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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:
Review of the regulatory frameworks for broadcasting distribution undertakings and discretionary programming services /
Révision des cadres de réglementation des entreprises de
distribution de radiodiffusion et des services de
programmation facultatifs
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)
April 24, 2008 Le 24 avril 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
Review of the regulatory frameworks for broadcasting distribution undertakings and discretionary programming services /
Révision des cadres de réglementation des entreprises de
distribution de radiodiffusion et des services de
programmation facultatifs
BEFORE / DEVANT:
Konrad von Finckenstein Chairperson / Président
Michel Arpin Commissioner / Conseiller
Leonard Katz Commissioner / Conseiller
Rita Cugini Commissioner / Conseillère
Michel Morin Commissioner / Conseiller
Ronald Williams Commissioner / Conseiller
ALSO PRESENT / AUSSI PRÉSENTS:
Cindy Ventura Secretary / Secretaire
Cynthia Stockley Hearing Manager /
Gérante de l'audience
Martine Vallée Director, English-Language
Pay, Specialty TV and
Social Policy / Directrice,
TV payante et spécialisée
de langue française
Annie Laflamme Director, French Language
TV Policy and Applications/
Directrice, Politiques et
demandes télévision langue
française
Shari Fisher Legal Counsel /
Raj Shoan Conseillers juridiques
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)
April 24, 2008 Le 24 avril 2008
- iv -
TABLE DES MATIÈRES / TABLE OF CONTENTS
PAGE / PARA
PRESENTATION BY / PRÉSENTATION PAR:
Corus Entertainment Inc. 2709 /15710
PIAC - Public Interest Advocacy Centre 2767 /16074
6166954 Canada Inc. 2791 /16195
Fairchild Television Ltd. 2816 /16357
Asian Television Network International Limited 2825 /16404
TLN Telelatino 2834 /16449
Communications, Energy and Paperworkers Union 2862 /16592
of Canada (CEP)
Gatineau, Quebec / Gatineau (Québec)
‑‑‑ Upon commencing on Thursday, April 24, 2008
at 0904 / L'audience débute le jeudi 24 avril 2008
à 0904
15705 THE CHAIRPERSON: Madame Secretary?
15706 LA SECRÉTAIRE : Merci, Monsieur le Président, et bonjour à tous.
15707 I would now invite Corus Entertainment Inc. to make a presentation.
15708 Appearing for Corus is Mr. John Cassaday.
15709 Please introduce your colleagues. After which, you will have 15 minutes for your presentation.
PRESENTATION / PRÉSENTATION
15710 MR. CASSADAY: Thank you.
15711 Mr. Chairman, members of the Commission, my name is John Cassaday. I am the President and CEO of Corus Entertainment Inc.
15712 To begin I would like to introduce my colleagues who are with me here today.
15713 To my immediate right is Gary Maavara, Vice‑President and General Counsel.
15714 To Gary's right is Gerry Makrell, Vice‑President, Corus TV Sales.
15715 And to my left is Sylvie Courtemanche, Vice President, Government Relations.
15716 Corus welcomes this opportunity to participate in this important review of the regulatory policies for specialty and pay television and distribution undertakings.
15717 In our written submissions, Corus has proposed a comprehensive package of measures that, taken together, are designed to respond to the goals set out by the Commission when it launched this proceeding.
15718 More importantly, however, our proposals address what we believe should be the underlying objective: simply put, to build on the success of the Canadian broadcasting system during this time of unprecedented change, challenge and opportunity.
15719 The Canadian broadcasting system is a tremendous success made possible by a supportive carriage model that has nurtured new services and fostered their growth and development.
15720 Yes, it is a complex and layered system, but it has worked. It has been the right approach to further the objectives of the Broadcasting Act.
15721 The proof is in the number and diversity of Canadian services we have today and the enormous contribution they collectively make to the creation and exhibition of Canadian programming.
15722 Add to this the large number of complementary foreign services that are available in Canada, and the result is that we have access to more programming choices per capita by far than any other country in the world.
15723 The transition to a purely digital environment starts from this existing structure.
15724 All players in the system ‑‑ both the regulators and the regulated ‑‑ must proceed with great care to preserve our strengths as the digital borderless environment emerges.
15725 Corus is privileged to play a role in the success of the Canadian broadcasting system.
15726 Our television assets include three over‑the‑air stations, two pay television services and 11 analog and digital specialty services.
15727 Corus has developed strong brands more particularly in the children's, women's, and the long form dramatic programming sector.
15728 Corus is unique.
15729 That said, every intervener before you in the past three weeks is unique.
15730 We all have different perspectives, mandates and markets.
15731 Our collective challenge is to find a regulatory structure that can reconcile this diversity of interest.
15732 MR. MAKRELL: Since its inception in 1999, Corus Television has provided significant support to the independent production sector.
15733 For example: we have commissioned over 4,600 hours of original Canadian production from independent producers through our pay and specialty services; we have spent more than $267 million on licence fees paid to independent producers; and we have triggered over $900 million in original, independent Canadian productions.
15734 Corus is particularly proud of its support for children's programming, through our specialty services YTV, YTV VOD, Treehouse and Treehouse VOD, our 50 per cent ownership stake in Teletoon, Teletoon Retro and the VOD platform, Discovery Kids and through Nelvana, which is one of Canada's biggest producers and exporters of Canadian entertainment content.
15735 Consider that YTV is celebrating its 20th year on air.
15736 Since 1988 YTV has commissioned more than 2,400 hours of original Canadian production, spent more than $185 million in licence fees and triggered over $1.1 billion in independent Canadian production.
15737 Treehouse, since its launch, has spent more than $36 million in licence fees and triggered more than $137 million in independent Canadian production targeted to a preschool audience.
15738 And Nelvana, over the last 5 years, has spent over $360 million in production costs.
15739 MS COURTEMANCHE: These are the contributions that have been possible under the current regulatory framework.
15740 Although we agree that this framework should be simplified where possible, we must be careful that we build on our successes.
15741 To do so, Corus believes that this policy process involves three distinct steps.
15742 First, a streamlining of the rules for distributors, focusing on the key measures needed to promote the goals of the Broadcasting Act.
15743 Second, in the event we redesign the distribution framework, the Commission must also address the licensing framework for discretionary services.
15744 This symbiotic relationship is the essence of the regulatory bargain.
15745 Obligations need to match the privileges awarded to the services.
15746 This is how discretionary services meet their high Cancon exhibition and expenditure obligations.
15747 Access rights, packaging and preponderance requirements are key elements of the carriage model that support the high contributions to the Canadian system made by discretionary services.
15748 Alteration or removal of any of the carriage rules will affect the business model for discretionary services and their ability to sustain their current levels of contribution.
15749 Even without any changes to current carriage rules, the evolution to all‑digital cable distribution and the offering of more customized cable packages will lead to lower penetration in the future, particularly for today's analog services.
15750 A service‑by‑service comparison of DTH and cable penetration is ample evidence of this.
15751 Third, to move from today's licensing and distribution framework, the Commission needs a logical transition framework with clear milestones.
15752 Corus provided such a transition model in its written comments, and we would be pleased to elaborate on this during the question period.
15753 MR. MAAVARA: We would now like to respond to the five key questions identified by the Commission at the outset of the hearing.
15754 First, all BDUs should provide a basic service that includes the CBC‑SRC, local over‑the‑air Canadian stations and the Section 9(1)(h) services.
15755 A BDU should have the flexibility to add to its basic package any Canadian specialty services, with their agreement, plus the traditionally carried US stations.
15756 In a competitive market, this allows BDUs to differentiate themselves and to provide a level of service that, in their judgement, best meets the needs of their subscribers.
15757 Corus would be concerned that a lifeline basic service package would exclude key program categories, including and importantly programming to children.
15758 Second, we believe that access privileges should be granted to those services that make requisite contributions to Cancon exhibition and CPE.
15759 We have called these Class 1 services.
15760 Corus does not suggest that all existing analog and Category 1 services should automatically become Class 1 services.
15761 Instead, all existing discretionary services would default to a Class 2 licence with no CPE requirement and no access privileges, similar to today's Category 2s.
15762 Any service wishing to obtain access guarantees would have to apply for a Class 1 licence with incremental obligations respecting Cancon and CPE.
15763 As for the CPE obligations for these Class 1 licences, the Commission should specify a fixed percentage of revenue but without bracketed increases through its licence term.
15764 The current practice by which required CPE percentages are subject to increase depending on historical PBIT levels is a tax on success and has no place in a competitive broadcasting environment.
15765 Third, with respect to genre exclusivity, Corus proposes an open entry approach based on the principle of genre identification rather than genre protection.
15766 We support the establishment of a limited number of broadly defined genres for this purpose.
15767 This would serve to increase the diversity and promote dynamic competition within the Canadian broadcasting system.
15768 Corus believes that, after more than 20 years, it is more than prepared to compete in the children's programming sector.
15769 Any service within a given genre would also be free to adjust programming formats without the need for prior Commission approval, provided that its nature of service remained consistent within that genre.
15770 A service proposing a more fundamental change that would move it into a new genre would have to apply for prior Commission approval.
15771 The purpose of such an application would not be to administer genre protection policies.
15772 Rather, it would be to put all existing services in the new genre on notice of the imminent arrival of a new competitor, giving them a chance to develop appropriate competitive responses.
15773 It would also allow distributors to manage the transition.
15774 We believe that this approach fosters competition and stimulates the creation and exhibition of high quality content, while avoiding the potential free‑for‑all that could otherwise result if all genre identification policies and application requirements were eliminated.
15775 While we advocate an open entry approach respecting the licensing of Canadian services, let us be clear that this approach is not appropriate for non‑Canadian services. The Commission needs to ensure that each new non‑Canadian service authorized for distribution in Canada contributes true diversity to the system and does not undermine the program rights and business models of Canadian services.
15776 To this end, Corus advocates an objective two‑part test.
15777 First, no more than 25 per cent of the program titles on a prospective service should already be available in Canada. Second, where a prospective service currently has a program supply agreement with a licensed Canadian service, no assessment of eligibility should occur for 36 months to ensure that the non‑Canadian service does not restrict access to its programming.
15778 As for the possibility of a previously authorized non‑Canadian service morphing into a new format that might infringe on a Canadian service, Corus suggests that the Commission simply apply the 25 per cent program overlap test when such a situation is brought to its attention on a complaint basis. Failure to pass the program overlap test would result in the service being removed from the lists of non‑Canadian services authorized for distribution in Canada.
15779 MR. CASSADAY: The fourth question relates to fee for carriage.
15780 Notwithstanding our position as an over‑the‑air broadcaster, Corus remains opposed to the imposition of any fee for carriage for three reasons.
15781 First of all, at least a portion of the problem can be addressed by stopping the leakage created by the problematic execution of the distant signals policy.
15782 Second, there is an absence of compelling or independent evidence to demonstrate that there will be no harm to the system as a result of fee for carriage, no harm in terms of lost subscribers to black or grey distribution alternatives, and no harm from consumers reducing their existing packages, much like we understand consumers today are adjusting to higher gasoline prices by reducing their food‑away‑from‑home occasions.
15783 And third, it creates a regulatory imbalance for specialty operators unless we are compensated in turn with mandatory signal substitution, which has proven to be an extremely lucrative revenue source for over‑the‑air operators.
15784 In any event, all we ask here is that you prove us wrong or make us whole.
15785 Fifth, with respect to distributors' access to ad revenues, whether through their on‑demand platforms or using the local avails of U.S. satellite services, our position is again clear. Advertising activity must remain the sole domain of programmers.
15786 Local avails and U.S. satellite services already play the vital role of promoting Canadian programming services. Activating this substantial inventory for commercial application would trigger material advertising price deflation.
15787 In addition to the potential impact on the television advertising market, the sale of local advertising by distributors would also have a significant impact on local radio stations in each market.
15788 With respect to the on‑demand platform specifically, Corus supports flexibility and an opportunity to work with distributors to explore the possibilities of video on demand and dynamic ad insertion. However, any such activity must be done only in accordance with the terms of a negotiated agreement between the broadcaster supplying the programs and the distributor providing the VOD platform, consistent with the principle that the broadcaster retains responsibility for the sale of all advertising.
15789 Mr. Chairman, there are of course many other issues that have been raised in this proceeding and we have included with these opening remarks an attachment that summarizes our recommendation on all the matters under discussion.
15790 That completes our presentation. Thank you for your attention and we would be pleased to respond to your questions.
15791 THE CHAIRPERSON: Thank you very much for your very balanced presentation. I appreciate that. Having heard presentations all over the scope, yours is sort of as balanced as I have seen so far, and I appreciate that effort by you to put both sides on the table.
15792 MR. CASSADAY: Thank you, we appreciate that.
15793 THE CHAIRPERSON: Tell me, just out of curiosity, I didn't know you owned any OTA stations. Which ones are those?
15794 MR. CASSADAY: Yes, we have three stations that are affiliated with the CBC: one in Kingston, one in Peterborough and one in Oshawa.
