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TRANSCRIPT OF PROCEEDINGS BEFORE
THE CANADIAN RADIO-TELEVISION AND
Canadian broadcasting in new media
140 Promenade du Portage
March 10, 2009
In order to meet the requirements of the Official Languages
Act, transcripts of proceedings before the Commission will be
bilingual as to their covers, the listing of the CRTC members
and staff attending the public hearings, and the Table of
However, the aforementioned publication is the recorded
verbatim transcript and, as such, is taped and transcribed in
either of the official languages, depending on the language
spoken by the participant at the public hearing.
Canadian Radio-television and
Canadian broadcasting in new media
Konrad von Finckenstein Chairperson
Michel Arpin Commissioner
Len Katz Commissioner
Rita Cugini Commissioner
Michel Morin Commissioner
Timothy Denton Commissioner
Louise Poirier Commissioner
Stephen Simpson Commissioner
Sylvie Bouffard Secretary
Chris Seidl Hearing Managers
Carolyn Pinsky Legal Counsel
140 Promenade du Portage
March 10, 2009
- iv -
TABLE OF CONTENTS
PAGE / PARA
Astral Media Inc. 1689 / 9351
Rogers Communications Inc. 1730 / 9588
Cogeco Cable Inc. 1800 / 9990
Shaw Communications Inc. 1839 /10177
CTVglobemedia Inc. 1892 /10433
Canadian Cable System Alliance Inc. 1936 /10697
--- Upon resuming on Tuesday, March 10, 2009 at 0904
9346 LE PRÉSIDENT : Madame Secrétaire, nous sommes prêts.
9347 LA SECRÉTAIRE : Merci, Monsieur le Président.
9348 Nous allons débuter cette neuvième journée de l'audience avec l'article 45 à l'ordre du jour, Astral Media Inc.
9349 Madame Nathalie Dorval comparaît pour Astral Media, et elle nous présentera ses collègues.
9350 Vous aurez ensuite 15 minutes pour faire votre présentation.
9351 MME DORVAL : Merci.
9352 Monsieur le Président, Messieurs les Vice-Présidents, Madame et Messieurs les Conseillers, Membres du personnel, je suis Nathalie Dorval, conseillère principale, Affaires réglementaires et propriété intellectuelle, Astral Media.
9353 M'accompagnent aujourd'hui à ma droite, Dany Meloul, vice-présidente affaires juridiques, réglementaires et relations aux affiliés, Les Chaînes Télé Astral, et à sa droite Sylvain Langlois, vice-président directeur général, Astral Media Radio Interactif.
9354 À ma gauche, Domenic Vivolo, vice-président principal, marketing et ventes, Astral Television Networks et à sa gauche, Chris Bell, vice-président, technologies, Astral Television Networks.
9355 The current review process has given all of us the chance to get a better sense of the new media environment in Canada and to appreciate its complex nature and the related numerous issues we have to come to grips with.
9356 Based on our own experience with new media, and what we have gained from these discussions, Astral has concluded that the most significant thing to remember about new media is that we are at a very early stage in the development of new media platforms.
9357 We are still essentially in experimental mode, trying to work out business models.
9358 This is why, for example, some of our content deals are as short as 12 to 18 months.
9359 We still lack accurate and comprehensive measurement of new media's actual impact on audience behaviour, on broadcast advertising and on consumer habits.
9360 Our measurement tools are not yet sophisticated enough.
9361 Obviously this situation is evolving rapidly.
9362 Consequently Astral's position is that the best approach is to maintain the flexibility of the open new media marketplace, to continue to monitor the new media world as its direction develops, and to continue to assess its impact on the regulated Canadian broadcasting system.
9363 In the remainder of our presentation, we will describe Astral's positioning in new media and address the areas of interest outlined by the Commission for discussion.
9364 Sylvain ?
9365 M. LANGLOIS : Les activités de nouveaux médias que conduisent nos stations de radio, comme nos services de télévision spécialisée et payante, ne sont pas des activités autonomes et indépendantes de nos activités de radiodiffusion.
9366 Elles en sont, au contraire, le prolongement direct.
9367 Ces activités ne sont pas rentables à ce jour et représentent plutôt un coût additionnel, comme d'autres formes de promotion et de marketing.
9368 Leur but premier est de consolider nos marques, de renforcer la notoriété et le pouvoir d'attrait de nos services de radiodiffusion, d'enrichir l'expérience de nos auditeurs et téléspectateurs, de leur permettre de mieux se renseigner sur la programmation que nous leur proposons, d'interagir directement avec elle et d'échanger entre eux.
9369 Il en va de notre intérêt de ne pas créer de confusion dans l'esprit des internautes : lorsqu'ils visitent nos sites, nous voulons que cela consolide l'image de chacune de nos marques, qu'ils s'y retrouvent en terrain connu et qu'ils puissent enrichir leur expérience.
9370 Cela est particulièrement évident en radio, où notre activité principale de nouveaux médias consiste à rendre nos stations, de langues anglaise et française, disponibles sur Internet.
9371 Dans ce cas, il y a parfaite duplication et reprise intégrale du contenu de musique canadienne comme de musique vocale de langue française.
9372 Les internautes ont aussi accès à des contenus de baladodiffusion, des informations complémentaires mises en ligne par nos animateurs, des concours et des promotions.
9373 Dany ?
9374 MME MELOUL : En télé, toutes nos chaînes qui s'adressent largement à un auditoire enfant et jeunesse -- particulièrement friands d'Internet -- ont des sites web très développés.
9375 C'est le cas de Vrak.TV, Ztélé et Musique Plus, que nous avons grandement développés depuis l'automne dernier.
9376 Ils offrent accès à leurs grilles de programmation et au descriptif de chacune des émissions, au visionnement d'extraits, de compléments ou d'émissions complètes, à des séances de clavardage avec les vedettes de la chaîne, à des blogues d'animateurs ou collaborateurs, à des jeux vidéos interactifs, à des concours, à des appels à la contribution des internautes et à des quiz, tous en lien direct avec nos marques.
9377 Il en est de même pour le site d'une chaîne de service, comme Canal Vie, qui propose aussi plusieurs articles approfondis, des psycho-tests et des forums de discussion sur des sujets reliés aux thématiques de cette chaîne.
9378 En fait, les nouveaux médias permettent de fidéliser des « communautés d'intérêts » autour des thématiques de chaque chaîne et de prolonger le temps passé avec nos marques.
9379 Toutes nos activités Web accordent une grande place au contenu canadien, compte tenu que ce sont évidemment en priorité nos émissions originales que nous mettons de l'avant.
9380 De plus, ce sont nos animateurs, vedettes et collaborateurs canadiens qui participent aux séances de clavardage, entretiennent des blogues ou rédigent des articles.
9381 Domenic ?
9382 MR. VIVOLO: The websites that extend our movie-based pay television networks -- like TMN and Super Écran -- concentrate on promoting the programming of these services, using trailers, extracts, and interviews with the artists.
9383 Because these are subscription-based, the Web activity is focussed on supporting their revenue streams.
9384 The most popular sections of our movie websites are the programming descriptions with 45 per cent of page views, followed by the schedule section with 17 per cent of page views.
9385 In new media we compete for the user's attention against foreign players as well as Canadian regulated and unregulated entities -- against newspapers and magazines, the music industry, console gaming companies, and new entities like social networks that didn't even have a name five years ago.
9386 We even compete, and sometimes partner, with user-generated content.
9387 Nonetheless, we are confident, based on our experience, in Canadian broadcasters' capacity to compete effectively.
9388 Family.ca, for example, gets close to one million visitors per month.
9389 In 2008, among the age group two to 17, Family.ca was the most popular TV website for kids, beating out powerhouse kid's entertainment sites like webkinz.com, Barbie, Neopets and Nick Jr.
9391 MME MELOUL : Bref, ce que nous savons en regard des ces activités, c'est qu'elles sont nécessaires, voire essentielles, pour assurer le succès de nos services de programmation et maintenir leur position concurrentielle.
9392 Ce que nous savons également, c'est que, pour l'instant, il n'y a pas de modèles d'affaires qui permettent de rentabiliser ces activités en elles-mêmes.
9393 C'est une dépense nette, du même ordre que celle que nous encourons pour promouvoir nos services par affichage, journaux, radio et télévision, pour mener à bien des études de marché ou évaluer la réaction de groupes-témoins à notre programmation.
9394 Une dépense dont on ne peut faire l'économie.
9395 Chris ?
9396 MR. BELL: At this point, we will address the Commission's six areas of questioning.
9397 First, with measurement.
9398 It is Astral's view that it is not currently possible to measure the availability and consumption of Canadian new media broadcasting content.
9399 First, for technical reasons around capture and measurement, we do not see the ISAN approach as a complete and satisfactory answer at this time.
9400 Second, we don't see that measuring traffic -- the number of bits flowing in the system -- is a relevant measure.
9401 High-quality video takes much more bandwidth than audio or medium-quality video, and raw volume is not a measure of engagement or value.
9402 Finally, we do not believe that all the relevant Canadian and foreign players can be persuaded to "tag" their content for online measurement.
9403 So it won't be possible to measure Canadian consumption as a proportion of all usage.
9404 We are all aware that new media broadcasting is much more than an extension of the regulated broadcasting system.
9405 There is video content on the websites of newspapers like: La Presse, the Globe and Mail, the Ottawa Citizen; magazines, like Chatelaine (in both French and English); and many non-media companies like the Royal Ontario Museum, Mazda, Home Hardware and Kraft.
9406 These sites are not user-generated. They offer professional video on subjects that might well turn up on a specialty channel.
9407 This content can't be ignored.
9408 Astral believes that the Commission must continue to closely monitor the new media environment to stay current with its rapidly changing offerings, but quantitative measurement of the kind that the Commission has explored in this hearing is not currently within our reach.
9409 The second area of discussion has to do with our use of new media, and this has been described already.
9410 On the question of impact, we feel that the jury is still out.
9411 Viewership is still strong, but the advertising market is showing weakness.
9412 However, we don't know how much of the impact is due to the current recession, new media, or other factors.
9413 In short, we don't have an accurate picture of the impact.
9414 With respect to the specific question of defining Canadian content in new media broadcasting, we are not convinced that any of the proposed definitions are practical.
9415 Commercial intent, as suggested, is not easily determined for much Internet content, and where do we draw the line between user-generated and professional?
9416 The third question has to do with the contribution of the various players toward the goals of the Broadcasting Act.
9417 We believe that the greatest contribution will result if all parties pursue new media in a vigorous and competitive way in an open marketplace.
9418 Content providers should continue to invest in Canadian material to attract audiences in Canada first, and possibly worldwide.
9419 ISPs and mobile providers should, as their contribution, continue to invest in their networks so all Canadians have access to all of this content.
9420 We have a great deal of work to do to develop the market and find workable business models. The greatest contribution will come from the continued experimentation in an open marketplace.
9421 Thank you.
9422 MR. VIVOLO: The Commission also asked if support is required for any type of new media broadcasting content.
9423 Astral recognizes the basic economic realities of French and English markets in Canada, which traditionally constitutes a situation justifying support to create content that can compete with foreign material.
9424 For this reason, we have proposed various industrial measures that can remove obstacles and stimulate the development of this market. Although these are not regulatory measures, we are urging the Commission to comment on them in its decision and play a more active role as well.
9425 For example, the cumbersome process around copyright is a major inhibitor in new media development. A fair and speedy clearance process is needed if we are to get more high-quality Canadian material on the web.
9426 Likewise, amending the Income Tax Act to limit the deductibility of advertising expenditures on foreign new media would be very positive.
9427 Astral also recommends the establishment of a federal new media tax credit to support the creation of new media content.
9428 On the question of promotion, Astral notes that much of the content provided by media companies in the new media world is already promotional, that is, it is used to extend and promote brands established in traditional services. In that sense the relationship is reciprocal. Broadcasting is used to promote new media and new media promotes broadcasting.
9429 Under current circumstances, Astral does not see the need for measures to encourage promotion. The need to develop business models for new media is already a strong incentive for broadcasters to promote their web activities.
9431 MS DORVAL: With respect to the exemption orders, Astral continues to believe that exemption remains the right approach. Specifically we recommend that the orders be retained, but with an addition, the undue preference rule. This proposal supplements the position taken in our submission.
9432 In the Internet environment, access has not been an issue, but like others who have appeared before the Commission, Astral notes that in the wireless environment content providers must make a deal with a distribution gatekeeper to reach the audience effectively. We are inclined to believe that the trend will be toward greater openness, but in fact no one can know for sure how these environments will develop.
9433 In this context, dispute resolution is the best tool to deal with current or potential problems and, to some extent, it is already available. We believe that if carriers engage in acts of discrimination, the provision of the Telecommunications Act, particularly sections 27 and 28, are sufficient to allow a provider to bring a complaint to the Commission and resolve the issue.
9434 However, it has become clear that some of the parties exercising gatekeeping power may not be carriers but some other forms of new media broadcasting undertaking and therefore currently beyond the reach of the unjust discrimination rules of the Telecommunications Act.
9435 The Canadian Wireless Telecommunications Association in its appearance stressed that there was a difference between the carriers and the companies that package and sell content, referring presumably to firms like QuickPlay or MobiTV who package content for the wireless platform. Such packagers may have privileged access to the on-deck shelf space of wireless carriers.
9436 Under the current exemption order there is no way to prevent a non-carrier gatekeeper from discriminating unjustly amongst content providers. Therefore, Astral recommends that the undue preference rule should be added to the exemption orders so that both carriers and non-carriers will have the same rules. We also recommend that a reverse onus be applied here as it is now common to telecommunications and broadcasting.
9437 It is worth noting that this mechanism, while needed, might never be used as long as carriers and other packagers behave fairly. The ability to seek dispute resolution on this basis is a minimum safeguard for the openness of the Internet and mobile platforms and a necessary measure if new media broadcasting is to develop fully in Canada.
9438 As we noted at the beginning of our presentation, this process has been an important step in exchanging information and broadening the industry's understanding on new media. We also noted that many of the most important steps in the development of the platform lie outside the regulatory area. In this context, we believe that the industrial measures that we recommended will be more effective if they are a part of a comprehensive implementation plan.
9439 Therefore, our second recommendation is that the Commission continue in its role as supervisor of the broadcasting system to strengthen its effort to ensure discussion among the responsible government departments and agencies on measures that would further the goals of the Broadcasting Act, that is, an improved copyright clearance process, the extension of the advertising provision of the Income Tax Act and the development of a federal new media production tax credit.
9440 We also urge the Commission to continue its dialogue with Heritage and Industry Canada to ensure that monitoring of new media results in a comprehensive picture that includes all relevant new media activities.
9441 We thank the Commission for the opportunity to appear in this hearing and we are now ready to answer any questions you may have.
9442 THE CHAIRPERSON: Thank you very much for your submission. Nous apprécions spécialement que vous avez répondu à nos six questions. Après deux semaines, je crois que vous êtes la deuxième partie qui a vraiment adressé les questions que nous avons posées.
9443 Now, let me ask these questions.
9444 I am somewhat surprised by your position on measurement and I think we may have a disconnect here, especially when we talk about ISAN. So your measurement comments, I think, are cast in the way of assuming that we will take the traditional method for broadcast regulation and transfer it to the Internet.
9445 I have said many times and I repeat now, that is not our intention. We don't even think it can be done. This is an exploratory hearing, not a hearing to find ways of taking the existing regulation to put it on the Internet.
9446 One thing about the Internet is quantification is so difficult. Nobody knows really how big it is, what is there. So the whole concept for broadcasting, which the primary concept should be a predominance of Canadian content, how do you apply that when you don't even know what the totality is? How can you say whether there is a predominance or not?
9447 So we were thinking totally differently here. As we said in the introduction to our questions, we said, assume just for practical purposes the space is infinite, et cetera. But can we measure at least what is there that is Canadian, and not only that is Canadian but that is professional Canadian or commercial Canadian, whatever you call it, not user-generated content or not e-mails or social interplay, which we are not interested in at all, but really what it is, where people make a living producing video which is then distributed over the Internet. That is why we mentioned ISAN.
9448 If I understand correctly -- and please correct me if I'm wrong because I think this is key -- I think every BDU can measure how much traffic goes across its lines to consumers and of that, how much of that is actually commercial video. One way to do that is to count the part that has ISAN. They could do that with their technology now.
9449 Will that not then be a measurement of saying, well, let's take any one of them, Quebecor or Rogers, we transport "X" billion bits of those, why have an ISAN watermark? So at least that much of Canadian content is offered.
9450 Why are we doing this? Only for the reason that if this is actually happening and you could say they are really distributors of video, the same way as traditional broadcasting. It is a different BDU, but you are distributing video and therefore you should pay your fair share, whatever that is and we would have something on which you could then attach the percentage that BDUs have to pay or ISPs in this case or WSPs.
9451 Now, you dismiss this totally as saying this is not appropriate. Explain to me where is the flaw in my logic. You know, it is very much in its infancy at this point in time.
9452 MR. BELL: Okay. So the point that I'm making is actually very technical. We are talking about ISAN. So ISAN, as everybody knows, is like the ISBN number in a book. So it is a number.
9453 THE CHAIRPERSON: Yes.
9454 MR. BELL: And that number has to get encoded into the media in some way. So it is important to understand what actually happens in the Internet. For example, there has been discussion about deep packet inspection.
9455 So first of all, what is an Internet packet? An Internet packet has two fundamental things. It has the payload, the audio and video information, e-mail, whatever the case, and then a piece of information at the front that is called a header, which is the address, where is it going to go, those types of things.
9456 The ISAN information is actually encoded into the data itself. It's not sitting in this front end addressing header information of the packet. So when ISPs are measuring the packets, in other words this deep packet inspection, what they are looking at, is they are looking at the header information. So there is no ISAN number in there.
9457 As these things are flying by, they are looking at traits in this header to say it's this type of packet or that but they can't actually read that this is ISAN. In order to read ISAN, they would have to decode the data.
9458 At this point there is not a lot of industry standardization in terms of how that would get encoded into the information in the first place. The other thing is a lot of content is encrypted over the Internet so that it can only be decoded at the end-user system.
9459 So to use the cable company or an ISP, generally speaking, they can't use these packet inspection mechanisms to actually measure the Canadian content. Where it has to be done is at the receive end, which is the consumer's end, where it needs to be decoded.
9460 So the real way that this has to be done, we believe anyway, is in the panel-based measurement system where you take a sample, you have people who volunteer to be part of a panel, you decode their activity, you have a wide enough sample and then you take the information from there.
9461 So it is like traditional market research or traditional viewership mechanisms that we might apply to TV. We can be very precise in the Internet so that if you can decode that user's computer, you can be extremely precise about what they are doing but you can't go and, in real time, decode the stream. I mean if we were to have ISPs do that, I think that would raise issues of privacy as well because you would be decoding the transmissions that they were receiving.
9462 So it is really a very technical point and, as we say, we believe that it is at the end-user device where this stuff has to be measured.
9463 THE CHAIRPERSON: Okay. Let's leave privacy aside for a second. I understand your technical point. The ISAN is not in the header and you have to -- especially since a lot of it is coded, you don't know what you're transporting is what you're saying?
9464 MR. BELL: Correct.
9465 THE CHAIRPERSON: But the ISP -- okay. So then the ISAN is not an answer, according to you. I understand that.
9466 But the ISP knows the amount of Canadian traffic that it carries that originates from CA addresses; right?
9467 MR. BELL: I'm actually not in a good position to answer that particular question.
9468 THE CHAIRPERSON: No, but the header contains that?
9469 MR. BELL: It will contain where it's coming from but I mean it would depend -- you know, Canadian broadcasters distribute content that is both from foreign services and Canadian services. So it might say yes, this is coming from Astral, but it could be some foreign programming we have licensed as easily as it could be some Canadian content.
9470 THE CHAIRPERSON: I appreciate all it does is tell you it's of Canadian origin, it doesn't tell you what's in it.
9471 MR. BELL: Correct.
9472 THE CHAIRPERSON: Because that is one number we can ascertain, how much traffic originates from Canadian services, from Canadian websites.
9473 MR. BELL: Yes. I would prefer that you ask that question of an ISP but I believe you are correct.
9474 THE CHAIRPERSON: And then, if I understand, you are saying, what proportion of that is video or not, you can only do that by monitoring at the receiving end and do sampling and say generally or get hopefully a representative sample and say, on average, of that content, of that CA originating traffic, 20 percent, 40 percent, whatever is video? That's what you --
9475 MR. BELL: Potentially. I don't know that I can say that definitively but I take your point, yes.
9476 THE CHAIRPERSON: As far as you can see, that is the best way we can measure right now rather than looking at ISAN, because ISAN is not available, in effect, for the moment?
9477 MR. BELL: No, you have to measure it at the end-user point. I mean, the other thing is that viewers in terms of watching content are watching it from a variety of places. I mean YouTube, for example, is 40 percent of the viewership, and there is a lot of Canadian content on YouTube as well.
9478 THE CHAIRPERSON: You are going into Canadian content, I was just saying the origin.
9479 MR. BELL: Okay. All right. Sorry.
9480 THE CHAIRPERSON: Let's stay where we are.
9481 MR. BELL: Yes.
9482 THE CHAIRPERSON: Okay. Fine. Thank you.
9483 Rita, I believe you have questions.
9484 COMMISSIONER CUGINI: Thank you very much.
9485 We will stay along those lines but perhaps from a little bit of a different angle.
9486 Because, Mr. Bell, you just said that we can be very precise about the Internet, could you relate that to -- and I will read it to you so you don't have to follow through in your written submission. On paragraph 18 you say:
"The range of new media services is so broad and variable it is difficult to define an undertaking engaged in the activity of broadcasting on the Internet." (As read)
9487 If we can be very precise on the Internet, why is it difficult to define an undertaking engaged in the activity of broadcasting on the Internet?
9488 MR. BELL: I will let other colleagues answer as well.
9489 But in terms of new media on the Internet there is a wide range of content, as we talked about. So we talked about consumer brands like Kraft, magazines, et cetera, who are producing for the marketplace content of high professional value that, as we have said, is similar to what you might see on a specialty channel.
9490 So broadcasters are only a piece of this thing. In fact, the Web, generally speaking, is an area of a lot of rich content. So what is broadcasting versus entertainment? There is a plethora of services on the Web that are providing content very similar to what we are doing and very competitive.
9491 COMMISSIONER CUGINI: Therefore, the point being that they should be regulated or they should not be regulated?
9492 MR. BELL: I mean, our point is no, that they should not be regulated. This is an open platform. I mean it's hard to imagine that you might regulate a consumer brand like Kraft or Mazda who is producing compelling audio-video content on the Web, which is a space that we also occupy.
9493 COMMISSIONER CUGINI: By the same token, because Astral Media has websites that are associated with your on-air brands, those sites should not be in any way, shape or form regulated. Is that your position as well?
9494 MR. BELL: Yes.
9495 Do you want to answer that?
9496 MS DORVAL: Yes, that is our position. We suggested that the exemption orders be maintained because we think that regulating only broadcast content or broadcasters will put the broadcasters on a not competitive level playing field with others and as we need to be strong and have good content, we need to be able to compete on the same level as the others who are in this area.
9497 COMMISSIONER CUGINI: In your oral presentation this morning when you said, for example, "some of our content deals are as short as 12 to 18 months," do you mean that for online or broadcasting as well?
9498 MS DORVAL: We meant, first, for online. And maybe, Sylvain, you want to talk about the music industry?
9499 MR. LANGLOIS: On the music side, for example online, we have agreements that are for 12 months, not more than that, because it may change in the future, so we decided not to have more than 12-month agreements.
9500 COMMISSIONER CUGINI: Is this content that is supplementary to what is available on the broadcast side?
9501 MR. LANGLOIS: Yes. For example, we have video clips online that you can listen to on streaming.
9502 COMMISSIONER CUGINI: Is it the same for the television side?
9503 MS MELOUL: It is the same for the television side. Typically, we have licences that range up to five years but we are seeing -- what both parties require at this point, both the broadcasters and producers are looking for flexibility in the model. And so at this stage, to move things forward, often when it is for the other platform, they are offering it up for a short period of time so that there is flexibility, see if it works, what works, what doesn't, and then we move forward rather than blocking.
9504 Because initially in our first round of discussions with certain producers, it was very difficult to move forward what was going to be the right model, the business model, and truthfully, it is embryonic on all levels. And so one of the solutions that is starting to come forward is let's keep that portion of it short and experiment, whereas the other licence may be longer.
9505 COMMISSIONER CUGINI: Is this why you said in your oral presentation this morning that primarily your online presence is a direct extension of your broadcasting brands, an opportunity to further promote brand extension of your broadcasting entities?
9506 MS MELOUL: It really is to further promote the brand extension and to create a link that we don't otherwise have with the audience, because obviously on the linear side the BDU really does control the link with the people who end up watching the content, whereas here we can have more of a conversation, a two-way dialogue with the audience. So it is an extension of the brand.
9507 COMMISSIONER CUGINI: Now, I have been on a few of your sites, I admit not all of them, and there isn't a lot of video content on your site, other than perhaps trailers or promos. You don't stream any of your programs online?
9508 MS MELOUL: We do not stream, but you will note in the next few months that this is going to go up incrementally. The reason for that is that we have invested quite a bit into our platform with the recent release of a WebTV platform, which was, by the way, built in-house by Astral. Because of the needs that we had, we ended up deciding to go and do it ourselves.
9509 Just between last October and this February, we have doubled the amount of video on a site like Canal Vie and we have increased by about 30 percent the amount of video on a children network like VRAK. So that is going to increase. In that increase of video we are now starting to have full shows but we are not streaming.
9510 MR. VIVOLO: Just to add to Dany's comments, on Family.ca we do stream. We stream about six episodes and those are for kids. It is more used as a sampling vehicle so that they can have a taste of what the episode is about and what the show is about so that we can then take them back to the linear service, which is when they will watch the episodes in full.
9511 So we do have some streaming, it's early on, but as Dany said, it is more of a marketing extension and vehicle in which we promote the linear broadcasting.
9512 COMMISSIONER CUGINI: Now I have to admit I don't have any children because I didn't go on Family.ca.
9513 COMMISSIONER CUGINI: In this environment, one can't help but make comparisons and now that HBO Canada is here, I went on the HBO Canada website and, for research purposes, was able to go on the HBO.com website and noticed that of course there are many shows that are available on both as far as the schedule is concerned, but certainly the HBO.com site is much more robust in terms of cast interviews, in terms of even trailers, there are more trailers about -- there is more on HBO.com.
9514 Is HBO Canada in a position to be able to catch up? Is there any value in catching up so that people like me don't go to HBO.com?
9515 MR. VIVOLO: Absolutely. Obviously it's a matter of resources as well as getting the content from our U.S. partners. So it's a combination. Some of it we develop in-house and create our own to promote the service. Some of it we get from HBO directly and then repurpose it for the Canadian marketplace. So it is a combination of both.
9516 We would like to eventually catch up to obviously the HBOs of the world but it is a matter of resources as well as the amount of abilities to get all the message out there.
9517 COMMISSIONER CUGINI: Is that richer content available to you at no additional cost from HBO.com? I ask that because of course HBO.com is geo-blocked.
9518 MR. VIVOLO: Yes. I will speak in general terms.
9519 COMMISSIONER CUGINI: Sure.
9520 MR. VIVOLO: Some of it is available to us as part of our deal with the linear service. Part of it we have to pay over and above to get additional rights. So it is a combination of both, depending on the studio and the content provider.
9521 COMMISSIONER CUGINI: in terms of your point about contribution, this morning you said:"ISPs and mobile providers should, as their contribution, continue to invest in their networks so that all Canadians have access to all of this content." (As read)
9522 You did not comment, however, on the proposal for an ISP levy. Do you believe that the ISPs should contribute in that manner as well?
9523 MS DORVAL: It is our view that their contribution would be more profitable if they were investing in their network and in their facilities to ensure that all Canadians have access to all content. I think that should be their participation at this point in time.
9524 COMMISSIONER CUGINI: Now, I know this falls into the area of the industrial policy measures that you have suggested and we may or may not be able to act upon those suggestions but there is something that I would just like further information about, or further explanation, and it is paragraph 62 of your written presentation.
9525 You say:"The costs of video and audio distribution on the Internet are another unique problem. Because every user requires a separate stream or connection and every such connection costs money, distribution costs are not fixed." (As read)
9526 Can you explain that to me, please?
9527 MR. BELL: So when we are delivering content to users, we pay companies like Akamai and Limelight a certain amount of money per bit that we ship across the Internet. So because the Internet is by its nature a one-to-one basis, every time we ship a piece of content, we have to pay for the delivery of that content. And it is not inexpensive, and the higher the quality the higher the cost.
9528 So the costs are not like broadcasting where you broadcast one to many. It is the more viewers you get, the bigger your costs are.
9529 COMMISSIONER CUGINI: So that's why you say the costs rise with the popularity of the content?
9530 MR. BELL: Absolutely.
9531 COMMISSIONER CUGINI: Okay. Thank you.
9532 Just one final question from my part and it refers to your oral presentation."...amending the Income Tax Act to limit the deductibility of advertising expenses on foreign new media would be very positive." (As read)
9533 Can you quantify? Do you have an idea how many Canadian dollars are going south?
9534 MS DORVAL: I don't have that information available but we can look for it and file it in our final reply.
9535 COMMISSIONER CUGINI: Okay. Well, thank you very much.
9536 Thank you, Mr. Chair.
9537 THE CHAIRPERSON: Thank you.
9539 CONSEILLER MORIN : Oui. Une question très simple.
9540 Vous émettez beaucoup de réserve sur la façon de mesurer le contenu canadien, et vous dites en même temps qu'il faudrait superviser... que le CRTC devrait superviser la situation en ce qui concerne les médias interactifs ou en tout cas les nouveaux médias.
9541 Comment peut-on superviser si on ne mesure pas?
9542 MME DORVAL : À notre avis, il s'agit de deux mesures différentes ou de deux objectifs différents, et quand on parle ici de superviser, on pense plutôt à un rôle de supervision pour être en mesure d'évaluer l'impact sur les éléments réglementés du système canadien de radiodiffusion.
9543 À notre avis, il faut que le CRTC soit en mesure d'avoir une vue globale de ce qui se passe sur l'Internet puisqu'il n'y a pas que du contenu de radiodiffusion fourni par des radiodiffuseurs, mais qu'on doit faire face à une compétition qui provient de toute sorte d'autres éléments non réglementés, canadiens, non canadiens, les journaux.
