LOOK Communications for approval, from our radio division, to have our stations on their system.
7285 We respectfully request the CRTC to deny LOOK Communications Inc.'s application for carriage of distant Canadian signals originating in B.C.'s Lower Mainland -- including Victoria -- and Bellingham television stations on their proposed multi-point distribution system for Kamloops/Cariboo, as well as the Okanagan, for the reasons we have stated in writing, as well as publicly at today's CRTC hearing.
7286 Thank you. We are now open for any questions you may have.
7287 CHAIRPERSON OF THE COMMISSION: Thank you very much.
7288 I would ask Vice-Chair Wylie to ask our questions.
7289 COMMISSIONER WYLIE: Good morning, gentlemen.
7290 MR. ARNISH: Good morning.
7291 MR. SOMERTON: Good morning.
7292 COMMISSIONER WYLIE: My understanding of the reply is that the CHAN issue has disappeared. No? That LOOK confirms that they don't seek to offer CHAN?
7293 MR. ARNISH: That is correct.
7294 COMMISSIONER WYLIE: And so, that one --
7295 MR. ARNISH: Yes. They are now saying that the repeaters of CHAN, in the Okanagan Valley and Kamloops market, will be offered on their services, not the CHAN signal from Vancouver.
7296 COMMISSIONER WYLIE: Does that give you a level of comfort at least?
7297 MR. ARNISH: Yes, it does. It keeps our agreement with BCTV intact that we have had for over 30 years.
7298 COMMISSIONER WYLIE: Because I notice you still have CHAN on your intervention -- on your intervention this morning. I assume that LOOK intends to do what it said in the reply, which is not to offer CHAN.
7299 MR. ARNISH: That is our understanding.
7300 COMMISSIONER WYLIE: Now -- I understand your point -- what I find puzzling is considering the likely penetration that it would be able to destabilize the delicate structural balance that exists in Kamloops/Cariboo and in all of the B.C. Interior and I would like you to comment on the extent to which the actual penetration of MDS would do that or if your concern is that if the Commission lets this happen, the cable operators will want the same thing and will say yes.
7301 MR. ARNISH: Yes, I would be glad to respond to that, Commissioner Wylie.
7302 In actual fact, if you gave approval to LOOK to bring in the distant Canadian signals, or KVOS from Bellingham and the UPN station in Seattle/Tacoma, to our marketplace, irrespective of the fact that they suggest that they are going after a 15 per cent market share, if you allowed them to do that, then the local cable operator, Shaw Communications, would have no other alternative but to offer the same distant signals as well and our biggest concern here is, we are not concerned about LOOK coming into the marketplace, there has to be competition, obviously, but when we went through, about four years ago, a huge, big dispute with the Canadian Broadcasting Corporation over regional sales, that is the essence of why we are here again today. Four years ago, the CBC decided, when the Government offered to them the fact that they were going to cut back their revenue allocations year over year, the CBC came up with a strategy to bring into British Columbia a regional sales perspective to their Vancouver television station. We fought them tooth and nail, the B.C. affiliates, it cost us hundreds of thousands of dollars, even going to court, to deny them the permission under our -- what we felt was our agreement that we had with CBC, at the time, to get into regional sales. Had CBC been successful in that -- and the affiliates fought them tooth and nail; B.C., at that time, also stated that if CBC is allowed to offer regional sales in British Columbia that they were going to cancel their gentlemen's agreement, in a sense, with the B.C. CBC affiliates; they were going to start selling regional and national advertising, on a full-coverage basis, in the Interior of British Columbia -- and that is exactly what will happen here, as well, if CIVT and CKVU and KVOS, in particular, are allowed to come into our marketplace. Our biggest concern is that -- two things -- the regional sales perspective will happen again in the Interior and, also, we are going to be shut out of being able to buy programming, as well, that supplements our budget for Canadian programming in our local market.
7303 The BCTV agreement, as we have stated, has allowed us to, on an annual basis, sell about 40 per cent of our budget as coverers of local, Vancouver and regional spots on the BCTV feed that comes into our marketplace.
7304 COMMISSIONER WYLIE: But my understanding is that LOOK has agreed to that.
7305 MR. ARNISH: Yes, that --
7306 COMMISSIONER WYLIE: That part is going to be preserved because, they say, they told us, at least on the written record, that they will not carry CHAN, therefore, that particular agreement will not be impaired.
7307 MR. ARNISH: It will --
7308 COMMISSIONER WYLIE: And neither would it encourage cable operators that you expect we would agree to, to do the same thing.
7309 MR. ARNISH: It will be totally impaired. I am sorry. I disagree. It will be totally impaired if KVOS, CIVT and CKVU are brought into our marketplace because they will sell spill into the Kamloops/Okanagan market.
7310 COMMISSIONER WYLIE: Oh, yes, I agree with that.
7311 MR. ARNISH: And then BCTV will say to us, "I am sorry. Our long-term 30-year agreement is over and we are now going to start selling spill", and then our partner, CBC, is going to start selling spill and we are back into the CBC regional sales dispute again.
7312 COMMISSIONER WYLIE: So, there will be a spill-over effect even if they don't carry CHAN, if they carry --
7313 MR. ARNISH: Basically, we might have five or six stations selling spill into our marketplace.
7314 COMMISSIONER WYLIE: Now, my question, initially, was: Do you -- you expect that this would happen even if it were just MDS and cable was precluded? For example, what is your view of the number of channels that Shaw would have to put these services --
7315 MR. ARNISH: Oh, I believe -- I will give you my vision of the world.
7316 If you approved the LOOK application to bring these signals into our marketplace, I bet you a dollar that within a month Shaw will --
7317 COMMISSIONER WYLIE: A dollar is not good enough.
--- Laughter / Rires
7318 MR. ARNISH: Okay, let's make it a 50-dollar bill, then. Okay? I will make it 50.
7319 -- that Shaw, within a very short period of time, will add those stations to their line-up, in the Okanagan/Kamloops market, and then they will come back to the Commission to seek approval of that.
7320 COMMISSIONER WYLIE: Hopefully, they will come first.
7321 MR. ARNISH: Hopefully, they will, but I don't think they will. I think they will say --
7322 COMMISSIONER WYLIE: Are you going to bet a dollar on that, too?
--- Laughter / Rires
7323 MR. ARNISH: Sure. I will bet another 50.
7324 COMMISSIONER WYLIE: I think we hear you.
7325 So I think we understand better now that the removal of -- that dropping CHAN doesn't get you home.
7326 MR. ARNISH: No, it doesn't, ma'am.
7327 COMMISSIONER WYLIE: We hear what you are saying.
7328 Now, I don't have the line-up of Craig in front of me. You didn't intervene against them so I assume that their line-up is satisfactory to you.
7329 MR. ARNISH: Their line-up addresses our concerns 100 per cent.
7330 COMMISSIONER WYLIE: So that they feel they can get their penetration without this.
7331 MR. ARNISH: Absolutely.
7332 COMMISSIONER WYLIE: Either that, or they have got your dollar.
--- Laughter / Rires
7333 COMMISSIONER WYLIE: Thank you very much.
7334 MR. ARNISH: Thank you.
7335 COMMISSIONER WYLIE: Thank you for the clarification.
7336 CHAIRPERSON OF THE COMMISSION: Thank you.
7337 No more questions. Thank you very much.
7338 COMMISSIONER LANGFORD: Our legal counsel, though, may want to change the last "C" in "CRTC" to "Casino" rather than "Commission" after this one.
--- Laughter / Rires
7339 MR. ARNISH: I don't think I will bet on that one.
7340 Thank you very much, Madam Chair.
7341 CHAIRPERSON OF THE COMMISSION: Thank you very much.
7342 MS EDGE: Thank you.
7343 Our next intervenor is CHBC-TV.
7344 CHAIRPERSON OF THE COMMISSION: Bonjour. Good morning.
INTERVENTION / INTERVENTION
7345 MR. WILLIAMS: Good morning, Madam Chairperson, Commissioners, ladies and gentlemen.
7346 My name is Keith Williams. I am the General Manager and Vice-President, Finance, of CHBC, Okanagan Valley Television. On my right is Jennifer Strain, WIC's Director of Corporate and Regulatory Affairs.
7347 We are intervening on the narrow but very important issue of LOOK's proposal to carry certain distant Canadian and U.S. signals in the B.C. Interior should it be granted an MDS licence.
7348 We will not revisit all the points raised in our written intervention but would like to focus on LOOK's proposal to carry KVOS, CIVT and CKVU in the Interior.
7349 We would also like to address LOOK's response to our intervention, and then we would be happy to answer any questions you may have, Madam Chairperson.
7350 This week, we have all heard a great deal of information about the sorry state of the Vancouver extended market. Interior broadcasters have not been immune to the changes impacting conventional broadcasters across the country. CHBC's airtime revenues shrank 16.5 per cent, from 1998 to 1999, which resulted in a 35 per cent drop in operating income.
7351 The forecast for this year is a further 1 per cent reduction in airtime sales, which means we will be slightly below the airtime sales we realized in 1995.
7352 However, the state of the Interior advertising market is even more precarious. Its health depends very heaVily on the long-standing agreement that local broadcasters in Kelowna, Kamloops, Prince George and Terrace/Kitimat have had with BCTV.
7353 Under this arrangement, BCTV permits the Interior broadcasters to substitute their own local and regional accounts over regional accounts on BCTV. So, for example, a regional advertiser, with store outlets in the Interior, does not get commercial carriage into the Interior if he buys time on BCTV. If that advertiser wants the Interior market, he has to buy it from the local Interior broadcaster. This arrangement results in a separate, distinct advertising market, which is sold by CHBC and CFJC as B.C. Interior Television -- BCI-TV.
7354 We have estimated that close to 40 per cent of our revenues could be wiped out if this agreement were to collapse -- as it inevitably would if CIVT, CKVU and KVOS were widely available in the Okanagan. These stations would offer advertisers commercial carriage into the Interior and eliminate the need for regional advertisers to buy the Interior market from the local broadcasters. A similar agreement with the CBC regarding advertisers who have outlets in the Interior would also be in jeopardy soon after the collapse of the BCTV arrangements.
7355 The very foundation upon which CHBC has been built and which has enabled us to offer strong and vibrant local programming would, very simply, collapse.
7356 Against this backdrop of the significant harm that would result to local Interior broadcasters if LOOK's proposals were approved, LOOK has not provided one shred of evidence of programming diversity that carriage of these signals would bring to the market.
7357 To the best of our knowledge, the primary focus of the Commission's distant signal policy is to expand programming choices for consumers in markets that are under-served. The Okanagan is not an under-served market. LOOK has provided no evidence of consumer demand and no information as to the extent, if any, of new programming that would be available on the signals LOOK proposes to carry or how it would be relevant for audiences in the Okanagan.
7358 LOOK has stated incorrectly that KVOS is already available in the Interior It isn't -- not on cable and not on DTH.
7359 Moreover, the Commission recently announced a moratorium on the addition of new foreign services until it has licensed new Canadian specialty services.
7360 In light of all these factors, this proposal to carry KVOS in the Interior must be rejected.
7361 While LOOK has now agreed to carry the local transmitters of BCTV -- which in Kamloops and Kelowna are CHKM and CHKL, respectively -- instead of CHAN from Vancouver, it still has completely failed to acknowledge the existence of the BCI market and the advertising insertion agreements I referred to earlier. Instead, LOOK seems to take the position that the mere fact of having greater carriage capacity, by virtue of its digital technology, ought to entitle it to add additional distant and U.S. signals to fill up the pipe. If the only criteria to be considered is whether a distributor has room, then we may as well just do away with the Commission's distant signal policy and not concern ourselves with the wellbeing of the local broadcasters, at all.
7362 The incumbent cable company in Kelowna, Penticton and Vernon is Shaw. It, too, has rolled out digital boxes in the market. If LOOK's proposals are approved, Shaw will apply in a heartbeat for the privilege of carrying the same signals. We believe the Commission would find it very difficult to deny that request.
7363 Finally, we note that LOOK has not agreed to carry local radio signals. If capacity is an issue, LOOK should not be filling up the pipe with unnecessary distant signals.
7364 LOOK's other argument is that it needs these signals to compete with DTH.
7365 CIVT and CKVU are offered by DTH distributors. However, DTH services are inherently different from those offered by terrestrial distributors, such as cable and MDS. DTH services are national in scope; they are not regional services, as are cable and MDS. As regional services, cable and MDS offer local, regional and extra regional signals and adhere to the same rules regarding the carriage of distant signals. MDS is routed/rooted in the local community. DTH is a different animal. MDS is more akin to cable than it is to DTH.
7366 More importantly, we have heard the MDS applicants talk about all the reasons consumers find MDS services attractive: price and customer service, to name a few. LOOK will be able to compete effectively with DTH without the distant signals. The great danger, as noted above, is that approval of LOOK's proposals will result in the dominant cable distributor asking for the same privileges. Contrary to LOOK's assertion that the Commission can always deny any subsequent applications by cable, common sense tells us that the precedent would be set and it would be very difficult to justify treating cable differently.
7367 Madam Chair, Commissioners, the approval of LOOK's request would devastate the Interior advertising market and the local service that CHBC currently provides. That service now includes almost 15 original hours per week of locally-produced news, weather and sports. As the only television broadcaster in the Okanagan, we stress the presentation of Okanagan news, and if we carry any regional or national stories, we strive to present the local angle.
7368 We also produce and present a variety of human-interest programming: "Pioneers & Places", about the history of the region; "People of Vision", about people who have made their mark on our community; "Young Achievers" and the "Scholastic Athlete of the Month" focus on our youth; and other relevant information programming, such as "Tax Talks", "Mugshots" and "Crimestoppers".
7369 In addition to this, on a weekly basis, we provide over two and a half hours of community access programming to inform our viewers about what is happening in their communities. This programming takes many forms, such as on-location interview, with "Roberts on the Road"; free community calendar airtime; plus subsidized production and airtime for non-profit organizations or events.
7370 During this year, in the neighbourhood of 400 different organizations and individuals will be profiled.
7371 Madam Chairperson, all of this costs money and would be in jeopardy if these requests by LOOK are approved. So we ask you to please consider these very significant risks to the local Interior broadcasters and local service in the Okanagan and weigh these risks against the so-called benefits of allowing LOOK to add a few distant signals with virtually no new programming, no local programming and no benefits to the Canadian broadcasting system.
7372 We thank the Commission and Commission staff for indulging us towards the end of what has been a busy week and would be pleased to answer any questions you may have.
7373 CHAIRPERSON OF THE COMMISSION: Thank you.
7374 I would ask Commissioner Cram to ask our questions, please.
7375 CHAIRPERSON OF THE COMMISSION: Thank you.
7376 Welcome. Mr. Williams, you heard Mr. Arnish on, I believe, the same issue, except we are talking about the Okanagan here as opposed to Kamloops area and we are also talking about WIC as opposed to CBC affiliates. Have I got it correct?
7377 Is there anything you would like to add, in terms of what Mr. Arnish said?
7378 MR. WILLIAMS: Well, it affects both of us. Because of our BCI arrangement, most of the sales runs on both markets. Any programming we buy runs in both markets, at the same time. So it is more than just the Okanagan or Kamloops; they both would be affected.
7379 COMMISSIONER CRAM: It is the cumulative effect. Am I right?
7380 MR. WILLIAMS: Yes.
7381 COMMISSIONER CRAM: You talked about 40 per cent of your revenue -- losing 40 per cent of your revenue.
7382 How did you come up with that number? Is that the total amount of advertising that you get to insert in the programs?
7383 MR. WILLIAMS: No. It is higher than that that we would sell on a regional or national basis. But if it is flowing through from one of the Vancouver stations, the only extra we would pick up would be somebody wanting to heavy up in the Okanagan; the rest would already flow through. Right now, they don't get through on CBC or the BCTV signal, and we cover that and sell it. If it is coming into the market, we lose all that and it is only what we can get that is a little extra. So it could be 50 per cent coming back to 40, because we recovered a little bit.
7384 COMMISSIONER CRAM: If we licensed LOOK and we allowed them to -- and I know you don't like the idea -- but if we licensed LOOK to carry the -- and left their carriage where it is at, and then put our foot down with cable operators, would your -- your revenue loss, obviously, would be a lot less?
7385 MR. WILLIAMS: We would still be losing. I am already hearing that they are on the street, in Vancouver, saying, "We are going to be in the Okanagan, on one of these other stations; so if you are going to buy with V-TV or CKVU, you are going to get to the Okanagan, eventually. So why are you buying extra in the Okanagan? Why are you buying on BCTV? Buy it over here." That is the philosophy that is already starting to be promoted, in the Vancouver market, which is a little over -- probably 30 per cent of our regional is out of the Vancouver sales.
7386 COMMISSIONER CRAM: What is your coverage area on air?
7387 MR. WILLIAMS: Geographically?
7388 COMMISSIONER CRAM: Yes -- no; how many people. Sorry.
7389 MR. WILLIAMS: Three hundred and fifty, I think.
7390 COMMISSIONER CRAM: Thousand?
7391 MR. WILLIAMS: Thousand.
7392 COMMISSIONER CRAM: I take it you haven't intervened against Craig?
7393 MR. WILLIAMS: No. Specifically, because they weren't bringing in the Vancouver and the KVOS those distant signals that are the ones that are going to hurt us dramatically.
7394 COMMISSIONER CRAM: Thank you very much.
7395 MR. WILLIAMS: Thank you.
7396 CHAIRPERSON OF THE COMMISSION: Thank you very much.
7397 MS EDGE: Thank you, Madam Chairperson.
7398 Our next intervenor is WIC Television.
7399 Would you like to come forward? Oh, I understand they are not here.
7400 The next intervenor, then, is Michael Gurstein.
7401 Would you like to come forward?
7402 CHAIRPERSON OF THE COMMISSION: Good morning.
INTERVENTION / INTERVENTION
7403 MR. CHAN: Thank you.
7404 Members of the Commission, I am replacing Michael Gurstein who couldn't come.
7405 My name is Steven Chan. I am a community representative. I am intervening on behalf of LOOK-TV, with, expressly, the community channel. So I hope to actually give more details about what an MDS community channel could offer and, also, the issues that we have with community channel over digital, in general.
