TRANSCRIPT OF PROCEEDINGS BEFORE

             THE CANADIAN RADIO‑TELEVISION AND

               TELECOMMUNICATIONS COMMISSION

             TRANSCRIPTION DES AUDIENCES DEVANT

              LE CONSEIL DE LA RADIODIFFUSION

           ET DES TÉLÉCOMMUNICATIONS CANADIENNES

                          SUBJECT:

VARIOUS BROADCASTING APPLICATIONS /

PLUSIEURS DEMANDES EN RADIODIFFUSION

HELD AT:                              TENUE À:

Delta Bow Valley                      Delta Bow Valley

209 4th Avenue SE                     209, 4th Avenue SE

Calgary, Alberta                      Calgary (Alberta)

February 14, 2007                     Le 14 février 2007

Transcripts

In order to meet the requirements of the Official Languages

Act, transcripts of proceedings before the Commission will be

bilingual as to their covers, the listing of the CRTC members

and staff attending the public hearings, and the Table of

Contents.

However, the aforementioned publication is the recorded

verbatim transcript and, as such, is taped and transcribed in

either of the official languages, depending on the language

spoken by the participant at the public hearing.

Transcription

Afin de rencontrer les exigences de la Loi sur les langues

officielles, les procès‑verbaux pour le Conseil seront

bilingues en ce qui a trait à la page couverture, la liste des

membres et du personnel du CRTC participant à l'audience

publique ainsi que la table des matières.

Toutefois, la publication susmentionnée est un compte rendu

textuel des délibérations et, en tant que tel, est enregistrée

et transcrite dans l'une ou l'autre des deux langues

officielles, compte tenu de la langue utilisée par le

participant à l'audience publique.

               Canadian Radio‑television and

               Telecommunications Commission

            Conseil de la radiodiffusion et des

               télécommunications canadiennes

                 Transcript / Transcription

            VARIOUS BROADCASTING APPLICATIONS /

            PLUSIEURS DEMANDES EN RADIODIFFUSION

BEFORE / DEVANT:

Michel Arpin                      Chairperson / Président

Rita Cugini                       Commissioner / Conseillère

Barbara Cram                      Commissioner / Conseillère

Stuart Langford                   Commissioner / Conseiller

Ronald Williams                   Commissioner / Conseiller

ALSO PRESENT / AUSSI PRÉSENTS:

Jade Roy                          Secretary / Secrétaire

Peter McCallum                    Legal Counsel /

Conseiller juridique

Marie-Claude Mentor               Hearing Manager /

Gérante de l'audience

HELD AT:                          TENUE À:

Delta Bow Valley                  Delta Bow Valley

209 4th Avenue SE                 209, 4th Avenue SE

Calgary, Alberta                  Calgary (Alberta)

February 14, 2007                 Le 14 février 2007

           TABLE DES MATIÈRES / TABLE OF CONTENTS

                                                 PAGE / PARA

PHASE I

PRESENTATION BY / PRÉSENTATION PAR:

Only Imagine Inc.                                 681 / 4284

PHASE II

INTERVENTION BY / INTERVENTION PAR:

Peace Arch Entertainment                          827 / 5298

Association of Canadian Advertisers               836 / 5339

Canadian Media Directors Council                  842 / 5378

Rogers Cable Communications                       856 / 5450

49th Media Inc.                                   892 / 5655

Telco TV Association of Canada                    903 / 5712

Canadian Association of Broadcasters              912 / 5757

Bell Video Group                                  941 / 5905

REPLY BY / RÉPLIQUE PAR:

Only Imagine Inc.                                 946 / 5939

                 Calgary, Alberta / Calgary (Alberta)

‑‑‑ Upon resuming on Wednesday, February 14, 2007

    at 0830 / L'audience reprend le mercredi

    14 février 2007 à 0830

LISTNUM 1 \l 1 \s 42724272             THE CHAIRPERSON:  Order, please.

LISTNUM 1 \l 14273             Madam Secretary, would you introduce the last appearing item.

LISTNUM 1 \l 14274             THE SECRETARY:  Thank you, Mr. Chairman.

LISTNUM 1 \l 14275             Before beginning, I would like to go over a few housekeeping matters to ensure the proper conduct of the hearing today.

LISTNUM 1 \l 14276             When you are in the hearing room, I would ask you to please turn off your cell phones, beepers, Blackberries and other text messaging devices as they are an unwelcome distraction for participants and Commissioners and they cause interference on the internal communications systems used by our translators.

LISTNUM 1 \l 14277             We would appreciate your co‑operation in this matter throughout the day.

LISTNUM 1 \l 14278             We will now proceed with item 11 on the agenda, which is an application by Only Imagine Inc. for a licence to operate a relay distribution undertaking.

LISTNUM 1 \l 14279             The proposed undertaking would insert commercial advertisements or promotional materials into the local availabilities of a number of non‑Canadian programming services distributed by various broadcasting distribution undertakings across the country.

LISTNUM 1 \l 14280             The Commission intends to discuss various issues related to the use of local availabilities and U.S. programming services for commercial advertising and any potential impacts on Canadian programming services and broadcasting distribution undertakings.

LISTNUM 1 \l 14281             Appearing for the applicant is Mr. Jeff Thiessen, who will introduce his colleagues.

LISTNUM 1 \l 14282             You will then have 20 minutes to make your presentation.

LISTNUM 1 \l 14283             Mr. Thiessen.

PRESENTATION / PRÉSENTATION

LISTNUM 1 \l 14284             MR. THIESSEN:  Thank you.

LISTNUM 1 \l 14285             Mr. Chairman, Commissioners, ladies and gentlemen, my name in Jeff Thiessen, President and CEO of Only Imagine.

LISTNUM 1 \l 14286             It is a pleasure to be here today to speak to this application by Only Imagine for a new RDU licence in order to realize the tremendous potential for the Canadian broadcasting system of the currently under‑utilized avails on certain U.S. specialty services.

LISTNUM 1 \l 14287             Before beginning our presentation, I would like to introduce the members of our panel, most of whom are well‑known to you.

LISTNUM 1 \l 14288             On my right is Drew Craig, Chairman of Only Imagine and former President and owner of Craig Media Incorporated.

LISTNUM 1 \l 14289             To Drew's right is Jennifer Strain, a consultant to Only Imagine, formerly V.P. Corporate and Regulatory Affairs for Craig Media Incorporated and prior to that with WIC, Western International Communications.

LISTNUM 1 \l 14290             To Jennifer's right is Stephen Zolf, a partner in the Toronto office of Heenan Blaikie and our legal and regulatory counsel.

LISTNUM 1 \l 14291             On my left is Sandra Macdonald, President of Sandra Macdonald and Associates Limited, the consulting company advising public and private organizations on policy options and instruments in the cultural industries.  She has an extensive broadcasting background and her involvement with Only Imagine is as an advisor on the design of the drama fund that will be created if this application is approved.

LISTNUM 1 \l 14292             To Sandra's left is Jack Tomik, a successful strategic sales and marketing consultant, specializing in traditional as well as new forms of media, whose clients include national media sales firms, cable channels and Internet companies.  Prior to that Jack was 25 years with CanWest, most recently as President, CanWest Media Sales.

LISTNUM 1 \l 14293             At the back table, from your left to right, is Warren Olsen, consultant to Only Imagine and former Vice‑President of Finance and Administration for BCTV, CHEK TV and General Manager of CHEK TV.

LISTNUM 1 \l 14294             Richard Edwards, consultant to Only Imagine, has over 30 years of experience in broadcasting, including 20 years in various production and management roles at Videon Cable Systems Incorporated, including Director of Programming Service and Regulatory Affairs.

LISTNUM 1 \l 14295             Paul East, President of SBL, a leading Canadian broadcast and communications engineering firm.  SBL has particular expertise in the design and implementation of fully automated and redundant systems used both in the broadcast and telecommunications industries.

LISTNUM 1 \l 14296             And Florence George, a Senior Media Director with 23 years of experience in the broadcast industry on media buying side, managing $200 million in annual media expenditures.

LISTNUM 1 \l 14297             Mr. Chairman, Commissioners, we will now begin our presentation.

LISTNUM 1 \l 14298             A tremendous opportunity exists for the broadcasting system and for Canadian drama.  The time is now to harness the value of the local availabilities on U.S. satellite programming services, and this application is the right model to achieve it.

LISTNUM 1 \l 14299             Under our proposal Only Imagine will sell 70 percent of available spots on U.S. satellite programming services, about two minutes per hour, to national advertisers.

LISTNUM 1 \l 14300             If licensed, we will contribute 50 percent of our revenues to a new, independent and stable drama fund, $170 million in the first licence term.  The fund will be independently administered and will provide matching production grants and bridge financing to support the creation of high quality drama. In addition to the $170 million, $5 million of advertising inventory over seven years will be made available to broadcasters and program distributors to promote new Canadian drama programs and theatrical feature films and $5 million of advertising inventory over seven years will be made available for the promotion of the digital specialty services.

LISTNUM 1 \l 14301             These promotional opportunities will be more valuable and efficient than they are today.

LISTNUM 1 \l 14302             First, broadcasters will be able to specifically select on which U.S. services they want their promotions to appear.

LISTNUM 1 \l 14303             Second, we will be accountable to them for the spots run.

LISTNUM 1 \l 14304             Third, promotions will specifically target new Canadian drama promotion, not just channels.

LISTNUM 1 \l 14305             Of the remaining avails, 25 percent will be made available for use by BDUs on an equitable basis to continue to promote their programming and non‑programming services and 5 percent of the avails will be used to promote the priority 91H services.

LISTNUM 1 \l 14306             Now back to the $170 million.

LISTNUM 1 \l 14307             Sandra.

LISTNUM 1 \l 14308             MS MACDONALD:  Only Imagine's proposal represents one private sector solution to the crisis in funding Canadian drama.  It is evergreen.  It has no strings attached and it will benefit Canadian broadcasters by helping them create new drama that will generate audiences.

LISTNUM 1 \l 14309             It is the Commission's objective to increase the production of, viewing to and expenditures on high quality original Canadian drama.  The $170 million contribution to drama that the Only Imagine would generate, when combined with licensees from broadcasters and the other available funding sources, such as tax credits, will trigger between 400 and 700 new hours of Canadian drama production.

LISTNUM 1 \l 14310             The difference, of course, would depend on the level of the fund's investment in any individual hour.  And we are looking at that based on high budget dramas with average hourly budgets of about $1 million.

LISTNUM 1 \l 14311             This fund will enhance the Commission's drama incentive program.  The kinds of productions eligible for the drama incentive are exactly the kinds of productions the new fund will support.

LISTNUM 1 \l 14312             This new fund will help broadcasters take advantage of the drama incentive by providing financing for hours of production that the CTF is currently unable to finance due to lack of funds.

LISTNUM 1 \l 14313             Further, because this fund is not the CTF, we assume it will permit broadcasters to obtain the maximum benefit from the drama incentive.  It will therefore assist broadcasters to meet the targets the Commission has set for the drama incentive program.

LISTNUM 1 \l 14314             The Only Imagine application has set out basic parameters governing this fund.  It is for high budget drama made by independent producers.  It will require a broadcaster commitment to trigger funding.  It will take the form of a straightforward contribution, not an equity investment, so it will help build stronger production companies.

LISTNUM 1 \l 14315             In terms of the details of exactly how the fund will work, however, we have spoken to all the major organizations in the production industry about how it would work and we have made a commitment to them that we will work with them if this application is approved to ensure that the design of the fund will produce an incremental benefit to Canadian drama programming.