9544 Donc, on trouve maintenant beaucoup de joueurs qui ne sont pas les joueurs traditionnels dans notre milieu réglementé, et qui ont un impact sur nos activités.
9545 Donc, on pense que, dans son rôle de supervision, le CRTC aurait avantage ou bénéficierait à pouvoir avoir une vue globale de ce qui se passe sur l'Internet en général et de ne pas se concentrer seulement aux activités de radiodiffusion.
9546 CONSEILLER MORIN : Et vous pensez qu'on peut réussir à cette tâche sans mesurer?
9547 M. LANGLOIS : Si je peux ajouter peut-être pour répondre à votre question sur les mesures, évidemment, il y a des mesures existantes. Il y a comScore. Il y a AB qui mesure de façon continue les revenus sur Internet. Il y a toute sorte de mesures qui existent déjà.
9548 Ce qu'on vous dit en particulier, c'est que mesurer le contenu canadien comme tel, ça, on ne trouve pas, nous, de façon de le faire, de façon précise. C'est principalement là qu'est le manque de mesure, de facilité de mesurer.
9549 CONSEILLER MORIN : Merci.
9550 LE PRÉSIDENT : Louise...?
9551 CONSEILLÈRE POIRIER : Oui. Merci, Monsieur le Président.
9552 Je vais poser une question, d'abord, sur la radio, parce que, je pense que les chiffres le prouvent, de plus en plus de gens écoutent la radio sur Internet.
9553 Je me demandais, puisque vous êtes vraiment un radiodiffuseur important au Canada dans les deux langues, qu'est-ce que vous avez remarqué comme impact sur la radiodiffusion, et est-ce que vous pensez que ça va se faire de plus en plus que d'écouter la radio sur Internet, plutôt que de l'écouter sur le médium traditionnel?
9554 M. LANGLOIS : C'est évident que la radio est de plus en plus écoutée à travers le Web, la radio conventionnelle, tout autant que les radios Internet. Donc, il y a, avec le Web, évidemment, une plus grande compétition, à laquelle nous avons à faire face, et je n'appelle pas ça des radios, mais, par exemple, des chaînes musicales comme LastFM ou d'autres qui sont disponibles sur Internet sont des offres de divertissement musical qui, jusqu'à l'apparition de l'Internet, étaient, dans le fond, l'apanage de la radio. Donc, là-dessus, c'est, effectivement, une nouvelle compétition avec laquelle nous avons à faire face.
9555 Mais nous aussi, nous avons de plus en plus d'écoute en ligne. Par contre, c'est de plus en plus coûteux, et comme le disait mon collègue Chris tout à l'heure, plus on a de gens qui écoutent, évidemment, plus ça nous coûte, ce qui est l'inverse de notre situation traditionnelle on air.
9556 Donc, c'est essentiellement ça. L'autre compétition qu'on a, c'est essentiellement sur le partage de la tarte des revenus. Il y a de plus en plus d'annonceurs qui annoncent à travers, par exemple, des mots clés, le search dans l'Internet, qui n'est absolument pas une offre que nous avons en radio. Donc, évidemment, ça l'a un impact sur les revenus, mais ça n'a pas nécessairement un impact sur la cote d'écoute. La cote d'écoute reste. Par contre, les revenus sont impactés.
9557 CONSEILLÈRE POIRIER : Est-ce que ça l'a un impact sur les revenus commerciaux de la radio traditionnelle pour vous à ce moment-ci, le fait que de plus en plus de gens écoutent la radio sur Internet, et donc, il y a une sorte de transfert de l'investissement des revenus commerciaux possiblement vers le Web?
9558 M. LANGLOIS : Je ne l'attribuerais pas plus à la radio traditionnelle qu'à toute autre entreprise dite traditionnelle, les journaux, et caetera. Donc, tout le monde vit, effectivement, un impact lié à la nouvelle offre pour les annonceurs qui est dans l'Internet, et en particulier le search.
9559 CONSEILLÈRE POIRIER : Aujourd'hui, dans votre document à la page 4, vous dites que... en haut, vous dites que :« ...il y a [une] parfaite duplication et reprise intégrale du contenu de musique canadienne comme de musique vocale de langue française [sur Internet]. »
9560 M. LANGLOIS : Oui.
9561 CONSEILLÈRE POIRIER : Il y a des gens qui sont venus nous rencontrer en début d'audience pour nous dire qu'il y aurait un danger si on ne réglementait pas la radio sur Internet, qui est un changement dans la proportion de musique canadienne diffusée sur le Web par rapport à la radio conventionnelle si on ne réglemente pas le Web.
9562 Alors, pensez-vous que c'est techniquement possible et faisable?
9563 M. LANGLOIS : C'est techniquement possible de faire une autre chaîne sur le Web. Il y a des gens qui sont champions là-dedans. Je vous parlais de LastFM tout à l'heure. C'est techniquement possible, oui, de faire une autre chaîne musicale qui serait totalement sans devoir tenir compte de la réglementation canadienne.
9564 Mais nous, ce n'est pas notre intention. Un, c'est très coûteux de faire ça. On ne voit pas de modèle où ça peut nous rapporter. Donc, à court terme... à moyen terme, on n'a pas l'intention de faire des canaux différents sur le Web que ce qu'on diffuse en ondes en direct.
9565 CONSEILLÈRE POIRIER : Mais si d'autres le font, eux, et commencent à diffuser du contenu qui est moins du contenu canadien, du contenu peut-être plus américain, et vous font compétition, est-ce que ça ne risque pas d'être à long terme un danger pour la radio traditionnelle, qui, elle, a des obligations?
9566 M. LANGLOIS : Ce sera une radio Internet qui fera compétition dans le monde de l'Internet. Ce ne sera pas nécessairement une radio qui fera compétition dans le monde traditionnel, si je peux m'exprimer ainsi. Je ne vois pas... c'est évident que des gens peuvent faire ça, mais j'aurais envie de dire : Bonne chance.
9567 M. LANGLOIS : C'est une moyenne tâche...
9568 CONSEILLÈRE POIRIER : C'est une possibilité.
9569 M. LANGLOIS : C'est une moyenne tâche de réussir dans cet univers-là...
9570 CONSEILLÈRE POIRIER : Parfait.
9571 M. LANGLOIS : ...évidemment, sans compter toute la question des droits, qui, au Canada, est très complexe.
9572 CONSEILLÈRE POIRIER : M'hmm.
9573 Monsieur le Président, peut-être une dernière question.
9574 J'aimerais connaître votre point de vue parce que je sais que vous avez à coeur la musique chez Astral. La radio, bon, subit moins les crises... la crise économique. C'est le média conventionnel qui se porte quand même le mieux.
9575 Par contre, l'industrie de la musique, elle vit des problèmes avec l'Internet. Le piratage est là. On a eu le Songwriters du Canada qui nous a présenté une solution -- je ne sais pas si vous avez entendu leurs commentaires -- à l'effet qu'ils souhaiteraient que les ISPs puissent payer peut-être un certain montant pour donner un accès libre, et au lieu de combattre le piratage, donner un accès plus grand à l'ensemble de la population à toute la musique.
9576 Est-ce que vous pensez que c'est une bonne solution, et qu'est-ce qu'on pourrait faire pour aider l'industrie de la musique, qui, elle, vit, à cause de l'Internet, une problématique définitive?
9577 MME DORVAL : On a, en effet, pris connaissance de la proposition du Songwriters Guild, et comme vous savez, dans nos commentaires, on soumettait que le système de droit d'auteur au Canada est quelque chose de complexe et que de libérer des droits pour les utiliser est parfois fort coûteux et long.
9578 Donc, oui, on a pris connaissance, et comme toute proposition, évidemment, il y a des questions qui viennent avec cette proposition-là.
9579 Nous, ce qu'on pense qui améliorerait vraiment la situation, donc, ça serait de simplifier le système. Mais en regardant la période de questions et réponses de la Songwriters Guild, on se rend compte que ce qu'ils proposent, c'est de créer un nouveau droit, donc, une nouvelle couche de droits qui s'ajouterait à celles qui sont déjà existantes, donc, au droit de communication, au droit de reproduction, et dans cette optique-là, je ne vois pas comment ça aiderait à rencontrer l'objectif, nous, qu'on propose, qui est de simplifier le système pour permettre aux utilisateurs et aux ayants droit d'avoir un système qui est plus efficace.
9580 CONSEILLÈRE POIRIER : C'est tout. Merci, Monsieur le Président.
9581 LE PRÉSIDENT : Merci pour votre intervention. Those are all our questions.
9582 We have a very heavy day today, so we will just take a short five-minute break before we start the next one. Thank you.
--- Upon recessing at 0950
--- Upon resuming at 1000
9583 THE CHAIRPERSON: Okay, we are ready, Madam Secretary.
9584 Good morning.
9585 THE SECRETARY: We will now proceed with the presentation by Rogers Communications Inc.
9586 Appearing for Rogers Communications Inc. is Phil Lind.
9587 Please introduce your colleagues and proceed with your presentation.
9588 MR. LIND: Mr. Chairman and Members of the Commission, my name is Phil Lind, I am Vice Chairman of Rogers Communications and I am pleased to introduce the Rogers panel.
9589 To my immediate right is Ken Engelhart, Senior Vice President Regulatory at RCI and the person who will act as our quarterback today. To his right are Mike Lee, Chief Strategy Officer for RCI; David Purdy, Vice President and General Manager TV Services at Rogers Cable.
9590 To my left are Pam Dinsmore, Vice President Regulatory, Rogers Cable; and Claude Galipeau, Senior Vice President Digital Media at Rogers Media.
9591 Behind me, from left to right are Chris Kelly, President Strategic Counsel's; Susan Wheeler, Vice President Regulatory Rogers Media; and Robert J. Buchan, Counsel, Fasken Martineau; and Suzanne Blackwell, President of Giganomics Consulting.
9592 Okay. Rogers welcomes this opportunity to discuss the new media broadcasting environment in Canada. As the Commission is aware, Rogers is a diversified Canadian communications and media company engaged in a variety of businesses, including wireless, cable TV, high-speed Internet access, radio and TV broadcasting.
9593 We are one of the very few stakeholders appearing before you in this proceeding that addresses Internet issues from a variety of perspectives.
9594 In our remarks today, Rogers will highlight the following issues:
9595 First, the barriers to broadcasting on the Internet cannot be remedied by an ISP levy.
9596 Second, an imposition of an ISP levy would harm the growth and development of Internet access in Canada.
9597 Third, the imposition of an ISP levy would be unlawful.
9598 Finally, we will outline a new online service -- Rogers Broadband Video -- being launched by Rogers Cable that will solve many of the problems that exist today for online broadcasters in Canada.
9600 MR. ENGELHART: There are three main types of video programming on the Internet. These are: (1) user generated content, (2) professionally produced made-for-Internet content -- also known as webisodes -- and (3) video made for television and re-exhibited online. Included in this last category would be content made for television but never aired on television, such as outtakes and deleted scenes.
9601 Anecdotal evidence suggests that Canadians are producing and consuming a great deal of user-generated content. In any event, the Commission has stated that it is not concerned with this type of programming in this proceeding.
9602 The Peter Grant paper argues that in other countries, television producers and broadcasters are producing large amounts of professional short form drama or webisodes for the Internet. The Grant paper argues that Canada is falling behind in the production of webisodes.
9603 Rogers disagrees with that contention. Today, there is very little professionally-produced video content that has been created solely for delivery over the Internet, in any country.
9604 Other parties, who have come before you at this hearing, including GlassBOX, have confirmed this. There are a few made-for-the-Internet webisodes produced in Canada and elsewhere around the world. There is, however, no evidence that there is a business case for this type of programming or that most viewers are particularly interested in accessing this type of programming online.
9605 The business model that is being used online by broadcasters involves producing traditional television programming for the television and re-exhibiting it on the Internet. This is consistent with the multi-platform approach for the Canada Media Fund announced by the federal government yesterday.
9606 Exhibiting television shows online allows viewers to catch up with missed episodes. Advertisers prefer to pay for online ads associated with proven television programs. Viewers also become more interested in a show when they can view additional information about it online. However, most of this additional programming, such as deleted scenes or outtakes, is not expensive to produce.
9607 Given that there is no viable business case for producing webisodes in any country, there is no point in setting up a webisode fund in Canada. This is not a case of Canada falling behind; it is a case where there is no market for webisodes anywhere. The issue instead should be ensuring that Canadian viewers have access to Canadian television programming and ancillary programming material online.
9608 There are three barriers faced by broadcasters seeking to put their television programs online:
9609 First, cost. Online distribution is expensive.
9610 Second, cannibalization. Pay and specialty services may lose subscription television revenues by posting the same content online.
9611 Third, discovery. Viewers need to find broadcaster content on the Internet.
9612 In the last section of our remarks Rogers will identify an innovative solution to reducing those barriers.
9613 Countries all over the globe are trying to ensure that their broadband networks are fast, powerful and ubiquitous. The Internet is the nervous system of the economy and broadband access is critical for a country's future.
9614 In this regard, Canada has an enviable record. Today, Canada's broadband connectivity exceeds that of every other G8 country. But the work is far from complete. Bandwidth usage on the Internet is growing at about 50 percent per year. Rogers is spending tens of millions of dollars each year to increase capacity for existing users. Further, huge investments are needed to increase the speed of the pipes.
9615 Imposing an ISP levy would frustrate these objectives and inhibit the growth of broadband in this country by raising the cost to consumers and by diverting a sizable amount of available resources away from infrastructure investments.
9616 ISPs are pipes, not broadcasters. ISPs are the underlying telecommunications facility that customers use to access the Internet and that content providers, including broadcasters, use to transmit their content.
9617 ISPs do not buy, package or sell programming or any other Internet content. Indeed, ISPs are unaware whether the packets that flow through our networks are voice, data or video. ISPs are similar to Telesat; it sends the broadcasting signals from its satellite to my cottage, but it is invisible to the Broadcasting Act.
9618 The Act looks to Star Choice rather than Telesat as a vehicle for furthering public policy objectives. Star Choice is the DTH undertaking that buys, packages and sells broadcasting signals. Telesat does not engage in these activities.
9619 Retail level ISPs have been regulated by the CRTC since 1996 under the Telecommunications Act and are regarded by the CRTC as telecommunications service providers or telecommunications common carrier.
9620 ISPs today are not exempt from regulation under the New Media Exemption Order that was issued in 1999 pursuant to the Broadcasting Act. They are simply not regulated pursuant to that Act.
9621 An undertaking cannot be subject to both the Broadcasting Act and the Telecommunications Act at the same time in respect of the same activity. Subsection 4(4) of the Broadcasting Act provides that the Act does not apply to any telecommunications carrier when acting solely in that capacity.
9622 The phrase "when acting solely in that capacity" restricts the carrier exemption under the Broadcasting Act to situations where the carrier is simply providing the means of transmission and has no control over the content, or the selection of the signals, that are being delivered over its network.
9623 ISPs route packets from sources to destinations. They cannot be a telecommunications undertaking for some packets and a broadcasting undertaking for other packets.
9624 The CRTC cannot impose a levy on ISP revenues under the Telecommunications Act, further to the cultural policy objectives of section 3 of the Broadcasting Act. As a result, it would be unlawful to impose a levy on ISPs to support Canadian content.
9625 While an ISP levy is not something that can or should be implemented, neither is it the only way to ensure that the objectives of the Broadcasting Act are achieved in this new age of broadcasting.
9626 Rogers Cable, our broadcast distributor, has a new, innovative broadband video service. David Purdy, Vice President and General Manager, Television Services at Rogers Cable, will describe it to you.
9627 MR. PURDY: Thank you, Ken.
9628 At Rogers Cable we are developing a way to support Canadian content while, at the same time, enhancing the ability of traditional broadcasters to reach their audiences using the online platform.
9629 Rogers Cable is developing a new broadband video portal that will provide Canadians with access to Canadian television programming on demand. It will also change Internet broadcasting from a money-losing to a money-making business.
9630 Today, over-the-air broadcasters distribute much of their content free online. They do this to keep their viewers happy and loyal. Viewers who have missed their favourite episode want a chance to catch up, but they are not willing to pay for the privilege.
9631 The business case is difficult because online advertising revenues are low and it costs serious money to transmit programming online.
9632 With traditional broadcasting, the costs are fixed and do not depend on the size of the audience. With Internet broadcasting, the more viewers who watch the content, the higher the cost. A very popular show can be very expensive to air online.
9633 Pay and specialty services that obtain subscription revenue from BDUs have an additional problem with Internet broadcasting. By putting their popular programming online, pay and specialty services run the risk of cannibalizing their own revenues. In other words, if customers are happy to see their favourite programs online, they may cancel some or all of the pay or specialty services they obtain through their BDU. For this reason, many Canadian pay and specialty services have been reluctant to put their programming online. Rogers' Broadband Video Portal solves this problem.
9634 "Discovery" refers to the challenge of ensuring Canadian content has pride of place. In a huge, crowded Internet, we will help viewers find their Canadian content online.
9635 Our portal will provide online, on-demand versions of all the programming we can obtain from our broadcaster partners. Rogers Cable customers, no matter which ISP service they use, will have automatic, no-cost access to this service.
9636 We believe that a number of benefits will flow from this service.
9637 First, the service will reduce distribution and promotion costs for all programming services. Rogers will provide them with the servers and Internet access they need at a greatly reduced cost. This will improve the business case for all Canadian programmers -- be they over-the-air broadcasters or pay and specialty services -- to put their content online. By reducing the cost of distribution, even the most niche Canadian content can be viably distributed online.
9638 Second, it will solve the cannibalization problem. Canadian pay and specialty services will be able to put their programming online, knowing that it will be viewed only by those customers who have paid to watch their linear television service. The online service will therefore not compete with their linear television service. Indeed, it will give increased value to Rogers Cable customers. These viewers will be able to watch their favourite shows when they want, where they want, at no additional cost.
9639 Rogers Cable customers will be able to access this content, no matter which ISP they use. This service will improve the value of the traditional TV platform and reduce churn. This, in turn, will keep viewers connected to the Canadian broadcasting system.
9640 Third, to address the discovery problem, Rogers Cable will heavily promote this service. All of our customers will know that this is an easy place to find all of their television shows, including Canadian shows.
9641 Finally, this service will further the objectives of the Broadcasting Act without the need for any direct regulation. Because the portal will mirror the content of each channel's schedules as part of its cable service, there will be approximately the same level of Canadian content on the portal as on the cable service. And for our part, Rogers Cable will have every incentive to offer Canadian content on this portal and feature it prominently, as it will be a key factor in distinguishing our service from those of foreign aggregators, such as Hulu.
9642 We are confident that we are not the only cable operator in Canada that will develop this service. We are also confident it will provide a win-win-win breakthrough for broadcasters, BDUs and consumers.
9644 MR. LIND: Mr. Chairman, Canadians should be proud of the Internet infrastructure that we have already available in this country. At the same time, we cannot be complacent. Huge investments are required to increase the speed, capacity and the ubiquity of the network. Given the daunting scale of the work ahead, this is not the time to divert resources away from the network.
9645 There are three barriers to the further dissemination of Canadian television online: (1) cost; (2) cannibalization; and (3) discovery.
9646 The Rogers Cable Broadband Video Service will help to remove these barriers. It will lower the distribution costs, enhance the business case through tethering and promote the availability of Canadian content for all our customers.
9647 Thank you, Mr. Chairman.
9648 We will attempt to answer any of your questions.
9649 THE CHAIRPERSON: Thank you for your presentation.
9650 I see on page 2 you make reference to the announcement yesterday of a Canada Media Fund and the excellent approach by the government of treating media as one, whether it is new media or old media.
9651 In that same vein, we are holding these hearings. We are looking at you as a distributor, whether you are distributing over the Internet or over cable. You make a big argument about legal. Let's reserve that for a court fight. We disagree with you. I know if we impose a levy you will take us to court. The court will decide, so I'm not going to waste any time on the legal issues here.
9652 What I would like to explore with you are two issues, one measurement and the other one a different approach.
9653 I want to hand out, first of all, something that our staff did. They collected the data on all the service packages that are available by the major ISPs in Canada. I hope they correctly reflect what you offer.
9654 Madam Secretary, do you want to give a copy to our panel and it is available from the Secretariat for the other ISPs when they appear, just so that we know what we're talking about.
9655 THE CHAIRPERSON: If you look at page 2 where it says Rogers, I gather you have two services, one at 7 megabytes to a bit cap of 60 and one at 10 megabytes to a bit cap of 95. I don't know whether those figures are correct. I hope they are. If not, please correct us.
9656 But assuming for the moment that they are correct, we have been talking a lot about a levy and the fund for new media or for media in general now that the Minister has said the distinction is meaningless. That is one way of going. That's really the traditional old media way of going.
9657 Another way which we have heard in sort of references is basically: Could we not create a fast lane for Canadian content and could we not have a reserved bit cap for Canadian content?
9658 So that is for the viewer to decide, et cetera, but if I download anything that has a CA address behind it -- and on the totality of the Internet that is not that large -- it automatically gets faster treatment than anything that has another address on it and also if people use it for video, et cetera, that in effect the bit cap that you have will enjoy the higher one.
9659 Now, we will obviously explore that in more detail in the traffic management hearings in the summer. I just wanted to find out from you whether you as the technicians who operate it: Is this pipe dreaming or is this actually doable? Because various people have suggested it to us vaguely and I just want to hear from the people who run the business. Does this make any sense at all?
9660 MR. ENGELHART: Thank you, Mr. Chairman. We will certainly answer that question.
9661 I wonder if I might have your indulgence because you prefaced your remark by saying you didn't want to waste any time with the legal issues. If I could have your indulgence with a legal argument that occurred to me a couple of days ago that I think might have some bearing on this matter and was not reflected in any of the legal opinions before you.
9662 I have had the pleasure of being in this business for a long time and I recalled that in the early '90s the Commission was very interested in a service that never got launched --
9663 THE CHAIRPERSON: Dial-up, yeah.
9664 MR. ENGELHART: -- called Video Dialtone.
9665 THE CHAIRPERSON: Mr. Engelhart, if you don't mind, if you want to make that legal argument, make it in your additional submission. Time is too wasted. This is a full day. I really don't want to waste it on something where we profoundly disagree. I know the argument you made. I looked at the decision. I don't think it's relevant. But anyway, we will fight that out in the appropriate forum.
9666 MR. ENGELHART: We are in your hands, sir, certainly.
9667 So to respond to your question, I would like to start -- and I am going to ask Mr. Lee to add as well, but I would like to start by saying that all of our content at Rogers goes on the fast lane. We do not and have not ever blocked or slowed down any content that our customers download.
9668 The only rate-shaping or traffic-shaping we have ever done has been on the upstream and only then for peer-to-peer traffic. So we don't think that this solution of putting Canadian content on the fast lane is necessary for our service to date because we spend vast amounts of money making sure that all of the content can get through quickly, Canadian or otherwise.
9669 Now, to answer your question as to could it be done, it could be done if someone told us which was the stuff that had to go in the fast lane. So it's similar to -- I think you are aware that many ISPs in Canada, including Rogers, have a service called Clean Feed that blocks child photography. So we are given a list, here is a list of all the URLs of all the stuff you want to block. We can then block it.
9670 In a similar way, if someone gave us a list, here is a list of all the URLs of all the Canadian stuff, we could send it through more quickly. The problem is coming up with that list but if someone could identify what was Canadian, then our routers could give it priority.
9671 THE CHAIRPERSON: Yes. Very nicely -- you have answered that but that wasn't the question I put to you.
9672 You have read right there, you have an express service, 7 megabytes, 60 bit cap, extreme service, 10 megabytes, 95. The position is put forward, and that is what I wanted -- maybe Mr. Lee can answer it or you, whoever: Could you set up your system so that if something comes from a CA address, it automatically gets 10 megabytes and 95 percent bit cap?
9673 MR. LEE: Maybe I can take a shot at this.
9674 THE CHAIRPERSON: I just don't know, that's why I'm asking. People throw this out and they develop it then on from that. As a basic premise, is that correct or not?
9675 MR. LEE: So the reality is that with respect to the express and extreme product that you outline here in the handout, that service is already overprovisioned relative to what video providers need today to get a good quality experience. So providing an incremental express lane for that type of traffic will not see the consumer get any significant benefit associated with that because we have already overprovisioned the network relative to that type of experience.
9676 So it's not that it can't be done. I'm not sure that there would be any benefit either for the service provider for the video or the consumer who is consuming the video.
9677 MR. ENGELHART: So I think the answer was yes, it could be done.
9678 THE CHAIRPERSON: Bottom line, yes, it could be done but you don't think it's needed?
9679 MR. LEE: Well, we are the point now where the network is faster than what is required by the service providers. We have been able to upgrade the network to a point where the video that is available on the network today runs as well as it can run on the network that we provision today.
9680 THE CHAIRPERSON: I don't want to go into depth on it because it wasn't sort of part of our -- but it came up during discussions. I just want to know is it something feasible and I gather from you, yes, it is feasible but you question the need for it.
9681 MR. LEE: Yes, technically. If we just have a discussion about the technical nature of it, it's feasible.
9682 THE CHAIRPERSON: Yes, okay. Thank you.
9683 And on the second point, I want to talk to you on measurement. As I say, we have not decided on a levy but, as you have heard, lots of people have argued that a levy is -- and basically their argument goes that the ISPs are distributors just the same way as the BDUs and they should make their fair contribution.
9684 The original order said they wouldn't make a sufficient contribution at that point in time. I don't know what the exact wording was, but now, 10 years later, since a lot of traffic has migrated to the Internet, from the Internet revenues, the ISPs should pay a proportion.
9685 Now, the problem with all of that is of course you are taking something from an environment which you can measure to one which is essentially unmeasurable. So forget about using the traditional way of measuring consumption. Can we actually figure out how much Canadian content is being transported over -- and let's just talk the Web for the time being.
9686 We had a presentation from the CFTPA on ISAN. They then submitted an additional written submission and you heard me speaking to Astral. The basic thought is we can't -- if we don't know what the totality is, let's not go on percentage anything. We can at least measure what you deliver by way of content that is video, professional video because if it's professional videos, they will put their ISAN watermark on there because they want to collect royalties. So you can identify that and we know it comes from Canada.
9687 Now, whether it is Canadian content or mixed is a different issue but at least we get some rough measure of what Canadian originated video there is on there. We would do that by in effect using deep packet inspection and measure what you deliver to customers and what percentage comes from a CA website and what percentage contains an ISAN watermark which says it was produced in Canada. And then on the basis of that, at least you would have two measurements: (a) the amount of Canadian traffic and the amount of that traffic that is video.
9688 Now, Astral said: That's pipe dreaming, you can't do that. Deep packet inspection doesn't allow you to do that. It's not in the header.
9689 You are the experts. You run the Internet, et cetera. Let's leave aside privacy for a second. Can it actually be done along those lines or not?
9690 MR. ENGELHART: I will certainly turn it over to Mr. Lee, but the answer is no, for largely the reasons that Astral gave you.
9691 The ISAN number is not on the packets, it is on the file. You would have to rebuild the file. The .ca website has lots of American content on it.
9692 The other problem is that the ISPs can't measure the amount of video. The headers on the packets tell you what type of application it is. So it would say HTML and so HTML could be an alphanumeric text webpage, it could be a video from YouTube and there is no way that we know which it is. To us it's all zeros and ones until it gets rebuilt at the PC as a video or something else.
9693 So I will turn it over to Mr. Lee.
9694 MR. LEE: As Mr. Engelhart was saying, I think you had a good conversation this morning with Mr. Bell with regards to the viability of ISAN and it's not that it can't be used as a measurement system, it's just it would be such a small percentage of the overall files that would need to be measured that I'm not sure it's necessarily an accurate proxy.
9695 So the second question was whether or not --
9696 THE CHAIRPERSON: So you can measure?
9697 MR. LEE: Well, so ISAN as a measurement tool, you can embed those codes into those files and if you have a direct relationship with the servers that are distributing those files, then you can measure based on that how many viewings of that video there are. I would put forth to you that based on --
9698 THE CHAIRPERSON: No, I'm not talking about consumption. I'm not viewing, just transport.
9699 MR. LEE: So consumption and transport, I don't distinguish between the two.
9700 It doesn't necessarily have to be done at the customer's computer. It can be done at the server because the thing with ISAN is it is designed for a closed system. So you have to have a server that distributes the video and you have to have a consumer that consumes the video.
9701 You can actually go after the server but it will represent less than 1 percent of all the video that is being distributed on the Internet. So it is a very, very small portion and so you will have no sense for what that count is in the context of everything else that is going on in the Internet.
9702 THE CHAIRPERSON: I don't understand that answer, I'm sorry, Mr. Lee. Here, you say server. You are the transporter. You are not the server presumably. It comes from some website that streams and that is being accessed.
9703 You as the transporter, you cannot determine of the amount of traffic you carry how much of that traffic bears an ISAN watermark?
9704 MR. LEE: No. As Mr. Bell said, we have to read the Internet header to be able to route the traffic.
9705 THE CHAIRPERSON: Yes...?
9706 MR. LEE: But the ISAN information is in the payload. So the payload is only recognizable once you recompose the file, and that is only done at the destination computer. It is only done at the user's computer.
9707 So we actually have no ability to understand -- all we know is, in technical terms it is a WMV file. It will be a Windows Media file.
9708 Whether it's a cat, you know, dancing in the backyard or it's a full-length feature movie, we have no understanding of that.
9709 THE CHAIRPERSON: And Deep Packet Inspection, or any other means, doesn't allow you to do that?
9710 MR. LEE: No.
9711 Now, with respect to the .ca issue, whether or not .ca is a proxy for the traffic, I would put forth that there are probably two ways you could potentially look at the problem, and one is the .ca issue. I think that the challenge with .ca, as Ken said -- the composition of the content within those sites is not necessarily specifically Canadian.
9712 The second thing is that, based on the way we actually issued the .ca domain in Canada, there are a lot more people who actually use the .com domain than the .ca, because the Americans basically issued them like candy. You didn't really have any real requirement to get a .com, so everybody initially drove .com.
9713 So I am not sure that the .ca traffic is necessarily a good proxy for Canadian traffic.
9714 Then, the other method that you might want to take a look at, which equally has problems, is the IP block issue. Clearly, to geocode content, you have to be able to identify a range of IPs that are Canadian versus American.
9715 The challenge with that is that you have all of these CDN servers. Akamai and Limelight, which Astral referenced, actually have servers located in Canada distributing American content.
