ARCHIVED - Transcript, Hearing 5 April 2011
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TRANSCRIPT OF PROCEEDINGS BEFORE THE CANADIAN RADIO-TELEVISION AND TELECOMMUNICATIONS COMMISSION
To consider the broadcasting applications for the group-based licence renewals for English-language television groups listed in Broadcasting Notice of Consultation CRTC 2010-952, 2010-952-1, 2010-952-2 and 2010-952-3
140 Promenade du Portage
In order to meet the requirements of the Official Languages Act, transcripts of proceedings before the Commission will be bilingual as to their covers, the listing of the CRTC members and staff attending the public hearings, and the Table of Contents.
However, the aforementioned publication is the recorded verbatim transcript and, as such, is taped and transcribed in either of the official languages, depending on the language spoken by the participant at the public hearing.
Canadian Radio-television and Telecommunications Commission
Abridged Rogers transcript
To consider the broadcasting applications for the group-based licence renewals for English-language television groups listed in Broadcasting Notice of Consultation CRTC 2010-952, 2010-952-1, 2010-952-2 and 2010-952-3
Konrad von FinckensteinChairperson
Joshua DoughertyLegal Counsel
Valérie DionneLegal Counsel
Sheehan CarterHearing Manager
140 Promenade du Portage
5 April 2011
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TABLE OF CONTENTS
PAGE / PARA
Rogers Broadcasting Limited (Cont.)82 / 514
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PAGE / PARA
Undertaking114 / 760
Undertaking114 / 762
--- Upon resuming on Tuesday, April 5, 2011 at 1145
513 THE SECRETARY: Mr. Chairman, we are now ready to proceed with the in camera session.
514 THE CHAIRPERSON: Okay.
515 Thank you very much for filing with us these two pages, which was in response to yesterday.
516 Would one of you want to walk us through these pages?
517 MS VALLIANT: Sure.
518 We will look at the first page, which is the Rogers proposal. It has the 25 percent group CPE at the top.
519 THE CHAIRPERSON: Yes.
520 MS VALLIANT: What we did, for ease of reference for you, is there's a couple of different variables that we have been talking about.
521 THE CHAIRPERSON: Yes.
522 MS VALLIANT: One is the fixed group CPE, the second is the fixed conventional CPE, and then the three-year smoothing versus basing it on the previous year's revenue for the first year.
523 So Scenario A is the fixed group CPE of 25 percent based on the three-year smoothing period that is filed. So we show you over the five-year broadcast term the amount on Canadian programming for each of those five years. So the total spending in that scenario is $XXXXXXXX approximately.
524 Our Scenario B is exactly the same in terms of a fixed group CPE at 25 percent, but we are simply basing 2012 on the prior year's revenue rather than the three-year smoothing. So you will see the only number that differs in Scenario B from Scenario A is the Canadian spending in the first year. It is about $XXXXXXXX. And the total for Scenario B is about $XXXXXXXXX on Canadian programming.
525 And then Scenario C goes into the new way you wanted us to look at this, fixing the conventional CPE based on the three-year smoothing period. So that is Scenario C, and so since we are using a three-year period, the fixed conventional CPE is XX% percent and the amount over the five-year broadcast term is about $XXXXXXXX.
526 Now, if we use the three-year -- if we simply use the previous year's revenue, the fixed conventional CPE will be slightly higher because the previous year's revenue was slightly higher than the three-year average. So again, for the five-year term that amount is about $XXXXXXXX.
527 So we wanted to lay out those four scenarios to you so you had all sort of the different combinations and permutations.
528 And then below, in the second part of the chart, we have answered your specific questions.
529 So your first question, 1(a), was: What if you used a fixed conventional CPE based on revenue of the previous year?
530 And so that is the Scenario D that we laid out above. So in total the amount of spending over the term is about XXXXXXXXXX.
531 Your second question was: What if you adjusted that to include all LPIF?
532 Now, Winnipeg is the only station where we get LPIF and it is about XXXXXXXX a year. So, frankly, the impact for us is immaterial. So the total in that scenario is about XXXXXXXXX.
533 Your third question was: What is the impact of the three-year smoothing proposal under the fixed group CPE scenario?
534 So in parentheses, we just -- for your ease of reference, it is basically subtracting Scenario B from Scenario A above. And again, as I mentioned, the only impact that has is in the first year of the licence period. It's about XXXXXXXXX, simply because a three-year average gives us a lower number in the first year.
