ARCHIVÉ -  Transcription

 

 

 

 

 

 

 

              TRANSCRIPT OF PROCEEDINGS BEFORE

             THE CANADIAN RADIO‑TELEVISION AND

               TELECOMMUNICATIONS COMMISSION

 

 

 

 

             TRANSCRIPTION DES AUDIENCES DEVANT

              LE CONSEIL DE LA RADIODIFFUSION

           ET DES TÉLÉCOMMUNICATIONS CANADIENNES

 

 

                          SUBJECT:

 

 

 

REVIEW OF THE OVER-THE-AIR TV POLICY /

EXAMEN DE CERTAINS ASPECTS DU CADRE RÉGLEMENTAIRE

DE LA TÉLÉVISION EN DIRECT

 

 

 

 

 

 

 

 

 

 

 

HELD AT:                              TENUE À:

 

Conference Centre                     Centre de conférences

Outaouais Room                        Salle Outaouais

Portage IV                            Portage IV

140 Promenade du Portage              140, promenade du Portage

Gatineau, Quebec                      Gatineau (Québec)

 

November 29, 2006                     Le 29 novembre 2006

 

 

 

 

 

Transcripts

 

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.

 

 

 

 

Transcription

 

Afin de rencontrer les exigences de la Loi sur les langues

officielles, les procès‑verbaux pour le Conseil seront

bilingues en ce qui a trait à la page couverture, la liste des

membres et du personnel du CRTC participant à l'audience

publique ainsi que la table des matières.

 

Toutefois, la publication susmentionnée est un compte rendu

textuel des délibérations et, en tant que tel, est enregistrée

et transcrite dans l'une ou l'autre des deux langues

officielles, compte tenu de la langue utilisée par le

participant à l'audience publique.

               Canadian Radio‑television and

               Telecommunications Commission

 

            Conseil de la radiodiffusion et des

               télécommunications canadiennes

 

 

                 Transcript / Transcription

 

 

                             

           REVIEW OF THE OVER-THE-AIR TV POLICY /

     EXAMEN DE CERTAINS ASPECTS DU CADRE RÉGLEMENTAIRE

                 DE LA TÉLÉVISION EN DIRECT

 

 

 

 

BEFORE / DEVANT:

 

Michel Arpin                      Chairperson / Président

Rita Cugini                       Commissioner / Conseillère

Richard French                    Commissioner / Conseiller

Elizabeth Duncan                  Commissioner / Conseillère

Ronald Williams                   Commissioner / Conseiller

 

 

ALSO PRESENT / AUSSI PRÉSENTS:

 

Chantal Boulet                    Secretary / Secrétaire

John Keogh                        Legal Counsel /

Valérie Lagacé                    Conseillers juridiques

Shelley Cruise

Peter Foster                      Hearing Manager /

Gérant de l'audience

 

 

 

 

 

HELD AT:                          TENUE À:

 

Conference Centre                 Centre de conférences

Outaouais Room                    Salle Outaouais

Portage IV                        Portage IV

140 Promenade du Portage          140, promenade du Portage

Gatineau, Quebec                  Gatineau (Québec)

 

November 29, 2006                 Le 29 novembre 2006

 

           TABLE DES MATIÈRES / TABLE OF CONTENTS

 

 

                                                 PAGE / PARA

 

PRESENTATION BY / PRÉSENTATION PAR:

 

Independent Specialties                           797 / 4305

 

Vision TV                                         818 / 4417

 

APTN                                              832 / 4513

 

Stornoway Communications                          871 / 4704

 

High Fidelity HDTV                                887 / 4789

 

Rogers Communications                             911 / 4924

 

Telco TV                                         1002 / 5448

 

Canadian Cable Systems Alliance Inc.             1050 / 5732

 

 

                 Gatineau, Quebec / Gatineau (Québec)

‑‑‑ Upon resuming on Wednesday, November 29, 2006

    at 0833 / L'audience reprend le mercredi

    29 novembre 2006 à 0833

4297             LE PRÉSIDENT : À l'ordre, s'il vous plaît.  Order, please.

4298             Madame la Secrétaire.  Mrs. Secretary.

4299             LA SECRÉTAIRE : Merci, Monsieur le Président.

4300             For the information of the parties and participants in these proceedings, we would just like to remind you that there is additional information that was filed or added to the public record since the commencement of this hearing.  The documents are available in the examination room.

4301             Également, l'interprétation gestuelle est disponible durant la durée de toute cette audience, et sera disponible également sur demande.  Alors, on demanderait, s'il y a des personnes dans l'assemblée qui ont besoin de l'interprétation, de m'en faire part.  Merci.

4302             We will now proceed with the next presentation of the Independent Specialties.  I would ask Mr. Bill Roberts and his team to come forward for their presentation.

‑‑‑ Pause

4303             THE SECRETARY:  Mr. Roberts, after the introduction of your panel, you will have 10 minutes for your presentation.

4304             When you are ready, thank you.  Quand vous êtes prêt, merci.

PRÉSENTATION / PRESENTATION

4305             M. ROBERTS : Merci.  Je reviens.

‑‑‑ Pause

4306             M. ROBERTS : Comme c'est tôt le matin, j'ai une mauvaise présentation.  Je suis ici pour deux présentations ce matin.

4307             En tout cas, bonjour, Monsieur le Président, membres du Conseil, personnel et équipe du Conseil.

4308             Je suis Bill Roberts, Président et chef du conseil d'administration de SVOX, qui inclut Vision TV, One: the Body, Mind & Spirit channel, et The Christian Channel.

4309             Avec moi, aujourd'hui, sont mes collègues Martha Fusca de Stornoway Communications; Jean LaRose de APTN; et aussi avec nous est Slava Levin, Président et aussi chef du conseil d'administration de Ethnic Channels Group... mes collègues.

4310             Mr. Chair, the four of us are appearing on behalf of a group of eight independent programmers, services not affiliated with any of the distribution undertakings or any of the large broadcast groups.  They are also participating in this process.

4311             Our channels include analog, Category 1 and Category 2 digital and satellite‑to‑cable undertakings.

4312             We offer content in English, French and a range of third‑language services, including Asian, European and Aboriginal communities.

4313             Our programming targets niches that are not being served by other broadcasters.  Individually and as a group these independent services enrich the diversity of the Canadian broadcasting system.

4314             While not directly subject to the policies being considered in this proceeding, we are profoundly concerned by the potential impact changes in the regulated system will have on the ability of our services to contribute to the achievement of the objectives of the Broadcasting Act.

4315             As independent channels, we operate on some of the smallest economies in the system.  We face substantial competitive disadvantages in our efforts to secure carriage, attract subscribers, market our programming, grow audiences and benefit from opportunities in a multimedia environment.

4316             We exist and compete in an extraordinarily complex system.  Without the advantage of a corporate relationship with a broadcast distribution undertaking or the leverage of a large broadcast or large media group, we are more dependent than the other services on the relative stability provided by the CRTC's regulatory system and regulation of that system.

4317             Changes to one area of the regulatory regime may have indirect but serious consequences in other areas of the broadcasting system.  Our services are among the most exposed to those consequences.

4318             Given that we will hear from Martha and Jean later today, and you will be hearing from me in a few moments as well on behalf of Vision TV, perhaps I can ask Slava Levin to expand on these introductory remarks.

4319             Slava.

4320             MR. LEVIN:  Thank you, Bill, and thank you, commissioners, for this opportunity.

4321             Commissioners, at Ethnic Channels we approach broadcasting primarily from a business perspective.  Our goal is to deliver third‑language programming that Canadian viewers want to watch at a cost they can afford.  We would like to make a reasonable return on our investment.

4322             We know that the broadcasting industry is highly regulated and that we are expected to uphold our side of the regulatory bargain to carry out our business.  There are tradeoffs in the regulatory system but I know from firsthand experience that without appropriate regulations there would be far fewer Canadian television choices.

4323             My friends with me on this panel today each have their own different objectives but I think we all agree on this last point.

4324             In our view, the existing regulatory regime, including the TV Policy, has helped the mature conventional broadcasters evolve into industry leaders.  At the same time, it has allowed new entrants to join the system.

4325             New entrants enhance the achievements of the policy objectives of the Broadcasting Act, helping to innovate and fill niches that are underserved.  They provide consumers with a wider range of content choices.

4326             One of the policy objectives the Commission has emphasized in recent years is the reflection of cultural diversity in the Canadian broadcasting system.  We believe the concept of diversity needs to include diversity of voice in the system.  Therefore, the regulatory environment should as a priority continue to encourage the launch and success of independent services.

4327             As independent broadcasters, many of our companies aim to reach diverse communities to deliver programming that would not otherwise be available to individuals from a wide range of cultural backgrounds.  As a result, many of our business models are based on reaching subscribers and audiences that number in the low thousands rather than the millions being targeted by the larger conventional networks.

4328             Small changes in the regulatory environment can have a big impact on us.  You can appreciate that a big change like the request by the broadcasters for a fee for carriage gives us cause for concern.  The implementation of that suggestion poses a very real and materialist risk to the operation of the newest new services in the industry.

4329             The extra cost each year for television is going to cost some subscribers to rethink how they spend their entertainment dollars.  Some may accept it as the price that we pay and continue to subscribe to all of the services they had previously selected, but some will choose to stop subscribing to discretionary services to offset the additional cost without giving up TV altogether, and some will walk away from the Canadian broadcasting entirely, turning to alternative media choices, whether legal or illegal.

4330             From the perspective of my company Ethnic Channels Group, I can tell you that the gray and black market already represents direct and significant competition.

4331             How many subscribers and viewers will leave the broadcasting system is speculative but for the sake of discussion let's project as few as 5 percent will make that decision.  If 5 percent of Ethnic Channels Group subscribers drop out of the system, then we are out of business because as a new entrant with a narrowly targeted demographic for our services, our channels are designed to run with only a few thousand subscribers.

4332             That is the difference in this discussion comparing over‑the‑air broadcasters and independent services.  For the large networks, this is about subsidizing technology or increasing profits without giving up benefits they already enjoy.  For independents, it is about staying in business.

4333             We wouldn't have gotten into the industry if we weren't prepared to assume some risk.  The risk has already increased over the past number of years with some of the regulatory and other changes we have seen.

4334             At Ethnic Channels we believe, as do our colleagues of the other independent services, that we make an important contribution to the achievement of the policy objectives of the Broadcasting Act and, while particular to the reflection of Canada's cultural diversity, that we already face our fair share of the risk.

4335             As you contemplate updating the policy that sets the rules for the largest broadcasters in Canada, please keep in mind changes you make to the policy are going to impact the smallest broadcasters too.

4336             I may be the newest entrant on this panel but I have been around long enough to know that I should let Martha have the last word.  Thank you.

4337             Martha.

4338             MS FUSCA:  Thanks, Slava, and greetings to you, Vice‑Chair, commissioners and staff.

4339             It is extraordinarily difficult to start up a new programming service in Canada.  The barriers to entry are actually quite high and even if you manage to get your foot in the door, it is not a level playing field once you are inside.

4340             In some ways that makes perfect sense because the mature conventional networks make wonderful contributions to the Canadian broadcasting system.  We accept that they are deserving of priority status and that the TV Policy should continue to reflect the important role conventional services play in the system.

4341             As independent services, we have a different reality.  What I think we are really asking as you evaluate the framework for the over‑the‑air television is that you keep in mind the important role we play as well.  If the system skews too heavily in favour of one sector, others will suffer.

4342             I will add more on behalf of Stornoway later today, so let me just add in conclusion, before we answer any questions that you may have for this group, this is the first time Canada's independent services have worked together like this in a formal proceeding.  We appreciate the opportunity and we certainly intend to continue our dialogue as the CRTC proceeds with other planned reviews over the next year.

4343             We will be pleased to answer any questions you may have at this time.

4344             THE CHAIRPERSON:  Thank you very much and welcome as a group.  I think it is rewarding that you voice your view and we appreciate that you form that group and we wish it long standing.

4345             I will ask Commissioner Duncan to ask you the first questions.

4346             COMMISSIONER DUNCAN:  Good morning, Mr. Roberts and panel.

4347             We understand your concern is that subscriber fees for over‑the‑air broadcasters could have an adverse ‑‑ in fact, will have an adverse effect on your bottom line either because subscribers will revisit their buying decisions to offset rate increases or because the BDUs will force down the fees paid to independent specialties.

4348             You indicate that channels not affiliated with a BDU or without the leverage of international brands would be the most targeted, the most likely to be impacted.

4349             I am just wondering if you have conducted any market testing to assess price elasticity and determine at what point subscribers will start to disconnect services.

4350             MR. ROBERTS:  No, Commissioner, we have not had an opportunity to conduct those studies but we do understand that in the subsequent process of this hearing there will be an opportunity to submit written comment and we are looking at doing just that in that context.

4351             However, we may have some anecdotal information that we can share with the panel.

4352             Martha, do you have something you can add here?

4353             MS FUSCA:  Actually just before we entered the room, Slava and I were sharing misery stories and the one thing that ‑‑ it is not price point related at this stage.

4354             What it was was being shifted into a different package and it wasn't 5 percent.  We actually lost somewhere around 25 percent of our subscribers because we were moved from one package to another without anything other than a brief letter of notice and absolutely no discussion at all.

4355             So when you take the notion of price and/or packaging, you also have to understand that we have absolutely no leverage.  So we really look to you to think about these things very thoroughly and hopefully comprehensively before making any of these decisions.

4356             COMMISSIONER DUNCAN:  So this shift in packaging has happened?  You are not speculating, it has happened?

4357             MS FUSCA:  It has happened to Stornoway Communications.  It happened with ichannel.  And the whole pricing issue, you quite rightly pointed out that we are being ground down, and again, when you have no leverage, what option do you have?

4358             We have absolutely no option at all.  It is either you try to accept and try to make do with what you have got or you just shut your door down.  And after spending millions of dollars and collectively tens of millions of dollars, that is a pretty difficult pill to swallow.

4359             COMMISSIONER DUNCAN:  Thank you, I appreciate ‑‑

4360             MR. ROBERTS:  Commissioner Duncan, just to add from Vision's perspective, we did experience when Vision itself was moved from Channel 24 to 59, then 61, then 60, that we lost approximately a third of our audience and it took several years to rebuild that audience.  So a third is quite significant.

4361             And also I can share with the panel that we experience significant pressure on our subscriber rates as it is from the BDUs.

4362             So those are two facts.

4363             COMMISSIONER DUNCAN:  Thank you.

4364             So in your written comments you expect to be able to include a survey or some comment on what the price might be, price tolerance, price elasticity?

4365             MR. ROBERTS:  If that would be helpful for the Commission, yes.

4366             COMMISSIONER DUNCAN:  Thank you.

4367             I am just wondering if the Commission were to develop a framework that establishes fee for carriage for the over‑the‑air broadcasters, are there measures or safeguards that you would like to recommend to us be included that would ensure the viability of independent systems like yourselves?

4368             MR. ROBERTS:  I will begin with a general comment and then ask Slava to respond in detail.

4369             The purpose of our presentation here this morning ‑‑ which is a prototype for this group of eight, I must add ‑‑ is that don't forget us is what we are trying to say here.

4370             COMMISSIONER DUNCAN:  Uh‑huh.

4371             MR. ROBERTS:  There is a ripple effect of any decision made for the over‑the‑air broadcasters that will impact these truly independent entities and help us in dialogue to see the system as a whole.

4372             Just as local television in Trail, B.C. is important to the system or in Rivière‑du‑Loup is important to the system, we, as in a sense local to different kinds of communities, are important to that system and we would like to see the appropriate safeguards in place around a policy that encourages a diversity of those very independent voices in the system.

4373             Slava?

4374             MR. LEVIN:  I am sorry, I am actually losing my voice.  I am just getting over a cold, so I am just going to pass it over to Martha to answer on my behalf.

4375             COMMISSIONER DUNCAN:  All right.

4376             MS. FUSCA:  I completely agree with what Bill has said already.  In my submission for Stornoway Communications, I will actually ask the Commission to consider putting in some measures.

4377             It's early days in terms of what those measures are and that's why I'm going to encourage the Commission to also take a holistic view of the various proceedings, as opposed to doing them in a piece meal fashion.  Having said that, I do have something that might be considered a radical thought, which is that we actually establish minimums.

4378             At a certain point, if the Commission does truly care about cultural diversity and new voices in the system, a little competition within the broadcasting landscape, any number of those kinds of issues, it's really going to be important that there is sort of a bottom line set with what we can actually receive as revenue.

4379             The numbers that I have in mind, which are very early, I would rather not discuss them at this stage, are not in any way, shape or form anything that anybody should be, you know, violently opposed to or even slightly opposed to.  But I think that that's where we're going to need to go because we cannot defend ourselves.  That's as simple as it gets.

4380             COMMISSIONER DUNCAN:  And I appreciate those comments.  Mr. Roberts.

4381             MR. ROBERTS:  Madam Commissioner, I think Jean from APTN has a few comments to add as well.

4382             COMMISSIONER DUNCAN:  Sure.

4383             MR. LAROSE:  If the Commission were to decide on a fee for carriage for over‑the‑air, I think that some of the safeguards that the Commission has rightfully put in place in the past years in some of the initiatives you've taken, such as mandatory carriage, such as either a subscriber fee or other initiatives that have ensured that services like APTN have an opportunity to survive and thrive, may need to be maintained and/or expanded.

4384             I think that there needs to be a trade‑off somewhere to ensure that we, as broadcasters, have opportunities to provide the services to the populations we serve.

4385             And as well, I think there needs to be a consideration given to the fact that should that happen, that there will be pressures on the system to actually maintain a basic subscription fee that is reasonable and you quite rightly ask what could be reasonable.

4386             I guess from my audience perspective, reasonable is sometimes a different ‑‑ is at a different level than what might be reasonable for the average Canadian, given the revenue of aboriginal people.

4387             So, certainly the impact on us of a $5.00 to $6.00 per month increase in basic might have quite a significant impact and what it may mean in our attempts to reach our audience in remote and northern communities, communities that are currently under‑served would be much greater than those in the major environment.

4388             So, I think that the Commission, from our perspective, would need to put in safeguards of that nature to ensure that what you have helped us establish by virtue of your past decisions is maintained and enhanced and not lost in the ‑‑ lost in the translation, if I can say.

4389             COMMISSIONER DUNCAN:  Thank you.  Those are all very useful.  Thank you.  Those were my questions.

4390             THE CHAIRPERSON:  I don't know if you were here to listen when the major broadcasters appeared, but there was a variety of price points that were submitted.  CTV suggested $0.10 per service per month, so if you are talking about $5.00, $6.00, CTV was talking about $0.80 for Toronto and, obviously, I will say probably Lethbridge we're talking $0.20 or ‑‑

4391             So, if you had to conduct a survey, obviously if you asked the $5.00 question, well Rogers provided us with the answer.  And obviously, to no surprise, Canadians don't support a $5.00 basic rate increase and a $0.20, $0.50 may be something else.  The same with the assumptions that ‑‑ CanWest was $0.50 per service and the francophones were talking about $1.00 per service, which is a slightly different situation.

4392             So, I don't know if you have further comments regarding the prices suggested by those who have appeared so far, some as like the CBC has said that it has got something that they're only asking the Commission to make decisions in principle, then they will at the time of renewal come back and suggest a fee, but I don't know, with the various levels that are just provided, if you have further comments.

4393             MR. ROBERTS:  There are some members of our panel here that would welcome the opportunity to provide further comment.  I also appreciate and we also appreciate the Chair's guidance with regard to the scope of our future research as we will take that very much to heart.

4394             Jean, do you have comments?

4395             MR. LAROSE:  But, Mr. Chairman, I think what's interesting in the range that you've just mentioned is that depending on who is making the presentation, the range will be from $0.10 up to $6.00.  So, obviously, from our end to try to gauge with the end result would be is a bit of a ‑‑ you know, is a throw of the dice.

4396             And we have to live with the fact because it's anywhere within that range, that the impact on us could be minimal, but it could be ‑‑ it could be fairly substantial.

4397             As an example, when APTN asked for the rate increase that we were given, there were reactions from BDUS and others that this was pretty excessive, you know, from a $0.10 increase that would have to be passed on to customers.

4398             So, if our $0.10 increase is seen as substantial, then an $0.80 increase is what, catastrophic?  I just have to go by the ‑‑ you know, the reaction to a player like us, to try to gauge the appropriate reaction to a greater increase.

4399             MR. ROBERTS:  Perhaps a subsidiary comment or a complementary comment.  The Commission knows better than most that when Vision came forward for a $0.02 increase, that was also considered by many of the BDUs to be onerous with regard to the system and the ability to pass that forward to the consumer at $0.02, so, first point.

4400             And second point is that regardless of the pennies or dollars associated with subscriber, basic subscriber fee increases, if that does become a fee that is actually ‑‑ suppressed the current subscriber rates for Vision and other services, that would be truly catastrophic for those business plants.

4401             MS. FUSCA:  May I just add?

4402             THE CHAIRPERSON:  Yes.

4403             MS. FUSCA:  I just wanted to add that taking pricing outside of the sort of the grander scheme of things, for example such as tearing and packaging, I think it's incredibly problematic as well.

4404             I just want to make that point because, for example, as you know Bill was saying whether it's arranged, whether it's $0.02 or $0.80 and the implications of the pricing, I don't think it can actually be separated from the notion of tearing and packaging.  So, I'm going to keep harping away at the notion of a holistic approach.

4405             THE CHAIRPERSON:  There was some discussion with the over‑the‑air operators.  Some, as you probably know, have suggested that the transition towards HD should be done only to BDU service so there will be no more over‑the‑air transmissions, so to some extent, they will be somehow very like specialty services since there won't be any more over‑the‑air free television.

4406             One of the questions that was arisen was the question of regarding new entrants and how should we define the local market versus the national market.  I know that some of your small members are acceding to local revenues.  How do you define "local" in terms of some of the members that are part of your group?

4407             MR. LAROSE:  I think from APTN's point of view the definition of "local" for us is probably nowhere near what it is for a conventional broadcaster.  We currently have three feeds now and for us, local is a full region of the country, i.e. the Western Region, the Eastern Region or the Northern Region, that's how we define "local" for our purposes.

4408             So, obviously, you know, the impact that, you know, our approach has is quite different than what may be CTV or Global has when they have stations in various cities across the country where a local is actually more specific to local.

4409             So, from our perspective in that regard, when ‑‑ the impact that we can see is that from our end as a national broadcaster, as we try to expand our service to all the various markets, we are facing sometimes competition for programming that is being time shifted because the local services offer across the country and that's where, in some areas, that has an impact upon us because it competes against our programming that's specific to a region, but other time shifted programming will come into play and affects some of our audiences.

4410             But that's a broader question that we will address in our presentation to you at a later point this morning.

4411             MR. ROBERTS:  Mr. Chair, you began the question with outlining the challenges faced with the HD transition and rather than taking up the panel's time here, that also forms part of Vision's presentation after this.

4412             THE CHAIRPERSON:  Well, then, Ms Fusca and gentlemen, thank you very much for your presentation this morning.

4413             Mrs Secretary.

4414             THE SECRETARY:  Thank you, Mr. Chairman.

4415             We will now proceed with the presentation of Vision TV.  Mr. Roberts, when you're ready.  Thank you.

4416             Mr. Roberts, lorsque vous êtes prêt?  Merci.

PRESENTATION / PRÉSENTATION

4417             MR. ROBERTS:  Thank you again everyone.  I'm still Bill Roberts and I now have the correct presentation.  Thank you.