9716 So the content that comes off Canadian addresses is not necessarily Canadian content. In fact, in our own business, we actually provide content from Yahoo! for our subscribers, and we actually did a deal with CBC. We actually ship the CBC content into the U.S. and then backhaul it from Washington, Virginia and New York.
9717 So, actually, the CBC content coming into Rogers' ISP customers is housed in U.S. servers from U.S. addresses.
9718 Unfortunately, the way the network is built, it is really designed to be distributed quite widely, either for efficiency or cost or performance purposes, so there is no real good proxy for what is Canadian traffic versus non-Canadian traffic.
9719 THE CHAIRPERSON: In summary, (a) you can't measure it, and even if you could, it wouldn't be accurate.
9720 MR. LEE: That's a good summary.
9721 THE CHAIRPERSON: Thank you. I appreciate that, because this idea has been floating around, and I have not --
9722 I would appreciate it if you could outline your views in your further submission.
9723 The last question: The new proposal that you have proposed today, on which my colleagues will question you in detail, is it your suggestion that it be voluntary, or would you suggest that we make it --
9724 Assuming that we buy into it and we think it's wonderful, should we make it a condition for all BDUs?
9725 MR. ENGELHART: If in three or four years it looks like it's really working well and some BDUs aren't participating, then I think you should review why they are not participating, but you might find that the BDUs want to do it and the content providers aren't giving them the content.
9726 So I wouldn't suggest that you make it mandatory immediately, but I think it's definitely something that you should keep your eye on and that you should address if it is not being utilized.
9727 THE CHAIRPERSON: What do the satellite companies do?
9728 MR. ENGELHART: It's the same thing, because this is not an ISP service, this is a BDU service. So I would expect that Star Choice and ExpressVu would similarly build an online portal.
9729 The idea is that you want to say to your customers, "You have paid a subscription fee for this content, and you should be allowed to get this content," in the case of cable, "in the linear program, on the VOD platform, or on the online platform."
9730 In fact, the satellite providers will probably be more keen than the cable companies, because they don't really have a VOD platform. So I think they will very much want to do this.
9731 David, is there anything that you want to add?
9732 MR. PURDY: Thank you, Ken.
9733 Mr. Chairman, the only thing I would add is that I would want to do this even if we didn't own an ISP.
9734 As the Rogers Cable TV guy, I would want to roll this service out even if we didn't own an ISP.
9735 THE CHAIRPERSON: Okay. Michel, you've got lots of questions. Go ahead.
9736 COMMISSIONER ARPIN: Thank you very much, Mr. Chairman.
9737 I will start my first line of questioning by remaining with this project.
9738 You are saying, when you are dealing with cannibalization, that you will be able to control if the subscriber -- if the person that requests a program from a Pay TV or a specialty service is already a subscriber of that service.
9739 Could you tell us how you would do that, and does it raise privacy issues?
9740 MR. PURDY: Thank you very much, Mr. Vice-Chairman.
9741 We believe that for this service to work, it needs to be an extension of the existing television billing relationship, and what we will use is that billing relationship data in order to provide conditional access online. Basically we will link, or tether, the online availability back to you, being a subscriber, to the actual service.
9742 So either via a password or recognizing the modem of the individual user, we will be able to make access to, say, The Movie Network online conditional on being a Movie Network subscriber.
9743 I don't think that would violate any privacy concerns. We think it would complement the existing television system.
9744 COMMISSIONER ARPIN: This morning, in your oral presentation, you spoke of the costs to carry the program.
9745 When we heard Astral earlier today, we heard Mr. Bell saying how expensive it is. Every time you have a subscriber who is hooked up to your site, obviously you need to make payments.
9746 In your written submission you are also talking about costs, saying that the costs are almost nil, and here in the oral presentation --
9747 I understand that you are not talking, probably, about the same type of costs.
9748 Could you, for a matter of clarity, say which are the costs that are very limited versus the costs that are quite expensive?
9749 In your oral presentation this morning, when you were dealing with the transportation costs -- will that offset some of the costs that, say, Astral described this morning?
9750 MR. PURDY: Thank you, Mr. Vice-Chairman.
9751 Exactly what Astral said this morning is what we are looking to address with this service.
9752 I will ask Mike Lee to augment my answer, but one of the things that we hear from programmers is that the costs of transport, the costs of actually streaming the content to the customer, are challenging, and sometimes prohibitive.
9753 What we are able to do is catch that content closer to the customer and reduce their transport costs.
9754 I will ask Mike Lee to talk about exactly how much we will be able to reduce those costs, but, essentially, we will be able to put The Movie Network, online content, closer to the customer and reduce Mr. Bell's transport costs, in terms of streaming the HBO Canada content.
9755 MR. LEE: If you are a video service provider and you want to deliver video to your customers, you generally outsource the serving of that video to a third party. They have referenced Akamai and Limelight. Those companies build big server infrastructures and then charge companies on a per megabyte or per gigabyte basis for that video.
9756 The challenge, as it was referenced, is, when you have a very highly popular video, it can actually drive the cost to the point where it is not only unprofitable, but unsustainable, and it precludes very niche-oriented video from ever getting on the network because there is just not a lot of revenue out there, because video revenue is still in its infancy.
9757 It's not clear yet how much revenue -- or whether or not advertisers really believe in online video. That is something that is still developing, which we believe will happen soon.
9758 We are investing in a similar infrastructure, but we obviously have existing facilities, existing network, that we can actually integrate into, and we can actually deliver that same service for our Canadian broadcast service partners at a much reduced price, because our focus is not on profitability within the server side, our focus is on extending the Rogers Cable video relationship with our customers.
9759 That's where we see our value and, as a result, we can actually be a meaningful contributor to reducing costs for all of the partners, and actually bringing costs down to the point where we can make it quite viable to distribute very niche-oriented content and a lot of Canadian content that probably would never have seen the light of day.
9760 COMMISSIONER ARPIN: You also said this morning, obviously, that the business case is difficult to make because advertising is not there to support the transmission of programming.
9761 Did you get a chance to hear the Association of Canadian Advertisers when they appeared yesterday?
9762 They explained why there is a limited number of advertising on the internet, and they talked about the challenges and the agreements that they have now signed with ACTRA, the guilds and the various unions. These are new agreements, which only started at the beginning of this year, in which they have finally agreed to, on behalf of the advertisers, rates regarding carriage on the internet.
9763 They were suggesting that we could see more and more advertising moving toward the internet, because they now have agreements in place.
9764 I don't know if you had a chance to hear what the ACA said yesterday in that regard.
9765 You are, yourself, operating some websites, for both your radio stations and your television service. Do you think that there is growth in advertising revenue coming up?
9766 MR. ENGELHART: I will ask Claude to respond.
9767 We didn't listen directly, but we did get a report from one of our colleagues who did listen, so we were briefed on it.
9768 I will ask Claude to comment on the trends in online advertising.
9769 MR. GALIPEAU: The trends are on the upswing. At the moment, the advertising industry is in retrenchment in traditional media in particular, but digital ad placements are actually doing quite well, because ad agencies, as well as their clients, know that they need to reach audiences as they move around the internet and consume media, increasingly, in different day parts, such as at work.
9770 With regards to audio and video advertisements, or advertisements related to audio and video, there are really two types. One, you can have simple banner ads related to the audio or the video, which would occur before an audio stream started or a video stream started.
9771 That has been particularly easy to serve up and to clear, obviously, because the creative is not very complicated.
9772 When it comes to video and, in particular, video commercials, those commercials have been difficult to clear up until most recently. So the Association of Advertisers is correct in saying that we will see more pre-roll video, video ads that appear before a video stream in the marketplace, because the clearances have now been agreed to.
9773 The market is relatively nascent, however, and the data is limited. The Interactive Advertising Bureau of Canada, which measures the overall internet advertising pie in Canada, and covers a number of ad formats, including ads on e-mail, ad directories, video ads, banner ads, and search ads -- in its most recent report about spending, it was $9 million in total in 2007. So it is a very, very small market.
9774 COMMISSIONER ARPIN: However, that was prior to the new clearance between the advertisers and the various unions.
9775 MR. GALIPEAU: Correct, and the trend is up.
9776 MR. ENGELHART: Commissioner Arpin, I will add one quick thought, and then Mr. Purdy will add another quick thought.
9777 The good news is, it's growing; the bad news is, it's very small.
9778 For a typical TV station, their online ads might be 2 percent or 3 percent of their television ads. That's revenue, that's not profit.
9779 And those distribution costs that Mr. Lee talked about eat up almost all of that revenue.
9780 So the good news is, it's growing, but it's still very small.
9781 MR. PURDY: Thank you, Ken.
9782 The only thing I would add is, all of my discussions with the programmers have indicated that the real challenges they are experiencing on the cost side relate to transport and promotion, and that Rogers' broadband video portal will help both of them. It will reduce the transport costs and it will make a centrally aggregated site that heavily promotes the Canadian players and heavily promotes the availability of Canadian content.
9783 So we believe that it will reduce the more meaningful costs that have been slowing the growth.
9784 COMMISSIONER ARPIN: Your written submission covers a lot of ground, but there are issues that you haven't raised, particularly wireless. There is no reference to the issues that have been dealt with throughout this hearing regarding the wireless industry, particularly the fact that some wireless operators are either acting as gatekeepers or are doing business through external firms which are acting as gatekeepers.
9785 Everybody who we have heard from so far has asked us to make sure that they are treated in the very same manner as the BDUs, particularly with respect to access rules.
9786 I don't know if you have comments to make regarding the discussions that we have had so far with respect to the wireless sector.
9787 MR. ENGELHART: Thank you, Commissioner.
9788 A lot of what they are saying is nonsense, quite frankly. Our problem when we launch a new platform is getting the content.
9789 We are not gatekeepers. We are not standing at the gate saying, "Stay out of my gate," we are standing at the gate begging people to come through the gate, and they are not coming.
9790 Our MobiTV service on wireless, after three years of marketing by our crack marketing team, has 5,000 customers. People are not lined up to get on that service.
9791 I am very skeptical of these claims they are making that we are somehow keeping people out.
9792 And I will ask Mr. Purdy to add his comments.
9793 It is the same with our video-on-demand platform. We launched that platform, we built the servers, "Please bring your content to us." "No, we don't want to."
9794 This broadband portal that we are talking about today, which I think will be a great service -- we will probably have some tough negotiations.
9795 I guess that my only recommendation to you is, if you put rules on us that we have to carry these services, we would also like rules on them that "You have to make them available to us."
9796 If Pelmorex wants to come to you to complain that we are not giving them enough money, we would like to come to you to complain that they are asking for too much money.
9797 As long as you are prepared to mediate both sides of the dispute on these new platforms, we are all for it.
9798 MR. PURDY: The only thing I would add is that it is absolutely part of Rogers' articulated strategy that we have a blended value proposition for our video subscriptions. What I mean by that is, we want the content to be available on all of our platforms, linked back or tethered back to the original television subscription.
9799 We have been working very hard to do that with the VOD platform. It is taking us a lot longer than we anticipated. We anticipate that the broadband platform will be a little quicker, because the advertising capabilities are already there.
9800 Quite frankly, the wireless space is still so nascent that there are more people in the average Canadian high school than there are on the service. So to think that we are gatekeeping that is a little far-fetched.
9801 And, absolutely, our long-term strategy is to get this video content that people associate with their linear television offering available on demand, online, and ultimately on mobile.
9802 COMMISSIONER ARPIN: This morning we heard Astral saying: Maintain the exemption order, but introduce new subscriptions regarding undue preference.
9803 Are you saying that you agree with that approach?
9804 MR. ENGELHART: I don't think it's necessary, but if you want to do it, fine.
9805 But you also have to put undue preference rules on them. You should amend their programming licences to say that they are not allowed to unduly prefer one wireless provider over another.
9806 If TSN gives all of their content to Bell and won't give any to us, we would like to come to you and complain, too.
9807 I think that Mr. Lee would like to add something.
9808 MR. LEE: The only thing I would add is that I think there have been a few times when people have alleged that we are gatekeepers, and I think it's important to recognize that in the wireless space you can get to everything you want from your handset.
9809 I can set up a gate, but I have clear space on both sides of me, so you can go around me with a relative amount of ease.
9810 I think that will continue, particularly in the next generation network. It will just get wider and wider as we go forward, so I am not sure that this is a significant issue.
9811 COMMISSIONER ARPIN: However, yesterday Pelmorex argued that, yes, they could circumvent the gatekeeper, but that the transmission cost would be much higher for the end user.
9812 If I am one of your subscribers and I want to have a service that is not on your prescribed list, I could finally get access to that service, but the cost of receiving it would be higher than the cost of taking the ones you are offering through your gate.
9813 We heard Pelmorex making that argument yesterday.
9814 MR. ENGELHART: Let me back up one half step and echo something that Mr. Lord said when he was here for the CWTA.
9815 The wireless business, up until recently, had second-generation speed -- fairly fast, fairly okay. Now it is third-generation speed -- really fast. Really, really fast.
9816 In the second-generation world it was awkward and difficult to get to all of these different types of content, and we set up different navigation tools, where you could click on an icon and you could migrate to different places, in an attempt to make it easier for people to get there.
9817 We also tried different mechanisms. One of the things we tried was, instead of just paying for your data, here is a $10 deal or a $15 deal that pays for your content and includes the data charge. It doesn't count toward your data cap.
9818 I think that's what Pelmorex was referring to. I think they were saying: Look, if I buy these things in the Rogers' walled garden, then I have no data charges, but if I go out to the big wide internet, I do have data charges.
9819 They are right, but this was an attempt to bundle the data charges together with the content charges, to make it more attractive to people, to get them using that stuff.
9820 It has all turned out to be a bit of a flop. We haven't been able to attract a lot of attention to our walled garden.
9821 Meanwhile, now that there is 3G, now that there are devices like iPhones, people are downloading content in buckets from the big wide internet.
9822 I think the best example is our Rocket Stick. You stick our Rocket Stick into your laptop, you've got mobile wireless broadband wherever you go. There is no walled garden, there is no preferred content, it's just a pipe.
9823 We are moving away from the thing that Pelmorex was concerned about, which was an experimental effort to try to incent users to use the system. We are moving to a big, wide-open pipe. So I think a lot of the problems that people are complaining about won't exist at all shortly.
9824 COMMISSIONER ARPIN: Are you offering VOD on the internet?
9825 MR. ENGELHART: The broadband video portal that Mr. Purdy talked about, which has not yet launched, will be video on demand, yes.
9826 COMMISSIONER ARPIN: Don't you think it should be licensed?
9827 If we are already licensing VOD on BDUs, and those VOD operators have to make a contribution to the CTF, or the CMF eventually. Don't you think that the ones on the internet should be regulated as well?
9828 MR. ENGELHART: A couple of points. First of all, what we are trying to do on our online portal is, of course, replicate the experience that you have on the television platform. So the fact that you regulate the television platform means that you, in effect, mirror those regulations on the internet, without regulating.
9829 In general, the problem with licensing or taxing or regulating the Canadian online services is that you can't regulate their American competitors.
9830 You could tax or license or regulate our online video-on-demand service, but you couldn't tax or regulate Hulu, so you are setting the Canadians up for failure by regulating them.
9831 The great thing, as I say, about Mr. Purdy's service is that, for our own selfish business reasons, we want to mirror exactly our linear service, and since you regulate that, you end up getting a proxy regulation on the internet.
9832 COMMISSIONER ARPIN: Numerous intervenors so far, particularly from the creative and the cultural industries, have requested that we consider regulating the providers of content, those who are offering audio streaming, even including the radio stations that are streaming; that they should be regulated in the same manner as the radio stations and have to pay yearly -- to add the revenues they are making through their different websites to their general revenues and pay FACTOR and CCD in a very similar manner.
9833 Is that an area that the Commission should be contemplating?
9834 Not only are your stations doing streaming, there are other organizations that are streaming programming, which are not necessarily regulated, for the time being, and they are competing against your station somehow, and they don't have any Canadian content requirements.
9835 Should the Commission be concerned about that?
9836 I have one in mind, which is well known. Iceberg is surely a service that is available, and somehow known, and it doesn't meet any type of regulation.
9837 MR. ENGELHART: A couple of points. First of all, the problem with regulating these things is, if you sent a letter to YouTube and politely asked them to fill out the necessary forms and get their licence, they might politely respond that they don't want to.
9838 The only ones you could regulate would be the affiliates of the old media properties that you license -- cable companies and broadcasters and so on. Again, you sort of put them at a competitive disadvantage by doing so.
9839 In the case of radio stations, it is sort of interesting, because a few years ago we were all kind of worried about this Iceberg model, and it turns out that what happens is, an awful lot -- most internet radio listening is that people in Toronto are listening to Toronto radio stations on their computers at work.
9840 Because they are in their office buildings, the radio doesn't work very well, so they listen on their computer.
9841 The model of internet-only radio hasn't worked that well. The idea that people are going to be listening to other cities hasn't turned out to be that prominent.
9842 It is sort of interesting that the most popular magazine sites are the online sites of the most popular paper magazines. The most popular TV sites are the online sites of the popular TV stations.
9843 So the online world is more and more turning out to be complementary and ancillary to the old media world. I am not minimizing the fact that it could be a threat, and that business operators like us have to run our businesses carefully worried about that competition, but if we run our businesses properly and your regulations are sufficiently flexible, I think we can use the online world as a complimentary medium not as a competitive one.
9844 If it becomes a competitive threat, if the people are truly substituting -- cancelling their cable television subscription because they only have Internet, if that world comes, then I think we might have to take another look at these gloomy propositions, but right now I don't think it's necessary.
9845 And I think Mr. Galipeau wants to add a bit.
9846 MR. GALIPEAU: It's true that there's quite a bit of Internet radio, but I concur with Ken, is that most of the Internet radio usage that traditional broadcasters would see and the statistics I think from ComScore is that local radio is very strong and it is listened to during the daytime.
9847 If you were to ask an operator, say, what time do people listen to the radio online, you'll see a graph that maps up quite consistently with business hours.
9848 With regards to Iceberg, that service is no longer in Canadian hands, that's my information, Slate Communications sold it to AccuRadio in the U.S.
9849 COMMISSIONER ARPIN: No, no, but I've used that name knowing it is a Canadian one rather than use a foreign one which is probably more than likely totally under -- or never be able to control, but at least Iceberg has a Toronto address and a former well-known broadcaster.
9850 But the CBC is also streaming some services by their own and the radio broadcasters could initiate that type of programming down the road, the private broadcaster I will say, and then circumvent all the regulations and build their audience and build materially through these streaming services.
9851 So, it would be a concern that the Commission has. You are radio operators.
9852 MR. ENGELHART: Well, I think that's exactly the concern, but the fascinating thing is how little it has developed, so -- but I think you've correctly identified the concern.
9853 When these things truly become substitutes, I think that's when you're going to have to take action. When online radio ceases to be largely complimentary to traditional radio but becomes a true substitute, when online television starts to become a true substitute to cable television subscriptions, that's when I think the Commission has to say, wait, you know, this new world has replaced the old world or is replacing the old world.
9854 The remarkable thing is how little that has happened, and with an initiative like Mr. Purdy's, here we are trying to stop that economic effect from happening.
9855 So, we're saying to our customers, you pay us one reasonable convenient monthly payment and we will give you your programming services on the television, on video-on-demand, online and on the cell phone. Wherever you are, whenever you want, you will get your programming.
9856 That will keep us in business, it will keep the Canadian paying specialty services in business and it tells you that the online world need not be a substitute, that if it's managed properly it can be a compliment, it can enhance the customer or viewer or listener experience and not compete with the experience in the traditional media.
9857 COMMISSIONER ARPIN: Now, this will be my last question and it has to do with an argument that you've made again this morning in your oral presentation and also in your written submission when you were talking about an ISP levy.
9858 And in your written submissions you say that it will have a negative impact on the subscribers.
9859 Now, I understand that from time to time you have increased your rates and I wonder what kind of an impact every time you increase the rates of your ISP service, was that impact negative; did you lose numerous customers and could you give us some numbers indicating the prior and the after a rate increase, say, using the previous quarterly, so using public numbers that you have -- I am not asking you to disclose anything -- but in making use of public numbers, using a prior quarterly number and when the rate increase came and what was the impact of that rate increase on subscription.
9860 MR. ENGELHART: Well, what we've done in the high-speed service is we increase price and we increase speed at the same time.
9861 So, we don't generally give a higher rate for the same speed. Now, the two events don't always occur on the same day, but they occur usually within the same year.
9862 So, the price per megabyte has been dropping pretty substantially. We charge less and less for the same speed service.
9863 Now, when we launched in 1995 it was a one and a half megabyte service for $55 and then we lowered that price to 39.95. Today our light service, which is one megabyte, is $34.00. So, for the same kind of speed our price has actually been getting cheaper.
9864 So, we're pretty confident that if we didn't increase the speed with the price increases there would be drop-off. We can't give you those numbers because, as I say, we make sure that the speed increase is coming along at the same time.
9865 There have been a bunch of economists who have looked at this question and Ms Blackwell has summarized their work in her evidence, and they have found that the Internet service is quite elastic and, I mean, the proof of that is the fact that our penetration in Canada is about 62 percent.
9866 There's still a lot of homes that have not bought the service at the existing price, even though we have fairly low price points for our light service and our ultra light. So, obviously price is still a barrier for those -- for a lot of those homes and it shows that the service is quite price sensitive.
9867 The other point that I'd add, and it's not exactly your question but it's close. We brought in an extra usage charge and if you use an extra gig you pay an extra dollar, dollar and a half per gig, yeah. So, if you go above 60, you pay a dollar, dollar and a half, and users really modified their behaviour. They were worried about those extra dollar and a half charges and they restricted their usage to avoid them.
9868 COMMISSIONER ARPIN: So, thank you very much.
9869 THE CHAIRPERSON: Thank you.
9871 COMMISSIONER KATZ: Thank you, Mr. Chairman.
9872 Good morning.
9873 I want to pick up on the comment you just made, Mr. Engelhart, in a slightly different context.
9874 You've a byte cap on each of your services that you offer, the light service, the express and the extreme, I guess we call it. In that byte cap you don't differentiate between Canadian content and non-Canadian content or access by Canadian.ca websites and not.
9875 What would you say to a proposal that would say Canadian websites that are accessed should not be bound by the byte cap or, alternatively, should not have to pay extra for the use of the capacity that they download if it's coming from a Canadian site.
9876 So, the byte cap -- the overage would only apply if you're accessing a non-Canadian site.
9877 MR. ENGELHART: In principle, I think it's a good idea. I think that there's something to what you're saying.
9878 The problems that Mr. Lee talked about before, just how do you identify what's the Canadian stuff is a real problem and we might end up, because of the difficulty in figuring out what truly is Canadian, we might end up blowing through the byte cap for huge numbers of services that aren't really Canadian.
9879 But it's an interesting idea and, you know, one that we'd be interested in exploring with the Commission.
9880 COMMISSIONER KATZ: Okay. You've described yourself, and not surprisingly, as a diversified Canadian communications and media company and also obviously vertically integrated with all the assets that you hold and you manage as well.
9881 There are some customers though that simply purchase one product from you today. I'm not sure if you are at liberty to tell me what percent of them only buy cable or only buy ISP, but I would imagine there is some customers that just buy cable service and some customers that just buy ISP service.
9882 And the reason I raise that is because your proposal for a Rogers Cable broad band video service assumes a bundle, it assumes a customer must be a cable customer in order to access the service, I think.
9883 MR. ENGELHART: They must be a cable customer, but they don't have to be a bundled customer, Mr. Vice-Chairman.
9884 So, if you take the 20 percent of our customers who have made the tragic mistake of staying with Sympatico for their ISP service --
9885 MR. ENGELHART: -- they would be able to get this broad band video service in exactly the same fashion as the Rogers high-speed customers.
9886 COMMISSIONER KATZ: But they must be a Rogers Cable customer to do that?
9887 MR. ENGELHART: It is a Rogers Cable offering. Rogers Cable is saying to all of its customers, we will make sure that you get your programming linearly, on video-on-demand, on the Internet and one day on the cell phone.
9888 This is our vision of the future, is you pay us for the programming and we will get it to you on every platform that's available.
9889 COMMISSIONER KATZ: I guess I'm looking at it from the consumer's perspective and there will come a day when I may not want to watch something on a first window and decide, I can't afford cable and I can't afford Internet as well and my best bet is to watch the second window on the Internet tomorrow, and what I'll do is I'll give back my Rogers Cable box, as much as I love it, and I'll go off cable and I'll just be an ISP customer.
9890 I think, if I'm reading this proposal correctly, I wouldn't qualify for getting through your portal to access strictly Canadian product.
9891 MR. ENGELHART: You're absolutely right and, in fact, we are trying with this product to discourage people from doing that.
9892 I think one of the underlying sub-currents behind this whole proceeding is, what if people don't watch television on television any more, what if it migrates entirely to the Internet. That's really the sort of futuristic doom sayer scenario that Professor Noem looks at in his paper.
9893 So, if that happens I think we're all in big trouble. I don't think any levies will save us, I think the Canadian content regulatory system as we know it is probably done for.
9894 But I think if we manage our business properly and the regulator keeps their regulations flexible, there's no inherent reason for that to happen.
9895 Video can be delivered more cheaply on a cable television platform than on the Internet. The Internet is a marvellous system, not really designed for broadcast. As a point-to-multi-point system, the Internet is not great. The Internet is a fabulous point-to-point system.
9896 So, broadcasting is still the best way to do broadcasting and we think that if we manage our businesses correctly, that sort of migration to the Internet won't happen.
9897 But you're right, Mr. Katz, if it does, then our cable service and Mr. Purdy's portal will not be used by the hypothetical customer you describe.
9898 COMMISSIONER KATZ: Yes. I mean, don't get me wrong, I don't think your proposal doesn't have merit, I think it has great merit and I think it's terrific from the perspective you're trying to achieve, but in my previous life I was always exposed to lawyers for some reason and one of them taught me about tied selling and I don't know whether this fits into that category of being tied selling and the only way you can get the portal is if you buy Rogers Cable service even though you may not want Rogers Cable service.
9899 So, whether you've got an answer to that now or not, it would be nice to sort of get an answer to that at some point in time just so I understand that there is no legal impediments here at all.
9900 MR. ENGELHART: I'll just tell you that it's not an uncommon model in the online world.
9901 So, for example, NBA, if you contact the NBA and you say, I would like to watch basketball games, your full online package, they will say, fine, but you have to buy the cable TV package and then we'll give you a password for the online package.
9902 And if you say, I don't want the cable package, I just want the online package, they will not sell it to you.
9903 Same thing with Sirius Radio. You can get a password and online service for Sirius Radio but you have to buy the satellite radio service, they won't sell you the online service for love or money.
9904 So, this is not an uncommon model for online service providers.
9905 COMMISSIONER KATZ: Okay. My last question, I think you answered it a minute ago. This proposal that you have goes beyond the wired network, it goes to wireless as well, so the access for the Canadian portal would be right across all platforms including wireless?
9906 MR. ENGELHART: That is our aspiration. We don't have funding or approval or plans to do it yet, but that's directionally where we're going.
9907 COMMISSIONER KATZ: Okay. Those are my questions, Mr. Chairman.
9908 THE CHAIRPERSON: Thank you.
9910 CONSEILLER MORIN : Merci, Monsieur le Président.
9911 Up to now, in my view at least, you are certainly the surprise of the day with your new model, your new portal and you didn't mention this idea in your written statement.
9912 So, I'm wondering, what inspired you to present this model at the end of these hearings?
9913 MR. ENGELHART: Thank you. And I'm going to ask Dave Purdy to jump in as well.
9914 Essentially the idea was announced and really came together at about the same time as our evidence was filed. It may have been actually announced a few days before the evidence was filed, but I may have been a bit asleep at the switch in filing the evidence.
9915 Mr. Purdy will tell you that he's been working on it for about 18 months, trying to figure out what to do about the fact that so many of our customers are going online to watch television. Wait a minute, we're the television providers and our customers are going online to get it from someone else, how can we get a piece of that space?
9916 And it's very expensive. The server costs are huge, the cost for us putting this together is huge, the incremental advertising revenues won't come close to paying for the cost.
9917 So, this thing pays off by reducing churns, by keeping people -- by retention, by keeping people subscribing to cable TV.
9918 So, whenever you go to senior management with a proposal, I'd like to spend tens of millions of dollars, it won't bring in any money but strategically it's a great idea, you tend to run into some heavy weather.
9919 So, it was only towards the end of last year that Mr. Purdy's superior salesmanship skills convinced his colleagues that it was the right time to do it. That was about the same time as we were filing evidence. As we in the regulatory department began to think about what he was doing more and more, we realized that it was in many ways a real answer to what the Commission was looking at in this proceeding.
9920 So, that's why we're so late telling you about it.
9922 MR. PURDY: The only thing I would add, Ken, is this is really an extension of a strategy we've had for a long time and one that came out of a conversation we had with Alliance Atlantis, Michael McMillan years ago, which is, when we looked at the analog to digital transition and we were talking about breaking up the analog tiers Michael McMillan said, you know, you should really stop trying to break up these tiers, but rather think about the overall value that the customer's getting and continue to try and add value.
9923 And that philosophy actually found its way into our strategy as it relates to the video-on-demand platform. How can we take the linear channel offering and add more value to our packages using the on-demand platform?
9924 And when you think of this broad band video portal, it's an extension of that same philosophy. How can we look at the existing subscription packages that we offer using the on-demand and the online platform, add more value and, ergo, not have to reduce rates or lose customers or become less relevant to the consumer?
9925 The best example we have of this working is the Movie Network product. So, we offer the Movie Network, the linear Multiplex, we offer the Movie Network, the on-demand extension, which is incredibly robust and now accounts for about 50 percent of the time spent watching TMN is spent watching channel -- the TMN on-demand channel.
9926 And now what we'd like to do is extend that same philosophy to the online platform, and we believe that this will have a tonne of relevance for consumers, reduce churn, make the Canadian broadcasting system more stable and really -- I mean, I don't want to over state my case -- but as Ken's alluded to, I've had to fight for this for a couple of years now internally, so we really think that this will do a great job in terms of protecting the future of Canadian broadcasting.
9927 COMMISSIONER MORIN: There are a lot of little ISPs out there who don't have the same resources as Rogers but may offer other services at a lower price.
9928 Is this model a way of beating down competition?
9929 MR. ENGELHART: Well, as I was saying with Vice-Chairman Katz, it's not an ISP offering, it's a Rogers Cable offering. So, no matter who your ISP is you can have access to this online portal if you're a Rogers Cable customer.