535 And then you didn't ask this specifically but just so you would have it: What is the impact of a three-year smoothing if we use a fixed conventional CPE?
536 So this difference is Scenario D minus Scenario C above, in case you want to move there, and the difference in the first year is about the same but we have a slight incremental difference in each of the following four years simply because our fixed conventional CPE based on previous year's revenue is XXXXXXXXXXX if you go back to Scenario C and Scenario D. So in total, the difference between those two scenarios is closer to XXXXXXXX.
537 Then your question 2(b) is: What is the difference between a fixed group versus a fixed conventional CPE?
538 And we assumed we would look at that using the three-year smoothing model, and that is the difference between Scenarios A and C above. So over the term that is about #########.
539 And then your last question, 2(c), was: What is the impact of LPIF on CPE under the three-year smoothing model?
540 And because we have about XXXXXXXXX a year at about a XX percent, XX percent CPE, it is about XXXXXXX a year. So over the term it is just over XXXXXXXX.
541 And then we also did it based on the previous year's revenue, not just the smoothing model, and it is virtually the same, about XXXXXXXXX.
542 So we have answered all your questions but we also thought it would be useful to lay out all those scenarios so you can get a sense as to the impact each of those variables has.
543 Would you like to go through the 30 percent CPE version as well, which is --
544 THE CHAIRPERSON: Well, I presume it is the same thing, just you are using 30 percent rather than 25?
545 MS VALLIANT: Yes, the exact same methodology. You will see the same movement in the numbers but they will all be slightly higher given the incremental percentage.
546 Would you like me to walk you through that or is that useful?
547 THE CHAIRPERSON: I think it is clear what you have been doing.
548 MS VALLIANT: Okay.
549 THE CHAIRPERSON: Now tell me, my colleague Suzanne asked me very clearly -- we are trying to move you towards having more Canadian content. You are telling us because of your asset mix that PNI is very difficult for you and you really want to spend it on local.
550 But if that is the case, if you are going to spend more on local, why is your CPE still at XX?
551 That is what I don't get. I can understand that you have a problem with the PNI given the specific asset mix, but I heard Mr. Pelley say at least three times, our future is in local, we are not a network, we are basically a local big station.
552 So wouldn't that mean by necessity, by definition, that you have to increase your local spending?
553 MS VALLIANT: I think that speaks to the PNI piece in terms of where we want to spend our CPE. We would prefer to spend it on local rather than PNI, based on the type of assets we have.
554 But it is critically important that you understand the impact of the mix of our services on what is an appropriate CPE. So I am worried I didn't explain how this impacts us.
555 In terms of if you have a lot of specialty services -- let's take the extreme example if you have all specialty services today, your spending on Canadian programming is above 30 percent for sure. You know, 35 to 40 percent is not unusual in terms of what would be imposed on you for specialty services.
556 THE CHAIRPERSON: Right.
557 MS VALLIANT: If you have just conventional and no specialty you are in the low 20 percent range for CPE. So, you know, it's --
558 THE CHAIRPERSON: Except you weren't. Except you weren't.
559 MS VALLIANT: I understand why that optically is confusing, but you have to look at the specific circumstances in those years, and, you know, those were not typical of a viable business. We had the recession, which significantly impacted our revenue. So we were trying to take costs out of the business.
560 Our Canadian programming expenditures were virtually flat through that period, XXX, XXX XXXXX, but our revenue was falling more dramatically, and so our CPE percentage was inflated through that period.
561 So I think that 2011, the economy has come back, our revenue is coming back. This year is not a bad benchmark in terms of what is possible for us as a group.
562 And as a group this year we are at XX percent CPE, but the conventional part of our business is only at XX, but because it has such a significant weighting, it really is an important factor.
563 MR. PELLEY: I think --
564 THE CHAIRPERSON: But aren't you saying -- I mean our model was carefully constructed on the basis of historical expenditures because we didn't want to impose upon you something that you hadn't done before, and you are telling me, sorry, we have historically run at a loss, therefore that doesn't work for us.
565 MR. PELLEY: Let me --
566 THE CHAIRPERSON: That is basically what you are saying, and we now want to run at a profit and we can only do that by spending less on Canadian content and more on American content. That is really what it boils down to.