15795 THE CHAIRPERSON: I see.
15796 Now, on your suggestion of their being sort of one category in the digital universe, Class 1, and you also suggest that all existing analog and Cat 1s default to Cat 2 and then we have a process for that. In terms of transition, I presume you suggest that we do that between now and 2011 when we enter the digital, and in the meantime obviously people have their grandfather status. But we would hold these very difficult hearings in between on the assumption that all of you will resort to Cat 2 unless in this proceeding you become a new Class 1 carrier.
15797 Is that the idea?
15798 MS COURTEMANCHE: I will answer that.
15799 Yes, the idea is that everybody would remain as they are for the next several years. In 2013 would be when you actually implement the new Class 1 and Class 2 licences. You would be processing the applications as of September 1, 2012.
15800 So the status quo would continue for existing services up until at the earliest 2013, at which point you would then have your newly licensed Class 1s and Class 2s. That's where your evolution would have occurred.
15801 So that is why we provided a detailed transition schedule to sort of explain how you get there step‑by‑step.
15802 THE CHAIRPERSON: I know you did and that's what surprised me, because I mean business doesn't like uncertainty and basically until we hold that hearing, the existing Cat 1s or analog 1s don't know where they are going to wind up, et cetera.
15803 Wouldn't there be a need to do that at an earlier date in order to remove that element of uncertainty?
15804 MS COURTEMANCHE: Perhaps the point that is not clear is the fact that you have ‑‑ there is no debate as to whether or not you would become a Class 1 or not. The Commission would establish the parameters upon which a Class 1 would operate. It would specify for everyone if you are a Class 1, your Cancon is at this level and your CPE is at that level.
15805 Once you are prepared to commit to those levels of Canadian content and CPE, it would be an automatic process; you would get your Class 1.
15806 THE CHAIRPERSON: So it is an entitlement program. There is no element of discussion any more.
15807 MS COURTEMANCHE: There is a discretion for the operator to decide, you know, whether you want to do Class 2 or Class 1. But the Commission, yes, your discretion is determining right up front what is the level of contribution that will entitle you to be able to operate at that level. So that is where your discretion comes in.
15808 But after that, the operator has a very clear picture as to what he has to do going into the future.
15809 THE CHAIRPERSON: I'm confused here.
15810 We hold these hearings whenever, you suggest 2012 or something like this. Existing Cat 1 or existing analog says okay, those are your requirements. I'm prepared to meet those.
15811 So they automatically become a new Class 1 or do we as a Commission have a say in it in saying no, we don't want you for whatever reason?
15812 MS COURTEMANCHE: The Commission always has a discretion, absolutely. I mean, the Commission cannot legally bind itself, you know, and you can't bind legally a future Commission. So that is absolutely clear.
15813 What it would say is it would set out that, you know, basically speaking unless we have a problem with what you are proposing to do, this is the level at which we would expect you to come in at, and nothing less, and that level of obligation will translate into access privileges.
15814 So you are setting a bar and people will be able to plan accordingly.
15815 But yes, absolutely, you have a discretion to say, you know, at the end of the day even though you are meeting the bar, we don't think your proposal should get access.
15816 It certainly sets out the rules of the game very clearly from the start.
15817 THE CHAIRPERSON: Well, this is why I'm asking you, because you are trying to marry two contradictory principles: one of saying the expectation that this is entitlement; if you do it, you get Cat 1. And then at the same time you very quickly backpedal and are saying just a second, no, you can't bind yourself; you always have the discretion to let people in, et cetera.
15818 It is going to create either expectations that are not going to be met or, alternatively, a process which is very akin to rubber stamping.
15819 MS COURTEMANCHE: Your alternative would be to just say come in and have a process that says if you come in with great obligations in Cancon, we will examine whether that is a level of Canadian exhibition and/or Canadian expenditure that we think in our mind warrants access in a digital environment, guaranteed access. That would be your alternative, is to say okay, don't determine the level today and look at it on a case‑by‑case basis.
15820 MR. MAAVARA: Mr. Chairman, when we looked at the original PN calling this process, one of the objectives that the Commission set for itself was streamlining the regulatory process because of the huge number of applications and that sort of thing.
15821 What we tried to set out in the transition scheme, of course making some assumptions as to how it would work, we see this as part of a broader process which will include other elements, for example, you recently published diversity policy. At that time, that may be a situation where it is not so much a rubber stamp but the Commission has to apply other policy as well.
15822 For example, if an applicant has hit certain thresholds, that is a time when that sort of thing would be looked at. The other aspects that you will have to look at at that time ‑‑ and again, we made assumptions as to dates ‑‑ but what is the actual penetration of the new technology? Who are the players at that time and that sort of thing?
15823 So we felt that there would be elements of the process that would be streamlined, but at the end of the day, as Ms Courtemanche said, you make the decision.
15824 THE CHAIRPERSON: No, don't get me wrong. I like the streamlining. I just pointed out the potential problem that I see here.
15825 Ms Courtemanche partly answered my concern.
15826 Just one other question. When you talk about protecting against foreign services and you have this two‑part diversity test before you let somebody in, the second part I'm not quite clear how that works and what are you trying to achieve on page 9 with your second bullet:
"Where prospective service currently has a program supply agreement with a licence service, no assessment of eligibility should occur for 36 months."
(As read)
15827 MS COURTEMANCHE: We just want to make sure that a program service, Canadian programming service that has a relationship with a U.S. service provider doesn't see his program supply arbitrarily cease just because that ‑‑
15828 THE CHAIRPERSON: Make a concrete example. Walk me through how this would work.
15829 MR. MAAVARA: Let's use the example of Home Box Office.
15830 THE CHAIRPERSON: Yes.
15831 MR. MAAVARA: They license a number of programs to our pay service Movie Central. Someone decides to make an application for Home Box Office carriage in Canada and that is something that Home Box Office is interested in doing, and they terminate our program supply agreement.
15832 Our concern about the incursion of foreign service is really based on two things, as you have heard I think a few times over the last few weeks. One is the loss of access to programming, which in many cases can be fundamental to the success of the Canadian service; and second, of course, is the competition for subscribers and viewers.
15833 What we are looking at here is a circumstance where if there was such an application made, in a sense we would establish a statutory moratorium or regulatory moratorium for three years before you applied the test.
15834 In a sense, it is a bit of a stop sign from a regulatory perspective that allows the Canadian operators to plan for that and also hopefully to convince Home Box Office that they don't need to come here.
15835 THE CHAIRPERSON: I'm always interested in the mechanics. Take your example, Home Box Office applies; they come before us. So we then say we will deal with your application and 36 months?
15836 MR. MAAVARA: Yes.
15837 THE CHAIRPERSON: Okay, so we do that. Thirty‑six months are up and everybody had notice. At that point in time we either let them in or not, depending whether you have a 25 per cent overlap.
15838 MR. MAAVARA: That's correct.
15839 THE CHAIRPERSON: Having told everybody else in the meantime if you want to continue to get supply from HBO, you better tie them up right now.
15840 Is that the idea?
15841 MR. MAAVARA: That's correct.
15842 THE CHAIRPERSON: Okay. Thank you.
15843 Len, you have a lot of questions?
15844 COMMISSIONER KATZ: I have a few questions, Mr. Chairman.
15845 Can you tell me the current ownership of Corus? What per cent of Corus does Shaw own today and what per cent is public?
15846 MR. CASSADAY: There are two ways of looking at the ownership of Corus. The important way, from a regulatory point of view, is the control block.
15847 The Shaw family controls approximately 83 percent of the voting shares of Corus Entertainment.
15848 Corus is a publicly traded company. There are approximately 42 million shares outstanding, and the Shaw family controls approximately 6 percent of the outstanding equity in Corus.
15849 I guess that is the distinction.
15850 I guess the other important thing that I would say is that there is no ownership in Corus by Shaw Cable or Shaw Communications, the ownership is at the family level.
15851 COMMISSIONER KATZ: On page 6 of your submission this morning you indicate that you are not opposed to a more broad ‑‑ the current basic package that exists today. You seem to be opposed to a basic lifeline package, and you identify in there that one of the key reasons is perhaps that children's programming would be excluded.
15852 Can you make the same argument for the U.S. stations, the four‑plus‑one, or the multiple four‑plus‑ones that may be in basic?
15853 MR. CASSADAY: The same argument in terms of their lack of children's programming? Is that what you mean?
15854 COMMISSIONER KATZ: Either lack of children's programming, or the reason why the U.S. programming should be included in the basic package.
15855 MR. CASSADAY: The basic argument for maintaining it is that it has been an entitlement to the consumer. We start and finish our whole thinking with what is the impact on the consumer.
15856 I think there has been an expectation that those services are available.
15857 I think we need to be mindful of the fact, when we start talking about a very limited basic service, about who is to complain. We would be concerned that if there are certain groups that are excluded from having participation in television viewing, that that would be an issue.
15858 We have a broader issue about a slimmed down basic service, and that is the impact that it has on our access to viewer eyeballs, if, in fact, this results in a significant reduction in the penetration of a number of our services.
15859 We would like the opportunity to be able to appeal to distributors to include us in a basic service, and we think that, from a competitive point of view, it is a compelling way for various distributors to differentiate themselves from one another by being able to mix and match the appropriate services within a basic service that they offer to their customers.
15860 COMMISSIONER KATZ: How many of the Corus services are in the basic package today?
15861 MR. CASSADAY: Four services ‑‑ Treehouse, YTV, W and Telelatino.
15862 I think that covers it, Gary?
15863 MR. MAAVARA: It depends a little bit on the market, but that's roughly it.
15864 In the children's area, one of the concerns that we would have from a consumer standpoint, and obviously our enlightened self‑interest is that most over‑the‑air broadcasters have abandoned the children's area in the same way as they have abandoned other segments of programming, which have been replaced by specialty or pay services. The result would be that if you had a very slim basic service, then those viewers would not be getting access to that Canadian program.
15865 COMMISSIONER KATZ: So of your 11 analog and digital specialty services, four of them are in the basic package?
15866 MR. CASSADAY: That's right.
15867 COMMISSIONER KATZ: The only other question I have, Mr. Chairman, is a quick one.
15868 On page 8 you talk about your model and the notion that anybody else coming in under your broad genre model would apply to the Commission, and you say that would give the incumbents a chance to develop the appropriate competitive response.
15869 If we are looking at a competitive market, why is there a need for new entrants to give the incumbent time to adjust to a new entrant coming in?
15870 If anybody is disadvantaged, it is probably the new entrant who is going to be disadvantaged. He is coming in with nothing, as opposed to the incumbent, who is already there.
15871 Wouldn't this give the incumbent an opportunity to lock up the business, or the programming, or whatever, at the exclusion of the new guy coming in?
15872 MS COURTEMANCHE: We thought that it might be chaotic if, from one day to the next, there was no notice given, whether it is to the distributor or even the consumer.
15873 I think there are a number of people in these elements that you need. I understand what you are saying. Perhaps this gives the incumbent a leg up, but it is also meant to manage the confusion that would happen if formats changed one day to the next and neither the distributor nor the consumer was part of the process.
15874 At least this gives a number of people an opportunity to be told in advance that they are going to lose their service and they are going to participate in the process.
15875 It probably wouldn't change the outcome, as long as the person would agree to have the nature of service.
15876 Competitively speaking, yes, it does allow you an opportunity for the incumbents to prepare themselves, but it also manages the other elements of the system, which is what we were more concerned about at that point, rather than just giving the incumbent a leg up.
15877 MR. CASSADAY: It is true that it does give the incumbent an advantage, but I guess the question to ask is, why would that not be appropriate.
15878 It is akin to allowing the incumbent the opportunity to avoid being ambushed.
15879 If you have what we call in the industry a tent‑pole program ‑‑ and most specialty services succeed or fail on the basis of having, really, one or two outstanding shows that drive their schedule ‑‑ and if through ambush an incumbent planning to change their approach to competing in a genre decided to get into a new form of programming ‑‑ let's say, for example, that Food decided that instead of focusing entirely on lifestyle, they were going to become actively involved in drama ‑‑ and before they made that move they secured the rights to a "tent‑pole" show from W, that would have a very significant impact on W, which has made a great contribution to the system, to be able to maintain that level of contribution going forward.
15880 It just allows an appropriate time for people to adjust to a change in circumstances.
15881 The essence of our idea, though, is that we believe that Canadians deserve more freedom of choice, and that that choice should come from Canadian services. So we have simply tried to provide a framework where we could encourage more diversity in the system through the encouragement of Canadian players to compete more broadly.
15882 COMMISSIONER KATZ: Thank you.
15883 THE CHAIRPERSON: Michel?
15884 COMMISSIONER ARPIN: Thank you, Mr. Chair.
15885 My colleague asked you the good questions. I was supposed to make the initial interrogatories, but some of the questions I am looking at have already been asked.