4418             I would like to change hats now and offer you some perspective on behalf of Vision TV, Canada's multi faith channel.

4419             As I've mentioned, I am President and CEO of Vision TV, which is an hertz voice company and with me is our general council, Mr. Brand Kostandoff, who with the luck of some laws angels will be able to help us with some of the questions.

4420             Mr. Chair, Commissioners, staff, as you know, Vision TV is licensed as a national English language specialty service with a mandate and mission to reflect Canada's multi faith and multi cultural heritage.

4421             As a dual state of service, Vision TV is distributed as part of the basic package in virtually all of the systems in which it is now carried, available in nearly nine million Canadian households.

4422             We are, therefore, especially interested in the implications of the policies we are contemplating in that they will have a basic service operated by the BDUs.  There is no question that local broadcasting should remain a central component to the basic package.  Television can help citizens connect with their local communities.

4423             Indeed, television arguably remains the most powerful medium for engaging Canadians in a shared experience.  That shared reality can be especially important at the local level.

4424             I would, therefore, add to the five principles upon which the 1999 Policy was based. The distribution should continue to encourage and support local expression in the broadcasting system.

4425             As you've heard just now from the independent services, we are not convinced that granting a pass‑through fee to private conventional broadcasters is the best means to accomplish this objective.

4426             One would hope that with two billion dollars in annual revenue they can find ways to deliver on the promise to offer Canadians local programming on a daily basis.  Charging consumers more to facilitate as a matter of policy something that should already be happening when vast resources already exist to fulfil that outcome hardly seems fair.

4427             Of course, the basic package is not just about local broadcasting.  The basic service should support the achievement of other aspects of the Television Policy and of the Broadcasting Act.

4428             First and foremost the basic service should be predominantly Canadian.  Vision TV has recommended in our written submissions in this and in other proceedings that a green space or foundation tier be established as an all‑Canadian basic option delivered to all subscribers.

4429             We have also suggested a high threshold for Canadian program exhibition and expenditure requirements to warrant inclusion in that basic package to ensure that it is predominantly Canadian in all respects.

4430             Outside of that basic offering, if the Commission wants to encourage a more market‑driven approach to broadcasting, it may be entirely appropriate to do so by relaxing the regulatory expectations for those non‑basic or discretionary services.

4431             The CRTC should rightfully impose more stringent requirements on all regulated areas from advertising to captioning to program standards for services in the basic package while using a much lighter touch with licensees outside that group.

4432             Programmers could then apply to be a basic service if they are willing to meet the high standards required or they can develop business models to compete in the more open environment.

4433             The privileges of mandatory distribution and priority channel placement that over the air services have enjoyed for a long time are still extremely valuable and the Commission should not be shy about attaching high expectations to those privileges.

4434             It may be that current commitments to local and priority programming are sufficient to justify the pride of place conventional broadcasters enjoy.  But if enhancements to their terms of carriage are to be considered the quid pro quo in terms of contributions to the achievement of the cultural and policy objectives of the act should be similarly robust.

4435             Vision TV's suggestions for Canadian program exhibition and expenditure requirements may not be the only measures to apply to the basic service.  In the context of over the air broadcasters it may be appropriate to give preference to those willing to invest in digital and HD transmitters or to include investments made in upgrading transmitters in the CPE calculation.

4436             Give the network the choice.  If they want their channel to be a mandatory part of the basic or foundation package, they should continue to ensure that channel is universally available in its licensed area.  If they don't want to invest in the necessary upgrades then they should be prepared to vacate that priority status with BDUs.

4437             But whatever approach the Commission adopts in this proceeding, it should assure that the basic package continues to fulfill the fundamental and foundation objectives of the broadcasting act.

4438             A similar approach in the regulation of specialty pay and even VOD services might also help to achieve an appropriate balance between the often competing priorities of cultural objectives and reasonable profits.

4439             Commissioners, as a small independent service operating for the benefit of a registered charity, Vision TV understands better than most the difficulties we face as Canadian programmers.

4440             You have received and heard many thoughtful submissions from our industry peers suggesting a variety of possibilities for addressing the challenges faced by local over the air broadcasters.

4441             While some of these proposals give us cause for concern we certainly recognize the important contributions of local broadcasters and the role of local programming in the Canadian Broadcasting System.

4442             The TV policy must ensure local expression remains a viable component of that system.  But the framework must also serve to advance the achievement of a variety of other cultural and policy objectives.

4443             In our submission the best way to do so is by establishing a strong, vibrant and truly Canadian basic or foundation package of services, blending a diversity of local, regional and national programming to engage, to inform and to entertain Canadian citizens.

4444             Thank you again for the opportunity to participate at this hearing.  And we'd be pleased to answer any questions you may have.

4445             THE CHAIRPERSON:  Thank you, Mr. Roberts.

4446             I'm asking Commissioner Williams.

4447             COMMISSIONER WILLIAMS:  Good morning, Mr. Roberts.  And I'm sorry, I've forgotten your name, sir.

4448             MR. KOSTANDOFF:  Mr. Kostandoff.

4449             COMMISSIONER WILLIAMS:  Kostandoff.

4450             MR. KOSTANDOFF:  Well said.

4451             COMMISSIONER WILLIAMS:  Your earlier appearance of course has answered many of the questions I had prepared when Commissioner Duncan and Vice‑Chair Arpin questioned you.  But I do have a few remaining.

4452             You've stated if the Commission grants over the air broadcasters the ability to collect subscriber fees then requiring the highest standards of Canadian exhibition and expenditure from conventional broadcasters becomes even more appropriate when their channels are offered in the basic service.

4453             Could you elaborate on that?  Like what do you consider to be the highest standards of Canadian exhibition and expenditure?  And please explain what criteria you've used to arrive at these levels.

4454             MR. ROBERTS:  I'll begin a response, Commissioner Williams and then ask Brant to contribute to that.

4455             We would have no problem with a commitment with regard to Canadian content of 65 percent Canadian content and an expectation of 50 percent Canadian program expenditure as a starting point.

4456             But Brant, would you like to elaborate?

4457             MR. KOSTANDOFF:  Sure.  Thank you, Bill.

4458             We're coming from the perspective of a specialty service when we're offering opinions or thoughts on what an appropriate threshold or standard should be.

4459             COMMISSIONER WILLIAMS:  That's understood.  Yes.

4460             MR. KOSTANDOFF:  And far be it for us to suggest how our local colleagues should go about their business.  Fortunately we have you as Commissioners to set those standards for the conventional broadcasters.

4461             I think the point that we're trying to get at is the value of being part of that basic service with mandatory carriage and priority channel placement is extremely high.  And for you as the Commission in establishing policy to govern that group of channels, it's entirely appropriate to establish a threshold that is similarly valuable to achieving the cultural objectives of the act.

4462             So if we're saying in this proceeding that local programming is an essential part of the broadcasting system, then setting standards and requirements that are high with respect to local content for the conventional services that are part of that mandatory package is entirely appropriate.

4463             If the existing standards are acceptable to meet that test, that's fine from our perspective.  But if the conventional services are saying, in fact, we deserve more from the system for the contributions we're making then I think it behooves us all to look at the contributions and the value that they're adding to the system and perhaps increasing the bar for them as well.

4464             COMMISSIONER WILLIAMS:  Do you have a view on whether such expenditure and exhibition requirements should be broadly targeted?  Like should it be on all Canadian programming or more narrowly targeted to say Canadian drama, for instance?

4465             MR. ROBERTS:  Our first cut on this is directed to the overall services that would seek carriage on a foundation or green space tier, so less focus on specific program categories.

4466             But I think it would be completely appropriate and speaking for Vision and S‑VOX, we would have no issue with looking at further requirements dealing, for example, with drama.

4467             Vision has stepped up to the plate on a number of occasions with regard to drama, especially in the diversity field.  We've done so with the National Screen Institute; we've done so with the National Film Board.  We consider that to be a priority for us.

4468             COMMISSIONER WILLIAMS:  In the area of fee for carriage, can you give us some idea and some ‑‑ what measures or safeguards that you would recommend that the interests of smaller independent broadcasters like yourselves are more protected?

4469             MR. ROBERTS:  Again I'll begin with a more generic response and then ask Brant to elaborate.

4470             The sense of the first presentation this morning speaks for itself.  Vision TV's perspective is that what is largely unique about the Canadian system, or in part unique about the Canadian system is exactly those independent and mission‑driven entities that reflect diversity.  And these broadcasters are key as a result to a distinct Canadian broadcasting system.

4471             So we would ask the Commission not to do something for over the air broadcasters and their sort of larger corporate entities that harms or hinders Vision TV and our colleagues in that independent sphere.

4472             Brant.

4473             MR. KOSTANDOFF:  I think the best safeguard would of course be to deny the request for fee for carriage.  But that is avoiding the question.

4474             It's incredibly difficult to come up with thoughts on how to protect the smallest services in the industry when there is no regulation over the rates that are set by the BDUs.  And the playing field, in terms of negotiating carriage and distribution terms is so uneven.

4475             The reality is, to come up with any kind of system that is going to offer protection to both the services that are at the greatest risk and the consumer, takes us back into a system of rate regulation over, at a minimum, the basic service and arguably even more broadly, all packaging and distribution where the Commission ‑‑ we would be looking to the Commission to set the rates for even category 2 services because trying to negotiate those terms as an independent service with the large integrated companies is extraordinarily difficult.

4476             So I think the shorter answer is that the only safeguards that we could really move to would require stronger rate regulation by the Commission.

4477             COMMISSIONER WILLIAMS:  Okay.  Thank you, gentlemen.

4478             That's my question, Mr. Arpin.

4479             THE CHAIRPERSON:  Commissioner Cugini.

4480             COMMISSIONER CUGINI:  Thank you, Mr. Chairman.

4481             Good morning.

4482             I have some questions for you with regards to your green space or foundation tier.

4483             Am I right in assuming that this is your recommendation as it applies to a digital basic?

4484             MR. ROBERTS:  Yes, we would look at that as a very viable option for digital basic.

4485             COMMISSIONER CUGINI:  Okay.

4486             MR. ROBERTS:  It was also, Commissioner, I think, also referred in that context as well by the Lincoln Report of 2003, I believe.

4487             COMMISSIONER CUGINI:  Now, you use the word:

4488                  "...green space or foundation tier be established as an all‑Canadian basic option delivered to all subscribers." (As read)

4489             Does that mean there could be another "option" available to them or is "option" just a bad choice of words?

4490             MR. ROBERTS:  I think "option" is meant to provide some flexibility but I probably would retract that now.

4491             COMMISSIONER CUGINI:  And make it mandatory.  "All‑Canadian basic", are you suggesting ‑‑ because right now the basic tier is predominantly Canadian in terms of the number of services that is offered with the exception of the 4 plus 1 U.S. networks ‑‑ does your proposal include the exclusion of those 4 plus 1 networks?

4492             MR. ROBERTS:  It would.

4493             COMMISSIONER CUGINI:  Is that the most consumer friendly?

4494             MR. ROBERTS:  If the ‑‑

4495             COMMISSIONER CUGINI:  Given that they have, that consumers have been watching those 4 plus 1 networks for that past ‑‑

4496             MR. ROBERTS:  If the consumer ‑‑

4497             COMMISSIONER CUGINI:  ‑‑ 60 years?

4498             MR. ROBERTS:  If the consumer option ends up being more flexible and if the packaging of the foundation tier triggers a fee for that tier which is significantly less than the current basic tier cost, the consumer or household, would then have the option of buying into the 4 plus 1, potentially at a rate, cumulative or aggregate rate that would be less than the current basic.

4499             COMMISSIONER CUGINI:  So is your suggestion independent of whether or not we grant a fee for carriage to over the air broadcasters?

4500             MR. ROBERTS:  It's something we would like you to take very seriously in your considerations.

4501             Brant, other comments?

4502             MR. KOSTANDOFF:  Yes.  I don't think that the suggestion hinges on the fee for carriage discussion.  The possibility of coming up with an equitable balance if the Commission is going to go down the road toward fee for carriage by establishing high standards for that basic service, mandatory carriage priority channel placement, maybe gives an elegant policy solution to how to address the differing views on this issue and the needs of the system.

4503             The concept of it being all‑Canadian I'm not sure changes the offering to the consumer all that much in terms of what they are getting from BDUs now.

4504             The BDU is still going to set the price for the addition of the 4 plus 1 group.  And they are still going to want to do that in a way that it is attractive to consumers because those services are highly appealing.  There's no question about that.

4505             And engaging consumers in subscription to the U.S. channels is a priority for the BDUs.  So there's still going to be access to those channels.  It's just that the first buy for any consumer would be a group of Canadian services.  That would be a great thing for system.

4506             COMMISSIONER CUGINI:  Thank you.

4507             Thank you very much, Mr. Chairman.

4508             THE CHAIRPERSON:  Thank you very much, Mr. Kostandoff, Mr. Roberts.

4509             Miss Secretary.

4510             THE SECRETARY:  Thank you, Mr. Chair.

4511             We'll now call on APTN to come forward for the next presentation.

‑‑‑ Pause

4512             THE SECRETARY : Mr. Larose, when you are ready you can introduce your panel and you will have 10 minutes for your presentation.  Thank you.

PRESENTATION / PRÉSENTATION

4513             MR. LAROSE: Good morning, Mr. Vice‑Chair, commissioners and staff.

4514             First off, I will be introducing the group.  I thought today would be an ideal opportunity to actually put other faces besides mine in front of the Commission and give you an idea of who and what APTN is all about.

4515             So let me introduce the panel before we begin.  To my left is Joanne Levy, Director of Programming for APTN; and next to her is Wayne McKenzie, Director of Technical Operations; Jamie Veilleux, APTN's Chief Financial Officer sitting to my right; and beside him, is Lea Todd, Director of Creative Services and Scheduling.

4516             Behind me are Monika Ille, Monique Rajotte and Peter Strutt, each of whom is a Regional Programming Manager, as well as Joel Fortune from Johnston & Buchan, our Regulatory Advisor.  So this is not an Indian occupation by any standard, it is just a presentation.

4517             We were asked to appear at this hearing for three reasons.  First, APTN is a hybrid network.  We deliver our service by satellite to cable systems on a DTH basis and through a network of 96 over‑the‑air transmitters located North of 601.  The phase‑out of traditional analog over‑the‑air technology will have a direct impact upon us.

4518             Second, APTN has achieved a level of success within a specific regulatory environment.  We know that when one part of the regulatory environment changes other parts will be affected, including APTN.

4519             Lastly, we wanted to be at this hearing to represent at least one voice for Aboriginal peoples.  We don't claim to represent all Aboriginal peoples, but we do believe that we can help illuminate for your deliberations the special place of Aboriginal peoples within Canadian society, to borrow from the words of the Broadcasting Act.

4520             MR. McKENZIE: We have been examining the question of whether to upgrade or replace our terrestrial transmitters for approximately three years.  Many of our transmitters are located in more northern communities and were operated previously as part of Television Northern Canada.  Many of these transmitters are now 15 or more years old and have operated beyond their life expectancy.

4521             Based on a report conducted in 2004 jointly with the Department of Canadian Heritage we have concluded that replacing this network, mostly with low‑powered digital transmitters would cost more than $9 million.  It would cost more if APTN took over the ownership and maintenance of all of the towers or if APTN converted to higher power HD‑compatible transmitters.

4522             Right now, we own about one quarter of the towers and the rest are owned and maintained by others.  We do not have the financial resources to undertake a project of this size, so we are looking for alternatives.  One option, and the only one that is financially feasible for APTN, is to phase‑out our terrestrial transmitters and to deliver our service in the north by cable or through DTH satellite services.

4523             MR. LAROSE: Environics annual North of 601 survey has found that across the Yukon, Northwest Territories, Nunavut and Nunavik 11 per cent of the population rely on over‑the‑air reception, but only 6 per cent of the northern residents preferred to receive television over‑the‑air, and 48 per cent said that satellite is or would be their preferred way to receive TV, while 38 per cent said that cable or digital cable would be their preferred way.

4524             In keeping with our viewers' preferences, we believe that we are moving in the right direction in looking for an alternative to over‑the‑air delivery for APTN in the north.  There are many details left to be worked out and still some significant commitments to be made before our terrestrial network can be phased out, but it is something that we are looking at very seriously.

4525             We are pleased to report that one of the DTH providers, Bell ExpressVu, already distributes APTN's northern service, so it is already available for DTH satellite reception in the north.

4526             Personally, I am not sure if APTN's experience is similar to that of other broadcasters.  Our terrestrial network is located only in northern and remote communities, so it does not serve a very large proportion of the Canadian population.  In my mind, there is a more efficient way to reach the population that we serve now by these transmitters.  I do not have all of the facts to fully appreciate what other broadcasters have to deal with, but I can state that in APTN's case there is no business model that is affordable and defendable for replacing our terrestrial transmitters.

4527             MS LEVY: This hearing is about change and how to respond to it and we know that changes and regulation will have an impact on APTN whether intended or not.

4528             APTN has a direct stake in a healthy conventional television sector that is actively involved in producing Canadian programming.  We regularly enter into joint production arrangements with conventional broadcasters.  Some of our highest‑budget and most popular programming is financially possible only because of these arrangements.

4529             We should add that conventional broadcasters also benefit through APTN's co‑funding dollars.  In some cases, without APTN's participation as a second or even third window broadcaster, these productions would not happen.  Ultimately, these productions lead to more high‑quality programming on APTN, a greater Aboriginal presence on conventional television, direct support to the Aboriginal independent production industry and great original and exciting programming for Canadian viewers.  These projects advance the position of Aboriginal peoples in the broadcasting system and make the system better for all Canadians.

4530             APTN would be concerned if a change in policy resulted in less incentive for conventional broadcasters to produce this kind of programming or to partner with services like APTN.  With this background, we would like to address some of the specific proposals being considered at this hearing.

4531             MR. LAROSE: Canadian content requirements have a direct impact on the level and quality of Canadian programming produced in Canada.  APTN can see no compelling reason to make material changes to Canadian content requirements for conventional broadcasters.  Infomercials, for example, should not count as Canadian content.  Also, it seems counterproductive to return as a general rule to the double‑counting or 150 per cent counting of certain types of Canadian programming.

4532             Would it be good or bad policy to reintroduce an expenditure for conventional broadcasters?  We don't have the answer.  We think though, and we are relatively impartial on this question, that there is merit in the broadcasters' complaint that there are too many out‑of‑market signals in the system now competing for the same viewer.  If broadcasters are to make significant programming commitments, then we have to protect the value of their programming rights.

4533             On the issue of benefits policy, APTN has a direct experience with the Commission's benefit policy.  We think that the rationale for the benefits policy remains compelling.  When a licensee sells its television station it doesn't turn its licenses over to the Commission and ask the Commission to issue a call for purchasers.  The licensee sells the stations to the highest bidder.

4534             It is appropriate that a public interest test be met when public frequencies and public franchises are transferred by private parties.  Over time, this has lead to the 10 per cent benefits policy for television ownership transfers.  We support the continuation of the benefits policy.

4535             There is room to improve how this policy works.  The Commission could set a few key priorities for the allocation of benefits dollars and make sure those benefits are administered at arms‑length.  Naturally, we strongly believe that the advancement of Aboriginal peoples in the broadcasting system should be one of the priorities for benefits dollars.

4536             MS TODD: On the very controversial question of fee for carriage we are neither for nor against the proposal in and of itself, but we view it as having long‑term implications for how the broadcasting distribution environment now works.

4537             APTN relies on subscription fees and distribution as part of an affordable basic service.  Therefore, we are concerned about the potential for a substantial increase in the cost of the basic service.  Also, we are not clear on the rationale for a fee for carriage.  Why should only conventional broadcasters receive compensation for the damage caused by out‑of‑market signals?

4538             There has been quite a bit of discussion at this hearing about allowing more advertising to be sold by conventional broadcasters in one way or the other.  We are in favour of allowing experimentation with television advertising, but one reason for regulating advertising is to ensure that all services that rely on ad revenue have an opportunity to meet their business case and to fulfill their regulatory obligations.

4539             Appropriate limits on advertising ensure that there are more successful broadcasters and result in diversity in ownership and a diversity of voices in the broadcasting system.  Some latitude for new forms of advertising is probably appropriate, but the Commission should continue to regulate the advertising market.

4540             MR. VEILLEUX: The final area that we wish to address today is the need for more Aboriginal peoples to be included in the Canadian broadcasting system.  The Commission will recall the report of the Taskforce for Cultural Diversity on Television which was released in 2004.  The Task Force found that Aboriginal peoples were virtually absent on television with the exception of APTN.

4541             First, we would like to commend Canada's private broadcasters for the willingness that they have shown to foster diversity in television.  We regularly review the cultural diversity reports filed by broadcasters and those reports show that broadcasters take the issue of cultural diversity seriously.  One concern we have though is that we don't know what impact is being made.  We sense that there is some progress, but we don't know for sure.  There is activity, but are there results?

4542             The renewal of conventional television licenses would be a good time for the Commission to evaluate the impact on screen and on the ground of broadcasters' cultural diversity initiatives.

4543             MR. LAROSE: The report prepared by the Task Force provides baseline data against which we can measure progress.  If we assume that the major conventional broadcasters will be submitting their renewal application sometime in 2007, we need to get moving now to measure where we stand.  It takes time to compile and analyze data.  We shouldn't lose the opportunity to see whether we have made real progress.

4544             In addition to measuring results, we believe that putting more resources now into the education and training of Aboriginal youth and better coordination of these results will pay significant dividends in the future.

4545             At APTN we are involved in a number of different initiatives, two of them standout.  The first is SABAR, the Strategic Alliance of Broadcasters for Aboriginal Reflection.  SABAR is a working group of Aboriginal and non‑Aboriginal broadcasters, producers, educators which seek to increase Aboriginal participation in the Canadian broadcasting industry.

4546             The second initiative is the Aboriginal Media Education Fund, which has the objective of providing direct and coordinated funding for educational and training opportunities for Aboriginal peoples in media.

4547             I would be pleased to provide more information about these initiatives in responses to your questions.  As we said at the outset of this presentation, we can't speak for all Aboriginal peoples, but we do hope that we have brought an Aboriginal perspective to this hearing for you to consider.

4548             We would now be pleased to answer any questions you may have.

4549             THE CHAIRPERSON: Thank you, Mr. Larose.

4550             I am asking Commissioner Cugini to ask the first question.

4551             COMMISSIONER CUGINI: Thank you, Mr. Chairman.

4552             Mr. Larose, and to your colleagues, good morning and welcome to these proceedings.

4553             Mr. Larose, you said your experience may or may not be unique but, quite frankly, it is quite interesting so we welcome your comments.

4554             The first area that I would like to ask you about is your hybrid situation right now with the delivery of your signal.  You did say today that many of your transmitters are now 15 or more years old and have operated beyond their life expectancy.

4555             I don't know if you were here in the room yesterday when we heard from Don Schaefer at Standard who had a similar situation.  He has eight years of life expectancy left in his transmitters.  Therefore, any shutdown of the analog system would be very detrimental to him.

4556             If we were to accept what some have suggested, that there should be a very specific date by which the analog transmission should be shut down, do you have any comments or suggestions to make in that regard?

4557             MR. LAROSE:  In that area, as we state in our presentation, we currently maintain a system of which about six transmitters are now inoperative because they are beyond repair.  We can't fix them.