9930 So, it won't give our Internet service a competitive advantage over other Internet services.
9931 Now, I suppose there is an issue of what about small cable companies, how are they going to offer an online portal like this? We have not had discussions with them, but we'd be very interested in sharing the platform with them.
9932 So, since we're already building that big server infrastructure, we could share that in a cost sharing initiative with other cable operators and it would work really well because we happen to peer with a lot of cable operators through our Internet service. So, if the server is close to our customers, it will be close to their customers by virtue of that peering relationship.
9933 So, we haven't had those negotiations yet, but we certainly -- it would make business sense for us and we'd be happy to do it.
9934 COMMISSIONER MORIN: Thank you very much.
9935 THE CHAIRPERSON: You mention the extra cost of this. Presumably one cost you didn't mention is you need to buy the streaming rights.
9936 MR. ENGELHART: Well, I'll let Mr. Purdy speak to it, but that won't really be our cost.
9937 So, we'll be saying, for example, to Home and Garden Television, look, here's a nice spot for you on the Rogers online portal, then they have to pay their -- pay for their online rights.
9938 The great thing about it is that it now gives them a business case to do so. You know, you've heard from people in this proceeding saying to you, gee, I don't understand these television networks, they don't want my online rights, or if they do buy them, they stick them on a shelf somewhere and they don't air them, what's that all about?
9939 Well, what that's all about is this cannibalization problem, they don't want to cannibalize themselves. With this portal they now have a business case for doing it in the same way that we have a business case for doing it and I think you'll see them paying for those rights and moving that programming online.
9940 THE CHAIRPERSON: I see.
9941 Rita, you had a question?
9942 COMMISSIONER CUGINI: Yes, thank you very much.
9943 And, not surprisingly, it's about this portal since it is the newly introduced concept and I'm really trying hard not to call it the Purdy portal, so...
9944 MR. ENGELHART: That's what we call it.
9945 COMMISSIONER CUGINI: Okay.
9946 COMMISSIONER CUGINI: I'll let you call it that.
9947 But, Mr. Purdy, since you have been working on it for over two years, I need to understand what this portal is going to look like.
9948 I heard you say it's going to mirror the linear broadcasting, I heard you say it's going to be on-demand. Is it going to look like the newly revamped Rogers on-demand when I tune into Channel 100; visually, is that what I'm going to see?
9949 MR. PURDY: Thank you very much, Commissioner.
9950 The intent would be to make it more robust and more sophisticated than the current VOD platform. So, the new revised Channel 100 is still on the digital cable platform and, ergo, not as robust and sophisticated as we can get in the broad band space, so we would like this portal to have better navigation in terms of search capabilities, personalization, recommendation.
9951 But the offering itself would, as closely as possible, mirror the linear channel offering combined with the VOD content. So, really imagine all of the content that's available on VOD also available on this broad band portal.
9952 It's also conceivable that there may be an opportunity to carry more content on the broad band portal than there is on VOD just because, again, it's in the IP space and it's greater flexibility and lower cost in terms of what we're able to put up there.
9953 COMMISSIONER CUGINI: And how will the content be categorized; will it be by network, by local station, by genre?
9954 MR. PURDY: So, it's very important that it replicate the TV packages as we currently sell them. So, if you're a basic subscriber you would see the basic offering up there, if you're a basic plus all three analog tiers, you would see that offering up there.
9955 COMMISSIONER CUGINI: So, I will see TVO, Global, OMNI in the very order that they're available on the dial today?
9956 MR. PURDY: Absolutely. Now, you may be able to come at it a couple of different ways, you know, you come at it by channel, you may also be able to come at it by genre or you even search by film category, by movies or sports, et cetera.
9957 But the initial impression you'll get is that this is an extension of your linear TV offering and it's a value add to that linear TV offering. So, it's really important that channels like Discovery or Home and Garden or Food be prominent and those brands be prominent in the user interface so the customers are recognizing that this is a value added extension of their linear channel packages.
9958 COMMISSIONER CUGINI: And as far as marketing is concerned in terms of controlling the brand and controlling all of the ancillary product that goes around what is usually available online, if, for example, I'm Discovery, I can currently control what is associated with Discovery when someone goes on Discovery.ca and I can control what other material is available.
9959 How are you going to convince Discovery that -- maybe you're going to convince them that doing both is beneficial to them, or the alternative is, how are you going to convince Discovery -- and I'm just using Discovery obviously as an example --
9960 MR. PURDY: Yes.
9961 COMMISSIONER CUGINI: -- or anybody else -- that migrating to your portal is going to be more beneficial? Because I am assuming they're going to have to lose some of that stuff that goes around their product online.
9962 MR. PURDY: I think there's three points to make here.
9963 One is that this is absolutely voluntary and not meant to be exclusive. So, if Discovery has a relationship with Sympatico or, more importantly, with Bell TV or with Shaw, that we would absolutely encourage that, in fact, embrace that. The wider this is adopted by the industry, the more likely it is that we can actually hold on to that dual revenue stream.
9964 Really what we're trying to do here is not chase digital dimes at the expense of analog dollars. We want to make sure that that subscription revenue stream that the specialty and pay services currently enjoy is robust and healthy in the online world, and the fact that a number of the U.S. cable companies have announced similar intentions has been really gratifying and encouraging.
9965 Second point is the opportunity for Discovery Channel to reduce their cost. We're going to reduce their transport costs and we're going to heavily promote the availability of their content online, so they should be able to much more effectively monetize their programming online.
9966 And we think that it's not meant to be a stick at all, but we think the carrot is reduced costs.
9967 And the third thing, again, they won't be undermining their subscription revenue stream.
9968 So, I think the conundrum that Paul Lewis and the guys at Discovery Channel face is how much content can I put online without fear of people turning off their subscription to Discovery Channel, the linear channel, and losing that subscription revenue.
9969 So, what we're doing is offering Mr. Lewis and the Discovery Channel folks an opportunity to have a dual revenue stream that's robust.
9970 COMMISSIONER CUGINI: And because you did talk about multi-platform anywhere, any time on any device, I have downloaded the Rogers on-demand on my BlackBerry, but haven't subscribed because $25 a month.
9971 Is this meant to replace that Rogers -- what is currently available in terms of Rogers on-demand on the wireless side?
9972 MR. ENGELHART: Let me just add a couple of quick points to Mr. Purdy's last answer, which was the Discovery Channel can keep their site and go on Mr. Purdy's site and, secondly, we want that other stuff too. So, they're not restricted to just their linear programming service on the Purdy portal, they can bring outtakes, deleted scenes, video blogs. And even if they've bought some programming that they've never got a chance to air on their linear service, put it on the portal. It's all added value for customers.
9973 So, that's something that we're happy to do.
9974 The video-on-demand service on the cell phone is quite a bit different from the video-on-demand service on the cable. The cable service has thousands and thousands of titles which are movies, TV shows. The stuff on the wireless phone are little two-minute to eight-minute clips and there's a few dozen of them, and so it's quite a different service.
9975 The marketing bench strength at Rogers Wireless is done even more poorly with that video-on-demand service than they have with MobiTV. So, it's not really a big winner for us.
9976 COMMISSIONER CUGINI: So, it wouldn't replace it, or would it? Because you did say anywhere, any time, multi-platform.
9977 MR. PURDY: Yeah.
9978 MR. ENGELHART: When we move to more fully to the 3G world, what's going to happen is you're going to have your iPhone or your other mobile device and there will be a website which is designed for mobile devices. And so all that stuff on the Purdy portal, or as much of it as we can economically put, goes on that other website which is configured for mobile handsets and then people can access it that way with their password.
9979 MR. LEE: I think it's fair to say at this point that the mobile, while we think of it as just another screen that we can deliver broadcast to, it's not clear that consumers think of it that way.
9980 And, so, the best way -- I mean, we do want to extend this service to as many platforms as possible wherever our customers want it, but I think there will be a period of time where mobile will still have a very distinct and unique offering based on the way people use the core service, which is their wireless phone, and at some point the two may or may not come together. It's not clear yet.
9981 COMMISSIONER CUGINI: Okay. Thank you very much.
9982 THE CHAIRPERSON: Okay. Thank you. Thank you for your innovative presentation and you have certainly given us food for thought.
9983 Mr. Lee, I would look forward to your additional written submission, especially on deep packet, because what you said is not quite consistent with what we understood, that deep packet allows you to analyze both the header as well as the payload. So, I would appreciate some clarification on that point.
9984 Okay. Thank you very much.
9985 We'll take a very short five-minute break before we hear from Cogeco.
--- Upon recessing at 1131
--- Upon resuming at 1139
9986 LE PRÉSIDENT : Est-ce qu'on peut commencer, Madame la Secrétaire ?
9987 LA SECRÉTAIRE : Nous allons maintenant procéder avec la présentation de Cogeco Câble Inc.
9988 Monsieur Yves Mayrand comparaît pour Cogeco Câble. Il nous présentera ses collègues.
9989 Vous avez ensuite 15 minutes pour votre présentation.
9990 M. MAYRAND : Merci, Madame la Secrétaire.
9991 Monsieur le Président, Mesdames et Messieurs les Conseillers, merci de nous donner l'occasion de vous présenter le point de vue de Cogeco Câble à l'occasion de cette audience publique sur la radiodiffusion canadienne par les nouveaux médias.
9992 Mon nom est Yves Mayrand, et je suis vice-président, Affaires d'entreprise.
9993 René Guimond, vice-président, Développement des nouveaux médias, est assis à ma gauche.
9994 Louise Désilets, directrice, Planification stratégique, est assise à ma droite.
9995 Et à sa droite, Me Lori Assheton-Smith, avocate en droit des communications.
9996 First, let me explain what Cogeco Cable does and does not do as part of its business activities.
9997 The broadcasting activities of Cogeco Cable's operating subsidiaries are limited at present to those of a licensed BDU and a licensed VOD service, which are both fully regulated by the Commission and both contribute directly and substantially to the fulfilment of the objectives of the Broadcasting Act.
9998 Now we are also a facilities-based telecommunications common carrier, and our telecommunications activities encompass high-speed internet, telephone, datacom and other related telecommunications services for both the residential and the business market segments.
9999 We provide broadband connections to the internet, but we do not produce, aggregate or market programs for viewing through the internet connection.
10000 We provide strictly a telecommunications service and act in all respects as a telecommunications common carrier for the provision of the internet access service.
10001 In short, we transmit bits and bytes.
10002 Since we are a facilities-based telecom common carrier, the Commission has required, under the authority of the Telecommunications Act, that we maintain a third-party internet access tariff to enable third parties to use our facilities so that they may provide internet access services of their own at rates approved by the Commission.
10003 Needless to say, we do not control programs on third-party internet access services either.
10004 A fundamental issue of this proceeding, which by the way has never been explicitly raised in the Commission's public notices, is the possible imposition of a new tax on internet access services provided by Canadian internet service providers to their Canadian customers.
10005 We have clearly expressed our view that such a tax would not -- could not, rather -- be validly imposed by the Commission under either the Broadcasting Act or the Telecommunications Act.
10006 But the question is not only a legal one.
10007 Why should Canadian consumers have to pay a new tax just for using the internet?
10008 Why should Canadian consumers who use the internet mostly for e-mails, browsing, chatting, learning, research, online transactions or user-generated content pay a tax to support the production and distribution of more Canadian programs?
10009 Is it reasonable to impose such a new tax in addition to the existing mandatory contributions of broadcasting undertakings, large licence fees flowing directly into the consolidated revenue fund, and federal and provincial retail sales taxes on telecommunication services?
10010 What exactly is the need to be fulfilled by the proceeds of this new tax, and how could that need be effectively measured?
10011 How could the proceeds of this new tax be allocated in a transparent, fair efficient and accountable way?
10012 We have yet to hear, it is our submission, any credible answers to these basic questions.
10013 Let me now turn to the assumptions and key issues you have asked us to address in our oral remarks.
10014 We agree with the Commission's assumptions that there is some broadcasting in the new media, that there is unlimited shelf space in the new media environment, and that user-generated content should be of no concern to the Commission.
10015 We note however that while some professional program content available to Canadians may be accessed through fixed wireline and mobile connections to the internet, professional program content is still very predominantly accessed through traditional broadcast media, as well as through pre-recorded media (i.e., CDs and DVDs).
10016 We note also that the creation and presentation of professional Canadian program content is still, as we speak, highly subsidized through public funding of the public sector broadcasters and through several funds that include the Canadian Television Fund, now to be known as the Canada Media Fund.
10017 Nous avons déposé à l'appui de notre mémoire écrit un survol des activités des radiodiffuseurs canadiens dans les nouveaux médias.
10018 Cette analyse illustre bien l'ampleur et le rayonnement des contenus de nos radiodiffuseurs sur les nouveaux médias.
10019 Nous croyons que les radiodiffuseurs canadiens ont adopté la bonne stratégie par rapport aux nouvelles plateformes de diffusion, et ils l'ont fait sans l'intervention d'une réglementation contraignante.
10020 On aurait tort de minimiser l'avantage important dont disposent les radiodiffuseurs et les producteurs de chez nous au plan de la pertinence et de la grande notoriété auprès de larges auditoires des émissions qu'ils produisent et diffusent.
10021 Vous avez soulevé la question des outils de mesures disponibles pour mesurer la quantité et la consommation de contenu diffusé dans l'environnement des nouveaux médias.
10022 Il nous semble que l'Internet est fondamentalement un véhicule d'accès extrêmement polyvalent, utilisé pour une variété sans précédant d'activités de tout genre. Ce médium n'a été ni conçu, ni administré, jusqu'à présent, pour établir des catégories définies de contenu audiovisuel et d'en mesurer leur auditoire.
10023 Il a été question au cours de l'audience de scénarios possibles pour utiliser des identifiants et tenter d'obtenir ainsi des mesures plus ciblées que les mesures actuelles de clique sur des pages Web. Il est clair, cependant, que de tels systèmes ne font pas partie de la réalité actuelle et que leur développement et leur mise en place soulèveraient d'énormes défis de standardisation, d'adoption et de déploiement.
10024 Pour ce qui est de l'incidence des nouveaux médias, on aurait tort de mettre sur le dos des nouveaux médias les difficultés de la télévision traditionnelle. La télévision hertzienne souffre principalement de la fragmentation de ses auditoires et de ses revenus publicitaires par les nombreuses chaînes de télévision spécialisée qui ont reçu des licences du Conseil au cours des 20 dernières années.
10025 Les difficultés particulièrement aiguës des derniers mois dans le secteur de la télévision traditionnelle proviennent de facteurs économiques structurels qui touchent l'ensemble de l'économie, non seulement au Canada, mais dans le monde entier.
10026 Comme les ventes de biens et services sont en forte contraction, les marchés publicitaires le sont aussi. Certains secteurs cruciaux pour les médias publicitaires, comme le secteur de l'automobile, font face à une véritable implosion.
10027 Il serait donc naïf de croire que des problèmes structurels d'une telle ampleur puissent être corrigés par une forme quelconque de réglementation, encore moins une réglementation ciblée sur les nouveaux médias.
10028 Au cours de cette audience, il a beaucoup été question d'un besoin de produire une quantité de contenus spécifiquement destinés aux nouveaux médias. Selon nous, il ne fait aucun sens de produire uniquement pour les nouvelles plateformes, sauf en de rares circonstances.
10029 Comme c'est le cas pour l'industrie des ventes au détail, il faut viser la présence de produits et de marques populaires dans le plus grand nombre possible de points de présence.
10030 Nous croyons qu'une stratégie de développement ciblé spécifiquement sur la production de contenus pour les nouveaux médias serait non seulement vouée à l'échec, mais qu'elle nuirait, de plus, à une stratégie d'exploitation de plateformes multiples pour les productions canadiennes significatives, la seule stratégie qui soit, selon nous, porteuse pour l'avenir du système canadien de radiodiffusion.
10031 Pour ce qui est de la visibilité et de la promotion, Internet a déjà une structure bien établie de moteurs de recherche. Il nous semble clair que les moteurs de recherche existants permettent aux Canadiens de trouver aussi rapidement qu'efficacement les contenus qu'ils recherchent sur la toile.
10032 Pour ce qui est des émissions canadiennes produites par des professionnels, rien ne pourra, en définitive, remplacer une stratégie de promotion proactive des radiodiffuseurs et des producteurs d'émissions, incluant sur les nouvelles plateformes de diffusion qui leur sont très directement et aisément accessibles.
10033 La question des droits de propriété intellectuelle et des droits de suite pour les artistes et autres professionnels de l'audiovisuel a fait l'objet de peu de discussion au cours de cette audience.
10034 Tant que la structure d'exploitation des droits et les modèles de redevances pour la diffusion de contenus sur les nouvelles plateformes n'auront pas été réglés par l'industrie, il y aura toujours un frein important à l'exploitation ordonnée des nouvelles plateformes de diffusion.
10035 Le fait que cette question fondamentale soit toujours en suspens démontre que les nouvelles plateformes de diffusion sont encore au stade embryonnaire et que les parties prenantes ne sont pas encore capables d'organiser leurs rapports commerciaux sur la base de modèles d'affaires éprouvés.
10036 In conclusion, we strongly believe that the exemption model for broadcasting in new media is still very appropriate and justified. We fail to understand why we should collectively embark at this juncture in regulatory intervention that would be unprecedented in the world with a view to addressing fears that are really based on speculation rather than real problems.
10037 We thank you for hearing us and it will be our pleasure to answer your questions.
10038 THE CHAIRPERSON: Thank you very much for your presentation.
10039 I don't know whether you were present but you certainly heard the announcement yesterday of the Minister of the Canadian Media Fund and the basic idea that Canadian content should be available on all platforms and that when we assist it by a subvention or through a fund it should be regardless of platform. Obviously that is the aim everybody supports, including the Commission. We think it was an excellent announcement that the Minister yesterday made, and that's really the same reason why we are holding these hearings.
10040 In this hearing we are really looking at distribution. We are looking at distribution by internet and wireless and want to make sure that the distribution there functions as well as it does in cable right now and in satellite and also that there is an appropriate contribution by that distribution.
10041 And the answers that you have heard over the last two weeks are basically two -- one was create a fund and have the ISPs and WSPs contribute; the other one is this idea of creating some sort of method of identifying Canadian content and giving it a fast lane and special bit cap -- until this morning.
10042 Rogers presented actually a third solution today, basically an industry-based solution saying you, the BDUs, can actually do this problem and make sure that Canadians have that access on the internet and, presumably in the long run, also on wireless, if you create this kind of portal associated with cable service.
10043 Est-ce que vous avez l'intention de suivre le leadership de Rogers et commencer un service comme ils ont décrit ce matin?
10044 MR. MAYRAND: First, Mr. Chair, with your permission, let me say that our company is pleased with the announcement of the Minister of Heritage. We are pleased with the announcement that the funding initiative designed to favour or foster support of the production of professionally produced Canadian programs will now be directed to multiple platforms. We absolutely believe that's the right way to go.
10045 I think that it goes without saying that the funding mechanisms are in place. They are working and they can be made to work we think better, particularly in light of this announcement.
10046 Now, that being said, you asked us specifically do we intend to follow the Rogers model for a broadband video portal.
10047 THE CHAIRPERSON: Well, I mean your presentation this morning seems to me clear that you don't like the other two models that people were bandying about, so that's why I was wondering what your appreciation really is of the Rogers model.
10048 MR. MAYRAND: Yeah. Well, in terms of the Rogers model, René Guimond has joined us a short while ago. As you know, his background, professional background is in advertising and television and his mandate is to look at the new media alternatives and platforms with a view to helping us define our strategy.
10049 We haven't defined our strategy yet. We have not determined whether the Rogers' portal initiative is something that we ought to pursue. Certainly, we are looking at it. We are looking as well at current initiatives of American MSOs but we haven't made up our mind and it's still very much unclear to us how the business model for that particular type of activity ought to be structured.
10050 So I honestly cannot tell you right now that we will follow that model. We haven't completed our own work. It's too recent.
10051 THE CHAIRPERSON: Well, if upon reflection you feel there is either merit or demerit in the proposal and you want to give us your views in a follow-up written submission we would appreciate it.
10052 MR. MAYNARD: We would be pleased to do that.
10053 I think René had a comment here.
10054 MR. GUIMOND: We have been looking at -- since I joined the company in September we have been looking at that file, definitely following very closely the situation in the States who has as you know a much more mature market in terms of internet and the video -- broadband video business than Canada could be.
10055 We heard about the announcement by Rogers and we also heard about the announcement by -- I think it's Comcast and Time Warner who announced almost at the same time or two weeks ago, three weeks ago, that they would go ahead with this type of new platform also.
10056 We will be finalizing our analysis over the next few months. We haven't been working on that for 18 months. We have been working on that for six months now and we heard the invitation by Rogers. We will end our analysis. Definitely we will have to speak to them and see you know what their intentions are, but as far as we are concerned the challenge is the business model: Does it make sense for a company of our size with the number of subscribers we have?
10057 Because, as you heard Rogers this morning, this type of concept is really devoted to their actual client base. So they will be dealing with the clients and their footprints only, and that's exactly what we are looking at too, for the same reasons. And that reason is the rights.
10058 THE CHAIRPERSON: And you heard me this morning asking them should we make this mandatory for all BDUs exactly for that point, you know, if Rogers' clients enjoy this sort of service and the rest of the world doesn't that really doesn't solve the problem. That was clearly the follow-up question.
10059 MR. MAYRAND: Yeah, well, I think I heard Rogers say that in their view they didn't think it should be a concept that should be made mandatory to all the industry.
10060 THE CHAIRPERSON: I heard "not yet."
10061 MR. MAYRAND: But from our perspective I think that it's pretty well a general comment that we would like to submit to this Commission that, you know, it's not we think very productive to try and make rules, particularly mandatory rules, when a particular type of activity is at the concept stage and beginning to emerge and has yet to prove itself.
10062 So clearly, from the perspective of our company, we would be guided by the same general rule of caution that let the flowers bloom before trying to harvest them.
10063 THE CHAIRPERSON: Okay, thank you.
10064 Michel, you have two questions?
10065 CONSEILLER MORIN : Oui, merci, Monsieur le Président.
10066 Je ne sais pas combien de temps il faudrait attendre avant que les fleurs arrivent à maturité, mais si jamais vous n'adoptiez pas le modèle qu'a suggéré Rogers ce matin, qu'est-ce que vous feriez pour le contenu canadien sur les nouvelles plateformes? Si on ne peut pas mesurer, si on ne peut pas aller dans la direction de Rogers, quelle est votre proposition?
10067 M. MAYRAND : Votre question, Monsieur Morin, implique une double réponse, et je vais vous dire pourquoi.
10068 C'est parce que nous sommes à l'heure actuelle, comme je le disais dans la présentation, à la fois une entreprise de distribution de radiodiffusion parce que nous avons un réseau de câble qui offre des services de programmation sur cette architecture de distribution. Mais nous ne sommes pas qu'une entreprise de radiodiffusion, nous sommes aussi une entreprise de télécommunication, et votre question...
10069 CONSEILLER MORIN : Et vous possédez un fournisseur de service Internet.
10070 M. MAYRAND : Votre question... Nous fournissons un accès Internet à des vitesses définies, point à la ligne.
10071 Alors, votre question se résume à dire : Comme entreprise de radiodiffusion, que compteriez-vous faire de plus si vous n'aviez pas de portail vidéo?
10072 Nous vous disons, nous faisons déjà beaucoup. Comme entreprise de radiodiffusion, nous contribuons un pourcentage, qui est maintenant passé à 6 pour cent, de tous nos revenus de radiodiffusion pour le soutien financier à la production d'émissions canadiennes. Nous observons des règles de distribution. Nous observons une série de règlements que vous devez mettre à jour et publier éventuellement, mais qui a fait l'objet d'une très longue discussion, lesquels règlements sont extrêmement détaillés.
10073 Nous contribuons également dans la mesure où nous avons un service de vidéo sur demande. Nous avons une licence pour notre service de vidéo sur demande et nous contribuons là aussi un pourcentage sur nos produits, ainsi qu'une ristourne aux producteurs de films canadiens, et nous contribuons à la promotion des contenus canadiens sur la plateforme VSD également.
10074 Alors, la réponse du côté radiodiffusion, c'est que nous le faisons. Nous avons fait l'objet d'une demande de contribuer financièrement à la production d'émissions d'information locale. Nous allons le faire conformément à votre exigence, alors la contribution, elle est là et elle est récemment établie. Alors, je ne vois pas pourquoi on devrait en reparler.
10075 Maintenant, la deuxième partie de votre question, la fourniture des services d'accès internet. Nous fournissons un accès internet comme entreprise de télécommunications.
10076 Est-ce que des transporteurs de télécommunications devraient contribuer par une taxe ou une autre forme de contribution obligatoire, parce que, pour nous, c'est l'équivalent, devraient contribuer du seul fait de leurs activités de télécommunications à la production et la distribution de contenu canadien?
10077 D'après nous, la réponse c'est non parce que vous avez un régime de droit, une loi, un statut séparé qui ne le prévoit pas.
10078 Dans un monde où nous aurions un régime unifié de droit des communications électroniques, ce qui est concevable, on pourrait fort bien prévoir les mécanismes de contributions que vous semblez évoquer dans le cas des entreprises de télécommunications, mais ce n'est pas le cas présentement, malheureusement, ce n'est pas le cas.
10079 Alors, je ne pourrais pas vous dire honnêtement COGECO Câble est disposée à endosser une initiative d'inter-financement du contenu canadien du seul fait de ses activités de télécommunications.
10080 CONSEILLER MORIN: Je vais... j'avais une autre question, mais je pense que je vais suivre et enchaîner sur ce que vous dites.
10081 Sur quelle base pouvez-vous démontrer qu'il n'y a pas le besoin d'un fonds pour encourager la production de nouveaux médias?
10082 Si on ajoute plus, est-ce qu'on n'aura pas plus de résultat? Je sais qu'il a beaucoup de fonds qui ont été créés. Il y en a deux qui ont été annoncés au cours des dernières semaines. Hier, le Ministre en a augmenté l'enveloppe, a fusionné tout ça dans le Fonds canadien de télévision, mais est-ce qu'on peut nier le fait que si on créait un fonds avec plus d'argent, on irait peut-être plus loin?
10083 Indépendamment de l'aspect juridique, hormis l'aspect juridique -- je vous ai entendu là-dessus -- est-ce que sur le plan de la nécessité d'un fonds, est-ce qu'on peut prétendre que le besoin n'existe pas?
10084 M. GUIMOND: Écoutez; j'écoute votre question et je me dis... vous me demandez de prouver qu'il n'y aurait pas un besoin potentiel.
10085 Moi, je le prends vraiment à l'inverse et vous l'avez vu dans la présentation, je vous dis: dites-moi quel est le besoin, dites-moi comment il se définit, dites-moi comment on s'assure que la charge est assumée de façon équitable entre les joueurs, dites-moi comment on va gérer ce fonds-là et dites-moi enfin comment on va s'assurer que les fonds soient utilisés aux fins pour lesquels ils étaient destinés.
10086 Je n'ai de réponse à aucune de ces questions-là à l'heure actuelle, aucune. Alors, je ne peux pas vous dire qu'il n'existe pas, conceptuellement, un besoin ou certains besoins ou, je dirais, des désirs qui sont autre chose que des besoins de faire plus.
10087 Est-ce que ça veut dire que, automatiquement il faut créer un fonds, même si on ne sait pas exactement quelle est la nature du besoin puis comment on va le satisfaire en pratique? Ma réponse à ça, c'est non.
10088 M. GUIMOND: Est-ce qu'on a un complément, si je peux me permettre? Au niveau des contenus, on a entendu ce matin encore et on l'a entendu également au cours des dernières semaines, nous des contenus qui sont actuellement disponibles sur les plate-formes de contenus, la très grande majorité de ces contenus-là sont des contenus qui viennent de la télévision actuellement.
10089 Encore une fois dans des marchés beaucoup plus matures que le nôtre au niveau de la diffusion de broad band vidéo, on remarque le même phénomène.
10090 Ce matin, un intervenant signalait, et avec raison, que les contenus spécifiques qui ont été produits spécifiquement pour le web à travers la planète, pas seulement au Canada, que ces quantités-là sont relativement petites.
10091 Donc, il y a là possiblement une situation où notre avenir est beaucoup dans la... production de l'avenir, là, encore une fois le broad band vidéo de la diffusion sur le web de contenus professionnels, ce qui nous intéresse ici et, possiblement, dans des mesures telles qui ont été prises par le Patrimoine au niveau du Fonds canadien de télévision qui va être muté, là, et changé.
10092 Dans la réglementation, ce que j'ai bien lu, on dit bien qu'il faut que ce soit... que les nouvelles productions qui vont être admissibles doivent être destinées à au moins deux véhicules dont la télévision.
10093 On dit bien « dont la télévision ». Ce qui démontre clairement l'intention et la dynamique actuelle que les contenus vont d'abord à la TV parce que c'est ça qui fait du sens au niveau de la rentabilité et ces contenus-là sont ensuite déployés sur d'autres plate-formes et, comme maintenant on va essayer de maximiser par des moyens peut-être comme la plate-forme de Rogers ou des initiatives que certains diffuseurs prennent sur leurs propres plate-formes et grâce aussi, peut-être, avec l'augmentation des revenus publicitaires, tel qu'on le mentionnait avec le vice-président Arpin ce matin, concernant les nouvelles ententes que l'Association canadienne des annonceurs a avec le monde des artistes, donc, ce sont des nouvelles possiblement encourageantes.
10094 Mais, et le deuxième volet que je donnerais à cette réponse, c'est, mettons... O.k., on a un fonds de 100 millions dévolu à la production de contenus destinés à l'internet.
10095 Mon confrère mentionne des problèmes de contrôle de cette... des problèmes administratifs importants. Moi, honnêtement, je ne vois pas comment on pourrait gérer ce 100 millions-là, disons cette enveloppe.
10096 Si on prend le modèle de la télévision, c'est clair, on a des entreprises qui ont des licences de diffusion, le Fonds canadien attribue des enveloppes aux licenciés que l'on connaît. Ces licenciés ont des conditions de licence, les enveloppes viennent avec des conditions minimales de production par genre, et caetera, on donne des contrats au producteurs indépendants et tout est sous contrôle.