15886 I want to come back to your timeframe ‑‑ the timeline that you have put as an appendix to your submission, which you discussed earlier with the Chair.
15887 I was wondering, during that almost five‑year period that will bring us to September 1, 2013, the existing analog and Category 1s, can they do anything they want in the meantime?
15888 Can they reduce their Canadian content, reduce CPE and ‑‑
15889 MS COURTEMANCHE: No, they couldn't change the way they are operating until the proceeding had occurred.
15890 You can't just arbitrarily change your licence, you would need to continue within the framework that we are operating in today.
15891 At the time, when the Commission would say "Now it is time to process these applications," that is when the change would actually occur.
15892 MR. MAAVARA: Mr. Vice‑Chairman, you are probably going to see analog services come in as circumstances change for them. They will come in looking for changes, but, again, that would be at the discretion of the Commission. You would manage that according to the circumstances that they are facing.
15893 They couldn't do it as a right.
15894 COMMISSIONER ARPIN: As you say in your oral presentation, the experience so far ‑‑ the various analog services that are handed up one day on satellite, I would guess that most of them, if not all, have been packaged in a different fashion, and somehow, rather than attain up to 90 percent penetration, at best they would be in the mid‑sixties.
15895 Obviously, through digital migration, they are also living a very similar experience.
15896 That is why you are saying that there might be some analog services which may consider having their conditions changed.
15897 Is that what you are saying, Mr. Maavara?
15898 MR. MAAVARA: Yes, that's correct.
15899 There was considerable evidence filed with the Commission during the digital migration process, and the reality is that whenever something gets into a more discretionary mode, the penetration levels fall off.
15900 Of course, our challenge, from a marketing standpoint, is to try to entice consumers to keep picking them, but it is very difficult to maintain 100 percent carriage.
15901 COMMISSIONER ARPIN: That being said, in most instances services have been able to negotiate with the distributor a make‑whole or a close to make‑whole rate, so that, in terms of revenues, they have been able to maintain their revenue level.
15902 In terms of eyeballs, more than likely, there were viewers that were not ‑‑
15903 Well, if I don't have any children, the likelihood that I will watch a children's channel is rather slim.
15904 But if you have been able to negotiate your rate, then, in terms of revenues, you are keeping your bottom line.
15905 MR. MAAVARA: There are a number of impacts of a transition from a pure analog carriage into a more discretionary environment, and one of the things that tends to happen is, if you are no longer part of that channel sequence ‑‑ and I think that Gerry Makrell could speak to this ‑‑ what you also lose is sort of the drive‑by viewer, so that a program that might have got some viewership before no longer gets that, simply because it is no longer part of the package.
15906 For example, in the example you used, a program on YTV that is targeted for family viewing in the evening, if you don't have the channel because you don't have children, then, obviously, you didn't think that channel was important to you. In the current circumstance, we get viewers who watch those shows because they are interesting programming, and we lose that in a discretionary environment. As a result of that our advertising potential drops.
15907 Then, on the subscriber side and on the make‑whole side ‑‑ we have heard a lot of perspectives from the BDUs over the last three weeks, but I think that people would generally agree with the observation that the days of a make‑whole environment are probably behind us. The challenge for all services will be finding the right combination of attractive rate to the BDU and customer, combined with the ad potential, in order to make the business plan feasible.
15908 MR. MAKRELL: I think you are right on, and I think that Gary's response was pretty accurate.
15909 From an advertising perspective, you are not hurt by losing households who wouldn't watch you anyway. Conversely, you are probably going to have a relatively high success rate in recruiting core viewers.
15910 The devil is in the detail, I guess, in that it is the occasional viewer that you would get, on a fairly routine basis, tuning into your channel, just because they come across programming that is interesting to them, who will no longer have that opportunity.
15911 So you are right in that it is not a linear relationship. Distribution does not linearly relate to the advertising piece, but there certainly is a directional relationship.
15912 COMMISSIONER ARPIN: Would that be more true for certain kinds of services, rather than all services?
15913 After having worn another hat in a previous life, I know that, obviously, on music channels, from time to time you have a special star or whatever, and obviously, if you haven't subscribed to the music theme pack, but you are interested, it is an opportunity missed.
15914 But if you are on the much broader tiers, or on basic, then you may have the odd viewer that will otherwise not have watched, but will give you a much better rating for that program.
15915 Are you suggesting that all of the services, or that all of the genre services benefit from these extra viewers from time to time, or is it more specific to some genres?
15916 MR. CASSADAY: All services benefit, to some extent, from drive‑by viewing.
15917 We have a very large adult audience on YTV, which we monetize in special packages to advertisers, and yet, by the suggestion you are making, that would not have been intuitive to you, and yet it is an important part of our marketing plan.
15918 Certainly, as we see it going forward, there's going to be a lot more onus on the programmers to market their services.
15919 The most important thing for us coming out of this hearing is that we continue to have access to eyeballs, but we are prepared to get that in two ways: Through mandatory access as a Class 1 service, or through marketing efforts as a Class 2 service.
15920 We recently were given the opportunity by the Commission to launch Cosmopolitan Television in Canada. We're going to do very well in terms of distribution on that service because of the compelling offer that we have.
15921 We've got a great brand name, we invested heavily in programming, we are spending a lot of money on marketing that brand, including a broad array of media not just our own services, and when we talk to distributors, even in French Quebec, they found it appealing as an offering to their subscribers.
15922 So, it ended up being a win/win, despite the fact it was a Category 2 service. And you've heard lots of complaints about access, with the right package, it is possible to get access to those eyeballs and do very well.
15923 MR. MAAVARA: If I can just add to that. And, Mr. Chairman, you mentioned that you are a subscriber to Star Choice, and I think in knowing that I could probably predict that your behaviour in how you look at channels is different than someone who's a subscriber to a traditional cable system.
15924 And the reason is that as we move into this digital environment, a variety of factors result.
15925 One of the issues is the change in packaging and access and that sort of thing, but the other thing that happens is simply just channel position and the way the service is ‑‑ the BDUs cluster their services.
15926 And the result is, that changes how you look at television and the reality of anybody who is a satellite subscriber or who subscribes to the huge cable packages, is that you can't scroll through ‑‑ unless you're a middle aged male ‑‑ you can't scroll 500 channels because the people who are in the room with you will probably take ‑‑
15927 THE CHAIRPERSON: Speak to my wife.
15928 MR. MAAVARA: Exactly. And that changes the viewing issue.
15929 And as Gerry talked about, you know, the occasional viewers, that's another thing that we have to deal with through things such as Mr. Cassaday mentioned on marketing, but that is an unescapable aspect of the digital environment.
15930 The channel may be there, it may be carried, but it's somewhere much more greatly remote from where it used to be.
15931 And one of the things that we were pleased with, with how the BDUs are dealing with the basic digital tiers, is that they're basically replicating how it is on analog and the result is that consumers understand the channel relationship and the line‑up relationship and that's maintained viewing.
15932 COMMISSIONER ARPIN: While you were talking with the Vice‑Chair and when he was asking you regarding the services that you may have or could have from BDU to BDU on basic, I noted that CMT is on basic on ExpressVu, I don't know if it is.
15933 So, it's a fifth service that you have that has benefitted from being distributed on basic.
15934 MR. CASSADAY: That's correct.
15935 COMMISSIONER ARPIN: The ‑‑
15936 MR. CASSADAY: In the words of ‑‑ who was it, Roger Clemens, I misremembered.
‑‑‑ Laughter / Rires
15937 COMMISSIONER ARPIN: Now, I know that your position is rather clear on fee‑for‑carriage, but assume that at the end of the proceeding the Commission comes to the view that the fee‑for‑carriage should be granted.
15938 In your view, since you are an operator of three television stations ‑‑ well, first, should the CBC get any money out of fee‑for‑carriage; and, second, should the money go to the network or should it go to the local station?
15939 MR. CASSADAY: Well, I guess we look at the question of fee‑for‑carriage in a broader context, and I'll come back to your specific question about a graduated fee structure.
15940 But the first thing that we suggest, and that is something that we raised in our opening remarks, is to stop leakage.
15941 And we think there is an opportunity to generate increased revenue by a real thoughtful strategic approach on the part of all the players in the system to try to stop this leakage through distant signals which either CanWest or CTV, I couldn't tell from the minutes, suggested was in the neighbourhood of $90‑million. Not an insignificant amount of money.
15942 Secondly, I think there are other opportunities that the Commission will want to look at. One is the general framework for the hearing was, let the market decide or let market conditions dictate, and one of the tools at your disposal is to allow exclusive distribution, and this would allow an operator, like a network to say to Cogeco, I would like a fee, for Cogeco to make a decision and then for that operator to go to ExpressVu and perhaps even get a dollar a month.
15943 And then the question would be: Would I rather have a dollar a month or free carriage on Cogeco depending on whether or not I want access to those eyeballs and the ability to derive advertising from them? But I think it's, again, an alternative.
15944 To your specific point, I think there is a couple of issues that have to be addressed, is in fact a government‑sponsored agency like CBC or SRC entitled to the same fee as a network like CTV? Within CTV, is A Channel entitled to the same fee as the CTV network itself?
15945 If, in fact, the right number's 50‑cents, should it be in one fell swoop or should it be graduated over a period of time?
15946 All of these questions are complicated and I don't think there is a right answer. Obviously, the toughest challenge that you all are going to have is to use your best judgment to determine what is the appropriate answer.
15947 Just looking at the Toronto market, in my view, if you looked at the 50‑cent rule you're looking at at least a $5 wholesale and at least a $10 retail rate, and that scares me from the standpoint of being a pure play specialty operator because I don't know what the implications are going to be on the consumer.
15948 We used the analogy of the consumer response to rising gas prices being a reduction in the number of times per week that they are apparently eating food away from home.
15949 I think that it's a natural inclination on the part of all of us to adjust our spending in light of increased expenditures from, you know, another part of our spending base.
15950 I mentioned the importance of independent research, and I'm not suggesting any of the research that you've seen has been dishonest, but the answer you get in research depends largely on the way the question's asked and the sequence in which the questions are asked.
15951 And I think that it's fair ball that the parties in this system contribute to an independent study to try to get some idea about the receptivity to fee and also the receptivity to various price points.
15952 And then, finally, another ‑‑ and I think another tool that we have to use here is just to ensure that the dollars that are going to the web right now, which are substantial in Canada, are adhering to the guidelines that exist as it relates to tax deductibility.
15953 I have a concern, and many of our customers have a concern, that there are many U.S. websites benefitting from Canadian advertising and perhaps not without ‑‑ with the penalty of no tax deductibility. So, I think there's a lot of money leaking out of the system there that could be brought back in.
15954 And then, finally, I think there needs to be some objective assessment as to why there is profitability problems in these networks.
15955 Markets are still growing. In this last broadcast year we've seen over‑the‑air television markets grow at 1.3 per cent. From the world I came from, which was packaged goods, a one per cent market growth was reason for high fives and breaking out the champagne.
15956 So, I think that there needs to be a very clear understanding as to why, in fact, there are issues here and I would encourage you, as President of a programming company, to look specifically at the line item on the P&L called Program Amortization and to make sure that these decisions are being made thoughtfully and that they're, in fact, not stockpiling programming and paying the price and reducing their opportunity to be profitable while they capitalize on the opportunity to be dominant.
15957 And, as I said, it's a broad range of considerations. We don't envy you, but all we're saying, from our selfish point of view, we think the risks are high for the piece of business that we're in if people migrate away from us to gray or black market dishes.
15958 And I also quite frankly wonder why the two largest operators in specialty television, CanWest and CTV, are less concerned about that than we are, because that's clearly where the growth's going to come from and I wouldn't throw that fish off the boat until I was sure that the other one was going to be able to swim.
15959 So, that's just a long answer to what was probably a hope that I would have a quick response for you.
15960 COMMISSIONER ARPIN: Or a more specific answer.
15961 MR. CASSADAY: Well, the specific answer is, there is no answer. I mean, I don't know how you decide what SRC's worth relative to TVA.
15962 COMMISSIONER ARPIN: Exactly.
15963 MR. CASSADAY: It's pure judgment.
15964 COMMISSIONER ARPIN: And you're leaving it to us, but...
15965 MR. CASSADAY: Well, actually I'm recommending you don't do it, but...
‑‑‑ Laughter / Rires
15966 MR. CASSADAY: So, I am being very specific. But if you do do it ‑‑
15967 COMMISSIONER ARPIN: Absolutely. But if we were to do it, should the money go to the network, or should the money go to the local stations?
15968 MR. CASSADAY: Well, there are so few local stations, that's the least of these issues. All the beneficiaries are really owned and operated.
