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 / SUJET:

Further to call for applications for a broadcasting licence to

carry on an over-the-air digital/high definition (HD) television

programming undertaking to serve locations across Canada /

Suite à l'appel de demandes de licence de radiodiffusion visant

l'exploitation d'entreprises de programmation de télévision

numérique/haute définition (HD) en direct pour desservir

l'ensemble du Canada

HELD AT:                              TENUE À:

Conference Centre                     Centre de conférences

Outaouais Room                        Salle Outaouais

140 Promenade du Portage              140, Promenade du Portage

Gatineau, Quebec                      Gatineau (Québec)

February 13, 2008                     Le 13 février 2008

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

Further to call for applications for a broadcasting licence to

carry on an over-the-air digital/high definition (HD) television

programming undertaking to serve locations across Canada /

Suite à l'appel de demandes de licence de radiodiffusion visant

l'exploitation d'entreprises de programmation de télévision

numérique/haute définition (HD) en direct pour desservir

l'ensemble du Canada

BEFORE / DEVANT:

Konrad von Finckenstein           Chairperson / Président

Michel Arpin                      Commissioner / Conseiller

Len Katz                          Commissioner / Conseiller

ALSO PRESENT / AUSSI PRÉSENTS:

Cindy Ventura                     Secretary / Secretaire

Peter Foster                      Hearing Manager /

                                  Gérant de l'audience

Jean-Sébastien Gagnon             Legal Counsel /

                                  Conseiller juridique

HELD AT:                          TENUE À:

Conference Centre                 Centre de conférences

Outaouais Room                    Salle Outaouais

140 Promenade du Portage          140, Promenade du Portage

Gatineau, Quebec                  Gatineau (Québec)

February 13, 2008                 Le 13 février 2008

- iv -

           TABLE DES MATIÈRES / TABLE OF CONTENTS

                                                 PAGE / PARA

PHASE II (Cont'd)

INTERVENTION BY / INTERVENTION PAR:

Crossroads Television System                     242 / 1451

CanWest MediaWorks Inc.                           258 / 1536

Rogers Communications Inc.                        286 / 1677

CTVglobemedia Inc.                                309 / 1859

CHCR Limited                                      335 / 2005

Bell ExpressVu                                    350 / 2076

CFTPA                                             364 / 2153

PHASE III

REPLY BY / RÉPLIQUE PAR:

YES TV Inc.                                       389 / 2264

HDTV Networks Inc.                                395 / 2295

Gatineau, Quebec / Gatineau (Québec)

‑‑‑ Upon commencing on Wednesday, February 13, 2008

    at 0904 / L'audience débute le 13 février 2008

    à 0904

1445             THE CHAIRPERSON:  Good morning.

1446             Madam Secretary, whom do we have today?

1447             THE SECRETARY:  Thank you, Mr. Chairman, and good morning to everyone.

1448             We will now continue with Phase II in which interveners appear in the order set out in the Agenda to present their intervention.

1449             We will now proceed with the presentation by Crossroads Television System.  Appearing for Crossroads Television System is Mr. Stewart.

1450             Please introduce your colleague, after which you will have 10 minutes for your presentation.

INTERVENTION

1451             MR. STEWART:  Good morning, thank you.

1452             Mr. Chairman, Commissioners Katz and Arpin and Commission Staff, thank you for allowing CTS to appear before you today.

1453             My name is Glenn Stewart, Director of Sales and Marketing and with me is Matt Hillier, our Corporate Controller and Privacy Officer.

1454             The important issues outlined in our written submissions appear to be shared concerns for most over‑the‑air broadcasters.

1455             CTS opposes both these applications in general terms for most of the same reasons articulated and well documented by our colleagues at CAB and the larger broadcast groups.  However, we felt it necessary for CTS as a small truly independent and not‑for‑profit broadcaster to put our concerns on the public record and to appear at these proceedings.

1456             In our view it would be prudent and in the best interests of the Canadian broadcast system to ensure that all over‑the‑air broadcasters have the opportunity to fully transition to digital by 2011 before services such as these are licensed.

1457             Furthermore, we believe that it would be unfair to existing broadcasters, the BDUs, as well as the applicants themselves to approve these applications in advance of the very crucial CRTC hearings commencing April 7th.

1458             We have serious concerns about the applicants' expectations regarding channel placement, priority carriage, simulcast opportunities and distant signal status, given the specifics of their application, especially due to the lack of local content to be offered in each market.

1459             It would be unfair for HDTV to be accorded the same rights and privileges as existing over‑the‑air broadcasters who provide significant local program content and other community services in the markets in which they operate.  Permitting dual status would be inappropriate in these circumstances.

1460             To be clear, however, the two issues that would most negatively affect CTS would be:

1461             One, the introduction of a new HD TV services into Calgary and Edmonton so soon after granting three new licences in the late spring of 2007; and,

1462             Secondly, the addition of a new service, either HDTV or YES TV in Toronto.  Toronto is a saturated and extremely fragmented market, a new entrant will, by necessity, take advertising revenue from existing stations.

1463             MR. HILLIER:  To illustrate, we would like to walk you through the potential impact on CTS.

1464             In HDTV's Appendix 4A, there were planned 650‑million in national sales in the first licence period.  This contained a ramp‑up from 2.5‑million in year one to 176‑million in year seven, a massive growth curve.

1465             The Applicant has said they would garner three per cent of the national sales market, but the critical questions for us:  Whose market and whose sales?

1466             The markets relevant to CTS are Toronto, Ottawa, Calgary and Edmonton, representing by our best estimate about 50 per cent of national sales.  So, about 325‑million of HDTV's projected revenues would come from these three markets.

1467             HDTV's assertion that 35 per cent of its revenues would be new spending is aggressive, especially in the mature Toronto market.  But let's assume that their assertion that revenue taken from existing off‑air stations of 15 per cent plays out.

1468             The result of 15 per cent of 325‑million is about 49‑million, or 7‑million per year.  Year seven itself would be 13‑million from these markets.  Again, who would the 7‑million per year, or 13‑million in year seven come from?  Likely not the major national broadcasters with their top 20 programming, therefore, it would be stations like CTS that these amounts would most impact.

1469             Though to some it may not seem like big dollars, but even 7‑million in revenue taken would eclipse CTS' total commercial revenues from these three markets.

1470             So, despite HDTV's assertion that their strategy would "build a wall to protect the local broadcasters", or "protecting those that are most precarious", CTS would precisely be that kind of local broadcaster most impacted in our three markets.

1471             MR. STEWART:  As a small independent broadcaster, we would likely lose commercial revenue in much the same way as Sun TV, which is Quebecor, A‑Channel, now it's CTVglobemedia, and perhaps even OMNI.1 and .2, which is Rogers.  The difference, of course, is that we are not part of a larger media empire and, therefore, may suffer the greatest harm.

1472             We launched our local commercial religious stations in Calgary and Edmonton on October 8, 2007.  CanWest has fired up its re‑broadcast transmitters for Red Deer and now has a second successful brand which is E! in these markets.  Rogers has yet to launch its OMNI stations, but once launched they too will have a second set of stations to go along with their newly acquired Citytv brand.

1473             We are asking the Commission to allow time for these markets to more fully digest these new stations and appearings before considering a new entrant.

1474             For these reasons and others outlined in our written submission, we respectfully request that the Commission deny these applications.

1475             However, should either of these applications be approved, at the very least we ask that dual status be withheld as a condition of licence in order to minimize the negative impact on existing local over‑the‑air stations, and CTS specifically, as they make the transition to digital by August, 2011.

1476             We'd be pleased to answer any questions at this time.

1477             THE CHAIRPERSON:  Thank you.

1478             I notice that you make the point that HDTV will have no local programming and no community involvement.

1479             What is the local programming or community involvement of your station?

1480             MR. STEWART:  We were licensed as local over‑the‑air stations in both Calgary and Edmonton and have been that in Toronto for 10 years now.

1481             We produce a lot of local programming, perhaps more than many broadcasters.  "The Michael Coren Show" is a flagship show, "On The Line" with Christine Williams, "Faith Journal".  Matt, you could probably mention more offhand.

1482             MR. HILLIER:  Yeah.  "Behind the Story", and we also commission some single faith, multi‑faith programming and "Real Life" is another show that we produce out of the Toronto office and in Calgary and Edmonton we have flagship programs called "Top Story" and we have "Close‑Up" and "The Priest, the Monk and a Rabbi", and...

1483             THE CHAIRPERSON:  And they are locally produced, however, I was thinking in terms of local, of relevance to the community; is there some station in Toronto that Torontonians would identify with or it takes issues there of interest to Torontonians but not necessarily to Vancouverites or the same thing with Edmonton, et cetera.  Do you have local programming in that sense?

1484             MR. STEWART:  Absolutely, Mr. Chair.  Michael Coren is a well‑known local Toronto broadcaster, Christine Williams features local issues and stories.  They may be of national scope, but all the guests on her show and on Michael's show are from the region.

1485             MR. HILLIER:  And for "Real Life" as well, they get out into the community, around the Golden Horseshoe area and they also have field reporters in Calgary and Edmonton as well that try to report stories from those local communities as well.

1486             THE CHAIRPERSON:  Secondly, you mentioned you are preparing for migration by 2011 like everybody else.  Exactly what are you doing in terms of that and are you going to be there by 2011, or are you going to be there earlier than 2011?

1487             MR. HILLIER:  Thank you, Mr. Chair.

1488             For the Toronto, main Toronto market we actually launched our digital signal on January 7th of this year ‑‑ and correct me if I'm wrong, Glenn ‑‑ but we have probably about true HD, probably about 15 hours on our schedule, 15 to 20.

1489             MR. STEWART:  Actually we have two and a half hours of true HD, the remainder are SD converted ‑‑ up converted, but we have very little to do in the Burlington operation in order to go true HD.

1490             And without twisting our controllers' arms, I would expect that we'd be fully digital in Ontario or at least from the Burlington studios by this time next year.  We already have installed HD cameras in the studios and we just have to change over our switcher at this point and, of course, I'm not an engineer, but there's not a lot left to do in Ontario.

1491             THE CHAIRPERSON:  And in Alberta?

1492             MR. STEWART:  In Alberta, we are fully digital in terms of operations.  We work with independent local producers and part of our contracts are that they be delivered HD capable.

1493             Our challenge in Alberta is the installation of HD transmitters, which we will have by 2011.  We would like to do it earlier, but if we continue to face challenges such as what we have before us today, then it will in all likelihood be at the end, at 2011 before we can do that.