10097 Il y a toujours la question des droits de diffusion sur les autres plate-formes, mais ça c'est autre chose.
10098 Sur le net on fait quoi? Qui va être le bénéficiaire de l'enveloppe? Les propriétaires de sites internet? Quels propriétaires de sites internet? Comment va-t-on contrôler ces propriétaires-là? On n'a pas... ce ne sont pas nécessairement des gens qui ont des licences pour avoir des sites internet.
10099 Si c'est trop compliqué ça, O.k., on se retourne du côté des créateurs de contenus. Quel créateur de contenus va avoir accès à ces argents? Sous quel principe? Qu'est-ce qui fait que Yves Mayrand Productions ne serait pas admissible demain à ce fonds-là? Il peut avoir d'excellentes idées de contenus pour le web.
10100 Qu'est-ce qui fait que... il faudrait que ce soit absolument des entreprises établies, avec des chiffres d'affaires minimum? C'est d'une complexité inouïe.
10101 Alors, la gestion même de ce fonds-là destiné aux nouveaux médias, moi, en tout cas, je pense qu'il y a un défi de gestion qui est excessivement important.
10102 CONSEILLER MORIN: Vous pensez qu'on pourrait risquer de manquer « Tête à claques » qui a été sans doute le succès incomparable dans l'univers des nouveaux médias, qui n'a jamais reçu de subvention?
10103 M. GUIMOND: Bien, je ne dis pas qu'on ne manquerait pas nécessairement parce que des têtes à claques, pour moi c'est comme des Mario Lemieux; il en passe un occasionnellement, à tous les deux trois ans, quatre ans et « Tête à claques » est là, il y en a sûrement d'autres qui vont arriver, quelques autres sûrement et par, également, la maturité que les véhicules, que l'internet va prendre au fil des ans.
10104 Parce que, encore une fois, il faut se rappeler là au jour du moment où on se parle, l'internet, en tant qu'outil de visionnement de contenu professionnel, c'est relativement... ça touche un très faible pourcentage de l'attention du grand public.
10105 C'est à son stage de départ et on n'a pas... que « Tête à claques » ait réussi à percer dans un milieu aussi vert, aussi à ses débuts, c'est exceptionnel.
10106 Alors, pourquoi d'autres modèles, d'autres exemples ne surgiraient pas au cours des années, parce que l'internet va devenir de plus en plus puissant, que les argents dévolus à l'internet vont augmenter, ce qui va donner plus de possibilités, éventuellement, pour du contenu de cette nature, sans intervention au niveau des taxes.
10107 CONSEILLER MORIN: En page 7, vous regrettez que les audiences actuelles n'aient pas... qu'il n'y ait pas eu beaucoup de discussion au niveau des droits de suite. Et hier... on a ce matin le modèle Rogers, mais hier on a eu le modèle Moore qui a changé pas mal les règles du Fonds canadien de télévision. Désormais, il n'est pas certain du tout que les producteurs indépendants auront 75 pour cent de la programmation prioritaire, les entreprises de radiodiffusion vont pouvoir elles-mêmes produire à la maison, hélas.
10108 Donc, on risque avec ce nouveau cocktail, on risque de provoquer beaucoup de discussions entre les télédiffuseurs et les producteurs indépendants et, finalement, peut-être qu'on va s'entendre beaucoup sur les droits de suite et, donc, ça risque d'être une explosion de contenu canadien possiblement.
10109 Est-ce que vous êtes de cet avis-là? Est-ce que vous êtes optimiste, vous avez une expérience aussi comme télédiffuseur, si on arrive à s'entendre sur des paramètres, sur des balises en ce qui concerne les droits de suite? Est-ce qu'au niveau du contenu canadien, sur les nouvelles plate-formes, on risque d'avoir sans subvention, sans réglementation, une explosion, un « fleurissement » comme vous parliez tout à l'heure du contenu canadien sur les nouvelles plate-formes?
10110 M. MAYRAND: Si vous permettez, je préfère le fleurissement à l'explosion parce que c'est généralement un peu plus durable.
10111 Mais ceci étant dit, je vous... vous faites bien de noter qu'il va y avoir une effervescence à la suite de cette annonce, sans doute. On a vu aussi des propositions de certaines organisations visant à monétiser le téléchargement d'oeuvres musicales sur internet.
10112 En fait, la situation devant laquelle nous nous trouvons, c'est qu'il y a plusieurs intérêts qui doivent négocier ensemble un régime relativement bien ordonné et prévisible pour la modélisation des droits. Ça inclut les droits sur les plate-formes traditionnelles et aussi sur les plate-formes nouvelles qui seront, comme on le voit, à la suite de l'annonce d'hier sur le Fonds canadien des médias, ils seront inévitablement et inextricablement liés.
10113 Et nous sommes d'accord que c'est une réalité incontournable que les plate-formes doivent se recouper pour les mêmes produits. Alors, il va devoir y avoir des négociations.
10114 Il est possible que certains groupes s'organisent sous forme de collective de droit ou utilise des collectives de droit existant, pour se prévaloir des dispositions applicables de la Loi sur le droit d'auteur. Il y a des mécanismes pour ça.
10115 C'est un régime qui est compliqué. Beaucoup de gens ont fait valoir que le régime d'ensemble des droits d'auteur est très complexe et qu'il est relativement malaisé. Mais qu'importe, il y a un régime en place et il y a des façons dans certains cas de régler des problèmes définis.
10116 Mais, fondamentalement, il est question de droit. Ce sont des ententes commerciales qui se négocient entre des partenaires commerciaux.
10117 Alors, ça devra intervenir.
10118 Et je suis d'accord avec vous que lorsque de telles négociations se seront généralisées et se seront... ou auront abouti plutôt, à un règlement clair, qu'il y aura un obstacle important qui sera levé à la propagation des contenus canadiens sur les nouvelles plate-formes.
10119 CONSEILLER MORIN: Donc, la donne vient de changer pour vous aussi.
10120 M. MAYRAND: Sûrement, à partir du moment où les partenaires commerciaux s'entendent pour la façon de monétiser leurs actifs -- ce sont les actifs de propriété intellectuelle -- certainement qu'on aura un déblocage important.
10121 Combien de temps ça va prendre? Quelle forme précise est-ce que ça va prendre? Je ne peux pas vous le dire à l'heure actuelle, je pense qu'il n'y a personne qui le sait exactement, mais on commence à voir des signes d'entente partielle de certains joueurs avec des artistes et on s'attend qu'il y ait d'autres ententes entre les autres joueurs qui n'ont pas encore négocié vraiment ou conclu un arrangement satisfaisant pour toutes les parties.
10122 M. GUIMOND: En 30 secondes, pour compléter la réponse savant au niveau légal, si je mets mon chapeau d'homme d'affaires, là, la raison possiblement pour laquelle il n'y a pas d'entente encore aujourd'hui sur ce point-là, c'est que la masse monétaire qui, généralement, fait en sorte que lorsqu'il y a de l'argent disponible, les parties vont s'entendre pour un règlement pour se partager cet argent-là.
10123 Les argents qui étaient générés à venir jusqu'à aujourd'hui par l'internet au niveau des propriétés n'était peut-être pas suffisamment élevés parce que le trafic internet est en train de se développer concernant le contenu vidéo et le jour où... et on arrive à un moment actuellement où, justement, ce volume-là devient suffisamment intéressant -- on parle du modèle de la C.A. qui va probablement investir plus -- donc, les argents que pourront générer les contenus sur l'internet vont sûrement devenir à un niveau tel maintenant que les parties vont s'asseoir et vont définitivement en venir à une entente pour partager ces argents-là.
10124 Ils ne voudront pas manquer le bateau alors qu'à date, honnêtement, dans certains marchés nommément au Québec, le bateau n'était pas trop trop gros là, il n'y avait pas beaucoup d'argent disponible là, ils n'ont pas manqué grand-chose à date. Mais ça va changer au cours des années à venir, ça c'est certain.
10125 COMMISSAIRE MORIN: Merci beaucoup.
10126 LE PRÉSIDENT: Louise, tu as des questions?
10127 CONSEILLÈRE POIRIER: Oui, tout à fait. Merci, monsieur le président.
10128 Il y a beaucoup d'organismes qui sont venus nous rencontrer en disant que les FSI tirent profit du téléchargement de musique, de film et que 90 pour cent de ce téléchargement-là se fait de façon non autorisée.
10129 Alors, beaucoup nous ont dit certains tirent profit, font de l'argent, les FIS, alors que d'autres en perdent. CIRPA, entre autres, a été un des organismes qui a dit de telles choses.
10130 Alors, est-ce que les FIS ne devraient pas compenser les industries qui aliment l'internet, comme on le fait en radiodiffusion traditionnelle?
10131 M. MAYRAND: Écoutez, il y a deux choses dans votre question. Il y a la première et la question de la piraterie. Alors, je pense qu'il faut se rendre compte qu'il n'y a pas que certains producteurs de disques qui sont victimes de piraterie.
10132 Nous en sommes les victimes aussi comme distributeurs. Il y a une piraterie active au moment où on se parle, avec des récepteurs de signaux satellites non autorisés.
10133 Il y en a bien au-delà d'un million, le mieux qu'on puisse savoir, qui fonctionnent en toute impunité au Canada.
10134 Alors, le problème de la piraterie, ce n'est pas un problème qui affecte uniquement certains producteurs de contenus. Ça affecte tout le monde dans le système canadien de radiodiffusion.
10135 Ceci étant dit, est-ce que, nonobstant le fait qu'on n'ait pas de solution uniforme assurée et permanente pour réprimer la piraterie, est-ce que les entreprises comme la nôtre qui fournissent des services de télécommunications absolument légitimes paient leurs impôts et observent toutes les lois applicables et versent des taxes sur les ventes au détail devraient avoir la responsabilité de compenser certains acteurs du fait du piratage de leurs contenus?
10136 Écoutez; c'est un principe qui, à ma connaissance, n'existe pas pour l'instant dans notre régime de droit. C'est peut-être un principe intéressant à discuter, mais qui pose des problèmes d'équité. Comme je vous dis, il n'y a pas que les producteurs de contenus qui sont affectés.
10137 Et je voudrais répondre aux commentaires que vous avez faits que les fournisseurs des services d'accès internet profitent de ce téléchargement illégal.
10138 Je vous soumets que non seulement nous n'avons pas, comme entreprise de télécom qui fournit un branchement d'accès internet, la capacité de vérifier ce qui serait piraté ou non. En plus, nous avons l'obligation comme transporteur de télécommunications, de ne pas interférer avec le contenu transféré.
10139 Alors, comment puis-je être tenu responsable et obligé d'indemniser des gens qui subissent un préjudice et j'admets qu'ils subissent un préjudice et qu'ils sont désavantagés par ce préjudice alors que je n'ai aucun moyen de contrôle légal sur le préjudice? C'est un réel problème.
10140 Et, ensuite, je vous fais remarquer que de prétendre de façon et qui est absolument non équivoque que les fournisseurs d'accès internet s'enrichissent aux dépens de ceux qui sont victimes de téléchargement, je pense que c'est un bien grand pas à faire parce qu'un service d'accès internet, madame Poirier, ce n'est pas juste pour le téléchargement de musique. C'est, comme je le disais dans la présentation, pour des courriels, pour de la recherche, pour de la télé-éducation, pour des communications d'affaires, pour des transactions commerciales, pour une myriade de choses.
10141 Et je mets au défi quiconque d'essayer d'établir non seulement quelle est la proportion de chaque catégorie de contenu véhiculé sur les réseaux de télécommunications actuels, mais en plus d'établir quelle est la valeur relative de chaque composante dans la décision d'achat du consommateur de se brancher à l'internet.
10142 CONSEILLÈRE POIRIER: Mais on sait que le consommateur est prêt à payer de plus en plus cher pour faire du téléchargement, en demandant un service qui donne de plus en plus de vitesse.
10143 Par exemple, chez vous, vous offrez un service standard et vous offrez un service PRO et dans le service PRO bien on dit clairement que c'est certain qu'on va pouvoir plus facilement télécharger du vidéo, du contenu audio parce que c'est ça qui consomme le plus de vitesse et c'est ça la demande actuellement.
10144 Alors, c'est sûr qu'internet est très populaire pour les courriels et la documentation numérique, mais c'est d'abord le contenu audio et vidéo qui consomme le plus de vitesse.
10145 Alors, est-ce que vous pensez avec des prix comme ceux que vous nous chargez, et plusieurs organismes nous ont dit payer $1, $1,50 de plus pour un abonné, est-ce que ça ferait en sorte que vous perdriez des clients qui demandent de plus en plus de la haute vitesse et qui ont accès à du contenu vidéo et audio?
10146 M. MAYRAND: Mais je ne peux pas répondre à votre question de savoir combien de clients nous pourrions perdre s'il y avait une taxe de $1 ou de $2 ou de $3 par mois par abonné sur tel ou tel niveau de service, de telle caractéristique de vitesse.
10147 Ce que je peux vous dire, c'est que l'industrie des télécommunications accès internet, c'est une industrie qui requiert énormément de capital. On a tendance à l'oublier, mais c'est important de se le dire et de se le rappeler aujourd'hui.
10148 Ce n'est pas les fournisseurs de contenus qui financent le déploiement du capital, le déploiement des réseaux, le déploiement de la vitesse, l'électronique qui est associée aux services et le maintien des réseaux et les services à la clientèle; ce sont les fournisseurs d'accès internet qui le font.
10149 Et c'est une industrie qui, je crois que vous en conviendrez, est très concurrentielle, très concurrentielle.
10150 CONSEILLÈRE POIRIER: Merci beaucoup. C'est tout, monsieur le président.
10151 LE PRÉSIDENT: Mr. Denton, last question?
10152 COMMISSIONER DENTON: Monsieur Mayrand, you may probably spend ten minutes answering this question, but I just want to make sure I understand your point here.
10153 In relation to the questions of copyright, you say that the intellectual property is not sufficiently well understood or established here that business people can engage in transactions appropriately. Is that the gist of what you are saying here when you say: « Le fait que cette question fondamentale soit toujours en suspens démontre que les nouvelles plate-formes de diffusion sont encore au stade embryonnaire. »
10154 What's the implications we are to draw from this?
10155 M. MAYRAND: I think maybe the words that we chose were not the better ones, but again, to dove-tail back to René's comment, I think what we are saying here is that clearly there are intellectual property rights issues that remain unresolved with respect to the distribution of content of audiovisual content produced professionally on new platforms.
10156 And what we are saying next is that the reason why, in our view, these difficulties remain, and that there isn't a de facto regime of negotiated arrangements to overcome that problem, is that the platforms are too new and nobody is quite clear on what the rational model to exploit the rights should be.
10157 COMMISSIONER DENTON: Okay. Just one more, one more. We've heard this morning from everybody that there is implications for tax, there is implications for government expenditure in terms of funding, there is implications for regulation, whether, how to or not and any intellectual property.
10158 We've got a bunch of issues before us of which only some fall into our jurisdiction.
10159 If you were advising governments of what to do about the range of problems before us, do you think it's time to have a more comprehensive and general view of the range of problems posed by digital media and digital rights?
10160 MR. MAYRAND: I certainly think it's a very fair question. We have activities on the cable distribution and telecom side on the other side of the Atlantic and there, as you may know in your -- there is a regime of law that applies generally to electronic communications and it's done away with the distinction between broadcasting and telecom in terms of the distribution part of it.
10161 Obviously, we don't have that here. There has been discussion in the past as to whether the time has come to have a good hard look at our statutory construct. It is after all, you know, 15 years old or more, approaching 20 in the case of the Broadcasting Act. So, it's a very legitimate question.
10162 Now, as you know, it is also a very much at issue the question of whether we are due for Copyright reform.
10163 These things seem to be somewhat difficult to manage and to arrive at the parliamentary level, but I would tend to think and I sense that it is your view as well, that we are due for an overall and for an updated regime that takes into account these many variables.
10164 THE CHAIRMAN: Let me put the question more bluntly to you. Before us was the head of the NFB who has said it's time for a national digital strategy encompassing all the issues that people have mentioned, et cetera.
10165 I endorse it, I think it's a very good idea to have a comprehensive look at the other pieces as we do here and I gather you are suggesting the same?
10166 MR. MAYRAND: Well, I certainly think that we collectively need to address what is the appropriate construct going forward in the digital age and for all these issues: funding, presentation, fair distribution, intellectual property rights. Unfortunately, we don't have that tool right now.
10167 THE CHAIRMAN: Thank you very much. We appreciate your contribution. If you have any further ideas, you will have some time to make additional written submission.
10168 I think we'll resume at 1330, madame la secrétaire?
10169 THE SECRETARY: Yes. We will resume at 1330.
--- Upon recessing at 1227
--- Upon resuming at 1336
10170 THE CHAIRPERSON: Good afternoon. Before we start with Shaw there are two announcements I have to make -- corrections because apparently they are required.
10171 Number one, at the beginning of the hearing I introduced a document which has a definition and people have asked where that comes from, a definition of new media broadcasting distribution undertaking. That document was drafted by my staff trying to put forward what a definition will look like if we advance one.
10172 Secondly, just now during the interrogation and questioning of Rogers, I mentioned that I disagreed with Mr. Engelhart on the legality of a fee imposed on ISPs. Just to understand, his submission is that that's illegal, and I said I disagreed with him. Why? Because there is another opinion which says it can be done. And as I pointed out to Mr. Engelhart, this is an issue that will have to be decided by the courts, not by us.
10173 Now, so nobody understands that I thought -- that I was taking a position which framed a different legal opinion, I was just disagreeing with him that the issue is clear.
10174 So with that correction on the record, let's proceed, Madam Secretary.
10175 THE SECRETARY: Thank you, Mr. Chair.
10176 We will now proceed with the presentation by Shaw Communications Inc. Appearing for Shaw Communications Inc. is James Shaw. Please introduce your colleagues and proceed with your 15 minute presentation.
10177 MR. SHAW: Super, thank you. And you will be glad to know it won't be 15 minutes. It will be a lot shorter than that.
10178 Good afternoon. And thank you for being here with us. I see that we have a similar number of people on our panel as you have on your panel.
10179 MR. SHAW: So I'm hoping that our dialogue will be good and fulsome and full of force.
10180 I am Jim Shaw. I am the Chief Executive Officer and Vice Chairman of Shaw Communications.
10181 With me here today are Peter Bissonnette, President; Michael D'Avella, Senior Vice-President, Planning; Jean Brazeau, Senior Vice-President of Regulatory Affairs; Ken Stein, Senior Vice-President, Corporate and Regulatory Affairs; Michael Ferras; Dean Shaikh, Director of Regulatory Affairs and Greg Kane, our legal counsel.
10182 Canadians have clearly stated that there is no need for this proceeding. There is already an abundance of Canadian content on the internet. Some of the best and most popular websites in Canada are Canadian. The internet creates tremendous opportunities for broadcasters and producers to reach customers and explore new business opportunities both in Canada and globally.
10183 The last three weeks have confirmed what Canadian new media users already know. There is no problem that needs to be fixed. No one has provided any evidence that there is a lack of Canadian content on the internet. However, not surprisingly, a group of self-interested actors, writers, directors and producers guilds are asking for more money.
10184 A new tax on Canadians is not needed to give users the Canadian internet content they want. Shaw has already made an enormous contribution by investing to give Canadians the world's most robust network. Our 1.6 million internet customers are thrilled with the capacity, the reliability and the speeds we offer them. But an internet tax added to their bills to subsidize professionally-produced Canadian websites or webisodes will outrage consumers and Canadians.
10185 This hearing must be about consumers. We have achieved tremendous success over the last 10 years. Our customers have driven this success without regulation because they can get what they want when they want and how they want on the internet.
10186 In the next decade, we remain focused on expanding our world-class network. The introduction of an internet tax or content regulation will anger customers, reduce investment; stifle innovation and only slowdown broadband expansion in our view.
10187 The internet is about the World Wide Web, not the Canadian wide web. Regulation has no place in a world of empowering consumers and the unlimited business opportunities that they are able to capture.
10188 Considering an internet tax is especially troubling during this period of profound economic turmoil. We do not underestimate the financial challenges that we all face as we strive to deliver better services to our consumers. Additional taxes and regulations at this time will create greater uncertainty and continue to weaken a system already weak. In our view, attempting to regulate any aspect of the internet is futile at this time and in the future.
10190 MR. D'AVELLA: Shaw has made and continues to make tremendous investments to build, expand and upgrade our network. Innovative companies and entrepreneurs have developed an almost limitless diversity of information and entertainment content on hundreds of millions of sites. Because of this investment and innovation, the success of the internet has far exceeded everyone's expectations.
10191 Canada boasts one of the world's highest internet penetration rates, 70 percent of Canadian households. Since 2001, Canada has ranked as the most "connected" nation in the G7.
10192 The market for internet services is highly competitive with several cable, telco and independent ISPs offering a variety of speeds and plans at competitive prices.
10193 A world class competitively-priced broadband infrastructure is now at the core of Canada's modern, information economy. This ensures that Canadian businesses can compete internationally and remain at the forefront of technological and economic development in the digital era.
10194 The Commission has itself conceded that:
"Continuous access, minimal capacity concerns, and few scarcity issues provide an unprecedented environment for Canadian new media broadcasting to flourish."
10195 In 1999, the Commission concluded that there was no policy rationale for regulatory intervention to create Canadian content. That statement is even more accurate today.
10196 Internet service providers, private broadcasters, industry stakeholders and, most importantly, Canadian consumers all agree that internet regulation and taxation are unacceptable. Shaw customers and Canadians across the country have told the CRTC to "leave the internet alone". In letters filed in this proceeding, Canadians oppose internet taxation and content regulation which they describe as "unacceptable", "against what this country stands for" and a violation of "free speech".
10197 Despite the tremendous success of the internet in an unregulated environment, demands for a new internet tax have been put forward by a few self-interested interveners based on the entirely false assumption that some form of production subsidy is required to create professionally-produced Canadian new media content.
10198 In this proceeding, almost every intervenor and the Commission itself has confirmed that content is abundant in a global, on-demand new media world of unlimited shelf space. With almost no barriers to entry, the internet provides infinite space for content, including Canadian video content. A subsidy approach is unnecessary, futile and harmful.
10199 Some of the world's most prominent internet developers agree. Companies like Apple, Microsoft and Google have warned that domestic regulation and taxes would severely disadvantage Canadians in a global, unregulated market. They also made it clear that there is already an abundance of Canadian video content on the internet.
10201 MR. STEIN: No one knows what the most popular websites and sources of video content will be in the internet of the future. However, some things are certain. Consumers will choose the new media content they want to watch. In this new world no authority should make that choice for them. The type of content that is made available to Canadians will be and should be determined by innovative content creators, not by regulators.
10202 While the successes and achievements are impressive, new media remains in an early stage of its evolution. It is evolving and developing in response to consumers. Let's be blunt: Regulation did not build the internet; consumers and technology did. Regulation will not result in anything positive but it will lead to significant harm.
10203 A 3 percent internet tax will create a huge barrier to investment. It would significantly decrease EBITDA, result in lower profit margins, and reduce our ability to invest. Canada has assumed an international leadership position in broadband. An internet tax will quickly erode this.
10204 It is ironic that the government has committed $225 million to support broadband investment while the CRTC is considering taking money from broadband providers and their customers. The government has also decreased the GST by 2 percent. But these benefits will be negated if the CRTC goes in the opposite direction by adding a 1 percent contribution to the Local Programming Improvement Fund and then a 3 percent internet tax. Consumers should not be burdened with unwarranted and punitive taxes.
10205 The entire industry will suffer from an increased regulatory burden beginning with the need for ISP registration. The distribution of funds will lead to the creation of a costly administrative body with no way to guarantee fairness, transparency or accountability. Customers will resent it.
10207 MR. BISSONNETTE: Our investments and the continued strength of the Canadian broadband industry will provide a critical stimulus for the Canadian economy. The Commission must not interfere with the important economic contributions of Canadian cable and telecommunications companies.
10208 Shaw has been doing its part. In the last 10 years, we have invested more than $5 billion to build our world class broadband infrastructure. We have built a reliable and extensive network comprised of 625,000 kilometres of fibre. We have also grown our internet customer base from 0 to 1.6 million homes today. This represents 70 percent of Shaw's basic cable subscribers, the highest basic cable penetration rate in Canada and the second highest in North America.
10209 And why have we been so successful? Because we listen to our customers. In a highly competitive environment, Shaw customers know they can depend on our speed, reliability and technical support. To maintain the loyalty of our customers, we need to stay ahead of the curve by increasing speed and efficiency to respond to their demand for bandwidth-intensive content. This means investment, investment and more investment.
10210 To serve our customers and remain competitive, we will continue to make significant new investments to upgrade and expand our network. Last year, we invested more than $700 million in capital expenditures. We will continue to make significant capital investments in the future.
10211 Focusing on operational issues for a moment, we believe that the greatest barriers to accessing Canadian content on the internet are related to the capacity and geographical limitations of the current broadband networks. Shaw is committed to overcoming both of these barriers in order to better serve our customers.
10212 With respect to capacity, to maximize value to our customers we provide the choice of four levels of internet with downstream speeds ranging from 256 kilobits per second to 25 megabits per second. Last year, we introduced "PowerBoost", which provides a 5 to 20 second burst of downloading speed by temporarily increasing a customer's available bandwidth.
10213 Our customers want us to continue to enhance their internet experience. We are listening. In February of this year, we launched DOCSIS 3.0 in Saskatchewan. By the end of the year, DOCSIS 3.0 will be launched in all our major centres. Shaw communities will have access to unquestionably the fastest internet speed available across Canada at 100 megabits per second.
10214 These speeds are vastly superior to the top dial-up speed of 56 kilobits per second that was typical in 1999. But even with our significant investments to increase speed and capacity, we still experience network congestion challenges because of peer-to-peer traffic and streamed and downloaded video content.
10215 10 years from now we will need to be talking about gigabits per second or even terabits per second to meet customer demands for bandwidth-intensive applications, including video streaming, digital downloading, interactive gaming and tomorrow's innovations like 3D video content.
10216 With the development and implementation of a broadband strategy and a commitment to spend $225 million over the next three years, the government is doing its part to support the extension of broadband coverage to un-served and underserved communities.
10217 Shaw has already demonstrated leadership in this area. In several large and small communities across western Canada, we have upgraded plants, constructed new head ends, installed fibre and completed node segmentation to become more efficient, enhance our services and reach new customers.
10218 For example, we have upgraded existing infrastructure to extend high-speed internet services to small communities like Magrath and Redwater in Alberta, Squamish, BC and Elie, Manitoba.
10219 And through recent acquisitions we will bring a broader range and quality of internet services supported by our outstanding customer service to Campbell River and several other small communities in British Columbia.
10220 These are just a few examples of our efforts and we plan even more expansion in the months ahead to better serve our customers.
10221 When examining a business case to upgrade these facilities, every dollar counts. The introduction of a levy on ISP revenues would make it even more difficult to make a workable business case for expansion to remote communities. As a result, an ISP levy would create a significant barrier to investment and would be in direct opposition to the government's objective to close the broadband gap.
10222 Although building an advanced broadband network will require billions more in capital expenditures, we have not asked for any subsidies. However, we do need the certainty of an unregulated and un-taxed internet environment as we make our investments and rollout our broadband networks across Canada.
10223 MR. BRAZEAU: The internet has created an incredible opportunity for creativity and innovation. However, the full promise of the internet will only be realized if a supporting infrastructure exists. There is already an almost infinite supply of content. This content, especially video content, needs bandwidth. The Commission must not interfere with the efforts to increase capacity to satisfy the ever increasing customer demand for speed and efficiency and provide access in un-served areas.
10224 It is often said, "If we build it, they will come". In the case of the internet, we know the content creators are coming and our job is to provide the advanced infrastructure and bandwidth they will require and customers will demand.
10225 We are prepared to do this and with every investment in network capacity and expansion, there will be more opportunities for content innovation that will support the creative community and entertain and inform Canadians.
10226 Before concluding, we would like to briefly refer to the legal opinions we have submitted from Stikeman Elliott and Torys and the opinion from Fasken Martineau that we included in our July submission as part of the Canadian ISP Alliance. These opinions make it clear that it would not be legally correct for the Commission to attempt to use its powers under the Broadcasting Act to impose a levy on the gross revenues of ISPs.
10228 MR. SHAW: In conclusion, making sure that Canadians have the most advanced network to access the limitless content, services and applications is the most important priority for the future of the internet in Canada. The Commission's main concern must be the same as the primary goal shared by ISPs, customers and the majority of industry stakeholders: Build the network.
10229 Focus on the network is appropriate because new media content, including Canadian content, is already flourishing across the country. We currently cannot meet future content demands, especially high-bandwidth applications.
10230 Investing in our network continues to be our biggest challenge and an unregulated environment will ensure that companies like Shaw are able to invest the billions of dollars required to continue the advanced broadband network rollout across Canada. In an unregulated environment we have achieved tremendous success.
10231 There is more Canadian content on the internet than on television, more Canadian participation and more customer control. The beauty of the internet is the power of the customer. The customer should be trusted to make their own Canadian content choices.
10232 We are a successful company because every day we engage our 3.4 million customers and try to listen to them. We ask the Commission to do the same as it listens to all Canadians and to not try to re-regulate or to change the structure of the internet now.
10233 Thank you. We look forward to having a dialogue.
10234 THE CHAIRPERSON: Thank you for your submission.
10235 First of all, let's take the polemics out of this. We are not trying to make a choice for consumers. We are not trying to regulate the internet. We are not trying to -- what is your expression -- internet taxation, content regulation, et cetera. What we are talking about here is two existing orders which we made, exemption orders, and we are reviewing those.
10236 So I mean can we stay to that? I really don't want to have an exchange of polemics with you.
10237 When we go back to the original order, we made it on the basis of three -- two points. We said it's evident to the Commission that the licensing and regulation or the class of undertaking will not result in a significant greater contribution to the Canadian broadcasting system. So basically, we said it's there but licensing won't change -- and secondly, we said it will not have an undue impact on the ability of licence undertakings to fulfill their regulatory requirements.
10238 Now, Mr. Shaw, do I understand that you feel that both these conditions are still met today, that in effect if a licensing -- and although nobody is talking about it -- but as we said, then licensing and regulation will not result in a significantly greater contribution. You made that abundantly clear in your presentation. And also that the -- it's evident that undertakings operating under the exemption will not have an undue impact on the ability of licensed undertakings to fulfil their regulatory requirements.
10239 MR. SHAW: I guess when we look through the whole thing, and we come to it with an industry that right now is in dire crisis across the board, we are seeing that any kind of additional regulatory burden on any factor will not help at all. And I think that when you look at it, that when you look at the industry as a whole we are saying that, you know, the internet is functioning quite well. There is a lot of Canadian content.