15969 COMMISSIONER ARPIN: Yes. But they are affiliates, like you are.
15970 MR. CASSADAY: Yeah. But, you know, we are such a small piece of the pie, I think ‑‑ you know, I mean, 98 per cent of the dollars are going to go to five key players and I just don't think it's a big enough issue to make that a concern here.
15971 COMMISSIONER ARPIN: Now, you have made the point regarding distant signal but, again, in the distant signal situation, if we were to go to a consent regime, who should give the consent; the broadcasters that you want to export or the broadcaster that is coming into your market?
15972 Say, take Peterborough, so it would be CBC Vancouver who says, yes, I want to be in Peterborough, so it would be the affiliate in Peterborough who says, okay, I agree to the CBC Vancouver as long as I'm compensated.
15973 Because the argument that I have heard so far, particularly from CTV and CanWest, is obviously the Vancouver stations say that we'll agree to be exported to Toronto or Halifax, but the damage is done locally.
15974 MR. CASSADAY: Mm‑hmm.
15975 COMMISSIONER ARPIN: I don't know if you have any specific ‑‑
15976 MS COURTMANCHE: But the model that we looked at is basically the same model that the CAB said, but it's the entity that controls the rights within that market should have the determination as to whether that programming content is made available in another market, which means we would decide in Peterborough if our content could be made available in Vancouver, Vancouver would not have the opportunity to object to its coming in.
15977 COMMISSIONER ARPIN: But if you're never asked to ‑‑ if no carrier thinks that they are interested ‑‑ no distributor are interested to have the Peterborough signal but all the broadcasters that are, say, in Vancouver, Calgary, Toronto are interested to go into Peterborough, you're going to be hurt by the distant signal.
15978 MR. MAKRELL: Well, that's correct, but I could reframe the question, because this really is about programming rights and the ability to control the territories that you've licensed.
15979 And it hasn't come up very much over the last three weeks, but there were submissions made with respect to the concept of geo gating and, in many ways, we're hanging our hats from both a business and regulator perspective on the notion that the Internet is not going to be as big a challenge because of the potential for geo gating.
15980 But when you think about it in a digital environment, what we're really talking about with respect to the distant signals is really the same thing.
15981 It boils down to: Is the rights holder in that community holding both the regulatory and legal rights to be exclusive in that territory?
15982 So, I guess on the ‑‑ to repeat what Sylvie Courtmanche says, it comes back to the test that the CAB was promulgating.
15983 And I think that it really sets a very strong precedent for how we look at the broader environment going forward.
15984 If we can't control this, then we're not going to be able to control the broader environment.
15985 COMMISSIONER ARPIN: In your written presentation, and again in your oral remarks today, you didn't talk a lot about VOD, and I have seen nowhere SVOD or transactional VOD.
15986 Is it because transactional VOD and SVOD are not an issue?
15987 I know that you have an opinion on pay‑per‑view. It is not in your oral remarks but it is in your written presentation, where you were saying that pay‑per‑view, when renewal time will come, they shall be renewed as a VOD operation rather than pay‑per‑view.
15988 But what are your views regarding SVOD and transactional VOD, if you have any?
15989 MR. MAAVARA: From a regulatory perspective, our submission was very similar to what the CAB had said with respect to all of the elements relating to acquisition of programming and sale of advertising, and that sort of thing.
15990 Our view on VOD ‑‑ and we have heard over the last three weeks a variety of points of view starting with Mike Lee on where we are going with that technology.
15991 We are trying, as a company, to understand and be involved in kind of every area of that, so we are really delighted to work with the BDUs on experimenting with whatever uses we can make in, call it traditional VOD or SVOD. Any way that we can deliver our programming and derive benefit from that delivery, because the audience is interested in doing it, we will be there.
15992 From a regulatory perspective, I hope that our position on that is clear. It was the CAB's position. And basically what we are saying is we would like to be able to control the flow of that programming into those new technologies and control the revenue flow as well, albeit understanding that we are going to have to share with that BDU because of course they are making the investment in the capital to make it all work.
15993 MR. CASSADAY: From a business perspective, we think it is a good opportunity for us as partners to work together. We were one of the first programmers in North America to get involved in the VOD business with Comcast and that is an ad sharing revenue sharing model.
15994 There is very little revenue even in that marketplace at this particular point in time, but we think that will grow. We also look at it as a way of enhancing the value of our brand to the distributor. So where possible we offer VOD offerings of our core brands, even though we know that they can't be monetized at this particular juncture, as a way of again adding value to their system. We are typically negotiating VOD rights along with the broadcast distribution rights when we renew our agreements with the various studios.
15995 COMMISSIONER ARPIN: You are saying that you are doing VOD with Comcast, obviously where they are free to do dynamic advertising, targeting advertising, and you say for the time being it is still a marginal operation.
15996 Here in Canada do you think the fact that you are restrained to the actual advertising in the program is one of the reasons why you are not able to monetize your programming through VOD platforms?
15997 MR. CASSADAY: It's an emerging platform. It is going to take time to develop.
15998 The SVOD offering on our pay service in is really never going to be an ad driven model, but it is going to add value to the service and we think will contribute to a reduction in churn. So that is as valuable to us in that regard as ultimately advertising will be on Rogers or Shaw going forward.
15999 Gerry, I don't know if there's anything you want to add in terms of advertiser interest at this point.
16000 MR. MAKRELL: Yes. To build on that point, it is an interesting arena in that there is relatively high advertiser interest, largely driven by the notion of reaching a highly targeted audience and a highly engaged audience.
16001 The flipside and the mitigating factor is it is also a very small audience.
16002 So the ability to monetize it really lies in the hands of the broadcaster who can marry a VOD advertising solution as a component part of a larger campaign that runs across multiple platforms, including a traditional on‑air program, perhaps online, and also bringing the advertising campaign through the VOD platform as well.
16003 So that in and of itself as an advertising medium is very limiting today. It has big potential and the best way to monetize it is to exploit it as a component part of a larger program.
16004 COMMISSIONER ARPIN: In your model obviously the broadcaster belongs to the broadcast right and the programming rights, but who is going to be selling that advertising, the broadcaster? And each and every broadcaster or the BDUs?
16005 MR. CASSADAY: The broadcaster.
16006 COMMISSIONER ARPIN: The broadcaster. So in your model it has to be the responsibility of each broadcaster that makes use of the VOD platform to negotiate and sell with ads into VOD?
16007 MR. CASSADAY: Right. And then split the revenues on a predetermined basis. That would be a negotiation.
16008 COMMISSIONER ARPIN: And a negotiation obviously that hasn't yet taken place.
16009 MR. CASSADAY: Well, it has in some regards but, as Gerry said, it is so small at this particular point in time that there have been no go to the barricades negotiations over the split on the ad revenues at this point in time. It is going to become an increasingly more important part of our ongoing dialogue with our key customers in future.
16010 MR. MAAVARA: One of the aspects of all of this, Commissioner Arpin ‑‑ and we have said this on a number of occasions ‑‑ when we have these discussions about branching programming rights onto new platforms and deriving revenues, and whether we are sharing them or not, the key issues of course are do we have the rights and are we going to develop any revenue.
16011 But another thing that tends to get forgotten in this discussion, which we have talked about before, is the enormous complexity of all of this.
16012 I'm just back from the National Association of Broadcasters convention in Las Vegas and I characterize this year as the devil in the details. Last year was sort of a lot of this new stuff, and this year it was about the equipment and the software suppliers saying this is how I am going to make all of this work.
16013 So for example, if you have a program that is going to end up on four or five platforms that has 52 different rights‑holders associated with it who are sharing in that, you have to invest in it, not only at the BDU level, but also at the broadcaster level, in enormously complex systems to track that usage so that you in turn can report back to the people who license the programming to you.
16014 That is an important aspect of this discussion: the ability of the Canadian player to have the capital to continue to be a meaningful player in that sector, because you have the systems in place that when you acquire the rights to manage them and also where you are selling advertising, having the ability to understand what your advertising is doing and to report back to the advertisers that this is what I did, that is enormously expensive.
16015 I just wanted to make that point because we tend to focus on the technology and the rights side, and we tend to forget about the practical aspects of it.
16016 COMMISSIONER ARPIN: Thank you, Mr. Maavara for that.
16017 Your submission is very clear so it is very hard to find good questions.
‑‑‑ Laughter / Rires
16018 MS COURTEMANCHE: We will take that as a compliment.
16019 COMMISSIONER ARPIN: Yes.
16020 COMMISSIONER KATZ: I asked for the good ones.
16021 COMMISSIONER ARPIN: It is true.
16022 Regarding dispute resolution, you are taking a very similar position than other broadcasters which is based on the reverse onus.
16023 Based on your own experience so far, will having a reverse onus demonstration have been helpful for Corus to get either distribution or help into the negotiation, or from a pure Corus standpoint you have been successful because all your service ‑‑ and you just mentioned Cosmopolitan, which is no access guaranteed where you had been successful in getting distribution deals all across the country at least with the major BDUs.
16024 So my question is basically while you are supporting the broadcasters that we have heard so far ‑‑ and I can understand why. But will it really be a greater benefit for Corus in the future than it is so far?
16025 MR. CASSADAY: I don't think so. We take a different view than many of our competitors. We think it is a partnership and we feel as a broadcaster it is important that we support our colleagues in this area because some of them feel that they need a process.
16026 A lot of people come to me and buy me breakfast on the misguided assumption that I can somehow make things happen for them with a particular distributor.
‑‑‑ Laughter / Rires
16027 MR. CASSADAY: You know, one of the things I ask is: When was the last time you were out there? And the answer is almost invariably "Never".
16028 And it is not surprising to me that some programmers have such a miserable time achieving what they want to achieve with the distributors.
16029 In our case, we find that constant contact, understanding what their issues are and trying to provide value is the way to get things going. I cannot imagine a scenario where we would ever be in front of you asking for any arbitration over a dispute that we have with a programmer. I cannot imagine that.
16030 COMMISSIONER ARPIN: Well, Mr. Cassaday, those were my questions. Thank you very much.
16031 THE CHAIRPERSON: Rita, I believe you had a question?
16032 COMMISSIONER CUGINI: Yes, just a couple.
16033 I'm looking at the Appendix that you attached to your oral presentation this morning. On the issue of preponderance you said that it:
"... should require that a preponderance of discretionary services received by a subscriber (excluding over‑the‑air signals) must be Canadian."
16034 Do you mean they are excluding what is carried on basic must be Canadian?
16035 I am thinking of the 9(1)(h) services. Of course, they are not over the air.
16036 MS COURTEMANCHE: Right. I guess that is an oversight, yes. So you would include those, yes.
16037 COMMISSIONER CUGINI: Okay. Mr. Maavara did just say the devil is in the detail.
16038 MS COURTEMANCHE: Yes, absolutely.
16039 COMMISSIONER CUGINI: I just wanted to be absolutely sure.
16040 MS COURTEMANCHE: Absolutely.
16041 COMMISSIONER CUGINI: Now on the issue of distant signals, of course we have been hearing all of the challenges with distant signals and a few of the opportunities.
16042 I know that for YTV and W, and there may be others, cable carries both your western feed and your eastern feed. I know it's not the same thing; it is not necessarily the same issue. But what I want to ask is are you able to monetize the carriage of the western feed in eastern Canada of those services, or do you just simply see this as an alternative viewing opportunity for the people watching your networks?
16043 MR. CASSADAY: It's a convenience for our viewers. Obviously time shifting is important, particularly as it relates to preschool programming. To have preschool programming going into a time zone at an inappropriate time obviously makes no sense.
16044 What we are able to do, we are not competing against foreign signals so it is, as you say, less of an issue. We sell national advertising only. This is not an issue for us, but rather an opportunity that we take advantage of because of the need to support our audiences.
16045 In the case of W, we have different problems and that is time appropriate material, not just in terms of content but also delivery. Clearly putting a movie into Vancouver at 5 o'clock makes no sense when you are trying to serve a female audience.
16046 So it's not the same for us as it would be for local broadcaster.
16047 COMMISSIONER CUGINI: Right. So there is no way to monetize the carriage of those feeds?
16048 MR. CASSADAY: Not separately. We aggregate the audiences, and of course our national advertisers pay for a service that goes into every market regardless of what time it is watched.
16049 COMMISSIONER CUGINI: Well, thank you very much.
16050 Thank you, Mr. Chairman.
16051 THE CHAIRPERSON: Okay, two very quick clarifications so that I understood you.
16052 On page 8 where you were talking about this genre morphing by Canadian and you are asking for periods of notice, which in it is implied, at least to me, that the genre morphing will be allowed once the notice period is over.
16053 There is no question it will happen; it is just a time delay.
16054 MS COURTEMANCHE: That's right. It will happen. It is just a question of notice, that's right.
16055 MR. CASSADAY: As it relates to Canadian services.
16056 THE CHAIRPERSON: Yes, absolutely.
16057 MS COURTEMANCHE: Yes.
16058 THE CHAIRPERSON: Second, with your whole idea of us holding hearings for you, what you call Class 1 licences, you have suggested by 2013.