7406 Basically, I am representing the Vancouver Community Network, which is a non-profit and charitable organization, established six years ago, in Vancouver. It is part of a network of free nets in Canada and it tries to become a non-profit Internet service provider and it tries to give equitable access to the Internet. It also tries to use the Internet as a tool for community development.
7407 We service about 700 community groups in the Lower Mainland and about 8,000 individual people, mostly of whom are low income and without home equipment.
7408 In the time that we have been working in Vancouver, we have developed a strong relationship with the community sector across many, many different disciplines. We have also have worked with the Government, especially Industry Canada, in trying to bring together the Internet to the non-profit sector.
7409 So, with that in mind, we were approached by LOOK to look at their application, with respect to the community channel. We wrote a letter to the Commission pointing out the benefits of such an application of the MDS to community channelling.
7410 Basically, I just want to point out the kind of content that would be available from the community. Maybe there seems to be a kind of a lack of confidence on the communities that provide content on this kind of a medium but, in fact, I want to perhaps adjust that. There is quite a vibrant and diverse and fairly comprehensive source of material in the community that could be unleashed because it uses digital as a technology.
7411 We all know that digital cameras are becoming a very easy and relatively inexpensive equipment and that many people in the community are actually experimenting with it. So, in time, with good training and with good access sites, production centres, actually, there would be probably quite a good -- probably, I am just guessing, but probably a very good content coming from the community, which would include quite a diverse content and format, including public education materials, learning materials, straightforward community service information and, also, a great deal, probably, of information and content from the arts and culture area because many, many people are actually training themselves to use the new digital equipment -- and so, you can ask more questions about that, if you want.
7412 I mentioned access centres. This is an interesting point. Actually, there is, in Vancouver, in the Lower Mainland, a very good effort to put a number of public access sites into the stations inside the community, and this would be outside of libraries and schools and the more institutionalized settings but in more community-oriented gathering places, neighbourhood houses, community centres, NGO -- non-governmental organization -- drop-in centres, and, in time, some of these could be strategically located and serve as production centres for digital video and digital sound production.
7413 So, a vision that the community -- some of the community members have is that a number of these would be located and decentralized in the Lower Mainland of Vancouver and they could actually serve as digitization post-production centres for digital material that would then be delivered on the Internet to the broadcast centre. So, a model of this could actually work to help the unleashing, again, of the material.
7414 The Vancouver Community Network, one of its goals is to increase the public space on the Internet and, again, we would argue for an increase in the public space on the community channel, as well, and what that would mean would be sort of an arm's-length administration/co-ordination amongst the community for the community channel, good training, a good community liaison between LOOK, or whatever digital broadcaster would be given the licence.
7415 We believe that given the right infrastructure and given the right community control structures there would be, probably, a very interesting community channel operating in the Lower Mainland, and elsewhere, wherever the broadcast footprint would be.
7416 It is very difficult to really convey the sense of cohesiveness and co-ordination that occurs at the community level but it is what the community sector is about and we know that already there is a lot of work been done already in unleashing and just being creative amongst members of the community.
7417 The co-ordination would probably most benefit if it was closest to the people who feel passionate about community issues and closest to the people who actually are close -- or are working on community issues and activism and leadership. So, hopefully, the Vancouver Community Network and a consortium of community groups would work very closely with LOOK-TV to ensure that would happen.
7418 We understand that LOOK-TV is asking to not do anything with audio and that comes as a surprise to me because in the material that I read, I wasn't aware of that. But, in fact, I heard them yesterday and they say that they want to be waived the need to do that, and I understand the technical difficulty of that because they are operating digital and, at the moment, it is mostly an analog environment. I would suggest that perhaps that a replacement substitute or a substitution policy be done rather than waive the right because of technical difficulties or some such thing as that, that there be a pilot project made to try to perhaps expose -- use the new medium, which is digital, to broadcast a digital version of some of the public radio stations in Vancouver and elsewhere and, in that way, perhaps use it as a kind of testing pilot endeavour and evaluate it in a few years to see what would happen.
7419 So, for example, in the Lower Mainland, there is public radio station, there is one of the few English public radio program -- radio station co-operative radio broadcasting on 102.7 FM which would be an interesting -- which could provide interesting content on a digital MDS. So that is just a suggestion. There is also the campus radio, a UBC campus radio, as well. So both of them could benefit from some such exposure.
7420 There is a lot of -- there is probably a lot of details to be worked out of how a community channel like this would work because it differs -- it probably differs dramatically from the way we know from cable and the model that has been used. Digital offers a greater opportunity for decentralization -- for decentralizing the content, the production, the access of the signal to the community. So there probably would have to be a lot of creative thinking and a creative co-ordination between the community and the licensee on that but, you know, with work and with a lot of understanding, a lot of really good stuff could come from that.
7421 So, that is really all I have to say, for now. I can answer any questions you want to ask.
7422 CHAIRPERSON OF THE COMMISSION: Thank you very much. We have no questions. Thank you.
7423 I would like to remind everybody of our approach to interventions. We are more in the listening mode and we ask questions only when we need to clarify vis-à-vis either the written intervention or what is being presented orally if we need to push our questioning in order to make sure we understand what is the basis for the intervention.
7424 So, it was clear. Thank you.
7425 MS EDGE: Thank you, Madam Chairperson.
7426 Our next intervenor is the Surrey Public Library.
7427 Would you like to come forward.
7428 CHAIRPERSON OF THE COMMISSION: Good morning.
INTERVENTION / INTERVENTION
7429 MR. REDDINGTON: Good morning. My name is Michael Reddington. I am the Chairperson of the Board of Trustees of the Surrey Public Library.
7430 First of all, I would like to take this opportunity to thank you for allowing myself and the Surrey Public Library to make our views known.
7431 As we have stated, in a letter to the Commission, we are supporting the LOOK application.
7432 The Surrey Public Library, like its counterparts in other urban areas of Canada, sees itself playing a number of roles in serving to build and maintain a strong community.
7433 Again, like many of its counterparts, Surrey Public Library has embraced the concept that it must serve as an electronic information centre for the citizens of the city. Why should a library take on this role? Many of us still have the mistaken impression that public libraries are simply physical depositories of books and that libraries provide access only to those physical products in their collections. While libraries do hold and circulate many books, as organizations, they are increasingly about people -- about helping people to find and access information outside the walls of library buildings. This new role of virtual information centre is something libraries have increasingly embraced, as libraries are subject to fiscal/physical restraint and have realized that electronic access to information for the communities represents a positive cost-benefit service decision. More and more information is published in electronic form rather than in print. Telephone books, now, are available on a CD-ROM format for the entire North American continent. More and more information is being stored in data form. For example, a service known as EBSCO(ph) HOST(PH), a private supplier of constantly upgraded searchable database of 2500 publications is accessible via library Web sites. Obviously, the costs of that would be prohibitive for most libraries, in physical form. And, finally, governments are mounting more and more information and services on line.
7434 Surrey Public Library serves a community of 333,000 citizens in which nearly 70 per cent hold library cards. It is anticipated that the library system in Surrey, in the year 2000, will be home to 1.7 million foot-count in-person visits, in addition to 4 million electronic visits to databases held by the Surrey Public Library.
7435 This not only makes the library the most used civic service in Surrey but also reflects the changing reality of the use of electronic services offered by the library.
7436 The Surrey Public Library, like all libraries, is concerned with the principle of equality in our society. There is no doubt that the information society is here to stay, but it is apparent that not all segments of society are able to participate on an equal footing. Libraries, therefore, are concerned about creating the means to give people equal access to information.
7437 We know the digital divide exists. We note it in the U.S. The digital divide between certain groups of Americans has increased between 1994 and 1997 and there is a widening gap, for example, between those of the upper and lower income levels.
7438 As more emphasis is placed on electronic means for business and government services, this gap will have increasingly significant effects on the community.
7439 One example of such effects if the finding of the College Board, in the United States, which says: Advantage magnifies advantage; while education is a great equalizer, technology appears to be the new engine of inequality.
7440 Here, in Canada, a national research project, conducted by Industry Canada, in 1998, known as the EKOS Survey, found that almost half of those accessing the Internet from home represent the advanced or upper class communication households and there will exist numerous structural or class barriers for many marginalized and lower income Canadians. In 1998, they found that only 16 per cent of lower income Canadians had Internet access.
7441 Libraries are responding to this phenomenon, just as they have in the past to the introduction other delivery technologies. For example, in the ECOS Survey, 11 per cent of Canadians claimed that they used libraries for their Internet access. Recent research, in the last six months, found that 7.9 per cent of library patrons in Burnaby use the library for Internet access and, more recently, in Vancouver, 27 per cent of patrons in Vancouver went to the library specifically to use the Internet. This is not a surprise to libraries, having the experience of responding to the expansion of the television channel universe, in the past, by building extensive collections of videos and music CDs and, more currently, DVDs. For example, Surrey Public Library currently holds 18,000 videos and 15,000 music CDs in its collection, while other libraries hold much larger collections. Burnaby, for example, holds more than 25,000 video titles.
7442 It is our view that the LOOK-TV proposal -- and, in particular, the InfoLOOK channel -- may provide the public and libraries with another means to share as well access information. Specifically, we are excited by the prospect of: (1) for the first time, working together with a provider to develop ways and means to ameliorate the digital divide that the introduction of wireless technologies may add to the community; (2) LOOK has said that it would provide connectivity to their service and a multimedia computer in libraries so that community groups could generate information locally for the InfoLOOK channel, as well as offering the public -- especially the lower income public -- the opportunity to access community information.
7443 We see this prospect of community self-expression and access as empowering the community to create its own unique, multi-language information network -- very much as Steve, from Vancouver Community Network has discussed previously.
7444 In summary, the Surrey Public Library is very concerned about the digital divide that may prevent many members of our society from being able to adequate access and/or disseminate information. Surrey Public Library believes that it plays an important role in the community by providing access to information through whatever cost-affected means available. Surrey Public Library views positively the LOOK Communications application because of LOOK's desire to work with libraries to meet the information needs of the residents of Surrey.
7445 Thank you.
7446 CHAIRPERSON OF THE COMMISSION: Thank you very much, sir. Thank you for coming as an intervenor. Thank you.
7447 MS EDGE: Thank you, Madam Chairperson.
7448 The next intervention is to be made by BCIT.
7449 Would you like to come forward, please? They don't appear to be in the room.
7450 We have Maria Antidormi to present.
7451 MS ANTIDORMI: (Off mic...)
--- Laughter / Rires
7452 MS ANTIDORMI: Thank you.
7453 I am actually here on behalf of personal interests, as well, and that is why I questioned the announcement of BCIT.
7454 CHAIRPERSON OF THE COMMISSION: So you are here...
7455 MS ANTIDORMI: More so along the lines as an individual, as well as a representative of the Institution.
7456 CHAIRPERSON OF THE COMMISSION: Okay, both.
7457 MS ANTIDORMI: But a very small part of the Institution. The Business Administration Department.
INTERVENTION / INTERVENTION
7458 MS ANTIDORMI: So, good morning, Madam Chairperson and Commissioners.
7459 My name is Maria Antidormi. I work as an independent management consultant providing services, such as business planning and Web site design. I also work full time at BCIT where I support the development and the delivery of business courses on line.
7460 I was quite pleased when Boyd Craig invited me to sit on their board for their proposed community access channel, Sky Channel.
7461 My career focus is currently in the areas of education and information technology.
7462 As a member of the board, I feel that I would be helping to make a positive contribution to educational opportunities and information access to British Columbians. Sky Channel will increase educational opportunities for British Columbians as it will provide distance learning programming. For example, several BCIT courses currently include the delivery of course material on videotape which is purchased and delivered to each student individually. A more cost effective method would be to deliver this information on Sky Channel, in conjunction with its interactive Web site. Also, the speed of SkyCable is faster, allowing for more media-rich content to be delivered on line.
7463 SkyCable will also give students taking on-line courses more flexibility in accessing and completing their course work.
7464 I have spoken to many students who actually find it difficult to keep up with their work on line, due to the lack of opportunity to have time or access to the Internet. For example, with a laptop and a SkyCable connection, students could access their course any time, anywhere; for example, on their commute, on their breaks at lunch hour, et cetera, et cetera.
7465 Most importantly, SkyCable would allow students living in remote areas of British Columbia to access a wider variety of courses. Geographic location would no longer determine the educational options for British Columbians.
7466 I also believe that SkyCable will make it easier all British Columbians to access information any time and anywhere.
7467 I am also currently working on a business plan for a project that would help to promote Vancouver's arts and cultural events. Included in this plan is the idea to provide event information using touch-screen computer monitors. The hardware would be placed in a kiosk-type structure, with the monitors displaying information that would be relayed from the main server. With SkyCable this service would be easier to provide, as the information could be relayed in a wireless network format. With cabling not required, terminals could be placed simply and cost effectively in any location in Vancouver.
7468 This idea is similar to SkyCable's plan to have kiosks with Internet access to their Web site in the community.
7469 SkyCable is in unison with our vision to allow the entire community to obtain information simply and easily.
7470 Access to education and information should be made available to all British Columbians, not only those who have the geographic or situational advantages.
7471 I am confident that SkyCable will accomplish this, therefore, I fully support Boyd Craig and his team. SkyCable will be a key factor in helping British Columbians capitalize on the future of technology.
7472 Thank you. I am now open to any questions you might have.
7473 CHAIRPERSON OF THE COMMISSION: Thank you very much.
7474 Commissioner Langford has a question.
7475 COMMISSIONER LANGFORD: I do have a question I want to try and steal a little of your expertise, but I want to introduce this by saying it is perfectly legitimate, what you are doing, to come in support of one intervenant and if you can't answer my question, it is not going to weaken your support in any way --
7476 MS ANTIDORMI: Okay. That is fine.
7477 COMMISSIONER LANGFORD: -- I am just trying to get a little bit of free consulting here.
7478 MS ANTIDORMI: Okay.
7479 COMMISSIONER LANGFORD: So, again, repeating, there is nothing more legitimate than your support of one, that is fine, but is there anything in the Craig or SkyCaBle application, technically, which makes you feel it is better, from a sense of the sort of advantages for distant learning and whatever you are trying to -- that you are excited about.
7480 Could you not recognize exactly the same advantages the LOOK application, or have you studied it or are you familiar with their technology? Is there anything different about it?
7481 MS ANTIDORMI: I think the difference is the MDS technology that they have pioneered and developed and I think the fact that it is being used in Manitoba, currently, shows that there is a precedence that it works and I think that is what we need to go with if we are going to experiment with delivering something in wireless format; we want something that is proven, and I am not sure if LOOK technology's application involves the current use of their technology. I am not quite certain about that. But I like the fact that it is being used and it is working and that it is a two-way system.
7482 COMMISSIONER LANGFORD: So SkyCable's works, as far as you are concerned --
7483 MS ANTIDORMI: That is right.
7484 COMMISSIONER LANGFORD: -- and you are not entirely sure about the LOOK one?
7485 MS ANTIDORMI: Not too sure. That is right.
7486 COMMISSIONER LANGFORD: Okay. That is legitimate. Thank you very much.
7487 MS ANTIDORMI: Thank you.
7488 CHAIRPERSON OF THE COMMISSION: Thank you very much.
7489 MS EDGE: Thank you.
7490 Apparently, our next presenter, Mr. Burnett, will not be appearing today, so we will move on to Gate West Communications.
7491 Would you like to come forward. Is Mr. Ochoko(ph) in the room?
7492 Okay, the next presenter on the list is New Media B.C. Is Jane Green in the room?
7493 Would you like to come forward?
7494 CHAIRPERSON OF THE COMMISSION: Good morning. Welcome.
INTERVENTION / INTERVENTION
7495 MS GREEN: Good morning, Madam Chair and Members of the Commission.
7496 I am Jane Green and I am speaking on behalf of New Media B.C., a non-profit association founded in June, 1998, to promote the development of the new media industry in British Columbia.
7497 We are a spin-off of an initiative that happened around APEC 97, when 14 of B.C.'s top new media companies representing the various sectors that make up new media participated in a number of activities designed to shine the spotlight on this emerging sector of B.C.'s economy. Today, New Media BC has approximately 75 member companies, representing all aspects of new medial, including the digital delivery of e-commerce, education, communication, entertainment and information services and products.
7498 One of the first tasks of the association was to define the needs and the scope of the industry. The 1998 PricewaterhouseCooper's survey, commissioned by the association, confirms that the province is home to a young, vibrant industry with potential for phenomenal growth. The survey found that more than half of the companies surveyed planned to double their workforce over the next 24 months. At the time of the survey, approximately, 1800 people were employed in new media in B.C. Companies engaged in B.C.'s new media industry could employ thousands of British Columbians in highly skilled jobs, creating content, providing services and developing software and hardware for local, national and international markets. Studies indicate that access to capital is the main barrier to achieving that goal. With few exceptions, B.C.'s new media companies are under-capitalized and are actively seeking either project or corporate financing. Without financing, B.C.'s new media companies will be concentrating on providing services rather than developing content. In effect, we will be hitchhikers looking for a ride on someone else's information highway project.
7499 More importantly, our electronic delivery pipes will not contain British Columbia content. The multimedia curricula materials used in B.C.'s schools will come from outside the province -- most likely from the U.S.
7500 The digitized content delivered to B.C. homes and businesses over the Internet will also feature someone else's content.
7501 In effect, we will have failed to seize the opportunity to provide our ideas, our talents and our services to provincial, national and international markets. Our companies want to realize the opportunities in the new economy by owning the content rather than producing it for contractors outside of B.C. To meet these challenges, New Media BC has made it a priority to create and support initiatives that deliver economic and employment benefits to B.C. new media companies.
7502 In January of this year, New Media BC was approached by SkyCaBle in regards to the application to launch a digital wireless cable service in British Columbia. SkyCable promises to work with New Media BC to ensure maximum benefit from SkyCable's commitment to support local expression and new media production upon approval of the application.