567 MR. PELLEY: Yes. You know what, Mr. Chair, I think you are right. I think the case was that this network was run poorly and it was failing miserably. And now Rogers bought it because they believed in Canadian content, they wanted to build it back.
568 But it was failing miserably and we inherited it and we inherited a lot of bad contracts, contracts that we couldn't get out of. In fact, we couldn't start to get out of them until 2010, and then you hit a recession.
569 And so you add it all up and you look at the historical CPE, you go, my goodness, you know. If you had that, it's just not a viable business.
570 And, you know, something that I don't know if we have explained, we are not looking for a different conventional CPE. We really aren't. I just think that we are looking for one that makes sense for us to grow it.
571 And, Mr. Chair, I will tell you, you are totally right. We had to change things and the historical CPE was making it a not viable business and it was not run very well.
572 MS VALLIANT: I think it is important to note that first three-year period where you are assessing what a normal CPE was, was our first three years or owning the business.
573 This is something we inherited. We had to understand what it is we had. We had to take costs out of the business. We were hit with a writers' strike, so we couldn't improve our programming schedule, which wasn't that great. And then once we started getting our arms around that, we were hit by the recession.
574 So, you know, the first three years or this three-year period that you are looking at for what is a normalized CPE was not a normal business for us in terms of what we were running at. We were really just getting our arms around it. I feel like we are getting to that point now, but the last three years we certainly weren't there.
575 THE CHAIRPERSON: Okay. I will pass you on to my colleague, but I just want to leave you with this thought.
576 We appreciated that this would cause -- because of that, I mean we are not unaware of City's plight that there would be some problems. So our thought was -- and I would like to say, how can we make you grow into this, how to give you a transition period to get there, not to change the rule for you, and that is what you are asking me to do here.
577 That is my problem, you know, giving you a transition period or making a modification to the policy on the edges so as to give you more flexibility, given your specialties.
578 That is what this hearing is all about but it was not to basically break the basic tenet, the two basic tenets of the policy, which is 30 percent CPE and 5 percent PNI.
579 MS WHEELER: Mr. Chair, if I may, the historical expenditures, when you are looking at them from a percentage of revenue point of view, you are absolutely right, it does bring us into the 30 percent area and I think my colleagues have explained to you why that is, because our revenues were artificially low.
580 But in terms of maintaining and building on our commitment to Canadian programming, that is exactly what we have proposed. We haven't proposed to reduce in terms of total dollars spent on Canadian --
581 THE CHAIRPERSON: No, but if you took that chart there and you put the percentage chart on there, it would be going down this way. These are dollars on the right-hand side. If you actually --
582 MS WHEELER: I think it would go down and then it would go up.
583 THE CHAIRPERSON: Well, it is your chart. You put it on.
584 MS WHEELER: The only other thing that I guess I want to address is the idea that you are giving us a break. By giving everyone the same number, you would be penalizing us and you would be giving the others a break is I guess what we are trying to tell you here today. So that is why the one-size-fits-all doesn't work.
585 THE CHAIRPERSON: We are not trying to give anybody a break. We are asking -- not asking but trying to have a policy and make adjustments given there is a different asset mix for different companies, you know, but you are asking for more that.
586 But anyway, let's -- Suzanne, you are the numbers person on this file.
587 COMMISSIONER LAMARRE: I am not going to really ask a number of questions, quite frankly. I think the chart is clear.
588 But I do have a question to ask regarding Scenario 1b because you -- well, the answer to the question wouldn't be what we asked because you said you have included on those numbers the LPIF revenues and you made the comment that, you know, you only have Winnipeg that benefits from LPIF, so that at this point in time the difference may not seem significant, but it doesn't mean to say that those are the only revenues you will ever get from LPIF.
589 If everything stays the same for the next five years, yes, that is how it is going to remain, but things may change, you may acquire other stations and end up with a different situation.
590 So as a matter of principle, do you see any issue with including all revenues in those calculations, whatever the percentage we decide to choose for you, be it LPIF or special events -- like you may, you know, decide to bid on the Olympic Games or whatever -- as CTV is?
591 You know, CTV is clearly opposed to including LPIF and Olympic revenues in the calculations. Would you be the same or different?
592 MR. PELLEY: So for LPIF, absolutely, if we continue with LPIF, which is a whole different discussion, which we are not really sure that we should, but LPIF, we would include it.