16059 Why so late? Why not by 2011 which is the switchover date?
16060 MS COURTEMANCHE: Well, we looked at the fact that the OTAs were going to have to switch off analog transmission in 2011 and we just thought that there should be, you know, sort of not everything happen at the same time, to sort of give you a couple of year grace period before you make the transition into a fully digital environment.
16061 But our model does accommodate, though, the fact that if somebody does come in and becomes fully digital earlier, then at that point obviously you would need to treat with those services that find themselves in that situation.
16062 For instance, if Rogers was completely digital by 2011 and didn't have an analog tier any more, then you would have to treat those applications earlier. That was our thinking.
16063 To answer your question, based on the progression of digital and when people do shut off, you might have to, in a couple of years time, advance that date and say, you know, it's 2010, not 2011 or 2012.
16064 THE CHAIRPERSON: On the assumption I buy into your model, I would have thought that the sooner we hold those hearings the better, so people know as of 2011 that is going to be my status. That's where I have to be.
16065 MS COURTEMANCHE: Absolutely. That is another way of doing it.
16066 We just thought that ‑‑ we were looking at all the work that you had. But you know your point is do I want to start planning right away to where I'm going to be? Absolutely, you could do those hearings earlier and that would help in the planning, absolutely.
16067 THE CHAIRPERSON: Okay. Thank you very much for your submissions.
16068 I think we will take a five‑minute break before we do the next one. Thank you.
‑‑‑ Upon recessing at 1017 / Suspension à 1017
‑‑‑ Upon resuming at 1030 / Reprise à 1030
16069 THE CHAIRPERSON: Madam Secretary...?
16070 THE SECRETARY: Thank you, Mr. Chairman.
16071 I would now invite the PIAC, Public Interest Advocacy Centre, to make a presentation.
16072 Appearing for PIAC is Mr. Michael Janigan. Please introduce your colleagues, after which you will have 15 minutes for your presentation.
16073 Thank you.
PRESENTATION / PRÉSENTATION
16074 MR. JANIGAN: Thank you very much, Mr. Chair.
16075 On my left is Esteban Uribe and on my right is Mani Taheri, who has assisted with this presentation.
16076 Public Interest Advocacy Centre is appreciative of the opportunity to address the Commission on the regulatory frameworks for broadcast distribution undertakings. PIAC has done so on the previous two occasions that such a review took place, in 1993 and in 1997. That experience informs some of the comments here today.
16077 Before we address several of the questions among the five pivotal questions set out in the Commission's communication of April 7, 2008, there are a number of observations we wish to make in order to set the context for our submission.
16078 Our principal concerns on the regulation of BDUs have historically revolved around the affordability of the service and value for service for customers. We strongly oppose the deregulation of cable basic service under the threshold forbearance levels set out by the Commission in 1997 as we believe there would be insufficient competition to discipline price and provide consumers with efficient service.
16079 As we have noted in our comments, and others filed in the proceeding, our fears were well‑founded. Fees for cable basic service instead of being reduced with the effects of competition escalated beyond CPI levels and more services were crammed into the so‑called basic package.
16080 Freed from regulatory oversight, cable companies moved to scuttle involvement with the Cable Standards Council. That was an industry body that helped resolve customer disputes. Soon the central association CCTA itself collapsed, partly because of consolidation, but also because there was little need to present an industry position to the regulator and policymakers outside of the relationship with individual customers.
16081 It is hardly the case that the new competitive environment has engendered popularity of the industry with BDU customers. The excerpts from the 2005 survey contained in our comments that PIAC conducted in tandem with Bell Canada and TELUS on that year show persistent problems with price, choice and quality of service expressed by Canadians.
16082 If one is familiar with the generally high marks that Canadians give to major industries, if one has looked at the National Quality Institute surveys, for example, this was a pretty poor showing. There seems little reason to believe that these difficulties will be ironed out in the current market for BDU offerings.
16083 How is it that there seems to be so much activity by industry stakeholders in seeking to identify needs and services of customers? Isn't this proof that the market is working and the customer is king? Yes?
16084 While the actual level of competition between BDUs is remarkably tamed and non‑existent on issues of price and service, BDUs are careful to ensure that a sufficient percentage of their customers are not pushed beyond their ability and willingness to pay.
16085 At the same time, few opportunities are missed to garner more revenue from customers. This does involve interaction with the market and nimble positioning to bring out more value for the BDU shareholder. This activity should not be confused with firms operating in a genuinely competitive environment.
16086 More realistic expectations of how the industry operates are likely unnecessary for the purpose of fulfilling the Commission's mandate. There are competing interests in the mix, but they are not always capable of enabling the discipline of competition.
16087 Distributors clearly have a duty to their shareholders to maximize the value of their service offerings and subsequent profits. Their success at these endeavours may or may not ensure the objectives of the Broadcasting Act and Regulations are met.
16088 As well, not every solution to delivering important Canadian broadcasting services should involve new and creative ways to extract more money from customers of BDUs. There must be ways for consumers of BDUs to escape the role of shock absorber for every perceived shortcoming in the delivery of broadcasting services.
16089 We would like to now turn to the five key questions that have been identified as revealing the issues that the Commission will have to determine. In so doing, we intend to confine the ambit of our submissions to the areas of BDU operations and service delivery that reflect our prime concerns of affordability and value for service.
16090 The first question is: What should be the size of the basic service package?
16091 We have a sub‑heading: Well, what is basic service?
16092 In PIAC's view, it first must be understood what is intended to be accomplished by defining basic service. For some stakeholders, the basic service package is a kind of starter kit that reflects a combination of what an ordinary subscriber might want, what is mandated by the Regulations and what can be crammed into a basic package without setting off the customer scream index.
16093 From a regulatory standpoint, it is tempting to be convinced that the BDUs are in the best position to assess what the customer wants and to deliver it at the best price.
16094 In reality, since easy forbearance was approved, the basic service package has proved elastic in its ability to accommodate more channels and substantial price increases. As many have noted in this proceeding, the high levels of concentration and a lack of competition exists among the major BDUs. This state of affairs is an enabler of the subversion of the concept of basic service through its treatment by forborne providers.
16095 In PIAC's view, whatever the formulation and the initial approach to BDU regulation, it is time to try to match the concept of basic service with the broadcasting goals associated with BDU regulation rather than the commercial concept of a starter kit.
16096 To that end, section 3(1)(a)(t) of the Broadcasting Act can give guidance to the key features of that package which gives priority to Canadian local stations and requires efficient delivery under affordable rates. Other key objectives associated with strengthening the cultural, political and social economic fabric of Canada and the development of Canadian expression should be the building blocks of a basic service package.
16097 It should not be a grab bag of whatever can be successfully sold, but a reflection of the societal importance of BDUs in general. That is what should be part of any offering to connect the subscriber to a range of services that best fulfils the intent of the Act.
16098 In our view, the CBC's formulation of a streamlined basic service offering that includes only Canadian local over the air television services and services deemed of significant importance by the Commission represents an appropriate model.
16099 We note that the public survey that accompanies the proposal and the CBC reply comments shows wide support for a smaller Canadian basic service. It would appear that the adoption of the model would present a rare opportunity to the Commission to fashion a solution that is both popular and coincident with the objectives of the Broadcasting Act.
16100 Second, we would like to deal with the redesign of basic service to meet the needs of over the air subscribers.
16101 The elimination of over the air broadcasting in 2011 will affect some 4 million Canadians by potentially removing their important medium of information and connectivity they enjoy to the communities that they live in and the world around them. This is particularly important among Canadians whose literacy or household income prevents ready access to print media or Internet resources. This is not only a cultural problem, potentially one of public safety and education as well.
16102 Without OTA services, a significant number of Canadians may be disadvantaged and absent an affordable basic package from a BDU in accordance with section 17 of the current Regulations, these Canadians may be unable to access television signals that for them may be an essential public service.
16103 While some providers may continue analog transmission, the digital switchover will require, at a minimum, the purchase of a set‑top box digital converter to be able to receive any television signal on non‑digital television sets.
16104 As PIAC noted in its initial comments, only 37 per cent of respondents receiving over the air television in 2007 were willing to purchase BDU services to replace over the air television 2011. That survey may not have been posted with our original comments so we have included it with these remarks at the end of the remarks.
16105 Note, as well, the survey found that 30 per cent felt that $10 per month was the limit for BDU charges they would pay and another 20 per cent felt that $20 per month was the limit. Unless these Canadians are to be written off as collateral damage in the move to digital world, or are to be offered some kind of cable lifeline package, this is an opportune time for the development of a new approach to basic service.
16106 There is also compelling reason to insist that basic service providers provide a mandatory ombudsman service to resolve customer complaints in the same fashion that is occurring in the telecommunications sector. Our initial comments noted that public support for this service ‑‑ 65 per cent of respondents favoured the establishment of a federally appointed public ombudsman to resolve complaints in cable service and 57 per cent in satellite ‑‑ seems to support this measure.
16107 As we noted in these comments, Canadians and suppliers are increasingly expecting symmetry in the regulation of telcoms and BDUs. In 2006 and 2007, at the behest of Canada's largest telephone companies, the government moved swiftly to remove perceived advantages enjoyed by competitors in an effort to level the playing field.
16108 In PIAC's view, there is little justification for holding telcoms to higher customer standards than BDUs.
16109 Dealing with the price of basic service, we have earlier suggested that the redesign of basic service should true up service offerings with broadcasting goals. In PIAC's submission, this basic service package should be accessible for the lowest possible price to meet the goal of affordability referenced earlier and to concurrently promote accessibility to the Canadian programming.
16110 The contention of BDU stakeholders is that the customer is now in charge. However, it is difficult to contend that the customers are in charge today. They are paying for a basic package crammed with extra services that must be purchased before any service is to be accessed. While BDUs may suggest that the customer is buying and receiving value, the value is largely derived by the supplier maximizing revenue at the entry point. Whatever the merits of such an approach from the standpoint of the BDU shareholder, cramming is not a principle that is advanced as a policy objective under the Act.
16111 However, if a streamlined stand‑alone basic service package could be identified, could BDUs deliver the same in a forborne market? The answer is likely no. There could be no confidence that market forces can deliver the requisite basic service package at an affordable price.
16112 As the CBC study showed, the take‑up of basic service has largely been impervious to price increases, a phenomenon which is highly indicative of a highly concentrated industry with patterns of market dominance. High levels of concentration in the broadcast distribution industry may produce results that are only intermittently satisfactory across a broad spectrum of interests.
16113 It is no surprise that the results for the BDU shareholders have been highly satisfying.
16114 Turning to the earlier theme, profit maximizing duty of distributors to their shareholders must be balanced with the policy objectives of the Act and must be brought within the confines of the affordability objective drafted by Parliament.
16115 In our view, basic service rates must be costed, reviewed, approved and capped by the Commission and they must be offered on a stand‑alone basis for the same reasons that local basic service is capped in forborne local exchange telephony. Any amendments should be approved by the Commission.
16116 In PIAC's view, such action would serve to both ensure affordability and value for the basic service package. It would also encourage greater responsiveness in the design of packages for extra services now that there are fewer opportunities to pick the low hanging fruit of upping basic service or cramming in more services.
16117 Should there be a fee for carriage for over the air broadcasters; and, if so, how much?
16118 The case for and against a new set of additional charges for OTA services offered by BDUs to be included in customer rates is largely one built on the need to staunch the bleeding associated with diminished or slow growth advertising revenue for over the air local broadcasting.
16119 PIAC notes that the readiness to volunteer funding is usually in inverse proportion to the proximity of that funding to one's own bank account. That having been said, the heartfelt concern expressed by providers about overloading BDU charges with yet another cost can charitably be characterized as a reluctance to slay the goose that's laying the golden eggs.
16120 We are hardly mollified by the extrapolation based on the CBC research that the market is so non‑competitive that any new charge will fly.
16121 We are also concerned about the fee for carriage for formerly free over the air broadcasting in the context of the current negotiations surrounding the latest draft of the World Intellectual Property Association, WIPA's Broadcast Treaty dated April 20, 2007 and released on May 1, 2007. The treaty may have as one of its consequences mandatory payment for carriage of signals by BDUs and signatory nations.
16122 The possible creation of a dual payment system, one for copyright or broadcast content and one for retransmission, is of concern to numerous public interest groups.
16123 There has also been great concern expressed by those groups about the chilling effect of attempting to overlay signal protection on top of intellectual property rights associated with copyright law.
16124 PIAC suggests that there should be a reluctance to adopt funding mechanisms that may have the effect of encouraging policy support for propositions that go well beyond what is at stake in this hearing.
16125 PIAC submits that the consideration of the share of the pie that OTA broadcasters may receive in a restructured basic service package is likely premature. A more comprehensive examination of the underlying economics is needed and may be done in tandem with the suggested cost review of basic service in line with our recommendation for more streamlined package. It is far too soon to make such a significant departure from current practices.