4558             Obviously, we are looking at a plan where, in the next four years, in our case, we hope to be back before the Commission to ask for permission to remove that as a condition of licence.

4559             We are working to develop an alternative system to provide our northern feed to the northern communities, our northern audiences, and that would be through a mixture of DTH and cable.

4560             Because we currently have carriage on one DTH for both the north and south feeds ‑‑ and the east feed now ‑‑ we think that this is a viable mechanism for the north.

4561             And one of the conditions of licence, as well, is that the Commission has asked us to do regular audience surveys and market surveys to support our position and our growing influence in the Canadian broadcasting sector.

4562             We have done a "North of 60" survey, which demonstrated that, in the north, right now, as I said, only 10 to 11 percent of our audience receives their signal over the air.  Over the course of the next year, about half of that group expects to switch to either cable or satellite, which means that if these projections were to be maintained, by the time we need to phase out the last of our transmitters ‑‑ because they will, by then, be worthless, they will be inoperative ‑‑ we probably will have 100 percent penetration of our audience through DTH or cable.

4563             That is what we are striving to work towards.

4564             We are working with Heritage Canada in this regard.  They are the ones, through the Northern Distribution Program, who set up the transmission towers back in the late eighties, early nineties.  They are the ones who are currently funding some part of it, but not all of it, and APTN funds the rest.

4565             We do not see, looking at the actual reaction and the audience expectations up north, that there is a real role for another form of over‑the‑air transmission system, because it is not the audience preference up there.

4566             The report is very clear that they are looking at satellite and cable.  Over‑the‑air is, I think, the preferred method for only 2 or 3 percent of the population, which is negligible.

4567             It still represents individuals who need to be served, and we are looking at ensuring that they will get service, but through other methods.

4568             MEMBER CUGINI:  You mentioned the impact of distant signals.  When you move to 100 percent cable or satellite, how much more of an impact will the carriage of distant signals have on your service?

4569             You will have more of your audience having access to distant signals, because they will now be subscribers to DTH or cable.

4570             MR. LAROSE:  Currently, the impact is fairly significant, in that, because they have made the transition, the choice they now have is much broader than what they had with over‑the‑air.

4571             Over‑the‑air, basically, in the north, consists of APTN and CBC.

4572             Right now, through satellite and cable, they have access to the full range of services that anybody down south has.

4573             APTN, in the north, ranges anywhere from the third or fourth preferred ‑‑ or most‑watched network amongst our own audience, to about eighth or tenth for non‑aboriginal viewers.  So we are roughly in the middle, when you factor both of those together.

4574             Obviously, there is a need, and there is an expectation that APTN will remain a strong player up north.

4575             There is a strong audience for it. When you consider that in the few‑hundred‑channel universe that we live in, if we still rank anywhere from 4 to 10, I think it is a good reflection that what we are offering meets the needs and expectations of the audience.

4576             We think that we will still be able to, under the current structure ‑‑ and that's where we have concerns about the regulatory environment.  As long as there still is a regulatory environment that protects APTN from being either pushed aside or not given the mandatory carriage status it has now, we believe that there will continue to be a strong presence of APTN in the north.

4577             COMMISSIONER CUGINI:  You have an eastern and western feed currently?

4578             MR. LAROSE:  We do now, yes, as of October 2 ‑‑ I believe that was the date we launched.

4579             We now have split our southern feed into two, to respond, again, to the audience in the south, which, based on the eastern time zone, was totally inappropriate for residents in the western part of the country.

4580             COMMISSIONER CUGINI:  Are both of those feeds available on cable and/or DTH now, or soon to be?

4581             MR. LAROSE:  DTH could be the subject of a long discussion, but we are working with cable companies to ensure that they, at least, provide the appropriate feed.

4582             We are trying to establish enough of a relationship and a partnership with them to have both feeds offered, if possible.

4583             But, obviously, that remains a challenge, to the extent that there is still ‑‑

4584             I don't think there is unanimity that APTN is a necessary service that should be given the same level of support that other conventional broadcasters may get in having the variety of their signals distributed across the country.

4585             COMMISSIONER CUGINI:  Thank you for that.

4586             Ms Levy, you said that APTN would be concerned if a change in policy resulted in less incentive for conventional broadcasters to provide this kind of programming, or to partner with services like APTN.

4587             What is your fear in making that statement?

4588             It is a cautionary statement.  Why do you think the broadcasters will no longer have an incentive to continue with the kind of partnerships and co‑productions that you have talked about both in your written submission and in your oral presentation this morning?

4589             MS LEVY:  Part of it relates very directly to the Benefits Policy.

4590             As you heard in our presentation, we have managed, in past benefits, to be the recipient of assistance to establish news bureaus, to establish programming, to create those kinds of relationships.

4591             So it is specifically with regard to benefits; that we would be concerned if there was any less incentive to go ahead with that.

4592             Right now we are very, very challenged at APTN, even with the new subscription rate.  We have about $12 million to commit to programming, and $500,000 to commit to development.

4593             In this last fiscal year, where that extra money was available, we were able to commission 400 hours of original programming.  We do that with help from some of the other broadcasters, in one way, shape or form, and we want that sort of relationship to continue.  We want them to be incentivized to continue that sort of thing, and to expand on it, quite frankly.

4594             COMMISSIONER CUGINI:  Do you have any specific goals in mind?

4595             I know that in your written submission you say, "A more principled approach to the allocation of benefits dollars..."

4596             Do you have percentages in mind of how much of the benefits money should be earmarked, for example, for such initiatives?

4597             MS LEVY:  I believe that some of the statistics that were provided in our brief related to the tiny, tiny percent that has been set aside for APTN in some of the benefits packages we have seen come through in the last few years.  It is minuscule.

4598             I guess what we would like to see is something that is more appropriate, at least in percentage impact, to the population of aboriginal peoples in the country, or some other sort of measurement.

4599             And I think that measurement is the key issue here.  We are more than happy to report to our conventional broadcast partners, or any other partners, on the impact that their assistance gives us.

4600             And we would note that, if it doesn't get measured, it doesn't get done; and we are quite happy to be very transparent about how we use other people's resources and how we partner with them.  We want to see that done, as well.

4601             MR. LAROSE:  If I could add to those comments; one of the things that we have given thought to, which I am sure the Commission may have heard in one shape or another from others ‑‑ and maybe even from us in the past ‑‑ is that when there is a 10 percent Benefits Policy applied, two things benefit:  the Commission's goals, and also those who are supposed to be the beneficiaries of that policy.

4602             First of all, it would be at arm's length from the conventional broadcaster making the contribution.

4603             What has happened on some occasions is that, while some benefits have been committed, APTN has not directly benefited from them, and we are sometimes hard‑pressed to actually find out who benefited from the arrangement.

4604             Our concern, as aboriginal peoples, is that we believe that we are the best suited to speak about aboriginal peoples.  We are best placed to deal with the community ‑‑ with our community ‑‑ and to recognize their needs and expectations, and to work in that regard.

4605             If the Commission were to say that, of the 10 percent, 3.5 percent of any benefits policy should be directed toward aboriginal peoples, then, obviously, I think APTN would like to be the beneficiary of that.

4606             As an open, accountable, and totally transparent network, we report regularly to the Commission, and we report very openly, as well.

4607             We also, with our partners across the industry, demonstrate what we actually do with the money and how it is spent.

4608             I think there is a benefit there for the conventional broadcaster, as well.  If we provide specific programming to them that is of benefit to the system, that is mutually beneficial, then I think that all of the parties would better benefit from it.

4609             Certainly, our community would benefit, whether it be through training, or through new opportunities ‑‑ especially our production community.

4610             As well, there would be training for youth, who will eventually be needed to fill some of the positions in the broadcasting industry, in general.

4611             Anybody reading the paper in the past few weeks knows that, all of a sudden, there is a labour shortage in a variety of industries, and that will come to broadcasting very soon, if it is not here already.  That is becoming a reality.

4612             And our population is the only population that is growing in Canada, so you have a base of individuals that needs to be given the opportunity to become participants in the industry.

4613             From APTN's perspective, we view it as our mandate, to a great extent, and as our role to ensure that our youth and our peoples have a place in this industry, and that is what we are striving to do.

4614             COMMISSIONER CUGINI:  You did mention SABAR in your oral presentation, and, as you know, in my former life I was able to attend a couple of meetings of SABAR.  I know that, through that organization, you launched some initiatives with both OMNI and CHUM.

4615             MR. LAROSE:  Yes.

4616             COMMISSIONER CUGINI:  And since you have offered to elaborate on some of the other successes of SABAR, I am going to give you the opportunity now to tell us how that relationship with the other members of that strategic alliance has worked for you, and for them.

4617             MR. LAROSE:  One of the things that is becoming apparent is, in the past year or year and a half, the membership of SABAR is increasing.  We now have more and more broadcasters on board, many of which are finally starting to get a better sense of what we are trying to achieve.

4618             We are not looking for quotas.  We are not looking for handouts.  We are not looking for anything like that.

4619             What we are trying to do is to give life to the cultural diversity reports, which all of them are expected to file with you, and to make it in a way that is actually tangible.

4620             Many of them are turning to SABAR, and they are now part of SABAR.  In fact, CBC has now joined SABAR, as well as other key broadcasters, such as CTV.

4621             As an example, CTV, this summer, offered an internship for ‑‑ I believe it was 13 young aboriginal people, and I understand that they hired one or two of them to become reporters in northern Ontario.

4622             This is the type of initiative which we think needs to be supported and maintained and expanded upon, because this is a results‑oriented approach.  This is something that actually helps the Commission fulfil the goal that it set for itself, and for the industry, when it put these initiatives forward.

4623             They are the type of results that both the industry and the Commission can look to and say here are specific results, positive results of what we have undertaken and what we set out to do in this specific area ‑‑ and I am speaking to Aboriginal peoples here.

4624             So I think when you look at initiatives such as that, when you look at the fact that our relationship with OMNI right now has provided us with the opportunity to launch series that we couldn't afford on our own, it is a shared programming opportunity in which Aboriginal producers are actually producing the programming, and there are two talk shows.  It is in partnership with OMNI.

4625             It has got a holistic view which is spiritual and what have you.  It speaks to a range of issues that are not only specific to the Aboriginal population but to other Canadians and a variety of Canadians, a diversity of Canadians, and will air on both networks almost in simulcast.

4626             So I think when you look at such initiatives, those are the tangible results that I think, in my mind, the Special Benefits Policy are meant to address.  We are seeking here to correct an imbalance.  We are seeking here to provide opportunities and these are the types of results that in fact do it.

4627             Certainly, SABAR with its increasing presence and its increasing participation by other networks has given us the opportunity to really present to them the wide range of opportunities that they can actually benefit from in the long run by not only participating but by creating worthwhile, meaningful projects and incentives and initiatives that will give opportunities to Aboriginal peoples.

4628             COMMISSIONER CUGINI:  Well, Mr. LaRose and to your colleagues, thank you.  Thank you very much for being part of these proceedings.

4629             Mr. Chairman, those are all my questions.

4630             COMMISSIONER FRENCH:  On the question of the earmarking of a portion of the benefits policy, could I just be clear, you would think it would be appropriate that 35 percent of the 10 percent should be earmarked for APTN?

4631             MR. LAROSE:  That is the proposal.

4632             COMMISSIONER FRENCH:  I just want to understand factually that that was the proposal.

4633             MR. LAROSE:  The proposal is, let's say the benefits is 10 percent, which is 100 percent of the benefit, then yes, 35 percent would be, in our view, given how it is currently distributed amongst other minorities and other groups, I think that that would be a fair representation, as a minimum anyways.

4634             COMMISSIONER FRENCH:  Thank you.

4635             Just to get back to the question of your northern service, Mr. LaRose, what is happening in those communities where the transmitters are inoperative?  I mean how are the residents of those communities receiving the service if they are receiving it?

4636             MR. LAROSE:  We have started to actually poll within those communities.  Some of the residents there have turned to alternates and that is where satellite is coming into play.  A lot of individuals have turned to satellite to receive a basic signal.

4637             Unfortunately, at this time of year right now because of this recent development, it is very difficult to reach some of those communities.  We will need ‑‑ in the spring we are planning an actual formal review of those communities and if we get the green light from Heritage we will start to connect those individual residences with DTH units so that they can receive APTN North as they used to but through the DTH system.

4638             So unfortunately, because of the remoteness and because of the climate, it is totally unfeasible at this point in time for us to actually go in and do sort of a site survey, a more intensive and more specific site survey.

4639             COMMISSIONER FRENCH:  It could be a long winter for some of those folks.

4640             MR. LAROSE:  It could be a long winter.

4641             COMMISSIONER FRENCH:  So the ultimate objective is to move to a DTH cable, another kind of hybrid model in which there would be some kind of a headend in the community and then there would be in many cases a cable distribution off the DTH signal; would it be looking like that?  I am just guessing.  I am just trying to understand what you have in mind.

4642             MR. LAROSE:  No, actually what we want to do is to actually ‑‑ in those communities that currently have cable, we have looked.  There are 80 communities in the north, and Wayne can correct me if my numbers are slightly off but it is 80 or 82 that are served by ‑‑

4643             MR. McKENZIE:  It is 80.

4644             MR. LAROSE:  Eighty.  Of those, 39 currently have small cable companies and our goal with those cable companies is to develop a process whereas all the houses would be cabled and APTN North offered decoded free of charge.  Anything else, obviously, the subscriber would pay for as any other Canadian.

4645             For those communities that have no cable systems, the proposal is to provide a DTH unit, a Bell ExpressVu unit, again, with the north feed only decoded, everything else being left at the discretion of the subscriber.  If they wish to subscribe to another tier or what have you, or to a basic service, then it would be at their own cost just like any other Canadian.

4646             Taking into account that over‑the‑air right now what they are getting is APTN, this is what they would receive through a DTH unit.

4647             COMMISSIONER FRENCH:  So in effect if I have understood, there is a government subsidy for a technological infrastructure which could be expanded to a very large range of signals but which would only be operative absent an additional financial contribution from the subscriber for your signal; have I got it right?

4648             MR. LAROSE:  Well what it is is the current subsidy that operates the transmitters, which is the Northern Distribution Program, would ‑‑

4649             COMMISSIONER FRENCH:  Which is a Heritage program?  Excuse me.  It is a Heritage program?

4650             MR. LAROSE:  Yes, it is a Heritage program.  It is a Heritage Canada program and initially it was set ‑‑ the program's initial goal was to connect the north to an equivalent measure to what the south was connected because many of the northern communities had no signals whatsoever.

4651             So Heritage ‑‑ and at the time I think it was Secretary of State ‑‑ launched the Northern Distribution Program which provided for service in those communities by installing those transmitter towers.

4652             And now the goal is just to maintain what is established under that program, which is our signal at this point because I am looking at it from APTN's perspective, and provide it for the duration of the time that there currently is a subsidy.

4653             What happens beyond the subsidy will then be something that we would need to look at but there remains four year to this contribution agreement and this is the four years in which we are looking to ensure that there is still service to those residents of our signal as per the contribution agreement we have with Heritage.

4654             We are still waiting for confirmation from Heritage that the contribution agreement language allows for this.  If not, then we will need to start looking at communicating with our audience up north and informing them of the various alternatives that exist beyond the transmitter towers.

4655             COMMISSIONER FRENCH:  And if the customer who was the object of this subsidy program wanted to expand his variety of services, he would enter into a commercial relationship with Bell ExpressVu?

4656             MR. LAROSE:  Exactly.

4657             COMMISSIONER FRENCH:  Yes.  I have to tell you the first time I ever saw out‑of‑market U.S. signals was in Baffin Island.  So it is not entirely new, is it?

4658             Well, those are very important communities from the point of view of the Commission's perception of what is an appropriate object of its interest and concerns, at least where I stand and I am quite confident that I speak for my colleagues.

4659             So I have appreciated your explanation of the situation and I hope that you would feel, in or out of the formal proceedings associated with the Commission, that you would keep us very much informed about what is going on because it is important at least to us to be able to adjust and only you have the requisite information.  So we would appreciate it if you would keep us informed.

4660             MR. LAROSE:  Yes, and in fact, if I may mention, in past years we always provided the Commission with a newsletter.  This newsletter might be hitting your in‑boxes today and will be hitting your mailboxes next week and it does in fact speak, to a certain extent, to this program but there will be a specific one on this initiative as soon as Heritage confirms what we can and can't do on it.  But this is a key priority.

4661             As I said, we want to make sure that you remain not only fully informed but that the network is transparent, open and accountable and seen to be so, and we will be providing you with that information in the coming hours and days.  Thank you.

4662             COMMISSIONER FRENCH:  Thank you.

4663             THE CHAIRPERSON:  Mr. LaRose, in the northern service, other than APTN, are those Aboriginal communities receiving the CBC service and other broadcasting services or is it strictly APTN that they are getting?

4664             MR. LAROSE:  Well on the over‑the‑air transmitters, they will receive both APTN and CBC.  That is my understanding of the current setup.  I don't know what CBC's plans are and I can't speak for the CBC but those are the only two that are received over the air.  Any other signal that they wish to receive, they have to subscribe to another ‑‑

4665             THE CHAIRPERSON:  Are you sharing facilities with CBC?

4666             MR. LAROSE:  We are sharing some of the towers with the CBC and we are co‑maintaining them.  In other words, we also pay part of the maintenance and operation costs for them.

4667             THE CHAIRPERSON:  Now you have alluded that since October 2nd you now have an east and a west feed.  Other than being delayed or shown prior, is it the same programming that you have on the two feeds or is there a set of programs for eastern Canada and another set of programs for western Canada?

4668             MR. LAROSE:  For the first year it is strictly time delay but our plans, as we outlined to the Commission, as we have started to commission programming already will be to offer regional‑specific programming as well as some scheduling changes that will reflect the particular region.

4669             Some programming may be more appropriate in one region than another in a given time frame.  That will be adjusted accordingly.  Also, some of the programming that might be in prime time in the north because it is prepared and it is produced in the north may end up in non prime time on the other feeds as well.

4670             So eventually each feed will have quite a level of differentiation amongst each to reflect the regional element of it but also to ensure that we can share those stories from every region to each other and to all Canadians by extension.

4671             THE CHAIRPERSON:  You alluded to some sharing of programming that you have done with the major broadcasters.  Could you give us some example?

4672             MR. LAROSE:  Some of them ‑‑ and Joanne, I will ask you to pick after this. But the first thought that comes to mind is we have done some movies of the week in partnership with CTV, "One Dead Indian," we have done "J.J. Harper Story" with CBC, and there may be others that come to mind.

4673             Joanne.

4674             MS LEVY:  Yes.  In terms of movies of the week we are participating in two new movies with CTV.  One is called "Luna" and it is about the Killer Whale on the west coast.  The other is "Elijah."  It is a biopic on Elijah Harper.

4675             In both cases those movies are meant to be versioned in Aboriginal languages.  So they will be seen on our station, on APTN, in both English and in an Aboriginal language that is appropriate to the area that they are aimed at.

4676             Other programming that we share.  One of the big successes has been "renegadepress.com" which is a youth‑oriented program.  Originally it started with APTN and TVO.  Global has come on board in the last year or so and as a result of their participation ‑‑ with our other partners before we could only afford to do about nine episodes a year.  With Global coming on board, we now have an order of a full 13 half hours of that program, which has won Gemini awards and so on.  So it is something we are very proud of.

4677             We share with OMNI.  We are doing a talk show that is going to be on the winter schedule.  We do a lot of cooperating with some of the tele‑educators who band together with us to pull together our resources to create interesting programming, especially documentaries and a little bit of drama.

4678             So those are the sorts of things we have been able to do.

4679             THE CHAIRPERSON:  And it is my understanding that you have been doing things with CTV with regard to CTV "Newsnet" and CTV News?

4680             MR. LAROSE:  Yes.  One of the ‑‑ and that is to show ‑‑ actually, I thank you for that opportunity to mention this because I think this is an example of what I mean when I say that it can go beyond being strictly a benefit.

4681             CTV back in 2000 offered ‑‑ as part of their being purchased had provided a special benefit of $600,000 a year to develop a news component to APTN.  Way beyond the terms up to now, this partnership has evolved ‑‑ this benefit has evolved into a partnership.

4682             We are now not only sharing news stories ‑‑ quite often what you will see on NewsNet and even on the National on some occasions are APTN news items as prepared, written and from the perspective of the Aboriginal reporter and the Aboriginal component of APTN, and our very specific initiative.

4683             And looking at the numbers in the past year, CTV has been relying more and more on APTN to provide that network CTV News and NewsNet with news items that are specific to our community to a certain extent or deal with issues that are related to our community.

4684             And right now, on average, I would say that there is between one to sometimes two stories a day that are picked up.  We share our news line‑up of the day with CTV, they know exactly what we are working on, which stories we are covering and quite often they'll request the story from us, even before we finalized it and they air it later in the day.

4685             So, I think it's the type of success story of a benefit program that went beyond the program.  I mean, the program ended a year and a half ago and yet, we are still committed to developing that partnership and to provide opportunities not only to get Aboriginal stories out, but to get Canadians to understand our perspective on those stories, which is often very different than if it was presented as we were found to say: history would be very different today if it had been reported by APTN.

4686             And we are trying, in fact, to live that motto in partnership with CTV with this arrangement.

4687             MS LEVY:  I should add as well that we've talked about the English language programming that we do on APTN but, of course, 15 per cent of our programming is in French and on the French side, we have been able to make some very good progress in partnerships there.

4688             THE CHAIRPERSON:  You've read my mind.

‑‑ LAUGHTER/RIRES

4689             MS LEVY:  Yes.  RDE, Télé‑Québec, Canal D, yes, they have come on board to help us out with programming on the French side as well.

4690             LE PRÉSIDENT:  Monsieur Larose, vous nous avez parlé de SABAR et AMF... MF, je pense, peut‑être à l'exception de monsieur French qui est peut‑être moins familier, mais tous les autres ont récemment participé à des audiences de radio et donc, ont eu l'occasion d'être *immersés+ au projet de MF.

4691             Mais, est‑ce que ces programmes‑là SABAR et MF ont des composantes francophones ou si... où est‑ce que vous avez... et est‑ce que vous avez l'intention d'en développer?

4692             M. LAROSE:  Oui, SABAR, a des participants francophones pour peut‑être pas tous ceux qu'on aimerait encore, mais on a... à date, je crois que TVA en fait partie et peut‑être TQS aussi.  Il y a un autre... Astral, pardon, Astral.

4693             Alors, il y a une composante francophone.  MF est aussi dirigé à notre communauté francophone au Québec et ailleurs, la communauté autochtone qui est surtout au Québec d'ailleurs, sauf pour une communauté francophone en Ontario.

4694             Quand je parle de *communauté+, je parle de la communauté autochtone, évidemment.

4695             Alors, il va y avoir une composante francophone, il va y avoir des... il y a déjà des partenariats qui ont été... il y a eu des tentatives de partenariat avec, entre autres, le Collège de Jonquière, je crois, et on va chercher à réanimer ces partenariats‑là avec, justement, les opportunités que MF pourrait offrir à certains jeunes.

4696             Du côté de MF, il y a présentement des initiatives très spécifiques pour rejoindre les jeunes dans leur milieu scolaire lors de différents forums dont ce qu'on appelle en anglais des "job fairs", des initiatives du genre où on se rend dans un endroit et on présente tout ce qui touche à la télédiffusion, pour tenter d'inciter les jeunes à regarder ce domaine‑là et, ensuite, avec MF, l'intention est de leur offrir des opportunités de pouvoir aller... disons, suivre une formation professionnelle qui va leur permettre de travailler dans le domaine.