1494             THE CHAIRPERSON:  Well, I'm just trying to get a hold on the comfort factor you want here, because Mr. Bitove tells us that he will be up in a year at the earliest and then he'll be a fledgling station ‑‑ network, station, whatever you want to call it and it will take him some time to get there, et cetera.

1495             So, you are established, you are already on the way up to migration.  You are already ready in Ontario, you tell me, and you are operating digitally in Alberta but you don't have transmissions yet.

1496             Where is ‑‑ I mean, this is after all not a totally regulated market.  We still have a free economy.  There is some certain competition, et cetera.  Where is the threat that you see from Bitove given that he is new, that he is not going to be there for another year and you are already well established from what I gather on the way to migrate to digital?

1497             MR. STEWART:  Certainly, in Ontario, Mr. Chair, we are.  Our larger concern is Alberta.  We are facing challenges in start up.  Omni has yet to start up.  We would like for, if at all possible, the Commission to give us a little breathing room ‑‑ and the other broadcasters.

1498             If I take us back to 2005 the first or the most recent applications were denied in part because, I believe, the Commission felt that the markets were not back to where everyone hoped they would be.  But you also gave a lot of thought with respect to CHUM's argument about giving them some room when they took over the former Craig stations.  And in that instance we were talking about stations already in the market.

1499             In this instance in 2007, going into 2008, we are talking about three new entrants going into the market at one time.  And we would be very grateful if we had time to have the market digest these three new stations and see what happens once we come out of the April hearings, whatever determinations are made at that point in terms of what the new playing field will look like.

1500             At that point presumably there will be new entrants coming thereafter, but at least we will all know.  Existing broadcasters, BDUs and everyone will know what the ground rules are.  We likely won't be having the debate about whether dual status is applicable or warranted or the proper thing to do, based on current regulation.

1501             THE CHAIRPERSON:  And the fact that you are a specialty station, you know primarily a religious station, you still ‑‑ what impact would Mr. Bitove's network have on you?  I mean he himself said he does not plan to do any religious broadcasting yesterday.  So the audience presumably that he attracts will be quite different than what ‑‑ the audience that you are serving.

1502             MR. STEWART:  Well, Mr. Chair, we are a niche broadcaster.  We are special in the sense that we are a niche broadcaster but we are not a specialty service.  We don't enjoy pass‑through subscription fees, et cetera.  Our sole revenue sources are block programming sales and commercial spot sales.

1503             And while Mr. Bitove, with respect, says that they are only going to peel off 3 percent of the market, our belief and our experience has been that it's always the stations at the lower end that suffer the greatest setback.  Once the advertising pool is whittled down and you get through your CTVs, your Globals, your Rogers, formerly the CHUM group of stations, then the remainder of the money kind of filters down to the rest of us.

1504             And if you peel off another layer off of that money there is less for those of us at the bottom end.  We don't expect that CTV and Global will.  Yes, they will see reductions in dollars in terms of pure amounts.  As Matt stated earlier, in our opening comments, our total revenues are not that large but in the circumstance of another entrant coming in we will feel the brunt of that most likely.  And with respect to Toronto, either of the services will have somewhat of an impact on what we do.

1505             THE CHAIRPERSON:  In your last paragraph where you sort of as a plan B say if we approve it we should not give them dual status, just so I understand exactly what you mean, that we will give them mandatory carriage for their digital only but not for the analog; is that the idea?

1506             MR. STEWART:  Correct.  I mean, we are not anticompetitive.  We believe in the open market system and CTS is a niche religious broadcaster, you are quite right.  We cater to a fairly specific audience and get support from that group.

1507             But by the same token, every day we have to go out and compete in the national spot sales market.  So if the new entrant has all the rights and privileges that existing broadcasters have including ourselves, it will make our job that much harder.

1508             Now, whether or not the HDTV business plan can go forward based on not having analog carriage, that's not for us to determine.  But certainly we would ask that the Commission pursue that line of questioning because that's really the thing that is going to affect us the most.

1509             THE CHAIRPERSON:  Okay, thank you.  Those are my questions to you.

1510             Do my colleagues have any questions?

1511             COMMISSIONER KATZ:  I just have one question.  You run through a financial scenario on here as well.  At the same time, you say that if the Commission is to licence the HDTV application Calgary and Edmonton are particularly sensitive given the timelines since the last time licences have been awarded.

1512             The argument that you make is equally applicable five years from now as it is today; the fact that Edmonton and Calgary have just been licensed in the last two years or so.  Notwithstanding that one can make the same financial arguments you have made here at any point in time, because what you are looking at here is the impact on your business and you are saying you will be impacted negatively by someone else coming in, but it's irrespective of when the previous person was licensed or not.

1513             MR. STEWART:  With due respect, Commissioner Katz, not really in our instance.  We will ‑‑ all we are asking for is time to get our legs in these markets.  CTS has a habit of not coming before the Commission asking for help in that regard.

1514             We will make our business model work if given the appropriate amount of time to allow the market to digest these three new entrants.  To lump another one on top of, in short order, isn't something that in our view will be healthy certainly for us.  And I can't speak for the other broadcasters.

1515             But again I draw your attention back to the fact that we are a truly independent small operator.  We don't have a fallback position with respect to a corporate synergy, if you will, and revenue from other markets, et cetera.  And we only ‑‑ we only play in really the one arena which is spot national sales.  And that's what will be likely most effective in those markets.

1516             We are not asking for a five year moratorium or anything of the kind.  This just comes on the heels of the start‑up system.  And I guess if I think back to Mr. O'Farrell's comments yesterday, it is the timing more than anything else that will harm CTS in the near term.

1517             COMMISSIONER KATZ:  If this was a cat 2 application would you be as concerned with it being ‑‑

1518             MR. STEWART:  No.

1519             COMMISSIONER KATZ:  You would not?

1520             MR. STEWART:  No, no.  Our concern is that it will be conventional over‑the‑air and have all the rights and privileges of a conventional station when indeed our belief is the premise of the application is to take us higher to the next level, new technology, et cetera.  And the Commission has put the onus on existing broadcasters to come up to that same level by 2011.  And I think many are doing it even quicker.

1521             But this is just one more challenge added on to the top that, frankly, we don't need at this time.

1522             COMMISSIONER KATZ:  So it's the rights and the privileges?

1523             MR. STEWART:  Yes.

1524             COMMISSIONER KATZ:  Specifically which ones are most vulnerable to you?

1525             MR. STEWART:  Channel placement, priority carriage, low on the band, simulcast opportunity ‑‑ not because we enjoy simulcast opportunities.  We are not in that game.  But I think Mr. Johnson referred to, in his comments, about you know looking for that one hit that CTV and perhaps Global miss or that sleepy hit.  Well, if they get that then they have got to show that that capitulates them into the Top 20 programming arena.  And that alone siphons off a large amount of money.

1526             So it's a question of really those of us at the lower spectrum who don't have simulcast programming, big U.S. programming, commanding the largest chunk of the advertising revenues.  We are the ones who suffer.

1527             Similarly, and I don't want to get off topic but you know we are able to go to 14 minutes an hour and then 15, and so on and so forth.  Again, for a little station like CTS and those who don't have the larger programs that is of a little comfort because there is a lot more money that is going to get shifted by the advertisers into those bigger shows because there is more veil in those bigger shows.

1528             So again, as a small, independent broadcaster we are the ones who don't benefit directly from those kinds of measures.

1529             COMMISSIONER KATZ:  Those are my questions.

1530             THE CHAIRPERSON:  Okay, thank you.

1531             MR. STEWART:  Thank you.

1532             MR. HILLIER:  Thank you very much.

1533             THE SECRETARY:  I would now invite CanWest MediaWorks Inc. to come forward.

‑‑‑ Pause

1534             THE SECRETARY:  Appearing for CanWest is Ms Charlotte Bell.

1535             Please introduce your colleagues, after which you will have 10 minutes for your presentation.

INTERVENTION

1536             MS BELL:  Thank you.

1537             Good morning, Chairman, Vice‑Chairman, monsieur le vice‑président, Commission staff.

1538             For the record, my name is Charlotte Bell and I am Senior Vice‑President of Regulatory Affairs for CanWest.

1539             I am joined today by a number of my colleagues.  Beginning at my immediate right, which is your left, is Barb Williams, Executive Vice‑President of Content.

1540             To my immediate left is Kathy Gardner, Senior Vice‑President of Integrated Media Research and Corporate Promotions.

1541             And next to her is Brad Kubota, Senior Vice‑President, Revenue and Inventory Management.

1542             We appreciate the opportunity to appear before you today.  As you know, we filed a detailed written intervention on January 24th and it's not our intention to repeat all of our written comments here today.

1543             We followed the deliberations that took place yesterday and we note the undertakings of both applicants to ameliorate their proposals to somewhat mitigate certain shortcomings that were raised by intervenors.  But the fact remains that regardless of these changes, the conventional television marketplace is not growing and it continues to experience significant pressure from a variety of competitive forces.  In our view whatever benefits might result in licensing these services at this time will be outweighed by the impact it will have on the system.

1544             While we oppose both applications, we are particularly concerned with the HDTV proposal to establish what appears to be a super station that would enjoy the same carriage and other benefits as a national network without incurring the high costs of operating a network.

1545             HDTV suggested that incumbent broadcasters were self‑serving in opposing their proposal.  If we operated in a free market environment absent of significant cultural and social obligations I think that might be a fair statement.  But that simply is not the case.

1546             It is also why the Commission's licensing criteria requires applicants to clearly demonstrate that there is a market and demand for the proposed service.  It is also why the Commission typically ensures that the licensing of a new entrant will not impede on the ability of incumbents to continue to meet their obligations.

1547             As you know, conventional broadcasters carry significant regulatory obligations ranging from high levels of local programming in each market, and for CanWest this represents well in excess of 30 hours per week in a number of markets.  For us it is also 16 hours per week of primetime priority programming, investments to provide close captioning and described video as well as the costly transition to digital technology and high definition.

1548             Our ability to continue to meet these obligations is directly tied to our ability to maintain and grow our revenues in a shrinking advertising marketplace.  And I would like to add that if we could somehow cut $100 million from our news and infrastructure costs our business model would look very different too, and that might be attractive to us.

1549             Chairman, in your speech at the CAB convention last fall you stated that the Commission continues to see OTA television as the cornerstone of the Canadian television system.  You further stated that one of the Commission's challenges will be to ensure that OTA television is properly funded.

