ARCHIVED - Transcript, Hearing 28 April 2014
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Volume 1, 28 April 2014
TRANSCRIPTION OF PROCEEDINGS BEFORE THE CANADIAN RADIO-TELEVISION AND TELECOMMUNICATIONS COMMISSION
To consider the applications outlined in Broadcasting Notice of Consultation CRTC 2014-99
Salon Réal Therrien
Les terrasses de la Chaudière
1 Promenade du Portage
28 April 2014
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 applications outlined in Broadcasting Notice of Consultation CRTC 2014-99
Anthony McIntyreLegal Counsel
François VezinaHearing Manager and Senior Corporate Analyst
Salon Réal Therrien
Les terrasses de la Chaudière
1 Promenade du Portage
28 April 2014
- iv -
TABLE OF CONTENTS
PAGE / PARA
1. Movieola: Short Film Channel Inc., 1490525 Ontario Inc., Drive Publishing Inc., and 1225520 Ontario Inc.13 / 149
1. Toronto Reel Asian International Film Festival (int. 12)153 / 1089
2. YMCA of Hamilton/Burlington/Brantford (int. 13)156 / 1110
4. ReelWorld Film Festival (int. 18) 162 / 1151
3. Poor Man's Productions Ltd. (int. 17) 166 / 1174
- v -
PAGE / PARA
Undertaking51 / 377
Undertaking87 / 644
Undertaking91 / 670
Undertaking93 / 687
Undertaking104 / 752
Undertaking105 / 760
Undertaking189 / 1302
Undertaking189 / 1305
Undertaking190 / 1314
--- Upon commencing on Monday, April 28, 2014 at 0909
1 THE CHAIRPERSON: Good morning. Bonjour, mesdames et messieurs, et bienvenue a cette audience publique.
2 Aujourd'hui, nous examinons des questions touchant les quatre titulaires des licences suivantes : la chaîne de courts métrages Movieola; 1490525 Ontario Inc.; Drive Publishing Inc.; 1225520 Ontario Inc.
3 La raison d'être de cette audience porte sur la propriété et le contrôle.
4 I'll repeat that in English.
5 The purpose of this hearing relates to ownership and control.
6 Under the Commission's Regulations for Specialty Television Services, licensees must obtain prior approval before taking any action or entering into any agreement that would change the effective control of a service.
7 Further, as per their conditions of licence, the licensees must operate their own licences and services. These are key requirements given under the Broadcasting Act. Broadcasters are responsible for the programs they air.
8 The apparent relationship of Drive Publishing and 1225520 Ontario with Diamond Media, a third party, indicates that these licensees may have failed to respect these two ownership requirements.
9 Further to the litigation between shareholders of the licensees, control over the licensees may have changed as a result of either the litigation or the settlement of the litigation.
10 Given these apparent non-compliances, the Commission expects the representatives of all four licensees at this public hearing to show cause:
11 - first, why a mandatory order should not be issued requiring the licensees to comply with the Specialty Services Regulations 1990 and their conditions of licence;
12 - second, why the licences of the four services should be renewed and, if so, why their renewals should not be for a short term; and
13 - finally, why the licences should not be suspended or revoked.
14 Ladies and gentlemen, these licences are very much in jeopardy.
15 If the licences are renewed, the Commission will also entertain Movieola's proposed changes to its nature of service and to the categories it can draw programming from.
16 Further, the Commission will have to decide if the proposed change in ownership results in a change of control and, if so, whether the Tangible Benefits Policy applies to the transaction.
17 The Panel for this hearing consists of:
18 - my colleague Peter Menzies, Vice-Chairman of Telecommunications, to my right;
19 - Steve Simpson, Regional Commissioner of British Columbia and the Yukon, to my left; and
20 - myself, Jean-Pierre Blais, Chairman of the CRTC and Hearing Chair.
21 The Commission team assisting us includes:
22 - François Vézina, Hearing Manager and Senior Corporate Analyst;
23 - Anthony McIntyre, Legal Counsel; and
24 - Cindy Ventura, Hearing Secretary and Manager of Public Hearings.
25 I now invite the Hearing Secretary Cindy Ventura to explain the procedures we will be following.
26 Go ahead.
27 THE SECRETARY: Thank you, Mr. Chairman.
28 I would like to go over a few housekeeping matters to ensure the proper conduct of the hearing.
29 When you are in the hearing room we would ask that you please turn off your smartphones as they are an unwelcome distraction and we would appreciate your cooperation in this regard throughout the hearing.
30 Un service d'interprétation simultanée est disponible durant cette audience. Interpretation services will be available throughout the duration of the hearing.
31 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.
32 There is a verbatim transcript of this hearing being taken by the court reporter sitting at the table to my left. 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 Website tomorrow.
33 Just a reminder that pursuant to section 41 of the Rules of Practice and Procedures, you must not submit evidence at the hearing unless it supports statements already on the public record. If you wish to introduce new evidence as an exception to this rule, you must ask permission of the Panel of the hearing before doing so.
34 Please note that the Commission will also be tweeting the documents during the hearing at @CRTCHEARINGS using the hashtag #CRTC.
35 Veuillez noter que les documents seront disponibles sur Tweeter sur le compte du Conseil @CRTCAUDIENCES en utilisant le mot-clic #CRTC.
36 Finally, please note that if parties undertake to file information with the Commission in response to questioning by the Panel, these undertakings can be confirmed on the record through the transcript of the hearing. If necessary, parties may speak with Commission Legal Counsel at a break to confirm these undertakings.
37 Mr. Chairman, we are ready to start with Phase I.
38 THE CHAIRPERSON: Okay, thank you.
39 Before you start, the Commission has decided that pursuant to section 42 of the Rules of Procedure, all the Panel will be sworn in to testify under oath. So I'll ask the Secretary to do this.
40 You'll have the choice of either doing it by solemn affirmation or an oath based on your respective faith.
41 Mr. Fortune, I take it you're a member in good standing of a bar of a province.
42 MR. FORTUNE: Yes.
43 THE CHAIRPERSON: Which is Ontario?
44 MR. FORTUNE: Yes.
45 THE CHAIRPERSON: And are you ready to testify on your oath of office?
46 MR. FORTUNE: (Off microphone).
47 THE CHAIRPERSON: Okay.
48 And I think I have also Mr. Hagar.
49 MR. HAGAR: Yes.
50 THE SECRETARY: If you could please speak into the mike. I'm very sorry.
51 MR. FORTUNE: Yes.
52 THE CHAIRPERSON: So you are a member of a bar and you will be testifying --
53 MR. FORTUNE: I'm a member of the Bar of Ontario and I will testify as you have said.
SWORN ON OATH OF OFFICE: JOEL FORTUNE
54 THE CHAIRPERSON: On your oath of office.
55 Mr. Hagar?
56 MR. HAGAR: Yes, I'm a member of the bar --
57 THE CHAIRPERSON: Your mike, please.
58 MR. HAGAR: I'm a member of the bar of the Province of Ontario and I will testify if requested to do so.
SWORN ON OATH OF OFFICE: DAVID HAGAR
59 THE CHAIRPERSON: Thank you.
60 You can swear in the other members of the Panel, please.
61 THE SECRETARY: Thank you, Mr. Chairman.
62 We will proceed in order of your seating plan.
63 Anthony D'Andrea --
64 MR. D'ANDREA: Yes.
65 THE SECRETARY: -- please advise if you would like to make a solemn affirmation or swear an oath.
66 MR. D'ANDREA: Either is fine.
67 THE CHAIRPERSON: Well, which one?
68 MR. D'ANDREA: Solemn.
69 THE SECRETARY: Do you solemnly affirm that the evidence to be given by you to the Commission shall be the truth, the whole truth and nothing but the truth?
70 MR. D'ANDREA: Yes, it is. I do.
71 THE SECRETARY: Please state your full name for the record.
72 MR. D'ANDREA: Anthony D'Andrea.
AFFIRMED: ANTHONY D'ANDREA
73 THE SECRETARY: Thank you.
74 Jim Nelles --
75 MR. NELLES: Yes.
76 THE SECRETARY: -- would you wish to make a solemn affirmation or swear an oath?
77 MR. NELLES: I will make a solemn affirmation.
78 THE SECRETARY: Thank you.
79 Do you solemnly affirm that the evidence to be given by you to the Commission shall be the truth, the whole truth and nothing but the truth?
80 MR. NELLES: Yes, I will.
81 THE SECRETARY: Please state your full name.
82 MR. NELLES: My full name is James Hardy Nelles.
AFFIRMED: JAMES HARDY NELLES
83 THE SECRETARY: Thank you.
84 Jessica Parkinson, do you wish to make a solemn affirmation or swear an oath?
85 MS PARKINSON: A solemn affirmation.
86 THE SECRETARY: Thank you.
87 Do you solemnly affirm that the evidence to be given by you to the Commission shall be the truth, the whole truth and nothing but the truth?
88 MS PARKINSON: Yes.
89 THE SECRETARY: Please state your full name for the record.
90 MS PARKINSON: Jessica Parkinson.
AFFIRMED: JESSICA PARKINSON
91 THE SECRETARY: Thank you.
92 Sonya Davidson --
93 MS DAVIDSON: Yes.
94 THE SECRETARY: -- do you wish to make a solemn affirmation of swear an oath?
95 MS DAVIDSON: A solemn affirmation.
96 THE SECRETARY: Thank you.
97 Do you solemnly affirm that the evidence to be given by you to the Commission shall be the truth, the whole truth and nothing but the truth?
98 MS DAVIDSON: Yes, I do.
99 THE SECRETARY: Please state your full name for the record.
100 MS DAVIDSON: Sonya Davidson.
AFFIRMED: SONYA DAVIDSON
101 THE SECRETARY: Thank you.
102 Jennifer Chen, do you wish to make a solemn affirmation of swear an oath?
103 MS CHEN: A solemn affirmation.
104 THE SECRETARY: Thank you.
105 Do you solemnly affirm that the evidence to be given by you to the Commission shall be the truth, the whole truth and nothing but the truth?
106 MS CHEN: Yes, I do.
107 THE SECRETARY: Please state your full name for the record.
108 MS CHEN: Jennifer Chen.
AFFIRMED: JENNIFER CHEN
109 THE SECRETARY: Thank you.
110 Chris Fuoco, do you wish to make a solemn affirmation or swear an oath?
111 MR. FUOCO: A solemn affirmation, please.
112 THE SECRETARY: Thank you.
113 Do you solemnly affirm that the evidence to be given by you to the Commission shall be the truth, the whole truth and nothing but the truth?
114 MR. FUOCO: Yes, I do.
115 THE SECRETARY: Please state your full name for the record.
116 MR. FUOCO: Christopher Joseph Fuoco.
AFFIRMED: CHRISTOPHER JOSEPH FUOCO
117 THE SECRETARY: Thank you very much.
118 Cal Millar, do you wish to make a solemn affirmation or swear an oath?
119 MR. MILLAR: Swear an oath.
120 THE SECRETARY: Do you wish to do the Christian oath?
121 MR. MILLAR: Christian.
122 THE SECRETARY: Take the Bible in your right hand.
123 Do you swear that the evidence to be given by you to the Commission shall be the truth, the whole truth and nothing but the truth, so help you God?
124 MR. MILLAR: I do.
125 THE SECRETARY: Please state your full name for the record.
126 MR. MILLAR: Calvin James Millar.
SWORN: CALVIN JAMES MILLAR
127 THE SECRETARY: Thank you.
128 And Isabelle Bertrand, do you wish to make a solemn affirmation or swear an oath?
129 MS BERTRAND: A solemn affirmation.
130 THE SECRETARY: Do you solemnly affirm that the evidence to be given by you to the Commission shall be the truth, the whole truth and nothing but the truth?
131 MS BERTRAND: I do.
132 THE SECRETARY: Please state your full name for the record.
133 MS BERTRAND: Isabelle Bertrand.
AFFIRMED: ISABELLE BERTRAND
134 THE SECRETARY: Thank you.
135 Mr. Chairman, the panel is now prepared. I will --
136 THE CHAIRPERSON: Who's the --
137 THE SECRETARY: I'm very sorry. Please forgive me.
138 Do you wish to make a solemn affirmation or swear an oath?
139 MR. PODZYHUN: A solemn affirmation.
140 THE SECRETARY: Thank you.
141 Do you solemnly affirm that the evidence to be given by you to the Commission shall be the truth, the whole truth and nothing but the truth?
142 MR. PODZYHUN: Yes.
143 THE SECRETARY: Please state your name for the record.
144 MR. PODZYHUN: Romen Podzyhun.
AFFIRMED: ROMEN PODZYHUN
145 THE SECRETARY: Thank you very much.
146 Now, I think I've got them all. Mr. Chairman, the panel is ready.
147 THE CHAIRPERSON: Thank you.
148 So, I will start off the questioning. I've got four areas of questions to ask but why don't we start first by hearing your presentation -- your submissions. So please go ahead.
149 MR. MILLAR: Thank you, Mr. Chairman.
150 Good Morning, Mr. Chairman, Mr. Vice-Chair, Commissioner Simpson and Commission staff. My name is Cal Millar and I am president of Channel Zero.
151 I'll start off by introducing our panel today:
152 - to my left is Isabelle Bertrand, Director of Operations at Diamond Media;
153 - to my right is Romen Podzyhun, Chairman and CEO of Channel Zero;
154 - to his right is Chris Fuoco, Vice-president Sales and Marketing for Channel Zero;
155 - moving further along to Chris' right is Jennifer Chen, our Vice-President of Programming;
156 - beside Jenn is Sonya Davidson, Programming Supervisor; and
157 - to Sonya's right is Jessica Parkinson, our Compliance Officer.
158 In the row behind us, starting on your left, is Anthony D'Andrea, one of the founders of Channel Zero, a Member of the Board of Directors for the licensees and a current employee.
159 Moving to your right are:
160 - Joel Fortune, our Regulatory Counsel;
161 - Jim Nelles, our Regulatory Consultant; and
162 - David Hagar, who is appearing on behalf of Mr. Balde at the Commission's request.
163 We have attached a seating plan to our presentation for your reference.
164 We will now begin our presentation.
165 I'd like to start by thanking you for this opportunity to appear before you today in connection with our applications for the renewal of the licences for Movieola, Silver Screen Classics, AOV Adult Movie Channel, AOV Action Clips and AOV Maleflixxx, as well as our application for a change of ownership in connection with a corporate reorganization.
166 The corporate reorganization will also involve a reorganization of the licensee of CHCH-DT and its re-transmitters, as noted in the letter dated March 20, 2014, which has been added to the record of this proceeding and which we appreciate.
167 Mr. Chairman, Commissioners, we understand why we are here today to review the renewal of these licences. We have the team here today from management and ownership that can answer your questions. We will strive to be as direct and complete as possible.
168 In response to the opportunity provided by the Commission, we filed on March 20th what we hope is a helpful overview of our performance in bringing all of our services affected by this proceeding into compliance with our conditions of licence, expectations and other regulations.
169 That submission also sets out the steps involved in the proposed reorganization, the reason for it and the growth that will result from it.
170 Finally, the written submission addresses the issue of the structure of the operation for the three AOV-branded services and the steps proposed for the future operation under the Commission's exemption order for smaller Category B services. We will review each of these matters with you in this presentation.
171 Channel Zero is a leading independent television broadcaster and justifiably proud of our many accomplishments over the past decade and a half.
172 You can see before you on the monitors and we have attached for your reference to the back of our presentation, a handout you can look at, at your convenience.
173 MR. PODZYHUN: The story of Channel Zero is a story of growth. When digital television services were first contemplated in the late 1990s, one of the ideas at the root of this vision was to reduce the barriers of entry to the system, to welcome in new, independent broadcasters.
174 Channel Zero was born out of this vision. An idea kicked around a kitchen table by four entrepreneurs 15 years ago has expanded and grown into one of the largest independent television broadcasters in the country.
175 As an independent start-up, we did not have the benefit of scale, infrastructure or built-in systems to guide us through these years of rapid expansion and change.
176 Channel Zero has developed and adapted our operations and our processes to respond to our growth essentially "as and when needed." To a large extent, this approach has been beneficial because it means that the company can take advantage of new opportunities that arise and we are not tied to legacy infrastructures.
177 However, on occasion the pace of change and growth in our business has temporarily outpaced the ability of our infrastructure to keep up. But, as we hope to demonstrate to you today, we have taken steps to ensure that we address these gaps and to conduct ourselves as a responsible and responsive broadcaster.
178 Our objective today is to provide you with clarity on the outstanding matters in our file, to answer your questions and to satisfy concerns that you may have. With this in mind, we would now like to methodically address the concerns raised in the Notice of Consultation.
179 MS CHEN: In preparing for this hearing, CRTC staff sent to us a Compliance Report dated February 19, 2014. The report covers the five broadcast years starting with 2008-2009 and ending with 2012-2013 and relates to services whose licences are up for renewal.
180 What that report shows, we believe, is the effort that has been made by the licensees to bring all of those services into full compliance. This is something that we have been working on with CRTC staff over the past year and a half and we have reported regularly to staff on the steps we have taken.
181 To summarize the results of these actions:
182 The services are now in full compliance with Canadian content requirements;
183 The services fully meet the closed captioning expectation of 90 percent. In fact, 100 percent of the programming on all of these channels is fully closed captioned.
184 We have identified the issues with programming categories which arose from three sources: human input error; a software transition issue; and, in two instances, broadcasting the wrong category of programming, Category 2(b) documentaries on Silver Screen Classics -- a War Amps of Canada documentary collection -- and Category 14 -- infomercials -- on Movieola. In both cases we ceased programming that content when the mistake was identified. Category 12 content on AOV Action Clips and we confirm now Category 7(d) content on the AOV Maleflixxx service, which were identified as issues in the February 19, 2014 Compliance Letter are authorized categories under the applicable licences.
185 We also wish to comment on the Non-Submitted Program Log letters for the Movieola service which appear to indicate a number of instances of non-submitted logs. All such logs were submitted and in only one case was there an instance of a delayed filing, for the month of January 2013.
186 We have taken these compliance matters very seriously, corrected the shortcomings and put in place better processes to ensure compliance. Specifically, we have:
187 Reviewed all internal processes and procedures to identify weaknesses;
188 Implemented internal monitoring processes for all services;
189 Increased scheduling staff and put training processes in place for schedulers when programming is coded for logging purposes;
190 Increased closed captioning to meet the existing expectation regarding captioning of 90 percent on all services, and put in place arrangements to ensure 100 percent captioning on all services going forward. Specifically, we have tripled the size of our closed captioning department to six people and have a third-party provider on contract for back up;
191 We have hired Jessica Parkinson as our Compliance Officer to monitor, measure and correct compliance issues across all services;
192 We have changed the logging software to Broadview, an industry standard package, for Movieola and Silver Screen Classics and trained and continue to train personnel on its use; and
193 Put in place a procedure to correct any logging errors identified upon submission of logs so that errors are identified and corrected.
194 We are confident that these steps have placed the services on a strong foundation to ensure compliance.
195 In summary, we have worked with the Commission to establish better processes and the results have illustrated marked improvement and ensure an infrastructure for full compliance in the future.
196 MR. FUOCO: As you know, in addition to the renewal of the licences for the five services under review today, we are also seeking Commission approval for a corporate reorganization of the Channel Zero group. The reorganization reflects the settlement of long-standing litigation involving the original shareholders of the licensee companies. This reorganization also reflects the intention to put in place a simpler corporate structure under a common holding company.
197 Currently, each of the licensee companies is owned by individual shareholders, each of whom holds a minority interest. Since there is no controlling shareholder, the companies are controlled by their respective Boards of Directors.
198 The purpose of this reorganization is for two of the existing shareholders, Mr. Balde and Mr. D'Andrea, to sell their minority interests in the companies in accordance with the terms of the settlement that has been reached. These minority interests will be acquired by a new holding company, 2308740 Ontario Inc., which we will refer to throughout this hearing as "New Channel Zero".
199 Mr. Podzyhun and Mr. Millar will also contribute their minority interests in each of the licensee companies to New Channel Zero, as will I, Chris Fuoco, contribute my indirectly held minority interest in the licensee for CHCH-DT, 2190015 Ontario Inc.).
200 New Channel Zero will then issue shares to each of Mr. Podzyhun, Mr. Millar and Mr. Fuoco. At the end of these transactions, which would happen essentially simultaneously, each of the licensee companies will be directly owned by New Channel Zero as a holding company. New Channel Zero will in turn be owned by Mr. Podzyhun, Mr. Millar and Mr. Fuoco, each of whom will have a minority interest in that company and, therefore, an indirect minority interest in each of the licensee companies.
201 A copy of the Shareholders Agreement for New Channel Zero has been filed with this application and it can be seen from that agreement that each of these minority shareholders has substantially the same rights to nominate a Director, and substantially the same rights on all shareholder approval matters. The company will, therefore, not be under the control of any person and will be controlled by its Board of Directors.
202 In simplified form, this is the essence of the reorganization transaction that is now under review. Two minority shareholders are relinquishing their interests as a part of a litigation settlement; the remaining minority shareholders in the Channel Zero group are putting in place a holding company structure; each of these remaining minority shareholders will continue to hold a minority interest in the holding company. No person is acquiring effective control of any licensee as a result of this process; each of the remaining minority shareholders nominates a single Director to the Board and exercises the same rights as the other minority shareholders.
203 We recognize that the Commission examines ownership transactions to consider whether they are in the public interest and whether they can result in an overall benefit to the broadcasting system. This is the case even in the context of a corporate reorganization.
