ARCHIVED - Transcript, Hearing 6 April 2011
This page has been archived on the Web
Information identified as archived is provided for reference, research or recordkeeping purposes. It is not subject to the Government of Canada Web Standards and has not been altered or updated since it was archived. Please contact us to request a format other than those available.
Providing Content in Canada's Official Languages
Please note that the Official Languages Act requires that government publications be available in both official languages.
In order to meet some of the requirements under this Act, the Commission's transcripts will therefore be bilingual as to their covers, the listing of CRTC members and staff attending the hearings, and the table of contents.
However, the aforementioned publication is the recorded verbatim transcript and, as such, is transcribed in either of the official languages, depending on the language spoken by the participant at the hearing.
Abridged Shaw Media Inc.
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 Shaw Media Inc. 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
6 April 2011
- iv -
TABLE OF CONTENTS
PAGE / PARA
Shaw Media Inc.150 / 1036
- v -
PAGE / PARA
Undertaking151 / 1041
Undertaking158 / 1095
Undertaking168 / 1166
Undertaking193 / 1350
Undertaking195 / 1366
--- Upon resuming on Wednesday, April 6, 2011 at 1332
1033 THE CHAIRPERSON: Okay, Madam Secretary, I trust we are offline and only authorized people are in the room?
1034 THE SECRETARY: Exactly. So we are now ready for the in camera session.
1035 THE CHAIRPERSON: Okay. I think, Len, this is your show.
1036 COMMISSIONER KATZ: Thank you, Mr. Chairman.
1037 I want to go back to one of the things that was mentioned this morning, I think by you, Barb, and that was the data for PNI that we have seems to have a mix of reality programming bundled into PNI, which doesn't allow us to have a balanced view across the board.
1038 Can we ask you to refile your data under a consistent definition, please?
1039 MS WILLIAMS: Yes.
1040 COMMISSIONER KATZ: Thank you.
1041 MS WILLIAMS: But you understand what is going on there. We will just give you the new numbers or is there anything else we can do to help make sure you understand?
1042 COMMISSIONER KATZ: Yes. If there is more than just reality that is in there, then let us know if you have taken more categories somehow and plopped them in there.
1043 MS WILLIAMS: No. Just to be clear, what the new numbers will show you is what we spend on programming that will be accepted as PNIs going forward.
1044 COMMISSIONER KATZ: Under the current definition?
1045 MS WILLIAMS: Right.
1046 COMMISSIONER KATZ: Yes.
1047 MS WILLIAMS: Okay.
1048 COMMISSIONER KATZ: And we will also have what you inferred is PNI based on the old definition or priority programming, whatever?
1049 MS WILLIAMS: Yes. I mean it's pretty clear math. There is a gap and that represents what is a fairly significant number of programs in our world because many of our lifestyle services -- and we do have a lot of lifestyle services, as you know -- were running programs that used to get categorized as documentaries, and documentaries are PNIs.
1050 COMMISSIONER KATZ: Can you expand on what types of programs they are?
1051 MS WILLIAMS: Absolutely. The easiest way to explain them is that we used to offer up programming that is reality ongoing series.
1052 So a show like "X-Weighted" which follows a group of people as they try to lose weight or "Til Debt Do Us Part" which follows a couple as they manage their financing, those were shows that used to get called documentaries because they were following one subject over a complete episode and they lived up to the old definition of a documentary.
1053 So in our world when we said, okay, we want to add up all the shows that are going to be PNIs, we added up all the shows that were documentaries, because docs will be PNIs.
1054 But then a new definition came out for what is a documentary and it separated out a piece of them and said actually some of these are reality shows, they aren't really documentaries, and they set a new set of criteria that would define what a documentary is, and it meant that a lot of these lifestyle reality shows that used to count as docs now will be called a different category and will no longer be called documentaries.
1055 So in the new information that we will file with you, it takes out those shows that won't count as docs because they won't count as PNIs.
1056 COMMISSIONER KATZ: Now, from the perspective of the Guilds or somebody, what is different about those shows that are not within that definition? Are they fully scripted? Do they use the same sophisticated, broad use of Canadian employees to do everything or is there something --
1057 MS WILLIAMS: I am going to start here, but Christine may jump in.
1058 I think that what has always been a bit of a struggle in the production community, and particularly within the documentary production community, is what they saw as a drifting away from the true documentary into reality programming.
1059 There was much debate at the CTF, now the CMF, about what really counts and what should we really be supporting, and as the category kind of kept getting stretched, there was a concern from the doc community that really we weren't genuinely putting our dollars behind the true spirit of documentary programming.
1060 So this separation helps to make sure that true docs are understood to be that, they're the ones that get CMF funding. These other ones that are being carved out as reality shows won't get CMF funding anymore and that is really at the heart and soul of this split.
1061 COMMISSIONER KATZ: So just to confirm, they don't get any CMF funding?
1062 MS WILLIAMS: These new ones, the ones that used to count but won't count anymore, the big detriment, if you will, to us of them being excluded is that they will no longer be eligible for CMF funding.
1063 So if we want to continue to do those shows with those producers, then we will have to figure out how to finance them because they were all, you know, eligible for CMF funding before.
1064 So we will still want to do those shows. They support our lifestyle services very appropriately and they are great content. So in a go-forward world it's not that we would likely do a very different mix of programming, it's just there needs to be a clear understanding of what's in and what's out.
1065 COMMISSIONER KATZ: Now the definition of what's in CMF, that's done, the ink is dry, the book has been closed on that?
1066 MS SHIPTON: Well, the definition is an 02(b) documentary. So then they will fall to these new definitions that we now have in front of us.
1067 The key phrase, it seems to be, that they are using in the new definition is "in-depth critical analysis" and they are very specific about that with 02(b), and when they describe -- or when it is described in the 11(b) reality it lacks or has a very minimal amount of in-depth critical analysis.
1068 I think there will still be a little bit of subjectivity in that, but they are really trying to clarify this world for us, and clarity is good.
1069 THE CHAIRPERSON: Just hang on a second here.
1070 First of all, you are the first one who has raised that. I've had four teams before me. None of them have raised this issue before. So I find that somewhat stunning.
1071 Secondly, I want to understand what the impact is.
1072 I have before me your numbers for 2008, 2009 and 2010. For instance, for 2010 you have a total of ____ percent in PNI, of which ------ percent comes from Category 2(b).
1073 You are now telling me that number is inflated and should be lower?
1074 MS BELL: I just want to clarify. Yes. The reason no one else raised it with you is because the other applicants when they filed they tried to predict what your new definition was going to be because we had heard where you were going.
1075 We took the safe route and we filed what you -- we responded to the question and said what have you been doing historically under the current definition, and we assumed that once the definition changed we might get asked a deficiency question to restate those numbers. That's the only difference.
1076 THE CHAIRPERSON: I have a problem with that answer. I am not aware that we changed the definition or anything like that. We issued a decision. The decision was issued six months ago. So what change of definition are we talking about?
1077 MS BELL: You changed it after we filed our applications. You changed it in the interim period. Your staff will be able to --
1078 THE CHAIRPERSON: No, they are just shaking their head.
1079 MS BELL: They are shaking yes.
1080 THE CHAIRPERSON: They are going like this.
1081 MS BELL: You didn't change it?
1082 MS YULL: It changed on November 1st. We filed --
1083 THE CHAIRPERSON: Go to the microphone so people can understand you.
1084 MS YULL: We didn't give them a lot of time to adjust their numbers. We published the new definition -- well, we didn't redefine 2(b). We created 11(b) to clarify that it wasn't part of 2(b). And we published that on the 1st of November and they filed their financials on the 15th.