1550             We wholeheartedly agree on the importance of funding.  In fact, we think it is critical.  However, we also believe that fragmentation is an equally important factor that has a direct impact on our financial capacity to contribute.  Every new entrant chips away at our viewing share and revenue base and this is something the Commission has very long considered.

1551             MS GARDNER:  In 1998, in response to a Order in Council, the Commission conducted a public proceeding to evaluate whether the addition of new national networks would serve the objectives of the Broadcasting Act.

1552             Following a public hearing the Commission concluded that for any new network to be truly national new local stations affiliated to the network would have to be licensed.

1553             The Commission further determined that there are few, if any, markets in Canada that could sustain the licensing of new local stations without seriously impinging on the ability of existing licensees to fulfil their obligations under the Broadcasting Act.

1554             Commissioners, this was at a time when conventional advertising revenues were still growing and profitability had reached 16 per cent the previous year.  Today's picture is even more precarious and one of the applicants under consideration is proposing to establish a national service minus the cost of meeting local programming requirements in markets in which it seeks mandatory carriage.

1555             We think the Commission's determination in 1998 was wise.  In the last 8 years three English‑language conventional television groups have been sold, WIC, Craig and CHUM.  Under new ownership Toronto One continues to struggle in Canada's largest television market.

1556             Most recently we have witnessed the demise of Québec's second private OTA network, TQS.  As you already know, profitability for the conventional television sector has declined sharply in the past few years as a function of a shrinking advertising market coupled with rising programming and infrastructure costs.  These are strong indications that the conventional television marketplace neither needs nor can sustain the addition of another national network.  What was true 10 years ago in a much less competitive media environment is even more so true today.

1557             MR. KUBOTA:  Commissioners, to some extent the HDTV proposal has been positioned as a response to consolidation or a means of adding diversity as well as demand for more high definition programming and we would like to address each of these issues.

1558             The first question is:  What would be the impact of adding a new national player to the marketplace?

1559             With one more viewing choice audiences will further fragment and in turn this will impact advertising revenues in two ways.

1560             First, by further fragmenting viewing our ability to deliver the same audience levels will be reduced and will in turn impact on revenues.  We already have excess inventory and we are not typically sold out in prime time in most of our markets.

1561             Second, by adding more national advertising inventory in an already saturated marketplace, there will be pressure to lower rates and this will impact national advertising sales which represents more than 80 per cent of our overall conventional revenues.

1562             MS WILLIAMS:  It is difficult to assess how much diversity or plurality of editorial voices will be added by a network that will not provide local programming as part of its mix, but in a 300‑plus channel universe it does appear to be a risky proposition with more downside than benefit to the system.

1563             In terms of diversity the question is:  What is being added to the system that's not already there and at what cost?

1564             The reality is, the new national player will add another bidder for national programming rights and the likely outcome is that it will drive programming prices up.  When coupled with the impact a new entrant will have on viewing and revenues, this means we will pay more to deliver less.

1565             I want to add something else here that we have been thinking about since hearing the presentation yesterday.

1566             We do understand that the core benefit is free HDTV where none is available now.  Further, they suggested yesterday that that represents about 3 million Canadians, essentially the 10 per cent of viewers that currently watch TV off‑air.  Yet, we know that the majority of people that watch TV off‑air are in non‑urban settings.

1567             In fact, research tells us that fully two‑thirds of those 3 million people would be outside the CMA that their transmitters would reach.  So we are down to 1 million.

1568             Further, one then needs to speculate, of the 1 million how many are likely to be owners of HDTVs and will invest in an HD antenna?  Are people who haven't even invested in cable or satellite really likely to be early adopters of HD?

1569             So what is that 1 million really, 300,000, 200,000?  Is an entire national network being contemplated to satisfy the need of potentially only a few hundred thousand viewers?

1570             Or is this position and notion of free HD really a front for a completely different network with quite different objectives?

1571             In terms of meeting the demand for high definition, I think it is fair to say that Canadian broadcasters have made great progress in the past year alone working towards the 2011 shutoff date.

1572             While the cost of making this transition is significant and promises little to no financial return, CanWest supported the establishment of a target shutoff date at the TV Policy Review to ensure an orderly market transition in line with the U.S.

1573             In fact, we have been moving ahead with our digital rollout plans and have already begun the conversion of all of our newsrooms to digital technology, and later this year we will be launching high definition transmitters in Toronto, Hamilton and Vancouver and will soon be filing applications for HD transmitters in Edmonton and Calgary.

1574             We will also be discussing the transition in more detail in the upcoming BDU review, as well as our licence renewals next year.

1575             We can also confirm that all of our newly commissioned dramatic priority programming is HD and most of our documentaries are being produced in high‑definition as well, and we are acquiring HD rights for the vast majority of our foreign programming schedule.  In short, if the program is available in HD, we are acquiring HD rights automatically.

1576             Commissioners, CanWest has had a long history of smart risk‑taking, innovation and entrepreneurship.  We believe that a healthy marketplace includes vigorous competition and, regardless of your decision, we will continue to meet our challenges head on and invest in programming and technology to remain relevant in this changing environment.  But the extent and timing of those investment will largely depend on our financial capacity to do so.

1577             In a number of decisions and policy statements over the past year alone the Commission has recognized the challenges faced by conventional broadcasters.  We trust that you will carefully consider the impact of further licensing on our ability to continue to meet our important public policy objectives.

1578             MS BELL:  Commissioners, thank you for your attention and we will be happy to answer any questions you may have.

1579             THE CHAIRPERSON:  Thank you.

1580             I notice you didn't say one word about YES TV.  I gather you are not terribly concerned about them getting a licence?

1581             MS BELL:  I think we are concerned about any licensing of conventional players at this time, but clearly we have a bigger concern with the impact of the HDTV proposal.

1582             Brad, would you like to add anything about local sales or the impact of YES?

1583             MR. KUBOTA:  Yes.  I think the question ‑‑ and we experienced this a little bit with the creation of Dose ‑‑ the 18 to 34 crowd on one hand very hard to hit and if you can find them it would be great.  Very fickle people to find.  We have had a tough time actually finding programming that will consistently hit them on a regular basis.

1584             So it's actually a very small amount of money for the market to sustain and we just haven't been able to find them on a consistent basis.

1585             THE CHAIRPERSON:  The other thing, the same question I asked CTS, I mean you are already in HD in Toronto, Hamilton, Vancouver, you are applying in Edmonton and Calgary next year, I guess that leaves Montréal and Ottawa of the stations where HDTV wants to broadcast.  They aren't on the air for at least another year.

1586             So is your anxiety justified?  I mean, are they really going to be meaningful competition?  You have quite the head start, you have the audience, you have the loyalty of the viewers, you have HD in five out of the seven markets already by the time they come on the air.

1587             MS BELL:  You know, I think what's going to happen is that if you do license this network with the obligations that they have proposed, let's just not look at today and what the environment looks like today, let's take a look at five years down the road when we still have the obligations that we have and we are competing and everyone is HD at that point, so now you have this different type of network, this different model that seems to be a hybrid of a specialty and a conventional network without most of the obligations that are tied to either of those types of licences.  I think we will be absolutely at an unfair disadvantage at that point.

1588             THE CHAIRPERSON:  So it's more the conditions that they are asking for than the fact that they are being licensed that you are concerned about?

1589             MS BELL:  I think it's both.  I think it's both.

1590             I think we are and we continue to be very concerned about the future of conventional television and its business model.

1591             Quite frankly, you know, I mean we respect the entrepreneurship.  I mean we come from a long line of great entrepreneurs who would probably say "Good on you for trying, it's a great business idea", but the fact is, we have very high obligations that are tied to our national network and if we are going to contemplate a new business model ‑‑ because in fact I think what this is doing is it's confirming the fact that the existing model is under stress and probably will not remain viable in the future unless we do something about it soon.  I think that's what it's telling you.  If the existing model worked, that is probably what  Mr. Bitove would have applied for.

1592             THE CHAIRPERSON:  Michel...?

1593             COMMISSIONER ARPIN:  Thank you, Mr. Chair.

1594             Ms Williams, in your oral presentation you spoke about non‑BDU subscribers and you mentioned a number of 3 million and suggesting that 2 million of those were living outside the major CMAs.

1595             It's interesting what you say because it is contrary to what we were told last year when we had the OTA review where the major argument that was made to make sure that we maintain an over‑the‑air transmission in a digital world is that close to 15 to 17 and sometimes 20 per cent of the non‑BDU subscribers were living in the major CMAs like Toronto, Montréal, Vancouver, Calgary, et cetera.

1596             So where did you get your information and could you elaborate on that?

1597             MS WILLIAMS:  Well, I will ask Kathy Gardner to because it was her research team that came up with the number.

1598             But I would want to be clear, I believe what the suggestion was yesterday was that there was a total of 10 per cent of all viewers that are currently watching TV off‑air, which is that 3 million number that they provided yesterday.

1599             I'm not sure what you are suggesting as to whether 20 per cent of that 3 million is actually in the urban area.

1600             COMMISSIONER ARPIN:  No, what I'm saying is of the total viewership in major markets ‑‑ well, the average number that was used during the OTA Review was something like between 12 to 15 per cent of households of those living in major markets were not BDU subscriber's.

1601             Now, what you have said in your oral presentation, and it is outside of your text, was that your evaluation is there are about 3 million non‑BDU subscriber's all across Canada and 2 million of them are living outside the major markets, which is, for me, contrary to what has been said during the OTA Review.

1602             MS WILLIAMS:  I'm going to ask Kathy to speak to that because it was her team yesterday that was working on this.

1603             MS GARDNER:  I think there are two areas that we have to identify first and foremost.

1604             In the HDTV application, their licence is specifically designated to the central market area.  All of the data that would have been pulled for the OTA argument last year would have been based on the full coverage area.  So we were looking at central market area and that's how we derived the figure that Barbara Williams was referring to.

1605             All of this data is based on the fall 2007 central market versus rest of English Canada percentages.

1606             COMMISSIONER ARPIN:  As you know, yesterday I did raise the question that in some markets they were using low‑power frequency.

1607             MS GARDNER:  Exactly.

1608             COMMISSIONER ARPIN:  But they are saying that even in using low‑power frequencies the coverage in digital was much broader than analog and that was stated by their own consulting engineer, not by the applicant or ‑‑ well, we had the technical people at least making the argument.

1609             But what I am hearing from you is that the comments that you have made, you are basing it on what was said yesterday rather than a specific research that CanWest has done.

1610             MS GARDNER:  Well, the research that we did access was just based on the BBM diary data and taking the central market.  So it wasn't anything beyond that, just using the pure facts and figures that would be available to us through the diary data for those eight markets versus the rest of English Canada.