LISTNUM 1 \l 14316             The Commission, of course, will have the opportunity to comment on the fund design before it begins operation.

LISTNUM 1 \l 14317             In addition to the drama fund, the Only Imagine commitment to Canadian drama includes, as Jeff mentioned a minute ago, promotional time in the value of $5 million over the licensed term.  It also will provide an interim financing facility that will permit producers to take advantage of fund resources that are earmarked for future disbursement but available for short‑term bridge financing.

LISTNUM 1 \l 14318             This is a very, very valuable and useful dimension for producers because, as I'm sure you know, for many of them, even when they deal with governmental funding sources, the final amount of money they get doesn't come in until the production is completed, and there is a huge outlay that has to be covered in the meantime.  I think this is a very attractive dimension of the fund.

LISTNUM 1 \l 14319             MR. THIESSEN:  Now that you have heard about the significant benefits, let me tell you how it works.

LISTNUM 1 \l 14320             We will build a state‑of‑the‑art network operating centre that is using technology that is the same technology used for commercial insertion by companies in the U.S., such as Comcast, Time Warner and others.  While the actual commercial insertion will be completed at the cable and DTH distributor headend, the process will be controlled remotely by Only Imagine.

LISTNUM 1 \l 14321             As outlined in our application, in order to provide a national buy for advertisers, we anticipate installing equipment at those BDU headends that service major markets.  Importantly, the Only Imagine system will not change the way each BDU receives its program signal from the U.S. program providers and will not affect their ability to acquire their signals from whichever SRDU they like.

LISTNUM 1 \l 14322             Our business plan and our ability to generate the $170 million for drama is based on the ten U.S. services in which we understand insertion is now occurring.

LISTNUM 1 \l 14323             However, if one of the ten is dropped by BDUs or shuffled into the distribution tier or channel that subsequently affects the tuning to the service and thus the advertising dollars that can be generated, we would request the ability to substitute one service for another.

LISTNUM 1 \l 14324             This application meets your policy and Broadcast Act objectives.  It yields a net gain for the broadcasting system and it can be effected using the statutory tools available to you under the Broadcasting Act.

LISTNUM 1 \l 14325             MR. CRAIG:  Who are the constituents that the Commission need concern itself in determining whether to license this application?

LISTNUM 1 \l 14326             We would say firstly the consumers.  They are unaffected by this proposal and in fact are better off because of the increased availability of high quality Canadian drama that will result.

LISTNUM 1 \l 14327             U.S. services.  That the U.S. signals are distributed in Canada at all is because the Commission allows them to be here.  They have already been granted the avails in question for the purposes of advertising and promotion.  The licensing of this application will be seamless to them.  They lose nothing by the licensing of our proposal.  They will continue to deal with the BDUs as they always have and will continue to enjoy the substantial subscriber revenue they derive from being carried in Canada.

LISTNUM 1 \l 14328             If the Commission determines that this proposal is in the best interests of the broadcasting system, we expect that the U.S. services will agree with you.  It is not in their corporate interest to do otherwise.  Other than being assured as to the integrity of their signal and the nature of the advertising content, this proposal is completely immaterial to them.

LISTNUM 1 \l 14329             The BDUs.  The BDUs' contractual rights to use the avails have always been circumscribed by regulatory policy.  The BDUs' contracts with the U.S. services are only effective at all because the Commission has blessed the distribution of those services in Canada.  It has been, and is, within the Commission's jurisdiction to determine the purpose for which the avails may be used.  It is also open to the Commission to decide that a broadcasting undertaking independent from the BDU is required in order to monetize the U.S. avails.

LISTNUM 1 \l 14330             The Commission has the authority to impose conditions respecting the carriage of U.S. services.  It could, for instance, add a "subject to" criterion in the Eligible Satellite Services Policy requiring that the providers of these foreign services adhere to any Commission policies respecting the use of the avails.

LISTNUM 1 \l 14331             The negative response from the BDUs to our application is completely disproportional to the potential value of the avails to them.  These companies are large, financially solid entities whose core businesses are television distribution, telephony and broadband delivery.

LISTNUM 1 \l 14332             Our model represents a minuscule percentage of the revenues earned by the BDUs from their core businesses.  The BDUs lose nothing in this proposal yet they continue to bank and hope that a mere year and a half after denying the CCTA proposal, the Commission will change its mind and let them into the advertising businesses.  Indeed, we suspect that you are going to hear that very pitch later today.

LISTNUM 1 \l 14333             We expect they will argue that allowing them to do this is preferable because it eliminates the middle man and is the most efficient solution.

LISTNUM 1 \l 14334             First, we are not a middle man.  We have tailored our proposal to effectively preserve the relationship between the U.S. service and the BDU affiliate.  We will not materially impact that relationship between the BDU and the U.S. program supplier in contrast to other models which will be far more invasive.

LISTNUM 1 \l 14335             In any case, while intervenors decry the middle man, we think there is a distinct and valuable role for Only Imagine.  The Broadcasting Act contemplates creating different classes of broadcast undertakings to achieve Broadcasting Act objectives.  Our entire Canadian system is built on the so‑called middle man.

LISTNUM 1 \l 14336             Canadian television broadcasters use revenue opportunities inherent in American programming to help subsidize the cost of producing and broadcasting Canadian programming.  We don't let HBO directly into Canada.  We interpose the Canadian pay services that in turn make contributions to Canadian programming based on revenue generated from HBO and other programming.

LISTNUM 1 \l 14337             In this case there are sound policy reasons for using a third party to sell these avails, and we will be able to do this extremely efficiently.

LISTNUM 1 \l 14338             How exactly would cable BDUs sell spots nationally when they are licensed regionally?  They would need a third party and additional infrastructure to aggregate the spots for the purpose of providing a national buy.  Otherwise, cable would be selling locally in selective markets with a resulting detrimental impact on local broadcasters.

LISTNUM 1 \l 14339             Further, as we will have the infrastructure in place anyway to sell advertising, we are prepared to waive the cost recovery on the ten services for all promotion used by television program undertakings.

LISTNUM 1 \l 14340             We would also be prepared to do the BDU promotion at no cost to them, subject to their co‑operation and collocation.

LISTNUM 1 \l 14341             Paul.

LISTNUM 1 \l 14342             MR. EAST:  Thank you, Drew.

LISTNUM 1 \l 14343             From a technical perspective, it will cost about $5 million in capital to provide a national insertion operation with equipment that is considered the gold standard for commercial insertion.

LISTNUM 1 \l 14344             Only Imagine will build a network operating centre that will control all aspects of the commercial insertions at all headends.  This is the optimum model for achieving efficiency and maximizing the contributions to the Canadian broadcasting system and is far less invasive than creating a central aggregation point for all U.S. services.

LISTNUM 1 \l 14345             If BDUs were to sell the avails, they would have to duplicate many of the same operational infrastructure costs.  In fact, the Only Imagine model is similar to systems used by large U.S. cable companies to insert commercials in these very same signals.

LISTNUM 1 \l 14346             To implement the RDU technical plan, Only Imagine only requires to the U.S. services to complete the insertion process.  Ideally, this final stage equipment would be located at the BDU headend, but it does not have to be.  What is required is access to the U.S. signals.

LISTNUM 1 \l 14347             When equipment is located at the BDU headend, Only Imagine will require physical access for the purpose of installing the equipment and maintenance visits a few times a year.  Alternatively, Only Imagine can supply the equipment to the BDU for installation and maintenance by the BDU staff.

LISTNUM 1 \l 14348             As indicated in our application, Only Imagine is willing to work with the BDUs to ensure the installation of the Only Imagine equipment is consistent with their technical standards and takes into account any unique technical requirements at any particular headend.

LISTNUM 1 \l 14349             Only Imagine will also enter into agreements with them addressing such issues as compensation for rack space and power and to ensure the signal integrity of the U.S. services.

LISTNUM 1 \l 14350             In the unlikely event of an Only Imagine equipment failure, the U.S. program service will simply pass through unaltered to the viewer.

LISTNUM 1 \l 14351             MR. TOMIK:  One of the underpinnings of the Only Imagine business plan is to mitigate the impact to television broadcasters.  In my opinion, the impact of this proposal will be negligible.

LISTNUM 1 \l 14352             Consider the following:

LISTNUM 1 \l 14353             First, we are only selling on average three 30‑second commercials per hour on each channel.  The tuning to these channels already exists and will not fragment the audiences of Canadian broadcasters.  Because of this limited inventory, Canadian specialty services could never be displaced by this service.  Only Imagine would just complement the Canadian broadcasters in an advertiser's campaign.  Only national ads are being sold.

LISTNUM 1 \l 14354             Later in this process you will hear from the ACA and others who will tell you that this proposal will actually help prevent money from leaking out of the system and into unregulated media and in fact has the ability to add new revenues to the Canadian broadcasting system.

LISTNUM 1 \l 14355             At the end of the day the ad revenue realized by Only Imagine will amount to about 1 percent of all television broadcasting ad revenue in the country.

LISTNUM 1 \l 14356             As for the promotional commitments, Only Imagine is going to treat broadcasters and the BDUs like paying customers.  The BDUs and priority services will have equitable access and distribution in a reasonable manner throughout the broadcast day.  The services, their advertising inventory set aside, will have flexibility to place their promotions in the U.S. channels that allow them to most effectively access their target demographic.

LISTNUM 1 \l 14357             All services will have accountability in the form of affidavits that they don't have now.

LISTNUM 1 \l 14358             For advertisers, Only Imagine will provide new access to Canadian viewers.  It will create a new point of competition in an ever‑consolidating market.  The result:  more revenues for the Canadian broadcast system.

LISTNUM 1 \l 14359             MR. THIESSEN:  Mr. Chairman, as we stated at the beginning of our presentation, we believe the time has come to begin realizing the tremendous opportunities for the broadcasting system and specifically for Canadian drama that are available from the U.S. avails.

LISTNUM 1 \l 14360             Cable has asked over and over again for the right to realize the opportunities presented by these avails and has been denied, for good reason.  You will always have the fundamental structural and policy problems of letting BDUs into the advertising business.  As they continue to successfully expand our core business in our Internet and telephony, there is even less reason to open that door now.

LISTNUM 1 \l 14361             Moreover, two of the same BDUs wanting this privilege are responsible for the current crisis at the CTF.  Surely an advertiser agency affiliated entity like 49th Media, selling 12 minutes an hour in partnership with the U.S. services, isn't the right solution.

LISTNUM 1 \l 14362             MR. CRAIG:  If there is one common refrain in this industry, it is that we need more money for drama.  Our proposal is simple and does not require structural changes to the broadcasting system.  Where else is the Commission going to find a private sector contribution of $170 million to Canadian drama with a minimum impact on existing players?

LISTNUM 1 \l 14363             The cost of doing nothing is enormous, especially given the current funding crisis, and the benefits are undeniable.

LISTNUM 1 \l 14364             So what is the right solution and when is the right time?

LISTNUM 1 \l 14365             We strongly believe our application is the right model and that the time is now.

LISTNUM 1 \l 14366             Mr. Chairman and Commissioners, we thank you, and we now look forward to your questions.

LISTNUM 1 \l 14367             THE CHAIRPERSON:  Thank you Mr. Craig; thank you, Mr. Thiessen.

LISTNUM 1 \l 14368             The first round of questions will be done by Commissioner Cram.

LISTNUM 1 \l 14369             COMMISSIONER CRAM:  Good morning, panel.

LISTNUM 1 \l 14370             I have to say I think the Commission has spent more time in its history over two and three minutes than anything else.

LISTNUM 1 \l 14371             Anyway, I wanted to talk about ownership and control of these two to three minutes.