204 MR. D'ANDREA: This reorganization is essential for the licensees. It reflects the settlement of long-standing litigation between the shareholders, which has diverted resources and attention from actual operations. This reorganization, if it is approved, will place the licensees in a better position to carry on their operations as broadcasters, to grow, to innovate, to compete.
205 Movieola, Silver Screen Classics and CHCH-DT make an important contribution to programming and ownership diversity. The services acquire, produce and broadcast many hours of Canadian content.
206 The largest contribution is made by CHCH, which broadcasts hundreds of hours of original Canadian local news and information programming. The services employ 87 individuals in the specialty sector and 164 in the over-the-air sector.
207 Completing the proposed reorganization is essential for the licensees to move forward. These are not just idle words. We are very proud of the significant achievements made within the Channel Zero group over the last few years, especially the re-launch of CHCH and revitalizing local programming in the Hamilton market.
208 CHCH continues to lead. It is now the only over-the-air television service that we are aware of that has implemented the National Public Alerting System, even though it is not yet a CRTC requirement.
209 Completing this reorganization will put the licensees in a better position to continue moving forward. We have reviewed in more detail the various steps in the reorganization in our written materials.
210 MS BERTRAND: I understand that the Commission wishes to review with us the manner in which the operation of the AOV-branded channels has been conducted over the last licence term. Details regarding the operation of these channels is provided in the Deficiency Replies filed with the CRTC, our letter dated November 15, 2013, and in our recent written submission.
211 Very briefly, since their launch, the channels have operated on the basis of a division of responsibilities between the two general ownership groups consisting of what we would call the "Diamond Media" group on the one hand, and the "Channel Zero" group on the other. The Diamond Media group has particular expertise in the area of adult content and the Channel Zero group has expertise in operational broadcasting matters. An outline of the operational responsibilities was provided in our recent written response and we have set it out below for your reference. I believe that this chart gives a good indication of how responsibilities were divided.
212 We do wish to emphasize that it was always intended that the licensees would retain and exercise control over the services with ultimate responsibility to the Commission.
213 Furthermore, the licensees have been transparent with the Commission in our filing of annual returns each year for the licensees. In particular, it has always been disclosed to the CRTC as a part of the annual returns filed since 2005 that the revenues and expenses for the services have been recorded indirectly through Diamond Media. To be clear, the method in which we have filed the annual returns for the AOV services was designed in collaboration with CRTC staff at the time, is in accordance with GAAP, and was not questioned for nine years.
214 MR. FUOCO: We have proposed the most direct approach to put in place a more regular ownership structure. As the CRTC is aware, each of the AOV-branded services has fewer than 200,000 subscribers. Each service is eligible, therefore, to operate under the Commission's exemption order for these services.
215 We have filed the appropriate forms with the CRTC to revoke the licences for these services and to operate them under the exemption order.
216 Upon completion of the reorganization that you are now reviewing, the interests of the Channel Zero group would be sold to individual companies that are part of the Diamond Media group. Those companies would, in turn, enter into a formal contract with the Channel Zero group for broadcast hosting, master control and origination. The arrangements have been described in the written materials filed in this proceeding and CRTC staff has reviewed the related hosting agreement. We understand that the form of agreement is acceptable from an ownership and control perspective.
217 It is our respectful submission that this approach and ownership structure represents the most direct method to put in place a regularized ownership structure that fully respects the CRTC's policy to exempt these smaller sized undertakings from licensing requirements.
218 As we have noted, we have grown rapidly in recent years, at a time when many other broadcasters in the television sector have either downsized or disappeared altogether. We recognize that at times our growth has placed strains on our infrastructure that have resulted in certain regulatory shortcomings, which we regret.
219 At the same time, we believe that we have corrected the compliance issues of the past through the hiring and training of people, as well as investing in systems and equipment.
220 The record of the last two years is one of attention, fixing shortcomings and ensuring a framework for compliance. Even while doing so we have continued to innovate and are pursuing avenues of growth and opportunity both in Canada and abroad.
221 Respectfully, we believe that we have shown our diligence and good faith in addressing these matters. For that reason, we submit, also respectfully, that some of the remedies proposed in the Notice of Consultation are not warranted in the circumstances.
222 We do recognize, however, that the Commission will want to us to demonstrate that we are meeting all of our obligations for these services in the renewal term and we would actually welcome the opportunity to review with you again the performance of these services based on a shorter term renewal, if that were considered appropriate.
223 We, at Channel Zero, are excited by the future. We believe in responsible and accountable growth. Today we are accountable for the past, even as we seek to build for the future.
224 As Romen said earlier, 15 years ago, four individuals sat around a kitchen table dreaming of breaking into the broadcasting industry. Since then we have achieved many milestones, we have grown rapidly and we have learned from all of our experiences.
225 As an independent company in a rapidly consolidating industry, we still welcome the opportunity to add our spirit of innovation to the diversity of voices that colour the Canadian broadcast landscape. To that end, we thank you for this opportunity today and we look forward to addressing your questions at this time.
226 THE CHAIRPERSON: Thank you very much.
227 Before we get started, Mr. Hagar, could you explain the exact nature and scope of your client's instructions to you for your participation here today?
228 MR. HAGAR: Mr. Chair, you have to understand that my client last week was admitted to Emergency and then directly into the ICU. Obviously I have been unable to obtain instructions from my client.
229 I did have discussions with him prior to that. He intended to come here himself and had made reservations because he supports the application.
230 I was able to speak with his wife who managed to speak to Mr. Balde in ICU, who essentially has communicated back through his wife that he is very relieved that I'm here to address whatever questions might have been directed to him that I could answer.
231 THE CHAIRPERSON: Okay. We will have to see as we go along. Certainly our good wishes go out to him, but if at any point the questions are outside of the scope of your instructions I expect you to point that out to us.
232 So, as I said, I have some questions with respect to ownership issues. They relate not so much to your proposed transactions that are before us, but finding out exactly what the situation is currently before we consider these changes.
233 My first set of questions deal with Drive Publishing Inc. and 1225520 Ontario Inc. If I'm not mistaken, those are the licensees of the AOV services; is that correct?
234 MR. FUOCO: That is correct.
235 THE CHAIRPERSON: And then under those licences they stipulation, under Condition of Licence No. 1, that the broadcasting undertakings, and I quote:
"... shall be operated in fact by the licensees." (As read)
236 Do you agree that that is the first condition of licence on those three licences?
237 MR. FUOCO: We would agree with that.
238 THE CHAIRPERSON: By the way, if anybody on the panel disagrees I expect you to raise it and disagree if you don't agree with the answer that was given.
239 As I understand it, your position is that you are in compliance with this condition of licence; is that correct?
240 MR. FUOCO: That is correct.
241 THE CHAIRPERSON: Help me understand, therefore -- and here I'm going to refer to a number of documents. They are different letters but they are essentially identical, in all cases they are letters signed either by Mr. Millar -- well, they are all signed by Mr. Millar as President, in some cases as President of 1225520 Ontario Inc. and I believe in some cases Drive Publishing Inc. They are dated -- the one by 1225520 Ontario Inc. on 30 November 2011, another one by that same company dated November 30, 2012, and another one dated November 30, 2013. And of course there are the other two letters signed by Mr. Millar on behalf of Drive Publishing, one dated November 30, 2012 and the other November 30, 2013 -- essentially describing transmitting some information which is of course confidential because it's the financial statements. But in all these documents, 1225520 and Drive Publishing Inc are described as inactive corporations. Then we go on and say that Diamond Media Inc. is carrying on the business of operating the AOV services.
242 So can you explain to me how that is consistent with your condition of licence that says that the licensees shall be operated in fact by the licensees?
243 MR. MILLAR: Thank you, Mr. Chairman.
244 I think that the easiest way to start is to go back to the licensees themselves. Drive Publishing is an entity and we said -- in some of those letters we referred to inactive in the financial sense but operating it in fact in the decision-making standpoint.
245 As we alluded to in our presentation, when these services, including the services operated by the licensees of 1225520 Ontario Inc., were initially set up they were set up on a very practical basis.
246 In the case of Drive, we had two ownership groups that had come together to operate an adult channel. One ownership group, the Channel Zero group, brought experience in broadcast and AOV brought expertise in adult programming.
247 The licensee was selected to be Drive Publishing, but these are relatively small operations and so don't have direct staff themselves so they would be operated by the Board of Directors through the hiring, contracting out of some of the services for the licensee, but at no time did the subcontractors operate the station in a legal sense. I think there was use by us in letters over the years of the use of "operating" in the vernacular and that we had hoped to provide on the record a more detailed explanation of what "operating" meant on a day-to-day basis for the services.
248 THE CHAIRPERSON: So you are saying that when you wrote these letters on three years running in a row, Mr. Millar, and you said that these businesses were being operated by Diamond Media, you were misleading the Commission?
249 MR. MILLAR: No, I think that would be a mischaracterization. I think it would be an inappropriate use and perhaps a sloppy use of the legal word "operating", but it was in fact a simple description of -- it equally didn't say that Channel Zero was operating the services either.
250 THE CHAIRPERSON: So this is a question of fact so let's get some facts on the record because certainly it has been quite difficult for us to get any clarity on this file so far.
251 In the case of Drive Publishing, does it own any physical assets?
252 MR. MILLAR: It is the licensee and that would be considered in some respects the ownership of an asset, but because it is financially inactive it would have a balance sheet of $1.00, which would be the paid-up capital of the corporation.
253 THE CHAIRPERSON: Does 1225520 Ontario Inc. have any physical assets?
254 MR. MILLAR: The case would be the same for 122.
255 THE CHAIRPERSON: I was asking questions about physical assets, you have mentioned the licences. I don't think a licence can be considered to be an asset since it cannot be transferred. It may --
256 MR. MILLAR: I would leave that --
257 THE CHAIRPERSON: -- associated with the licence, but it's not transferrable.
258 MR. MILLAR: That's a fair representation. There are accounting rules as to what constitutes that, but I take your point.
259 THE CHAIRPERSON: So could you tell me if Drive Publishing or 1225520 Ontario Inc. have any intellectual property or other intangible assets?
260 MR. MILLAR: I think that's probably where the licences properly sit.
261 THE CHAIRPERSON: There are no other --
262 MR. MILLAR: No others.
263 THE CHAIRPERSON: There are no other assets?
264 MR. MILLAR: No others.
265 THE CHAIRPERSON: No other assets, brands, trademarks, copyright of any sort?
266 MR. MILLAR: Excuse me. Actually, thank you for reminder, because in both cases, although they don't show up on the balance sheet of the corporation, both those corporations are licensees of the AOV brand marks, so they do in fact have licensed intellectual property.
267 THE CHAIRPERSON: And the value of that brand is properly described in -- I can't disclose it because it's confidential, but properly described in the balance sheet you filed as an asset?
268 MR. MILLAR: Yes.
269 THE CHAIRPERSON: And that's the only asset?
270 MR. MILLAR: Yes.
271 THE CHAIRPERSON: Both tangible and intangible?
272 MR. MILLAR: Yes.
273 THE CHAIRPERSON: And I take it from your comments earlier that neither Drive Publishing or 1225520 have any employees?
274 MR. MILLAR: That is correct.
275 I would also -- if it's helpful, Silver Screen Classic does not have any direct employees.
276 THE CHAIRPERSON: I'm just focusing on those two companies.
277 MR. MILLAR: I understand that, but I provided it for context, Mr. Chairman.
278 THE CHAIRPERSON: Where are the programming rights? Are they not held by Drive or 1225520?
279 MR. MILLAR: The programming rights are acquired for sublicence to the licensees by Diamond Media.
280 THE CHAIRPERSON: But the licensees are Drive Publishing and 1225520. So why are the programming rights held by another company?
281 MR. MILLAR: So perhaps, rather than continuing on the line answering individual questions, perhaps I can provide some clarity with the context, if you permit me that.
282 THE CHAIRPERSON: Go ahead. This is your chance.
283 MR. MILLAR: Thank you.
284 THE CHAIRPERSON: Maybe your last chance.
285 MR. MILLAR: Thank you, Mr. Chairman.
286 The structure of the AOV services when they were launched were intended to be structured on a very practical basis, as I've alluded to earlier.
287 They were -- each corporation has a board of directors which is responsible for the final decision-making, the final decision-making of programming selection. But we hired through sub-contracting the services of Diamond Media to select the programming. We have no specific expertise in adult content.
288 And in the same way the licensee selected Channel Zero to do the broadcast for them. This wasn't clearly well thought-out from a regulatory standpoint structure, but it is the way that we set it up in 2004 coming into, yeah, broadcast year 2004-2005.
289 And when we got to the end of that first broadcast year and we're filing our first annual returns, it was noticed that we were going to have trouble providing the annual or the financial statements for the licensees.
290 Number one, because two of the services were licensed to the same corporation.
291 And, number two, because we had operated them without the money being received directly into the licensee corporations. It was being indirectly received by Diamond Media.
292 So we worked with Commission staff at the time and called and said, "How are we supposed to file our returns? How are we supposed to structure this?"
293 Through a series of conversations and back and forth staff went away, came back. We devised, with the complete collaboration with staff, a method that was deemed to be acceptable at the time.
294 We would have a third-party chartered accountant prepare pro forma profit and loss statements for that part of the financial statements indicating revenues that were due and owned by each of the licensees and we would, in addition, file the nil returns, a balance sheet for the actual licensees.
295 In addition, there would be an attestation letter.
296 I believe that was it. And these would be filed each year, which we did.
297 We don't, by any stretch, suggest that this is a conventional way of doing it, but there was no attempt to mislead the Commission in any way. We were simply structuring it in a way that seemed very practical at the time.
298 I think that, you know, we've come to recognize that it caused us some problems and we've suggested methods to move forward. But this is the way it was determined to do it, the proper way to file these returns, and nobody raised this until we started the reorganization process.
299 We're happy to try to deal with that now.
300 THE CHAIRPERSON: I understand that there were arrangements to file financial returns, but the fact of the matter remains that condition of licence number one, which I don't think anyone is disputing, is fully operational and something that the licensees must respect at all times -- says that the licences, the undertakings have to be operated in fact by the licensees.
301 MR. MILLAR: Is that a question?
302 THE CHAIRPERSON: It is a question.
303 MR. MILLAR: It is our position that the licenses at all times have operated these services in fact, because the decision-making has vested with the board of directors.
304 THE CHAIRPERSON: In a company that has no assets, tangible or intangible, has no employees? Is that correct?
305 MR. MILLAR: Correct.
306 THE CHAIRPERSON: Has Drive or 1225520 Ontario Inc., have they got any distribution agreements with BDUs, broadcast distribution undertakings?
307 MR. MILLAR: They do not. Those distribution agreements, again, were signed as part of the role-sharing with Diamond Media, again for a very practical if unconventional purpose.
308 THE CHAIRPERSON: You describe it as role-sharing. All I see right now is one entity doing everything and another couple of entities, Drive and 1225520, doing absolutely nothing.
309 How can it be shared when it seems to be an empty box on one side?
310 MR. MILLAR: The sharing is actually between the -- in looking at Drive Publishing the sharing is between the two ownership groups. So it was Channel Zero on one side.
311 I personally negotiated a great many of those affiliation agreements on behalf of the licensees although we signed them in the name of Diamond Media. And if it helps your deliberations, we were approaching the BDUs with three services, albeit two licenced in one entity and one licenced in another. AOV also acts as a VOD distributor with those same BDUs.
312 And so as a small broadcaster we are often very pleased simply to get an affiliation agreement. When the affiliation agreements were presented and they included one affiliation agreement under Diamond Media for three services, we elected to sign those.
313 Again, in hindsight, would we do it with what we've come to know? No. But it is what we chose to do at the time.
314 And that decision was made by the board of directors through the person of me. In the case of Drive the equal representation from the -- or sorry, 122, through decisions made by the board meeting informally.
315 THE CHAIRPERSON: I refer again to those letters of November 2011, '12 and '13. This is the statements submitted by Mr. Doug Rankine, president of the company 1225520 Inc. And I take it the same thing is occurring for Drive. That's correct?
316 There is a -- under operating expenses there is a line described as "Broadcast Services Hosting Fees". What is that?
317 MR. MILLAR: That is a payment made by Diamond Media on behalf of the licensees to Channel Zero for the operation and the -- well, the services that we've listed on the Channel Zero side of that chart.
318 THE CHAIRPERSON: But none of this money ever goes through the licensees, does it?
319 MR. MILLAR: No, that's correct.
320 THE CHAIRPERSON: So within -- I take it that within Diamond Media there is some sort of transfer of amounts of money from one account to another.
321 MR. MILLAR: Can you be a little bit more --
322 THE CHAIRPERSON: Well, the licensee -- you just said the licensee is paying this amount, but there is no money in the licensee.
323 MR. MILLAR: No, I said Diamond Media is paying it.
324 I believe I said or should have said Diamond Media would -- Diamond Media is paying the money on behalf of the licensees to Channel Zero for each of the services.
325 THE CHAIRPERSON: And they are getting the source of money for this from?
326 MR. MILLAR: It's being paid on their behalf. So it's being paid by Diamond Media. It's being received, held and dispersed.
327 If it's helpful, I could take you through sort of, in aggregate, any given years financial results. It would be a case of each dollar earned by those services in affiliation fees would flow to Diamond Media.
328 Diamond Media would -- and it doesn't really matter the order, but I'll say the first dollars paid are paid to Channel Zero on behalf of the operating of the service in terms of -- and again, vernacular use of the word "operating" -- operation of the service in terms of master control of origination and coding, something towards my time and affiliation, affiliate relations.
329 Then Diamond Media would make payments to the program suppliers which is really -- initially was intended to be the bulk and probably most years has been the bulk of the expenses for all -- each of the services for programming.
330 Then there are additional amounts that are paid for closed captioning, editing, OFRB, Ontario Film Review Board fees, et cetera. Those fees are all expended.
331 Expenses are paid by Diamond Media at the end of which the residual, the small residual -- in most cases it's been -- in the early years it was zero and in later years there has been some although that is now declining. Diamond Media would be able to keep the rest of that and their portion of what they kept and Channel Zero's portion of what they received for the operation constituted the compensation to the ownership groups for the operation of the services. That was done under the auspices of the board.
332 THE CHAIRPERSON: Now, you've referred to the word operating and describe it as in the vernacular sense, operated or operating. We are talking about a condition of licence.
333 What do you mean -- what is in your sense to operate in fact a licensee under the condition of licence?
334 MR. MILLAR: And I'll ask counsel if I stray off, but I'll try to answer it as openly and completely as I can.
335 It would include the final selection of programming, the authority to affect what goes on air, the responsibility and the accountability for other conditions of licence which would include closed captioning and Canadian content, portrayal of roles according to CAB, internal adult policies. Those are by and large the conditions.
336 It would also involve the ability to ensure that the service can be taken off air, is delivered with appropriate controls by the BDUs. These services have to be selected by subscribers individually and they have to be subject to separate -- sorry -- separate subscription issues.
337 And you know, the selection of the sub-contractors would also be a very large role that the board of directors would be responsible for as the licensees in operating, selecting in the same way you select employees or the role of sub-contractors.
338 The decision to retain Diamond Media, the decision to retain Channel Zero, the decision to retain any of the program suppliers, which Bill can touch on, those would be by and large the activities that would constitute operation in fact.
339 THE CHAIRPERSON: So I take it that your argument is that final selection of programs, the responsibility and accountability of content COLs, was actually done by the two licensees?
340 MR. MILLAR: Yes.
341 THE CHAIRPERSON: How so?
342 MR. MILLAR: In my capacity as a director on each of those, the boards have been responsible for ensuring we selected parties. We have been the ones to select the sub-contractors.
343 THE CHAIRPERSON: Are you able to provide us any documentary evidence that that was actually the case?
344 MR. MILLAR: As a small privately-held corporation we tend to, in those, operate somewhat informally between, you know, decisions made in other groups at other board meetings. There is no -- we have not kept minutes in those corporations of decisions.
345 But we also, in each of them, have no disagreement amount the parties who have been present to those decisions.
346 THE CHAIRPERSON: So I take it there are no minutes, but you're not able to point to a single exchange of emails, the effect that a board meeting was occurring, that a decision was made, that you met at a particular place at a particular time?
347 MR. MILLAR: I'm sure that we could find any number of instances of emails of meetings.
348 At the time of those two particular decisions, these decisions were made right at the very beginning when the services launched. They have operated in that way unchanged other than, you know, regular phone calls that would happen.
349 We had a very specific incident that Isabelle can talk about where a program supplier was no longer available and we made a change to the program supplier.
350 Maybe, Isabelle, do you want to...?
351 MS BERTRAND: I was going to say, "Can I step in"?
352 MR. MILLAR: Yes.
353 MS BERTRAND: I think just to clarify, actually the ways it was set is because we are also adult content providers to BDUs, like VOD, pay-per-view. And the way it works, I see there is maybe a distinction when we call it "operations", right?
354 So on my end, so Diamond Media -- let's say instead of operations, let's call it activities. So pretty much I execute what needs to be done for the content on a daily basis.
355 There is a lot of mechanical around adult content. Maybe the -- the first part is, we already had in place the relationships with the supplier. So that would be the first step. Then everything related to editing.
356 So all the guidelines were provided by the licensees. So every step is made and executed according to whatever we were told by licensees.
357 At the end, so as Cal was going to mention, let's say maybe a year ago, one of our suppliers went out of business. So I had to go and secure or I had to find new providers. But my job was to go there, seek a new supplier. But then at the end the final decision was not mine at all.