7503 The board of New Media BC considered in some detail the application and we are particularly interested in the commitment within that application to dedicate 2 per cent of estimated gross revenues to launch an open Access Network for community-based development and learning. A large component of the programming on this channel will consist of local new media products.
7504 In our discussions with the company, we have come to an understanding that New Media BC will have an advisory role regarding this investment and we believe this close partnership between New Media BC and SkyCable will significantly enhance the growth of the new economy in B.C.
7505 B.C. must be on the leading edge of new media content development to benefit fully from the new economy. The Telefilm New Media Fund is an excellent fund, well accessed by B.C. producers, as is the Telus New Media Broadcast Fund, but they have little access to other funding for new media content production.
7506 SkyCable's application, if successful, expands the opportunity for B.C. companies to participate in the development of digitized content.
7507 Unquestionably, B.C. has the talent to develop and sustain a dynamic new media industry. That has been well demonstrated by companies such as Electronic Arts, Mainframe Entertainment and Rainmaker Digital Pictures.
7508 A large number of smaller companies also have developed successful world-class digitized products for the international marketplace; among them are Brainium, Credo Interactive, DNA Productions, ETI Entertainment Technologies, Ingenuity Works and Blue Zone.
7509 In regards to the kind of interactive content that could be offered on the Open Access Network, Blue Zone has already, in their own words, crossed the platform. They have a proprietary product called "Media BZ" that is designed to reposition T.V. stations at the center of the interactive universe and it makes possible the immediacy of television, combined with the depth of information the Internet offers, all at the same time.
7510 But even without these advances in technology that allow for true interaction of television and the Internet, the Open Access Network can be used for cross platform promotion of B.C. new media production. There are 23 million households in the world that have a television set and an Internet-connected PC in the same room. So what we are talking about is enhanced television program, personalized information on demand, simulcast interactive content on air and on line. Forrester Research predicts enhanced broadcast program guides and T.V.-based browsing will generate $11 billion in advertising and $7 billion in e-commerce by 2004 -- and we would like to be part of that.
7511 New Media BC wants to ensure that the creation, development, marketing, production and distribution decisions for B.C.'s new media industry will be made within the province. We want B.C.'s new media industry to fulfil its potential and become a leader rather than a follower in the new economy. SkyCable has made a commitment that will enable this goal to be reached. New Media BC supports the application of Skycable and looks forward to jointly working on the proposed initiative of an Open Access Network for community-based development.
7512 Thank you.
7513 CHAIRPERSON OF THE COMMISSION: Thank you.
7514 We have no questions for you. Thank you.
7515 MS EDGE: Thank you.
7516 Our next presenter is Jake Sheridan.
7517 Would you like to come forward.
7518 He doesn't appear to be in the room.
7519 Is Smooth Productions Incorporated in the room? Okay. Thank you. If you would like to come forward.
7520 CHAIRPERSON OF THE COMMISSION: Good morning. Welcome.
7521 MR. DONNELLY: Good morning, Madam Chair, Commissioners.
INTERVENTION / INTERVENTION
7522 My name is John Donnelly and you heard from me earlier this week when I intervened on behalf of Craig Broadcast's A-Channel on the island --
7523 CHAIRPERSON OF THE COMMISSION: You have been recognized.
7524 MR. DONNELLY: That is me.
7525 I spoke for A-Channel in my capacity as a Vancouver-based concert promoter, performer and I guess I kind of consider myself a rock-and-roll entrepreneur and I worked many years in the music business and I have got quite extensive experience in television productions, having worked with the Craigs for many years, as well as the CBC and Y-TV and MuchMusic.
7526 For six years, I produced a series of Canadian talent development programs and during that series was when I developed my relationship with the Craig family; so, therefore, I was honoured when Boyd Craig asked me to consider sitting on the board for the proposed community access channel called Sky Channel.
7527 I know, firsthand, that the Craigs are just excellent operators. Their commitment to the local markets just never falls short. The record stands an example for what this company can achieve. The plans they are putting in place for SkyCable, as well as Sky Channel, will provide an integrated framework for innovative community-based programming.
7528 Basically, the plan is to utilize the funding and resources provided by SkyCable to Sky Channel to create community programming, which does more than just broadcast local amateur sports. Training and education will be made available to developed a community-based production team and to provide opportunities for young people wishing to learn more about television and multimedia productions. Marketing initiatives will reach out into the community to find exemplary talent and provide a chance for new artists to be featured on community television.
7529 We will create innovative children's programming to serve families in our communities. We will also create educational programming which can be featured and broadcast on Sky Channel as well as backed up on the station's interactive Web site.
7530 Community news segments, coverage of local and civic events, issues related to public health -- these are all important community programming features which Sky Channel will deliver.
7531 As a member of the Sky Channel board, we will ensure the community groups are well served. They need to be provided with tools, facilities and training in order to utilize the Sky Channel and integrate Sky Channel's technologies and services into the services they in turn provide to the communities.
7532 We will also monitor the Web activities to ensure opportunities are there for community access and that relevant material is presented to the community.
7533 By establishing standards and then providing opportunities for the community to create their own content and allowing the public access to broadcasting through Sky Channel's interactive Web site, SkyCable and Sky Channel are effectively providing a new and innovative approach to community programming.
7534 I am a father of three young children and I am active member of the community I live in. I believe SkyCable will be a great addition to the B.C. landscape. It will provide new choices in the marketplace and new technologies: wireless cable and wireless high-speed Internet services.
7535 I especially appreciate the potential to subscribe to high-quality and low-cost cable selections which I will receive in my home which will allow me to better screen the television choices I provide for my children.
7536 I am aware of the tremendous work that was undertaken by the Craig family -- in particular, by the late Stewart Craig -- in pioneering this technology and I am proud of the results they have achieved.
7537 SkyCable is an exciting new concept and it is an important part of the future broadcasting.
7538 So, in closing, my personal experiences with the Craig family have been nothing short of fantastic and they provided many opportunities to me and, therefore, I am pleased to provide my support to Boyd Craig and Craig Broadcast's SkyCable team.
7539 As a member of their advisory board, I pledge to do my personal utmost to insure the highest levels of community service and support are provided should the CRTC choose to grant this new licence. I know SkyCable and Sky Channel will serve our community well. Thank you.
7540 CHAIRPERSON OF THE COMMISSION: You must be out of breath.
--- Laughter / Rires
7541 CHAIRPERSON OF THE COMMISSION: It must be the rock-and-roll rhythm here.
7542 MR. DONNELLY: I guess so.
7543 CHAIRPERSON OF THE COMMISSION: Commissioner Langford has a question for you.
7544 MR. DONNELLY: Sure.
7545 COMMISSIONER LANGFORD: Thanks for that presentation.
7546 Again, I don't want to appear to be coming at this from a negative point of view; I am just trying to pick, again, as I said to an earlier intervenor, from your experience.
7547 But what I thought I heard from the applicants, the Craig applicants, with regard to the community channel, was that this was very much a brand new start from the ground and work up project --
7548 MR. DONNELLY: Yes.
7549 COMMISSIONER LANGFORD: -- which is great, but everything starts everywhere and great oaks come from acorns, and all of those clichés.
7550 But from your experience working in this area, how long do you think, based on what they proposed -- I think it was 6.6 million over seven years, and the type of technology, I think they are starting with one edit suite, I think they said, and one or two digital cameras and they are going to use a lot of community volunteers -- how long before, in your view, we really see what we might call and up and running and working full-time community channel?
7551 MR. DONNELLY: You know, I am not sure how long it is going to take, really. I know, you know, you have to start with the resources that we provide. I know that we will find -- like the community channels like Delta Community Channel where I live is a small operation but it is well used in our community. I don't think it really would take that long to get us operating to the level that they are at. You need to provide a space; you need cameras; you need to have somebody who can control and make some decisions as far as what programming is available. It could be that we start with some acquired programming and some created content but, you know, I am sure the SkyCable plan is to, when they open the doors for SkyCable to be ready and up and running with Sky Channel and have it grow as the service grows.
7552 COMMISSIONER LANGFORD: And do you think that the sort of community input that they expressed their hope would be there is there? I mean you know these communities. Is there enough energy, enough volunteer interest out there to get something like this going?
7553 MR. DONNELLY: You know, I think there is.
7554 In the community that I live in, a friend of mine owns the nursery business, but she produces a show which educates people in our community about gardening and flowers and things in her business. She uses the community channel as an opportunity to promote her business.
7555 Another friend of my family -- or a friend through kids we met at school runs a computer program, "Dotto(ph) and Data" it is called. So he started as a community-access channel that was then picked up by the Learning Network and it is now carried on a number of services. But, again, it is a fellow utilizing the community-access channel and the services provided to create something that he can take out to the community that is actually been successful and well received.
7556 So I think that there are people out there that could use the service to their advantage that will help serve the community that they live in.
7557 COMMISSIONER LANGFORD: Thanks very much. Those are my questions.
7558 CHAIRPERSON OF THE COMMISSION: Thank you very much.
7559 MR. DONNELLY: Thank you.
7560 CHAIRPERSON OF THE COMMISSION: Thank you.
7561 MS EDGE: Thank you.
7562 Our next presentation is made on behalf of the Tsleil-Waututh Nation -- I hope I have got that right, Chief George? Thank you.
7563 CHAIRPERSON OF THE COMMISSION: Good morning. Welcome.
INTERVENTION / INTERVENTION
7564 CHIEF GEORGE: Thank you, Madam Chair. Thank you for this opportunity.
7565 I am the spokesperson, the chief spokesperson, of the Tsleil-Waututh Nation, which is a part of 56 different Sailish(ph) groups in the Lower Mainland and one of the largest linguistic groups in British Columbia.
7566 I am here to speak in favour of SkyCable and Boyd Craig's application for the SkyCable, more on a practical matter than anything else.
7567 All the industries and all of the uses and benefits that have been created from out of the use of our traditional territory, in the past, have more or less all been done without our participation -- and I am not here to complain about that, but I only mention it because I am excited about the conversations that I had with Mr. Craig on the First Nations in British Columbia being included in the concepts of programming in SkyCable that we, as First Nations, would be able to not only participate but manage directly in some of our areas in northern B.C. in pulling us more together and working together and providing opportunities that we normally wouldn't ever have access to or wouldn't have thought of having access to right at this current time.
7568 My excitement comes more so that, for the young people, especially, I think it is imperative for them to have this kind of opportunity to be a part of the growing industry of cyberspace and electronics because I think that is the future and so, in having this access and providing a licence to the Craig family would not only be providing a service to them but to directly back to us as First Nations in a healthy use of our Aboriginal title on rights -- which by the way, conforms with our current status in our negotiations with the federal and provincial government that any new developments that happen land, air and sea, has to consult with us -- and the Craigs I don't think fully understood that and realized that when they came to speak to us but in doing so, have fulfilled that obligation in a healthier manner because it was more envisioned rather than a have to.
7569 I am also working with the West Van City Municipality, the City of North Vancouver and the District of North Vancouver and Ports Canada and we are just in early stages of trying to implement a fibre optic line across North Shore. The purpose was to allow greater access to our whole North Shore community and the Lower Mainland and Vancouver Greater Region on Internet and have some competition for the existing cable systems and telephone lines. This SkyCable will accelerate that and, in our opinion, create a greater freedom that we would normally have to work longer and harder and more expensively to get in place, merely through co-operation and partnership.
7570 So I thank you very much for this opportunity. I don't have a lot to say on it other than what I have said because I think a lot of the applications speaks for itself and the intervenors prior to myself have also said a lot of what I feel. Thank you.
7571 CHAIRPERSON OF THE COMMISSION: Thank you very much. We have no questions for you. Thank you very much.
7572 MS EDGE: Thank you, Madam Chairperson.
7573 I would like to just check whether some of the other presenters are in the room that I missed earlier.
7574 Is anyone here from Gate West Communications. Mr. Ochoko(ph)?
7575 Is Jake Sheridan in the room?
7576 That appears to complete the intervenors for this application.
7577 CHAIRPERSON OF THE COMMISSION: What I would propose is we take a break of 10 minutes to allow for the other phase. Thank you. And we will be hearing, before lunch, the Alliance application before we break for lunch. Thank you.
--- Recess at 1050 / Suspension à 1050
--- Upon resuming at 1115 / Reprise à 1115
7578 CHAIRPERSON OF THE COMMISSION: Alors, could you please introduce this phase of the hearing.
7579 MS ASSHETON-SMITH: Thank you.
7580 We now move to Phase IV of the public hearing, which is rebuttal by the applicants, and there will be a maximum of 10 minutes.
7581 The first applicant in this phase is LOOK Communications.
7582 LA PRÉSIDENTE DE LA COMMISSION: Alors à vous la parole.
REPLY / RÉPLIQUE
7583 MR. PARKES: Merci. Madame la Présidente, Commissioners, ladies and gentlemen.
7584 Once again, I am David Parkes, President and CEO of LOOK Communications.
7585 Let me begin by thanking the over 2,800 intervenors who endorsed our application. This support has come from many sources -- the business community; television networks; educational institutions; volunteer organizations; and individuals throughout British Columbia -- who simply want a strong and viable distribution alternative, a true competitor to the powerful and entrenched cable incumbents and DTH companies.
7586 Of course, we would also like to thank Mike Reddington of the Surrey Public Library and Steven Chan for their support of our proposed InfoLOOK Community Expression Channel.
7587 We believe this innovative channel proposal provides a level of grassroots public access that has never been possible before.
7588 At this time, I would like to ask Mansell Nelson to respond, briefly, to the interventions by CFJC and CHBC.
7590 MR. NELSON: Thank you, David.
7591 First of all, we don't want to put local broadcasters out of business. We want to partner with them and we acknowledge the challenges they face and we have begun building relationships with them.
7592 Second, our application is about putting our best competitive foot forward. We compete with incumbent cable but we also compete head-to-head with DTH. We created a channel line-up that we believe will allow us to attract customers from these powerful incumbents.
7593 Third, the Commission has the discretion to approve or deny the carriage of distant signals on a case-by-case basis. It has fairly distinguished among distribution alternatives, in the past, and can continue to do so, in the future.
7594 We also wish to clear up a misconception.
7595 SkyCable does, in fact, propose the addition of certain distant signals in the Okanagan Valley. In its application, SkyCable stated -- and I quote:
"We intend to add three authorized distant Canadian signals to the basic package in order to offer viewers an attractive range of programming options. We plan to choose from among the following services: CIVT, KSTW, ITV or Access." (As read)
7596 As SkyCable only indicated their intention to serve the Kamloops market yesterday, we cannot determine what distant signals they intend to carry in that market
7597 Finally, Point 5, we acknowledge that there are a number of policy considerations surrounding the carriage of distant signals. We believe that our ability to provide these signals will allow us to offer additional choice to consumers and will position us as a vigorous competitor to incumbent cable and DTH. However, should the Commission decide that the carriage of these signals is not appropriate, we remain confident in our ability to provide a strong alternative.
7598 I will now call on Gary Kawaguchi to further respond on the SkyCable intervention.
7599 MR. KAWAGUCHI: Thank you, Mansell.
7600 Overall, our pricing for services and installation is based on a model that works today in our two other systems.
7601 Having said that, we researched B.C. interests and are very encouraged by those results.
7602 We know that these prices and fees position us to be a real competitor. Yesterday, we focused on the creation of real value as the focus of our marketing efforts to drive competition. We offer real choice. The icing on the cake is the ability to change any station chosen in a quick call to our customer care group. It takes us five minutes to reset the individual subscriber's set-top box. This is the ultimate use of addressable digital technology.
7603 With respect to installation fees, particularly in the MDU marketplace, to set the record straight, our application clearly stated, in our business plan, that we have not accounted for any MDU installation fees in Year One of activating any building. This is the period where we expect to gain 30 per cent penetration of the building. I refer the Commission to Item 2.3 in our revenue schedule supplied November 26th, 1999.
7604 Furthermore, with respect to installation fees, we still do not see this as an issue. In fact, we are very encouraged by our research. The 12 per cent switching number referenced this morning actually translates into 32 per cent of all of those who expressed an interest in our concept.
7605 This is an excellent research number for a company that had little overall awareness at the time of the research.
7606 In addition to that, we also offer a "satisfaction guaranteed" program. A 60-day installation refund. To date, only one -- two per cent actually redeemed. This generates real commitment to our service and reduces term.
7607 With respect to technical channel capacity, SkyCable's plan for 120 channels using 8-to-1 digital compression technology -- yesterday they said 10-to-1 is on the horizon. Our plan includes 10-to-1 today -- that is what we use in our other systems. That means we have current additional capacity for 37 more video channels versus the SkyCable plan which allows capacity for 14 more video channels.
7608 With respect to costs, on the IT front, 10.7 million over seven years: 4.5 million of that goes to telephone costs for the call centre; 2.1 million for software fees for a billing system; 2.1 for conditional access system software. It is unclear to us where these call centre costs are in the SkyCable plan. Yesterday, we heard the SkyCable costs were, in fact, included in the sales and marketing budget -- which brings me to the sales and marketing budget quoted this morning.
7609 SkyCable claimed 14.7 million of their total budget would be spent on brand advertising. There is really only so many ways you can spend that budget. Today, we heard the 14.7 million would be spent on branding; yesterday, we heard 7 million on T.V., with the balance on direct mail telemarketing and other miscellaneous expenses.
7610 With respect to customer satisfaction, we conduct research annually and are scheduled to be in field again this April-May.
7611 Regular follow-up contact through our call centre continues to be very positive, as we call customers during their introductory period.
7612 With respect to coverage, SkyCable has stated our proposed coverage does not appear to be as good. Quite simply, we disagree since the coverage contours are based on theoretical engineering models.
7613 And, finally, granting LOOK a licence in B.C. is not about establishing an MDS monopoly; it is about creating a vigorous competitor to cable and DTH, providing consumers with the benefits of innovation and choice.
7615 MR. PARKES: Thank you, Gary.
7616 At the start of this hearing, the Commission indicated three particular areas of interest for those seeking and MDS licence for British Columbia: the ability to provide more competition to cable; the provision of more consumer choice; and furthering the goals of the Broadcasting Act.