593 I think your question, Madam Commissioner, is if in fact we are to acquire a service or to build a service, would those revenues include it? The answer then is yes.
594 COMMISSIONER LAMARRE: Okay. Okay. So that is clear enough. Okay.
595 I don't have any more questions for the data. Thank you.
596 COMMISSIONER KATZ: Just two questions. I will come back to my U.S. data in a minute.
597 The smoothing proposal in the first year only exists for the first year and then you rely on the previous years. Is there a benefit from a planning perspective, from your view, if it was smooth for every single year so you were always having the benefit of some degree of consistency using a three or a five year, whatever that may be?
598 MS VALLIANT: I think it would eliminate any of the anomalies like we have seen in the past couple of years. So it's certainly something we think should be considered.
599 COMMISSIONER KATZ: Okay.
600 The second question is, American data, foreign data, we have got on there the '08, '09 and 10 historical and then the projections as well. Can you provide us with the non-Canadian amounts of money for each of those years --
601 MS VALLIANT: Yeah.
602 COMMISSIONER KATZ: -- including the five-year forecast as well?
603 MS VALLIANT: Sure. So the U.S. programming figures that tie to that chart would be XXXXXXXXX in 2009, XXXXXXXXX in 2010, XXXXXXXX in 2011, $XXXXXXXXX in 2012, XXXXXXXXX in 2013, XXXXXXXXX in 2014, XXXXXXXXXX in 2015 and XXXXXXXXXX in 2016.
604 So we are investing --
605 THE CHAIRPERSON: I can't write that fast. Can you start from the beginning?
606 MS VALLIANT: Oh, sorry. Okay, XX, XXX --
607 THE CHAIRPERSON: That's XX for '11 or '12?
608 MS VALLIANT: No, for 2009.
609 THE CHAIRPERSON: 2009, okay, XX
610 MS VALLIANT: 2008-2009.
611 THE CHAIRPERSON: Yes.
612 MS VALLIANT: Then XXX.
613 THE CHAIRPERSON: Yes.
614 MS VALLIANT: XXX.
615 THE CHAIRPERSON: Yes.
616 MS VALLIANT: XXX.
617 THE CHAIRPERSON: M'hmm.
618 MS VALLIANT: XXX, XXX, XXX.
619 THE CHAIRPERSON: Yeah.
620 MS VALLIANT: And XXX.
621 THE CHAIRPERSON: Okay.
622 MS VALLIANT: So we are investing in U.S. programming to Commissioner Pentefountas' comment to allow us to generate profitability in order to invest in Canadian programming. That's essentially what funds our business and allows us to make the contributions that you see on that chart.
623 COMMISSIONER KATZ: So if I can pick up on that, in the three actual years there, your CPE was flat at roughly $XXXXXXXX but your purchase of non-Canadian programming went from $XXXXXXXXX to XXXXXXXX an increase of almost XX, more than XXXX XX XX
624 MS VALLIANT: Yeah, and that was part of our programming strategy as it related to turning around the program schedule we had for City Television, making audiences come back. Frankly, that's what has driven the revenue growth we have seen over the past couple of years.
625 COMMISSIONER KATZ: So your entire business is predicated on non-Canadian programming and, I guess, as Vice-Chair of Broadcasting said earlier, you are using Canada just as a loss leader. You have got to do this so you do it and you will do the minimum amount necessary, but that's it.
626 MS VALLIANT: That's what all the broadcasters do.
627 MR. MANSURI: Just to add, during that same period we mentioned the U.S. programming increase.
628 In that same time period we were able to grow our revenues by almost $XXXXXXXX which we then used to fund our investment in additional Canadian programming.
629 COMMISSIONER PENTEFOUNTAS: Your revenues grew but none of that money was reinvested in Canadian programming here. You are flat-lining there.
630 MS VALLIANT: It was primarily because of the recession. We were taking costs out of our business.
631 You know, the Canadian -- Canada is where we operate.
632 MR. PELLEY: The answer is yes. The answer is -- you are correct.
633 COMMISSIONER PENTEFOUNTAS: Thank you.
634 MR. PELLEY: You are okay.
635 COMMISSIONER PENTEFOUNTAS: Okay.
636 THE CHAIRPERSON: Now, we all understand the very first time when Rogers came before me to buy City and they said very simply exactly what you just said.