4697             LE PRÉSIDENT:  Monsieur Larose, mesdames, messieurs, je vous remercie de votre participation ce matin.

4698             Nous allons prendre une pause de 15 minutes et, donc, nous reviendrons à 10 h 25.  Merci.

‑‑‑ Suspension à 1008 / Suspension at 1008

‑‑‑ Reprise à 1027 / Upon resuming at 1027

4699             THE CHAIRPERSON:  Order, please.  À l'ordre, s'il vous plaît.  Madame la secrétaire.

4700             LA SECRÉTAIRE:  Merci, monsieur le président.

4701             Just a small reminder for those who are in the hearing room, if you would, please, turn off your Blackberries.  We have had some comments by the interpreters that it is causing some interference.

Thank you very much for your cooperation.

4702             We will now proceed with the next presentation of Stornoway Communications and I would ask Ms Martha Fusca to come forward.

4703             When you're ready, Ms Fusca, you have ten minutes for your presentation.  Thank you.

PRESENTATION / PRÉSENTATION

4704             MS FUSCA:  Good morning, Mr. Chair, Commissioners and staff.  My name is Martha Fusca.  I am President and Chief Executive Officer of Stornoway Communications.

4705             Stornoway joined the Canadian Television Broadcast sector in September of 2001 as one of the new independent entrance to receive specialty digital broadcast licences.  We proudly offer Canadians three Canadian digital specialty services:  I Channel, a category 1 service offering analyses of social and public affair issues of interest and concern to Canadians and two category 2 services: BPM‑TV, Canada's only dance channel and the PetNetwork, Canada's only television service devoted to pets and their families.

4706             At Stornoway Communications we not only produce hundreds of hours of original Canadian programming each year.  We also acquire hundreds of hours of Canadian content, much of which comes from the independent production sector.

4707             While based in Toronto, we're producing programming from across the country, including Montreal, Vancouver, Calgary and Ottawa.  We also work with independent producers to help them finance their projects while they are still in development.

4708             We produce many programs in PSH for educational, charitable and not for profit organizations to help them deliver their message and important information to Canadians.  Recent examples include the Canadian Environmental Awards, Canadian Association of Retired People, the Multiple Sclerosis Society, the Canadian Breast Cancer Foundation and the Youth Science Achievement Awards.

4709             I am delighted to have the opportunity to make this presentation to you today as you begin this first stage of your review of Canada's television landscape.  While I don't envy you, your task, I applaud you for your commitment to this endeavour.

4710             I also applaud your wisdom in scheduling three consecutive hearings to examine the issues, challenges and opportunities faced by the three pillars of Canada's National Television Service: Over‑the‑air broadcasters, specialty broadcasters and broadcast distributers.

4711             Together, these three pillars provide a vital service to Canadian television viewers and are essential to the continued achievement of the objectives of the Broadcasting Act.

4712             A comprehensive and forward looking regulatory environment is essential to our collective success and only a holistic, timely and coordinated approach in making changes will be effective and enable each part to continue to play its role in providing Canadians meaningful diversity and choice in a sustainable way.

4713             Dealing with one part separately without the benefit of a full review of the potential detriment to the other parts, particularly the specialty services is not, in our view, in the public interest.

4714             Stornoway is signatory to the independent specialty submission, it continues to share the concerns that this submission addresses and the positions that it takes.  I'm here today to emphasize the concern that decisions may be made at the end of this first proceeding that may affect negatively what I call the "Classic 2001" because they would be made before the specialty and distribution sectors are reviewed.

4715             Stornoway Communications is enthusiastic about the opportunity to provide its views in each of the reviews envisaged and to appear before you to discuss the issues of importance to its continued contribution to the achievements of the objectives of the Broadcasting Act.

4716             What I fear is that decisions, if made at the conclusion of this hearing, will preclude taking into consideration their full effect on other sectors.  For example: how can the Commission make decisions on issues such as the relaxation of advertising restrictions, fees for carriage, the deregulation of priority carriage for over‑the‑air broadcasters, tearing and packaging tears before the completion of the hearing and review of the other sectors.

4717             Moreover, as the over‑the‑air channels migrate from analog to digital format, the packaging and pricing of the services offered will become even more important because, and I cannot stress this enough, for smaller independent operators like Stornoway, the viability of our program services is extremely sensitive to pricing and packaging decisions.

4718             Under the current regulations, even with I channelism must carry channel, we have no leverage with the distributors on the pricing and packages of our services.  This means that we are among the most vulnerable to possible negative consequences resulting from decisions on these issues during these hearings.

4719             I believe strongly that it is essential that as these pricing and packaging decisions are made, there must be some regulatory mechanisms to ensure that equitable and meaningful consideration is given to the licence obligations, mandate, interest and viability of the smaller independent channels and their subscribers and that appropriate consideration be given to potential negative impacts.

4720             In many ways, television in Canada is at the cross‑roads.  We have more channels, distribution systems, alternative platforms, competition, technological advances and many other challenges.  We have media concentration on many fronts as more and more niche and some conventional broadcasters are bought up by the bigger players, a trend that many believe will continue.

4721             If nothing is done to ensure that the expansion of choice provided by specialty in each broadcasting is not protected and afforded some continued place in the system.  The result will be among other things reduced diversity for Canadians.

4722             Also, in recent years, we have seen significant changes in broadcast services owned and controlled by the broadcast distribution undertakings.  The distributors who started out as essentially common carriers have become conglomerate, with the result that a handful of companies on most of the major distribution undertakings, as well as programming services.

4723             Meanwhile, the independent specialties are left with little or no leverage when they attempt to discharge the role that you licensed them to play.

4724             The complexities of the relationship among the over‑the‑air channels, the specialties in the broadcast distribution undertakings and the need for each of these groups to be individually strong so as to be collectively stronger necessitate the decisions from the CRTC reviews be taken contemporaneously.

4725             Individual sector determinations must be made in the context of the entire broadcasting system and, therefore, most weigh into the results of all of the reviews have been absorbed and analyzed.

4726             While this may be of less concerns for some, it is a fundamental concern to the smaller independent contributors in the industry.

4727             It is essential that the decisions made regarding each of the three industry groups takes into account the possible, probable and possible effects on the other groups and this can only be done with confidence once all of the reviews have been completed and analyzed in a holistic manner.

4728             I referred earlier to the group of digital specialty pioneers who went to the television broadcast arena as part of the bold new wave of digital television services in Canada as the Classic 2001.

4729             Stornoway and the others faced many trials and tribulations of the launch in this new digital world and while we encountered what could be considered a perfect storm to grit commitment and sheer determination we have survived.  We have invested millions of dollars and are about to turn the corner and we and our subscribers are very excited about the potential of this new wave.

4730             As the Commission conducts its review, I believe it is my responsibility to draw your attention to one of the essential lessons I've learned from this experience.

4731             The digital specialty industry, specifically the smaller independent broadcasters is still young and needs ongoing support and nurturing to enable it to realize its potential and it's importance to the CRTC mandated contribution of the Canadian Broadcasting System as well as to the Canadian Broadcasting Act.

4732             The Commission must continue to support and strengthen what it helped to create in the first place.

4733             Stornoway and other independents can only succeed when there is a fair and sustainable playing field, particularly since the field has disparate and different parts which should work together fairly to achieve stated general goals such as Canadian choice and diversity in a sustainable manner over time.

4734             I am personally delighted to have had the opportunity to seize and realize a dream of becoming a broadcaster after a lengthy and satisfying carrier as an independent producer and journalist and I thank those who went before us for creating the environment that made this possible.

4735             Today, I appeal to you for your help in securing that environment for the future in which independent broadcasters can continue to provide Canadians with informative and entertaining channels and programs that are independent, speak to our diversity and a proudly and steadfastly Canadian.

4736             Thank you very much for your interest and attention.  I will be happy to answer any questions or elaborate on any points made in our written submission or today's presentation.

4737             THE CHAIRPERSON:  Thank you, Ms Fusca.  If I am understanding well your submission of today, what you are saying, while the distributors and over‑the‑air broadcasters are saying that, please, relax the rules, what you are saying to us is: please, do more rules to make sure that we keep our place in the system.  Am I right?

4738             MS FUSCA:  Gosh! I hate to disagree with you, but not totally.  I am not suggesting that we don't relax certain rules that may need to be relaxed, given the current environment that we find ourselves in.

4739             What I am suggesting is really two fold:  one is that these reviews should not be looked at separately because I think that once ‑‑ when we hear one, there are may be implications in the other sectors that may not be accounted for.  So, I think the holistic manner is ‑‑ the holistic approach is really critical.

4740             But secondarily what I am saying is that over the last 5 years what I've learned is that people like Stornoway Communications, our company, and you've heard from some of the other folks as well, is that if we don't have some mechanisms that are provided for by the CRTC for this ‑‑ for the small independent players, that our very survival, I believe, is in jeopardy.

4741             If we have no negotiating power, you know, when the Commission says, you know, you go out, here's your category 1, here's your category 2 licenses, you have to go and negotiate, there's a presupposition there that's actually some kind of discussion or dialogue that happens.  And there's absolutely none really.  You're dictated too and that's what I'm really talking about.

4742             So I'm not suggesting that you don't relax some areas.  What I'm suggesting is that you look at is a whole and then look after some of the people that really can't currently look after themselves.

4743             THE CHAIRPERSON:  So, to come back to your last point and it was, what you were saying is that we should, before coming up with a public notice or a policy decision on over the air television, we should hold our public hearings regarding both discretionary services and distribution organizations.

4744             MS FUSCA:  Yes, that's exactly what I'm saying.

4745             THE CHAIRPERSON:  I'm sure that you are well aware that the Commission has already planned to process the renewals of the over the air television broadcasters over the next 18 to 24 months.

4746             And the purpose of this process was to put down the broad policy matters that were of, that will be the basis for the renewal of the over the air broadcasters.

4747             If you're asking us to suspend this proceeding or maybe continue it but suspend releasing our decision, it means that in terms of workload the Commission will have almost nothing to do for the next 24 months but then will be seeking and crying for help to do everything over, in the years after.

4748             And obviously we have to do ‑‑ we've done some planning.  I think it's not always what everybody will have wanted it to be but we surely have to cover all the types of licensees that we have before us.

4749             I think we're taking, surely we're ‑‑ just to reassure you that this, we knew from the outset that there were some issues that could be joint issues for all the system.

4750             But nevertheless there is a need, I think the Commission surely is taking into strong consideration the comments that you just made and the ones that those who had appeared before us this morning have made.

4751             And throughout our deliberation I could assure you that we will keep that in mind.  But I have to tell you right away that there will be a public notice sometime during 2007 dealing with the issues that are before us.

4752             I have no further questions unless my colleagues have.

4753             COMMISSIONER FRENCH:  Ms. Fusca, I understand the general tenor of your argument.  Of course we will try to look at it from a holistic point of view and that's never been absent from our mind.

4754             And I recognize perfectly well, because you're not the first person who's suggested to us that the pure logic would suggest that we do it all, all 3 of the sets of players or however many you consider there are in the segments in the industry, that we do them all at once.  And it just turns out to be intellectually and logistically and physically for us virtually impossible.

4755             So we're doing it the best way we can, but we're very much aware of the concerns that you raise.

4756             The more general injunction to have mechanisms, to provide negotiating power, et cetera, I mean do you have anything specific to suggest?  Or, I mean, am I being unfair in suggesting to you that while I get a general idea of what the point is I'm wondering what, as a policymaker, I'm supposed to about it.

4757             MS FUSCA:  Well, I think that, for that example, I mentioned earlier, I think that at some point we will have to look at pricing as a, you know, and establish base minimums.

4758             I mean I think that everyone in this room who's had any experience in managing and running, you know, from one to, you know, multiple channels will tell you that, you know, to run a worthwhile, you know, attractive program, programming service that, you know, people will want to subscribe, it's virtually impossible to do it with 5 cents a subscriber.

4759             And if you think that I'm exaggerating with regards to is that where the BDUs may go with regards to trying to grind you down to, I am not exaggerating.  So there's got to be something, you know, set out.

4760             I mean the Commission did undertake some time ago to license people.  People did make certain commitments and we're really simply asking for, you know, minimum standards to be put into place.

4761             The other is that, as I mentioned to a staff member probably a month ago, is you know currently if any of the BDUs should choose to move one of your services there doesn't need to be any discussion.  I mean they pay you the courtesy of sending you a note to tell you this.

4762             I mean it wreaks havoc as we all know with the subscribers.  But worse still, it can actually do an enormous amount of damage to your business plan, to any kind of, you know, projections for programming acquisitions or Canadian production, those kinds of things.

4763             And I was asked, you know, why didn't I come to the Commission to discuss this?  Well, quite candidly, at the end of the day, unless the Commission is actually prepared to do something about it, all that that does is it alienates me further, you know, from the distributor.

4764             So I don't profess to have all of the answers right now.  I'm just simply trying to bring these kinds of problems to your attention so that as you deliberate, whether you do it separately or holistically, please do keep those kinds of things in mind.

4765             So there's pricing and there's packaging.  There's MFN issues for example.  All of them want you to sign an MFN clause.  And so what kind of negotiation can you have when you actually have your first negotiations with one and then you've got to go and sign the same thing with everybody.  I mean does that allow for negotiation?

4766             So perhaps the Commission can simply state, you know, this is very detrimental, you know, to the smaller players.  It's probably not great for the system as whole.  So you know what?  We're not going to have any more MFN's.

4767             So I am prepared to go into that in some detail obviously during the time when people like me are really meant to be up here to discuss those.

4768             But I just wanted ‑‑ and for example I said earlier, vis‑à‑vis pricing, I don't know how we can really establish pricing, you know whether ‑‑ is it 5 cents? is it 80 cents? is it $1.00? what is it? ‑‑ without having heard what we believe is going to be the impact on us, I mean, you know the specialty folks.

4769             And you know, what the BDU folks have to say about, you know, how it is that they're going to cope with this.

4770             COMMISSIONER FRENCH:  Cope with... cope with?

4771             MS FUSCA:  Well, cope with the, you know, if ‑‑ say the Commission decided ‑‑

4772             COMMISSIONER FRENCH:  The hypothetical fee for carriage.

4773             MS FUSCA:  That's right.

4774             COMMISSIONER FRENCH:  Okay.

4775             MS FUSCA:  Okay.  You know, we've ‑‑ I gather we heard earlier that Rogers has already done a study to show what the potential impact would be.

4776             COMMISSIONER FRENCH:  Everybody's done studies.

‑‑‑ Laughter/Rires

4777             MS FUSCA:  Okay.

4778             COMMISSIONER FRENCH:  Doctors disagree, it would appear.

4779             MS FUSCA:  Yes.  But you see those ‑‑‑ I guess that's the kind of thing I'm saying.  And I, by the way, am not suggesting that you couldn't, given the wealth of information you probably have from the various sectors already, make certain determinations.  All I'm simply saying is that I think it would have been better the other way.

4780             But be that as it may, at a minimum please be aware that some of us are ‑‑ "concerned" is the polite way of saying scared.

4781             COMMISSIONER FRENCH:  Thank you, Miss Fusca.  I just wanted to give you the opportunity to detail that a little bit more and I appreciate it.

4782             THE CHAIRPERSON:  Thank you very much.

4783             Miss Secretary.

4784             THE SECRETARY:  Thank you, Mr. Chair.

4785             We'll now call on the next, for the next presentation, High Fidelity HDTV.

4786             Mr. Ken Murphy is appearing for the participant.

4787             If you would please introduce your colleagues.  And you will have 10 minutes for your presentation.

4788             Please go ahead.

PRESENTATION / PRÉSENTATION

4789             MR. MURPHY:  Thank you.

4790             Good morning Monsieur Vice‑Chair, Commissioners and Staff.  I'm Ken Murphy with my partners, to my immediate left John Pannikar, and David Patterson.

4791             Together we represent High Fidelity HDTV in Toronto.  We're Canada's newest broadcaster but we're not new to broadcasting.

4792             I have 25 years in Canadian television, first with a team which built Discovery Channel ‑‑ TSN and later as a builder of the Discovery Channel franchise.

4793             John also has 25 years in Canadian television building Discovery's programming and production business after 10 years at CBC.

4794             And David spent 17 years in senior legal and business affairs, mostly at NetStar Communications and he's the one keeping everything on track with our new and rapidly growing HD production business.

4795             We speak to you today as new independent HD broadcasters on the other end of the television continuum from the large and powerful conglomerates which dominate these proceedings and the dials of Canadians.

4796             We own and operate 4, smart, refreshing and beautiful, all HD services, Oasis HD, Treasure HD, Equator HD and Rush HD.  And we're rapidly growing our program production for Canadian and international audiences.

4797             We operate in the digital broadcasting space and we're at home in this environment where innovation and risk‑taking are core skills.  And we further believe that Canada should play a more aggressive role in the international broadcast marketplace.

4798             We focus on the growing millions of Canadians who have embraced HD technology and want better HD programming.  We also focus on a new Canadian media consumer, sophisticated and empowered.

4799             Canadians want more choice and they want more features.  They want more forms of programming and they want broadcasters to keep up or they will go elsewhere.

4800             We are respectful of this new consumer and we're working hard to earn our way onto cable and satellite systems to serve them, especially those who seek more enlightened programming as they bring their home theatres to life.

4801             We believe OTA broadcasters have enjoyed a position of power and great privilege for many years.  Theirs has been and will continue to be for the foreseeable future, a highly profitable existence.

4802             The primary OTA answer to the inquiry about how to better serve a more demanding Canadian audience is to ask you for new fees, in effect, in our view, corporate welfare.  They seek the ultimate negative option especially when the basic consumer can't opt out except of course by opting out of the broadcast system all together and going to other forms of media including black market dishes.

4803             Frankly, like Chicken Little, the OTA conglomerates warn you that if they don't get more money, more power, more concentration of ownership and fewer obligations and if they can't force each and every one of their local stations onto the national digital platforms, that the sky will fall.

4804             Some have actually said, with a straight face, they see no viable model to serve Canadians with HD.

4805             At best, in our view, this is a collective failure of imagination and leadership and at worst a predictable outcome of an unhealthy consolidation of ownership combined with a powerful sense of entitlement.

4806             MR. PANNIKAR:  You're being urged by the OTA lobby to tilt the broadcasting system back in favour of the OTA broadcasters because of fragmentation to, among other things, specialty channels.

4807             What they conveniently forget to mention is that most of them have used their substantial profits over the years to buy the very specialty and pay services they now lament.

4808             They further neglect to remind you that some of them have dabbled in newspapers and pro sports teams and other ventures when they're not busy buying each other.

4809             Their story for the stock markets is that this creates limitless cross‑promotional opportunities and cost synergies.  Their story to you this week is that they are a business in decline.

4810             Which story do you want to believe?  We believe the evidence the most recent example of which is the $1.7 million ‑‑ sorry $1.7 billion buy‑out of CHUM.  That does not speak to the OTA club being on the brink of extinction.

4811             The OTA club wants new fees and fewer restrictions for the same old stuff.  There has been little said about how they might better contribute to the production, acquisition and broadcast of high quality audience‑driving Canadian programming, one of the key objectives outlined on Monday by Vice‑Chairman Arpin in his opening remarks.

4812             My monthly cable bill is more than $90 already.  How many Canadians will accept a hike of $7 or more per month for no additional service?

4813             Would it not be reasonable for them to reduce their discretionary services?  We say, in fact, that it would be likely and that will have far‑reaching consequences.  It would certainly be detrimental to the High Fidelity suite of channels, but worse, it would harm the very conversion to digital and HD in general which the Commission has repeatedly endorsed.  Indeed, it would stifle one of the great success stories of the Canadian broadcasting system, which is the rise of speciality and pay and digital services chosen by Canadians who perceive value in these programming spaces.

4814             We see no rational argument for the awarding of multimillions of dollars in new unearned revenue to OTA broadcasters thereby rewarding them for failing to plan for the obvious or for bad programming decisions or for dabbling in newspapers or other ventures.

4815             Canadian BDUs such as Rogers and Bell ExpressVu have spent billions of dollars building sophisticated delivery systems which provide those OTA broadcasters with the best eye‑level shelf space in almost every single Canadian household.  These digital delivery systems are not limitless and access to their finite amount of bandwidth is the key to accessing the Canadian broadcasting system.

4816             If DTH operators, for instance, are forced to carry every local OTA broadcast station, it will clog the system with hugely redundant programming and restrict, if not deny, access to the broadcast system for new voices and new entrants.

4817             The head of the CBC sat here on Monday and told you that there is "no business model for HD broadcasting."  I say any OTA broadcaster that sits here and tells you that ought to be ashamed of themselves.  We are living that business model every single day.  We submit to the Commission that for anyone to say no business model they really mean they have been unwilling to plan how to better serve the demands of the 3 million and growing households with an HD television set and now they say help us, we can't afford it, we need corporate welfare.

4818             You have heard estimates as high as a 25 per cent premium to provide HD service over and above a standard definition service.  We know the HD world better than anyone in Canada.  We are producing HD programming for a Canadian and international marketplace and have been doing so for more than a decade, including our previous lives.  Once and for all, any talk of a cost premium should be laid firmly to rest.  The cost of producing programming in HD versus standard definition is negligible.

4819             What should get way more attention is the cost of not producing in HD.  The ultimate cost of that is to make your channel irrelevant to the a growing number of Canadians.  High Fidelity HDTV has four all‑HD, 24/7, top quality channels on the air on Canada's leading HD provider, Bell ExpressVu, and on SaskTel, another innovative carrier.

4820             We are in negotiation with a rapidly growing number of other BDUs in Canada and abroad who want to serve their customers with better programming choices.  We have plans to launch as many more HD channels as we should be so fortunate as to be granted licenses by the Commission, but to do so an open system is a must, not one clogged by an OTA oligopoly.

4821             MR. MURPHY: The OTA broadcasters and their powerful lobby, the CAB, in my view in 25 years in this business, have a long tradition of conjuring up boogiemen to support their demands for more power and wealth with less obligation.

4822             In the early 1980s it was the speciality channels until of course they acquired the most profitable of them.  In the late 1980s remember the death stars.  In the late 1990s it was the internet and all things new media.  Today it is broadband, iPod, Slingboxes, YouTube and an infinite number of other ideas that may or may not prove to be relevant in the long‑term.

4823             The most recent list to this boogieman list is the utterly predictable cost of digital equipment and HD service.  We now hear new paranoia frankly about the new unregulated media as this threat to a whole system without any real evidence for such a threat.  Maybe change is just more threatening to those who feel entitled to the status quo.

4824             One of the objectives to these proceedings is to examine the most effective means of delivering digital and HD television to Canadians and we have a few suggestions.  Examine and regulate the broadcasting system as an integrated whole.  We know you have separate proceedings and have to for practical reasons, but we, please, urge you to be mindful of the overall implications of your decision in the early stage proceedings.

4825             The decisions you make in the OTA sector will affect the entire system, especially new entrants and new independent voices like High Fidelity HDTV.  Please support greater access and diversity especially in this time of accelerating consolidation.  Resist the demand to clog the national digital arteries with inefficient local channel duplication, especially when the clear consequence would be to limit access and further consolidate power.