1611             MS BELL:  And we are using the central market, because that is what they are proposing.

1612             COMMISSIONER ARPIN:  Yes.

1613             You have also, Mr. Kubota, referred to it that the business is not what it used to be.  But aren't you going through a good year now?

1614             MR. KUBOTA:  We had a not bad start.  You know, without trying to give away all, you know, the secrets, no, quite frankly we are not.

1615             COMMISSIONER ARPIN:  And I will ask the same question to other English‑speaking ‑‑ well, I have here a table that has been made available to all of you because you are a member of TVB.  And obviously, I can't divulge the numbers but I can surely see that network sales are really improving and somehow even the specialty services are still doing well and keep doing well.  But the conventional broadcasters are not doing bad either.

1616             MR. KUBOTA:  Commissioner, I think you are referring to the TSS report, are you, that is published ‑‑

1617             COMMISSIONER ARPIN:  Yes.

1618             MR. KUBOTA:  And is that the November report that you have or is that ‑‑

1619             COMMISSIONER ARPIN: Yes.

1620             MR. KUBOTA:  That is right, it just came out.

1621             COMMISSIONER ARPIN:  Yes.

1622             MR. KUBOTA:  Well, the data we have here, and I think it is good to keep in mind that currently CanWest plays in the spot market.  We are an unwired network, we don't play in the network playground.  The spot market, there you will see year‑to‑date, fiscal 2008 season to date is .5 per cent year over year.

1623             COMMISSIONER ARPIN:  Yes, well, that one is a bit slower than the networks.  Who is doing the network?

1624             MR. KUBOTA:  To the best of my knowledge, the network includes everything there. The network includes specialty, it includes conventional networks, so CTV would be in there, CBC would be in there.  And while I don't have the network numbers there, I do know the total TV season today is 4.6 and specialty is, as you said, is just shy of 9 per cent ‑‑

1625             COMMISSIONER ARPIN:  Yes.

1626             MR. KUBOTA:  ‑‑ year over year.  It is extremely healthy.

1627             But our concern is the spot market.  Our concern is where we play on a day to day basis is the regional market.  And I might take this opportunity too to ask for some clarification on ‑‑ and it has been great they have said they will stay away from local sales ‑‑ we would like to know how they define local sales, particularly in a market like Winnipeg, is MTS considered local sales in a market like Vancouver?

1628             Is the B.C. Government, is BCLC considered local?  They are locally generated accounts and yet they are, of the 20 per cent of sales for us, the local sales, they are probably 80‑90 per cent of the money that we see on a local basis.  So when they say they won't touch local sales, what do they mean by that?  We would be curious to know.

1629             COMMISSIONER ARPIN:  Well, I think, surely, it is a good question and I would hope that they clarify that when they will come with their reply, because the notion of national and local sales, particularly in this country where there is, because of the size of the country, numerous regional players like the B.C. players that you mentioned, sometimes some broadcasters will consider them as being national because they are sold through agencies and others would consider them local and that definition varies from one broadcaster to the other that have been around long enough to know.

1630             Ms Bell, in your written presentation, because in your oral presentation you didn't refer to it that much, but in your written presentation you are making an argument about diversity of voices and you are not suggesting that there is enough diversity of voices, but you are quoting the Commission's last decision suggesting that overall there is a good balance of voices and at the end obviously you are concluding that, all being considered, we may not need to have distinct new voices through HDTV.

1631             Would you agree with me that the contrary argument could be made and that there is never enough diversity of voices?

1632             MS BELL:  Vice‑Chairman, you know what, I think, and I think you will appreciate this comment, we appreciate the fact that everything you have to do is to balance different interests.  Diversity for the sake of diversity, if it is going to have a negative impact on what is already in the system, is probably I would say not a good use of added diversity and I think that is usually how the Commission approaches these things in licensing new entrants, is to weigh and balance in the interest of the system.  And we are telling you we don't think it is in the interest of the system.

1633             And I would add one point, and I apologize for interrupting, but I find there is something I just cannot compute in my mind.  If you are arguing that we need to do this to add over‑the‑air free HD service and that is your selling point, why are you asking for mandatory carriage?  Why are you asking for mandatory carriage on DTH when we don't even have it?  Thirty hours of local programming doesn't warrant mandatory carriage on DTH, but zero local programming and six hours of priority programming does?  And, I am sorry, but I disagree.  I think the Broadcasting Act is very clear about the importance of local and we take that very seriously and we know you do too.  So, yes, we have some issues with that.  Barb.

1634             MS WILLIAMS:  Well, and if the whole point is that you want to provide it to those that are not buying cable or satellite, then why do you care if you are carried on those?  There is not a consistency of logic to that.

1635             COMMISSIONER ARPIN:  Finally, and you alluded to their priority programming plan, yesterday at the hearing we had a new scenario that was presented to us making use of the same financial envelope, providing eight hours of priority programming starting with year four and adding more hours of also priority programming right from the start.  I know that it is part of your written submission.  I don't know, do you have any comments to make on the fact that they introduce an amended proposal regarding priority programming changes your conclusions in your written submission?

1636             MS BELL:  I don't think it does.  I think that the fact is the impact is still going to be what the impact is going to be.  I would say, in terms of the priority programming, and I haven't done the math here, but for all multi‑station groups, if you reach 70 per cent of Canadian homes, you are considered a multi‑station group and it is Commission policy that we should be doing eight hours, that all of those groups should be doing eight hours of priority programming.

1637             And again, I think to go back to the Chairman's question yesterday is why does this warrant exceptions to policy?  What are you bringing to the table that warrants all of these exceptions to current policy?  And I am just not sure that that has really been answered here and I think that is very much at the crux of your dilemma.

1638             COMMISSIONER ARPIN:  Thank you very much, Mr. Chair.

1639             THE CHAIRPERSON:  Commissioner Katz?

1640             COMMISSIONER KATZ:  Thank you, Mr. Chairman.

1641             I have got two questions.  Ms Bell, on page 3 of your submission this morning there is reference made to HDTV seeking to become the equivalent of a super station that would enjoy the same carriage and other benefits as a national network.  And we heard Mr. O'Farrell yesterday from the CAB make a similar point about a national network.  Can someone explain to me what a national network is and what a non‑national network is?

1642             I heard Mr. Kubota talk about  spot purchasing, not national purchasing.  And maybe there is a distinction without a difference, I don't know.  But if someone can clarify for me what defines a national network and are there certain obligations inherent in being a national network operator versus being something other than that?  Is Global a national network operator?

1643             MS BELL:  We are not licensed as a national network per se, but we are national in scope, and so we are considered a multi‑station group and we are national in scope.

1644             And I think what you have here is an application to serve all the major markets in Canada without having to serve a lot of the smaller ones.  I agree with that.  But I think if you are hitting over 70 per cent of the Canadian population you are pretty much national.  And I don't know from an advertising standpoint, Brad?

1645             MR. KUBOTA:  From an advertising standpoint it is really about ease and simplicity. It is do I have the ability to book one spot that runs across the country and you can send me one invoice?

1646             But I will take this a little bit further as well and perhaps there is one other question we would like clarity on.  They say that there will be a network and yet they imply that they have the ability to stream different signals into individual markets.   Would they take regional signals?

1647             If it was to be considered a specialty station, we don't currently have the ability right now to regionalize our signal, we don't currently have the ability to take Western Canada advertisers and only broadcast them to Western Canada.  If they are a super station with that ability, they truly are in a class by themselves.

1648             THE CHAIRPERSON:  When you say you don't have the ability now, are you talking about technical ability or you don't have the licence to do it?

1649             MR. KUBOTA:  The licence, specialty stations do not have that licence.

1650             COMMISSIONER KATZ:  So you are not a national network licensee today?

1651             MS BELL:  We are not, we don't have affiliates, no.  We are not licensed as a national network.

1652             COMMISSIONER KATZ:  From the HDTV perspective in their application, you are not suggesting that they could have anything different?

1653             MS BELL:  You know what, I think I am using the term loosely and it does get used loosely.  I think that when we say a national network I think what we are trying to say here is that there is a national presence.  And certainly if you are in the Vancouver and Alberta and in most of the provinces you have a national footprint and those are all the major advertising markets also would consider that.

1654             COMMISSIONER KATZ:  The continuation of that statement, "without incurring the high costs of operating a network," what are those high costs that they would not be incurring that you are incurring today?

1655             MS BELL:  We have to provide local programming in every single market in which we operate, so does CTV.  We are also at eight hours of priority programming, so is CTV.  In fact, we have 16, but that is because we have two national footprints let us say.  We have the infrastructure of stations across ‑‑ this is a hybrid model, in my view, between a conventional and a specialty.  You don't have the infrastructures, but you have the carriage.  So there is a very high cost, obviously, in terms of infrastructure.

1656             And I would point out, you know, I would love to be in a position where we only had eight transmitters.  We have about 90 that we somehow have to figure out how we are going to convert in order to reach all of the people that we reach now, which is, you know, part of the challenge here.  This is a very very different beast than what we are dealing with and there is a high cost there.

1657             COMMISSIONER KATZ:  What percentage of the Canadian population do you reach today?

1658             MS BELL:  Cathy.

1659             MS GARDNER:  We reach about 97 per cent of the population.

1660             COMMISSIONER KATZ:  My only other question is to I guess Mr. Kubota.  You referenced in here on page 8 you already have excess inventory.  Is that programming inventory?

1661             MR. KUBOTA:  Yes.  Actually, anyway you want to look at it in terms of excess capacity in response, excess capacity audience.  And I think the key there is, you know, the more options that advertisers have, or as one of their references pointed out, the more doors to knock on, the more options advertisers have the less demand that is placed on that inventory.

1662             The more options they have to tackle a market, you know, through a network execution, through a specialty execution or through ‑‑ and CTS was inferring earlier, you know, the big guys, that Global and CTV wouldn't be affected and, in fact, we are.  The less demand you have on your inventory the more pressure you have on your CPRs and your CPMs.

1663             And yesterday, HDTV alluded to the fact that they would and they had to, had no choice, would target the mark with specialty efficiencies.  I would suggest that they are a conventional broadcaster coming in with specialty efficiencies.  There couldn't be a heavier stone to put on or drag down efficiencies in the conventional markets.  It will leave is with excess capacity and lower rates.