7617 As our application makes clear, LOOK has carefully planned its application with these exact goals in mind. We have a strong and experienced team here before you this morning. We know what it takes to compete with cable and DTH head on. We know what it takes to build a reliable network in this environment and we have put together a powerful service offering. We know how to build a brand and what it takes to build a national communications force. We know how to market this offering to SFUs and we know how to get into those critically important MDUs. And, lastly, we know a local understanding of the B.C. marketplace is critical. LOOK's long-standing presence in the British Columbia marketplace, over 50,000 current Internet customers and a bustling local office and call centre, just a five-minute walk from this very room, places us in a unique position to provide a competitive alternative today.
7618 Madame la Présidente, Commissioners, this concludes LOOK's reply. Thank you for your attention and we would be pleased to answer any questions.
7619 CHAIRPERSON OF THE COMMISSION: We don't have any questions for you. Thank you very much.
7620 MS EDGE: Thank you, Madam Chairperson.
7621 The next presenter will be Craig for its rebuttal.
7622 CHAIRPERSON OF THE COMMISSION: They sent you by yourself!
7623 MR. INTVEN: Yes, Madam Chair. They figured they would finally get their lawyer to do something for the money they are paying him.
--- Laughter / Rires
7624 CHAIRPERSON OF THE COMMISSION: Given your expertise, of course.
7625 COMMISSIONER WYLIE: We have many questions.
--- Laughter / Rires
7626 COMMISSIONER WYLIE: Especially on technological --
7627 MR. INTVEN: The questions I don't handle. Thank you.
7628 COMMISSIONER WYLIE: You should have brought that antenna.
--- Laughter / Rires
REPLY / RÉPLIQUE
7629 MR. INTVEN: Thank you.
7630 I am here, as you know, to present SkyCable's reply to the LOOK intervention.
7631 The main point I would like to make is that LOOK's oral intervention simply repeated points that were made in its January 27th written intervention and there were no new points. All of those points were fully answered in SkyCable's reply which was filed on February 7th -- and I would refer you to that. The points made in reply were disregarded, essentially, by LOOK, so let me repeat just the main points raised by LOOK and the replies that were made by SkyCable.
7632 First, LOOK suggested that there is a problem with SkyCable's decision not to name the specific suppliers and equipment vendors for its system.
7633 SkyCable's reply was clear. Unlike the early days of MDS, there now is a competitive supply industry for MDS components. As a result, SkyCable described its network design but has left some of the specific decisions as to the set-top boxes it will use, the antennas it will select, until it gets a licence, if it is fortunate enough to do so, and, at that time, it will select the best state-of-the-art technology available for the best price and it will be in a better position to negotiate that price having not specified a specific -- that it is bound to a specific supplier, and I expect any prudent applicant, frankly, Members of the Commission, would do the same thing.
7634 LOOK's second major point was that they repeated a statement that there may be problems with in-band trunking.
7635 As SkyCable's written reply and its evidence clearly indicates, SkyCable has perfected in-band trunking techniques. It is the only form of trunking that SkyCable uses and, to quote Boyd Craig, the system now runs like a charm. Imagine Wireless, the Saskatchewan MDS licensee also relies exclusively on in-band trunking.
7636 If LOOK is still experiencing problems with in-band trunking, as it suggests, then that implies that it is LOOK that has the technical problems, not SkyCable.
7637 Third, LOOK repeated its suggestion that it will have more T.V. channels than SkyCable.
7638 Now, this issue is addressed completely in SkyCable's intervention. The MDS spectrum capacity will be identical for both licensees. They both have access to the same compression technologies and, therefore, the channel capacity is the same. LOOK has simply chosen to carry a relatively small number of additional channels, at the outset, most of them with relatively low viewership or channels that, as we have heard in the hearing, raise contractual, regulatory or local broadcasting problems, as you have heard from some of the other intervenors -- and on that point, I should make it clear that SkyCable will not be carrying distant signals into the B.C. Interior, as was clearly indicated by SkyCable during the deficiency process of this proceeding, and the deficiencies are on record.
7639 Finally, LOOK has suggested that it has more resources and will spend more on marketing than SkyCable.
7640 On the marketing point, SkyCable has indicated that its advertising budget and its total advertising for all direct mail image -- sorry -- brand name advertising and other advertising will be three times as high as the advertising line that appears in the financial plan submitted by LOOK.
7641 Now, LOOK does propose to spend some more on sales. But I think it is fair to say that the jury is still out on whether sales techniques, such as multilevel marketing, are really a viable approach to selling a higher priced product with a higher installation fee to T.V. consumers. We just don't know whether that is going to work.
7642 Finally, it has not been ruled to date, in the Canadian broadcasting system, that mid-sized regional players will be denied new marketing opportunities whenever a national player or a player with potentially deeper pockets makes an application for the same market. Regional smaller players have often proven that they are closer to their consumers, they know the markets better, they can innovate faster, they can operate more efficiently and they can satisfy their customers better. It would be a sad day for Canadian broadcasting if the Commission were to adopt a policy, explicitly or implicitly, that would foreclose mid-sized regional players from expanding.
7643 And, then, finally, SkyCable wold like to thank the 264 intervenors -- which I think compares to 193 interventions accepted on behalf of LOOK -- for their supporting interventions for the SkyCable application. We are pleased to see them and, particularly, to have the appearing intervenors at the hearing.
7644 We were also impressed with the two appearing intervenors that supported LOOK, Vancouver Community Network and the Surrey Public Library, and simply wanted to reply that the approach of these intervenors is entirely compatible with the community channel approach that SkyCable is proposing and that SkyCable will certainly be prepared to speak with them and co-operate with them if SkyCable should be awarded the licence -- and that concludes our reply.
7645 Thank you, Madam Chair.
7646 CHAIRPERSON OF THE COMMISSION: Thank you very much.
7647 MS EDGE: Thank you, Madam Chairperson.
7648 The last appearing application at this hearing is by Alliance Atlantis Communications, on behalf of a company to be incorporated, for a broadcasting licence to carry on an English-language national programming undertaking -- a television specialty service -- to be distributed on a discretionary basis via DTH satellite and cable broadcasting distribution undertakings in either analog or digital mode. The service would provide programming about food and nutrition.
7649 Please come forward while I continue reading.
7650 Television Food Network, which owns the American Specialty Service Food Network, has committed to request removal of its service which is currently carried by some broadcasting distribution undertakings from the eligible lists of satellite services once the proposed Canadian service launches.
7651 According to the applicant, the proposed service is in the same genre as, and is intended to replace, the Food Network from the U.S.
7652 CHAIRPERSON OF THE COMMISSION: Well, I guess I already have my introduction for my CW speech on Monday, that the number of women on panels is improving depends on the topic, I suppose.
7653 For your benefit and the benefit of the people in the room, what we will do is we will hear your presentation and then we will stop for lunch and then come back with the questioning and the other phases to conclude.
PRESENTATION / PRÉSENTATION
7654 MS YAFFE: Madame la Présidente, Commissioners and Commission staff, good morning.
7655 I am Phyllis Yaffe, President of Alliance Atlantis Broadcasting and with me here today: to my right, Michael MacMillan, Chairman and CEO of Alliance Atlantic Communications; and from our broadcasting division, and to Michael's right, Rita Middleton, Vice-President of Finance; to my left, Barbara Williams, Senior Vice-President, Programming; and to her left, Kristen Jordan, Vice-President of International Develop, Scripps Network; behind me and to my far left, Janet Eastwood, Senior Vice-President, Marketing, Communications and Creative Services; Brad Alles, Vice-President of Sales; Rita Cugini, Vice-President, Business Development; Kathleen Brown, Vice-President, Business and Legal Affairs, Doug Barrett, our outside legal counsel; and Kathleen McNair, Vice-President, Regulatory Affairs, Corus Entertainment.
7656 Today marks the culmination of a concept originally conceived in 1996 -- a concept which provided for the addition of Food Network U.S. to the lists of eligible non-Canadian services and its ultimate replacement by Food Network Canada, owned and controlled by Canadians, with high-quality Canadian programming designed for our audiences.
7657 Food Network Canada will allow Canadians to watch programming that they have grown to love on Food Network U.S. while adding new Canadian programs to this already popular mix. These shows will highlight Canadian culinary traditions, regional flavours, restaurants and markets, our country's ethnic diversity and our nation's holidays and events. These programs will ground the network in our reality, celebrating Victoria Day BBQs, Grey Cup parties and our nation's birthday on July 1st. To the viewing public, we will celebrate the addition of these new shows while making sure that their current favourite shows remain available.
7658 As a Canadian specialty service, Food Network Canada will have 50 per cent Canadian content, with 175 original hours being commissioned in the first year, rising to 350 in Year Seven. This is a significant number of new hours that the independent production community is very excited about. The many letters we received in support of this application, from producers, testifies to that enthusiasm.
7659 For the Canadian broadcasting system, this is also an important opportunity. Whenever a Canadian programming service is launched, the broadcast system is made stronger in this country. To Canadianize a genre that is being served by a popular foreign analog service with the co-operation of the foreign partner is a new and exciting moment in Canadian broadcast history. We, with our partner, E.W. Scripps, have for many years planned this moment. We both believe a Canadian Food Network will be a superior service for Canadian viewers and we are both delighted to present our vision for the network today.
7660 Food Network Canada will, with the complete co-operation of Food Network U.S., replace that service. Food Network Canada requests that the access rules apply to the current analog carriage arrangements of Food Network U.S. and that it be carried as part of the same highly penetrated discretionary analog tier on which the foreign service is currently carried.
7661 Upon the launch of the Canadian service, Food Network U.S. requests that the Commission remove it from the list of eligible satellite services. This will, in effect, repatriate scarce analog capacity to the Canadian-owned sector of the broadcast industry.
7662 In replacing the U.S. signal, Food Network Canada will further enhance the viewing pleasure of Canadians by providing the best off and nutrition programming from Canada, the U.S. and the world. This programming combination and business arrangement makes it possible for Food Network Canada to offer its viewers a high quality scheduled comprised of 50 per cent Canadian content.
7663 We will combine the most popular programming already on the network with Canadian content that reflects the rich culinary culture in Canada and in so doing, provide a seamless transition from a foreign service to a Canadian one.
7664 The benefits of licensing Food Network Canada are: increased ownership and control of the Canadian broadcasting system by Canadians; an increased amount of Canadian programming available to Canadians -- programming that is relevant to Canadians; increased employment opportunities for Canadians; and increased activity in the Canadian independent production community.
7665 We would like to show you a tape that will give you a brief overview of Food Network Canada -- and if you are hungry, this is great.
--- Laughter/ Rires
--- Video presentation / Présentation vidéo
7666 MR. MacMILLAN: In her opening, Phyllis Yaffe introduced representatives of our two partners in Food Network Canada who are here with us today: the E.W. Scripps Company and Corus Entertainment.
7667 Alliance Atlantis and the E.W. Scripps Company are currently partners in the Canadian specialty service HGTV Canada -- a partnership which began in early 1996. We had launched Life Network just a year earlier and we found that there was an increasing demand for lifestyle-type programming, so we began to search for suitable partners who could help us launch a programming service that was complementary to Life Network.
7668 Scripps had recently launched HGTV, in the U.S., and we were convinced that such a format would work well in Canada.
7669 In Scripps, we found a partner who was experienced in specialty broadcasting and eager to find a suitable Canadian partner with whom they could share their experience and expertise.
7670 In 1996, in partnership with Scrips, we were granted the licence for HGTV Canada and we had launched that channel in October, 1997.
7671 Since forming this partnership, we have had the opportunity to work with Canadian independent producers who have produced seven series for HGTV Canada and HGTV U.S. HGTV U.S. is available in over 50 million homes in the United States and we are very proud of the fact that seven series produced in Canada and originated for HGTV Canada have indeed been licensed by HGTV U.S.
7672 In the fall of 1996, we agreed with Food Network U.S. to embark on a new venture. We decided on a two-part strategy. First, we would support the addition of Food Network U.S. to the lists of eligible satellite services; and, second, we would submit an application, when the regulatory environment permitted, for a Canadian food network. Upon the Canadian Food Network being licensed Food Network U.S. would agree to be removed from the lists.
7673 As a result, in December, 1996, in collaboration with the CCTA, Alliance Atlantis endorsed the inclusion of Food Network U.S. on the lists.
7674 Today, Food Network U.S. is effectively controlled by the E.W. Scripps Company -- our partners in HGTV Canada.
7675 Upon the licensing of Food Network Canada, Food Network U.S. will acquire 29 per cent of Food Network Canada, of which 19.8 per cent is a voting interest.
7676 To launch Food Network U.S. in Canada, we also agreed that we would provide all distribution and marketing support to the U.S. service for as long as it was carried by BDUs in Canada.
7677 In addition, at the time that the business arrangement was first struck, in 1996, Alliance Atlantis and Food Network U.S. decided that the carriage of the U.S. signal in Canada should create benefits that flow to the Canadian production community and we, therefore, agreed that we would earmark one-third of all the subscriber revenue generated by the carriage of that U.S. service in Canada for the production of Canadian programming.
7678 This arrangement has now generated over $700,000 in a programming fund -- Barbara Williams will speak later as to how this fund will be used to produce Canadian programs.
7679 Based on our positive experience with HGTV Canada, we are looking forward to the opportunity to commission series that would run on both the Food Network U.S. and the Food Network Canada schedules.
7680 Our third partner in this venture is Corus Entertainment.
7681 Corus has a diversified portfolio of specialty television services with a focus on children's programming and music. The breadth of experience in the field of specialty television services represented by the combined holdings of Alliance Atlantic and Corus will help to ensure that Food Network Canada is successful in its desire to be an active and significant contributor to the Canadian broadcasting system. Corus will acquire a 20 per cent interest in Food Network Canada, of which 10 per cent is a voting interest.
7682 MS YAFFE: We are sure you will agree that the strength of this partnership will provide Canadians with a programming service that speaks directly to their needs and desires.
7683 Food Network Canada's programming will be contemporary and responsive to the growing interest in food preparation and nutrition. We will work with this country's top restaurateurs, nutritionists, dietitians, farmers, food growers and chefs to provide the most up-to-date information.
7684 As I mentioned previously Food Network Canada will have Canadian content of 50 per cent throughout the term of the licence. The commitment to original Canadian programming will be over $2.4 million in the first full year, rising to over $5.5 in the final year. Over the term of the licence, our total commitment to original Canadian production is over $24 million. An additional 3.8 million has been allocated to acquiring Canadian-produced programs.
7685 The Food Network audience has been enjoying the food genre for over two years now, through the carriage of Food Network U.S. Food Network U.S.'s total share of hours tuned has averaged approximate 0.5 since it launched in October of 1997 -- making it the second highest ranked U.S. service on the third tier of specialty services.
7686 An independent research study, conducted in late January, 2000, found that 77 per cent of Canadians who are aware of Food Network agree that some Canadian programming should be added to the network.
7687 A similarly large proportion of Canadians -- 74 per cent -- think it is important for Food Network to have programming that celebrates Canadian events, like Canada Day and Canadian Thanksgiving.
7688 We are also delighted to learn that a full 95 per cent of Canadians who knew of Food Network said that they would watch the same amount, or more, of the network if Canadian programming was added to their favourite U.S. shows.
7689 MS WILLIAMS: Food Network Canada and its 175 hours of original Canadian content in the first full year, rising to 350 hours in the final year of the licence term, will reflect the values, attitudes and experiences of Canadians as they engage in pursuits and celebrations that enrich their lives.
7690 Food and its enjoyment is a common thread throughout society. The sharing of a meal in one of the country's foremost -- is one of the country's foremost forms of entertainment, whether it is in a friend's home, a four-start restaurant or a local diner. Food Network Canada will feature programming that explores the local food scene that exists in Canadian cities and towns.
7691 One of the defining aspects of any culture is its food. In wave after wave of immigrants to Canada, we have seen markets spring up with new vegetables, new sauces, new spices, followed shortly thereafter by new restaurants serving new styles of cuisine. Food Network Canada programming will explore and celebrate that diversity.
7692 Food Network Canada will also showcase the many food and wine festivals that are held across the country every year. The Niagara Region, in Ontario, is home to one of the biggest grape and wine festivals, matched only by the one in the Okanagan Valley right here in British Columbia. Niagara-on-the-Lake celebrates the harvest of some of the country's most delectable fruits, as does the Annapolis Valley.
7693 At least 75 per cent of the programs produced by Canadians will be produced by unaffiliated independent producers and our commitment to working with them is strong. Through Life Network and HGTV Canada, the Lifestyle Programming Department is already working with a number of producers from across the country.
7694 Michael has mentioned the programming fund that will be used to produce programs in Canada for distribution on our channel as well as on Food Network U.S. and I just want to explain a little bit about how that fund will work.
7695 In co-operation with our partner, we will choose to license projects that will be produced by Canadian independent producers. These programs will air on our channel and, as well, Food Network U.S. will have the opportunity to license the program from the independent producer for broadcast on their channel. This is a win-win opportunity: the Canadian channel benefits from additional dollars spent on original programming; Canadian producers have an opportunity to license their programs into the American market; and Food Network U.S. will benefit from some great new shows for their service.
7696 This fund is a one-time special opportunity to kick-start our service with some great new shows. But even when this fund is finished, we will continue to license programs from Canadian independents that will be licensed for air on the U.S. service with incremental and separate license fees.
7697 To date, this fund has already committed to two shows that will be produced by a Vancouver independent producer: DV Media.
7698 International food competitions are exciting, dynamic events and we have chosen as our first joint project to produce a documentary series that explores two of them.
7699 The first program gives of a behind-the-scenes look at two top-notch chefs -- Chris Mills from here in Vancouver and Tracey O'Grady from Washington, D.C., as they prepare for and then compete at the National Restaurant Association Show -- a precursor to the most prestigious of all food competitions: the Bocuse D'or, in Lyon, France.
7700 In the second show, we catch up with those same two chefs, this time in Lyon, at the Bocuse D'or, and, there, get a unique behind-the-scenes peek into all of the excitement and tension of that competition; ultimately, revealing the winners.