16126 With respect to questions 2, 3 and 5, PIAC has made some observations in the context of its comments and its supplementary submissions on the general ability of the current market and players to deliver on the promised objectives under the Broadcasting Act. We are, however, reluctant to embark upon speculation to answer the questions that it is divorced from the reality of business plans and expert analysis of revenues, expenses, take‑up and positioning of the Canadian broadcasting services.
16127 We do believe that any transition of market forces is wholly dependent on the ability to maintain level playing fields in terms of the ability of stakeholders to negotiate fair consideration for their dollars on products and services.
16128 From a consumer end, it is apparent that there is a rather profound lack of bargaining power in most areas of consumer transaction.
16129 In conclusion, in PIAC's view the interests of the ordinary BDU customer have been insufficiently protected in the regime of forbearance put in place in 1997. Going forward, the Commission should put in place a streamlined affordable basic service package containing Canadian local and national services of importance with price protection and guaranteed stand‑alone availability.
16130 A mandatory service or dispute resolution should also be part of a BDU's basic service package. The implementation of such a package would serve to ameliorate problems associated with customer transition from OTA broadcasting in 2011.
16131 Consideration of a fee for carriage for current OTA broadcasters is premature and should not be contemplated in the current environment for policy and practical reasons. A more thorough examination of revenue for local programming is called for without an inevitable conclusion that customers must pay more.
16132 Thank you.
16133 THE CHAIRPERSON: Thank you very much for your submission.
16134 On page 5, third paragraph, you said:
"However, if a streamlined stand‑alone basic service package could be identified, could BDUs deliver the same in a forborne market? The answer is likely no."
16135 Then you give the explanation:
" There could be no confidence that market forces can deliver the requisite basic service package at an affordable price."
16136 And you quote the CBC.
16137 I'm sorry, that is quite a jump. I don't quite follow this.
16138 What evidence ‑‑ let me just finish my question.
16139 MR. JANIGAN: Sure.
16140 THE CHAIRPERSON: What evidence do you have that this is a failure of the market system? Maybe there is a lot of price elasticity in the basic package.
16141 I mean, you jump to the conclusion here that the market can't produce an answer and I don't see what evidence you have in support of that.
16142 MR. JANIGAN: In dealing with this, what I have done is effectively separate the contents of the package from the price of the package.
16143 What I am saying here is that once the package has been identified and the services that are services to be offered, we are not confident that given the history of the increases to the basic service package, separate and apart from the issue of cramming that have been illustrated by, among other things, the CBC submission and in our submission, that it would necessarily ‑‑ the market forces would necessarily be able to ensure that an affordable basic price would be able to be maintained.
16144 I mean, in our view we think that you have to set the price and cap it.
16145 THE CHAIRPERSON: I understand where you are coming from. I'm just trying to understand how you get there.
16146 You are saying the requisite ‑‑ CBC says:
"The take‑up of basic service has largely been impervious to price increase, a phenomenon which is indicative of a highly concentrated industry."
(As read)
16147 I agree it could be, but it could be indicative of all sorts of other things. It is not only a concentrated industry that would produce that result.
16148 I mean, it could be, but as I say, it could also be that in effect the price is quite elastic. And consumers do want cable television and they are willing to pay for that. The fact that the price goes up every year doesn't seem to have any impact on consumer demand for cable television or the basic.
16149 I don't know why you automatically ‑‑ it may be just that we haven't hit the sensitivity point at which point consumers say okay, that's enough, you know. I do like my cable television, but there is a limit to how much I'm willing to pay for it.
16150 MR. JANIGAN: Certainly from the standpoint of the cable provider, it shows that there is an ability to enforce a price increase which is ordinarily indicative of a market dominance. In that circumstance, there would seem to be at least not competitive alternatives which can be interned to moderate those kind of price increases.
16151 Price increases seem to be taking place year after year and it has no effect upon the take‑up on the customer.
16152 So our conclusion is that, frankly, there is still market dominance and we can't rely on market forces in order to discipline the price behaviour of the BDU operators.
16153 THE CHAIRPERSON: Right. The persons before you, I don't know which one made reference to gasoline prices, and you know we have seen a steady increase. We haven't seen any consumer reaction in terms of less use until the prices started to hit what is by now fairly astronomical heights compared to where they traditionally used to be.
16154 So clearly there was an awful lot of room before you really hit a sensitivity that consumers say well, at that rate I will take the bus or I will take the bike, et cetera.
16155 Does the same thing apply here?
16156 MR. JANIGAN: Well, that is one measure of market discipline is associated with the absolute price that a customer, that a consumer will pay for a given article.
16157 In reality, having a competitive market must go beyond that. There must be an ability for alternatives to exist that will discipline those price increases. In the case of gasoline, of course, we have at the one end, at the producer end, you have the world's most effective cartel that is impervious in many respects to all competition, with the exception of reducing demand.
16158 So in our view, there is an insufficient ability to price discipline BDU providers in the event that a basic service package is provided in what we would see ultimately is an escalation of that package beyond what would be considered affordable.
16159 THE CHAIRPERSON: Okay.
16160 Len, you had some questions?
16161 COMMISSIONER KATZ: I want to continue that line of thought as well.
16162 The CRTC has a Client Services Group. We manage customer complaints. I think we heard from a number of parties this week that customers aren't calling to complain, notwithstanding the fact that I think it was Mr. Bissonnette yesterday from Shaw that said their basic cable rate went from $20 to $32 over the last seven years.
16163 If customers aren't complaining, why is there a need to fix a problem that may not exist?
16164 MR. JANIGAN: Well, I would question, first of all, whether or not that is an accurate reflection of customer views in relation to price of BDU services.
16165 For example, if you look at the 2005 survey that we filed in our initial comments, you come to another kind of conclusion in relation to price.
16166 In our view, looking at it from an objective fashion, if it was intended that the forbearance of regulation of basic cable rates would best achieve the goal of disciplining the price of the BDU offerings through market forces, one could only see a consistent escalation of those prices without any drop of market share.
16167 In that circumstance, what we conclude is that effectively what we have is the characteristics of a market dominant industry, and from a public policy standpoint the Commission is obliged to take steps to ensure that the customers are protected.
16168 The fact that people aren't calling the CRTC to complain about basic service rates I think is only one indicia of that problem.
16169 COMMISSIONER KATZ: What would be ‑‑
16170 MR. JANIGAN: Nobody is encouraging ‑‑ I mean, we have long stopped asking the people that complain to our office to call the CRTC to complain about it. Frankly, if the market is forborne, I don't know what you can do about it. The answer they get customarily for anyone who is informed in the industry is that the CRTC is forborne from regulation. So why complain?
16171 COMMISSIONER KATZ: On page 3 of your presentation this morning, up in the first full paragraph, the second sentence, it says:
"There must be ways for consumers of BDUs to escape the role of shock absorber for every perceived shortcoming in the delivery of broadcasting services."
16172 Then later on you talked about the transition to digital and the impact as well.
16173 We have had various people come to us ‑‑ including the OTA broadcasters obviously, who were suggesting fee for carriage is one solution ‑‑ identifying the digital transition as being one of the major cost components that they are looking to recover through this process as well.
16174 We have also seen in other countries of the world various ways of addressing this issue. In the U.S., for example, I think at the consumer level the FCC are giving out coupons for boxes and stuff.
16175 Is there any role here to be played by any other agency of government or government itself in trying to bridge that gap?
16176 MR. JANIGAN: I think there is and I think it flows from the standpoint that broadcasting is an important service and its receipt has implications beyond simply ensuring a flourishing broadcasting industry as it has economic, social, cultural, whatever circumstances. I think it is something that the government as a whole in a public policy matter may have to invest in kinds of remedies in order to assist, particularly those segments of the population that probably won't be able to adapt swiftly to the new regime.
16177 COMMISSIONER KATZ: Those are all my questions, Mr. Chairman.
16178 THE CHAIRPERSON: Michel...?
16179 COMMISSIONER ARPIN: Yes. It's only a comment rather than a question.
16180 You are referring in your oral presentation to the desperation of over the air transmission. Obviously it is not the desperation of the over the air, but it is a change in technology obviously. But you will still be able to get the signal, but a digital signal, but you will require either a converter or a new television set which is digitally equipped to receive the signal.
16181 So it is only a matter to make sure that the record refers to what is currently happening, both in the U.S. and eventually here in Canada.
16182 MR. JANIGAN: Over the air analog is disappearing with digital, yes.
16183 COMMISSIONER ARPIN: Exactly, and replaced by over the air digital transmission.
16184 THE CHAIRPERSON: Let me just take you back to your opening.
16185 You suggest there should be a similarity in approach to BDUs and telephony and we should be consistent because basically they are both common carriers, I guess is what your underlying thought is. Yet, then you could turn around and say we should prescribe and mandate the fee for basic carriage. We don't do that in telephony.
16186 Isn't there a little bit of inconsistency here?
16187 MR. JANIGAN: Oh, I think you do do that in telephony. Effectively in forborne local exchange markets there is a ceiling that has been placed on the price for basic service and that continues to be capped even in the forborne circumstance. You can't exceed that in the forborne regions.
16188 So what we are suggesting is a similar approach in relation to basic cable service.
16189 THE CHAIRPERSON: Oh, you equate those two.
16190 Thank you very much. Those were all our questions.
16191 Madam Secretary, who do we have next?
16192 THE SECRETARY: I would invite 6166954 Canada Inc. to come forward.
‑‑‑ Pause
16193 THE SECRETARY: Appearing for 6166954 is Mr. Brad Danks.
16194 Mr. Danks, you have 15 minutes for your presentation. Thank you.
PRESENTATION / PRÉSENTATION
16195 MR. DANKS: Thank you very much.
16196 Our presentation today will be presented by our Chair, Joy MacPhail.
16197 MS MacPHAIL: Thank you very much, women and men.
16198 Actually, the number is the number of the company of our network OUTtv, and I am the Chair and Brad Danks is the Chief Operating Officer of OUTtv.
16199 I will start by presenting our case and Mr. Danks will summarize our recommendations.
16200 Our presentation today is on behalf of OUTtv. It is a Category 1 licensed specialty service that provides programming specifically to Canada's gay and lesbian community. Our presentation today is going to focus on the issues that we feel are most important to a small, independent service like OUTtv as they relate to our experience in the industry.
16201 Our key recommendations are summarized as follows:
16202 One, it is absolutely critical to maintain current carriage, access and packaging rules for services like OUTtv that provide programming to a distinct group in our society.
16203 Two, genre protection remains essential for independent programming services like OUTtv that have high CPE and Canadian content programming requirements.
16204 And three, sustain a stable and predictable broadcasting environment where the regulatory rules balance the interests of all parties, and are clear, equitable, and protected by meaningful enforcement mechanisms.
16205 Our service, OUTtv, was launched in 2001 as the first channel in the world licensed specially to service the gay and lesbian community. The main goal of the service was to provide programming from the perspective of the gay and lesbian community, and, in particular, to provide a positive image to counter the still negative attitudes toward this community.
16206 OUTtv has faced significant challenges in establishing itself over the course of the last seven years. Some of these challenges are familiar to any start‑up business, and a number of them are the result of being a standalone service and one that caters to a group that has historically been discriminated against.
16207 Other challenges include gaining fair and equitable treatment by BDUs in the area of carriage, marketing, and packaging, while at the same time dealing with the business realities of being a start‑up in a genre with limited available programming, and limited access to advertising and other potential revenue sources.
16208 Despite all of these challenges, it is fair to say that, after seven years, success is within reach. Many BDUs have finally embraced OUTtv as an attractive service, and provided us with packaging and marketing in a manner consistent with current regulatory rules.
16209 This, together with programming changes that we have made, has led to a rapid increase in subscribers and increased revenue for OUTtv.
16210 In turn, these revenues have been poured right back into the acquisition of the production of more and better programming, including award‑winning programs such as the Emmy Award‑winning "Sugar Rush", the Bafta Award‑winning series "Bad Girls", and Canadian content programs like the CFTPA‑nominated series "Chris and John". I highly recommend them to everyone.
16211 Subscribers to OUTtv have more than doubled in the past two years, and our ratings reflect that we have more viewers than many specialty channels with more than twice our subscription levels.
16212 Nielsen reports that our top 10 programs in a two‑week period garner more than between 20,000 and 30,000 viewers, more viewers now than we had subscribers five years ago.
16213 Advertising sales remain small, but are growing on a consistent basis.
16214 Notwithstanding this success, of which we are very proud, the service is not yet profitable.
16215 The bold experiment that the CRTC licensed less than seven years ago stands on the verge of being an international success story as the first viable service of its kind in the world.
16216 OUTtv is now a prime example of Canadian leadership in the world due to its licensing by the CRTC, in the face of much controversy.
