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 / SUJET:

Review of the regulatory frameworks for broadcasting distribution undertakings and discretionary programming services /

Révision des cadres de réglementation des entreprises de

distribution de radiodiffusion et des services de

programmation facultatifs

HELD AT:                              TENUE À:

Conference Centre                     Centre de conférences

Outaouais Room                        Salle Outaouais

140 Promenade du Portage              140, Promenade du Portage

Gatineau, Quebec                      Gatineau (Québec)

April 10, 2008                        Le 10 avril 2008

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 regulatory frameworks for broadcasting distribution undertakings and discretionary programming services /

Révision des cadres de réglementation des entreprises de

distribution de radiodiffusion et des services de

programmation facultatifs

BEFORE / DEVANT:

Konrad von Finckenstein           Chairperson / Président

Michel Arpin                      Commissioner / Conseiller

Leonard Katz                      Commissioner / Conseiller

Rita Cugini                       Commissioner / Conseillère

Michel Morin                      Commissioner / Conseiller

Ronald Williams                   Commissioner / Conseiller

ALSO PRESENT / AUSSI PRÉSENTS:

Chantal Boulet                    Secretary / Secretaire

Cynthia Stockley                  Hearing Manager /

                                  Gérante de l'audience

Martine Vallée                    Director, English-Language

                                  Pay, Specialty TV and

                                  Social Policy / Directrice,

                                  TV payante et spécialisée

                                  de langue française

Annie Laflamme                    Director, French Language

                                  TV Policy and Applications/

                                  Directrice, Politiques et

                                  demandes télévision langue

                                  française

Shari Fisher                      Legal Counsel /

Raj Shoan                         Conseillers juridiques

HELD AT:                          TENUE À:

Conference Centre                 Centre de conférences

Outaouais Room                    Salle Outaouais

140 Promenade du Portage          140, Promenade du Portage

Gatineau, Quebec                  Gatineau (Québec)

April 10, 2008                    Le 10 avril 2008

- iv -

           TABLE DES MATIÈRES / TABLE OF CONTENTS

                                                 PAGE / PARA

PRESENTATION BY / PRÉSENTATION PAR:

Crossroads Television System                      595 / 3316

Canadian Association of Broadcasters              621 / 3448

Canadian Cable Systems Alliance Inc.              718 / 3978

Gatineau, Quebec / Gatineau (Québec)

‑‑‑ Upon commencing on Thursday, April 10, 2008

    at 0833 / L'audience débute le jeudi

    10 avril 2008 à 0833

3309             THE CHAIRPERSON:  Good morning.

3310             Madam Secretary, who do we have today?

3311             THE SECRETARY:  Thank you, Mr. Chairman.

3312             Bonjour, tout le monde.

3313             We will proceed this morning with the presentations by Crossroads Television System.

3314             Mr. Glenn Stewart will introduce his colleague, after which you will have 15 minutes for your presentation.

3315             Mr. Stewart...?

PRESENTATION / PRÉSENTATION

3316             MR. STEWART:  Thank you.

3317             Mr. Chairman, Commissioners, Commission staff, thank you for the opportunity to appear at this important review of the regulatory framework for BDUs and discretionary programming services as we move forward to the brave new world of the fully digital television broadcasting environment.

3318             My name is Glenn Stewart, CTS Director of Sales and Marketing.  With me is Matt Hillier, our Corporate Controller.

3319             Crossroads Television System is one of the few remaining independent over‑the‑air television broadcasters in Canada providing a diversity of original Canadian programming in southern Ontario and Alberta not available on other over‑the‑air, local or regional services.

3320             As a balanced religious broadcaster, we are for many faiths their only local source of religious programming.  With the participation of these faith groups, thousands of hours of original programming have been exhibited over the past decade and we have had the privilege of building bridges of understanding and dialogue amongst the members of these various faith groups.

3321             As we approach the digital broadcasting world, the importance of distribution regulations will not be diminished.  For the most part, we concur with the Commission's assumed distribution model:  a Canadian basic tier limited to local over‑the‑air services, educational services and mandatory services offered at the lowest possible price to consumers.

3322             Low income and fixed income Canadians should not be discriminated against.  Moreover, it is our view that we are entering a recessionary cycle, the duration of which cannot be determined.  The regulation should make clear that all local over‑the‑air services are to be included in the basic service and should be positioned together in a common cluster of channel allocations.

3323             There are a number of issues raised in the Shaw submission of October 19, 2008 that are of concern to CTS.  shaw's submission in point 21 implies that the formidable size, strength and viability of the large integrated communications conglomerates' significant bargaining power removes the need for access and distribution requirements.

3324             We strongly disagree.

3325             This formidable size and significant bargaining power is precisely why small independent Canadian broadcasters like CTS need existing regulations to remain in effect affording priority carriage.

3326             In recent channel allocation issues in Alberta, CTS was the only newly licensed over‑the‑air television service not assigned a low basic tier channel by the BDU.  To our knowledge, this is a precedent setting decision and is a prime example of the need for regulated carriage for small independent Canadian broadcasters who are without any clout.

3327             In point 17 of that same submission Shaw argues that the market imperative for individual BDUs to employ their own rigorous customer service standards removes any need for mandated industry‑wide standards.  CTS believes that BDUs should not be the gatekeepers for developing strong Canadian broadcasters.

3328             As near monopolies in their marketplace and licensees of the CRTC, BDUs must bear responsibility for the priority carriage of local over‑the‑air Canadian broadcasters.

3329             To avoid the risk of diverse voices being overlooked and disadvantaged simply because they are not owned by a BDU or other large broadcaster group, the basic tier model assumed by the CRTC should not allow BDUs to add services to the Canadian basic package, which would then be offered at a higher price.

3330             The CRTC's assumed model of Canadian basic tier limited to local over‑the‑air and other mandatory services is vital to CTS regardless of whether fee for carriage is instituted.  Such a basic tier should continue to have common priority placement in relation to other offerings.

3331             It is crucial that the CRTC preserve regulatory jurisdiction on this matter.

3332             With respect to distant signal policy, we believe independent over‑the‑air stations should have priority over additional signals of network affiliated stations in order to maximize programming diversity and consumer choice.  In our view, the broadcasting system would be enriched more by the addition of diverse programming and new markets rather than duplicating as many as eight signals of the major networks.

3333             Time shifting capability should not take priority over providing viewers with programming diversity.  This is especially important given the pending satellite capacity shortages to accommodate HD services going forward.

3334             Our concern going forward, as regulators weigh important issues including fee for carriage, genre protection and preponderance rules, is that within the new framework the important contribution made by small independent broadcasters like CTS to diversity of voices will continue to be recognized with priority basic carriage for the benefit of Canadian viewers and a strong Canadian broadcast system.

3335             MR. HILLIER:  In preparing presentations, the Commission requested interveners to address the list of issues with respect to the assumed distribution model for purposes of debate.

3336             In the interests of time, we will comment only on matters that are of direct concern to CTS.

3337             CTS is opposed to distributors adding services to the Canadian basic package and charging a higher price.  This basic package should continue to provide priority carriage to all local over‑the‑air broadcasters, while maintaining an affordable basic rate for subscribers.

3338             On the question of genre protection, we agree with Ted Rogers and believe that it should be defined in broad categories and continue to be regulated in the digital environment in order to promote a Canadian‑first policy.  There should be no importation of foreign signals in a category where a Canadian broadcaster provides a service.

3339             In our opinion, it would be appropriate to restrict foreign services where there is any appreciable overlap in program schedules in order to protect access rights and to protect diversity, if indeed diversity is truly valued by regulators, BDUs and consumers.

3340             On the issue of BDU licensing frameworks, our only concern would be that the Canadian basic package, hence priority carriage, would be mandatory across all classes and systems.

3341             With respect to financial disclosure on the part of large multi‑system operators, we would like to see it broken down by service area or market and by activity.  Total transparency for all operations is desirable.

3342             In our view, non‑linear services such as VOD, SVOD and PPV, should not be permitted to carry, sell new or additional commercial advertising and therefore not be in direct competition with conventional broadcasters.  Allowing commercial sales would reduce the value of advertising spots in the industry.  There is no demand for additional inventory.

3343             MR. STEWART:  The Commission has asked interveners to comment on the role of the CRTC in setting rates and/or resolving disputes between distributors and programming undertakings.

3344             With regard to rate setting, the CRTC should maintain jurisdiction in this matter.  If fee for carriage is instituted, it should be uniform for all local over‑the‑air stations in their given market.  If left to individual negotiation between BDUs and broadcasters, so‑called market forces will result in small independent stations being left behind in the competitive process.

3345             Similarly, fee for carriage rate structures should be calculated on the subscriber base of the BDUs and not station size or group ownership.  To be clear, fee for carriage should not be a tradeoff for priority carriage of local over‑the‑air stations.

3346             With respect to dispute resolution, prevention of discrimination or self‑dealing by BDUs, CTS supports the proposed reversal of onus requirement.  As stated earlier and because of our recent first‑hand experience, we strongly believe that BDUs should not be de facto gatekeepers of the Canadian broadcasting system.

3347             MR. HILLIER:  Interveners have been asked to provide comment on the appropriate contribution to the creation of Canadian programs by all sectors of the broadcasting system.

3348             We believe that the current contribution by BDUs is both appropriate and necessary.  It is important to note that the CTF came into being as a result of a CRTC decision in the late eighties to allow BDUs expanded carriage of foreign services.

3349             We believe that Canadian programming undertakings should continually strive to create quality shows that Canadians will want to watch, while at the same time meeting current programming obligations.

3350             In our opinion, the system would be better served if contributions would be measured in number of hours as opposed to dollar expenditures.  In this instance, we are not advocating quantity over quality but assume higher quality Canadian production will be viewed by Canadians in a more competitive digital environment.

3351             It would seem inappropriate to require foreign services to contribute to the creation of Canadian programming without granting more access to them.  It might also result in a costly legal challenge.

3352             Contributions by large broadcasting groups should continue to be assessed at the licensee level rather than at the ownership level in order to ensure continued local program production, which is at the very heart of local over‑the‑air broadcasting.

3353             MR. STEWART:  Interveners have been asked to provide comment on additional sources of revenue that could enhance or increase contributions to the creation of Canadian programming.

3354             Greater flexibility with respect to advertising on specialty services and on‑demand services will only serve to reduce spending on conventional over‑the‑air stations and further reduce the value of advertising spots in the industry.  No new advertising dollars will flow into the system.  As a result, therefore, overall contributions will not increase and they will just come from different players within the system.

3355             Access to local avails on foreign specialty services will further reduce spending on conventional over‑the‑air stations, again without providing an overall boost to desired contributions.

3356             Regardless as to whether the BDU itself or a third party sold the avails and foreign specialty services, the outcome would be the same.  New advertising revenues would not flow into the broadcast system, existing broadcasters would suffer and no incremental dollars would be directed towards the creation of Canadian programming.

3357             A subscriber fee for over‑the‑air services could hold the key for the continued enhancement of Canadian programming for local markets which offer uniquely diverse content for consumers.

3358             Rather than being a mutually exclusive choice, simultaneous substitution policy is at the very core of the relationship between the BDU and conventional broadcaster.  Quite simply, it is what allows the Canadian broadcast system as we know it to succeed and is a simple legal consequence of acquiring the Canadian rights to successful U.S. programs.

3359             Any subscriber fee paid to the overall broadcaster should not replace or diminish the current simulcast policy in any way.

3360             It is also important to note that the current subscriber fee charged to consumers recognizes the BDUs' costs associated with effecting simulcast substitution.

3361             The respective roles of BDUs and programming undertakings in targeted advertising should be such that there are no self‑dealing or conflict between the role of the BDU and that of the broadcaster.

3362             MR. HILLIER:  Now, to step back from the trees and refocus on the forest, among all the possible variations and rule changes including whether or not to institute fee‑for‑carriage, regulations that support the success of over‑the‑air locally diverse and Canadian broadcasters are key.  At the risk of oversimplifying this means mandatory, common priority carriage across all BDU classes and systems in a digital world.

3363             With that, Mr. Chairman, we conclude our presentation.  Thank you for hearing us and we await any questions the panel may have of CTS.

3364             THE CHAIRPERSON:  Thank you.  Thank you very much for your presentation.

3365             You were here yesterday when Bell made their presentation and they talked about Freesat as a way to avoid over‑the‑air broadcasters like you having to build new very expensive towers and antennas for the digital world.

3366             Do you see that as a realistic alternative for you, for instance?

3367             MR. STEWART:  Mr. Chairman, frankly, we don't see the challenge of moving to digital as being overly onerous, and in the CTS perspective it's a good thing and we should enjoy greater viewing as a result.

3368             I don't really see ourselves as being in that boat.  We are currently not licensed as a specialty network.  We are a conventional over‑the‑air broadcaster and we operate within that realm albeit with a niche format, if you will.

3369             THE CHAIRPERSON:  M'hm.

3370             MR. STEWART:  But we are in that conventional over‑the‑air environment.

3371             So I don't think we need special status in that regard.  Rather, we are advocating that we be treated equitably with other like over‑the‑air broadcasters, be it CFTO, CHCH, A Channel, Citytv.

3372             THE CHAIRPERSON:  M'hm.

3373             MR. STEWART:  That's what we really mean by common placement in a new digital world for local over‑the‑air stations.

3374             MR. HILLIER:  One more point about Freesat.

3375             There was conversation yesterday about, you know, size of markets and that kind of thing.  While we are a small player we are generally in larger markets.  We have two rebroadcast transmitters in London and Ottawa and then Calgary, Edmonton and Toronto, Hamilton.  So some broadcasters are in very small communities with broadcast towers and it may be of advantage to them but as far as the, you know, cost benefit it's advantageous to just take advantage of renting space on towers and continuing to serve communities.

3376             THE CHAIRPERSON:  Okay, and another question.

3377             Your whole submission basically speaks of advertising as a fixed universe and there is a so much of the pie and you know if you let others in they would ‑‑ like the BDUs they will ‑‑ it will be at the expense of the broadcasters.  When Rogers were here they were talking about growing the pie and they talked about targeted advertising and the ability to, in effect, customize advertising to specific user groups and thereby increasing the pie.

3378             Do you see that?  I mean that's quite a different position than what you are advocating here.  Do you think they are right or are they dreaming in Technicolor?

3379             MR. STEWART:  I think as a large broadcaster ‑‑ with a large vertically‑integrated broadcaster they perhaps could grow the pie to a small measure.  Unfortunately, it will be at the cost of smaller services like CTS, like SunTV, perhaps A Channel and their own Omni stations.

3380             There is only so much money in the television pie, if I can put it that way, Mr. Chairman.  And yes, television advertising revenues have been growing, albeit only by inflationary measures in the last couple of years.

3381             It's not going to grow to the extent that $60 million of new revenue, I think was quoted by the Rogers team, will flow into the system.  I do not believe that that will be the case.