LISTNUM 1 \l 14372             If I have it right, in the U.S. the U.S. programming services owns it and controls it, but in Canada we control it.

LISTNUM 1 \l 14373             Is that correct, that the CRTC controls it, those two to three minutes?

LISTNUM 1 \l 14374             MR. CRAIG:  Our view would be that the CRTC can control it through BDU policy.

LISTNUM 1 \l 14375             COMMISSIONER CRAM:  And that is certainly subject to some constraint, I'm assuming.  We can't control copyright, so it would be subject to copyright infringement issues and other laws.

LISTNUM 1 \l 14376             Would that be correct?

LISTNUM 1 \l 14377             MR. CRAIG:  That's correct.  And we are happy to talk more about the copyright issue, if you would like to.

LISTNUM 1 \l 14378             COMMISSIONER CRAM:  Yes, I would like you to address that, if you could.

LISTNUM 1 \l 14379             MR. CRAIG:  Maybe I will let Jennifer and Stephen just respond to the copyright issue.

LISTNUM 1 \l 14380             MR. ZOLF:  Thanks, Drew.

LISTNUM 1 \l 14381             Commissioner Cram, yes, we think, as Drew said, through your jurisdiction over the BDUs you can cause this to happen.

LISTNUM 1 \l 14382             On the copyright side, the Commission's jurisdiction obviously is not over copyright.  We think, however, that this is permitted under general copyright law.  There is nothing in the proposal which would produce or raise the issue of an infringement of any copyright.

LISTNUM 1 \l 14383             The Copyright Act provisions, for example, on the rights over communication signal do not apply in this case, and I think there is nothing that would encumber the Commission under general copyright law to do this.

LISTNUM 1 \l 14384             I believe one of the intervenors raised a copyright issue.  Unfortunately, they didn't put any specificity on that claim about copyright, suggesting neither that it was a third party's copyright or it was their copyright or the underlying program holders' copyright.

LISTNUM 1 \l 14385             In this case we think the narrow targeting of these two‑minute avails does not raise any infringement issue.

LISTNUM 1 \l 14386             COMMISSIONER CRAM:  And our control obviously also would be subject to, I am going to say what I would call the contractual arrangements between the programmer and the BDU in the sense that they place restraints on the use of the avails in terms of not advertising a 900 number, a 976 number; essentially safeguards to protect the integrity of their signal and their brand.

LISTNUM 1 \l 14387             So that is also another restraint I guess on our abilities.

LISTNUM 1 \l 14388             MR. CRAIG:  We believe that the U.S. channels have really two legitimate concerns with our proposal.  One is signal integrity and the quality of the signal.

LISTNUM 1 \l 14389             As Mr. East mentioned, the equipment we are talking about is the gold standard that is used throughout the world and in particular in the U.S. to insert thousands and thousands of commercials each day.

LISTNUM 1 \l 14390             People like Comcast and Time Warner use that equipment.  So we are assuming that the U.S. channels would in effect give us the spec that they want us to meet and we would have to meet that and exceed that.

LISTNUM 1 \l 14391             So that is one thing I think that we legitimately believe they have a concern with, and I think we can address that.

LISTNUM 1 \l 14392             The second concern, as you mentioned, is advertising content.

LISTNUM 1 \l 14393             It varies by channel.  They have different parameters about which clients they will accept and which clients they won't accept, et cetera, and we respect that.

LISTNUM 1 \l 14394             In our application we indicate that we are prepared to abide by any of those rules and regulations that are set by the U.S. channels.

LISTNUM 1 \l 14395             MR. ZOLF:  Commissioner Cram, just to add to that, it is not so much a legal issue.  What Mr. Craig is saying is I think to make this thing as seamless as possible, we would adhere to those current restrictions that are there that you identify.  But that doesn't change the position about the legalities of it.

LISTNUM 1 \l 14396             COMMISSIONER CRAM:  I hear you, yes.

LISTNUM 1 \l 14397             I am going to suggest that if we were to license you, we would do a COL and I'm going to ask you to draft it in terms of the most stringent protection of a programmer's brand and the integrity of the signal.

LISTNUM 1 \l 14398             I saw one in ‑‑ I have four books here so you are going to have to forgive me in finding these things.

LISTNUM 1 \l 14399             I saw one in the affiliation agreements you gave us that was fairly thorough.  I don't know if it is the most thorough.

LISTNUM 1 \l 14400             It is at page 8 of what was apparently faxed to us on October 9th.  It is 6.4 and it refers to ‑‑ I'm sorry, no, it's not that.

LISTNUM 1 \l 14401             It is at page 16, and it refers to:

"not being offensive in nature; not suggesting affiliation between advertisers and the service; not relate to adult entertainment; not intentionally enable or exhort any customers to tune away; not advocate a position on any political or social issue unless they are legally qualified candidates."

LISTNUM 1 \l 14402             If you could propose that in Phase II, perhaps, or if you need longer we will have to talk about that.

LISTNUM 1 \l 14403             What you are proposing then, because of section 9.2 of the Regs, is that we provide you with a permissive COL, which, if I have read it correctly, if I have the latest version, says:

"The licensee may, at its option, insert certain promotional and advertising material as a substitute for U.S. advertising, i.e. non‑Canadian advertising material, in non‑Canadian satellite programming services."

LISTNUM 1 \l 14404             Is that correct?

LISTNUM 1 \l 14405             MS STRAIN:  Yes, Commissioner Cram, that is I think the most recent wording that we have on file.

LISTNUM 1 \l 14406             We have been thinking a lot about this.  I don't think we have spent as much time trying to draft Conditions of Licence either.  We have some alternate wording that we have also thought of that is also workable and we would be happy to provide that now or in reply.

LISTNUM 1 \l 14407             COMMISSIONER CRAM:  It is probably best now.

LISTNUM 1 \l 14408             MS STRAIN:  Okay.  Do you want me to read it into the record?

LISTNUM 1 \l 14409             COMMISSIONER CRAM:  Yes, if you could.

LISTNUM 1 \l 14410             MS STRAIN:  We had here:

"Where the terms of the affiliation agreement between the licensee and any non‑Canadian satellite service permit the substitution of promotional and advertising material in its local availabilities and such service falls within the authorization of a relay distribution undertaking licensed to insert promotional and advertising material as a substitute for the local avails, the licensee shall provide the unencrypted signal of each service to the RDU prior to distributing the service to its subscribers."

LISTNUM 1 \l 14411             COMMISSIONER CRAM:  Okay.

LISTNUM 1 \l 14412             MS STRAIN:  This works.  We also have specific Conditions of Licence that would be applicable to our service as well.

LISTNUM 1 \l 14413             This is a condition that would apply to the BDUs.

LISTNUM 1 \l 14414             COMMISSIONER CRAM:  To BDUs.

LISTNUM 1 \l 14415             MS STRAIN:  Yes, absolutely.

LISTNUM 1 \l 14416             COMMISSIONER CRAM:  Yes.  Do you have that in writing so we can look at it?

LISTNUM 1 \l 14417             MS STRAIN:  Yes.

LISTNUM 1 \l 14418             COMMISSIONER CRAM:  And think about it.

LISTNUM 1 \l 14419             MS STRAIN:  Yes.

LISTNUM 1 \l 14420             COMMISSIONER CRAM:  With the terminology of what I am going to call the last iteration, the one that the licensee may at its option, what would prevent anybody else applying for a similar COL?

LISTNUM 1 \l 14421             What would prevent you having competition in this?

LISTNUM 1 \l 14422             MR. CRAIG:  In our application we have applied for a very specific portion of the U.S. avails.  Our proposal is to insert commercial messages on the ten channels that are outlined in our application and monetize those availabilities.

LISTNUM 1 \l 14423             Our proposal is to live with I guess the parameter whereby we would sell on ten channels.

LISTNUM 1 \l 14424             As Jeff mentioned in the in‑chief, we would like the right to substitute one channel for another from time to time if one of those channels got moved to another tier and didn't deliver the required audience delivery.

LISTNUM 1 \l 14425             Effectively, what we are asking for is the right to sell on ten channels.

LISTNUM 1 \l 14426             COMMISSIONER CRAM:  But the question is ‑‑

LISTNUM 1 \l 14427             MR. CRAIG:  So to answer your question, if there was another proposal in the future ‑‑ and there have been other proposals that have contemplated different models beyond those two minutes ‑‑ nothing would preclude you from taking a look at those applications in another proceeding.

LISTNUM 1 \l 14428             I guess what we are saying is ours is very defined.  It's for the two minutes.  We would need exclusive access to the two minutes in those ten.  Beyond that, we can see potential for more creative proposals to come along in the future that you may want to look at.

LISTNUM 1 \l 14429             COMMISSIONER CRAM:  I am saying with the wording of your proposed COL, what would prevent anybody else from applying for exactly the same thing and why wouldn't we promote competition within it?

LISTNUM 1 \l 14430             MR. ZOLF:  Commissioner Cram, the wording under the COL ‑‑ I mean, the COL turns on a licensed RDU for that purpose.  I guess to pick up on what Mr. Craig was saying, we are talking about the market model contemplates one licensee in respect of the avails.

LISTNUM 1 \l 14431             To that extent, I don't think there is anything to be drawn from the added ‑‑

LISTNUM 1 \l 14432             COMMISSIONER CRAM:  Your proposal is to be a monopoly.

LISTNUM 1 \l 14433             MR. ZOLF:  You could describe it that way.  However, I think this is a nascent undertaking.

LISTNUM 1 \l 14434             To go from zero to open entry competitive market model, I would submit may not be a prudent course of action but rather to see how the service proceeds as a one licensee model.

LISTNUM 1 \l 14435             COMMISSIONER CRAM:  So we have the BDU affiliation agreements.  You referred to one in your reply to the interventions at page 10, at No. 6 on advertising.

LISTNUM 1 \l 14436             You say in paragraph 20, in the last sentence:

"Thus, the circumstances arguably support the view that the cable BDU has the current right under its contract with the U.S. programming service to permit Only Imagine to perform the commercial replacement as contemplated."

LISTNUM 1 \l 14437             I'm going to put it to you that that paragraph above, entitled "Ad Time", the second line says:

"Network will make available to affiliate for insertion of any advertising."

LISTNUM 1 \l 14438             It does not say "affiliate or its agent".

LISTNUM 1 \l 14439             Isn't this what you are really talking about when you are talking about permitting Only Imagine to perform this?  Aren't you really talking about putting yourself essentially in as an agent or an assignee of the  BDU?

LISTNUM 1 \l 14440             MR. ZOLF:  Commissioner Cram, that is correct.  I guess it is an implicit argument or a sub‑licensee perhaps is another way of characterizing it.

LISTNUM 1 \l 14441             The point in paragraph 10 is that we took the view that that clause that was put on the record by this B Channel intervention supports the conclusion that the right in those avails having been given over to in this case the affiliate, because that is the contracted entity that is carrying the 24/7 signal ‑‑ but they are in the hands of the Commission itself, which we bolded in reproducing that condition, so conceptually the right is there.

LISTNUM 1 \l 14442             If the Commission were to change its policy in the way we have asked it to do, that structure of the contract has already conceptually permitted that activity.

LISTNUM 1 \l 14443             COMMISSIONER CRAM:  My point is, though, that habitually in agreements such as this ‑‑ and I've seen it in your affiliation agreement ‑‑ there is in fact an explicit statement that there shall be no assignment of the benefits of the contract.

LISTNUM 1 \l 14444             You say this is permissive.  I'm saying that there appears in the contract to be an explicit prohibition of assignment.