1085 MS BELL: On the 10th.
1086 THE CHAIRPERSON: The implication of it being what? I remember we took it -- that part I remember. We said it was not 11(b), so what you are saying. And then as a result of that, surely everybody knew what the definitions are.
1087 So you are telling me that notwithstanding that we issued that clarification, you used another definition to file your data?
1088 MS BELL: We used the current definition, that's all. That's the difference.
1089 MR. ROBERTSON: So now, if you allow me, we would provide a restatement. We have run those numbers. We know what they are.
1090 THE CHAIRPERSON: Okay. I have the numbers that we have been working on, which I have. Your average is ---- over 2008-2010 and the numbers I have for each year -- 2008 is 12.8 and you are telling me now it is not 12.8 but what...?
1091 MR. ROBERTSON: Go ahead, Mike.
1092 THE CHAIRPERSON: Someone must have the numbers.
1093 MR. FRENCH: Yes, Mr. Chair. We take a look at -- if you go 2009, 2010 and 2011 --
1094 THE CHAIRPERSON: Well, let's start with 2008, okay.
1095 MR. FRENCH: We haven't gone back and restated 2008. We will do that.
1096 THE CHAIRPERSON: Okay. 2009?
1097 MR. FRENCH: 2009 is 5 percent, 2010 is 5.1 percent and 2011 is - percent.
1098 THE CHAIRPERSON: And how do you explain that by magic it all comes out to - percent, notwithstanding you started with an initial 8 percent in 2009, --- in 2010 and --- in 2011?
1099 MS WILLIAMS: It is a substantial gap, there is no doubt, and I would guess, without having seen the other companies' financials, that it's a bigger gap than the other companies would have and it may explain -- I don't know but it may explain why this is a much bigger issue for us than it is for them.
1100 Because we have so many lifestyle services there was a big proportion of our documentary programming that got caught, if you will, in this new definition and got pushed to be offside from a true documentary.
1101 If you don't have a lot of lifestyle services in your asset mix, you may not do much of this programming to begin with, so it may not be of much consequence to your total numbers, but in our situation it's tens of millions of dollars that are spent on these other programs that will no longer count as PNI.
1102 So to be apples to apples, we just -- we need to restate those numbers for you so you can see precisely where they are coming from.
1103 THE CHAIRPERSON: Even if you restate them for us for purposes of PNI, what does that have to do with the CMF?
1104 MS WILLIAMS: The point around the CMF is that the CMF was at the centre of the debate, if you will, about defining documentaries more clearly and more accurately because there was a concern from the documentary production community that the CMF dollars were being used to support reality shows for lifestyle networks and they didn't think that was appropriate.
1105 THE CHAIRPERSON: That has nothing to do with PNI. It has absolutely nothing to do with our PNI.
1106 MS WILLIAMS: But it would have. If those shows had stayed in and they had not carved a new definition, those shows would all have counted as PNIs going forward and that would suggest a larger percentage.
1107 THE CHAIRPERSON: I don't understand why they would have counted as PNI going forward. I mean one is a definition that we made. Another one is what CMF does for purposes of financing. Where is the link?
1108 MS WILLIAMS: Well, the link becomes in the program category. A PNI -- a documentary that satisfies the PNI requirement is a 2(b). The shows that we will now be able to categorize as 2(b) is a much shorter list than what we would have been able to categorize as 2(b) before.
1109 THE CHAIRPERSON: I see. So us tightening the definition has a direct effect on the financing that you get from CMF?
1110 MS WILLIAMS: Yes.
1111 THE CHAIRPERSON: Again, I am stunned that nobody else even mentioned this.
1112 MS WILLIAMS: Well, as I say, I think it may be because they don't have as big a percentage of their content falling into this category as we do because of our lifestyle mix.
1113 COMMISSIONER KATZ: Can I just understand? This is like a chicken and an egg to me. What came first? Did CMF redefine what was going to be legally fundable through the CMF and then we followed after that or did we come first and they follow us?
1114 MS SHIPTON: The CMF has been struggling with their definition, no question. So they were the chicken.
1115 MS SHIPTON: If that makes sense.
1116 And, then, your definition has really helped them just to put it in black and white.
1117 But they have been struggling over the last year and a half. I know that they would say the same thing.
1118 THE CHAIRPERSON: So they wrapped themselves around us to justify their definition.
1119 MS SHIPTON: Yes.
1120 COMMISSIONER KATZ: Just so I understand, you are suffering the consequences of this. Did you argue it at all? Did you fight it at all with CMF, with us?
1121 Because this is all news to me, personally anyways.
1122 MS SHIPTON: Charlotte might speak to what we have submitted on the record, but with the CMF, absolutely, we have been in discussions with them for years over this, and often there are shows that are submitted by producers that the CMF then judges not to be --
1123 It's been a very grey area, to be honest.
1124 THE CHAIRPERSON: But tomorrow morning the CMPA is here. They want you to go up in PNI to 10 percent, saying that your average over the last three years has been 9.3, and that is the figure that they got from what you filed. That's totally misleading, what you are telling me.
1125 MS BELL: Yes and no.
1126 MS WILLIAMS: If you did the numbers of 2(b) programming, historically there was that volume of programming that fell into those categories of programming. But if you submitted the same program schedule to the Commission next year, there would be a whole bunch of shows that would have been categorized as 2(b)'s that will now be 11(b)'s.
1127 So, if you add it up then, all of the shows that count as a 2(b), which is a requirement of PNI, you will get a different number.
1128 It's a timing thing as much as anything. Everything sort of coalesced here in November, and depending on your timing in filing, the numbers are different.
1129 MS BELL: In answer to the first part of the question, yes, we did intervene when the Commission reviewed the category and we raised the concern about what this would do going forward because of our lifestyle channels, and the fact that we were making use of that category.
1130 MR. ROBERTSON: But if you come right back to the main principles of reflecting historical, I think the CMPA would say that this institutionalizes the level that we were at.
1131 THE CHAIRPERSON: Well, we will hear tomorrow morning what they have to say.
1132 I have the feeling that the ground is being changed under my feet while we speak here, because until I heard you, I walked in thinking, "Well, they're at ---, this is not going to be an issue," and here you are basically bringing me down to -.
1133 I have no reason to question your numbers, but this really does change the whole --
1134 MS BELL: We did file 5 when we filed our renewal, we just simply --
1135 You asked, "Historically, what have you spent," and we gave you the real numbers of, actually, what we spent historically under that definition. Historically, that is what we have spent.
1136 THE CHAIRPERSON: I am not imputing any bad motive to you. Don't worry, I understand --
1137 MS BELL: No, no, I just want to make sure that you understand what we have done.
1138 THE CHAIRPERSON: Tom...
1139 COMMISSIONER PENTEFOUNTAS: Can I ask how you manage to have reality programming counted as documentary?
1140 MS WILLIAMS: Good question. The production community would ask the same thing: How the heck did you guys get away with this for so long?