358 So I introduced a new supplier, actually a stonecutter, to Doug Rankine, and Cal met her. So they would make the final decision as the licensee.
359 So none of the decision-making is done under Diamond Media. It's more operational in terms of executing every day.
360 THE CHAIRPERSON: See, this is exactly what I don't understand. Your thesis is it's the board of directors that operates the licensees.
361 MR. MILLAR: M'hmm.
362 THE CHAIRPERSON: Yet, what we've just heard in Ms Bertrand's testimony under oath, was that in fact you make the decision, not the board of directors.
363 MR. MILLAR: For Drive Publishing I am the sole director in fact.
364 We have generally operated as if there were four directors, because through just an administrative oversight we never added the other three original shareholders of Channel Zero as directors. But I was acting in my capacity as a director when I made that decision.
365 THE CHAIRPERSON: And that applied to all three services or only one service?
366 MR. MILLAR: In the case of that decision, that decision was made on behalf of the board and I raised it at the Channel Zero board meeting subsequent to that meeting.
367 THE CHAIRPERSON: You've got four directors that you're saying are operating the service. When were they informed of this decision?
368 Because your thesis is -- I'm just using your words --
369 MR. MILLAR: Yes.
370 THE CHAIRPERSON: -- that to operate means to make the financial selection of programs. And it seems to me I have in fact heard quite the opposite, that it's not the board of directors that are making the final decisions about programs.
371 MR. MILLAR: No, I don't think that's -- I think that is a mistaken statement, sir, because if --
372 THE CHAIRPERSON: How are they put in the loop on us?
373 MR. MILLAR: In the case of 122 there are other directors to be brought into the loop. They were brought into through a conversation that we had when we worked together as a group.
374 THE CHAIRPERSON: Where did this occur?
375 MR. MILLAR: At the next Channel Zero board meeting.
376 THE CHAIRPERSON: What time? When? What's the details of this?
377 MR. MILLAR: Well, this is a -- this is an example that we provided to you. If you would like our undertaking for us to pull out the date of that decision was made and the subsequent board of directors meeting we would be, I guess, happy to do that for you.
378 THE CHAIRPERSON: We can take that undertaking. But I still am not persuaded by your arguments.
379 It would seem that, in fact, on the one hand you're saying this board of directors is making decisions but I'm unable to see when those board directors' meetings are occurring and when they are getting involved in the operations, which just leads one -- and I put this to you -- to the conclusion that in fact the two companies are mere empty shells and that the true operator of the service, contrary to the condition of licence, is Diamond Media.
380 MR. MILLAR: Well, then, I think we need to do a better job of convincing you of that because that's not the fact.
381 THE CHAIRPERSON: Mr. Millar and colleagues, this is your chance. This is a show cause hearing.
382 MR. MILLAR: Understood.
383 THE CHAIRPERSON: And I can't be clearer about this that your licenses are in jeopardy. We've been going at this trying to get information from you for some time and you're saying you need yet another chance to provide us the evidence.
384 MR. MILLAR: No, I think we will -- somebody -- I'm sure Joel may have some comment on this.
385 But it is our position that, you know, if the selection of programming specifically in 122 -- I don't think AOV Clips used the programming from the new program supplier. And I know for a fact the programming wouldn't be used on AOV Maleflixxx. So in fact, that particular decision despite your question, would probably only -- and I say probably only have been reflective of Drive Publishing.
386 So in that particular instance, to use that particular decision, that the board of directors being a sole director made that decision. However, because we've always operated in a legal standpoint -- but because we've always operated as if there were four, I made the other directors aware of it at the next opportunity when we met.
387 I don't know how that can be seen to contravene the operating in fact by the board of directors.
388 THE CHAIRPERSON: One of your notions of operating by the controlling board of directors in your thesis of both Drive and 1225520 is the responsibility and accountability with respect to content conditions of licence. Is that correct?
389 MR. MILLAR: Yes.
390 THE CHAIRPERSON: How are board members made aware of compliance, or not, of the three services vis-à-vis conformity with the content COLs?
391 MR. MILLAR: Well, I would start that the first reports that we received that AOV had not met its Canadian content compliance was in 2011-2012.
392 Perhaps somebody can pull the document up for me.
393 At that point that was a very big issue because the responsibility for the scheduling while it resides with the board is performed on a bit of a shared basis between the Diamond Media folks and other employees of Channel Zero. So we had to look into those reports of non-compliance and try to fix those problems.
394 I think that -- I hope that illustrates again the operation. This is --
395 THE CHAIRPERSON: So the board of directors only got informed once in 2011, you believe, of a non-compliance with a content condition of licence?
396 MR. MILLAR: Mr. Chairman, it's my recollection that we did not receive notice of non-compliance prior to that.
397 THE CHAIRPERSON: That's not the point.
398 The point is how can you argue that the board of directors is in control when they receive no reports of the operations of the company according to an important aspect you've decided -- you've defined as an important operating activity that is the responsibility and accountability of content conditions of licence?
399 MR. MILLAR: It's --
400 THE CHAIRPERSON: It appears they have received no reports.
401 MR. MILLAR: No, it's not.
402 THE CHAIRPERSON: How they can be accountable then?
403 MR. MILLAR: It's not a case that they received no reports. It's the first time that the Commission told us those -- our own internal reports were not recording Canadian content accurately.
404 THE CHAIRPERSON: It's quite the broad assertion you're asking us to swallow that these four Board members were actually operating the company without any assets, without any employees, without any revenues solely through Diamond Media, yet they received no reports, written or otherwise, about the operations of the licensees?
405 MR. MILLAR: That is fairly common in small, privately-held corporations. Perhaps more common than you're aware.
406 THE CHAIRPERSON: I think it may also be very common when it's, in fact, Diamond Media who's operating this licence.
407 If all the revenues are there, all the contracts seem to be there, the employees seem to be there --
408 MR. MILLAR: They're there with the approval of the Board.
409 MR. FORTUNE: Can I just interject here for a moment because I think -- with all respect, I don't think Mr. Millar has said that all the employees and operations and so on are in Diamond Media. What he's described is a situation where Diamond Media performed certain activities and the other ownership group performed certain activities. And those are set out in that table that's in the oral presentation.
410 And so while your questions have been focused on what the Diamond Media role is, there's also a role for the other ownership group which is described in the oral presentation and the activities that are performed there.
411 So it's not -- it's not accurate to say that Mr. Millar has said that Diamond Media is the sole entity that's engaged in the activities because -- in operational activities because it's not what he said.
412 So I just wanted to clarify that. Thank you.
413 THE CHAIRPERSON: Are you able to prove in any way through documents that the Board of Directors was actually managing, controlling and overseeing two licensees of AOV?
414 MR. FORTUNE: My interjection -- your point was that you put it to Mr. Millar, I guess, that the Diamond Media was the sole entity involved in various operational activities, and I just wanted to make it clear that he didn't say that.
415 That's why I'm interjecting here.
416 THE CHAIRPERSON: The point remains the same, whether it's in --
417 MR. FORTUNE: Well, I think --
418 THE CHAIRPERSON: -- Diamond Media or in Channel Zero. They're not the licensees.
419 MR. FORTUNE: Correct.
420 Well, I could also -- I mean, what I tried to say is they say that an undertaking is an arrangement of things and especially service unlike, for example, a radio station or a TV station, it doesn't have the requirement to own and operate a particular physical asset.
421 And so for specialty services, in fact, I would say it's probably quite common for a lot of activities to be contracted out.
422 And in fact, I would say it's probably not unusual for there to be no employees within any particular licensee company, especially within a broader ownership group.
423 So what Mr. Millar has been describing is a situation where ownership groups have divided responsibilities between the two entities, and that's what he's trying to describe, somewhat successfully.
424 I think he might want to spend a little bit of describing what Channel Zero actually does on their side of the equation and then maybe he should describe how it is, again, the Boars of these licensees actually exercise decision-making powers.
425 And there are other Board members here from those licensees. There's Mr. Podzyhun and Mr. D'Andrea, and perhaps they would like to contribute as well.
427 MR. MILLAR: Thanks, Joel.
428 I think that Joel raised a very good point, which is that the focus has been on Diamond Media third party contractor, and not on Channel -- the functions done by Channel Zero.
429 At times through the interrogatories and deficiency letters, there -- back and forth over a number of years now, there have been times when it's been insinuated that Channel Zero is owning -- is operating, in fact. Then it became Diamond Media.
430 We said over and over again the Board of Directors has selected two sub-contractors to provide those services, one of which was Channel Zero.
431 In fact, Channel Zero, you know, in hindsight, does far more of the day-to-day functions of it on behalf of the Board of Directors.
432 THE CHAIRPERSON: They've been doing this since when?
433 MR. MILLAR: Since the very beginning.
434 THE CHAIRPERSON: What date? What year?
435 MR. MILLAR: Launch. October 1st, 2004.
436 THE CHAIRPERSON: So why is it that you send the Commission a letter dated November 30th, 2013, and there are others, signed by yourself, Mr. Millar, saying that under this agreement, Diamond Media carries on the operations?
437 MR. MILLAR: The -- that would nothing more than a mistake or sloppy use of letter-writing. I don't write every letter that my signature goes on.
438 THE CHAIRPERSON: You are accountable.
439 MR. MILLAR: I am responsible.
440 THE CHAIRPERSON: You signed this document. You're the President of this company.
441 MR. MILLAR: Mr. Chairman, that was my next sentence, was going to be though I remain accountable for it, and that's why I'm telling you that it is sloppiness on our part to use those language in light of the very specific use the Commission is going to make of that letter. But it is sort of a vernacular use that we use.
442 We would also say inside Channel Zero that we operate each of the services when, in fact, what we're doing is services on behalf of those licensees.
443 I think there is in the file of this proceeding an operating agreement where we set down for the analysts at the time the verbally and orally understood operating relationship to try to provide clarity. And that has been filed and is part of this proceeding.
444 THE CHAIRPERSON: And I'll get to that in a moment.
445 Perhaps we could change a bit of the subject matter because I'd like to bring you to Section 10(4)(a) of the specialty regulations.
446 And as you're aware, that requires the licensee to obtain the Commission's prior approval before changing effective control of the licensee. You are aware of that obligation.
447 MR. MILLAR: Absolutely.
448 THE CHAIRPERSON: So my first question -- maybe this gets to the factual issue.
449 So what role do you have, Mr. Millar, in the day-to-day operations of the AOV services?
450 What kind of daily decisions do you make with respect to the AOV services?
451 MR. MILLAR: My day-to-day roles -- and again, in small corporations, you often need to wear different hats. So as a Director of Drive or as one of four Directors of one to two, I would have decision-making role.
452 As the President of one of the sub-contractors, I would have very little direct hands on. I don't program the service.
453 However, ultimate responsibility for the people programming it would roll up to myself and the other Directors of those companies.
454 THE CHAIRPERSON: Is this limited -- I take it the role is not remunerated?
455 MR. MILLAR: It -- I would argue that it is remunerated, not directly, but through Channel Zero's share of the compensation from these services, which I am an employee of Channel Zero Inc.
456 THE CHAIRPERSON: But you, personally, as the employee doing the work on the day-to-day operations, you weren't getting a specific remuneration.
457 MR. MILLAR: No.
458 THE CHAIRPERSON: Perhaps I can turn to you, then, Mr. Podzyhun.
459 What -- so if Mr. Millar is not doing the day-to-day operations with respect to the AOV services, what was your role?
460 MR. PODZYHUN: Well, no, my role was -- I mean, just like Cal had alluded to earlier, we're a small shop. His office is beside mine. So when it came to talking about strategy, about BDUs in the declining marketplace we were trying to come up with ideas how we could boost the revenues and things like that.
461 On an operational point of view, our technical team does all the master control origination and --
462 THE CHAIRPERSON: But you're the CEO of that, aren't you?
463 MR. PODZYHUN: The CEO, correct.
464 THE CHAIRPERSON: And what did you do as CEO on the day-to-day operations?
465 MR. PODZYHUN: Of the two licensees?
466 It's a small part of my business. There's other things I do because there's a few other licences we have, plus we have other non-regulated businesses that I work in as well.
467 THE CHAIRPERSON: So the -- who -- did you give any instructions to other employees or other people to actually do the operations for AOV?
468 MR. PODZYHUN: Well, if you refer back to the chart that we provided, all the functions are listed there on the Channel Zero side. We're responsible for that, and we have a very capable team that, you know, does all those -- sort of work for us.
469 THE CHAIRPERSON: As CEO, how were you filling that responsibility on a day-to-day basis?
470 MR. PODZYHUN: Making sure the signal is on air and making sure the -- you know, our AOV customers are happy as well as our customers, the viewers.
471 THE CHAIRPERSON: Is this a remunerated role?
472 MR. PODZYHUN: No. No.
473 THE CHAIRPERSON: It was not.
474 MR. PODZYHUN: Not for me, no. Just like Mr. Millar, through Channel Zero.
475 THE CHAIRPERSON: And for the AOV services, how were programming decisions made?
476 MR. PODZYHUN: I wasn't involved directly with the programming, but we did talk about strategy and things like that. And in --
477 THE CHAIRPERSON: Tell me more. What did you mean by that?
478 What does it mean to be involved in strategy?
479 MR. PODZYHUN: Well, our last Board meeting which we had just recently, we were --
480 THE CHAIRPERSON: I'm asking your role on a day-to-day basis as the CEO.
481 MR. PODZYHUN: Of the two services.
482 THE CHAIRPERSON: Yes. So not the Board; you.
483 MR. PODZYHUN: Well, we talk about the two services whenever Mr. Millar brings us the information if there's a decision to be made. Otherwise, there's a team that does all the origination, the master control and the hosting of it.
484 THE CHAIRPERSON: And who are the members of this team?
485 MR. MILLAR: Our Channel Zero technical team, so the -- if it would be helpful, perhaps I could, you know, sketch out the organizational chart.
486 Below me is a gentleman by the name of Brian Boyle who is our Director of Operations.
487 Below him in total are about 65 employees in aggregate. One of that group would include the manager of master control and tech ops, Thinh Lu.
488 Ting has day-to-day conversations with Isabelle. He's -- obviously, through the chain of command, reports up through me.
489 Below Thinh is an entire staff that operate our master control. Not in a legal sense, but in the vernacular sense of operate our master control.
490 And they also do that on a 24-hour, seven day a week basis.
491 So if you're -- along that line of questioning, you'd almost have to keep going down to 50, 40, 30 people who aren't here.
492 Ultimately, their actions across all the services, again, is -- allude to who she speaks to on a more regular basis.
493 THE CHAIRPERSON: I was focusing a lot on AOV at this point, so maybe you can focus on the AOV services.
494 MR. MILLAR: But I am.
495 THE CHAIRPERSON: Okay. So all those activities are occurring in -- by employees remunerated by Channel Zero.
496 MR. MILLAR: Correct.
497 THE CHAIRPERSON: None by Diamond Media?
498 MR. MILLAR: None that I talked about that.
499 THE CHAIRPERSON: So the day-to-day operations are entirely -- help me draw a line between Diamond Media and Channel Zero as your alleged sub-contractors.
500 MR. MILLAR: Sure. And perhaps I could direct your attention to the most -- the easiest place to find it would be the March 20th submission on page -- on page 8 of our March 20th submission.
501 I'm sorry; that's not right.
502 MS BERTRAND: Eleven (11).
503 MR. MILLAR: Eleven (11). Thank you.
504 It begins on page 11 and finishes on page 12.
505 What we've tried to capture there for you in some details are the functions performed by each of the sub-contractors.
506 THE CHAIRPERSON: I don't have -- I don't think I have that at hand.
507 MS BERTRAND: Presentation.
508 MR. MILLAR: It's been pointed out to me it's also in our oral presentation, page 9.
509 On that chart, you can see that we have listed the day-to-day activities that are undertaken, the two primary sub-contractors. There are others, but they are not -- don't form any part of the ownership group.
510 And these are the services, by and large, that are performed.
511 I don't suggest it's entirely exhaustive, but it's what we were able to come up to include in this.
512 THE CHAIRPERSON: Am I correct in assuming that the revenues with respect to the AOV services, all three of them, are -- largely flow from subscriber revenues?
513 MR. MILLAR: That is correct.
514 THE CHAIRPERSON: There's no advertising revenues.
515 MR. MILLAR: There is not.
516 THE CHAIRPERSON: And of course, such revenues would require an affiliation agreement with VDUs.
517 MR. MILLAR: Yes, that's correct.
518 THE CHAIRPERSON: Who negotiated those VDU agreements, according to your division of authority here?
519 MR. MILLAR: Sure. That's indicated in both sides. It's a bit of a shared role.
520 THE CHAIRPERSON: And when you say "shared" in this table on page 9 of your presentation, you're saying shared between Diamond Media and Channel Zero? Is that correct?
521 MR. MILLAR: Correct. Approved by the Board, but negotiated on behalf of the licensees.
522 THE CHAIRPERSON: When you say "approved by the Board", what's the nature of the approval by the Board?
523 MR. MILLAR: The nature of the approval is a review, an informal review, of the proposed affiliation agreement.
524 THE CHAIRPERSON: Sorry. What's an informal review of the proposed arrangement?
525 MR. MILLAR: I've been instructed to be helpful and not argumentative, so please accept --
526 THE CHAIRPERSON: I'm just --
527 MR. MILLAR: No, I'm saying so please accept this not as argumentative, okay. But as the sole factual Director of Drive, I would argue that my review of that document constitutes -- and if I say "Let's sign it", constitutes informal Board approval and probably formal Board approval.
528 THE CHAIRPERSON: I understand for Drive because there's a single Director. But what is the case for the other two services, the AOV services?
529 MR. MILLAR: So in those cases, I may have -- and again, you're asking me to reconstruct -- most of these affiliation agreements have been negotiated a number of years ago. But to reconstruct, I will do my very best to keep it as straightforward as -- and simple.
530 It would have been a case of, before the services launched, we would have met as a group and said do we have -- do these represent enough revenue and enough opportunity to pay the costs. The four Directors of 122 made a decision that it was, that they would be prepared to proceed, and that would constitute --
531 THE CHAIRPERSON: And what was the time frame of that, approximately, what year?
532 MR. MILLAR: Two thousand four (2004).
533 THE CHAIRPERSON: Two thousand four (2004). Okay.
534 And they were -- individual affiliation agreements were blessed at that point or it was a strategy? Help me understand.
535 MR. MILLAR: I think that we would have -- at that case, there would have been specific -- one specific BDU's contract there in detail for review and to get approval on. And the rest of the decision was, because of clauses like MFN, which is Most Favoured Distributor clauses, as long as they conform to its MFN, let's sign up as many BDUs as we can.
536 So that would have been the -- by and large, the decision of the Board.
537 THE CHAIRPERSON: And were any of these affiliation agreements renewed since 2004?
538 MR. MILLAR: I don't believe any of them have been actively renewed.
539 We have added some since 2004.
540 Yeah, good point. Thank you.
541 We did, in fact, renew the...
542 MR. MILLAR: The 60 SA Community Cable System Alliance contract has been renewed, and in more recent, that is probably the last renewal that's taken place.
543 THE CHAIRPERSON: Can you explain step by step how those renewals went through, particularly focusing on the involvement of the Board of Directors?
544 MR. MILLAR: The -- before the negotiations in that case, in CCSA's case, were more shared by Isabelle as a sub-contractor of AOV.
545 Isabelle would have brought that to Doug as her employer to say that this is where we're at, and Doug and I would have spoken and agreed at that point on Drive that would have constituted it.
546 And in the case of -- there were no changes -- as an aside, there were no changes, fundamental changes, to the agreement on renewal.
547 And you know, I would have given him direction that, you know, go ahead and sign them. And at the next meeting of the four Directors because I'm loathe to call it a formal Board meeting -- but at the next meeting of those four Directors, we would have spoken about renewals, as we do on our biannual meetings when the four of us get together.
548 THE CHAIRPERSON: And where would these get-togethers occur?
549 MR. MILLAR: They occur -- well, they sometimes occur in a boardroom of a private club called The Spoke Club where we can all meet and have privacy, and sometimes in the boardroom at Channel Zero.
550 Mr. Podzyhun and Mr. D'Andrea and often Mr. Balde would be in attendance.
551 THE CHAIRPERSON: We don't have Mr. Balde here, but perhaps, Mr. Podzyhun, you could help us understand exactly when you recall being involved in the renewal of this CCSA agreement, if at all.
552 MR. PODZYHUN: I'd probably have to check my notes. I mean, it's more of an informal because my office is beside Cal's, and then whenever the details come up, he'll usually just sort of walk over and we'll just sort of meet and discuss.
553 But we have been strategizing what to do with our involvement with AOV brands because it's -- with the internet everything is changing dramatically, so we were, you know, trying to figure out what to do with it.
554 So just I'd have to check my notes back in the office to give you the exact date when we spoke about it.
555 THE CHAIRPERSON: Mr. D'Andrea, you're not co-located. Is that correct?
556 You don't have an office next door to Mr. Millar?
557 MR. D'ANDREA: No, sir. I'm on the first floor.
558 THE CHAIRPERSON: And do you recall being involved in any of these decisions on programming?
559 MR. D'ANDREA: I remember being informed and also, on several occasions, I remember discussing the AOV situation while we were a Board for Channel Zero. When we were actually doing our Channel Zero Board meetings, sometimes specific discussions were brought -- were updates. And I don't think any formal decisions were made then.
560 I think because Channel Zero was involved in the service end of it, we often put AOV updates because all of us were together at that time.