3382             THE CHAIRPERSON:  Okay, thank you.

3383             Ron, do you have some questions?

3384             COMMISSIONER WILLIAMS:  Yes, thank you, Mr. Chair.

3385             Good morning, Mr. Stewart and Mr. Hillier.

3386             In going through your written presentation and your oral presentation today I have a few questions from that.

3387             You have stated in a post 2/11 or digital area all locals should be placed in close proximity to each other in a high priority cluster of channel numbers.  Can you describe that a bit more and give us the reason why?

3388             MR. STEWART:  Yes, of course.  Thank you for that opportunity.

3389             The old world 2 to 13, under 22, before Tier 1 analogy will likely go away in the new digital environment.  What we are advocating is that grouping of ‑‑ those stations who previously enjoyed 2 to 13 or under 22 be moved as a group into the digital world and whether we are 200 to 220 or 300 to 320 really doesn't matter.  The more important issue for us is that we stay within that grouping because of the nature of how our business model works.

3390             COMMISSIONER WILLIAMS:  Sometimes that grouping includes U.S. services as well in that channel piece.  Do you see them as moving as well?

3391             MR. HILLIER:  If I could?

3392             That's a good question.  I think we focused our point of view around what would be the smallest basic package that we are supporting.  And the smallest basic package would be the over‑the‑air stations and the educational and the mandatory, I guess, 91H services that would be the smallest package.  We would be grouped as far as channel placement in proximity to those stations.  So American isn't part of the basic package.

3393             MR. STEWART:  Oh, yes, we believe that the basic package should be all Canadian.

3394             COMMISSIONER WILLIAMS:  M'hm.  And does the cable community channel fall into what you see as the basic package?

3395             MR. HILLIER:  I don't see why it couldn't be.

3396             COMMISSIONER WILLIAMS:  Okay.  You talked about maintaining the priority carriage of independents like CTS in a time of scarce bandwidth and that diversity, not duplication should be the rule of the new high definition world.

3397             Can you elaborate on that a bit more, please?

3398             MR. STEWART:  I guess we take a very personal view towards that, only because of the difficulty we had in getting channel placement in Alberta with our new stations and that did go to arbitration.  It went through the system.

3399             And as a result we are on channel 51, not below 22, which is what we believed we would be coming out of the hearings and having the licence granted.  While the Commission didn't stipulate, you know, we would be under 22, everything we went through at the hearing stage indicated that that was our request and there wasn't any opposition to that that we ran into.

3400             I guess going forward we are concerned that when we see ‑‑ when I go ‑‑ I have got Star Choice at home and when I flip through and I can get CTV in nine markets, yes, it's nice and convenient that, you know, I can catch something at 10 o'clock because I'm not home at 7 o'clock to watch it.  But at the cost of programming diversity and excluding other Canadian services I don't think that's right.

3401             COMMISSIONER WILLIAMS:  Okay.  In terms of the religious broadcaster remarks and the Dunbar/Leblanc Report, you state:

"The current religious policy works well and no review is required.  Religious local broadcasters continue to receive guaranteed priority carriage and current variety of faith viewpoints be freely available with TV and airtime for a wide variety..."  (As read)

3402             COMMISSIONER WILLIAMS:  With all the different religions in the world and the opportunities that increased bandwidth would provide do you not see the opportunity for targeted religious programming?

3403             MR. STEWART:  Matt can speak to this in a moment but I guess I would preface it by saying CTS is quite happy with the current regulation as it stands.  It works well, we believe, not only for ourselves but for everyone involved.

3404             I think we have operated for 10 years with a fair contribution to the system and without causing any difficulty to the system and we would just like to see it continue in that manner.  We don't see any need for changes.

3405             Matt.

3406             MR. HILLIER:  We would like for the local communities that we serve ‑‑ we serve the faith communities based on demographics.  So what you might see are some specific programs on a weekly basis devoted to specific faith groups that are larger populations within the communities that we serve.  But we also have programs on a weekly basis that deal with all the various faith groups and anything going on within those communities and deal with communities that are very small or might be even outside a little bit, outside the markets that we serve that may affect people in the community and promoting understanding between the different faith groups.

3407             And also on our daily programs there is opportunities for expression of a variety of different points of view.  So it can be a faith point of view of one even on a specific show and topics.  So I think that works well even in digital environments.

3408             Yes, I think that sums it up.

3409             COMMISSIONER WILLIAMS:  Thank you, Mr. Hillier.

3410             On the topic of fee‑for‑carriage for the over‑the‑air broadcasters, if the Commission was to agree and allow a fee for carriage to be implemented, how much should that fee be and under what terms?

3411             MR. STEWART:  We have heard various numbers quoted.  50 cents seems to be something that is in the right neighbourhood.  A dollar or more seems not to be.

3412             I guess there is some degree of confusion as to how those monies would be spread out, whether it's 50 cents per subscriber, per broadcaster or whether it's a dollar and a quarter and it's to be divided amongst all the broadcasters in some fashion.

3413             We didn't really ‑‑ I guess to back up a step, Mr. Commissioner, CTS has not taken a position that we are here knocking at the door saying we have to have fee‑for‑carriage.  We are here saying that if there is to be fee‑for‑carriage we would like to be treated equitably in any arrangement that comes about.

3414             We fully expect, however, that if granted it's not a freebie; it's not a handout, that there will be linkages to Canadian programming, production‑enhanced services, what have you.  And from a CTS perspective we would be delighted to do what is required of us if fee‑for‑carriage comes about.

3415             MR. HILLIER:  One other point is that we talked about whatever fee‑for‑carriage might be instituted what's the right amount.  Well, the minimum amount that wouldn't be an onerous expense to the communities that we serve because we are all about ‑‑ we are a non‑profit organization.  We don't line the pockets of shareholders.  So we are all about programming and serving our communities and we want to reach and serve as many people as possible.

3416             So I wouldn't be an advocate of making it onerously expensive for the consumer.  So what's the right amount?  The smallest amount you decide is fair.

3417             COMMISSIONER WILLIAMS:  So if I heard you correctly the CTS business model is not in need of a fee‑for‑carriage, life will go on without it and that you are a small, independent player, that if it is was given out you of course want your share but it's not necessary for your survival and ongoing success?

3418             MR. STEWART:  Mr. Commissioner, I don't mean to mislead you.  We are not rolling in all kinds of money.  We are struggling probably more so than any other broadcaster.  But we operate a very efficient model.  We have perhaps a greater purpose than just trying to make a profit.  We are not‑for‑profit, as Matt says.

3419             If fee‑for‑carriage were to be instituted the most interesting thing in a CTS example is that whether you say we have to add another hour of Canadian programming on top of what our current requirements are, all the money goes back into programming ultimately to improve the service.  So we are a little bit unique in that example.

3420             And what the Commission can take comfort in is that any fee‑for‑carriage coming our way is going to be well utilized and it's not going to the bottom line.

3421             MR. HILLIER:  The one thing we are concerned about in a fee‑for‑carriage environment is what Glenn said, is being treated equitably.  What we would not want is a situation that perpetuates have and have not stations.  Where there might be a competitive advantage for larger stations who have fee‑for‑carriage, they will have a competitive advantage for not needing as high a dollar rate on advertising spot sales, those kinds of things.

3422             So we are cognizant of not having an arm tied behind our back in relation to the other over‑the‑air broadcasters.

3423             COMMISSIONER WILLIAMS:  Thank you.

3424             Should the broadcast distribution undertakings have access to advertising revenues from on‑demand services or say from the sale of the local availabilities?

3425             MR. STEWART:  With respect to local availabilities, as I said earlier, I don't believe that that's going to serve the broader industry well.  I think it will create more demands on small broadcasters.  Those dollars while they advocate giving 50 percent of it to the CTF et cetera, et cetera, it just means that contributions elsewhere will be diminished in the long run.

3426             There is not going to be ‑‑ there is not an extra $60 million in one example or $20 million in the other example just hanging out there ready for the taking.  It's just not the case.  All it will do is drive down the efficiencies or the costs of other spots.

3427             Of course advertising agencies are going to take up those avails and they are going to be taken up at a very low cost which is just going to drive everything else down.  So if you have Top 20 programming and you are CTV, you are Global, you can charge whatever you want.  The fact that commercial sales have been ‑‑ the restrictions on commercial time has all but gone away, all that means is that you can put an extra currently two minutes into CSI Miami and charge a gazillion dollars for them.

3428             New money isn't flowing into that because that's available.  It's just reshuffling the deck.  The pie isn't growing.  So that just means CTV and Global are getting a bigger cut of the available dollars at this point because they can put two more minutes in CSI Miami, American Idol, et cetera, et cetera.

3429             The sad fact is, I have been told by many of my colleagues at other stations that you could have called up CTV on Monday and gotten a spot in Wednesday's American Idol; a number of years back that wouldn't have been the case.  It would have been sold out, done, can't touch it, can't get in no matter what premium you are prepared to pay.

3430             Actually, now CTV and Global between their Top 20 programs because they can put in 14 minutes an hour, they are not filling up and they are not being able to get the premium dollars they would have envisioned for those Top 20 shows.  But the bottom line is it is less money for CTS, for SunTV, for A Channel, for OMNI Television, in the main.

3431             Now, you can back that out a little bit because A Channel is now CTV and they can package.  Rogers now has Citytv group.  They can package with OMNI.

3432             So again it's going to be the likes of CTS, SunTV who will struggle as a result of that decision.  I would love ‑‑ I mean I love the fact I can put, you know, two extra minutes into Full House or Happy Days but it doesn't have the desirability of an American Idol.

3433             So it really doesn't ‑‑ it really doesn't cause the smaller stations to be able to grow their revenues as a result of that.  I look at avails in the U.S. programming to be similar to that in terms of the end result.

3434             With respect to VOD, again, Matt and I were talking on the way back to the hotel last night, "Oh, jeez, maybe we should look at a companion station for CTS".  In that example we might be able to drive some new revenues by making the Corn Show available online, et cetera, et cetera.  We couldn't do it with our entertainment programming, as few shows as they are, because we wouldn't have those rights and we don't have those rights currently.  But certainly with our original programming we could do that.

3435             Whether there is an appetite for that I don't know and whether or not we would get that companion station from the BDUS who knows?  And if it's left to negotiation I guess our track record with the BDUs is not strong.  So the likelihood of us getting a VOD companion station channel versus CTVGlobal, Citytv, whomever, you know we would like to entertain it but I'm not sure that we will get there.

3436             COMMISSIONER WILLIAMS:  Okay, thank you, Mr. Stewart and Mr. Hillier.

3437             That concludes my line of questioning, Mr. Chair.

3438             THE CHAIRPERSON:  Okay.  There don't appear to be any other questions.  Thank you very much for coming.

3439             MR. STEWART:  Thank you.

3440             THE CHAIRPERSON:  We will take a five‑minute break while CAB ‑‑

3441             MR. HILLIER:  Thank you very much.

3442             THE CHAIRPERSON:  ‑‑ sets itself up.

‑‑‑ Upon recessing at 0905 / Suspension à 0905

‑‑‑ Upon resuming at 0911 / Reprise à 0911

3443             THE SECRETARY:  Please be seated.  We are about ready to start.

‑‑‑ Pause

3444             THE CHAIRPERSON:  Thank you very much, Mr. O'Farrell, for the medicine you gave me.  So if I keel over during the proceedings we know why.

‑‑‑ Laughter / Rires

3445             MR. O'FARRELL:  She is to blame.  She is the naturopath.

3446             THE CHAIRPERSON:  Okay.  I hope it works.  Thank you very much, it is very kind of you.

3447             Okay, why don't you introduce your panel and proceed with your presentation.

PRESENTATION / PRÉSENTATION

3448             MR. O'FARRELL:  Thank you very much, Mr. Chairman, and good morning.  My name is Glenn O'Farrell and I am the President and CEO of the Canadian Association of Broadcasters.

3449             I am joined today, starting from my far left, by Pierre Pontbriand, Vice‑President of Communications; Pierre‑Louis Smith, Vice‑President of Policy and Chief Regulatory Officer.

3450             To my immediate left, Jay Thomson, Vice‑President, Regulatory and Policy.

3451             To my right is Wayne Charman, Chief Adviser of Policy and Regulatory Affairs.

3452             Next to Wayne is Tara Rajan, Vice‑President, Research and Policy.

3453             And finally, to my far right is Steve Armstrong, the President of Armstrong Consulting.

3454             Alors, Monsieur le Président et membres du comité, nous sommes très heureux d'être ici ce matin.

3455             Nous aimerions faire une brève déclaration préliminaire portant sur les cinq questions que vous avez énoncées au début de cette audience publique, plus tôt cette semaine.

3456             Les réponses à ces questions exigent, selon nous, quelques commentaires, tout simplement pour bien établir le contexte de nos positions et vous soumettre respectueusement notre vision quant à l'issue de cette instance.

3457             Monsieur le Président, vous avez démontré combien vous comprenez en profondeur le mandat que le législateur a confié au CRTC pour faire en sorte que ce système continue à prospérer.

3458             Parliament has given the CRTC a special responsibility.  It must place a high priority on the social and cultural contributions that broadcasting can make to the Canadian sense of identity.

3459             Furthermore, this Commission recognizes the central role of the broadcasting system, namely, delivering Canadian content, expressing the diversity of our country and allowing access to Canadians both as audiences and as participants.

3460             We are very encouraged by your understanding as well as the understanding and commitment of your colleagues to upholding the role of this Commission.

3461             As we see it, the importance of that role has quite possibly never been greater than in today's world where a regulated universe and unregulated universe of media choices live side by side.

3462             So as this proceeding takes flight, we respectfully submit that it is critical to take a moment to remind us all of what decades of work by broadcasters, distributors and regulators has produced:  in our view, the very best broadcasting system in the world and not surprisingly, the very best example of tangible outcomes in the history of Canadian cultural policy.

3463             Let's start with how we compare on the international scale.  Simply stated, Canadians enjoy more access to both domestic and foreign television services on a per capita basis than anywhere else in the world.  On a per capita basis we have more than twice as many choices as the U.K., three times as many as France, five times as many as Japan and more than 10 times as many as the U.S., the world's biggest media powerhouse.  I think the chart speaks for itself.

3464             Now in terms of measurable cultural policy outcomes, the Canadian broadcasting system outperforms every other federal cultural policy initiative.  Consider this:  Through content support with access, preponderance and genre rules, this system delivers more than 70 percent of English‑language viewing and more than 95 percent of French‑language viewing to Canadian channels and services.

3465             By way of example, let's look around and we did look around and we looked at films and magazines in Canada.  The comparison is striking.

3466             Dans le cas des longs métrages n'ayant aucun soutien sur le plan de l'accès et de la prépondérance, donc, quant à sa distribution, les productions canadiennes de langue anglaise touchent seulement 2 ou 3 pour cent des recettes au guichet, tandis que les productions étrangères s'accaparent de quelque 97 pour cent de ces recettes.  Le secteur des productions de langue française, quant à lui, affiche légèrement plus de vigueur, avec 17 pour cent des recettes au guichet.