1141 I think the challenge is that reality programming, as a genre of television, has been in invention for the last number of years, and as we all -- as broadcasters around the world started to do more and more of it, and started to find different ways to evolve it, it became a bigger and bigger issue for everyone, frankly, not just for the producers.
1142 In the early days you did a little bit of it, and it was sort of true fly-on-the-wall observational docks. That's the root of it, right?
1143 There is a very accepted genre within documentary of the fly-on-the-wall observational documentary, where a camera simply goes in and observes and follows an event.
1144 As reality television evolved, as producers, we all started to manage that environment a little bit more and set up scenarios. And it's not scripted reality programming. We would never script reality programming, but we manage it a little bit more.
1145 As that started to happen to more and more of the programming, the producers started to step up more and more often and go, "Hang on here, guys. Documentary dollars are going to following fat people lose weight. That's not what this is supposed to be."
1146 So the argument has been progressing for years, and finally this year -- I think it's good, actually. Even though it is going to be a challenge for us in some ways, I think it is good that we have actually put a bit of a line in the sand around this and created a category that is reality -- 11(b) is reality. That now is clear, and we are more clear now about what is actually a documentary that should be funded by the documentary envelope at the CMF.
1147 It's good clarity. It does have a backlash for us in terms of accessing funding, there is no doubt, but, honestly, the spirit and intent of this is good.
1148 COMMISSIONER PENTEFOUNTAS: You were given an inch, you took a foot, and until somebody catches you on it you are going to keep doing it, and that's where we are at now, basically.
1149 MS WILLIAMS: Yes. I mean, that is a little more sinister than I would have put it, but --
1150 COMMISSIONER PENTEFOUNTAS: I appreciate your honesty.
1151 THE CHAIRPERSON: I just want to make sure, in terms of due process -- Charlotte, did you tell me that you filed new numbers with - percent?
1152 I mean, tomorrow morning, when the CMPA is here, will they know what your actual spend under the new definition, as you refer to it, was for 2009, 2010 and 2011?
1153 MS BELL: To be clear, no. What we filed is our proposal for PNI, which we said would be 5 percent, but the numbers that we had filed would be higher than that -- the historical spend. But we can restate that.
1154 THE CHAIRPERSON: I don't want to have a useless hearing tomorrow morning, I want them to address this.
1155 Do you want, at the end, on the public record, to state the numbers?
1156 Are these numbers confidential?
1157 The aggregate of PNI numbers for the last three years.
1158 MR. FRENCH: The 2011 number will be confidential, because that's a forecast number, but the 2009 and 2010 -- no, that's fine.
1159 THE CHAIRPERSON: So, when we finish, we will go back on the public record, and I think that one of you should state for the record: We have re-filed the numbers in light of the new position and, for the record, the total for 2009 and 2010...
1160 If you have 2008, too, that would be useful.
1161 You can announce that, so that I can then, tomorrow morning, have an intelligent conversation with the CMPA.
1162 MR. FRENCH: We will certainly do that.
1163 COMMISSIONER KATZ: You don't have 2008 today?
1164 Did I miss 2008?
1165 THE CHAIRPERSON: Can you calculate 2008?
1166 MR. FRENCH: Yes, we will calculate 2008 and get back to you before the end of the day.
1167 COMMISSIONER KATZ: The end of the day is probably about an hour away, but that's fine.
1168 MR. FRENCH: We're quick.
1169 COMMISSIONER KATZ: Going back now to your document that you left with us -- and we appreciate you doing this, as well -- do you want to take us through it first, or do you just want us to start shooting questions at you?
1170 MR. ROBERTSON: It might be helpful for you if we just gave you a little bit of an overview and some of the elements of it.
1171 I wanted to say, first of all, that we are totally supportive of the policy. Any gaps that we have between where you came out and where we are kind of looking at with the numbers are ones of which years get selected and what assumptions you make about certain elements, just basically the fine points of how you add the thing up, these sorts of things.
1172 And we don't want to nitpick on it, but taken in combination, they can produce some pretty different results. You may have heard that from some of the others.
1173 The fundamentals are that we agree with your policy, and we had set it on an historical basis, as well. We came to a 29 number, versus your 30; not a huge difference, but a difference.
1174 We used updated numbers. We had `09, `10 and `11, for example, and you used kind of the set of numbers of the year previously.
1175 So that's kind of how we got to the 29, and then there are some other elements, in terms of how you deal with smoothing to get to 2012, whether the group is fixed and you get a floating on the conventional side, and whether LPIF is in or out.
1176 Those were the three things that we were dealing with in terms of clarification.
1177 This is what we could take you through here.
1178 THE CHAIRPERSON: I gather there is a rationale for the various steps, because (a) why did you include 2011, since it's not finished; (b) why would you not include LPIF -- after all, this is part of your revenue; and (c) why do you think there is a three-year smoothing requirement?
1179 MR. FRENCH: Definitely, Mr. Chairman, I will walk you through the paper and I will answer those questions.
1180 We were asked to go away and take a look at the fixed conventional versus floating conventional, to take a look at the smoothing effect, and to take a look at what we do with LPIF.
1181 If you take a look at the first page, it is basically demonstrating the impact of our business onto our projections if we did not smooth, if we went on the fixed conventional CPE versus floating, and if we included LPIF as regulated revenues.
1182 What you will see is, over the term of the five years, it is hurting our business -- or it is increasing the CPE to the tune of about ---------.
1183 And you will see "In Year" that it's about -------- in 2012, ----- -- in 2013, and it grows out for the remainder of the term.
1184 If you flip to page 2, I will walk through the smoothing approach.
1185 If we use the smoothing approach to calculate the 2012 CPE, where we use the average regulated revenue for 2009 to 2011, versus using the 2011 regulated revenue only, the difference is -------- in revenue, if we apply it at the 29 percent, and that is going to increase our CPE requirement in 2012 by ----------.
1186 As we sit back and take a look at the significance and the magnitude of change in this policy, where you now have a CPE for conventional, you now have a CPE for Category B services, and you take a look at the year that we are coming into from an uncertainty standpoint -- so you have change from packages that are going to happen from BDUs, you have significant uncertainty when it comes to the competitive environment and the landscape that we are dealing with, when it comes to Hulu, when it comes to Netflix -- all that being said, it puts your 2012 revenue projections -- you know, with an uncertain bracket around it.
1187 So as we take a look at implementing a new, significant program around CPE, you take a look at a transitional role to soften the blow of the initial increase in CPE.
1188 The view from this business is that the smoothing helps the transition, and it benefits this business by ------------.
1189 COMMISSIONER KATZ: Before you turn the page, presumably, then, you would be in favour of the smoothing model for all the years, because it sort of takes off the peaks and the valleys if the market becomes cyclical or there are some anomalies.
1190 MR. FRENCH: Yes, definitely, we would be supportive of the smoothing value for all the years, for that exact reason.
1191 The next issue to look at was the group CPE -- was the conventional a fixed amount or was it a floating amount.
1192 As we did our five-year projections, we modelled the conventional spending on a floating basis. Thus, we calculated the total CPE for our business, we adjusted it for the specific CPEs for our specialty channels, and we came up with a residual conventional spend amount.