561 And also, I don't know if it adds anything, I can attest to the fact that, personally, for the Channel Zero side and our service providing, I have personally cut promos for AOV and helped with some of their launches and produced bumpers and stuff like that because that was also part of my job at Channel Zero.
562 THE CHAIRPERSON: We're trying to find out, though, your role as a Board member because the thesis is apparently that the Board was controlling and making important decisions. And I think -- and please, if anybody on this panel disagrees, I would have thought affiliation agreements, the principal source of revenues for these licensees, would be important decisions the Board would want to know about.
563 Is that correct?
564 MR. MILLAR: I would suggest no. I mean, it's a delegated responsibility.
565 I sign all the affiliation agreements for the other licensees, the non-AOV ones. It's not -- they're important documents, but they are simply part of the normal course.
566 THE CHAIRPERSON: And there would not even be an annual report to the Board members about the status of affiliation agreements with BDUs, the only source of revenues for these licensees?
567 MR. FUOCO: If I may because many of the Channel Zero Board meetings, I'm typically there as an invited guest. And on an annual basis, we look at the overall financials of Channel Zero.
568 And one of the important lines of revenue that we have is the services line where we provide broadcasting, master control, technical services to third parties.
569 And so what I have seen over a number of years, the fluctuations in that line being discussed at a Board level. And when the Board members of Channel Zero have asked the financial managers of the company what, exactly, is going on, that is when the discussion around declining levels in subscriber revenue at the AOV service level is a reason why there have been fluctuations in the compensation.
570 The amount of monies paid from the AOV businesses through Diamond to Channel Zero have changed over the years based on change in subscriber levels, more subscribers coming or overall declines. So that discussion has taken place at a Board level for Channel Zero on a number of occasions.
571 So if that provides additional context, and I'm sure --
572 THE CHAIRPERSON: But my question was with respect to the licensees, not Channel Zero.
573 MR. FUOCO: Correct. I understand your question but I think it's what we've been trying to explain here today.
574 The relationship that both Diamond and Channel Zero have with the licensees is one where those companies -- sorry, our company Channel Zero, Diamond Media with Isabelle's expertise -- are tasked with bringing forward recommendations and good advice up to the licensee companies and based on the recommendations that are brought forward, be it we had been discussing with a BDU a particular renewal arrangement and we recommend that this should be taken forward, the Board makes informed decisions based on those recommendations that are filtered up from the two subcontracting companies. And that is just an activity that occurs on a regular basis inside our organization and, as I say, on a more formalized basis.
575 If it would please the Commission, I'm sure we could go back to some of those Channel Zero Board meetings to provide you with specific dates and locations when we did, for example, a review of our annual financial returns, to satisfy you that conversation at some level has occurred about the fluctuations of services revenues coming into Channel Zero.
576 THE CHAIRPERSON: You know, when I listen to all this, I can't help but start thinking that the operations are being run by Channel Zero and/or Diamond Media and I still don't understand why you're trying to make this argument that stretches credibility that it's the Board of Directors of these inactive MT companies that are running the show. I don't get it.
577 MR. PODZYHUN: When we mentioned about Channel Zero Board meetings, we do actually have Board meetings for all the companies that day. So we spend a solid day just separating ourselves and going there and going, you know, company by company. And just the way our company has set up our group, we just cross all departments and everything. So that's where when we say Channel Zero Board meetings, that actually means, you know, for 122 and also for Drive.
578 THE CHAIRPERSON: Are there minutes kept for the Channel Zero Board meetings?
579 MR. PODZYHUN: For Channel Zero specifically, yes.
580 THE CHAIRPERSON: But there are none for Drive and 1225520 Ontario Inc. despite the fact they're occurring exactly at the same time; is that correct?
581 MR. PODZYHUN: Not quite. For Drive, since Cal is the sole director, they'll have their meetings offsite. We have meeting minutes for 122.
582 MR. MILLAR: No, Romen has misspoken, there are no minutes for 122.
583 THE CHAIRPERSON: Yet, they're occurring concurrently, apparently, with these Channel Zero meetings?
584 MR. MILLAR: In an informal sense. We've said on the record that we don't have formal Board meetings, that there are four individuals that meet for other purposes, being Channel Zero and other licensees -- and other non-licensed corporations.
585 And when we have that opportunity, twice a year, to be in the room together, we do have that conversation. But we have not bothered with formal Board meetings or minutes because the -- and again, it's -- in my experience, it does happen. We're not the only ones that conduct business that way.
586 But when there are decisions that are made, we've been very clear as to what the guiding principles for those corporations are to their subcontractors and there is very little to do, and when it needs to be done, it's communicated.
587 THE CHAIRPERSON: How is this information communicated?
588 MR. MILLAR: Between which parties?
589 THE CHAIRPERSON: Between the Board and the subcontractors. You said it had to be clear.
590 MR. MILLAR: Absolutely. Very often phone calls, sometimes in-person meetings. We have a regular, you know, annual meeting -- sorry, that's not a good choice of words. You'll take that differently. It makes the once-a-year meeting in person with the -- in Drive with the other ownership group.
591 We have at the same time usually twice meetings with the subcontractor, i.e. Diamond. And I would have daily meetings with the other subcontractor, when I'm in the role as a director, to communicate the Board's wishes to the subcontractors.
592 THE CHAIRPERSON: And there are no minutes, emails, letters, to prove the clarity of this arrangement? You know, Mr. Millar, I provide more documentation when I have my tires rotated with my garage owner and it's a much smaller operation than these three licensees.
593 MR. MILLAR: I'm not sure how to answer you.
594 We have -- the control of these three licensees rests with their Board. The companies themselves operate in a legal standpoint. While they don't have specific employees, they have used subcontractors.
595 There is nothing that we did in this that was ever intended to mislead the Commission in any way. We put together a very practical, we thought at the time, ownership structure, mechanism, legal entities. We began the operation. We, in 2005, needed some guidance from the Commission as to how to communicate and do that. We received it.
596 We have filed in a very transparent manner, year after year, what we do. Those documents have not changed since they were first filed and --
597 THE CHAIRPERSON: Yes, I have those documents where you claim that it's Diamond Media that's running the show and in fact, now, you're telling us today that it's also Channel Zero. Those are the clear and transparent documents you have provided us?
598 MR. MILLAR: Those are the documents we provided you that were intended to show you how the licensees are operating the business and there has been no point at which, until we asked for some change of control to be considered, that anybody pointed out to us that that was a problem.
599 We have since that time been quite prepared to make adjustments on a go-forward basis but we haven't been given any further direction as to how to do it. But we would be -- we're here very much as your behest and looking for direction as to the best way.
600 We have proposed to manage them under the new Exemption Order but we are -- we can make changes going forward. It isn't possible to change the decisions we made in 2004.
601 THE CHAIRPERSON: Your clearest directions are your conditions of licence and the obligations under the Regulations.
602 We'll take a break now until five to 11:00. We'll adjourn for the moment.
--- Upon recessing at 1044
--- Upon resuming at 1057
603 LE PRÉSIDENT : À l'ordre, s'il vous plaît. Order, please.
604 So let's continue on this. So, as I understand it, the relationship between the licensees, the AOV services licensees for those services, there was a verbal agreement with Diamond and that that verbal agreement was somehow crystallized by putting some of the important elements into what is called the Written Reproduction of the Operating Agreement; is that correct?
605 MR. MILLAR: That's correct.
606 THE CHAIRPERSON: And you've stated in a letter dated 13 December 2012 that there is no requirement for you to have a written agreement. Yet, wouldn't you agree that you have a regulatory duty to demonstrate that licensees are in control of the undertaking?
607 MR. MILLAR: I would agree with that statement but I think the statement that was made in the letter was intended to clarify that while there was no written agreement, there was an absolute agreement between the parties and that we had provided it at staff's request.
608 THE CHAIRPERSON: So, only because the CRTC asks that you somehow document this oral agreement, the licensees have no minutes, there seems to be no beginning of evidence that board meetings occur, I'm finding it difficult to conclude that these Boards were actually active.
609 MR. MILLAR: If the Boards make decisions and there are no specific minutes of it, does that mean they didn't meet? Unfortunately, that's the --
610 THE CHAIRPERSON: Mr. Millar, we're not here to ask philosophical questions. You have a regulatory obligation. That's what we're talking about and, frankly, I'm looking and hoping and we have for a number of years tried to get you to prove to us that you're meeting your regulatory obligations in terms of control. It's not a theoretical question.
611 MR. FUOCO: And that's clear and we understand that. And as we stated at the beginning, we want to satisfy your questions, and if to date we haven't been specific enough to the detail of bringing forward correspondence, emails, evidence of meetings held between the Board members where decisions at the Board level were being made, well, we don't have those pieces at our fingertips right here with us.
612 THE CHAIRPERSON: If I'm not mistaken, you're involved in Channel Zero, you're not on the Board of Directors?
613 MR. FUOCO: I am employed by Channel Zero.
614 THE CHAIRPERSON: Right.
615 MR. FUOCO: I'm Manager at Channel Zero.
616 THE CHAIRPERSON: Yes, but what knowledge would you have of the meetings of the Board of the licensees?
617 MR. FUOCO: I'm speaking on behalf of my colleagues and suggesting what we can do to satisfy your concerns.
618 MR. MILLAR: And since 2009, Mr. Fuoco has been an invited guest at our Board meetings.
619 THE CHAIRPERSON: The Board meetings of which company?
620 MR. MILLAR: All of the companies.
621 THE CHAIRPERSON: Including Drive Publishing and 1225520 Ontario?
622 MR. MILLAR: When the members of the Board meet, while it might not be a formal Board meeting, it is a meeting of the members of the Board of Directors, and Mr. Fuoco has been there and that is the occasions when some of those decisions have been taken.
623 MR. FUOCO: And if I may add to that.
624 Specifically, you know, my reason for being there and my interest in understanding is because while I don't have a direct role as it relates to AOV, because I do have a significant interest in understanding overall what Channel Zero can see on a go-forward basis in terms of the service revenue that we can acquire, it is something that I'm interested in because I do have a controlling interest on a separate licensee, CHCH, that receives services from Channel Zero and so I am interested in understanding the big picture, so to speak, of Channel Zero and how it relates to all the licensees that it renders services to.
625 THE CHAIRPERSON: Let me get back now to the verbal agreement that's been summarized in the reproduction of the Operating Agreement.
626 When I reviewed it, it struck me that it had very little detail on the economic relation between Diamond Media and the licensees. In particular, it says that the licensee has to approve every spending decision in writing. Yet, it's my understanding that no writings can be produced to show such approvals.
627 MR. MILLAR: Again, the agreements are written with rules and the waiving of a particular clause in an agreement doesn't invalidate the agreement. So the agreement says what it says and the agreement was what it was. While we might not have enforced the need for written approval, it may have been done verbally and often was.
628 THE CHAIRPERSON: So, why did you come to reproduce the verbal arrangement in an Operating Agreement?
629 MR. MILLAR: Because Commission staff were unable to understand that parties can have a fairly fulsome agreement that is oral.
630 THE CHAIRPERSON: And notwithstanding that, you've specified that the oral agreement provided for written decision-making and you still ignored it afterwards. I don't understand the logic of going out of your way to say that the oral agreement includes an obligation to get approvals in writing and then immediately not even bother putting that into force.
631 Why did you say that the oral agreement had that clause if you just ignored it in any event?
632 MR. MILLAR: Let me answer it differently.
633 We saw no need to -- we believe we've been operating these in compliance. We saw no need to change our behaviour as a result of providing the Commission staff a written version of what was essentially the document. It's helpful for the parties to agree that it should be in writing because that's what we had agreed.
634 To the best of our ability, it was a faithful reproduction of what our agreement was but that we had not previously bothered with insisting on written confirmation and approval. We didn't at that point proceed to make a change to our operation. It was working, in our view, except we're having trouble convincing you of this, but in our view that we were in compliance. So we saw no need to change our method of operation.
635 THE CHAIRPERSON: So, in the entire period when you had -- and still do, I believe, have an arrangement with Diamond Media, whether it was before or after the agreement was reproduced in a written form, were there any instances in any of that period where approval of a spending decision was made in writing?
636 MR. MILLAR: I expect there are. I don't have one at my fingertips right now but I expect there are.
637 THE CHAIRPERSON: And would it have been before or after the reproduction of the Operating Agreement in writing?
638 MR. MILLAR: My expectation is before.
639 THE CHAIRPERSON: Would you undertake to provide examples of that?
640 MR. MILLAR: Yes, I would.
641 THE CHAIRPERSON: How long do you need?
642 MR. MILLAR: If we could have sort of end of week, a couple of days from now. It's Tuesday.
643 THE CHAIRPERSON: Let's make it Monday. That way you can have a little bit more time.
644 MR. MILLAR: Thank you.
645 THE CHAIRPERSON: Now, the reproduction of the Operating Agreement provided that spending decisions should go through a written process. Because of a cordial relationship, as I understand it, you did not go through it.
646 Why is it when the Commission started asking you questions did you not, notwithstanding the cordial relationship, start documenting spending decisions so that you could at least have a chain of evidence?
647 MR. MILLAR: It was our belief then, continues to be our belief now, that we were not operating without compliance with our conditions of licence and so therefore there was no particular need to change what we were doing.
648 That said, someone may wish that we had started to do it, but we didn't think, and still don't believe, the way we structured it, while unconventional and fraught with problems now, is in direct contravention of the licence, but we acknowledge there are better ways to structure it and if I could go back in time and do it differently, be assured we would.
649 THE CHAIRPERSON: Again, with respect to this verbal arrangement that was then documented between the licensees and Diamond Media, what would be considered a significant expense? Is it based on an amount of money or what other factors would go into that?
650 MR. MILLAR: Despite having read this several times in preparation for today, I'm having a little bit of trouble answering that question. A significant amount would be judged by me in my capacity as a director of the licensee or by me in my role as an employee of the subcontractors to be significant based on a proportion of total revenue.
651 THE CHAIRPERSON: So, in this case, would the trigger be at $2,000, $5,000, $10,000?
652 MR. MILLAR: I think substantially more than that. I think that significant is -- you know, in line with some of ours would be, you know -- again, different licensees are at different levels, but I think that, you know, something north of $50,000 would be a real problem. Programming tends to be bought in blocks over long periods, so the numbers can be relatively large.
653 I hope that's helpful.
654 THE CHAIRPERSON: Were there such -- let's assume it's $50,000 for the sake of argument. Were there instances where Diamond Media was required to seek authority for a $50,000 or above decision?
655 MR. MILLAR: Is it possible for one second to go off the record because there's financial details of the operations I'd like to just ask you? It's just -- or I have to be careful how I say it.
656 THE CHAIRPERSON: Well, there's two ways of doing it. We don't go off the record. The way we --
657 MR. MILLAR: In camera, sorry.
658 THE CHAIRPERSON: Well, no, we won't go in camera --
659 MR. MILLAR: Okay.
660 THE CHAIRPERSON: -- but you can answer through an undertaking and seek confidentiality to your answer.
661 MR. MILLAR: That may be the best way because I'd like to give a very full and complete answer but I would prefer, because it involves financial information that is usually accorded confidentiality, that we could file it confidentially.
662 THE CHAIRPERSON: That's fine. But here is what I am trying to get at. If there has been an instance but it was all done orally, I would like to know step-by-step how did the authorization occur, who spoke to whom.
663 MR. FORTUNE: Mr. Chair, just before, I just wasn't quite clear on the confidentiality. Is this proceeding being webcast? Right now, this is going out?
664 THE CHAIRPERSON: Oh, yes. This is a public hearing.
665 MR. FORTUNE: Okay. So obviously, Cal --
666 THE CHAIRPERSON: It's very public.
667 MR. FORTUNE: -- this is a public hearing. So when the Chair said you could seek -- what he means is for written materials that we might subsequently file.
668 THE CHAIRPERSON: Yes. The written answer, the undertaking would be confidential, but I'm just describing what I'm trying to get at. I'm trying to figure out if there have been instances of a significant expense that had to be approved in the period when you had an arrangement, and continue to have an arrangement, with Diamond Media, what steps -- first of all, has there been an occurrence of that and, second, what steps were followed? Who spoke to whom for all three of the AOV licensees?
669 THE CHAIRPERSON: That can all be done through an undertaking.
670 MR. FORTUNE: Thank you, Mr. Chairman.
671 MR. FORTUNE: I'm trying to think if there is one I can give you to help this process. There was a more recent situation where Diamond Media wanted to -- Diamond Media asked -- because it is the indirect recipient of all the revenues on behalf of the licensees, Diamond Media suggested that perhaps Channel Zero would undertake to reduce its amount of its contract and so -- this may not be the perfect example, but it is one where -- and it was specifically in relation to 122, not Drive -- and Doug Rankin called up and said that, you know, given our agreement, you know, it's going to be difficult for those licensees to continue to meet the payments to Channel Zero. And if you will go along with me, pretend for a moment, because he was only talking to me in my role of decision-maker for Drive, it was a bit of a conflict of interest for me so I conferred with the Directors on location in Toronto, we had a discussion about that and I then communicated back to Mr. Rankin on behalf of the Board of Drive that Channel Zero was amenable to it and that the licensee was amenable to it and we could change that part of the relationship.
672 THE CHAIRPERSON: Mr. Podzyhun, do you remember that conversation?
673 MR. PODZYHUN: Yes, I do.
674 THE CHAIRPERSON: And did you participate in any Board meeting, as informal as it might have been?
675 MR. PODZYHUN: Yes.
676 THE CHAIRPERSON: Mr. D'Andrea, do you recall that as well?
677 MR. D'ANDREA: Yes, sir.
678 THE CHAIRPERSON: And how did the meeting occur? How were you informed of the decision to be made?
679 MR. D'ANDREA: I'm sorry?
680 THE CHAIRPERSON: How were you informed of the decision to be made?
681 MR. D'ANDREA: The decision to be made, I believe it was through --
682 THE CHAIRPERSON: Or to be seized of an issue? How did it --
683 MR. D'ANDREA: I was contacted by Mr. Millar.
684 THE CHAIRPERSON: Who explained to you the situation?
685 MR. D'ANDREA: Yes.
686 THE CHAIRPERSON: Could you, in your undertaking give the details of how this went about, what the issue was and the various steps?
687 MR. D'ANDREA: I would be delighted.
688 THE CHAIRPERSON: I'm struck when I look at the reproduction of the verbal agreement how there is very little information on where the risk and reward for financial success or failure is between Diamond Media and the licensees. Could you explain to me what the essence of the economic relationship is?
689 MR. MILLAR: It's me again.
690 Yes. This takes us back to the beginning of when these services were first licensed.
691 Again, it helps if I speak specifically around Drive, it is the largest of the licensees and it was the first one so many of these conversations took place very much around this.
692 The nature of the agreement in that case is that the two ownership groups were not going -- again, made a decision that we would license the majority -- the majority of the expenses tend to be programming that the revenue would go and we have covered that. Channel Zero, from an ownership standpoint -- the principles of Channel Zero and the principles of Diamond Media -- elected -- a perhaps somewhat novel, but not totally unheard of -- model where we selected our form of compensation from the operation, the ownership of these licences -- on the ownership, not operation of these licences, to be in the form of regular, stable monthly fees to be paid to us. Some service provision, but it was very clearly amounts that were intended to be both for service and what we could reasonably expect to come from.
693 It is fair to say we weren't entirely sure of the economics of the adult business. We looked at the projections and elected to say that we will take ours in a monthly fee that will be paid by the licensee to us. Eventually it became indirect through Diamond Media.
694 Diamond Media, as the recipient of the funds on behalf of the licensees, was tasked with paying all the expenses, including the master control origination to Channel Zero, the programming, closed captioning, editing, their fees, and so forth, and it elected to receive the residual. I can assure you for the first three or four years we looked like the smartest guys in the world because we earned revenue and received compensation from the ownership of these licensees into our other companies while Diamond Media didn't.
695 In intervening years Diamond Media earned more, and I would suggest I think the records show very clearly that over the last couple of years we, the four original shareholders of Channel Zero, with the money flowing into Channel Zero, have been compensated at a much higher level than Diamond Media, but the nature of it was that we opted for fixed contracted, stable recurring revenues while they opted for hanging on to the residual.
696 As we prepared for this, the best way to articulate it was I think that we had some reluctance on the projections and sort of said, "Sure, let's do it this way because that is something we can understand as a fee."
697 THE CHAIRPERSON: And this fixed revenue was paid to whom?
698 MR. MILLAR: To Channel Zero, which are the same four individuals.
699 THE CHAIRPERSON: Sorry, just so I understand here, I just want to understand where the money is going.
700 So there is revenues being paid to Channel Zero for activities that are related to the licensees of the AOV services; is that correct?
701 MR. MILLAR: Correct.
702 THE CHAIRPERSON: So why weren't they being paid to the licensees since they were the licensees?
703 MR. MILLAR: No, these were -- again, the same four people own -- the minority interests, the individuals are Millar, Podzyhun and Balde and D'Andrea; the same four shareholders in Channel Zero and the same four shareholders in Drive and the same four in -- and so we elected to have those payments flow into Channel Zero. The reason -- sorry.
704 THE CHAIRPERSON: You see, I don't understand, because you described to me, and Mr. Fortune even corrected me, I thought the arrangement was that both Channel Zero and Diamond Media were service providers, according to your thesis.
705 MR. MILLAR: Right.
706 THE CHAIRPERSON: On behalf of the licensees, the licensees who operate the three AOV services.
707 So why is money, this rent, going from one service provider to another service provider rather than going into the actual licensee?