1664             COMMISSIONER KATZ:  Thank you.

1665             THE CHAIRPERSON:  Vice‑Chairman Arpin.

1666             COMMISSIONER ARPIN:  From one of the answers that you gave to Mr. Katz I need to have a clarification.  You said you are not a network and you don't have affiliates.  But I know that there are private broadcasters that are carrying Global's programming, particularly the Pattison stations and NBC.

1667             Since they are not affiliated, it is because you have an output deal with them?

1668             MS BELL:  That is correct.

1669             COMMISSIONER ARPIN:  And how many other ‑‑ do you have a good number of those stations or is it..?

1670             MR. KUBOTA:  Yes, we have two in B.C., we have a bit of an output deal with Thunder Bay and CJON and they don't carry the complete schedule, it is just bits and pieces.

1671             COMMISSIONER ARPIN:  Okay, thank you.

1672             THE CHAIRPERSON:  Okay, thank you very much.  That is all of our questions.

1673             I think we will take a 10‑minute break before hearing the next one.

‑‑‑ Upon recessed at 1000 / Suspension à 1000

‑‑‑ Upon resuming at 1013 / Reprise à 1013

1674             THE CHAIRPERSON: Okay, Madame Secretary, I think we are ready to proceed.

1675             THE SECRETARY: I would now invite Rogers Communications Inc. to make their presentation.

1676             Appearing for Rogers is Mr. Rael Merson.  Please introduce your colleagues, after which you will have 10 minutes for your presentation.

INTERVENTION

1677             MR. MERSON:  Thank you.

1678             Good morning Mr. Chairman, Mr. Vice Chair, Members of the Commission.

1679             My name is Rael Merson and I am the President of Rogers Broadcasting.

1680             With me today are, starting on the far left, Susan Wheeler, our Vice President of Business and Regulatory Affairs, and David Purdy, the Vice President of Video Product Management with Rogers Cable.

1681             On my right are Ken Engelhart, Vice President, Regulatory for Rogers Communications, and Alain Strati, Vice‑President, Specialty TV & Development for Rogers Media.

1682             Thank you for making the time for us.

1683             We would like to use the time afforded us today to make five specific points.

1684             Firstly, the high‑definition nature of these applications is not a distinguishing characteristic.

1685             Secondly, the applicants have not demonstrated a demand for their programming.

1686             Thirdly, that these applications fail to meet the obligations of an over‑the‑air licence and risk unbalancing the playing field.

1687             Fourthly, this is not the time to licence a new over‑the‑air entrant.

1688             And lastly, that mandated analog distribution is a very inefficient use of spectrum.

1689             So, starting with the first point:  that HD is not a distinguishing characteristic.

1690             Contrary to the assertions made by each applicant, we do believe in the business case for HDTV.

1691             Citytv in Toronto is already providing high‑definition content.

1692             All of our local Canadian programs like Breakfast Television, Cityline and CityNews are all produced and broadcast in high definition.

1693             OMNI Toronto will operate fully in high definition, including production and transmission facilities, by mid‑2009.

1694             The HD investments that we have already made are essentially all that HD Networks is proposing to do.

1695             In essence, they want to operate a single broadcast facility, with a network of retransmitters across the country.

1696             Ultimately, HD is just a technical format.

1697             It is not a factor in program diversity, and it is not a relevant contribution to the system.

1698             HDTV claims that they will provide free, over‑the‑air HD services to Canadians who do not wish to obtain a BDU service.

1699             But their transmitter in Vancouver will only be 300 watts, while Toronto and Montreal will be only 160 and 450 watts respectively.

1700             You would have to live near the transmitter to receive the signal.

1701             HDTV Networks claims that its HD broadcasting format will distinguish its service from the services offered today.

1702             But, in our opinion, that is simply not enough.

1703             The second point we would like to make is that HD has not demonstrated a demand for its service.

1704             In our opinion, the HD Network ‑‑ HDTV Networks' application must be evaluated on the basis of its programming and service commitments.

1705             And on those grounds, their application is entirely deficient.

1706             There are surprisingly few details with respect to their proposed programming strategy.

1707             Although we know they intend to offer non‑U.S. foreign and Canadian acquired programming, we do not know where that programming will be sourced from, what genres they intend to offer, or whether it will all be in high definition.

1708             We only know that there will be no local programming, and a commitment to less than eight hours of priority programming per week.

1709             In addition, we cannot assess how their proposed network will impact our stations.

1710             They have not provided any information for their revenue projections, making it impossible for us to examine the assumptions and methodology they have used.

1711             A new entrant must be required to demonstrate demand for its service.

1712             Implicit in this requirement is the commitment to bring something different, and of consequence, to the Canadian viewing public.

1713             We fail to see how HDTV can support its claim of offering diversity in the system with so few details on its proposed program offering.

1714             The third point we would like to make is that the applications fail to meet the standards of an over‑the‑air licence.

1715             The fundamental distinguishing characteristic of an over‑the‑air broadcaster is our ability to reflect the communities that we serve.

1716             We do that through local programming and local involvement.

1717             Our priority status derives from this local contribution.

1718             But HDTV Networks wants over‑the‑air status without any commitment to local programming or the local community.

1719             That contradicts the very nature of service for an over‑the‑air broadcaster.

1720             HDTV Networks is trying to establish a national network with only one broadcast facility in Vancouver, and Digital retransmitters in Canada's eight largest markets.

1721             But without local programming or local stations, they are not really proposing to establish a true network of broadcasting services.

1722             They are instead proposing a "superstation", a regulatory construct that does not exist in Canada.

1723             To put it simply, HDTV Networks wants access to the over‑the‑air sector without having to pay the price of entry, and that price of entry is an investment in local and priority programming.

1724             We note too that HDTV argues it has no obligation to offer local programming because it will not solicit local advertising.

1725             This commitment is completely disingenuous because, as everyone knows, most television advertising is national.

1726             With respect to the YES application, while we applaud its goal of empowering marginalized youth, we believe it simply fails to meet the standards of an over‑the‑air broadcaster.

1727             While YES has at least recognized the obligation to offer local and priority programming, much of this programming will be user‑generated.

1728             It is doubtful that user‑generated programming is in keeping with the Broadcasting Act requirement that programming be of a "high standard".

1729             In addition, it clearly provides little benefit to the Canadian independent production sector.

1730             The fourth point that we would like to make si that now is not the time to licence a new entrant in the over‑the‑air market.

1731             Market conditions must be supportive for a new entrant.

1732             Given the regulatory commitments of over‑the‑air broadcasters, there is a need to ensure the broadcasters can continue to meet their requirements by assessing the economic health of the sector.

1733             A test of market readiness should focus on the health of the market in general rather than on the profitability of individual broadcasters.

1734             We believe factors such as PBIT margins for the sector, sales growth above inflation, stability of pricing and sell‑out rates provide a helpful insight into the economic health of the sector.

1735             We submit that none of these factors currently supports the introduction of a new over‑the‑air entrant.

1736             David?

1737             MR. PURDY: Our fifth point is that the applicants propose inefficient use of spectrum.

1738             We at Rogers Cable were troubled by HDTV's request that it be distributed as part of an analog basic service, on a mandated basis.

1739             Both the Commission and Industry Canada have developed a number of policies to encourage and support the transition of the system from analog to digital, and ultimately HD.

1740             At Rogers, managing the transition is an expensive and difficult process.

1741             We are aggressively marketing our digital services and we have over 58 per cent of our customers have digital set‑top boxes in their home, the most in Canada.

1742             That number is growing at an impressive rate, around 10 per cent a year.

1743             However, during the transition, we are required to carry many over‑the‑air services three times:  in analog, in standard definition digital and high definition.

1744             And as a result, even though we have made massive investments in capacity, we are facing a serious bandwidth crunch.

1745             The result is that we have to make more investments to increase capacity during this transitional period.

1746             And even with these investments, there are finite limitations.

1747             Accordingly, we were pleased when the Commission announced that it would only license over‑the‑air services on a digital basis, on a go forward.

1748             New digital services will attract customers to the digital platform and will not use up our valuable capacity.

1749             For every analog channel, Rogers can carry 12 standard definition services or two to three HD services.

1750             Granting mandatory analog carriage to these digital services, however, would be a troubling step backwards.

1751             It would not provide the same encouragement for customers to migrate to digital, and it would also exacerbate the bandwidth shortage.

1752             Granting HDTV's analog carriage request would also reduce Rogers Cable's ability to use this capacity to distribute new and innovative services, including other HD services, video‑on‑demand services and third‑language programming services.

1753             Rael?

1754             MR. MERSON: In conclusion, we believe that both applicants have proposed services that are more appropriately licensed as Category 2 digital specialty services.

1755             In our view, the applicants' proposals are simply not sufficient to receive the regulatory privileges afforded over‑the‑air television stations.

1756             We thank the Commission for the opportunity to appear today and would be pleased to answer any questions you may have.

1757             THE CHAIRPERSON:  Thank you very much.

1758             I would like to follow up on point number five.

1759             In your submission, you suggest that you will probably carry U.S. signals in analog format even after 2009, when they have converted to HD.

1760             MR. PURDY:  Hm‑hmm.

1761             THE CHAIRPERSON: A, I don't understand why you do it; and B, if you can do it for U.S. services, why can't you do it for HDTV?

1762             MR. PURDY:  Good question.  Thank you very much, Mr. Chairman.

1763             We, at Rogers, are reviewing and that decision right now.

1764             So, one of the things that we are discussing is whether or not we would in fact, post‑2009, carry the U.S. signals in analog, and it is something that we debate and discuss internally.

1765             If we did carry them, it would be to manage the transitional period and to minimize any customer disruption.

1766             It would only be done if we felt that it would be disruptive to our customer base and hurt our subscribers.

1767             But it is something that we are reviewing internally now and it is something we are discussing ‑‑

1768             THE CHAIRPERSON: So it is not cost issue.  It is a customer convenience issue.

1769             MR. PURDY:  It is a customer convenience issue, and it is ‑‑ you know, our intent is to, as we migrate, go through this digital migration, that we minimize customer disruption.

1770             Certainly, the over‑the‑air signals from the U.S. stations are something that we are discussing right now.

1771             MR. ENGELHART:  If I could add, Mr. Chairman, I think I would answer that, your last question, by saying there is a trade‑off between cost and the customer impact.

1772             As we explained in our in‑chief remarks, there is ‑‑ you know, bandwidth is all we have to sell. So, obviously, bandwidth is important to us

1773             And managing the bandwidth during the transition period is difficult, and David's team is looking at what to do about the American signals in 2009.

1774             That having been said, you know, if we have 68‑70 per cent of our homes have digital boxes, so 30 per cent of the people (that don't have that digital box) lose those American signals, they might be annoyed.