7701 And discussions are ongoing with our partners and a variety of independent producers on more specials and series that this fund will support.
7702 MS YAFFE: Every once in a while, there is an opportunity to do something that makes sense, in every way. We hope you agree that bringing more Canadian programming in this popular genre to Canadian audiences through a Canadian Food Network is just such an opportunity.
7703 We thank you for allowing us to present this to you today and we will answer your questions.
7704 CHAIRPERSON OF THE COMMISSION: Well, certainly, that helps to bring the appetite and we will break for lunch. We will be back at 1:15. Thank you very much. Bon appetit.
--- Lunch recess at 1155 / Déjeuner à 1155
--- Upon resuming at 1320 / Reprise à 1320
7705 CHAIRPERSON OF THE COMMISSION: Please tell us where we were when we went to lunch.
7706 MS EDGE: All right. We are still on the application for Food Network Canada and we were just about to move on to the questioning of the applicant.
7707 CHAIRPERSON OF THE COMMISSION: I would ask our Vice-Chair Wylie to be doing the questioning for the Commission.
7708 COMMISSIONER WYLIE: Good afternoon, ladies and gentlemen.
7709 If you are agreeable to this, I will refer to the parties as follows -- which will be easier, unless there is a need to be more precise -- we will talk about the American network or the U.S. network and Alliance and Corus, unless there is a need to be more specific.
7710 I have two -- four areas of questioning. One, programming -- the expenditures, the Canadian content levels, the use of films; independent production and foreign programming; and ownership and control -- pretty well together; and then distribution.
7711 So, if we start with programming questions, the first one is: the proposed nature of the service, which is defined fairly broadly and could lead, of course, to significant overlap with other services, it includes many categories, some of which are not apparent in the schedules that you filed showing us the categories of programming that you would actually broadcast or air, so I would like a little more clarification, perhaps, on the rationale behind having so many categories.
7712 If it is helpful, you can focus on Schedule B, for example, where most of -- the programming categories there is 5(b), almost completely. There are certain categories that you have in your description of nature of service and the promise of performance that just don't show up anywhere.
7713 MS YAFFE: We would be happy to answer that for you, Commissioner Wylie, but I think maybe it is important to start by saying, I think we have said, and certainly intend, to have every single program that is on the network relate to the food subject matter. We do not see it as a generalist service and we do not see it expanding beyond food, nutrition and entertaining with food as the subject matter of the programming.
7714 I am going to ask Barbara Williams to take you through some of the ideas we have for those other genres that may or may not be on the draft schedule you saw before you.
7715 COMMISSIONER WYLIE: With a focus on the nature of service and the need for these categories to be there.
7716 MS WILLIAMS: We really see the programming as falling into three main categories. The first one -- and maybe the most important one, honestly -- is the cultural category because it is here where we think the service will be most distinct from its current American form. It is here where the programming will have an opportunity to travel across the country, to reaCh out to the communities that are doing their own food thing, with their own ingredients, with their own chefs, their own restaurants, their own festivals. So programs that will travel across the country, reach out to those people, find out what's going on in the kitchens of Canadians right across the country, that is a very important category -- and, in fact --
7717 COMMISSIONER WYLIE: But that is not a category that has a number for us: cultural programming.
7718 Can you relate it to a specific category?
7719 MS WILLIAMS: Oh, you want me to deal with the number --
7720 MS YAFFE: Yes, we can. I guess it is, generally, information and documentary programming. That is what it would be
7721 COMMISSIONER WYLIE: Yes. I am sorry. The aim was simply to look at the description of your nature of service where there are a lot of categories included in there that we are not sure appear to show up in your Schedule B, or A, and we are looking at the possibility of narrowing down your description of the nature of service, or not, if you don't think that that is possible.
7722 Let me be more specific. For example, in your proposed nature of service definition, you include Category 7(c), which is specials, mini-series, made-for-T.V. feature films. And in your application, you say that you will do one film related to food a week and there is no mini-series or specials.
7723 Are these categories necessary in your nature of service is what I want to know because that is something that is part of your promise of performance and you are bound by. We want to know whether there is any need for those which have overlapped with other services.
7724 MS YAFFE: We do actually show a film on the Saturday night -- I think it is at 9 o'clock -- "Food on Film". And that was the intention, that we would show no more than one film. It could be --
7725 COMMISSIONER WYLIE: So let's lay this one to rest.
7726 Would you a accept a condition of licence that you do no more than one film per week?
7727 MS YAFFE: Yes, we would.
7728 COMMISSIONER WYLIE: Okay. So we have got film settled.
7729 MS YAFFE: Right.
7730 COMMISSIONER WYLIE: What about mini-series, specials, which is also in Category 7?
7731 MS YAFFE: I think we would be happy with a condition that allowed us to just show one film a week, but I am not -- I don't know if you can actually divide that category, which is why we just said "7". If you can, we would be happy to live with one film a week.
7732 COMMISSIONER WYLIE: Well, my understanding is that there is 7(c) and 7(d(.
7733 MS YAFFE: Okay. Fine. We would be happy with one film a week. And we do not need the mini-series.
7734 COMMISSIONER WYLIE: And you don't need these other categories --
7735 MS YAFFE: Yes.
7736 COMMISSIONER WYLIE: Does anybody have before them the nature of service categories?
7737 MS YAFFE: Yes, we do.
7738 COMMISSIONER WYLIE: And other question is whether -- now that we have revised some of them, whether anyone has looked at whether that changes what you want?
7739 MS YAFFE: I think, actually, Kathleen Brown did look at that, so I will ask her to answer that.
7740 MS BROWN: I don't think we have substantially changed what we are looking for because the nature of the service is really broken down into the food -- food programming that is informational, educational and entertaining, but within these categories, I don't think there have been substantial differences in the ones that are relevant to the nature of the programs that we are going to be dealing with.
7741 COMMISSIONER WYLIE: Are we now saying that you don't need 7(c), specials, mini-series and made-for-T.V. feature films, if I am right that 7(d) will cover theatrical feature films aired on television for which you are prepared to be bound to do one a week?
7742 MS YAFFE: Yes.
7743 COMMISSIONER WYLIE: And it will be a theme food.
7744 Perhaps what you can do, while the intervenors are here and before reply, is have another look at your nature of service and see if there's anything else that could be pared down.
7745 For example, are you going to do game shows?
7746 MS YAFFE: I will let Barbara answer that.
7747 MS WILLIAMS: There is a history of great success with game shows in the food genre, actually. The American service has experimented with a couple of them that have been very successful. It is a fun way of sharing information in this genre and I think the programming has proved to be successful.
7748 COMMISSIONER WYLIE: So the answer is, yes, you would want the possibility of keeping that.
7749 "5" is informal education, analysis and interpretation, I guess would be....
7750 Reporting and actualities. And human interest.
7751 So 7(c) which would be one, perhaps, that would confuse matters if you want to be committed to one film to then have 7(c), as well.
7752 I have confused things, counsel will fix it and, in the meantime, you have a chance at reply after having had a few minutes to look at it to see whether it could be pared down further or whether that is it.
7753 Now, expenditures on Canadian content. I have focused on your Schedule 24. Is there somebody here who is familiar with --
7754 MS YAFFE: Yes. Rita Middleton.
7755 COMMISSIONER WYLIE: -- the numbers?
7756 MS MIDDLETON: Yes.
7757 COMMISSIONER WYLIE: Where there is a breakdown, and then try to tally that up with the breakdown of programming expenditures, which is nowhere as broken down in the 9.2.1 which, I think, is the schedule showing expenses on programming.
7758 So it is a bit difficult to really understand how they work together. And I think there appears to be a calculation error in the totals. So the first page of Section 24, at the bottom, where you have eligible Canadian programming expenditures, these numbers don't tally up to the total from which, I guess, calculations are made for percentages. And if you remove the closed captioning, you get it right.
7759 Is it because we should remove the closed captioning rather than adding it? Or is it because closed captioning is then inserted in costs directly related to the development or original Canadian programming line?
7760 Take just one year. Take your first full year -- maybe you don't have a calculator -- but it just doesn't add up to the total eligible Canadian programming expenditures.
7761 MS MIDDLETON: Yes, you are correct, that the closed captioning should be added to the total of the Canadian program eligible expenditures.
7762 COMMISSIONER WYLIE: Okay. So, somehow or other, in the transcription, this is what happened.
7763 What is in costs directly related to the development of original Canadian programming?
7764 MS MIDDLETON: These are --
7765 COMMISSIONER WYLIE: And closed captioning is not in there.
7766 MS MIDDLETON: Right.
7767 COMMISSIONER WYLIE: You just simply take the closed captioning, add it to the total, for all seven years?
7768 MS MIDDLETON: Yes.
7769 COMMISSIONER WYLIE: And then you would get it right. Okay.
7770 MS MIDDLETON: Costs directly related to the development of original Canadian programming are such costs as executive producers that are directly involved in the development with the producers -- with the independent producers.
7771 MS YAFFE: Or script concept ideas.
7772 MS MIDDLETON: Yes.
7773 MS YAFFE: It is the development of the concept behind the --
7774 COMMISSIONER WYLIE: Well, isn't that the 50,000?
7775 MS MIDDLETON: That is separate. That is over and above.
7776 COMMISSIONER WYLIE: Yes. So it is not script.
7777 MS MIDDLETON: No.
7778 COMMISSIONER WYLIE: Script costs and development is the 50,000 line, in the first full year?
7779 MS MIDDLETON: Yes, you are correct.
7780 COMMISSIONER WYLIE: Okay. And then these other costs are in costs related to Canadian programming. Right?
7781 MS MIDDLETON: Yes.
7782 COMMISSIONER WYLIE: Now, what happens if I try to relate that to the breakdown in the expenses 9.2.1, where, yes, the total Canadian programming amortization is there and then script and costs and development, and then I have a large figure, other programming, operating expenses and so on. What am I supposed to do with this figure to make it match to that Schedule 24 we are looking at?
7783 MS MIDDLETON: The costs directly related to the development of original Canadian programming line is incorporated within the program and production other operating expenses. And the closed captioning costs are incorporated in the operating expense schedule, as well. They are not included in the programming amortization line.
7784 COMMISSIONER WYLIE: In here?
7785 MS MIDDLETON: Yes.
7786 COMMISSIONER WYLIE: So the 686, I think we should always look at -- I may mistake, as we go along, and say -- when I say Year One, I mean first full year, because it is complicated if we use the five -- so if you look at what is Year two, which is the first full year, the 686 there would be if I took the 274 from Schedule 24, subtracted it, then the rest would be non-Canadian expenses?
7787 MS MIDDLETON: Non-Canadian or costs that are not directly related to the development of programming -- of Canadian programming.
7788 COMMISSIONER WYLIE: Okay. Now you propose to -- so we have cleared up that difficulty of what this means.
7789 Now, you have proposed to spend, on an annual basis, 40 per cent of the previous year's total revenues on Canadian content. But unlike what often happens with specialty services, you break it down, in Section 24, a lot more finely than -- by showing an amortization figure for Canadian programming and an amortization figure for original Canadian programming. Do you follow me? That is on Page 2 of Section 24 -- which I probably won't find. But 40 per cent, then, on expenditures, since you have done that, would you feel -- what would be your reaction to using a percentage of the Canadian programming amortization line which, if you tally it up across the seven years and then spread it, would be about 32 per cent.
7790 Would you see any advantage in having that as a condition of license instead?
7791 We are just exploring.
7792 MS YAFFE: If I understand, you are suggesting that the only -- the percentage of revenue for Canadian expenditures would be for original Canadian programming?
7793 COMMISSIONER WYLIE: Well, no, instead of being previous -- all expenses on Canadian programming, you would use, instead, a percentage and apply it to the Canadian programming amortization line instead. Take that instead of all the expenses and divide it by the revenues.
7794 Do you see any advantage to us doing it that way? It is just another way --
7795 MS YAFFE: It just simplifies it.
7796 COMMISSIONER WYLIE: -- of saying how much of your revenues --
7797 MS YAFFE: Yes. Sure. I think it just simplifies matters.
7798 COMMISSIONER WYLIE: It would be simpler than using 40 per cent of all revenues.
7799 MS MIDDLETON: Yes. Yes.
7800 COMMISSIONER WYLIE: And what about if instead we took the programming amortization Canadian original line -- and that, if you do it across, is about 29 per cent.
7801 MS MIDDLETON: Yes, that would be fine.
7802 COMMISSIONER WYLIE: Could you tell me why you feel it would be advantageous? Just so we can look at whether we would do that or not. Not advantageous but simpler is, I think, what I heard you say.
7803 MS MIDDLETON: Yes, just that, that it would be simpler in the presentation on an annual basis.
7804 COMMISSIONER WYLIE: Simpler from an accounting -- from an accounting perspective, it would be simpler?
7805 MS MIDDLETON: Yes.
7806 COMMISSIONER WYLIE: And, presumably, there would be no disadvantage to the regulator because you have done this breaking down.
7807 MS MIDDLETON: Right.
7808 COMMISSIONER WYLIE: Do you have any preference, if you had a choice?
7809 MS YAFFE: I think simpler is always better.
7810 COMMISSIONER WYLIE: Yes?
7811 MS YAFFE: Yes.
7812 COMMISSIONER WYLIE: And of the two amortizations, which one is simpler?
7813 MS MIDDLETON: Canadian original is probably simpler.
7814 COMMISSIONER WYLIE: Okay. So we will take that into consideration. We don't always see it broken down in that fashion.
7815 Now, Canadian content levels. I notice that right off you feel that your first years you feel you will be able to do 50 per cent Canadian content and that it can be achieved right away.
7816 Is that because you feel there is a fair amount of food-related programming already available having -- with HGTV and Life, et cetera?
7817 MS YAFFE: I think that I will ask Barb to comment on how we are going to get to that 50 per cent -- and, certainly, there are programs available from other sources, but I think one of the fundamental differences is that since the launch of Food U.S., we have been creating this unique fund that is set aside to help us jump-start the Canadian programming right away, as soon as we are able to turn the service into a Canadian service, and that, by the -- if we were launch -- right now, I think we said it is about $700,000. If we launch this service sometime in the fall, September-ish, it would be somewhere around $1.3 million, and that will give us the extra funds required, above and beyond our commitments in this schedule, or in the schedules, or in our projected plans, to actually get that much programming on the air for a launch in September.
7818 MS WILLIAMS: I think it is a combination of a lot of things.
7819 For sure the programming fund is a tremendous opportunity for us to get that first wave out there.
7820 We also know, from our experience in the Lifestyle television world, we are very aware of all the food programming that is available to acquire and have our eyes on some of it already. We have been sort of planning and dreaming about this station for quite a while, so we have got some ideas.
7821 We have already got in development a number of Canadian programs, original programs, because, again, just in terms of our sort of excitement about being ready for this network's launch, we have got three programs already in development. So we are in good shape to be at 50 per cent right off the bat and we think it is very important to be at 50 per cent right off the bat so that Canadians really see the advantage clearly from the beginning of this being a Canadian service.
7822 COMMISSIONER WYLIE: That is, of course, a wonderful invitation for the regulator to say, if you can do 50 per cent in Year One, why is there not a ramp up?
7823 I do acknowledge that your repeats will be lower. They will be 15 the first full year, going down to 10 in Year Seven, which is 60 per cent original to 80 per cent. But apart from that answer, if you are already ready and there will be more production, et cetera --
7824 MS YAFFE: Well, I think one of the answers is not just the lower repeat factor but also the creation of more original hours. We do really ramp up Canadian but we don't ramp up the overall percentage, we ramp up the hours of original programming that we are creating for the network, so. We are committing to 175 in the first year and we go all the way to 350 by the end of the year and that is a doubling of the number of hours of original programming.
7825 MR. MacMILLAN: By the end of the term.
7826 MS YAFFE: By the end of the term, sorry, by the end of the licence, we would be at 350. So that is a huge commitment, not just in terms of working with independent producers and getting more hours on the table but working to find those people, the talent out there, that will create those hours.
7827 COMMISSIONER WYLIE: So would those be commitments --
7828 MS YAFFE: Yes.
7829 COMMISSIONER WYLIE: -- you would keep the same percentage whether we do it on amortization or total expenditures on Canadian programming, they would be commitments that you would move your repeats down, from 15 to 10, and your original Canadian programming 60 to 80 over the term. So that is your ramp up.
7830 MS YAFFE: Yes. And I think we would commit to the 175 original hours and the 350 by the end of the licence.
7831 COMMISSIONER WYLIE: Which would give us those 60-80 figures. Right?
7832 MS YAFFE: Yes. Right.
7833 COMMISSIONER WYLIE: So you would consider that another way of saying, I am ramping up my 40 per cent or my 32 or my 29?
7834 MS YAFFE: Right.
7835 COMMISSIONER WYLIE: Independent production -- and this would be out of these 175 and 350 hours -- you say, in your supplementary brief, that you will -- it will be 75 per cent to independent producers and 25 per cent in house.
7836 Now, having been before us before, you know that we have discussed with you that considering, in many cases, the equity and voting power of companies, such as Alliance, that puts it in a favourable competitive position to supply programming to service and we have tried to use some means of ensuring ourselves that this is not -- it is not unfavourable, then, to independent producers.
7837 Would you be prepared to commit to this 25 per cent of the production to not be produced by you or any of your affiliates as a condition of licence?
7838 MS YAFFE: Maybe I need to just get some clarification.
7839 Are you asking us to commit to the proposal we have before you? Or an alternative?
7840 COMMISSIONER WYLIE: Well, is there any difference?
--- Laughter / Rires
7841 MS YAFFE: Well...
7842 COMMISSIONER WYLIE: In your supplemental brief, Page 16 -- it is in a number of places.
7843 MS YAFFE: Yes.
7844 COMMISSIONER WYLIE: Page 16 of your supplementary brief -- or maybe I should call it Schedule 27.
7845 MS YAFFE: Right.
7846 COMMISSIONER WYLIE: (d), 75 per cent of all Canadian programming will be produced using independent producers and 25 will be produced in house by Food Network Canada.