637 I mean, you make the business on the American content. That's where you make the profit. And the Canadian one is essentially you look at it as a cost of doing business. Those are the realities and we are not going to change them whether we like it or not.
638 But that's why we carefully constructed this group-based licensing system, looking at your historical records, seeing what you have done, et cetera, trying to come up with both CPE and a PNI to CPE so there wouldn't be constant erosion. If we go back you will remember CTV was spending a huge amount and then CanWest tried to duplicate them and passed themselves right into bankruptcy.
639 MR. PELLEY: Correct.
640 THE CHAIRPERSON: There was one and the secondary Canadian creative industry said, "We have less and less opportunities to produce drama in Canada and drama is the lifeblood for the creativity so we need a guaranteed amount". So we said, "Fine, this exhibition and this micromanaging of priorities probably much -- doesn't make sense".
641 So what really -- what drives this business is the dollars. So let's focus on the dollars. Here, we will freeze you on your historical ones which is 30. And here is the PNI, et cetera and tell us you can do better. That was supposed to be what this discussion was about.
642 You are now coming in and saying, "Yeah, that's fine but you made a basic mistake. What you wanted to freeze was unrealistic. I can't deliver this so therefore let's basically readjust everything downwards by 5 percent in terms of CPE and 2.5 percent in terms of PNI".
643 MS VALLIANT: We actually thought you might have figured out our mix argument based on the questions that you asked yesterday because if you fix the conventional CPE for all of the broadcasters that would go a long way in terms of leveling the playing field so that we are all on similar footing.
644 Putting us on a fixed group CPE doesn't take this mix argument into consideration.
645 MR. PELLEY: And if you look at -- like I said, we are not looking for a different conventional CPE. I think Shaw's CPE right now is 22 percent and I think Bell's conventional is 25 or 26 percent.
646 We are not looking for a different conventional CPE. But I can tell you, though, if you were Corus and you had a group CPE at 30 percent this is how quick you put your hand up, as quick as you possibly can.
647 THE CHAIRPERSON: We will hear from then this afternoon.
648 MR. PELLEY: Yeah.
649 MS VALLIANT: Well, you will see that.
650 MR. PELLEY: You should, and at that particular mix where they are already at 34 percent, you know --
651 THE CHAIRPERSON: What you are saying is use the formula to fix the conventional CPE?
652 MS VALLIANT: I think that eliminates the mix problem.
653 MR. PELLEY: That eliminates the mix problem. It does.
654 Now, yes, it does. It does and it would basically -- if we were all at a 22 percent CPE then you are correct that fixes the mix problem.
655 You know, are we disadvantaged because we should -- I think, personally, we should have a lower conventional CPE based on our circumstances, but it's tough for me to talk out of this side and this side.
656 THE CHAIRPERSON: Yes.
657 MR. PELLEY: Right?
658 THE CHAIRPERSON: You are unique in this industry.
659 MR. PELLEY: Well, right? But it's tough, you know.
660 But I do think we should be -- having said that, I do.
661 MS VALLIANT: They do have some inherent advantages given their size and scale and purchasing power. You know we hope to get there one day.
662 THE CHAIRPERSON: But that is not really what you put forward, but that's what you suggest if we want to maintain -- I want to understand what you are saying. I'm not suggesting, just repeating what I think I heard.
663 So you say if you want to really save the integrity of the group-based licensing policy, use all these calculations to fix the conventional portion which comes uniformly across whatever, whatever, roughly 22 or something like that, and then have a different CPE for the difference, depending on the different asset mix of what people have --
664 MR. PELLEY: That's --
665 MS VALLIANT: Let the group float.
666 MR. PELLEY: That's it, yeah.
667 MS VALLIANT: Yeah.
668 MR. PELLEY: If you wanted to amend where you originally wanted to go, and you wanted to go to a fixed conventional and a floating group CPE --
669 THE CHAIRPERSON: Right.
670 MR. PELLEY: -- then, to be honest with you it is more fair.
671 Like the current scenario with a 30 percent it's -- I'm just telling you it's not really that -- it's not fair based on where we are.