3467             Du côté des magazines ne profitant pas de règles sur l'accès ou la prépondérance, donc, la distribution, les publications étrangères représentent 80 à 90 pour cent des ventes dans les kiosques à journaux.  Même avec le soutien à l'accès que leur procure le programme des tarifs postaux préférentiels, la moitié des ventes par abonnement va aux magazines étrangers.  Là où le gouvernement intervient pour soutenir et la création du contenu canadien, ainsi que l'accès et sa distribution, la réussite se manifeste et les chiffres en témoignent.

3468             Selon nous, aucune autre histoire à succès n'arrive à dépasser les résultats mesurables du système de radiodiffusion canadien, et c'est devant cette toile de fond et dans ce contexte que nous proposons de répondre, d'abord, selon des principes généraux, aux cinq questions posées au début de cette audience.

3469             Nous vous offrons ces réponses préliminaires pour amorcer la discussion avec le comité du Conseil, et nous comptons sur l'occasion de fournir des précisions sur chacune d'elles, ainsi que le raisonnement sur lequel elles se fondent.

3470             So let's get down to the questions and the answers.

3471             To question 1, our answer quite simply is:  The minimum requirements for the basic package for all BDUs, including DTH, should include local stations in the market, educational services and mandatory services as those services represent and consist of the foundation services in the system.

3472             To question 2, our answer is:  There should be guaranteed access to all analog and Category 1 Specialty and Pay Services on the basis that these services contribute significantly and substantially to Canadian programming and to diversity in the system.  We refer to these as core services.

3473             To question 3, we respond that there should be genre protection for all analog and Category 1 Specialty and Pay Services from both other Canadian and non‑Canadian services to ensure Canadian TV viewers continue to benefit from the broad array of programming diversity in the system.  Audience data clearly demonstrates the growing number of Canadian viewers to Canadian programming services defined by genres.

3474             To question 4, the CAB does not have a position on fee‑for‑carriage for over‑the‑air given that our members have chosen to address this issue on an individual basis.

3475             However, to address the underlying issue of program rights and to resolve the matter of impact evaluation and compensation for distant Canadian signals, we submit that BDUs must be required to obtain the consent of over‑the‑air broadcasters prior to their distribution in distant markets, thereby eliminating the need for program deletion regulations.

3476             And finally, to question 5, we welcome the opportunity to work with BDUs on developing business models for the VoD platforms that we do believe hold great promise for the future.  However, without negotiated arrangements with broadcasters, in our view, BDUs should not have access to advertising revenues from on‑demand services.  Only programming acquired from Canadian broadcasters should be made available on SVOD services.  With regard to local avails, BDUs should not have direct or indirect access to advertising revenues.

3477             Advertising revenues should remain the exclusive purview of broadcasters on the simple basis that for every dollar of revenue earned, programming services contribute on average 30.5 percent to Canadian programming whereas BDUs contribute no more than 5 percent.

3478             As to the outcome of this proceeding, Mr. Chairman, we retain a strong conviction that this Commission will build on the legacy of its predecessors in ensuring that Canadians will continue, prior to and after 2011, to have access to the best broadcasting system in the world.  Thank you.

3479             THE CHAIRPERSON:  Thank you very much for a very clear and concise presentation.

3480             Tell me, on page 4 where you have the chart of television choice, how do you measure this?

3481             MR. O'FARRELL:  I am going to ask our Vice‑President of Research, Tara Rajan, to walk you through that because she is the one who did the compilation but I think that the footnote helps you identify the sources for our information.

3482             But I will hand if off to Tara.  Please, Tara.

3483             MS RAJAN:  Thanks, Glenn.

3484             So the chart is the number of nationally available channels in different television markets in different countries.  So this is not local or community channels but it will include cable channels or pay channels, national networks, domestic and foreign, that are available in those markets as of 2005, with one exception.

3485             MR. O'FARRELL:  And if I may add a qualifier, there would not be multiple CTV or multiple Global channels in that chart.  CTV would be accounted for as one national service and Global would be accounted as one.

3486             THE CHAIRPERSON:  You say per capita.  It is the per capita which threw me off.

3487             So how do you actually do the calculations?  Take Canada as an example.

3488             MS RAJAN:  Well, if you were to look at this strictly on a per person basis, the numbers for all countries would look infinitesimal, so we looked at per million people.

3489             THE CHAIRPERSON:  Yes.

3490             MS RAJAN:  So if you just take the population and divide it into the number of available channels, you will get the number.

3491             THE CHAIRPERSON:  I see.  Okay, thank you.

3492             And the chart on page 6 where you compare television to feature films and magazines, when you say in the results for television, over 70 percent of English‑language viewing is to Canadian channels and services, over 95 is French, isn't that somewhat misleading?  Just because it is a Canadian English channel doesn't necessarily mean it is a Canadian program.

3493             MR. O'FARRELL:  That is correct.  But what we say is that that viewing is dedicated to services that are licensed by the Commission to contribute back to the broadcasting system.

3494             THE CHAIRPERSON:  Okay.  You have a point there, okay.

3495             Then in answer to the five questions, in question number 1 you don't mention community channels.  Is that ‑‑ or are they included in ‑‑

3496             MR. O'FARRELL:  They are not included in our minimum requirements but I will let Jay explain perhaps just a little bit as to what we conceive in minimum requirements.

3497             Jay Thomson.

3498             MR. THOMSON:  So as has been, I think, a consensus so far in the proceeding, we would support the minimum requirements of the priority local and regional over‑the‑air services, educational services, public broadcaster 918 services.

3499             The community channel could be added to the basic or offered on a discretionary basis.  That would be up to the BDU.

3500             The BDU could also offer the four‑plus‑one on basic to continue to offer that service that consumers have become accustomed to, provided, whether it is on basic or on a discretionary tier, simultaneous substitution continues.

3501             After that, a BDU could offer any of the Canadian analog or Cat 1 services on basic, subject to negotiations with the service provider, but no more foreign services and no other Canadian services.

3502             THE CHAIRPERSON:  Okay.  You have been here for the last two days, so three days, and you have heard the various proposals.

3503             CBC was quite explicit that there should be a minimum basic package and it has to be offered so that people who do not want to spend more than the absolute minimum amount have the option of doing it.

3504             The other extreme is sort of Rogers who says our basic package is what we can put together.  The market and consumers will decide what the size of it is.  That should include what CBC has but also all sorts of other channels that we may add onto it because there is consumer demand.

3505             So between those two extremes, where do you come out?

3506             MR. O'FARRELL:  We believe that the idea of establishing minimum requirements, as we have defined, is the going‑in position.  Once those are defined, we think that it is a useful approach to say, give the BDUs the flexibility to offer what could amount to be numerous basic services.

3507             There could be a basic that would look like the CBC model but then there could be, say, a basic basic, a basic sports, a basic news and information, such that if we were consumers, all of us in this room in the same community, we could have our BDU of choice offering us a basic basic package or any number of other basic services, either defined by theme or otherwise, always including the minimum requirements but perhaps giving them the opportunity to make their offerings to the subscriber more compelling.

3508             The example that strikes me would be ‑‑ and I apologize for the personal element in this answer ‑‑ but if I was to be offered a basic sports package, so the basic requirements plus sports, and then all of a sudden that service gave me a buy‑through to other sports channels on discretionary tiers that would be at a better price, I might be encouraged to buy every sports service that is on the dial because I kind of entered the system on basic but on a basic service thematically directed at sports programming.

3509             That is just an example.  But to come back to the essence of your question, Mr. Chairman, we believe that with the requirements there, the BDUs would have to distribute those in one or multiple basic packages as they think does the best job for their consumers and, frankly, distinguishes them between the competitors who are also offering the same consumers basic packages.

3510             THE CHAIRPERSON:  I understand that but I just want to make sure I don't misunderstand you.

3511             CBC basically said you must offer a barebones basic package and you can have the enhanced basics that you were talking about, basic plus sports or basic plus films or whatever.  But there should be the opportunity for consumers to buy the barebones basic.  Do you agree with that?

3512             MR. O'FARRELL:  No.

3513             THE CHAIRPERSON:  No.  So it's leave it up to the BDU to package that the way they think the market will best receive it?

3514             MR. O'FARRELL:  Because at the end of the day, Mr. Chairman, representing the discretionary service providers that are in the Canadian Association of Broadcasters, the larger the basic package is, the better it is because more services are being packaged in a basic component than elsewhere.  So it just is better for the services.

3515             THE CHAIRPERSON:  Now in terms of access, you basically want to retain the status quo, if I understand your answer correctly.

3516             As you have heard me pose many times in these hearings, is there a logic of having a phase‑out date for saying, yes, we gave you access but that was to give you a leg up to be able to establish yourself, get your brand established, in effect, appeal to Canadians that here is something that is Canadian but it is just as good as the American, et cetera, but after a certain period ‑‑ we can argue what the period is, whether it is the licence period or five years or whatever ‑‑ you lose that guaranteed access because at some point in time you have to go out and face the world as it is?

3517             I have heard different answers from different folks.  So what is your answer?

3518             MR. O'FARRELL:  Our answer very clearly is phasing out access or any kind of a reduction of access is not the way to go and here is why.

3519             I think that everybody recognizes that there are many measures of success to the Canadian broadcasting system the way we have it now.  Most people who come to this country look at it and they say, how can we take some of or all of your solutions and bring them home.

3520             So while there is success ‑‑ and I think Mr. Rogers said it earlier this week ‑‑ the industry is still fragile.  So let's not get carried away with the success.  It has been developed through a variety of measures that take a small marketplace, Mr. Chairman, a small marketplace of 33 million people, the size of California, and look at the number of services.  We have 170 services, discretionary services, operating in that marketplace now.

3521             It would strike us that to begin to dismantle in whole or in part the essential measurements, such as access, would simply lead to impoverishing the system, reducing the diversity and ultimately reducing the number of choices that Canadians can have.

3522             Access is also tied ‑‑ and I will turn this over to Jay ‑‑ to the fact that it is through these services that we have called our core services, the analog services and the Cat‑1s, that the largest contributions to the system are made.

3523             Jay...?

3524             MR. THOMSON:  The end result or the end game of that kind of model where access is ultimately subject only to the BDU is that we are moving from a system where we have a high level of contribution from those services that are guaranteed access to a model that you have already established for those services that doesn't have guaranteed access, which is the Cat‑2 model, where we move from high levels of Cancon exhibition and CPE to a 35 per cent exhibition obligation and no CPE obligation.

3525             That is the model that we would be working to, whether it is immediately or in the future.  And that's not one that we think the Commission should be aspiring to.

3526             Bell suggested yesterday that consumers should be able to decide the fate of services and not the regulator.  We would reword that to say that consumers should be able to decide the fate of services, whether now or in the future, and not the BDU.

3527             The consumers, whether it is now or in seven years time with respect to a service, should still have the ability to go to their BDU and one‑stop shop and get the service they want and not have to go to multiple BDUs in order to get what they want.

3528             They should be able to get the services that you licensed to make a contribution.  That should not be up to the BDU to make that decision.

3529             There is no capacity issue here.  Those services that are currently getting access are obviously taking up capacity that is available.  Rogers, for example, has said in its written submission in other proceedings there is no capacity problem here whatsoever.

3530             So we can't suggest that it is going to be a capacity issue that will prevent access.

3531             What it really is, is an opportunity for the BDUs to take on a greater bargaining power.

3532             MR. O'FARRELL:  And I would add, Mr. Chairman, just to go back to the Act, priority carriage is one of those things that we find in section 3.  We find it in two places:  in section 3(1)(t)(i) and 3(1)(d).

3533             Access in that context is effectively an extension of the licensing process, because through the licensing process you become convinced that this is a service deserving of being added to the menu of Canadian services that already exist.  To do what?  To add diversity, to add choice and to make a contribution.

3534             Without the access component, we believe that you are short‑changing the bargain on the ability to make the contribution.

3535             We honestly would ask the question in these terms, or answer the question by asking a question, which is:  To what benefit would we remove access?

3536             What we have heard from others to date and what we have read in submissions essentially goes to what Jay was suggesting, which is BDUs are making this representation, in our view, simply to solidify their bargaining position with the service providers.

3537             It's not about providing more choice.  It's not about providing better choice.  It's about improving their position which, let's be candid, is already a dominant position.

3538             If you are a service provider, Mr. Chairman, where are you going to go to get access to the BDUs?  If you look at the makeup of our broadcasting distribution undertaking environment, which is a good strong partner for broadcasters if access is there ‑‑ if access is not there, it's a dominant player that holds all the cards.

3539             THE CHAIRPERSON:  But implicit in your answer is the very pessimistic assumption that Cat‑1s, once they no longer enjoy access, even if they are successful, will reduce the Canadian content of their CPE if they no longer have guaranteed access.

3540             Doesn't it really depend on how successful the brand is and whether it has managed to gain its support in the marketplace or not?

3541             I don't know why you automatically assume ‑‑ Mr. Thomson said basically the Cat‑1s, once they lose their access, will degenerate into a Cat‑2 level of Canadian content.

3542             MR. O'FARRELL:  Your point is absolutely accurate.  Why do we take that point of view?  There are two reasons fundamentally.

3543             Why would we tinker with a winning formula when there is no obvious benefit that we have heard or read in dismantling the system that is producing the contributions that currently are there?

3544             That too, in our view, stands as a self‑evident truth so far in this proceeding, from what we understand the positions of others, both orally and in writing.

3545             The second issue is we are in the context right now of a transition for the discretionary services from an analog distribution model to a digital distribution model.  And already, Mr. Chairman, even for analog services that had enjoyed high levels of distribution in an analog world, going to the digital platforms ‑‑ and we have the evidence of that now because the DTH platforms are digital.

3546             What do we see?  What do we observe?  And I'm going to ask Tara to explain perhaps just with a few examples.

3547             What we see is automatically lower penetration levels.  And with lower penetration levels in a digital environment flow the following consequences:  number one, of course lower subscriber fees; but also lower advertising revenue opportunities.

3548             So from that revenue base, there is no doubt in our minds that lower contributions will flow.

3549             If you don't mind, Mr. Chairman, we would like to give you one or two examples that are right there now.  In other words, we don't have to predict the future on digital.  We can see how it is taking shape before our very eyes.

3550             MS RAJAN:  Thanks, Glenn.

3551             As Glenn was saying, we can look at the DTH environment as a sort of proxy for what digital carriage in an all‑digital environment would look like for some of the incumbent analog services.  We took some data on subscriber levels for all of these services and put them into little baskets of services.

3552             For example, the English analog services combined penetration rate would drop about 10 per cent.  That masks such huge divergences as YTV whose 91 per cent penetration rate on cable would go down to about 45 per cent at a DTH carriage level; MuchMusic, 76 per cent penetration on cable, 50 per cent on DTH.

3553             In French, if we look at VRAK, cross Canada cable penetration of about 25 per cent; it's only about 13 per cent on digital.

3554             THE CHAIRPERSON:  I don't understand why.  Why would there be a lower penetration for MuchMusic on digital than on analog?