1775             I mean, it has been part of their television service for their entire lives, and they are going to wonder where it went.

1776             So there is going to be a consumer reaction and we have to figure out what the impact is on us and weigh that against the bandwidth issue.

1777             With the new service, you have the same bandwidth issue, but you don't have the same consumer reaction because it is not something that they have grown up with their whole lives.

1778             THE CHAIRPERSON:  Okay.  Thank you.

1779             Mr. Katz?

1780             COMMISSIONER KATZ:  Thank you, Mr. Chairman.

1781             I want to focus on two areas.

1782             The first one has to do with the reference you have made, both in your submissions this morning as well as in your evidence that you filed, you comments you filed as well, regarding whether user‑generated content fits under the definition of, I guess, high standard, as you called it in your submission this morning.

1783             You didn't allude to it as being a high standard issue in your actual submission, but you alluded to that notion, anyways.

1784             Can you expand upon that notion because all we are seeing right now in the new media area is much more, obviously, user‑generated content, and if what you are telling the Commission is that anything that is user‑generated does not fit under the Broadcasting Act, I think it is something that needs to be further pursued.

1785             MR. MERSON:  Thank you, Mr. Vice Chair.

1786             You know, there is ‑‑ we sweat programming and programming decisions every day, and ultimately the choices that we make are on the breath of the appeal of the services and whether the services have appeal to broad enough audience to really build the advertising base that you think might be available from over‑the‑air television.

1787             And we have spoken about it in the past.

1788             Look, our vision for over‑the‑air television is that it becomes the most ubiquitous, most widely dispersed medium out there.

1789             And in that very ubiquity you can build a business case, because we know we have taken on a fairly difficult business case in Citytv.

1790             But you can build a business case if you believe that ultimately over‑the‑air television will become the mass medium and that everything else will devolve into smaller niches that people pay for.

1791             So, when we look at user‑generated content, you know, there are a couple of levels.

1792             One is YouTube.  You know, YouTube is the ultimate expression of user‑generated content.

1793             The magic of YouTube is not in the content itself, but it is in its searchability, the fact that you can go in because these are all very, very niche audiences that are looking for something in particular.

1794             You can go in and specify and identify what it is that you do.

1795             It is the antithesis of a mass market strategy.  It is a highly‑differentiated, massive searchable database that YouTube has created.

1796             So, as a concept, I can't see, and we can't see, how it is that user‑generated content, which by its nature has this very, very niche appeal, has applicability to a mass medium like over‑the‑air television.

1797             Where it does have applicability is how you see us using it at this point in time, which is, to the extent that we solicit content from our viewers to add to what it is that we have on the air.

1798             So, you know, in the midst of a snow storm, we look to our viewers to provide clips of their cars covered in snow.  In the midst of sort of an event that is happening, we get that content from them.

1799             So there is tons of applicability within, particularly as you want to get your viewership more involved in what it is you are doing, in building the content on your local programming.

1800             But as a mass market strategy, it is the concept that we have difficulty with.

1801             Does that answer your question?

1802             COMMISSIONER KATZ:  Yeah.

1803             Thank you.

1804             The second question relates to the BDU side of your business as well.

1805             The CRTC, as you are well aware, are getting an awful lot of applications for carriage, one of them being YES TV here, HDTV.  There have been a lot of applications for 9(1)(h), as well.

1806             Is one of the reasons for that inundation by the Commission that a lot of these programmers are having trouble getting carriage from the BDUs, and so they are turning to the CRTC and saying "We can't get on, so give us these licenses in order to incent the BDUs to actually put us on."?

1807             MR. MERSON: I would ask David to answer that.

1808             MR. PURDY:  I would say, in the case of Rogers, it would be hard to make that argument.  We have launched virtually all of the channels that have been licensed.

1809             Certainly, our policy is to carry anything that we feel our customer base would find compelling.

1810             I think what is probably at issue here is broad‑based carriage lower down the dial, and it is really preferential carriage that they are seeking.

1811             You know, I think that is something that really is earned, rather than something that should be asked for upfront.

1812             You know, you talk about user‑generated content in channels that have launched, and we carry BITE TV, which is a user‑generated service, or much of the content on BITE TV is user‑generated, but it has failed its sort of garner much in the way of market share, either for viewers or for advertising revenue.

1813             So we give everybody a fair shot, but I think the preferential carriage is ‑‑

1814             COMMISSIONER KATZ:  When you say you give everybody a fair shot, anybody who wants to seek access to the Rogers Cable systems can get on as a Cat 2?

1815             MR. PURDY:  The vast, vast majority of the Cat 2s that have been licensed in this country have gotten carriage from us.

1816             The only ones I can think of are some of the hi‑fidelity services which, as I mentioned earlier, we're desperately trying to figure out how to provide spectrum and launch those services as well.

1817             And the reason we're doing that is because they're currently carried by our competitor and we want to maintain a parity or have a better product than our competitors.

1818             COMMISSIONER KATZ:  And you don't have the capacity for these types of providers right now?

1819             MR. PURDY:  We are in a spectrum crunch and we're busy trying to launch switch digital which would allow us to have even more spectrum, but until switch digital is up and running, which should be some time at the back half of this year, we're in a really tight spectrum crunch.

1820             But it's our intent to carry most of the services that are licensed, certainly those that have compelling content and we think would be compelling to our customer base.

1821             COMMISSIONER KATZ:  Do you do consumer research to find out when someone comes to you with programming whether it's something that will sell basically, or do you make that decision internally based on your experience?

1822             MR. PURDY:  We do constant consumer research.  So, we go to our customer base at least four times a year on a quarterly basis and ask them what programming genres are of greatest interest; when they look at our digital line‑up, when they look at our total television line‑up, where they see deficits or deficiencies or where they'd like to see more types of content.

1823             And we've got the programming genres mapped out, both from a total perspective and on a segmented basis, so, we know what segments of our customer base are looking for.

1824             So, of particular interest right now, obviously, is, you know, young people and how to make the television product more relevant to young people and, so, we're doing constant consumer research.

1825             COMMISSIONER KATZ:  Okay.  Thank you.

1826             THE CHAIRPERSON:  You are both a broadcaster and a BDU.  How are you doing in terms of broadcasting with your newly acquired network and with OMNI in terms of transition to 2011?

1827             MR. MERSON:  It's a ‑‑ you know, Citytv was the first to launch pure hi‑def through its entire system, so, all of City's local programming in Toronto is produced in hi‑definition and transmitted in hi‑definition, all the major shows:  the news, "City Line", "Breakfast Television".

1828             OMNI, we have ‑‑ we're in the midst of the process.  We are ‑‑ we've held back on building the production facilities because we are in the process of building this new production facility to cover both City and OMNI in Toronto, but if you go to OMNI you'd see the cameras are all hi‑definition.

1829             What they haven't yet put in place is a hi‑definition switch and they're in the process of launching their hi‑definition transmitters that will be up and running in July of this year.

1830             Across the country ‑‑ but by July of 2009, it will be ‑‑ OMNI as well will be completely hi‑definition throughout the system.

1831             So, both City and OMNI in Toronto will be completely hi‑definition by early next year.

1832             The rest of the country, the roll‑out, we've planned the roll‑out on a staged basis.  As you've heard everybody explain, it's an expensive proposition and, to some degree, as business people what we try to do is match the expenditure with the adoption of the new technology by the consumers.

1833             So, we're in the process of sort of rolling this out in an organized fashion.  We will be fully hi‑definition capable across the entire system by 2010.  So, we'll be ready for 2011.

1834             THE CHAIRPERSON:  In terms of your answer to Vice‑Chairman Katz in terms of carriage and that you're trying to get everybody on, et cetera, and I have no doubt to question your statement, all I can say, an awful lot of licensed Cat 2s have appeared before us and have told us we can't even get a meeting with the BDUs never mind having a fair shot at getting on.

1835             That's obviously a different perception here, let's just leave it at that.  But it was a number of people who appeared before us that suggested that the problem with the BDUs is really quite large.

1836             MR. PURDY:  Mr. Chairman, I would be surprised if they're referencing Rogers Cable.  I think ‑‑

‑‑‑ Laughter / Rires

1837             MR. ENGELHART:  In fact, Mr. Chairman, I've heard some of them say, "We're only on Rogers".

1838             We carry just about everything.  We can ‑‑ happy to provide you with a copy of our channel line‑up.  There's virtually no Cat 2 that we're not carrying.

1839             THE CHAIRPERSON:  I only repeat what was told to me and I sort of pass it on to you.

‑‑‑ Laughter / Rires

1840             THE CHAIRPERSON:  They did not qualify it as to one BDU, they said all, so that's...

1841             MR. ENGELHART:  As I say, Mr. Chair, we're happy to give you a list of the launched Cat 2s and the ones that we're carrying and the ones that we're not, because there are precious few that we're not carrying.

1842             MR. PURDY:  And I'd be willing to meet with any of them.

‑‑‑ Laughter / Rires

1843             THE CHAIRPERSON:  I will pass your offer on.

‑‑‑ Laughter / Rires

1844             MR. PURDY:  A lot of them are in the audience today.

‑‑‑ Laughter / Rires

1845             COMMISSIONER ARPIN:  Among the Cat 2s that you have launched, some have succeeded, some have failed, at least to our knowledge.

1846             Do you have any specific experience regarding failure and the reasons why they fail?

1847             MR. PURDY:  Thank you, Vice‑Chairman.

1848             The specialty channels that we've shut down, and there's only been a handful, are the ones that largely seem to have a flawed business model or no strong source of programming.

1849             So, when we ‑‑ WTSN I think was the first of the Category 2 specialty channels to shut down, and I think they would say ‑‑ and they're here today, so, I probably shouldn't speak for them ‑‑ but I think they would say that the production costs associated with live sports is what ultimately brought that channel to its end.

1850             The other channels that we've shut down typically didn't have a strong source of programming and they didn't garner either ratings or really much in the way of advertiser interest.

1851             COMMISSIONER ARPIN:  And was it the case of High School Television Network?

1852             MR. PURDY:  We launched High School Television Network and I think in the end they had trouble meeting their financial commitments and it was a strong source of programming.

1853             I point to ‑‑ and I don't mean to pick on Byte TV ‑‑ but I point to Byte TV and at the end of the day it comes down to having strong stories, great story tellers, great production partners and, you know, truly compelling content, and what format the content is in and how stylishly it's shot doesn't make up for the fact if you don't have strong producers producing strong stories.