672 THE CHAIRPERSON: Because everybody is a different mix.
673 MR. PELLEY: M'hmm.
674 THE CHAIRPERSON: But if you are on conventional you are basically members of the same group so the same conditions should apply to you. That's really the underlying --
675 MS VALLIANT: Correct.
676 MR. PELLEY: That's what we are -- that's what we are saying.
677 MS VALLIANT: And that would be consistent with the approach that you have taken for specialty services as well.
678 MR. PELLEY: But now if the Commission did feel it necessary for us to have a little less conventional CPE just in the short term, just in the short term --
679 COMMISSIONER PENTEFOUNTAS: He doesn't give up.
680 COMMISSIONER PENTEFOUNTAS: It's coming and coming and coming.
681 MS VALLIANT: It can't hurt to ask.
682 COMMISSIONER KATZ: What you are advocating doesn't -- because it's complicated by the fact that we have a flexible system here as well. We have provided you with the flexibility to move stuff between conventional and specialty which wouldn't work in that regime.
683 MS WHEELER: I think it would still work, Commissioner Katz, because the majority of the revenue that is derived from our group will stay in OTA because of the formula that the framework provides for and where you can only share 25 percent of your OTA CPE with the other specialty services.
684 In our case, the majority of the revenue is coming from OTA so the majority of the Canadian spend will stay on OTA. And it goes back to Commissioner Lamarre's earlier comment about ensuring --
685 COMMISSIONER KATZ: But your case is one case.
686 MS WHEELER: -- Canadian programming is accessible to a wide -- on a wide basis to --
687 COMMISSIONER KATZ: Yeah, but your case is unique to you. We have got a group licensing policy that extends to everybody equitably.
688 MS WHEELER: Yeah, but I think that it can apply to everyone equitably. All of the groups have an OTA portion of their group and all of them have specialties.
689 We have 40, 41, 40 percent CPE for our specialties compared to the other specialty services owned by CTV and Global.
690 We will have a 22 CPE on OTA compared to Global's 22 CPE and I'm not entirely sure what CTV's is.
691 MR. PELLEY: 26.
692 THE CHAIRPERSON: Yes, but we are exploring here obviously.
693 MR. PELLEY: Yeah.
694 THE CHAIRPERSON: So what you are basically saying, Ms Wheeler, if I understand, is you suggest you amend the group-based licensing or you apply it as far as saying OTA is -- everybody has 22 percent as a cost. You use all of these formulas, what we talked about before, to find what the overall CPE and that depends on the proper asset mix. So in your case what you suggest comes out to 25 CTV, maybe 31 Shaw, maybe 29 or whatever.
695 But what you have done --
696 MR. PELLEY: Yes.
697 THE CHAIRPERSON: -- through that policy, you made mention -- first of all, you ensured that everybody spends 22 percent on OTA and so OTA has hopefully a more secure picture.
698 And you also still have the PNI. We haven't dealt with PNI yet but you -- at least you have taken into account the application of this policy.
699 MR. PELLEY: Yeah.
700 THE CHAIRPERSON: Looking at the underlying asset mix, which will change -- which by the way if you purchase Astral will totally change.
701 MR. PELLEY: Yes. Yes, of course that would.
702 MR. PELLEY: But yes, I would say -- I totally concur that that is a model that I believe is fair.
703 THE CHAIRPERSON: Okay, and on PNI?
704 MR. PELLEY: On PNI, you know, I think we have given our thoughts on PNI. We are not -- I can tell you the CMF is a way bigger, bigger story and a bigger challenge than even maybe we have given it credence today.
705 I think just from a PNI perspective, I just don't think we are equipped at this particular time to do it based on our assets and what we have in terms of CMF and the lack thereof, of different networks to actually place it on.
706 MS VALLIANT: It doesn't change the total amount we spend on Canadian programming. It's just a matter of where it gets allocated.
707 MR. PELLEY: Yeah, I think that's fair.
708 THE CHAIRPERSON: Peter, go ahead.
709 COMMISSIONER MENZIES: How much of -- if hypothetically the current system of protecting genres that aren't really genres goes away, what would this look like?
710 What would your presentation look like if you -- if specialties was a relatively open entry, non-genre protected area, given that you have a cable company that might be disposed to carrying some of them?
711 MS WHEELER: I don't think it will have any bearing because our expenditures would probably remain the same. I think the only difference is that --
712 COMMISSIONER MENZIES: Your expenditures would -- how much would you still be special, right?
713 Your case is that you are different, right? Why would you be -- if there was no genre protection and you could launch as many specialty channels as you wanted to, how much --
714 MR. PELLEY: Yes, and as I just whispered to Susan, short term there wouldn't be any. Long term there could be.
715 COMMISSIONER MENZIES: If you are any good at it.
716 MR. PELLEY: Yeah, that's -- I think that's fair.
717 MS WHEELER: And that's why the group-based framework actually does work quite well because it is adaptable to future growth and future acquisitions as we get larger and we are able to spend more and contribute more we will under this framework.