4826             Please don't help the OTA broadcasters take Canadian consumers for granted.  The OTA broadcasters are powerful and comfortable, they are still making tons of money and they are still resisting change.  We urge you to encourage innovation, new investment and higher productivity in Canadian broadcasting.  Canadians are embracing specialty, pay and digital, please don't stifle this great Canadian broadcasting success story with new fees which benefit only the bottom lines of the already powerful OTA club.

4827             Finally, we urge you to view the cost of adopting HD production and transmission technology as an absolutely normal cost of doing excellent business over many years.

4828             We thank you for the opportunity to make our views known and we would be happy to answer any questions.

4829             THE CHAIRPERSON: Thank you, Mr. Murphy.

4830             My first question really will come from your last bullet, because that is the only place you referred to HD transmission technology.  Over the last two days and throughout the reading of the submissions that were made by the over‑the‑air broadcasters, yes, they suggested that from a consumer standpoint the appetite for HD wasn't great, but that they had to do it, producing the program.

4831             Their fear was that since close to 90 per cent of the Canadian television viewers are already getting their service through BDUs and that forecasters are of the view that by the time we set any shutdown date it will have grown by another 3, 4, maybe 5 percent and why should we implement the over‑the‑air HD transmission.  Some have proposed a hybrid solution, some have proposed only an only BDU distribution mechanism.

4832             Now, in your final point you were urging us to make sure that the goal, the direction of the transmission technology and they see it as a normal cost of doing business.  Could you expand on your views, specifically on that very topic?  Because that is going to be one of the key areas that we will have to come up with some determination, I will say.

4833             MR. MURPHY: Before I turn it over to my colleague, John Pannikar, to discuss in more detail some of the production implications for producing an HD, I would simply say I would be very reluctant to, whatever the number, 10, 7, 6, 5 per cent, ever shrug at such an audience and say well, you know, maybe it is not the best thing to do.  The fact is I think OTA broadcasters have a responsibility to their entire audience, they enjoy the privileges that go along with that responsibility.

4834             I find it really quite astounding that they would not have come up with innovative, maybe hybrid and maybe in certain markets, yes, transmit in HD over‑the‑air.  I think there will be a hybrid solution in the marketplace based upon practicality.  But I think it would be a dereliction of their responsibility to suggest to you that well, you know, if I have to put up a transmitter, something that I have done for years and years for a small audience that, oh well, you know, that is just too hard for us.  I don't think that is good enough.

4835             I think they have to come to you with specific solutions.  There are many many innovative technological approaches that can be developed and I am a little shocked that they haven't been more adaptive and innovative and forward‑looking.  And now it seems to be this oh my goodness, HD is here, how are we going to cope?

4836             On the cost of production ‑‑

4837             THE CHAIRPERSON: Yes, well I am interested in hearing you, because also that is an issue that is often raised and we hear all sorts of scenarios.  We are going to be hearing CFPTA and APFTQ in the next couple of days and I am sure they will say that the licence fees are too low and that they need higher licence fees to do HD programming because the costs of producing HD are horrendous.

4838             We are hearing on the other hand some broadcasters, including the CBC, which are saying that the costs are not necessarily that different and, yes, there is somehow a bit of override, but it is not detrimental.  So now that you have the specific experience because you only do that ‑‑

4839             MR. MURPHY: Well, I am going to turn it over to John who has more experience producing in high definition than any broadcaster or producer in the country.

4840             MR. PANNIKAR: The first thing that you should understand, and I have been an independent producer also for many years, is that there is no such if you are an independent producer as a licence fee that is more than you need.

‑‑‑ Laughter / Rires

4841             MR. PANNIKAR: The cost of producing in HD, there was a cost premium when we first started.  When we first started, for instance, a production company at our previous employer an HD camera was $250,000.  You can buy a perfectly competent broadcast‑quality HD camera for around $50,000 now.  The premium is, when we say negligible, in some instances, depending on how many shoot days you need and any special lenses, etc. there are always various ways to make a budget go higher or lower, depending on the requirements of the story that you are doing.

4842             But on average, our point is the cost has been coming down for years.  There is almost no cost premium today, apart from any special requirements that a production may need, and it is again part of the normal cost of doing business.  I am personally acquainted with a number of savvy production companies across the country who are producing in HD regardless of whether or not their broadcaster wants it and they are doing that to future‑proof their library so that they know in the day when everyone is finally HD that that will still have some shelf life and some use and there will be return on what they shoot.

4843             The other point to make in terms of the cost of conversion to HD, vis à vis production or anything else, just the general cost of going HD.  When I started in this business we were shooting on film and cutting on Steambacks and then it went to tape and now it has gone to HD.  Previously, when we went from film to Betacam and to other forms of videotape news gathering, I don't think I remember anyone coming before you and saying please give us more money for the cost of this conversion.

4844             Going to HD is no different.  There was planning for it at the time, there should have been planning for it this time.  And if that has not been done, I submit to the Commission that is not your fault and that is not the fault of the Canadian consumer.

4845             MR. MURPHY: If I might, just as a follow‑up.  I have some experience with broadcast facilities as opposed to HD production.  I built one of the first digital broadcast centres in the early 1990s and I can tell you that an edit suite back in the early 1990s, a reasonably productive BetacamSP suite, was $800,000.  You can get now a five‑seat full bandwidth HD edit suite ‑‑ server‑based ‑‑ for $250,000.

4846             So the question of well what is the HD suite today versus a standard definition equivalent is only half of the story.  The real question is is the cost of broadcast technology coming down whether it is HD or not?  And the answer to that is yes, emphatically.

4847             THE CHAIRPERSON: So I am sure that your answer will be yes, but if the Commission was to come up say with a decision that a shutdown date shall be set, and if we were to go into the direction that is suggested by most of those that we heard, that that shutdown date be established as August 31 of 2011, you will say that even by that time prices will have kept lowering down so everybody will be capable to meet that from the production and the transmission point of view, will raise the issues of distribution later ‑‑

4848             MR. MURPHY: Yes is the answer.

4849             I would add that we are not experts in over‑the‑air transmitter technology, nor are we experts in the kinds of opportunity costs that perhaps should be added to such an equation vis‑à‑vis public spectrum, and diminishing returns, using that spectrum, at some future date.

4850             But, as a generalization, anyone who is familiar with the impact that server technology has had, and computer technology continues to have, will assure you that the cost is lower today than yesterday, and that trend will, no doubt, continue.

4851             THE CHAIRPERSON:  If we move to distribution, currently your services are distributed by ‑‑

4852             MR. MURPHY:  Bell ExpressVu and SaskTel.

4853             THE CHAIRPERSON:  And SaskTel alone.

4854             MR. MURPHY:  Yes, so far.

4855             THE CHAIRPERSON:  You haven't been able to secure distribution with the cable industry.

4856             MR. MURPHY:  We are in negotiations with a number of leading cable operators.

4857             THE CHAIRPERSON:  One of the things that has been raised by the distributors, obviously, is an issue of capacity.  On the one hand, over‑the‑air broadcasters are concerned that there are still some over‑the‑air services that are not yet offered, particularly on satellite ‑‑ I think solely on satellite ‑‑ in certain local markets, and you stated, in both your submission and your oral presentation, that the Commission should be very concerned before mandating the satellite providers with all of the local transmission.

4858             We have heard numbers like, currently, there are so many services that are offered by satellite, and we have been using the number of 124 local television stations.  That means that 54 of them are not delivered.

4859             Obviously, if they are moving toward their current analog or digitalized form, that takes capacity.

4860             Eventually, if they all go HD, they will require more capacity.

4861             You are saying:  Don't open up the floodgates.  Keep them closed because ‑‑

4862             No?

4863             MR. MURPHY:  No.

4864             If I might, we are saying that capacity, bandwidth, whether it is on a cable system or a DTH platform, is a limited and finite resource.  However, it is not static.

4865             New technologies ‑‑ MPEG‑2 today, MPEG‑4, switched video, new spacecraft ‑‑ these are all factors that change and enhance, generally, bandwidth over time.

4866             In the case of DTH ‑‑ and I am not pretending to speak for any of the DTH operators, but it seems to me, as I look at how that industry has evolved over the last 15 years, that it tends to increment in giant steps as new spacecraft capacity comes on the scene.

4867             Today, we perceive, as new entrants to the broadcasting system, that bandwidth is at an extreme premium, especially on those DTH platforms.

4868             And we experience that perhaps at the sharp end of the stick because HD channels are bandwidth intensive.

4869             So there is a balancing act between growing consumer demand and the allocation of bandwidth for services like ours.  We understand that.

4870             But it is at a premium now, and until such time as there are material ‑‑ technological deployments, whether that is software or hardware in space, we think it will be at a premium and it will continue to be so.

4871             The fact is, if more standard definition, local, over‑the‑air channels are forced onto the system, there will simply be less real estate available for others.

4872             THE CHAIRPERSON:  You say in both your written and oral presentations that, probably, there are currently more than 3 million HD‑ready households.

4873             MR. MURPHY:  Yes.

4874             THE CHAIRPERSON:  Where did you get that number?

4875             MR. MURPHY:  We troll all of the data sources available to us.  They include the consumer set manufacturers, the retail operators, with whom we are in regular discussions ‑‑

4876             MR. PANNIKAR:  Roper, Forrester ‑‑

4877             MR. MURPHY:  We synthesize them all, and we believe that is a conservative number today.

4878             THE CHAIRPERSON:  You believe it is a conservative number.

4879             MR. MURPHY:  Yes.

4880             THE CHAIRPERSON:  Obviously, they are not necessarily all hooked up to ‑‑

4881             MR. MURPHY:  No.

4882             THE CHAIRPERSON:  Most of them are ‑‑

4883             MR. MURPHY:  The vast majority are not connected to an HD‑enabling set‑top device.

4884             THE CHAIRPERSON:  I see.

4885             MR. PANNIKAR:  The reason for that, Mr. Arpin, is that the people who have HD sets and have not hooked up to an actual HD service ‑‑ the number one reason they tell the BDUs, as far as we have been able to understand, is that there is not enough HD programming out there.  That is exactly the opportunity that presents itself to us.

4886             THE CHAIRPERSON:  Also, in your oral presentation this morning you were asking the question:  How many Canadians will accept a hike of $7 for no additional service?

4887             Where did you get that $7?

4888             We have heard here from 10 cents to 50, and in the French market we heard, also, $1 per service.

4889             MR. MURPHY:  With respect, we would suggest that you ask the presenters who are immediately to follow us what that hike might be.

4890             THE CHAIRPERSON:  Oh, yes.

4891             MR. MURPHY:  We think they will probably have an opinion on that.

4892             THE CHAIRPERSON:  They have already done their survey, and we have a copy of it here.

4893             But based on what we have heard from various intervenors, so far, they have used more reasonable numbers.

4894             I am sure the distributors will say that even 10 cents is a big number.

4895             MR. MURPHY:  Mr. Arpin, if I could, there is no magic to the $7 number.  Indeed, that is an arbitrary number.

4896             The point we are making ‑‑

4897             THE CHAIRPERSON:  It is in order to make sure that you had an impact.

4898             MR. MURPHY:  The point is, there is consumer bandwidth to consider.

4899             THE CHAIRPERSON:  Yes.

4900             MR. MURPHY:  They are not an infinite financial resource.

4901             As my partner John said, the cost for television service each month is approaching 100 bucks.  In that zone, in my household, I will tell you that 2, 3 or 4 bucks is material.

4902             Over the course of many years, it adds up, whatever the number is.

4903             The real question that I would have to answer to my wife, I can assure you, is:  What more are we getting for that?

4904             MR. PANNIKAR:  It will not be zero.  It will be something bigger than zero, and there will have to be a justification for that.

4905             If it is an increase of $1, just because, it is still an increase that won't go down well, in our view, with consumers.

4906             MR. PATTERSON:  Mr. Arpin, if I may, I believe that the people from CanWest Global have mused publicly about whether or not $2 per station may be an appropriate fee.  But I think, in their attempt to be reasonable, they have now put forward something in the nature of 50 cents.

4907             I think they would be glad to take $2, if it was offered to them, and I think that, if you did the multiplication, it would actually exceed $7.

4908             THE CHAIRPERSON:  We have also seen, in some presentations, $19.

4909             A variety of numbers have been put forward.

4910             MR. MURPHY:  Mr. Arpin, if I could make one final comment, perhaps our sensitivity to this whole question is borne of experience.

4911             I was part of the team that launched Discovery Channel in 1995, and I recall vividly that the best‑laid plans of our business and the regulators at the time, and the distributors at the time, ran smack dab into a train wreck called the negative option backlash.

4912             I think the real point here is, we take Canadian consumers and their wallets for granted at our own collective peril.

4913             THE CHAIRPERSON:  I also understand from your presentation that you, like Ms Fusca, are telling us to make a holistic decision, so that, before coming up with a final decision, we hear what the specialty services or the discretionary services of the BDUs have to say in their specific proceedings.

4914             MR. MURPHY:  We don't say that from a procedural or a serial decision‑making point of view; we just urge you ‑‑ especially from the point of view, if you will, of people who, in the pendulum between the large companies and the small new companies ‑‑ even a small change can dramatically change that balance, and we urge you to keep that in mind, please.

4915             MR. PANNIKAR:  The other differentiation between other groups of people from whom you have heard and are likely to hear is, we think we are probably one of the few who are not before you with our hand outstretched.  We are actually working to earn our way onto cable systems and BDU systems, and are not looking for heavy regulatory change, just the ability to access limited bandwidth.

4916             THE CHAIRPERSON:  Gentlemen, thank you very much for your presentation.

4917             We will take a five‑minute break to allow the next party to come to the table.

4918             MR. MURPHY:  Thank you very much.

‑‑‑ Upon recessing at 1118 / Suspension à 1118

‑‑‑ Upon resuming at 1125 / Reprise à 1125

4919             THE CHAIRPERSON:  Order, please.

4920             Madame la Secrétaire.  Mrs. Secretary.

4921             THE SECRETARY:  Thank you, Mr. Chair.

4922             We will now proceed with the next participant, Rogers Communications Inc.  Mr. Ken Englehart will introduce his panel and you will have 15 minutes afterwards for your presentation.

4923             Mr. Englehart.

PRESENTATION / PRÉSENTATION

4924             MR. ENGLEHART:  Thank you.

4925             Mr. Chairman, members of the Commission, I am Ken Englehart, Vice‑President, Regulatory for Rogers Communications.  Let me introduce our panel to you.

4926             Seated to my left are Ted Rogers, Chief Executive Officer, Rogers Communications; Phil Lind, Vice‑Chairman; Rael Merson, President, Rogers Broadcasting; and Robert Buchan of Johnson and Buchan.

4927             To my right is David Purdy, Vice‑President and General Manager, Rogers Cable; Pam Dinsmore, Vice‑President, Regulatory and Broadband; and Mike Lee, Chief Strategy Officer.

4928             Seated at the table behind me are David Campbell, President and CEO of Media Buying Services; Suzanne Blackwell, President, Giganomics Consulting; and Chris Kelly of the Strategic Council.

4929             Now, Mr. Rogers will give our presentation.

4930             MR. ROGERS:  Mr. Chairman, members of the Commission, fee for carriage would be disastrous for the Canadian broadcasting system.  It would be bad for broadcasters, distributors, specialty services and independent producers.  Most importantly, it would be very, very bad for consumers.

4931             Three key arguments have been advanced in support of fee for carriage.

4932             The first is that broadcasters need the money to stay financially viable; number two, it would boost funding for Canadian programming; and third, broadcasters are disadvantaged compared to specialty services.

4933             And for all these reasons, this concept ‑‑ because it really is a concept.  It seems to be everybody who comes up here in favour of it has a different idea of what it should be.  None of these arguments are supported by the facts.

4934             First, conventional broadcasters overall are doing just fine and the numbers published by the CRTC show that very clearly.

4935             The private broadcasters' profit margins averaged a respectable 11 percent in 2005, in line with the six‑year average.

4936             Advertising revenues increased over $2 billion in 2005.

4937             And despite dramatic changes in technology, customer viewing has also remained remarkably stable.  Total viewing hours to Canadian services have increased for both over‑the‑air and specialty services since 2002.

4938             Hardly ‑‑ hardly a spectre of an industry in crisis.  This hardly paints a picture of problems.

4939             True, the profitability of individual broadcasters varies from year to year, the same as it does in any business, but it is fair to say that this has nothing to do with the absence of subscription revenues and everything to do as to whether the broadcaster has been lucky enough to pick up the right U.S. shows or been prepared to commit the funds to broadcasting over newspapers and foreign adventures.

4940             Perhaps the most telling evidence of the financial viability of over‑the‑air properties is the recent purchase of CHUM by Bell Globemedia for $1.7 billion and they would like us to contribute something towards that.

4941             Far from picking up CHUM at a bargain basement price that you would expect of an industry in trouble, Bell Globemedia was willing to pay a sizable premium of at least 50 percent over the already high share price.  It is not like CHUM had to liquidate its assets on a fire sale.

4942             Since the over‑the‑air television industry as a whole is doing well according to all the evidence, broadcaster viability is not and should not be a reason to impose fees for carriage on the consumers.  If individual licensees are having problems, then imposing fee for carriage is a poor solution to that problem.

4943             The biggest beneficiary of the fee for carriage would be the top hat broadcaster in Canada, CTV.  The BGM‑CHUM transaction, if it is approved, CTV, already the country's largest private network, will reach 99 percent of English‑speaking Canadians and will control 33 over‑the‑air TV stations ‑‑ 33 ‑‑ 38 specialty TV services, 33 radio stations, along with the Globe and Mail newspaper.  This company does not need a handout from our customers.

4944             As for CanWest Global, it would be a mistake to impose a fee on all Canadian cable and satellite customers to help out one broadcaster that has had a few bad years of substantially reduced earnings partly because they made investments in newspapers and other things.  The created great debt loads made them less viable in buying American or Canadian programming.

4945             This is a cyclical industry.  In fact, recent press coverage suggests that Global is trending upwards again.  In an interview last week Leonard Asper, my friend, talked about turning the corner from a financial perspective.  He didn't say which corner he was turning but I think we got the idea.  He said that he could see the corner from where he is standing.  This is very good.

‑‑‑ Laughter / Rires

4946             MR. ROGERS:  There are better ways to increase the profitability of over‑the‑air broadcasters, and innovation, which has always been the key to the broadcasting system in Canada, is number one.

4947             Mr. Asper also mentioned last week easing advertising restrictions would help broadcasters exploit emerging opportunities and we agree with that.  Solutions for over‑the‑air broadcasters today involve targeted advertising that offers significant potential for new revenue‑generating opportunities.

4948             We are willing, as we have in the past, to partner with broadcasters and advertisers to allow advertisers to reach a targeted measurable audience.

4949             Broadcasters still have to get ahead of the new technological opportunities such as providing prime time programming complete with their commercials to cable VOD distribution at no charge to subscribers.  This obviously would enlarge their advertising base and increase their revenues.

4950             CBS and Comcast are doing this today in the United States.  CTV and Global should be doing this with Rogers and others today if they seek expanded audiences and revenues.

4951             Right now, no one ‑‑ no one is benefiting from the VOD rights for the prime time shows bought by Global and CTV.

4952             And to the extent that small market stations need help, we believe the easiest and most obvious solution is to require DTH operators to carry all local signals.  It sounds pretty reasonable to me over the years, just as cable operators have always been required to do.

4953             Now some argue that the rationale for fee for carriage is not creating industry viability but rather supporting increased Canadian content and what parties do not recognize is that fee for carriage could significantly reduce the amount of money in the system and thereby reduce expenditures on Canadian content.

4954             First of all, most of the private over‑the‑air broadcasters have not committed a single dime of potential fee‑for‑carriage revenues to Canadian programming or digital conversion costs.

4955             In fact, CanWest has proposed fewer local programming requirements, no Canadian expenditure requirements and no requirement to build digital over‑the‑air transmitters.

4956             This consumer tax proposal has probably the least reliable financial data that I have ever seen before the CRTC in 40 years.  It is certainly not clear who gets what funds and it is not clear how the funds would be spent.  This is not a supportable concept at all.

4957             Even if the Commission requires some or all of the new tax to be spent on Canadian programming, research shows that any incremental benefit would be more than offset by the fact that some viewers will drop discretionary services or leave the regulated system altogether, and that, Mr. Chairman, is a very real fact.

4958             Eight percent of consumers responding to CanWest's own survey ‑‑ 8 percent ‑‑ said unprompted that they would cancel their cable or satellite service if they had to pay for over‑the‑air stations.

4959             We decided to test this response with survey data of our own and together with a number of distributors, we approached the Strategic Council to survey 1,000 Canadian BDU subscribers across the country about their attitudes towards fee for carriage and what they heard back from consumers was alarming.

4960             Over 80 percent of respondents were opposed to paying a fee for local stations.  When asked if their opinion would change if some of the fee was used to cover the cost of more HD programming or more Canadian content, over 50 percent of the respondents were still opposed.

4961             More disturbing, however, was the fact that 20 percent of respondents said that they would cancel their cable or satellite service if they had to pay a fee.  Thirty‑seven percent said they would downgrade their service to a cheaper alternative.

4962             In other words, a full 57 percent of respondents to that study said that they would drop or downgrade their cable service if they had to pay a fee for over‑the‑air stations they already receive.

4963             So whether it is the study commissioned by the main proponent of this plan, Global, or whether it is the study that has been done by the distributors, there is a range of numbers but it is unarguable by anyone that the broadcasting system would suffer great harm in terms of support and people watching the programs and contributing towards the cost of the Canadian broadcasting system if this sort of concept was ever put in place.

4964             Now even if we take those numbers, which our research suggests dramatically understate the real impact of fee for carriage, it could mean a loss to the system of about half a billion dollars annually, and if the Strategic Council numbers are accurate, it would be much higher.

4965             Either way, a loss to the system of this magnitude would be obviously devastating.  It would mean less advertising revenue for conventional and specialty services ‑‑ not more, less; less money for Canadian independent producers; less subscription revenue for pay and specialty TV services because there are less people subscribing; and less money for capital upgrades, which in this era of technological change it is critically important that we keep the leadership that we have.

4966             You might ask why distributors could not just absorb the fee rather than pass it on to their customers.

4967             Assuming a fee of $3.00 a month ‑‑ and I have heard numbers all over the map ‑‑ per subscriber, we would be looking at a cost increase for distributors in the neighbourhood of $350 million or more per year.  If it's $5.00 a month, it's obviously much higher.  Broadcasters' profit margins will increase to perhaps 20 per cent while margins for distributors would be cut by more than a half, from 12 per cent to 5.5 per cent.

4968             Distributors cannot just absorb that kind of expense.  This is a type of unsupported thinking that has gone into this rather confusing concept that we're here discussing today.

4969             A margin of 5.5 per cent as any banker knows would be unacceptable for the cable market and to capital markets and it would also make it impossible for us to continue to spend to improve our network increase capacity and deliver the service that our customers expect.

4970             So, let us be clear, let us be clear, Rogers will pass through any fee to our customers if it is ordained and we will identify the fee as a separate line item on their monthly bill.

4971             So, what's the answer to increasing Canadian content.

4972             Well, we suggest that the Commission reintroduce a Canadian program expenditure requirement.  It's just so reasonable.  Since the 1999 Television Policy was issued, there has been no incentive to maximise spending on Canadian programming.  In fact, there is a disincentive to do so.  This is borne out by the Commission's own data.