10240 I was looking at a stat that said CBC is one of the top access sites in Canada, like in the top 10. So I'm going, "Okay. Well, so they are going there on their own. Like there is no regulation to drive them there".
10241 So we are actually kind of coming from the fact where we are saying, "Listen, if there is things we have to work on in the network, you know, it is not trying to come up with this structure like we have on the other side." And I'm not going to get into the CTF issue but, you know, on the other side where it hasn't been as effective and we fail to understand and if you have got a good show and it's on YouTube, it's on and you will get millions of hits.
10242 THE CHAIRPERSON: For the last two weeks we heard lots of presentations --
10243 MR. SHAW: I wasn't able to see them all.
10244 THE CHAIRPERSON: No, but you have got the flavour, I gather.
10245 But partially the argument is that you operate a BDU right now but a lot of your content has migrated, is now distributed over the internet, and presumably in the future also over wireless. And that part is not only unregulated but it doesn't pay the contribution that you right now pay towards the creation of Canadian content, and that as more and more migrates from one platform to another there will be less funds available for the creation of this. And therefore, the argument goes, at least put the same obligation on the new distribution mechanism as the old.
10246 It has all sorts of problems in terms of implementation, how it -- et cetera.
10247 MR. SHAW: Yeah.
10248 THE CHAIRPERSON: But that's the basic concept. I gather you don't buy into that?
10249 MR. SHAW: No. You know, have the funds gone down, like if I -- you know, I don't have the exact number but I thought our fund payment went up every year. Was it 5 percent or 6 percent?
10250 MR. BISSONNETTE: It continues to go up on the basis of the revenues that it's calculated on.
10251 You know, we have made the contributions and we have made the contributions in the form of investments in our network to make the experience for our consumers an experience that they really enjoy, and it's one that has really been driving the growth of internet since the first customer came on. They didn't have a clue, frankly, what the internet meant. They knew it was something that they should probably look into.
10252 We created a Canadian portal in fact -- you know, Shaw -- so that customers when they went onto the internet they could get a sense of adventure. They were able to go to sites that were relevant to them and those included the Canadian broadcast sites that existed at the time. They were able to see what was going on in the world. Many of them -- and again, you have to look at our customer base represents every demographic; whether you are a four-year old child or an 85-year old grandmother, whether you are a Caucasian or a Chinese or an Italian or an Indian it allowed them ways to kind of express themselves and to travel, if you will, to countries to be still in tune with what is going on in their own countries. People started developing businesses --
10253 THE CHAIRPERSON: But I'm not talking about the Internet, I'm talking about broadcasting over the Internet. We made that clear in our notice. Obviously we are not talking about the Internet in general, et cetera. We are talking about new media which we defined as broadcasting over the Internet or broadcasting over wireless.
10254 The question is, your content is -- the content that you are distributing is now distributed over both. Clearly it is being distributed equally -- not equally, but in some form over the Internet and wireless, as well as over your cable and therefore the argument goes, you should make a contribution from both businesses.
10255 MR. STEIN: Well, I think that the problem here is that we don't know what our customers do on the Internet. So when people -- I mean we don't monitor them. We know generally what demands are and we make investments and we split nodes and all those types of things to make sure the speed is there and that people are able to use it and we keep coming out with new packages so that customers have a range of choices, et cetera, but we don't monitor what they watch.
10256 What we do know though is generally how people behave on the Internet. And you have seen that from Google and Apple and Microsoft and others, what people generally do. It is not primarily broadcasting. You would not use the Internet. If you were building a broadcasting system right now, you would not use the Internet to do that. You would use a cable system, a broadcast system to do it, satellite, whatever. Those are the ways to do it.
10257 What people are using the Internet for primarily is self-generated content. It's not professionally produced broadcasting. And we can all observe it in our own homes or with our own children.
10258 So I guess the problem we have is when you say we are not talking about regulating the Internet, I understand what you are saying but you are by just raising the question of, you know, are incentives or regulatory measures necessary or desirable for the creation and promotion of Canadian broadcasting content in new media, and all we are saying is no.
10259 THE CHAIRPERSON: Okay. But remember the quote you just read is "Canadian broadcasting content on new media." That's what I'm talking about. I mean where I'm leading to is, I understand people saying yes, some of the content from traditional broadcasting is now distributed over the Internet or wireless. I think that is undeniable.
10260 The question is how much? How do you measure? That's why for the six questions we sent out prior to this hearing, the first one, the key one, we said, is: Can we get some definition on this because how can one measure this? You just now said --
10261 MR. SHAW: We don't know.
10262 THE CHAIRPERSON: I can't recall your exact words but you said they basically use the Internet for everything else and just a small portion for video in broadcast. You may be right, you may be wrong, I don't know, you don't know unless we measure. Can you help us with the measurement?
10263 MR. SHAW: We can only tell you how many bits are coming in or out. We don't know what kind of bit it is. It could be anything from an e-mail to a porno to an adult to a video this, to a that. We don't know that. We don't know that. We spend no time trying to figure out what bits are going to your house. We just don't know.
10264 THE CHAIRPERSON: Yes, okay. You don't know. Can you find out? That is the question I asked Rogers.
10265 MR. SHAW: No.
10266 THE CHAIRPERSON: I asked him whether you can measure with deep packet inspection or whatever other methodology --
10267 MR. SHAW: No.
10268 THE CHAIRPERSON: -- what part of the traffic that you carry is video and is not?
10269 MR. SHAW: You know, we have been wrong in technology so many times, Peter. If I think about NABU and let's go deep packet search and let's go this way and that way and every time we think we know exactly the right technology, you know what, you should just go in the mirror and look in and say: You know what, you're wrong, Jim.
10270 THE CHAIRPERSON: Do you know how much money you make from the Internet?
10271 MR. SHAW: I do.
10272 THE CHAIRPERSON: Yes. But that's a totality, so that's one number we know. You know how much money you make by providing Internet but you don't know how much of that --
10273 MR. SHAW: I know that last year -- I'm not getting into an argument about it but I know this year that we are going to spend $700 million. I know everybody thinks that cable companies are licensed to print money but I always say they are licensed to spend money because every time I turn around we've got another obligation and something else to do and another five channels to put on -- half make it, half don't -- digital boxes to deploy, digital change this, this turn on, this speed here, that customer here.
10274 So I know you think we just take it all and I put it all in my pocket. By the time we pay the dividend, the CAPEX and everything else, there ain't a lot left. That's what I think.
10275 THE CHAIRPERSON: I wasn't asking you about the profitability of your business. I asked, do you know how much you may earn from providing Internet access, and clearly you do.
10276 MR. SHAW: Yes.
10277 THE CHAIRPERSON: But you cannot subdivide that and say my customer used "X" percent for video and "X" percent for something else and so therefore there is no way you can --
10278 MR. SHAW: No, we can't do that.
10279 THE CHAIRPERSON: That's what I meant.
10280 MR. SHAW: The network is not broken up that way. I guess maybe if we really worked at it, we could but we wouldn't probably try to do that because I think the Internet subsidizes the broadband, it subsidizes the whole network and I can't tell you if Ken is ordering a pay VOD movie and you've got Movie Channel or whatever channel you've got and you're on the Internet. It is all relative. And in one house we might have three things operating at the same time, so it's really hard for us to say, okay, well, John is on the Internet, Ken is watching VOD and Jim is watching a hockey game or something.
10281 THE CHAIRPERSON: Okay. I'm sure it's not your favourite statute but the Broadcasting Act specifically provides that each element of the broadcasting system should contribute in an appropriate manner to the creation and presentation of Canadian programming.
10282 If you are now actually distributing Canadian content and you broadcast via the Internet or via wireless, what is your contribution to the Canadian programming?
10283 MR. SHAW: Is that the same as what the telephone over the cable provides to the broadcasting thing too?
10284 THE CHAIRPERSON: I guess the same question would apply to that.
10285 MR. SHAW: I guess it's the same question, right?
10286 THE CHAIRPERSON: Yes.
10287 MR. SHAW: Yes.
10288 THE CHAIRPERSON: Look, I'm the regulator, I'm supposed to --
10289 MR. SHAW: Okay. Look, I'm the operator.
10290 THE CHAIRPERSON: Exactly. So I'm asking your view. We both are subject to a statute that Parliament imposed on us. It puts this principle in place. I'm asking you: How does one apply that principle when we have a new phenomenon like we have with the Internet now?
10291 MR. SHAW: Okay. Here is how I think it applies. It applies by letting us deploy digital boxes faster than anybody. It allows us to keep the network running better and allows the quality of the existing broadcast services on there to be second to none in Canada.
10292 I think it is that money that comes from there that gets pooled up with everything else that helps the whole network out. Because if we had to just stand alone with just broadcasting only, boy, we wouldn't have half the network we have today, not even half.
10293 THE CHAIRPERSON: You were here this morning, I assume, when Rogers testified or you listened to it over the Internet. Are you aware of the Rogers presentation this morning?
10294 MR. SHAW: I'm not but these guys probably are.
10295 THE CHAIRPERSON: Okay. Essentially what they are suggesting, they are going to provide a Rogers portal and on that portal you can -- if I understood them correctly, if you are a Rogers Cable customer you get access to their portal for free and you can watch any of the Canadian content that is being distributed by Rogers Cable on Rogers portal for free.
10296 Clearly what they are trying to do is keep the cable customer and keep them happy. If he missed an episode, he can pick up the missed one on there, et cetera, and so therefore is trying to make sure that that is a way of supporting Canadian content and at the same time it's serving them as keeping the customer a loyal cable customer of Rogers.
10297 You can do that even if you are not a Rogers Internet subscriber and you have another Internet server. As Rogers put it, you make the strategic choice of staying with Bell or Shaw or whoever is your provider.
10298 Are you thinking of doing something along those same lines?
10299 MR. D'AVELLA: We heard the Rogers presentation this morning and it's not a new idea. I mean we have been in this industry, all of us here, for many, many years.
10300 Some of you might remember the old at-home network. Well, the at-home network was essentially premised on the idea that we would be able to decide for consumers what content they actually wanted and we would aggregate it and we would create this walled garden.
10301 That model doesn't work. I mean we have tried it. It didn't really make any sense. It doesn't make any sense today when we have better access and more sites to go to. Not that there is anything wrong with it as a business concept. The issue is: Who do you deal with in terms of actually acquiring those rights?
10302 The program owners, the broadcasters who actually own their content have typically said, you know what, I don't want to be part of an aggregator's Website. I have my own Website -- and I will just use CBS as an example -- I have enough content that I can put together here and drive users to that particular Website. These guys aren't interested in the aggregation business. The aggregation business used to be the old AOL model. It used to be the old at-home model. That's not what works.
10303 You know, we will cache content that we think our -- that we know our customers want. And all caching means is you are going to make it available a lot faster because now it exists closer to your customer than the network itself.
10304 There is no -- we don't see any interest at this stage amongst the Canadian program producers to actually aggregate this stuff and create -- let's call it whatever portal you want to call it. I mean in our view it is almost a step backwards in terms of helping --
10305 THE CHAIRPERSON: It wasn't a walled garden, as I understood it. I thought --
10306 MR. SHAW: We could never get it to work. I mean we tried for like six years and like we couldn't keep anybody in the garden. Like if you start on -- I think we are called Shaw.ca or some start -- I mean more people bypass us than anything. They go click, click and they're gone. Like I mean they barely even hit the page and they are already hasta la vista.
10307 THE CHAIRPERSON: Mr. Shaw, it's not the walled garden concept. That's really not what they are suggesting.
10308 They are saying, you as a regulator are concerned about Canadian content and access to it. I will make sure that anybody who is my cable customer and can watch something on my cable system can also watch it on --
10309 MR. SHAW: Well, they should have maybe had the CEO show up from Rogers too.
10310 MR. BISSONNETTE: First of all --
10311 THE CHAIRPERSON: I take it that you are not interested in pursuing this concept?
10312 MR. BISSONNETTE: No, no. We think --
10313 THE CHAIRPERSON: Because they suggested that hopefully most BTUs would adopt their concept and therefore would obviate the need for any intervention by the CRTC.
10314 MR. BISSONNETTE: We think that there's good ideas and there's bad ideas and if there is a business model that allows it to flourish on the Internet, which we have seen over the last 12 years, good ideas end up being the Googles of the world and bad ideas end up being like the NABUs of the world. And if it's a good idea, customers will be attracted to it.
10315 Frankly, most of the content that they are talking about being on that portal already exists on broadcasters Web pages. So our customers are going there now. Aggregating it really doesn't fall into, you know, a business model that we embrace.
10316 THE CHAIRPERSON: Thank you.
10317 In your written submission in paragraph 17, you say:
"Traditional broadcasting media can easily be repurposed from new media platforms by low production and distribution costs and the absence of capacity constraints facilitate the production to and access to Canadian new media content." (As read)
10318 Just about everybody who appeared before us said exactly the opposite. What makes you say that it is so easy to repurpose it by low production and distribution costs?
10319 MR. SHAW: You know, we were chatting this morning and it is amazing to me that now, of course, all the broadcasting guys are really in disarray and they pay all these multiples, go on a business plan, it's all their agenda, when guys like the Craigs were able to make a fortune or do very well in Canada building a station out in Brandon, Manitoba. And they now go and they say they're going to shut it down. Say, good, shut it down, let somebody who is entrepreneurial enough take it over and we will have some original Canadian programming of some guise.
10320 Like to think that we cannot do this on our own and that YouTube is created by people that do it all for free. I don't know how much you guys have been on YouTube but you can look and there are hundreds and thousands of videos on there and they do it for free. They don't even charge you to go on there. They don't charge you to go on, they don't charge you to produce, take a tape of your friend, send it in, you got a funny joke, you want to tell a joke, you want to do a movie, make a movie, you want to do this.
10321 To now think that we have to go and subsidize all this stuff to come up with original Canadian programming is only thinking -- like my kids wouldn't think that way at all. They would come to me and they would say: Listen, Jim, I don't even think that way. They chat different. If I cut off the Internet, they would rather the broadcasting got cut off. So then we wouldn't have to worry about a contribution to broadcasting because it wouldn't be there. So they could just write on the Internet.
10322 THE CHAIRPERSON: In paragraph 22 you are talking about if there was a levy on ISPs:
"Such an approach would become an administrative nightmare and raises basic unanswered questions such as what type of body would be created to determine who would receive funding and what would be the criteria for funding?" (As read)
10323 Well, yesterday we had the announcement by Minister Moore for the creation of the Canadian Media Fund. The announcement was universally applauded, which basically says content is content and you should be able to watch it anywhere on any platform and it is just media concern.
10324 Doesn't that basically answer those questions as to what body would receive the funding, who would determine the eligibility, et cetera? Is this paragraph still valid in light of yesterday's announcement?
10325 MR. STEIN: Well, I had the pleasure of attending the announcement yesterday and we were very pleased to see the direction that the Minister is going in terms of the fund and in fact that he rolled in the new media fund. I think the question there, though, is that it is primarily based on supporting the development of broadcasting.
10326 Our view has always been that the way that fund has been run over the past 15 years has been a disaster, that it has taken the wrong approach, it has not invested in the development of a new industry in Canada, it is just a continuing subsidy program.
10327 We think that the Minister's approach, which is to put out money for two years to continue the fund for that period of time, to take an investment approach to it is the right way to go. We think that is the way you build all kinds of industries. But to continue to subsidize, to tax, to support it, we don't agree with.
10328 So we will see what happens over the next couple of years with that fund and that approach. But the key to that approach is that, as the Minister indicated, the new Board will have to sort out exactly how that is done, but from his objective, which was this is primarily based around the broadcast platform and the adjunct media. Now, I know that --
10329 THE CHAIRPERSON: That's all I'm talking about is broadcast.
10330 MR. STEIN: Yes, and that's fine. That is the proper use of the fund in terms of going that way but that does not call for attacks on ISPs and it does not call for regulation on the Internet. So we think that the way he is going in terms of that fund is the appropriate way.
10331 THE CHAIRPERSON: Mr. Stein, I didn't talk about regulation of the Internet, okay, I talked about where the contribution got in and I asked you a specific question. You say, how would it be administered, what kind of fund, what are the criteria. My point was the very thing that you just pointed out, is haven't you got the answer that that is where the funding would go?
10332 MR. STEIN: Funding from where?
10333 THE CHAIRPERSON: Assuming there is an ISP level and you put it in that fund, wouldn't it be solve the very goals that you have just described with the investment, it would go to broadcasting?
10334 MR. STEIN: We just think an ISP tax is the worst idea we have ever heard of.
10335 THE CHAIRPERSON: I didn't ask you whether it was a good idea, I asked you a very specific question. I said if there was an ISP -- I know you oppose it. That's not the point. But you also say even if there was one, I don't know how it would be administered, who it would be given to.
10336 Here it seems to me at least that portion of your concern is addressed because you now have a mechanism where it could go to.
10337 MR. SHAW: Why don't we just take it into general revenue. It's going to the government general revenue.
10338 THE CHAIRPERSON: You are now talking about the source and I appreciate that you have a problem with the source.
10339 MR. SHAW: We have a huge problem with the source.
10340 THE CHAIRPERSON: I'm talking about the application. I'm talking only about the application here.
10341 MR. SHAW: First of all, we are thinking that if it does happen that first of all there will be no hidden and Canadians have to know and we are going to put it on the bill and it will have to be Internet tax and that's what will go on there and it can't be like the hidden tax that we have on there now with the Canadian Production Fund.
10342 So we think it's time to disclose. I mean we have to disclose everything to you guys. We think it's time everybody gets to disclose. So if we want to disclose it, I think we should bring it all out. You know, if that is the direction that Canada wants to go, then let the consumers go and if they don't pay us on the bill, then we won't pay you. And if they pay us, then we will pay you.
10343 Maybe some will say, I want to pay that because I want some new Internet something, whatever they want that they can't find. I don't know, I'm trying to figure it out, but anyway they would probably want something that is not on there that maybe somebody will produce out of, I don't know, Halifax or somewhere, Montreal, Toronto.
10344 THE CHAIRPERSON: No, I understand your opposition to raising a levy. I wasn't exploring that part. I was exploring the application of a levy should there be one. I understand if there is one you will display it as prominently as you can so that Canadians are aware that they have to pay it, which is your right to do. I am not talking about that point.
10345 Now the other thing is you suggest that a levy would both stifle investment and downgrade the service. I'm not quite sure I understand."It would result in many choosing to drop or downgrade the service." (As read)(As read)
10346 Do you have any evidence of that, that, for instance, when you raise your prices, as you have done periodically, that you actually lose a certain amount of your customers or they downgraded?
10347 MR. SHAW: We do actually and, you know, it is very, very current right now with the lightning of the economy, with a lot of people that had two jobs now have one job, that we are seeing a general reduction. We are not seeing a total go away but it's like, you know, instead of taking the really high speed one, could I just -- what kind of package, is there any kind of deal, like, you know, what can I get, can I get a free movie if I change this way and that way.
10348 So we are seeing people migrate around. I'm not saying they are going to drop it but they do change their service because now they are on a little more defined budget than before. That's just the reality as, you know, the economy goes.
10349 THE CHAIRPERSON: Do you have some numeric evidence or is it mostly anecdotal? Because the reason I am raising it is because various other interveners before us have suggested quite the opposite, that Internet access by now has become something close to a necessity and it is one of the last things that people will let go.
10350 MR. BISSONNETTE: Mr. Chairman --
10351 MR. SHAW: I mean just look at TELUS. I mean, you know, people move to TELUS and their TV is $15. Our TV is like $45 and they just gasp as they move over. I mean we will send you in some numbers if you want. I mean, you know, there is no doubt that things happen like that.
10352 MR. BISSONNETTE: One of the things that we have tried to do is we have tried to add value for our customers, so we have doubled the speeds in the last year but we have also -- the rates for Internet service over the last 10 years have gone from an average of $55 now down to $32, so it is becoming more and more affordable. That is the way that we keep our customers, is by keeping them in a service where they see the value. So the perception that every year the rates are going up for Internet services is a fallacy.
10353 MR. SHAW: The other thing too is the --
10354 THE CHAIRPERSON: Now that you have raised Internet prices in the past, I am not making any allegation --
10355 MR. BISSONNETTE: No, no, no, no.
10356 THE CHAIRPERSON: Somehow you seem to think of me here as your critic. I am not. I am presenting facts.
10357 MR. SHAW: I'm not. We're just talking.
10358 THE CHAIRPERSON: I want to find out the sensitivity of pricing.
10359 MR. BISSONNETTE: No, but we are not trying to be acrimonious with you. We are just saying --
10360 THE CHAIRPERSON: Well, you could surprise me.
10361 MR. BISSONNETTE: Well, no, we're not. We are just very animated. We love our business and we love the business we are in. We love our customers.
10362 MR. SHAW: We are passionate about what we do.
10363 THE CHAIRPERSON: Good. I am passionate --
10364 MR. STEIN: We came here, we didn't want to come here and be mellow milquetoast, we wanted you to hear what we had to say.
10365 MR. SHAW: Yes. You know, you weren't going to get a lot of milquetoast out of us. What did we say? You know, when they came down, we said: Okay, coach, put us in, we are ready to play.
10366 But basically, you know, our Internet traffic is doubling, I think, every 12 to 14 months -- doubling. Like that is the amount of data that is going over our network and we have no idea how much data, what it is, what you are doing exactly. We can tell you if you are using a lot more than you should and that kind of thing. So basically most of the money for the Internet stuff just continues to go right back in just to build her up because the traffic is going so hard so fast.
10367 THE CHAIRPERSON: But if you have some evidence on the elasticity or inelasticity of Internet pricing, I would appreciate it.
10368 MR. SHAW: We will bring that.
10369 MR. STEIN: The only point I would make on the percentage is that I thought -- it is kind of ironic but when Prime Minister Harper announced a cut in the GST or 1 percent, he was standing in front of a television screen. So cuts like percentage changes in the taxes that are imposed on Canadians are significant and a 3 percent tax on our 3.5 million customers would be a significant tax and that is what we think that people would object to.
10370 As well, the 3 percent is significant not just in terms of the 3 percent it means on the bill, it's what it means in terms of investment because of the amount of money that we would have to generate in order to make up that 3 percent difference.
10371 THE CHAIRPERSON: Mr. Stein, you seem to have said --
10372 MR. STEIN: So every percentage point is significant in terms of any consumer product that you put out there.
10373 THE CHAIRPERSON: You seem to take the Peter Grant proposal as CRTC position. What I am just trying to understand here, and that's why I'm saying, how do you measure what is your Internet, and if there is a levy, what would be an appropriate level, 3 percent? Pick a point. As I say, I can't even get off the first base because I don't --
10374 MR. STEIN: There is no appropriate level.
10375 THE CHAIRPERSON: -- know what to measure. I don't know what the denominator is and you are telling me you cannot in any way ascertain what is the amount of broadcasting traffic you distribute as opposed to other traffic?
10376 MR. STEIN: I think the point we are making on broadcasting is that it is an adjunct, it is not the prime driving force on the Internet. The prime driving force on the Internet -- and I think Google makes this point as well -- is that for the people that we know in the business who are at Facebook and Google and others, is the networking, that the ability to use it for all means of communication is what is the driving force behind the Internet.
10377 We don't know what the new application is going to be down in two years. What we do know is if people want to watch a hockey game, they would rather watch it on a high-definition screen, which is terrific for us. That is the way they want to watch it. The capacity on the Internet is just not there to deliver that kind of quality.
10378 So what we are seeing with consumers, and maybe a lot of it is anecdotal, but what we see happening on the Internet is people make hundreds of millions of dollars in investments to try to develop products, some of which succeed, many of which fail, and the only way in which we actually know how people are using it is which ones succeed and which ones fail.
10379 I mean at one point I think we had the opportunity to buy a company that owned Google, right. We didn't do that, which was probably a good thing because it probably wouldn't have developed the way it actually ended up developing. But it's that entrepreneurial spirit that has to be left in the Internet to drive the new content creations. That is where the new services are going to come from and we just feel that the broadcasting part of that, while it is there, is not a primary function of the server.
10380 MR. SHAW: It's a lot like the telephone system. Like why would you penalize a guy that wants to phone Brazil versus a guy that wants to phone Toronto? You want to go on the net, you want to phone Brazil, you phone Brazil. You are Canadian, so is the other guy, he is Canadian, he phones Toronto. So he gets the advantage and the other guy doesn't. You know, it just is so hard for us to fathom how we could even come close to even managing anything close to this type of thing.
10381 THE CHAIRPERSON: Yes. You mentioned just now, for instance, that you can't watch HD on the Internet. Presumably you will be able to do that in five years or whatever at the rate that technology is moving. If it does, what does that mean? Do you lose your advantage, et cetera? So we have to look forward and try to anticipate rather than waiting until something has changed.
10382 MR. SHAW: Well, I would like to know what the stock price is going to be next year too but I can't pick that out and I tried. And I would like to know what we are going to do next quarter but I am unable to do that. And I want to know what I'm going to have next week for dinner but I'm unable to do that. But I do what I do, so I know tomorrow the sun will come up and we will drive ahead and when it gets there we will go there.
10383 Like where's 3-D coming? This new 3-D stuff is coming down. It's a bandwidth hog. It's going to take up all sorts of bandwidth. Where's the 3-D applications in Canada? There's lots of stuff happening out there.
10384 So, you know, you're just one segment of a broad array, which is what you are talking about. We are saying, you know what, we're thinking that you you are just going to have to deal with it as it comes, and sorry, I guess you will have to have another hearing.
10385 MR. BRAZEAU: Just to add, I guess the difference of opinion here is that we don't see the merging of the two screens into one screen. We still think that in five years from now there will be two screens because there are different advantages and different characteristics and different ways of consuming the products on both of those screens.
10386 THE CHAIRPERSON: I guess none of us knows who is going to be right. I'm not saying two screens is going to be there or not, it's just I think we have to, to the extent that we can, look forward and try to anticipate rather than trying to close the well well after the child has fallen in and drowned.
10387 But tell me, you basically feel that our two exemption orders as they are in place right now are okay, we don't have to do anything? I mean some people have said: Leave them in place but put in a reporting environment so we get some better data or create an observatoire. Others have said: You have to amend them at least to put in a no preference rule, et cetera.
10388 MR. SHAW: I mean look at them and go and say look at the tremendous results you have. Tremendous results, like number one in the top G10 or 7 or whatever it is. I mean Canada's results on the Internet broadband side are spectacular. So you should take that as an achievement, not as a failure. It has been a great success.
10389 THE CHAIRPERSON: I want to maintain the achievement.
10390 MR. SHAW: Okay. Then don't change much.
10391 THE CHAIRPERSON: I want to maintain the success. I don't want to wake up tomorrow and find out it's gone because we didn't act in time. That's what this is all about.
10392 MR. SHAW: Gary's hitting the button.
10393 MR. STEIN: I think that what is important to us in this is because we have lived through this from the early '90s and we have gone through a lot of the failures, a lot of the attempts which were good ideas but some of them failed, Beacon, for example, NABU, et cetera. There is a whole range of investment things, some of which we're involved with, some we're not, that didn't succeed.
10394 What we want to be able to say is that that is the way it is going to continue. We are not going to be able to predict a year from now or two years what is going to be successful but if we create the environment, and that's what we see as our appropriate role under both the Broadcasting Act and the Telecommunications Act, is to provide that network and that ability out there to make sure that people can get to Canadians and that Canadians can get access to whatever they want to get access to.
10395 I mean I go on the Web -- and I just did it before the hearing. I entered in "drama." Well, I got -- of course I go to google.ca, so I get all the Canadian sites, I get all the Canadian access. You know, I find the Internet is a hugely Canadian kind of service. So I think one has to look at it as a whole.
10396 When this whole thing was developed through the '90s, a key part of this was the policy process that the government put in place in the mid '90s, the whole thing about the information highway and Kevin Lynch, the Deputy, going around and giving us all the speeches, which most of us didn't understand, about the way they wanted to foster and develop it, and we supported that and that was a terrific process.
10397 So we are not saying that the government has no role in this but what we do say is regulation is only one part of the toolkit that governments have to make sure they can create solid industries, and that in this case the government and the CRTC chose not to use regulation, and we think that was the best decision they ever made, and that's what we are saying should continue. That would be the best thing for the next 10 years.
10398 So no taxes, no regulation, and allow us to continue to make the investments we need to make. That is our proper role within the appropriate legislation. That's what we think we should do and that's what we're up to doing.
10399 THE CHAIRPERSON: Okay. I think your view is abundantly clear.
10400 Len, you had some questions?
10401 COMMISSIONER KATZ: Thank you, Mr. Chairman. Good afternoon.
10402 I think I heard you say that you are not opposed to the Rogers model if it makes business sense but it is a business decision and you will cross that bridge when you run the numbers basically?
10403 MR. SHAW: I think we said that we tried that and looked at that many times and we could never figure out how to work the walled garden and, you know, everybody is in the Rogers family group thing, but maybe if it worked for them they would be the only company in the world that made it work. We have tried. We were actually partners with them in at-home and tried that too and we could not keep anybody within that garden. As soon as you got them in the garden, they just want to bust right out.
10404 COMMISSIONER KATZ: Okay. So we now have two businesses that you're in, amongst others. One is the cable business where you are getting $40 from a customer, roughly speaking, give or take, and you have a customer paying you broadband services, ISP, another $40. You have $80 a month from a customer on average, give or take.
10405 MR. STEIN: We have a lot of telephone customers too.
10406 COMMISSIONER KATZ: Sure. Sure. But in those two I'm looking at. And your shareholder value is driven --
10407 MR. SHAW: We don't have any wireless customers.
10408 COMMISSIONER KATZ: Yet, I think -- anyways, I won't put words in your mouth.
10409 Your shareholder value is driven by maintaining that $80 and growing it. In this day and age, in this economy, people are looking at perhaps reducing their costs as well, as you mentioned, Jim, as well earlier.
10410 So the question is: How do you take that $80 a customer and maintain it as well, while you see the value of the Internet going up and people using it for secondary windows to watch something they didn't watch yesterday are basically saying, as I said earlier this morning to the Rogers group, I will cancel my cable service because I can't afford both of them, and I will watch the program that is on at 9 o'clock tonight, I will watch it tomorrow because it is being reproduced again and repurposed tomorrow?
10411 MR. SHAW: Right. And I think that people do that. If I look at my daughter, they would do that anyway. They would probably watch the program on cable and then watch it again later and if they really liked it, they will watch it one more time past that. So I don't think you'll ever get really control of that.