718 COMMISSIONER MENZIES: Okay, thank you.
719 MR. PELLEY: You know, I think -- and Susan might hit me for this, but I think we would be willing to look at our PNI if our asset mix was to change dramatically over the license term and we all of a sudden had the scale for whatever reason of our competitors. Then I think that would be fair for us to look at.
720 THE CHAIRPERSON: Five-year license, you know, we could build in a midterm review. You are launching four or five specialty. You hope they will be brilliant successes. Let's assume they are and your asset mix will be quite different than what it is right now.
721 MS VALLIANT: We are starting from scratch, though, and launching three a year. It will change. It will take some time.
722 MR. PELLEY: I understand what the Chair is asking and respect that.
723 THE CHAIRPERSON: We are just groping here because you know I don't want to see you go bankrupt. That doesn't -- because of our regulatory --
724 MR. PELLEY: And I can tell you, we are totally in camera here. Here we are at Rogers Media.
725 Oh, there is a transcript. Oh, okay. I will vary that just a little.
726 THE CHAIRPERSON: No, the transcript is not made public. We will issue a redacted version with your consent.
727 MR. PELLEY: But here is how -- here is how I have come in and here is the way that I am looking at Rogers Media.
728 Rogers Media is a completely different vertical within RCI and it is a diverse portfolio, more diverse than the others. You know, we have radio channels. We have got a shopping channel. We have got the Toronto Blue Jays. We have got Rogers Centre. We have publishing in 74 magazines. Then we have television.
729 But, overall, Rogers Media is not at the same profit level as Shaw and as Bell. I know the mandate that is coming down from above is, "Grow Rogers Media from a profitable perspective and grow it's EBITDA, grow its revenue" and as I have said to all the group, we want to focus on television as being one of the areas where we can grow.
730 Hence, the reason that we came in with what we thought was a fair proposal based on we want to make that a huge massive gargantuan priority for Rogers Media and not to turn our full attention to digital and local, digital services and ad networks and publishing and the transition to digital.
731 We want television to be a core part of the growth of Rogers Media. But the mandate that we have is to grow it.
732 THE CHAIRPERSON: Well, you happen to have another little network called OMNI.
733 MR. PELLEY: Yes.
734 THE CHAIRPERSON: And we talked earlier about 10 percent overlap, et cetera.
735 Have you ever given any idea of whether part of the asset mix problem could be overcome by throwing OMNI in the mix either lowering what Rita was talking about, the 10 percent overlap, or by counting some of OMNI's spending or something?
736 MS WHEELER: I think it would just exacerbate the problem.
737 And the other thing I just want to make sure you understand is that currently there is a restriction that OMNI can't show any of its third-language programming with City and the majority 80 to 90 percent of OMNI's Canadian program expenditures is on third-language programming. So that basic, that limitation itself takes it out of the equation.
738 MR. STRATI: One more thing, Commissioner, also on the other side is we particularly have -- as Susan mentioned, we are on a third-language Canadian programming area.
739 We also -- as the Commission is aware, restrictions on the carriage of American programming in primetime. So we are -- OMNI is very different both from a Canadian and an American perspective.
740 THE CHAIRPERSON: I am just groping for straws here.
741 MS WHEELER: Yeah, looking for solutions.
742 THE CHAIRPERSON: Okay, well, you know where we are coming from with -- I have explained it to you very much. You have made your point clear.
743 Let's both go back and re-think about it, et cetera. At the end of the hearing you can do further submissions, et cetera, you know.
744 As I say, our primary -- we constructed this policy very carefully trying to make sure it would fit everybody and would not do an injustice and, as you read, was very hard. We wanted to have a transition mechanism. You are now telling me because of your asset mix a transition mechanism doesn't work. That's what -- the message I am taking from what you are saying.
745 MR. PELLEY: Correct.
746 THE CHAIRPERSON: Yeah.
747 Tom, please?
748 COMMISSIONER PENTEFOUNTAS: Were revenues and expenses and profit before tax requested from the Rogers Broadcasting Group?