708 MR. MILLAR: Given that the owners were all the same and that our original interest and involvement in the AOV channels was to help build Channel Zero's third-party master control and origination business, we elected to have a fee that could be understood, it was a fixed amount that would be paid out of the incoming revenues to Channel Zero. It's a different way of receiving the economic value to the ownership group.
709 THE CHAIRPERSON: But it never went into the licensee companies?
710 MR. MILLAR: None of the revenue went directly into the licensee companies. We have been, I think, very clear on that aspect.
711 THE CHAIRPERSON: So because it was a fixed return amount -- I didn't pick up whether it was a monthly or annual amount, but that doesn't really matter -- the risk of loss and the upside of reward as the market developed was always Diamond Media's?
712 MR. MILLAR: At the outset it was shared until we established this structure and from then on that was how we elected to --
713 THE CHAIRPERSON: And this new economic deal came to be at what time?
714 MR. MILLAR: Shortly after the licences were granted, when we were setting up the operations in 2004.
715 THE CHAIRPERSON: And I turn now to the Board members and you were all aware of this arrangement, Mr. Podzyhun?
716 MR. PODZYHUN: Yes, we were.
717 THE CHAIRPERSON: Mr. D'Andrea?
718 MR. D'ANDREA: Yes, absolutely.
719 THE CHAIRPERSON: I'm going to ask you, Mr. Hagar, but I'm not sure if you are aware of the details on behalf of Mr. Balde or not.
720 MR. HAGAR: As the Commission may know, I acted as counsel for Mr. Balde from 2005 onwards when divisiveness grew between the two groups of shareholders and in fact I acted for Mr. Balde and Mr. D'Andrea for a period of time and then only acted for Mr. Balde.
721 I certainly have information about how they operated and I think I can support from that information that there was a lot of informal decisions made, as one would expect in a small company, when the four people were working individually. So I do have that information.
722 I can tell you that I have looked at a lot of documents and I don't think Mr. Millar and Mr. Podzyhun's forté was dotting the i's and crossing the t's. But having said that, Mr. Millar certainly had a forté in management and has propelled companies to great heights.
723 I have not seen the Shareholder's Ledger or the Director's Ledger for this numbered company so I cannot confirm or deny what Mr. Balde's position was as a shareholder or Director.
724 I can tell you that because of the close communication between Mr. Balde and I that he did receive notices of Director's meetings for Movieola, Silver Screen and Channel Zero, there were Agendas for those and he attended and there were Minutes from those.
725 I have not seen anything in relation to the numbered company, but of course that in effect supports Mr. Millar's testimony.
726 I was not present at these meetings so I cannot speak personally to what was said.
727 Since the breakup I have to tell you that information flowing to Mr. Balde has not been, let's say, as consistent as it used to be when he was actively involved in management. So unfortunately I can't say anything one way or the other unless I know and I really have nothing to say that could dispute Mr. Millar's evidence. On the other hand, there is a lot that I don't know that I can't confirm either.
728 Unfortunately, before Mr. Balde got sick we had intended to have a discussion. I had been attempting for two years to find out what was going on with this application, trying to get information, and only when it became public on the website was I able to learn what the issues were. Unfortunately, I did not have an opportunity to discuss Diamond Media, which I knew nothing about, or its relationship to the numbered company, with Mr. Balde before he got sick. I had fully intended to do so before he came here for this hearing. I would have been able to do so had I had information earlier, but I didn't.
729 THE CHAIRPERSON: Right.
730 MR. HAGAR: So it's unfortunate.
731 THE CHAIRPERSON: Mr. Hagar, you practice mostly in the area of corporate commercial law?
732 MR. HAGAR: My area of practice is employment law and commercial litigation, primarily in the oppression remedy shareholder dispute area, so my focus is limited. I am a litigator primarily, that's what I do --
733 THE CHAIRPERSON: But you have some knowledge about corporate law obviously if you are litigating in the area.
734 MR. HAGAR: Well, I have some knowledge of corporate law, yes.
735 THE CHAIRPERSON: Were you surprised that when you came to see all this that there seemed to be a lot of documentation and formality with the other services, but there seemed to be none with respect to 1225520 Ontario Inc.?
736 MR. MILLAR: I must tell you that within the framework of the action that I was prosecuting that area really did not come up as an area for examination or an area of dispute at all, simply probably because I didn't even realize the issue at the time, and in fact it's only in the last couple of weeks that I realized there was some issue.
737 So this wasn't an area of concern within the action itself. The action was really concerned with Movieola, Silver Screen, Channel Zero and the actions of the four individuals as they related to each other.
738 THE CHAIRPERSON: Okay. Let me now turn to the strategic decision-making by the Board, just so I understand. We have three Board members here of the AOV services, and of course Mr. Millar for the Drive Publishing, and a representative for the fourth Board of Directors.
739 So am I to understand that the Board of Directors never approved an annual budget for the AOV services?
740 MR. MILLAR: That is correct.
741 THE CHAIRPERSON: There was no annual approval of a business plan?
742 MR. MILLAR: In a small privately held corporation there are generally not budgets. For companies of this size budgets, we have a very good idea of what the revenues are going to be based on affiliation. Some of the programming is done on a web share and everything else is laid out in contracts.
743 THE CHAIRPERSON: You were actually making all the decisions, weren't you, Mr. Millar, about budgets and business plans?
744 MR. MILLAR: In my capacity at that time with my Director's hat on I suppose yes.
745 THE CHAIRPERSON: I put it to you that all three other Directors were completely out of the loop on strategic decisions.
746 MR. MILLAR: No, that would not be correct.
747 THE CHAIRPERSON: Did you consider yourself consulted regularly on -- and can you provide any evidence of that consultation, Mr. ...
748 MR. PODZYHUN: Yes, we were consulted. I could probably do an undertaking. I have something I'm sure by e-mails. It wasn't verbally spoken.
749 THE CHAIRPERSON: That you were approving what exactly?
750 MR. PODZYHUN: No. Mr. Millar would bring it to our attention for decision-making. He would recommend what we should do maybe or if we had any thoughts on the situation.
751 THE CHAIRPERSON: And you can provide that by Monday?
752 MR. PODZYHUN: Yes.
753 THE CHAIRPERSON: Mr. D'Andrea, do you have any evidence to support that you were involved in those strategic decision-makings?
754 MR. D'ANDREA: I would have to check my e-mail, but I mean, like I say, most of it was in the strategy of -- or in the areas if there might have been a problem, like Mr. Millar pointed out, the time when we may have contemplated lowering our Channel Zero service fees, but I can look to see if I have anything on record.
755 THE CHAIRPERSON: So you undertake to provide that by Monday?
756 MR. D'ANDREA: I can try.
757 THE CHAIRPERSON: Either way. To tell us --
758 MR. D'ANDREA: Sure.
759 THE CHAIRPERSON: -- that you found nothing or you have found something?
760 MR. D'ANDREA: Okay. Absolutely.
761 THE CHAIRPERSON: Let me now turn to this litigation and the settlement.
762 Can somebody describe to me what the nature of the litigation was that led to the settlement?
763 Mr. Hagar, do you feel comfortable doing that?
764 MR. HAGAR: I'm the one as counsel that began the litigation, if you will. It began with a Notice of Application issued in November 2005 on behalf of Mr. Balde and Mr. D'Andrea. The reason for that application are set out in the Notice of Application and I did bring it in case you needed to see it.
765 THE CHAIRPERSON: Is there any reason why you couldn't file it with us?
766 MR. HAGAR: No, none at all.
767 THE CHAIRPERSON: Okay. So maybe we can take a copy of that. You can provide it to the Secretary.
768 MR. HAGAR: And I can tell you that that sets out in detail what started in point form the application. There then was a blow-up, if you will, which is described in a Statement of Claim, but it led to an injunction hearing before Justice Farley of the Commercial Court in Toronto on December 20th.
769 THE CHAIRPERSON: Before we get to that, could you broad strokes --
770 MR. HAGAR: Yes. Absolutely.
771 THE CHAIRPERSON: -- provide what the actual nature of the dispute was?
772 MR. HAGAR: The nature of the dispute began with the discovery by Mr. D'Andrea and Mr. Balde that Mr. Millar and Mr. Podzyhun had made an application for a channel with the CRTC and didn't include them. That started the repercussions amongst themselves and the discussions about who was controlling things and who was not.
773 You have to remember that each side has its own story, but essentially Mr. Millar and Mr. Podzyhun wanted to run things and Mr. Balde and Mr. D'Andrea didn't like that at the time. That led to discussions and meetings, it led to tension and eventually to the Notice of Application that I have filed.
774 THE CHAIRPERSON: Then Mr. Justice --
775 MR. HAGAR: Justice Farley.
776 THE CHAIRPERSON: -- Farley of the Ontario Court got seized of this and issued an order?
777 MR. HAGAR: Yes. We had an injunction hearing before Justice Farley, Channel Zero intervened in that proceeding. Justice Farley allowed the intervention and he made an Order, effectively a status quo order which is binding even until today. I did bring Justice Farley's order as well.
778 THE CHAIRPERSON: We should add that to the public record if it is not confidential.
779 MR. FORTUNE: Mr. Chairman, it is on the public record. It was part of our letter dated March 20th.
780 THE CHAIRPERSON: Okay. So then we have it, okay. All right.
781 MR. HAGAR: I think it's important and may address one of your concerns, but it's that Order that prevents any reorganization without Mr. Balde's consent, and Mr. D'Andrea's consent and we have been very comfortable that no reorganization has occurred in fact and that Order is still effective.
782 It then went to a Statement of Claim. The application was converted to an action, there was a Statement of Claim -- I brought that, too -- which sets out the allegations. As, Mr. Chair, you know, allegations on one side are only on one side and Mr. Podzyhun and Mr. Millar had their own view of things and obviously filed a defence, Channel Zero got involved and there was a counterclaim.
783 I can tell you we went through years of intensive litigation with motions and more motions, pre-trial, more pre-trial, and eventually, after almost four days of a pre-trial in July of 2011 a settlement was reached in the litigation with Minutes of Settlement.
784 There is a term in the Minutes of Settlement that they are confidential. I know that you don't have those Minutes of Settlement. Mr. Balde did indicate to me some time ago that he was prepared to waive that confidentiality, but of course without Mr. Millar and Mr. Podzyhun waiving confidentiality, I obviously -- while I would like to, I don't think I can say anything about what the Minutes say.
785 I will say that most of the schedules to those Minutes of Settlement have been filed with the Commission as far as I have seen, but there are Minutes of Settlement.
786 I can tell you that it resolves a litigation, I can tell you that it requires the purchase of Mr. Balde's shares, I can tell you he wants to sell those shares and in fact if the Commission rejects this application this thing goes back on the trial list, which nobody wants, and we will spend money and time and effort to litigate a battle that has essentially been settled.
787 All Mr. Balde wants is for his shares to be purchased in accordance with the Minutes of Settlement.
788 Those Minutes of Settlement do have a provision for CRTC approval, I don't think that is a secret, I think it's fact, but I do have the Statement of Claim here and if you want to see the Minutes of Settlement then obviously I can only do so with Mr. Podzyhun and Mr. Millar's consent.
789 THE CHAIRPERSON: I appreciate all that.
790 MR. D'ANDREA: If I may add, Mr. Chair.
791 THE CHAIRPERSON: Yes?
792 MR. D'ANDREA: Speaking for myself as one of the two in the litigation, when the Canadian -- I mean the issue arose around the Canadian Film Channel, it was also in a time in our partnership that things had grown so obviously I mean some bad paranoia, whatever you want to call it, it was a time when there was a little bit of mistrust, as I'm sure in all partnerships. Anyway, it exploded in the Canadian Film Channel application.
793 But speaking for myself, after the Canadian Film Channel was not awarded its licence, for me, in my eyes, the issue was over. As Mr. Hagar said, I sort of broke away, retained other counsel and started seeking a resolution path because I knew to myself that perhaps the answer is being bought out and getting an employment contract because I love my job with Channel Zero.
794 So that's how I've spent the last -- I mean, I think it was me that sort of started the negotiations with Mr. Podzyhun and Mr. Millar.
795 I just wanted to say that that was my part in it, that we had reached kind of a settlement in 2007 or '08 or something and now we've just been waiting for it to come into play.
796 THE CHAIRPERSON: Did the -- thank you for that.
797 Just so I understand the nature of the status quo order, so all the activities of all the companies would have to be maintained?
798 MR. HAGAR: The status quo order --
799 THE CHAIRPERSON: I just want to make sure that it included both Drive Publishing and 1225520 Ontario Inc.
800 MR. HAGAR: Those companies weren't mentioned in any of the affidavit material that Mr. Balde swore to.
801 THE CHAIRPERSON: Why was that? Was he not aware of these companies?
802 MR. HAGAR: As I indicated, there was no issue with the companies. And I can tell you as counsel the only three companies that I really was concerned with and was within my purview were Silver Screen, Movieola and Channel Zero.
803 And all the interim order says is that until this application has been determined no -- or further order of this court, whichever comes first, that the status quo be maintained.
804 The status quo was really in relation to -- and remember the only parties to this order were four individuals; Mr. Millar, Mr. Podzyhun, Mr. D'Andrea and Mr. Balde.
805 THE CHAIRPERSON: Not the companies. So it's the --
806 MR. HAGAR: The corporations weren't part of this order, although there was an intervener, leave to intervene. And since Channel Zero was granted leave to intervene, presumably they would be subject to the order. But the order itself was to bind the four shareholders essentially to a status quo.
807 And I assume you have a copy of the order.
808 THE CHAIRPERSON: Yes, we do have that one.
809 MR. MILLAR: Mr. Chairman, I think in the interests of fairness, we're not here to reargue the arguments of litigation.
810 However, if Mr. Hagar -- if you'd like to see Mr. Hagar's -- and I think the response by the respondents and counterclaim should be provided to you equally.
811 THE CHAIRPERSON: Well, no, we're not going to have a trial within a trial of that old case. I mean, that's -- I fully appreciate that the statement of claim does not tell you all that is to be.
812 MR. MILLAR: Thank you. I make the point.
813 THE CHAIRPERSON: I'm just trying to figure out, you know, to what extent did that litigation involve 1225520 and Drive Publishing.
814 MR. MILLAR: So on that point, if I could?
815 THE CHAIRPERSON: Yes.
816 MR. MILLAR: Our affidavit did include the AOV channels. There was an application filed with the CRTC to make some changes around the CRTC ownership of those applications in October of 2005. That application was put on hold because of the -- specifically because of the status quo order.
817 There is correspondence between Channel Zero on behalf of the licensees and of myself on behalf of the licensees, I suppose too, with the Commission asking that it be put on hold pending the outcome so that we were not in breach of the status quo application.
818 There is correspondence from the Commission returning those applications when the period of time that they could keep them in abeyance had expired. And the minutes of settlement specified the allocation of price to the shares negotiated between the parties. They are all included in that.
819 So just to the extent that parties were aware the documentary evidence is fairly strong.
820 THE CHAIRPERSON: And when did the settlement agreement come into effect?
821 MR. MILLAR: So there are two. There is one with Mr. D'Andrea and there is one with Mr. Balde. They have different dates and we could provide those if you give us just a moment.
822 THE CHAIRPERSON: Perhaps, Mr. Hagar, you have those handy?
823 MR. HAGAR: The date of the minutes of settlement between Mr. Balde, Mr. Podzyhun and Mr. Millar, Channel Zero and Movieola is August 31, 2011. That's the date on the agreement. It was probably signed in September or early September.
824 THE CHAIRPERSON: That came into effect as of signature?
825 MR. HAGAR: Yes, that's right.
826 THE CHAIRPERSON: And that's -- and for the other agreement?
827 MR. FORTUNE: Those -- I suppose what we are referring to is the shared purchase agreements between the litigating shareholders were filed as a part of the applications.
828 Have you found them, Cal? I mean, the date is right there on them.
829 MR. MILLAR: I have. 14th of October, 2011.
830 THE CHAIRPERSON: So all this occurred in late summer/early fall --
831 MR. MILLAR: Yes.
832 MR. FORTUNE: Fall of 2011. In effect, yes. In effect, in terms of the settlement.
833 But just to be clear, when the settlement provides we shall, you know, sell these shares subject of course to receiving CRTC approval. So it takes the form of a share sale agreement similar to, you know, the hundreds of others that you have reviewed in the past.
834 THE CHAIRPERSON: Right.
835 Now, maybe -- I'd like to know that after once 2011 occurred, what was the role of the board -- this board of directors for the AOV? How active did it maintain itself after the fall of 2011?
836 MR. MILLAR: There was --
837 THE CHAIRPERSON: Did you go back and ask for permission as informally as it seems for certain decisions after 2011?
838 Mr. Millar...?
839 MR. MILLAR: Yeah.
840 I was going to say that the operations as informally as they have been conducted for the AOV channels were conducted in the same way they were for Channel Zero, Movieola and Silver Screen. The respect shown to the current board of directors was maintained. Minutes have been held.
841 So specifically, for AOV, because we didn't -- we would invite Mr. Balde to join Mr. D'Andrea and Mr. Podzyhun and myself for a board meeting of other companies. It was in that context that I've alluded to earlier that we would discuss the business of the AOV channels.
842 THE CHAIRPERSON: Okay.
843 MR. MILLAR: If there was any to be transacted at that time.
844 THE CHAIRPERSON: Okay. But I'm correct in assuming that the formality around Movieola and Silver Screen was much more detailed?
845 MR. MILLAR: The formality -- the level of formality among the others was maintained as was the informality of the AOV ones. It was also maintained.
846 THE CHAIRPERSON: Okay. Just a final area of questions.
847 You've referred to this, Mr. Millar, the fact that even though there were four shareholders for Drive Publishing, it would appear that you were the only formally-named Board Member. Is that correct?
848 MR. MILLAR: That is correct.
849 Drive Publishing was an existing corporation that had, at one time, five directors. In the process of reusing that corporation, if you will, from its job as a publishing company we discovered, as we were about to elect Mr. Podzyhun and Mr. Balde and Mr. D'Andrea, that we had neglected to get the resignations of the previous directors. So in what sometimes is seen as typical sloppy fashion, we got half the job done, which is to get the resignations of the previous directors.
850 And in specifically the case of Drive, we neglected to file a Form 1 with the government or change the directors' register to reflect the fact that Mr. Podzyhun and Mr. Balde and Mr. D'Andrea were intended to be directors.
851 THE CHAIRPERSON: And when did the error come to light?
852 MR. MILLAR: So the first oversight was discovered in 2000 -- in the spring of 2005. At which point we were able to get the the scattered directors all together and eventually get all four of them to provide resignations.
853 I don't recall the circumstances as to what brought it to our awareness, but it was in that timeframe, because that is the timeframe that we got the resignations.
854 THE CHAIRPERSON: And why wasn't the correction not made immediately then or soon after, or at any point since then?
855 MR. MILLAR: Mr. Hagar said it rather eloquently. We're good at running and building businesses. Sometimes the recordkeeping in the past has gotten away from us.
856 And there is no real excuse for it. I made the oversight of not filing it. At the time I didn't have an assistant. I get a lot more help today than I did in 2005.
857 THE CHAIRPERSON: But your position is that all four individuals were de facto board members?
858 MR. MILLAR: That is our position.
859 THE CHAIRPERSON: But there is no evidence of that, the written, other than what you're saying?
860 MR. MILLAR: Other than the three directors who can attest to that.
861 THE CHAIRPERSON: So maybe I will turn to the other two board members that are present and, to the extent that, Mr. Hagar, you feel comfortable.
862 So what was your precise role as directors of AOV, Movieola and Silver Screen in terms of the strategic direction, approving budgets, operating budgets and so forth?
863 MR. PODZYHUN: I was the chair for all the companies except AOV and 122, but our role was to, you know, create the strategies for the channels, the licences, and then work on the budgets and approve the budgets and have our, you know, AGMs as well.
864 THE CHAIRPERSON: So you have AGMs, formal notices --
865 MR. PODZYHUN: Yes.
866 THE CHAIRPERSON: -- for those companies?
867 MR. PODZYHUN: Yes.
868 THE CHAIRPERSON: So there was more rigour and formality around Movieola and Silver Screen --
869 MR. PODZYHUN: Yes.
870 THE CHAIRPERSON: -- I take it.
871 MR. D'ANDREA: Yeah, I agree with Romen. There was certainly more protocol followed, yes.
872 THE CHAIRPERSON: Didn't it strike you as strange not to have more formality in these, particularly as a result of litigation that your interests might be better protected?
873 MR. D'ANDREA: Are you addressing me, sir?
874 THE CHAIRPERSON: Yes.
875 MR. D'ANDREA: It was so long ago.
876 But looking back, I thought also it was sort of part of the status quo area that we wanted to kind of update Drive from my understanding, from my recollection.
877 But I think we believed that it would fall under the status quo order. So we thought, well, we're on the other board and, like I say, it's really just in name only because the four of us always took it that we were on the board for both. We acted that way. So it didn't fuss us too much that on paper we weren't.
878 THE CHAIRPERSON: Okay.
879 Just so I understand, were the Commission to approve this, the status quo order gets wiped out then or how does that work?
880 MR. HAGAR: Mr. Balde --
881 THE CHAIRPERSON: Your mike, please.
882 MR. HAGAR: Mr. Balde has clearly consented to the purchase of his shares and the purchase of Mr. D'Andrea's shares.
883 Clearly, if the Commission approves the application then the status quo order falls for the simple reason that it's been left with the presiding judge that as soon as this is completed there will be an order taken out dismissing the action and counterclaims and, therefore, the order is at an end.