10412 I think that what we are trying to do is that we are seeing some barrier to price expansion, meaning ability to pass costs on, so we are trying to come back at that a different way where we are trying to sell you more products to your home. So we are trying to give you a better value equation, no different than you have seen lately. Our digital box number is really ramping up, where we give you a rental box for a couple of dollars and you don't have to pay $200, $300 or $400 for the box. So we are trying to drive a little more value with the equation.
10413 We have come back to all our programming partners and said: Okay, can we have a little free preview, some marketing, we'll kick in some, you kick in some, let's kind of get everybody in the game. So we are seeing a little resistance on the top level and it's the top guys that are peeling back off. You know, the guy that takes basic cable for $22, not $40 -- I think our basic is $20, Peter, $21 or something, right around there.
10414 MR. BISSONNETTE: Yes, around there. I think it's a little higher than that.
10415 MR. SHAW: Yes, around there. You know, I mean $40 is the big guy. You know, $20 is the little guy.
10416 COMMISSIONER KATZ: But let me tell you where I'm going to and you can answer the question.
10417 MR. SHAW: Well, why did you tell us that?
10418 COMMISSIONER KATZ: So you can answer the question. The $22 customer who's concerned and might end up leaving, 3 percent of those revenues are going to the production fund, they are going to CTF. So 3 percent of $22, $.60 is going across. That customer leaves and goes across and now is an Internet customer only and he buys more bandwidth and he buys more video consumption. And as you said in your last page here, Jim, on page 12:"We currently cannot meet future content demands, especially high-bandwidth applications."
10419 I would argue that video is a high-bandwidth application. What I think I heard two weeks ago the production industry saying is as people migrate from one form to another and can't keep them both and there is a substitution effect coming in, how do they remain solvent --
10420 MR. BISSONNETTE: Yes. But that is not the behaviour that we are seeing. We are not seeing that kind of behaviour at all.
10421 Customers that have the Internet, what they can do is they might -- we create different tiers of services, whether it is on cable, which is a basic cable service, an extended basic cable service, a digital service. So they have lots of choices within cable video services.
10422 Within the Internet now they have five alternatives in terms of price point and speed and performance.
10423 We have the same thing on our telephone product. We have a light product, we have a middle-of-the-road product and we have an all in product.
10424 Customers tend -- rather than dropping services, they tend to go to the next lowest tier which they can afford because they still want the service. There are not too many people that are being impacted by the economy that still don't want to watch television, they just may want to watch different forms of television.
10425 MR. SHAW: You know what, it's not in our interest. I know they think our interests aren't aligned. They are totally aligned. Like, you know what, we have all our money riding on selling all those products and making sure you love cable TV. Have no doubt. Internet is just like an add-on to make it better. Would you give one up for the other? Not a chance.
10426 COMMISSIONER KATZ: Okay.
10427 THE CHAIRPERSON: Okay, thank you. Those are our questions for you.
10428 We will take a 10-minute break and we will start with the next one.
--- Upon recessing at 1435
--- Upon resuming at 1449
10429 LE PRÉSIDENT : O.K. Commençons, Madame la Secrétaire.
10430 LA SECRÉTAIRE: Merci, Monsieur le Président.
10431 We will proceed with the presentation by CTVglobemedia which will be followed by the presentation by the Canadian Cable System Alliance.
10432 Appearing for CTVglobemedia is Rick Brace. Please introduce your colleagues and proceed with your presentation.
10433 MR. BRACE: Thank you and good afternoon.
10434 Chairman von Finckenstein, Vice-Chairman Arpin, Vice-Chairman Katz, Members of the Commission, Commission Staff. My name is Rick Brace and I'm the President of Revenue, Business Planning and Sports for CTV Inc. In this role, I supervise our company's wide-ranging new media activities.
10435 Please allow me now to introduce our team of experts, those individuals that have been fundamental in building our successful new media environment.
10436 Here with me today, on my immediate left, is Stephan Argent, Vice-President, Digital Media for CTV. In that role, Stephan is responsible for CTV's overall digital media strategy across all platforms, including web, mobile and digital partnerships such as Itunes. A major focus of Stephan's job has been the development of CTV's online video infrastructure.
10437 To Stephan's left is Bill Keenan, Director of Technology Operations for the CTV Digital Media Group. In this capacity, Bill is responsible for managing the end-to-end technology involved in the delivery of CTV's web content.
10438 Seated to my right is Richard Kanee, Director of Business Development for our Digital Media Group. Richard is responsible for developing CTV's digital strategy in the areas of content licensing and syndication and mobile and platform development.
10439 And, finally, to Richard's right is Kevin Goldstein, who is CTVglobemedia's Vice-President, Regulatory Affairs.
10440 We'll now begin our presentation.
10441 It has been ten years since the Commission last looked at new media. Since that time the developments in the area have been nothing short of dramatic.
10442 Ten years ago certain companies were experimenting with full motion video on the web, but the quality was lacking and few Canadians could actually access it given that high-speed Internet was only just being rolled out.
10443 Fast forward to the present. High-speed access in Canada is pervasive. More importantly, broadcast quality content, both audio and video, is available on the Internet.
10444 While new media broadcasting is but a small part of our business, we now live in a world where a virtually infinite number of websites compete with us directly for viewers, listeners and advertising dollars.
10445 We view our new media efforts as complementary to and an extension of our traditional television and radio broadcasting operations. As a result, Internet broadcasting serves two purposes: First, broadcasting on new media is a fundamental part of our promotion strategy for our conventional and specialty services. As such, we use our websites to aggressively promote our brands and vice versa.
10446 Second, and most importantly, it provides an additional window for viewers to watch those programs on another platform. Even so, the most important focus must be on our core business of traditional broadcasting.
10447 By its very nature, a strong traditional broadcasting system will deliver increased high quality Canadian content that will flow naturally to the new media space.
10448 CTVglobemedia recognizes the importance of having a significant new media presence on a variety of platforms and, over the last number of years, we have moved aggressively into this area with success. Although current measurement systems demonstrate serious limitations, one area of consistency is CTVglobemedia's rank as the No. 1 Canadian-owned online video destination.
10449 From an audience standpoint, our digital strategy is clearly working. Available metrics demonstrate that:
10450 In just the last six months alone MTV Canada delivered over 100-million streams.
10451 TSN.ca is recognized as the top Canadian sports destination online. And for anyone in the room who is a hockey fan, they no doubt found it to be an invaluable resource during last Wednesday's trade deadline coverage with live streaming video, analysis and archived content almost immediately after it aired. On that day alone, TSN.ca's website served up approximately 700,000 streams.
10452 In French Canada, RDS.ca is the undisputed No. 1 sports website with more than 20-million videos streamed in the last six months.
10453 CTVglobemedia is one of only two Canadian Internet broadcasters in the top 15 websites for unique visitors and CTV.ca now delivers over 10-million streams per month. Over the past six months, three of the top six titles are Canadian.
10454 With our proprietary online video player, which we developed and maintain internally, we deliver more video online than all other Canadian broadcasters combined. We delivered over 300-million video streams in 2008. This was double 2007, and we expect to double again in 2009.
10455 CTV was one of the first Canadian broadcasters to make shows available on Itunes. Apple praised us for our technical integration as one of the very best they've ever had.
10456 In terms of the types of television programming that we make available online, CTV streams all content for which we have digital rights. Our online programming offers a comprehensive line-up of Canadian priority programs that air on the main CTV Network, including "Corner Gas", "Flashpoint", "Degrassi: The Next Generation" and "So You Think You Can Dance Canada", as well as many of our top foreign shows.
10457 This strategy is mirrored in specialty, and when combined with conventional, we make almost 12,000 hours of video on our web platforms available at this time. And this number is growing.
10458 We're also determined to keep advertising dollars within Canada's borders by entering into geo-gated content agreements with top U.S. program suppliers, including MTV, Warner Brothers, Disney, Comedy Central and others.
10459 In addition to streaming content, we've invested significant resources to develop online experiences relating to some of our top Canadian shows. In fact, our U.S. partner in "So You Think You Can Dance Canada" has directed its international partners to our site as a way to demonstrate how to properly execute a cross-platform media experience.
10460 As well, in an early example of our digital leadership, CTV worked with Epitome in 2003 to launch one of Canada's first social networks in an extension of "Degrassi: The Next Generation".
10461 We're also making use of the Internet as a new rung on the ladder to develop Canadian talent by venturing into the area of user-generated content with Upload Yours, a portion of the Comedy Network website developed to help to discover new Canadian comic talent. Since launching on January 19th, Upload Yours has received almost 500 user-generated video submissions from across Canada.
10462 And on the radio side of our business, we will shortly be launching new sites for our radio stations with much broader offerings than are currently available. This will include the addition of an audio and visual on-demand library, increased interactivity as well as new content.
10463 Our ability to be nimble and react quickly in a dynamic environment is at the root of our success in new media broadcasting.
10464 CTV competes against Internet broadcasters for viewers and advertisers in an open and unregulated environment. Internet advertising overall has grown exponentially over the last decade. However, only a small portion of this is targeted to broadcasting on the Internet. This is further fragmenting the advertising pie available to traditional broadcasters, and specifically conventional television stations.
10465 Even with our audience success in new media, the financial return has been modest. We are competing for advertising dollars with an infinite number of websites and the portion of advertising revenues assigned to video content is extremely small. In fact, our research confirms that video advertising spend on the Internet is approximately one percent of total Internet advertising spending.
10466 We believe that to attempt to regulate broadcasting in new media in some form or another is simply not practical. Moreover, we believe that ISP revenue should be spent on developing their networks and, therefore, do not believe a levy should be imposed on ISPs.
10467 In addition, regulating Canadian Internet broadcasters would only create a two-tier system, inhibiting our ability to be more nimble, to react against a world of competition.
10468 The Commission's decision in 1999 to exempt new media broadcasting undertakings from licensing was the correct decision at the time and remains the only practical choice now. If any direct action with respect to new media is necessary, it's to ensure that our copyright laws are modernized to ensure that there are appropriate protections in the digital world. This includes maintaining the current restrictions on Internet retransmitters in the Copyright Act and updating them, if necessary.
10469 Mr. Chairman, Members of the Commission, this covers the comments we wanted to make on the issues you outlined that would be the primary focus of this proceeding.
10470 In conclusion, new media in Canada must be allowed to continue to develop without any regulatory oversight. This approach has worked to this point and there is no reason to suggest that it won't work in the future. And, to do otherwise, would only hobble the growth and competitiveness of Canadian broadcasters on the world stage.
10471 However, given that the vast majority of high-end content available on the web was originally developed for traditional broadcast outlets, it is essential that we nurture these undertakings by giving them the flexibility necessary to compete and innovate in the new global order.
10472 In essence, we need the Commission to shore up the foundation for the Canadian broadcasting system so we are able to build on top it.
10473 Thank you. Thank you for your attention, and we welcome your questions.
10474 THE CHAIRPERSON: Thank you very much.
10475 In your filed submission, paragraph 9, you say that:
"The Commission issued exemption orders of new media broadcasting undertakings continue to be relevant today." (As read)
10476 THE CHAIRPERSON: We said in '99 that:
"It is evident to the Commission that the licensing and regulation of the class of undertaking will not result in any significant greater contribution to the Canadian broadcasting system." (As read)
10477 THE CHAIRPERSON: And:
"It is evident to the Commission that undertakings operating under the exemption order will not have an undo impact on the ability of licensed undertakings to fulfil their regulatory requirements." (As read)
10478 THE CHAIRPERSON: You feel those two findings are equally valid today as they were in '99?
10479 MR. BRACE: Yes, we do, Mr. Chairman. As I've said, as we pointed out in our oral presentation today, CTVglobemedia really view the Internet and our web broadcasting activities as something that is very complementary to what we do, that being broadcasting both on conventional and specialty.
10480 It really serves, as we pointed out, to be a great promotional vehicle, we use it extensively for that. It serves as a great opportunity for catch-up and, so as opposed to having -- and maybe if it does have an impact, I would say it has a positive impact in that it provides that opportunity for viewers to both catch up and also understand and have the ability to interact with what we're airing on conventional and specialty television.
10481 But we believe and we continue to believe that our core business and our foundation is really broadcasting in the traditional forms of conventional and specialty.
10482 THE CHAIRPERSON: And you don't see the day coming where you deliver your product more over the Internet, over your ca website or through some aggregator rather than over the traditional cable or over-the-air?
10483 MR. BRACE: I think, Mr. Chairman, none of us has a crystal ball in that respect, but I think that for the foreseeable future, you know, even despite the turmoil that we're in and the issues that we face in this environment -- and, you know, we'll be talking about that at a later hearing most certainly -- that conventional and specialty television as we have known it will continue to be relevant.
10484 THE CHAIRPERSON: In paragraph 14 of your submission you say:
"We believe the important questions to consider at these proceedings are the impact of new media broadcasting on linear broadcasting and ways to encourage linear broadcasters to more effectively compete with traditional and new media broadcastings." (As read)
10485 THE CHAIRPERSON: What exactly do you have in mind when you say that?
10486 MR. BRACE: Well, there's a couple of things in that.
10487 First of all, as an extension, as a promotional vehicle which I've already talked about, so I won't repeat that.
10488 But, secondly, what it also does for us is give us potentially a new business opportunity because, in fact, we are competing in a world wide environment and, in fact, many foreign websites are selling into this market.
10489 THE CHAIRPERSON: M'hmm.
10490 MR. BRACE: Which, of course, is an issue for us. So, that to look at it simply as a promotional vehicle or a catch-up vehicle over time is probably something that's going to evolve into an opportunity that is bigger for us. It's how do we do that?
10491 The issue that we face is the one that has been the highlight of the hearing and has been repeated over and over and that's, how do we measure it effectively to be able to monetize it effectively?
10492 THE CHAIRPERSON: And I presume you don't have an answer to that either?
10493 MR. BRACE: We unfortunately, Mr. Chairman, are of the same opinion as many of the others, certainly Astral this morning and Rogers following echo our views. We did bring Mr. Keenan along who has significant experience in this field, if we'd like to pursue it.
10494 What I think you're going to hear though is typical and really does kind of mirror what you've heard previously.
10495 THE CHAIRPERSON: Mr. Keenan, do you have anything to say on measurements? You heard me this morning when I asked both Rogers and Astral whether there is any way to measure the Internet traffic and measure the portion of it which was video coming from Canada?
10496 MR. KEENAN: Absolutely I did and I would echo the sentiments. And, for a lot of the similar technical reasons, we ourselves go through great efforts to try and maintain useable metrics for just the video that we serve in terms of reflecting on our revenue, and that in itself is challenging.
10497 If you wanted to scale that out to all the audio/visual content served over the Internet in Canada, to try and measure that in a meaningful way to determine a percentage of Canadian content, it's a more than daunting task for a lot of very real reasons.
10498 THE CHAIRPERSON: Okay. Go back one step, rather than Canadian content, could we at least measure what portion of the Internet traffic is video and what portion is e-mail, Facebook or whatever?
10499 MR. KEENAN: Well, I'd hesitate to speak for the ISPs present, but I would say that given existing traffic-shaping technologies that are in use right now --
10500 THE CHAIRPERSON: M'hmm.
10501 MR. BRACE: -- that probably some measurement could be made in that regard as to what percentage of it is audio/visual content versus not.
10502 THE CHAIRPERSON: Okay.
10503 MR. KEENAN: I'm not sure what you'd do with that number at the end of the day.
10504 THE CHAIRPERSON: It would at least give you a starting point. You could say, you know, total traffic that you carry each month or whatever "x" percent is video, you know, and then of course the next question, what extent of that portion of that video is really Canadian or is professional that could be considered acting as a quasi-BDU?
10505 MR. KEENAN: And I'd say the challenges there lie in, of course, the dispersion of ISPs across the country, the number of access points that you'd have to be monitoring to try and aggregate that data up into a useable report would be a very large number and no small undertaking. Challenging, sorry.
10506 THE CHAIRPERSON: Why would you -- we have basically five ISPs which serve over 90 percent of the -- close to 90 percent of the country.
10507 MR. KEENAN: Sure.
10508 THE CHAIRPERSON: Wouldn't that be just measuring even five points?
10509 MR. KEENAN: Well, there are five organizations --
10510 THE CHAIRPERSON: Yes.
10511 MR. KEENAN: -- representing that. They certainly have many, many points of access. So, it's not - would not simply be five points of measurement, it would be five organizations arguably doing the measuring.
10512 At that point we get a little bit farther into actual ISP network topology, which is not my specialty, but...
10513 THE CHAIRPERSON: Okay. Thank you.
10514 Now, you heard this morning Rogers' proposal, I presume, Mr. Brace?
10515 MR. BRACE: Yes, we certainly did.
10516 THE CHAIRPERSON: Yes. And you yourself have the CTV.ca which I gather is quite extensive and you're in the process of rolling it out further so that if I miss an episode on "Flashpoint" I can go on CTV.ca and watch it, et cetera.
10517 MR. BRACE: That's correct.
10518 THE CHAIRPERSON: If Rogers rolls out their portal, do you see yourself participating in it, or do you say, no, that's not easy because all my stuff can be accessed on CTV.ca?
10519 MR. BRACE: I'd make a couple of points on that.
10520 First of all, we've not just heard it today, we've actually had a couple of meetings with Rogers, so this is not unfamiliar to us, we've had some chats behind the scenes.
10521 The first comment I'd make is that for us the most important -- the most important thing to consider is what do we do to ensure that subscriber revenue is protected?
10522 The proposal that Mr. Purdy made this morning is an important one in that it attempts to address that issue, that if we can keep people subscribing to cable or to satellite, that for the television industry is a good thing.
10523 And, so, we're still exploring it to see what potential may be there.
10524 I think though that one of the things that I need to say, and Shaw raised the issue in very clear terms, is that we need it to be universally accepted, that to have us join in on that project with Rogers but to not have Shaw participate or other distributors participate would kind of -- would kind of up end the entire system because, of course, we would never take down our website, we would have to leave it there, so there would be an end around.
10525 So, you know, in speaking even to Mr. Lind during the break, it's something we need to explore and something we need to look at.
10526 But I certainly wouldn't rule it out of hand.
10527 THE CHAIRPERSON: But it would be mainly of advantage to your specialty channels, I mean, your over-the-air which does not have a fee for carriage, it really doesn't make a difference whether people watch the former episodes on Rogers or on your website?
10528 MR. BRACE: That's true at this point in time. Theoretically, though, if we went into this you would want to have one area of entry.
10529 So, what do we do with CTV.ca in that example? Do we keep it double illuminated, do we do both? Which, of course, would then mean that the cost savings that we talked about at least in the conventional example and that Mr. Purdy outlined wouldn't be available to us.
10530 So, there's a lot of practicalities that we'd need to look at.
10531 THE CHAIRPERSON: Wouldn't you do interlinking and take people from your website to Rogers or vice versa?
10532 MR. BRACE: Once again, if we did that I think it would have to be universal. I think it has to be with every distributor across the country. So, there's a lot of discussion to be had.
10533 So, whether it's conventional or specialty, certainly worth the discussion but we're certainly not at the point at this time to say, you know, that looks like the way to go.
10534 THE CHAIRPERSON: As the owner of some of the major specialty channels, are you at all worried about the fact that especially the wireless exemption order doesn't have an undo preference provision in it?
10535 MR. BRACE: I'm going to ask Mr. Goldstein to speak on that, if he would, for a moment, but I think that in understanding it that it is not quite an issue for us that it may be for others.
10536 Mr. Goldstein?
10537 MR. GOLDSTEIN: Thanks, Rick.
10538 I'm sorry, just as I understood it, that the new media exemption order does not have an undo preference provision?
10539 THE CHAIRPERSON: No, the wireless media exemption order has no undo preference provision, and we've heard this morning and over the last two weeks from lots of people suggesting that this is a potential problem, that the wireless provider might favour services that they are affiliated with or in-house over people that are accessing it and are independent.
10540 MR. GOLDSTEIN: Let me start and then maybe some of my colleagues who actually deal, perhaps Stephan or Richard, who actually deal with some of our agreements with the wireless providers relating to the type of mobile content we're making available.
10541 I think in terms of an undo preference provision that's something, especially the new reverse onus provision that's going to come into play, is something obviously very valuable in a context where you have a negotiation between, you know, a BDU as the one entry point for providing that content in a regulated space.
10542 I think generally in terms of the types of content we're offering in a wireless environment it's somewhat different and I can't really speak personally, but I think some of my colleagues might be able to in terms of -- or how our negotiations have gone with the BDUs in that respect.
10543 THE CHAIRPERSON: You may want to come back to it in written submissions later on. But since you are the largest broadcaster in the country and the most successful one, your views on this would be very interesting to us.
10544 MR. BRACE: And, sorry, Commissioner, I didn't pick up on the wireless portion when you asked the question and so I apologize, I didn't quite understand.
10545 Our experience in wireless has been very modest. What we're finding, and I think an earlier panel actually spoke on this, is that it is still really in its infancy stage.
10546 We're finding that quite the contrary to any kind of an undo preference, that where there's interest we are certainly seeing it, they're approaching us. It's not a question of us trying to push, I think it's more a question of being approached by the wireless carriers, most recently by Bell actually to see if we could come together on a plan that would see a lot of our content streamed on wireless.
10547 We've been doing this for quite some time, for several years now, probably four or five years I'm thinking, Richard. We've had deals with Bell that deliver a report from BNN also from CTV News and others, and what we're seeing is that the take-up is very, very small.
10548 Seemingly, they're having difficulty as well being able to report data back to us that is in any way providing us the tools we need to be able to monetize that from an advertising standpoint.
10549 But what I'd like to do is pass onto Richard who actually builds these types of packages for us.
10550 MR. KANEE: So, we've been working to build a mobile video business in Canada for, as Mr. Brace said, about five years and certainly what we've found is that it has yet to evolve beyond anything that is at its most nescient.
10551 The key conundrum is how do you communicate a simple message to the end consumer about the value proposition and there's no incentive for a BDU to favour content that they may own and control over, what's going to be the best for them to deliver the simplest message.
10552 So, really we found this market to be incredibly small from a revenue potential, but certainly very collaborative in terms of inviting a dialogue to figure out what's going to work.
10553 THE CHAIRPERSON: I think we're talking at cross purposes.
10554 First of all, you are affiliated with Bell, so it's not Bell I am talking about, it is somebody who you are totally unaffiliated with.
10555 But the example that was given this morning, a perfect example, is that you sign up with Rogers, let's say, so in your Internet package at one rate you are included access to several services, one of them happens to be SportsNet, however, if you want to go to TSN you have to do normal Internet access and that's a different charge.
10556 So, now I'm not suggesting Rogers is doing something, but the potential is there, people are worried about that and that's why they were suggesting that if wireless broadcasting takes off, et cetera, there should be a wireless broadcasting exemption order the same way as we did in the wire line exemption order, a provision for undo preference and reverse onus just to protect against that kind of possible behaviour, fostering an in-house service over an outside one.
10557 MR. BRACE: And notionally that would seem to be the right way to go. As I say, it's just so not front of mind for us because it's just so not an issue at this point that, you know, we wouldn't spend a lot of time in our shop talking about that.
10558 THE CHAIRPERSON: Okay. Thank you.
10559 Len, you had a question?
10560 COMMISSIONER KATZ: Yes, I do.
10561 We've heard in the last couple of days from the sports industry, both Score Media and the NHL was here, as well, that it is possible, and it has successfully been monetized on the new media, the sports content, as well.
10562 You folks are in sports, you folks are in drama, you folks are in everything. Why is it so readily possible to monetize the sports genre and so difficult to monetize the other ones?
10563 MR. BRACE: I think there are a couple of things there. First of all, the sports genre, as we know from the TSN experience -- and I am sure that Rogers would say from the Sportsnet experience -- is a wildly popular niche. It is traditionally done very well. It's very attractive. So the content that we deliver, which is both immediate -- whether it's scores, whether it's highlights, whatever it might be, is something that is consumed very aggressively. As a result of that we see significant traffic.
10564 I think that is really what is key. If you are talking to the NHL and you are talking Canada, it would seem to make sense that if anything was going to be popular, it would be the NHL and the NHL product that they push online.
10565 Having said that, across the board -- and I will tell you that our areas of popularity online are, really, sports, CTV.ca is seeing a lot of activity, MTV is seeing a lot of activity, and we are seeing some activity with comedy as well. Those are kind of our highlights.
10566 Have I missed any, Stephan?
10567 MR. ARGENT: BNN is doing pretty well.
10568 MR. BRACE: And BNN, in this market, which seems to -- I don't know what is wrong with that picture, but --
10569 MR. BRACE: At any rate, those are the ones that show popularity.
10570 Having said that, as others have said, it's a very low-margin business. You are kind of a victim of your own popularity.
10571 You do make money. You do make a little bit of money, but where video is concerned, the smallest portion of our revenue is kind of associated with video at this point. And, of course, video is the most expensive to deliver online.
10572 Because of the broadband capacity, the more people that access, the more you have to spend for more broadband.
10573 Now, because it's a commodity, that is actually starting to come into control and diminish a little bit, so it may get a little better.
10574 We are really in the infancy stage. It has only been two or three years that video is kind of where it is and where it has to evolved to now. It has a ways to go, and we will see.
10575 But, to answer your question, genres like sports are purely a function of the popularity you see, whether it's television, newspaper, magazines or at the venue.
10576 COMMISSIONER KATZ: I don't know whether there is a correlation there, but the products and services, the assets you mentioned, are all basically non-scripted. Sports is non-scripted. BNN, for the most part, is non-scripted, as well. Music is relatively non-scripted, although it has creative to it, as well.
10577 Whereas, when you get to drama and everything else, it's scripted.
10578 Is there something unique about the scripted industry or genre that doesn't allow it to be as readily monetized? Is there a unique cost associated with scripting that, when you take it across the platform, it suddenly becomes uneconomic?
10579 MR. BRACE: I think the answer there is that, first of all, scripted programming is not unpopular -- I don't want to downplay its popularity -- but it's expensive because you have to go and acquire the rights from the producer. It's more costly.
10580 But as a catch-up opportunity --
10581 Maybe what I should do is have Stephan speak to this, because Stephan deals with this on a daily basis and he understands the ratings, the stats we are getting, and that kind of thing.
10582 Maybe Stephan could speak to the popularity, but certainly dramatic programming, because of its cost, makes it less monetizable. I think that is probably the answer, the rights that we have to pay to acquire that programming.
10584 MR. ARGENT: Sure, I can certainly speak to some of the costs.
10585 I think that one of the things that is most readily addressable is that the items that you have mentioned are predominantly short-form content, and I think there is probably a difference between short-form content and long-form content, in terms of potential popularity, in terms of it being snackable content. That is one way to look at it.
10586 In addition to what we call the bandwidth costs, which Mr. Brace has talked about a little bit, there are other big buckets that we have to look at at the same time. We have to look at the technology costs associated with that, and upgrading those technologies.
10587 The proprietary Video Player, for example, that we built in-house, we took great pride in building that, to make sure that it was secure, stable, and worked on multiple platforms. That technology has to be fed. We constantly have to add new features. We constantly have to build capabilities for that, to actually increase the enjoyment that users get from it.
10588 In addition to that, there are obviously the licensing fees associated with the content we have, and the two other big buckets are measurement, which is a huge component of our business, not only internal metrics, but also the external metrics that we use, as well as all of the resources required to actually support the initiatives that we put together.
10589 COMMISSIONER KATZ: Thank you.
10590 Those are my questions, Mr. Chairman.
10591 THE CHAIRPERSON: Tim?
10592 COMMISSIONER DENTON: Just briefly, on an issue that might be helpful to get on the record.
10593 Would your technical expert briefly tell us what a port number means?
10594 MR. KEENAN: Absolutely. When there is communication over the internet, there are a couple of pieces of information that are, functionally, the address for where it's going. One of those pieces of information is the IP address, and that is a long number that uniquely identifies your computer on the internet.
10595 Secondary to that is a port number.
10596 If you wanted to think of the analogy of a house, while you have a house address, the port number is which door it would be.
10597 So when the communication gets to the computer, it then looks at the port number, and routed appropriately, and roughly, that would map to an individual application.
10598 For example, your web browser is interested in Port 80, and the e-mail is interested in Port 21. Those are not hard, set in stone, by any means, and can be changed by users, but those are defaults.
10599 The rough mapping would be to say that a port number would uniquely identify an individual application that is consuming data.
10600 COMMISSIONER DENTON: Would you not also agree that many modern applications spoof a port number so as to get treatment as if it were, say, HTTP, but it is in fact something else, like Skype or some other more obnoxious protocol?
10601 MR. KEENAN: Sure, and that is absolutely something that happens on the internet to try and bypass existing traffic shaping that goes on at the ISP level, without question, and I think that any of our ISP partners here would say that that's a problem with certain peer-to-peer protocols masquerading as different kinds of traffic.
10602 There is nothing inherently nefarious about them doing that, but it is being done specifically to masquerade their purpose.
10603 COMMISSIONER DENTON: Does it create an additional expense, or a significant additional expense, to find out through Deep Packet Inspection whether something is as it advertises itself to be?
10604 MR. KEENAN: Sure, and that opens the Deep Packet Inspection argument a little bit.
10605 The short answer is yes, and as outlined in the Deep Packet Inspection document that was submitted by the Osgoode Law student, the expense involved in doing true Deep Packet Inspection -- which means not just inspecting the headers, as was referred to earlier, which is, functionally, the address on the envelope, but actually opening all of the envelopes and pasting them together and seeing what it reads. Doing that for every piece of content that comes over the network would absolutely be prohibitively expensive.
10606 COMMISSIONER DENTON: We will be hearing more about this in the later proceeding. Thank you very much.
10607 MR. KEENAN: You're welcome.
10608 THE CHAIRPERSON: Rita?
10609 COMMISSIONER CUGINI: Thank you.
10610 I have a couple of questions, Mr. Brace. You mentioned "Upload Yours" -- and I am on The Comedy Network's website now. I have to admit that I don't have teenage boys in my house, but what is the business case for this?
10611 I understand that it's to discover new Canadian comic talent, but as you just said, video is the most expensive to deliver online.
10612 MR. BRACE: Once again, I will turn to Mr. Argent to talk about this a little bit, but really the business case is to promote this as an opportunity. Actually, it's a bit of a talent search, and it's a chance to look at something new to see if it can be developed into something that is more fulsome and more blown out.