LISTNUM 1 \l 14445             MR. ZOLF:  Do you mean elsewhere in this contract there may be ‑‑

LISTNUM 1 \l 14446             COMMISSIONER CRAM:  I mean in general there are and in the examples you have given us there are explicit prohibitions on assignment of the benefits to contract.

LISTNUM 1 \l 14447             I'll tell you what.  The Chair has asked if we could have a break.

LISTNUM 1 \l 14448             It is page 11 on your fax of October 9th and it is 10.4:

"not entitled to assign its rights or obligations under the agreement without the prior written consent"

LISTNUM 1 \l 14449             I would like you to look at that and answer to me the question of whether or not ‑‑ and you just said, Mr. Zolf, that this is an assignment or sub‑licensee or agency; and whether this would in fact prohibit.

LISTNUM 1 \l 14450             I will give you ten minutes to think about it, because somebody needs a break.

LISTNUM 1 \l 14451             MR. ZOLF:  Thank you.

LISTNUM 1 \l 14452             THE CHAIRPERSON:  We will resume at 20 past 9:00.

‑‑‑ Upon recessing at 0910 / Suspension à 0910

‑‑‑ Upon resuming at 0920 / Reprise à 0920

LISTNUM 1 \l 14453             THE CHAIRPERSON:  Order, please.

LISTNUM 1 \l 14454             Commissioner Cram.

LISTNUM 1 \l 14455             COMMISSIONER CRAM:  I wanted to add that I have a certificate of non‑practice, so I'm not a lawyer.

LISTNUM 1 \l 14456             The question was:  How could this process of permitting Only Imagine to perform the commercial replacement not been seen as an assignment as discussed that clause in the affiliation agreement?

LISTNUM 1 \l 14457             MS STRAIN:  Commissioner Cram, I will take a stab at this and hopefully Mr. Zolf will bail me out at some point.

LISTNUM 1 \l 14458             That provision you refer to is standard boilerplate language.  Most of the contracts we have seen say "thou shalt not assign" unless you get consent of the U.S. party.

LISTNUM 1 \l 14459             That contract reflects the current practice in Canada right now.  What we are trying to say is that it is open to you.  We think you should change your policy to say that the avails can only be monetized by a party independent of the BDU, and that once you do that, the behaviour, the relative minor contract modification will follow, particularly given the Conditions of Licence or a contract that we will enter into that will make it clear that we are going to adhere to signal integrity as we talked about, and advertising content.

LISTNUM 1 \l 14460             What we are saying is we think you have some clout.  You can change your policy and we think that the behaviour that we need will follow.  They have already granted the what and the how much.  It is just the who is doing it and under what circumstances.

LISTNUM 1 \l 14461             MR. ZOLF:  Just the duo that is going on here, if I could add to that, there is a temporal issue here.  Had you indicated in your policy, if we reversed the clock, to say that an independent broadcasting undertaking that we are proposing would do the two‑minute avails, I would venture to say that that contract would say something different now.  It would say use of the avails subject to existing Commission policy.

LISTNUM 1 \l 14462             In fact, I think it is our understanding that in the U.S. third parties are often performing insertions all the time in any event.

LISTNUM 1 \l 14463             So I think market practice would follow your structural rule.

LISTNUM 1 \l 14464             COMMISSIONER CRAM:  You say that in order to get BDU buy‑in, in your letter of October 9th you suggest that we would incentivize BDUs to exercise this option by saying that the affiliates of the BDUs would be ineligible for the funding and the promos.

LISTNUM 1 \l 14465             I guess that wouldn't apply to EastLink and MTS.  That wouldn't be a good incentive for them.

LISTNUM 1 \l 14466             MS STRAIN:  No.

LISTNUM 1 \l 14467             COMMISSIONER CRAM:  What services does Rogers have that could benefit from the drama fund or promoting drama?

LISTNUM 1 \l 14468             MR. CRAIG:  In terms of Rogers, they do produce drama.

LISTNUM 1 \l 14469             COMMISSIONER CRAM:  Through what services, what affiliate?

LISTNUM 1 \l 14470             MR. CRAIG:  Through their broadcast operations.

LISTNUM 1 \l 14471             COMMISSIONER CRAM:  I can only think of where they ‑‑ they have sportsnet and I don't know if they can air drama there.

LISTNUM 1 \l 14472             MR. CRAIG:  Well, OMNI does quite a bit of original drama in Toronto.

LISTNUM 1 \l 14473             COMMISSIONER CRAM:  How much relative to the total drama produced?

LISTNUM 1 \l 14474             MR. CRAIG:  I don't have the number but I know that over the last years they have made several significant drama commitments in terms of series, et cetera.

LISTNUM 1 \l 14475             To my recollection, they have made a commitment too.  So I think it is another opportunity for them to promote that drama on the rest of the avails.

LISTNUM 1 \l 14476             COMMISSIONER CRAM:  I'm sorry?

LISTNUM 1 \l 14477             MR. ZOLF:  Commissioner Cram, is your concern that they are somehow worse off because of this new proposal?

LISTNUM 1 \l 14478             COMMISSIONER CRAM:  That it wouldn't be a terrific incentive for Rogers.

LISTNUM 1 \l 14479             MR. ZOLF:  However, as the application passes through the 25 percent current promotional right.

LISTNUM 1 \l 14480             COMMISSIONER CRAM:  Yes.  And I wanted to talk about that because at paragraph 33 of your application, as a further incentive to BDUs, you say:

"... if they want to continue to use their 25 percent of the avails..."

LISTNUM 1 \l 14481             It is paragraph 33, if you need to find it.

LISTNUM 1 \l 14482             So it looks somehow like you are saying that we should say they are not entitled to the 25 percent unless they buy in.

LISTNUM 1 \l 14483             MS STRAIN:  That was the original Condition of Licence certainly.

LISTNUM 1 \l 14484             As I said earlier, the second Condition of Licence that I read into the record I think achieves the same thing, only I think it takes away from the leverage of the BDUs to co‑operate.

LISTNUM 1 \l 14485             We drafted the Condition of Licence and then we got the interventions and we started looking at how we might refine that Condition of Licence to make it a little more effective.  So that Condition of Licence I think would obligate the BDU to carry our signal.

LISTNUM 1 \l 14486             They still get their 25 percent.  That doesn't go away.

LISTNUM 1 \l 14487             COMMISSIONER CRAM:  So your new COL is essentially telling them.

LISTNUM 1 \l 14488             MS STRAIN:  Yes.

LISTNUM 1 \l 14489             COMMISSIONER CRAM:  I am asking myself how we could have implemented the ineligibility for the 25 percent of the avails, because we implemented a policy that says they have the 25 percent.  So would we not have to have another policy hearing to say these guys can't have the 25 percent?

LISTNUM 1 \l 14490             That was my concern.

LISTNUM 1 \l 14491             MR. ZOLF:  I don't think so, Commissioner Cram.

LISTNUM 1 \l 14492             I think the way the condition is, as Ms Strain said, it is at its option.  If you carry it through, if the BDU doesn't exercise the option in that way, then nothing would be on those avails except the original material and that would obviously be a sub‑optimal outcome.

LISTNUM 1 \l 14493             Therefore, once the BDU elects at its option to in fact use the avails, it would have to go to the RDU and then the outcome would be exactly as it is today vis‑à‑vis their 25 percent.

LISTNUM 1 \l 14494             So I don't think you need to amend another condition to accomplish that.

LISTNUM 1 \l 14495             COMMISSIONER CRAM:  We have talked about incentives and I want to talk about a disincentive.

LISTNUM 1 \l 14496             The same agreement that I was referring to at 10.4, at 9.1 there is termination for breach of default and it refers to one of the termination bases being the other party "has breached any of its material obligations".

LISTNUM 1 \l 14497             Is it possible that assigning without consent ‑‑ and I hear your argument, but the contract says what the contract says ‑‑ could be perceived as a material breach and therefore the disincentive to the BDU would be the termination of the agreement or the stress of termination of the agreement by the programming services?

LISTNUM 1 \l 14498             MR. ZOLF:  That is one way of looking at it.  I take it you mean that fear of termination of an event ‑‑

LISTNUM 1 \l 14499             COMMISSIONER CRAM:  I'm Turner and I see, my legal beagles see that Only Imagine has taken the avails and replacing them, and I see paragraph 10.4 saying you can't assign without our consent.  I think I would have a fairly good reason ‑‑ although I don't practise law ‑‑ to say it's a material obligation and it's a breach of a material obligation and therefore they could terminate.

LISTNUM 1 \l 14500             MR. ZOLF:  I think one could argue just on its face that in respect of those two‑minute avails, which are incidental aspect of the transaction, that perhaps it is not material.

LISTNUM 1 \l 14501             COMMISSIONER CRAM:  A lot of lawyers would make a lot of money, Mr. Zolf, wouldn't they.

LISTNUM 1 \l 14502             MR. ZOLF:  Right.

LISTNUM 1 \l 14503             COMMISSIONER CRAM:  Not a bad idea.

LISTNUM 1 \l 14504             MR. ZOLF:  That is a socially optimal outcome as well.

LISTNUM 1 \l 14505             COMMISSIONER CRAM:  Yes.

LISTNUM 1 \l 14506             MR. ZOLF:  I think it's not so much that we are saying use it as a carrot for them to avoid termination of their contract.  It's a lot softer than that, I think.  I think what we are saying is that if the Commission were to move forward on the application and say this is how the avails are going to be handled, it's not so much that they are going to go to the BDU to avoid the nuclear solution of a default.  They are just going to go to the BDU and say well, this is now the Commission's policy and as a result we are going to need to modify this contract.

LISTNUM 1 \l 14507             COMMISSIONER CRAM:  I tend to see American lawyers as Rottweilers, so I don't know ‑‑ I hope nobody here wants to sue me on that.

LISTNUM 1 \l 14508             I think there is another way to see it, but we will move on.

LISTNUM 1 \l 14509             I think at page 31 you were going through your conditions in your application and you said you would be responsible for program content.

LISTNUM 1 \l 14510             Let me find that.

LISTNUM 1 \l 14511             At page 31, at the very top:

"OII will be responsible for all programming content it distributes as a replacement to the U.S. advertising."

LISTNUM 1 \l 14512             Who are you responsible to?  Everybody?  The programming services, the U.S. programming services?

LISTNUM 1 \l 14513             MS STRAIN:  That was just I think intended to get to the point that anything we broadcast in that two‑minute avail, whether it's advertising or promotion, we control it.  We are accountable for that.  So we are accountable to make sure that we are adhering to the Commission's various codes, et cetera.

LISTNUM 1 \l 14514             I think that is all it was meant to get at; just specifically with respect to the inserted material.

LISTNUM 1 \l 14515             COMMISSIONER CRAM:  The agreements ‑‑ and I had to get new glasses because I read the agreements ‑‑ talk about liability and indemnification between the BDU and the programming service.

LISTNUM 1 \l 14516             Is that what you mean?

LISTNUM 1 \l 14517             MS STRAIN:  Yes.

LISTNUM 1 \l 14518             COMMISSIONER CRAM:  Here is my example.  The BDUs are liable and have to indemnify Turner.

LISTNUM 1 \l 14519             MS STRAIN:  Yes, we understand.  And that is why we indicated in the application that we are quite prepared ‑‑ and these are sort of common industry type agreements.  You have a contract.  You need to pass obligations on to a third party.

LISTNUM 1 \l 14520             What we are saying is we would be absolutely prepared to observe the obligations in that master contract relating to advertising content, et cetera, and we would be ultimately on the hook.

LISTNUM 1 \l 14521             COMMISSIONER CRAM:  What about the exclusivity clauses, the clauses where they say you can't use so‑and‑so to advertise because we have an exclusive agreement?