4973             Between 2000 and 2005, spending by private conventional broadcasters on non‑Canadian programs increased by 38 per cent, 38 per cent, while spending on Canadian programs increased by less than 17 per cent, less than a half.  That's not the way to go.  That's a wrong direction.

4974             By 2005, total program‑related spending on non‑Canadian programs accounted for more than $0.50 of every dollar spent on programming by private broadcasters.

4975             To bring greater balance and stability to the expenditure side of the equation we suggest that the Commission reintroduce Canadian program expenditure requirements in the form of an incentive mechanism.  You're incented to produce Canadian programs.

4976             For every dollar spent on U.S. programming broadcasters would have to spend a specified amount on Canadian programming.  That's a rather fundamental and an obvious solution.  To be clear, we are not suggesting a minimum expenditure requirement on Canadian or a cap on foreign spending, not at all.  Instead broadcasters who wish to spend more on American programming could do so as long as they are prepared to spend more on Canadian programming.

4977             In our view, this approach makes a lot of sense.  It would ring in spiralling U.S. programming costs that does not assist the Canadian Broadcasting System and create a more levelled playing field among over‑the‑air broadcasters.

4978             Some conventional broadcasters say they need fee for carriage because they are disadvantaged compared to specialty services and they want to get what the specialty services get.  They insist they are not trying to upset the regulatory apple card, they simply want equity, equality.

4979             But let's be clear.  The broadcasters don't really want to be treated like specialty services.  If they did, it would mean unravelling a long list of rights and privileges that specialty services do not enjoy, which includes, of course, priority carriage for analog and distant signals, digital signals.  That's going to be hard to figure how to do priority carriage if there is no transfer.

4980             Simultaneous substitution which the over‑the‑air stations get and the specialties do not, exclusive access to local advertising revenues and access to first window over‑the‑air programming rights.

4981             Successful specialty services also have much higher CPE requirements.  In 2005 Canadian specialty services spent about 37 per cent of their revenues on Canadian programming, 37 per cent while private conventional broadcasters spent only 27 per cent.

4982             We are pretty sure that Canada's over‑the‑air broadcasters want no part of these elements of regulatory symmetry.

4983             Now, Mr. Chairman, we're excited about the opportunities merging in the digital environment, the world is going digital and we all know it and it's important to get on the band and be leaders.

4984             If we don't do it in Canada, we will have increasing viewing to American stations with high definition programming.  We are eager to roll out innovative and interesting services to our customers.  I think it's fair to say that Rogers has earned the reputation for this over the years.

4985             Our data shows that high definition is attracting a larger and larger audience with enhanced satisfaction which will attract more and varied advertisers.  It's sort of like colour in the sixties.  There is a good business case for the high definition investment.

4986             It would be ridiculous if your other licensees were arguing that they shouldn't invest in high def., that they shouldn't invest in the latest technologies.

4987             It's important for the Canadian Broadcasting System that we do so and that's why Rogers Cable is one of the largest distributors of high definition channels in North America.  We're also the first Canadian cable company to provide high definition program substitution in Canada, of very complex engineering challenge.

4988             The world is going digital, which obviously includes high definition, but we must be clear.  One is licensed for digital and you can transmit in standard, digital or high definition or go back and forth.  It's a must for broadcasters.

4989             For the record, our Rogers Sportsnet, specialty studios and equipment will be converted to 100 per cent digital within the next nine months.

4990             If you do not have your studios converted to high definition, all you are is a pipe for importing American programming in high definition and not Canadian programming and then again, we get the feeling and appearance that we are second rate in this country and that's something that we at Rogers want no part of.

4991             However, Rogers intends to protect our analog only customers for many years after Canadian analog transmitters are turned off.  Different people before you have estimated that that might be into 2010 or 2011, the Americans are turned off in 2009, in February.  They are going to take that spectrum and they are going to have auctions for wireless and other uses.

4992             It would be impractical to think that we in Canada which share so many of those channels would be able to stay broadcasting in analog for more than a year or two after 2009.

4993             But that does not mean that our Rogers customers will lose the analog service.  We are taking the digital feed and convert it back to analog for the Canadian over‑the‑air stations and we will also provide the signal in standard and high definition digital formats to satisfy fully all of our customers needs.  But that means we would take a local station and they would get three carriages on Rogers: analog, standard definition and high definition programming.

4994             Ultimately, the business has to be about satisfying customer needs.  If they are not getting what they want, we all know they will go somewhere else.

4995             We can't simply demand the consumers give up more cash every time a broadcaster faces a bump in their profits, particularly when these same consumers have the ability to choose unregulated alternatives to the tune already of hundreds of thousands.  We should be doing everything we can to keep viewers in the system, not drive them away.

4996             Thank you, Chairman, and members of the Commission for the opportunity to present these comments.  We care passionately about the system, we have been at it for a long time and we look forward to any questions that you may have.

4997             THE CHAIRPERSON:  Thank you, Mr. Rogers.  Welcome to yourself and your team.

4998             I will ask Commissioner Cugini to start asking questions, then the other members will surely have supplementaries.  Thank you.

4999             COMMISSIONER CUGINI:  Thank you, Mr. Chairman.  Good morning and welcome to these proceedings.

5000             While your position is crystal clear, it doesn't get you ‑‑ you're not scot‑free from some of my questions.

5001             So, the areas that I want to discuss with you today are fee for carriage, distant signals, contribution to Canadian programming, advertising and the transition to digital HD transmission and, of course, anything else that may come up in our conversation.

5002             Now, I did prepare or reworked some of my questions last night, so I may be referring to them more often than not, but with your patience we'll get through this.

5003             So, the first area I would like to discuss is fee for carriage.  Mr. Rogers, you were quite clear in saying that we will pass through any fee to the customer and will identify the fee as a separate line item on the monthly bill.

5004             What in your opinion are the advantages of identifying it as a separate line item to the customer?

5005             MR. ENGELHART:  Can you take it?  Sure, take it.

5006             MR. PURDY:  Madam Commissioner, thank you for the question.

5007             It's really important over the last few years that Rogers build upon the learnings we've had in terms of implementing rate increases and one of the things that we discovered has been very beneficial, is being explicit with the customer whenever we implement a rate increase.

5008             So, in the past few years, our information to the customer prior to enduring a rate increase has become more and more detailed and more and more explicit.  So, in this regard, we would see it absolutely an imperative that the customer understand why this rate increase is occurring.

5009             COMMISSIONER CUGINI:  Do you see this as a measure of potentially mitigating the turn that would occur if the subscriber is completely aware of what it is that they are paying for?

5010             MR. PURDY:  Well, I believe our research speaks to the turn implications and I think that customers were quite clear in responding to the research question that some of them would indeed leave the system because of this rate increase.

5011             COMMISSIONER CUGINI:  But you don't think that ‑‑ my question is you don't think that by identifying what the rate increase is for, it might, as I say, mitigate perhaps to some degree that turn?

5012             MR. PURDY:  Again, for those that felt ‑‑ I think the number went from 80 per cent being upset down to 50 per cent, but I don't think it would mitigate the devastation that our research implies would occur.

5013             COMMISSIONER CUGINI:  O.K.  Thank you.  And on to your research, your sample size is 1,000 and I was just wondering if you had broken down that sample size between basic cable subscribers, digital and digital subscribers and extended tear subscribers on analog.

5014             MR. ENGELHART:  Yes, Commissioner, we did.  We asked a question about what type of service cable customers had and we broke it out as regular cable and digital cable and we found ‑‑ bear with me for a moment ‑‑ specific numbers on what type of service they had ‑‑ we found 61 per cent of all respondents who were cable subscribers, 62 per cent were basic and 37 per cent were digital subscribers.

5015             COMMISSIONER CUGINI:  Did you see a difference in the responses from those who are basic subscribers and digital subscribers in terms of the turn?  In terms of those who would say that they would cancel their service and those who have said that they would downgrade?

5016             MR. KELLY:  There were some differences, they were not particularly significant.

5017             We did find that those who were basic subscribers were more and slightly more inclined to indicate that they would disconnect and those who were digital subscribers were slightly more inclined to indicate that they would downgrade their service.

5018             COMMISSIONER CUGINI:  And did they indicate if they were to ‑‑ if they were to cancel their service where they would ‑‑ where is it that they would get their television viewing from?

5019             MR. KELLY:  That's not a question we asked, Commissioner.

5020             COMMISSIONER CUGINI:  Not part of the questioning?

5021             MR. KELLY:  No.

5022             COMMISSIONER CUGINI:  We heard a number of proposals over the last couple of days.  How the fee for carriage should be implemented if we approve it, from the Commission making the statement that OTAS are eligible and, therefore, the fee would be established at the time of licence renewal to which should be left to a negotiation to a flat fee to be authorized for all over‑the‑air broadcasters.

5023             Of these proposals, which in  your opinion is the most viable in terms of facilitating reaching an agreement between OTAs and BDUs?

5024             MR. ENGELHART:  Well, I don't understand the negotiation at all, how that would work if you ‑‑ I mean, in the United States there is a negotiation where if you can't agree on a rate, the cable operator does not carry the over‑the‑air station.

5025             I can understand that negotiation and in the United States the general outcome of those negotiations is no payment of a fee for carriage.

5026             So I don't really understand in an era of must carry and priority carriage, how you could have a negotiation.

5027             The alternative would be for the Commission either to set a flat rate or some sort of value for service rate.

5028             If you have a value for service rate it will be an unbelievable administrative challenge.  It would involve, you know, like baseball arbitration every 5 years, we're coming in here and insulting our best suppliers and it would cause huge divisions in the industry.  So I think that would be a terrible system.

5029             So I think it would have to be a flat fee set by the Commission but, you know, for the reasons you've heard we don't think that works either.  But I think that's the only way you could do it.

5030             MR. ROGERS:  Then you get the issue that the people in favour of this have not got together and worked out a strategy as to who would get it, whatever the amount is set.

5031             We've heard that ethnic and religious and certain other stations wouldn't get it and just the top hat guys would get it.  And we've heard others that everybody would get it.

5032             I think I learned from the transcript and listening to the presenters that Quebec is a special case.  And I think there's danger here of mixing up the needs in Quebec with the needs across the country.

5033             COMMISSIONER CUGINI:  We know that you don't think anyone should get it but if we were to implement it who would you include in terms of the list of broadcasters who are eligible?  I'm assuming you would say ethnic channels are?

5034             MR. ROGERS:  Well I would if I was the Chairman of the CRTC and the Commission had voted to have this, then I would be tempted to, and this will not be popular, to have it just for the CBC or perhaps somebody like that.

5035             The profit making operations are doing quite well.  And there's really no justification for that.

5036             You could, if you really felt that the government was not giving the CBC enough money, find another tap for that.  But to give a bunch of money out ‑‑ and the proponents admit this ‑‑ to increase their rate of return, that's basically what they've argued here, to increase their rate of return is not what regulators or governments normally do.

5037             So I wouldn't give it to anybody but somebody like the CBC.

5038             COMMISSIONER CUGINI:  Would you include provincially funded public broadcasters in there, TV Ontario ‑‑

5039             MR. ROGERS:  No.

5040             COMMISSIONER CUGINI:  No.  Only the CBC.  Thank you.

5041             If we do implement a fee for carriage regime, what is your position with regard to linking the fee for carriage revenues with imposing certain regulatory obligations on broadcasters, for example local programming, HD programming, priority programming and genres within the definition of priority?

5042             MR. ENGLEHART:  I guess first of all I find the sort of ‑‑ and that is exactly the way the broadcasters have presented the issue to you:  Let's have fee for carriage and then let's figure out what it's for.

5043             It seems to me to be a backwards way of doing public policy.  You don't start with the solution and work back to a problem.  If there's a problem, let's identify the problem and solve it.

5044             And as we, as Mr. Rogers explained in our in‑chief, we think whether the problem is viability, Canadian content or symmetry with the specialty services, this is not the solution.  So the question I think is a fair reflection of the submissions that have been made to you.  But it seems to us to be sort of a wrong headed way of looking at it.

5045             We're already making very substantial contributions to Canadian content.  The simultaneous substitution we do, the payments we're making to the funds, the huge investments we make to make sure all the Canadian over the air stations get crystal clear carriage to a very wide audience.  These are the contributions we're making.

5046             So if there was a linkage to a Canadian content obligation, no that doesn't make us feel better about the proposal.  I'd also say that you would need a team of forensic accountants to make sure that this really was an incremental spend on Canadian content.  I think it's just going to be money into the general revenues.

5047             And, you know, if it was earmarked for their digital upgrades, it wouldn't make us feel much better either for the same reason.  That's a cost of doing business.  We're spending our money, billions of dollars on our digital upgrade.  So to us whether you earmark it or not it really is money that is going into their bottom line.

5048             COMMISSIONER CUGINI:  Thank you.

5049             We'll move on to the issue of distant signals.  Parties in these proceedings have outlined some of the deleterious effects of station‑shifted and Time‑shifted channels while acknowledging that they can be attractive to consumers.

5050             So firstly what is indeed the value to your subscribers of station‑shifted channels, not the Time‑shifted?  But Global, CanWest's example was quite illustrative of how a program could be seen on 2, 3 or 4 different channels at the same time.

5051             MR. ROGERS:  The purpose as I understand it, of these hearings is to strategize on the future of broadcasting and what changes should be made.  It's sort of strategy discussion.

5052             So just approaching it in that way, it's important to understand that the world is moving to digital, that the world is moving to people wanting to watch the programs at a time of their choice.  Not the choice of Mr. Fecan or anybody else, their choice.  And there are ways of doing it, but it's important to understand what the strategy is, what the thrust, what the customer wants.

5053             And secondly the customers wants to be able to view the programming at a location that they choose, not just in your home, but they want to have a method of watching it when they're out of the home or even when they're in another country.  And there are technical ways in which we can provide that service for our Toronto or Ontario customers to watch the local stations whether in Paris, France or in London, England.  It's just starting.

5054             But the thrust is to see, to have access to the programs at a time of the viewer's choice and at a location of their choice.  So that's what this is all about.

5055             Time‑shifting is not done in the United States.  It's been a valuable tool here because the other way of doing it is to have these recorders in the home, the PVR's.  And the problem with the PVR's is that they delete the commercials.  And so from the broadcasting system's standpoint, it would be better to have distant signals being used to give people a choice of times.

5056             It's not the same choice because with that method you might watch it at 8 o'clock or you could watch it at 9:00 or 10:00 or 11:00, same day.  But when you record it on your machine it's very easy now.  You could watch all your programs Saturday afternoon if you were free.

5057             So, distant signals is half a loaf, if I can put it that way.  But it's, I think, very important to the broadcasting system.  If we stopped it or made it financially impossible to continue it, then I think people would buy more and more PVR's and they'd be deleting more and more commercials.

5058             If I may say, on a strategy standpoint, the purpose of this meeting should be to figure out how to get more advertising revenue for the over the air broadcasters and we want to be a part of that, part of the solution, not the enemy of the over the air broadcasters.

5059             MR. PURDY:  Madam Commissioner, if I could just add to that.

5060             COMMISSIONER CUGINI:  Please.

5061             MR. PURDY:  As a VP GM of a cable company, I can tell you that the reason we carry Time‑shifted signals is to have parity with the satellite broadcasters in our market.  So, specifically ExpressVu and StarChoice.

5062             For a number of years we were losing subscribers to the satellite competitors.  And when we asked what they were enjoying, that they did not have on analogue or digital cable, time‑shifting consistently showed up in the top 5 responses, in many cases the number 1.

5063             So we moved to have parity and Ted, you know, his vision was that we would launch Time‑shifting as part of our base level digital service.

5064             The need to have 8 channels from the Pacific region broadcasting the same content or several as the case may be, is not very high.  The need to have at least 1 signal from each market and having parity with the DTH providers is high.

5065             I would like to make one other statement which is we are very keen on the On Demand platform and exploring that as an alternative to Time‑shifted signals.  And we are, I guess, somewhat concerned by the slow pace at which the over the air broadcasters have looked to the On Demand platform.

5066             And we think that this is an alternative to distant market signals and one that we should explore as quickly as possible because I think it is the best solution in the interest of the over the air broadcasters.

5067             COMMISSIONER CUGINI:  And on that note then, Mr. Purdy, is it your position that if there, if the On Demand platform was more robust, there would be less of a reliance on distant signals for Time‑shifting or for consumer On Demand viewing?

5068             MR. PURDY:  Absolutely.  And maybe I'll ask Mr. Lee to build upon this.  But as Ted said, the customer wants to watch what they want when they want and very increasingly where they want.

5069             On Demand allows for a customer to truly create a programming schedule that meets their needs.  If it's the actual CTV or CBC or Global content with those commercials imbedded, I think that's probably the best solution in the interests of both the over the air broadcasters and the consumer who often gets lost in these discussions.

5070             I think one thing that we would want to add to that, to Ted's point about building on the advertising revenue streams of the over the air broadcasters, is we would want the right to have dynamic ad insertion because that would allow for more advertising revenue to be generated.  And ultimately Ted spoke earlier of targeted advertising.

5071             So, targeted advertising, dynamic advertising and the On Demand platform, I think offers a great alternative.  But in the meantime we need Time‑shifting in order to have parity with our satellite competitors.

5072             MR. ENGELHART:  Commissioner, I just, I didn't want to lose track of, I think, your original question about station‑shifting.  So, yes, we heard Global's concerns.

5073             I think the station‑shifting phenomenon is really much more of a DTH phenomenon than it is cable.  There were sort of 2 eras for distant signals, one under the old regime where you would bring a distant signal in with the permission of that signal and cable operators did that.  And we do have some of those.  But that was generally done with the permission of that service.

5074             For ‑‑ in the new regime, we get a package of Time‑shifted signals through the negotiations with the CAB.  For us, those are Time‑shifted.  For the DTH operators, some are in the same time zone.  So you get much more station‑shifting on DTH.

5075             When I'm up at the cottage and it's not a sunny day and I'm watching television and I want to watch a show a Global there's a bunch of Global channels and I sort of pick one.  And I don't particularly know which one I'm picking.

5076             So they're right that on DTH there is some of this station‑shifting, very little on cable.  And also in particular people on cable tend to surf down in those lower stations so ‑‑

5077             COMMISSIONER CUGINI:  I'm a Rogers digital Cable subscriber, Mr. Englehart.

5078             MR. ENGLEHART:  Yes.

5079             COMMISSIONER CUGINI:  So...

5080             MR. ENGLEHART:  So even if ‑‑

‑‑‑ Laughter/Rires

5081             MR. ENGLEHART:  Well I hope you surf all over.  But a lot of people start with their Global on Channel 3, so ‑‑ which is ‑‑ comes in digital format for you.  So we don't think we're a big cause or "impactor" on station‑shifting.

5082             COMMISSIONER CUGINI:  So you don't see a distinction between ‑‑ you don't see, not a distinction, but you don't see a difference really between what it, between the station‑shifted channels and the Time‑shifted channels that would cause concern to your subscribers as Global has presented it.

5083             MR. ENGLEHART:  I think Global's concern as I understand it is they're concerned about the impact on them of station‑shifting.

5084             COMMISSIONER CUGINI:  Right.

5085             MR. ENGLEHART:  And I'm saying there's very little impact caused by cable from station‑shifting.

5086             COMMISSIONER CUGINI:  Okay.

5087             MR. ENGLEHART:  It's a Time‑shifting issue and as David Campbell, our expert can explain to you if you want, we believe that in general the impact from cable is much smaller than from DTH for Time‑shifting as well.

5088             MR. ROGERS:  But I think what we're trying to say is that if somebody is not home Monday night and they wanted to watch a program on Global, that there should be several mechanisms that they haven't lost it forever.

5089             And the Time‑shifting is one.  The PVR recorder is sensational for that.  The Video On Demand is sensational because you can tune in any time and it is complete with the original commercials so that the broadcaster's audience grows and he's able to charge more for those commercials than if he wasn't on these added services of Video On Demand and so on.

5090             So it just makes sense for us to get together.  We are losing, in the system, the benefit of video‑on‑demand for the U.S. network shows, because the broadcasters, for whatever reason, have been too busy and not incented to negotiate for those as part of their overall negotiation.

5091             They would then supply that to us free, and we would undertake to send it to our customers free.

5092             Now, ironically, Phil and I remember, 25 years ago, doing something like this.  It was called the replay channels, for CHUM in particular.  The whole point was to make it available to people to watch who had missed the original opportunity to watch it.  It just gave more opportunity for viewers, and it was good for advertisers and good for the stations.

5093             COMMISSIONER CUGINI:  We will be discussing your proposal with regards to VOD in a few moments, but staying on distant signals for the moment, I think that the broadcasters generally agree that time shifting is a benefit to the consumers.  They acknowledge that this is something that the consumers like.  They certainly don't want to take it away.  It is convenient for them.

5094             But the real issue is the issue of monetizing the value for the broadcaster of providing their distant signals.

5095             I am sure you were here when CTV put forward their proposal that they receive a fee for the carriage of their distant signals, and I would ask you to comment on the CTV proposal.

5096             MR. ROGERS:  I think that we have probably done a poor job at Rogers.  We try to work with the broadcasters.

5097             There obviously is a need to be able to demonstrate to the advertisers how you can add these extra viewers to the showing.  You can add together the service from different communities across Canada and credit it to the original showing, which was, say, at eight o'clock in Toronto.

5098             I think that, together, Global and Rogers and CTV could do a better job of showing the advertisers.

5099             I suspect right now ‑‑ and there are people behind me who know much more, but I suspect that, right now, the advertisers are not yet convinced.

5100             MR. CAMPBELL:  If I could add; in our report, which was the MBS report, we concluded that the best estimate of revenue loss to the system through distant viewing would be $20.2 million.  That is a much smaller figure than you have seen in some of the other reports.

5101             Secondly, we concluded, as Ken alluded to earlier, that about 80 percent of that could be attributed to DTH, and that is very similar to all of the other reports that you have seen.

5102             You might ask how we arrived at the figure.  Although the methodology looks somewhat complex, it is actually quite straightforward.  It is really a two‑step process, if you will.

5103             The first thing that we did was, really, to calculate the number of ratings that were lost to the system through distant viewing.

5104             You will notice that I mention ratings or GRPs because that is the currency we use all the time when we are negotiating with broadcasters.

5105             I should further point out that, in terms of our ratings, we use the adult 25 to 54 target group rather than 2+.  The reason we did that is that the vast majority of advertising expenditures are allocated to those people who have the most disposable income, which is significantly less to younger and older viewers.

5106             So once we figured out how many ratings were lost to the system, we had to put a value on that rating.  How did we do that?

5107             We went to another organization called the "Smart Report".  It is an independent organization.  It is the only one in Canada, and it has over $1 billion worth of advertising information that comes from the advertisers and the agencies:  How much money did you pay to buy a rating?

5108             We simply took the number of ratings that were lost, multiplied it by the value, and came out with that $20.2 million figure.

5109             So, presumably, you then may ask:  Why is your figure so much lower than the other figures we have seen?

5110             The reason for that is, simply, not all distant viewing has value to advertisers.

5111             As I mentioned, distant viewing by the very young and the very old really can't be monetized, because advertisers are not looking for that as a target group.

5112             Secondly, a lot of it is done in the smaller markets.

5113             I think you heard through these proceedings that a lot of advertisers concentrate their advertising expenditures in the major markets.