3555             MS RAJAN:  Those are the actual penetration rates.

3556             THE CHAIRPERSON:  I know you have given me the numbers.  I understand.  But there must be some explanation for why this would happen.

3557             MR. THOMSON:  I think the answer is that in a digital environment where there is more flexibility to put services in different kinds of packages, them packages and so on, there is more opportunity for consumers to take what they want versus what maybe they don't want.

3558             So by the nature of the technology, there is more opportunity for consumers to avoid services, if you will.

3559             THE CHAIRPERSON:  Okay.  Then let's go to genre protection.

3560             You have heard Rogers undoubtedly saying that really we should simplify genres.  Genre protection, as we all know, is a mess right now and it is very difficult to administer where one genre starts and the next one.  So they said why not simplify, have broad categories and let people move within them and sort of move their niche a little bit to the left or to the right, wherever they find it is more profitable, et cetera, rather than restricting them to the limited genres they have right now.

3561             They want to maintain genre protection but a more simplified one.

3562             I gather implicit in that assumption was also that Cat‑2s who want to become Cat‑1s, once there is a broader genre, may up their Canadian content and their CPE requirements so as to qualify as a Cat‑1 status.

3563             What do you think of that proposal?

3564             MR. O'FARRELL:  What we think of that proposal is that for the obvious imperfections of the current model, the proposed model would add what I would call more of the way of chaos than clarification of the imperfections that currently exist.

3565             It just raises a whole variety of issues.

3566             At least the way it was presented this week, and from what our understanding is ‑‑ and we may have misunderstood.

3567             Based on our understanding and our grappling with it and saying how would this work, we don't think it addresses ‑‑ we recognize the current model is not perfect, but we don't think it addresses any of the problems with solutions.  We think it puts the model into a more chaotic outcome likelihood than where we sit today.

3568             What we do believe, Mr. Chairman, is that the genre model that has existed in this country ‑‑ and again I'll go back to the economics of the size of the market.

3569             Genre has effectively been the vehicle, if you will, the measure to which the Commission has ascribed either demographic targeted programming or thematic targeted programming for a given constituency, and attached on to that exhibition and Canadian program expenditure requirements on kind of a side‑by‑side basis.

3570             So if you think of genre, you should be thinking I guess of a system where you have a linear menu of services that sit side by side each in their own genre.  We know it's not perfect but that was the construct.

3571             What it has developed is the capacity for those services to operate in the context of a small economic entity called the Canadian marketplace, with 11 or 12 million households, 10 million BDU subscribers, to draw from those limited baskets and actually become viable in a model that supports diversity.

3572             So number one is we say genre is your guarantor of programming diversity, is your guarantor of viewing choice diversity, is your guarantor of ownership diversity by way of the opportunity for new entrants to enter the market, as has been evidenced even in recent times.

3573             We believe that genre must be maintained with all of its imperfections because there is no suitable option that would produce the similar levels of contribution, of certainty or predictability that I believe this Commission is striving for.

3574             Sometimes I think we have to realize that while what we have may not be perfect, what we have may not be ideal, we are better to hold on to what we have than to move to an alternative under the sake of change for the sake of change, and the hope that it is better.  But where there is no such evidence that it will produce those benefits, we are better to stick with what we have and hold on to it.

3575             Jay has another number of factors that I think are deserving of some time to support our genre suggestion.

3576             Jay...?

3577             MR. THOMSON:  While we support the retention of an approach to genre, we do suggest that it can be relaxed in some respects in order to perhaps remove some of the burden that has been placed on the Commission to deal with some complaints that come in from time to time, as services complain that another service, a competitor, may not be operating within their genre.

3578             In that respect, we suggest that the Commission should focus on the nature of service of the Canadian service as set out in its conditions of licence, typically in Condition 1(a) of its licence, but not have to worry about what is often in Condition 1(b) or 1(c), which is the program categories from which the service must take its program.

3579             THE CHAIRPERSON:  Give me a concrete example of what you mean.

3580             MR. THOMSON:  If we look at TSN, its nature of service describes it as a service that is to offer broad sports‑type programming, but the programming from which it must draw does not include, for example, game shows.

3581             So going forward, it could offer a sports themed game show.  You wouldn't have to deal with a complaint, if TSN were to offer a sports game show, that it wasn't operating within its genre.

3582             That would remove some of the burden.

3583             It also applies to other services that are defined either by their demographic, like a Treehouse that's linked into its under‑six age category, or a Showcase that's linked into its drama‑type programming.

3584             THE CHAIRPERSON:  All right.

3585             MR. O'FARRELL:  You know, Mr. Chairman, just to come back to the economics again ‑‑ because I think that we always have to be guided by the realities of our economics.

3586             With the size of the market that we have, with the diversity of services that we have built that have enjoyed the success and by that success the contribution back that the system currently enjoys, you have to ask yourself the question:  Have other places with similar market sizes succeeded to do comparable things?

3587             We have looked around in preparing for this hearing, and we haven't found any.

3588             For instance, I like to use the comparison with California simply because if 33 million people is California, San Francisco is the French speaking market within Canada in terms of comparable sizes.

3589             You don't have an MTV California.  You don't have a Discovery California.  You don't have services that were constructed on the basis of an economic model of that size and that scope, nor for French on the size of a San Francisco, nor for California.

3590             I know that the example in the illustration has its limitations.  But it is just designed to say:  Are there other places that have been able to foster Canadian expression in all of these various genres in that kind of a limited economic marketplace?

3591             We haven't found any.  So we are suggesting to you, with all due respect to the views of others ‑‑ and this is a great dialogue and we are happy to be here to partake in it ‑‑ why would we be giving up on these success stories and on measures that have taken us this far when there is no evidence on the record that it's not working, when there is no evidence on the record that Canadians are clamouring for this, that or this other change that is being suggested?

3592             I haven't met too many people in the street who tell me genre protection's got to go.

3593             THE CHAIRPERSON:  Most people won't know what you're talking about.

‑‑‑ Laughter / Rires

3594             MR. O'FARRELL:  That's exactly it.

3595             THE CHAIRPERSON:  Fee for carriage.

3596             I see that you are leaving it up to your members, but then you mention something about distant markets.

3597             I have been sitting here and I've been very surprised.  I've been hearing the broadcasters' requirement that they be compensated for time shifting and distant signals, et cetera, and yet Rogers says it's a DTH problem; that we pay but the DTH don't.  And yesterday the DTH says Rogers is absolutely wrong; we also pay, et cetera.

3598             And both of them quote you as being the recipient of the funds.

‑‑‑ Laughter / Rires

3599             THE CHAIRPERSON:  So maybe you can tell me what is going on here.

3600             Is this distant signal an issue or not, in your view?

3601             MR. O'FARRELL:  There is no doubt, Mr. Chairman, that the distant signal issue is one of the critical issues that this proceeding will hopefully address in a very straightforward way.  And I believe we have a proposal.

3602             We, too, were taken aback a little bit with the difference of opinion on point as expressed but leaving aside what we feel was perhaps a little bit erroneous in the way things were represented.

3603             What we would like to focus on ‑‑ and I'm going to ask Wayne Charman to walk you through it, because Wayne knows this file as well as anybody in the country and probably better than most.

3604             What we are offering you in the end is a solution.

3605             The current situation is a situation that has gone on now for too many years between broadcasters and distributors arguing about valuation and compensation.  What we are saying is let's reset the dial.  What the dial is all about is program rights, and services by program rights should be entitled to see those programs rights enjoy integrity and respect in the marketplace; otherwise, we are undermining our business and we are undermining our system.

3606             So, Wayne, on the basis of a simple solution, we believe quite frankly that is elegant, efficient and effective, over to you.

3607             MR. CHARMAN:  Thank you, Glenn.

3608             You are quite right, Mr. Chairman, this debate which has gone on for about ten years can get very complicated and very confusing.

3609             Yesterday's discussion with Bell and Tuesday with Rogers was another example of how there is some light shed on the issue but a lot of confusion over it as well.

3610             Your current framework, simply put, doesn't work.  It hasn't worked for ten years.  It will not work; it cannot work.  I can go into lots of detail as to why, if you wish.

3611             Let me say that what we are saying today to you is that it is time to fix this problem once and for all.  I personally am tired of the debates about compensation and impact.  I'm sure the Commission is tired of hearing about this time and time again.

3612             We believe that the right solution is not a solution focused on impact and compensation but it is a solution focused on the underlying principle, which is that Canadian broadcasters acquire the rights to exhibit programming in their markets, and those rights should be respected.

3613             When distant signals are brought into those markets without their consent ‑‑ and sometimes it's their own network stations or mother markets ‑‑ then the value of the rights they have acquired are grossly devalued because the audiences are fragmented.

3614             So our solution is one that says going forward at let's say a point in time which you choose, no signal should be distributed outside of its local market without the consent of the broadcaster.  It's as simple as that.

3615             THE CHAIRPERSON:  The U.S. model.

3616             MR. CHARMAN:  It's very similar to the U.S. model which has been applied for 17‑18 years.  It's a simple approach but it restores the logic of the local licence, if you will, because it allows the broadcaster to have a say in where his signal is distributed.

3617             If you were to adopt that model, there is a number of advantages.

3618             First of all, it's simple.

3619             Second of all, you can eliminate all of the program deletion regulations that you have had in the BDU Regs for the past ten years and as you probably know have, to my knowledge, never been enforced.

3620             And third, it's a market‑based solution.  It takes you out of the game.  It is not, as Bell suggested yesterday, a regulatory solution; it's a market‑based solution.  It allows broadcasters to talk directly to the distributors and arrive at whatever arrangements they feel are appropriate to see those signals distributed into distant markets.

3621             The problem with the current framework ‑‑ if you will indulge me, I wouldn't mind just putting on the record a little bit of the background.

3622             THE CHAIRPERSON:  Only educate me why it doesn't work.

3623             MR. CHARMAN:  Okay.  It goes back to the DTH licensing decisions in the mid‑1990s, as I'm sure you are aware.  The Commission for very good reasons at that time wanted to ensure that DTH had a good chance to enter the market and become viable competitors to cable.  So they had a number of advantages.

3624             One of them was a new framework for distant signals, recognizing the nature of the DTH technology.  So the Commission essentially gave DTH access to distant signals that they could deliver in any market across the country.  This is something that cable really couldn't do up to that point.

3625             The only requirement or the fundamental requirement that the Commission placed on that distribution was a recognition of the underlying issue of program rights.

3626             So what the Commission did was institute a rule that said any programming that is brought into a local market that is identical to the programs broadcast by the local broadcaster must be blacked out at the request of the local broadcaster.  It is a fundamental protection.  That is the U.S. model.

3627             That's fine as far as it goes.  And if that had been the model going forward, we probably wouldn't be here today having this discussion.

3628             What happened subsequent to that was the Commission decided that program deletion ‑‑ and I understand why.  I was there at the time.

3629             The Commission decided that program deletion is not a terribly consumer‑friendly approach.  So the Commission encouraged ‑‑ and I'll use the word "encourage" in quotation marks ‑‑ strongly encouraged broadcasters and distributors to negotiate measures as an alternative to program deletion.

3630             So the negotiation of compensation agreements is not in and of itself the objective.  It's an alternative to program deletion; one or the other.

3631             The CAB heard that message loud and clear, and we did in fact in the early days, the late 1990s, early 2000s, negotiate compensation arrangements with ExpressVu and Star Choice.  And of course at that time the impact of distant signals going forward was anybody's guess.  We really didn't know.  It was the first time that this had been devised as a marketing tool by the distributors.

3632             The important point here, picking up on a discussion you had with Bell yesterday, the Bell representatives talked about a negotiated agreement between CAB and ExpressVu in 2002 that, in their view, forms the basis of today's compensation.

3633             That is a very serious misstatement of reality, to be honest with you.

3634             It is true that in 2002 the CAB arrived at a negotiated agreement with Bell, with Bell ExpressVu, that went a long way toward solving this issue.  It had carriage elements which ExpressVu talked about yesterday, and it had a compensation component, a very important compensation component that would have seen a fund of about I think $25 million, give or take ‑‑ I don't have the exact number in my mind ‑‑ to assist all local broadcasters across the country.

3635             That was the key element of that negotiated deal.

3636             That deal was subject to Commission approval.  Had it been approved, I think we would have solved 90 per cent of the problem.

3637             Bell yesterday said something to the effect that the Commission slightly modified the deal.  That's the understatement of the year.  The Commission took our $25 million fund and essentially scrapped it and replaced it with a very good idea, which is a small market local programming fund which is worth about four or $5 million.

3638             That was an excellent decision by the Commission to create the small market local programming fund as far as it went.  That helps 17 small market independently owned stations and has been of tremendous importance to those stations going forward.

3639             As you can appreciate, it does nothing for the other 80‑or‑so privately owned stations across the country.

3640             That deal then formed the precedent for subsequent deals.

3641             One additional example, if I may ‑‑

3642             THE CHAIRPERSON:  The effect was to reduce the $25 million ‑‑

3643             MR. CHARMAN:  About 25 to four or five.  It's about 20 cents on the dollar, something like that, if you will.

3644             So you can understand why in our view that outcome wasn't really a solution at all for anybody other than the 17 small market independently owned stations.

3645             At that time we were also negotiating with Star Choice for similar arrangements, and Star Choice for their own reasons decided they didn't want to proceed.  So they broke off negotiations.

3646             Our members thought it was appropriate under those circumstances to avail themselves of the protection that the Commission had put into the regulations, which was program deletion.  Because it's in your regulations, we assume that regulations will be enforced.

3647             So our members in fact started making deletion requests, specific deletion requests, as they were entitled to do with Star Choice, requests which were unfortunately ignored.  And the CAB got involved with the CRTC and complained.  You have a licensee who is not respecting regulations.

3648             That complaint, unfortunately, was really not addressed.  It was essentially ignored as well.

3649             Star Choice was able then to piggy‑back onto the nice deal that ExpressVu got.

3650             My only point is that there is a high sense of frustration amongst our members; that they have tried to work within the current framework.  They have tried to negotiate deals, and when they did they were overturned.

3651             They have tried to avail themselves of the protections inherent in the program deletion rules, and when they did they were ignored.

3652             Frankly, I think it's unrealistic to expect that in this environment we can ever arrive at a negotiated settlement that will solve this problem.  The only way to do that, in our view, is to adopt the simple principle that we are suggesting, and that is one of requiring broadcasters' consent.  That will then allow the marketplace to work.

3653             THE CHAIRPERSON:  Thank you very much.  I'm sure I am going to hear a different version of the same story from Star Choice when they come up.  But I'm glad to have one version.

3654             On fee for carriage, you have heard me in the last three days saying that it's not going to be a freebie.  If there is a fee for carriage, it should be earmarked.  Obviously the two areas of greatest concern to us are local content and Canadian drama.

3655             This is purely hypothetical here.  If the fee for carriage was earmarked in such a way, would it have your support, Mr. O'Farrell?

3656             MR. O'FARRELL:  We don't have support or opposition to provide to you because we don't have a collective position of our members.  The members in this instance, given the particulars of this concern, decided that the Association would not be the voice or the vehicle through which a position would be developed but that instead they chose to do so individually.