LISTNUM 1 \l 14522             Where is that?

LISTNUM 1 \l 14523             There is a notification of these exclusivity agreements ‑‑ it is essentially saying we have agreements that we shall not use these advertisers in a certain place.

LISTNUM 1 \l 14524             You know what I'm talking about.

LISTNUM 1 \l 14525             MR. CRAIG:  Yes, we do.

LISTNUM 1 \l 14526             COMMISSIONER CRAM:  How would you handle that?  Would the BDU be required to tell you?

LISTNUM 1 \l 14527             So Turner would tell the BDU and the BDU would be required to tell you about those exclusivity clauses?

LISTNUM 1 \l 14528             MR. CRAIG:  Yes.

LISTNUM 1 \l 14529             COMMISSIONER CRAM:  Okay.

LISTNUM 1 \l 14530             MR. CRAIG:  You know, we are quite familiar with those types of parameters in barter programming and other kinds of relationships we have had in the past.  We know what it is like to deal with those kinds of rules and regulations from channel operators.

LISTNUM 1 \l 14531             COMMISSIONER CRAM:  And you propose that we, of our own motion, amend the BDUs' COLs if the BDU licence has been around for longer than five years; that we would amend it by our own motion to add the proposed COL.

LISTNUM 1 \l 14532             I have to tell you my concern is, given the contents of the contracts right now, wouldn't that put us in a dicey situation?  Would we be seen as inducing or assisting breach in terms of the assignment?

LISTNUM 1 \l 14533             Maybe I'm overly sensitive because of the CMT issue, whenever.  But I'm wondering about the position of the CRTC doing something where there is a direct contractual obligation to the contrary.

LISTNUM 1 \l 14534             MR. ZOLF:  That is a good question, Commissioner Cram, in the sense of I think Mr. Craig is saying we are happy to abide by those provisions or take on those obligations.

LISTNUM 1 \l 14535             I can be corrected in this, but I don't think the applicant is asking for you, the Commission, to order the contracts to be changed.  I think we are asking the Commission to say that the avails shall be operated, if you will, only by this entity and that we will give assurance that we will not I guess prejudice ordinary commercial arrangements, if you will.

LISTNUM 1 \l 14536             COMMISSIONER CRAM:  I am talking about of our own motion amending the COL in cases where we can, knowing full well that the contract includes a phrase saying "it shall not be assigned"; the avail benefits shall not be assigned.

LISTNUM 1 \l 14537             Where does that put the Commission?

LISTNUM 1 \l 14538             MS STRAIN:  Actually, with that second Condition of Licence that we ‑‑

LISTNUM 1 \l 14539             COMMISSIONER CRAM:  The new one.

LISTNUM 1 \l 14540             MS STRAIN:  The new one, sorry.

LISTNUM 1 \l 14541             And given what you said earlier about sort of building into this, that we would comply with signal integrity, advertising content, et cetera, what this says is where the terms of the affiliation agreements between the licensee and any non‑Canadian satellite services permits the substitution.  So we've kind of contemplated in there that we recognize there has to be some ‑‑ the contract has to permit what it is we are talking about.

LISTNUM 1 \l 14542             So we think that mitigates that concern of yours.

LISTNUM 1 \l 14543             COMMISSIONER CRAM:  In terms of the liability issue, should we be ‑‑ well, I will talk about that later.

LISTNUM 1 \l 14544             I think in your reply you quoted the CCTA in their application as saying it was unlikely that the U.S. programmers would want an increased cut of the pie.

LISTNUM 1 \l 14545             You said, Mr. Craig, that the consumers win.  My concern, though, is that they could lose in that programming services, a lot of them are public entities and they have rapacious shareholders and they want every cent they can get.

LISTNUM 1 \l 14546             What in the event that it is ‑‑ I mean, likely is not a guarantee.

LISTNUM 1 \l 14547             At the end of an affiliation contract, be it by premature termination or otherwise, how do we prevent the U.S. programmer from saying I want a cut of the pie, meaning that the BDUs pay more because they are the contractual people, meaning that the consumers pay more?

LISTNUM 1 \l 14548             How do we prevent that?

LISTNUM 1 \l 14549             MR. CRAIG:  I don't think you can.  I don't think anybody can regardless of whether this occurs or not.  The channel operators in the U.S. will extract as much money out of this market as they can, and they have been quite successful at it so far.

LISTNUM 1 \l 14550             By all estimates, these channels take about $250 million a year out of the Canadian market, with nothing back, and they are very valuable services.

LISTNUM 1 \l 14551             I don't think that anything that we do with those avails has anything to do with the position that they would take on increasing rates because right now they derive no revenue from those avails.

LISTNUM 1 \l 14552             I think, just from a 30,000 foot level, we are having a very deep legal discussion here, and I'm not a lawyer.

LISTNUM 1 \l 14553             COMMISSIONER CRAM:  Between non‑lawyers.

LISTNUM 1 \l 14554             MR. CRAIG:  Yes.

LISTNUM 1 \l 14555             From my perspective, I think it is interesting that you have had some interventions from some of the channel operators who have said no way.  In SPEED they said no way, but whatever the CRTC tells us to do, we'll do.

LISTNUM 1 \l 14556             Not everybody intervened.  We did have discussions with channel operators in the U.S. and showed them our proposal and they said their general view was ‑‑ there has been pressure on these U.S. channels to make some sort of contribution.  There has been talk of levies and different ways to make them pay.

LISTNUM 1 \l 14557             They view, the ones we have talked to, we showed them our proposal as a way for them to be seen to be contributing back to the Canadian system.  I think some of them are very good corporate citizens and will do what is right for the privilege of being able to come to Canada and provide service and take significant amounts of money out.

LISTNUM 1 \l 14558             In terms of the rates and the consumer, I think with our proposal the consumer wins because what we do is we generate new Canadian programs.  So that's a win for the consumer.

LISTNUM 1 \l 14559             I believe that the American channels will continue to push and prod and make the BDUs pay as much as they think they can get them to pay, whether or not we implement this Only Imagine proposal or not.

LISTNUM 1 \l 14560             I don't necessarily agree with the view that our proposal somehow triggers them to make the BDUs pay more.

LISTNUM 1 \l 14561             COMMISSIONER CRAM:  Okay.  I wanted to move on to the BDUs and their repercussions within the BDUs.

LISTNUM 1 \l 14562             Mr. East, you said in terms of the technology that it has to be maintained twice a year.  Is that the idea?  They have to go onto the premises?

LISTNUM 1 \l 14563             MR. EAST:  The technology is absolutely designed to be remotely operated.  One of the manufacturers we were talking to gives the example of a corn field in Iowa.  No one wants to be out there every day or every week or every month.

LISTNUM 1 \l 14564             So we feel it is prudent to suggest that regular maintenance visits may be required, and I think we talked about four times a year.

LISTNUM 1 \l 14565             We also talked about the BDU staff, like Only Imagine providing the equipment to the staff.  It's sophisticated, so providing the configuration information and documentation.  There would have to be some work in concert to make sure it functions properly, but then they can maintain it.  They can install it.

LISTNUM 1 \l 14566             So there are options there.

LISTNUM 1 \l 14567             COMMISSIONER CRAM:  I think I read in your initial proposal that you said it was virtually maintenance free.  You are very confident.

LISTNUM 1 \l 14568             My reaction to that is ‑‑ and I'm a Luddite so I like the old black telephone with the crank around it.

LISTNUM 1 \l 14569             Are you prepared to have sufficient liability insurance to cover the losses to the BDUs if there are problems?

LISTNUM 1 \l 14570             And I'm talking losses including even loss of goodwill.

LISTNUM 1 \l 14571             If the signal is interrupted ‑‑ and I know that all of the new‑fangled people in machinery say it's no problem.  But if the signal is interrupted, it is the goodwill of the BDU that goes.

LISTNUM 1 \l 14572             I guess my reaction is:  Are you prepared to have sufficient liability insurance to cover all of those losses?

LISTNUM 1 \l 14573             MR. CRAIG:  I think the answer is yes, we would.

LISTNUM 1 \l 14574             In terms of signal integrity, we are going to be very concerned about that obviously and we will have certain specs to meet.

LISTNUM 1 \l 14575             The equipment we are talking about installing is redundant.  It's like there's two of everything.  In the unlikely event that it fails, I think the first thing I would say is that the signals passing through our equipment, we are inserting the commercial messages.  A failure would simply mean that the signal passes through our equipment with the American commercial.

LISTNUM 1 \l 14576             COMMISSIONER CRAM:  I read that.

LISTNUM 1 \l 14577             MR. CRAIG:  I think that that does happen from time to time when I watch my local cable operator.  So in terms of equipment failure, that's really what we are talking about.  We are talking about, worst case, this passthrough of the signal.

LISTNUM 1 \l 14578             So if there is a Condition of Licence that said we had to maintain liability insurance, we would certainly accept that.

LISTNUM 1 \l 14579             MR. EAST:  Maybe I could also add, if it is all right, Commissioner Cram, that these signals are engineered to achieve this very objective.  Tens of thousands of commercials are inserted every day in the U.S. in these very same signals.  A lot of the companies use this very same equipment.

LISTNUM 1 \l 14580             The processes are really quite well understood.  The methodology is well understood to make sure it is reliably done.  I think we have tried to take it to the point where this is designed to be a big system.  This isn't, you know, an Iowa corn field approach.  Jeff and I went down to Time Warner in Manhattan and we talked with them and looked at what they do.  They substitute on 52 channels and five HD channels thousands of commercials every day.

LISTNUM 1 \l 14581             I'm an engineer.  I'm never going to say nothing ever fails.  Things fail.  In fact, good engineering is saying:  Okay, what happens when that fails?  What happens when that fails?  And Only Imagine is taking the approach of let's engineer this well.

LISTNUM 1 \l 14582             And let's also make room for BDU input.  They have particular concerns.  We understand headends are different.  Let's make sure the engineering solution addresses them.

LISTNUM 1 \l 14583             They are inserting promos right now.  I think it's a reasonable engineering objective to say that we don't introduce any further risk to signal failure than what exists right now and has for years.

LISTNUM 1 \l 14584             That would be the technical approach.

LISTNUM 1 \l 14585             COMMISSIONER CRAM:  You will forgive me, Mr. East, but I keep remembering the rings that engineers wear came from the wrecked bridge.  I am somewhat sceptical.

LISTNUM 1 \l 14586             You would then agree to indemnify the BDUs for any and all losses associated with technical malfunction.

LISTNUM 1 \l 14587             MR. EAST:  Yes.

LISTNUM 1 \l 14588             COMMISSIONER CRAM:  You want control over placement of the ads.

LISTNUM 1 \l 14589             At page 3 of your letter of October 9, 2006 you said you would give the BDUs access to the inventory in a reasonable manner.

LISTNUM 1 \l 14590             Today you said, I think, in an equitable manner.  There was a difference in terminology.

LISTNUM 1 \l 14591             Yes, at page 27, in the last paragraph:

"The BDUs and the priority services will have equitable access."

LISTNUM 1 \l 14592             As opposed to reasonable access.  Throughout your application I read advertisers and the drama promotion and the digital promotions as having equitable access but reasonable access to BDUs.

LISTNUM 1 \l 14593             You agree that the BDUs, everybody will have the same access, the same equitable access.

LISTNUM 1 \l 14594             MR. CRAIG:  Commissioner Cram, I am going to pass this off to Mr. Tomik.  We have done a lot of thinking about this and I would like him to do that.

LISTNUM 1 \l 14595             But before I do, the short answer is yes, they get equitable access.