884 THE CHAIRPERSON: I understand.
885 Commissioner Simpson will have some questions for you.
886 COMMISSIONER SIMPSON: Thank you very much.
887 Not to beat the horse to death, but just to clean up a few areas that I need for clarification, Mr. Millar, you said that as part of your role in the relationship with Diamond Media is that you took it upon yourself both as a director of Drive but also as CEO of Channel Zero to negotiate the distribution agreements with the BDUs on behalf of Diamond Media. Is that correct?
888 MR. MILLAR: I'm going to try and rearticulate it because the answer is mostly yes, but it wouldn't have been on behalf of Diamond Media. It would have been on behalf of the licensees although the contracts themselves would be in the name of Diamond Media.
889 And there are instances where I took lead. There are instances where Doug Rankine took the lead. But, again, just to be clear, it would have been -- we would have approved it or, in the case of Drive, I arguably would have approved it.
890 But as you've heard from the others, you know, usually, it usually came to the group, if I could call it, rather than trying to call it a board meeting for a consensus agreement.
891 COMMISSIONER SIMPSON: M'hmm.
892 And I understand that answer because you were taking it upon yourself, this undertaking, because it was a financial interest with both Diamond Media and Channel Zero. So you were essentially negotiating on behalf of that partnership that was -- that came together in Drive.
893 My next question, trying to give you full measure of understanding that in smaller companies things can happen a lot on a verbal rather than a written basis -- but when it comes to procedural matters of a company governance-wise, I can understand lack of documentation, but on a financial side lack of documentation doesn't often happen even in the smallest of companies.
894 So the question I've got for you is that once you negotiated the distribution agreement with a BDU on behalf, negotiating through Drive really on behalf of the financial interests of its partners, did you as an experienced broadcaster not think that having a distribution agreement with a company that is not in the broadcasting business was not untoward. Like, why would that distribution agreement not have been with Channel Zero?
895 MR. MILLAR: Channel Zero Inc. technically isn't a licensee of the Commission either. If the question is, should it have been in the name of the licensee directly, yes.
896 But by happenstance, by the nature of the way these businesses were set up, you know, the movie channel was held by Drive Limited. The other two were held by 122. Yet, there are three services and branded under a licensing agreement with AOV.
897 And so it just -- and AOV was -- the owner of the AOV market is Diamond Media. So there was a comfort among the BDUs having dealt with Diamond Media.
898 I'm not saying we chose it this way, but I expect that the reason that they sent it to Diamond Media was simply a function of the fact that they knew Diamond Media as an entity of AOV.
899 When first presented with it, you know, I'm not going to sit here and tell you I recall exactly the conversation. But it would certainly appear that we must have looked at it and said, well, what are we going to do about it?
900 As a very small broadcaster, especially at that time, it's actually far more exciting getting the affiliation agreement than just about anything else. It's important, but once it's done it's thrown in a drawer. What matters is how it's operated.
901 Do we -- you know, are we able to, you know, ensure that the adult content stays on a separate path? Are we able to ensure the BDUs live up to their end?
902 So the one point I make, and it's not entirely on point is -- and no one has asked it, so I'll make a point of it now -- is there has been a great deal of trust between the parties.
903 But we have also, you know, as the licensee or as Channel Zero, we have asked Diamond Media on numerous occasions, "Would you mind letting us just have a quick skim through the affiliate agreements or remittance reports?" And there has never been any reluctance.
904 So again, in the natural course, one doesn't find themselves, you know, distrusting their partner. And of course, collectively that was one of the shared responsibilities, albeit we understand incorrectly, of filing the annual reports. We were able to do a certain amount of audit and a full understanding at that stage.
905 COMMISSIONER SIMPSON: Okay.
906 In the flows of monies, the flowing of monies, the BDUs, because subscriber revenue was the principal income of the AOV channels, the money then -- the contract between the BDU and Diamond Media then would mean that Diamond Media was receiving all revenues from that channel from the BDU?
907 MR. MILLAR: That is correct.
908 COMMISSIONER SIMPSON: Okay.
909 So then on the basis of the fluctuation because it's subscriber driven, was it then the responsibility of Diamond Media to present Channel Zero with the monthly accounting, if you will, of that sort of pro-rated amount of money that would come to you, assuming again that you had an agreement with Diamond Media for that purpose?
910 MR. MILLAR: Yes. First of all, Diamond Media was responsible for paying all the expenses.
911 COMMISSIONER SIMPSON: Yeah.
912 MR. MILLAR: And if there was a shortfall they were responsible for making it up.
913 COMMISSIONER SIMPSON: Okay.
914 MR. MILLAR: Presumably. I can't speak for them but until they got tired perhaps, if it had not turned around.
915 And they would provide to us any level of documentation that we requested.
916 COMMISSIONER SIMPSON: And so Diamond Media was in substantial portion responsible for that accounting.
917 Was it they that did it or was it Channel Zero that did the accounting because you had the --
918 MR. MILLAR: Yeah.
919 COMMISSIONER SIMPSON: -- service relationship of sorts?
920 MR. MILLAR: A little bit of both. And is that Diamond Media would be -- is the recipient of the funds. They would be the first ones that could account for it. Their CPA or, sorry, audit firm -- the auditor is a chap named Russ Leighton(ph) -- and our comptroller, Cathy Mewett, was in regular conversation.
921 Again, to the extent of how much was written, it was often very much a case of, you know, "What are the numbers. Please provide a report in this form for us".
922 And they were always happy to provide whatever level of financial accounting. And we certainly every year had to pull that all together and reconcile the books.
923 So we could see it. We could -- again, without the provision of an audit provision in the operating agreement we certainly had no problem, you know, conducting our own due diligence on the amounts.
924 COMMISSIONER SIMPSON: So in essence, once there was a revenue from the BDUs divided into two parts, a portion going to Diamond Media and a portion going to yourselves.
925 Is that -- does that characterize the --
926 MR. MILLAR: Not entirely.
927 COMMISSIONER SIMPSON: So were other cheques written --
928 MR. MILLAR: Yes.
929 COMMISSIONER SIMPSON: -- to other parties as part of that revenue?
930 MR. MILLAR: Yes. There would be other expenses involved in the operation of the licences.
931 COMMISSIONER SIMPSON: Which would come off the top?
932 MR. MILLAR: Which would come off, yeah, the top or the middle. They would be -- because ours was fixed programming can fluctuate. There would be other fees that are on a per-title basis and there are other fees that are labour-based. I won't get into Diamond Media's business, but certainly there were fees that they would pay.
933 After those fees were paid, they then would take the remainder and use that, first of all for a contribution against their own internal expenses. So they weren't taking their expenses off the top of that in the same way that, for instance, my salary wasn't accounted for in a specific charge. We were expected to pay it out of our compensation.
934 COMMISSIONER SIMPSON: Okay. So you were talking about your salary, for example.
935 With respect to the holding of Drive and 1225520 was it Channel Zero that was the partner of Drive or were -- was it --
936 MR. MILLAR: So it was --
937 COMMISSIONER SIMPSON: -- the individuals who had interests in Channel Zero?
938 MR. MILLAR: It was the individuals, the same four individuals who are here today.
939 COMMISSIONER SIMPSON: M'hmm.
940 MR. MILLAR: But they were also the same four shareholders in Channel Zero.
941 You know, again, in hindsight, you might structure it somewhat differently. But we were quite comfortable with the fact that as long as Channel Zero was being compensated it would ultimately flow to the shareholders, because if Channel Zero did well and was able to grow its business and there were funds available for it, it got to the same shareholders on the Channel Zero side.
942 COMMISSIONER SIMPSON: So because all four parties were involved in these AOV licensee companies from the beginning, any decision you made that involved Channel Zero, you didn't see as a conflict because you were in sum total effectively the owners of both Channel Zero and your share of Drive?
943 MR. MILLAR: Yeah, I mean, Channel Zero clearly wasn't the owner of the licences or the licensee of those. But there was equal and equivalent shareholdings among the parties in them.
944 I think in a very strictly clear sense and a very formal sense, decisions made by Channel Zero would be -- there would be a conflict on my part which is usually why the conversations took place among the others.
945 COMMISSIONER SIMPSON: Just out of curiousity -- I'm sure in the tonne of paperwork that's resident in computers and file folders, but just help me out because you were there.
946 When the application was made for -- let's call them the AOV channels because I'm a little confused about Drive and the numbered company. These channels, were they in existence prior to and purchased by, or were they applied for under different title, I think Love Channel and, I'm sorry, I forget the name of the other channel.
947 MR. MILLAR: No problem. We live this all the time and we're looking at it.
948 So again, there's a different answer for each.
949 Drive Publishing was the original applicant for the licence that was awarded in 2003. I'm sorry; I don't know the decision number off the top of my head in 2003 for the AOV Movie Channel.
950 And again, for various and assorted reasons, the four shareholders that were the same four shareholders in Channel Zero had -- had asked for a transfer of control of the Love Channel and the Short Film Channel from a company known as Boxer 4 a year or two previously.
951 And again, the -- sometimes you look back and it's easy to second-guess the decisions made in hindsight, but our original -- if you'll allow me a little --
952 COMMISSIONER SIMPSON: M'hmm.
953 MR. MILLAR: -- storytelling here, the original plan was to launch one channel.
954 And we were lucky enough that our BDU partner who first stepped forward, and others immediately after, were very intrigued with what the new licensee was offering and suggested that they would take a number of additional channels.
955 And in typical exuberance in the business side, both the customers and ourselves decided we would try to give them more while they wanted it.
956 And we also subsequently -- just a bit of a tangent here, subsequently also applied for French licences authorities to launch, which never actually launched.
957 So the decision was made, and that's sort of why we end up with this bifurcated ownership, to take the two licences that we -- and we got counsel from Doug Barrett back in the day -- that the licences -- sorry, authorities, really, at that point, Category 2 authorities for the Love Channel and the Short Film Channel would be quite appropriate for clips and for male flicks. And we decided to launch on that basis.
958 The only addition we had to make was to satisfy staff by providing them with the adult -- sorry, I don't remember the -- there's an internal police statement that we used, and we had previously got that approved by the Commission.
959 So that's kind of the background as to why we ended up in different companies. It was really just for the ability to launch three channels at exactly the same time.
960 COMMISSIONER SIMPSON: And the -- at the earliest initial stage of the application to the Commission, all four participants were -- Mr. Balde and Mr. D'Andrea were participants in the application for the licensing --
961 MR. MILLAR: Yes, they were.
962 COMMISSIONER SIMPSON: -- of Drive.
963 MR. MILLAR: Absolutely.
964 COMMISSIONER SIMPSON: Okay. The last question on this, then, is when it comes to the accounting of understanding the economy of scale of running a master control here -- when it comes to the accounting of what services Channel Zero provides, and there is an agreement, I presume, that articulates what those services are, and there's a monthly or an annual determination of what Channel Zero will receive from Diamond Media, any other services -- you talked about a salary.
965 Were you providing other services outside of the service provision of -- from Channel Zero to Diamond Media that would have resulted in you having a financial relationship with Diamond Media as well as with Channel Zero?
966 MR. MILLAR: No. Channel Zero partners received fees. For a period of time, we also received a small portion of -- a percentage of revenue share.
967 The -- but the money flows into Channel Zero and there's no direct compensation to myself or anyone else for the provision of those.
968 And I'm glad you asked that question that way because it's -- it was always the intent that we secured a very stable, clear amount which we thought was -- it's hard to say it on the record with Doug not here.
969 We always thought it was pretty good. We were very happy with the amount.
970 I don't want to say it was excessive for just the services, but it did certainly represent the services and a roll-in in the relationship.
971 Again, we were -- as I said earlier, we were a bit -- a bit reluctant to get into the adult business in the first place, just the nature of the programming, but also because we didn't understand it as well as we thought we understood mainstream broadcasting. And it made a lot of sense to secure the fees, the compensation and the share of the residual, if you will, locked in as opposed to having to wait to see how it flowed out in the -- in practical monthly payments going forward in the future.
972 COMMISSIONER SIMPSON: Okay. My last few questions with respect to the actual structure now of Channel Zero, again paperwork abounds, but it's just simpler to ask.
973 The ownership structure of Channel Zero Inc. as of right now is what?
974 MR. MILLAR: Thank you for that question.
975 So Channel Zero Inc. is currently owned by the four individuals that are the same four individuals that currently own all the Voting Controlled Movieola, all of the shares of Silver Screen Classics and some unregulated businesses. But I do want to draw that distinction because Channel Zero Inc. is neither a licensee of the Commission nor the owner of those other licences.
976 Each of the licences -- licensees are owned by the individual shareholders directly, and that's one of the complicating factors we're hoping to resolve by putting in place a simple holding company structure where it can be held indirectly by three -- going forward, the three shareholders who will be minority shareholders in it and having each of the companies underneath it in whatever proportion those shares held by the holding company.
977 COMMISSIONER SIMPSON: Okay. Mr. Fuoco, presently, as I understand it, there is a percentage of ownership of yourself in CHCH and another percentage by your wife. Is that correct?
978 MR. FUOCO: Certainly there's -- can I just confer with Cal for just one second on this question before we begin?
979 COMMISSIONER SIMPSON: Yeah.
980 MR. FUOCO: Okay. I just needed to get some clarification on the timing of things.
981 So the -- when we first entered into our shareholdings of CHCH, my share was held -- was out of a personal holdco that I owned 50 percent of and my wife owned 50 percent of. And again, as part of the preparing for this reorganization, we decided to simplify that structure.
982 My wife gifted her shares to me and then we've since -- and then -- so I will be the sole shareholder of my portion of CHCH going forward.
983 COMMISSIONER SIMPSON: Okay. So I just had not seen -- you know, that's obviously a background situation but -- between you and your wife, but I hadn't seen it in any of the documents coming forward with respect to, you know, how her portion was being dealt with, so that's -- because that does represent, again, a chance of ownership that may have to come forward.
984 MR. MILLAR: Well, and thank you, Commissioner Simpson, for pointing that out.
985 It was -- as we prepared what, in essence, is a relatively -- we think a relatively simple reorganization, but there are a lot of moving parts to it -- it was determined that the best way to have Kimberley Train part with them was by gift. So while that gift was done through counsel and was formalized, I think that it's -- as we reviewed this matter, it's a bit of an open question as to whether the gifting requires approval first and, if it is, we certainly would be happy, but I don't believe it's part of the current record that it is we're asking for permission, but we certainly would be happy to do that.
986 COMMISSIONER SIMPSON: I'm almost done. I know we're eating into the lunch hour.
987 With respect to some of the document that I -- came by me and I presume we have all of these individual agreements all essentially on hold waiting for resolution and approval by the Commission, I had noted that Drive -- there was an agreement for sale of Drive back in 2011.
988 I believe the transactional amount was nominal because this is all financial information. But to whom was Drive sold to?
989 MR. MILLAR: So let me be clear. Drive has not been sold.
990 COMMISSIONER SIMPSON: The agreement in principle.
991 MR. MILLAR: The -- that agreement in principle was part of the overall organization. The intent is to, after CRTC approval and the closing of the settlement agreement in that particular part of the transaction as a result, what we've referred to for the Commission is new Channel Zero, 2308740 Ontario Inc., as a result of that transaction, would be the licensee -- one of the licensees of Drive.
992 It was -- it was our intention to take all of those ownership interests and, at that point, divest our remaining ownership interest in them as part of the clarification and clean-up and, frankly, as part of a recognition both that that market is changing on the adult business and that we've grown and we're much better suited to the mainstream business.
993 So it's intended to be -- sorry; it's taking me a while to get to the specific answer.
994 But it would go to the principals of Diamond Media, who are Doug Rankin and the Jorgenson Family Trust in equal proportions.
995 And that particular document is something that can be adjusted because it's pending CRTC approval in its own right or exemption, depending on the -- how you decide.
996 COMMISSIONER SIMPSON: Okay. Mr. Hagar back there, hello.
997 I just would like to get clarification on my final two questions.
998 Was I mistaken or did I hear you say in your initial testimony to the Chair that, as you were going through -- and first off, did I hear correctly that you have been counsel for Mr. Balde since approximately 2005?
999 MR. HAGAR: Since June 2005.
1000 COMMISSIONER SIMPSON: Okay. And the nature of your legal counsel only applies to litigation, or was it with respect to corporate legal affairs of his enterprise?
1001 MR. HAGAR: (off mic)
1002 COMMISSIONER SIMPSON: Mic.
1003 MR. HAGAR: Solely with respect to the litigation dispute.
1004 COMMISSIONER SIMPSON: I ask those questions because I thought I heard you say that it was not until these proceedings started to become public that you were only then aware of Mr. Balde's financial involvement in other subsidiary companies associated with its relationship with Channel Zero.
1005 MR. HAGAR: As an issue, when we resolve a litigation, our focus is on Movieola, Channel Zero and Silver Screen. However, to the extent he had any ownership in any other companies, that was all part of the minutes of settlement, but those other companies weren't in issue in the litigation. I didn't get involved in them. I didn't investigate them.
1006 And they only became an issue in my mind when I finally went online at my client's request and saw some of the issues the Commission was concerned with and said, oh, and how do we deal with that.
1007 And I never got a chance to sit down with Mr. Balde to discuss it fully because he's in the hospital.
1008 COMMISSIONER SIMPSON: I'm probably going to get kicked under the table because this is the type of question that shouldn't be asked in these hearings because it calls for conjecture, but did you not find it surprising as you were trying to throw a fence around the nature of these relationships and come to some kind of terms of settlement that the financial interests pertaining to these two particular companies was not part of the settlement?
1009 MR. HAGAR: The way I approached it, it appeared -- the only financial statements that Mr. Balde ever received was for the three companies, Silver Screen, Movieola and Channel Zero. So clearly, it wasn't in my purview as a financial issue.
1010 Also, as Mr. Millar has pointed out, we realized that Channel Zero was benefiting from the broadcast and other services it was providing to the AOV channels. So from my perspective, a significant revenue stream from AOV was actually going to Channel Zero and, in effect, benefiting Mr. Balde.
1011 So when we had discussions on -- well, we had experts on valuation, and the valuations were based upon those three companies, not anything else. And I've heard Mr. Millar's testimony that, in fact, assuming Mr. Balde's a shareholder of those two companies, the balance sheets showed zero. So it wouldn't have impacted, in my view, any expert's valuation.
1012 So to me, yes, it was there in some way, but wasn't really an issue either in valuation or in the sense of the factual dispute between the parties.
1013 MR. D'ANDREA: If I can add, I concur that, personally, we always saw the value not so much from Drive or 122, but for the benefit that Channel Zero got. That's where our value, our shares, our -- you know, our value, basically, increased if we can get new business, more business.
1014 COMMISSIONER SIMPSON: Okay. And because the litigation was between Channel Zero and the parties, the financial issue was caught up in that already. Okay.
1015 Thank you very much. Those are my questions.
1016 THE CHAIRPERSON: Vice-Chair Menzies.
1017 COMMISSIONER MENZIES: Yeah, I'm just going to try to summarize what I think your position is in fairly broad strokes and give you the opportunity to dispossess me of any incorrect notions.
1018 What I've taken from this is that you launched, you had a fight. Your structure was frozen by an order. You operated under the -- that structure you had for many years without eyebrows being raised.
1019 You finally got a settlement after -- in 2011. You wanted to change your structure. You applied to change your structure.
1020 When you applied to change your structure and there was further scrutiny applied to your current structure, the CRTC had concerns which, somehow or another, you were unable to address or clarify.
1021 You can't change your structure unless the CRTC approves a change in structure, but the CRTC doesn't like your structure now.
1022 Is that more or less what your --
1023 MR. MILLAR: Absolutely, 100 percent.
1024 COMMISSIONER MENZIES: Okay. Thank you.
1025 Why don't you think you were able to address those concerns?
1026 I mean, what happened between -- I mean, it's going on three years now when CRTC raised concerns. And it sounds like you just said you shouldn't have concerns; everything's okay.
1027 Did you not get instructions saying, look, this is -- do you have emails, do you have minutes, do you have something that can prove that the licensee is the operator as the terms of your licence?
1028 MR. MILLAR: I'll reiterate, Commissioner Menzies, Vice-Chairman Menzies, you in a very short matter of a paragraph -- one paragraph absolutely correctly articulated what we've been trying to accomplish since the settlement, a couple of months to get the applications ready.
1029 We first filed the application in January of 2012, and this binder alone is just what we call the second version of the applications.
1030 Not all the -- let me say that directly.
1031 I think that we have not done a great job at articulating this. There have been times we have been inaccurate in the way that we have portrayed things. We've been sloppy in the way that we have used words, and so I think that, you know, while it's tempting to point the finger at others, I think that we collectively -- me personally -- bear the brunt of the responsibility for a lot of the confusion that was used in the using of words.
1032 So we have attempted to do this in a couple of turns. Most recently, when we -- as a result of Mr. Foster's letter in April of 2013, we brought on Mr. Nellis to help us and, of course, Joel Fortune has been there throughout. But we really left the -- what we've called the third version, which was ultimately filed in August -- on August 23rd or August -- sorry, I should just say August -- of 2013.
1033 That is the most complete and simplified and clear record that has been filed with the Commission. It has application numbers, although it came to us to put it on the record of this hearing because that is the application that actually deals with this in the most concise manner.