1193 Thus, the group CPE at 29 percent was common and flat and consistent throughout the licence period.
1194 If we move to a fixed conventional CPE, essentially what we are doing is, we are fixing our specialty CPEs and we are adding a conventional CPE to it. As we calculate that in Year 1, it is -- percent, but as we grow our business, and as we take a look at the different mix and the different product mix within our business, and we look at our specialty business, which has a higher effective CPE over our conventional business -- as that business grows, and grows faster than conventional, effectively what happens is, your total CPE increases. So you will see a step up from the ---- to ----, to ----, and that is just being driven by the fact that our specialty channels, which have an effectively higher CPE percentage than our conventionals, are growing faster and becoming a bigger part of our broadcast business.
1195 So when you take a look at this, again, it is not -- you lose some certainty. It is not really a group CPE number, it's a floating group CPE number.
1196 This trend will continue to grow as our business continues to grow more dominantly on the specialty side of the business.
1197 THE CHAIRPERSON: If you have to spend money on Canadian, you want to spend it on the way you would expect the highest gross. That's what that means. That's why you want to spend it on specialty and you are freezing the conventional.
1198 That is effectively what you are doing, right?
1199 MR. FRENCH: Right.
1200 MR. ROBERTSON: Mr. Chairman, you asked a couple of questions right off the bat, which we want to answer.
1201 One was, why did we use the most recent numbers when the 2011 year was not yet completed.
1202 That is because we have a really anominal year --
1203 MR. BRAZEAU: Strange.
1204 MR. ROBERTSON: A year that is strange --
1205 MR. ROBERTSON: Anomaly, I can get it out.
1206 THE CHAIRPERSON: Anomalous.
1207 MR. ROBERTSON: That's a tough one.
1208 The year in `08 -- the organization at the time hauled out a whole lot of news infrastructure costs in an effort to try to save the conventional network. In so doing, there was a whole bunch of spending in `08 that used to be backroom spending, which had nothing to do with the quality of the production.
1209 After `08 we centralized all our operations. We went from having master control and operational functions in every single station in the country down to four.
1210 So, if you go back to `08, you see a bigger number, but it has nothing to do with our news product, it has everything to do with an inefficient infrastructure that was not sustainable, and the company was desperately trying to fight its way to survival.
1211 So we said: Let's take the three years that are most representative. That's why we took `09, `10 and `11.
1212 So that's the answer to that question.
1213 In terms of LPIF -- and it sounds like you have strong points of view on it -- we thought that LPIF was, in part, conceived in the sort of context of a subsidy. If you put the LPIF amount into the revenue, you end up clawing back the 30 percent to go back into programming. Basically, of our $8.5 million of LPIF, you claw back $2.6 million, and that supports three stations.
1214 So we are kind of -- you know, we fight our way to get $8.5 million in LPIF, and then we claw back another $2.6 million to put into programming. That seemed to us like a double --
1215 THE CHAIRPERSON: Explain to me why there is a clawback. I don't understand that.
1216 MR. ROBERTSON: If it goes into our revenue, then we will be spending back 30 percent of it in program expense.
1217 MS BELL: Not necessarily in news.
1218 COMMISSIONER KATZ: But it's not an incremental 30 percent. Perhaps it is at the expense of spending it on American programming.
1219 I mean, that's the issue here, is it not? What we are trying to do is to promote Canadian programming.
1220 Everybody seems to be coming before us saying: You are adding on costs to us by doing -- whatever it is we are advocating.
1221 The reality is, all we are trying to do is to promote Canadian content and shift the spending from what has been haphazardly going out there, competing furiously in the U.S. for programming, and finding a way of normalizing part of that.
1222 It is a competitive issue. We understand that, as well. You have to compete with other players to buy it. But, at the same time, if we find some way of actually retaining some Canadian heritage and content in Canada, maybe you will all spend less in the U.S., to the benefit of Canadians and what we think is Canadian programming.
1223 MR. ROBERTSON: That's a good point. We are totally aligned on the idea of having a fixed percentage, we are just trying to land on what is the right expectation.
1224 But we agree with you. We believe in Canadian content. At the end of the day, for every dollar we spend on drama programming, we lose -- cents. That is the tough reality of the market we deal with.
1225 So when you say, you know, that we should be dialling it up, we are saying that we agree, philosophically. We love the Canadian program, but we have to be prudent to keep the business in balance, so we don't end up going out of business at the next bad business cycle.
1226 That's what we are concerned about.
1227 At the end of the day, we would make a suggestion, because I think we are into an area where we are talking pretty -- about a lot of elements that, in total, add up to something, but can we just offer -- philosophically, we are totally aligned with you on the notion of the fixed CPE expenditure.
1228 We have 29. We are showing you how we got to 29. We didn't just make it up. But if 30 is a number that you have a lot of comfort with and you are looking to conform against, we are supportive of that. We will be supportive of that.
1229 Our 5 percent on the PNI was -- we filed something that we thought was the right thing. The truth is, we have been spending - percent against PNIs for the last three years.
1230 So we would recommend that we do 30 percent, with 5 percent on the PNIs and -- you know, we are not a concern.
1231 THE CHAIRPERSON: Okay. I understand your explanation for 2011. That makes a lot of sense.
1232 The three-year smoothing -- the floating or the smoothing, or whatever it's called -- I have heard that from everybody, the same explanation I heard from you.
1233 On LPIF, like my colleague here, I am not at all convinced. I mean, the LPIF thing --
1234 Why did we go through this whole thing? We went through it because -- we suggested originally 1.1, and people like Barb Williams went absolutely snaky and said: You can't do that. You don't understand what is happening in Hollywood, and 1.1 doesn't make sense.
1235 And I found out that she was right, so we switched gears and we came up with this formula.
1236 But as Len just said, the whole idea is that this money is to be spent on Canadian content, and not to count in this calculation. It just doesn't make any sense to me.
1237 MR. ROBERTSON: LPIF is a support program for local television stations, and by putting it into the revenue line, we deduct 30 percent of that support program, which goes into Canadian content.
1238 I am not saying that it's a bad place to put it, I am just saying that if one created a local station subsidy and then siphoned it into --
1239 THE CHAIRPERSON: So you think that the net effect of this will be that 30 percent will not be spent on local stations, it will be spent on programming instead?
1240 MR. ROBERTSON: Yes.
1241 THE CHAIRPERSON: What are you doing in local programming?
1242 LPIF, what are you using it for? You are using it to support news programming on local stations, aren't you?
1243 MR. ROBERTSON: Of course, in part you are. You are spending it over everything, so some of it will go against news.
1244 THE CHAIRPERSON: LPIF is not -- you can't buy hardware with it. You can't buy buildings or something. It's supposed to go into the operation of the local station, as far as I understand.
1245 I don't understand why this 30 percent -- I am having a conceptual problem here, never mind the number -- why you see it as a clawback.
1246 MR. ROBERTSON: Because we get $8.5 million, which provides for the subsidy from a station standpoint.
1247 THE CHAIRPERSON: Yes.
1248 MR. ROBERTSON: And then the $8.5 million, when it goes into our revenues for calculation, then you come back and say, "Now you have to reinvest 30 percent of the new revenue number," which gets deducted from the original $8.5 million that we were provided to keep the local stations open.
1249 It's just a reapplication.
1250 It's like a double subsidy -- it's like a subsidy and a clawback.
1251 COMMISSIONER KATZ: But I would counter that by saying, when you go down to Hollywood to buy your programming, you know how much money you have to spend, based on your forecasts of revenues and operating costs and everything.