LISTNUM 1 \l 14596             I would like to pass it off to Jack here.

LISTNUM 1 \l 14597             MR. TOMIK:  Sure.  Thanks, Drew.

LISTNUM 1 \l 14598             In the case of the BDUs who still have 25 percent of the two minutes available, it pretty much means they are going to have a 30‑second commercial in every break every hour.  So it is very straightforward.

LISTNUM 1 \l 14599             In the case of the other services where the $5 million has been put up for drama promotion and $5 million has been put up for diginets, what is going to happen is, unlike today, annual 52 week schedules will be placed for those allotments.

LISTNUM 1 \l 14600             The schedules will be divided, depending on the number of users, once a year.  Then that schedule will be trafficked on a monthly basis for them.  So they will have the ability to focus and concentrate on whatever it is they are promoting within the month or even within the week.  So it will be very fair and equitable.  We will treat them like paying customers.

LISTNUM 1 \l 14601             COMMISSIONER CRAM:  Speaking of paying, today at page 21, you are waiving the cost recovery from a television program undertaking?

LISTNUM 1 \l 14602             MR. CRAIG:  As we looked at this, Commissioner Cram, in my former broadcast days I spent some money with these BDUs buying different campaigns, and the pricing was all over the place.  So we tried to do some analysis in terms of getting rate cards and trying to figure out exactly what the cost recovery number was.

LISTNUM 1 \l 14603             It was impossible to put a real number on it because it seemed to be all over the place.  So we have basically said in view of that, we are just going to waive the cost recovery figure.  We already have the equipment in place to do it, so we are telling the BDUs and the program undertakings that would get access to these avails that there is absolutely no cost to run the commercials.

LISTNUM 1 \l 14604             Just further to that ‑‑

LISTNUM 1 \l 14605             COMMISSIONER CRAM:  Okay.  In other words, there isn't that insertion fee.

LISTNUM 1 \l 14606             MR. CRAIG:  There is an insertion fee and it varies dramatically.  In Calgary and Edmonton the rates were quite high and in certain areas of the country, in central Canada, they were reasonable.  So we are waiving that.

LISTNUM 1 \l 14607             The other big distinction with our system ‑‑ and Jack may want to talk about this ‑‑ is that right now when you insert on a BDU, if you are a program undertaking and you run a campaign, you have no idea where it runs.  It's strictly ROS.  It is very difficult to change creative.  You get no affidavit confirming that the spots ran in certain shows at certain times.  So it is really like throwing it at the wall.

LISTNUM 1 \l 14608             So a major distinction between our plan and the existing plan is we have a very sophisticated traffic and billing system where we effectively run this like a real network.

LISTNUM 1 \l 14609             So when we go to a Canadian programmer that wants to promote a drama program, as an example, we can target it to a specific demo.  We can run it in certain channels.  We can run the spot and actually give them an affidavit to prove that it did run.

LISTNUM 1 \l 14610             Jack, you may want to comment on the value of that.

LISTNUM 1 \l 14611             MR. TOMIK:  I think you did pretty well.

LISTNUM 1 \l 14612             From my point of view, when you are promoting especially a new drama or a new service, it really is key these days to promote to specific consumers that you want.

LISTNUM 1 \l 14613             If it is a youth oriented drama, you want to promote towards 18 to 34 years old.  If it is something more of a political or historic nature, older people.

LISTNUM 1 \l 14614             Certainly that isn't available right now in the promotion on the BDUs.  It is up to two weeks lead time before you can get on air.  Schedules rotate across all of the services.  So you really can't target.

LISTNUM 1 \l 14615             In the case of Only Imagine, they put forward the notion that they will specifically target by channel and demographic days of the week and creative changes will be done as any other regular broadcast undertaking on literally 48 hours notice.

LISTNUM 1 \l 14616             So if there is release of a new theatrical Canadian movie and they want to say on Monday morning for their promotional time number one movie in Canada, we will be able to do that for them.

LISTNUM 1 \l 14617             COMMISSIONER CRAM:  I am sorry, did somebody hit a microphone?  No.  Okay.

LISTNUM 1 \l 14618             So you have sold the issue of the insertion costs.

LISTNUM 1 \l 14619             Are you proposing that should you have problems with collocation and access that we would be resolving those issues?

LISTNUM 1 \l 14620             MR. ZOLF:  Yes, Commissioner Cram.  In our view, we think the existing infrastructure that the Commission has established for dispute resolution would apply in this case in the event of a dispute concerning that subject matter; for example, the dispute resolution process you articulated in, I think it was, 2000‑65 public notice which talked about a number of methods that that could be effected.

LISTNUM 1 \l 14621             We also think that the general undue preference provisions in the regs would apply as well.

LISTNUM 1 \l 14622             COMMISSIONER CRAM:  There is no way that you could do this without having collocation.  Is that correct?

LISTNUM 1 \l 14623             You couldn't do it remotely.

LISTNUM 1 \l 14624             MR. CRAIG:  What we really need is access to the signal.  As we looked at this, I mean collocation is sort of standard industry practice in our world.  In fact, over the years again in my broadcast world we have lots of equipment collocated in cable headends.  At the request they often times would say look, we want a direct feed from your plant to our plant.  Can you spend the money to put in a microwave unit and maintain it and we will keep it for you.  So I think it is standard practice.

LISTNUM 1 \l 14625             We did see the reaction from some of the BDUs in in the intervention phase, and I think there are some options here.

LISTNUM 1 \l 14626             Really what we need is access to the signals.  One of the things we could do is we could move our equipment to another premises and pass the signal through and back to the cable plant.  That is one solution.  It is not maybe the most practical, but it could be done.  It wouldn't materially affect our cost at all.

LISTNUM 1 \l 14627             One of the other options that may be more palatable is to have an arrangement similar to The Weather Network has with the BDUs, where they need a local box in the cable headend to get the local weather information over The Weather Channel.

LISTNUM 1 \l 14628             We could effectively do the same thing.  We could effectively hand off our equipment to the BDU and allow them to install it and maintain it under contract, so we never have to go in their building.  As long as it works, we are indifferent.  We really don't care.

LISTNUM 1 \l 14629             The guts of our system resides in the network operating centre.  So as we look at it, there are a number of options in terms of how we get our equipment into the headend.

LISTNUM 1 \l 14630             COMMISSIONER CRAM:  Now the CCSA said that some of their members are still paying for equipment to make use of t he avails.

LISTNUM 1 \l 14631             Are you prepared to reimburse them for their unamortized amount?

LISTNUM 1 \l 14632             MR. CRAIG:  Yes.

LISTNUM 1 \l 14633             COMMISSIONER CRAM:  Okay.

LISTNUM 1 \l 14634             We have talked about BDUs.  Now broadcasters.

LISTNUM 1 \l 14635             In your reply to the interventions you talked about the avails being underutilized.  Any idea of the extent of underutilization?

LISTNUM 1 \l 14636             MR. THIESSEN:  Do you mean in terms of how many avails are used by the broadcasters?

LISTNUM 1 \l 14637             COMMISSIONER CRAM:  Yes.

LISTNUM 1 \l 14638             MR. THIESSEN:  Versus the BDUs.

LISTNUM 1 \l 14639             COMMISSIONER CRAM:  No.  Let's talk about programmers first, their 75 percent.  How much of that 75 percent is actually used?

LISTNUM 1 \l 14640             MR. THIESSEN:  Well, we actually looked at that last summer, and very few actual spots were used in our anecdotal study.  It was a very simple study.

LISTNUM 1 \l 14641             COMMISSIONER CRAM:  You watched TV for seven days.

LISTNUM 1 \l 14642             MR. THIESSEN:  I recorded seven days of the specialty channels and literally hired my daughter to go through and list every single time each spot was used and found that the broadcasters use only 15 percent of those spots at all.  The cable company which my home is serviced by was using 51 percent of those spots for their telephone service.

LISTNUM 1 \l 14643             So as far as the impact on the promotions, very little was impacting the television.  There was very few television, I think 3 percent television, and there was about 11 percent radio.  There was very insignificant usage by the system during that study week.

LISTNUM 1 \l 14644             I think all of us have seen a lot of the usage of those spots by other people in various cities and found that they are sporadically used and most of the time by the services.  The BDUs who own services that are broadcast make good use of those avails and especially if I were to look at the usage time periods, the best spots were always used by the BDUs to promote their services in prime time, not the broadcasters.

LISTNUM 1 \l 14645             COMMISSIONER CRAM:  Okay.

LISTNUM 1 \l 14646             MR. CRAIG:  If I could add to that, Commissioner Cram, I think one of the inherent problems of using these avails, as I talked about earlier, is there is no affidavit.  There is no way to target your advertising.  And that's problematic in terms of use.

LISTNUM 1 \l 14647             Just from my own personal experience in trying to use this, it is not the most efficient way to spend money.

LISTNUM 1 \l 14648             As we looked at it in our plant, we have tried to tailor this.  We have tried to tailor the promotion to promote the diginets ‑‑ we believe they need help as they are growing their businesses ‑‑ and also to Canadian drama programming.

LISTNUM 1 \l 14649             With our system, we can tailor those announcements much more specifically and efficiently.

LISTNUM 1 \l 14650             The other point I would make is that radio at one point made good use, I would say, like years ago made pretty good use of this time.  I noticed that in the interventions, even the CAB intervention, there was no mention of the lack of promotional opportunities for radio, and there were no radio interventions specifically on giving these up.

LISTNUM 1 \l 14651             Then that, coupled with the fact that now because the players are bigger and they have cross‑platform opportunities in the case of the Globals and the CTVs and they have specialty channels that are very targeted and they have newspapers and they have heavy web presence, et cetera, the use of these avails by those broadcasters is, I would say, dwindling.

LISTNUM 1 \l 14652             COMMISSIONER CRAM:  In your informal survey, Mr. Thiessen, did you look at promotion of the 91H's and their utilization of those avails?

LISTNUM 1 \l 14653             MR. THIESSEN:  3.4 percent.  I remember that number because it was identifiable.

LISTNUM 1 \l 14654             COMMISSIONER CRAM:  3.4 percent of the entirety of the time.

LISTNUM 1 \l 14655             MR. THIESSEN:  That's correct.

LISTNUM 1 \l 14656             COMMISSIONER CRAM:  So then you are going to say to me ‑‑ and staff has done calculations for me so it's not my own calculations, so they are far more reliable ‑‑ that on the ten services, if all the inventory was totally used, it would be 1,993.8 hours.

LISTNUM 1 \l 14657             This 15 percent ‑‑ is the 91H in addition to the 15 percent?

LISTNUM 1 \l 14658             MR. THIESSEN:  Yes, that would be separate.

LISTNUM 1 \l 14659             COMMISSIONER CRAM:  So to look at the loss to Canadian programming services, it would be 18.4 percent ‑‑ in other words, 20 percent ‑‑ of 1,993 hours, subject to check.  You can figure out your own calculations.

LISTNUM 1 \l 14660             Would that be fair?

LISTNUM 1 \l 14661             MR. THIESSEN:  What we are keeping separate, the 91H services and the 5 percent.

LISTNUM 1 \l 14662             COMMISSIONER CRAM:  You are retaining that.

LISTNUM 1 \l 14663             MR. THIESSEN:  We are retaining those 5 percent by policy.

LISTNUM 1 \l 14664             COMMISSIONER CRAM:  That is true.  So then we are only really talking about 15 percent times 1,993.8 hours of promotion time.

LISTNUM 1 \l 14665             MR. THIESSEN:  This was a one week's study.  I would hate to drive this on my own study; but, yes.