5114             Thirdly, there is another phenomenon, if you will ‑‑ it is almost like an election.  A small party, say the Green Party, could amass a lot of votes across the country, but if each one of those votes was not enough to win a riding, they still, at the end of the day, wouldn't show any ridings.

5115             Similarly, in ratings, when we are buying a rating, for it to have an additional value, if we are buying a 4 Rating, it has to go up to a 5 Rating.

5116             If it doesn't quite make it, then you still pay the same amount of money.

5117             I have oversimplified that a bit, because we do deal in fractional ratings, but the same principle holds true.

5118             Finally, the last thing I would say on this is, in terms of the $20.2 million valuation, that actually may be somewhat high.  The reason for that is, if the broadcasters have inventory that already is unsold, the advertisers can already buy that unsold inventory, up to the maximum of what their budgets are.  So the actual amount may actually approach zero.

5119             COMMISSIONER CUGINI:  You are right in saying, Mr. Campbell, that we have heard and seen, through various studies that have been submitted in these proceedings, different numbers as to what is the value lost to broadcasters.

5120             CanWest, I believe, is in the range of $30 million.

5121             Did you have the opportunity to analyze the Armstrong Consulting study that was submitted on behalf of CTV?  Because theirs seemed to be at the maximum.

5122             They say that the private television industry lost approximately $62.3 million due to distant signal carriage, and $8.7 million to the carriage of U.S. 4+1 signals.

5123             There is a huge discrepancy between your study and theirs.

5124             Like I said, I just wanted to know whether or not you had the opportunity to examine it, and if you had an explanation for that discrepancy.

5125             MR. CAMPBELL:  I briefly had the opportunity, and I think where it comes in is what I was raising before.  They simply took the total amount of revenue that was in the system and the total amount of tuning that was in the system and divided one into the other.

5126             I think you actually need to discount it, for all of the factors that I indicated before, in the commercial reality of the marketplace.

5127             COMMISSIONER CUGINI:  Thank you.

5128             Mr. Rogers, I am sure that you can expect some calls from broadcasters to figure out how you can work together with them to monetize distant signals.

5129             MR. ROGERS:  We would welcome that.  We work very closely with them on programming.

5130             Phil is adding something.

5131             MR. LIND:  Over the past year or two we have taken ‑‑ Ken has taken the initiative to call all of the broadcasters and work with them to ‑‑ for example, work on the conversion from analog to digital ‑‑ the digital migration.  These things are becoming regular events, that we will call broadcasters, and we will get together.

5132             We don't always ‑‑ we are not always succeeding, but we do work with broadcasters constantly to try and understand where they are going, as well as let them know where we are going.

5133             COMMISSIONER CUGINI:  Thank you.

5134             MR. ENGELHART:  Commissioner, if I could add, on your question about the CTV proposal, as I think you gathered from Mr. Rogers' answer, we don't think the CTV proposal of these open‑market negotiations for time shifted signals is a good idea, because if the result of the negotiations is that we are not carrying them, it is bad for the system.

5135             As Mr. Rogers described, we are in a battle here to try and keep eyeballs on the regulated system and off the internet and the unregulated platforms, and time shifting is a great way to do that.  It is good for us, it is good for our customers, it is good for the broadcasters.

5136             Not having time shifting, moving those customers onto VCRs or the internet, is a bad idea.

5137             I would also like to point out that we have actually tried these free‑market negotiations.  When the Commission first made its decision, it said that the DTH operators should negotiate with the CAB.

5138             The result of that negotiation was zero cents charged for time shifted signals, and 25 cents for the second set of U.S. 4+1s.

5139             When Rogers Cable tried to get the same offer from the CAB, we were denied the right to carry the signals at all.

5140             Later, after, really, quite a lot of effort, we were given the right to the same signals for $1.87.

5141             So our experience with these free‑market negotiations has not been good.  We would prefer to see a system where the Commission would set the rates, or, at least, where the Commission would have some sort of undue discrimination requirement, so that we are not handicapped as we have been in the past.

5142             If we haven't worn out our welcome on this answer, I would like David to speak for a minute about the importance of time shifting to our offer.

5143             COMMISSIONER CUGINI:  You haven't, because now I have another question.

5144             MR. ENGELHART:  Okay.  Good.

5145             MR. PURDY:  I don't have much to add.  I think that Mr. Engelhart covered it quite well.

5146             The one thing I would say is that this battle for the share of mind with the Canadian consumers is one that we take very seriously at Rogers.

5147             We now serve a cable TV footprint that has well over 3 million customers ‑‑ I believe the number is closer to 3.3 million ‑‑ and our market share, in terms of households passed, has dropped from 85 percent to 66 percent.

5148             So, particularly in the last five years, we have become very aggressive, in terms of making sure that we have the best product definition, not just in Canada, but in the North American marketplace, which is why we launched time shifting and why we fought so hard to keep Canadians within the Canadian broadcasting system.

5149             There are now a million people within our footprint ‑‑ over a million people ‑‑ who don't take our cable TV service.

5150             Some are on Star Choice and ExpressVu, and while, I guess, that is bad for Rogers, it is not necessarily bad for the Canadian broadcasting system.  But many are on illegal satellite, grey and black market satellite.  Many have gone back to over‑the‑air rabbit ears.  And that number has also grown, from a numerical standpoint.

5151             So we are fighting very hard to keep people within the Canadian broadcasting system.  Time shifting is a measure that we are using today, but, again, I am going to say that what we would really like to do is have a rich and robust on‑demand offering of over‑the‑air broadcast content, particularly prime time, main network, episodic programming.

5152             This would be good for the broadcasters and great for the Canadian consumer.

5153             COMMISSIONER CUGINI:  And because we are here talking about what is going to be best for the industry and for the consumer ‑‑ and all of the players in the industry, and for the consumer, ultimately, going forward ‑‑ it now begs the question, in painting this scenario:  What if we were to say that distributors should pay a fee for the carriage of distant signals and not have to pay a fee for the carriage of local?

5154             In other words, the only Fee for Carriage that BDUs would incur would be a fee to pay for the distant signal, and you don't have to pay for the local.

5155             MR. PURDY:  Currently, we do pay for the distant signals.  We pay the CAB fee of 50 cents, which Rogers pays directly to the CAB.  I believe that our competitors pay out of a fund.  So, effectively, we are paying significantly more than our competitors are being asked to pay.

5156             We feel that the number that we are currently paying ‑‑ and maybe Mr. Campbell could build upon this ‑‑ is fair and just compensation, and, in fact, probably more than what is truly being done in terms of hurting the existing advertising revenue stream.

5157             Again, we are proposing a number of alternatives to carrying distant market signals that would be even more beneficial to the over‑the‑air broadcasters, if they would just get busy on the initiative.

5158             MR. ROGERS:  If I could add ‑‑ and it is sort of sounding a bit like Alice in Wonderland here.

5159             If it is true that distant signals add to the advertising revenue of the top hat broadcasters, if that is true, then we should come before you asking for a fee to carry them, because they are using very valuable space.  Some of them are high definition, which uses ‑‑ you can only put 2 to a max; whereas, with standard digital, it's 10.

5160             So I must say that, in listening to all of this, if they were losing something, they deserve to be paid.  But there is no suggestion that they are losing anything by it.  That's nonsense.  They are gaining additional customers who, otherwise, would not be home when the program was on.

5161             And it is either through a PVR or distant signal or video‑on‑demand that they can achieve that.

5162             Some of them have the commercials still in them, and that is what is important to broadcasters.  Would you rather have a distant signal with your commercials in, or have a PVR with your commercials stripped?

5163             That is the issue.

5164             I don't know why we are so dumb not to be up here applying for a rate to charge them.

‑‑‑ Laughter / Rires

5165             COMMISSIONER CUGINI:  We hear you.

5166             We will move on to the contribution to Canadian programming.

5167             At paragraph 70 of your submission, you say that if the Commission were to proceed with a Fee for Carriage mechanism, it would have to re‑think its approach to the contribution to the CTF by BDUs.

5168             Are you suggesting that if a Fee for Carriage regime is put in place, that BDUs should no longer be required to contribute to the CTF?

5169             MR. ENGELHART:  Again, it sort of depends on what the rationale is.

5170             If the rationale was, as CTV described it, $0.10 to go to Canadian programming, then yes, that is exactly what we are saying, because we are already paying the 5 percent to Canadian programming so why would we duplicate that with a new fund.

5171             If the rationale, on the other hand, was for viability, well, you know our position on that.

5172             So yes, I think there is a serious question about whether we should be called upon to pay twice.

5173             COMMISSIONER CUGINI:  So you would see it, in essence, as it would be double‑dipping?

5174             MR. ENGELHART:  Yes, Commissioner.

5175             COMMISSIONER CUGINI:  Thank you.

5176             Advertising.  Page 13 of your submission you say that:

"To fully capitalize on emerging opportunities..."

5177             Assuming we can now move on to VOD:

"...it is necessary to loosen or eliminate existing advertising restrictions on over‑the‑air broadcasters and BDUs to provide greater potential for collaboration, innovation and incremental revenue growth."  (As read)

5178             I was struck by the word "collaboration" and was hoping you could elaborate on what do you mean by collaboration with the broadcasters?

5179             MR. PURDY:  Madam Commissioner, thank you for the question.

5180             I believe that one of the things that the internet offers and that is drawing advertisers to the internet is the ability to target advertising, target it I guess more in a way that appeals to the advertising community.

5181             Maybe Mr. Campbell can speak to this.

5182             We feel strongly that the on‑demand platform coupled with targeted advertising would allow for a similar‑type experience to be had within the Canadian broadcasting system.

5183             Maybe Mike Lee could also speak to this.

5184             But when we look at the on‑demand platform and the targeting advertising, we think that there is an opportunity there for the cable company and the broadcaster to work together to provide a much more robust and rich experience for the advertisers, one that the advertisers would be willing to pay a premium for.

5185             In addition to that, we feel that there needs to be some relaxation of the current restrictions in order to properly service that ad.  So if you take a broadcast of Desperate Housewives and you put it on an on‑demand platform with the ads that ran on Sunday night still inserted in that broadcast, and that title stays up for four weeks ‑‑ which is sort of typical of an on‑demand offering ‑‑ the problem is that often the advertising within the initial broadcast window runs through its talent cycle and that means that that ad could no longer be shown.

5186             So we would require things like dynamic ad insertion into on‑demand content that had initially been broadcast.  So we would swap out the ads as the talent cycles lapsed.

5187             In addition to that, we would also build upon that and offer targeted advertising so that the advertisers were paying a premium to the over‑the‑air broadcaster for more specific targeted advertising, leveraging our customer knowledge and the addressability of our set‑top boxes.

5188             At this point I will pass it to Mr. Lee.

5189             MR. LEE:  Sure.  I think what we are seeing now just in general in terms of trending is a shift towards media that is more accountable, that is more accountable towards performance and is capable of delivering direct results for advertisers.

5190             The VOD platform, as well as more significantly the digital platform, offer an opportunity for the system to be able to increase the value of the inventory that not only will potentially exist with VOD but already exists within the digital broadcasting environment.

5191             So what we are saying here is that what we would like to do is be afforded the ability to look at investing in the platform, which means looking at new alternative revenue to support that investment, so that we can actually bring in targeting technology so that we can provide this, not only for the programming services that we have available already in the system but all new services that would come as a result of prime time episodic programming coming into the video‑on‑demand system, as well as in the time shift and in the general broadcast.

5192             MR. CAMPBELL:  If I might add to that?

5193             Our company Media Buying Service Limited represents the interests of advertisers who spend about $900 million a year buying advertising time and space, and their faith, frankly, in the 30‑second commercial has been somewhat diminished for many, many reasons, but almost without exception every one of them says to us:  If you can do something that is new and different and innovative and has impact in the marketplace, we are willing to find the funds to spend behind that.

5194             So certainly our point of view is, if you open up more flexibility in the system and allow the ingenuity of the marketers and the broadcasters and the advertising agencies to come forward, it will increase the amount of revenue that is available in the system.  There is a tremendous appetite for it amongst advertisers.

5195             COMMISSIONER CUGINI:  But when I switch on ‑‑ I'm sorry.

5196             THE CHAIRPERSON:  Mr. Engelhart, would you prefer that we break for lunch and then reconvene?

5197             MR. ENGELHART:  Yes, thank you.  That would be fine, Mr. Chair.

5198             THE CHAIRPERSON:  I see Mr. Rogers coming back now.

5199             MS DINSMORE:  He just had his lunch.

‑‑‑ Laughter / Rires

5200             MR. ENGELHART:  Either way.  We can keep going, if you want to keep going.

5201             THE CHAIRPERSON:  Well, we will keep going.

5202             COMMISSIONER CUGINI:  In the scenario that you have just outlined for us, if I switch on to the Rogers‑On‑Demand channel, is it your view that I would see Global‑On‑Demand, CTV‑On‑Demand, SunTV‑On‑Demand and then from there select the programming that I would want to see on demand from those broadcasters.

5203             MR. PURDY:  Absolutely.  That would be utopia.

5204             COMMISSIONER CUGINI:  We will expect, therefore, in reply comments from those broadcasters that it is indeed utopia, because it is our understanding that the VOD rights to a lot of the prime time U.S. programming is either extremely expensive or impossible to acquire.

5205             MR. PURDY:  So I guess at this point we would speak to some specifics.

5206             We have had a number of discussions with Hollywood Studios whereby we explored when and if this would be available and they have all expressed an interest in making this happen.

5207             Ted has already referenced the deal that CBS and Comcast have struck in the United States.

5208             So I don't think it is a question of "if" but "when".

5209             I would argue that my data would suggest that people aren't sufficiently motivated and perhaps part of that reason is that they are spending a little bit too much time focused on these regulatory opportunities and not enough focused on the technology opportunities that truly exist.

5210             So we carried Survivor‑on‑Demand early this year.  Right up until the 11th hour the broadcaster in question was involved in the negotiations and then, for reasons that are inexplicable to us, removed themselves from the negotiation.

5211             We would very much prefer that this be something that the Canadian over‑the‑air broadcasters participate in and are supportive of, largely because we believe that the model is moving towards an advertising supported model that would require their involvement.

5212             An ad supported model I think is best for our customers and one that we are wholeheartedly in favour of and I think it is definitely doable.

5213             COMMISSIONER CUGINI:  Did Survivor‑On‑Demand come with the commercials embedded?

5214             MR. PURDY:  No.  Because of the restriction, the condition of license on our Video‑On‑Demand service we can't have a transactional rate and have ads embedded in it.

5215             MR. MERSON:  Perhaps, Commissioner, if I could just add quickly, the environment is very fluid.  We are in the early stages of negotiating how it is the on‑demand environment might work.

5216             But I think what you heard from us and what you are hearing from all the broadcasters is that we really are staring down the barrel of a gun, and the gun really is the PVR.  Because the evidence we have is that 80 percent of the people watching PVRs are skipping commercials and it is ultimately far and away the greatest threat to the business.

5217             Whatever we as broadcasters can do, in my opinion, from the distant signals, from the securing of Video‑On‑Demand rights from the negotiation of those rights in an effective way with the distributors is going to help us combat the threat that we all face, which is the PVR.

5218             COMMISSIONER CUGINI:  Thank you.

5219             I now would like to move to the transition to digital and high definition transmission.

5220             Your position is unequivocal when it comes to requiring over‑the‑air stations to built digital transmission facilities, but we all know that not everybody agrees with you.  So what we would like to explore is the implications of some of the other scenarios proposed during these proceedings.

5221             Most broadcasters it appears would prefer some type of hybrid solution whereby some markets would have digital over‑the‑air transmitters while other markets would receive their digital signals by cable or satellite.

5222             If such a scenario is implemented, what effect would his have on cable capacity?

5223             MR. ROGERS:  Well, I don't think it would have any.  If we are broadcasting a station in high def, it does take five times as much capacity as in standard digital.

5224             If I may say, we are confused about the present requirements that we are required to make that spectrum available to Canadian over‑the‑air stations that broadcast in high def a certain number of hours per day.  I had always assumed that that was being transmitted out to meet your requirement.

5225             Coming to these hearings I am beginning to wonder whether or not it is being transmitted out, because if it is being transmitted out they have already bought the attachment to the transmitter that does high def.

5226             I wasn't of the opinion that it is a lot of money.  I think we have that, don't we, in OMNI?

5227             MR. MERSON:  Yes.

5228             MR. ROGERS:  I think much as been made out of nothing.  The cost of adding the link for the transmitter to convert to high def I don't think is a substantial number for an OMNI which is much smaller than the top‑hat broadcasters that we have heard from.

5229             The real issue is, they are not investing in the studio equipment.  In the studio equipment it means that they can bring in the American programming and flip it out and we are required to distribute it, but they don't have to do any Canadian programming in high def.

5230             So if you have a high def set, you see this glorious picture for all the American programming, and then when Canadian programming comes up it is just not as good.  It is inferior.  So it builds up a feeling of Canadian being inferior to American, which I think is detestable.

5231             There are ways to try to have phoney HDTV, but there is no reason that I know of that they can't afford to put the studio equipment in.

5232             What I am arguing is, I think it is the studio equipment rather than an attachment to a transmitter.  I have never heard of people suggesting they are going to have a protected contour without filling it with something to be protected.  If it's not on, then the Americans or anybody else can use it.

5233             So I am just very confused as to your requirement now.  Are we required to carry them just to put on a bunch of American programs?  If so, I think it should be changed.

5234             COMMISSIONER CUGINI:  Thank you for that.

5235             In the absence of digital transmitters, are there additional costs that you have to incur to receive the signals at your headends?

5236             MR. ROGERS:  I'm sure there are, but out of the capital budget that we have at Rogers, which for next year would be somewhere in the area of $1.7 billion for our entire company, it would be extraordinarily insignificant.

5237             MR. ENGELHART:  I should also point out, Commissioner, that as a very large cable operator it is probably in our self‑interest if the broadcasters don't transmit and people have to go to a BDU to get these signals.  So if were just here talking to you about our self‑interest, I suppose we would cheerfully agree with the idea that they don't have to transmit.

5238             As Mr. Rogers has said, it doesn't make sense for the broadcasters, in our view, and it doesn't make sense for the Canadian public or for public policy, but it does us no particular harm if they don't transmit.

5239             If they deliver a signal to our studio it is no real cost increase for us, it just seems very odd when broadcasters aren't broadcasting.

5240             COMMISSIONER CUGINI:  Well, there are some smaller broadcasters and they were here yesterday telling us that they simply cannot afford to upgrade their analog transmitters.  Don Shafer from Standard told us that his transmitter has an eight‑year lifespan left in Dawson Creek and it just doesn't make economic sense, for him in particular and for some of the other small independent broadcasters, to upgrade, even within the next four years.

5241             What do we say to them?

5242             MR. ENGELHART:  I was very impressed by the Rogers Media and Channel M proposal, which was:  We will have one, okay.  We won't have two.  So at some point they will disconnect the analog and put up digital and count on the cable company to down convert.  I think that is an eminently reasonable proposal.  So they are not required to run two during the transition period.  Channel M is a very small broadcaster, but they thought this was a reasonable way for them to work.

5243             As cable operators, the cable industry has spent over a billion dollars a year ‑‑ still spending over a billion dollars a year ‑‑ it is almost comical for us to hear the broadcasters come in and complain about the $20 million, $30 million that they would have to spend.  It is a cost of doing business.

5244             MR. ROGERS:  If I could just add something because it has, I don't think, been put on the record.

5245             The argument is that the number of people watching the analog services is a small number ‑‑ I have forgotten the percentage ‑‑ is a small number and it is said to be declining.  I think that you should be very careful here because analog and digital transmission is different.

5246             With analog transmission the signal starts to get fuzzy and grainy and not so pleasant and so off‑air reception really suffers from that.

5247             With digital, however, you don't get that.  It is absolutely crystal clear and a hundred percent way out until it just stops.

5248             And I think you will find, there is no doubt about it, that more people will be tuned in using rabbit ears or an outdoor antenna to digital than they were to analog and that is something I fear as a cable operator but it is something we have to contend with.

5249             But when they talk to you about the over‑the‑year group getting smaller, I would be very careful before I accepted that as a basis for building on a program.

5250             COMMISSIONER CUGINI:  Well, Mr. Rogers and to your colleagues, thank you very much.  I am now going to hand you over to my trusted colleagues who I know do have more questions for you.  Thank you.

5251             THE CHAIRPERSON:  We will start with Commissioner Duncan.

5252             COMMISSIONER DUNCAN:  Mr. Englehart, I just want to go back to your answer to Commissioner Cugini with respect to the double counting if you had to pay the CTF and the fee for carriage if we were to introduce such a fee.

5253             I am just wondering wouldn't that fee for carriage be offset to the extent you pass it through, although admittedly you could add back something for what you lose but I am just missing something there?

5254             MR. ENGLEHART:  Well, I guess if we pass the fee on ‑‑ and I think, as I said, we would have no choice but to do that ‑‑ as we have also described, there will be a certain amount of drop off in the system which could be damaging for us.

5255             So I am not sure that ‑‑ you know, it is sort of we're damned if we do and we're damned if we don't.  So either way I think there will be a financial impact on us.  So either way I am concerned about the double dipping problem.

5256             COMMISSIONER DUNCAN:  Okay.  I appreciate the ‑‑ but it may not be as extensive if you don't pass it on.  If you didn't pass it on, if you absorbed it, I would certainly agree with you, but if you pass it on, I think it is offset somewhat.

5257             MR. ENGLEHART:  I don't think absorbing the fee for carriage is a realistic option.  The BDU industry is looking at a PBIT of about 12 percent if you average cable and DTH together.  The conventional over‑the‑air stations have a PBIT of 14 and a half percent.  So if we pay them a fee for carriage and we don't pass it on, we will be the ones having a viability problem.

5258             COMMISSIONER DUNCAN:  I am not suggesting for a minute that you wouldn't or shouldn't, I was just dealing with that statement.

5259             MR. ENGLEHART:  Right.

5260             COMMISSIONER DUNCAN:  Thank you.

5261             Mr. Chairman, that is it, thank you.

5262             THE CHAIRPERSON:  Vice‑Chairman French.

5263             COMMISSIONER FRENCH:  Mr. Englehart, I was very relieved to find you in one of your disinterested and public‑spirited moods and I am hoping you will retain it so that we can just discuss again why it is not in the public interest for you to negotiate with the programmers on distant signals.  I just didn't catch it.  My impression of the argument was that really they should be paying you and I guess my answer to that is fine, have the negotiation and they will pay you.

5264             MR. ENGLEHART:  Thank you, Commissioner.  So it is really three parts to the argument.

5265             The first is we have tried it.  We have tried negotiating with them.  The result was we paid $1.87 and DTH paid 25 cents and that was after we were finally allowed to carry them.  The initial result of the negotiation was DTH paid 25 cents.  We couldn't carry them.

5266             DTH was running ads saying look at all these channels you get with satellite that you can't get with Rogers Cable and we had no ability to compete with that offering.  So our early experience with these free‑market negotiations has not been a happy one.

5267             The second issue is that ‑‑ and related to that, I guess, if there was some sort of free‑market negotiation, there would have to be some sort of undue preference rule or most favoured nation rule or something because I would just find it untenable if they were allowed to give satellite these signals for X and give them to us for X plus Y or not give them to us at all.  It would create a situation where Canadian broadcasting services were really being used to disadvantage one competitor.