1252 If you do have this additional $2.6 million a year that you have to put back into Canadian programming, then, in your mind, presumably, all things being equal, you would be going down to the U.S. to buy American programming with $2.6 million less in your bankbook.
1253 That would extend to all of you in Canada, who are all going down to the U.S. to buy programming.
1254 So you all have that much less to spend on American programming, and when you get into your competitive bidding process, you will all spend that much less, because you have that much less to spend, because you are running on a bottom-line business.
1255 Your bottom-line business is -- you can only afford so much. At some point in time you do walk away from programming and let the other guy get it. And that's what it's based on.
1256 MR. ROBERTSON: We understand your point. I guess we look at Canadian programming as part of our contribution to the system, and the LPIF as a support program for keeping stations viable, and we kind of separate out those two things, and American programs are a third bucket.
1257 MR. REEB: Can I jump in?
1258 LPIF, when it is received -- we receive a specific allocation for each of the markets for which we are eligible, and we remarked earlier how Lethbridge, for instance, is a station that, for us, plays at the very, very edge and would be extremely vulnerable without LPIF.
1259 If you are taking, basically, 30 percent of that LPIF revenue that is going to a station like Lethbridge or Regina and suddenly say that's being allocated back to Canadian programming expenditures, that makes the value equation for local programming in that specific market that much more difficult.
1260 We have to look at things on a business-by-business basis in terms of what we do in the local markets.
1261 THE CHAIRPERSON: That's where you lose me. Aren't you having programming in Lethbridge, too?
1262 MR. REEB: Absolutely.
1263 THE CHAIRPERSON: Absolutely. So why am I taking it away from Lethbridge? I guess that is the step I am missing here.
1264 You are still getting that money for Lethbridge. You are spending it in Lethbridge. Whatever the amount is, you will have to spend that much on programming. The rest of it you may spend on just day-to-day operations, but I don't see that as being taken away, or that it in any way reduces the amount of money available for Lethbridge.
1265 MS WILLIAMS: I think it may go to what Commissioner Katz was trying to express in some large idea.
1266 If you keep the LPIF out of the revenue, then your calculated CPE that you will spend on Canadian content will be smaller than if you put the LPIF in.
1267 So it's just one of a number of these things that either grind up or grind down that total Canadian spend.
1268 And if the goal here with LPIF is not only to have you spend it on local stations, which we absolutely are doing, very, very effectively, but your additional goal is to add to the overall Canadian content spend, then by putting it in, you accomplish that.
1269 But I don't think we ever thought that there was that double goal to LPIF. We thought there was a singular goal to LPIF, to directly, 100 percent, support local stations, and we do that, and it works.
1270 We didn't expect to get an additional $2.5 million or $3 million spend on top of that as the outcome of getting LPIF.
1271 And whether it's the -------- that comes with smoothing or not smoothing, or it's the additional --------- that comes from LPIF being in or out, or any other number of things that add up here, that total Canadian content number potentially just keeps growing and growing.
1272 Is there a direct relationship between a dollar spent on CanCon and a dollar less spent on foreign? No.
1273 Generally, do I understand what you are saying? Absolutely, but the equation is not quite that straightforward, frankly, because the additional dollar you spend on Canadian you lose -- cents on. Hence, the pressure on that other dollar -- you had better spend on foreign, because that's where you make your -- cents.
1274 So in a bizarre, sort of twisted way, you put more pressure on spending on foreign than less.
1275 THE CHAIRPERSON: I finally got it. I'm sorry I'm so slow. It really goes back to your opening point, Mr. Robertson, it's another reduction on your flexibility, because it, effectively, means an increase of the amount of money that you have to spend on Canadian.
1276 MS WILLIAMS: That's exactly it.
1277 THE CHAIRPERSON: Okay. I'm sorry, sometimes I'm slow when it comes to numbers.
1278 MR. ROBERTSON: I was having a hard time explaining it, too, Mr. Chairman, so I am glad that Barb stepped up.
1279 COMMISSIONER KATZ: What you are basically saying, if you take it to the extreme, is if you could spend 100 percent of your money on non-Canadian stuff, you would maximize your revenues and be able to pay higher taxes in this country. Maybe that's the more direct way of doing things.
1280 Because that's what it comes down to. Every dollar you spend on Canadian, you could make more money on non-Canadian.
1281 MS WILLIAMS: We know that, but the bargain there is: I am prepared to lose -- cents on every dollar I spend on Canadian, because I know that I can make -- cents on every dollar I spend on foreign.
1282 COMMISSIONER KATZ: But you want to spend as little as possible on Canadian, because every dollar you spend, you are losing --
1283 MS WILLIAMS: I want to spend a reasonable amount that both -- and you know this -- that allows us to do the Canadian content that we really believe in and that we are having some great success with. I want to be able to continue to make that in a strong and effective way, by making sure that we spend the right amount on foreign to drive the audience revenue that we need on the other side.
1284 That's the deal in Canada. We all get it.
1285 COMMISSIONER KATZ: Okay. Let me take that one step further.
1286 On page 1, where you have listed on the top line "Filed with the CRTC", which is your 29 percent Canadian expenditures, what would the equivalent numbers be for U.S. expenditures?
1287 MR. FRENCH: The equivalent amount for 2011 would be -----------.
1288 COMMISSIONER KATZ: Would you take it all the way across from `12 to `16, please?
1289 MR. FRENCH: Sure. From ------------------- 281, it goes up to 285, 290, 295, 300.
1290 COMMISSIONER KATZ: And it is not a function of your revenues, presumably.
1291 If I take the Canadian number, the 261.1, in 2012, and divide it by .29, I will get your total revenues.
1292 And if I did the same thing right across the board and got your total revenues every single year, there is no correlation between your U.S. expense and your total revenues.
1293 MR. FRENCH: That is correct.
1294 COMMISSIONER KATZ: And if I were to take this to 30 percent, the incremental amount --
1295 I guess I can do it pretty quickly.
1296 If you're telling me your adjusted five years is ------------- and that's -- percent, then the ------------- of adjustments, -------------- equates to --- percent. So 1 percent is --
1297 MR. FRENCH: Yes, essentially given our business has grown to about a billion dollars, each percentage is incremental $10 million in Canadian spend.
1298 COMMISSIONER KATZ: Each 10 represents?
1299 MR. FRENCH: Each percent, so going from 29 percent to 30 percent is going to cost 10 million more in CPE a year.
1300 COMMISSIONER KATZ: A year.
1301 So help me here. Take the five-year totals 1.4 billion and the adjusted five years is ------------. So the difference is ----------- over five years and that is ---- percent?
1302 MR. FRENCH: So that difference is a combination of your fixed versus conventional. It's a combination.
1303 COMMISSIONER KATZ: Of everything?
1304 MR. FRENCH: It's a combination of many things and you're smoothing.
1305 COMMISSIONER KATZ: Yeah.
1306 MR. FRENCH: So I guess what we are saying is that as our business grows and our revenue grows to a billion dollars, if we are going from 29 percent to 30 percent, each percent is going to cost you 10 million per year.
1307 So over the five years of the terms it will cost you 50 million in additional Canadian spend.
1308 COMMISSIONER KATZ: Okay. So 30 percent would be 1.450, you are saying?
1309 MR. FRENCH: That is correct.
1310 COMMISSIONER KATZ: Okay.
1311 Those are my questions, Mr. Chairman.
1312 THE CHAIRPERSON: Why is this 5 percent not growing over the five years? How come that's static?
1313 MR. FRENCH: Can you repeat the question, please?
1314 THE CHAIRPERSON: For PNI, if I understood Mr. Roberts correctly, he said you are prepared to spend 5 percent on PNI over that period. By the figures that you have here hopefully your overall business is growing.