3657             THE CHAIRPERSON:  Okay.

3658             MR. O'FARRELL:  I do believe as a matter, just to come back if I could for 30 seconds to the response that Mr. Charman was giving, that after all is said and done and after one version is on the record and the other version is on the record, the fact of the matter is, Mr. Chair, we are in 2008.  This has been going on for ten years.  DTH launched ten years ago.

3659             It has created a problem.  We can argue about the magnitude.  And that's been part of the issue.  We've been arguing about valuation and from valuation flows impact and from impact flows compensation.  We can continue arguing about that for a long time to come.

3660             We think that the Commission originally, when DTH was licensed, set the rules very straight.  They said we believe in program deletion.  Unfortunately, the events that kind of tripped over each other created a situation where parties have been at an impasse.

3661             All we are asking is to go back to first principles and assert the right of the local station to require its consent before it's distributed in the distant market.  It will change the dynamic directly.  It will take the Commission out of this very difficult situation of hearing these stories one way or another and basically caught between the discussions of expert witnesses on what is the valuation that is appropriate based on this methodology or that methodology.

3662             We say this with all respect to the parties because we know that they are bringing forward what they consider to be credible, thoughtful, well reasoned valuations on impact.  But it hasn't produced an outcome.

3663             We don't want to be here in five or ten years from now with yet a larger problem because it hasn't been addressed.  It has gone on for long enough, we think.  Let's go back to first principles.

3664             THE CHAIRPERSON:  Go ahead.

3665             COMMISSIONER ARPIN:  Only a matter of clarification because I'm not sure I'm hearing well, because it seems to be two things that are said.

3666             When you are talking about consent from the broadcaster, you are talking about consent of the local broadcaster?  Say, we will take an example.  The Calgary broadcaster who will receive the signals of Vancouver, Toronto and Halifax or the consent of the Halifax or Toronto or Vancouver broadcaster that is going to be available in Calgary, consent of who?

3667             MR. CHARMAN:  Thank you.  I mean, a very important question and maybe I could illustrate it with a simple example, if you will.

3668             Let's say I am fortunate enough to have stations in five markets across the country; Halifax, Ottawa, Winnipeg, Calgary, Vancouver.  I have got a nice collection of stations.  I have commitments to local programming in each market and I have network programming which I share amongst the stations.

3669             Now, imagine that without my say‑so, no ability of me to say no, a distributor let's say here in Ottawa or Gatineau picks up my station in Vancouver or picks up all of my other stations and brings them into the local market.  I have no say on this.  What do those stations do?  Well, they fragment my viewing locally because it gives consumers the opportunity to watch a given network program at six o'clock, seven o'clock, eight o'clock.  You know the story.  It lowers my ability to generate advertising revenues in the local market and the increased viewing that I might obtain on my other stations in Ottawa cannot be monetized.  They cannot be monetized.

3670             Repeat that exercise in Halifax, in Winnipeg, in Calgary and in Vancouver and it starts to accumulate.  So I am losing money through an action of the BDU in importing my own stations into my local market without my consent.

3671             So our proposal is I should be the one to give the consent to have my Vancouver station brought into any other market or my Ottawa station into any other market.  It should be the originating broadcaster, the owner of the station.

3672             COMMISSIONER ARPIN:  But I'm not part of a major group.  I'm an affiliate in Peterborough and they want to bring my signal to Vancouver, Winnipeg and wherever.  Am I the one who gives the consent or is it I give consent that they bring the Vancouver or Winnipeg stations in Peterborough?

3673             MR. CHARMAN:  Our model is that the owner of the station being taken into a distant market is the one who must give the consent.

3674             MR. O'FARRELL:  The logic, Vice‑Chairman Arpin, is simply on the basis of program rights.

3675             If you go back to the originating station whomever it is, by whomever it is owned, by whatever group they belong to, you are going back to the principle of they acquire rights for a local market only and they should be the ones who either consent to their redistribution or not.

3676             THE CHAIRPERSON:  So in Michel's example the Peterborough station has to consent before the signal can be shown in Vancouver?

3677             MR. O'FARRELL:  That's correct.

3678             COMMISSIONER ARPIN:  Exactly.

3679             THE CHAIRPERSON:  Okay.

3680             COMMISSIONER ARPIN:  But they don't have to give consent to receive a competitor or the mother station, the mother network station?

3681             MR. O'FARRELL:  That does not follow the logic of the program rights from the originating station.

3682             So we are saying nobody can stand at the border of the marketplace.  It's really the originating station whose signal is distributed to whom consent ‑‑ from whom consent should be required.

3683             COMMISSIONER ARPIN:  Okay, thank you.

3684             THE CHAIRPERSON:  Okay.

3685             Back to question number five and the rights of BDUs to advertise.  You have these lovely words in here yet you agree to it:

"...however, not without a negotiated arrangement with broadcasters."  (As read)

3686             THE CHAIRPERSON:  What exactly do you have in mind by what is negotiated?  You obviously want a kind of sharing of revenues, I assume?

3687             MR. O'FARRELL:  We say that ‑‑ first of all, I think that it's clear the VOD does hold promise for the future.  We are all in agreement with that.  We don't know how much and to what degree and how exactly it's going to look like but there certainly seems to be a fair amount of positive outcomes that can flow from that if it is launched properly.

3688             I am going to ask Pierre‑Louis Smith to address this in a second.

3689             Our basic principle guiding us here is if the revenue comes in through the system, through programming undertakings, the way the system is conceived now about 30 percent goes to the system.  If a revenue stream comes through a BDU 5 percent goes to contribution.

3690             So we are suggesting that it's always in the interests of the system to get the larger as opposed to the smaller contribution as it currently exists.  That's number one.

3691             The second part of our rationale is program rights.  It's the same issue all over again.  It's like Yogi Berra.  The fact of the matter is, if the program rights are going to be made available on a VOD, or in this VOD platform will they be impairing the program rights of a licensed Canadian service on another platform?

3692             So there again we are trying to ensure that the contributions of licence service that acquire programming are not impaired; their capacity to make the contributions to the system are not impaired by viewing on the on‑demand platform.

3693             Those are the principles of our position; contribution and program rights.

3694             Pierre‑Louis, do you want to take it from there?

3695             MR. SMITH:  Thank you, Glenn.

3696             And therefore the principle is that the programming must come from a Canadian licensee, be it an OTA service or a Canadian specialty or pay service.

3697             Now, it's interesting that for the VOD platforms there is an application that has been gazetted by the Commission for a coming public hearing.  The application was filed by Wightman Telecom Limited for a VOD service to serve small local communities in southwest Ontario, if my geography serves me right.

3698             What they are proposing in this application is conditions of licence to allow them to show on VOD programs that would have advertising in it.  Currently, the VOD services are governed by the pay regulations which preclude airing of advertising.  So they are proposing conditions of licence that would allow them:

"To air advertising provided that the message was already included in a program previously broadcast by a Canadian programming service and;

(b) that the program's inclusion as part of the video‑on‑demand offering is in accordance with the terms of a written agreement entered into with the operator of the Canadian programming service that broadcast the program."  (As read)

3699             MR. SMITH:  We think that such conditions of licence would be in line with what we are proposing; in other words, respect the program rights.  So access to VOD programming by Canadian programming services and that only the broadcasters could advertise and insert advertising in VOD programming.

3700             Now, with respect to SVOD which is another way ‑‑

3701             THE CHAIRPERSON:  Hang on, stay with VOD.

3702             MR. SMITH:  Yes.

3703             THE CHAIRPERSON:  Only broadcasters can insert advertising?

3704             MR. SMITH:  Yes.

3705             THE CHAIRPERSON:  So what's the benefit of the BDU?

3706             MR. SMITH:  Well, the ‑‑

3707             THE CHAIRPERSON:  They are talking here about advertising rights of BDUs.  Under that model you just mentioned, as far as I can see, the broadcasters get another revenue stream from VODs.  I don't see where the advantage to the BDUs is.

3708             MR. SMITH:  Provided that there is an agreement between the service provider and the VOD operators there could be shared ‑‑ shared revenue.

3709             MR. O'FARRELL:  Our position, Mr. Chairman, is exactly what Pierre‑Louis said.  On the principle that the advertising should be the purview of the broadcasters, the broadcasters should be encouraged to enter negotiations to secure the VOD platform outlet.

3710             But it would be a different negotiation without that principle than with that principle, and we are suggesting that a principle is motivated and justified by virtue of the contribution ratio that we were referring to earlier.  If there is to be a sharing of revenue it should be on the principle that first and foremost you are sharing what the broadcaster brings to the table.

3711             THE CHAIRPERSON:  Okay, SVOD, what about it?

3712             MR. SMITH:  And with respect to SVOD we believe that it's absolutely critical that access or SVOD proposal or programming block be offered only by Canadian services, be it again OTA or specialty or pay services.

3713             Simply because, again, we need to ensure that the SVOD platforms won't serve as a backdoor entry for foreign services that are not already allowed on the eligible satellite list such as, for instance, an HBO video‑on‑demand service that could provide up to 40 hours per week or per month of programming whereas the service, HBO for that matter, has not been approved on the eligible satellite list.

3714             THE CHAIRPERSON:  But you are talking about Canadian licence holders, not Canadian programming.

3715             MR. SMITH:  That's right.

3716             THE CHAIRPERSON:  So a Canadian who holds the right to HBO content can then put it on VOD?

3717             MR. SMITH:  Absolutely.

3718             MR. O'FARRELL:  Which is currently the case with TMN On Demand.

3719             THE CHAIRPERSON:  Yes.

3720             MR. SMITH:  That's right.

3721             THE CHAIRPERSON:  Okay, and what about local avails?

3722             MR. O'FARRELL:  That is very simple.  We maintain the position that we have maintained in, I guess, two proceedings that the Commission has led on this, which is that the local avails should not be freed up for sale by BDUs.  We have said it in the proceeding in Calgary on Only Imagine and we said it before that in the proceeding that did not ultimately end up at a hearing.

3723             It to us is simply not a solution at this point in time that we would suggest is in the interest of the system.  And we don't understand what rationale would actually be served by it.

3724             And I think that Steve Armstrong can explain to you that the kind of revenue that would be derived from that if that were allowed, we are not talking about new revenue.  We are talking for all intents and purposes about fragmenting more so the advertising pie that is there.

3725             THE CHAIRPERSON:  We will focus on Mr. Armstrong after.

3726             Why the logic that you and the principles you have just so eloquently put on the table?  Why won't they apply to advertising and local avails the same way as on VOD and SVOD?

3727             You say it should be the Canadian licence holder and he should share it with BDUs.  Why couldn't you have that principle extend to local avails as well?

3728             MR. O'FARRELL:  I'm not sure how that would work, sir.  In other words the local avails in American services?

3729             THE CHAIRPERSON:  Well, a BDU doesn't get the American services from the States.  They only get it from a Canadian licence holder, right?

3730             MR. O'FARRELL:  No, we are talking about local avails on ‑‑

3731             THE CHAIRPERSON:  Oh, where they bought the record from Hollywood?

3732             MR. O'FARRELL:  ‑‑ on non‑Canadian services.

3733             THE CHAIRPERSON:  Right.  And that's why you are opposed to it, because the BDU ‑‑ you are saying if your BDUs sell those services there is no contribution to the system?

3734             MR. O'FARRELL:  And it's money that is not coming from some new source.  It's basically going to fragment what is an already very fragmented marketplace.

3735             THE CHAIRPERSON:  But do you have to go through those two pieces of category?  Couldn't it be subject to an increased contribution to the CTF or something like that?

3736             MR. O'FARRELL:  Well, we have looked at the economics of it both in the Only Imagine case and previously.

3737             THE CHAIRPERSON:  Yes.

3738             MR. O'FARRELL:  And based on the models that were being proposed there which did offer some mitigating effect, that still was a net loss to the system in our view and we believe that that's still the case.

3739             Steve, would you like to just add a few details on that, please?

3740             MR. ARMSTRONG:  Thanks, Glenn.

3741             Providing advertisers with additional opportunities to advertise on existing television services is really, in my view, analogous to introducing a new local television station in the market.  It doesn't encourage advertisers to increase their commitment to television.  It merely provides them with another opportunity to advertise.

3742             I think that if we think about the number of new television services that have been introduced since 2002 and we look at the share that television has of the total advertising market it hasn't increased.  In fact, over that period it's decreased by a point or so.

3743             So I think what we are talking about by providing advertisers with another opportunity to advertise on television is further fragmentation of what they would have already spent.

3744             THE CHAIRPERSON:  Is that necessarily the case if we were restricted to sort of targeted advertising as Rogers talked about that, you know, remember the example that they used with GM and the same people watching and one would see a truck and one would see a sports car and one would see this, et cetera.

3745             So thereby according to Rogers, growing the pie rather than just taking a slice away because you could now demand a greater premium from GM because GM would be sure that the audience they want to reach is actually being reached because the data that the BDU has allows them to target that precisely.

3746             And if the ‑‑ let's say advertising on local avails was made subject to some sort of sharing formula but more importantly it could only be targeted advertising all the time that Rogers talked about, which would be in effect increased advertising that isn't there right now, would your position still be the same?

3747             MR. O'FARRELL:  I think that ‑‑ well, for one we too were intrigued by that idea but we see it as a work in progress as opposed to a finality that we can ascertain exactly what it is they are talking about and where it would be drawn from and how it would work.

3748             There is no doubt that if there are ways, verifiable, measurable ways to bring more advertising into the system to serve the system and some new contribution drawn from some new revenue source we are not going to turn our backs on that discussion.  We would obviously look at that.  But we don't think we are talking about that yet because we think that that's still a work in progress that has yet to be fleshed out fully so that may be put on the table with clear identifiable revenue target sources, impacts and ultimately contributions.

3749             Steve, is that correct?

3750             THE CHAIRPERSON:  Here we are looking forward.  We have to ‑‑ we know that Rogers for one is spending a lot of money on this trying to develop it.  Other people are too.  We at the Commission have had representations from people who say that they can do it actually quite discretely, et cetera and without violating privacy laws, et cetera.

3751             I agree with you this all has to be worked out, but let's work on the assumption it has been worked out and it actually is doable.  Then, I gather, your position of BDUs using local avails for that type of advertising would change?

3752             MR. O'FARRELL:  Under that hypothetical scenario we certainly would have to look at changing our position to adjust to what would be a different picture than the one we have now.

3753             But absent that we are forced to say we have to go with what we know. And we have to go with what we have seen in the way of measurable impact on the system now, fragmentation, and basically as Steve has indicated just adding more competition for the advertising dollars as opposed to growing the pie.