1854             COMMISSIONER ARPIN:  Thank you.

1855             THE CHAIRPERSON:  Okay, thank you very much.

1856             Thank you.  Your submission was very much to the point and, therefore, easy for me to grasp.

1857             THE SECRETARY:  I would now invite CTVglobemedia Inc. to come forward.

‑‑‑ Pause

1858             THE SECRETARY:  Appearing for CTVglobemedia is Mr. Kevin Goldstein.  Please introduce your colleagues, after which you will have 10 minutes for your presentation.

INTERVENTION

1859             MR. GOLDSTEIN:  Thank you.

1860             Good morning, Mr. Chair, Members of the Commission.

1861             For the record, my name is Kevin Goldstein and I am Vice‑President of Regulatory Affairs for CTVglobemedia.  Before we begin, I'd like to take the opportunity to introduce my colleagues.

1862             To my right, your left, is Brian McLuskey, Sr. Vice‑President Revenue Management for CTV, a 25‑year veteran in the advertising industry.  Brian is responsible for market positioning, defining market objectives, establishing broad pricing strategies and developing business strategies that reflect long and short‑term industry trends across all broadcasted digital platforms.

1863             To my immediate left, your right, is Rick Lewchuk, Sr. Vice‑President CTV creative agency and brand strategy.  Rich has worked in television broadcasting for nearly three decades and has held a number of senior roles with CTV in the areas of programming and program promotion.  He currently oversees the marketing, promotion and brand creative for all CTVglobemedia television networks and stations.

1864             Finally, to Rick's left is Steve Armstrong, President of Armstrong Consulting, one of Canada's top economic research consultants specializing in media who prepared the impact analysis we filed with our interventions.

1865             We will now begin our presentation.

1866             The Canadian broadcasting system is a system that has been carefully constructed over a series of decades based on the principles outlined in the Broadcasting Act.

1867             At CTVglobemedia we have had the privilege of operating in this system for over 45 years.  However, this privilege has not come for free, it has involved significant obligations, obligations relating to Canadian programming and obligations to make a significant contribution to local reflection in the communities in which we operate.

1868             We continue to fulfil these obligations which are not inexpensive.  This is the regulatory bargain that we and other licensees have committed to.

1869             Yesterday morning the Commission heard a proposal from HDTV Networks to bypass significant obligations.  HDTV Networks believes it should be given unprecedented flexibility and be permitted to cherry pick the policies it should have to adhere to.

1870             As the Chairman alluded to in his questioning, HDTV is not proposing certain exceptions to existing policies, they are essentially proposing a whole new class of undertaking.  As we will discuss today, in our view, there is no merit to such a proposal.

1871             Brian.

1872             MR. McLUSKEY:  Whether you call it privileges but not obligations, benefits but not the responsibilities, cherry picking or skimming the cream, that is what this application is because, unlike all other over‑the‑air broadcasters, it does not have a local commitment.

1873             The Broadcasting Act mandates that your regulation of the sector be readily adaptable to technological change, however, the Act does not say that you should do so when it would have a negative impact on existing players and their ability to fulfil their obligations.

1874             Make no mistake, approval of this application will result in increased competition for national advertising.  Given the severe challenges already affecting conventional broadcasters, anyone who thinks this will not affect their ability to continue their current contributions, including local programming, is dreaming in HD.

1875             Any comprehensive analysis of the conventional television model, both here and around the world, will note that advertising‑based over‑the‑air television is in decline and suffering from fragmented audiences and changing advertising patterns.

1876             The numbers over the last five years are clear and the Commission has seen the numbers for '06‑'07.  In fact, the Commission recognized this in Public Broadcast Notice CRTC 2007‑53 when it noted that:

"This sector faces a number of challenges with audience fragmentation and technology changes, over‑the‑air stations will continue to experience a decline in audience share, major changes in the form and delivery of advertising and additional costs related to the digital transition.  (As read)

1877             PBIT for this sector has dropped to historic lows and one of the major players, TQS, has filed for bankruptcy protection.

1878             On all accounts, the business model for conventional television and, hence, the ability of the sector to continue to deliver a wide range of programming, and specifically local programming, is under siege.  Any further licensing will only fuel this crisis.

1879             In essence, HDTV Networks is looking for a version of a Vancouver super station with priority carriage.  It is the equivalent of CTV applying for an over‑the‑air licence for CFTO with eight re‑broad stations in the top Canadian markets with no local commitment but wide‑spread cable and satellite distribution.

1880             To be blunt, a great licence if you can get it, but this is not a long‑term recipe for increasing diversity in the system.  In fact, recent history has shown us how damaging poorly executed new licences can be to the marketplace.

1881             HDTV Networks has provided no rationale why it should be given such flexibility where others have not.  Moreover, we can guarantee that if they are licensed with these conditions, other investors in the over‑the‑air sector will want equitable licensing treatment.

1882             Rick.

1883             MR. LEWCHUK:  At the end of the day what HDTV Networks is proposing is to solve the problem that doesn't exist.  The Canadian broadcasting industry is already at the forefront of the HD revolution and CTVglobemedia is amongst those Canadian television broadcasters that are strongly committed to the growth of HD programming.

1884             Today virtually all of our prime time programming on the CTV network is available in HD.  CTV's entire slate of Canadian scripted programs is presented in HD, this includes "Corner Gas", "Degrassi:  The Next Generation" and "Instant Star", and all of our Canadian Movie of the Week titles, such as "Would Be Kings" and "Mayerthorpe" which had its world premiere on CTV on Sunday night and generated 1.3‑million viewers, notwithstanding the fact that it was scheduled against the Grammys.

1885             From a specialty perspective, TSN, RDS and Discovery Channel were among the first to launch in HD and each has grown tremendously since.  In 2006 TSN's HD line‑up featured more than 1,500 hours of HD programming and in September of that year it became the first Canadian broadcaster to launch a daily newscast in HD.

1886             Meanwhile, Discovery launched Canada's first 24‑7 HD service with Discovery HD.

1887             Yesterday morning HDTV Networks indicated that all of their programming will be in HD, even if they must up‑convert some unknown amount of their programs.  Up‑converted programs are not true HD.

1888             In addition, HDTV Networks has also asked for analog distribution so that viewers that do not have digital cable will be able to receive its service.  This requires programs to be down‑converted.  What is clear from all of this is that HDTV will not be offering a true HD service, notwithstanding their name.

1889             We should also highlight that what HDTV Networks is looking to provide is not a free service.

1890             First, for large portions of Canada, including Saskatchewan and three of the Atlantic provinces, this service will not be available over‑the‑air.

1891             Second, in markets where the signal is receivable someone who has invested upwards of a thousand dollars in an HD television with a built‑in tuner will still have to spend extra on an antenna.

1892             Third, and finally, it's naive to assume that today's consumer is interested in investing in an HD set and being satisfied with the few over‑the‑air channels that are available, let alone what HDTV Networks will offer.

1893             Over‑the‑air HD tuning is not and will never be the 10 to 12 per cent of the population HDTV Networks referenced yesterday.  The overwhelming majority of Canadians get their HD television today and will continue to get their HD television in the future from Canadian BDUs, and that does not come free.

1894             HD for the sake of HD is not a reason to approve an application, particularly when doing so will cause significant harm to an already challenged sector.

1895             In fact, what was clear from HDTV Networks' presentation is that they're proposing a transitional solution for a couple of years until such time as all over‑the‑air stations have made the transition.  At that time, any novelty associated with this application is removed and HDTV Networks becomes the same as everybody else.  Consequently, this application is no different than any other application for an over‑the‑air licence and should be evaluated on the same basis.

1896             MR. GOLDSTEIN:  Before we conclude, one short note about YES TV.  We listened to their presentation with interest yesterday.  In our view, it would be more appropriate to licence what YES TV is proposing as a community television station or a digital specialty service.

1897             We seriously question whether their business model is viable as an over‑the‑air station, nor does it merit using valuable over‑the‑air spectrum for this purpose.

1898             Yesterday, HDTV argued that there is a messiness if their service is not treated in the same way as the other incumbents on certain accounts, except they want to pick and choose their regulatory requirements, taking the privileges but not the obligations.  That's not messiness, we would say it's unfairness.

1899             In conclusion, what is the HDTV Networks' application really about?

1900             One, what is being applied for by HDTV Networks is unprecedented and, in effect, requires a new category of licence.

1901             Two, to license such an application would allow HDTV Networks to have privileges but not the obligations that all conventional broadcasters adhere to.

1902             Three, the approval of this application will undermine the ability of licensees to fulfil their obligations, particularly disturbing given the severe challenges already affecting conventional broadcasters.

1903             Four, the cost to the system of licensing HDTV Networks outweigh the benefits, in fact, there is no net benefit to the broadcasting system.

1904             Five, what HDTV Networks is looking to provide is not a free service.

1905             And, six, to be blunt, the rules either work for all of us or for none of us.

1906             For all of these reasons we believe the HDTV Networks' application should be denied.

1907             We would like to thank the Commission for the opportunity to appear before you today and we welcome any questions you may have.

1908             THE CHAIRPERSON:  Thank you very much.

1909             A couple of clarifications first of all.

1910             You say up‑convert is not true HD.  What exactly do you mean by that?

1911             MR. GOLDSTEIN:  Up‑converted programming, and I'll ask Rick to add to it given his programming background, up‑converted programming simply makes the signal technologically compatible, it does not make the programming in 16 X 9 ratio with the crisp, clear picture that HD TV is known for.

1912             What it essentially does is allow you to watch something that's in standard definition through an HD TV signal.

1913             MR. LEWCHUK:  There's actually a great example that Rogers Cable has on the air right now.  They've got a commercial and there's a gentleman watching his ‑‑ what he thinks is an HD television set and he thinks he has HD but, in fact ‑‑ and he talks about the goalie being squished and he's not watching real HD.

1914             THE CHAIRPERSON:  Oh yes, right.

1915             MR. LEWCHUK:  You need to have a true HD signal to see HD.  If you're just taking a standard definition signal and up‑converting it to HD, it does not have the quality of an HD signal.

1916             THE CHAIRPERSON:  Do you get the squishing with that Roger signal, let's say, in its commercial when you up‑convert?

1917             MR. LEWCHUK:  I'm sorry?

1918             THE CHAIRPERSON:  Do you get the squishing, as you call it, of the signal when you up‑convert?

1919             MR. LEWCHUK:  You can, it depends how the up‑conversion happens.  You'll see a good example of that on Score TV and much of the programming they put on Score HD where they up‑convert basketball games and such, it's very much different than when they have a true HD basketball game.