1315 Why is the PNI not growing the way the business is growing?
1316 MR. ROBERTSON: Well, it would keep pace with the top line revenue being a percentage of course. I think you know that.
1317 But so you get whatever growth we can get from a revenue standpoint. We will see in the growth of the absolute spending on the PNIs.
1318 I think the other thing to factor in, which is a pretty extraordinary consideration, is the amount of benefit spending against PNIs that is layered in on top of the 5 percent, so there is still 123 million to be discharged over the next four or five years in addition to the 5 percent.
1319 You know, I know we know it's kind of a separate bucket and that kind of thing, but on the other hand you know it activates the production community. It keeps them all busy and working. You know, at times we wonder how we are going to get all this done.
1320 Oh, yeah, and then of course the CTV benefits a huge number on top of that as well.
1321 THE CHAIRPERSON: Yeah.
1322 MR. ROBERTSON: So there has been -- the benefits of consolidation in this regard have been great.
1323 THE CHAIRPERSON: And there are still benefits from the original acquisition of Alliance Atlantis.
1324 MR. ROBERTSON: That is correct. That is all part of that 123. It's the combination of those original benefits and acquisition of CanWest by Shaw.
1325 THE CHAIRPERSON: Okay.
1327 COMMISSIONER PENTEFOUNTAS: Yeah.
1328 The -- cents on the dollar that you are losing on Canadian content has that been a traditional figure?
1329 MS WILLIAMS: I am hoping someone is close enough to kick me here if I go too far but --
1330 COMMISSIONER PENTEFOUNTAS: I will throw something at you.
1331 MS WILLIAMS: Yeah, please.
1332 It's interesting; given the opportunity of group licensing, we did a deeper dive on Canadian content profit margin or loss than we have probably ever done before. We always had sort of top line ideas of what made money or what didn't. We always had a pretty clear sense in conventional of what the big dramas and docs were losing.
1333 But we now actually have a much, much clearer sense on a station by station basis of exactly what revenue comes in because of Canadian, what it costs you and what the profit and loss is on each of our stations, because it was an effort to understand would we better off if we moved some of the spending from here to there because it makes money over here and it doesn't make money over there, right?
1334 It completely fell out of your policy to do this extensive math.
1335 The frustrating reality of that and, frankly, we take it somewhat personally, is we don't have a single station where our Canadian is making money.
1336 COMMISSIONER PENTEFOUNTAS: Even your hits that you are selling down south?
1337 MS WILLIAMS: Even our hits. And we had some instincts that told us, frankly, that HGTV was making money on its Cancon. We had some instinct around some of our other services that probably were doing okay.
1338 Our instinct wasn't wrong directionally. HGTV is the best of the bunch. It's only at --------------- and they go to over ----------. Like it's just -- it's frustrating.
1339 The aggregate of putting all of that together is that Canadian content as a whole across our services loses -- cents on the dollar.
1340 COMMISSIONER PENTEFOUNTAS: And on drama it would lose?
1341 MS WILLIAMS: Well, we looked at it not on a show-by-show basis. We looked on it on a network-by-network basis.
1342 So we did have a global number which is where a bunch of our drama runs and it clearly loses money there. It also factored into the Showcase number which loses money there.
1343 COMMISSIONER PENTEFOUNTAS: On a dollar --
1344 MS WILLIAMS: Yeah.
1345 COMMISSIONER PENTEFOUNTAS: -- Canadian drama, how much are you losing on Canadian dram?
1346 MS WILLIAMS: On just drama as a category?
1347 COMMISSIONER PENTEFOUNTAS: Yes, yes.
1348 MS WILLIAMS: Despite the services I don't know.
1349 COMMISSIONER PENTEFOUNTAS: Can you give us at some point --
1350 MS WILLIAMS: We didn't cut it that way. We could try to cut it that way. It's just a different way to look at it.
1351 MS WILLIAMS: We are optimistic. We have -- the 2011 numbers are in there. And we have had some great success. We hope that we can address those numbers.
1352 We are not proud of those numbers. We think we should be able to do better than that and we are working at it. But the reality today is that's -- cents on the dollar.
1353 COMMISSIONER PENTEFOUNTAS: And on Canadian --
1354 MS WILLIAMS: And lifestyle generally does better than anything else. So your drama number is going to be likely worse.
1355 COMMISSIONER PENTEFOUNTAS: Fine.
1356 MS WILLIAMS: The distinction is, when you run something on Global even if it doesn't do very well, because it's such a big network and the reach is so high and the CPM on conventional is so much better than the CPM on specialty that relatively you can do better with your drama.
1357 It's why we try so hard to get dramas on Global and it's why Rookie Blue and -- cross our fingers -- Hot Zone this year will be the big hits.
1358 COMMISSIONER PENTEFOUNTAS: Well, that's where we want them.
1359 MS WILLIAMS: Well, absolutely, us too; us too.
1360 COMMISSIONER PENTEFOUNTAS: And that's why we are pushing you to spend money on PNI so that you have invested in the product you are going to put it on primetime.
1361 MS WILLIAMS: We get it and --
1362 COMMISSIONER PENTEFOUNTAS: That was the deal.
1363 MS WILLIAMS: -- that amount of money, that 5 percent and the benefits will be, I would say in the confines of this room, more than the production community is going to be able to manage.
1364 THE CHAIRPERSON: Yeah.
1365 COMMISSIONER PENTEFOUNTAS: Can we get a number on drama in terms of the profitability on drama? You may even have it here with you.
1366 MR. ROBERTSON: Yes, we can do that.
1367 COMMISSIONER PENTEFOUNTAS: And can we also get a number going back to 2008 to 2011 on what percentage of your --------- PNI you would be spending on drama traditionally?
1368 You have been -- sorry -- no, you will be, but traditionally what percentage of that -------- PNI is going to drama?
1369 THE CHAIRPERSON: Was going to drama.
1370 COMMISSIONER PENTEFOUNTAS: Was, sorry.
1371 THE CHAIRPERSON: Now this is very useful for us, this -- percent number.
1372 I want to ask the other -- because nobody else has offered this number before. I didn't hear it from either Rogers or for Bell. So what exactly does it represent? It is the spending on all PNI programming or what?
1373 MS WILLIAMS: It is all Canadian content. We took the service -- Mike, correct me here if I misspeak -- but we took the service.
1374 We calculated the number of hours of Canadian that are on the schedule and the amount of revenue that comes from that schedule and we know the cost of making that programming to put it on the schedule. And you put that all together and you get a profit margin on your Canadian content as a whole.
1375 We didn't break it down show by show by show but we can say on Slice Canadian content as a whole delivers this margin, on Showcase it delivers that.
1376 THE CHAIRPERSON: I want to make sure I get the same as the comparables from the other companies so I will ask them to furnish this number.
1377 So staff, did you take note of Ms Williams' numbers?
1378 MS WILLIAMS: I doubt anyone has come close to doing this math, truthfully.
1379 THE CHAIRPERSON: I beg your pardon?
1380 MS WILLIAMS: It will be interesting to see if -- we have certainly never done this kind of a deep dive on it before. I would doubt they have either.