16217 Canadian‑produced gay and lesbian content is now being exported to many countries around the world, with a major sale of more than 60 hours to here! Network in the United States alone.
16218 Just last week OUTtv launched a joint venture that has established a partnership in The Netherlands, where Canadian content is the backbone of the programming lineup for the Dutch service.
16219 In addition, our website and online content offerings have been viewed in more than 75 countries in the past month alone, including many countries where homosexuality is now considered a crime.
16220 The forging of these foreign partnerships and the continued development of new foreign opportunities for programming sales and licensing opportunities bodes well for OUTtv and the Canadian production industry that we support through our commissioning of original production.
16221 The major threat to OUTtv's continued expansion and success is the possibility of deregulation posed by these proceedings. The push for deregulation is driven primarily at the expense of the public interest. There has been no evidence that the changes being proposed or suggested by some at these proceedings will serve the interests of the Canadian public.
16222 Deregulation would cause programming services to consolidate further in order to gain market leverage against the BDUs.
16223 Furthermore, deregulation assumes that free markets exist in the industry. Free markets do not exist when one industry controls access to the consumer and acts as gatekeeper.
16224 We do not see how further deregulation, positioned as streamlining, would serve the objectives of the Broadcasting Act.
16225 We turn now to the questions asked by the Commission as they relate to OUTtv.
16226 In response to the Commission request for the definition of a core service, we would submit the following criteria: Does the programming service contribute to diversity of voices in the Canadian society?
16227 Does the programming service provide programming to a demographic or group in Canadian society that is otherwise unrepresented in the broadcasting system?
16228 Does the existence of the programming service and its licensing conditions contribute to the development and production of Canadian content programming?
16229 It is our position that OUTtv meets all of these criteria, and should be considered a core service, because it represents a unique constituency in the Canadian mosaic that crosses all ethnic, racial, religious and cultural lines.
16230 Another important consideration in these proceedings is the potential elimination of genre protection. In OUTtv's case, this would be substantially harmful.
16231 One of the primary goals of the Broadcasting Act is to encourage diversity and offer different perspectives. OUTtv is the only Canadian programming service that is specifically licensed to offer programming from the perspective of the gay and lesbian community.
16232 Genre protection offers us the exclusivity necessary to invest the significant dollars that are necessary to produce sufficient original Canadian content programming for our service.
16233 Original Canadian programs produced by OUTtv, such as the CFTPA‑nominated "Chris and John to the Rescue", or "Bump!", which is the best‑selling gay and lesbian travel program in the world, would not be financially viable to produce without genre protection.
16234 There is no other Category 1 service with higher Canadian programming expenditure requirements than OUTtv.
16235 OUTtv recently requested some relief in this requirement, to bring us into line with other Category 1s. This request was denied, and we can only hope that, in doing so, the CRTC is indicating that it understands the need for genre protection to ensure that services remain financially viable in order for OUTtv to continue to meet its licence requirement.
16236 Genre protection does not mean that we are not without competition. Basic channels, such as Showcase, Citytv and Bravo, have far larger budgets than we have, and they force up the bidding for premium foreign dramatic content, such as well‑known series like "Queer as Folk" and "The L Word", along with movies like "Brokeback Mountain".
16237 Another key issue under consideration is the potential elimination of the Category 1 licence conditions, including those rules relating to the must carry status, access, and fair and equitable marketing and packaging. The elimination of these rules would be very harmful to OUTtv.
16238 Paragraph 26 of Hearing Notice 2007‑10 notes that the pay and specialty industry is healthy and mature, but it does not reflect the fact that the majority of Category 1s are only now stable because of the access and genre protection rules, and that these licensees made the investments in these services and Canadian programming based on those rules.
16239 Certainly, in our case, OUTtv is not yet healthy, and the market for gay and lesbian content is far from mature today.
16240 Access and mandatory carriage have been critical to the growth of subscribers, and will be equally so to the ultimate financial success of OUTtv.
16241 On average, our subscribers range between 7 to 15 percent of the digital subscribers on most major BDUs, but we still lag on many, and on one major cable provider in particular.
16242 OUTtv subscriptions remain at less than 50 percent or more of the subscription level of most Category 1 services launched along with it in 2001.
16243 The issues regarding the impact of SVOD and VOD services are also relevant to OUTtv. These services may have the effect of undermining our service, as they remove our ability to negotiate affordable or, for that matter, any deals for premium programming from abroad. The services contribute nothing to the production of Canadian programming, make no investments in the Canadian broadcast system, and approving them effectively hands a broadcasting licence to a foreign company through the back door.
16244 Our COO, Brad Danks, for OUTtv will now summarize and reiterate our conclusions.
16245 MR. DANKS: In summary, what does OUTtv need in order to continue its growth and continue as a Canadian success story?
16246 We need a clear set of regulatory rules that offer a stable environment, that allow for long‑term investments in order to secure capital, programming commitments, and establish long‑term relationships.
16247 Building a successful television brand takes years, and sometimes decades. Even the premium brands in the U.S. television industry, such as HBO, Showtime and others, took decades to become successful, and required the investment of hundreds of millions of dollars.
16248 In addition to maintaining the access, carriage and genre protection rules, we also feel that a number of other considerations should be adopted, including:
16249 Maintain or increase the 50 percent plus 1 preponderance rule.
16250 Adopt the Dunbar‑Leblanc recommendation to consider the issue of channel placement. This is an important issue, in our opinion. We do not understand why Canadian services that invest heavily in Canadian content programming do not have better placement positions than foreign services. More than ever, Canadians use the electronic programming guides to check schedules, so placement is indeed important.
16251 We would like to secure access to the U.S. avails made available to Canadian programming services.
16252 We firmly agree with the recommendation in the report to establish a reverse onus on BDUs who change their channel lineup and packaging arrangements. This is something we have experienced frequently.
16253 The BDU owns the customer relationship, and they should have to justify that their changes are based on reasonable, objective considerations.
16254 It is extremely difficult to build a case against a BDU, because we rely on anecdotal information from public interaction with the BDUs and customer service representatives.
16255 The inequity in the current system in this respect forces OUTtv to maintain constant vigilance just to monitor the changes by BDUs in packaging and marketing.
16256 In our experience, the commercial practice rules regarding notification are mostly ignored.
16257 Furthermore, once a change has been made, we are not able to gauge the impact for at least three months, because that is how long it takes to get our subscriber reports, and often much longer.
16258 By the time a trend has been established, the damage is done, and the BDU's changes are firmly entrenched.
16259 It is imperative that the programming service be properly notified of the changes, and that proposed changes are frozen if the programming service objects. Once implemented, it is very difficult to get these changes corrected.
16260 Furthermore, the CRTC requires remedial power, which should include specific performance and financial damages for rule violations. In our experience, the inequitable packaging of OUTtv by some BDUs has cost us hundreds of thousands of dollars, and deprived us of the opportunity of investing this money into more Canadian content programming. Without penalties, there is no incentive for rogue BDUs to properly comply with the rules and maintain the integrity of the system.
16261 A bright future for the Canadian broadcasting system requires strong programming services. In this digital age, it will be more important than ever that we have strong programming services producing content that is relevant to and popular with Canadian audiences. It makes no sense to weaken the programming service's ability to meet this requirement.
16262 We want to thank the Commission today for allowing us to appear, and we welcome any questions you may have.
16263 THE CHAIRPERSON: Thank you very much for your submission.
16264 Let me take you to paragraph 12, where you say at the bottom of the page:
"Genre protection offers us the exclusivity necessary to invest the significant dollars that are necessary to produce sufficient original Canadian content programming for our service."
16265 MR. DANKS: Yes.
16266 THE CHAIRPERSON: I would have thought, given your clientele and given your programming, that genre exclusivity is the one thing you don't need.
16267 You have a very defined, clear‑cut audience that you are trying to attract, and either you put the programming on that interests the gay community or it doesn't.
16268 Why do you need genre exclusivity?
16269 I could see it if people appeared to be diffusing the market, or were trying to create a market, et cetera, but one which is so clearly categorized as yours, I would have thought that genre exclusivity would be the one thing you don't need.
16270 MS MacPHAIL: I will start, sir.
16271 There are many who encroach on the exclusivity. Networks such as Showcase and Bravo are encroaching substantially on appeal to the genre of the gay and lesbian community.
16272 There are no other opportunities around the world ‑‑ except perhaps for here and the United States, and they often don't meet the Canadian content rules ‑‑ there are no other opportunities to buy this kind of genre programming.
16273 We lead the world in this, so genre exclusivity is very important for us to actually be able to produce Canadian programming, and then perhaps market it worldwide.
16274 And, again, those marketing opportunities are limited, as well.
16275 MR. DANKS: I would say that the fundamental reason is that the scope or the degree of investment that needs to be made in programming requires stability, and genre protection exclusivity provides us with that.
16276 Because of the enormous amount of money that needs to be invested in programming, combined with the long amortization periods when you are dealing with an exclusive community such as the one we deal with, without genre protection it is difficult to acquire rights in certain cases, and it is difficult to get additional financing.
16277 When we finance a lot of our programming, we have to do so with partnerships. Having that exclusivity gives us that understanding, that stability for a period of time. It gives us the window that we require in order to make that investment.
16278 To give you a very simple real example, we make a series of movies that we do in conjunction with a U.S. network, the here! Network that we mentioned. These movies are a gay detective series, called the "Donald Strachey Mysteries". The actual budget for these movies is well in excess of the total revenue that OUTtv receives in a full year, so what we need to do is, we need to bring in other partnerships.
16279 For those movies, for example, we brought in our friends at Allarco. They have taken the first window. We have taken the window behind them.
16280 In order to establish a relationship with here!, and in order to establish the foreign relationship with MGM, who is the distributor, having that exclusivity really ties the knot for us, and that's why we feel it is important.
16281 THE CHAIRPERSON: Okay. Thank you very much.
16282 Ron, I believe you have some questions.
16283 COMMISSIONER WILLIAMS: Good morning, Ms MacPhail and Mr. Danks.
16284 Tell me a bit about your typical viewer. What is the demographic profile of people wishing to subscribe to your service?
16285 How many, and have you identified who your customers are?
16286 MR. DANKS: Our customers are, roughly, 60 percent male, 40 percent female. Of that, approximately 80 percent are openly gay and lesbian. We know that a certain percentage are straight female viewers, probably in the range of 10 to 20 percent of our viewers.
16287 The age demographic ‑‑ because we are a digital channel, we believe that we skew a little older, probably over the age of 30, but some of our shows, like the one that was mentioned, "Chris and John", is very popular with the under‑25 crowd, so we are getting more of those viewers, as well.
16288 MS MacPHAIL: As is "Sugar Rush" for young females.
16289 MR. DANKS: That's correct.
16290 COMMISSIONER WILLIAMS: And the size of the market?
16291 What is the potential marketplace?
16292 MR. DANKS: If we talk just about the gay and lesbian community, depending on the statistics you look at, it could range anywhere from 6 to 10 percent of our population.
16293 We know from our U.S. partner and from other people that, typically, we can expand the reach of that to, maybe, 15 to 20 percent of the population, depending on social mores, social attitudes toward these programs, but we believe that it is more expansive all the time.
16294 COMMISSIONER WILLIAMS: In your written submission you make the point that BDU competition has not increased the negotiating power of services like yourselves trying to negotiate with the BDU.
16295 Could you provide us with some examples of that?
16296 MR. DANKS: We are from Vancouver. We are the only group here, I think, nationally anyways, that does a lot of its work and is headquartered in Vancouver, and Toronto. In our office, for example, we can only get the Shaw cable service. We can't get anybody else, unless we go to DTH.
16297 What we have found in our experience is that the two leaders in the industry, Rogers in the east and Shaw in the west, really set the trends for everybody.
16298 What we heard in the west, for example, from all of the cable companies, was that they look to Shaw: How is Shaw doing their packaging? How is Shaw providing leadership? We are going to follow that.
16299 It took a lot of work for us to get some of them around and thinking otherwise.
16300 It is the same in the east. A lot of them look to Rogers for their leadership.
16301 We are fortunate that we have a very good relationship with Rogers in this respect, and that serves us well. We don't have as good a relationship with Shaw, as you are well aware.
16302 We have turned the corner with a lot of Shaw's competitors, that's true. TELUS has been terrific to us. They are amongst our largest advertisers, and they really have been good to us.
16303 SaskTel has been fabulous. They have just invited us to their customer service representative sites.
16304 And MTS has put new packaging together.
16305 So that works, but it doesn't change the fact that in most areas, in most jurisdictions, those particular players continue to be dominant.
16306 It is also difficult to imagine ‑‑ we imagine that people are going to change their entire subscriber over because of one channel? That is not realistic.
16307 The reality is that competition remains, in our view, very nascent in the BDU situation.
16308 COMMISSIONER WILLIAMS: You talked about two of the larger BDUs, namely, Rogers and Shaw. Are your dealings with them similar?