LISTNUM 1 \l 14666             COMMISSIONER CRAM:  Yes.  So that would be ‑‑ if I'm trying to figure this out mathematically, the 15 percent times the 2,000 hours would be what Canadian services would have to look elsewhere for promotion.

LISTNUM 1 \l 14667             But as you say, Mr. Craig, it is a relatively ineffective promotion anyway.

LISTNUM 1 \l 14668             MR. CRAIG:  I would like Mr. Tomik to elaborate on this, please.

LISTNUM 1 \l 14669             COMMISSIONER CRAM:  Sure.

LISTNUM 1 \l 14670             MR. TOMIK:  Yes, it is ineffective because you can't target it from a promotion point of view and you really can't specify days or times.

LISTNUM 1 \l 14671             I think the important thing to note, especially going forward in the consolidations that are coming before you, in a market like Calgary, CanWest will have up to 43 minutes of promotion time available across their new proposed services in this market an hour.  That's 86 spots.

LISTNUM 1 \l 14672             In the case of CTV, with their proposed merger, they would have over 70 minutes an hour across their television platforms to promote themselves in the Calgary market.

LISTNUM 1 \l 14673             In addition, certainly for CanWest, they have the largest daily here.  CTV would enjoy radio cross‑promotion here.

LISTNUM 1 \l 14674             What I'm talking about in terms of the broadcast minutes are the extra two minutes an hour, over and above commercial, that they can use to promote Canadian.

LISTNUM 1 \l 14675             So with those kinds of powerful promotional forces for specifically those companies, or any large company, I think it speaks to time for a new use for this promotion time on the U.S. channels.

LISTNUM 1 \l 14676             COMMISSIONER CRAM:  I want to move on to the $5 million worth of availability for the promotion of Canadian drama and films by broadcasters and program distributors; again, equitable access based on request and the hours of drama produced.

LISTNUM 1 \l 14677             Number one, define drama.  It is ten point drama.  Yes?

LISTNUM 1 \l 14678             MR. CRAIG:  In terms of the promotion?

LISTNUM 1 \l 14679             COMMISSIONER CRAM:  Yes.

LISTNUM 1 \l 14680             MR. CRAIG:  No.  Maybe I will ask Sandra to give you our definition of what drama is in terms of the promotion pool.

LISTNUM 1 \l 14681             MS MACDONALD:  The three pieces that have to do with drama are not identical in every dimension because the needs are not identical in every dimension.

LISTNUM 1 \l 14682             The fund piece is ten point dramas because that is the deep need.

LISTNUM 1 \l 14683             There are lots of eight, nine point dramas, even six to seven point dramas, that are defined Canadian, meet all the rules of Canadian.  We didn't see any reason why those should not be entitled to promotion.

LISTNUM 1 \l 14684             We don't actually have so many hours of any kind of Canadian drama that I think we would run out of time to actually offer as promotion.  We don't have that many movies either.  And many of the movies, of course, are not ten point depending on how they are made.

LISTNUM 1 \l 14685             So the short answer is that I don't think we believe that there are any compelling reasons to actually restrict the promotion minutes to ten point.  We don't believe that there is necessarily all that many ten point dramas to use up all the time that might be available.

LISTNUM 1 \l 14686             COMMISSIONER CRAM:  So six plus point?  Or how would we define Canadian if we didn't have primarily a majority of points?

LISTNUM 1 \l 14687             MS MACDONALD:  As you define it now.  If it's Canadian for you, it should be Canadian enough to be promoted.

LISTNUM 1 \l 14688             COMMISSIONER CRAM:  Okay.  The access is decided based on the requests divided by the hours of drama produced.

LISTNUM 1 \l 14689             What does hours of drama produced mean?

LISTNUM 1 \l 14690             MR. CRAIG:  Basically, as we have thought about this ‑‑ and there are a few points here.

LISTNUM 1 \l 14691             What we would do is we would go to the broadcasters before the broadcast here and say:  What is your total output of new Canadian drama going to be for the broadcast season?

LISTNUM 1 \l 14692             So we would allocate the time based on their projected output.

LISTNUM 1 \l 14693             So if CTV says we are going to do 45 hours and Global says we are going to do 45 hours and Corus says we are going to do 15 hours and Alliance says we are going to do ten, or whatever the case may be, we would allocate the inventory on that basis.

LISTNUM 1 \l 14694             We would then put into the schedule a non pre‑emptable, effectively a buy.  We would treat them like advertisers.

LISTNUM 1 \l 14695             Then we would go to them on a monthly basis and say:  Give us your creative and we will run your time.

LISTNUM 1 \l 14696             Again, we have the ability to target those messages to specific demos.  That is how we envision it working.

LISTNUM 1 \l 14697             It would be non pre‑emptable.  It would be a 60 percent inventory run in prime time, 40 percent in French.  It would be evenly spread throughout the year and we would treat these avails as if they were paid avails by an advertiser.

LISTNUM 1 \l 14698             COMMISSIONER CRAM:  So it is production for the forthcoming year.

LISTNUM 1 \l 14699             MR. CRAIG:  That's correct.

LISTNUM 1 \l 14700             COMMISSIONER CRAM:  Okay.  And what I can't figure out is how program distributors would get in the deal.

LISTNUM 1 \l 14701             MR. CRAIG:  We have done some thinking about that.  Typically on a Canadian feature film there will be a pre‑licence from a broadcaster.  They want the theatrical release promoted because it drives awareness.

LISTNUM 1 \l 14702             So as we have thought about it, we would only make that available if there was a pre‑licence and we would make that availability of time to the person who pre‑licensed that film.

LISTNUM 1 \l 14703             So if citytv pre‑licensed a theatrical release with a window that was going to occur down the road and they were part of the financing structure, we would allocate the time to citytv.

LISTNUM 1 \l 14704             COMMISSIONER CRAM:  Okay.  I couldn't figure out how a distributor would get in there.

LISTNUM 1 \l 14705             One other thing.  I really like the ineligibility if you didn't live up to your commitments and finish the production on the fund.  Would that also happen in the promotion part?

LISTNUM 1 \l 14706             If you didn't finish up or if you didn't follow through on your production, for which you received an allocation from your fund, you were ineligible the next year.

LISTNUM 1 \l 14707             MR. CRAIG:  Yes, and basically the same thing would happen with the fund.  In other words, if you don't have anything to promote, we would then take your share of the revenue that we allocated in advance and prorate it to the rest of the broadcasters.

LISTNUM 1 \l 14708             COMMISSIONER CRAM:  Would you be doing the same thing with the promotion, the $5 million?

LISTNUM 1 \l 14709             MR. CRAIG:  Yes.

LISTNUM 1 \l 14710             COMMISSIONER CRAM:  Okay.

LISTNUM 1 \l 14711             Now the RDU licence.  The problem is we don't regulate necessarily RDUs under the Broadcasting Distribution Regs and you are originating some programming.

LISTNUM 1 \l 14712             So would you object to COLs saying no alteration or deletion save and excepting as authorized?

LISTNUM 1 \l 14713             MS STRAIN:  Yes.

LISTNUM 1 \l 14714             COMMISSIONER CRAM:  No illegal, abusive, obscene comments?

LISTNUM 1 \l 14715             MS STRAIN:  Yes.

LISTNUM 1 \l 14716             COMMISSIONER CRAM:  Section 9, the undue preference?

LISTNUM 1 \l 14717             MS STRAIN:  Yes.

LISTNUM 1 \l 14718             COMMISSIONER CRAM:  Section 12 to 15, dispute resolutions?

LISTNUM 1 \l 14719             MS STRAIN:  Yes.

LISTNUM 1 \l 14720             COMMISSIONER CRAM:  And the requirement of an annual return.

LISTNUM 1 \l 14721             MS STRAIN:  Yes.

LISTNUM 1 \l 14722             COMMISSIONER CRAM:  Thank you.

LISTNUM 1 \l 14723             The drama fund, Ms Macdonald, or anybody, who is going to be administering it?

LISTNUM 1 \l 14724             MS MACDONALD:  What we have said to the production community as we have gone around and talked to them is that we will aim for the most cost effective administrations that will get us a quality result.

LISTNUM 1 \l 14725             So presuming that you do license this, we would look at actually various options, whether it would be something similar, for example, to the CTF which in fact does not administer its own funds ‑‑ it's Telefilm that administers them ‑‑ or the Cogeco fund which is administered by the Independent Production Fund.

LISTNUM 1 \l 14726             There are certainly opportunities that we would examine to talk to people who do the administration of funds to see what would be very efficient.

LISTNUM 1 \l 14727             It might be actually, once we priced it out, practical ‑‑ because drama is not a huge number of hours for the money that flows through, it might actually be reasonably cost efficient to have a few people who actually do the administration for the fund itself.

LISTNUM 1 \l 14728             But we would examine that from the perspective of ensuring that the least reasonable amount of money gets diverted from the screen into administration.

LISTNUM 1 \l 14729             COMMISSIONER CRAM:  The issue, because there would only be one contributor, do you believe it would be necessary that it would be independent?

LISTNUM 1 \l 14730             MS MACDONALD:  That is something that could be discussed certainly.  The reason why we have opted, at least at this stage of the game, for an independent fund is that in fact the Commission has over the years in a variety of contexts supported the creation of a number of funds that stood alone and in fact many of those have been very helpful in the system.  They have been well administered.  They have been useful.

LISTNUM 1 \l 14731             Producers really do like to have a number of doors to knock on.  So there has been real value to the system by having a variety of places to go.  So we started from that perspective.

LISTNUM 1 \l 14732             If there were a desire on the part of the Commission to actually start narrowing the number in general of these things ‑‑ and this fund would be thought of in the context of all the other private funds that are out there ‑‑ then obviously we would follow the route that was determined to be the most effective for the ultimate outcome.

LISTNUM 1 \l 14733             COMMISSIONER CRAM:  And in any event the fund would operate under all of the criteria, Public Notices 1997‑98 and 1999‑29.

LISTNUM 1 \l 14734             MS MACDONALD:  Yes.

LISTNUM 1 \l 14735             COMMISSIONER CRAM:  Thank you.

LISTNUM 1 \l 14736             Now there has been, of course, between the CAB and yourselves some issue as to whether you are going to use the avails on ten services or 17 services.

LISTNUM 1 \l 14737             You have said today that you would limit it to ten, if I have it correct, but that you would want the ability to substitute.

LISTNUM 1 \l 14738             Is that correct?

LISTNUM 1 \l 14739             MR. CRAIG:  That's correct, Commissioner Cram.

LISTNUM 1 \l 14740             COMMISSIONER CRAM:  So if we said ‑‑ I'm kind of concerned about sort of saying no more than ten services as COL.  Would it be sufficient that we would name the services?

LISTNUM 1 \l 14741             I would think you would have to ‑‑ and I don't know how we would do it.

LISTNUM 1 \l 14742             Apparently Rogers is in the process of moving four of these to digital.

LISTNUM 1 \l 14743             MR. CRAIG:  Right.

LISTNUM 1 \l 14744             COMMISSIONER CRAM:  Shaw has already moved three, I gather.

LISTNUM 1 \l 14745             MR. CRAIG:  Correct.

LISTNUM 1 \l 14746             COMMISSIONER CRAM:  And I don't know whether ‑‑ I mean, depending on the capacity of the system, I don't know whether they have done it in all of their licence locations or not.

LISTNUM 1 \l 14747             So it would virtually be a COL in relation to each BDU headend, I guess, naming the specifics?

LISTNUM 1 \l 14748             MR. CRAIG:  Well, as we have thought about it and as we keep referring to, to generate the $170 million to drama we effectively need 1 percent of tuning.