3754             THE CHAIRPERSON:  Thank you.

3755             Michel, did you have any questions?  Yes, I'm done.

3756             COMMISSIONER ARPIN:  Thank you very much, Mr. Chairman.

3757             I want to come back to VOD.  I don't know if you had a chance to read the submissions that the A&E filed in this process where they are ‑‑ because they are describing how VOD is working in the U.S. and they are saying that the A&E:

"...currently provides VOD programs to cable operators in the U.S. through what is commonly known in the cable industry as a content aggregator."  "(As read)

3758             COMMISSIONER ARPIN:  Content aggregator ‑‑ I'm reading from their submission:

"Content aggregators facilitate VOD program delivery by transporting electronic files of programs to cable operators that aids in preparing these files for deployment."  (As read)

3759             COMMISSIONER ARPIN:  Obviously, that's an issue for the BDU, the way it's going to be working.  But my reading of their submission is that in the VOD of A&E the advertising that is prepared is put in the program by A&E, not by the cable guy obviously, and managed by the aggregator.

3760             Do you think a similar system could be implemented here where an aggregator will be making sure that the programs are delivered to the cable through VOD and manages on behalf of the broadcasters the distribution of VOD programs?

3761             MR. O'FARRELL:  I think that what we would respond to that is between that model, U.S., as explained in the A&E proposition or A&E submission ‑‑ pardon me ‑‑ and what we see evidenced in the public notice the Commission issued yesterday, two days ago by the small cable system, we think that they have it right.

3762             We think that what they are saying works in terms of an approach to the orderly introduction of VOD and the orderly elaboration of a system that would allow for the concerns that we have addressed ‑‑ the concerns that we have raised to be properly addressed.  I am not sure to what extent what A&E has said is operating in the U.S. either overlaps, intersects or doesn't with how this approach would.

3763             We can tell you certainly, Mr. Vie‑Chair, is that we see comfort and we are encouraged by that approach.  I'm not sure that we find it all there as A&E has submitted, not to suggest that what they are doing in the U.S. is right or wrong.  I'm just saying in terms of what we have seen here so far.

3764             COMMISSIONER ARPIN:  When I read ‑‑ and that's what I understood from the CCSA submission, and we can hear more about them today ‑‑ is that what they are proposing for their small members it's the implementation of such an operation with an aggregator who will manage on behalf of all the small cable systems the provision of VOD programming.

3765             MR. O'FARRELL:  If that takes the shape that ultimately results in the kind of Public Notice CRTC 2008‑13 ‑‑ I think it is ‑‑ 2008‑13 we see that approach taking shape in an encouraging format.

3766             COMMISSIONER ARPIN:  Now, A&E, because you have been talking about only Canadian service.  Now, obviously A&E did put in this submission in this proceeding because they want to have access to the VOD platform for their programming with their American commercials as they do now with their service that is carried by the BDU.  Do you have any problem with that?

3767             MR. O'FARRELL:  We certainly don't want to see more services added by what Pierre‑Louis was suggesting is the backdoor approach.

3768             Do you want to elaborate a little further on that, Pierre‑Louis?

3769             MR. SMITH:  What we see, Mr. Vice‑Chair, is that currently if we take Rogers' offering on VOD there is, you know, services that are authorized on the eligible satellite list like Playboy on‑demand, but we also see programming like our TV on‑demand which is not an authorized service and proposed something like 30 hours of new programming each month.  Well, it's like ‑‑ you know it's like a specialty service if you will.

3770             So you don't want to see, like Glenn was saying and I was saying earlier, a way for the BDUs ‑‑ even though we understand that VOD is an important platform and that will grow the business, we don't want to see VOD becoming another way to enter the system and offer programming that will be only Americans.

3771             COMMISSIONER ARPIN:  I hear what you say but surely you are not answering my question because I'm restricting myself to existing foreign specialty services that are available in this country.

3772             I invite you to read their submission.  It's not very long.  And you may make comments about their plan in the next step but they ‑‑ obviously, their claim is only regarding their own programming.  They say they are currently on some of the ‑‑ well, they say they are on Shaw, Rogers and Cogeco VOD platforms, while in the U.S. their programming is available within 24 to 36 hours after it's been broadcast in Canada.  Because of our current restrictions they have to put them on DVD and make them ‑‑ they are making them available only a couple of weeks after the broadcast.

3773             But I will invite you to look at that submission because it gives a lot of technical detail on the way and it may open up a door for the way Canadians ‑‑ BDUs could start initiating VOD distribution in this country.

3774             MR. O'FARRELL:  Mr. Vice‑Chairman, we undertake to provide you comments after we have studied this aggregator model that you have highlighted for us here in our written response in the next phase of this proceeding.

3775             One idea that crosses my mind just as we are thinking about this and talking about it in this context is the aggregator a Canadian aggregator that we would want to see?  Is there some kind of a role that we see for Canadian ownership in the aggregation process?

3776             So we will look at that and we will try to offer you some thoughtful ‑‑

3777             COMMISSIONER ARPIN:  Surely that's not something addressed here but of course ‑‑

3778             MR. O'FARRELL:  No, but that's what I mean.  We will look at it and pose questions.

3779             COMMISSIONER ARPIN:  But I could see that the word "aggregators" is plural here, so it means in the U.S. they probably are regionally based.  So they could be also regionally based here because the word aggregator is plural in their text.

3780             MR. O'FARRELL:  And that's exactly what I mean.  We will look at it and we undertake to provide you written responses in the next phase on that question.

3781             COMMISSIONER ARPIN:  Thank you very much, Mr. Chairman.

3782             COMMISSIONER KATZ:  Thank you, Mr. Chairman.

3783             I want to come back for a minute to the issue of time shifting and the notion that ‑‑ I think I heard the CAB say that the proposed solution would be to respect the rights of the licence holders and let them negotiate their own deal.  Why would a natural extension of that not be why limit it to distant signalling?  Why not allow it to happen for local signalling as well ergo you are moving into an environment of fee‑for‑carriage?

3784             I mean how do you stop it at distant signalling?  If you go that far why can't you just say, "Let the parties negotiate" and if the local broadcaster doesn't get what he thinks he deserves for it he simply says, "Don't broadcast my channel"?

3785             MR. O'FARRELL:  Well, I think the two are distinguished by way of the legislator's intent.  The local carriage and the matter of distant carriage are two very separate and distinct notions as far as we are concerned.

3786             What we are suggesting, Mr. Vice‑Chairman, is that the distant signal model that originated out of the framework for the introduction of a new distribution platform called DTH for all intents and purposes, if you can allow me to simplify it on those terms, while well intended, while replete with great outcomes in mind and many good outcomes were produced by the DTH platform and its introduction by way of additional subscribers and new contributions and so on and so forth, the fact of the matter is this has ended up producing a very large, unintended consequence in our view, in creating this imbroglio between BDUs and signals who are distributed on a distant signal basis in terms of compensation and evaluation and impact.

3787             And we are saying, "Why would the Commission want to allow this situation to perpetuate itself when it has an opportunity here to reset the dial, go back to first principles on the very point that was in that DTH policy originally" and that was the respect of program rights.  We stop there because we think that that is essential.

3788             As to carrying over that thinking or that logic to any other part of the system including local and local, we don't have the position on that.  Our members in terms of a fee‑for‑carriage or that whole discussion have chosen to bring their positions forward individually.  So we stop at that point where the distant signal discussion ends and where other discussions may ensue.

3789             MR. CHARMAN:  Could I also add to that, on that point of the distinction between local and distant, I would be guided by the Broadcasting Act on that score.  We have already referenced section 3.1.t.i.:

"Distribution undertakings should give priority to the carriage of Canadian programming services and in particular to the carriage of local Canadian stations."  (As read)

3790             MR. CHARMAN:  It doesn't say distant stations.  It says local stations.  So I think there is a big distinction there.

3791             COMMISSIONER KATZ:  Let me take this one further step then.

3792             I think I heard Rogers on Tuesday talk about the fact that one alternative to the issue of time shifting is VOD where you can actually access the news or whatever it is at a different time.  Under your model again, on your VOD model, there is still negotiations taking place between the broadcaster and the BDU provider.

3793             In cases where there is local content here as well in a local environment you are still saying there should be negotiations that take place for the VOD platform but not for the original broadcast which is still local, the same broadcast.

3794             MR. O'FARRELL:  Well, we are saying that if you adopt the idea of going back to first principles as it applies to distant signal distribution and if there is some potential solution to the distant ‑‑ to the time shifting issue that is available by way of VOD platforms, the negotiation that would flow from going back to first principles and requiring services to provide their consent would carry over into the negotiation on VOD.  And therefore, I think that it's just a continuum.

3795             But just to be perfectly clear, the VOD issue should not ‑‑ or the VOD opportunity and it probably is a useful opportunity.  I don't want to dismiss it.  We should not be distracted in this discussion by that opportunity.  We should be looking first and foremost at the essential issue. which is Canadian signals are currently distributed on a distant signal basis and have produced this longstanding conflictual relationship that should be resolved and we think that we have given you a very useful way to do so and to pull yourselves out of this impact evaluation versus impact evaluation versus compensation discussion by simply saying we reassert the local station's right to ‑‑ the local station's entitlement to provide its consent prior to its distribution on a distant signal basis, period.

3796             If that carries over into some VOD discussion, tant mieux.

3797             COMMISSIONER KATZ:  Okay.  Can we come back to your answer to question number 3.  I want to focus on the piece of it that talks about the reference where you are opposed to opening up genre protection, not only from non‑Canadian services, which we talked about and I understand, but from other Canadian services, and the reason you give is to ensure Canadian TV viewers continue to benefit from the broad array of programming diversity in the system.

3798             I don't know how that would be compromised if the genre protection was opened up within the Canadian system.

3799             MR. O'FARRELL:  Well, that is what makes these discussions so fascinating.

‑‑‑ Laughter / Rires

3800             MR. O'FARRELL:  We see the completely different picture.  What we see, Vice‑Chairman Katz, is basically a situation that without genre protection there is an incentive to move towards the middle.  There is an incentive to be relieved or released or to abandon a genre thematically defined, demographically defined, and move to the middle.

3801             COMMISSIONER KATZ:  But isn't that where the genius of Canadian marketing comes in?

3802             MR. O'FARRELL:  No, the genius of Canadian broadcasting comes into the fact that we have created over 170 services, discretionary services that are now up and running in a market of 33 million people.  That is the genius.

3803             COMMISSIONER KATZ:  But if there is a market there for specialty programming, people will stay there, they are not going to leave where their roots are, where their money is but they will follow the money.

3804             If there is an opportunity to broaden that out, as long as it is within the Canadian system, why should a group of regulators sit here and make a decision to say, you can't provide broader services?  All within the context of meeting, what you said earlier, the 30.5 percent contribution back into the system, it is still going back into the system, it is still Canadians that are doing it.

3805             Why should we be the ones deciding where Canadian broadcasters should be focusing their attention?

3806             MR. O'FARRELL:  For a number of reasons, beginning with the statute that guides this Commission and that has taken this system where it is now is fundamentally a social and cultural statute.  It is not an economic statute.  It is not a statute that introduces in section 3 that market‑driven conditions are the operative element of the system.  It is those 40 or so sometimes contradictory objectives of the Broadcasting Policy itself.

3807             It is the very ‑‑

3808             COMMISSIONER KATZ:  But that policy ‑‑

3809             MR. O'FARRELL:  It is the very fact that ‑‑ if I may continue ‑‑ it is the very fact that we have created 170 or so services that are up and running, exist and for which the viewership has shown Canadians are watching in growing numbers.

3810             Why would we be compelled, which is why I guess this discussion is so fascinating ‑‑ why would we be compelled to walk away from all that and say, there has got to be a better way and say, just because we want change for the sake of change or we are seduced by the remarks of some of the intervenors who are well intended, who say, market forces should decide?

3811             We are not in a market force‑driven statute environment.  We are in a cultural and social statute‑driven environment, number one.

3812             Number two is we have built this up with a tremendous amount of success.  Why would we just walk away from that and say, this doesn't matter anymore or let's try to do things differently, let's go into the laboratory but let's not take some sliver of reality as our template, let's put the whole system in the laboratory?

3813             We don't think that that makes any sense.  We don't think that Canadians would continue to watch what they are watching if it were structured differently like this because suddenly we want to try something out.

3814             What we suggested at the outset, and I think that we feel that BDUs are entitled to give flexibility in their packages, this whole idea of basic basic, multiple basics.  Let them define themselves with minimum requirements.  Let them define themselves with access requirements, one‑to‑one linkage requirements on the preponderance rule.

3815             Because we believe, I think like the Commission articulated, that there should be two preponderance requirements:  a preponderance in the number of services offered and a preponderance in the number of services received with this one‑to‑one relationship to ensure that happens.

3816             We can't understand why we would walk away from this.

3817             COMMISSIONER KATZ:  But you are also saying that within the closed box of Canada ‑‑ I am not going outside of Canada ‑‑ within the closed box of Canada there needs to be oversight as to what programs Canadian‑produced, Canadian‑broadcast programs should be limited to in terms of their sphere of scope?

3818             MR. O'FARRELL:  No.  And I will ask Jay to jump in.  In fact, one of the ideas that we have articulated in the genre protection discussion was take away the program categories and Jay was giving an example of that.

3819             Jay, do you want to expand?

3820             MR. THOMSON:  Well, just going back to the Treehouse example where we have in the broad Category of Children's, we have YTV that serves youth, we have a Treehouse that serves a specific demographic that might not otherwise be served if we were to allow either broad categories of genres or no genre protection whatsoever.

3821             We have other kinds of mini‑genres within broader categories, if you will.  Within, say, the Drama Category we have a Showcase and we have a Space.  Would we lose the Space, so to speak, if we were to get rid of genre protection?

3822             The other thing is we have to look at it from a consumer service standpoint too.  Canadian consumers buy packages in order to get specific services because they want ‑‑ the young family wants Treehouse, the science fiction fanatic wants Space.  If their services can change at any time and they have already bought into the package, what does that mean to them in terms of their disruption?

3823             COMMISSIONER KATZ:  I think what I heard from some people in the last three days is BDUs would be foolish to change what Canadians want to see, so they wouldn't willy‑nilly change it anyways.

3824             MR. O'FARRELL:  But it is not their decision, it is this Commission's.  That is why we have a Commission that is operating within a regulated statute that has an obligation that has been carried out by generations of regulators, that has basically taken the system to where it is at now.

3825             I don't understand one proposition that many of the intervenors that you have heard so far ‑‑ well many ‑‑ a few of the intervenors that you have heard so far have suggested, which is change for the sake of change.  But where is the evidence that they have suggested to support that there is a need or a demand for change?  Have you seen it?  We haven't anywhere.

3826             THE CHAIRPERSON:  It just seems to me implicit in everything you say that we have a great diversity but we only have it because there is genre protection.

3827             If we remove genre protection, it will all ‑‑ in effect, the various specific genres will go to the area of greatest profitability and we will have a much smaller diversity and much greater homogeneity in specialized services?

3828             MR. O'FARRELL:  That is correct and I again would echo the sentiments that Mr. Rogers put on the record in this proceeding on Monday.

3829             For all of the success of the system, and we like to celebrate it and sometimes Canadians, you know, by their modesty, don't celebrate enough, but let's stop for a moment and take stock in the accomplishment here, it nonetheless is a fragile industry.