10613 Stephan, do you have some comments?
10614 MR. ARGENT: Sure.
10615 As Mr. Brace has said, yes, there is certainly a promotional component to this, but I think that there are two other key areas that we need to look at, as well. As those who have gone before us have said, the business is still, to a certain extent, in its infancy, and we have to experiment responsibly. That is to say, we have to try new things, see if they work, and if we find ourselves getting traction, then we can build those things out.
10616 In this particular case, user-generated content is an opportunity for us to put a toe in the water, see how it works, and see if we get a lot of traction.
10617 As Mr. Brace read in the opening statement, we have just had 500 uploads since its launch on January the 19th, which is an indication that there is obviously some interest there. We have to figure out a way to put some more momentum behind it.
10618 But I think there is another key piece to it, as well, and that is that the internet, by its very nature, is interactive. It's a dialogue. What we are finding with our users is that they want that two-way dialogue. It's not just a push out, it is also an opportunity and a mechanism to actually draw the audience in and have them participate.
10619 We have other examples of user-generated content, as well -- news, for example.
10620 COMMISSIONER CUGINI: Sure, and that is the most common, so that's why I was asking about this.
10621 MR. ARGENT: Actually, Mr. Kanee, I think, could elaborate on this a little bit, as well.
10622 MR. KANEE: Having worked closely with The Comedy Network on developing and launching "Upload Yours", they were really responding to an audience demand in the market, and they saw a lot of Canadian comics without a venue to promote themselves, certainly within the Canadian space, and in the absence of that, turning to applications, say, south of the border, notably, YouTube or "Funny or Die".
10623 This was really a response from Canadian talent to say: Here is an opportunity that is Canadian, from The Comedy Network, which is their home.
10624 If you are familiar with the comic community in Canada, there is a lot of ownership that is felt toward that.
10625 The last piece is, really, an intent to try to find content that can make it to air. There is a shorts program that airs on Sunday night, and it is the hope and the expectation that we will be able to discover content that can actually find a home and find its way down the development path of The Comedy Network.
10626 COMMISSIONER CUGINI: Would you see this user-generated content moving over to linear broadcasting, or would you have to reproduce the content?
10627 MR. KANEE: It is really dependent on what the source state is of the content, but as has been the case for years with "America's Funniest Home Videos", there is certainly a high tolerance to viewing content that is of a lower quality, knowing what the source was, that it was homemade.
10628 COMMISSIONER CUGINI: Just one other question. Out of curiosity, on your CTV.ca site, you have a web poll, and it's "Today's Question", so am I safe to assume that you change the question every day?
10629 MR. BRACE: Yes, and I'm afraid that I don't know what the question is.
10630 COMMISSIONER CUGINI: Interestingly enough, it doesn't include watching video, so that was my question. It asks about blogging, e-mail, searching and social networking sites.
10631 So I guess I am just curious to know, knowing that you were coming here today, or knowing that these hearings were going on, why you wouldn't have included how much time people spend watching videos on your web poll.
10632 MR. BRACE: The honest answer to that, Commissioner, is, we just didn't think about it.
10633 COMMISSIONER CUGINI: Thank you very much.
10634 THE CHAIRPERSON: Michel?
10635 COMMISSIONER ARPIN: Thank you, Mr. Chairman.
10636 I have two questions, which are not necessarily related, one to the other, and they are questions that arise from the other intervenors that we have heard so far.
10637 Yesterday we heard from the Association of Canadian Advertisers, who told us that there were some impediments to video advertising on the Canadian internet, but since January 1st these impediments have been cleared with the various guilds and unions, and the ACA was, obviously, seeing it as a positive step for internet operators.
10638 My question to you is, since early January have you noticed greater interest from advertisers to advertise, with video, on your various sites?
10639 You are quite successful with it. You are the first one who has told us that you are finally making a bit of money -- small, but making money.
10640 MR. BRACE: I will have Mr. Argent comment on that, but before that I would say that it's welcome news that they have been able to come to an agreement that potentially clears talent cycles, talent rights, that kind of thing.
10641 There are two things that I think we need to address -- and maybe Stephan will do this in his remarks. The first one is available inventory, how much inventory can we provide, because, of course, the creative content needs to be produced, which is costly. So that is probably a barrier or an impediment to seeing faster growth.
10642 Then, the other one comes back to where we started, which is measurement. They have to understand, and there has to be a currency that they can count on when going back to their clients to rationalize why they --
10643 COMMISSIONER ARPIN: We also heard a lot of people saying "Follow the money." If the money comes, the measurement will come with it.
10644 MR. BRACE: To that point, just before Stephan chimes in here, this group -- not me and not Kevin, but the rest of the group on the panel here today is actively involved with the industry, to try and see if we can get to a measurement system that makes sense.
10645 As you are well aware, comScore is the accepted currency at this point in time. We believe that there are significant issues with the measurement system, and I think that even the ACA would say the same thing. It is universally felt.
10646 We are working with comScore. We are not here to condemn them, but we have a lot of work to do in that area.
10647 And you are absolutely right, Vice-Chair, that if the cheque is being written, we will find a way to solve the problem. That is undoubtedly the case.
10649 MR. ARGENT: Thank you.
10650 Mr. Vice-Chairman, there were a couple of things in there, not only with respect to measurement, but also with respect to your question on video and the effect it has had.
10651 I will stick with the measurement question, first off, to respond to it.
10652 Just to give you an example of what we are talking about, there are some wild discrepancies between our internal metrics -- we actually use Omniture, and we actually cross-check that sometimes with our Akamai streams -- versus our external metrics, or external analytics, which are looked after by comScore.
10653 In the month of December, just as an example, we had a 646 percent discrepancy between the number of video streams that we reported and the number of video streams that comScore reported.
10654 Just to use that as an example -- and there other examples that I could provide, if you would like -- it becomes a very challenging business to reflect back to our advertisers who has watched what, and over what period of time.
10655 As Mr. Brace has said, we are very anxious to find a measurement system that is, first and foremost, accurate, because the systems that we have in place aren't accurate, and I think that adding an additional metric, which may be even more confusing, would lead one to become even more confused.
10656 MR. BRACE: If I could also clarify one point, Mr. Vice-Chair, on the making money comment, or the making a profit comment, in totality we are. We are making a modest profit with our internet work.
10657 The video portion, though, is still well in development. It is obviously the most expensive.
10658 But, in totality, a combination of display advertising and video is enabling us to kind of support our video development.
10659 COMMISSIONER ARPIN: My last question -- I cannot go without talking about radio for a second.
10660 When Corus appeared here two weeks ago, they told us that they had introduced an iPhone application that provides access to their radio stations on the iPhone.
10661 My question is simple. Will CHUM consider iPhone or BlackBerry applications for their own radio stations?
10662 Is this something that you have in mind, or you are negotiating with the operators of the BlackBerry or with Apple?
10663 MR. ARGENT: You are absolutely right, it is hard to ignore that the iPhone has become a significant game changer in the mobile consumption market.
10664 I think it is also fair to say that, when CTV acquired CHUM, the radio platform -- the online platform was not as developed as perhaps we would have liked it to have been.
10665 So one of the things that we will be launching in the next few weeks is a new online radio platform, which will provide more audio-video content, a library, and various other features that will enhance that platform.
10666 We obviously work with Apple and iTunes in various other areas of our business, and while we haven't opened discussions with them as yet on the iPhone subject, it may not be too far away.
10667 COMMISSIONER ARPIN: Maybe. I think in your reply, Mr. Argent -- the new streamed audio services that you will be providing to listeners, will they meet the Canadian content requirements?
10668 MR. ARGENT: Respectfully, I am actually not the radio expert here.
10669 COMMISSIONER ARPIN: Because we have heard here some concerns by some creative organizations, saying that radio could start to develop on the internet and play with different rules, or no rules at all with respect to Canadian quotas, and French quotas for the same matter.
10670 MR. BRACE: Currently what we use the internet for is an extension, so the radio stations, in fact, stream --
10671 COMMISSIONER ARPIN: Yes, but my take is on what Mr. Argent said, saying that you are re-developing the radio platform in order to offer new audio services. New audio doesn't mean the actual radio stations, that's why I am asking the question.
10672 MR. KEENAN: Having been a little bit involved in the roll-out of radio, the intent is very much to complement what we are doing on broadcast. The mantra from radio is that people are drawn to us. They have an infinity for our station, it's an incredibly local medium.
10673 The intent is not to try to build new businesses online. Any attempts to build internet radio businesses have met with very meagre success, if any.
10674 It is really to service those local loyal audience members, to extend those experiences and the very active engagement that radio enjoys.
10675 COMMISSIONER ARPIN: Thank you for the clarifications.
10676 Thank you, Mr. Chair.
10677 THE CHAIRPERSON: Thank you.
10678 Stephen, you're the clean-up man.
10679 COMMISSIONER SIMPSON: Thank you very much.
10680 Mr. Arpin took the first half of my first question, which was, when radios became portable, it was a game changer for the radio industry, and subsequently for the music industry, and now we are seeing the portability of multimedia devices potentially doing the same thing.
10681 My question is this. I think it was Mr. Kanee -- you were at the IIC when the discussion on wireless was being held, and I recall, I think, that Mr. Blaine from TELUS was asked about the capacity of wireless networks and whether or not they could handle the demand for the traffic that seems to be coming.
10682 Given that you have properties that skew to the younger age group, like MTV and TSN, are you looking at any other ways to get a wireless signal to a portable device, other than through telephony?
10683 MR. KANEE: Our intent is to look for where our audience is, and where they are consuming content, and address that. Our core business is not in developing delivery mechanisms, it is in reaching our audiences through them.
10684 So we are going to wait and see where our kids go, and we are going to try to meet them there, with the best kind of content that we can deliver.
10685 COMMISSIONER SIMPSON: Have you, at least as a broadcaster, been looking at the potential of Wi-Fi as a result of going digital?
10686 I am thinking digital white space at this point.
10687 I know it's not your core business, but it's something that can affect your business.
10688 MR. KANEE: It's not something that I am aware of.
10689 COMMISSIONER SIMPSON: Okay, thanks.
10690 THE CHAIRPERSON: Okay. Thank you very much. I appreciate you coming, and since you are our largest broadcaster, I particularly appreciate getting your views on how you see broadcasting in the new media developing.
10691 MR. BRACE: Thank you, Mr. Chairman.
10692 THE CHAIRPERSON: We will take a five-minute break, and then we will hear our last intervenor. Thank you.
--- Upon recessing at 1538
--- Upon resuming at 1545
10693 LE PRÉSIDENT : O.K. Madame la Secrétaire, on est prêt.
10694 LA SECRÉTAIRE : Merci, Monsieur le Président.
10695 We will now proceed with the presentation by the Canadian Cable System Alliance Inc. to make their presentation.
10696 Appearing for CCSA is Alyson Townsend. Please introduce your colleagues and proceed with your presentation.
10697 MS TOWNSEND: Thank you very much.
10698 I, as has been said, am Alyson Townsend. I am Alyson Townsend and I am President and CEO of the Canadian Cable Systems Alliance. With me here today I have Chris Edwards to my right, Vice President, Corporate and Regulatory Affairs, and Harris Boyd, our regulatory consultant.
10699 The Commission has set out the questions it seeks to address in the oral phase of this hearing.
10700 The answers to a number of those questions require extensive, sophisticated and often expensive research. Such research is beyond our capacity. We will do our best, however, to offer the small systems point of view on key issues in the current debate.
10701 As none of our members has yet entered the wireless business, our remarks relate to new media as offered over the internet rather than over mobile devices.
10702 Before going to your specific questions, we must address our members' primary concern.
10703 The central point in our prior submissions has been this: The provision of retail internet service has become a key element of small systems continuing commercial viability. As programming costs for traditional television services continue to rise, small cable's margins in that area of its business continue to fall.
10704 On the other hand, despite Canada's significant geographic challenges, our country has been a world leader in making broadband services available to Canadians, even in very small and remote centres. CCSA member companies, even those with only a few hundred customers, have been very active in this success story.
10705 Retail ISP service has been very good business for them. Without the free hand they have had to develop competitive internet services, many of those small cable companies would have disappeared in the past decade, along with the television services, including community programming, that they provide.
10706 Small cable is often the only provider of two-way broadband service in the communities it serves. The ISP revenue of small cable companies is a critical enabler of their community presence and their community service.
10707 The entire debate about internet broadcasting content opportunities and funding is premised on the availability of broadband connectivity to Canadians. We ask the Commission to bear in mind if it considers the imposition of new financial or other obligations on ISPs that you must take care not to impair the ability of these small ISPs to deliver services to smaller and remote communities across Canada.
10708 MR. EDWARDS: Much has been said in this proceeding around the premise that, "If you cannot measure it you cannot regulate it" and certainly measurement of new media broadcasting, however that is defined, will be a challenge.
10709 Having said that we note the Commission's evident interest in the ISAN identification system for audiovisual content.
10710 Our understanding is -- or some other system involving such inspection -- our understanding is that that ISAN is a system that tags content at source as part of the content creation process and permits content to be registered, managed and measured without any active involvement by the ISP.
10711 So long as the ISAN system, or another measurement system that is under consideration, responds to that need for content measurement without imposing additional content inspection and reporting requirements on small ISPs, we would support such a system.
10712 On the other hand, small cable companies are deeply concerned that, as a result of this proceeding, they may assume new obligations with respect to inspection, logging and reporting of content that passes through their systems. The Commission has responded to such concerns, at least in the traditional broadcasting environment with progressive small system exemptions and a broader small systems exemption is currently in the works.
10713 Relief from the administrative burden of complex reporting requirements is a key feature of those exemptions in the eyes of the many "Mom and Pop" cable operators that we serve. We would urge the Commission then to consider an important criterion of any system it proposes to implement to measure the quantity and consumption of broadcasting content to be that the system be capable of passing through consumption data without the need for ISP intervention.
10714 Measurement of Canadian content really goes to the question of the obligations of new media broadcasters to deliver Canadian content and their ability to access any funding mechanisms established to promote Canadian new media content. As such, any measurement system should operate at the level of examining what the content creators and broadcasters supply rather than necessarily at the level of examining the content that ISPs deliver through their pipes.
10715 We should also address the issue of network management. Most of our members do not presently possess sophisticated tools for deep packet inspection and internet traffic shaping. It is very important, nonetheless, that they retain the ability to manage their networks. As those are shared networks, a few heavy users, particularly those engaged in video file sharing can hijack the capacity that should be available to all the other users and in capacity-constrained systems this is particularly a concern.
10716 To deliver a valuable service to all customers, cable operators need to be able to impose limits on both the types and quantity of uses of their broadband networks.
10717 MR. BOYD: The Commission has asked how broadcasting content should be defined in the new media and whether the costs of creating such content are similar to those for creating content in the traditional environment. For the most part those are broadcaster issues and CCSA is unable to answer the questions.
10718 We do note that there is a great deal of professionally-produced content on the internet. We agree with other commentators that most of this content has been created for traditional broadcasting platforms and is being re-purposed and made available, usually free of charge, on traditional broadcasters' websites, and CTV certainly made a good example of that just prior to our presentation.
10719 That content is used to promote programming on conventional or specialty television services for which subscribers pay a fee. The amount of such content available to internet users is growing rapidly.
10720 There are many examples of such over-the-top on-demand services in operation today. CTV Broadband Network -- Your On-Demand Broadband Video Channel: Free Full Length TV Shows offers recent content from CTV, TSN, Comedy; all the things that you heard just recently, as well as MuchonDemand which is explicitly marketed as a free on-demand service.
10721 Many other Canadian programmers' websites, such as for example those of the Food Network and Showcase, offer full on-line versions of recent episodes from their more popular television series. Today, it is a simple matter for Canadians to view such shows as House, Grey's Anatomy, Hell's Kitchen; Trailer Park Boys on their computers at no charge whenever they want.
10722 Whereas not so long ago such websites existed but contained little actual long-form programming content, they are quickly becoming deeply populated with the same products that are offered to customers by BDUs for a price. That fact raises two issues.
10723 First, there is new, free competition stacked against BDUs' on-demand services. That means that the BDU VOD services must be relegated -- or regulated rather -- in as light-handed a manner as possible so as to allow them to remain competitive.
10724 Also, while we recognize that it is primarily a matter of commercial negotiation, it will be increasingly necessary for BDUs to access, free of wholesale charges, content that the broadcasters are now delivering to consumers for free. If content is to be made free online then to remain competitive BDUs should have access to that same content for free.
10725 Second, we regard the re-purposing of such content to internet presentation as an indication that the broadcasters are transferring from one platform to another or to multiple platforms. One implication of that trend is that, over time traditional broadcasting may well represent a reduced demand on existing broadcasting funds and at the same time that new media broadcasting demands for such funding increase.
10726 We recognize that there may be some validity in the proposition that Canadian content creation is, in general, under funded. However, we question whether the shifting of media delivery from one platform to another in itself creates a demand for new additional content creation funding. And I think the government's announcement yesterday demonstrates that quite clearly.
10727 It appears to us rather, that content is content regardless of the delivery platform. We have seen no evidence in the discussion to date that new media broadcasting is somehow more expensive to create. Rather, production costs, marketing expenditures and risks can now be spread through content monetization over a variety of delivery platforms.
10728 In addition, in this long tail world, absolute storage and distribution costs continue to fall. So we question whether the advent of new media content creation is, in itself, sufficient justification for new funding demands.
10729 MS TOWNSEND: Clearly, if we question the need for new funding, we also question the need for new contributions by industry participants. Generally, in our view, the argument for a new ISP contribution that has been proposed in this proceeding is ISPs make lots of money; imposition of a new ISP contribution is administratively simple. Therefore, there should be a new "ISP tax" to support new media content.
10730 We say that ISPs provide the pipe and have made substantial capital investments to do so. Without that pipe there is no new media broadcasting.
10731 As yet, those ISPs generally have not found effective ways to monetize the passage of content through their pipes in a way that reflects the variable amount or value of that content. Rather, the ISPs realize a return on their capital investment and no more. We therefore disagree with the proposition that ISPs should pay because they are making money on new media content.
10732 More to the point, we go back to our central premise. Small cable operators simply can't afford to have a substantial bite taken out of the one element of their business that enables the other services they provide.
10733 It has been said earlier in this hearing that the ISPs are being asked to pay "peanuts". We disagree. 3 percent of revenues is not peanuts to any small operator. Indeed, no new deduction from revenues is something that these operators would not feel.
10734 There has been some discussion in this hearing as to whether imposition of an ISP tax would apply to small ISPs and we strongly recommend that if such a tax is imposed small ISPs should be exempted. I'm sure that's a surprise to you.
10735 We note in that regard the Commission's proposed definition of a new licensed entity called a new media broadcasting distribution undertaking. If such an entity is to be created, small cable/ISP operators should be exempted from that new class of licence.
10736 MR. EDWARDS: The Commission has asked whether any type of content requires support in the new media environment. As we have already said, we regard the growth of professional new media offerings at least to date in this country to represent the early stages of a transfer from one delivery platform to another or, more likely, to delivery over multiple platforms. We do not see how that creates new production costs. Rather, if anything, it multiplies the opportunity to earn a reasonable return on investment in content creation.
10737 As we said in our written submission, we also believe that support of Canadian content in new media is fundamentally a matter of driving rollout of the broadband platform and encouraging investment in innovative uses of that platform. We believe that Canadians will continue to excel at telling their stories through that platform.
10738 To us, these truly are matters of basic industrial and cultural policy for all Canadians and are properly the subject of legislative debate and, as necessary amendments to taxation programs.
10739 We do not believe that an approach that imposes a levy on BDUs, essentially because BDUs are an easy target in an administrative sense will be an effective or appropriate response to those broad policy challenges.
10740 MR. BOYD: The Commission has asked whether measures are needed to support the promotion and visibility of Canadian broadcasting content in new media. In our written submissions, we gave examples of the wealth of Canadian content available on the internet. We pointed to numerous websites tailored to the needs of Canada's aboriginal, francophone, women's, educational and children's constituencies. We found all of those resources in a matter of minutes, not hours.
10741 The real power of the internet is its array of intelligent resources for the discovery, aggregation and presentation of content in response to the demands of the user. We also believe, as we said in our written submissions, that Canadian content is well-represented on the web.
10742 We therefore do not see a need for promotion of Canadian-produced broadcasting content in new media so much as we see the new media environment itself as being an incredibly powerful platform for the promotion of Canadian content, content that is produced for presentation though the traditional delivery system and the new media platform.
10743 We do not believe there is a need to create specific supports for the promotion of Canadian broadcasting content in the new media environment.
10744 MS TOWNSEND: We do believe that the internet is fundamentally a democratic environment that belongs to the people and its success rests largely on the fact that, to date, it has not been regulated.
10745 We believe the Commission got it right the first time around when it decided to exempt broadcasting in the new media environment from regulation. In our view, the existing exemption orders have worked very well and should be maintained exactly as they are.
10746 Development of the internet, including Canadian participation in the internet environment has in our view been a tremendous success. It has created unbelievable opportunities for Canadians such as creators and investors. We simply don't see why that should change.
10747 We would be pleased to answer any questions that you might have.
10748 THE CHAIRPERSON: Okay. Thank you for your presentation.
10749 I believe you were here this morning when we listened to Rogers and you heard their proposal of creating a portal to which all Rogers' cable subscribers would have free access in which it could watch any part of the Rogers network for free, in effect, to catch former episodes or shows that they had missed. And then when we asked them, well, should we make this compulsory for all BDUs they said no, but they were thinking it would probably be imitated by other BDUs.
10750 And then in answer to a question from my colleague, Louise Poirier, about small systems they said they were very much looking forward to extending it to small BDUs. I guess the net result would be that a customer of yours would have free access to the Rogers portal and everything that is carried by your customer is also carried by Rogers. That person could then watch for free.
10751 Do you think this is an answer? Do you think this is something positive? Is that something you would want to explore or do you have reservations?
10752 MS TOWNSEND: Oh, we would always want to explore it. The first we heard of it was this morning when Rogers mentioned it and of course when small systems were mentioned we paid immediate attention.
10753 MS TOWNSEND: That is the first we have heard of it. So we would have to explore it more fully.
10754 But the one thing that of course caught our attention was the reference to cost sharing, and that will be very difficult for us. Right now we do not have such a requirement and I don't know how we would go about any sort of cost sharing that Rogers has in mind.
10755 Generally, Rogers' idea of cost and CCSA's idea of cost are two totally separate things.
10756 THE CHAIRPERSON: But your members have enough speed on their network that it can be used for online watching?
10757 MR. EDWARDS: I was just going to make that comment, actually, that there is a tremendous diversity in our membership and it ranges from dial-up still in some systems, up to probably speeds of 7 megabits or something like that in the larger companies, but tremendous diversity. A lot of them are in at around the 1 to 1.5, I would think, range.
10758 MR. BOYD: I mean they are certainly upgrading. This is a kind of situation of chicken and egg. If you have the resources to upgrade the network then you get more customers because it's a better service, but without the revenue from those customers it's hard to afford doing the investment. But they are all constantly upgrading.
10759 I guess where we have the most problems is where they have extended their networks through fixed wireless, and those are running at about 1 megabit per second, which is pretty slow in terms of video. But that will probably change over time.
10760 So some of our members could do it now, but Alyson's point about cost sharing, given that we would be promoting a Rogers portal on our systems and there might well be advertising associated with that, we might think that the revenue would be the other way around; rather than us paying they might pay us.
10761 MS TOWNSEND: That will be a negotiation.
10762 THE CHAIRPERSON: Rita, you have some questions?
10763 COMMISSIONER CUGINI: Thank you.
10764 Just a few because, you know, not surprisingly, both your oral presentation and your written comments are quite clear as to what it is that you wish to convey to us this afternoon.
10765 But just following up on the conversation with the Chair, are any of your members not offering internet service at all?
10766 MR. BOYD: Yes. I mean you have to keep in mind we have member companies that only have a few hundred customers.
10767 COMMISSIONER CUGINI: And that's why I'm asking.
10768 MR. BOYD: And many of them are co-ops. So they rarely have the resources to do this yet.
10769 COMMISSIONER CUGINI: Can you tell me roughly what percentage of your membership?
10770 MR.BOYD: Well, I think the better way would be to look at, in terms of what percentage of the customers that we serve, have access to high speed internet and I would -- I can't be totally accurate but I would say it would be in the 80-90 percent range.
10771 MS TOWNSEND: I can tell you that our members are very excited about the funding that has been offered to assist broadband built out and a lot of our members have been inquiring of us how they might access such funds. So they are looking at this time about expanding their broadband reach.
10772 So anything that stands in the way or makes that more complicated is something that is going to prohibit them looking at extending broadband as opposed to sitting still.
10773 COMMISSIONER CUGINI: Are your members having difficulty meeting or exceeding the demand from their customers for high speed internet?
10774 MS TOWNSEND: I think that there is always the demand.
10775 MR. BOYD: Yes, and certainly with the new uses of the internet and peer to peer and file sharing it's getting somewhat difficult to meet that demand.
10776 As I mentioned, the upside of it is that if you can improve the service then you do get greater penetration, which is one of the difficulties in our markets, is we not only have lower population density which increases our cost per customer, but of those who have access we have lower penetration to subscribe. So we take a hit both ways. So our costs per subscriber are quite a bit higher. That limits what you can invest.
10777 And the second issue these days in particular is getting access to capital. These are private companies. They are not publicly held. The co-ops have an even greater problem. So getting access to the capital, even though it would be a good investment, it's hard to convince the financial community that they should loan to a small operation the kinds of fund that are required.
10778 MS TOWNSEND: But if your question is about demand, the demand is there.
10779 MR. EDWARDS: I think I would just add the interest that we have seen among our membership after the federal government's announcement in the budget of that broadband funding, indicates to me that if they feel that if they could build out for dollars at -- you know, 50-cent dollars or 75-cent dollars or something, the customers are there. They just -- they need the help getting the infrastructure out there.
10780 COMMISSIONER CUGINI: In your oral presentation you also talked about the ISP levy of course, not surprisingly again, and you implore us that if such a tax is imposed, small ISPs should be exempted.
10781 How do you define small cable ISP operators, and perhaps you might look at past decisions of ours for guidance.
10782 MS TOWNSEND: Perhaps we might. Particularly the ones we like best, which would be I think anybody that isn't one of the large five cable operators.
10783 COMMISSIONER CUGINI: You would just categorically cut it off at that point?
10784 MS TOWNSEND: Yes, yes.
10785 COMMISSIONER CUGINI: Okay.
10786 On page 10 of your written submission there is, you know, a number of paragraphs that talk about embracing it -- well, the paragraphs are entitled, "Embracing New World of Opportunity" and at particularly paragraph 47, which I will read to you so you don't have to flip through:
"New media environment offers more of an opportunity than a threat to establish players in the traditional broadcasting industry. A challenge is to capitalize on that fact for the benefit of both Canadian consumers and the Canadian broadcasting industry." (As read)
10787 COMMISSIONER CUGINI: Are you alerting us to the fact that perhaps traditional broadcasters could be doing more to provide content on the internet for Canadians?
10788 MS TOWNSEND: I don't think that that was our intention, although I will let Chris speak to it as he was the draftsperson.
10789 I think it was more the question that has boggled everybody's mind since the beginning of these hearings, which is how do you measure such a thing? And that is the difficulty. It is how do you monetize something that you can't measure?
10790 But I will pass it over to Chris to see whether he had anything else in mind when he was drafting.
10791 MR. EDWARDS: I think it was really a much more general intention in the statement which is that there are new platforms, new possibilities. There is just a rich world for entrepreneurial activity in the whole internet environment and generally we see that as opportunity for everybody in the business.
10792 MR. BOYD: And maybe just one other comment. We see it also as a new opportunity for cross-promotion, particularly with younger segments of the population. They are going there first rather than maybe to the traditional platforms first. So if you are exposed there -- I mean, many of the participants and certainly all of the broadcasters have said, those that have come, that it's not a matter whether you are there making money. It's that you can't afford not to be there. And the reason they can't afford not to be there is they have to be visible.
10793 So that opportunity only, only grows with more and more people accessing it for more time.
10794 COMMISSIONER CUGINI: Well, I want to thank you very much. Like I said, I didn't have a lot of questions for you because you were extremely clear in both your written and oral presentation.
10795 Thank you, Mr. Chair.
10796 THE CHAIRPERSON: Louise?
10797 COMMISSIONER POIRIER: Yes, just a few questions to clarify because I don't know well -- I cannot compare you with the CAIP association. What is the difference between you and CAIP?
10798 MR. BOYD: CAIP, the Canadian internet service provider association?
10799 COMMISSIONER POIRIER: Yeah.
10800 MR. BOYD: They are all small ISPs but none of those are cable companies. So they are not BDUs. They are strictly ISPs. Some of them originally provided dial-up and then they have gotten into high speed.
10801 Now, some of those run on our networks as well as third-party providers under tariff services and some of them run on the telephone company networks. So a lot of them have no networks of their own.
10802 COMMISSIONER POIRIER: But do you talk to one another or are you in a relation in a way or you are completely --
10803 MR. BOYD: There isn't a lot of communication. I mean some of them we have dealt with on the third party internet access issue. By far the largest majority of them run on the telephone company networks.
10804 COMMISSIONER POIRIER: Okay. I'm asking the question because some of their members asked that the threshold would be 20,000 -- 20 000 membres -- 20,000 members.
10805 Okay. So I wonder if this limit could be a limit that you would recommend as a threshold if ever we are going in the direction of a levy.
10806 MS TOWNSEND: I think we find that a little low. Now, we were -- we have been asking for that with respect to deregulation or the lack of regulation but what we have found is we do have several members that exceed that who are still small companies. They are still not -- they are not Rogers. They are not Shaw. They are not even EastLink, but they might be just slightly over 20,000. So it's our preference to deal with it the same way the Commission dealt with it some time ago, which was take the big operators and put them in a different class and then everybody else becomes a small operator.
10807 COMMISSIONER POIRIER: Okay. Thank you, Mr. Chair.
10808 THE CHAIRPERSON: Okay. Those are our questions. Thank you very much. I very much appreciated your very succinct presentation.
10809 I think that's it for today, Madame la Secrétaire.
10810 THE SECRETARY: Yes, it is, Mr. Chair. We have done all the items for today. We will resume tomorrow morning at 9:00 a.m.
--- Whereupon the hearing adjourned at 1611, to resume on Wednesday, March 11, 2009 at 0900
Johanne Morin Jean Desaulniers
Sue Villeneuve Beverley Dillabough
Monique Mahoney Madeleine Matte
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