7847 So that is a commitment --
7848 MS YAFFE: Yes.
7849 COMMISSIONER WYLIE: -- that only 25 per cent would be produced in house?
7850 Now, of the 75 per cent, would it be a commitment that it not be produced in house or by related or affiliated independent producers?
7851 MS YAFFE: Yes. Yes, that was our intent.
7852 COMMISSIONER WYLIE: And what is your understanding, Mr. MacMillan, of an affiliated producer? Or one that is not? -- and would, therefore, give us the mechanism to see where you are abiding by this commitment or condition of licence.
7853 MR. MaCMILLAN: Sure. We are saying that up to 25 per cent could be produced by an affiliate or internally. An affiliate or an arm's-length -- or the difference between it is whether or not we control that producer in question. So if we are not the majority shareholder of that, that is sort of how we would see whether we are affiliated or not.
7854 COMMISSIONER WYLIE: But even if you held 49.9 per cent, it would not be an affiliated --
7855 MR. MacMILLAN: That is how we would look at whether we are related or not.
7856 We do have a couple of minority stakes in other production companies in Canada -- two, I think -- and they are in about the 20 per cent range -- the 10 to 20 per cent range, around there. We don't have any 49, which would be an odd number to be at, but, anyway, our approach would be, do we control that other company or not.
7857 COMMISSIONER WYLIE: And if not, production by that company would fit in the 75 per cent?
7858 MR. MacMILLAN: In your other -- in the conditions of licence and other services where you are related, did we define what an affiliate is?
7859 MR. MacMILLAN: I don't know if we did. I can recall having this discussion before --
7860 COMMISSIONER WYLIE: But nobody did it yet?
7861 MR. MacMILLAN: I am not sure that it was.
7862 COMMISSIONER WYLIE: And so, you would want -- if we were to do that, you would want it to simply be a question of control? But if it is below control, then it is not an affiliate, for the purpose of this condition of licence?
7863 MR. MacMILLAN: That is what I would suggest.
7864 COMMISSIONER WYLIE: That is what you would suggest.
7865 MR. MacMILLAN: Frankly, I would imagine -- not to speak for the programmers -- but it strikes me that, by and large, the programming that we would be producing, in any event, would be some in house material made by the channel itself, in all likelihood. For that 25 per cent.
7866 COMMISSIONER WYLIE: And you would find anything below control too severe? You know. Thirty per cent, let's say.
7867 MR. MacMILLAN: That is another alternative.
7868 COMMISSIONER WYLIE: Would it be a problem?
7869 MR. MacMILLAN: No, not really.
7870 COMMISSIONER WYLIE: Foreign programming, now. It is not clear whether it is 40 per cent -- at least not clear to me -- 40 per cent or 45 per cent of the foreign programming that will be supplied by the American Food Network.
7871 If I look at different places -- like if you look at Page 11 of your deficiencies, the answer is 45 per cent. And if I look at Schedule C, it is 40.
7872 MS YAFFE: I think the answer is, it changes, but I will ask -- over time, as we buy from combined sources.
7873 COMMISSIONER WYLIE: If you look at Schedule C of Part II, under (b) program sources, third paragraph, you propose that 40 per cent of Food Network Canada's programming be supplied by Food Network U.S. And if you look at Page 11 of your deficiencies, I think you say 40 -- or you say 45.
7874 MS YAFFE: I am going to ask Rita to explain how that goes.
7875 MS MIDDLETON: It is actually 90 per cent of the foreign programming is supplied by our partner, which equates to 45 per cent of the schedule.
7876 COMMISSIONER WYLIE: Forty-five per cent of the schedule, not 40?
7877 MS MIDDLETON: Yes.
7878 COMMISSIONER WYLIE: Is the right answer. Okay.
7879 We will go back to programming when we look at the issue of ownership and control.
7880 And you say, then, that 10 per cent will -- so it is 10 per cent of the 90 and 5 per cent of the 45 will come from other sources?
7881 MS MIDDLETON: Yes, that is correct.
7882 COMMISSIONER WYLIE: Do you see the amount of programming from the American service to decrease as a proportion of your foreign programming over time? Or, conversely, do you see the letter agreement as contractually binding you to this level of foreign programming from the American service? Because I think what -- well --
7883 MS YAFFE: I think the essence of the relationship is we believe it is a wonderful supply of programming for the network. It has certainly been so to date, as we watch the network coming straight from the United States.
7884 But our relationship there is that over the period of the agreement, we would need to -- we would be offered 440 hours of programming, on an annual basis, which is the minimum that would be offered to us, perhaps more, and we would need to select 330 hours to fill our foreign content. However, if we chose not to run it, we would merely acquire it and leave it not to be run. So it is our choice as to what goes on the network. You know, our view, at this point is that this is, first of all, all original programming created and never seen anywhere else before; high quality, as we have seen; and, clearly, growing in popularity in Canada; and a good supply of 90 per cent of the foreign program. We would also be able to shock the rest of the world, as we have, for instance, as you would see on the network soon, obviously, programs like "Two Fat Ladies", which is clearly not created by Food Network U.S. but appropriately on that channel and we would hope it would be on our channel as well.
7885 COMMISSIONER WYLIE: But the answer, then, is that you are bound, on an ongoing basis, to purchasing that number of hours.
7886 MS YAFFE: We are bound to purchase, not to show.
7887 MR. MacMILLAN: Just to make very clear one point, one of the reasons why the agreement contemplates that Scripps has to make available significantly more hours to us than the amount that we contemplate that we need is that we never wanted to be in the position where we had to run any particular program; therefore --
7888 COMMISSIONER WYLIE: Yes, but you would rather be in a position, wouldn't you, that if you didn't want to run it you didn't have to purchase it?
7889 MR. MacMILLAN: Oh, that would be great, but unlikely, because what we want to make sure is that we do get our hands on the best and the most popular programming that the U.S. Food Network has and so, the quid pro quo is making a promise that we will spend at least X dollars per year; and that is why we are -- why we know that we will get "Emerald"(ph) or "Two Fat Ladies" or the shows that really are going to be popular and that Canadians already like.
7890 COMMISSIONER WYLIE: Well, we can discuss that a bit later when we discuss control -- which I guess will be no surprise to you that it has a possible impact on one's choices if one is bound by one's shareholders, contractually, to purchase that amount of programming of some importance in the schedule from one purchaser.
7891 But before we leave programming, I would like to look at your commitments for closed captioning.
7892 In the promise of performance part -- Part II anyway of your application, at 6.3.1, where you were asked what your services to the hearing impaired is, you say that you are committing to ensure that 90 per cent of your original Canadian hours are closed caption by the end of the license term. And I think in your supplementary brief you repeat the same thing, at Page 7, yes, committing to caption 90 per cent of original Canadian programming.
7893 As you know, the Commission has adopted a general approach, that it be 90 per cent of all programming by the end of the licence term, if I remember for services that have revenues of 10 million -- gross revenues of 10 million.
7894 MS YAFFE: Yes, that is what we have in here.
7895 COMMISSIONER WYLIE: You will have that, certainly, by the end of your seven.
7896 MS YAFFE: Yes.
7897 COMMISSIONER WYLIE: So would it not be reasonable to have the same expectation --
7898 MS YAFFE: Yes, and I think that was the intent. I think, at some point, we suggested that the acquired programming, although we may not caption it ourselves, would captioned; and as we are going forward, we are seeing more and more programming delivered to the network already captioned. So our commitment would certainly be to be 90 per cent of the total schedule captioned.
7899 COMMISSIONER WYLIE: Of all programming; rather than simply original --
7900 MS YAFFE: Right.
7901 COMMISSIONER WYLIE: -- programming? And you would be prepared to --
7902 MS YAFFE: Yes.
7903 COMMISSIONER WYLIE: -- commit to that?
7904 MS YAFFE: Yes.
7905 COMMISSIONER WYLIE: Now, ownership. My understanding -- it is not clear whether it is Alliance Atlantis Communications Inc. who will be the 70 per cent owner of the shares or whether it will be Alliance Broadcasting Inc.
7906 MS YAFFE: Kathleen will answer.
7907 MS BROWN: I think when we prepared this application, we hadn't gone through our restructuring to rename and move our broadcast entities all under Alliance Atlantis Broadcasting. So that is why we submitted this application under the name Alliance Atlantis Communications Inc. It would be our intention to have this company operated by Alliance Atlantis Broadcasting and it would be Alliance Atlantis Broadcasting that would take up the shares.
7908 COMMISSIONER WYLIE: Okay. Because one of -- that has led us to make a calculation of Alliance Atlantis Communications Inc. board of directors, which is 19, and it would put you 1.05 per cent above what is the 20 per cent of a holding company the direction requires. Mr. Barrett is looking at me. I have no intention of telling you which 1.5 it is --
--- Laughter / Rires
7909 COMMISSIONER WYLIE: -- that you will drop off any one but it has to be from an American director if that were the case.
7910 But what you are saying is it will be Alliance Broadcasting Inc. that will be the shareholder.
7911 Now, we have -- just so that we speak from the same -- my calculation says that the American Food Network will have 29 per cent of the equity, 19.8 per cent of the voting shares and 53.4 per cent of the non-voting. Sounds right?
7912 MS JORDAN: Yes.
7913 COMMISSIONER WYLIE: That Corus will have 20 per cent of the equity -- or it is proposed -- and 10 per cent of the voting shares and 46.6 per cent of the non-voting shares. And Corus would be able to convert some of its non-voting shares to a maximum of 20 per cent and the American network, should it be able to under law, to 29 per cent, so that Alliance always remains with 51 per cent of the shares.
7914 And in the application, it is understood by the parties, also, in the letter agreement, that all conversions of non-voting shares to voting shares are subject to CRTC approval. You agree amongst yourselves, the three partners, that that will be the case.
7915 As you know, the Commission has expressed concern about vertical integration between distributors and programming services and the Regulations limit to 10 per cent what BDU voting shares you can have in a specialty programming service.
7916 Considering that you have already agreed that any conversion would be to a -- subject to our approval, would you accept a condition of licence whereby Corus could not acquire, directly or indirectly, or through conversion, any voting share in excess of the 10 per cent of the voting securities of the licensee company, as has been proposed in the application?
7917 MS YAFFE: Can I just ask if that -- are you suggesting by that that if the CRTC were to change its view Corus would be limited by this condition, even --
7918 COMMISSIONER WYLIE: Well, if I understand the letter agreement properly, at Paragraph 38, you are saying -- the parties are saying that the arrangement between them, once it is enshrined and signed documents, such as a unanimous shareholder agreement, will say that Corus -- let's speak of Corus because the American partner can't do any more than the Government permits under the direction -- that you agree, okay, both TVFN and Corus shall be entitled to convert all or a portion of their non-voting shares into holding shares subject to first obtaining CRTC approval for such conversion. That is the agreement between the two parties.
7919 I am saying, would you accept that we convert this, with regard to Corus, to a condition of licence?
7920 MS YAFFE: I think we would, yes.
7921 COMMISSIONER WYLIE: Okay. Now, would you accept a licence if, as a condition of its issuance, Corus not be able to hold any of the voting shares of the proposed licensee?
7922 MS YAFFE: Right. Obviously, what we feel is this is a very strong partnership -- we are delighted to have all three shareholders at the table with us today -- and our proposal to you is formulated that way. Clearly, you know, we will live with the view of the Commission on this issue, but to be clear and to be -- to maybe over emphasize, we think this is a very strong partnership and it brings value to the network.
7923 COMMISSIONER WYLIE: So, the answer is, yes, but you wouldn't like it?
7924 MS YAFFE: That is correct.
7925 COMMISSIONER WYLIE: Okay.
7926 MS YAFFE: Regretfully, yes.
7927 COMMISSIONER WYLIE: Now, control. At Paragraph 11 of the letter agreement, it says there will be five directors, but -- with a quorum of three and majority vote -- Schedule 3 that you have given us has eight directors.
7928 MS YAFFE: Yes.
7929 COMMISSIONER WYLIE: So, which is it?
7930 MS YAFFE: Actually, we just looked at that ourselves and -- I had it here a second ago. I don't think it actually -- I think we may just have confused you and us by doing it that way. What we have there is both a schedule of directors and officers and we have a Secretary and we have a Treasurer who are officers but not directors, as well as a President who is an officer and happens to be a director. So our commitment and our agreement says there will be five directors, three will be from Alliance Atlantis, one from Corus and one from E.W. Scripps. That would be the board of directors.
7931 COMMISSIONER WYLIE: So the confusion comes from the fact that under directors you filled in --
7932 MS YAFFE: We built --
7933 COMMISSIONER WYLIE: -- corporation.
7934 So which ones are the directors? Which five?
7935 MR. MacMILLAN: For Alliance Atlantis, the directors would be Phyllis Yaffe; I would be a director; and also Judd Martin. Since the time of the application Lewis(ph) Rosa(ph) left the company and Judd Martin is our CFO and he would be the third Alliance Atlantis director.
7936 COMMISSIONER WYLIE: And Mr. Cassidy would be the nominee for Corus?
7937 MS YAFFE: Yes.
7938 COMMISSIONER WYLIE: And --
7939 MR. MacMILLAN: And Ken Lowe(ph).
7940 COMMISSIONER WYLIE: Pardon me?
7941 MR. MacMILLAN: Ken Lowe(ph).
7942 COMMISSIONER WYLIE: Oh, Ken Lowe(ph).
7943 MS YAFFE: No. John Cassidy, for Corus.
7944 COMMISSIONER WYLIE: Yes. And Ken --
7945 MS YAFFE: And Ken Lowe(ph) for Scripps.
7946 COMMISSIONER WYLIE: -- Lowe(ph) for the U.S. network.
7947 MS YAFFE: Yes.
7948 COMMISSIONER WYLIE: Now, control. Obviously, there is no problem with the voting shares, the number of directors, the nominees and the fact that Alliance, on the face of it, has the control. And if I look at various sections of the letter agreement, Paragraph 17, for example, management is to make all decisions regarding programming; 24, regarding business plans and capital budgets; 30, regarding debt in excess of 4.5 million -- that is (f); and 30, Paragraph (g) contracts in excess of 250,000 and contracts outside of the range of the ordinary business, if I recall.
7949 MS YAFFE: Yes.
7950 COMMISSIONER WYLIE: -- contract which is outside of the ordinary course of business of half a million or more.
7951 And I understand that Paragraph 2 will assess that this binds the parties. And when we have asked for a draft unanimous shareholder's agreement that reflects this, you have told us that you are not going to draft any until you have a licence. So this is the document we have.
7952 It also addresses the programming arrangement with the Food Network, and I have already alluded to the fact that it is a very big chunk of your programming. And it raises the question with regard to the American partner, as to what the actual de facto role will be.
7953 When you actually draft this agreement, I presume that it will, at a minimum enshrine in it what is in the letter agreement, which will include the need to purchase the programming, et cetera. And, also, there is a paragraph in it that say that you will give, to the extent possible, a say to Corus and to the American network about programming decisions -- it is 24, where you deal with the fact that five-year business plans and capital budgets will be prepared -- will be approved by the majority of the board. But lower down in that paragraph, you say the corporation will extend to TVFN and to Corus as extensive a right of consultation in regard of these matters as possible.
7954 What is intended here.
7955 MR. MacMILLAN: Well, before I answer that, I wouldn't mind commenting on the likelihood of doing long-form agreements.
7956 Currently, our view is that we are not inclined to do longer-form agreements -- this letter agreement binds us -- and that, speaking frankly as a controlling shareholder, longer-form shareholder agreements tend to just give more rights to the minority shareholders. And we don't know why --
7957 COMMISSIONER WYLIE: You are doing well here, Mr. MacMillan
--- Laughter / Rires
7958 MR. MacMILLAN: We love them dearly, but I don't know why we need to give them more rights than are ensconced in this document. So we are inclined -- we don't, frankly, intend, now, to enter into a longer-form agreement.
7959 Having said that, the absolute power of the board to make virtually all decisions -- certain things under CBCA it can't do, of course -- but the power of the board, which we control, is pretty obvious. So the purpose of Paragraph 24 was to give some comfort to Corus and to Scripps that at least we would talk to them and at least we would listen to what they had to say. They are both very knowledgeable players. They ought to bring good suggestions to bear. We certainly hope they will; that is why they are our partners. But, at the end of the day, we don't have to listen to them. We will listen, but we don't have to take their advice -- and they know that, and they know that is the voting structure of the board.
7960 So Paragraph 24 was to give them some comfort that least they would have an arena to speak to mind.
7961 COMMISSIONER WYLIE: Now, remind me, either Ms McNair or Mr. Barrett, is there -- I don't remember if there is any section in this letter agreement that binds you to having a long-form unanimous shareholder's agreement.
7962 MR. BARRETT: Not bound.
7963 COMMISSIONER WYLIE: No. Would it be possible, then, for the Commission to conclude that this is it and that is the basis on which we give you a licence?
7964 MR. MacMILLAN: We would prefer that. In fact, the last -- on Page 12 of the letter agreement, it says that the parties agree that this letter agreement will be replaced by one of our long-form, but unless or until such time --
7965 COMMISSIONER WYLIE: Where are you reading from?
7966 MR. MacMILLAN: At the bottom of Page 12 of the letter agreement.
7967 COMMISSIONER WYLIE: Ah, so there was.
7968 MR. MacMILLAN: Yes. -- unless or until such time, this agreement is binding.
7969 So, unless --
7970 COMMISSIONER WYLIE: We could say that this is -- but it is not signed, the copy I have -- signed by Corus and signed by Alliance but not by the American network.
7971 You have a signed copy?
7972 MR. MacMILLAN: It is in counterparty.
7973 COMMISSIONER WYLIE: And, of course, it would mean, then, that I don't have to get into a whole lot of questions as to what else we would want limited -- you limited -- the American network limited to because it raises questions -- well, what about this; what about that; what else may be in the long-form agreement -- and if we were to decide to give you a licence, do we say, we will give you a licence subject to this and that and the other thing not being in the agreement? It is far easier if you say, this is it.
7974 MR. MacMILLAN: That is right because any improvements, in quotation marks, to this document would be to give Corus or Scripps more rights -- which we don't propose to do.