3830             We agree with that statement and with fragile industries or fragile situations I think that we should approach all change with care, and the kind of change that some of the proponents that you have heard so far have put on the table, without any evidence of the demand for change, put an awful lot at risk.

3831             COMMISSIONER KATZ:  I just feel that there are a lot of issues here that we have got to deal with and certainly the social and cultural ones are inherent in the Broadcasting Act and there is an obligation for all of us to follow that as well.

3832             But within that context, what can we do to make life easier for everybody, the programmers, the broadcasters, the consumers, the Canadians at large as well?  That is what we are trying to do here.

3833             MR. THOMSON:  Well, getting rid of genre protection might make life easier for the BDUs because they will have more opportunity to morph their own existing services into popular genres.  I am not sure it makes life easier for anyone else.

3834             COMMISSIONER KATZ:  Well, I think the issue of self‑dealing is a separate issue, dispute resolution, everything else, and we are focusing on that as well, absolutely.

3835             Those are my questions.

3836             THE CHAIRPERSON:  Thank you.

3837             Rita, I believe you had some questions.

3838             COMMISSIONER CUGINI:  Yes, thank you.

3839             Let's stay with your position on genre protection and based on the discussion this morning you force me to go back to my former life because as a programmer I would say that is great, I have got a nature of service I have to abide by and as far as program categories are concerned I can do just about anything I want.

3840             So does your proposition also include eliminating the restriction as a percentage on some of the categories?  As we know there are COLs that say you can only do 15 percent from Category 7 for this service.  So does your proposition include removing those restrictions as well?

3841             MR. THOMSON:  Our proposition adds some flexibility but not that much flexibility in the sense that to the extent a service is defined by its nature of service that includes restrictions on particular types of programming or positive obligations to undertake certain kinds of programming, those would remain.

3842             COMMISSIONER CUGINI:  But ensuring diversity comes from a combination of the nature of service and the restriction on certain programming ‑‑ the restriction of program categories, not on certain of them, but in your example, the TSN can't do game shows.  It was one of the ways in which the Commission could ensure that there was diversity even amongst specialty services that were in the same genre.

3843             So how does your proposal ensure that there continues to be diversity within the specialty services if now they can just about program anything they want?

3844             Because as we know, one of the criticisms of genre protection is that the lines are perforated ‑‑

3845             MR. O'FARRELL:  And we appreciate that.

3846             COMMISSIONER CUGINI:  ‑‑ and they are morphing and they are starting to all look similar, not alike but similar.  So it is really not an effective tool today.

3847             MR. O'FARRELL:  Well, I would suggest to you that it remains an effective tool but an imperfect tool, for sure, and we appreciate what you call the porous qualities of the demarcations, if you will, but we maintain that those demarcations, even in the narrative only of the nature of service description, is in of itself a mandate, is in of itself a mission.

3848             And as Jay suggested with the examples he gave, it does provide in certain instances some finite lines, perhaps not dark and fully ‑‑ you know what I mean, dark, big lines ‑‑

‑‑‑ Laughter / Rires

3849             COMMISSIONER CUGINI:  Solid.

3850             MR. O'FARRELL:  Solid.  Thank you very much.  But the fact of the matter is it still allows a service at the end of the day to distinguish itself from every other service most of the time fairly easily, maybe not in its entirety, one would argue, but in its materiality, it is.

3851             And I believe that is the question.  It is in respect of genre protection or genre as a definition, as to its impact from a materiality point of view, that we believe that it still is deserving of the support of this Commission because it is a useful measure for the reasons we have talked about.  I don't think you want to hear them again.

3852             But it is not perfect, we realize that.  We have looked at how could we provide you with additional measures or ideas that would improve on it.  We think that one is to take you out of the business of hearing a complaint about the game show that Jay was saying earlier.  That would make things easier.  It would remove you to a certain degree.  It is still imperfect but it is still better than anything else we can come up with.

3853             COMMISSIONER CUGINI:  VOD, only programming acquired from Canadian broadcasters should be made available, as you said this morning.

3854             Should we then take this as an opportunity to increase exhibition requirements on VOD?  Because Canadian broadcasters are the ones who have access to Canadian programming, they have the relationships with independent producers, why not increase the exhibition requirement that is currently set in the VOD Regs?

3855             MR. O'FARRELL:  I am not sure I follow that.  Go ahead, Jay.

3856             MR. THOMSON:  Well, my understanding of the obligations imposed on VOD providers relates to ensuring that within their library they have a certain percentage of Canadian shows.

3857             COMMISSIONER CUGINI:  That is right.

3858             MR. THOMSON:  So you could increase that percentage, if you will, to ensure that they ‑‑ I think it is 20 percent.  They could increase it to something higher.

3859             There is also an expenditure obligation and one of our positions is that VOD is a programming service and morphing into more of a programming service like other programming services and their contribution obligation should start to match those of other programming services in the marketplace.

3860             COMMISSIONER CUGINI:  So I guess the answer is yes, we should consider ‑‑ we could consider increasing exhibition requirements on VOD?

3861             MR. THOMSON:  Exhibition and financial contribution.

3862             COMMISSIONER CUGINI:  Okay.  On the issue of access, we heard Rogers on Tuesday say that it is very difficult to remove a service and in the most recent past they have maybe removed two or three.

3863             Would it make any sense to retain the must‑carry provisions but add a can‑remove provision for the BDUs?  So they would have to come to us and say, you know what, this service has 50 subscribers, look at the BBM Nielsen ratings, if it even gets rated by BBM, it is just not meeting any kind of market test and we therefore apply to be able to remove this service.

3864             MR. O'FARRELL:  I think the key in making a thoughtful assessment in response to your question would be understanding what the criteria for can remove would consist of and without knowing where that box would be or how that box would be drawn, I am finding it difficult to offer you a definitive answer.

3865             We could consider that in our reply submission.

3866             COMMISSIONER CUGINI:  That would be appreciated, yes.  Thank you.

3867             And then just one final question on your solution to distant signals.  How would this apply to DTH?

3868             MR. CHARMAN:  I think our solution applies equally to cable and to DTH.  So I am not sure if I understand the distinction you are driving at.

3869             COMMISSIONER CUGINI:  Well, the issue here is, of course, broadcasters are saying that DTH should carry all local signals.

3870             MR. CHARMAN:  Oh, I am sorry.  Yes.  Yes, absolutely.  We are saying there is a fundamental principle in line with the Broadcasting Act that DTH should move to what we have termed a local‑interlocal regime.

3871             COMMISSIONER CUGINI:  Right.

3872             MR. CHARMAN:  That is with respect to carriage in the local markets.  But again, carriage beyond the local market would still be subject to the consent of that broadcaster.

3873             COMMISSIONER CUGINI:  So if a ‑‑ okay, take me through it.  Would a subscriber of DTH in Red Deer be ‑‑ they would still have the obligation to carry the Red Deer local signal?

3874             MR. CHARMAN:  Yes.

3875             COMMISSIONER CUGINI:  And they would still have to get the consent from Global to carry their Vancouver signal or their Toronto signal, DTH would?

3876             MR. CHARMAN:  They would require consent to carry hypothetically the Vancouver signal outside of Vancouver.

3877             COMMISSIONER CUGINI:  Right.

3878             MR. CHARMAN:  That is right.

3879             COMMISSIONER CUGINI:  Okay.  Thank you.

3880             Thank you, Mr. Chairman, those are all my questions.

3881             THE CHAIRPERSON:  Thank you.

3882             Just to follow up on this one.  On the local, you said that DTH would be required to carry all local signals?

3883             MR. CHARMAN:  Yes.  We haven't discussed this this morning but part of our proposal with respect to over‑the‑air services is that in light of the discrepancy between the cable framework and the DTH framework, it goes to the carriage of local signals.

3884             Cable carries local signals within their local markets, DTH does not, and although they do carry a large number of local stations, they do not carry them all.  So we are recommending that there be a move towards full local‑interlocal carriage on DTH.

3885             THE CHAIRPERSON:  I understood from the DTH people that there is a capacity constraint, especially as they move into the HD world.

3886             MR. CHARMAN:  We are not unmindful of that and we are not suggesting that this should happen overnight.  We have done a little bit of research into what is involved and I know Bell put some numbers on the table yesterday but in terms of local private broadcasters, there are about 100 local private broadcasters in the country, of which ExpressVu carries ‑‑ to use ExpressVu as an example ‑‑ about 60 of them right now.  So there is a gap of about 40 stations that would need to be carried.

3887             It is a challenge, I admit that, but let me just walk through how we think it could work.

3888             Let's take capacity as it exists today and assume that capacity is frozen.  In reality it is not but let's assume it is.

3889             How would you put 40 channels on today without taking something else off?  You would obviously.  So you would have to look in terms of whatever other channels are available.  They have 50 channels of pay‑per‑view, for example.  They have numerous other non‑Canadian exempt services.  So it is a matter of assigning priority.  Where do local stations fall in that list of priority?

3890             More importantly though, going forward, we get into the technical changes that may yield capacity in the future.  There are new satellites coming on stream.  There are new technical advances in compression and modulation which will yield increased capacity.

3891             We would love to do a detailed analysis of that but we cannot and the reason why we cannot is that the information that ExpressVu and Star Choice filed early on in this proceeding, a large part of it is kept confidential for competitive reasons.  I understand that.  So we can't do the detailed analysis.

3892             But the point is capacity continues to grow, and therefore, we are suggesting that the Commission should weigh what priority it assigns to the carriage of local stations and as we go forward, as capacity becomes available, let's look at, for example, taking the local stations that aren't carried and let's start with those that serve the small independent markets.  There is still a handful of stations not carried there.

3893             Let's look at stations that are disadvantaged because they are not carried while their competitor is.  That is a very serious issue when a competitor gets carried on DTH and you don't.

3894             Let's look at station that operated in markets where there is a high penetration of DTH.

3895             You can prioritize these things and a plan can be developed.

3896             What we are suggesting ultimately is that when ExpressVu and Star Choice come back to you in about two years time for their licence renewal, in 2010, we will have a lot more information on the table in terms of technical advances.  There will be an opportunity, we believe, to develop a comprehensive plan which makes sense.

3897             So what we are asking you in part in the context of this proceeding is really to focus on the principle.  We think the principle is important and an implementation plan can be worked out.

3898             THE CHAIRPERSON:  But, Mr. Charman, my understanding is that roughly you need three times the amount of bandwidth for HD?

3899             MR. CHARMAN:  Clearly, HD is going to add to the challenge.  I mean what we are looking at today in terms of the analysis was based on the standard definition channels that exist today.

3900             Again, as we move forward, HD requirements will need to be accommodated as well.  We understand that.  But let's not assume that capacity is frozen, that there is no more capacity available.  Capacity will continue to increase.

3901             THE CHAIRPERSON:  Okay, thank you.

3902             Ron.

3903             COMMISSIONER WILLIAMS:  Good morning, Mr. O'Farrell and CAB panellists.

3904             If I heard you correctly, Mr. O'Farrell, in response to a question from the Chair about whether the community channel should be included in this new basic, I believe your position was no.

3905             Why does the CAB not think the community channel is an important part of a basic package on a going‑forward basis?  What is the reason for not thinking it should be included?

3906             MR. O'FARRELL:  I will ask Jay to fill in the details on this.

3907             I think that the answer begins with we understood the Commission to be looking at what should the minimum requirements for basic be.  So we were trying to take the most focused approach possible and we thought we should stop at these foundation services as we call them.

3908             We don't dismiss the usefulness or the service that flows from community channels or for that matter the contribution they make to communities on the many levels that they do but they just didn't seem to represent or to have the same status in terms of "foundation" services that the others that we do suggest meet the minimum requirements do have.

3909             MR. THOMSON:  In the end, we are flexible on that point.  If the Commission chooses or decides that the community channel should be on basic, then we are certainly willing to accept that.  We are just looking for more opportunities to create flexibility for the BDUs where it works in the system.

3910             COMMISSIONER WILLIAMS:  CATV or cable was ‑‑ Community Access Television was founded on the ‑‑ it was the foundation of the cable business, was the community channel, and perhaps it maybe just needs to be rejuvenated.

3911             MR. O'FARRELL:  Perhaps.

3912             COMMISSIONER WILLIAMS:  Yes.  Thank you.

3913             THE CHAIRPERSON:  Thank you.

3914             Michel.

3915             CONSEILLER MORIN : Merci.

3916             Si je comprends bien votre politique sur le genre, c'est le statu quo?

3917             M. O'FARRELL : Oui.

3918             CONSEILLER MORIN : Il n'y a pas de changement, on garde notre système parce qu'il est déjà extrêmement diversifié.

3919             En ce qui concerne l'accès au service de base, d'une façon générale, c'est aussi le statu quo?

3920             M. O'FARRELL : Si vous me permettez juste un commentaire pour qualifier.

3921             Ce qu'on constate, Monsieur le Conseiller, dans l'environnement actuel, où vous avez des services qui sont distribués et sur les plates‑formes analogiques et des plates‑formes numériques, les mêmes services ne bénéficient pas des mêmes niveaux de pénétration lorsqu'ils sont en analogique qu'en numérique.  Alors, on voit déjà une baisse de pénétration, et ça, c'est avec la réglementation existante.

3922             Alors, on prétend qu'il faut essayer de faire tout ce qu'on peut pour maintenir la force de ces services‑là dans un environnement numérique, qui, à toute évidence, change la donne du point de vue du nombre d'abonnés qui reçoivent le service.  Alors, on part avec l'idée qu'il faut maintenir ces mesures‑là.

3923             Pour ce qui est de l'accès, on considère que lorsqu'on regarde les services analogiques et les services de Catégorie 1 que ces deux catégories‑là ‑‑ on parle des services discrétionnaires ‑‑ sont de la taille de sorte que leur contribution, à toute fin pratique, au système mérite qu'eux aient cet accès pour l'avenir.

3924             C'est ça qui, en quelques mots, résume notre pensée là‑dessus.

3925             CONSEILLER MORIN : Mais, grosso modo, c'est le statu quoi quand même?

3926             M. O'FARRELL : Oui.

3927             CONSEILLER MORIN : Alors, ayant ces deux oui là, dans l'avis public, on disait bien, quand le Conseil a émis l'avis public, qu'on devait :

"Relying on market forces wherever possible, the Commission seeks to develop forward‑looking regulatory frameworks that are strategic, straightforward, flexible and equitable."

3928             Vous, vous êtes pour le statu quo, et on a entendu Bell hier, Bell ExpressVu, à qui j'ai posé la question, notamment, pour les services spécialisés... à qui j'ai posé la question, dans le fond, ce que vous demandez, c'est de nous remplacer, vous êtes le nouveau CRTC.

3929             Est‑ce qu'il n'y aurait pas un compromis qui respecterait, à mon avis, l'esprit de ça, c'est le compromis que je recherche, un compromis au niveau de l'accès des services spécialisés au service de base?