1034 And that it took us three attempts is both, by turns, embarrassing and frustrating, but we've got there.
1035 COMMISSIONER MENZIES: So the big thing here, it seems to me, is when you tell people things tuat turned out to be not true, right, the next time you tell them something, they don't believe it; right?
1036 So what happened in terms of your correspondence to responding to our requests that created what you termed those inaccuracies? Why did those inaccuracies take place?
1037 What is the explanation for those inaccuracies? Because a normal person generally, when they see inaccuracies, thinks that there is something that somebody's trying to hide.
1038 So what's -- we really would appreciate an explanation regarding those inaccuracies.
1039 MR. MILLAR: Sure. We start by saying there was no intent to decide, no intent to provide inaccuracies.
1040 There was sloppiness. There was sometimes a rush to get things done. As you're well aware, clarifications often come in and are requested to be done within three or four days. And instead of doing it right, we allowed that rushing to take place when we asked for an extension and got a few days. And as the person most responsible for trying to get that information, was given to other staff of ours, and in some ways, looking back now, somewhat inconsistently different staff.
1041 So you know, I'm not going to suggest I and the Board are not accountable for the documents that were put in because we are. That's why we're here before you today.
1042 But they were generally oversights or misstatements.
1043 There were inaccuracies in the -- there was confusion created, as an example, in the filing -- and a specific example to try to give you some comfort, this isn't another inaccuracy.
1044 When we filed our renewal applications, you know, we indicated that 230 was the shareholder. And we did that because we had filed the reorganization application eight months prior.
1045 We assumed, you know, given the deficiencies and the questions back and forth that we would actually be seeing a decision and thought, in all honesty, that we were helping the Commission because by the time the renewals came through nine months later when they would be considered in 2013, that it wouldn't create the confusion of having old shareholders on the record, so we filed them with the new ones.
1046 On deficiency, we answered that question, but it still seemed to cause undue confusion.
1047 And there's just a -- there's binders full of these where they weren't -- were errors. They weren't misleading statements or falsehoods. They were sometimes sloppy, sometimes inaccurate, but misguided attempts to provide the information to the Commission.
1048 And I think that's the best we can do.
1049 There were -- there was sometimes in the deficiencies where the same question was asked by two or three -- someone from ownership, someone from compliance, and sometimes by the same person on more than one occasion. And they were answered over and over.
1050 I can't explain from the other side, but clearly, you know, it took us two attempts to get it right.
1051 The August 2013 application is right, and clearly our restatement of that on March 20th tries to simplify it. And I'm heartened to hear that you were able to do that, to cut through this and see what the situation is.
1052 COMMISSIONER MENZIES: Thank you.
1053 THE CHAIRPERSON: I, of course, was thick and had to ask three hours of questionings. Is that what you're suggesting?
1054 MR. MILLAR: I meant no insult, Mr. Chairman.
1055 THE CHAIRPERSON: Perhaps one was received. Thank you very much.
1056 With respect to the AOV, when you're asking questions of Mr. Simpson -- answer questions of Mr. Simpson, did I hear you suggest that the brand AOV is owned by Diamond Media?
1057 MR. MILLAR: It is.
1058 THE CHAIRPERSON: Is it a registered trademark?
1059 MR. MILLAR: Oh, thank you.
1060 I have the Licence Agreement in front of me. It may not be registered but it is a trademark and it is used with the "TM." And I do not -- I don't believe it's registered. It is a trademark and we have a Licence Agreement for the use of it, the licensee.
1061 THE CHAIRPERSON: So, the licensee has obtained a licence from the non-operator to use a trademark? I think that's the world upside down. If a trademark is the licensee's, it should be owned by the licensee, not by the third party operator.
1062 MR. MILLAR: No, let me clear.
1063 The logos for the stations include and incorporate an element of the AOV brand. The Adult Only Video was at one time a bricks and mortar chain of 93 stores across Canada and in order for the licensees to develop three channels that were branded in association with AOV, they needed a Licence Agreement to be able to incorporate the AOV brand into their logo.
1064 And you saw it on our presentation today, we have an AOV TV logo which is used in connection with these services but each one has its own logo. It wouldn't be appropriate for the licensees to use the element of AOV without a Licence Agreement, that's all.
1065 THE CHAIRPERSON: It still seems bizarre that the value of this channel appears to be this brand; yet, it's owned by Diamond Media.
1066 MR. MILLAR: No. I wouldn't ascribe a great deal of value to the brand at this stage. They are -- in fact, I think most customers of AOV today have actually come to the brand through their television operations. The bricks and mortar business is quite a while in the past.
1067 THE CHAIRPERSON: As I set out in the beginning, there's a number of options before us. The worst, I guess, or the most extreme is to revoke the licences of some of these or all of these licences.
1068 Were we to decide to revoke the AOV licences, what would the impact be on the settlement agreement?
1069 MR. MILLAR: Thank you for your indulgence, Mr. Chairman. I needed legal counsel on that question.
1070 If I understand the question correctly, specific and limited to the AOV licensees, we have in fact requested revocation of these licences pursuant to the Exemption Order of the services.
1071 So, to try to answer your question, if it was your determination to revoke these licences as a result of this hearing, I think I can say that it would not -- those specific ones would not have an effect on the settlement because then the sale of Mr. D'Andrea and Mr. Balde's shares in those companies would not then require CRTC approval.
1072 And so, if that is the case, if I understand your question -- and I'm out of my element a little bit here -- I believe the answer is that it would not have any effect on the settlement.
1073 And perhaps Mr. Hagar would choose to comment on that.
1074 MR. HAGAR: Thank you. I do wish to comment.
1075 The Minutes of Settlement contain a specific provision requiring an application for CRTC consent of the purchase of Mr. Balde's shares. This is a huge application, for whatever corporate reasons, as opposed to a very small one, in the Minutes of Settlement.
1076 If this Commission decides not to approve the application, I specifically urge this Commission to approve the purchase of Mr. Balde's shares and also Mr. D'Andrea's shares because if you don't, there is no approval on an application for approval and under the Minutes of Settlement I can set it down for trial.
1077 So, I'd rather not do that. I'd rather the CRTC do say something about approval to avoid litigation, continued litigation and the expense, vast quantities of money in that endeavour. I'd rather that not happen.
1078 So yes, that's my position.
1079 THE CHAIRPERSON: My question was not with respect to the rest of the application but merely about the non-renewal or the revocation of the AOV licences.
1080 MR. HAGAR: But that's why I answered in the way I did, because the application under the Minutes of Settlement is for CRTC approval for Mr. Balde's shares. So, unless the CRTC says something in its decision approving the purchase of the shares, there may be a problem for --
1081 THE CHAIRPERSON: Unless I'm misunderstanding, I think those two are two separate decision points.
1082 MR. HAGAR: I would hope so. And so, I do see, if you revoke one but approve the other, the two separate decision points, then the Minutes of Settlement can go through.
1083 MR. MILLAR: I think at the very end, Mr. Hagar might have said what I was trying to say. Thank you.
1084 THE CHAIRPERSON: Okay.
1085 We have three, maybe four interveners. They won't be very long. You will want to do a reply, I presume. Why don't we hear from the interveners and that will give you a chance over a short break to prepare for the reply.
1086 MR. MILLAR: Thank you, Mr. Chairman.
1087 THE CHAIRPERSON: So we will stand down this panel and ask the interveners to appear. Thank you.
1088 THE CHAIRPERSON: Welcome, Ms Chan. Just take your time to settle down and make your presentation. Please go ahead when you can.
1089 MS CHAN: Good afternoon, Mr. Chairman, Mr. Vice-Chair, Commissioners and CRTC staff.
1090 My name is Louanne Chan and I'm the interim Executive Director of the Toronto Reel Asian International Film Festival.
1091 I am very pleased to be here today to support Movieola and Silver Screen Classics.
1092 The Toronto Reel Asian International Film Festival is Canada's largest pan-Asian film festival showcasing contemporary Asian cinema and work from the Asian diaspora by East, South and Southeast Asian artists from Canada, the U.S., Asia and all around the world. Reel Asian provides a public forum for Asian media artists and their work and fuels the growing appreciation for Asian cinema in Canada.
1093 Founded in 1997 by producer Anita Lee and journalist Andrew Sun, this non-profit community-based festival has grown from a three-day grassroots event into a highly anticipated annual event with year-round initiatives attracting over 15,000 attendees to unique events, including galas, screenings, forums, workshops and parties.
1094 Channel Zero has been a longtime partner of Reel Asian for the past decade in supporting our festival and the Canadian and Asian films and filmmakers that we present.
1095 Channel Zero has participated in many ways, including offering mentorship and expertise through our industry panels, master classes for our constituents and consistent financial support for both the festival and other year-round fundraising initiatives.
1096 In particular, Channel Zero has offered cash prizes to winning films, including the Best Canadian Film, at our festival as well as the opportunity to broadcast the winning title on their services.
1097 Channel Zero has been a longstanding media partner of Reel Asian and has provided invaluable promotion and publicity of our initiatives and programs through significant amounts of in-kind airtime and editorial coverage of the festival.
1098 Channel Zero has shown incredible support for emerging talent at Reel Asian and is an upstanding partner in all facets and we look forward to our continued successful partnership.
1099 I would also like to add that Channel Zero has been a significant supporter of the filmmakers, writers, animators and producers of our festival in both financial support and much needed mentorship. Their international sales agency, Ouat Media, represents Academy Award winning films and has acquired many Reel Asian films which have screened at international markets and sold to broadcasters around the world.
1100 I thank you for the opportunity to support Channel Zero today.
1101 Thank you, Mr. Chairman, Mr. Vice-Chair and Commissioner. At this time I would be pleased to answer any questions that you may have.
1102 THE CHAIRPERSON: Well, thank you, Ms Chan. Your position is quite clear. As you've seen, we're using this part of the oral hearing mostly to focus on some ownership issues. I don't think you have a particular view on that, or do you perhaps?
1103 MS CHAN: Unfortunately, I'm actually not quite familiar with any of the ownership issues, so I can't comment on that.
1104 THE CHAIRPERSON: That's what I suspected. So your position has been quite clear and we do not have any questions for you. Thank you.
1105 MS CHAN: Thank you very much.
1106 LE PRÉSIDENT : Madame la Secrétaire, notre prochain intervenant.
1107 THE SECRETARY: Thank you.
1108 I would ask Kyla Kuma (sic), YMCA of Hamilton/Burlington/Brantford to come forward.
1109 THE CHAIRPERSON: Good afternoon, Ms Kuma (sic). Welcome. Thank you very much. When you are ready, please go ahead.
1110 MS KUMAR: Good afternoon, Mr. Chairman, Commissioners and CRTC staff.
1111 My name is Kyla Kumar and I am the Integrated Vice President Marketing and Communications for the YMCA of Hamilton/Burlington/Brantford and the YMCA of Niagara.
1112 Thank you for the opportunity to come and address you this morning -- or this afternoon, I guess now, in support of Channel Zero.
1113 The YMCA of Hamilton/Burlington/ Brantford and the YMCA of Niagara are nationally recognized charities that have been serving our region for more than 158 years.
1114 We offer a wide range of value-based programming, including health and fitness programs, child care, camp, employment and immigration services, as well as a number of community-based initiatives to some of our highest-needs communities across Southern Ontario.
1115 Much of our work is focused on addressing the social determinants of health, specifically the ripple effects of poverty as it relates to health, child development and education outcomes for children and youth. Ultimately, our mission is to foster healthier communities.
1116 Central to this mission is a commitment to ensure accessibility for all through the provision of financial assistance for those in need. In 2013, across the two associations I serve, we awarded more than $5 million in financial assistance to enable participation in YMCA programs.
1117 Our success in delivering these programs and serving our community is due in large part to the volunteers and community partners who make this possible. The YMCA has had a relationship with Channel Zero Inc. since 2009 and the relationship with CHCH Television was established decades earlier and continues to this day.
1118 In 2010, Mr. Cal Millar, President of Channel Zero Inc., was elected to the YMCA of Hamilton/Burlington/Brantford volunteer Board of Directors. During his three-year term, Mr. Millar played a central role in stewarding the strategic and philanthropic growth of our organization.
1119 In 2012, when I joined the organization, my mandate was to help enhance the overall understanding of the work in the communities we serve and I can say that Mr. Millar immediately extended a warm welcome and indicated that as a community partner he would encourage enhanced partnership with CHCH to leverage their medium to improve understanding of our charitable cause in Canada.
1120 Our continued partnership with CHCH Television over the last years has been a living example, I think, of this offer in action. Over the last year, CHCH has supported the YMCA by providing 100 percent pro bono placement of a YMCA National Public Service Announcement to enhance Canadians' understanding of the impact of the YMCA across the country and I can tell you, on average, it runs about five times a day. It's been running since August.
1121 In August of 2013, CHCH Television also partnered with the YMCA of Hamilton/Burlington/ Brantford to produce and air a four-hour live broadcast of their morning news program Morning Live, live from YMCA Wanakita in Haliburton. This is our residential camp and year-round outdoor education centre. The focus of the program that day highlighted the impact of the YMCA camp experience for children and families across Canada.
1122 The only cost incurred by the YMCA was a nominal fee to recover the expense of a specialty uplink satellite truck to enable remote broadcasting. As a charitable organization, I can unequivocally tell you that this broadcast would not have been possible without the commitment and support of Channel Zero and its leadership.
1123 This commitment reflects a continued partnership that has enabled the YMCA to significantly improve the community's understanding of the impact of YMCA programs and services. For many years our community thought of us simply as a gym and swim, and through our relationship with CHCH Television we've been able to tell a much broader story of our impact.
1124 In the last three weeks alone, CHCH Morning Live and CHCH Evening News have featured stories on "Live Well," our specialty health management program to help individuals living with chronic illness, "Beyond the Bell," our after-school program to help bridge the academic achievement gap for children living in poverty in Hamilton and our Six Nations community, and fundraising events in both regions which have raised more than $130,000 collectively to enable more children who would not otherwise have access to participate in YMCA programs and services.
1125 So, on behalf of the YMCA of Hamilton/Burlington/Brantford and the YMCA of Niagara, I would like to once again reiterate our support for the work, efforts and community spirit of Channel Zero and CHCH Television.
1126 Thank you, Mr. Chair, and I would be pleased to answer questions that anyone may have at this time.
1127 THE CHAIRPERSON: Well, thank you very much. I mispronounced your name earlier. It's Kumar, I see.
1128 MS KUMAR: That's all right.
1129 THE CHAIRPERSON: Okay.
1130 MS KUMAR: I used to be Szimsic(ph), so that's not a big deal.
1131 THE CHAIRPERSON: Yes, I see.
1132 And the YMCA obviously does excellent work in the area and I take it that your position is mostly with respect to CHCH and less so -- I take it you will have no comments on the adult channels.
1133 MS KUMAR: No. I can tell you though that Mr. Millar has had a direct relationship, as I mentioned, and a leadership role as well. So we, along with CHCH, have been involved with Mr. Millar through Channel Zero.
1134 THE CHAIRPERSON: But I take it from your presentation, which is very clear, that you don't have anything to add on the ownership file?
1135 MS KUMAR: No.
1136 THE CHAIRPERSON: Okay.
1137 MS KUMAR: Thank you.
1138 THE CHAIRPERSON: Thank you very much. Those are our questions.
1139 MS KUMAR: Thanks.
1140 THE CHAIRPERSON: Thank you.
1141 Madam Secretary, we need what, five minutes to set up a video call?
1142 THE SECRETARY: That's correct. Thank you.
1143 THE CHAIRPERSON: Okay. Well, let's take a very short five-minute break to set that up. We're adjourned for five minutes.
--- Upon recessing at 1242
--- Upon resuming at 1249
1144 LE PRÉSIDENT : À l'ordre, s'il vous plaît. Order, please.
1145 THE SECRETARY: Ms Williams, do you hear me?
1146 MS WILLIAMS: Yes, I do.
1147 THE SECRETARY: That's great.
1148 We will now proceed with the presentation by ReelWorld Film Festival.
1149 Ms Williams, you may begin your presentation. Thank you.
1150 THE CHAIRPERSON: Hi, Ms Williams. It's Jean-Pierre Blais, Chairman, and I've got my two colleagues, Vice-Chair Menzies and Mr. Simpson, Commissioner from B.C. and Yukon. So please go ahead.
1151 MS WILLIAMS: Oh, thank you so much.
1152 Well, good morning, Mr. Chairman, Mr. Vice-Chairman, Commissioner and the CRTC staff.
1153 My name is Tonya Williams and I am the President of the ReelWorld Film Festival.
1154 I'm really pleased to be here this morning on behalf of ReelWorld in support of the renewal of Movieola: The Short Film Channel and Silver Screen Classics.
1155 I'm an actress and a producer. I produce in North America, mostly film and television, and I've been in the industry for almost 40 years, and in 2001, I founded ReelWorld Film Festival.
1156 We have had the pleasure of working with Movieola: The Short Film Channel and Silver Screen Classics through ReelWorld Film Festival for the past 13 years.
1157 Channel Zero has been an incredible supporter of emerging film and television craftsmen. They have provided a forum to showcase the talents of these filmmakers and broadcast artists.
1158 Channel Zero has long been a supporter of the filmmakers of ReelWorld Film Festival in particular and these filmmakers are from Aboriginal, Asian, Black, Latino, Middle Eastern and South Asian communities. Channel Zero has been instrumental in helping these communities get a well-deserved foot in the door of the Canadian entertainment industry and we are most grateful for their support.
1159 Movieola/Rewind is an essential channel for filmmakers in Canada. Thousands of filmmakers get their start and work in this medium of short films and there are virtually no places for them to exhibit this work. Movieola/Rewind has been a beacon for these filmmakers.
1160 Also, from an audience perspective, many of us love to watch short films and have so few places to access this content. We're excited about the rebrand of the channel as it has increased appeal to not only sort of audiences but to the exposure of these films, these short films, for the filmmakers.
1161 Years ago, short films often were exhibited prior to feature films in movie theatres. Movieola/Rewind therefore provides a key platform for the contemporary display of independent short films to Canadian audiences.
1162 Recent programming adjustments to the channel have ensured that audiences have increased overall, thereby providing greater exposure for the exhibition of short films. Channel Zero's Ouat Media distribution arm also enables the short film genre to reach as wide an audience as possible.
1163 Silver Screen Classics has enabled filmmakers and audience members to look back and see history not only of our industry in Canada but the history of our diverse communities. It is a joy that there are still channels out there that support and celebrate these classic films, giving them life, long after creators are no longer with us.
1164 Thank you, Mr. Chair, Vice-Chair and Commissioner. I will now be pleased to answer any questions.
1165 THE CHAIRPERSON: Well, I don't know if you've been following -- and probably not -- our discussions but our discussions so far have focused on a very narrow -- well, not very narrow but ownership issues that relate to some of the other licensees at stake. Your presentation has been extremely clear, so I must say that, unfortunately, we don't have any further questions for you.
1166 MS WILLIAMS: No problem.
1167 THE CHAIRPERSON: Thanks for participating in our proceeding. It's very much appreciated.
1168 MS WILLIAMS: Oh, thank you so much for having me. Thank you.
1169 THE CHAIRPERSON: Thank you.
1170 MS WILLIAMS: Bye-bye.
1171 THE CHAIRPERSON: So, we have another intervener. My understanding is that this person is in transit. If there are no objections, what I propose to do is to just deem -- because we have a written copy of their intervention -- just deem their intervention to have been read into the record. That way we can take a break and move to the next phase of this hearing if that's okay.
1172 I see the Applicants seem not fussed about that, so that's good.
1173 So we will deem Poor Man's Productions Inc. read into the record. The individual who was supposed to present, I believe, is in transit from China. So we'll just add that to the record.
1174 MR. MEHTA (Added to the record in his absence): Good morning, Mr. Chairman, Commissioners and CRTC staff. My name is Richie Mehta and I am the President of Poor Man's Productions Ltd.
1175 I am pleased to appear today in support of Applications by Movieola: The Short Film Channel and Silver Screen Classics.
1176 I am a Canadian film director and have been involved in Canadian film since 2003.
1177 My 2004 short film "Amal" led into my first feature film of the same name which was released in 2008. "Amal," the feature, premiered at Toronto International Film Festival (TIFF) and was nominated for Best Motion Picture and Best Director at the 29th Genie Awards and won the Telefilm Canada "Pitch This!" competition.
1178 My most recent film, "Siddharth," has also recently premiered at TIFF and is currently travelling the festival circuit around the world.
1179 Other recent credits have included "I'll Follow You Down" and "The Spirit of South Asia," a TV series documentary.
1180 Channel Zero supported my producing partner and I in the early stages of our career, from the production of our short film "Amal" through the production and success of the feature. During TIFF, they offered mentorship and encouragement. We received so much support from Channel Zero that we listed them in the credits of "Amal."
1181 In addition to the exposure and support for "Amal" on Movieola, the company's distribution division, Ouat Media, also ensured that our film was marketed as widely as possible. To this day -- almost a decade later -- I see revenues from multiple short films I've made that Ouat has sold worldwide.
1182 It is not easy to navigate through the Canadian film market and I believe their continued support and expertise has played a big part in our success.
1183 In fact, I've just come directly from China, where my film "Siddharth" took the top prize at the Beijing International Film Festival. My work is being consumed and appreciated at a global level and I attribute this success entirely to my team on the ground here in Canada. Channel Zero is an invaluable part of this team, both in a professional and personal sense.