LISTNUM 1 \l 14749             So how we have arrived at these numbers is we have taken the ten channels.  The audience delivery today when you take the tuning of the ten and the fact that we are only going to sell 70 percent of the inventory, two minutes an hour, that is equivalent of delivering 1 percent of the tuning.  And that gets the $170 million into the system.

LISTNUM 1 \l 14750             That's why, as we looked at it, we said:  Look, ten works but if one of them moves into another tier, it means we can't get access to that tuning to generate the $170 million.

LISTNUM 1 \l 14751             COMMISSIONER CRAM:  The issue is more in the framing of how we do this.

LISTNUM 1 \l 14752             MR. CRAIG:  Yes, I understand.

LISTNUM 1 \l 14753             MS STRAIN:  What we thought of was that we identified these ten but we didn't want to be limited to these particular ten.  We wanted to have ten in terms of number because that gives us the 1 percent of tuning that Drew just spoke of, but we wanted access to the eligible satellite services list to a maximum of ten that we would choose.

LISTNUM 1 \l 14754             So it wouldn't be per headend.  It would apply to all the headends, and it would be those ten subject to ‑‑ the channel shuffles that have recently occurred don't really impact this business plan.

LISTNUM 1 \l 14755             COMMISSIONER CRAM:  So for us control freaks, the broadcast nannies of the world, we would not even know which service from the whole list of eligible satellite ‑‑

LISTNUM 1 \l 14756             MS STRAIN:  We would have to provide notice to the BDUs.  We would do that.

LISTNUM 1 \l 14757             COMMISSIONER CRAM:  Okay.  Would you eventually want access to the French services ‑‑ Planète?

LISTNUM 1 \l 14758             MS STRAIN:  I don't think we had contemplated that, but perhaps.

LISTNUM 1 \l 14759             COMMISSIONER CRAM:  What about the non-American foreign services ‑‑ BBC?

LISTNUM 1 \l 14760             MR. CRAIG:  I think that we keep coming back to 1 percent.

LISTNUM 1 \l 14761             Our model is based on ‑‑ and we understand the difficulty in trying to hem this thing in, but in terms of impact, what we are seeing is that 1 percent of the tuning has a negligible impact on the existing players in this business, because some of the money is going to be new and some is going to come from them, and we generate a significant amount of money for Canadian drama.

LISTNUM 1 \l 14762             Our whole plan is based on that 1 percent tuning.  Right now, the way the 10 channels are situated on the dial, and the audience that they deliver, is the equivalent of 1 percent.

LISTNUM 1 \l 14763             As we approached it, we said that if one of these channels moves into a strange digital tier, we would like the opportunity to substitute that channel with another channel of equal value.

LISTNUM 1 \l 14764             COMMISSIONER CRAM:  I am going to re‑think this.  Is our policy of avails in relation to any foreign service other than American services?

LISTNUM 1 \l 14765             Mr. Zolf, help me.

LISTNUM 1 \l 14766             MR. ZOLF:  Commissioner Cram, I think you are chasing the right issue, because I think the current position, that which is applicable today, is only in respect ‑‑ I think it actually has the language that the U.S. ‑‑ or the non ‑‑

LISTNUM 1 \l 14767             I'm sorry, does it have non‑Canadian?

LISTNUM 1 \l 14768             No, it is, actually, comprehensive.  It doesn't refer to the U.S. services, it refers to the non ‑‑

LISTNUM 1 \l 14769             COMMISSIONER CRAM:  Yes.  We couldn't do that, because we would be discriminating, probably, against ‑‑

LISTNUM 1 \l 14770             MR. ZOLF:  In any event, the question is a factual matter:  Do those, for example, Planète, et al., have avails?

LISTNUM 1 \l 14771             COMMISSIONER CRAM:  That's a question, too, yes.

LISTNUM 1 \l 14772             MR. ZOLF:  I am not aware of ‑‑

LISTNUM 1 \l 14773             I am inclined to say that they don't, but I would think it is more something that reflects the U.S. market structure practice, giving over the avails for the local cable operator ‑‑ municipally franchised cable operators.

LISTNUM 1 \l 14774             COMMISSIONER CRAM:  Okay.  Why only 50 percent for drama?  Why not 60 or 70?

LISTNUM 1 \l 14775             MR. CRAIG:  The way we designed this thing from the very beginning was, we tried to be as efficient as we could.  As we looked at the technical facilities that we would need, the sales infrastructure, the traffic infrastructure, the way to connect all of this together ‑‑ and we looked at a return on investment, if you will, for the business ‑‑ we kind of designed it, from the ground up, to be as efficient as we could.

LISTNUM 1 \l 14776             To take you back to our return on investment, it is about 15 percent of the licence.  Our PBIT is about 15 percent over the licence term, compared to 25 to 30 percent for the specialty channel operators.

LISTNUM 1 \l 14777             Our objective was to make a reasonable return on investment and put in as much as we could and be as efficient as we could.

LISTNUM 1 \l 14778             As we looked at our plan, we followed the CCTA proposal very carefully, and where they put in, effectively, at the end of the day, 25 percent for Canadian programming, we looked at designing a more efficient service that delivered double that to the system.

LISTNUM 1 \l 14779             MR. THIESSEN:  If I could add to Drew's comments, it isn't just the 50 percent we are doing.  We looked at our sell-out rates for the first couple of years and realized there was unused inventory and thought that this would be a great place to use it for promotion.

LISTNUM 1 \l 14780             So we are sucking a lot of the inventory out of monetizing it and giving it back to the system in the way of promotions.

LISTNUM 1 \l 14781             COMMISSIONER CRAM:  Staff, again, have calculated that, in terms of the inventory, it would add 18 minutes an hour of commercial inventory in the national advertising market.

LISTNUM 1 \l 14782             Would you agree, subject to check?

LISTNUM 1 \l 14783             Eighteen minutes.

--- Pause

LISTNUM 1 \l 14784             MR. CRAIG:  Jack is doing the math.

LISTNUM 1 \l 14785             COMMISSIONER CRAM:  We can come back to it.

LISTNUM 1 \l 14786             I am just saying subject to check, I am not going to ‑‑

LISTNUM 1 \l 14787             MR. CRAIG:  We will check and be right back.

LISTNUM 1 \l 14788             COMMISSIONER CRAM:  Okay.  Staff tells me that this is equivalent to two analog specialties being put into the system.

LISTNUM 1 \l 14789             Could you look into that also, Mr. Tomik?

LISTNUM 1 \l 14790             Would you agree that this has the potential to devalue the national inventory?

LISTNUM 1 \l 14791             MR. CRAIG:  We spent a lot of time talking about this, and I would like Jack to give you his perspective.

LISTNUM 1 \l 14792             Also, we have Florence George with us on our panel, and Florence has spent her career as a media buyer, and I believe that she has a very good perspective on the advertiser desire for these avails and what they can do to actually enhance the system.

LISTNUM 1 \l 14793             MR. TOMIK:  In terms of the numbers you asked about, six of the U.S. services would be saleable inventory of 1.5 minutes per hour, because, obviously, it wouldn't be fair to count the 25 percent of promotional time that is going to the BDUs.

LISTNUM 1 \l 14794             So that would be a total of 9 minutes.

LISTNUM 1 \l 14795             And, then, four of the services are at 2.5.

LISTNUM 1 \l 14796             So, yes, 19 is correct.

LISTNUM 1 \l 14797             In terms of being comparative to two Canadian services, I would have to check those numbers, but in terms of the overall impact ‑‑ and I will ask Florence George to speak to the impact from her point of view, as a substantial television buyer in this market ‑‑ we feel, because of the nature of the services, and the fact that there was quite a pent‑up demand from an advertiser's point of view to use these services after such a long time, that of the original application, $30 million in Revenue Year 1, probably about 30 percent of that will come from new money ‑‑ advertisers who are excited enough to say "I can finally be on CNN" or "I can finally be on Spike", and it will bring new money into the system.

LISTNUM 1 \l 14798             If that sort of rationale holds true and about 70 percent is coming from other broadcasters across the country, that would amount to about $20 million, and that $20 million would be spread over, basically, $3 billion ‑‑ or, at that time, $3.3 billion in the television market.

LISTNUM 1 \l 14799             The impact, in my estimation, is so negligible that it is really hard to gauge who it would hurt.

LISTNUM 1 \l 14800             In fact, I noticed through the intervention process that no other intervenor who is a broadcaster could name a number.

LISTNUM 1 \l 14801             In my experience, when new services are put into a market, usually incumbents come with a very specific number, to the penny, of what they think it is going to hurt their business.

LISTNUM 1 \l 14802             I was surprised to see that nobody did that here.

LISTNUM 1 \l 14803             I think the reason is because it is such a negligible amount, spread across the system, that nobody could really measure it.

LISTNUM 1 \l 14804             Florence, do you have any comments?

LISTNUM 1 \l 14805             MS GEORGE:  The comment I would have as a buyer is that this opportunity gives us the ability to reach a unique audience, which has been left out for the past years.  That is a great benefit to the buyer.

LISTNUM 1 \l 14806             I am happy to see a little bit of competition coming into the marketplace.  There is not too much there, but the inventory that is being put forth will create some viable competition in the marketplace, and we need that, considering what is going on in the overall broadcast industry.

LISTNUM 1 \l 14807             The other point that I would like to make is, I believe there is actually going to be new moneys, not coming necessarily from existing broadcasters, but new moneys coming from clients that have shied away from TV ‑‑ the beer business, for instance.  We have been very frustrated finding appropriate programs for them, and they have gone off into other media, whether it's out of home, whether it's magazine, whether it's the internet.

LISTNUM 1 \l 14808             We find that that money has gone out of TV and moved to other vehicles.

LISTNUM 1 \l 14809             When they know that the opportunity is here to place advertising for their demographic ‑‑ let's say Labatts ‑‑ and they use the U.S. specialties, my feeling is that they will decide that, if we are going to go forward with TV and we are going to use the U.S., then we will create a campaign that will flesh out their weight.

LISTNUM 1 \l 14810             I think, actually, that it will grow a bit.

LISTNUM 1 \l 14811             Maybe I'm optimistic, but ‑‑

LISTNUM 1 \l 14812             COMMISSIONER CRAM:  What is the value of the inventory?

LISTNUM 1 \l 14813             MS GEORGE:  Pardon me?

LISTNUM 1 \l 14814             COMMISSIONER CRAM:  Would it grow the CPR?

LISTNUM 1 \l 14815             MS GEORGE:  Which CPR?

LISTNUM 1 \l 14816             COMMISSIONER CRAM:  The national inventory.

LISTNUM 1 \l 14817             Would it raise the rates for national inventory?

LISTNUM 1 \l 14818             Is that what you are saying?

LISTNUM 1 \l 14819             MS GEORGE:  No, I'm not saying that at all.

LISTNUM 1 \l 14820             COMMISSIONER CRAM:  The question was, putting this commercial inventory into the system, would you agree that it has the potential to devalue the national inventory?

LISTNUM 1 \l 14821             MS GEORGE:  It is such an insignificant amount that I don't think it will have any issue with the value of the existing inventory.

LISTNUM 1 \l 14822             MR. TOMIK:  Commissioner Cram, to follow on that ‑‑ firstly, to answer your question, the revenues, in terms of advertising, are about the impact of two services, as you mentioned earlier.

LISTNUM 1 \l 14823             COMMISSIONER CRAM:  I should thank staff.  They are the ones that did it right.

LISTNUM 1 \l 14824             MR. TOMIK:  Staff, you are on the money.

LISTNUM 1 \l 14825