7975 COMMISSIONER WYLIE: Is that something that has been discussed and have they expressed any fear that that is what would happen?
7976 MR. MacMILLAN: No; they understand that, and they are sitting here with us today.
7977 COMMISSIONER WYLIE: Okay. Now, it still leaves question marks about the dependence of the licensee on the foreign programming from the U.S. and by your own calculations, I think, in the deficiency at Page 20, it is between 92 per cent and 94 per cent foreign programming per year that will go to the U.S. So, if you look at Page -- is there such a -- yes; in deficiencies, yes, Page 20. At the very top of the page:
"Approximate percentage of foreign program expenses which will represent payments to the FN is between 82 per cent and 94 per cent per year over the term of the licence." (As read)
7978 So, this is 82 to 94 per cent of the amount of your foreign programming, which is 50 per cent -- the foreign programming is 50 per cent.
7979 Is this going to be tied any way to revenues. For example, suppose you don't do as well -- we still have to discuss distribution terms -- as you proposed, do you still have to divvy up that amount of money and have to reduce your performance on Canadian programming?
7980 MS YAFFE: Well, to be clear, we would never reduce our commitment on Canadian programming, it is firm and we would stand behind it.
7981 We have the right to renegotiate the price, as time goes on. That is part of the agreement, as I understand it. 2002
7982 MS BROWN: On two occasions during the --
7983 MS YAFFE: Two occasions throughout the term of the agreement, in the document we were just talking about.
7984 So, if we found ourselves in dire straits, I think we would go back to our partners and suggest the pricing was inappropriate. But I think it -- I mean I appreciate that it is always a concern, in terms of a single source of supply for so much programming.
7985 We don't feel uncomfortable about it, at all, because it is very, very similar to the arrangement we have with Scripps on Home Garden Television and it has given us the base, on the foreign programming side of that service, for a great number of excellent programs we are very proud to broadcast in Canada.
7986 But I think more importantly, it is part of, in this case, a unique opportunity that this particular arrangement gives us; and that is, that Scripps continues to have a place for some of its programming in Canada -- obviously not as much as it did before -- and we are delighted to have it because we have seen how successful it is.
7987 There aren't a lot of other sources in the world for high-quality original food programming, except for what you would see on a food network, and to have that as part of our package of suppliers gives us a very good feeling of comfort as we go forward into launching this Canadian network.
7988 So we have done it before, with this very partner; we have been delighted with the arrangement.
7989 We have often been offered many, many more hours than we have chosen. We are always in control of what we do choose. And, of course, it is in their interest, at Scripps, to make sure we have the best programming to have on the network, as a shareholder. So we feel very comfortable with the program supply, particularly because we do have the ability to renegotiate the price, at least twice during the term of the licence, if we are not able to meet the business plan we have projected.
7990 COMMISSIONER WYLIE: When you say price can be renegotiated, this is, if I recall, the arrangement here is for the first three years. Is that it? And then there is a chance to go back on price.
7991 MS YAFFE: Yes.
7992 COMMISSIONER WYLIE: That is how you calculate it.
7993 MS YAFFE: Yes.
7994 COMMISSIONER WYLIE: Now, when asked, as well, what is this program supply agreement going to look like, what would be your American partner's reaction if we said this is it?
7995 MS YAFFE: I think they would be happy with that, but I will ask Kristen Jordan to comment.
7996 MS JORDAN: Yes, we would, and the basis for that answer is, as it has been referenced, the history of the relationship of this partnership, in terms of Home and Garden Television Canada.
7997 We found that working with a document such as this allows for maximum flexibility to respond to the market and programming conditions that our partner faces in Canada, and I think it also indicates the degree of trust and good faith that we have in this partnership.
7998 COMMISSIONER WYLIE: So we could say, then, no long-form agreement, this is it, because, again, in a program supply agreement, there are possibilities of clauses that confer more power on the provider and tie down the flexibility of the Canadian partner and puts into question your comment in the covering letter, Mr. MacMillan, that I quote:
"Unequivocal editorial control will be in the hands of Canadians. It can be exerted --" (As read)
And anyway. So, if we were to issue a licence that said, these are the terms, we don't expect anything else that would be satisfactory.
7999 MR. MacMILLAN: Absolutely.
8000 COMMISSIONER WYLIE: Otherwise it is more difficult.
8001 So that brings us to distribution.
8002 Now, the approval of this application raises two major issues for some interested parties. One is the issue of fairness, the jumping the queue of equity of licensing action, at this time, given the Commission's approach to licensing additional specialty services since 1996. And you address this issue, at some length, in your application and in reply to interventions.
8003 And Number Two, it is the approach to the distribution of the service should it be licensed, which is put forward in your application. And I must warn your lawyers that my approach to the interpretation of statutes is very pedestrian and not as imaginative as theirs. Mr. Barrett is not even smiling.
--- Laughter / Rires
8004 COMMISSIONER WYLIE: In the reply to interventions, you have put to rest a number of the concerns expressed by intervenors, with respect to this issue of how the regulations would work for you, and I have a copy of your reply here, but I notice that there seems to be some backtracking in your oral presentation where, at Page 3, you say:
"The Food Network Canada requests that the access rules apply to the current analog carriage arrangements of Food Network U.S. and that it be carried as part of the same highly penetrated discretionary analog tier on which the foreign service is currently carried." (As read)
And I would say that is recidivism to imaginative interpretation of statutes, or of regulations.
8005 Now, I don't want to spend a whole lot of time on this, so let me ask you -- and I am, of course, not the last word on how to interpret our legislation, by far: Is it your understanding that if you are licensed, you would be licensed as a specialty service required to be carried by Class 1 and 2 licensees operating in an anglophone market, to the extent available, on an analog channel, unless you agree to digital distribution and that, in either case, it would be on negotiated terms?
8006 MS YAFFE: No, I don't think. That is our assumption.
8007 COMMISSIONER WYLIE: But is it -- I want to know whether -- this is not what you want. But the Regulations, 18(5) of the Regulations says exactly that.
8008 MS YAFFE: Right. It is our view that it is in the Commission's hands -- certainly, we have suggested that -- to indicate in a licence, a particular licence, what expectations you have of access and carriage for a particular service or a particular licensee, and what we have done is taken that regulation and, I think, put a finer point to it where we are willing to only accept analog carriage on Class 1 operators where they were already carrying the U.S. service.
8009 So we have -- obviously, we have taken the view that, although 18(5) does exist and does create that kind of decision about carriage, we would accept a subset of that, as a condition of this licence
8010 COMMISSIONER WYLIE: But the carriage conditions are not placed on specialty services. For the first time, the Commission has said, in the digital environment, that it will call certain specialty services in the future digital services. That will be their status. But, right now, that is not how it works.
8011 Short of a change to the Regulation, there, I don't see how, in a condition of licence on your service, we can exempt certain Class 1 and Class 2 licensees from carrying you.
8012 MS YAFFE: Well, first of all --
8013 COMMISSIONER WYLIE: You would have to say that in the Regulations; you would have to amend the Regulations -- which I don't think you have agreed is not a good idea. And I don't see how, in your service, we could address all the BDUs and say, Number One the "shall" doesn't apply to you unless you have a condition of licence on the BDU, or a change to the Regs; it doesn't apply to you, you don't have to carry it -- well, they have to carry it -- and then you must carry it on a particular channel and the Commission has left that to negotiation between the parties, subject to available channels.
8014 MS YAFFE: Right. And we haven't asked for any particular channel. I think we corrected ourselves. We may have -- it may have suggested that we, earlier, looked like we wanted a channel with a channel number --
8015 COMMISSIONER WYLIE: Well, that is where the recidivism is on Page 3 of your --
8016 MS YAFFE: No --
8017 COMMISSIONER WYLIE: -- be carried as part of the same highly T analog tier. Even that.
8018 MS YAFFE: Well, you know, the way to look at the tiers is: Food Network is carried on the third tier. That is the lowest penetrated of the tiers. For it to move to the second or first would only improve its carriage. So, all we were really saying was, we would be happy with the place we have right now -- and to be even clearer, we don't really say, and we don't really intend to say, if we have, at some point, we regret it because it does -- I think it isn't in our purview to suggest we would like to be Channel 57. We are not suggesting that. All we are saying is: carriage; the way it is today. And we haven't asked to move up a tier, to a more highly-penetrated position.
8019 I guess we thought about this from three points of view. You certainly asked us, in the deficiencies, if we felt that this request required amendment to the Regs, and our view was that is an approach, but we suggested that a condition on the licence was an appropriate way for you to go -- and I hear Commissioner Wylie suggesting that that isn't an alternative or in your --
8020 COMMISSIONER WYLIE: Well, may not be.
8021 MS YAFFE: May not be.
8022 COMMISSIONER WYLIE: As I said, I wasn't, yet, the last word on how to interpret our Regulations.
8023 MS YAFFE: Right. And so -- and, of course, we always knew it may not be the ultimate way to go, although we think it is quite a clear statement of what we would be willing to do and how we would use the dispute resolution mechanism, which is really how one would find oneself in trouble if we didn't achieve the results we wanted with distributors.
8024 Amending the Regulations, in our view, is a slow and arduous process, although we realize that Regulations will need to be amended as we go forward into the digital framework and there are amendments that need to be made there -- maybe those are upon us.
8025 We suggested, or another suggestion was that the distributors, the BDUs themselves, apply for a condition of licence, as regards Food Network Canada, which would be a very straightforward one-page thing that they would request, if they were willing -- if they were in a position where they couldn't live with the carriage of Food Network because it would be using up analog capacity they didn't have or we had not used previously and could not negotiate.
8026 Under those circumstances, if a BDU came to you and said, "We don't want to carry it. We weren't carrying it before and we don't want to carry it on analog now and we would like to have an exception made to this carriage rule", we would support them. That is our view of the rights and the privileges this service deserves.
8027 So, it is another alternative. It may be a little more cumbersome, in terms of asking them -- I think I should add, though, that it is important to know that the CCTA itself has endorsed this application and endorsed this approach, in general -- they certainly, you know, raised the question of, "We want the same number on the dial" and we said, no, that we are happy to change that. But the CCTA itself has approved and endorsed our approach as -- and we have a commitment, now, a commitment in writing, from Rogers Cable Systems, that they would be happy to add Food Network Canada on the same tier at the rate we have suggested in our business plan, for at least four years going into the future at that rate -- and that would be perfectly acceptable to us. So I --
8028 COMMISSIONER WYLIE: Why is it that you would welcome Class 1s or 2s that don't carry you to come and ask us to give them an exemption from carrying you? Is it because you wanted to alleviate the jumping the queue? Or is it because it is something you want?
8029 MS YAFFE: No; I think it was what we thought was fair and realistic to ask of people.
8030 If they had used up all their analog capacity and there really was nothing else --
8031 COMMISSIONER WYLIE: Then there is no responsibility, because it is always subject to available channel capacity but, as you know, that includes all the American channels that were put there after 1996.
8032 MS YAFFE: Right.
8033 COMMISSIONER WYLIE: So it is just welcoming more difficulty. Either -- well, I posit that either it is fair to do this and we do it according to the Rules, or it is not fair and we don't get into these complications. I am talking about the two concerns I expressed earlier that have been expressed by interested parties jumping the queue and the other one is the difficulties of the proposition you put forward to us, as a regulator, for distribution.
8034 So it is either in the public interest to lay to rest the jumping the queue and then you fall within the Rules.
8035 Now, I am looking at your reply, Page 2, reply to the CCTA, channel placement.
"The CCTA has expressed concern that Alliance Atlantic --" (As read)
8036 I am quoting:
"-- requests that BDUs be expected to carry Food Network Canada on the same unscrambled analog channel. The CCTA believes that cable BDUs should retain control over the channel placement of services which they carry, subject only to existing regulatory obligations and any arrangements negotiated with individual programming services." (As read)
8037 Can you live with that?
8038 MS YAFFE: Yes.
8039 COMMISSIONER WYLIE: And that would be -- if I am right that 18(5) says Class 1/Class 2 have to carry it, and you negotiate, as best you can, where you are, using the available channel rule, would that be something that would alter your business plan, cause difficulty?
8040 MS YAFFE: I don't actually think so and I -- I suppose I don't think so because we certainly don't think that there is a cable operator today hear in Food Network U.S. that would happily remove it.
8041 As a matter of fact, of course, because it is an American service, they could do that at any time, if they chose -- and we seem them not doing that. As a matter of fact, we see them adding Food Network U.S. whenever it is possible.
8042 So, (a) we don't see it happening, from the distributors' point of view; it is not in their interests, it is not in the viewers' interest. Obviously, they have a popular service that is the second most watched of the American services on the tier.
8043 Secondly, of course, with Rogers' commitment already in hand, we feel very confident that the other distributors will feel that this is an appropriate solution to the negotiation and we are hopeful that it will become a common solution.
8044 And, third, of course, we believe that we came up with a maybe more refined view of what the Regulations will allow, compared to your view, Commissioner Wylie, but --
8045 COMMISSIONER WYLIE: I said imaginative.
--- Laughter / Rires
8046 MS YAFFE: Imaginative. And that is our task. But I also think that we have --
8047 COMMISSIONER WYLIE: I was being polite, by the way.
--- Laughter / Rires
8048 MS YAFFE: As am I.
--- Laughter / Rires
8049 MS YAFFE: But I think that when we sit back a step -- I realize we all live in the Regulations, and, of course, that is important to all of us, and we intend to live up to them, but we also have to take a step back and just look at the opportunity that exists with this change.
8050 If we were to accept a licence that said we had analog carriage as a Canadian speciality and it was up to us to negotiate and go away and there you go, of course, we would be delighted with that.
8051 Our view was we had an imaginative solution to the capacity issue.
8052 On the other hand, I think imaginative is how we got here, in the first place, because what we said, right from the beginning, is Life Network has a lot of food programming on in 1995-1996; people are adding American services to the eligible list. What was our response? Our response was: Is there a solution to bringing American services into Canada and creating value from those services to the Canadian system and, actually, at some point, my grading those services to Canadian-owned/controlled and Canadian majority programming on those services -- and that is how we got here.
8053 So I would suggest, humbly, that we have -- that what we were doing was working with an approach that we thought brought both public policy value as well as value to all of the elements of the broadcast system and whether we choose to, you know, accept the suggestion you are making is -- clearly, would have been our first preference. It would have always been our preference to have unlimited carriage and have all rights of access.
8054 We were concerned that others would feel that that was taking advantage of the system -- and, in our view, it isn't. I think we feel it is a legitimate service.
8055 COMMISSIONER WYLIE: That is speaking to the first concern, the jumping the queue, the equity, whatever.
8056 The second concern is the difficulty of binding BDUs via your service with a generally applicable regulation and whether -- not only is that too complicated and too long but is that fair to have a regulation that says, "Thou shalt do X with the Food Network", which is basically what it would indirectly do, because you will recall that even in 1996, we eventually had to enshrine that in the BDU Regs because that where we speak to the BDUs.
8057 Now, digital. You have also made the comment that you want the same right to digital access. I suggest that, quite possibly, there is -- no one has any such right, right now.
8058 MS YAFFE: Well, timing is everything. We submitted this before the digital framework came up and I say --
8059 COMMISSIONER WYLIE: Yes, it makes --
8060 MS YAFFE: -- same access rules; they aren't there.
8061 COMMISSIONER WYLIE: Exactly. So your imagination is being tempered, as well.
8062 MS YAFFE: Right.
8063 COMMISSIONER WYLIE: Madam Chair, these are my questions.
8064 CHAIRPERSON OF THE COMMISSION: Thank you.
8065 COMMISSIONER WYLIE: Thank you very much.
8066 CHAIRPERSON OF THE COMMISSION: Alors, the legal counsel, Madam Assheton-Smith has a few questions for you.
8067 MS ASSHETON-SMITH: Thank you.
8068 I just want to clarify a couple of things.
8069 Your proposed condition of licence on independent production. I just want to read it back to you the way we would probably phrase it to make sure that it reads correctly. This is your proposed Condition No. D on Page 16 of the supplementary brief:
"Seventy-five per cent of all Canadian programming will be produced using unaffiliated, independent producers and 25 per cent will be produced in house by Food Network Canada. Sixty per cent of all Canadian programming will be original in Year One, rising to 80 per cent by the end of the licence term." (As read)
8070 Is that correct?
8071 MS YAFFE: Yes.
8072 Can you just give us one second? We are just conferring here.
8073 MS ASSHETON-SMITH: Sure.
--- Pause / Pause
8074 MS YAFFE: Thank you. Carry on.
8075 MS ASSHETON-SMITH: Okay. It is all cleared up?
8076 MS YAFFE: Yes. I think so.
8077 MS ASSHETON-SMITH: Okay. Coming back to the proposed nature of service. Again, I just want to clarify for the record a couple of things.
8078 Can you confirm -- when you were talking about food films, can you confirm whether you intend to air programs from 7(d) -- is it both 7(c) and 7(d)? Sorry. Is that correct?
8079 MS YAFFE: Our concern -- our request was to air feature films, and I am not sure which --
8080 MS ASSHETON-SMITH: You are not sure which category it fits into, but it is only one that covers feature films and not the other?
8081 MS YAFFE: That is right.
8082 MS ASSHETON-SMITH: Okay. The Commission released Public Notice CRTC 1999-205, in December.
8083 Can you tell me whether any of the categories set out in your nature of service need to be modified and --
8084 MS YAFFE: We don't --
8085 MS ASSHETON-SMITH: -- new definitions that were set out?
8086 MS YAFFE: We don't think so, no.
8087 MS ASSHETON-SMITH: You proposed a wholesale monthly fee of 12 cents, even though no basic distribution is contemplated.
8088 Can your share your views on what -- how you would react if the Commission remained silent on the fee?
8089 MS YAFFE: I think we have danced this dance before and we didn't like it.
--- Laughter / Rires
8090 MS YAFFE: If the opportunity to be placed on basic arrives, we would only burden the Commission with coming back and asking for you to come up with a basic rate. So, for expediency sake, I would say just it would help both of us, and so that is why we have requested it -- although you are absolutely right, we don't have any basic carriage.