1184 Thank you, Mr. Chair. I would now be pleased to answer any questions that you may have at this time.
1185 THE CHAIRPERSON: We will now take -- I'll put on my glasses to see the clock. Why don't we take a break till -- do you need 45 minutes, an hour, is that too long?
1186 Yes. Okay, so let's come back at two o'clock for the reply phase in this proceeding. Thank you very much.
--- Upon recessing at 1254
--- Upon resuming at 1359
1187 THE CHAIRPERSON: À l'ordre, s'il vous plaît.
1188 So whenever you are ready please go ahead with your reply statement.
1189 MR. FUOCO: Good afternoon, Mr. Chairman, Vice Chair Menzies, Commissioner Simpson, CRTC Staff.
1190 As you know, my name is Chris Fuoco. Movieola: Short Film Channel Inc., 1490525 Ontario Inc., Drive Publishing Inc. and 1225520 Ontario Inc. are pleased to submit these reply comments to the interventions received.
1191 Before addressing the matters raised in the intervention process, Channel Zero wishes to thank all the interveners for taking the time to participate in this pubic process and for those who travelled great distances to join us at this hearing today. We are grateful for the expressions of support we have received, particularly from the Independent Producers with respect to the role that we have played in the support of the short film genre. We also thank the Commission for including the comments from Richie Mehta of Poor Man's Productions as part of the record.
1192 With respect to the general comments and some written interventions regarding adult programming, we would note that the CRTC has put in place a regulatory regime that reflects the nature of these services. Under this regime, services providing adult programming are subscription based and viewers make a conscious decision to purchase the services through the privacy of their BDU subscription packages. Those who do not specially subscribe to view the programming are unable to do so.
1193 Adult-oriented services are required to comply with Canadian standards applicable to this genre of programming. This approach recognizes the freedom of expression and freedom of choice that lie at the heart of the broadcasting system, while ensuring compliance with Canadian law and regulation regarding adult content.
1194 We thank all interveners for their participation in the regulatory process. Their opinions, views and observations will ensure that we continue to improve on our ability to deliver on all of our requirements and obligations to those that subscribe to our services.
1195 We would also like to thank the Commission and CRTC staff for the opportunity to appear before you.
1196 We understand that we have committed to respond to a number of undertakings that we provided this morning. You have given us until next Monday to file this information and we thank you for that.
1197 We appreciate the opportunity to appear in this reply phase and once again we thank you for your time today.
1198 THE CHAIRPERSON: That's it? Are there other comments?
1199 I think Commissioner Simpson is going to ask you a few questions just to complete the file.
1200 COMMISSIONER SIMPSON: I was a little out of sequence on some of my earlier questions regarding this hearing and I wanted to circle back and ask you some questions on programming, if I may.
1201 The first question I would like to ask pertains to Movieola and the rebranding of Movieola and what appears to be programming -- I'm thinking of 7(d) feature films and I was wondering if I can have someone comment as to why it was felt that the rebranding and reprogramming that we have seen was necessary prior to an approval to broadcast 7(d) content? I'm thinking feature films here.
1202 MR. FUOCO: Thank you for the question and the opportunity to clarify.
1203 So what you may have seen in some of the logs was the reporting of 7(d) category programming being aired. For the record, there was a -- that is in fact a mistake. That programming was recorded in our legacy traffic system as 7(d) and as it was being transferred from our old traffic system to the new Broadview system, that's when the misapplication of that code occurred.
1204 We since reviewed that upon seeing that error. We reclassified it into the appropriate -- and Jennifer can correct me if I'm wrong, I believe it was reclassified as 7(g) -- and resubmitted the logs and there were no errors against those particular hours of programming.
1205 Jenn, would you confirm the classification, please?
1206 MS CHEN: That is correct.
1207 COMMISSIONER SIMPSON: So what we were dealing with was a coding error, there were in fact no long form feature film format films being broadcast?
1208 MR. FUOCO: Again, I'm happy to provide more clarity.
1209 What you may be referring to is some longer form films that we air where we take those films and we deconstruct them and edit them down into serialized instalments, into a format that is more in keeping with a short film-type presentation and then we air those segments on Movieola.
1210 COMMISSIONER SIMPSON: I see. I see. So Annie Hall, for example, would be telescoped into a shorter version before it's aired; is that correct?
1211 MR. FUOCO: Yes. We refer to it as we deconstruct it. We edit the film down into instalments or chapters and then air them as a serialized presentation.
1212 COMMISSIONER SIMPSON: I see. I see. Okay.
1213 And this is not in contravention of any -- this is not related specifically to the hearing but a curiosity of mine, this doesn't contravene any airing agreements with respect to altering the intention of the original content owner that a movie gets serialized. It's an interesting and innovative approach, I'm just wondering how it works with respect to actual owners' permission. Do you have to seek permission to do this?
1214 MR. FUOCO: I will defer to Jennifer, my colleague, who is familiar with the programming arrangements.
1215 COMMISSIONER SIMPSON: Yes. Okay.
1216 MR. FUOCO: Jenn...?
1217 MS CHEN: That is not a problem.
1218 COMMISSIONER SIMPSON: In your current nature of service you have drawn several examples of other Category B licences that are like Showtime and others that are airing content that it could be argued Movieola would be competing with, but I'm thinking more in Category A services where my concerns lie.
1219 Could you describe to me from a programming sense what you are doing with Rewind would not be completing with a Category A service?
1220 MR. FUOCO: We can. We looked at -- when we applied and made the amendments in the application, what we are seeking are adjustments to the licence that are very similar to other Category B services which we feel are not competitive with Category A services.
1221 COMMISSIONER SIMPSON: Okay.
1222 MR. FUOCO: I would also point out, I think another test of that is that this application has been a matter of public record for going well beyond a year at this point and we have not received any complaints or concerns from other broadcasts that in fact what we are proposing would be competitive to any Category A services.
1223 COMMISSIONER SIMPSON: Okay. With respect to the definition, the programming definition of what you're doing, if it was to be said that the blockbuster nature of the '70s, '80s and '90s as being a thematic device, aside from what you are doing in doing instalments, carved quite broad swath in terms of programming. If we were to ask you to further refine your programming intentions so that the Commission can better understand what you are trying to do with Rewind, if we tell you that you are too broad at this point, would you be prepared to refine your explanation of this programming strategy so that we can better understand it?
1224 MR. FUOCO: I'm sorry, I just want to get a bit of clarity on your question.
1225 Are you asking -- would you like us to elaborate more on the conditions that we have proposed?
1226 COMMISSIONER SIMPSON: Yes. I'm asking if you would be prepared to refine your description of the nature of service so that we can better understand it, given that it seems to be extraordinarily broad at this point?
1227 MR. FUOCO: Right. Just give me one second, I'm being passed some notes here, please.
1228 COMMISSIONER SIMPSON: Yes.
1229 MR. FUOCO: Thank you, Jennifer.
1230 She was kind enough to point out some clarification points.
1231 So what we have applied for is conditions of license that are very similar in nature to services like Showcase Action, Showcase Diva. We have also submitted -- I'm just checking my notes here.
1232 We have committed in the renewal application to a cap of no more than 10 percent of independent film as part of what we are seeking so that it would not be competitive with the Independent Film Channel and we would be prepared to accept a requirement that the Category 7(d) content that we air would be at least 10 years old in nature.
1233 COMMISSIONER SIMPSON: Ms Chen is trying to get your attention.
1234 MR. FUOCO: I will let Jenn answer.
1235 MS CHEN: Commissioner Simpson, I think in regards to refining or limiting our programming, we would also be open to considering a nature of service that defines perhaps titles that are at least 10 years old.
1236 COMMISSIONER SIMPSON: I think where I'm going with this -- I appreciate your succinct answers, Ms Chen, but I think where I'm going with this is that other Category B's have programmed to a genre, whether it's romance or adventure or action, but blockbusters of the '70s, '80s or '90s is not a genre, it's a time period and that's the difficulty we have in the broad nature of this programming description and I think that is why we are looking for a little more clarity.
1237 MR. MILLAR: Commissioner Simpson, the reason we had this answer somewhat pre-prepared is that the nature of service for Silver Screen Classics focuses entirely on a time period and it talks about over 30 years old in that case. We typically at this point, 10 years hence, we program it more like 40 years after release.
1238 COMMISSIONER SIMPSON: Yes.
1239 MR. MILLAR: So we wondered if in parallel to that, that was where the thinking was coming from.
1240 Of course we could refine it further, but we did try to note that there were other services that, you are right, have either genres around them, time periods around them or -- perhaps that's far enough.
1241 COMMISSIONER SIMPSON: Well, a hit is a hit, a blockbuster is a blockbuster and it can be an action movie, it can be a romance movie, it can be a date movie and I think that further clarification is going to be required.
1242 The other shoe that I want to drop here is that would you be prepared to accept further programming limitations if we deem it necessary for renewal?
1243 MR. FUOCO: We would accept any conditions that -- we will abide by any decision you make as part of this process.
1244 COMMISSIONER SIMPSON: Mr. Fuoco, I can't help but wonder why you are answering these questions. You are not involved in Movieola, are you?
1245 MR. FUOCO: Well, I am in on a day-to-day basis as Senior Manager at Channel Zero.
1246 COMMISSIONER SIMPSON: Yes.
1247 MR. FUOCO: I am involved with all aspects of marketing for all the Channel Zero businesses that we operate.
1248 COMMISSIONER SIMPSON: And programming?
1249 MR. FUOCO: Programming decisions would be led by the programming department, but --
1250 COMMISSIONER SIMPSON: Who is Ms Chen.
1251 MR. FUOCO: Romen Podzyhun, Jennifer Chen, Sonya, there are a number of people from our programming group here.
1252 COMMISSIONER SIMPSON: So you are doing this in the capacity of being an employee of Channel Zero?
1253 MR. FUOCO: Correct.
1254 COMMISSIONER SIMPSON: Okay. Thank you.
1255 With respect to going back to compliance issues on content, Canadian content and with respect to closed captioning --
1256 MR. MILLAR: Yes...?
1257 COMMISSIONER SIMPSON: We think we have the record for programming issues.
1258 I would like to move over to tangible benefits now. Let's set the table with a statement from whoever feels most appropriate to answer this, that it has been the position that tangible benefits are not on the table because there is no substantial change in ownership structure as the assets move from one entity to another and I'm wondering if you can just give me a broad stroke interpretation of why you believe that to be the case.
1259 MR. MILLAR: I think this is mine and my understanding, our understanding is, I hope, informed by counsel and backed up by counsel behind me.
1260 Our understanding is that tangible benefits are generally assessed with regard to a change of control and it's our position that we currently have essentially four individuals with minority interests controlling the licensees through a number of steps, some simultaneous some quickly sequentially if approved we would have a structure with three shareholders all with minority interests and that in each case the transfer from one shareholder of 25 percent doesn't generally attract tangible benefits.
1261 I think in the written record of this proceeding we provided a couple of specific precedents, including Globe Media, the recent -- I'm sorry, I'm forgetting the most recent one -- and also going back to -- why don't I look at those?
1262 MR. FORTUNE: Why don't I help you out here, Cal.
1263 Essentially the Commission's tangible benefits policy is that tangible benefits are payable in transactions that result in a person acquiring effective control, it results upon the acquisition of effective control by somebody new.
1264 Essentially what we have here is a situation with companies, generally speaking, that have four minority shareholders, 25 percent each. Imagine, you take out one minority shareholder, you have three minority shareholders each with a third, okay, and you are replacing one of those three with a different minority shareholder with a third. So no new person is coming in here that is acquiring effective control.
1265 As it stands right now, the companies are owned by minority shareholders and control is exercised, as it is in these cases where there are minority shareholders, control is exercised through the Board of Directors and going forward that is exactly what is going to continue.
1266 We are replacing two minority shareholders, who are independent of each other, they don't act in concert -- two minority shareholders are being replaced by one different minority shareholder.
1267 Nobody is acquiring more than 50 percent effective control, nobody is acquiring a new ability to elect a majority of the board for example, which is a classic indicia of control of a company, nobody is acquiring the ability to direct the affairs on their own of these entities. So essentially what you have is a situation with minority shareholders where the composition of the minority shareholders is changing by taking two minority shareholders out and putting a different one in.
1268 COMMISSIONER SIMPSON: Thank you for that, Mr. Fortune, but that tangible benefit policy usually applies to the acquisition and control of a company that is in possession of licences. Here we have companies that are individual licence holders and we are seeing a corporate reorganization of the destination of these licences, which is Channel Zero, but as by Mr. Millar's testimony this morning, Channel Zero is not a licence holder either.
1269 So what you are seeing is a change of ownership wholesale to a company that is acquiring licences after reorganization is complete.
1270 MR. FORTUNE: The Channel Zero, the corporate Channel Zero that we are talking about here is not the same as New Channel Zero. I don't think that's -- I just want to make that clear. It's not necessarily that relevant to the answer.
1271 But it's my view that when the Commission looks at what is effective control in these situations it looks through levels of corporate ownership, it looks at who is the ultimate controlling person. What we have here is a situation where if you imagine that there had not been any other change in the minority shareholder group and they wanted to create a holding company structure, what they would do is essentially what these people are doing in the second step of the reorganization, they would take their individual share interests in the licensee companies, they would transfer them to a new holding company and then would become shareholders of that holding company.
1272 That is essentially what we are doing here. The only difference is, we are taking two of the minority shareholders out and we are putting in a different minority shareholder, and that's only for the -- well, the licences that are under renewal here that that has an impact.
1273 COMMISSIONER SIMPSON: Why would it not have been more practical to simply reorganize existing Channel Zero rather than creating a new company and transferring all of the assets to it?
1274 MR. MILLAR: I don't think it was any easier or any more difficult to use Channel Zero Inc. which fundamentally does what we describe as sort of the backend services, a service business. As I say, any more difficult than to simply incorporate a new company, start fresh with its own shareholders agreement. It's sitting there waiting to go now, has been for a couple of years. It's the same net result.
1275 COMMISSIONER SIMPSON: The first thing I learned -- I have owned a lot of businesses in my time and the very first thing I learned, and I was given a very hard lesson by my banker who reminded me that corporations are entities, they are treated as a third party, as a person, and what you have here is a new person in the form New Channel Zero and it may enjoy common ownership, but you have the transfer of assets to an entirely new company owned by the same people.
1276 I take your argument that we should -- but what you are saying is that we should be looking at the people behind the company rather than the company itself, but that doesn't fly in the face of corporate law.
1277 MR. FORTUNE: Well, let me give you an example of that recently. It is in the letters discussed. I just wanted to interject before Cal answered, that's all, because I think I can do a better job of it.
1278 In the recent Corus, I think it was Historian Series Plus, as you will recall Corus owned or was to acquire 50 percent of the ownership interest and Shaw already had 50 percent of the ownership interest and they were going to combine them in Corus. That's basically the fact situation.
1279 So Corus was going from 50 percent to 100 percent and the fact that it was -- and they argued that even though it is a different person acquiring 100 percent, there is the Shaw group over on the one hand, Corus group on the other, they are totally different corporate entitles, they have totally separate management, they are different public companies, you know, with all that implies.
1280 But the Commission said, well, we are going to look through that. We look at ultimate effective control and ultimate effective control was not changing because it was held by the Shaw family or J.R. Shaw and therefore there were no tangible benefits payable. So the interposition of a legal person in the ownership chain was not the determining factor. It's that you look through that as to who holds ultimate control. That's what we are doing here I believe.
1281 COMMISSIONER SIMPSON: So to clarify, 2308740 is owned as described by Millar, Podzyhun and Fuoco?
1282 MR. FORTUNE: That is correct.
1283 COMMISSIONER SIMPSON: Okay. With respect to the steps in the transaction, as part of the application published the steps in the transaction filed are different than those in the information filed, as your letter indicated on March 20, 2014. More specifically, in your new unpublished applications you propose the following steps:
1284 One -- and I have to read this because it's complex -- Channel Zero would purchase the shares of Balde and D'Andrea in Movieola, 1490525 and 2190015. That would be step one. I presume that is Movieola, Silver Screen, and so on.
1285 Two, Mr. Millar and Mr. Podzyhun would transfer their shares to Channel Zero through a rollover agreement, while at the same time Mr. Fuoco would roll over his shares in 2190015 in exchange for share in Channel Zero.
1286 How am I doing so far?
1287 MR. MILLAR: So far so good.
1288 COMMISSIONER SIMPSON: Can you confirm that this is actually how the transactions will occur, given some conflict in information previously filed?
1289 MR. MILLAR: Yes. As we described earlier, the applications filed in August of 2013 --
1290 COMMISSIONER SIMPSON: Yes.
1291 MR. MILLAR: -- are finally complete and accurate. These are exactly the steps we would hope you would approve.
1292 COMMISSIONER SIMPSON: Okay. And in terms of the timing of all this, when will the shares of Rankin and Jorgensen(ph) be acquired, after all this is done, during? Is there some clarity there, please?
1293 MR. MILLAR: To be clear, in the August 2013 applications -- and I can look up the application number if it helps -- we are not suggesting, because that was filed initially in tandem with a request for revocation of those licences and so the actual steps would be the D'Andrea and Balde shares would be acquired by 230 --
1294 COMMISSIONER SIMPSON: Yes.
1295 MR. MILLAR: -- Podzyhun and Millar would roll their shares in; Fuoco would roll his shares, or his indirectly held shares in on a rollover basis, and it's our view at that point, should the CRTC approve that transaction, that we would likely take the shares now acquired in 230 and divest them to the Jorgensen(ph) family trust and to Doug Rankin.
1296 COMMISSIONER SIMPSON: Okay. To help us close this aspect of the proceeding, I'm going to ask you if you would be -- the pencils come out here -- prepared to do a confidential undertaking that would -- first off, would you accept to file an undertaking, a proposal for the payments of tangible benefits which would be in accordance with this Commission's policies, by virtue of your interpretation of those policies?
1297 Second, would you be amenable to filing a list of all the licensee leases as an undertaking so that we can see what you deem as the value of those leases and where certain of the assets are placed, given the inactivity of companies like Drive and the other?
1298 Third, would you file as an undertaking the value of Mr. Fuoco's rollover?
1299 THE CHAIRPERSON: Just so we can clarify, it's just that one of the issues is it's a live issue before us whether tangible benefits are payable or not, right, So that we haven't decided, we have to finish the record.
1300 So I guess what we are asking is, if indeed tangible benefits are payable, we need to figure out how to evaluate how much those benefits are. One of the ways proposed is that you would spell out exactly the values so that we could do the calculations.
1301 MR. MILLAR: Thank you, Mr. Chair. I misinterpreted a little bit and that helped clarify it.
1302 So yes, obviously it's our position that tangible benefits -- our understanding of the current policy is that they would not be payable, but we would certainly accept that undertaking to provide that information for you.
1303 COMMISSIONER SIMPSON: Okay, thank you. I think
1304 THE CHAIRPERSON:
1305 MR. MILLAR: Thank you.
1306 THE CHAIRPERSON: Okay. Thank you.
1307 I think that was necessary, because what I was really getting at is, if we should, in the course of our decision, make a determination that tangible benefits apply in some form, would you be applying, then, for an exception and on the basis of that what would be the grounds for that exception. This would help us understand the reasoning for your argument.
1308 MR. MILLAR: That's in the alternative, right?
1309 THE CHAIRPERSON: So either the benefits -- you are taking the position benefits aren't payable. Fine, you have made that case.
1310 If one concludes that consistent with the policy they would be payable, the policy also allows for exceptions. So what is your argument for applying in an exception?
1311 Assuming the Commission were down a decision tree here, doesn't agree, then we have to ask ourselves: Well, if benefits are payable no exception is due, therefore how do we calculate the benefits. These are all to complete the record, right.
1312 MR. MILLAR: Thank you. So our answer on the record is, yes, we would be prepared to accept that undertaking.
1313 THE CHAIRPERSON: Okay. So you will give arguments why if indeed the policy does apply, why an exception should apply, and if that doesn't work what the value of the benefits would be?
1314 MR. MILLAR: Yes.
1315 THE CHAIRPERSON: And to do that we need leases and all the other things Commissioner Simpson mentioned.
1316 MR. MILLAR: Yes, exactly.
1317 COMMISSIONER SIMPSON: I think that covers it.
1318 THE CHAIRPERSON: Yes, I think so.
1319 Is that clear what you need to do and you will be able to do that by Monday as well? You would surprise me.
1320 MR. FORTUNE: I think the -- well, I'm not the guy who has to go through all the books and financial and that just might take a little more than a week to compile this particular information.
1321 I would suggest two weeks on this stuff.
1322 THE CHAIRPERSON: Okay. I don't have a calendar in front of me. Two weeks brings us to...?
--- Off microphone
1323 THE SECRETARY: Monday is the 12th.
1324 THE CHAIRPERSON: The 12th. Monday is the 12th, okay. I can't add. Okay. Good.
1325 Is that it for you?
1326 COMMISSIONER SIMPSON: Just one more.
1327 THE CHAIRPERSON: One more.
1328 COMMISSIONER SIMPSON: With respect to closed captioning, could you explain to me -- I'm sorry, this is a clean-up question -- it had been said that there was a misinterpretation of an 18-hour versus 24-hour requirement, or am I confusing that with Canadian content, Ms Chen?
1329 MS CHEN: That would be Canadian content.
1330 COMMISSIONER SIMPSON: Okay. I thought so. Thanks.
1331 THE CHAIRPERSON: Good. Thank you.
1332 Those are our questions so the hearing is adjourned.
1333 Thank you very much.
1334 MR. MILLAR: Thank you.
--- Whereupon the hearing adjourned at 1430
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