1381 THE CHAIRPERSON: No. I can imagine they wouldn't have had to do it for this hearing themselves too.
1382 MS WILLIAMS: They may have --
1383 THE CHAIRPERSON: I mean they are basically --
1384 MS WILLIAMS: We kind of think we are ahead of most of them on this kind of stuff.
1385 COMMISSIONER KATZ: You just used your direct costs? You didn't allocate any of your fixed costs at all, did you, like Mr. Stein's salary or something?
1386 MS WILLIAMS: We did it with two lines actually. We did a couple of lines of that.
1387 We did a straight on the screen amortization and then we did a layer with direct costs. We did both versions.
1388 COMMISSIONER KATZ: So the --- that you are losing is that including direct and indirect or is it just direct?
1389 MS WILLIAMS: -- cents on every dollar was -- I think -- is one and -- cents was the other. You are in the same range.
1390 COMMISSIONER PENTEFOUNTAS: Okay, who is who? -- and -- is -- can you clear that up for us?
1391 MS WILLIAMS: Well, you will lose -- if you just do direct on the screen. You only lose -- if you manage in the --
1392 COMMISSIONER PENTEFOUNTAS: And that is strictly you as a broadcaster, your costs are included in that, not the actual --
1393 MS WILLIAMS: That's -- that's what you are referring to --
1394 COMMISSIONER PENTEFOUNTAS: Yes.
1395 MS WILLIAMS: -- is the overhead costs that go into the Canadian content.
1396 COMMISSIONER KATZ: All the fixed costs.
1397 THE CHAIRPERSON: Yeah.
1398 COMMISSIONER KATZ: All the production costs.
1399 MS WILLIAMS: Yeah.
1400 COMMISSIONER KATZ: All the fixed salaries.
1401 THE CHAIRPERSON: Do we know what to ask Bell and Rogers? I'm not too sure.
1402 MR. FRENCH: Right, to be clear --
1403 THE CHAIRPERSON: You could do me a great figure if -- can you just read out, what you think I should ask Bell or Rogers now to get a comparable number?
1404 Please prepare what?
1405 MR. FRENCH: Profitability on Canadian spend looking at direct and fixed costs on a --
1406 MS WILLIAMS: On a station by station basis.
1407 MR. FRENCH: -- station by station basis.
1408 COMMISSIONER PENTEFOUNTAS: And also a breakdown between drama and the rest of --
1409 THE CHAIRPERSON: Well, hang on, that's the second one.
1410 Did you get that down? Okay.
1411 And then the second one is?
1412 COMMISSIONER PENTEFOUNTAS: Specifically drama, yeah, what you are losing on drama and what percentage of PNI.
1413 THE CHAIRPERSON: It's the same basis.
1414 MR. FRENCH: Yeah, the same thing, so the profitability or the lack of -- what you are losing on drama for the period and the - percent of PNI that was spent on drama.
1415 COMMISSIONER PENTEFOUNTAS: How much of that was spent on drama. Thank you.
1416 THE CHAIRPERSON: Okay.
1417 Peter, you had a question?
1418 COMMISSIONER MENZIES: Two, actually.
1419 THE CHAIRPERSON: Go ahead.
1420 COMMISSIONER MENZIES: One quick one.
1421 Did your calculation on Cancon at all account for carriage fees?
1422 MR. FRENCH: No, it did not.
1423 COMMISSIONER MENZIES: Okay, thank you.
1424 The other one is probably one you probably won't hear very often. But what if we treated Canadian programming the same way we treat American programming and that we are agnostic on it? We only care about how much you spend, 30 percent, say, or what your content is as this hearing is on spend.
1425 What would you spend your Canadian -- if you had a fixed -- call it 30 percent for the sake of argument -- you had to spend 30 percent of your revenue on Canadian content and we were not in the business of telling you whether you should produce drama or documentaries.
1426 What would you -- how would you apply yourself, assuming as business people you will want to make as much money as you can at whatever you are doing? What would we get? What would be different?
1427 Or would, because of the CMF, is there -- you still do the same stuff?
1428 MS WILLIAMS: You know it strikes me that there is a few things that would still guide us in that decision making. It would be funding, what you could get money for. It would be nature of service to the extent you still had to live up to that.
1429 It would be exhibition requirements and how, just volume you needed and some things you can get better volume out of and better repeat factor out of. So there would be still a lot of guidance given even if you weren't specific about PNI.
1430 All that said, you know, we would --
1431 MS SHIPTON: News.
1432 MS WILLIAMS: Yeah, news is a big piece of this puzzle too, right, like it's not just the entertainment piece.
1433 All that said, we will continue to do a mix. I don't think it would fall very heavily to just one corner or the other.
1434 You know it is the diversity of programming argument and I know we firmly believe that genre exclusivity has really supported diversity in a very healthy manner over these years.
1435 I can tell you as programmers also you know there is no win ultimately in everybody doing exactly the same thing. You have to have a point of difference. You have to have something unique about who you are.
1436 So we have great success despite what I just said with a bunch of our lifestyle programming and we are finding creative ways to do new documentary programming for History that's really winning with viewers.
1437 As we get more and more into the U.S. pocket frankly of both network dollars and cable dollars -- Christine has a bunch of her dramas that now are supported by U.S. cable whether it's Haven on Sci-Fi or -- it goes on and on. The more we reach into the American system for their money to help support our Canadian content the better we are doing with all this.
1438 So you know the innovation around what we do and how we do it, it continues and would, even if you didn't tell us what we had to do. We would still be looking at doing a broadening --
1439 COMMISSIONER MENZIES: No doubt about that.
1440 I'm just trying to imagine what could possibly happen so that one day -- I mean the country is going to grow, right? One day you should be able to make money on Canadian programming or on at least certain types.
1441 MS WILLIAMS: Absolutely.
1442 COMMISSIONER MENZIES: And how do we get from here to there?
1443 MS WILLIAMS: You know that -- and I will stop here but --
1444 COMMISSIONER MENZIES: Because then this would be really easy.
1445 MS WILLIAMS: Television is a hits and misses business, right? And one of the challenges in forcing spend and we get why it's done and I'm not arguing in principle with why it is really important to do it in Canada.
1446 But you can spend $50 million and get nothing that works and you can spend $50 million and get five things that really get in some traction. You can have 50 ideas come in the door from across the country and none of them really resonate and then one year you can have 50 come in and you are going, man, I have got seven good ones here. How do I choose?
1447 This is such a hit-driven business but --
1448 COMMISSIONER MENZIES: So --
1449 MS WILLIAMS: -- at the end of the day it's about finding a hit and then sustaining it and putting it in an environment with the appropriate marketing that can keep it growing.
1450 It's complicated.
1451 COMMISSIONER MENZIES: I know.
1452 MS WILLIAMS: I'm just sharing my pain.
1453 COMMISSIONER MENZIES: Yeah, I get that. I feel your pain.
1454 But that's -- so what I heard you say was that even if we did not -- if we were not in the business of programming in terms of PNI, you would in all likelihood still be producing programming in those areas, Canadian actors would still be working, Canadian directors would still be directing and Canadian writers would still be writing.