8091 MS ASSHETON-SMITH: If we did decide to deal with this issue, what is the lowest whole sale rate that you would be prepared to live with?
8092 MS YAFFE: Twelve cents is how we have done our business plan, and we think it is appropriate. Whether we adjust it for basic carriage or tier penetration, it all generally comes to about the same return.
8093 MS ASSHETON-SMITH: Thank you.
8094 Ad revenues play a pretty important role in your business plan.
8095 If you have proven to be a little over optimistic in your projections, in terms of your revenues, how would you handle any shortfall?
8096 MS YAFFE: In terms of our commitment to Canadian content --
8097 MS ASSHETON-SMITH: Yes.
8098 MS YAFFE: -- we would soldier on and live up to our commitments, as we have on all our licences, but we feel that it is a realistic plan and although Brad would tell you it is always a struggle, I think it is a very achievable target.
8099 MS ASSHETON-SMITH: But it wouldn't impact your expenditures on Canadian programming?
8100 MS YAFFE: Not at all.
8101 MS ASSHETON-SMITH: I think those are all of our questions. Thank you very much.
8102 MS YAFFE: If we can just ask your indulgence, I think Kathleen McNair wanted to raise one point with you, if she may.
8103 MS McNAIR: I wasn't absolutely clear about the condition of licence and Corus and non-voting or voting ownership levels.
8104 So what I think -- after discussing it with Michael and Phyllis -- that the Food Network Canada would be willing to accept is that Corus' ownership of voting shares accord with regulatory requirements. So that, for instance, I do not --
8105 COMMISSIONER WYLIE: We haven't decided what the regulatory requirement is going to be.
8106 MS McNAIR: No, I know, but in the existing specialty regulations, the ownership triggers, if this --
8107 COMMISSIONER WYLIE: Well, yes, unless, there is a change as a condition of licence.
8108 MS McNAIR: Yes.
8109 COMMISSIONER WYLIE: But as -- if you didn't understand, let's go back to what it is that the -- now, I am going to have to find the section of the agreement where the parties themselves bind themselves --
8110 MS McNAIR: We would certainly agree. Corus supports the Food Network in that if we wanted to increase our ownership interest, or convert non-voting to voting, that that would trigger prior approval requirements.
8111 COMMISSIONER WYLIE: Yes, but that is an agreement between the parties.
8112 What I was suggesting is, as a regulator, would the proposed licensee have a problem in converting that to a condition of licence which would be our mechanism, as opposed to the shareholders, as between them.
8113 MS McNAIR: We think it is appropriate if it is a condition of licence.
8114 COMMISSIONER WYLIE: And the second question that I asked Mr. MacMillan, as the proposed controlling shareholder of the licensee, if the Commission chose to say, "We will give you a licence on the condition that there be no Corus involvement", his answer was...?
8115 MR. MacMILLAN: We wouldn't like it one bit. But if that were the only possible outcome, then we would accept it. We would have an issue to deal with our fellow shareholders in the channel to work that out, but --
8116 COMMISSIONER WYLIE: Because this is a corporation to be -- it is to be incorporated, so we are not talking about the best -- we are just exploring the hypothesis because that is what we do today.
8117 Are you satisfied now, Counsel?
8118 MS McNAIR: Yes, I mean Mr. MacMillan speaks for the majority shareholder --
8119 COMMISSIONER WYLIE: No, but it is important that you understand what we are talking about. If I was confusing, we are interested in making sure that you understand. You may not like the questions, but whether you understand them and understand the answer.
8120 MS McNAIR: No; I think if -- as Mr. MacMillan stated, if the Commission imposed some sort of condition that Corus cannot participate in this service, that is a matter that the shareholders are going to have to work out at law, I would say.
8121 COMMISSIONER WYLIE: So, you are satisfied you understand what the conversation was? Okay. It is Friday; I was trying to make it short.
--- Laughter / Rires
8122 COMMISSIONER WYLIE: Thank you.
8123 MR. MacMILLAN: Thank you.
8124 CHAIRPERSON OF THE COMMISSION: Thank you very much.
8125 We will not go for the second phase of this hearing, but we will take two minutes before we do. Thank you.
--- Recess at 1435 / Suspension à 1435
--- Upon resuming at 1445 / Reprise à 1445
8126 CHAIRPERSON OF THE COMMISSION: Alors, Madame la Secrétaire.
8127 MS EDGE: Thank you, Madam Chairperson.
8128 The next stage is Phase II and we have an appearing intervenor from the Association of Canadian Advertisers. If you would like to begin, sir.
8129 MR. REAUME: Thank you.
8130 CHAIRPERSON OF THE COMMISSION: Good afternoon.
INTERVENTION / INTERVENTION
8131 MR. REAUME: Good afternoon.
8132 Madam Chair, Commissioners, Commission staff, I am quite aware that it is late on a Friday and you have been here many more days than I have and you perhaps want to wrap up, so I will try and be as brief as possible.
8133 Thank you very much for the opportunity to appear at this intervention, we wish you well in your deliberations and are pleased to be able to appear today and contribute the advertiser perspective to these proceedings.
8134 Allow me to briefly introduce myself and the ACA.
8135 I am Bob Reaume, Vice-President, Media and Research, at the ACA.
8136 Since 1914, the Association of Canadian Advertisers has been the only association representing the interests of advertisers of all products and services in this country. We are the voice of the Canadian advertiser.
8137 Our members represent a wide range of industry sectors, including manufacturing, retail, package goods, financial services and communications. They are the top advertisers in Canada, with collective annual sales of close to $250 billion.
8138 Advertising is the primary resource sustaining the Canadian broadcasting system. In all its forms, advertising is estimated to represent an annual $10 billion investment in the Canadian economy. Of this total amount, about 2.3 billion is invested, annually, in television advertising. Fully, 51 per cent of that 2.3 billion comes directly from airtime sales, making advertising the single largest contributor of funds to the Canadian television broadcasting system. No other contributor to T.V.'s revenues comes close. The second highest contributor is public funding, at 24 per cent of annual revenues.
8139 Advertisers are significant stakeholders in the support of Canadian television broadcasting. Our community's views on the development of television licensing has direct impact on not only our individual and collective businesses but, consequently, on the growth of Canadian television. That is why we are so pleased to have the opportunity to speak today in support of the licence application that is before you.
8140 The Association of Canadian Advertisers supports the Alliance Atlantis application for, essentially, two reasons: Advertisers welcome and actively support the growth of all specialty channels; and, two, the Alliance Atlantis propose would help repatriate Canadian viewers and provide access to those viewers for Canadian advertisers.
8141 Allow me to elaborate on the first of these reasons.
8142 It seems quite clear that Canadians and Canadian advertisers have warmly embraced specialty services. The most pronounced growth in Canadian television has taken place in specialty channels.
8143 According to the Television Bureau of Canada, specialties showed 31 per cent revenue growth last year and a phenomenal increase in revenue over the past five years of 220 per cent.
8144 In comparison, conventional television showed an increase of 8 per cent, in 1998, and 24.5 per cent over the past five years.
8145 Advertisers have embraced and supported the many and varied specialty channels that the Commission has licensed. The ACA supports Alliance Atlantis' application because such a licence, if granted, would represent a further expansion of specialty offerings for advertisers. It would deliver to advertisers yet another qualified, highly-targeted consumer audience for products and services of a particular kind: those interested in programming related to food.
8146 We also support this application in light of the growth in viewership by Canadians of U.S. specialty channels, channels which Canadian advertisers not now have access to. Neilson(ph) Media Research tells us that U.S. cable shares of Canadian, English-language viewing have gone from 3.3 per cent, in 1996, to 14 per cent, in 1999. This is a significant amount of Canadian television audience that is completely, continuously and irretrievably lost to the U.S. It is also a remarkable jump in viewership to which Canadian advertisers have no access.
8147 It is interesting to note that only 10 U.S. cable stations attract the substantial 14 per cent viewership. Listed most popular to least popular, they are: A&E, WTBS, the Learning Channel, the Nashville Network, CNN, the Food Channel and four others.
8148 A&E is by far the most popular, garnering close to 5 per cent of English-language viewing on its own.
8149 In contrast, some 31 Canadian specialty channels attract 37 per cent of English-language viewing. Yet even the most successful of these, TSN, does not reach the share of A&E. In fact, TSN comes in at a 3.8 per cent share, followed by Y-TV and SportsNet, each at 1.8 per cent, and Discovery, at 1.4 per cent, and so on.
8150 Particularly pertinent to this hearing, however, is the approximate .6 per cent share that the U.S. Food Network currently captures.
8151 If the applicant, Alliance Atlantis, is granted a licence for the Food Network Canada, this will serve to repatriate a substantial portion of lost viewing hours back to Canada and allow Canadian advertisers the opportunity to reach these viewers while supporting a Canadian broadcast option.
8152 In summary, Canadian embrace specialty channels. Both the Canadian public and Canadian advertisers who support these specialty offerings welcome new services and expanded range of specialty services is desired. More Canadian licences means more Canadian viewers are repatriated from competing U.S. product and more advertising dollars to support Canadian programming.
8153 For the welcome expansion in services and for the opportunity to reach more Canadian audiences watching more Canadian specialty programs, the ACA wishes to indicate its support for this unique and imaginative application.
8154 On behalf of Canadian Advertisers, I want to thank the Commission for this opportunity to present their views, and if there are any questions you may wish to ask -- although I am quite aware, again, that this is late on Friday -- I would be happy to try and answer them.
8155 CHAIRPERSON OF THE COMMISSION: Thank you very much.
8156 I would ask Commissioner Grauer to ask the questions -- and we are quite pleased it is Friday, rather than Sunday --
--- Laughter / Rires
8157 CHAIRPERSON OF THE COMMISSION: -- because that was the original plan, so we have all the time to ask all the questions and really make sure we are taking full advantage of you being here with us. Thank you.
8158 COMMISSIONER GRAUER: I don't have too many questions but we would like to take full advantage of your being here because, as advertisers, you do play a very important role in the broadcasting system.
8159 You stated that the revenues have grown with both conventional and specialty television in recent years, with the most pronounced growth taking place in the specialty sector.
8160 I would be interested to know how much the advertising pie has grown, generally, with the introduction of these, you know, new services and new mediums.
8161 In other words, how much is, like, a lot of reallocation and how much is new?
8162 MR. REAUME: I think the -- I don't have the figures with me, but I think, from 1998 to 1999, it is projected that the growth is going to be about 8.5 per cent, that the pie has grown that much. How much of that is related to inflation, how much of that could be apportioned by individual medium is very difficult to say. But the pie continues to grow, and has grown -- I don't believe I am mistaken to say it has grown at least a little bit every year. Even in the recession years of 1981 and 1991, the advertising pie still continued to grow.
8163 COMMISSIONER GRAUER: Again, I don't know if you can help with this, but when there is a new genre, like food, does it bring new advertisers into the medium?
8164 MR. REAUME: Unequivocally, yes. Because advertisers will now take advantage of the content link. I am not speaking for these specific advertisers but you can imagine advertisers like Kraft and Nestle, food advertisers who can now discuss with the Food Network and others imaginative campaigns and tie-ins with shows and the content on the network. So it does bring new money and new advertising.
8165 COMMISSIONER GRAUER: But when you talk about Kraft, or a large food company, they would, presumably, be advertising on conventional. So, is this a migration of dollars from conventional to specialty? Or is it new -- a new niche?
8166 MR. REAUME: Well, we get back to the question of: would they reallocate internally. But I suspect that most advertisers -- just like the pie of advertising, most advertisers have an increase annually. And, again, it is quite difficult to try and discover what portion of it would be relatable to just a reallocation internally or creating new dollars for new opportunities.
8167 COMMISSIONER GRAUER: I know you gave us the growth figures for both conventional and specialty for, I think, up to 1998, and the most pronounced growth in revenues was taking place in the specialty sector.
8168 Do you have 1999 figures per chance?
8169 MR. REAUME: I think I do. They come from the Television Bureau of Canada and I could easily leave a copy with the Commission, if you wish. I haven't computed the per cent increase but, as I said before, 8.5 per cent increase over 1998, I think, sticks in my mind. But we can get those for you.
8170 COMMISSIONER GRAUER: I just have one last question.
8171 You have talked about the, I suppose I can call it frustration of advertisers at not having access to these services and, in particular, the U.S. services.
8172 To your knowledge, what is the extent, if any, of advertising by your members to U.S. services, conventional or specialty?
8173 MR. REAUME: Specialty, I would say virtually none. I am not aware of any Canadian advertiser accessing a U.S. specialty channel just to reach the Canadian audience because the scale -- the scale is not right. You would have a national specialty -- or a U.S. satellite service covering the United States with rates that would reflect that geography. It just is cost prohibitive to cover Canada in that way.
8174 However, conventional, there is a certain percentage of Canadian advertisers who still use border U.S. stations, particularly, the smaller markets, to reach a larger Canadian market -- I am thinking of KVOS in Bellingham; Washington, to reach Vancouver; Buffalo stations in Buffalo, New York, to reach Toronto; et cetera.
8175 Again, the scale, in that case, makes economic sense because the rates that a small U.S. market can command are quite attractive to the larger metropolitan Canadian areas, notwithstanding Section 19 tax advantage of the Income Tax Act, so. It is not huge, but advertisers will still purchase some U.S. conventional television media weight to cover Canadian markets because, even with the tax disadvantage, it still makes economic sense for them to do so.
8176 COMMISSIONER GRAUER: So it is price driven?
8177 MR. REAUME: Yes.
8178 COMMISSIONER GRAUER: Well, I don't think I have any more questions. Thank you very much.
8179 MR. REAUME: Thank you.
8180 CHAIRPERSON OF THE COMMISSION: I do. When do you think the market share that the specialty channels in this country has been able to achieve over the last few years -- very few years, indeed -- will meet with real advertising dollars so that it is not the subscriber who is supporting the cost of programs so much?
8181 MR. REAUME: Is there a chance that specialty channels will give up that revenue sometime in the future?
8182 CHAIRPERSON OF THE COMMISSION: No, well, is there a chance that advertisers will pay more for the market shares they --
8183 MR. REAUME: Yes.
8184 CHAIRPERSON OF THE COMMISSION: -- are getting through these specialty channels is my question.
8185 MR. REAUME: Yes, certainly there will, because we see more and more Canadian viewers watching specialty services. The audiences aren't -- with a few exceptions, the audiences are not huge. There are a few exceptions in a few particular programs where the audiences are high. But all of them will grow. And as they grow, advertisers will not have to purchase hundreds and hundreds of spots on these specialty channels. Sometimes you get actually frustrated watching the same commercial on specialty channels; it is because in order to get any kind of critical mass, in terms of audience delivery and rating delivery, they have to repeat it so often. But there will come a time when the ratings and the audience sizes are of substantial size that the revenue will just follow that.
8186 CHAIRPERSON OF THE COMMISSION: Okay.
8187 MR. REAUME: A particular year, I couldn't say when.
8188 CHAIRPERSON OF THE COMMISSION: Thank you.
8189 Oh, pardon me, there is legal counsel --
8190 MS ASSHETON-SMITH: Sorry. Just to clarify. The TVB data, did you say that you had it with you and you can file it today?
8191 MR. REAUME: I looked at it and I don't have it in my folder, but we will certainly get you a copy of it.
8192 MS ASSHETON-SMITH: Could you file it by sometime next week? Would that be --
8193 MR. REAUME: By Friday next week, certainly.
8194 MS ASSHETON-SMITH: By Friday next week. Thank you.
8195 CHAIRPERSON OF THE COMMISSION: Thank you very much.
8196 MR. REAUME: Thank you.
8197 MS EDGE: I would like to find out whether Paul Audley is in the room, the Directors Guild of Canada. Apparently not.
8198 That takes us into Phase III. So, if Alliance Atlantis would like to come forward and respond to the interventions.
8199 CHAIRPERSON OF THE COMMISSION: Les phases terminales.
8200 MS EDGE: I beg your pardon?
8201 CHAIRPERSON OF THE COMMISSION: Terminal phases. The conclusion.
REPLY / RÉPLIQUE
8202 MS YAFFE: Thank you very much.
8203 I want to thank Mr. Reaume for those remarks and all the intervenors that supported our application in written form.
8204 We don't have an oral rebuttal, as we did reply to interventions at an earlier stage, so we will not be making any formal remarks.
8205 We do have two things to add and, I guess, a closing statement.
8206 Just to be clear, I don't think we got an opportunity or thought of saying that the very same sort of understanding, letter of understanding, that governs this channel is the full agreement that covers HGTV with Scripps and we have not entered into a long-form agreement with them for years, and have no intention of doing that. So, just background information for you.
8207 And another point to the access rules. Not to belabour the point but in your deliberations, no matter how one structured how the access rules applied to Food Network Canada, we do not have any intention of relying on the dispute mechanism, even if we are entitled to, for further analog carriage other than in those systems carrying Food U.S.
8208 And I guess, lastly, it has just been -- it is such an amazing opportunity to sit at the brink of something that we think creates a public policy precedent that we hope others will follow; we hope we will be able to use it again; and we hope that it allows the Canadian broadcasting system to repatriate programs, viewers, advertisers and, importantly, control over the system, as we have suggested.
8209 So, thank you for listening to us today.
8210 CHAIRPERSON OF THE COMMISSION: Thank you very much. Thank you.
8211 Well, that concludes --
8212 MS EDGE: Actually, I just wanted to note for the record that even though there is no oral presentation -- just moving on for the other ones -- of the applications listed in Pages 16 and 17 of the Agenda, they are, nevertheless, part of this public hearing and, as such, they will be considered by the Commission and a decision will be rendered at a later date.
8213 CHAIRPERSON OF THE COMMISSION: Thank you very much. I had forgotten about the non-appearing items.
8214 Well, that concludes our work for the week. Thank you very much everybody, Madame, and all the intervenors who came forward, the ones who wrote to us, and thank you for staff and my colleagues of the Panel.
8215 Thank you and have a great weekend.
--- Whereupon the hearing concluded at 1505 /
L'audience se termine à 1505