16309 I would like to hear a bit more on that.
16310 Which channels are you placed on, say, in Toronto or Calgary?
16311 Is channel placement an issue?
16312 MR. DANKS: Channel placement is a significant issue.
16313 Do you want to handle this one?
16314 MS MacPHAIL: I do, and I think we should be cautious here, Mr. Chair, because we have filed a complaint with the CRTC on a matter such as you describe with our positioning with Shaw.
16315 THE CHAIRPERSON: Why don't you stay away from that subject, then, because we are going to deal with it ‑‑
16316 MS MacPHAIL: Yes. That's why I wanted to be cautious about it.
16317 However, I will say that the network itself has fought in the past the view that we are somehow an adult channel. Maybe I could approach it from that point of view. And, of course, we are not adult content at all. We meet all of the requirements of the Ontario Censorship Standards for not being adult content. In fact, we are family oriented ‑‑ lifestyle and family oriented.
16318 That is the challenge that we have faced in the past, and in most situations the BDUs have taken that into account of our changed perspective, our changed offerings, but we do have challenges elsewhere.
16319 MR. DANKS: To answer your question specifically, at Rogers, I believe, we are on Channel 269 in their package right now.
16320 At Shaw, we were moved from 100 to 200 to 370, all in the course of 18 months, with no discussion.
16321 Channel 370 puts us directly in the adult channel category, right between, I think, the Playboy and Hustler channels; not where we would like to be, clearly.
16322 COMMISSIONER WILLIAMS: You talked about packaging partners. Who, typically, is a packaging partner with your service?
16323 MR. DANKS: Typically, we are with the lifestyle channels, Fashion Television and channels like that.
16324 We believe that is the appropriate placement for our channel. It's the one we asked for. And, more often than not, especially with our really good partners ‑‑ SaskTel, MTS ‑‑ Vidéotron recently repackaged us and put is in that package. We believe that's appropriate.
16325 COMMISSIONER WILLIAMS: Is the retail price for your service the same amongst all BDUs?
16326 MR. DANKS: No, there continue to be some BDUs that carry us on a standalone only basis, some smaller BDUs, so they charge a higher price. But, generally, it is uniform when we are properly packaged.
16327 COMMISSIONER WILLIAMS: You talked about exporting programming and international partnerships in your presentation today. What percentage of your revenue comes from the activities of exporting programming and international partnerships?
16328 MR. DANKS: It would be certainly less than 10 percent. I would think it would be less than 5 percent, without the figure.
16329 MS MacPHAIL: We have just started to market internationally.
16330 MR. DANKS: One of the challenges we have is the extraordinary cost of production. A lot of companies are able to amortize those costs against foreign sales. We are in a position where there are very few people to sell to.
16331 There are two networks in our genre in the U.S. We have now sold a lot of programming to one. There are no channels, officially, outside in the world, so we are working hard to help cultivate that.
16332 Last year we worked with a service in Australia, for example, that went on for about nine months, and we provided them with a lot of content. They went out of business.
16333 The service in The Netherlands is new.
16334 There was a service in France a year and a half ago that launched, which has now failed. We sold them a lot of programming.
16335 It really is so nascent and such a new area ‑‑
16336 We believe in the future ‑‑ our web traffic is extraordinary. We have a huge amount of people from Turkey, Russia, and a lot of other middle eastern countries, and so on, that come to the channel because they can't get their offering.
16337 We think that the long‑term potential is outstanding, but getting carriage ‑‑
16338 We get called all the time ‑‑ somebody in Germany wants to launch a channel. Somebody in Switzerland wants to launch a channel.
16339 But it is still very early. We are working hard to help develop that market on a worldwide basis, but it is not going to be a big revenue‑maker for us for a while.
16340 COMMISSIONER WILLIAMS: In paragraph 13 of your presentation today you say that there is no other Category 1 service with higher Canadian programming expenditure requirements than your service.
16341 Is this not needed because of the lack of existing programming?
16342 If you are building programming for export markets and other uses, would it not be a good thing to be producing more programming?
16343 MR. DANKS: Absolutely. It is a key component of what we are doing.
16344 From our perspective, maintaining those numbers is fine for us, so long as the other requirements ‑‑ the access rules, genre protection and so on ‑‑ are maintained.
16345 We are quite happy to continue to make the investments that we are.
16346 You are exactly right, we do need to do that, and we will continue to do that.
16347 Good question.
16348 COMMISSIONER WILLIAMS: Thank you, Mr. Chair. That concludes my line of questioning.
16349 THE CHAIRPERSON: Okay. Thank you very much for your presentation. I think those are our questions.
16350 Madam Secretary, I think we can do one more intervenor before lunch.
16351 THE SECRETARY: We will now proceed with the next three intervenors: Fairchild Television Ltd., Asian Television Network International Limited, and TLN Telelatino.
16352 Could you please come forward.
‑‑‑ Pause
16353 THE CHAIRPERSON: Madam Secretary, go ahead.
16354 THE SECRETARY: Thank you, Mr. Chairman.
16355 We will hear each presentation which will then be followed by questions by the Commissioners to all interveners.
16356 I would now invite Fairchild Television Ltd. to begin their presentation.
PRESENTATION / PRÉSENTATION
16357 MR. CHAN: Good afternoon, Mr. Chair and Mr. Commissioners.
16358 My name is Joseph Chan, President of Fairchild Television Ltd. With me today is Connie Sephton, Fairchild's Assistant General Manager.
16359 We are pleased to be here today on behalf of Fairchild Television, licensee of both Fairchild Television and Talentvision to present our views in this important proceedings.
16360 My comments today will focus on why Fairchild believes that it is crucial to maintain the buy‑through requirement that was put into place for the five analog third language specialty services less than three and a half years ago.
16361 In particular, I will address three issues. First, the Commission has stated that it wishes to move away from detailed regulation and take a revitalized approach that reduces regulation to the minimum needed to achieve the objectives of the Act.
16362 Fairchild believes that reducing regulation should not be accomplished at the expense of fulfilling the objectives of the Act.
16363 I should also note that the buy‑through is consistent with the Commission's desire to streamline regulation. It is clear and transparent and does require your ongoing involvement.
16364 Second, the Commission has questioned whether the rules respecting the distribution of third language services should be maintained.
16365 In our view, there are powerful public policy reasons for retaining these rules and, in particular, the buy‑through for third language services.
16366 Finally, the Commission went through a prolonged process, the revised distribution and linkage rules for third language services in 2004. We believe it is premature and potentially disastrous to eliminate these rules barely three years after they were put into place.
16367 In Public Notice 2004‑96, the Commission acknowledged the importance of the role the third language services play in the Canadian broadcasting system, stating:
"The Commission considers that the Canadian services are the most efficient and effective vehicles for meeting the needs and interests of Canadian or of Canada's third language ethnic communities and fulfilling the objectives of the Act." (As read)
16368 MR. CHAN: Third language services contribute to the Canadian broadcasting system through Canadian program expenditure and exhibition of Canadian content.
16369 For example, Fairchild and Talentvision together have spent more than 55‑million on original Canadian programming over the last seven years. We are also proud to play an important role in the life of our communities.
16370 Since 2003, Fairchild and Talentvision have helped non‑profit organizations in Toronto and Vancouver raise more than 7‑million through telethons and promotions.
16371 We have run more than 11,000 public service announcements and we regularly sponsor community events. These are just some of the tangible ways in which our services help to safeguard and bridge and strengthen the cultural, political, social and economic fabric of Canada.
16372 Add the diversity of views, attitudes and ideas to the system and reflect multicultural and multiracial nature of Canadian society, all specific objectives of the Act.
16373 In December, 2004, the Commission revised its approach to adding new non‑Canadian third language services to the digital eligible lists. It established a more open entry model that virtually eliminated genre protections for Canadian services vis‑a‑vis non‑Canadian services.
16374 In recognition of the detrimental impact that this could have on Canadian general interest third language services, however, the Commission created the buy‑through. Put simply, any subscriber wishing to purchase a non‑Canadian third language service would first have to subscribe to the analog service operating in the same principal language where one existed.
16375 The mechanism to created to ensure that Canadian third language general services are in the position to continue to fulfil the condition of licence and other regulatory obligations.
16376 The buy‑through which has only barely started to come into play will offer a minimal but critical layer of protection. If it is removed, there is no guarantee that services like Fairchild and Talentvision will continue to survive, let alone maintain the level of contribution to the system.
16377 We believe that the buy‑through is a straight forward process that is simple to administer and that it should be enshrined in the broadcasting distribution regulations.
16378 We also agree with the independents that a simplified one‑to‑one rule should be adopted so that if a BDU distributes a non‑Canadian third language service he should also distribute at least one Canadian service in the same language, unless he can also show that there is no such service available.
16379 Third language Canadian services like Fairchild and Talentvision serve the needs not only of the long‑standing Chinese Canadian community, but also of the new immigrants to this country. No other programming services, be it a Canadian English or French language undertaking, or a non‑Canadian third language service can fulfil this mandate to help translate the Canadian experience, particularly to newcomers.
16380 Accordingly, Canadian third language services play a crucial and unique public policy role. Given this unique role in the system, we fail to see any public interest to weakening licensed Canadian services in favour of foreign services that make no contribution to the cultural objectives of the Broadcasting Act and that may compete with Canadian services for programming rights.
16381 Given the number of new non‑Canadian services that have been added through the eligible list in the wake of PN 2004‑96, we also believe that any move to eliminate the buy‑through would be both premature and potentially disastrous for Canadian third language services like Fairchild and Talentvision.
16382 Since the adoption of the Commission's new open entry approach, 15 new Chinese services have been added to the eligible list, 12 Mandarin and three Cantonese. But these services are only now being launched by BDUs. For example, Rogers launched its Great Wall package of eight Mandarin services just a year ago and many of the other services that have been authorized for distribution have not yet launched.
16383 Yet, before this new policy has even become solidly established, the Commission is already considering eliminating the buy‑through.
16384 In light of the number of competitive non‑Canadian Mandarin language services that have been approved, elimination of the buy‑through could be seriously detrimental for Talentvision which has been slowly improving its financial performance.
16385 This is not as the Dunbar Leblanc Report claims about the financial viability of Canadian services. It is about the potentially disastrous impact of changing the rule midstream.
16386 The open entry approach was deliberately coupled with access rules that recognize the primacy of Canadian third language specialty services and the obligation that they have to the Canadian broadcasting system.
16387 Even though the five analog services subject to the buy‑through are established in Canada, not one of us can compete against a foreign service that has no obligations to the Canadian broadcasting system.
16388 In a purely market‑based environment, BDU will have even more power to dictate terms of carriage than they do now. Since foreign services have already recouped their costs in the homeland market, their cost to enter Canada are minimal, meaning they can offer services at a much lower wholesale rate than any Canadian services. How can we compete, let alone continue to fulfil our regulatory obligations?
16389 Even under the current access regulations, Shaw is not carrying Talentvision on a number of its systems. Star Choice does not carry Talentvision at all, supposedly because they lack the band width.
16390 In the absence of the buy‑through, BDUs will have no incentive to carry any Canadian third language services at all.
16391 Finally, I just want to make a few comments about our submissions that may have been made in these proceedings.
16392 Certain BDUs have advocated the complete elimination of the buy‑through, access and linkage rules for third language services, claiming that the must‑carry requirement for the five analog third language services is unnecessary. They say that market forces will ensure continuing carriage of these services. They argue that the rules drive consumers to unregulated platforms.
16393 We are not convinced of any of these points. First, the access rules set out in the broadcasting distribution regulations ensure that the five third language services with the highest regulatory obligations to the system are carried by a BDU.
16394 Even Bell, which argues for the elimination of this rule, concedes that there was a clear and direct connection between the objectives of the Act and the regulation.
16395 The must‑carry rule ensures a basic level of diversity in the system overall. As third language communities grow in Canada, this requirement will become more important, not less.
16396 As for the BDUs' arguments that market forces should rule the day, well, we are certain that market forces will ensure continued carriage of third language services, but if all of the access and distribution and linkage rules are eliminated, will any of them be Canadian?
16397 As for unregulated platforms, we believe that this is simply fear mongering. Jump TV, for example, offers little in the way of Chinese programming and, in any event, there is no evidence that its subscriber levels are high enough to have a material impact on the broadcasting system.
16398 We believe that those who wish to use the Internet will do so whether or not there is a buy‑through requirement. The supposed threat of consumes fleeing the system because of the buy‑through is, we submit, a straw man.
16399 In conclusion, we believe that maintaining the buy‑through is crucial if Canadian third language services are to continue to fulfil the objectives of the Broadcasting Act in any meaningful way.
16400 We appreciate the opportunity to appear before you today and look forward to answering your questions you may have after Shan and others may their presentations.
16401 Thank you.
16402 THE SECRETARY: Thank you.