1455 MS WILLIAMS: Absolutely.
1456 COMMISSIONER MENZIES: I guess there is no guarantee on anything.
1457 Thank you.
1458 THE CHAIRPERSON: Does anybody else have a question?
1459 COMMISSIONER PENTEFOUNTAS: I will ask a question.
1460 THE CHAIRPERSON: Yes, go ahead, Tom.
1461 COMMISSIONER PENTEFOUNTAS: I'm sorry to take up your time, Ms Williams, but let's say we were alone in a room -- that's not where I am going.
1462 COMMISSIONER PENTEFOUNTAS: That's Steve that asked that -- at least not the Sex Channel, but we had that yesterday.
1463 If we were -- if no one else was in this room, would you say that your Canadian content is getting enough promotional support from your colleagues? Because that has been one of the concerns that the production community has had, is that the networks and the specialty channels don't support -- don't spend the money to pump up Canadian drama as an example.
1464 MS WILLIAMS: Top Chef Canada is about to launch on Food Network. There was a beautiful big colour picture on the front page of the Life section of the Globe today, if you saw it.
1465 COMMISSIONER PENTEFOUNTAS: Yes, I saw it.
1466 MS WILLIAMS: It has got the biggest marketing campaign we have ever, ever put behind a show on Food Network and it's going to work. It's going to help make that thing successful.
1467 Rookie Blue, when we launched it last summer, had the biggest campaign --
1468 MS SHIPTON: A million dollars.
1469 MS WILLIAMS: -- a million-dollar campaign behind launching that show on Global and there is no doubt that it worked.
1470 The challenge for us is in being selective. You can't support and you shouldn't support every show on every schedule to the max all the time. That's insane. What you need to do is be selective about where your real likely wins are and then go after them.
1471 I think the challenge for producers and I completely get it, is it's your baby. Whatever show you are making and you have just dedicated a year of your life to it and you don't have the perspective to say it's one of 100 and they have to choose.
1472 COMMISSIONER PENTEFOUNTAS: It is also your baby. That's why I'm asking you. Are you happy with the support you are getting?
1473 MS WILLIAMS: Absolutely. Yes, we have to pick between our children. It's an ugly game sometimes but we do.
1474 And we are getting smarter at it and I think hits do come out of great promotion. But you have to be smart about which ones and when.
1475 We also have to get out of always launching at the same time. I mean we are launching four or five big shows across the Shaw system in April: The Kennedys, Top Chef Canada, Wipeout Canada. There is a bunch of them.
1476 That was purposeful that we found a moment in time in the spring when the U.S. nets are sliding into repeats before May screenings when nothing else much is going on.
1477 You try -- you know we get smarter about finding our moments and putting the dollars against the shows that count. And I think we make really good decisions.
1478 COMMISSIONER PENTEFOUNTAS: You had a horrible review of the Kennedys this morning. I don't know if you saw it in the Globe?
1479 MS WILLIAMS: Afff! Read a while bunch of the other reviews. It's the number one show for that network. It's the biggest show it's ever, ever had. It's a great, great series.
1480 MR. BRAZEAU: Barb, just to add a point.
1481 It was in the discussion with Charlotte and I asked her almost the same question because we are still new to this business, and she had a very good answer about also in English Canada being in the shadow of the U.S. You know we have to compete against their star system. We have to compete against their promotion and marketing system.
1482 For us, you know, getting out of all that white noise from -- that's coming out from the U.S. is very challenging and even more costly. So you know there is that too that comes into play and really sort of affects how -- you know the amount of promotion we need to do and the effectiveness of that promotion.
1483 COMMISSIONER PENTEFOUNTAS: I take objection as to how new you are to this business. It's all relative.
1485 THE CHAIRPERSON: Just one question.
1486 You mentioned before, and I think it's a very good point, that with the benefit monies from two major mergers on the market and the PNI there may be more money than the industry can absorb. Assume that's correct. What is the negative implication of that?
1487 MS SHIPTON: I mean, I will just say that, on the drama front, we are incredibly strained in this country finding talent.
1488 I mean the competitive environment in terms of just the writers if you get more than four or five big drama series up and running, those writers rooms have at least seven to eight writers per room. It is brutal. Doyle is stealing from Endgame which is stealing from Rookie Blue which is now stealing from Flashpoint. I mean we have got big shows underway.
1489 So as we go to spend more and more, you know I know we have got to bring up the younger guys, bring up the younger guys, ---------------------------------------------------.
1490 The Writers Guild may kill me on that but they know that we are always trying to find more and more writers. It's writers.
1491 THE CHAIRPERSON: So your cost of production goes up.
1492 MS WILLIAMS: And so the outcome is --
1493 MS SHIPTON: I beg your pardon?
1494 THE CHAIRPERSON: The cost of production will go up.
1495 MS SHIPTON: Actually, the quality of production goes down --
1496 MS WILLIAMS: It is the quality.
1497 MS SHIPTON: -- is what happens and that -- cents becomes harder and harder and harder to move the dial on because you end up hiring people into writing rooms to direct episodes and all the rest of it that actually don't have the experience to be pulling it off. And so it's the quality that goes down. That's our concern there.
1498 THE CHAIRPERSON: Okay.
1499 MS SHIPTON: But I will say since the benefits have come into the system I would say the talent base has grown. There is absolutely no question. And it is because of the amount of volume that we are doing.
1500 COMMISSIONER PENTEFOUNTAS: Yeah, that's the idea.
1501 MS SHIPTON: So don't take it the wrong way. It's just really still hard. It has definitely grown.
1503 COMMISSIONER PENTEFOUNTAS: I thought Hawker(ph) was writing all his material.
1504 MS SHIPTON: Well, no, he actually has five writers in his room.
1505 THE CHAIRPERSON: Okay. I think that's all. Let's finish this in camera now and go back on the record.
1506 You can then read out the undertakings and you will please make the statement we talked about.
1507 COMMISSIONER KATZ: Can I just ask one quick question?
1508 When you contract for a program, to the extent that it gets sold outside of Canada, do you retain the revenues?
1509 MS SHIPTON: No, we don't. Not at the moment. So when we commission a drama like Rookie Blue or Hot Zone we are commissioning that from an independent producer who has retained the U.S. rights. We do not have the U.S. rights.
1510 Now, they will often factor the potential sale into the U.S. in their overall budget calculations. So when we look at the actual financing of the show like where is all the money going to come from? And often a distributor will put up money as an advance against that sale, but we see no benefit from that sale directly.
1511 THE CHAIRPERSON: Okay.
1512 COMMISSIONER PENTEFOUNTAS: A last question.
1513 Is there any flexibility amongst American networks in scheduling?
1514 MS SHIPTON: That is a tough discussion and we had to have that discussion when we had Rookie Blue launching. It's sort of us schmoozing them and trying to make them understand the effect that it has on our schedule.
1515 Barb, I am sure you can --
1516 MS WILLIAMS: We have absolutely no control whatsoever about what the Americans' networks do with our Canadian content.
1517 COMMISSIONER PENTEFOUNTAS: Ask a simple question.
1518 THE CHAIRPERSON: I have heard that, I must say. That's exactly the echo I heard in Hollywood, "We don't give a damn about your scheduling. You are just -- to us". I heard it four times.
1519 Sorry, go ahead.
1520 COMMISSIONER PENTEFOUNTAS: No, that's good.
1521 THE CHAIRPERSON: Okay. Then let's go back on the record now.
--- Upon recessing at 1438, to resume immediately in public
- Date modified: