ARCHIVED - Transcript, Hearing 7 May 2012
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Volume 1, 7 May 2012
TRANSCRIPTION OF PROCEEDINGS BEFORE THE CANADIAN RADIO-TELEVISION AND TELECOMMUNICATIONS COMMISSION
To consider the broadcasting applications listed in Broadcasting Notice of Consultation CRTC 2012-126, 2012-126-1, 2012-126-2 and 2012-126-3
Room 200 ABC
105 Princes' Boulevard
7 May 2012
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
To consider the broadcasting applications listed in Broadcasting Notice of Consultation CRTC 2012-126, 2012-126-1, 2012-126-2 and 2012-126-3
Crystal HulleyLegal Counsel
Lyne CapeHearing Manager
Room 200 ABC
105 Princes' Boulevard
7 May 2012
- iv -
TABLE OF CONTENTS
PAGE / PARA
1. Rogers Broadcasting Limited7 / 41
PANEL OF INTERVENERS
1. Dr. Sheila Petty, Dean of Fine Arts, University of Regina118 / 722
2. Elizabeth Lulchak, Director, Media Access and Production, University of Saskatchewan121 / 737
PANEL OF INTERVENERS
4. The Canadian Media Production Association130 / 794
5. Soundings/Steele Inc.136 / 822
1. Rogers Broadcasting Limited158 / 938
2. Newcap Inc. 165 / 988
3. Larche Communications Inc.230 / 1386
PANEL OF INTERVENERS
1. Yuk Yuk's Inc.248 / 1486
2. Canadian Comedy Foundation for Excellence250 / 1497
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PAGE / PARA
Undertaking30 / 181
Undertaking37 / 229
Undertaking37 / 235
Undertaking117 / 707
--- Upon commencing on Monday, May 7, 2012 at 0902
1 THE CHAIRPERSON: Good morning, ladies and gentlemen, and welcome to this public hearing.
2 The panel for this hearing consists of:
3 - Candice Molnar, Regional Commissioner for Manitoba and Saskatchewan;
4 - Peter Menzies, Regional Commissioner for Alberta and the Northwest Territories; and
5 - Marc Patrone, National Commissioner.
6 They are all on my right.
7 And to my left:
8 - Tom Pentefountas, Vice-Chairman of Broadcasting;
9 - Stephen Simpson, Commissioner for British Columbia and the Yukon;
10 - Louise Poirier, National Commissioner;
11 - and myself, Len Katz, Acting Chairman, and I will be presiding over this hearing.
12 The Commission team assisting us today includes:
13 - Lyne Cape, Hearing Manager and Manager, Radio Analysis and Policy;
14 - Crystal Hulley, Legal Counsel; and
15 - Lynda Roy, Hearing Secretary and Supervisor, Public Hearings.
16 Please speak with Ms Roy if you have any questions about the hearing procedures.
17 At this hearing, we will be studying 22 applications for the use of the frequency 88.1 FM in the Toronto market. Seventeen of the applicants are seeking to obtain a licence to operate a new radio station, while the other five applicants currently operate stations and are requesting a change from their existing frequency to 88.1 FM.
18 The panel will also examine two applications for a licence to operate commercial radio stations in Markham, as well as an application for a community station in Brampton.
19 All of these applications, including those for Markham and Brampton, will be treated as competing applications for the Toronto radio market.
20 I would like to remind the applicants that since they are presenting their applications in the context of a competitive licensing process, the panel will be examining them to assess which one will best serve the Toronto market. Moreover, the applicants and interveners to this proceeding have prepared their comments in response to these applications, as filed.
21 As a result, the Commission reminds applicants they must limit themselves to the proposals and commitments outlined in their applications, including any evidence put forward in support of their application. Applicants will not be provided with an opportunity to otherwise enhance their existing applications. Accordingly, the panel members' questions will be limited to seeking clarification on the applications before us.
22 The panel will also be considering as a standalone application an application by Rogers Broadcasting Limited to acquire the Saskatchewan Communications Network, an educational television service.
23 I will now invite the Hearing Secretary, Lynda Roy, to explain the procedures we will be following.
24 THE SECRETARY: Thank you, Mr. Chairman, and good morning everyone.
25 Before we start I would like to go over a few housekeeping matters to ensure the proper conduct of the hearing.
26 When you are in the hearing room we would ask that you please turn off your smartphones and beepers as they are an unwelcome distraction and they cause interference on the internal communication system used by our interpreters and translators. We would appreciate your cooperation in this regard throughout the hearing.
27 We expect the entire hearing to take up to nine days. Participants are reminded that they must be ready to present on the day scheduled or, if necessary, the day before or after, depending on the progress of the hearing.
28 Please note that we will also be starting at 9:00 a.m. for the remainder of the hearing and we will let you know of any schedule changes as they occur.
29 You can examine all the documents on the public record of this proceeding in the examination room, which is located in room 203B. As indicated in the Agenda, the phone number for the examination room is 416-263-3092.
30 Interpretation services will be available throughout the duration of the hearing. English interpretation is available on Channel 1 and French interpretation is available on Channel 2. We would like to remind participants that during their oral presentation they should provide for a reasonable delay for the interpretation, while respecting their allocated presentation time.
31 Le service d'interprétation simultanée est disponible durant cette audience. Vous pouvez vous procurer un récepteur auprès du technicien à l'arrière de la salle. L'interprétation en anglais se trouve au canal 1 et en français au canal 2.
32 There is a verbatim transcript of the hearing being taken by the court reporter sitting at the table in front of me. If you have any questions on how to obtain all or part of this transcript, please approach the court reporter during a break. Please note that the full transcript will be made available on the Commission's Web site daily.
33 Please note that if parties undertake to file information with the Commission in response to questioning by the panel, these undertakings will not be confirmed on the record by legal counsel. Instead, parties are asked to speak with legal counsel at the next available break following their presentation to confirm the undertakings.
34 All undertakings must be filed with the Hearing Secretary, which is me, by the conclusion of Phase III of this hearing unless otherwise indicated by the Commission.
35 Just as a reminder that pursuant to section 41 of the Rules of Practice and Procedures, you must not submit evidence at a hearing unless it supports statements already on the public record.
36 Please note that we will also be tweeting the documents during the hearing at the @CRTCGCCA using the hashtag number sign CRTC and number sign TORONTO, ou, en français, le mot-clic diaise CRTC et diaise TORONTO.
37 Finally, please note that Public Works and Government Services Canada will be conducting a major power shutdown throughout the various departments located in our complex. In light of this, our CRTC Web site access key and emails will not be accessible from Friday, May 11, at approximately 4:00 p.m. until Saturday, May 12, at 10:00 p.m. until the project is complete.
38 Now, Mr. Chairman, we will now proceed with item 1 on the Agenda, which is an application by Rogers Broadcasting Limited for authority to acquire from Bluepoint Investments Inc., "Bluepoint", the assets of Saskatchewan Communications Network, a non-commercial satellite-to-cable programming undertaking for the purpose of distributing educational programming in Saskatchewan.
39 Appearing for Rogers is Mr. Keith Pelley.
40 Mr. Pelley, please introduce your colleagues for the record. You will then have 20 minutes for your presentation.
41 MR. PELLEY: Great! Thank you.
42 Thank you, Chairman, Members of the Commission and Commission staff. Good morning. I am Keith Pelley, President of Rogers Media.
43 With me today, to my right, is:
44 - Bruce Claassen, President of Bluepoint Investments Inc.;
45 - Joanne McDonald, GM of Saskatchewan Communications Network, SCN; and
46 - Karen Shack, CFO of Bluepoint Investments Inc.
47 To my left:
48 - Susan Wheeler, VP Regulatory; and
49 - Navaid Mansuri, our VP of Finance for Television.
50 We are pleased to appear before you today to request approval for our acquisition of Saskatchewan's educational broadcast service SCN. We are excited about this acquisition and the opportunities it has for our broadcast group.
51 Based on the numerous interventions we received from independent producers, educational institutions, advertisers and other industry stakeholders in support of our application, we believe the broadcast community also welcomes this transaction and we thank them for their support.
52 In our remarks this morning we will address the following:
53 - one, why this acquisition is important to Citytv's growth and competitiveness;
54 - two, how this acquisition will result in meaningful and significant benefits to the system, including the independent production sector;
55 - three, our commitment to preserving educational broadcasting in Saskatchewan; and
56 - four, Bluepoint's rationale for the sale.
57 When I first joined Rogers, exploring whether it was viable to make Citytv into a national network was a key priority. I knew that without a national footprint Citytv would never be able to compete with CTV and Global for programming or revenue. The choice was clear: Grow or get out of the business.
58 As the Commission is aware, Citytv's lack of national reach has been a huge competitive challenge for our group of stations. From a programming perspective, it limits our ability to bring home Canadian content like "Canada's Got Talent" and "Bachelor Canada" and top U.S. programs like "Modern Family" to a national audience and exploit and amortize programming rights as effectively as larger OTA networks like CTV and Global.
59 And you probably are thinking, Keith, you have been in the job for almost two years now, what have you been doing? And to be totally honest with you, the light went on during "Canada's Got Talent" when we did not have national distribution. We went to advertisers and on three occasions, three national blue-chip advertisers turned us down because we didn't have that national distribution.
60 From a revenue perspective -- and this is what we are talking about -- it has essentially shut out of the network advertising buys, which represent almost 50 percent of conventional television advertising revenue, or in terms of dollars that's close to $1 billion in revenue.
61 Advertiser buyers are by and large looking for two things, top 10 programming and reach, and as a result they will naturally go to broadcast groups that can deliver on all these fronts because it's easiest and the most efficient way to meet their clients' needs.
62 Only after -- and we have learned this painfully at the fall hearings and the fall launches over the last couple of years -- once they have exhausted their network buy opportunities they will go to smaller group stations like Citytv to fill in the gaps.
63 For example, we estimate that 50 percent of CTV and Global's advertising revenues come from national advertising. By comparison, network advertising represents only a small fraction of City Television's advertising revenue. In order to get on the network advertisers' radar and even get a chance to compete with CTV and Global for these dollars, we need to extend our reach and establish a national presence.
64 So last fall we took the first step. We approached SCN about entering into an affiliation agreement for Citytv programming. We thought this would be a great deal for all involved since it would help us extend our reach and would also give SCN strong programming which would help them grow their revenues.
65 During these discussions we came to realize the full extent of SCN's financial difficulties and it became very clear that Bluepoint was in a position that it either had to sell the business or shut it down. It was under those circumstances that despite its very significant financial challenges we made the decision to purchase the station.
66 We understand the production community would like us to uphold Bluepoint's expectations to Canadian programming in digital production, but, quite honestly, those expectations are simply not supportable given SCN's programming and advertising restrictions and revenue potential. We are prepared to invest in SCN but not at any cost.
67 When the Commission went from a focus on Exhibition to Canadian Programming Expenditure, CPE, they created a fair and sustainable way to ensure a station contributes to Canadian programming at a level that reflects its financial health.
68 That is why we have agreed to a condition of license requiring a 23-percent CPE directed to Saskatchewan producers. This is over and above SCN's CMF envelope, approximately $750,000, which we will continue to spend in Saskatchewan.
69 We have also agreed to spending conditions for programs of national interest and digital production, both of which will be spent in Saskatchewan.
70 While this purchase helps fill a gap in our reach, it is not without financial challenges. Even the coverage benefits will not be realized until we have closed all the gaps.
71 Given this context, we believe the commitments we have made to Canadian programming and to independent production are meaningful and significant and will ensure SCN's long-term health and viability.
73 MS WHEELER: Under our leadership we believe SCN has the potential to thrive as an educational broadcaster and member of the Citytv group of stations. Not only will we be able to bring our broadcasting expertise to this newly privatized service, we also have the financial resources and strategic incentive to build SCN into a premium television service for the residents of Saskatchewan.
74 As we strengthen SCN financially, our CPE and PNI commitments over time will increase the total dollars flowing to Saskatchewan producers, which ensures a share in our success.
75 In fact, we have already started working with independent producers in Saskatchewan on some exciting projects.
76 These include "The Sky Is the Limit," a one-hour documentary about the strength of Saskatchewan's growing natural resource and agricultural economies.
77 We also have a project in development called "On the Edge: Road to the Memorial Cup," a behind-the-scenes documentary series about the Saskatoon Blades as they prepare to host the Memorial Cup hockey tournament next spring.
78 On top of these and other investments, we believe this transaction will also provide Saskatchewan producers with access to a national platform for their programming as Citytv extends its reach. We believe this is a huge opportunity for producers from this area to showcase their programming talent to a national audience, something that wasn't possible with SCN as a standalone station.
79 Despite SCN's precarious financial situation, we also intend to invest in the province's digital productions sector by directing $300,000 over three years to the Rogers Digital Development Fund. This fund is designed to assist Saskatchewan producers in the development, distribution and monetization of digital content and will be administered by SaskFilm who have established expertise in this area of funding.
80 We note that a number of interveners in this proceeding have asked that the majority of these funds be directed towards on-screen initiatives rather than skills development and infrastructure. We want to assure the Commission that we are happy to work with SaskFilm, who will be appearing on our behalf in Phase II, to ensure this program meets the needs of the production community and funds are targeted towards initiatives that will have the most impact.
81 Over and above these programming commitments, we believe there are also a number of intangible benefits associated with this transaction.
82 First and foremost is the assurance that SCN will survive as a privately owned and funded educational service, something that is not possible under the current ownership.
83 As the Commission is aware, when SCN was sold by the provincial government in 2010 Bluepoint was the only prospective purchaser who did not require government funding as a condition of sale. This was not a reflection on the service but of the very challenging financial realities of operating a station where only half the broadcast schedule can be monetized.
84 Second, we plan to modernize SCN's operations by making capital investments of approximately $1.4 million in order to offer SCN in high definition and implement updates to its traffic system. We also plan to ensure SCN remains locally relevant by maintaining SCN's operations and staff in Regina.
85 We believe these commitments are significant and consistent with the size and nature of the transaction and will yield long-term benefits for both Saskatchewan viewers and its cultural community.
86 As noted in our application, Rogers is committed to upholding SCN's educational mandate provided it continues to be considered a provincial authority within the meaning of the direction to the CRTC.
87 This designation entitles SCN to mandatory carriage by all distributors throughout the province and is a core element of SCN's business model as an educational broadcaster. Any changes to these carriage terms would fundamentally alter our ability to uphold SCN's educational mandate.
88 We wish to assure the Commission and the Government of Saskatchewan, who has granted us the authority to continue operating SCN as the province's educational broadcaster, that we take its educational mandate very seriously and intend to invest in programming that meets the needs of our audience and our educational partners.
89 We have already met with representatives from the Ministry of Education and the Ministry of Advanced Education, Employment and Immigration to discuss how under our leadership SCN can help support their education priorities and work towards establishing a collaborative approach to advancing educational goals and skills development in the province.
90 We are also pleased to have Dr. Sheila Petty from the University of Regina and Elizabeth Lulchak from the University of Saskatchewan here today via videoconference to speak to some of the opportunities they see in working with SCN.
92 MR. CLAASSEN: I have spent most of my career in the advertising business and I am proud to have run a Canadian-owned ad agency that for many years was very successful and ranked amongst the top agencies in the country. With the globalization of the advertising industry over the past 10 years, I decided to sell my business in 2007 and after much consideration form a company to invest in broadcasting opportunities. My experience within the advertising industry gave me, obviously, significant understanding of the broadcasting industry per se.
93 The Commission is well aware of the circumstances under which Bluepoint acquired SCN, so I will focus on why this transfer of ownership application is before you less than two years after Bluepoint acquired SCN in June of 2010.
94 In any company the President is important, but for a start-up with few employees this role is critical. The concept and the vision for Bluepoint were mine and as the sole shareholder I was singularly responsible for approving the acquisitions and the expenditures associated with it.
95 After our licence application was approved, we moved quickly to start implementing the proposals that we had presented to the Commission. However, shortly thereafter, in early 2011, I was hospitalized for several months, which significantly impacted the business.
96 I was most fortunate to have people like Joanne McDonald and Richard Gustin, both former SCN employees who remained with the station after our acquisition, whose outstanding efforts kept SCN on the air during my illness. Karen Shack, who I relied on for nearly 20 years, and others did everything they could to assist, but while I was away Bluepoint was essentially a rudderless ship.
97 My absence could not have come at a worse time as SCN was attempting to establish itself with advertisers and audiences and needed its leader. Our financial projections were developed in conjunction with market experts and so we believed they were reasonable and achievable, but, to be frank, they were not even close.
98 Consequently, SCN's revenue shortfalls directly impacted our ability to uphold our programming commitments. We were essentially forced to choose between keeping SCN on-air or meeting our spending commitments to the independent production sector. We attempted to do both simultaneously.
99 Hindsight is always 20/20 and looking at it now with a better understanding of the market, it is clear to me that these commitments were simply unrealistic and certainly aren't sustainable for an educational station like SCN working in Saskatchewan.
100 As the Commission is well aware, programming drives audience and audience drives revenue. SCN needed stronger programming which is what brought us to Rogers in the first place.
101 The affiliation agreement that we finalized was an important step toward improving the revenue opportunities for SCN but it takes time for a schedule to get traction with advertisers and regrettably the Rogers affiliation agreement, as the saying goes, was a little too late. It was not easy to come to the conclusion that we no longer had the resources to go the distance, but that became clear and I made the decision to sell the station in the interests of keeping SCN in operation.
102 I would like to conclude my comments by saying that I truly wish this story had a different ending. I started the company in 2009 with the hope of being a full partner in the Canadian broadcasting system. I have funded every penny of the $3.1 million dollars spent by Bluepoint since the company was started.
103 I have never drawn a salary nor have had any expenses that might be considered personal been paid for by the company. In fact, I have never been reimbursed for many business expenses that were paid personally.
104 The sale price to Rogers was $3 million from which the loans advanced by Rogers to keep SCN on air during the regulatory process will be deducted. After these deductions and other expenses, I hope to recoup approximately 2 million of the $3.1 million I have personally invested to date.
105 So I wish to assure the Commission that I am certainly not profiting from this transaction. I do not believe, therefore, there has been any abuse of the licensing process, just a series of unfortunate personal circumstances that came together at the same time.
106 In the end, I believe the interests of SCN are better served under Rogers' ownership, a company that has the resources to take SCN to the next level which is what I had hoped to achieve through Bluepoint's purchase of the service.
107 Thank you.
108 MR. PELLEY: Thanks Bruce.
109 We strongly believe this acquisition is in the public interest as it will maintain educational programming and cultural investment in the province.
110 We do not believe our application undermines the integrity of the licensing process or creates a difficult precedent for the Commission.
111 As Bruce said, with the benefit of hindsight, we now realize that Bluepoint was optimistic about what it could achieve with this service and could not uphold the Commission's expectations. We are here today replacing these expectations with firm commitments to Canadian programming and Saskatchewan independent production that we are willing to accept as conditions of licence.
112 We believe this is a very strong commitment to the future health and viability of a service that has faced considerable financial challenges as both a publicly and privately-owned educational service.
113 We have asked the Commission for a three-year licence term for SCN which coincides with the end of the licence terms for our other Citytv stations. At that time we hope to be able to demonstrate the progress we have made in turning SCN into a thriving television service that responds to the interests and needs of its viewers and industry partners and in building Citytv into a larger and more competitive OTA network.
114 We see a bright future for SCN and we are very eager to start the work at hand and make the investments required to build SCN into a financially stable and viable educational television service. We also look forward to working with the independent production sector in Saskatchewan and SCN's educational partners to bring premium content and educational programming to Saskatchewan audiences of all ages.
115 We thank you for the opportunity to appear before you today and look forward to answering your questions.
116 THE CHAIRPERSON: Thank you very much.
117 I have got a couple questions and I believe my fellow Commissioners have got a series of questions as well.
118 Let me start with getting a baseline as to when the SCN/Rogers agreement actually came into force.
119 MR. PELLEY: I assume you are referring to the affiliation agreement. We started discussions in the fall and started selling as a joint venture in January.
120 THE CHAIRPERSON: So when I read in your submission in paragraph 12 on page 6 of your supplementary brief, it says, "In the context of this difficult environment that RBL has entered into an agreement with Bluepoint to acquire the asset of SNC and continue the operations" that is different than the supply agreement or the affiliation agreement you are referring to?
121 MS WHEELER: The affiliation agreement and the purchase agreement are one agreement.
122 THE CHAIRPERSON: Okay.
123 MS WHEELER: So we had begun our discussions for an affiliation agreement. We became -- we realized the financial difficulties that SCN was facing. It was at that time that we entered into a purchase agreement but, at the same time, wanted to conclude an affiliate agreement for the period during the regulatory process -- to cover the period during the regulatory process.
124 MR. PELLEY: Yeah, let me make it clear, Mr Chairman, that our goal was always to have an affiliate agreement and that was what our aspiration was when we entered into the conversation with Bluepoint at the beginning, which we thought would be a win-win for both sides that it would generate some extra revenue while generating some large ratings for them and it would give us the distribution in Saskatchewan.
125 We only entered into the purchase position once we found out that it wasn't financially viable to stay in that affiliation agreement.
126 THE CHAIRPERSON: Okay. So in paragraph 14 of that same supplementary brief it says you entered into a program supply agreement covering the period December 1, 2011 until the closing date of the transaction.
127 That is standalone from your purchase agreement?
128 MS WHEELER: No, they are the same agreement.
129 THE CHAIRPERSON: They are the same agreement so it's not just the program supply agreement. It's the program supply agreement and purchase agreement?
130 MS WHEELER: Yes.
131 THE CHAIRPERSON: Okay. The loan that was extended to SCN was for what purpose?
132 MS WHEELER: That was to keep the station on air during the regulatory process because they couldn't meet some of their accounts receivable at the time.
133 THE CHAIRPERSON: So who is currently running SCN?
134 MR. PELLEY: Joanne McDonald is running the programming with Bruce and their team. We are just funding the losses.
135 THE CHAIRPERSON: So the cheques that are being written for salary and all the other expenses are all being done through Bluepoint?
136 MR. PELLEY: That's correct.
137 THE CHAIRPERSON: With the funding from you folks?
138 MR. PELLEY: That's correct.
139 THE CHAIRPERSON: Okay.
140 You said in your remarks this morning that all the employees and staff are being retained. Is that my understanding?
141 MR. PELLEY: Yes, absolutely.
142 THE CHAIRPERSON: So when I look at something called Schedule -- I will find it -- "Schedule 8.9(b) to an asset purchase agreement among Bluepoint Inc., Bruce Claassen and Rogers Broadcasting Limited" there is a list of what's called excluded employees. I won't name them.
143 Does that mean they are not being guaranteed employment?
144 MR. PELLEY: One second.
145 That's correct.
146 THE CHAIRPERSON: That's correct they are not being guaranteed employment?
147 MS WHEELER: That's correct. We have made a commitment to maintain staff, not necessarily the existing staff.
148 THE CHAIRPERSON: So you are not guaranteeing employment to all the staff.
149 So how many staff are there right now in SCN? Let's start with that.
150 MS McDONALD: So currently there are nine people at SCN office in Regina.
151 THE CHAIRPERSON: And there are five names here that are excluded so you are retaining four of them.
152 MS McDONALD: I believe the Regina staff will remain employed. Those five names refer to our Bluepoint investment employees, not directly responsible for SCN.
153 THE CHAIRPERSON: So there are nine jobs being protected? How many jobs are being protected here and how many are losing their jobs?
154 MS McDONALD: Four. Four.
155 THE CHAIRPERSON: Four are protected.
156 MS McDONALD: Yes.
157 THE CHAIRPERSON: And five are losing their jobs?
158 MS McDONALD: The five are Bluepoint employees. They are not SCN employees.
159 THE CHAIRPERSON: Okay. But they are still currently working for SCN?
160 MS McDONALD: Yes, but not in Regina.
161 THE CHAIRPERSON: Okay. So there are four in Regina and you are retaining those four. The other five, whoever they are, are losing their jobs?
162 MS McDONALD: Correct.
163 MR. CLAASSEN: And Commissioner, if I can comment, Bluepoint Investment Inc. still is an on-going business entity but Rogers is behind the assets of Bluepoint which currently represent SCN.
164 Many of those staff that have indicated the five that are being excluded as part of the SCN operational team, if you will, will still be part of Bluepoint in some capacity -- in some other capacities.
165 THE CHAIRPERSON: Okay. There are a series of financial statements that are confidential but they include some very significant expenses, one of which is consulting fees, and I won't quote the number but in 2011 it was a substantial portion of your total expenses.
166 Can you go into what some of these expenses were for because they weren't there the year before?
167 MR. CLAASSEN: If I can comment, Mr Commissioner, a lot of those consulting fees were for specialized services such as regulatory affairs which, as you can imagine, is not an on-going functional activity. They were for development of programming schedules that are done, generally speaking, mostly during a fairly short timespan within the early part of the spring. They were for some technical services that were required that were not necessarily fulltime positions.
168 So we felt that it would be most financially beneficial for us to bring in contracted staff members, to be able to perform those relatively short-term functions.
169 MR. PELLEY: Perhaps I could have Karen add a little bit more colour to that.
170 MS SHACK: Thank you.
171 I believe you are looking at the 2010 expenses, where there were no consulting fees, or minimal consulting fees. They were deferred until 2011, to be matched against the revenue from SCN productions.
172 THE CHAIRPERSON: There wasn't much revenue in 2011 either.
173 MS SHACK: No, and that is a concern, which is why the sale is taking place. The revenue was less than expected.
174 THE CHAIRPERSON: So you chose not to go back and restate the 2010, and you just loaded it all into 2011.
175 MS SHACK: The launch of SCN took place in 2011, September 2011. The consulting fees started in 2010, when SCN was acquired.
176 THE CHAIRPERSON: What month was it acquired in?
177 MS SHACK: In July of 2010.
178 THE CHAIRPERSON: Could I ask you folks to file a detailed breakdown as to who was paid this consulting fee number?
179 It is the number that is in your chartered accountant's financial statement dated October 25, 2011, and it is the 2011 number.
180 How much was paid to whom, please?
181 MS WHEELER: We would be happy to do that.
182 THE CHAIRPERSON: Then I want to refer you to Schedule 3.5, also the Asset Purchase Agreement, and it is called "Purchase Price Allocation".
183 It's not confidential, so I guess I can quote the numbers.
184 It says: "Following draft to be updated at closing." The fixed assets amount to $236,662. The current assets are zero, after payments of liability with the initial loan, and then you have something called "Goodwill and CRTC Licence" of $2,163,338, for a total of $2.4 million, which I guess balances back with the $600,000 to the $3 million.
185 So that is how it is being accounted for.
186 My first question is: The fixed assets here of $236,662 are basically what the assets were when you purchased SCN to start with. So there weren't any additional fixed assets invested in SCN.
187 Am I correct?
188 MS SCHACK: There were about $35,000 of acquisitions, in terms of fixed assets, for master control. Otherwise, it was the $250,000 that was acquired from the Saskatchewan government.
189 THE CHAIRPERSON: Okay. So there were no real fixed assets.
190 Then, you categorized the rest of the acquisition as goodwill and CRTC licence. So that is the value of the licence, effectively, that is being transferred from Bluepoint to Rogers.
191 MR. PELLEY: Yes.
192 THE CHAIRPERSON: This is going to be an interesting question. How did the two companies arrive at a $3 million price point for this transaction?
193 MR. PELLEY: I think we started -- as I said, we started the discussion as an affiliate agreement. We realized very quickly that that wasn't sustainable under Bluepoint's current financial position, so we entered into a negotiation, and like all negotiations, they go back and forth and back and forth, and we finally came up to an arrangement of the purchase price that we agreed to.
194 But it was a negotiation that went on for a couple of months.
195 THE CHAIRPERSON: How did Rogers come up with your number as to what you were prepared to pay for this?
196 Did you look at the business going forward? Did you look at the assets that you were purchasing? Did you look at the flexibility and the quality of the licence that gave you advertising revenue, albeit for only 50 percent of the time?
197 What drove you to $3 million?
198 MR. PELLEY: I think that in any negotiation you first have to start with the strategy, and the strategy was that we decided -- and later than perhaps we should have, but we looked at it and said: We need national distribution.
199 As I mentioned earlier, "Canada's Got Talent" was kind of the catalyst for that, and we started that discussion.
200 And we looked at areas that we needed in order to get the distribution.
201 We also learned -- we had a painful lesson during the FIFA broadcasting rights negotiations, in which FIFA required a minimum guarantee of penetration from their over-the-air carrier, of which we could not compete. As a result, we were forced to partner with CBC, and we lost the rights to CBC.
202 Again, at that point we said: We need to go after broad distribution. You are either going to go for it or you're not.
203 And Saskatchewan was one of the territories that we said was a key part of that puzzle -- and it is a piece of the puzzle, it is not the only piece.
204 So I don't think that you actually start by saying, "Here is the number," but you enter into a negotiation, and there is a walk-away price, and we felt that the particular number that we came to was palatable to get Saskatchewan to give us that piece of the puzzle.
205 THE CHAIRPERSON: So you didn't look at your business going forward as to what it could reasonably generate in the way of PBIT or profit or whatever?
206 MR. PELLEY: Oh, yeah, for sure. We didn't look at it, though, unilaterally, in terms of the different stations, we looked at it holistically.
207 When we looked at the actual -- and we brought in some real serious experts in terms of national advertising.
208 In fact, we don't even have any national advertising sales reps on our staff.
209 We looked at it holistically and we said: If we purchased SCN and didn't do anything else, then this would be a bad purchase price. There is no question.
210 If we purchased SCN as part of a bigger strategy, then it made sense.
211 So we never looked at it unilaterally, we looked at it holistically and said: If we become a national carrier, we can compete with CTV and Global, and we can compete with 50 percent of the advertising that we don't get a part of right now.
212 SCN, on its own, does not grant us that. As part of a bigger picture, it does.
213 So we looked at every piece and said: What are they actually worth? We put it all together and we looked at how much we could actually garner from the advertising dollars from a national perspective. As a result, we believed that this was a price that we could live with.
214 Make no mistake about it, if, in fact, we take out the U.S. programming -- and we didn't amortize any of it to Saskatchewan. If we didn't and we just took the revenue, this network, when you look at it unilaterally, still loses money. That's why you have to look at it from a holistic perspective.
215 THE CHAIRPERSON: Could I direct you to your response to us in a letter dated February 22, 2012, regarding the value of the transaction.
216 MR. PELLEY: Yes.
217 THE CHAIRPERSON: On page 3, in response to one of the questions, you say: RBL notes that the purchase price of $3 million was based on a discounted cash flow model that included all operating expenses, including lease costs in perpetuity. So by adding on, arbitrarily, 60 months of additional lease costs, we are double counting.
218 You are trying to explain one of the CRTC's suggestions, or proposals, which assumed that leases should garner the benefits.
219 But the first part of that sentence says that you have a discounted cash flow model which took into consideration all of the operating costs.
220 So, presumably, you have taken a look at a five-year future forecast of your business, notwithstanding the business that was there before, but how you want to drive this business, as well, and what I guess you are saying is, for the first three years, until 2014, you will maintain the commitments that were there as part of the group licensing process that already stands before us, and then in 2014 you want to come back before us for a renewal of your broader group licensing process.
221 I guess my question is: In analyzing your business proposition and running a discounted cash flow model, including all operating costs, what operating costs did you include and what operating costs did you not include?
222 MR. PELLEY: I will have Navid Mansuri speak to that in just a second -- and you are right that our goal is to come back in three years with more pieces of the puzzle for a national distribution City Television.
223 Keeping it where it was, at 72 percent, and adding a piece here and a piece here, was not going to reach us to the actual long-term goal.
224 But I will have Navid talk about the specifics.
225 MR. MANSURI: Thanks, Keith.
226 In terms of looking at the discounted cash flows, generally we look at that as one of the factors in establishing the value.
227 And, traditionally, when you do discounted cash flows, you look at it from an incremental point of view, based on what incremental revenue this piece will drive, as well as the incremental costs associated with it.
228 THE CHAIRPERSON: Okay. Can you file with the Commission this five-year discounted cash flow model, please?
229 MS WHEELER: Yes.
230 THE CHAIRPERSON: Now, also, you filed both a confidential and an abridged version of the three-year business plan for SCN going forward, and I guess that the 2013-2014 numbers are public, because I saw them somewhere, and they have a net negative EBITDA of $4.1 million in 2013 and $4.3 million negative in 2014.
231 I will stay silent on the 2012 numbers, which you have in here, which you have claimed confidentiality over.
232 But this is part of your five-year discounted cash flow model, I would assume?
233 MR. MANSURI: The numbers in here are consistent with the discounted model. There are nuances between looking at the individual P&L for the station versus just the pure incremental, which is what you assume in the discounted cash flow analysis.
234 THE CHAIRPERSON: Okay. Can you also explain to us the differences and the nuances when you file the five-year discounted cash flow, please?
235 MR. MANSURI: Yes.
236 THE CHAIRPERSON: If I took the 2012, 2013 and 2014 financials that you have filed with us and looked at your 2015 and 2016 two-year future outlook, would I see a change in how you intend to run the business based on the fact that, after 2014, you are back to a group licensing process again and you may not have the educational component?
237 I guess the question is: Did you anticipate a change in how you'd be operating SCN post 2014?
238 MR. PELLEY: No, I don't -- I don't see that at all. I don't see post 2014 that the educational component goes away. I feel that City Television will still be very much committed to retaining the educational programming but, at the same time, ensuring the viability by having the programming of City Television, both Canadian and U.S., in prime time which will fund that and while at the same time our true benefits will not be seen until we become a true national carrier and we're able to access that advertising.
239 Hence the reason that we have expedited this because the next couple of months are absolutely critical.
240 THE CHAIRPERSON: Okay. So when you file the five-year discounted cash flow model, presumably you'll explain as well the comparability to your income statement as well even though it's three years and not five years?
241 MR. PELLEY: Sure.
242 THE CHAIRPERSON: Okay. Now, can I also ask, am I correct in saying that this discounted cash flow model is what yields the $3 million that you came up with as the price that RBL is prepared to pay?
243 MR. MANSURI: As I said, the discounted cash flow model is just one piece of the negotiations. I mean, it gives us an indication and a range because it's based on a lot of assumptions on what the value of the stand-alone piece is. And as Keith mentioned, there are other factors within the negotiation that lead to the ultimate purchase price.
244 MR. PELLEY: You know, Mr. Chair, I do want to tell you that the immediate access to the channel, the immediate access meaning the affiliation agreement now is also something that contributed to the purchase price, i.e. if, in fact, we were not able to have an affiliate agreement so that this particular fall we were able to reap in some of the actual advertising revenue, then the purchase price would have been different.
245 So it's -- you can't look at it, I think, just totally as pure financials. You have to look at it at overall of what it can do for us from a holistic perspective. And you obviously are familiar with our recent affiliation deals with the interior of B.C. and also with Channel 14, which was critical in terms of the timing for this particular fall.
246 THE CHAIRPERSON: But the point you made is where I'm heading towards, so we'll get there a little faster, and that is, the purchase price may have been different if there are different cost components to go into the situation as well.
247 And what I'm trying to understand is if, in fact, your discounted cash flow model had the costs that you're proposing be invested back into Saskatchewan based on a 23 percent and a P&I and everything else as well, which I believe is somewhat lower based on the evidence I've ready, than the commitments that Bluepoint made when it first got its licence. I want to try and understand what the impact would be on your discounted cash flow model.
248 So what I'd also like you to do is when you file the discounted cash flow model that came up with this $3 million as being one of the components that you used to try the decision, I'd like you to take that same model, replace the -- I guess what they're called regional programming commitments and the regional CMF commitments, which we'll get into a little while later on, but I believe based on the evidence that I've read the commitments that you're making, albeit you're saying are more tangible and more committed than perhaps what Mr. Claassen or Bluepoint are committed to, the reality is there's a different number there.
249 And what I want to understand is, what is the delta on this discounted cash flow model if you go back and take a look at meeting those expectations that were put into Mr. Claassen's conditions of licence?
250 MR. PELLEY: Sure, and we can do that. I do want to again bring to the attention that those were expectations. And we're coming today with firm commitments and conditions of licence.
251 THE CHAIRPERSON: But bear in mind, they were expectations, but they were part of a package, and the package included advertising revenues, albeit for half the day, so it was taken as a package and the flexibility that was afforded Bluepoint was part of a quid pro quo.
252 And what you're looking at now was unbundling that quid pro quo and sort of saying we'd like the advertising revenue component because without it we haven't got a business, but at the same time if we have to carry forward all these other expectations, as you call them, we haven't got a business, either.
253 And I just want to understand what the quantum is of that delta.
254 MR. PELLEY: Yeah. I -- yeah. We can talk about that.
255 And -- and I think the expectations that were put forward in exchange for the advertising revenue -- and I'll let Mr. Claassen speak to it -- is critical in understanding how we got to our CP of 23 percent.
256 And I think the expectations, as ambitious as they were, were unrealistic.
257 And we are not talking about a gentleman of Mr. Claassen that is new to understanding. He has run a business for 30 years in a successful advertising agency, created and built agencies over the last 30 years. So understanding that advertising community, and perhaps his expectations were a little ambitious and unrealistic.
258 Mr. Claassen?
259 MR. CLAASSEN: Yeah. I guess there's probably two questions, Mr. Commissioner, I could answer.
260 Anyone that would have purchased SCN at the time in, let's call it, July 1st, 2010, would have had to have gone through the process of waiting for regulatory approval, which ended up coming towards the end of December, and would have had to have also gone through the process of having to put in both some of the capitalization as well as some of the software and all of the other kind of components that would be necessary to turning non-commercial television station into a commercial television station, which took some time, as well as, of course, acquire programming, which meant that the earliest possible time we were able to actually launch a station as a commercial viable entity that could generate revenues was roughly 14 months from the point in which we had actually acquired the station.
261 We had to run that entire station for 14 months with no revenue whatsoever and a staff and rent and lease and no other revenues. That is why we came to an eventual point in which the investment that I made personally added up to a little over $3 million.
262 And not only once we'd launched, as is typical in the advertising industry, the first ad that you run September 12th, you usually don't get paid until about 90 days later, which meant that we weren't really expecting to have any revenues whatsoever from July 2010 until virtually January 1st, 2012.
263 And so that sort of made up that anybody would have -- anybody could have -- Rogers could have purchased us. Anybody who would have purchased SCN would have faced exactly that same sort of financial scenario.
264 With respect to the other -- you know, the other question of program acquisition, we were in a position in which obviously we couldn't compete with CTV and Global, and even CBC, for some programming, so we had to bundle together the best quality programming that we could.
265 And we also had to transform audience's perspective of what SCN was in the past into looking at it as being something different. Still retaining its educational mandate, but also incorporating a commercial component.
266 And as Mr. -- you know, as Rogers pointed out earlier, it takes time for traction to occur. So that all took some time.
267 The affiliate arrangement we made with Rogers gave us an opportunity to be able to upgrade the quality of our programming, and that certainly helped, but it also represented an opportunity for us to be able to look at being able to be part of a much broader resource to be able to turn it into something which was a network which would give us opportunities for that station and for Rogers, something that otherwise that couldn't have occurred.
268 THE CHAIRPERSON: Let me be clear.
269 Personally, I don't believe that the Commission should be getting involved in an arrangement between two parties where there's a motivated buyer and a willing seller in a business.
270 The issue here, however, is that as part of this deal, there's a component to it where the CRTC provided flexibility to one party in order to have that balance between advertising revenue on the commercial side and educational programming for the consumers of Saskatchewan as well. And when that gets shifted across, there's a value proposition there that gets left behind based on your application.
271 And that's the concern that I have.
272 MR. PELLEY: Or it grows. It grows if you actually look at it, you know.
273 If -- if -- in reading many of the intervenors, in reading that and believing that Rogers with the advertising machine that it has and now with the -- with the other pieces of puzzles if we're able to put them in place, when you look at a 23 percent CPE, there's a number of things that happen.
274 First of all, it goes all to the independent producers. It can grow beyond the commitments of Bluepoint while, at the same time, maintaining the educational component.
275 So I really look at this -- and I totally understand where you're going from, Mr. Chair, but when you actually look at it, this is a win/win.
276 If Rogers succeeds, then everyone wins, including the independent community, who has more funds going forward.
277 THE ADJUDICATOR: But the reality is, the financials that you filed with us, which are your forecasts of what you believe is doable in the market, will yield, from what I'm seeing, less into the system in the next three years than what otherwise would have been there had you carried forward with those commitments.
278 MR. PELLEY: Correct, in an unviable service. And so that's why when we looked at it and I said at the beginning in my conversation "not at any cost".
279 And so we looked at it and we said, okay, SCN is a key piece of the puzzle. How are we going to actually make this viable?
280 A 23 percent CPE allows us to put all the money back into the independent community. It allows it to be a viable -- a viable service going forward. It allows us to maintain the viable service going forward. It allows us to maintain the educational component.
281 We've added 300,000 to a digital development fund that will be administered by Sask Film and we've only looked for a three-year licence.
282 So when you put that all together, but -- but, at the end of those three years, you're getting pretty close to the million seven five that Mr. Claassen and Bluepoint had actually -- had made that expectation.
283 And I don't want to lose sight of the fact that that was an expectation and we're coming here now with a firm commitment and suggestion for a condition of licence.
284 THE CHAIRPERSON: You made a very valid point when you said "and not at any cost".
285 And so the question in my mind is, who should be bearing that cost? If, in fact, the deal closes at $3 million, then Mr. Claassen will be generating whatever funds come out of this thing at the end of the day, which may not recover his investment. I understand that. But he is recovering from a $3 million sale, basically.
286 And what you're doing is removing those benefits from the citizens of Saskatchewan because you're saying it can't be all things to all people, so it's one of the other.
287 And all I'm trying to understand is, if you had to meet the conditions that were being carried across by Mr. Claassen, how -- what's the delta amount of this NPV or discounted cash flow --
288 MR. PELLEY: Yeah.
289 THE CHAIRPERSON: -- and how much would it eat into the $3 million deal that you've committed to to Mr. Claassen?
290 MR. PELLEY: Okay, two comments on that.
291 First of all, if, in fact, that we had to meet those commitments, we would sadly decline this purchase.
292 If -- and hence the reason that we brought the CPE of 23 percent. And what that delta will be, it really determines on if our financials -- if we succeed them or we don't succeed them. It really depends a lot on the economic certainty of the advertising market, which changes and fluctuates from Q1 to Q4. And we've certainly seen that over the last couple years.
293 So if, in fact, we have a robust advertising market and we succeed that, then it is very beneficial to the independent community. If, in fact, the economic environment and the advertising community has a challenge like it did in 2009 or, quite honestly, like it has had in March and April, then it is going to be a little bit less.
294 But that is the magic or the wisdom of the whole concept of a CPE and of a percentage rather than -- rather than put actual fixed dollars on it, which might not be viable.
295 What the CPE allows you to do is to determine whether a network is going to be viable by taking that percentage and saying, "That's how much we're going to put into the Canadian community and into the Canadian programming environment".
296 THE CHAIRPERSON: Okay. So I'm going to go back to that Schedule 3.5 that had the $2.1663 million of goodwill and CRTC licence. And I guess we all agree there isn't very much goodwill there because this business isn't viable right now.
297 So the predominant, if not the overwhelming component, of the $2.1663 million is the CRTC licence, which we've issued, which carries with it now, to the extent we approve it, the advertising revenue component that makes your business proposition viable.
298 Now, did I hear you say, Mr. Pelley, that if we in any way changed or asked for a change in the composition of the benefits, you'd walk away from this deal?
299 MR. PELLEY: We would sadly decline, yes.
300 THE CHAIRPERSON: Under any circumstances?
301 MR. PELLEY: Yes. If the 1.75 and the million dollars digital were part of this actual licence and we didn't -- we didn't move to a CPE, we would sadly decline this deal, yes.
302 THE CHAIRPERSON: Okay, that's not the question I asked.
303 If we left it at the CPE but required additional benefits that may have to come out of the sale price -- I'm not sure how it comes out -- and I'm not here to negotiate on your behalf, either -- it's not our job to do that. But if we basically said the citizens of Saskatchewan have got to enriched somehow, you'd walk away from this deal?
304 MR. PELLEY: Well, I think when you look at it, the Saskatchewan people have been enriched. They have been enriched because we're going to retain the educational programming and ensure viability of this network. We're going to support the independent community with a 23 percent CPE. We're going to add 300K to a digital development fund which will be administered by the Sask Film. And if we succeed, then everyone does.
305 In fact, even if you look at the independent community, they will now have a chance to play on the -- on the national stage with City Television.
306 So I really have trouble with the thought that the -- that Saskatchewan is not winning in this.
307 THE CHAIRPERSON: I'm reading an awful lot of submissions from the parties, Saskatchewan and some of the national players as well, obviously, ACTRA, the wireless -- the Writers' Guild and all the other guilds, that seem to say that at the end of the day, the Saskatchewan community is not benefitting to the same extent as they were. And I think that's been proven now.
308 MR. PELLEY: Well, no. Well, first of all -- first of all, I will say that those were expectations. And those expectations in terms of the dollars were not actually being spent, as you can see in the finances. So I'm not sure, really, exactly how much difference there was.
309 When you talk about the digital fund, which I still can't really get my head around what, exactly, it is.
310 I think, Karen, you can speak to it. I think that there was a commitment of -- because it was, in fact, an expectation of, what was it, 175 --
311 MS. McDONALD: We had spent -- or committed about 165,000 of the digital commitment so far to date.
312 MR. CLAASSEN: Mr. Commissioner, if I can make a comment.
313 The Saskatchewan people have, in fact, benefited.
314 At the time when SCN was put up for sale, the government of Saskatchewan had made a decision to close it down. And it was only through some vocalization amongst the population of Saskatchewan that they elected to, you know, seek out an independent consultant to determine if anybody wished to, in fact, purchase the station.
315 We ended up being the only one that made a submission which did not require the government to subsidize that acquisition so, in effect, over the course of the last 18 or so months, the people of Saskatchewan have, in fact, benefited to the tune of $3.1 million that otherwise they would not have benefited from had the government closed the station as they had originally planned.
316 So I'm not sure whether that should not be, you know, ignored and not taken into consideration in terms of this particular transaction.
317 THE CHAIRPERSON: And I think your point is well taken and it should be considered, and I'm sure we will consider it as well.
318 I'm just going back again and again to the same issue, that the way this $3 million transaction is being position is that $2.163 million to the CRTC licence, and that's predominantly as a result of the advertising concessions that we, the Commission, made in order to continue that station for the benefit of the citizens of Saskatchewan. And with that came certain expectations, call it what you wish, that I guess now Rogers are saying you like the advertising component to it, but you're not so much in love with the commitment component to it.
319 MR. PELLEY: Well, we're not saying that. We're saying that the expectations, as Mr. Claassen has alluded to and Karen Shack has discussed, we have learned that those expectations were unrealistic. And so what we're trying to do is preserve the integrity of the station, retain the educational programming and viability, continue to consult with the Ministry on education while, at the same time, creating a viable service so that SCN -- remember, there was no buyers back when Mr. Claassen purchased it. Financially, it was in despair.
320 We're saying let's take it back, let's give this back, let's ensure that all aspects of the educational component are maintained, but let's make sure that it's viable going forward.
321 And, at the same time, let's make it HD so we're prepared to put $1.4 million into capital to make it an HD network.
322 So if, in fact, we don't buy it, you know -- you know, Mr. Claassen cannot sustain it. And so when you actually look at it from that perspective, you know, is it -- and remember, reading a lot of those intervenors and hearing them talk about Rogers as this advertising machine, then they win. The independent producers will win.
323 SCN is an educational service with a condition of licence that requires 60 percent in the broadcast month that'll be educational; 50 percent in the broadcast week must be commercial free.
324 We're coming and saying we will take all those conditions of licence plus add another conditions of licence which we'll say that with every -- with the -- our advertising dollars 23 percent of our entire revenue will go back to Saskatchewan independent producers as a condition of licence, not as an expectation.
325 So I think it's very important to say that those expectations that were granted by the CRTC -- I think Mr. Claassen, we've certainly learned through, realized that those were unrealistic to make this a viable service.
326 Ms. Wheeler?
327 MS. WHEELER: And Mr. Chairman, I'd like to add as well that I think we have to also realize that, as a privately owned and operated station, the new -- the model for educational broadcasters is that they need access to advertising.
328 The commercial-free aspect of an educational broadcaster is only really possible when it's government funding. That's not the case.
329 Unlike the other education -- privately owned educational broadcasters, we are making a spending commitment on this station, so we're making a spending commitment that we think we actually can sustain and that we'll be able to meet, unlike the previous spending commitments that were made by Bluepoint.
330 So I do think that, in the end of the day, it may not be the dollar figure that the independent production sector wants immediately, but we feel that we'll get there eventually but that it's a reasonable and fair proposal that we've made and that we'll actually be able to deliver on.
331 THE CHAIRPERSON: My last question. You've repeatedly distinguished between commitments and expectations.
332 Are you saying CRTC expectations have no force and value?
333 MS. WHEELER: I guess what we're saying is that if you had felt that they were actually achievable, you probably would have put them as a condition of licence and not merely an expectation, and so I think it was what you thought Bluepoint would be able to achieve and what Bluepoint thought they would be able to achieve and hoped that they would be able to achieve, but we are here today telling you is what we will achieve.
334 THE CHAIRPERSON: So what you're saying is every other expectation we have in any other proceeding, whether it's closed captioning or anything, if it's purely an expectation, that it may not be achievable?
335 MR. PELLEY: Well, I think the word "expectation" compared to "commitment" is significant. An expectation is something that you expect the broadcaster to do if in fact it is viable. A condition of licence is something that it has to do regardless of whether it's viable or not.
336 THE CHAIRPERSON: Those are my questions.
337 Mr. Patrone...?
338 COMMISSIONER PATRONE: Thank you, Mr. Chairman.
339 Good morning. Mr. Pelley, you just told the Chairman that either Rogers gets the regulatory relief that you are asking for or you walk away from the deal; correct?
340 MR. PELLEY: I'm not seeing it as regulatory relief, so we have a fundamental difference in terms of the regulatory relief. I believe that we are making a substantial commitment in conditions of licence to this actual network. So I don't look at it as regulatory relief because, as I mentioned, they were expectations that Bluepoint had that were unrealistic.
341 COMMISSIONER PATRONE: But does it have to be an all or nothing proposition though, Mr. Pelley? Would Rogers consider living up to any or part of the original commitment to digital production and independent production?
342 MR. PELLEY: First, I would certainly like to have a clear understanding of what exactly that digital production was, and at the same time I think that we have given tangible benefits in our report of $300,000 in terms of digital development that would be administered by SaskFilm. So I think -- I think we are giving that.
343 COMMISSIONER PATRONE: But you are asking for us to basically forget all the commitments that were originally made by Mr. Claassen relative to digital production, independent production.
344 My question is: Is it one extreme or the other? I mean, would you not be prepared to accept part of that commitment?
345 MS WHEELER: I think that's exactly why we put the commitments on the table that we have put on today.
346 We have agreed to a CPE and directing all of that money to Saskatchewan independent production. That is consistent with a spending commitment that Bluepoint had made and directed to Saskatchewan production. It may arrive at a different number, but we still feel that it is a comparable commitment in terms of what is actually achievable.
347 It's also the reason that we proposed to direct $300,000 over three years to a digital production fund. Recognizing that there was a commitment made to digital production, we feel this one is more reasonable for us to be able to deliver on and will actually have a greater impact since it will be administered by SaskFilm and it will be done in conjunction with the Saskatchewan independent production community.
348 MR. PELLEY: Mr. Commissioner, could I -- just for clarity, are you suggesting we forgo the CPE of 23 percent and move to some type of condition of licence that has some type of guarantee?
349 COMMISSIONER PATRONE: No. I was suggesting it as an over and above basically.
350 MR. PELLEY: Right.
351 COMMISSIONER PATRONE: And my question was simply, you know, is this a drop-dead deal-breaker for you? That was basically the question.
352 MR. PELLEY: Right.
353 COMMISSIONER PATRONE: And I guess the answer is...?
354 MR. PELLEY: Yes.
355 COMMISSIONER PATRONE: You also told the Chairman that Rogers is covering the losses at this point and I'm wondering how Rogers is covering its investment, given what you have just said, which is either we get this the way we want it or we walk away. I mean, you know, is this a roll of the dice for you based on a hope that we allow this to go through as you are asking for?
356 MR. PELLEY: I think, based on the fact -- I don't think we would have even started to fund it if we weren't able to enter into an affiliate agreement right away and we were able to reap some of the benefits, i.e. in January, February and March, where we have garnered some advertising revenue, not at the same level of the investment, but some. If we weren't able to enter into that affiliate agreement, then we probably would not have done that.
357 COMMISSIONER PATRONE: But it is hemorrhaging money at the moment though, is that correct?
358 MR. PELLEY: It is.
359 COMMISSIONER PATRONE: And so if you end up walking away --
360 MR. PELLEY: We will have lost dollars that we have invested in, correct.
361 COMMISSIONER PATRONE: Do you then, Mr. Claassen, chop up the assets? Does the station go dark? What happens?
362 MR. CLAASSEN: Well, I have basically exhausted -- as I had mentioned earlier, I have used all of my personal funds to run Bluepoint to the point where it has been run to today and I am not in a position in which I have any further funds which I can draw upon for me to be able to try to continue to operate SCN in a manner and under the conditions that it is currently operating under.
363 Even if in some way, shape or form some investor might come along, we still couldn't operate under the conditions that currently exist because it's clear that the financial viability of SCN has fallen significantly below our expectations and that is largely because of the local community not supporting that station.
364 COMMISSIONER PATRONE: Has advertising dried up at the moment? I believe Mr. Pelley mentioned that you are still receiving some --
365 MR. PELLEY: Sure, yes.
366 COMMISSIONER PATRONE: -- but given the cloud of uncertainty around this enterprise advertisers must be a little leery about what's going to happen to their investment if they cut you cheques towards advertising that may not happen.
367 MR. PELLEY: Mr. Claassen, I will just address that first.
368 Yes, we are still selling advertising, absolutely. In fact, January, February and March has seen an increase every month. We started less than $100,000 in the first month and we are well over $150,000 in the last month. So we are seeing an increase based on the fact that advertisers get the reach that they didn't have for the programming that we are trying to sell.
369 COMMISSIONER PATRONE: Mr. Pelley, you spoke at length about how vital it is for Citytv to be a player on the national stage.
370 MR. PELLEY: Correct.
371 COMMISSIONER PATRONE: What would it cost to launch a City station in Saskatchewan, you know, from scratch as it were?
372 MR. PELLEY: Well, the biggest thing there would be timing, going through the full process, not only the whole regulatory approval process, but the cost as well would be higher. And we would have to --
373 This strategy that we determined in terms of going after a national distribution platform was not an easy one. In fact, we debated it for months and months and months and months. And there are some people that are still saying, are you doing the right thing, are you moving into a conventional national distribution platform when at the time conventional television is being threatened?
374 COMMISSIONER PATRONE: But launching a new undertaking, though, Mr. Pelley, are we talking $5 million, $8 million? You have done the math, I'm sure of it.
375 MR. PELLEY: Sure we have, yes. Yes. So it would probably be $4 million, $4.5 million.
376 COMMISSIONER PATRONE: So that's a million and a half savings right there. And you wouldn't be guaranteed any carriage in the event that you were to go that route; is that correct?
377 MR. PELLEY: That's correct. But also it's very important to say not necessarily we would do that.
378 MS WHEELER: I'm sorry, we would be actually guaranteed carriage as we would be a local priority signal in the market and we would also probably -- well, we also certainly would have access to a full day of advertising revenue as well in addition to local advertising. So the revenue proposition for a local station would also be a factor in there.
379 MR. PELLEY: The other thing is -- and all these things come into factor. You make very valid points, but we don't sell on SCN any local advertising. So obviously if we came into the marketplace with an over-the-air licence and the Commission approved that, then we would be in the local advertising market, which represents another 12 percent. So when you actually -- it becomes a mathematical equation.
380 But that's why I started by saying the biggest thing with applying -- if we could apply for licence and you could approve it a week Monday, we have a whole different story, but the biggest thing here is the fact that we could get this affiliate agreement done with Mr. Claassen right away and move into a purchase agreement, if acceptable.
381 So timing is critical, especially in the conventional market as who knows how long a runway we have.
382 COMMISSIONER PATRONE: I guess where I'm going with this, Mr. Pelley, is that going this route clearly saves Rogers millions of dollars and hassle. You have bricks and mortar, you have people in place, you have an established player, you already have an affiliation agreement.
383 I mean couldn't you look at the commitments that you made to -- well, that Mr. Claassen made towards independent production and so forth as a cost of doing business?
384 MR. PELLEY: It's no different than when you walk into -- and you buy a new suit. At some particular time there is a walkaway price and you also believe that you might be more appropriate to take that suit than send it and have it custom made, which might take six months, because you need it right away.
385 So there's a lot of different -- different factors that go into this and I'm not sure really that it is a win-win for Rogers.
386 I think it is a win-win for the entire Saskatchewan province, because if in fact we were to go through the whole licence process, Mr. Claassen shuts down his educational programming network, we are certainly not going to come to you asking for an educational mandate from 6:00 a.m. to 3:00 p.m. that would be commercial free, so that network goes away.
387 We come back. Do we spend more? Arguably maybe, but at the same time we have local advertising and better COLs. So I don't know if I really buy your argument.
388 COMMISSIONER PATRONE: Fair enough.
389 Mr. Claassen, I am curious -- and Mr. Pelley spoke at length about how experienced an individual you are, you came out of the advertising business.
390 MR. CLAASSEN: Correct.
391 COMMISSIONER PATRONE: I'm curious how you could have been so far off the mark when it came to your original commitments. You know, did you mislead the Commission on your original commitments in order to get that licence?
392 MR. CLAASSEN: No, I don't think I misled them at all. The television industry is really made up of basically two fundamental parts. Well, I guess you can break it into three, but basically two fundamental parts.
393 One is national advertising and we had established a relationship with a national advertising representative firm that works with many companies such as ours and I have known him for many, many, many years and we had put together plans as to who the advertisers would be and in fact we received 50-60 advertisers. We had no difficulty in acquiring advertisers.
394 The real issue was a bit of what was mentioned earlier on, a bit of a wait and see. The amount that they expended per campaign was lower than what we had anticipated, but the amount of participation we received from national advertisers was quite substantial.
395 The big issue, I suppose, that surprised us the greatest was the incredible low amount of participation amongst the advertisers within Saskatchewan, and that included the government and any government body. Even during a campaign period, we received incredibly, incredibly small amounts of funding and it became extremely difficult.
396 Our projections probably on the national front were pretty close to what we had anticipated, fairly close, but on the local front they probably fell $1 million below what our expectations were.
397 Bearing in mind that when you are running a station with a $3 million top line, $1 million is a fairly significant amount of money and that's what drew upon my own personal assets to try to keep the station going.
398 So I don't think we entered into it with ignorance or lack of experience, it's just that it was quite stunning to us the extent to which there was such a limited amount of participation by local advertisers within the province.
399 And it could very well be because SCN had a long history of being an educational broadcaster that was noncommercial and so had never knocked on any doors to any advertisers asking for any advertising revenue. And it could be that it took them a while to sort of get comfortable with the concept.
400 And, as Mr. Pelley pointed out, timing is everything and timing takes time. We knew in the first year we weren't going to make money, no TV station does, but it just came in at a low -- at a substantially lower level than we had anticipated.
401 MR. PELLEY: When you actually break it down -- and we did this in our first conversation that we had and we estimated $3.3 million, as you have seen in terms of revenue, and if $2.75 of that is already committed, then it would be silly for us to -- and to be honest with you, irresponsible to enter into that type of arrangement. Hence, we came with the 23 percent CPE, which we thought was way more palatable.
402 COMMISSIONER PATRONE: Who approached who? In other words, you must have realized pretty early in the day, Mr. Claassen, that this was not going to make money for you. Did you -- you had an affiliation agreement by that point, after four to five months?
403 MR. PELLEY: You know, here is the interesting thing. Mr. Claassen actually approached us -- this was, I think, shortly after the purchase -- about doing an affiliate agreement and Rogers turned Mr. Claassen down.
404 But that was at a different time and a different strategy and perhaps if that was now, like I said, our goal was to do an affiliate deal, not necessarily a purchase. We might have done that.
405 But after the spring when we felt after the experience that we had just experienced with "Canada's Got Talent," knowing that, to be honest with you, we were not going to be able to do productions like that going forward without national distribution, we approached Mr. Claassen, as we did with several of the others that you are hearing about now.
406 COMMISSIONER PATRONE: You approached Mr. Claassen?
407 MR. PELLEY: We did.
408 COMMISSIONER PATRONE: And you knew at that point that he was in dire straits financially?
409 MR. PELLEY: No, actually we did not.
410 COMMISSIONER PATRONE: And then at some point it came around to you, Mr. Claassen, telling Mr. Pelley that we are going to go under if something dramatic doesn't happen?
411 MR. CLAASSEN: Yes. We had spent a considerable amount of time looking at outside investors to invest, but, you know, outside of buying a shopping mall or buying an office building, buying a television station is an intellectual purchase, it's not a tangible bricks and mortar purchase, and for many investors that was an arena in which they didn't have quite that much comfort level in.
412 You know, the broadcasting industry, if you take out some of the major players such as CTV and CBC and Global, there weren't many that you would call, you know, relatively sophisticated broadcasters and if they were they were principally in the radio arena. So it was difficult for us to find.
413 We searched quite eagerly for investors and it was around that time when Rogers contacted us, sometime around mid to late September, and we started talking about the affiliation agreement and that eventually evolved into an asset purchase agreement.
414 COMMISSIONER PATRONE: But if this goes through you will have recouped your losses over the last couple of years; is that correct?
415 MR. CLAASSEN: No. I will have spent a little over $3.1 million of my own personal money. I will have not reaped any compensation whatsoever for all of the efforts that I've done over the course of the past two years. I have spent a considerable amount of my personal funds on business ventures and events, whether that is flying back and forth.
416 I would say that if I added it up relative to what my normal compensation would be for the functions that I have done, my compensation would have been totally roughly $4 million, and my guess is after all lawyers and all other payments are made I will be lucky to come out with $2 million.
417 So in the final analysis this is not exactly what I would call it of my most brilliant investments.
418 COMMISSIONER PATRONE: But Rogers is throwing you a lifeline here, and there are going to be those that were we to allow this to go through are going to demand to know why the regulator let you off the hook. What do we tell them, Mr. Claassen?
419 MR. CLAASSEN: Well, I'm not sure if you're letting me off the hook. I have invested $2 million into the Province of Saskatchewan, which I am not getting left off the hook on at all. In fact, that money has gone directly into the province. Every dime of that $2 million that I have lost has gone directly into the Province of Saskatchewan.
420 If their intent is to say the only way that we are going to accept this kind of an arrangement is if we force someone into bankruptcy, I'm not sure whether that makes the most intelligent and, frankly, moral decision that I think any of us would find particularly acceptable.
421 COMMISSIONER PATRONE: On the other hand, it would be a cautionary tale for anybody else going forward.
422 MR. PELLEY: It might be a cautionary tale, but the educational service with conditions of licence of 60 percent in a broadcast month and the ability for the Ministry of Education to have a significant input in the actual programming for only preschoolers and a curriculum that is being aired on a daily basis to high school students goes away.
423 And so you might be able to make a point and force Mr. Claassen into bankruptcy and I would say, is that the right decision to make?
424 COMMISSIONER PATRONE: So your view is half a loaf is better than none?
425 MR. PELLEY: Well, I don't see -- but again --
426 COMMISSIONER PATRONE: You don't see it as half a loaf?
427 MR. PELLEY: I don't see it as half a loaf. I think that we have certainly exhausted this, but I believe this is a complete win-win, and if Rogers succeeds everyone wins, including the independent community and the Province of Saskatchewan.
428 COMMISSIONER PATRONE: Well, some interveners may differ with you on that count, Mr. Pelley, but I do have a couple of more questions.
429 THE CHAIRPERSON: Can I just suggest we take a break. There's a lot of people here that are waiting for a health break. Let's take a 15-minute break and we will resume with Mr. Patrone's questions.
430 COMMISSIONER PATRONE: I only have a few more, Mr. Chair.
431 THE CHAIRPERSON: Yes, but people are --
432 COMMISSIONER PATRONE: Fair enough, sorry.
433 THE CHAIRPERSON: Thank you. Fifteen minutes.
--- Upon recessing at 1034
--- Upon resuming at 1055
434 THE CHAIRPERSON: Commissioner Patrone...?
435 COMMISSIONER PATRONE: Thank you, Mr Chairman. I know my colleagues are chomping at the bit to ask a few questions so I'm going to throw a couple of questions related to local news.
436 Mr. Pelley, if you want to be a player on a national stage, does it not make sense that Citytv should be doing the same level of local reflection as, say, Global does or CTV does?
437 MR. PELLEY: No, I would disagree with that. It's tough to break into a market in news and information programming.
438 But, you know, at the end of the day SCN is an educational service with conditions of licence that require 60 percent of the broadcast month to be educational and 15 percent to be broadcast commercial free, so i.e. the likes of breakfast television or City Line are not part of this service.
439 COMMISSIONER PATRONE: It wouldn't -- well, BT wouldn't be. I take that as a matter of practical common sense because the morning as a rule will be dedicated to educational programming.
440 But a 6:00 o'clock newscast would be nice or late, perhaps 10 or 11:00.
441 MR. PELLEY: Well I feel that the dollars that we would have to put into production would be better spent on the independent producers rather than producing local news in the marketplace.
442 COMMISSIONER PATRONE: Well, if you succeed in becoming a national player and your commitment to local reflection is substantially lower than, say, your competitors would be, wouldn't that give you a competitive advantage relative to expenditures on the local programming front?
443 MR. PELLEY: But there are many different ways to get to a local presence by documentaries, by 30-minute magazine-type shows, far more than just local news.
444 You know, we have certainly seen that right now in the market in Vancouver where it is so difficult to take out the incumbent and as much marketing and as much as you put into it, you just can't make a dent in that.
445 Likewise, many people are feeling the same way with breakfast television in Toronto which continues to be our number one show despite all the marketing that some of our competitors are putting into it.
446 So I think it really comes best -- down to where is the best way to allocate the funds. I think you can still get a presence without having local news.
447 Susan, did you want to...?
448 MS WHEELER: Yeah.
449 I think it also comes down to the mandate. Local stations have a mandate to provide local programming, small markets seven hours a week, large markets 14 hours a week.
450 SCN's mandate is to provide educational programming and so a good part of the schedule, 50 percent of it in the broadcast week, will be commercial-free educational programming. So that, I think, is the mandate that we are focusing on.
451 And I think the other thing I would add that in terms of local reflection, that is one of the reasons why we have agreed to direct our entire CPE towards Saskatchewan independent producers. So there will be a local reflection in the sense that it will be locally-produced programming that, you know, will actually get on air on SCN.
452 COMMISSIONER PATRONE: But your competitors are going to look at your commitment, assuming the day comes when City is national, and they are going to say, "Well, look at Rogers' commitment to local news. We can't compete with that. Can you give us the same break as you have allowed Rogers to have all these years?"
453 MS WHEELER: Well, if they want to give up half of their broadcast schedule to commercial-free programming I think that they might have an argument. But in the event that all things are not equal, I don't think that they can really legitimately argue that we have that much of an advantage.
454 COMMISSIONER PATRONE: Are you going to be running City promos during the educational segment of your program schedule?
455 MR. PELLEY: We have never had that discussion right now. Obviously, you know, on a show like Benjamin's Farm you are not going to promote Revenge but a key documentary or something that is applicable then -- we have not had that discussion to be perfectly honest with you.
456 MS WHEELER: No, and at present we are not promoting any of the primetime schedule in our non-commercial portion of the day.
457 MR. PELLEY: Okay. I was just thinking in a branding point of view how you establish this. Does that split personality kind of work from a commercial vantage point?
458 The only way that I can think you can do that is by running City-related promos during the educational segment but it's just --
459 MS WHEELER: M'hmm, yeah, and I think our audiences are significantly different for the daytime portion of the schedule and the primetime portion of the schedule. Our daytime is directed towards children and educational institutions type of programming. The City's programming will be more general interests.
460 MR. PELLEY: Four to five hours is preschool and as much as we would love them to watch Persons of Interest I don't really think that they would.
461 MS WHEELER: Or that it's appropriate.
462 COMMISSIONER PATRONE: All right. Well, I'm going to pass this on to my colleagues.
463 Thank you very much for answering my questions.
464 Mr. Chairman...?
465 THE CHAIRPERSON: Thank you.
466 Commissioner Molnar...?
467 COMMISSIONER MOLNAR: Good morning, everyone.
468 I want to begin by getting a little more detail around your 23 percent CPE commitment. I have heard what you said, that you know we had a promise for more that didn't deliver and you are making a commitment which we can have some confidence, full confidence that you will deliver on.
469 But you haven't given us any details as to what that 23 percent would entail. Do you see that being programming directed to the educational part of the day, or how do you see that 23 percent being spent?
470 MR. PELLEY: I could take that if -- that's a really good question.
471 The 23 percent will all be to Saskatchewan independent producers and we will go through a full process of what makes actual sense from an audience side. We will look at all proposals and determine what is the best fit for the network, understanding that there is certainly an educational-based format that we currently have.
472 So there is no doubt that some of it will definitely be educational. But it will be determined on a go-forward basis.
473 I might have Joanne just touch a little bit on currently the formats of the documentaries. We had a short discussion yesterday.
474 But why don't you talk a little bit more about what it fits?
475 MS McDONALD: Yeah. No. Thank you, a good question.
476 Certainly part of the CPE commitment that Rogers is going to be making for SCN will be programming, I think primarily drawing from the genres that also fit with our CMF fund. So that would be children and youth, documentary, variety, performing arts and drama because, of course, we want to allocate our CMF funding dollars to Saskatchewan producers.
477 And you know, by default children, youth and documentary would fall within our educational mandate plus ensure exposure in primetime to appropriate content as well.
478 MR. PELLEY: But we also want to be able to -- there are some of these documentaries -- as I mentioned earlier the opportunity for Saskatchewan independent producers to play on the national stage, we want to be able to take some of these documentaries that we will produce. We had that conversation nationally as well so that they are just not only in Saskatchewan.
479 COMMISSIONER MOLNAR: And I think the independent producers would be excited by that and supportive of that notion.
480 But I just wonder, I mean ultimately this began as an educational broadcasting station. It continues to have the mandate as the educational broadcaster and with some full enriched programming can be an enhanced educational broadcaster within the province. And, yet, I hear very little that would commit any of the time or monies to enriching the educational broadcasting element of this station.
481 I mean you have your evening schedule and I understand the value of that to you and the value of that to supporting the educational broadcasting element.
482 I want to go further on that because you have made a commitment to PNI which isn't to date a commitment that exists with educational broadcasters. It's hard for me to rationalize why PNI should be an important element of a provincial educational broadcasting network or channel versus a commitment to educational programming.
483 So why is it important to have PNI and no commitment to the educational broadcasting element?
484 MS WHEELER: I don't think PNI and the conditions of our educational mandate are mutually exclusive. Under our conditions of licence we are required to direct a certain amount of programming to drama and documentaries that may be of an educational nature.
485 So I guess the PNI can be seen as meeting both of those objectives, both the educational and documentaries or dramas or award shows that aren't, you know, in keeping with the educational part of it. So I don't think that they are really mutually exclusive. I think that we have the conditions of licence.
486 We have started discussions with both the Ministries of Education and Advanced Education. We have the Universities of Saskatchewan and Regina here today to speak to some of the discussions we have had with them on the types of programming initiatives or opportunities that might be there for us to help advance some of their educational goals.
487 So I do think that we have, by virtue of upholding the educational conditions of licence, made a commitment to ensuring that programming remains relevant and obviously meeting the objectives of the overall service.
488 COMMISSIONER MOLNAR: If we were to remove your requirement to PNI and direct it to educational programming, given that you view that to be the same programming would that be a problem for you?
489 MR. PELLEY: No, that wouldn't be a problem for us.
490 COMMISSIONER MOLNAR: Thank you.
491 The other thing I want to just touch on is that, you know, you have noted your commitment to the Saskatchewan independent producers and to the educational mandate with your commitment of 23 percent but you have asked for only a three-year licence.
492 Understanding that the Rogers group is, you know, potentially going forward in three years and potentially may face an increase in its CPE requirements, how important is it to you that it only be a three-year licence?
493 MR. PELLEY: If you are prepared to give us a seven-year licence with a 23 percent CPE we will agree to that.
494 COMMISSIONER MOLNAR: With the full commitment being to Saskatchewan producers?
495 MR. PELLEY: Correct.
496 COMMISSIONER MOLNAR: Okay, thank you.
497 I have one final question. As you folks know I am from Saskatchewan and so I followed the events related to SCN over the past couple of years. As you noted, it was purchased in July of 2010 for $350,000 and it was surprising to me to see the purchase price being $3 million at this point in time.
498 I need somebody to help me answer this question both for my own comfort and also to respond to folks within my region. Because it would appear to me and appears to others, that the difference between the $350,000 that this station was valued at a couple of years ago and the $3 million you are prepared to pay today is the value of the licence. It is based on an action of this Commission that has changed the value of this station from $350,000 to $3 million. In fact, the entire value has been due to an action of us.
499 And over those two years it does not appear that the promises -- I won't say commitments but promises that were delivered to enhance the value of that licence were delivered back to the people of Saskatchewan.
500 So help me rationalize in my mind why there should be $3 million flowing back to Bluepoint at this point in time for an action which, I would suggest, is as much an action of the Commission as anyone else.
501 MR. PELLEY: Okay, I'll let Mr Claassen address that.
502 MR. CLAASSEN: Hi, Commissioner Molnar.
503 The $350,000 that was the initial purchase price, there was an additional $350,000 that we had to give in trust to the Saskatchewan government whilst we operated. They asked us because they had in fact essentially closed down the station with the exception of one or two people that were basically pushing buttons.
504 We had to commit an additional $350,000 over and above that to run the station during the interim period in time that it took for us to be able to apply and to receive the licence to take over as the new broadcaster of the station.
505 So that number is -- in fact the $350,000 is more like $700,000 because that was the committed amount of money. We, in fact, spent considerably over $700,000 to get to the point where we eventually got a licence to operate as a broadcaster and take over the licence from the Saskatchewan government and that number probably would reach close to a million dollars by that point in time.
506 It was only at that point in time on January 11th when we were able to now become a commercial entity, but the station was not equipped to be able to accommodate a commercial entity. It did not have a traffic system. It did not have software. It did not have satellite systems to be able to pick up programming outside of what was just being produced locally.
507 There were numerous amounts of efforts and endeavours that were required on our part to be able to move the station into a position in which we can in fact be the commercial entity which we had made an application for and we had made commitments towards.
508 During that entire time staff were hired and staff were paid, leases were paid, satellite transmission fees were paid to Saskatchewan satellites. These were all fairly substantial investments that were made during an extended period of time, from July, essentially, all the way up until September 12th, 2011, in which no revenues, as I mentioned earlier, were accrued whatsoever on behalf of SCN.
509 So the actual purchase price is non-reflective, at all, as to what the cost was to actually make this into a commercially viable broadcast entity.
510 In fact, as these numbers have pointed out, the investments actually came to somewhere in the vicinity of over $3 million, to eventually reach the point at which it became commercial.
511 So to look at this transaction as being one in which the initial payment was $350,000, and a sale of $3 million as being a net gain, that, in fact, was not the case at all. In fact, as I pointed out earlier, this was a net loss for the investor, and that investor was me, because, like I said, the actual purchase price was just a small fraction of what it cost to actually turn this into a viable commercial and educational network.
512 MR. PELLEY: Not to tell tales out of school, but Mr. Claassen's first point was that, obviously, he wanted to recoup his entire investment, and that's where the negotiations started, and we weren't prepared to go to that number, and we negotiated to the number that is in front of you now.
513 COMMISSIONER MOLNAR: I understand that this was a transaction between sophisticated purchasers, and certainly I don't feel that I need to protect Rogers in its acquisitions, but it is not the normal means -- and I think you said yourself that you looked at a discounted cash flow of future earnings potential and not sunk investment to determine the value of this.
514 And the value of that is based on its value as a commercial enterprise. It has become a commercial enterprise because we changed the nature and conditions of this licence.
515 It is not sunk costs on paying salaries to folks.
516 I don't understand -- Mr. Claassen, you spoke of investments as in capital investments increasing the value, but I think what you were talking about were operating costs over a period of 18 months.
517 And I am certain, as well, from your bio and experience, that you don't pay somebody in future for sunk operating costs of the past.
518 So I still sit with this discomfort that we have gone from an operation worth $350,000 to an operation now valued at $3 million, with the one significant change through that period being our changing the conditions of licence. It looks a little bit like something that is deemed in the regulatory world as licence trafficking, in that we have taken a licence, we have changed the conditions, and now we are profiting by changing those conditions.
519 I just want you to tell me why it is not licence trafficking.
520 MR. CLAASSEN: It is not licence trafficking because the Saskatchewan government would not have been able to sell SCN, as it is currently operated, as a totally non-commercial enterprise, for $350,000, unless it was a totally philanthropic enterprise, because the station generated no revenue, and, in fact, was generating millions and millions of dollars of costs of operation, because, of course, I have had no revenue.
521 And it would make no sense for someone to spend $350,000 only to lose, you know, $5 million and $10 million a year in operating a non-commercial enterprise.
522 You may recall, at that time, that there were several stations that were on the marketplace, owned by CTV and others, that were being sold for a dollar, and they were being sold for a dollar on the basis of the fact that they were losing substantial amounts of money, and that it was in the best interests of the broadcasters at that time to, essentially, eliminate a liability, as opposed to selling an asset.
523 In this particular case, substantial amounts of investments were made on our behalf, not because we are unsophisticated, but because we had a strong belief in that there was an opportunity to be able to be a third viable commercial entity within Saskatchewan, and all of our endeavours were operating toward that end and that goal. We were not overstaffed by any stretch of the imagination. It's just that, as I mentioned earlier, we were quite disappointed at the level of participation amongst the local and regional advertisers, including the government, within Saskatchewan, which fell exceedingly far below what our expectations were, and what our experts' expectations were with respect to the financial viability of the station.
524 MS WHEELER: I would like to make a comment on your question regarding licence trafficking.
525 Under the Commission's revised policy, the change in effective control of a licence that is in its original licence term -- the Commission has limited its policy to only apply to those licences, and in this case SCN isn't in its original licence term, so we don't really feel that it falls within that policy.
526 But even if the Commission were to deem that it does, I think one of the considerations when you are granting approval is the resulting benefit to the Canadian broadcasting system, and I guess what we are telling you today is that there will be benefits to the Canadian broadcasting system.
527 We are going to uphold the educational mandate, we are going to invest in Canadian programming and independent production, and we are going to make Citytv a more competitive over-the-air network as a result of that, which also has inherent value to the system, in terms of being able to balance the competitive landscape.
528 So we do feel that, regardless of the Commission's concerns regarding the particular context of this transaction, we can assure you that we will continue to contribute positively to the system, and we will invest in SCN so that it is something that you can feel comfortable and positive about.
529 COMMISSIONER MOLNAR: Fair enough.
530 One might argue that it is in its first licence term as a commercial educational broadcaster.
531 MS WHELLER: I concede that, but it wasn't granted as the result of a competitive process. That is the only distinction that I would make.
532 COMMISSIONER MOLNAR: Okay. I want to go back to Mr. Claassen.
533 You purchased it, I believe I heard you say, with the expectation of turning it into a commercial educational broadcaster. Its value to you, at the time of purchase, was based upon turning it into a commercial organization, with the ability to solicit advertising.
534 Under that expectation, you made some, I would say, commitments. We put them into your licence as expectations, but some promises to deliver back to the Saskatchewan production community certain amounts.
535 And if I heard correctly this morning, about $160,000 was actually what was delivered back to the independent production community.
536 MS McDONALD: I can answer this.
537 That was $160,000 that was committed for digital production. For the Saskatchewan production component, Bluepoint was able to commit approximately $1.37 million to Saskatchewan production.
538 COMMISSIONER MOLNAR: Since December 2010?
539 MS McDONALD: In the current broadcast year. So, in 2011-2012, Bluepoint committed $1.37 million for Saskatchewan production, and approximately $165,000 for digital production, in reference to the expectations.
540 COMMISSIONER MOLNAR: Okay. Thank you. I had understood it to be less.
541 Thank you, those are my questions.
542 MS WHEELER: I just wanted to add that some of those commitments were made possible because we did advance that $600,000 loan in order to be able to meet some of those commitment deadlines.
543 The other thing that I wanted to clarify for the record is, going back to Chairman Katz' earlier questioning about the employees that were retained in Regina, we just want to confirm that there are nine staff in Regina that we will be retaining.
544 I just wanted to clarify that. I know there was a bit of confusion earlier this morning, so I wanted to clarify that for the record.
545 COMMISSIONER MOLNAR: I know I said that it was my last question, but I do have one more.
546 Since Bluepoint has held this licence, has it fully used its CMF envelopes?
547 MS McDONALD: Absolutely. Virtually every dollar was allocated from `11-12, and we actually are looking forward to spending next year's, as well.
548 So, yes, we were able to maximize our envelope as much as it was possible.
549 COMMISSIONER MOLNAR: Thank you, those are my questions.
550 THE CHAIRPERSON: Commissioner Menzies...
551 COMMISSIONER MENZIES: Thank you.
552 This licence category is pretty much dependent on the maintenance of the designation as a provincial authority. Help me understand the nature of the conversations that you have with the province that guarantee they will be willing to continue to mandate you or designate you as a provincial authority?
553 MS WHEELER: In our discussions with the province, they very much are committed to educational broadcasting in the province. They recognize that in order for us to be able to do that, we do need to solicit commercial advertising, but they feel that they are -- from our discussions, they are willing to uphold their side of the agreement in terms of continuing to confer on us that provincial designation, so that we can maintain our mandatory carriage status, which they understand is an integral part of our business model, in the sense that it allows us to reach the entire province, and therefore reach our maximum audience.
554 COMMISSIONER MENZIES: Sure, but what do they require of you in exchange?
555 MS WHEELER: They are comfortable with the conditions of licence that the Commission has set, in terms of directing the amount of programming to educational content.
556 COMMISSIONER MENZIES: I am just trying to understand how that will hold up in the future, other than your commitments in terms of the licence.
557 I was looking at your schedule and, as you indicated, much of it is -- you know, 6 a.m. to 3 p.m. is primarily children's --
558 I just looked at today's, for example, and it is primarily children's programming. There is one hour of educational programming slotted in for today, or what was described as educational programming. Some of the others -- perhaps it's a different category, when it comes to our categories, as opposed to advertised categories -- and there was a one-hour documentary, and then after that it's Judge Judy right through to Judge Joe, at 4 a.m., or something like that.
559 MR. PELLEY: Which is very educational, as well.
560 COMMISSIONER MENZIES: I have no doubt that it is intellectually enriching.
561 But there isn't anything in prime time that distinguishes it at all.
562 And the parallel that I am drawing -- that I could see, anyway -- and you can dispossess me of this notion, but the parallel that I am drawing is between Access in Alberta, which is basically CTV Two, a somewhat similar history, process, et cetera, and they still do Alberta prime time in the evenings during the week.
563 I am trying to understand how we could explain to them why it's necessary in Alberta, and why it would be unnecessary in Saskatchewan to do any local prime time programming, or public affairs programming.
564 MR. PELLEY: Sure, Commissioner.
565 First of all, Access Alberta has a regional exhibition requirement, and they don't have a CPE. So if we wanted to actually revisit removing the CPE and adding an exhibition requirement, that is a discussion that we certainly could have.
566 But you can't really compare the two based on what we are proposing in terms of a CPE as opposed to the exhibition requirement, and I do believe that a CPE is the way to go.
567 Yes, there are four to five hours of preschool programming, correct, and with two young children, I understand the schedule pretty well, and they are not your traditional Dora the Explorer and Diego, they are far more educational.
568 But there are two hours -- and I am going to have Joanne talk about the curriculum, which is, I think, an incredible commitment that the network has made, which is two hours of curriculum that is scheduled with the Saskatchewan Ministry of Education.
569 MS McDONALD: Yes, absolutely.
570 In those nine hours of non-commercial, we typically schedule, as was just stated, between four and five hours of preschool programming, and that is preschool programming with defined early learning objectives -- numeracy and literacy skills, social skill development -- typically sources from inside the province, Canada, and sometimes internationally, and the majority of the time in conjunction with the other educational networks. So we are sending out programs with great content.
571 We also work with the Ministry -- currently we work with the Ministry of Education and offer two hours per day of K to 12 curriculum support programming. That is programming that has been selected to enhance the curricula in Saskatchewan. SCN is available in all of the schools, and, of course, home schools and reserve schools have access to it, as well. So we think that's a great resource to help meet our mandate.
572 Also, currently we are in discussion with the Ministry of Education, as well as Advanced Education, in looking at other opportunities in our non-commercial broadcast period on what else we can do to help meet educational priorities and goals in the province.
573 So, if it's not only programming, is it actual promotion of education in the institutions, and everything that is available in the province.
574 In terms of prime time, as part of our 60 percent overall requirement to exhibit 5(a), 5(b), 2(a), 2(b), we are also running approximately two hours of documentaries, and a lot of those are Saskatchewan-produced documentaries. They are all Canadian and they either all, again, reflect the province or reflect the country.
575 So we feel that we are meeting those goals.
576 COMMISSIONER MENZIES: And when do those run?
577 MS McDONALD: Beginning at 10 o'clock.
578 COMMISSIONER MENZIES: A couple of times a week?
579 MS McDONALD: Actually, they are stripped. So it's every weeknight for two hours, and then there is some repeating on the weekends, as well.
580 COMMISSIONER MENZIES: Okay, thanks.
581 A lot of that educational programming, the province would deliver that via the internet, too, right?
582 Are they moving toward that?
583 MS McDONALD: That is something we are actually having discussions on right now, because, yes, absolutely, K to 12, for sure, is implementing sort of an on-demand service in the schools.
584 So a linear broadcast exactly at 10:30 may not be the way of the future, but Saskatchewan is a very big province and there is a lot of population that is spread out, and sometimes it is just a question of providing access, especially for a lot of kids that are home-schooled or other opportunities.
585 Again, we are actually starting to talk about the future a little bit, so we are not clear yet, but we know that we definitely want to make sure that they are fully engaged.
586 COMMISSIONER MENZIES: Thank you.
587 My other question is regarding, basically, your business structure, your business model, which appears to work in -- and again I will use the neighbouring parallel.
588 In Alberta, for instance, although there is obviously a difference in the licensing structure, but you don't have general managers at your stations in Calgary or Edmonton, and whatever happens -- there is somebody on the ground making some decisions, but they are reporting via Toronto for here.
589 I don't want to unsettle Ms McDonald unnecessarily, but why would she fit -- or her position fit, would be more fair -- when that would be inconsistent with your overall business model elsewhere?
590 MR. PELLEY: I would say that because we don't air Tractor Tom anywhere else but in this particular licence.
591 And what I mean by that is, this is a completely different licence than the Calgary station and the City Television station in Winnipeg. This is an educational service that requires specific programming from 9 to 3 that is completely different from any other City Television station.
592 The actual staffing of this particular station is completely different than that of City Television in Calgary and that of Winnipeg.
593 COMMISSIONER MENZIES: So what guarantees do we have that the Saskatchewan producers that are providing content right now won't have to hoof it down to Toronto to speak with somebody here about why they should be on SCN - City?
594 MR. PELLEY: First and foremost, all of the 23 percent goes to the Saskatchewan independent producers, and as -- how would I put this -- as polite as I possibly could be, understanding this marketplace, you need to actually be in Saskatchewan.
595 And Joanne knows that better than anybody.
596 We don't have any aspiration to run the station from Toronto.
597 COMMISSIONER MENZIES: I don't doubt that she knows it, what I am obviously trying to get is some sort of commitment from you, or undertaking, that producers in Saskatchewan will have somebody full-time in Saskatchewan that they can talk to.
598 MR. PELLEY: We would be prepared to make that commitment, to have a senior executive like Joanne in Saskatchewan; that the independent producers would pitch to Joanne for the independent producer fund.
599 COMMISSIONER MENZIES: Thank you.
600 THE CHAIRPERSON: Vice-Chairman Pentefountas.
601 COMMISSIONER PENTEFOUNTAS: Good morning, what's left of it.
602 Is that another job that we just saved, Mr. Pelley, or is that part of the four?
603 MS McDONALD: Yes, thank you very much. I appreciate it.
604 COMMISSIONER PENTEFOUNTAS: We aim to please.
605 MR. PELLEY: Yes, Joanne has done very well today.
606 COMMISSIONER PENTEFOUNTAS: Setting aside personal and corporate interests for a moment, I gather that the claim is being made this morning that it would be in the best interests of the system that SCN continue to broadcast.
607 MR. PELLEY: Correct.
608 COMMISSIONER PENTEFOUNTAS: Correct.
609 Mr. Pelley, I don't have a problem with your presentation. I understand your national strategy, and I appreciate the honesty.
610 Mr. Claassen, the challenges in the investments that you made subsequent to the acquisition of this property, I am sure, were well known to you. You are neither inexperienced nor ignorant, and you also hired market experts to provide you with financial projections. I hope these experts are no longer in business.
611 That being said, if the idea is to protect the system and to encourage the system and to continue to have SCN broadcasting and not have it go black, and given the fact that you are an entrepreneur and you paid your money, you "takes your chances", and in this case it didn't work out for you, if changing in any way, shape or form the parameters of this licence to allow SCN to continue to broadcast through the participation of Rogers, how would you feel about having that $3 million go toward the undertakings that you engaged in upon the acquisition of this property, without getting into the details of the amounts in question?
612 MR. CLAASSEN: I am not sure that I quite understand your question. Perhaps you could --
613 COMMISSIONER PENTEFOUNTAS: You committed to spending certain funds.
614 Is that correct?
615 MR. CLAASSEN: Correct.
616 COMMISSIONER PENTEFOUNTAS: I am not going to get into the details. I am not going to get into the amounts.
617 MR. CLAASSEN: Right.
618 COMMISSIONER PENTEFOUNTAS: For the sake of argument, you have fallen short --
619 MR. CLAASSEN: Yes.
620 COMMISSIONER PENTEFOUNTAS: -- of fulfilling that commitment --
621 MR. CLAASSEN: Yes.
622 COMMISSIONER PENTEFOUNTAS: -- and there are $3 million on the table.
623 MR. CLAASSEN: Yes.
624 COMMISSIONER PENTEFOUNTAS: Why shouldn't those moneys go toward those commitments?
625 MR. PELLEY: Do you understand the question?
626 Why wouldn't you take the $3 million...
627 COMMISSIONER PENTEFOUNTAS: Do you want a break?
628 MR. CLAASSEN: If I am understanding you correctly, you are saying: Why don't I take the $3 million, which, actually, probably will turn out closer to $2 million -- why wouldn't I take that and just give that money to Rogers. Is that what you're asking?
629 COMMISSIONER PENTEFOUNTAS: No.
630 MR. PELLEY: The two million to be spent on independent production.
631 COMMISSIONER PENTEFOUNTAS: The commitments were made. And what would that produce, respect of the conditions that were put forth in exchange for the acquisition of the property. If we're interested in the system and your word is your bond and you accept to spend those monies on independent productions services, why shouldn't those monies go towards those expenses?
632 MR. CLAASSEN: Well, I'm not sure if that is the application that is being presented here by Rogers.
633 COMMISSIONER PENTEFOUNTAS: Why wouldn't it be?
634 MR. CLAASSEN: Well, because I think they've made it quite clear that the commitments that I had made were based on assumptions which as you do when you -- when you take on businesses and, unfortunately, those assumptions proved incorrect in terms of the revenue generation.
635 MR. PELLEY: Can I take one minute?
636 COMMISSIONER PENTEFOUNTAS: If you just give me a minute, Mr. Pelley.
637 MR. PELLEY: Okay.
638 COMMISSIONER PENTEFOUNTAS: I mean, at the end of the day, Mr. Claassen, why should we save your bacon?
639 MR. CLAASSEN: You're not saving my bacon. I'm $2 million behind the eight ball. This is not a saving of bacon.
640 COMMISSIONER PENTEFOUNTAS: Mr. Pelley.
641 MR. PELLEY: I just take a minute --
642 COMMISSIONER PENTEFOUNTAS: Sure.
643 MR. PELLEY: -- just take a minute.
644 MR. CLAASSEN: Well, if I can answer, I've already invested considerably in the province of Saskatchewan to the extent of $2 million of my own money. To take whatever monies Rogers is paying for me to take over that station, which would have been monies that Rogers would have had to have expended, if not more, to be able to move it from the position in which we purchased the station back in July 2010 to reach the point where it is currently now would be tantamount to giving them. It'd be like buying an old car, completely fixing it up, painting it, putting a new stereo in, putting new tires and new radios in it and saying that that was a commitment that you made when you bought the old car and then turning around and giving it back to the person you basically sold it to for nothing.
645 I think I've invested considerable amounts of my money. I've generated a considerable amount of losses in my contribution to Saskatchewan.
646 I think what Rogers is putting forward is an opportunity for a station to survive, and to survive in a manner which is not entirely inconsistent with the commitments that we'd originally made when we entered into this back in June of 2010.
647 For me to give up all my monies and put me in bankruptcy for the purposes of what would be the equivalent of one year payments to producers and then have the station go completely dark, I don't see how that benefits the broadcast system in this country.
648 COMMISSIONER PENTEFOUNTAS: Well, I'm going to leave it at that, but I think there's some food for thought there. I think I'm going to see you again before the end of the week for the end of next week, the next phase.
649 UNIDENTIFIED SPEAKER: Later on today.
650 COMMISSIONER PENTEFOUNTAS: Oh, there you go.
651 MR. CLAASSEN: See you shortly.
652 COMMISSIONER PENTEFOUNTAS: There you go. Some interesting food for thought during lunch, I guess.
653 THE CHAIRPERSON: Any other questions?
654 Commissioner Simpson?
655 COMMISSIONER SIMPSON: Good morning. Just a couple of clean-up questions.
656 With respect to the original condition of licence that was granted by the Commission to Bluepoint, which was to honour the request of a nine-hour window for commercialization, there's going to be the all night -- or there's some hours left on the table.
657 I was -- they obviously will be the midnight to 6:00 a.m. block.
658 I was just curious, you have, I believe, the latitude to be able to commercialize that block. Have you got any thoughts at this point that you can share with us regarding programming?
659 MR. PELLEY: You might try. I haven't been involved in those discussions from midnight to 6:00 a.m.
660 MS McDONALD: Yeah. The midnight scheduled from midnight to 6:00 a.m. is a mix of, actually, City TV content, so, you know, Judge Joe was referenced. A lot of their content we're running in the overnight.
661 COMMISSIONER SIMPSON: So if there's any -- you know, it would probably be nominal recovery, but you have the idea, so you would commercialize that. I just wanted to get that on the record.
662 MS McDONALD: Yeah.
663 COMMISSIONER SIMPSON: The other question, I know we're going to hear in a while from Sask Film regarding the new media projects. My question is a broader question than just the scope of this hearing.
664 With respect to, you know, the quantum of money that's involved, which is, I think, 100,000 a year for three years, from Rogers' experience in developing new media projects, you know, what -- have you got anything you could share with us as to what that kind of money is capable of producing in pure play new media projects?
665 MR. PELLEY: It's interesting because we currently run our digital business and we've seen it as a growth opportunity. We run 100 owned and operated sites. We represent another 1,100 sites through an ad network that we purchased out of Montreal, so we represent some 1,100 sites.
666 And the third kind of bucket would be the growth initiatives like in "Our Deals", which is a couponing solution business that we launched in December.
667 But everything that we've done digitally to date has been around the sales front, hasn't been around the creation of content other, than maintaining the -- our sites of brands that are integrated across platforms.
668 You know, now only recently we have started -- we have started to explore that opportunity of creating content but, you know, the way that I've looked at it is in terms of digital content and people said, you know, why did you produce "Canada's Got Talent"?
669 And the way I explain it is, you know, "Canada's Got Talent", we shot 500 acts in HD, of which only 70 of them made it to linear television; 430 were designated for the web. So outside of integrated projects, we haven't, you know, Commissioner Simpson, actually produced original content.
670 So this fund, you know, with Sask Film, will probably be one of the first where we can produce dedicated internet content, which is becoming more and more critical for us to look at.
671 We partnered with a company called Vougeroo out of the U.S., which is run by Michael Eisner, recently, which produces content just for the internet, so we understand that it's there.
672 We're certainly watching what Youtube is doing, recently launching their women's station, Wigs, and what Google is doing, moving into the original content business. So it's going to be some area that is of critical focus over the next year.
673 COMMISSIONER SIMPSON: So a learning process for everyone.
674 MR. PELLEY: Right.
675 COMMISSIONER SIMPSON: Thank you very much.
676 MS WHEELER: And we also expect the funds to lever additional funding from Canadian Media Fund and other funding agencies so that digital producers will be able to use it as a portion towards overall financing of various projects.
677 MS McDONALD: Yeah, absolutely. The Saskatchewan productions that will be receiving our CMF funding is convergent funding, so it's all -- from now on, it's a broadcast portion and another platform, so you really have to make sure the digital pieces is accommodated. And this fund will fit that really well.
678 THE CHAIRPERSON: Thank you. I've just got a couple of quick questions.
679 Mr. Claassen, the financial statement here from your chartered accountants dated October 25th, 2011, Henderson Partners, there's a line on here called "due to shareholder".
680 Is that the funds that you have put in to SCN? Is there anything else in Bluepoint Investments other than the holdings of SCN?
681 MR. CLAASSEN: No.
682 THE CHAIRPERSON: Nothing at all.
683 MR. CLAASSEN: No.
684 THE CHAIRPERSON: So that number is the amount of money that has flowed through the income statement and losses.
685 MR. CLAASSEN: Yes.
686 THE CHAIRPERSON: Okay. Mr. Pelley, just so I understand to clarify, if the Commission approved this transaction but it was subject to an additional undertaking by Rogers, rather than renegotiating the value of this deal, you're prepared to walk away?
687 MR. PELLEY: If, in -- outside of this?
688 THE CHAIRPERSON: I'm saying your proposal was 23 percent CEP and P&I subject to Commissioner Molnar's suggestion about perhaps putting it as education as opposed to --
689 MR. PELLEY: Right.
690 THE CHAIRPERSON: -- P&I or something as well.
691 But if this Commission imposed some other condition on Rogers, I think I read in here somewhere there was a stipulation that you would consider renegotiating the deal. What I heard you say earlier this morning is you'd walk away from the deal.
692 MR. PELLEY: Well, I know that renegotiating the deal with Mr. Claassen is something that we have done for the past number of months. He wanted significantly more dollars to recoup his investment. We weren't able to do that, so we came and -- we came to a resolution between the two parties.
693 We do believe that we're bringing significant amount of value in terms of the 23 percent CPE to the independent community and to the -- to the willingness to uphold the educational service with conditions of licences that are in place, plus adding additional COLs.
694 So if, in fact, the Commission was to take the 23 percent CPE and, although we have agreed in terms of the P&I could be adjusted, as Commissioner Molnar suggested, and we could definitely agree to the executive person that would work with the independent community, as Commissioner Menzies said, but if there was significant changes beyond that, changes beyond that, we would sadly decline, yes.
695 THE CHAIRPERSON: Okay. Define "significant" for me.
696 MR. PELLEY: I remove that word very quickly.
697 THE CHAIRPERSON: So you're saying that it's take it or leave it.
698 MR. PELLEY: I said we have made -- we've made both -- the adjustments that both Commissioner Menzies and Commissioner Molnar have agreed, but beyond that, this is a win/win for everyone and I believe that outside of that, we would sadly decline.
699 If, in fact, the Commission wanted to enter a discussion about creating a regional exhibition requirement and not with a CPE, then we could have that discussion similar to Access Alberta, but to give us something beyond the 23 percent CPE, then we would sadly decline, yes.
700 THE CHAIRPERSON: So you don't see this as a -- as two and a half-way negotiation, the Commission, Mr. Claassen and yourself? You're saying your deal is done, it's $3 million, it's not going to change. Anything that's going to change is between the Commission and Rogers.
701 MR. PELLEY: Our deal with Mr. Claassen is done. Is that your question, Mr. Chair?
702 THE CHAIRPERSON: Yes.
703 MR. PELLEY: Yes. Our deal -- our deal currently with Mr. Claassen is done.
704 THE CHAIRPERSON: So what was the significance of the reference that you made in a submission to us saying:
"In terms of the outcome of the proposed transaction, the agreed-to purchase price was based on Rogers not having to pay benefits and, therefore, any incremental cost to Rogers may necessitate a renegotiation of the purchase price."
705 MR. PELLEY: That's correct. And renegotiating the purchase price, you know, as early as last evening, is not in the cards for Mr. Claassen.
706 THE CHAIRPERSON: Okay. Mr. Claassen, can you file with this Commission the actual confirmation of the funds that were transferred from Bluepoint Investments to SCN to reflect this "due to shareholders"? Presumably you made payments along the way through some bank transaction?
707 MR. CLAASSEN: Yes, we certainly can.
708 Mr. Claassen to file with the Commission the actual confirmation of the funds that were transferred from Bluepoint Investments to SCN to reflect this "due to shareholders
709 THE CHAIRPERSON: Can you, please?
710 MR. CLAASSEN: Yeah.
711 THE CHAIRPERSON: Okay. Any other questions?
712 That completes our set of questions. I'll pass it back to the secretary.
713 THE SECRETARY: Thank you, Mr. Chairman. So this concludes Phase I of this item.
714 We will now proceed with Phase II in which intervenors appear in the order set out in the agenda to present their intervention.
715 We have people at the regional office in Regina appearing via teleconference. Just for the record, unfortunately, one of the intervenors had to leave, Mrs. Susan Bell, and I was just informed of this, so she's sending her apologies. She will no longer be appearing.
716 So we will hear Mrs. -- Dr. Sheila Petty from the University of Regina and Ms. Elizabeth Lulchak from University of Saskatchewan.
717 This panel has 10 minutes to make its presentation. Ladies, please introduce yourselves for the record, and you may now proceed with your presentation.
718 DR. PETTY: Hello. Sheila Petty (inaudible) University of Regina.
719 THE SECRETARY: Is this Mrs. Petty on line?
720 DR. PETTY: Yes. You want me to (inaudible)?
721 THE SECRETARY: Yes, please. We do not hear you very well, though. I would ask you to start and we'll see how it goes, please.
722 DR. PETTY: Thank you. Good morning, everybody. As mentioned before, my name is Sheila Petty. I'm Dean of the Faculty of Fine Arts at the University of Regina, and I would like to address the educational benefits of SCN.
723 The Department of Media Production was established in the 1970s (inaudible) post-secondary institution that offers a Bachelor of Fine Arts in Film Production between Toronto and Vancouver. The Department has contributed to the dramatic growth of the TV And film industry in Saskatchewan over the past 30 years, and many of the alumni have played leading roles in the industry as producers, writers, directors and technicians.
724 Our students and faculty have benefit significantly from SCN's educational mandate and support for Saskatchewan producers. SCN was particularly encouraging to emerging filmmakers with programs such as "15 Minutes of Fame".
725 Several current students and many graduates, such as Jessica Smith, Nils Sorensen, Angela Edmunds and Leanne Schinkel, received their first professional broadcast because of this program.
726 SCN was also crucial in being the first broadcaster involved on productions by MPS alumni that went on to receive national broadcast licences.
727 For example, 291 Film Company's Landscape As Muse first appeared on SCN and then went on to sell to national and international broadcasters during its five season run. The series, produced by MPS alumni Ian Toews, Jason Britski and Mark Bradley, received several Gemini nominations, and at least one Gemini Award.
728 SCN was also an early partner on MPS alumnus Dennis Jackson's series, Wapos Bay. The animated series ran for several years and also received multiple Gemini nominations and at least one Gemini Award.
729 Alumna Lori Kuffner produced several projects with SCN as a partner, including the Gemini Award-winning series Drug Class. And alumnus Robin Schlaht's series, A Few Good Men and Women, was also produced with SCN as an early partner.
730 Several current faculty members have benefitted from SCN's broadcast pre-licence, including Sarah Abbott's Out in the Cold and This Time Last Winter.
731 Department Head Mark Wihak's projects were made possible with SCN as the first partner; they then went on to have national broadcast licences. And these include films such as A World Away: Stories from the Regina Five, Between the North Pole & New York City, and River.
732 And finally, SCN has provided the venue for Dr. Christine Ramsay to host Prairie Night at the Movies over four seasons from 2002 to 2007. During this period, she presented a significant number of Saskatchewan and Canadian films to Saskatchewan audiences. This series proved highly popular with prairie audiences.
733 The fact that Rogers will maintain SCN's educational mandate and provide Saskatchewan producers with access to a national platform for their programming will mean that there will be a quality venue for Saskatchewan stories across the country. Furthermore, I am pleased that Rogers will provide the financial stability needed to ensure SCN's long-term viability and look forward to working with them.
734 Thank you.
735 THE SECRETARY: Thank you, Ms. Petty.
736 We will now Ms. Elizabeth Lulchak from University of Saskatchewan. Are you on line?
737 MS LULCHAK: Yes, I am. Hello, good morning. I am Elizabeth Lukchak. I'm the Director of Educational Media Access and Production at the University of Saskatchewan, and I have also written a few words.
738 SCN has had a long and beneficial relationship with the University of Saskatchewan, and we are pleased to see Rogers' commitment to keep SCN running as Saskatchewan's educational broadcaster.
739 During start-up and for many years, the university was the production and broadcast facility for SCN, so we were well aware of the tremendous potential of reaching all citizens across the province. We partnered with SCN to produce original educational programming, to promote awareness of university initiatives and to showcase research achievements so that Saskatchewan citizens had an opportunity to "see inside" the university.
740 Because of SCN, we were able to partner with Saskatchewan independent producers to work on the creation of a number of series and shows. "Mind Field", which explored the innovative high tech culture that was evolving in the province and "A New Life in a New Land: The Muslim Experience in Canada", which provided current and accurate information on Islam and Muslims in Canada, are two examples of our collaboration.
741 Other video projects included The Creative City, University of the People and Synchrotron shorts.
742 At a time when Saskatchewan is growing and evolving, we appreciate Rogers' mandate to not only promote the value of education, but also to seek innovative ways to develop and broadcast educational content.
743 The loss of SCN would be a tremendous blow to the province. The university hopes that Rogers will bring stability to SCN so it can continue the very important role it has played in our provincial community.
744 Thank you.
745 THE CHAIRPERSON: Thank you very much.
746 Are there any questions or comments from Panel? Mr. Patrone? Commissioner Patrone, sorry.
747 COMMISSIONER PATRONE: Thank you, Mr. Chairman.
748 I have a couple of questions for each of you.
749 First off, I want to thank you for taking time from your busy schedules to make your presentations today.
750 Ms. Lulchak, given that City TV is a commercial operator and your interest in this undertaking is mainly as a promoter of educational programming, does it cause you any concern that Rogers will, in fact, continue to honour the commitment to educational programming that you have spoken about this morning?
751 MS LULCHAK: I'm very pleased that Rogers is interested in continuing with this educational mandate. It -- I would think that's probably rather unusual for a commercial television network, to do that, and I really commend them for it.
752 COMMISSIONER PATRONE: Do you agree that sometimes mixing commercial interests with those of educational broadcasting can be an uneasy mix at best?
753 MS LULCHAK: I suppose that is true, but because they are dedicating blocks of time, you know, the daytime to the educational component, I expect that with that clear division that it should work out fine.
754 COMMISSIONER PATRONE: I will assume that you have been following the matter of SCN over the years, Ms Lulchak.
755 How do you account for the fact that a smart and experienced individual like Mr. Claassen would promise so much and deliver relatively little on the matter of commitments to independent producers up to this point?
756 MS LULCHAK: I'm sorry, but I am really not aware of some of the happenings with SCN since Mr. Claassen has taken over. As I said, we were heavily involved with the network -- with the station, I mean, for a number of years, but we have to some extent lost track of the workings of the station once it went to Bluepoint.
757 COMMISSIONER PATRONE: Thank you.
758 Dr. Petty, there are those who feel that this Commission must protect the integrity of its licensing process, which might mean standing firm on the matter of promises that have been made on the issue of independent production in Saskatchewan.
759 How do you suggest we justify to Canadians allowing Mr. Claassen and Rogers to move ahead without the original commitments that were made?
760 DR. PETTY: In my opinion, I think this is a worthwhile endeavour and I think this needs to happen. I have absolutely no issues with this.
761 COMMISSIONER PATRONE: Is there any doubt in your mind, Dr. Petty, that Rogers would in fact decline to move forward with this purchase if we as a regulator insisted that any new purchaser live up to the original commitments relative to independent and digital production?
762 DR. PETTY: I'm sorry but I can't speak for Rogers.
763 COMMISSIONER PATRONE: I'm not expecting you to. I was just sort of looking for your opinion, but if you don't feel comfortable giving it, that's perfectly fine.
764 DR. PETTY: Well, like I said, I can't really speak for Rogers. I'm interested in what is happening with this particular endeavour. I support it and you have heard what I had to say and I think basically that it's a good thing.
765 COMMISSIONER PATRONE: And I take it from your comments that you feel strongly that either we, as a regulator, move ahead with this and accept Rogers' terms or you could end up with nothing and --
766 DR. PETTY: Right. That's absolutely correct. And something is better than nothing. Anything is better than nothing at this point.
767 COMMISSIONER PATRONE: Okay. Well, thank you very much, both of you.
768 THE CHAIRPERSON: Thank you.
769 Commissioner Molnar...?
770 COMMISSIONER MOLNAR: Good morning, ladies. It's Candice Molnar from Saskatchewan. Assuming that you were listening to our discussions with the Rogers panel this morning, I wanted to get your thoughts on something. It's really a follow-up to what Dr. Petty just said, that something is better than nothing.
771 As you may know, Rogers, in their application to us as a Commission, have requested a three-year licence. So their commitment would be 23 percent spending all dedicated to the Saskatchewan population, 5 percent that they have agreed could be spent on educational programming, dedicated -- not that it would be limited to 5 percent, but it would be 5 percent dedicated to educational programming and it would be a five-year term.
772 After that five years the licence for SCN would be reexamined as part of the full group of Rogers stations, including their City stations across the nation. At that point it might be that the percentage of Canadian programming expenditures might increase, but at the same time it might be that the commitment to Saskatchewan producers might be modified through a group licensing program. It might be the commitment to educational programming could be modified through group licensing.
773 So we are stuck with a couple of options if we are to agree to this transaction.
774 Rogers said they would be comfortable if we took their 23 percent spending commitment and extended that for seven years and they would be happy to live with that.
775 Alternatively, we could provide them a three-year licence and in three years we are basically taking our chances as to what comes back to Saskatchewan.
776 So what are your thoughts on a three-year commitment and we see what happens next or a seven-year commitment right now, which gives some certainty to what will occur with this licence over the next while?
777 DR. PETTY: This is Sheila Petty speaking.
778 Seven years sounds like a good option. I guess it depends how risk-averse you are.
779 MS LULCHAK: I would agree that I would certainly like to see seven years. I also have some concern that after three years that the licence may change, that there isn't any Saskatchewan content at that point. So I certainly would like to see a seven-year licence.
780 COMMISSIONER MOLNAR: Okay. Thank you very much.
781 THE CHAIRPERSON: Any other questions? No?
782 Thank you both very much for participating and you are certainly welcome to stay on the line and participate in the -- or listen to the rest of it anyways.
783 Back to you, Madam Secretary.
784 THE SECRETARY: Yes. I will now invite CMPA to take their place.
785 We will take a two-minute break, I guess. We will just --
786 THE CHAIRPERSON: Do we need a break at all?
787 THE SECRETARY: We don't need a break, Mr. Chairman.
788 I will just have to invite CMPA to the table.
789 THE CHAIRPERSON: Okay. Great.
790 THE SECRETARY: We will now proceed with the presentation by CMPA, the Canadian Media Production Association.
791 We will also have Mr. Bruce Steele, Soundings/Steele, who will be appearing by teleconference after CMPA.
792 I would ask that you please introduce yourself for the record and you may proceed with your presentation.
793 You have 10 minutes.
794 MR. THOMSON: Thank you and good afternoon, Mr. Chairman, Commissioners and CRTC staff. My name is Jay Thomson and I am Vice-President of Broadcasting Policy and Regulatory Affairs at the Canadian Media Production Association.
795 Let me say at the outset that the CMPA supports Rogers' acquisition of SCN. Backed by Rogers' financial resources and its commitment to maintain the services educational mandate, SCN's future appears bright.
796 That is good news for the people of Saskatchewan. It should be good news for Saskatchewan parents and kids because SCN's historical support for children's programming should continue. It should be good news for independent producers from Saskatchewan and it should be good news for independent producers from outside Saskatchewan who have worked with SCN on many projects over the years and hope to continue to do so going forward.
797 So this application should all be about good news. Unfortunately, it is not. The bad news is, as you have heard, Rogers wants out of SCN's outstanding benefits obligations which support independent production.
798 In Bluepoint's application in 2010 to buy SCN it offered, as a proposed tangible benefit, a commitment to spend $1.75 million per year on independent Saskatchewan production and a further $1 million per year on the development and production of digital content.
799 Together with Bluepoint's plan to continue to operate SCN as the province's educational broadcaster, those commitments were a fundamental component of Bluepoint's application to buy SCN. They were fundamental to the widespread support the Bluepoint application received from the independent production community and they were fundamental to the Commission approving that application in a decision less than a year and a half ago.
800 The Commission's policy on outstanding benefits is longstanding and it is clear: New purchasers are required to take on any outstanding benefits the previous owner has not fulfilled. Benefits commitments are part of the obligation of a licensee and are to be implemented regardless of ownership changes.
801 In this application, however, Rogers seeks an exception to that longstanding policy. Now, they have argued that they are not seeking an exception but are acting fully consistent with the benefits policy and they base this argument primarily on the fact the Commission accepted the Bluepoint spending commitments as intangible rather than tangible benefits. They also argue that the Bluepoint spending commitments weren't meant to be incremental.
802 With respect, Rogers' arguments don't hold sway. They are still seeking an exception to the Commission's benefits policy. As already noted, Bluepoint offered up its spending commitments as tangible benefits. That is how Bluepoint characterized those commitments in its 2010 application.
803 The fact the Commission ultimately chose in its decision to characterize the commitments as intangible benefits does not make them any less solid or less important or less binding on the future purchaser. Indeed, in its Bluepoint decision the Commission reinforced its long-held position that intangible benefits can be as significant as tangible benefits in the approval of transactions. They were clearly significant for the Commission and for other stakeholders in the Bluepoint case and they can be no less significant now, only 16 months later.
804 As to incrementality, it is important to recognize that Bluepoint's spending commitments were specifically directed. They weren't just going to Canadian programming expenditures generally, what Rogers has called non-incremental "baseline" expenditures.
805 The $1.75 million per year commitment was specifically targeted to independent Saskatchewan productions. The additional $1 million per year commitment was specifically targeted to the development and production of unregulated digital content. By its very nature, any commitment to spend on unregulated digital content would have to be incremental to a licensee's regulated baseline program expenditure requirements.
806 So we submit that under the Commission's benefits policy Rogers is obliged to honour the Bluepoint benefits. To allow Rogers to escape this obligation would be to grant them an exception to that policy and for the following reasons there is no justification to grant such an exception in these circumstances.
807 In approving the Bluepoint application the Commission chose to enforce the applicant's spending commitments despite recognizing the financial challenges SCN faced at the time and that Bluepoint would face its own challenges as an independent broadcaster. Bluepoint's challenges included that it would have limited access to popular programming and would not benefit from the synergies available to large integrated corporate groups.
808 Admittedly, SCN still faces financial challenges, but it would appear those challenges are no worse than at the time of the Bluepoint decision.
809 What have changed this time are the purchaser and the value it has placed on this asset and these are positive changes. Rogers faces none of the challenges Bluepoint faced. Unlike Bluepoint, Rogers is a large, well-financed, integrated corporate group and benefits from the synergies that brings, and unlike Bluepoint, Rogers has access to a whole slate of popular programming.
810 It is clear that Rogers places a very high value on SCN. It's paying roughly 10 times what Bluepoint just paid for the service. And it's very up front about the strategic importance of adding SCN to its fold for programming and advertising and competitive reasons.
811 The viability of the undertaking being bought, of course, is a key factor that the Commission considers when applying the benefits policy, but other equally important factors are the size and nature of the transaction and the scale of programming, management, financial and technical resources available to the purchaser.
812 Given the nature of this transaction and the resources of the purchaser, there is no reason to allow Rogers to abandon the outstanding Bluepoint benefits obligation.
813 Thus, as a condition of approving this application, the Commission should require Rogers to abide by the benefits policy and honour the Bluepoint spending commitments.
814 Moreover, this obligation should be in addition to and not a replacement for the other group licensing spending obligations that should and would apply to SCN once it becomes a member of the Rogers Group.
815 Thank you. I would be pleased to respond to your questions.
816 THE SECRETARY: Thank you, Mr. Thomson.
817 We will now hear the presentation of Mr. Bruce Steele, who is appearing by teleconference.
818 Mr. Steele, can you hear me?
819 MR. B. STEELE: Yes, I can. Can you hear me?
820 THE SECRETARY: We can hear you very well.
821 The panel is now ready to hear your presentation. You may proceed now.
822 MR. B. STEELE: Thank you, Mr. Chairman, Members of the Commission, for the opportunity to address this hearing.
823 My name is Bruce Steele and by way of a brief introduction, I own a small media services company and 2014 will mark the half-century of my career as a consultant and content creator for radio, television and film. I have spent 25 of those years here in Saskatchewan.
824 Also by way of introduction, I should point out that those of us in Regina this morning are crowded around the table in a room that also is inhabited by the fridge, the microwave and the office supplies here at the CRTC offices. It is a little cozy. We were not able to monitor the proceedings until after the first break, so if I make repetitions I apologize.
825 I would like to focus my limited time today on the principal question in my written intervention, which is basically this: What does Rogers' application to acquire this provincial educational undertaking promise in the way of ongoing service and commitment to the Saskatchewan audience?
826 My reading reveals very few, if any, program proposals for programming specifically for viewers in this province. More importantly, RBL's plans for SCN are even more vague beyond August 14, 2014, when it hopes to obtain a group licence for all of its television assets.
827 Somewhat surprisingly, the group licence is arguably the critical element in the supplementary brief. Point 18 asks the CRTC to grant a truncated licence for SCN that expires on the renewal date for all Citytv licences. In paragraph 19, Rogers supposes that at that time the Commission will wish to renew all RBL television assets under the group licensing model that applies to Bell and Shaw.
828 Paragraph 20 states:
"While the acquisition of SCN represents a significant step toward that goal, RBL will still need to expand into other markets and grow our existing specialty services in order to be properly positioned to accept the obligations of the group licensing framework." (As read)
829 I wonder if we aren't putting the cart before the horse here. Rogers' application does acknowledge that there are still matters such as PNI and CPE commitments standing between it and a place on the Canadian broadcast podium with Bell and Shaw, but then Rogers suggested we set all of these matters aside until it completes its necessary acquisitions and obtains a licence.
830 I don't know about you, but it always makes me a little nervous when someone raises a matter in a forum such as this, one that could create a precedent or pattern, and then says, but let's not talk about that now, let's just skip that.
831 But all right, I will leave that for now and instead look at how the regional services are proposed by the applicant for this provincial licence and how they compare with the competition.
832 As has been mentioned, CTV airs local news on all of its stations, four in Saskatchewan. So do Global, including two stations here. But with the exception of its legacy station in Toronto, City outlets are news-free zones and Rogers' application for SCN promises no newscast for this province now or in the future.
833 As has been mentioned as well, CTV and Global have morning shows. All City stations produce a program called "Breakfast Television" for their market, but Rogers has no such plan for SCN.
834 Rogers says that a commitment in the current SCN licence for an educational broadcast period from 6:00 in the morning until 3:00 in the afternoon precludes a version of Breakfast Television on SCN, or so RBL representatives told Saskatchewan producers and industry groups in a meeting in Regina and Saskatoon as well on January 17th of this year.
835 Paragraph 17 in Rogers' supplementary brief echoes that idea, stresses this commitment and promises to supply "diverse television programming to the people of Saskatchewan" in the educational period.
836 Now, I doubt that this commitment is absolutely written in stone. Bluepoint after all carved out a 15-hour commercial period from the previous full-time educational schedule with the permission of the Commission in 2010.
837 Rogers now programs these prime hours through an affiliate agreement signed with Bluepoint in December. Rogers theoretically could ask permission to alter the schedule to allow for an SCN morning show.
838 I rather suspect it hasn't done it because of the relative cost of filling these educational hours with diverse television programming acquired at second and third window small-market prices versus acquiring facilities and staff for a daily program.
839 So Rogers proposes to stick with the status quo until 2014. After that, who knows what will happen? Although Rogers does seem confident of its future, it's just not sharing its long-range vision for SCN and the Citytv brand.
840 Does the future include regional programming on City stations? Rogers isn't saying. But it did raise the group licence issue in this application and so I think these questions can and should be asked about that, and now rather than later.
841 Otherwise, we are being led along a trail of breadcrumbs that starts at SCN, winds through a forest of acquisitions and ends at a gingerbread group licence, and until we reach our destination, perhaps even after that, Saskatchewan is to be underserved.
842 Now, the applicant's commitment to air diverse content in the educational period includes some assurance that the content will be relevant to Saskatchewan viewers and educators, but no clear indication of how much of this, if any, will be Saskatchewan-made.
843 It does list CRTC program categories from which it will select the programs that "sustained SCN's educational mandate," but for how long? What will happen in two years or three years if RBL does or does not acquire a group licence?
844 For over two decades and with modest means, SCN licensed and pre-licensed a full schedule that included an impressive amount of Saskatchewan content about the ideas, issues, people and culture of this province. At times, this little station seemed to be overperforming its service, setting a bad example for others.
845 Now, we face the opposite prospect. If appropriate COLs are not attached to the application as presented, SCN is destined to become a ghost-staffed branch plant of yet another Toronto-based telecom, less engaged in Saskatchewan than its competitors.
846 And how will Bell and Shaw respond if Rogers continues to exempt itself from provincial content on SCN after 2014? How could they be expected to keep providing local content if the playing field becomes so heavily tilted towards City? It's already a very muddy field.
847 An April 17th news report said Bell Media was thinking about closing six CTV stations, including one in Yorkton, Saskatchewan. Bell says the stations are not generating profits. The stations rely on the National Programming Fund supported by cable companies and the cable companies apparently want to start contributing to the fund. Now, who owns most of those cable companies? Hmmm! Will the Circle be unbroken?
848 It used to go without saying that a commitment to service was at the core of any broadcast licence. Even Roy Thomson's licence to print money came with some civic obligation, not just obligation to shareholders. Language in the Broadcasting Act and relevant legislation back to the original Bell Act of 1880 indicates that Canada's airwaves and channels belong to its citizens, the nation's shareholders.
849 Regulators have traditionally adjudicated licence applications on the basis of the quality of service to which an applicant commits and the value of that service to its intended audience. These factors are at least as important as the applicant's corporate structure and its business model.
850 The application for the provincial undertaking before you clearly serves the interests of both the licensee and applicant, as it should, but one is hard pressed to find more than a note of intention to any service specifically for Saskatchewan.
851 At the January meeting I mentioned earlier, Rogers told those producers in attendance that henceforth it would administer SCN's CMF envelope. Program proposals should be sent to Rogers via its online portal in Toronto and not to SCN in Regina.
852 Rogers was looking for a comedy or reality series it could play on all City stations or on RBL specialty channels, or so we were told. It did not want biographies or social commentaries or documentaries, and please, no more proposals for Saskatchewan-specific programs.
853 So what does constitute the service requirement of a provincial television licence? Canadians look to the Commission to ensure stable service for the regions where they live as well as for the nation.
854 Without question, this poses a difficult challenge for regulators and broadcasters alike, but hopefully not an impossible one. Perhaps it's a question of brilliant minds focusing on how to provide such service rather than how to avoid it.
855 To conclude, Rogers' acquisition of SCN will complete a set of City stations in all provinces west of Québec and adds 1 million potential viewers to City's reach, maybe even more viewers than that.
856 SCN's national satellite footprint means Canadian subscribers everywhere can receive and timeshift the City signal. That's a fine feature. And Rogers Cable can offer SCN to customers in New Brunswick and Newfoundland and Labrador, two of five provinces where City has yet to acquire a presence before 2014. So the finish line for that group licence is quite near.
857 Meanwhile, Saskatchewan is undergoing extraordinary change. Resource exploitation has turned our economy upside down, created new wealth, population growth and many new challenges. A large educated vibrant aboriginal community and a growing immigrant population are contributing new perspectives to mainstream politics and popular culture.
858 At the same time, Ottawa is about to pass more of the obligations for health care, judicial and penal reform, environmental regulation and other services to the provinces. Change of all sorts is under way and we need forums to address it.
859 With the assistance of the Commission and some creative cooperation from Rogers, Citytv viewers in Saskatchewan might look forward to some provincial windows for coverage of matters of direct interest to the province-wide population that lives within the geography of this licence.
860 I sincerely thank the Commission and Rogers for its time and consideration.
861 THE CHAIRPERSON: Thank you very much.
862 I would ask the Commissioners if they have any questions or further elaboration.
863 Commissioner Patrone?
864 COMMISSIONER PATRONE: Thank you, Mr. Chairman.
865 Thank you, Mr. Thomson and Mr. Steele for your presentations. I have a few questions before passing it on to my colleagues.
866 Mr. Thomson, do you have any doubt that SCN will fail unless a deal with Rogers is allowed to move forward?
867 MR. THOMSON: It's our belief that Rogers has the resources to make this work, that it can operate the service and make it -- return it to a viable, robust service while meeting all of its commitments.
868 COMMISSIONER PATRONE: Rogers is a corporate entity. They are not in the business -- they are not in the charity business as far as acquiring assets like this is concerned.
869 Why shouldn't we take Mr. Pelley at his word when he says he would -- and Rogers would have to walk away unless Rogers were able to acquire this asset under terms that were acceptable to Rogers? You are saying that we should basically call his bluff?
870 MR. THOMSON: Well, I think it's the first time any of the stakeholders have heard this particular position advanced by the Rogers team and I'm not sure that it's that definitive. I'm still not sure what the real answer is as to how willing Rogers is to step away from this deal if it doesn't get exactly what it likes.
871 I would be quite surprised if that's a decision it would ultimately take, given the clear strategic importance it attaches to this asset, which it repeatedly referenced in its appearance before you.
872 I am also surprised because Rogers is a sophisticated member of the broadcasting system, understands the application of CRTC policies and rules and would have gone into this decision to purchase this asset in full awareness that this issue would be front and centre of this process.
873 Nevertheless, it went ahead with that decision. It has continued to invest in SCN during the interim period, notwithstanding this issue is out there. It went ahead with the application, it went through the process, it's here at this hearing. I would question whether it would be willing to step away from all those investments at this time.
874 COMMISSIONER PATRONE: So you think we should not take Mr. Pelley at his word. You think we should call their bluff and if they turned out to be honest with us in this Commission, they walk away, Mr. Claassen potentially goes bankrupt, the station goes dark. What would your members gain from that?
875 MR. THOMSON: Well, at the outset, I am not in any way questioning Rogers' honesty in any of the presentations I have made, and if that is the impression then I certainly apologize for that, but that's not the case.
876 This should not -- with respect, interveners should not be put in a position to be horse-trading with an applicant over whether they should be abiding by the rules or not. The rules are the rules. It's an issue separate from the business transaction and the other arguments that Rogers has been making.
877 There is no doubt that SCN is a very important asset to them, but it is also very, very important to Saskatchewan, to the Saskatchewan people and to the independent production community. We should not be put in the position, however, to have to decide between one option and the other.
878 Ultimately, we put the issues on the table, we raise the concerns about the integrity of the process, the importance of the commitments, and it is up to you to make that decision, but then it is up to Rogers to determine whether it continues or does not.
879 COMMISSIONER PATRONE: As I heard Ms Wheeler and Mr. Pelley say earlier, it would cost them around $4.5 million -- I'm going by memory here -- to launch a brand-new City station from scratch. Potentially -- well, presumably it would have no commitment to education programming. It would just be basically a full-service City station, in which case the kind of commitment that you are asking us to continue imposing wouldn't be there anyway.
880 I mean I'm speculating about what might happen going forward, but I'm just trying to look at what you could -- what your members would possibly gain from having a scenario in which this undertaking would go dark.
881 MR. THOMSON: Well, it's not a real question of what we have to gain by seeing SCN go dark. We have all kinds of things to gain from having SCN continue as a vibrant organization.
882 We also, as regular members of the Canadian broadcasting system who regularly appear before the Commission and rely quite heavily on the integrity of the regulatory system, have a lot to gain by maintenance of that integrity too.
883 COMMISSIONER PATRONE: Do you have any thoughts about Rogers' commitment to PNI and CPE that they placed in this application? I mean I take it you don't think that's good enough.
884 MR. THOMSON: Given that SCN will become part of the Rogers Citytv over-the-air network, it seems to us that it is a given that it would fall under the group licensing policy and be addressed as part of the Rogers Group at the next licence renewal process along with any other stations that they might acquire between now and then for their Citytv network.
885 Therefore, as part of the group licensing regime it would automatically fall under the obligation to have a CPE and contributions to PNI. Therefore, those are the baseline obligations that Rogers should be taking on simply by undertaking this deal. The benefit obligations that flow from the Bluepoint acquisition are incremental.
886 COMMISSIONER PATRONE: Okay. Thank you, Mr. Thomson.
887 I have a couple of questions for you, Mr. Steele.
888 As I understood from your presentation you are a little nervous about Rogers' commitment to educational programming. Correct me if I'm wrong.
889 MR. B. STEELE: I'm not -- well yes, I'm a little nervous about their commitment to Saskatchewan producers' engagement in the provision of that programming.
890 I'm a little concerned about the mechanism/lack of same to ensure that it will be relevant to Saskatchewan, and I am concerned about the amount of it that's proposed in the -- there are nine hours that we are talking about here that are noncommercial, but only one per day that is actually going to be specifically curriculum-related and another that is documentary-related. But again, where is the mechanism to adjudicate here? So yes, I am concerned about that.
891 I also have to note that SCN, in over two decades, from the 90s to 2010, received much acclaim and much awards, its technical department, for the development of Web distribution in the Province of Saskatchewan. There is a special unit now of the government charged with distributing curriculum activity and that unit is run by people who used to work with SCN.
892 So yeah, I'm concerned, frankly, about the overall importance of this commitment.
893 COMMISSIONER PATRONE: Allow me to quote from their oral presentation this morning, Mr. Steele --
894 MR. B. STEELE: Please.
895 COMMISSIONER PATRONE: -- because I know you didn't get a chance to hear it.
"... we have agreed to a condition of licence requiring a 23-percent CPE directed to Saskatchewan producers. This is over and above SCN's CMF envelope, approximately $750,000, which we will continue to spend in Saskatchewan.
We have also agreed to spending conditions for programs of national interest (PNI) and digital production, both of which will be spent in Saskatchewan."
897 Does that give you any degree of comfort, sir?
898 MR. B. STEELE: Well, again, my experience in January, January 17th, at a hotel conference room not far from here was that Rogers' intention for the CMF funds, and indeed for much of the production fund, was focused on, as we were told, programming for all City stations or programming that could run on the specialty channels. We were encouraged not to submit applications for Saskatchewan-specific programming.
899 So for the one or two people who might be able to partner up a regular series -- because let's face it, $2 million doesn't do it anymore, and let's also note that the $750,000 CMF contribution is part of the previous commitment, it is not above and beyond.
900 For the two or one producers in this province who might be able to use that funding -- and we were also told, by the way, to partner with someone else in another region. I guess -- I mean no, I have little confidence in that.
901 And I would also like to point out the comment that I did hear a couple of times, that this opened up -- this application would open up national channels for producers in this province.
902 "Corner Gas" -- I mean I can list you all kinds of programs since 1990 that have been national and international hits from this province. It's not a really wonderful new opportunity.
903 So I mean I hope I have answered your question here, but I'm really unclear as to what is on the table at the end of the day, as the expression goes.
904 COMMISSIONER PATRONE: Well, I just quoted you a section right out of their oral presentation. It's a commitment that they have made in their written. So it appears fairly explicit to me that they intend to spend this money in Saskatchewan.
905 But those are my questions. I thank you both once again.
906 Mr. Chairman...?
907 THE CHAIRPERSON: Thank you.
908 Commissioner Molnar..?
909 COMMISSIONER MOLNAR: Good morning. My question is for Mr. Steele.
910 Mr. Steele, I apologize that you are having to hang out in our file room or whatever has occurred there, but also that you weren't able to hear Rogers this morning. We did have a conversation and there were a couple of things discussed that I would like to review with you to see if they give you any little bit of additional comfort with this transaction.
911 One was a commitment they said that they are prepared to make to have senior personnel locally in Saskatchewan to deal and work with the Saskatchewan production community and make decisions regarding their programming expenditures in Saskatchewan.
912 MR. B. STEELE: Yes. There is already a person on staff here in Saskatchewan who was hired last year and remains in place to deal with acquisitions and pre-licences and that sort of thing and Ms McDonald certainly has a background in that area. So I'm not sure the commitment is new.
913 COMMISSIONER MOLNAR: Well, what they have confirmed here today is that that will stay in place and there won't be the need for the Saskatchewan producers to head into Toronto to visit Rogers there or to otherwise make applications onto the Rogers Web site, as I understood their commitment.
914 MR. B. STEELE: That's very good to hear. That's very good to hear.
915 COMMISSIONER MOLNAR: Another thing that was discussed this morning, and you were talking in your submission about uncertainty related to Rogers' future group licensing approach, and what Rogers has said this morning is they would be prepared to meet their -- to make this commitment to the 23-percent CPE and they would be prepared to maintain that for a seven-year licence term, committing all the money to Saskatchewan producers outside of any kind of group licensing.
916 So that would give some assurance that some kind of group licensing won't occur that will shift the money out from SCN or from the provincial producers.
917 MR. B. STEELE: Yes.
918 COMMISSIONER MOLNAR: Does that give you any comfort?
919 MR. B. STEELE: Well, it raises a question for me, because if Rogers turns around on August 14th of 2014 to apply for a group licence for all of its assets, would that obviate and negate any seven-year term?
920 COMMISSIONER MOLNAR: Well, no, I don't believe it would.
921 MR. B. STEELE: They have already asked for a truncated licence.
922 COMMISSIONER MOLNAR: I don't believe it would, but assuming the term was for seven years and the commitment was for the existing, what they have proposed is the 23 percent, that would give you some comfort, some certainty of the future?
923 MR. B. STEELE: I'm not uncertain about the future.
924 Let me answer this question another way. I don't really -- I mean it is none of my business whether or not Rogers spends its money or how much of it on a Breakfast Television show, documentaries for the educational period or other material.
925 My concern -- my primary concern -- yes, I am a producer, but I am also pretty old, and really this is a young person's game anymore. My primary concern is service to the Saskatchewan audience and service that is relevant to its present and future needs. The details and how that is arrived at, I think, are to be worked out between the Commission and the applicant.
926 COMMISSIONER MOLNAR: Okay, thank you.
927 THE CHAIRPERSON: Thank you. I think that concludes the questioning of these parties as well.
928 We are going to break for lunch and I am going to pass it back to the Secretary, but before we do, I thought maybe legal has some timelines for undertakings. Okay, we will deal with that later.
929 Okay, Madam Secretary.
930 THE SECRETARY: Well we are going to break for lunch, Mr. Chairman. Would you like to come back at 2:00 or 2:15? It's 12:45 right now.
931 THE CHAIRPERSON: Two-fifteen is fine.
932 THE SECRETARY: Two-fifteen. Thank you.
--- Upon recessing at 1245
--- Upon resuming at 1419
933 THE SECRETARY: I would ask everyone to take their place, please.
934 THE SECRETARY: So Mr. Chairman, we are back with Rogers at the presentation table.
935 THE CHAIRPERSON: Okay. I believe you are on Phase III, Applicant's Reply.
936 THE SECRETARY: We are.
937 THE CHAIRPERSON: Over to the Applicant.
938 MR. PELLEY: Thank you. Good afternoon, Mr Chair, Commissioners and Commissioner's staff.
939 Today we came forward with what we felt was a reasonable, fair and sustainable offer, a plan to retain the educational programming mandate for SCN to support the Saskatchewan independent producers, to upgrade the service by spending $1.4 million in capital upgrades to make the service HD and to invest money in digital administered by SaskFilm.
940 Let me be clear, if this was not filling a hole in our network we would not be making this acquisition.
941 As a standalone business proposition the economics are very challenging with the commitments we are putting on the table and that being a 23 percent CPE. That is why I can't agree to any additional payments.
942 But we have heard your concerns and are willing to adjust our proposal and accept a seven-year licence term with a 23 percent CPE all going to Saskatchewan independent producers. In the latter years, if we are successful and do our jobs, then the 23 percent CPE should be greater than the expectations by Bluepoint.
943 We are also prepared to accept Commissioner Molnar's request to direct our PNI commitment to educational Saskatchewan programming and Commissioner Menzies' request to ensure a senior executive stay at SCN to be the primary point of contact for independent producers.
944 We want this to work.
945 The move from exhibitions to CPE, we are convinced, was the right decision as it ensures the proper funds and, more importantly, affordable funds are allocated to Canadian programs.
947 MS WHEELER: CMPA has suggested that we are asking for an exception to the Commission's tangible benefits policy. We respectfully disagree.
948 When Bluepoint acquired SCN the Commission recognized the survival of the service was at stake and therefore did not impose a tangible benefits requirement as a condition of approval.
949 Rather, the Commission took into consideration the intangible benefits that Bluepoint brought to the service. These commitments were unique to Bluepoint. That's why they were imposed as expectations of the licensee and not conditions of the license.
950 We are here today making our own firm commitments to Canadian programming and Saskatchewan independent production. Contrary to what the CMPA has suggested, our CPE and PNI commitments are not a foregone conclusion.
951 SCN is unlike any of our other Citytv stations and will not necessarily form part of our group. For example, our OMNI and Sportsnet services are not part of our group. Nor is Access Alberta part of Bell's group even though it is part of its CTV Two network.
952 Therefore, we believe our 23 percent CPE commitment is a significant and incremental contribution to independent Saskatchewan productions.
953 We are also making a $300,000 commitment to digital production that is over and above these spending commitments.
954 Accordingly, we believe the Commission can be confident that if approved this transaction is in the public interest and will result in significant and firm commitments to Saskatchewan production and educational programming in the province and the long term help of this service.
956 MR. PELLEY: Actually, we are going to have Joanne.
957 MS McDONALD: I would just like to speak to the comments and concerns regarding the role SCN will play in commissioning Saskatchewan independent production and the intention of the producer meetings held by Rogers in January of this year.
958 Claire Freeland, head of Independent Production, and Susan Wheeler came to our province soon after the application was submitted to meet with our production communities in both Regina and Saskatoon and also to introduce Rogers to the province and the producers to their programming strategies on a national level.
959 At that time Rogers was, and still is, not able to license or commission for SCN, nor access our CMF envelope, although there was dialogue concerning how producers can pitch production projects that would be of interest on a national level or for one of their specialities.
960 Rogers also made a commitment at that time to visit our province at least twice a year to connect with our producers. In fact, we are pleased to report that somebody from the independent production community -- production unit -- will be at the 65th Yorkton Film Festival, held May 24th to 27th this year.
961 So Rogers is looking -- also at that time mentioned that they were looking to the province for ideas on a national level. In fact, now they have already begun to invest into Saskatchewan documentaries for the national platform.
962 I have been in consultation with both Rogers and working with the producers to bring these new productions forward. Two productions so far are green lit for Rogers Television:
963 - A one-hour documentary called "The Sky is the Limit" which will share with Canada the great resource boom our province is experiencing;
964 - And also we are in development of a series called "On the Edge: Throughout the Memorial Cup". That's a series that leads up to -- winds up the country to Saskatoon's hosting of the Memorial Cup in 2013.
965 Saskatchewan producers will not have to book a $2,000 cup of coffee to access SCN or Rogers. There will be senior executives at the Regina office to work with our local producers and their productions and people at SCN will always be heavily involved in the decision-making process when it does come to our Saskatchewan productions.
966 It's critically important to keep program staff in the province for both educational and Saskatchewan commitments. It is us who knows our content and our audience the best.
967 Okay, over to you, Bruce.
968 MR. CLAASSEN: Thank you, Joanne.
969 When Bluepoint was approached SCN was going black. No one else came to the table to take over SCN that didn't require government funding and we did not.
970 We believed in the educational format but we also believed in the phenomenal growth of the province of Saskatchewan.
971 Our group of experts showed that there were possibilities to make this not only a viable educational programming entity but a viable economic one.
972 I have spent over $2 million over the period of the last two years in trying to make this happen. We have committed over $1.3 million of local productions to the province.
973 I think I have made a contribution to the province of Saskatchewan in terms of helping keep SCN alive, keeping it a product that the people of Saskatchewan can enjoy and I believe that I have made that commitment. I have taken a deep loss on that and I think that I have done my role and my job in helping keep a station alive for the people of Saskatchewan.
974 Thank you.
975 MR. PELLEY: Thank you, Bruce.
976 And thank you, Mr. Chair, Commissioners and Commission staff for giving us an opportunity this afternoon.
977 We believe we are making a substantial commitment to SCN. We believe Rogers is the right fit for SCN. We want to make this a win-win for everybody in Saskatchewan and we believe our acquisition proposal is just that.
978 Thank you.
979 THE CHAIRPERSON: Thank you. Are there any clarifying questions from the Panel?
980 Thank you very much. That concludes this item.
981 THE SECRETARY: It does conclude this item. Thank you very much.
982 I will now invite Newcap Inc. to take place to the presentation table, please.
983 THE SECRETARY: I believe we are ready to start, Mr. Chairman.
984 We will now proceed with the presentations by the applicants for the Toronto market. The presentations by each applicant will be immediately followed by the presentations by their supporting interveners, if any.
985 Questions from the Panel will then follow.
986 We will now hear Item 2 on the Agenda which is an application by Newcap Inc. for a broadcasting licence to operate an English-language commercial FM radio programming undertaking in Toronto.
987 I would like that you please introduce yourself and your colleagues for the record and you will then have 20 minutes for your presentation.
988 MR. R. STEELE: Well, thank you. Mr Chair, Commissioners and Commission staff.
989 My name is Rob Steele and I am the President and CEO of Newcap Radio. Before I begin our presentation today, I'd like to briefly introduce you to our team:
990 - To my left is Steve Jones, Newcap's Vice-President of Programming;
991 - Amal Wahab is News Director at LiVE 88-5 in Ottawa;
992 - Next to Amal is David Murray, Newcap's Chief Operating Officer;
993 - Next is Vinka Dubroja, General Manager in Calgary, who has been instrumental with our Big Rock Star CCD program;
994 - Beside Vinka is Glenda Spenrath, Vice-President of Regulatory Affairs;
995 - In the second row is Alan Cross, a well-known radio host and programmer with 26 years of experience in the Toronto radio market. Alan is also an expert in Canadian music and emerging artists;
996 - Next to Alan is our research consultant, Mark Kassof. Mark is President of Mark Kassof & Company;
997 - To Mark's left is Scott Broderick, our Vice-President of Operations for Ontario;
998 - Next to Scott is Mike Fawcett, our VP of Engineering.
999 We are pleased to present to you "88.1 The Sound", a radio station that will bring a new editorial voice to Canada's largest city. We offer a distinct format designed specifically for Toronto, created to fill an unmet need in the market.
1000 Newcap Radio is in a unique position among the applicants before you at this hearing. We are Canada's only true coast-to-coast radio company, with stations from Newfoundland to British Columbia, yet we do not have a radio station here in Canada's largest city, Toronto.
1001 Thanks to our scope and our size, we are able to dedicate the significant resources required to grow a successful start-up standalone radio station in Toronto. We know it won't be easy. It will be a difficult, expensive, and a challenging project.
1002 The competitive nature of Toronto is evidenced by the response to this hearing in which 25 companies are seeking a new licence. Successfully getting this licence will be only the first of many hurdles.
1003 Launching in a crowded and expensive media market where all the major radio companies have multiple stations will be the next hurdle and sustaining it through the difficult early days will be a major task. Those are all challenges that we are prepared for, both in terms of financial management and radio acumen.
1004 We also present to the Commission an opportunity to license a new editorial voice in Toronto. In every city and town that we serve, we maintain a close-to-the-community approach to programming, research, sales, and management. We look forward to the opportunity to bring that approach here in Toronto.
1005 I would like to show you a short video to describe our proposed station. You may recognize the voice of the narrator of the video and that is Alan Doyle of legendary Canadian band Great Big Sea. Alan will also be on air 88.1 The Sound, hosting a weekly discussion with emerging and heritage Canadian artists. He will take our listeners on a journey into the creation of a great song from the initial idea to the final production.
1006 Alan will now introduce you to 88.1 The Sound.
--- Video Presentation
1007 MR. JONES: In the Canadian music industry all roads lead to Toronto. With the headquarters of both Canadian and international recording companies, talent agencies, booking agents, recording studios and countless clubs and venues, Toronto is where Canadians come to launch music careers.
1008 As you have seen in our video, 88.1 The Sound is a radio station centred on songs and those who write and perform them. I'd like to clarify what makes our Modern Adult format unique. After all, the phrase "Modern Adult" is probably one you haven't heard before. If you haven't, don't feel bad. We just made it up. We created the term "Modern Adult" to describe the unique Canadian format we are proposing, custom- made for Toronto.
1009 So other applicants for this frequency have applied for Triple-A, which is an American format definition that stands for Adult Album Alternative. In some ways, Modern Adult is similar to Triple-A.
1010 However, the Triple-A format includes rock bands like Red Hot Chili Peppers, Pearl Jam, Kings of Leon, Collective Soul, The Black Crowes and Tom Petty. All of them are fantastic artists but none of them would have a regular presence on 88.1 The Sound. After all, all of those artists are being heavily played on existing Toronto stations. 88.1 The Sound doesn't include the hardest edges of the Triple-A format and instead focuses on the more acoustic-driven music and singer-songwriters generally not getting exposure in Toronto.
1011 For example, despite their huge popularity, the newest songs by established international stars like Coldplay, John Mayer, and Counting Crows are receiving essentially no airplay in Toronto.
1012 But here is the most compelling part of the story: Canadian artists. Canada produces a wealth of world-renowned artists who receive astonishingly little airplay in Canada's largest city, yet they do get airplay in the United States. Some examples:
1013 - Kathleen Edwards has a fantastic new song called "Mint". It isn't being played much anywhere in Toronto, yet it is currently on the US Triple-A chart and it would be on 88.1 The Sound.
1014 - Feist won three Juno Awards in Ottawa earlier this year. Yet, her song "The Bad In Each Other" is not being played anywhere on the radio in Toronto. But you will hear that song, and many other songs by Feist on American Triple-A stations and on 88.1 The Sound.
1015 This problem is even worse for new and emerging Canadian artists. A great example is Alex Cuba, a Cuban-born Canadian who only gets exposure on select shows on CBC Radio 2 or on student radio. Yet, Alex Cuba is widely regarded around the world as a brilliant musical talent. Great Lake Swimmers are in the same boat, watching their new song "Easy Come, Easy Go" sail up the American charts, while it gets precious little airplay anywhere in Toronto.
1016 Last week in Los Angeles I was listening to legendary radio station KCRW, and I heard Canadian singer-songwriter Bahamas and his new song "Caught Me Thinking". It's a great song, but good luck finding it on the radio in Toronto. Since being released in January the song has never been played on commercial radio in Toronto. Not once.
1017 This is a real problem. Fantastic Canadian songs are being heard on American radio but not getting any exposure in Toronto. 88.1 The Sound solves that problem.
1018 MR. CROSS: Today, more and more new music discovery is happening online and not on the radio, in large part because most radio stations are tightly formatted and play established hits by established artists. Toronto is in need of a format that provides an opportunity for new music discovery.
1019 With a minimum of 15 percent emerging artists, 88.1 The Sound will be an incubator for emerging talent, allowing the amazing work of new Canadian artists to be heard consistently in regular rotation and not isolated to a new artist evening or weekend show. We will also include features designed to highlight what is new and exciting. For example:
1020 "Sound Check" a daily feature that showcases brand new music, supported by in-depth information on the radio station's website.
1021 "House Concerts" will allow listeners to hear music performed live and in an intimate environment, and will again focus on emerging artists.
1022 And "Your Sound" will turn over control of the radio station to listeners, using state-of-the-art technology to put our audience in the driver's seat for several hours each evening.
1023 Now, there is minimal overlap between the playlist of 88.1 The Sound and existing Toronto commercial radio stations. An analysis of our sample music list found that over the past 30 days only 12 percent of the songs on our playlist received any substantial airplay in Toronto. That means that 88 percent of the music on our sample playlist is not getting any significant airplay in Toronto.
1024 MR. KASSOF: To find the biggest un-served need, we completed 700 telephone interviews with 18-54 year old radio listeners in the Toronto CMA. We explored the viability of 10 different formats, describing each with artist examples and music montages. We asked how often they would listen to each format and which stations are like that in Toronto and we learned that Modern Adult holds the greatest potential for a new Toronto FM.
1025 One-third of Toronto listeners scored Modern Adult "four" or a "five" on a five point scale. Eleven percent scored it "five", meaning they would listen to a station like this all of the time. Of the 10 formats tested, only Classic Rock generates a similar level of interest.
1026 But while Classic Rock scored equally well in terms of appeal, listeners already perceive a station in the market to be serving that need, and that station is Q107. To determine the opportunity for a new station, we looked at interest in each format and its perceived lack of availability, what we call format void.
1027 For Modern Adult no single station is perceived to be clearly serving the need. Modern Adult's format void score is 11 percent, nearly double that of Classic Rock and higher than any other format we tested. What this means is one in 10 Torontonians are interested in a radio station playing this music and cannot presently name any radio station like this. This high format void represents an unserved need that would be met by 88.1 The Sound.
1028 The projected primary listeners to this radio station are mainly 18 to 44 year olds, skewing female. Of the projected primary listeners, only 24 percent tell us that they are 100 percent satisfied with the present radio station choices in Toronto. Only 31 percent are 100 percent satisfied with the radio station they currently listen to most. Both of those statistics are below the market average.
1029 In addition, these listeners report listening to music sources other than radio an average of 2.2 hours daily, much higher than the market as a whole. These numbers all further reveal the need for 88.1 The Sound.
1030 MS WAHAB: It is a common misconception that listeners to a music FM radio station don't value talk but nothing could be further from the truth. They really just want to hear compelling content that speaks to their lifestyle and their community.
1031 My experience at LiVE 88-5, Ottawa's alternative rock station, tells me that compelling spoken word programming is one of the key differences between a radio station that people are just interested in and a radio station that people truly love.
1032 At 88.1 The Sound, we have an intensive plan for news and spoken word programming. Our spoken word feature programs deal with the environment and recycling, Toronto's past and future, the live music scene, advice for aspiring musicians as well as many others.
1033 Our news coverage includes over five hours weekly of news and information programming. Three of those hours would be dedicated to hard news. But numbers don't really capture what makes spoken word on 88.1 The Sound compelling.
1034 The cornerstone is the unique "effect/cause" news approach at Newcap Radio. Everyone has heard the phrase "cause and effect" and most news on the radio is presented exactly that way. At Newcap Radio, we reverse the equation and put the effects -- the impact on the listener -- first. By taking this simple step we are better able to deliver news coverage to a busy and incredibly connected audience.
1035 Our news speaks to the lives of our listeners, presenting all stories in such a way that they intersect with their lives. With every story, we ask ourselves "What does this mean to our listener?" and we begin the story from that perspective.
1036 MS DUBROJA: Newcap has a strong history of commitment to new Canadian artists through innovative and effective CCD programs. We recognize our vital role in developing a new generation of Canadian stars, especially here in Toronto, the heart of Canada's music industry. And as we noted earlier, it all starts with the song.
1037 In Ottawa with the Big Money Shot and in Calgary with the Big Rock Star we have committed $14 million to identify and support new talent. The results have been impressive, particularly with two rising new stars:
1038 Hollerado has turned their victory in the Big Money Shot into a string of hit songs including "Juliette", "Americanarama", and "Good Day at the Races". These are legitimate hit songs being played on radio stations all around the world. At last count, Hollerado songs have been played over 32,000 times on Canadian radio.
1039 Likewise, Calgary band, Hey Bombshell's debut song "The Single Life", came out earlier this year. With Newcap stations leading the way, this song has been climbing the Top 40 charts and is now being played on non-Newcap stations in Vancouver, Montreal, and Winnipeg. We are proud to be a part of their successes.
1040 Besides Hollerado and Hey Bombshell, there are literally dozens of bands who have experienced hundreds of spins on Newcap stations all across Canada.
1041 These examples prove our CCD programs work. These two initiatives were designed to create new music for radio to play and launch music career and that's exactly what is happening. The Canadian star system is growing thanks to these two successful programs.
1042 In Toronto, we propose to spend $12 million over the course of the licence. Our initiatives are focused to have the maximum impacts.
1043 First, young music students will benefit through half a million dollars toward music education at the University of Toronto.
1044 Second, we will invest in the industry institutions that celebrate, expose and underwrite Canadian talent with $1.4 million to Canadian Music Week and $700,000 to the Juno Awards.
1045 Third, we will contribute $2.4 million to FACTOR, which will enable the people recording the songs to get them heard.
1046 Fourth, our Great Canadian Song Contest will develop Canadian songwriters with an investment of $1 million per year for a total of $7 million.
1047 "The Great Canadian Song" is the centrepiece of our CCD proposal. Based on the template we have successfully used in Ottawa and Calgary, each year we will seek out submissions from singer-songwriters to find the next "Great Canadian Song". At the end of the process, "The Great Canadian Song" will be recorded by a prominent Canadian artist. The program will also result in a CD of fantastic new songs and a tour of emerging singer/songwriters to Canada's folk festivals.
1048 The Great Canadian Song Contest will launch careers for aspiring Canadian singer/ songwriters, just as we have in Ottawa and Calgary. The Big Rock Star and the Big Money Shot programs have put many local artists on the world stage, and that stage inevitably is in Toronto.
1049 MR. MURRAY: Mr. Chair and members of the Commission, this is an important and exciting two weeks for our industry. A frequency in Toronto is both rare and valuable, but the excitement should be tempered by the scope of the challenge ahead. Whoever successfully obtains a new Toronto licence at this hearing will have a long and difficult task. We believe that we have the best business case of all applicants, and we have a proven track record of execution.
1050 When Newcap Radio launches in a new market, we make substantial investments in the highest quality technical facilities, staff, promotions and marketing. We know how to succeed, even in highly competitive markets like Calgary, Edmonton and Ottawa.
1051 Newcap Radio has the financial and human resources required to be successful. We have conducted comprehensive research that indicates that this format choice is the correct one.
1052 Newcap Radio's CCD proposal will move Canadian talent forward in a meaningful way.
1053 We are confident that our proposal is the best use of 88.1, offering the market a new editorial voice and a unique format that will thrive in this community.
1054 We would be pleased to respond to your questions.
1055 THE CHAIRPERSON: Thank you very much.
1056 I would ask Vice-Chairman Pentefountas to lead the questioning.
1057 COMMISSIONER PENTEFOUNTAS: Thank you, Chairman.
1058 In spite of the fact that the task will be long, difficult and daunting, there seem to be a lot of gluttons for punishment out there.
1059 COMMISSIONER PENTEFOUNTAS: Just briefly, first of all, let's take a look at the CCD contribution, and I am going back to your original submission.
1060 Under section 15 of the Radio Regulations of `86, "Revenues", once you surpass $1.25 million, require a 15 percent contribution to the Community Radio Fund of Canada, and that was not in your original submission.
1061 Your intention is to contribute the sum to FACTOR.
1062 Are you asking for an exception or is that an oversight?
1063 MS SPENRATH: The $12 million is purely over and above CCD. The basic CCD, we assume, will go according to the formula, and it is in the financials. We didn't give a big description of it, but it's over and above the $12 million, and we will spend it in the way that it is accorded.
1064 COMMISSIONER PENTEFOUNTAS: As required by the regs.
1065 MS SPENRATH: As required by the regulations, that's correct.
1066 COMMISSIONER PENTEFOUNTAS: So $12 million above and beyond?
1067 MS SPENRATH: Yes.
1068 COMMISSIONER PENTEFOUNTAS: And what would your total projections be for seven years?
1069 MS SPENRATH: For basic?
1070 COMMISSIONER PENTEFOUNTAS: Yes.
1071 MS SPENRATH: Basic CCD is projected to be $191,000 over the seven years.
1072 COMMISSIONER PENTEFOUNTAS: I'm sorry?
1073 MS SPENRATH: On page 1 of the financials, the basic CCD is projected to be $191,000 over the seven years.
1074 It's the second line under "Programming".
1075 COMMISSIONER PENTEFOUNTAS: And $12 million above and beyond that.
1076 MS SPENRATH: Yes, and the $12 million is just the line below.
1077 COMMISSIONER PENTEFOUNTAS: Is that economically feasible?
1078 There are those amongst the people probably in this room that would say: Listen, Newcap is a well financed establishment, almost a heritage player, and given their capacity to invest in the system, the person trying to get into the system is almost at an unfair advantage, because you can lose money for the duration of the first seven years, as an example.
1079 And we are maybe going to get briefly into the financials, because I don't want to get into delicate information.
1080 How do you respond to that?
1081 MR. MURRAY: I think that when we prepared our application for Toronto -- of course, no applicant knows what the other one is going to pledge, and we had recently pledged $7 million in Calgary and $7 million in Ottawa. We had pledged $7 million in Vancouver, we weren't successful there.
1082 So when we looked at Toronto, even though this frequency wasn't going to reach 5 million people like all of the other players that are off the CN Tower, it is going to reach almost 2 million in a 3 millivolt, and close to 4 million in the other, the .5.
1083 So we looked and said, "What's the right number," and then, added to that, we said, "What do we need to make a difference in Toronto?"
1084 We are proposing as part of our CCD -- and I won't get into the levy, because that's not your question, but the Great Canadian Song, as do the Big Money Shot and the Big Rock Star, take a substantial investment in order to make a difference. In Toronto, that is going to cost a lot more money -- everything in Toronto is going to cost more.
1085 So we looked at: What number do we need to make that work, to make it meaningful.
1086 That number was $7 million, and then you have the 2.4 to FACTOR, and you have all of these other things.
1087 And then the other parts of our CCD support the Great Canadian Song.
1088 So $12 million was the number we came up with.
1089 And, quite frankly, we thought that we would be in the middle of the pack. We had $15 million on a piece of paper at one time, and we had $9 million, and we thought that $12 million was the right number and that it would be competitive.
1090 COMMISSIONER PENTEFOUNTAS: The CanCon figures that you have here have you at 40 percent. The one thing that is not clear, though, is: Is that 6 a.m. to 6 p.m., Monday to Friday?
1091 MR. JONES: That is both on the weekly and daily tabulation.
1092 COMMISSIONER PENTEFOUNTAS: Weekly and daily.
1093 MR. JONES: Yes.
1094 COMMISSIONER PENTEFOUNTAS: Would you accept that under daily --
1095 MR. JONES: Absolutely.
1096 COMMISSIONER PENTEFOUNTAS: -- as a condition of licence?
1097 MR. JONES: Yes.
1098 COMMISSIONER PENTEFOUNTAS: Now, you mentioned your format, and I guess it seems like an acoustic niche of the adult contemporary -- whatever we want to call it.
1099 I had notes before today's presentation, and you sort of put some meat on that bone, but there are other stations offering similar services in the market. I mean, it's Toronto, any kind of service that you want is there.
1100 Do you want to add anything more, as to what it is that is different about your service?
1101 MR. JONES: Yes, and I welcome the opportunity.
1102 Our service is unique in that it is giving artists who are not currently being exposed in Toronto -- and, for the most part, in Canada -- the opportunity to be heard here.
1103 There are other radio stations that obviously serve the demographic at this point. People are finding radio stations that meet elements of their tastes. But we find that there is a great deal of interest in this music, and there is a great deal of music going unplayed.
1104 COMMISSIONER PENTEFOUNTAS: I understand that, and I saw the study that you had in your report, that 88 percent of your playlist is not being played currently in Toronto. And, you know, there are sophisticated radio programmers in Toronto right now, and one may find it hard to believe that they haven't tuned into that niche or that demand.
1105 MR. JONES: Well, they have, and a great example is an artist like Adele. Everyone hears Adele on the radio these days. Her album "21", which is named after her age, is a massive success. You will hear it on radio stations all over Toronto.
1106 But a few years ago, her previous album, which is called "19", recorded when she was that age, wasn't heard on the radio. The music is equally as good.
1107 Adele is an international artist who is a great example of an artist who was native to this format years ago.
1108 Now programmers have, in all formats, found the gems that have become mass appeal stars, but this format allows them to gain exposure long before they would make it on those other stations.
1109 COMMISSIONER PENTEFOUNTAS: People missed Adele?
1110 MR. JONES: Absolutely, yes.
1111 COMMISSIONER PENTEFOUNTAS: In Toronto, the heartland of Canadian -- of music, period?
1112 MR. JONES: There are several songs by Adele -- "Right as Rain", "Chasing Pavements" -- that were played widely on this format in the U.S. and in the U.K. Those songs were never played in Canada, to any great extent.
1113 Adele didn't get any airplay in Canada, to any meaningful extent, until this album came out. People missed Adele.
1114 Look, people missed The Beatles, right? There were people who didn't sign The Beatles when they came out. People missed Adele.
1115 COMMISSIONER PENTEFOUNTAS: Are you operating this format, this modern adult format, anywhere else in the country?
1116 MR. JONES: No, we're not.
1117 COMMISSIONER PENTEFOUNTAS: Is there a reason why?
1118 MR. JONES: There are a number of reasons why.
1119 COMMISSIONER PENTEFOUNTAS: Given that it's such a winner?
1120 MR. JONES: One of the reasons why is that, as markets become more crowded and fragmented -- as you said, in Toronto, almost every service is available.
1121 In Ottawa, we are able to have a Top 40 station that reaches an incredible number of people, because that music is incredibly popular.
1122 In other markets, you know, earlier into the game, we were able to find a format that was already established.
1123 In Toronto, almost everything is taken, so you begin to slice up the market into smaller and smaller pieces of the pie, and you get to the point where: Is there any point in taking on Q107 with a classic rock station, or CHFI with an AC.
1124 So you find something that's different. You find the largest amount of unplayed songs that have the greatest amount of appeal and try to build a format around that.
1125 COMMISSIONER PENTEFOUNTAS: I feel like the guy from the Actors Studio who is always citing Bernard Pivot, and I am always citing Peter Menzies, because he posed this question back in Calgary, and I thought it was a really great question.
1126 How would the launching of The Sound, 88.1, make people's lives in Toronto better, richer?
1127 MR. JONES: The people who we project to be our core listeners are listening to the radio right now. They aren't listening to the radio as much as the rest of the market -- and Mark can elaborate, from a research study, on that.
1128 They have radio stations that they like, but obviously not radio stations that they like as much as they should. We see statistics that show us that they are not 100 percent satisfied with their radio station to the extent that other listeners in the market are.
1129 So they are getting little bits and pieces of this everywhere.
1130 This would give them a radio station playing just the music that they love.
1131 COMMISSIONER PENTEFOUNTAS: On that point, when I look at your projections and you talk about how you are going to take 1 percent market share from four other stations -- and I won't mention their names -- to arrive at your 5 percent share in Year 2, wouldn't the idea, in terms of licensing new entrants or new people into any market, be that they would be able to go outside of what is already brought in by the stations that are available and try to get listeners that are not in the system?
1132 MR. JONES: I think that is a noble but almost impossible task at this point.
1133 These radio stations that we would be taking a share point each from are very, very successful radio stations and a share point will not impact them in any meaningful way.
1134 COMMISSIONER PENTEFOUNTAS: But shouldn't an essential criteria going forward in the radio business be that we go and get people that are not listeners -- active listeners -- of licensed radio --
1135 MR. JONES: Absolutely.
1136 COMMISSIONER PENTEFOUNTAS: -- and bring them into the system?
1137 MR. JONES: Sure, but --
1138 COMMISSIONER PENTEFOUNTAS: How do you go about doing that, because I don't see that in your plan.
1139 MR. JONES: Radio reaches upwards of 95 percent of Canadians on a weekly basis, so finding people who are not listening to radio at all would be an almost impossible task.
1140 I think the more realistic objective is to find the largest group of people who are unserved by the current radio choices and provide them with an option, and that is exactly what this format does.
1141 COMMISSIONER PENTEFOUNTAS: Your format would not be growing the pie?
1142 MR. JOES: Growing the 95 percent?
1143 COMMISSIONER PENTEFOUNTAS: Yes.
1144 MR. JONES: It would to some degree. We find that these listeners are listening to non-radio sources of music more than the market as an average. So they are listening to things like satellite, they are listening to internet, they are listening to their iPods, they are listening to non-radio forms of music higher than the market average.
1145 So we would be repatriating some non-radio users, absolutely.
1146 COMMISSIONER PENTEFOUNTAS: I didn't see much of that in your presentation, though, and that may be troubling.
1147 If we are going to be trying to bring more people into the system and maintain the health and stability and long-term economic health of the industry, shouldn't we be attempting more actively to go after new listeners, rather than cannibalizing from within?
1148 MR. MURRAY: I would say that what you should be looking for perhaps is a company that can create a product that is proven to be popular by their research, and they can sustain that product, they are not going to sell it after a couple of years.
1149 And your 95 percent is a pretty big piece of the pie, so you are not going to increase that pie a great deal, but you are going to have people listening longer and staying with radio.
1150 I think that our service provides a great deal of benefit, not even counting our $12 million of CCD.
1151 COMMISSIONER PENTEFOUNTAS: Back to that $12 million, it keeps coming up, and it's a big number. How would you respond to those who say, you know, Newcap is coming and you are trying to buy the station, because of your economic capacity to do so?
1152 MR. MURRAY: We are certainly very proud of our economic capacity because, as we said repeatedly in our presentation, this is going to be a very difficult task. You have a frequency that only covers 1.7 million people against multiple-signal companies that are all reaching over 5 million with each one of their licences. In lots of cases they have four licences.
1153 So it's going to be a tremendous challenge, and I think that Newcap may be in a unique position to be successful here in Toronto with this type of...
1154 I don't want to say that the other applicants aren't worthy, because they are, and they presented good cases, but this is going to be a very different proposal. For us to find a format that has an 11 percent format void, and is going to get a 5 share in Toronto -- that is a big share in Toronto. That is not a tiny -- we are not reaching a small number of people, we are going to bring a lot of joy to these people in Toronto.
1155 The 1 percent that we are going to take from these other companies, that is, more or less, spill to them. It won't affect them.
1156 COMMISSIONER PENTEFOUNTAS: I am happy that you go to your 5 share, because given the constraints of the signal and the fact that you are not going to be available, necessarily, to 6 million Torontonians, but closer to 1.7 million Torontonians, how do you get to a 5 share in Year 2?
1157 I mean, how unrealistic is that?
1158 MR. MURRAY: I would say that it's very realistic. We have a great deal of faith in our research consultant, Mark Kassof, and perhaps Mark could answer that question more effectively.
1159 MR. KASSOF: What we do to project ratings is that we look at trying to find the people who will be the core of a radio station, what we call P1s or primary listeners. And, to find the core, we don't look at the 34 percent who say, "I will listen to it all the time, or close to it," the 4s or 5s on our scale. We don't even look at the 5s, the people who say that they listen to it all the time. What we look at are people who respond with the 5, who say that they listen all the time, and who don't score any of the other kinds of formats that we looked at, which was a pretty extensive list and a pretty broad section, as 5s.
1160 In other words, they not only have to be very enthusiastic about this format, but also they have to be more enthusiastic about this format than any other format that we tested, and that brought us to a 5.
1161 Now, of course, ratings projections being what they are, any projections in business are subject to various factors, but that is the best shot that we have right now, based on the statistics that we have.
1162 COMMISSIONER PENTEFOUNTAS: Well, it helps when, prima facie, the forecasts seem credible.
1163 A 5 share in Year 2, in Toronto?
1164 MR. JONES: We have found in previous launches -- now, granted, they weren't in Toronto, but we have found that when you meet an unserved need, when you play music that people are passionate about and cannot find anywhere else, good things happen.
1165 People will go and find a station like that.
1166 We also have a great deal of experience launching in Ottawa, where we started from scratch. In Calgary we started from scratch. We have launched in crowded media markets, and I think that we are very capable when it comes to putting together staff and promotions and marketing that get attention very quickly.
1167 So I believe that our projections, while optimistic, are realistic.
1168 MR. MURRAY: If I could just comment on the research, we probably do about 20 research studies every year, and we test that correlation between format void, P1 appeal, to BBM, and PPM, and we find that it's very accurate.
1169 I am quite confident with that 5 share. I think it is very doable, and it is exactly what the research is saying.
1170 COMMISSIONER PENTEFOUNTAS: Despite the crowded market and the number of other Triple A and similar services available already in Toronto?
1171 MR. MURRAY: Toronto has no more radio stations than Calgary or Edmonton or Ottawa. The reason it doesn't is because -- it could sustain three times more radio stations, it just can't because of all of the protections from the U.S., et cetera.
1172 So it's not really any more crowded that these other large, major markets, it is simply more populated.
1173 COMMISSIONER PENTEFOUNTAS: Thank you very much, Mr. Chairman.
1174 THE CHAIRPERSON: I have two quick questions for you, and I am sure that some of the other Commissioners may have questions.
1175 You say on page 9 of your remarks that the primary listeners to this station will be mainly 18 to 44-year-olds, skewing female.
1176 Do you know how many other radio stations have those same demographics in Toronto?
1177 MR. JONES: There are a wealth of radio stations with similar demographics, but demographics are only, really, the tip of the iceberg when it comes to growing and building an audience for a radio station.
1178 While our audience would be primarily 18 to 44 female, it would include a wealth of other people, as well.
1179 And demographics don't get into psychographics and how people feel about certain kinds of music or what they are looking for from a certain kind of radio station.
1180 There are a lot of radio stations looking at 18 to 44. There is a saying in radio that 25 to 54 is the golden radio demographic, and people say that 25 to 54 isn't a demo, it's a family reunion.
1181 You can't please every 25-year-old and at the same time please every 54-year-old.
1182 So, when it comes to our 18 to 44 audience, yes, a lot of stations want them. They are a very valuable and lucrative demographic cell to have, but there are a large number of them who are not finding a radio station that meets their needs, and this radio station would deliver that.
1183 THE CHAIRPERSON: The other question I have is on your financials.
1184 I should ask staff first, are these numbers public?
1185 MR. MURRAY: Which ones?
1186 THE CHAIRPERSON: The financials that I have here, the seven-year forecast of Newcap, as filed in the application.
1187 MR. MURRAY: They are public.
1188 THE CHAIRPERSON: Okay. When I look at this and I look at your PBIT in Year 1, with a negative $4.4 million that it alone doesn't recover in the next six years -- this is something that you touched on with the Vice-Chairman of Broadcasting -- and I look up at some of your expenses on there, the big one that stands out, obviously, is the CCD, and I guess that you covered that off with the Vice-Chair.
1189 But if I were to look at financing this, notwithstanding that it is Newcap -- and I know that you have a wealth of financial skills and capabilities -- and I read that, as well, so it's not as if you can't finance it, but the question that I have is: This, by itself, is not financeable without the strength behind the Newcap operation and group of companies.
1190 And I am just wondering, when we look at your application and look at 21 others that are coming before us over the next several days, how do we look at your application -- and there may be others, as well, that have done the same thing, but basically you don't pay back over seven years. My guess is, your payback is closer to ten years, which, if you went to a bank, would not be financeable in and of itself, other than, I am sure, Mr. Steele will sign a piece of paper, and he can probably get any money that he wants, but other people can't do that.
1191 I guess that we, as the Commission, are going to be looking at 22 applications and deciding what is the best fit for the radio market in Toronto, and obviously yours, being the first one, stands out from that perspective.
1192 Can you help us figure out how we weigh yours relative to the other ones, when you have basically put together a business plan that, in and of itself, doesn't stand on its own?
1193 MR. R. STEELE: This notion of trying to buy the licence -- I would like to dispel that. We came to the $12 million figure -- and I will get to your question in a minute.
1194 You know, you look at the market, you look at other applications -- other markets that we have applied for, and competitors -- I believe that Pattison was -- I think their CCD was $12 million in Vancouver.
1195 I could stand to be corrected on that, but I think it was in that vicinity.
1196 Vancouver -- you look at the size of the market -- is less than half of the size of the market of Toronto, in terms of revenue.
1197 So when we came in here, we really thought -- we didn't think that we were going to be astronomically high. We are relative to the other applicants, and it does stand out, but if you look at prior applications in other markets -- Calgary, Ottawa, et cetera -- it is not out of line. We don't think it is.
1198 This is the largest market in Canada. It is roughly a quarter billion in revenue. And it is obviously a market that is very attractive to us, and we want to get in here.
1199 And we are always trying to marry up the economics with a format that is not going to be too obscure, something that you can get, you know, a sizeable percentage of market share, so that you can make it economically viable.
1200 Dave, is there anything that you want to add?
1201 MR. MURRAY: Yes, I would suggest that our revenue projections, if anything, are somewhat conservative. We do believe in that 5 share. It will ramp up -- you know, 5 percent of $250 million. We won't get the full 5 percent, but that $12 million, or thereabouts.
1202 We are only projecting to get to $10 million in Year 7. We may get to $12 million in Year 5.
1203 But we didn't want to put unrealistic projections down, and we put something down that we were quite happy with.
1204 And for us to be making, you know, close to $2 million positive cash flow by the -- at Year 7 is quite acceptable.
1205 You know, a new business, stand alone, you have no synergies, you know, no second licence to support it, you know, and we're -- our negative cash flow is only two million net after seven years. So that's not -- I don't -- you know, I don't agree with your characterization that this is not -- that is is a terrible business plan that couldn't.
1206 You know, and as you pointed out, the thing that's, you know, driving it is the CCD and which, if anything, we thought we'd be low at $12 million, so we were quite surprised when we saw all the other applicants and they were at five million.
1207 This is -- the biggest market we're in now is Calgary. It has a million people. We're going to reach three million people or three and a half million people here quite effectively.
1208 You know, the three millivolt is 1.7, the .5 is 3.7, I think, and that's almost four times the larger population than we've ever reached in any market we've been in, so...
1209 THE CHAIRPERSON: Did I hear you say there was no synergies between this market and your other markets?
1210 MR. MURRAY: What I said was there's no synergies with another station.
1211 You've got, you know, Rogers with four stations --
1212 THE CHAIRPERSON: What do you mean, in the same market?
1213 MR. MURRAY: Pardon?
1214 THE CHAIRPERSON: In the same market, you mean.
1215 MR. MURRAY: Yes, exactly.
1216 THE CHAIRPERSON: Okay.
1217 MR. MURRAY: Yeah. I mean, we'll have synergies as a large company in terms of, you know, combined payroll payables and training and things of this nature, but all of our stations stand on their own two feet. They originate all their own programming, they're responsible for their own sales, all -- and et cetera, so there's not really a lot of synergies here at all.
1218 THE CHAIRPERSON: Okay. Thank you. Those are my questions.
1219 Commissioner Poirier.
1220 COMMISSIONER POIRIER: Yes. Hello, good afternoon. I have two questions.
1221 The first one is related to research, okay, because I have on hand the radio station format guide, and they describe maybe 20 to 24 different formats. And yours, you're saying, is completely new, so I was wondering when you say one-third of Toronto listeners scored modern adult four or five on their five-point scale, I'm curious to know how you ask the question to a listener to understand this format and to support this kind of format that nobody knows about.
1222 MR. JONES: We -- and if Mark can elaborate, I'd welcome his input.
1223 We don't ask them, "How do you feel about modern adult?" a format you've never heard of before. We ask the question using both a descriptor and the music montage, so how do you feel about a format that would play music by artists such as, followed by a montage of music. The station would sound like this. And then they score it accordingly.
1224 And we ask that of 10 different formats in order to try and do a perspective on the market that didn't just confirm our suspicions.
1225 In fact, the research that we did, when we went into it, you go into these things with some pre-conceived notions. And we looked at Toronto and felt that there was a wealth of Top 40 stations, there's a wealth of AC radio. There are only two rock stations. Corus has a modern rock and a classic rock.
1226 And we thought there's going to be room here for a rock station like The Bear in Ottawa, one of these rock stations that combines new and old. And so we made sure we researched that, but we also researched a bunch of other format options.
1227 And in this case, our suspicions were not confirmed. Our research arrived at the conclusion other than what we thought it might going in.
1228 You have to be careful with research when you do in with notions in your head because sometimes you can create a project that just simply confirms what you believe because of how you've asked the questions, and we were very careful not to do that.
1229 COMMISSIONER POIRIER: But how can people choose artists they don't know, they've never heard because you said you would make these singers available here on the market in Toronto, so how can they choose that format not knowing the artists that are singing?
1230 MR. JONES: Well, it's not that they haven't heard of the artists before. Some of them they may have heard of, and some of them they haven't. But we back that up with the music montage so when they hear the songs, they can decided are these songs I would like or are these songs I wouldn't like.
1231 COMMISSIONER POIRIER: My second question is related to the Great Canadian Song Contest.
1232 How will it be different from any other contest we have in Canada?
1233 MR. MURRAY: The Great Canadian Song Contest are -- CCD initiatives in Ottawa and Calgary are fairly similar to that, and -- but in Toronto, it would even be more effective and it'll be more important here in Toronto.
1234 What we hope to do with the Great Canadian Song Contest is to add to the inventory of great songs in Canada. And included with our opening remarks, we did give a one-page sort of diagram that describes it, and I'll ask Glenda and Vinka to give a little bit of details about that that hopefully help answer your question.
1235 But I think I can say sort of in broad terms, it's a lot like American Idol. You know, you put a whole bunch of artists into a funnel, they -- and while it funnels down to one winner, there are many, many artists that receive tremendous benefits from that.
1236 And Glenda, could you add a bit to that?
1237 MS. SPENRATH: Oh, for sure.
1238 And you know, as David mentioned, we have The Big Rock Star in Calgary and Big Money Shot in Ottawa, and I think what your question is, is how is this different --
1239 COMMISSIONER POIRIER: Different.
1240 MS. SPENRATH: -- really, because, you know, if you're familiar with those initiatives. And it is different in many aspects.
1241 There are some different streams running through this one.
1242 This is one is directed specifically to singer/songwriters. This one also, once we get to the level where they're performing and judged and so on, we have some different streams like the festival tour. And so there will be five artists who will be taken on a tour across Canada and actually performing live across the nation, which is something different from Calgary and Ottawa.
1243 The other thing we did with this initiative is that we've tied it into Canada Music Week and the Junos so that -- and those are fantastic venues for artists to be able to go and perform.
1244 We're going to have a showcase for -- singer/songwriter showcase where they can have a chance to connect with movers and shakers in the music industry and learn from the various workshops and people that will be there.
1245 And the other thing that will happen with this initiative, and it's something that we learned along the way, is that there will be coaching and mentoring the entire -- throughout the entire process.
1246 So for example, when we're getting the demo tapes in and we're having applications and they're being judged, before we choose who will perform, we'll be mentoring the ones who didn't get selected so that they can understand what they could do differently the next time to participate in the program in the following year, for example, because I think that's vital, too, to keeping more and more artists engaged and moving along in their careers.
1247 And again, that is something that we did learn from Calgary and maybe Vinka could may just touch lightly on that.
1248 MS DUBROJA: Thanks, Glenda.
1249 Well, we've had some great success with our Big Rock Star program, and I think besides the career development packages that we do award to these winners at the finales, the greatest thing and the biggest comments that we keep hearing from these artists is the support that they get, like the hand-holding from the early stage when the demo tapes come in.
1250 These people, some of them have no stage presence. They don't even, you know, if a name is proper, so they get a lot of coaching. And the lady that we hire, a third-party administrator, to do this stuff, she's integral in getting them to the next level of where they need to be.
1251 So I think that's a process -- like she's currently still in Calgary working with over 30 artists that have gone through our system, so it's very important.
1252 COMMISSIONER POIRIER: It's almost a Star Academy context, if I relate to the French market.
1253 And then to conclude, will this contest take place if you don't get the licence in Toronto?
1254 MR. MURRAY: No.
1255 COMMISSIONER POIRIER: Thank you.
1256 THE CHAIRPERSON: Commissioner Simpson?
1257 COMMISSIONER SIMPSON: Thank you.
1258 I'd like to ask a few questions. I'd like to have a very brief discussion about your format and how it relates to your business plan.
1259 First off, in terms of terms, I hear a lot of programmers and radio people using the word "indie" describing an indie artist and emerging artists interchangeably.
1260 Is that a correct assumption, that they are interchangeable or, if they're not, could you define the two for me?
1261 MR. JONES: Well, they may be interchangeable depending on what definition of emerging artists you choose to employ, but they're not necessarily the same.
1262 You can be an established indie artist, you can have hit songs as an indie artist. You can sell millions and millions of copies of your songs as an indie artist. You can be a best seller on Youtube or on iTunes as an indie artist. And that makes you very different from an emerging artist, so I think the two, while they have similarities, can be very different.
1263 An emerging artist could be on -- you know, on an indie label, but they're new in their career. They haven't had that success, they haven't had those sales yet. They need the support.
1264 COMMISSIONER SIMPSON: Okay. Could you refresh for me your answer to Commissioner Pentefountas' interrogatory where he was asking you about how this programming alternative is going to contribute to bringing new audience into the market versus just grabbing existing market share?
1265 MR. JONES: Certainly.
1266 There are listeners out there who are listening to radio stations they don't particularly love, and we see that in our projections. We see one share point coming from this station and that station, a few here and there.
1267 These are radio stations that don't serve that need, and the listeners are tuning in because it's the best option for them. So we bring those listeners to a radio station they love and that increases the length of time they spend listening to the radio.
1268 It spends -- it increases the amount of passion they have for the radio.
1269 These same listeners we're also seeing listen to non-radio music sources far more than the market average. We hope to increase their use of radio, and that brings up the overall tuning.
1270 And of course, I didn't mean to suggest for a second that it's impossible to bring that 90 plus reach up even higher. There are listeners out there who don't listen to the radio at all because they can't find the music they love.
1271 When a radio station comes along and plays that music, then they start to use radio again. We can become more important to their lives and increase overall tuning.
1272 COMMISSIONER SIMPSON: But surely if you were a beer company and you were the last in in a population of eight different beer companies, you know, your business plan wouldn't be relying on getting new beer drinkers but would be going after the existing ones first.
1273 MR. JONES: Yeah, and there's some -- I mean, the beer industry might be a great example. We hadn't thought of that. But if you look back 15 years ago to going into a pub and looking for a Sleeman's, that was hard to find because there were already all the other mainstream beers. And suddenly the microbreweries came along and said, "We're just a little bit different".
1274 And I'm sure if there was a Commission regulating beer formats, they might have said, "Well, aren't there already enough beers out there?" And frankly, the answer is no.
1275 And we found out that that is the case. Right now, you can get Sleeman's in almost any pub coast to coast. And you do.
1276 You grow among existing users first and you bring in people who wouldn't otherwise try it second.
1277 COMMISSIONER SIMPSON: And that's extremely helpful.
1278 Just two more questions.
1279 There was an article -- Mr. Cross was quoted in this article. You may wish to answer for him or have Mr. Cross answer.
1280 But there was a great article that came out just around the end of Junos, and it was -- the whole subject of it was largely that radio hadn't been doing -- in spite of all the initiatives that we impose on licensees, there was general consensus among indie artists that radio wasn't exactly the best place to get discovered.
1281 And I found it interesting that Mr. Cross had, you know, concurred to that, that, you know, the last place in the world you were going to find new music was on radio, which is where you would normally think that you would find it.
1282 I found it interesting when Commissioner Pentefountas said, "You know, don't have you have a bunch of programmers already here in the big smoke of Toronto that, you know, know how to make money with a format?" And I found it interesting that the Vice-President of Corus was -- for Branson Programming said that it's not radio's job to break new music. And in some cases, listeners want to hear new music, but in most cases they just want to hear what they like.
1283 So with sort of that juxtapositioning, would you tell me, to wrap this line of questioning up, how what you are going to do with bringing more of what people like to the table is going to bring new listeners and new music together?
1284 MR. CROSS: Sure. What is a very big and very lucrative area is new music discovery, and a lot of incumbents have abrogated their move towards introducing new music.
1285 I was at CFNY and The Edge from 1986 through until the summer of 2010, and during my time there, we introduced fewer and fewer new songs because of various market pressures that the radio station had.
1286 That was a different era. Now, with people going online to find new music, curated lists, somebody to hold their hand and take them through the millions and millions of new songs that are out every year, music discovery is extremely important.
1287 I can't tell you the number of times I've had conversations with managers, artists, record labels, talent buyers who are just dying for some sort of mass appeal outlet for their material.
1288 The problem is that many of these artists that we deal with -- and I was involved in a new music discovery -- didn't get proper exposure. And when I heard about this particular format and what Newcap was doing I got very excited because this is exactly what I've been preaching over the last couple of years.
1289 Now, I've been out of programming for a couple of years, but this is exactly the sort of thing that I believe radio needs -- radio needs to get back into doing and a responsibility they have to their audience is to take them by the hand, show them what's out there and explain why this music, which you -- some of which you may not have heard before is important and worthy and a very important contribution to Canadian culture overall.
1290 MR. JONES: I'm going to also just add that in certain cases new music discovery is happening.
1291 You know, we do have a station in Ottawa called Live 88.5. Amal works there and can see day to day how we make new music discovery an absolute cornerstone of our radio station.
1292 And when that station was licensed, it was licensed in a crowded market where there was already a classic rock, there was already a mainstream rock and there was a lot of doubt. And alternative rock had existed there and failed. And there was a lot of doubt that Live could succeed, and it does succeed. It thrives.
1293 It has been, at various points in the last couple of years, the number one rated rock station in Ottawa and it is constantly playing new music.
1294 Stations like Amp Radio in Calgary where we have the Big Rock Star, Hot 89.9 in Ottawa. Stations like that thrive on new music.
1295 If you make it a cornerstone of what you do, it can be a very lucrative area to be in.
1296 I read those comments, too, by my colleague at Corus. And while he's a very smart individual and a talented programmer, I was, like a lot of others in our industry, disappointed to see that he felt that way.
1297 MR. CROSS: And I would respectfully disagree with my former colleague as well. I believe that it is radio's job, radio's responsibility to enlighten and elucidate when it comes to music and the culture in this country.
1298 COMMISSIONER SIMPSON: Last question.
1299 In CCD spend, we make absolutely sure that in the course of the execution of that money it isn't inadvertently or advertently directed back into any type of benefit to the station, but with respect to my former question, which is bringing new listeners together with new music, is there anything that you could share with the Commission that you're going to do that's innovative that would help ensure the success in terms of getting the message out to those behind the ear buds and the iPods?
1300 MR. JONES: One of the things we do at Newcap Radio with our Big Money Shot and Big Rock Star is we offer an airplay promotion pledge that when you win that contest, your song gets played on the radio. And as a result, Holorado has had over 32,000 spins on radio stations all across Canada, far beyond the scope of Newcap Radio, but we led the way with that.
1301 And Hey Bombshell released their debut single called The Single Life earlier this year. In the first week it came out, all of the Newcap format applicable stations played that song. And now it's on the radio on, you know, stations owned by all different companies all across the country.
1302 It is climbing the Top 40 charts and this week, with any luck, it will break 1,000 total spins. Only a portion of those come from Newcap, but we started that ball rolling.
1303 The promotion pledge involves when the bands go on the road, and so when Holorado first won the Big Money Shot and they went on a cross-Canada tour, they came to Halifax. That tour was promoted on Q104 in Halifax, our rock station there.
1304 So we work behind the scenes to make sure that, as you said, those with the earbuds on are made aware that this stuff is happening and there's new music out there to be heard.
1305 COMMISSIONER SIMPSON: Thank you.
1306 THE CHAIRPERSON: Thank you.
1307 Commissioner Molnar?
1308 COMMISSIONER MOLNAR: Good afternoon.
1309 Mr. Murray, I think it was in your section that you made the comment, and rightfully so, that a frequency in Toronto is both rare and valuable. And then you say at the end that you're confident that your proposal is the best use of 88.1.
1310 As you know, because I feel quite certain that you folks have read the different applications for this that are in front of us at this hearing, so there's a couple things I want to go over with you.
1311 First of all, there is in front of us a mix of commercial, ethnic, community as well as technical amendments all looking to use this one frequency. And I have seen nothing in your opening statement that addresses the various applications in front of us or would compare yours.
1312 I mean, you say you're confident that it's the best use because it offers a new editorial voice and a unique format. And as you know, reading through the different applications, we have over 20 that tell us they offer, you know, a unique format. And no one has suggested that they're going to derive their revenues at the -- at a material impact on incumbents or anything else.
1313 So I need a little more from you, I guess, as to say why you are confident that this is the best use of 88.1, but help us understand.
1314 I mean, we're looking at comparing yours to a community station, to various ethnic applications that are in front of us as well as a host of different commercial applications.
1315 Looking at that, how is it you remain confident that modern adult, I think is what you term it, is, in fact, the very best use of this rare and valuable resource?
1316 MR. MURRAY: Right. What we call it, of course, is not relevant.
1317 We think that our -- we think we've got the best business case, the best business plan in that it's -- you know, it's realistic. We think we've got a lot of experience in markets, large markets in Canada. Not in Toronto but, you know, large markets in Canada, so we have a good sense of how we're going to -- where that revenue's going to come from.
1318 Like I said, it's probably conservative, if anything, so we think our business plan is realistic.
1319 And we've got a tremendous amount of faith in our research. We -- like I said, we do at least 20 studies every year in markets large and small, so we -- you know, over many, many years, you know, 10, 15 years with Mark Casoff and, so we have a great sense of the quality and we have a lot of faith in that five percent share and the 11 percent format void. We've done that many, many, many times so we know that that's -- we believe that's accurate.
1320 The other reason we think that we are using 88.1 to its maximum benefit is, you know, technically, you know, we're 7,000 kilowatts -- or 7,000 watts. We're -- you know, we've got -- you know, we're reaching the same number of people as many of the other applicants, but we're not -- some of the applicants aren't reaching nearly as many.
1321 Some of them don't -- you know, are duplicating a service or repeating a service or some such thing, so this is a brand new service. It's going to reach four million people with a brand new, unique format. So we have that.
1322 When we look at our CCD, we see how tremendously valuable it has been in Calgary and Ottawa. We think it's a tremendous opportunity to put $12 million into the system, you know, with a company that has been doing this very effectively over the last six years. And you know, we're in this for the long haul.
1323 We -- you know, we've got 83 radio licences. We want to have the most in Canada. We want -- you know, we'd love to be in Toronto and Vancouver and Montreal, you know, as time goes on. And you know, we -- this is a great opportunity.
1324 We applied in 1997 for Toronto and didn't get it. We applied in 2000 for Toronto and didn't get it. Now we're back again and we really are looking for the opportunity to be in Canada's largest city.
1325 And we think we're making all of these tremendous public benefits. And that's why our CCD is so high and our research is so detailed.
1326 We're making the largest investment in capital. You know, we're going to build a state of the art system and we're making one of the largest investments in programming of all the music formats, so we're going to hire the best people and have the best product on the air to assure that we do get our five percent.
1327 So for those -- does that help?
1328 MR. JONES: I may be able to add a little bit, Dave, in terms of -- if I interpreted your question, maybe, improperly, but I think you were asking a bit about comparing ours to others.
1329 COMMISSIONER MOLNAR: Well, exactly. And to various others.
1330 MR. JONES: Okay.
1331 COMMISSIONER MOLNAR: You know, it's fair to say that it's very good for Newcap to get into Toronto, but, as you pointed out, this frequency is rare, it's valuable, and you have said here that you are confident it is the best use.
1332 As you know, you are competing here against not just other commercial, but you are competing against other uses of this. So I'm just wondering where your confidence -- what is it that is backing up that confidence that it is in fact the best use?
1333 MR. JONES: In terms of our format approach versus other music applicants, specifically the AAA applicants which dominate the music choices before you this week, we play a different version of AAA. We have called it modern adult.
1334 It's essentially very similar in many ways to AAA except it eliminates the hardest edges by the rock bands like Pearl Jam and The Clash and The Chili Peppers and bands like that who are already being exposed in Toronto.
1335 So we believe that compared to those applicants we offer a format that is truly unique. I can't go into a great deal about their formats, I haven't heard their presentations yet, but I would expect that there would be more duplication because, from what I understand, they do not eliminate those artists.
1336 We have tried to present something that is currently not being heard, bands that are not being played. We avoid a lot of the classic rock heard on AAA, like Fleetwood Mac and the Rolling Stones and Tom Petty and The Police and U2 and bands like that that often appear on AAA. We don't play those bands because they are already being played.
1337 From a cultural aspect there are a wealth of ethnic applicants before you and it's difficult to compare the service we are proposing to the service they are proposing, but we do believe that our format is in a unique position to reflect sort of modern diversity.
1338 There are many people who arrived in Canada many years ago who live here and there are many people who are arriving daily to live here in Toronto. The modern diverse society is first-, second-, third-, fourth-generation Canadians who came here from elsewhere, and we present a format that in a lot of ways reflects that.
1339 There are many artists in our format, despite the fact that it's a mainstream sort of music format, who reflect that modern diversity.
1340 There are artists like Régine Chassagne of Arcade Fire whose Haitian heritage is often reflected in their music.
1341 There is Alex Cuba who we mentioned in our opening remarks who is Cuban born and lives here in Canada and gets very little exposure.
1342 Tariq Hussain is another artist of note, a Pakistani Canadian who is sort of an odd twist. He is a Pakistani Canadian from Montréal who records almost country music. So you can see how he has difficulty fitting into the mainstream, but this format would find an artist like Tariq a home.
1343 There are a wealth of international artists like Emeli Sandé from the U.K. who is of Zambian heritage and her music is reflective of her culture.
1344 There are some misconceptions about diversity, I think. If you were to arrive in Canada today from Beirut, you would have come from a city that has 26 radio stations, seven of them playing contemporary top 40 music, which would include a wealth of North American music. It's not like it was 50 years ago when you came to Canada and it was an entirely new culture. If you arrive here from Kiev, you arrive from a city with 33 stations, also seven top 40 and three rock stations.
1345 So it may be a different reflection of cultural diversity than just an ethnic service. It is a service that reflects modern ethnicity and modern diversity and we plan to do that both in music and spoken word.
1346 One of our spoken word proposals is a program called "The Sounds of the City" and that is a short vignette that runs twice each day, 1 minute long, just a very quick sort of spotlight on a certain aspect of Toronto's unique history.
1347 It could be anything. It could be the fact that in Toronto the 9-1-1 system is set up to handle 150 different languages. There is not a 9-1-1 emergency system like that in the world.
1348 It could be the fact that Toronto has a thriving Vietnamese community that grew in scope after the fall of Saigon and was incorporated in 1979 as a community and works today to foster racial harmony.
1349 It could be any one of many different aspects of Toronto's unique diverse cultural makeup, but we plan to reflect it both in music, both in spoken word and in everything we do. We plan to reflect our community.
1350 That's what great radio stations do and that's how they become great, is they act not as the sun shining down, but more as a mirror, like the moon reflecting light back. We reflect our market back and that's how we become successful.
1351 COMMISSIONER MOLNAR: Thank you.
1352 Just one more question. You have repeated a few times in your opening statement the long and difficult task of being successful with, you know, entering the Toronto market and pointed to your financial resources.
1353 I know you had a discussion with our Chair about the financials of this radio station and when it would turn profitable overall and when it's cash flow positive and so on.
1354 Is there something more than the financials to consider in saying to be successful in Toronto there are certain attributes that a new applicant would require that sets you apart as somebody who can be successful here while others may not?
1355 MR. MURRAY: Yes. I'm glad you got that. We thought maybe we were too subtle.
1356 COMMISSIONER MOLNAR: Not the first, second or third time you said it at least.
1357 MR. MURRAY: Excellent. It worked then.
1358 Well, I think one of the things we were getting at, and I just want to maybe just put it right out there, is that a lot of the licences that were granted over the last many years, particularly in the larger markets, were sold, often within the first licence term, and a lot of times that is because they couldn't succeed, they failed or they decided to cash in, you know, for a big return.
1359 We are certainly not looking at Toronto that way. We are in this for the long haul. We really do have an excellent business plan and -- Steve, you have something you want to add to this, too?
1360 MR. JONES: I don't, no.
1361 MR. MURRAY: Not really, okay. Too bad.
1362 MR. MURRAY: I think that kind of goes back to my answer to your original question, why do we think we are the best use of the frequency. It's all of those things, best business plan, comprehensive research.
1363 You know, you can be confident that this research is accurate and it's telling the right story. It's not something that we do -- we do many, many times, so we can do this. I probably didn't answer that very well, but that's all I have.
1364 COMMISSIONER MOLNAR: Well then, that's all I have, so we are done.
1365 THE CHAIRPERSON: Thank you.
1366 Any other questions? No? Thank you very much.
1367 Madam Secretary, where do we proceed to next?
1368 THE SECRETARY: Yes. I understand that you had an intervener that I believe couldn't make it today. Is that --
1369 MR. MURRAY: Yes, Goeff Eaton from Young Adult Cancer Canada was very excited to try to be here and present a presentation, a PowerPoint in support of our application, and unfortunately, his plane was fogged in in St. John's, he just could not get out. He was just very distraught about that. So I'm wondering, can I file his material?
1370 THE SECRETARY: Certainly. Certainly. I would just like to note for the record that Mr. Geoff Eaton -- that's his name?
1371 MR. MURRAY: Yes.
1372 THE SECRETARY: -- from Young Adult Cancer Canada was scheduled to appear in support of the application of Newcap Inc. today.
1373 I understand that due to weather delays on his flight, Mr. Eaton was unable to attend and Newcap has asked that in these extenuating circumstances Mr. Eaton's prepared presentation be filed in Mr. Eaton's absence.
1374 So the Commission will accept this request and Mr. Eaton's presentation will be added to the record.
1375 MR. MURRAY: Thank you very much. So I will just give it to you. Okay.
1376 THE CHAIRPERSON: So that would conclude the representation by Newcap and their people.
1377 THE SECRETARY: It would. Thank you very much.
1378 I would now invite Larche Communications Inc. to take their place at the presentation table.
1379 THE CHAIRPERSON: Madam Secretary, can I suggest we take a 15-minute break while they set up and everything?
1380 THE SECRETARY: Certainly. Thank you very much.
1381 THE CHAIRPERSON: Thank you.
--- Upon recessing at 1545
--- Upon resuming at 1605
1382 THE SECRETARY: Thank you, Mr. Chairman.
1383 We will now hear item 3 on the Agenda, which is an application by Larche Communications Inc. for a broadcasting licence to operate an English-language commercial FM radio undertaking in Toronto.
1384 Appearing for Larche Communications is Mr. Paul Larche.
1385 Mr. Larche, please introduce yourself and your colleagues for the record and you have 20 minutes for your presentation.
1386 MR. LARCHE: Thank you very much.
1387 Good afternoon, Mr. Chair and Commissioners. My name is Paul Larche. I am the President of Larche Communications Inc., and we will refer to that as LCI for short.
1388 It's a privilege to present before you today an application for a new FM radio station to serve Toronto, but let me introduce my panel first.
1389 Joining me is Mora Austin, to my left here, who is Vice-President of our company and General Manager of our Orillia station, CICX-FM and our Midland operation, CICZ-FM. Mora has worked at CICZ-FM for over 20 years.
1390 Next, over to my left here, is our Director of Programming, Ted Roop. Ted has been honoured with several industry awards and has worked with our company for the last 10 years.
1391 Sitting next to Mora is Paul Wortley who works in our sales department at CICX-FM in Orillia. Paul and I worked together in Toronto in the 1990s when I was General Manager and he was General Sales Manager of Telemedia Network Radio. Paul dealt directly with agencies, buyers and clients, along with marketing and brand managers.
1392 Next to Ted is Matt Mise. Matt is our Promotions and Social Media Director. Matt started with us in Sudbury, then he moved to Owen Sound and most recently to our Midland head office.
1393 Sitting in the second row is Jeff Vidler of Vision Critical -- Jeff did the research for us -- and Jim Moltner, our professional engineer who did our technical brief.
1394 And also we have two positive interveners that are sitting in the back row:
1395 - Mr. Jeff Silverman, who will be speaking on behalf of Mark Breslin -- Jeff is the President of Yuk Yuk's; and
1396 - Tim Progosh, who is the President of the Canadian Comedy Foundation for Excellence.
1397 So I will now begin my presentation.
1398 Mr. Chair, Members of the Commission and Commission staff, we welcome this opportunity to present before you today an application for an outstanding radio station in Toronto.
1399 When we set out to put this application together we focused on three core themes: innovation, realism and opportunity.
1400 Innovation by offering out-of-the-box thinking to redefine Toronto radio.
1401 Realism by putting forth a business plan that is grounded in reality and not based on subjective variables that can easily get you into big trouble in a market this size.
1402 And opportunity: opportunity to re-energize Toronto radio with an exceptional station that strikes the perfect balance by reflecting and satisfying the market needs and fulfilling the mandate of the Broadcasting Act; opportunity to bring a new independent voice to Canada's largest city with a proven track record for success and with an insatiable passion for radio; and an opportunity to make a difference with a group that genuinely wants to make Toronto a better place to live.
1403 So let's start with some background on our company. Mora...?
1404 MS AUSTIN: Thanks, Paul.
1405 Good afternoon, Commissioners.
1406 I have had the opportunity of working with Paul since he purchased CICZ Midland in 1996. Paul was working for Telemedia in Toronto at the time and prior to that was General Manager of stations in Sudbury and Timmins, his hometown.
1407 Over the next several years CICZ, under the KICX brand became a radio success story, improving its level of quality service and revenues. It has also won acclaim by its peers, winning 22 industry awards, including the Ontario Association of Broadcasters Station of the Year and Canadian Country Music Association's Station of the Year seven times.
1408 We now hold four licenses in Ontario, most recently launching CJOS-FM in Owen Sound just 18 months ago. We are the most listened to station in all of our markets.
1409 LCI has close to 60 full-time enthusiastic and innovative broadcasters dedicated to providing exceptional customer experience for our listeners and our advertisers. We share a deep-rooted passion for radio. We love what we do and we try to do it to the very best of our abilities.
1410 Our mission statement is simple: Make our customers happy always, or MOCHA as we like to call it. This is not just a cliché, it is deeply ingrained into our company's DNA and is at the base of our core values and culture.
1411 Also entrenched in our values is a commitment to make a difference in the communities we serve. We take great satisfaction experiencing the joy of giving.
1412 We recently raised half $1 million for the Simcoe-Muskoka Regional Cancer Centre. We have current pledges totalling over $1 million for various initiatives in the four markets we serve. This does not include any in-kind airtime. This is cold hard cash that is going directly to the charities.
1413 Our vision is to be the most successful small independent broadcaster in Canada. We want to continue to be recognized as a leader in ratings, innovation and a great place to work. We want our company to grow and that's why we are here today.
1414 Despite being a small independent radio group, we can compete with the very best in the country.
1416 MR. WORTLEY: Thanks, Mora.
1417 We are excited to introduced to you today Metro 88.1 Toronto. Metro 88.1 will be fresh and unique with the locally targeted adult album alternative or AAA format, a significant comedy component and a new level of audience interactivity like Toronto has never seen.
1418 The overall feel and tone of the station will be unmistakably Toronto. The music, the programming, the information, comedy, the interactivity will all address listeners' needs and interests first and foremost.
1419 We would like to play a short video for you to show you our vision of Metro 88.1.
--- Video presentation
1420 MR. WORTLEY: To discuss our programming I would like to hand it over to Ted.
1422 MR. ROOP: Thank you very much, Paul, and good afternoon, Commissioners.
1423 LCI asked Vision Critical Toronto, one of Canada's leading research companies, to conduct a music preference and audience opinion study in November 2011.
1424 We asked them to ensure the survey took into account the geography and limitations of the signal which primarily covers Toronto's downtown core. In fact, the 88.1 contours will only reach approximately 30 percent of Toronto's central market population of over 5 million with a reliable signal.
1425 We are glad we did because we quickly found out format preferences differed when looking inside and outside the limited signal contour. Basing research on the Toronto GTA could definitely steer you the wrong way.
1426 We also found that cultural, ethnic, economic and demographic differences exist between the GTA as a whole and Toronto's downtown core, where this station is targeted.
1427 The research findings convinced us that rock-based AAA would be the best fit for this market. The AAA radio format is perhaps best described as a spinoff from the album oriented rock format. It has a broader and more diverse playlist. Musical selections tend to be on the fringe of mainstream and include tracks from albums that were not released as singles.
1428 One can describe it as music that has fallen between the cracks of traditional format boundaries. We like to describe it as rock refined for a more discriminating music lover.
1429 Metro 88.1 will target 25 to 49-year-old men and women, with a narrower focus on the most underserved listeners in Toronto, 25 to 34-year-old adults.
1430 At least half of the music we play is currently not being aired in Toronto. No Toronto radio station plays a mix anything like this. We will feature a broad selection of new emerging Canadian artists and accept as a condition of licence to air a minimum of 40 percent Canadian content distributed evenly throughout the day and across the broadcast week.
1431 Metro 88.1 will feature over 10 hours of locally produced spoken word programming features and we will offer complementary programming that enhances the overall listening experience.
1432 For anyone here who has ever driven in Toronto traffic, you know it can either make you laugh or cry, so we have decided to make it easier to laugh.
1433 Metro 88.1's programming will feature a healthy dose of comedy and in particular Toronto-based Canadian comedy. It will be interwoven throughout our broadcast day in both short and long form. It will be part of the station's overall feel and personality.
1434 We are not talking about shock humour. Much like our AAA format can be described as rock refined, our humour will be relevant to a sophisticated audience. Think Rick Mercer or Jon Stewart.
1435 We have secured agreements with the Canadian Comedy Foundation for Excellence and Yuk Yuk's Comedy Clubs. They will provide us with high-quality comedy material that is relevant to Toronto.
1436 We are delighted to have secured an agreement in principle with Mr. Mark Breslin, one of Canada's foremost authorities in the comedy business, to be our program comedy advisor and to host a one-hour weekly comedy show featuring topical information from the local, national and international comedy world.
1437 Beyond comedy, LCI will bring a new and diverse voice to Toronto. Our spoken word will increase the diversity of programming available to Toronto listeners and our information programming will create diversity in news voices and opinions, benefiting Toronto and the Canadian broadcasting system as a whole.
1438 Metro 88.1 will offer Toronto listeners nearly 24 hours in comprehensive and local talk reflecting the community, 100 percent locally produced.
1439 The Vision Critical study provided us with a roadmap for relevant spoken word programming that is desired by AAA listeners and the urbanites living within the limited signal contour, an approach to spoken word that is currently absent from the Toronto radio market.
1440 We will offer almost 10 hours per week of surveillance programming, including three hours and 28 minutes of core news from a new and diverse voice.
1441 Our lifestyle and cultural spoken word will be as diverse and as expansive as is this world-class city, featuring special programming such as the Metro Street Beat Cruiser, local Taste of the City Food Guides, Live Green Toronto Environment Reports, Toronto Sounding Board and recreation reports throughout the day.
1442 All of our spoken word programming, comedy and AAA format will fall under the umbrella of a unique and innovative approach to engage our audience in ongoing conversations.
1443 To talk more about our interactive strategy, I will pass it over to Matt Mise, our Promotions and Social Media Director.
1444 MR. MISE: Thanks, Ted.
1445 Metro 88.1 interactive will embrace new media as a method of carrying real-time dialogue with our listeners, sharing the digital conversation in a highly effective manner and also allowing our audience input into our programming. Our AAA format and target audience lends itself perfectly to these methods.
1446 Radio has no doubt jumped on the social media bandwagon, but we want to take that digital conversation to the next level. Social networking sites such as Facebook and Twitter ignite these conversations with like-minded people and we would provide a platform to amplify those conversations.
1447 Metro 88.1 content creators will converse, collaborate, connect, share and engage in thought-provoking online conversations every hour of the day. When news happens, it is often ordinary residents that first spread the word. Our news department will also monitor news via social networking as a secondary source of information gathering.
1448 We know through experience that our audience wants a say in what the station provides, particularly when it comes to the music. Through Metro 88.1 interactive, we will give them instant ability to give us feedback on the songs we air. They will also help in rating new music and new artists.
1449 Our Web site will not be the lone portal to communicate with Metro 88.1's interactive elements. We have developed and will distribute a free mobile App for iPhone and Android-based smartphones as well as tablets such as the iPad.
1450 Active listeners will have access to everything Metro 88.1 has to offer in the palm of their hand. Our interactive plan is intended to complement our programming and not replace it. Engaging in relevant conversations and stories combined with great music will allow us to offer a compelling listening experience for all who tune in.
1451 I would like to turn it over now to Paul Wortley to discuss the business plan.
1452 MR. WORTLEY: Good afternoon, Chairman and Commissioners.
1453 For the top-rated stations in Toronto selling radio is often a more reactive commodity-based process. Their market position allows them a significant portion of the advertising pie and their synergies offer an economy of scale.
1454 However, Metro 88.1 is projecting a conservative first year tuning share of 1.4 percent, growing to 2.4 percent in year three.
1455 We will be facing unique challenges that must be factored when projecting revenues, signal limitations, competing as a single operator and modest tuning share. We have incorporated all of this into the business plan for Metro 88.1 to ensure the estimates are realistic and achievable.
1456 Beyond the signal limitations that have already been factored into our share projections, we took into account other issues that would affect our power ratio, including the fact that the station will not be top-tiered and will not be sold in combination with another Toronto radio property.
1457 As such, our projections may not be as high as some other applicants, but based on our experience and that of other experts in the industry, we believe our projections are the most realistic. LCI believes that building a business plan on higher projections could quickly get you into trouble.
1459 MS AUSTIN: We are very excited about our ambitious Canadian Content Development initiatives and what they can do for aspiring Toronto-based talent. LCI is proposing contributions of over $5 million over the course of the licence term.
1460 Metro 88.1 StarQuest will be the cornerstone of our innovative CCD contributions. StarQuest will be administered and overseen by Music Ontario, a new non-profit division of the Canadian Independent Music Association.
1461 Other funds will go to Canadian Music Week, who will put on a singer/songwriter boot camp every year during the weeklong event, and to North by Northeast Music Festival, who will use the funds to hire AAA artists to perform at the event in Toronto.
1462 The Live Green Toronto Festival is one of Canada's largest outdoor environmental festivals. The festival has agreed to use our contribution to support emerging Canadian musicians by showcasing them to an audience of thousands.
1463 Rounding off our music CCD will be a contribution to Canadian Blast, which serves to establish the Canadian music industry's business presence worldwide.
1464 In addition, Metro 88.1 recognizes that comedy has been one of Canada's most successful exports to the entertainment world, all without receiving significant development funds. Comedians such as Rich Little, Wayne and Shuster, John Candy, Jim Carey, Seth Rogen and the entire Second City crew became international stars without similar funding opportunities offered to aspiring Canadian musicians. Imagine what Canadian comics could do with a little help.
1465 We will direct $100,000 per year towards the Canadian Comedy Foundation for Excellence Stand-up Competition. This non-profit organization will use the funds to pay comics and host a series of year-round comedy events searching for Toronto's funniest comic. They will control the rights to the material and make it available for anybody who wants to use it.
1466 We also will work with Canada's premier comedy club, Yuk Yuk's, to help discover Toronto's funniest amateur comic. These aspiring comedians have no previous professional stand-up comedy experience. Metro 88.1 will air highlights of the competitions and promote them on air and throughout the community.
1467 Our CCD commitments are detailed in the LCI supplementary brief and are what we are proposing at a minimum.
1468 To talk more about our innovative idea, I will turn it over to Paul.
1469 MR. LARCHE: Thanks Mora.
1470 The application process for new licences is always a balancing act between a realistic business plan, realistic CCD commitments and the ability to fund such commitments based on that business plan.
1471 In the past, some successful applicants for new radio licences have not met anticipated revenue projections for a variety of reasons. Issues such as significant CCD commitments have placed some broadcasters in serious cash and capital situations, forcing them to either sell or give up equity in their operation.
1472 We are proposing a more realistic, innovative, win-win approach where all the stakeholders, including the regulator and the applicant, can be assured the long-term success of the undertaking.
1473 LCI will accept as a condition of licence the above-mentioned CCD commitments because we know that we can honour this commitment and sustain the continued operation of the station over the full licence term.
1474 But additionally, LCI is also prepared to accept as a condition of licence to direct 10 percent of any revenues in excess of our seven-year projections directly to additional CCD. These funds would go to FACTOR and be based on our CRTC financial returns. If we overachieve in our estimates, for whatever reason, we are happy to share on any upside.
1475 Commissioners, I don't envy your position. This is a once-in-a-lifetime opportunity for a new broadcaster to come into Toronto, Canada's largest and most lucrative radio market. There is one frequency left and you are in the difficult position of awarding it to only one of 25 applicants who, I know, all have a really compelling story to tell.
1476 Too often in the competitive hearing process applicants propose significant programming benefits and expenses that, unless made a condition of licence, do not make it to air or, worse, to the community.
1477 We take our role as custodians of the radio frequencies that belong to the Canadian people very seriously. We strive to promise only what we know we can deliver. We have tried hard to take your, frankly, unenviable position into account and find the correct balance to fulfill the Commission's mandate.
1478 As I stated earlier, we believe that we have found the correct balance of innovation, realism and opportunity. If we are lucky enough, we can and will deliver.
1479 Our company has demonstrated our passion, our will to succeed and our commitment to making a positive difference for over 17 years. We have the experience, including Toronto radio experience, the resources, the track record, the management team, the employees, maybe more important, the attitude and the will to win.
1480 We hope it's our time. Let us redefine Toronto radio. At the end of the day we will make Torontonians the real winners.
1481 We thank you for your consideration and we will look forward to answering any questions you may have, I believe, right after our interveners.
1482 THE SECRETARY: (Off microphone / Hors microphone).
1483 MR. LARCHE: Yes, I would like to introduce -- we have two interveners that will do their presentation now.
1484 The first one, Mark Breslin, could unfortunately not make it today, he is in rehearsals for another project, but subbing for him is the President of Yuk Yuk's, Jeff Silverman, and Mr. Silverman will read onto the record Mark Breslin's intervention.
1485 So Jeff, I will pass it over to you.
1486 MR. SILVERMAN: Good afternoon, Mr. Chair and Commissioners. My name is Jeff Silverman. I am the President of Yuk Yuk's and I want to thank you for the opportunity to read to you the thoughts and comments of Mark Breslin, the founder and CEO of Yuk Yuk's Comedy Clubs in regard to his endorsement of the application by Larche Communications Inc.
1487 Mark has had the opportunity of working in comedy for over 35 years. We opened our first club in 1976. We now have 17 clubs across Canada, making us the world's largest chain of comedy clubs from Vancouver to St. John's.
1488 Mark has also been a radio broadcaster working with stations such as Q107 and CFRB. He's been involved in countless comedy television productions and was the first programming director of XM Sirius Laugh Attack, conceptualizing and developing a comedy station that had over 90 percent Canadian comedy content.
1489 Mark has seen firsthand that comedy is a tough gig for Canadians, even though we have exported some of comedy's biggest names, many of whom worked and started at our clubs. For an average working comic it's often hard to make a living in this country.
1490 There are no quota systems in radio, TV or films, virtually no government grants, and we must battle a powerful economic entity south of the border who can flood the media with their product threatening the demand for home-grown comic talent.
1491 With the majority of working Canadians living below the poverty line, the comedy community needs the help to lift it beyond its current status of an inspired group of hobbyists. That help we need is exposure.
1492 Currently there is no terrestrial radio station in this market, the biggest market in the country, dedicated to showcasing one of our richest cultural resources, comedy. Actually kind of shocking when you think about it.
1493 Even more shocking when you scan through the dial and find no evidence of the talents of Russell Peters or Jim Carey or Howie Mandel or SCTV's crew or Kids in the Hall or the hundreds of talented comics that proudly call Canada their home, that is, until they have to leave for a lack of attention and opportunity.
1494 Today you can consider a decision that would be a firm step in protecting and nurturing our Canadian comics. Thank you for listening.
1495 THE SECRETARY: Thank you.
1496 We will now hear the Canadian Comedy Foundation for Excellence.
1497 MR. PROGOSH: Good day, eh!
1498 It is a privilege to make a presentation to support the LCI bid for a radio station in Metro Toronto.
1499 As the President of the Canadian Comedy Foundation for Excellence, as the founder of the Canadian Comedy Awards and Festival and of the Canadian Comedy Hall Of Fame, as a sketch, improv and stand-up comic for over 30 years, I know that the desire to promote and to perform comedy in this country is a privilege.
1500 I have been privileged to make my living as a Canadian producer, writer, actor and a comedic performer since 1982 and it is my privilege right now to represent over 1700 comedy industry professionals as the head of our Foundation.
1501 Our Foundation has a mandate to recognize, celebrate and promote Canadian achievements in comedy at home and abroad. Our festival is now going into its 13th year and we have had success, but we could use some help and this bid will do a great deal to help us achieve our mandate.
1502 It should be pointed out that comedy is still a distant cousin to the success and funding of more traditional art forms: dance, theatre and music. All these enjoy public and private benefits that to some extent have eluded comedy.
1503 Our Foundation has tried to encourage broadcasters from coast to coast to support Canadian comedy, but we have had limited success. The truth is a lot of Canadian funding dollars do go to support other art forms and, in truth, U.S. acts.
1504 That is why I would like to throw the support of all our 1700-plus members behind this bid and what it will do for comedic writers and performers and comedy in Toronto.
1505 The privilege of broadcasting over Canadian airwaves means something to me. That's why I wanted to appear in person.
1506 When I look at this application, in terms of integrity and commitment it has no peers.
1507 Reason one: Comedy doesn't exist in this market at all. And if you can find it, it is just limited to short clips that are almost exclusively stand-up comedy. Would people in Toronto listen to radio if it had more comedy on it? Satellite radio launched in part because it was advertising that it had comedy on it. So if you look at the fact that there is no comedy in the marketplace, this bid is different than all the rest.
1508 Reason two: Commitment to Canadians. Larche Communications has made a long-term commitment to help us create a year-round comedy forum to seek out, educate and promote existing and emerging Canadian comedic artists in several genres of comedy. Over the year we will host many nights of comedy that will be taped for broadcast. They have not asked for exclusivity and the plan will benefit the comics and the venues and the talent, all 100 percent Canadian comedy.
1509 At the end of these showcases the best of the best will be included in the Canadian Comedy Awards and Festival. It's a tremendous profile, but it's not only profile that we are offering.
1510 The Foundation will grow its archives and the talent will have great demo reels, but more important, by working with existing venues in Toronto and with professional unions and contracts, comedians will be recognized for their writing and performing abilities, not just with increased exposure, but a decent wage and compensation. The venues will see increased exposure and increased revenues for their traditionally slow nights.
1511 The goal and mandate of our organization is to help comedy, period, and this bid will help us do it.
1512 The third reason I would like to point out, it's more than just stand-up comedy. The Happy Gang -- I would like to tell you a little bit more about them but I don't have the time -- Wayne and Shuster, The Royal Canadian Air Farce, all of these were radio programs that featured sketch comedy and radio plays.
1513 With this application our Foundation will be preserving a radio tradition and fostering a new generation of Canadians performing and enjoying comedy in all its different forms, except mime because it doesn't work on radio.
1514 Our awards categories include improv, sketch, comedic plays and one-person shows, all of which will be included in the live performance showcases and tapings. With this application, these neglected art forms will get much needed exposure and Torontonians will get much needed laughs. When you live in a city with the Leafs as your team, you need a laugh.
1515 I thank you for your time and I encourage you to ask questions. I want you to support this bid. My 30 years experience in Canadian comedy says that this station will be very beneficial to our industry. As a person, a comic, and the head of the only comedy organization in this country solely dedicated to Canadian comedy, I believe this will have a very positive impact on Toronto and on Canadian comedy.
1516 THE CHAIRPERSON: Thank you, Mr. Larche, your team and your supporters.
1517 I would ask Commissioner Poirier to lead the questioning.
1518 COMMISSIONER POIRIER: Good afternoon. Just a personal comment before starting. You said I don't envy your position. I don't envy anybody's position in this hearing, okay. It's a tough one, yes, indeed.
1519 So I will discuss with you some very specific matters but I'll start with general ones because, Mr. Larche, you are an experienced person in the radio field. You already have four radio stations. They are profitable, thanks. Thank you, and it's good and you have fun doing that.
1520 Why are you tempted by the Toronto market now? Is it only because the frequency is available or is it the right timing for you and your company?
1521 MR. LARCHE: Well I think the answer to that question is yes on both counts.
1522 You know, Toronto as an opportunity wasn't really on the horizon for us in companies our size because there, frankly, were no frequencies available and the notion of us purchasing a radio station in Toronto was pretty much out of the question.
1523 But that being said, we have been in front of you several times and in your gracious wisdom have awarded us some licences but you have also turned us down. We want to grow as a company and we get in front of the CRTC every opportunity we have.
1524 The fact that we are geographically not that far from here is also enticing to us.
1525 I was very excited too because I have worked in this market. I know the Toronto radio market well and I know that we have the team and the wherewithal to be able to compete with the best.
1526 I'm not saying that to put down anyone that is in Toronto. I would say it's exactly the opposite. They are very good but we have, you know, a really innovative team and we would also go out and hire the best that's out there.
1527 COMMISSIONER POIRIER: Yeah, but you have launched not too long ago two stations. I believe it's Sudbury in 2008 and Owen Sound in 2010.
1528 MR. LARCHE: M'hmm.
1529 COMMISSIONER POIRIER: Wouldn't it be too much of a burden for you to launch a third one in less than two years?
1530 MR. LARCHE: No.
1531 COMMISSIONER POIRIER: You didn't expect that you would play a comedy today here.
1532 MR. LARCHE: No, I wasn't trying to be -- I'm not trying to be coy.
1533 MR. LARCHE: Sudbury and Owen Sound are doing well. I mean, you know, we could always hope that they could do better but both stations are in the black and the future looks really good for them.
1534 So I think, you know, we are in a great position I think today to do that. We have a strong management team in all of those operations; great staff and they are humming along beautifully.
1535 COMMISSIONER POIRIER: Yeah, and you wrote in your application that -- and I quote:
"For a company our size there is little room for error."
1536 You have got experience. What kind of errors you relate to when you talk about the Toronto market?
1537 MR. LARCHE: Well, again the opportunity to come into this market was very attractive to us but not at the sake of possibly losing the company. So I was very, very cautious and realistic, as we said in our application. It's in there a few times but also in our oral presentation. We said that we want to be realistic and cautious.
1538 You know Mr. Murray said it well earlier. This is not going to be easy for anybody who gets the licence because there are certain inherent challenges with this particular frequency, particularly on the technical side.
1539 So what we did is we really tried to ramp down expectations for the radio station because of those limitations. A lot of that was based on our experience. We have been in markets where we have had signal issues and I can tell you it's not fun and it can cost you a lot of money.
1540 We have been in markets where we -- you know, we were trying to estimate that the 0.5 microvolt contour will reach people that it often doesn't, particularly when you start getting into buildings and stuff like that. So we took that into consideration.
1541 We also took into consideration the fact that this station, just because of the limitations of the frequency, will not have the substantial share of tuning in the market because you're just not covering enough of the market. That's going to put it in a position where you are going to be a lower-tiered station and lower-tiered stations always get a little bit less revenue than your fair share.
1542 Their power ratio is a little bit less because they can efficiently buy the market. We are talking national and agency advertisers by purchasing the top five, six radio stations. Conversely, they get more than their fair share.
1543 The third thing is this will be a standalone operation and that -- again, this is based on our experience. We can tell you because in Owen Sound and in Sudbury we are up -- we are standalones against combos, and that hurts.
1544 I mean it hurts in the sense that you are at a disadvantage because their salespeople can go in and offer -- I won't say two for the price of one but they can offer something that is more compelling. We won't have that here.
1545 So we have factored all of these things into our projections and, as a result, like I said, we probably have one of the lower revenue projections. But I wouldn't want to go any higher.
1546 Now, that's why we also tried to think innovatively about what can we do to help you in your mandate to make sure that you are getting -- you know you are fulfilling the Broadcast Act, the Broadcasting Act, and real CCD is a part of that. We knew that, you know, bigger companies coming in might bring in more money.
1547 So that's why we came up with this idea, this notion of we are prepared to give up 10 percent of revenues over and above what we have projected over the seven-year term to CCD. So we have projected approximately $30 million over the seven years.
1548 If we do as well as some of the others -- if we do $40 million, well, we will direct 10 percent of that overage to CCD as a condition of licence. That means that the community wins; we win because we weren't put in a position where we had to pay funds that we couldn't afford, and you win.
1549 COMMISSIONER POIRIER: Okay. Talking about financial projections you expect to be projectable in three years. But we all know it's a very competitive market and you will have to invest significantly to create awareness at the start up.
1550 The triple A format, well, you are not the only one playing that kind of music. So presumably the station could lose money beyond what you have anticipated.
1551 I know that you have a letter from the TD Bank, okay, to provide you with some money but to what extent are you willing to absorb any losses that could go beyond those anticipated in the first two years?
1552 MR. LARCHE: Well, again, trying to --
1553 COMMISSIONER POIRIER: It's good to repeat you know.
1554 MR. LARCHE: Absolutely, but coming into this with eyes wide open, I came in cautiously, particularly on the business plan. But I also, and I always have when I have done a business plan, tried to look at worst case scenarios.
1555 So I'll say, okay, well, what if we were off by let's say 10 percent, what position would that put us in? Well, we were off by 15 percent.
1556 We have gone through those exercises and we meet those tests. Our company is small but we are debt-free. We have a positive cash flow.
1557 Again, based on the business plan that we have put forward, we have every confidence that we will be able to do it based on the borrowing abilities that we have put forward. But for whatever reason we needed more, I feel very confident we could get more. We have a lot of equity in our operations that we haven't put up against it.
1558 So I'm not personally concerned about that. I mean it's my house on the line. If I was really -- you know if it was a big concern of mine I wouldn't be in front of you here today.
1559 COMMISSIONER POIRIER: Okay. Will you have -- do you expect to have some synergies with your four stations and is it included in your business plan?
1560 MR. LARCHE: Very little. Probably a little bit of accounting. But this really would, for us, have to be a brand new radio station from the ground up.
1561 We would -- you know hopefully we would give an opportunity if we were so lucky to get it, an opportunity to some of our staff who wanted to apply for the position. But it would essentially be all new positions.
1562 I have always -- you know, my motto in business is I'm not the smartest guy in the world but I get really good people around me and they make me look really good. I would go out and find the best that is available out there.
1563 COMMISSIONER POIRIER: Okay. So let's talk about the proposed format and diversity.
1564 The triple A format is established in Vancouver. It's the only city where I know it's established and, well, from what we hear it's still struggling over there. It's not necessarily a viable format.
1565 Why have you chosen that format, because actually the format you offered in the four stations you already have is country music and classical hits. But why this format knowing that you'll be in competition at least with three other applicants in the same format and that there are already some other stations playing that kind of music in the market in Toronto?
1566 MR. LARCHE: Thank you for that question. We certainly anticipated that coming into this.
1567 I would like to tell you a bit of a story, though. When we first heard that Toronto -- that there might be an opportunity for us to apply for Toronto, our original plan was to go for country music because we know country music very well.
1568 Ted is an expert in country music and he has won many awards, you know, for our company. We thought, great, there is no country station in Toronto and that's what we are going to do.
1569 We hired Mr. Vidler, and he can talk maybe more to this in a moment, but when we went to Jeff we said, "Listen, here is the frequency. Here is the 3 millivolt contour. Here is the footprint that this is going to cover so you have to take this into consideration when you are doing your research".
1570 Again, I will let Jeff talk to it, but we found with the research that a country station wouldn't do too bad if you can get into the suburbs. But we can't get into the suburbs and in the central core of Toronto country didn't perform well at all.
1571 We also looked at classic hits because you are right. We do have two classic hits stations. And it scored well. Actually, I think it scored the highest by one point but two things:
1572 One is we weren't going to increase any diversity. We would be competing against two really good classic hits stations in town so we wouldn't be bringing anything new to the party.
1573 Two is that particularly a rock-based triple A format there seemed to be a really good appetite for that and even more so when you factor in that we are going to be dealing with the downtown core whose demographics and psychographics are a little different.
1574 Maybe I can have Jeff talk to that a bit.
1575 MR. VIDLER: So, I mean, just in terms further to what Paul was saying and I was clarifying some of the geographic considerations that we put into the research.
1576 The research itself, the 600 people we interviewed were from the city of Toronto -- so not the full GTA -- recognizing the 5 millivolt contour, a single contour really only covered the full city of Toronto. And then within that we looked at three different regions.
1577 We looked at the central Toronto region which basically reflected where the 3 millivolt contour would cover. Then we also had two other regions, an eastern region and a western region within that to look at the format interests and demand in each of those different regions so that we could get some indication of what would be most successful within that geographic target, if you like, of the downtown Toronto area.
1578 And, as Paul said, of the four formats that we tested and classic hits and country, country was the sort of going-in hypothesis, I think, that Paul had in terms of the one that would be the most unique and hopefully would have a large enough audience. It simply did not have a large audience within that central core. It was actually the smallest audience in the city of Toronto in general but in particular in that central core where the signal would be strongest and most reliable.
1579 Looking at classic hits it did perform quite well, but when you looked at the central Toronto core where the 3 millivolt signal was, the rock-based triple A format actually performed virtually identically to the classic hits format within that particular area. Pop-based triple A performed a little bit less while within the centre core than it did in the outer suburbs.
1580 So that was really part of the rationale, I think, that Paul used for choosing the rock-based triple A as being sort of the option of the four formats and it was the best format option for the geographic target that we were looking at.
1581 COMMISSIONER POIRIER: Well, you know, I'm always surprised because research is made on the same clientele, the same public, and each company gets a different result.
1582 MR. VIDLER: Well, and again, every company probably approaches the research a little bit differently. So maybe if I can talk a little bit about how we approached --
1583 COMMISSIONER POIRIER: Yes, maybe what --
1584 MR. VIDLER: -- the market. And again, outside of the geography which was the one sort of marching order that we had from Paul when we did the research was recognizing the same limitations that this would have to be a viable format given the same limitations.
1585 So we went in with really four fully fleshed-out hypotheses. As much as research is a social science might be a bit of hyperbole, it still does work best when you start with a hypothesis if you have ideas of formats that you are looking at and want to flesh out.
1586 So the four formats were the country, the classic hits and the two versions of triple A, because triple A is one of those great difficult formats in the sense that it has different shapes in different markets.
1587 So we wanted to look at one version which was a more pop-based version and one that was more of a rock-based version. And we presented a format description of each of those formats.
1588 We also played an eight song montage of each of those formats and then asked the respondents how likely they would be to listen to each of those stations.
1589 Those who said they would be very or somewhat likely were then asked, "And how often would you listen to the station? Would it get you to switch from what is now your favourite station? Would it be your second choice station or would it just be another station that you listen to?"
1590 The basic -- the really key measure there is those percentage who say that they would switch from the current station for this to become their current station. And that was the basis, if you like, for the core audience that the projections were then based upon.
1591 COMMISSIONER POIRIER: Yeah. You may --
1592 MR. LARCHE: If I could just add a point to that?
1593 On your comment that research shows different stories you know I would just turn that around a bit. I think you are going to have three or four, maybe even five applicants in front of you over the next few days who all did research with reputable research companies that are showing very similar results.
1594 You know there might be different shades of how the format will play out but you certainly heard Newcap earlier. Their research is very good as well.
1595 And you'll hear some tomorrow.
1596 We never talked to these people. We didn't know what their research was going to show. For all we knew we might have been the only one that came up with this. Like I said, we thought we were coming in here to talk to you about a great country radio station for Toronto.
1597 I have used Mr. Vidler's company before and I would never bet against his research. They have done well for us.
1598 MR. VIDLER: The other opportunity it gave us as well, by looking at the four formats, was we were able to look at some of the spoken word preference as well, to get an idea of what kind of spoken word was most in demand, to help Mr. Larche flesh out his application in terms of what the spoken word commitments would be.
1599 COMMISSIONER POIRIER: Maybe another question to you, Mr. Vidler.
1600 Did you test the comedy aspect of this radio station you are asking for? Do you know if the public who will probably listen to the triple A format will also want to listen to comedy because this is some kind of a brand new idea for Toronto?
1601 But what do you know of that genre, I would say.
1602 MR. VIDLER: It is daring to do that and we didn't actually specifically test it in this research. But I should maybe speak to some other research that we have then and Mr. Larche was privy to as well and played a role in his decision to include a comedy component.
1603 We do a study called "Radio on the Move" which is a tracking study twice a year of the in-car audio environment and asking people about what it is that they listen to in the car, not just radio. As we know, the in-car environment is changing rapidly.
1604 So we are trying to track the changes that are happening in terms of what is happening in the car. And one of the things that we ask is the type of audio content, not whether it's radio or podcasts or satellite radio or streaming.
1605 But one of the questions we ask is what type of content? Is it music? Is it news and information? Is it traffic reports? Is it comedy?
1606 And 6 percent of Canadian driver/passengers said that they listened to comedy at some point in the previous 24 hours when they were in the car. Now, that figure among satellite radio listeners goes up to 11 percent.
1607 So satellite radio people who listen to satellite radio we asked them what channels they listened to most often. A total of 19 percent said they identified a comedy channel as one of those channels that they listened to most often.
1608 And on top of that, the people who identified an alternative format as being the type of format that they listen to the most, were almost twice as likely to say, "I listen to comedy content in the previous day" than the other respondents or the other Canadian driver/passengers.
1609 CRTC actually is a subscriber to that study, so CRTC has that information at its disposal as well.
1610 COMMISSIONER POIRIER: Mr. Larche, you want to add to that comment?
1611 MR. LARCHE: Yes, I would, a couple of points.
1612 What we're talking about here is something that I don't think, well, certainly to my knowledge, has been done. We are not talking about having an all comedy channel.
1613 COMMISSIONER POIRIER: No.
1614 MR. LARCHE: We are not talking -- that's not what we are talking about at all. We were saying comedy is going to be very important in the overall feel and personality of this radio station. It will be interwoven throughout the broadcast day and we really want it to be, you know, very prevalent in what we do.
1615 But also, a lot of it is just based on my experience. You know I have been running stations, some of my own, for several years and for other companies.
1616 I can tell you that comedy I have always found has just never gotten a fair shake because it always does score well in research. We have scored it before and any time you ask people, you know, what do you want to hear in spoken word it's always, "Well, something that makes me laugh, something that -- I love it when the announcers tell jokes" and so on and so forth. I mean, I have seen that time and time again.
1617 And to go out and research what we have in mind is pretty hard to get people's head around because you have to explain to them what we are talking about. You just can't say, "We're doing comedy". It's a little different from that. We are talking more sophisticated comedy based on the crowd that we are going after and the type of music that these people like.
1618 But also we had seen some of Jeff's research and, frankly, there is a lot of off-the shelf research that again shows that comedy, particularly with alternative-type stations scores well.
1619 So I thought it was -- and bring into that the level of interactivity that we are proposing, getting the audience to participate in it, we thought, "Wow, what a marriage made in heaven. Let's bring something new to the table".
1620 COMMISSIONER POIRIER: Talking about comedy, I will ask the two interveners maybe to join in and get their viewpoint a little bit more expressed in front of the Commission.
1621 I was wondering how can you make comedy a good product on radio?
1622 MR. SILVERMAN: Well, comedy is speaking, comedy is talking and that works great on radio. You don't have to pull a truck up with band equipment and stuff. You just need somebody with writing ability and a sort of sense of comedy and you can do that comedy in so many different ways.
1623 I mean in our organization we have 220 comics. Some do sports comedies. Some do, you know, every type of comedy you can imagine. Plus, there is also sketch comedy. There is musical comedy. So it's actually made for radio.
1624 COMMISSIONER POIRIER: Yeah, but those representing the Canadian Comedy Foundation will be amateurs, won't they be?
1625 MR. PROGOSH: No.
1626 COMMISSIONER POIRIER: No?
1627 MR. PROGOSH: No.
1628 COMMISSIONER POIRIER: No professionals?
1629 MR. PROGOSH: Yeah, absolutely.
1630 COMMISSIONER POIRIR: All professionals?
1631 MR. PROGOSH: For the past 13 years we have expanded our categories over that time and we have -- I have seen in Toronto there is a proliferation of sketch and improv that translates.
1632 There is even a group called the Carnegie Hall Show that does a complete radio play live based on audience suggestions. And if they were to come in here right now before you, you wouldn't believe what they could create live.
1633 When Paul said that we had an opportunity to involve radio listeners in providing them with suggestions to do plays then you have an interactivity and a comedy that you cannot find anywhere else in the world. It's innovative. It's fresh.
1634 And in terms of the professionals every commercial you watch on TV right now is filled with Second City graduates and entertainers who would jump at the chance to perform with our program which is the Canadian Comedy Awards and Festival. We have a year-round program where people are encouraged to submit. We see their applications. We see the quality of the talent. They are all professionals. I would say about 80 percent of them are ACTRA members. We would be working with the ACTRA union for our shows and they would be paid standard ACTRA rates.
1635 COMMISSIONER POIRIER: Okay. And are you aware of any other radio in Canada that would offer a product similar to yours?
1636 The Yuk Yuks, have you ever been asked to do the same thing, or the Canadian Comedy Foundation, have you ever been asked to do the same thing as Mr. Larche is asking you?
1637 MR. SILVERMAN: We have never been asked to be involved in this much in a radio station, and I don't know of any radio station, really, that does this.
1638 I want to add one other thing. You know, out of our 200 comics, they're all professional. However, every Yuk Yuk's has an amateur night because it's the amateurs that are tomorrow's stars.
1639 I met, you know, Howie Mandel. He came in to sell me carpet for our very first Yuk Yuk's club. What's that? It's a stage. And the next thing you know, he developed his comedy on stage.
1640 And that's the same with Russell Peters and, you know, I could name 100 comics that you would know who all start as amateurs. And the secret is having stage time and having a place to perform and being able to promote yourself. And it's very difficult in this country to find a place to promote yourself until you get to a certain level.
1641 And I think what this station would offer is a chance for amateurs to work their way up much more quickly and let the public know who they are.
1642 COMMISSIONER POIRIER: Yeah. Well, I hope -- is there a show at Yuk Yuk's while we're in Toronto?
1643 MR. SILVERMAN: Absolutely.
1644 COMMISSIONER POIRIER: Okay. You tell us the date and where to go.
1645 MR. SILVERMAN: If I'm allowed to invite you all, you're all invited.
1646 COMMISSIONER POIRIER: Okay, thank you.
1647 MR. PROGOSH: And I would like to add that you can -- any member of the public can go online and nominate for Canadian Comedy Person of the Year. Our process starts now.
1648 But just to echo that whole -- our association, no broadcaster in Canada currently airs the Canadian Comedy Awards. They promote the American Comedy Awards, but not the Canadian Comedy Awards, except for Extraterrestrial Radio. XM Laugh Attack does broadcast our awards show. They're the only ones who do it.
1649 And -- but for the people who are nominated and do comedic plays, one-person shows, sketch comedy, improv comedy, there is no vehicle for them. The networks, TV doesn't want them.
1650 But there's such a rich history -- when I said the Happy Gang, those people in the first and second World War were the only people in the world broadcasting comedy to the troops overseas. That's a tradition that we have and we have to continue.
1651 COMMISSIONER POIRIER: Okay. Yeah, Mr. Larche.
1652 MR. LARCHE: Again -- just, again, I want to come back to a couple of things with regard to comedy.
1653 We -- I told you earlier that it's near and dear to my heart not because I'm funny 'cause I'm not. I like to have a good laugh. I try to be funny, but that obviously doesn't work. My staff keep on pointing that out to me.
1654 But I did -- Paul and I worked with Telemedia Network Radio about close to 20 years ago in Toronto and we syndicated radio programming in one of the shows, and that's how I got to know Mr. Silverman, was a comedy feature. And it did very well for us.
1655 We had 95 radio stations across Canada that were picking up this program. You know, this was before a lot of the consolidation where bigger companies said you know what, we're not going to use outside syndicated programming; we're going to take it in-house and do it ourselves.
1656 But it did very well, and that seed was always there. And then when satellite radio came around, I saw that they were making comedy a big part of their pitch. And you know, I saw some research not too long ago that some of the most listened-to stations that -- of their however hundred stations there are, are their comedy stations. They do very well for them.
1657 So you know, it was like let's get this -- let's get this into terrestrial radio in Canada's biggest market where it's big enough that there's an audience that we can serve.
1658 COMMISSIONER POIRIER: Yeah.
1659 Okay, I have two more topics, Mr. Chair. The first one is the CCD initiatives.
1660 You propose to include the Canadian Comedy Foundation plus the Toronto Stand-Up Competition, and most of the time up to now the Commission's policy has been that the expenditures must be allocated to the support of promotion, training and development of Canadian musical and spoken word talent, including journalists.
1661 And up to now, we have refused some CCD contribution to other than these. I have an example. I think it's Just for Laugh, in French Juste Pour Rires, l'École Nationale de l'Humeur. Astral asked us to give money to that organization and we refused it.
1662 Why are you really insisting on the fact that we should give money to those two organizations?
1663 MR. LARCHE: Thank you. I also anticipated that question, and this is something that I was -- obviously wanted to make sure that we had our bases covered as we put this application together because we did want comedy to be a part of it.
1664 But the CRTC did put out a piece not too long ago that talked about examples of Canadian content development. In number 4 -- and I'd like to read it into the record. Number 4 says:
"Independent parties dedicated to producing new spoken word content that would otherwise not be produced for broadcast."
1665 And then it goes on to say:
"One example could be the sponsorship of a comedy talent showcase organized by a third party featuring Canadian performers in a public venue with an audience where the performers are recorded by a third party with the intent of making the recordings, in whole or in part, available for radio broadcast. The rights to air the content must not be exclusive to a single broadcaster."
1666 So I took that and I passed it on to Mr. Silverman, Mr. Breslin and Mr. Progosh and said, "Can we do this? The money has to go to the artists. We cannot hold the -- we can't hold the rights to it. You hold the rights to it and if they are able to allow to get another broadcaster to use it, then that means more money for the comic".
1667 So my question to you would be, if this is what you have as an example, why would ours not count?
1668 COMMISSIONER POIRIER: But then -- if ever the Commission deemed these two initiatives as ineligible, would you agree to redirect the total sum of $145,000 a year to other eligible initiatives?
1669 MR. LARCHE: We would, but we wouldn't be happy about it. It's not the money; it's -- we just think it would be a shame because we're -- we think that we're doing something really special here.
1670 COMMISSIONER POIRIER: Yeah. Probably, then, you would have to drop the orientation you want to give to the comedy aspect of your station.
1671 MR. LARCHE: I don't think I would.
1672 COMMISSIONER POIRIER: No?
1673 MR. LARCHE: And -- because this -- these initiatives are not the source of the comedy that we're going to be putting on air.
1674 COMMISSIONER POIRIER: Okay.
1675 MR. LARCHE: We're going to be paying these -- for this product and we're going to be looking for new comics. We're looking for content creators as part of our on-air staff. If they have comedy as a background, that's going to be a big plus. But also, we might have people with comedy background as a co-host for certain parts of the day.
1676 We want it to be, again, part of the overall radio station personality.
1677 COMMISSIONER POIRIER: And my final question would be to Mr. Wise (sic).
1678 An app. If I download that free mobile app, what will be able to do because I believe you're one of the only ones who came with that venue, so...
1679 MR. MISE: With our app?
1680 COMMISSIONER POIRIER: Yeah.
1681 MR. MISE: Yeah. There are multiple things you can do with it. You can obviously listen to the station which, you know, most stations in the market in most markets now have this app.
1682 But what's different about ours is that it's interact. It gives our audience, in particular Triple A audience loves, you know, a say in the music, right. So what we have done here is basically you can go on and you can -- you know, you have your say of what music we play, whether it be new music or new artists. You get to vote for them.
1683 It's an easy thumbs up/thumbs down system, and then we also have some on-air features. One of them is called "you pick at lunch", which basically we give you a list of 25 songs and within a few hours there's a voting period. Whichever one goes the most thumbs up/thumbs down, we play, you know, those dozen songs in a row, you know, for the noon hour.
1684 So it is very interactive in that sense. You can also Tweet us, you know, from that app, write on our Facebook wall, interact with other listeners who are -- you know, have the same interests as you.
1685 COMMISSIONER POIRIER: So thank you. I'm done, Mr. Chair.
1686 THE CHAIRPERSON: Thank you very much.
1687 Commissioner Patrone?
1688 COMMISSIONER PATRONE: Thank you, Mr. Chairman. Good afternoon.
1689 Just a couple of questions, one of which you sort of answered in your second-last answer to Commissioner Poirier a minute ago.
1690 But I'm interested in the content and business relationship between Yuk Yuk's and Larche's proposed radio station. Presumably there would be negotiated content agreements between Larche and Yuk Yuk's?
1691 MR. LARCHE: Yes. Yes, there would be. And the CCD initiative is at arm's length. We would be working -- this would be something that Yuk Yuk's would be doing.
1692 We do know that they -- you know, they are the most successful company in Canada with regard to putting out comedy, with 17 clubs across the country. But this is not some type of back door deal to get some content back to us at a discounted price. This is not -- this is not what this is set up to be.
1693 The initiative that they're doing is, frankly, an amateur initiative. And you might have just had them reversed a while ago.
1694 So I know where you're going with that question, and I can assure you that we would be paying the same content that anybody else would be paying should we use some of the materials that they provide, but that's something that we would negotiate with them in good faith.
1695 And we would also look at negotiating with other providers.
1696 COMMISSIONER PATRONE: Right. What happens to your content commitmets, however, on a regulatory basis if you couldn't come to terms with Yuk Yuk's going forward? We'd be looking, presumably, at multi-year agreements, negotiated agreements with Yuk Yuk's.
1697 You know, if this is a success for you, assuming you were to get the licence, then presumably the demands for content would continue going forward. Yuk Yuk's would then be in a bargaining position with you.
1698 Have you considered that?
1699 MR. LARCHE: Absolutely. But also, Yuk Yuk's, again, would not be our only provider.
1700 Mr. Progosh is -- the non-profit that he runs represents comics -- many more comics that work under the Yuk Yuk's umbrella, and there are other sources of that as well.
1701 Now, I have every confidence that Mr. Silverman would negotiate in good faith, but if we thought it was unreasonable, then we would -- you know, we would look elsewhere.
1702 There -- that's the point we're trying to get across here. There's a lot of really funny people out there that are trying to make a living, and they're not all at Yuk Yuk's clubs. A lot of them are just at, you know, talent shows and so on and so forth.
1703 But radio just blends in so well with it. You are talking stories. And a lot of this is not a stand-up routine, it's people who are telling stories that are funny and you are relating it to people who are interacting with the radio station through the interactive component that we are proposing.
1704 And the music, again, that we are talking about is music that people aren't hearing a lot of in Toronto, particularly --
1705 COMMISSIONER PATRONE: Thank you. I mean, I just want to understand and make sure that the joke isn't on you if at some point in the future --
1706 MR. LARCHE: Thank you.
1707 COMMISSIONER PATRONE: -- you find yourself in a dispute with your main content provider going forward, facing regulatory demands vis-à-vis your commitments and then looking at costs that might be in excess of what you had anticipated because of contractual obligations or demands by your content provider.
1708 MR. LARCHE: And I appreciate your concern. I probably would be much more concerned if they were our provider, our sole provider, but they won't be.
1709 COMMISSIONER PATRONE: And the other area that I wanted to ask about, Mr. Larche, it has to do -- and you did speak a little bit about this, about how the comics would be paid. I believe it was Mr. Progosh who mentioned that it will be standard actor rates.
1710 And by the way, this qualifies as part of your spoken word content, right?
1711 MR. LARCHE: Yes, some. We intend on doing more than what we put in our spoken word content.
1712 COMMISSIONER PATRONE: No, but what you air in terms of comedic material --
1713 MR. LARCHE: Is part of the 24 hours we put forth in the spoken word, yes.
1714 COMMISSIONER PATRONE: Okay. So you have amateur comics that are essentially going to be providing you with some of your spoken word content and my question related to that is, are they going to be compensated by you? Is that how it's going to work? You're going to be paying Yuk Yuk's? You're going to be paying the comics directly? How is that --
1715 MR. LARCHE: Well, first of all, the amateur initiative that we've proposed with Yuk Yuk's, the way that works is there is an amateur contest. We are not airing all these amateur contests. What we are doing is there will be a winner and that winner will be touring the country. That will be paid for by these funds, giving them an opportunity for exposure.
1716 And whatever we use from them we would pay -- we did find out what the ACTRA rates were. A lot of the comics now are represented by ACTRA and we said, okay, we built that into our business plan.
1717 COMMISSIONER PATRONE: That's if CCD is involved though, right? Is that part of your --
1718 MR. LARCHE: We're hoping, but it's not -- one is not conditional on the other. I really believe in the idea. I believe in the concept.
1719 COMMISSIONER PATRONE: That would be part of your business plan though, would it not? I mean, presumably you have looked at your business plan --
1720 MR. LARCHE: I didn't tie one to the other.
1721 COMMISSIONER PATRONE: Okay.
1722 MR. LARCHE: I didn't tie that we needed -- if we put this money into these initiatives that we would not pay the comics. We still want to do that regardless. We think it would count, but one is not conditional on the other.
1723 COMMISSIONER PATRONE: Okay. So whether it would qualify or not wouldn't affect your revenue targets --
1724 MR. LARCHE: No.
1725 COMMISSOINER PATRONE: -- and profitability going forward?
1726 MR. LARCHE: No.
1727 COMMISSIONER PATRONE: And the comics would not have any rights to the material in terms of rebroadcasting going forward; is that correct? That would belong to Yuk Yuk's or...?
1728 MR. LARCHE: No. The material that is generated from the initiatives that we are talking about, they would own the rights to that or they would be controlled by either --
1729 COMMISSIONER PATRONE: Who is "they," Mr. Larche?
1730 MR. LARCHE: The way the policy is written is that the rights to the on-air content can't be exclusive to a single broadcaster. So the artists will hold the rights to it and if somebody wants to rebroadcast we will make -- we will facilitate that opportunity for them.
1731 COMMISSIONER PATRONE: Okay. And those agreements would have to be signed going forward, I guess?
1732 MR. LARCHE: Yes.
1733 COMMISSIONER PATRONE: Yes. Okay. Those are my questions.
1734 Thank you, Mr. Chairman.
1735 THE CHAIRPERSON: Thank you.
1736 MR. PROGOSH: Can I just make a comment on that in terms of like what we are doing with our contest or not?
1737 COMMISSIONER PATRONE: Well, it's okay with me.
1738 MR. PROGOSH: Well, just to clarify in our situation, we are not-for-profit contests. We would be running 14 nights during the year. Ten of those nights will be playdowns and they will all be taped, featuring professional groups that will all be paid on every single one of those nights ACTRA rates.
1739 The not-for-profit owns the content to it. We would sell it and distribute it evenly because we are not-for-profit to all those people and we would have that right for a set term. I'm not sure exactly what the radio term is. TV is usually six years. And then after that each sale would be a percentage -- under the ACTRA rules a percentage of gross would be distributed amongst the actors.
1740 We would also use -- as the Foundation, we would be using that content for groups that go on to successful careers and get better. We also have the right to use up to 3-minute clips as promotional use to promote them through our Web site and our initiatives to give them increased exposure not related to LCI at all.
1741 COMMISSIONER PATRONE: Thank you, Mr. Progosh.
1742 THE CHAIRPERSON: Commissioner Menzies...?
1743 COMMISSIONER MENZIES: I would just like you to address one point.
1744 During the course of the next several days we will hear lots of applications from commercial operators and non-commercial operators or different -- what I want you to respond to is: Do you think commercial use of this spectrum is the best use?
1745 I will just draw a little analogy. It's a little bit like having the last piece of Crown land for sale and some people want to use it for a park and some people want to use it for a business enterprise and some people want to use it for a museum and that sort of stuff and we have to decide on the best use.
1746 Why is the best use of this remaining asset a commercial use?
1747 MR. LARCHE: Well, as I said at the outset, you are in a very unenviable situation and I honestly don't think I should even really answer that because that's a decision that you are going to have to make. I don't think I am in a position to say that it should go strictly commercial.
1748 I think we have a very compelling story to tell. I think that we are going to bring a lot to the table with a lot of the initiatives that we are talking about, but I know that a lot of the other broadcasters are going to have compelling stories to tell you as well.
1749 COMMISSIONER MENZIES: Okay. Thank you.
1750 THE CHAIRPERSON: I just have one quick question.
1751 Is it the same audience that would be interested in comedy as would be interested in AAA?
1752 MR. LARCHE: Yes. The research that we were able to get prior to doing this, the music research, showed that people who like alternative music tend to like comedy more. As a matter of fact, I think it jumped from like 9 to 15 percent. Jeff might be able to talk about it, but it was the highest propensity of people who liked comedy to fit with what we call an alternative type music format.
1753 MR. VIDLER: Just to put those numbers on the record, 6 percent of Canadian driver passengers, adults, said that in the previous 24 hours in a private vehicle that they had listened to some comedy content. Among those people who had indicated that they listened to an alternative station, that percentage went to 15 percent.
1754 So that was really one of the, I guess, factors that Mr. Larche looked at and said that yes, this does look like it's the right fit for this format.
1755 THE CHAIRPERSON: Okay. Thank you. That completes the questions by this panel.
1756 THE SECRETARY: So that concludes this first day of the hearing, Mr. Chairman? Yes.
1757 I would just like to inform everyone, due to unforeseen circumstances we will begin the hearing tomorrow at 10:30 a.m. rather than 9:00 a.m.
1758 Thank you very much.
--- Whereupon the hearing adjourned at 1720, to resume on Tuesday, May 8, 2012 at 1030
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