749 MS VALLIANT: That was all filed.
750 COMMISSIONER PENTEFOUNTAS: Oh, these are the projections that you filed?
751 MS WHEELER: Yes.
752 THE CHAIRPERSON: Yeah, do you want to...?
753 MS WHEELER: Yeah, the chart is -- sorry. The chart is consistent with the projections that we filed.
754 THE CHAIRPERSON: I think what Tom is asking for can we have a third line here for the PBIT?
755 COMMISSIONER PENTEFOUNTAS: Yeah.
756 MS VALLIANT: Our what?
757 THE CHAIRPERSON: The PBIT for --
758 MR. MANSURI: We did file our five-year aggregate financial projections for both our specialty services and our conventional services all the way down to net income.
759 THE CHAIRPERSON: No, but on the calculations here.
760 MS VALLIANT: Oh, on these, yeah, we can file them for you. Yeah.
761 COMMISSIONER KATZ: You also filed amended 2011 data with six months of actuals. If that results in a change to your five year forecast you may want to comment on that as well.
762 MR. MANSURI: Yeah, we did file for six months of actuals and forecasts for the next six months just last Friday. It wasn't materially different for the current broadcast year but we can update that as well.
763 COMMISSIONER KATZ: Okay.
764 THE CHAIRPERSON: I think we should go -- I'm sorry. Do you have another question?
765 COMMISSIONER PENTEFOUNTAS: Yes, actually a question.
766 Why, if you were always -- if you have been losing money the last three years in a row -- I can't remember the exact amounts, but you are consistently losing money and you are still spending 30 percent CPE, if CPE is the -- no, sorry.
767 MS VALLIANT: Yeah, that is correct. You know, we were bringing down our Canadian programming expenditures.
768 If you look at City we brought it down from XXXXXXXX in 2008, XXXXXXXXX in 2009, XXX XXXXXX in 2010. But the problem is our revenue is falling faster than we could take costs out of the business, all costs out of the business because of the recession primarily.
769 So that percentage is inflated for those last three years because the recession -- we were trying to get our arms around the business, rebuilding programming schedules. It really was us turning around City Television and we are only just starting to get there.
770 COMMISSIONER PENTEFOUNTAS: And carrying costs on the debt of actually buying City is not part of your calculations?
771 MS VALLIANT: Correct. We didn't incur debt.
772 MR. MANSURI: Just to add to that, as Shannon mentioned earlier, the way CPE is calculated its current year expenditures over prior year revenues and our revenues in 2010 grew by XX percent compared to the previous year and our costs are still -- this year they are stabilized.
773 So our CPE for this year as a group is XX percent. It's not reflected in what we spent in those three years. And we are still going to lose $XX XXXXXX.
774 MS VALLIANT: Just to confirm, any acquisition costs related to City Television are not reflected anywhere in our financial projections. They are irrelevant for the purposes of this discussion.
775 THE CHAIRPERSON: Okay. So I think we need to go back on the record now and share with the world the undertakings that you just gave.
776 So I think counsel, Mr. Dougherty, has a list.
777 Let's go back on the record.
778 THE SECRETARY: Just one minute so we can put the audio live link back on.
779 So this concludes the in camera session.
780 THE CHAIRPERSON: No, what we do is, we go through it and take out anything that's confidential. We share it with you, ask for your consent and then only if everything is -- we both consider it non-confidential, we make public.
781 MR. PELLEY: I see. I appreciate -- I appreciate clarity on that.
782 THE CHAIRPERSON: Yeah.
783 MR. PELLEY: I could have given you more information then.
784 COMMISSIONER PENTEFOUNTAS: Everything but the whining. Cry me a river.
785 UNIDENTIFIED SPEAKER: You don't want that on the record.
786 MS WHEELER: And when would you like the updated projections? Would the Secretary tell us that?
787 MR. PELLEY: Yesterday?
788 THE CHAIRPERSON: I beg your pardon?
789 MR. PELLEY: When would you like the upgraded projections?
790 THE CHAIRPERSON: As soon as you can file them.
791 MR. PELLEY: Yesterday would have been good.
792 THE CHAIRPERSON: Do you want to go through the list of undertakings or Me Dionne? Are we on?
793 THE SECRETARY: No, we are not on.
794 THE CHAIRPERSON: We are not on. Okay.
--- Upon recessing at 1224, to resume immediately in public
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