5268             The second aspect of it is the system, right.  We don't want to end up with a result that one or both of the major platforms, DTH and cable, doesn't have these time‑shifted signals because these time‑shifted signals are good for the system.  They are good for keeping people off PVRs and the internet and on the Canadian broadcasting system.  So I think there is a public interest initiative.

5269             And the third is really a practical situation.  It is tough when you give something to people and then you take it away.  So, you know, the satellite customers all have it, they have had it from day one.  You are going to say to them, you don't get that anymore.  I just think there is something awkward there.

5270             COMMISSIONER FRENCH:  Programmers all over the country are delighted to hear of a case where the cable industry tells the regulator that it has to be protected from the exercise of undue market power from some other player.

5271             Undue preference, I can see that.  I can understand it.

5272             System benefits, there is no real reason why the broadcasters wouldn't be as aware as you of the system benefits.  I mean there is no real reason to think we know better than either of you, for that matter.

5273             MR. ENGLEHART:  I have to say there is a logic to what you are saying and yet when I look at the behaviour of many of the broadcasters, I don't think they understand the threat that the system is facing.

5274             They are facing a challenge from the unregulated media, from the internet, from cellphones, from other devices.  I would have thought that their reaction to that threat would have been to spend their brains out on high definition, to give their customers that theatre experience that they can't get from the internet.  It would have been to encourage time‑shifting, again, to keep people watching their commercials.  It would have been to work as hard as they could with the BDUs so that they had a VOD platform to give their advertisements the targetability that they require.

5275             That is what a broadcaster, in my view, should be doing.  Instead, I think they have taken their eye off the ball and they are here asking you for a handout.

5276             So if you are saying that my theory of why distant signals should be regulated includes a certain belief that the broadcasters are not looking after their own self‑interest, I think you are right, that is part of our view.

5277             COMMISSIONER FRENCH:  Yes.  Of course, the problem for the regulator is you are asking us to indulge your theory of failure of information in the marketplace as opposed to someone else's theory of failure of information in the marketplace and it places a burden on the regulator that the regulator is hardly going to be able to sustain, wouldn't you say?

5278             I mean Vidéotron came to us yesterday and said, well look, if you really want to do this, let's open up the whole system, reduce the constraints, create a genuine market.  I am not claiming it is a good idea but I am saying it is at least philosophically consistent.

5279             It seems to me that what you are suggesting to us is that we in this particular case substitute ourselves for the judgment of people better positioned than we are to make judgments about it, on the grounds it would be inconvenient to you, while not indulging a very similar plea from the programmers ‑‑ conventional broadcasters and that is where it becomes a little incoherent from my point of view.  But Mr. Rogers is going to straighten me out.

5280             MR. ROGERS:  Sir, no one can outarticulate you and ‑‑

‑‑‑ Laughter / Rires

5281             MR. ROGERS:  I think that ‑‑ trying to rise above all the detail, going to 35,000 feet, which I love to do in business ‑‑ we are here because the broadcasting system in our country is pretty well over the years dominated by two large firms and that is why I refer to them as the top‑hat broadcasters.

5282             One of them is enormously successful, brilliantly run by my friend Ivan Fecan, and he has really dominated that market.  They also were astute enough to buy specialty services over the years.  They can take a really key sports broadcaster and pay them more than anyone else can because it can be half‑charged to the network and half‑charged to TSN.  So they have got a really great thing going and I don't think anybody would suggest they need any financial assistance.

5283             The other one ‑‑ and I am using figures that I read in the Globe and Mail because that is all I have.  The other used to have an EBITDA of $250 million three or four years ago, and according to the Globe and Mail, it is down to $30 million and they are quite concerned obviously, as I would be, and it is very important to them to have some fee for carriage or something like that to solve that problem of that very low EBITDA.

5284             As a businessman, I would say maybe sell off the newspapers which don't have any future at all, pay down debt, don't have the interest so that you can now spend more on programming generally and you will be able to compete more with the other top hat.  But it is not my place.

‑‑‑ Laughter / Rires

5285             MR. ROGERS:  But to find ourselves at a hearing asking for, begging for handouts because somebody has allowed his business to deteriorate ‑‑ and I again quote from the Globe ‑‑ from $250 million to $30 million, you must admit, is a pretty dismal record upon which to support going back to daddy and asking for more loot.

5286             COMMISSIONER FRENCH:  Yes, Mr. Rogers, we really have seized the essence of that basic message and you have made it extremely clear.

‑‑‑ Laughter / Rires

5287             MR. PURDY:  Vice‑Chairman French ‑‑

5288             COMMISSIONER FRENCH:  Yes, Mr. Purdy, please.

5289             MR. PURDY:  ‑‑ if I could just add one element to the discussion.

5290             I think as the cable company, we did not desire nor did we invent the notion of carrying distant market signals but we did so as a result of competitive realities and we saw that we were losing subscribers because we didn't have distant market signals.

5291             I think if there was to be a notion of a fair market negotiation we would have to be comfortable that not just ourselves but our competitor was actually entering into a true fair market negotiation and I think it is unlikely that that would occur given the must‑carry status that these over‑the‑air broadcasters have.

5292             So I don't know how we could have a fair market negotiation as an industry if one of the distributors in the marketplace is in a must‑carry situation.

5293             My understanding is that not only are they being asked to carry multiple signals of, say, Global or CTV nationally but they are actually now being asked to carry all the local signals, taxing both their bandwidth and their resources.  So I don't see how a true fair market negotiation could occur in this environment.

5294             COMMISSIONER FRENCH:  Well, I mean it is certainly very clear that there will be BDUs who will, if they have to participate in such a negotiation, have to do so as part of a collective.  It hadn't occurred to me that Rogers would be one of them but if it has to be one of them, it will be one of them, and it clearly would not be fair to aggravate what you take to be a structural advantage created by regulatory fiat for one of the BDUs or two of the BDUs as opposed to all the others.  So that is clear and that was Mr. Englehart's first point and I do take that point.

5295             I suppose that what the Commission is groping for is a way of putting a little more economic rationality in this distant signal issue and you have raised some important concerns that we have to pay attention to.  It was the relatively ‑‑ it was the nature of the plea which I took to be slightly incoherent with the rest of your presentation and which concerns me coming from an organization of your strength.

5296             It does seem to us that when a programmer comes to you and says my content is being used in markets for which it was never intended, in ways that I can't control and I don't believe the historical payment that is nominally to compensate me for that is reasonable and he says I would be prepared to withdraw my distant signals and I would like an opportunity to renegotiate, it is at least a prima facie proposition that we have to entertain.

5297             You have given your views and if you want to give more, that is great but that was my ‑‑ I am just trying to explain fully what I was trying to get at.

5298             THE CHAIRPERSON:  Well, thank you, Mr. French.

5299             In the written submissions that we have received we noted that there was a suggestion that was made regarding that rather than implementing a fee for carriage that a contribution to the Canadian Television Fund be increased by a certain percentage point.

5300             Could we have your comment on such a suggestion?

5301             MR. ROGERS:  I suspect it's sort of like the fellow that was ‑‑ had been heading for the electric chair and he said I prefer hanging by the gallows instead.

‑‑‑ Laughter / Rires

5302             MR. ROGERS:  And no last meal.

5303             THE CHAIRPERSON:  So I think the answer is clear.  There is no need to elaborate.

‑‑‑ Laughter / Rires

5304             THE CHAIRPERSON:  In the CART daily or bi‑weekly magazines that we were receiving, there was an article last week regarding VOD distribution by charter cable in the U.S.  I'm sure that you all have read it.  And where they were saying that they were starting to implement VOD insertion of local ads and every time someone was calling for the view it is a different ad.

5305             Are they the types of things that you were talking about earlier?

5306             MR. ROGERS:  No, the requirements here in Canada because the cable companies are not allowed to sell advertising, local advertising.

5307             THE CHAIRPERSON:  Oh, I'm quite aware, well aware of the existing rules but I'm trying to see forward.

5308             MR. PURDY:  Mr. Chairman, absolutely, the ‑‑ not to disagree with Ted and ‑‑

‑‑‑ Laughter / Rires

5309             MR. PURDY:  But I think what Ted's saying is that we would not want to do this unilaterally as a cable company.

5310             THE CHAIRPERSON:  Yes.

5311             MR. PURDY:  But rather in partnership with the over the air broadcasters.

5312             THE CHAIRPERSON:  That was my ‑‑ too.

5313             MR. PURDY:  Yes.

5314             THE CHAIRPERSON:  So you weren't ‑‑ so that's something that you are contemplating.  And it could be an experience that, or a program that you will be putting together with the broadcasters and find out a way to share the revenues that ‑‑

5315             MR. ROGERS:  No, I'm sorry, Chairman.  I have a very simple philosophy that we will allow them to have all their original commercials that were in the program.

5316             THE CHAIRPERSON:  Yes.

5317             MR. ROGERS:  And we would not participate in that.  That's their revenue ‑‑

5318             THE CHAIR PERSON:  No.  No.  That I understand.

5319             MR. ROGERS:  And we wouldn't pay the money.

5320             THE CHAIRPERSON:  That's the actual rule anyhow.

5321             MR. ROGERS:  Yes.

5322             THE CHAIRPERSON:  But what Charter is doing in the U.S. they are inserting commercials at the time when someone calls for the program.  So they ‑‑ the programs that are in, that are going to be carried in that VOD at noon today might not be the same like commercials at 6:00 p.m.

5323             MR. LEE:  So there are 2 types of technologies being worked on today that relate to that.

5324             One is specifically designed for the VOD system so that you can have dynamic insertion of targeted ads and even personalized ads, in theory creating greater value for that inventory because advertisers actually get a chance to talk to specific types of people.

5325             And then there is a second type of targeting technology which is for general digital, straight set top boxes so that you can also do dynamic ad insertion for general linear broadcast as well.

5326             And those are 2 types of technologies that we believe as we talk about being able to potentially bring new technologies and innovation into the system so that we can increase the revenue, advertising revenue opportunities for the system overall that potentially can be explored, yes.

5327             THE CHAIRPERSON:  And that's something that could be explored.  Because we are all looking here at various avenues to see if there is ways to improve the making available advertisings to the viewers and surely that type of technology is offering that.

5328             MR. LEE:  Definitely.  That type of technology offers not only ability to create a new revenue stream but also improve the value of the existing advertising inventory.

5329             THE CHAIRPERSON:  Of course, yes.

5330             MR. LEE:  Which brings new money into the system.  I mean if Google has taught us anything the value of the targeting actually increases the overall size of the value not just the size of the market

5331             THE CHAIRPERSON:  Okay.  I have a few questions on copyright.  I don't know who is going to take them.  Okay, I see.

5332             The first one is if the Commission was to introduce a fee for carriage shall we draw a distinction between local and distant signal and what will be the rationale and what factors do you think we should be considering?

5333             MS DINSMORE:  Well I think it's important to ‑‑ it's great that the Commission is having an eye to the copyright regime because I think that there are definitely implications there that the Commission need to be aware of in this discussion.  And then if in fact they do decide that they are going to implement a fee for carriage there are copyright implications.

5334             Currently as you know, on the copyright side of the fence there is the retransmission regime.  And under Section 31 that regime allows us to carry local signals without paying a fee because those rights have been purchased by the broadcasters from the program suppliers.  And equally on the distant side we reimburse the program suppliers through the re‑transmission regime.

5335             On the Commission's front should you implement a fee for carriage, I guess your question is whether it should be...

5336             THE CHAIRPERSON:  Well, you just gave the ‑‑

5337             MR. DINSMORE:  Yes.

5338             THE CHAIRPERSON:  The first answer regarding local versus distant signal.

5339             MS DINSMORE:  Yes.

5340             THE CHAIRPERSON:  But then what shall be the factors that we will have to take into consideration if we were to introduce fee for carriage from a copyright standpoint?

5341             MS DINSMORE:  Well I think you've got to ‑‑ I mean we already are paying a fee on distant signals.

5342             THE CHAIRPERSON:  Yes.

5343             MS DINSMORE:  And that's to compensate broadcasters.

5344             THE CHAIRPERSON:  Okay.

5345             MS DINSMORE:  For the rights they otherwise bought.

5346             THE CHAIRPERSON:  For their program.

5347             MS DINSMORE:  That's right.  So I think that's in a way already taken care of.

5348             THE CHAIRPERSON:  Okay.

5349             MS DINSMORE:  To the extent that a fee can be determined.  And on the local front it's just not clear to me.

5350             MR. ENGLEHART:  If, I think whatever the commission does on fee for carriage if contrary to our submissions you impose one, that will be separate and apart from whatever happens on the copyright regime.

5351             So if in the international copyright regime a copyright payment was payable for the carriage of those local signals, that would be on top of what you were doing for fee for carriage.  So it wouldn't be a substitute.  You wouldn't have that copyright jurisdiction when you made the fee for carriage ‑‑

5352             THE CHAIRPERSON:  Essentially what you're saying is there are 2 different regimes and 1 under the Broadcasting Act and 1 under the Copyright Act.  And obviously you may have to be ‑‑ you have to be concerned by the 2.

5353             MR. ENGLEHART:  That's what I meant to say.

‑‑‑ Laughter / Rires

5354             MS DINSMORE:  I think that what ‑‑ I mean just to circle back on this.  I think one of our greatest concerns in all of this ‑‑ and I know that this subject has come up before ‑‑ the WIPO discussions that are ongoing in Geneva which we have been following very closely with the government.

5355             That's all about looking at whether foreign broadcasters should be awarded an exclusive retransmission right, i.e. a right in their signal when they broadcast into countries ‑‑ into another country like Canada.

5356             So that discussion is going on.  We've been, you know, following it closely.  And should that come to fruition it may well happen that we ultimately do have to not only pay effectively a fee for carriage to U.S. broadcasters but equally domestically it could happen that we would naturally ‑‑  it would follow that we would have to pay that same fee to Canadian broadcasters.

5357             So our greatest concern in all this is really the issue of double jeopardy.  It's having to pay a fee for carriage under, you know, pursuant to the Broadcasting Act and equally ultimately having to pay an another fee for carriage under the Copyright Act.  And that issue of double jeopardy is a real one; we're very concerned about it.

5358             And equally should the Commission determine that we should have to pay some form of fee for carriage pursuant to this proceeding we are equally concerned that the position that the Canadian government has taken which is a position asking for an opt‑out clause should the WIPO Treaty be signed and ratified such that countries like Canada could decide not to participate.

5359             But it's very hard for Canada to take that position if domestically our regulator has determined that a fee for carriage by any other name is permissible and in fact has been implemented.

5360             So I think when we look at the copyright issues, those are really the issues that we're focusing on.   There is one more copyright issue that we are focused on and that is the issue around Section 31 which does create the re‑transmission regime which is premised on over the air carriage.  And this goes back to the discussion around over the air transmitters.

5361             Once you decide or if you decide that it will simply be a regime where there are direct fees ‑‑

5362             THE CHAIRPERSON:  You're asking ‑‑

5363             MS DINSMORE:  We ‑‑

5364             THE CHAIRPERSON:  You're answering my second question.  So...

5365             MS DINSMORE:  We don't ‑‑ we want ‑‑

5366             THE CHAIRPERSON:  So keeping going.

‑‑‑ Laughter / Rires

5367             MS DINSMORE:  ‑‑ to ensure that it's not the cable company or the DTH company that has to go down to Hollywood and clear the rights to carry the broadcast signal.

5368             We would want to ensure that either the Copyright Act and its regulations are amended such that there are changes to the definition of local signal and these signals still can be carried by us without having to independently go down and clear those rights or that the broadcasters are responsible for clearing the rights such that we can carry that programming with rights that are cleared.

5369             And I think that ‑‑ I think those are really the 2 issues on the copyright front that we're focused one.

5370             THE CHAIRPERSON:  If we continue in that regard to the question of transmission, if there was to be a total shutdown of over the air transmission, would you say that from a copyright standpoint the carriage of the existing over the air television will now be considered like specialty and pay services, so rather than be covered by Tariff 2 they will covered by Tariff 17, so you'll have to pay half of the cost?

5371             MS DINSMORE:  It all depends on how, you know, how ‑‑

5372             THE CHAIRPERSON:  Unless the Copyright Act is amended.  But ‑‑

5373             MS DINSMORE:  Yes, under the current Copyright Act.

5374             THE CHAIRPERSON:  Under the current Act.

5375             MS DINSMORE:  Under the current Copyright Act regime I would agree with that.

5376             THE CHAIRPERSON:  So...

5377             MR. BUCHAN:  Mr. Chairman, could I just ‑‑ one thing I'd like to add is my friend, Mr. Malcolmson for CTV.

5378             THE CHAIREPRSON:  You're answering question number 3.

‑‑‑ Laughter / Rires

5379             MR. BUCHAN:  He did a fairly good job going through these issues for CTV.  But he also did advert to the possibility of retaliatory action by American broadcasters or through the State Department or the U.S. Trade Representative if a fee for carriage regime were introduced in Canada that only benefited Canadian signals.

5380             And that's another issue that we think should be taken into account and this company and I know Mr. Lind can expand on that or Mr. Rogers could.  But probably Mr. Lind was ‑‑ because we've discussed this issue at some length going back to the 1970's and the border broadcasting dispute over commercial deletion and then what's flowed from there.

5381             But we just see that this is a bomb waiting to go off in terms of a U.S.‑Canada trade dispute and retaliatory action under the FTA.

5382             COMMISSSIONER FRENCH:  But that's not legal advice you're giving us, that's political advice.

5383             MR. BUCHAN:  It is, Mr. French, in relation to the Free Trade Agreement between Canada and the U.S. and its relationship to this issue and to the WIPO Treaty and the matters under question.

5384             COMMISSIONER FRENCH:  So ‑‑ sorry, Mr. Buchan, go ahead.

5385             MR. BUCHAN:  No, I'm just saying that it has a legal basis for the advice that I'm giving.  You take it as either political or legal ‑‑

5386             COMMISSISONER FRENCH:  Well, I'm asking you the question because I got the distinct impression from Mr. Malcolmson that his view was this is the legal situation.  The situation is clear, one can never predict what the Congress and the political executive in the United States might conceivably do with the powers they have and how long it would take to sort that out.

5387             Now, have I misunderstood what he was saying?

5388             MR. BUCHAN:  Well he was ‑‑ he did say it could set the stage for retaliatory action.  I think he anticipated the rebuttal.

5389             The question came from legal counsel, isn't there a cultural industries exemption?  And he said, yes, there a cultural industries exemption but it's up ‑‑ the other side, the Americans have the authority to take measures of similar commercial affect in another area outside of the cultural industries exemption, so that we can't overlook the risk that exists.

5390             I think the one thing that Mr. Malcolmson suggested but he wasn't particularly explicit on this that I didn't necessarily agree with was that the WIPO Treaty negotiations are way out there in the future and it's a parallel path with a similar right.  We're talking about the same right.

5391             But he suggested it isn't moving that quickly and it may not ever happen.  It's moving and Canada's participating in those discussions and the U.S. government is certainly participating in the discussions.  And there's a lot of focus on it and it's not that far away.

5392             COMMISSIONER FRENCH:  Just to rev‑‑

5393             MR. LIND:  Just a minute ‑‑

5394             COMMISSIONER FRENCH:  Sorry.

5395             MR. LIND:  I just wanted to add ‑‑

5396             COMMISSIONER FRENCH:  Please, Mr. Lind, yes.

5397             MR. LIND:  ‑‑ that we do fear in border cities such as Toronto that this fee for carriage idea has an elephant sitting in the room as well and that's the U.S., that if you were to impose a tax of $2 or $3 or $4 for Canadian broadcasters the Americans would be next.

5398             And the Americans, the American border stations would ask then for some kind of consideration too.  And a special trade representative would be on and on.  And all of a sudden before you knew it you'd have a great big trade complaint.

5399             So that's another reason why this thing is a lousy idea.

5400             COMMISSIONER FRENCH:  So there's a cultural exemption but the cultural exemption couldn't reasonably be expected to protect us from the kinds of actions you've evoked.

5401             MR. BUCHAN:  Well, yes, there is a cultural industries exemption but it's also open to the treaty partner to advocate or to take measures that would have a similar commercial effect in another sector.

5402             And they usually start with a Section 301 investigation and they look into it; the U.S. Trade Representative looks into it.  And then they look at whether they're going to come after softwood lumber or hog trade or whatever else it might be.

5403             And I see Mr. Arpin nodding and he's familiar with this, how it works.

5404             COMMISSIONER FRENCH:  Little did I know that I could have asked my colleague all these questions.

5405             THE CHAIRPERSON:  Yes.  Obviously.

5406             I think you pointed out, mentioning the 2 sectors that you just mentioned there, there's a lot of experience there.  Also those who are in the steel business have learned it the hard way.

5407             My colleague, Mr. Williams, wants to ask a question.

5408             COMMISSIONER WILLIAMS:  Mr. Rogers, yesterday Mr. Arnish representing the small market independent television broadcasters suggested that the very survival of these small stations is at stake and that the outcome of this hearing will determine whether these stations in fact survive.

5409             Could I please have your comment and advice to both, I guess, us as the Commission that are somewhat preoccupied with that, and advice also to the small regional broadcasters that may find a way that they can be ‑‑ have a sustainable business model providing local and regional television services.

5410             MR. ROGERS:  I am not an authority on small market over the air TV stations.  First of all I think that they all should be carried on the satellite so that they are available, fully available.  I would say that is number one.

5411             Again I like to go to 35,000' and look where we're going.  What has happened is that CTV and Global and others have basically bought up a lot of the small market TV stations.  And then they cluster them and they run the news say from the central point, but it is the local news, say, in Kitchener.

5412             But it's really being transmitted, as I understand it, from Toronto.  And they would have a couple of local people in Kitchener.  But it is a far cry from the independent local station that was there for decade.

5413             So there are some independents who don't have that advantage.  And I think they have very competitive issues and problems that probably a fee for carriage would not really solve because they have higher costs than the top hat broadcasters do because the top hat broadcasters centralize everything and they have much lower costs.

5414             So I think it would be very difficult to have a small market television station.  And I don't know this but I think the number of them have come down a lot over the years.  Would you Rael?

5415             MR. MERSON:  Four or five.

5416             MR. ROGERS:  Do you want to add anything?

5417             MR. MERSON:  Tough to speak the economics, Commissioner Williams.  It is as Mr. Rogers describes a much longer row to hoe.

5418             You know, you might argue as well that, you know, being a small broadcaster in a large market as we are in both, in OMNI in particular, is probably a tougher row to hoe than even being a small broadcaster in a small market where you have a clearly definable niche.

5419             The way we've addressed the issue and the way we continue to address the issue is to find our niche.  You know our niche has been either ethnic or religious.  And the small market broadcasters are going to search after their niche which is probably going to be local.

5420             And there is all sorts of evidence to suggest in this world of the future, where the internet becomes a much more predominant method of communications and mass market programming really predominates on the major networks, that the niche that we're all going to go after is going to be intensely local.

5421             And it's, short of giving them advice which I wouldn't want to do, it is the natural thing for all of us to organize our businesses around.

5422             So it is, it's interesting.  And I think I ‑‑ just to support Mr. Roger's point, it really is ‑‑ it's a strategic issue that is beyond the scope, I think, of regulations effects.

5423             It really has to do with the structure of the industry and where we find ourselves within the structure of the industry and how we choose to compete within an industry that was rapidly breaking down to very large and much smaller players.

5424             MR. ROGERS:  Two quick comments.  One is that although times change, technologies change and so on, it is important to innovate and to try to find a niche and fill it.