1920             MR. McLUSKEY:  The bottom line on that, beyond aspect ratio, is you can't create detail where none exists.

1921             THE CHAIRPERSON:  Yes.

1922             MR. McLUSKEY:  And that's exactly what the analog formula is trying to do when it takes that SD signal and covert it up to HD TV.  There's basically information that's missing.  You can't make that appear.

1923             THE CHAIRPERSON:  Secondly, you question HDTV's assumption that people will want to watch HD free over‑the‑air, suggesting because of the availability people won't go that way.

1924             But isn't it true that HD over‑the‑air is actually a better signal than you get over the BDU because it's not compressed?

1925             MR. GOLDSTEIN:  I'll ask Rick to comment on that.

1926             MR. LEWCHUK:  I've seen both.  The fact is, you know, the HD signal ‑‑ I'm most familiar with Rogers, that's what my delivery is through and I do see ExpressVu as well.  You could say I have a trained eye looking at it.

1927             I've seen over‑the‑air and I've seen it through both ExpressVu and Rogers and there's very, very little difference in quality to my eye.

1928             THE CHAIRPERSON:  Okay.

1929             MR. GOLDSTEIN:  I think I would also add that if a significant amount of your programming is up‑converted in the first place, it doesn't really matter whether it's compressed through or you're receiving it over‑the‑air, it's still not going to give you the crisp quality that a true HD signal would offer.

1930             THE CHAIRPERSON:  Now, you heard HDTV yesterday argue that really their application was meant to jump‑start the adoption of HD in Canada and proper produce a programming, et cetera.

1931             I gather you don't buy this argument.

Is it because you think this is just marketing, or is it because, in effect, time has overtaken the HDTV application because when they filed their application we hadn't set the deadline for 2011 yet and so, therefore, you know, the need to adopt a strategy and get there wasn't as urgent as it is now for every other broadcaster?

1932             MR. GOLDSTEIN:  I think we'd probably agree with that.

1933             THE CHAIRPERSON:  So, basically it's an application that's been overtaken by time?

1934             MR. GOLDSTEIN:  Yeah, I think, as we indicated in our opening statement, you know, this is ‑‑ essentially the main thrust of this application is, is that it's over‑the‑air HD.  Once everyone else moves in  that direction, it loses its novelty.

1935             And the other thing I think that Mr. Lyons noted yesterday and some of the other people on his panel is that, you know, because of the transitional framework that's in place some of these licences are low power and, at least in the interim period until 2011 or until Industry Canada finalizes its digital allotment plan for HD TV, there's going to be difficulties in certain areas receiving this over‑the‑air.

1936             So, technically, you know, you're going to have trouble in the interim period receiving it over‑the‑air and then ultimately, once it becomes more full power, everyone is going to be in that space.  So, essentially, I'm not exactly certain how that would kick‑start the process even though it's already been kick‑started essentially.

1937             THE CHAIRPERSON:  What about timing?  I mean, presume the Americans are going to be there by 2009, you like everybody else are now under deadlines imposed by us, you're also presumably worried about losing audience to the U.S. signal, et cetera, so you're going to try to be there before 2011 presumably in some key market.

1938             So, to what extent is HDTV going to be the jump‑start or be there ahead of you?  I'm trying to figure out, you know, to what extent their argument, we'll be there across the board, is actually in reality, given the timing, come true?

1939             MR. GOLDSTEIN:  Well, we're already and have been for some time in the two largest English language markets in the country over‑the‑air, Toronto and Vancouver, which covers off a significant portion of the population that HDTV Networks is seeking to serve.

1940             And, you know, yes, we're working on comprehensive plans.  One of the problems we're dealing with at this point is that we are dealing with, you know, a transitional model that Industry Canada has put in place.  Our understanding is, is that come this summer there will be a finalized plan.  Given the time frame between now and then, you're going to want to move to the final, you know, wait for the final situation as opposed to investing in a transitional situation.

1941             So, we intend to come forward, you know, following that, the finalization of that plan with, you know, as required under the policy with a comprehensive plan to meet the roll‑out obligation.

1942             THE CHAIRPERSON:  Now, you object to both effect, that HDTV is asking for a licence without having any obligation for local content, and also to the effect that they're asking for re‑transmission in all three modes, HD, digital and analog.

1943             Of those two, which one ‑‑ and you think it's unfair.  Of those two obligations, the local content, local commitment and the benefit of re‑transmission, which one is more objectionable to you?

1944             If I said to you, we are going to licence them, take your pick, one of these two they're going to lose; which one would you pick?  Which is more significant to you, let's put it that way?

1945             MR. GOLDSTEIN:  I think they're both significant.  You know, as we indicated in our opening statement, no other over‑the‑air broadcaster has ever been licensed without local programming obligations.

1946             And, you know, we also find it somewhat offensive that if you're applying for a service that the whole rationale for it is, is that you're going to jump‑start the HD process and provide HD programming, that you would require analog distribution of that service, because to us that sort of cheapens the experience that you're trying to offer.

1947             Maybe I'll ask Brian to comment on what potentially the impact could be in either situation.

1948             MR. McLUSKEY:  Well, basically you're kind of presenting us with a "Sophie's Choice" and no matter which kid we choose the family's going to be devastated.  That analogy just carries right through.

1949             The fact of the matter is that even if they were to meet local commitments, the system simply can't afford another player, there is already too much fragmentation and we're going to have more failure on our hands.

1950             We've seen TQS, this would just invite more.  There simply isn't enough money there in the advertising base to support it.

1951             THE CHAIRPERSON:  Okay.  Let me ask the question a different way to avoid the "Sophie's Choice" analogy.

1952             Both CanWest, Rogers and you have really called this a super channel, that's what it is, and it is a format that we don't have and a licence that we don't grant in Canada.

1953             If we said, actually the super channel makes sense but you can't treat it like the other over‑the‑air, so, super channel, fine, you can do this, but no re‑transmission because a re‑transmission doesn't fit into it.

1954             I mean, if you want to be a super channel and appeal over‑the‑air, if you can get carriage rights from the BDUs, bully for you, but you're not going to have a mandatory one and, in effect, we create a new category of licences like that, would you see that in the interests of the broadcasting system or not?

1955             MR. GOLDSTEIN:  Quite frankly, with the challenges we face, I don't know that there's the stability in the system to make any conclusive decision about that.  I would certainly want to wait until after the hearings and to see how the conversion to HD TV and the whole world basically, the advertising community, the support of conventional TV unfolds before I'd opine on that.

1956             MR. McLUSKEY:  I think advertising is only one side of it too.  I think Rick wants to comment on what the potential impact may be on a programming expense side as well.

1957             MR. LEWCHUK:  There would be an equal impact from the side of purchasing, acquiring programming, both Canadian programming and foreign programming if there is a super channel model that comes in because they would, in fact, be another purchaser of national rights to programming.

1958             And from what I can tell from their program schedule, they're looking to compete with exactly the same type of both Canadian and acquired programming, and that drives our costs up.

1959             We've seen every new entrant into the over‑the‑air field drive our costs up, even if it is as small a player as Sun TV, it does have an effect on our programming costs.

1960             THE CHAIRPERSON:  Okay.  Thank you.

1961             Do my colleagues have any questions?

1962             Michel?

1963             COMMISSIONER ARPIN:  In your oral presentation you only had one paragraph about YES TV, but I note that you have a fairly extensive submission regarding YES TV and we had the discussion earlier regarding user‑generated content.

1964             Are you making use of user‑generated content in the CTV programming?

1965             MR. LEWCHUK:  Most of our user‑generated content tends to happen on our specialty channels particularly in the youth market with MuchMusic and MTV.  There is more access and we make use of that.

1966             We have also integrated our web component very much on our CTV side with youth‑generated content and a great example of that is Degrassi:  The Next Generation which fits right into that core audience that YES is talking about.  We have had a very substantial web presence with that show since we launched it seven years ago.  That website continues to invite user content.

1967             We just had an interesting small comparison with some user‑generated content with two promotions that ran at the same time; one for the Super Bowl which invited people to upload their game face, the pictures of themselves cheering for the football, and we actually put those pictures of those winners right on television during the Super Bowl.

1968             At the same time we had a promotion called "Degrassify Yourself" which allows people to go on and they can put themselves, their picture with stars from the show.  It was quite pleasant to see that the promotion for Degrassify Yourself had more than 10 times as much uptake as the Super Bowl promotion did.  So people are already getting involved with doing those sorts of things.

1969             So there are those sorts of things that you can do.

1970             COMMISSIONER ARPIN:  What was the quality of the content that you did receive?  Was it sufficient for you to ‑‑ did it meet your needs and could you program a full schedule with user‑generated content?

1971             MR. LEWCHUK:  You could definitely not program a full schedule with the content and even with ‑‑ you know, we were dealing largely with still pictures and there were many even just simple still photos that were not of high enough resolution, high enough quality that we felt comfortable putting on our website let alone on television.  And even the ones we put on television we embellished and enhanced through digital process and put some bells and whistles around them to make them more palatable on television.

1972             COMMISSIONER ARPIN:  Thank you.  Thank you.

1973             THE CHAIRPERSON:  Commissioner Katz.

1974             COMMISSIONER KATZ:  Similar to yesterday I didn't want consultants to get a free ride here.  So Mr. Armstrong, I have got a couple of questions for you on your analysis.

‑‑‑ Laughter / Rires

1975             COMMISSIONER KATZ:  On the first page I guess of your analysis, you summarize the sources of revenue that HDTV have suggested will provide them with the revenue sources they are looking for.  And then a little lower down you said:

"The available evidence suggests the approval of HDTV and YES TV applications will not result in a significant increase in television advertising revenues and likely to derive all of its advertising revenue from existing English‑language conventional TV broadcasting services."  (As read)

1976             COMMISSIONER KATZ:  Yet, up above in the five bullets, if I look at those five bullets, the first two are basically generating revenues from existing television stations.  Then the third one is over‑the‑air radio transition and the last two seem to be new revenues into the system.

1977             So can you explain how ‑‑ the evidence suggests something different than your comments saying it's likely that all the revenue will be derived from existing?

1978             MR. ARMSTRONG:  Commissioner, the bullet points are from the HDTV‑N application.

1979             COMMISSIONER KATZ:  Yes.

1980             MR. ARMSTRONG:  That's where they said their sources would be.  When I looked at what happened in local markets where new over‑the‑air televisions had been introduced which I set out in figure 1 on the next page, I tried to see if there was a pattern where a new station was introduced; could we see an increase in revenues that differed from ove