3930             Je pense que vous avez dû, sans doute, prendre connaissance, je l'ai expliqué quelques fois... encore, dans Cox, ce matin, il y a un article.  Est‑ce qu'un système de pointage qui reconnaîtrait le contenu canadien, les dépenses d'émissions canadiennes et le tarif de base du CRTC, est‑ce qu'il n'aurait pas un certain sens?

3931             Tout à l'heure, on a parlé de Treehouse.  Treehouse, qui est un canal spécialisé pour les émissions d'enfants, son contenu canadien, c'est de 70 pour cent, donc, 70 pour les fins de la démonstration, ses dépenses au titre d'émissions canadiennes, condition de licence, 36 pour cent, donc, 36, ce qui fait 106.  Son tarif, le tarif de base, c'est 20 cents.  Donc, 106 moins 20 cents, c'est 86 cents.

3932             Si le Conseil mettait la barre à 90 cents, il y aurait toute une motivation pour ce service pour enfants d'atteindre le contenu canadien et d'être sur le service de base.  Si le Conseil mettait la barre à 100 points, ce serait plus difficile, mais ce serait aux joueurs de décider.

3933             Autrement dit, m'inspirant de la déclaration de l'avis public du CRTC, qui recherche un cadre ou qui donnerait de la flexibilité au système, et j'assume que le genre, on garderait le genre, mais ça pourrait aller... si on devait avoir des familles de genres, le modèle pourrait s'accommoder.

3934             J'aimerais savoir si, au niveau du principe de prendre en compte l'intérêt du consommateur, tout en prenant en compte l'historique du CRTC... parce que tout le système dont vous semblez satisfait et qui a produit un certain nombre de fruits, on utiliserait toujours les mêmes chiffres.

3935             J'aimerais avoir des commentaires généraux là‑dessus.

3936             M. O'FARRELL : Premièrement, on a suivi la discussion que vous avez eue à ce sujet‑là avec d'autres intervenants, et on trouve que l'idée est intéressante dans le sens que ça nous amène à une réflexion, en toute candeur, que nous n'avions pas fait jusqu'à présent.

3937             Donc, répondre à votre question ce matin sur le principe ou sur plus que le principe m'embête un peu parce que, comme on dit en anglais, the devil is in the details, et je pense que pour vous donner une réponse raisonnée et appropriée, ça exigerait de notre part un certain nombre d'exercices pour aller le tester, aller vérifier, sonder un peu.

3938             Donc, ce qu'on vous propose, Monsieur le Conseiller, c'est que dans la prochaine phase, les répliques que nous soumettrons par écrit, que nous prononçons nos commentaires là‑dessus, après avoir eu le temps de faire ces exercices de réflexion là et vous offrir le fruit de nos réflexions.

3939             CONSEILLER MORIN : Merci.

3940             THE CHAIRPERSON:  Before I let you go, I think I would like to know your views on dispute settlement because many parties before us have raised it and few really ‑‑ I mean the general tenet so far has been that the balance of power between the BDUs and broadcasters is really out of whack and, therefore, a strengthened and enhanced the dispute settlement mechanism is necessary in order to ensure smooth functioning of them or as a stop‑gap or standby, a last resort for negotiations.

3941             So where do you stand on this issue?

3942             MR. O'FARRELL:  We like the final offer arbitration approach, and Jay can explain to you very briefly how we see that working.

3943             MR. THOMSON:  I can be very brief, because Astral has submitted a proposal on law for dispute resolution which we think has merit.  And that would be one that we would support, because we think it promotes the efficient and effective resolution of disputes, it is timely and gives the parties an equal opportunity to make their presentations and also encourages them to come together to try to find resolution between themselves before having to come to the Commission at the risk of having their separate position rejected in favour of the other one with no middle ground.

3944             THE CHAIRPERSON:  Okay, thank you very much.  I have read the Astral proposal, so I know exactly what you are talking about.

3945             So let us take a 10‑minute break ‑‑

3946             MR. O'FARRELL:  Mr. Chairman, if we may, we had asked that the Commission ‑‑

3947             THE CHAIRPERSON:  Oh, I apologize.

3948             MR. O'FARRELL:  We used a few minutes less in the opening because we would just like to package our closing comments.

3949             THE CHAIRPERSON:  I understand, Mr. O'Farrell, I knew your request ‑‑ that is fine, by all means.  You wanted to do a resumé, go ahead.

3950             MR. O'FARRELL:  Well, we would just like to bring some closure to our remarks and to do so I think it is appropriate, because we see this as a very important process.

3951             So we would like to conclude our presentation today, sir, by expressing again our appreciation for this opportunity to participate in this very important dialogue.  We take it very seriously.  And there is no doubt that we feel very strongly about the positions that we put forward here today.  But we also understand and we appreciate that you have heard and will hear many other voices throughout this proceeding with differing views.

3952             Canadians, as we know, have been debating broadcasting policy for decades and it is largely because we care a lot about radio and television.  And we sincerely consider it a privilege to be sitting in this room today debating how to take the best broadcasting system in the world and go forward and face the challenges that lie ahead.

3953             The public record of this proceeding is replete with evidence of success in accomplishing the objectives of the Broadcasting Act.  Frankly, we find no evidence to the contrary, even from those who suggest wholesale change.

3954             The simple fact is that this system is the product of hard work of generations of broadcasters, distributors and indeed regulators. Our journey to this point did not always unfold under sunny skies or over well‑paved roads, there were many many challenges along the way.  Challenges that would have severely crippled or compromised the outlook of the less committed, innovative and industrious group of builders.

3955             Instead, while both formidable and numerous, the challenges only offered more inspiration to those who believed in the vision of building a unique Canadian broadcasting system, a system of opportunity and inclusion of Canadian expression.

3956             Our broadcasting history has scores of examples of defining junctures, crossroads where very tough choices were required by this Commission or its predecessors as well as by broadcasting and cable pioneers.  When you look back it is really interesting to observe how at every crossroad it would seem that we encountered challenges relating to access, diversity and choice in one form or another, seems to be on our road all the time.

3957             So let me start by giving you an example.  Some will recall that the early days of cable many of the systems were owned by Famous Players or by CBS.  On the heels of the recommendations of the Fowler Committee in 1964 we found ourselves with the 1968 Broadcasting Act that said the system must be owned and controlled by Canadians.  Under its Chairman, Pierre Juneau, the regulator announced that all broadcasting undertakings, cable included, had to be at least Canadian‑owned to the tune of 80 per cent.

3958             That opened the door to Canadian cable pioneers like Ted Rogers, Henri Audet and Francis Shaw who became some of the first major system operators in the country by introducing Canadian control of what was, up until then, a U.S. right industry on the cable side.

3959             I am going to give you a second example of a time when our predecessors, yours and ours, had to stare down formidable challenges.  As late as 1980 there were still Canadians, believe it or not, who had no access to television at all. A CRTC‑appointed committee chaired by Vice‑Chairman Real Therrien was created to find solutions.  And the Therrien Report broke ground in two major areas:  first, Aboriginal broadcasting and, second, for encouraging the use of satellite television to reach remote communities.

3960             Well, with respect to Aboriginal Canadians, the Therrien Committee Report recommended that the CRTC issue a call for licences for native broadcasting, and what came out of that was Television Northern Canada, the predecessor to today's APTN which, as you know, reaches 10 million households and broadcasts in 28 different languages today.

3961             The Therrien Committee also urged the CRTC to issue a call for licences for satellite services to serve remote and underserved communities.  Shortly thereafter, CanCon was launched and quickly it became possible to extent cable services to 100 households.  And since that time, DTH has emerged as the essential component which it has become of our broadcasting system, today serving over 2.6 million subscribers across the country.

3962             And finally, there is a third example.  Throughout the 1970s cable operators had been pushing for pay‑TV in Canada.  The service was already available in the U.S., HBO had been launched in the early 1970s.  And by the early 1980s in Canada A&E that we were talking about earlier was available on cable in Canada.  In 1982 the CRTC under then Chairman André Bureau awarded the first Canadian pay‑TV licences.  However, it is interesting to note the Commission at that time was concerned, notwithstanding its licensing, that pay‑TV in particular would be a conduit for U.S. programming while undermining the financial base of Canadian television.

3963             Acting on the deliberate language in its pay licensing decision the CRTC set out and I quote:

"To use its powers under the Broadcasting Act to meet this challenge by fostering the development of a distinctive pay‑television system that will further the objectives of the broadcasting policies set out in the Act." (As Read)

3964             From those very decisive words was born the regulatory framework for Canadian specialty services, and we saw TSN and MuchMusic licensed two years later.

3965             And as a result of that framework, today we have access to 170 Canadian discretionary services operated by medium‑sized, large‑sized and small‑sized players in English and French and in 40 other languages.

3966             The only reason I refer to these examples, Mr. Chairman and commissioners, is to simply put this proceeding in context as we see it.  Here in 2008 in this room is yet another appointment with chapters of Canadian broadcasting history waiting to be written.  The history of the system is much richer in remarkable stories than time can afford me the opportunity to recall in their full details today.

3967             Yet, throughout the many accounts of how this tremendous broadcasting system's success story was built we find a common thread, we find a reoccurring theme, and that is that at the very core of our broadcasting system what we find is the inclusion and a voice for Canadians.  And so I leave you with this question, what is a people without a voice?  That is what your job is, is to ensure we continue to have one through our broadcasting system.  Thank you.

3968             THE CHAIRPERSON:  Thank you very much.  Your speech reminds me, this is the 40th anniversary of the CRTC, as you know, so ‑‑

3969             MR O'FARRELL:  You can have ‑‑

3970             THE CHAIRPERSON:  ‑‑ your little summary was a very apt resumé of what the CRTC ‑‑

3971             MR. O'FARRELL:  No attribution required, use it wherever you wish.

‑‑‑ Laughter / Rires

3972             THE CHAIRPERSON:  Okay.  Thank you very much.  We will take a 10‑minute break.

3973             THE SECRETARY:  I would ask the representative from the Canadian Cable Systems Alliance to come forward please.

‑‑‑ Upon recessing at 1109 / Suspension à 1109

‑‑‑ Upon resuming at 1128 / Reprise à 1128

3974             THE CHAIRPERSON:  Madam Secretary.

3975             THE SECRETARY:  Thank you, Mr. Chairman.

3976             We will now proceed with the last participant for today, the Canadian Cable Systems Alliance Inc.  And I would ask Ms Alyson Townsend to introduce her colleagues, after which you will have 15 minutes for your presentation.

3977             Ms Townsend.

PRESENTATION / PRÉSENTATION

3978             MS TOWNSEND:  Thank you very much.

3979             Good morning, Mr. Chairman, commissioners and staff.

3980             I am Alyson Townsend, President and CEO of the CCSA.  I have with me today Chris Edwards, our Regulatory Vice‑President and Harris Boyd, our Regulatory Consultant.

3981             This proceeding opened with this statement, that the consumer is in charge, because licensees will need to have the flexibility to react quickly and creatively to the opportunities and challenges they encounter.

3982             The Commission said:

"It is time to move away from the current detailed regulation and to take a revitalized approach to both distribution and discretionary programming undertakings that aims at reducing regulation to the minimum essential to achieve the objectives of the Act, relying instead on market forces wherever possible." (As Read)

3983             The objective, the Commission said was "to recognize the increasing autonomy of audiences and consumers, providing them with the greatest possible choice of services at affordable prices."  We could not agree more.  We applaud the Commission's courage and foresight in making those statements.  This fresh and pragmatic approach is exactly what the system needs.

3984             "If the regulated system is to flourish then it is essential," as the Commission put it, "that both programmers and distributors be encouraged to promote and publicize Canadian programming and that they have the flexibility to do so by the most effective means possible."  The way to do that, in the words of the 1994 cabinet order, "is through an increased reliance on market forces in a provision of facilities, products and services."  And the way to do that, as both 2007‑10 and the Dunbar/Leblanc report had made clear, is to create a simple light‑handed, smart regulatory framework coupled with effective enforcement tools.

3985             We endorse the Commission's expectation that parties arguing for continued regulatory intervention should provide a full rationale for that intervention with supporting evidence to establish that such an intervention is essential to the objectives of the Act.  The focus must be simplification of the Regulations so as to enable flexible, creative responses to market forces.

3986             Our submission today will focus on our recommendation for a new licence exemption for small independent cable systems.  We strongly believe that our recommendation will help both the Commission and small cable to continue to meet the objectives of the Act in the most effective way possible.  It is a simple and low‑risk response to small systems' challenges.

3987             Also, as you have requested, we will address specific points raised in the Commission's assumed distribution model.  In so doing, we wish to emphasize that, even with substantially complete exemption, certain aspects of the regulatory framework will continue to affect small systems.

3988             MR. EDWARDS:  CCSA strongly supports the concept of a single class of licence for all BDUs coupled with a new and substantially complete exemption from regulation for all small cable systems not affiliated with the major MSOs.

3989             The primary purpose of such a small system's exemption would be to enhance the flexibility of such systems, to package products in response to customer demand and to assist independent small cable systems with migration of programming services to digital so that they can recover capacity and use that capacity to offer more and different digital services.

3990             The proposed exemption would exempt independent small cable systems from application of Part 2 of the Act and, thereby, from application of the BDU regulations.  That would include exemption from the application of all distribution and packaging rules other than the requirement to provide a basic service to all customers, the requirement to provide priority programming and the requirement to deliver a preponderance of Canadian programming to each subscriber.

3991             CCSA's proposed exemption order has two application provisions as follows.  All cable systems not affiliated with or operated by a major MSO would be exempted under the order.  And no systems previously exempted under an existing small systems exemption order would inherit any new obligations as a result of the order.

3992             Accounting for the recent sale of Aurora Cable Internet to Rogers, for CCSA systems this would amount to exemption of some 20 systems that serve 160,000 subscribers or 1.5 per cent of multi‑channel households.  Our proposal would extend a more complete exemption to other independent cable systems that already operate under an existing exemption order.

3993             The Commission has already applied the definition of the class of BDUs to which this exemption would apply in its 2001 small systems digital migration policy and its 2006 digital migration framework.  In the migration framework the Commission defined a small system as being one that is not owned or operated directly or indirectly by Rogers, Shaw, Vidéotron or Cogeco without regard to the number of subscribers.

3994             CCSA submits that the definition used in those circumstances is a reasonable, supportable and sufficient precise definition of a class of undertakings to work as a basis for exemption.  That class definition is based on the fundamentally different economic circumstances and technical challenges that are faced respectively by the major MSOs and small cable systems.

3995             Exemption of such a class would be consistent with the wording and purpose of subsection 9(4) of the Act and with the Commission's policy for use of exemption orders as expressed in public notice 1996‑59.

3996             CCSA's proposed new small systems exemption order would have no negative impact on the achievement of the Act's objectives.  Rather, by removing the hurdles to digital transition that small independent systems currently face, such an exemption would facilitate the digital transition in many of Canada's smaller communities.  As such, the proposed exemption would assist the Commission in satisfying the objectives of the Act.

3997             Recognition of a new class of exempt systems is not by itself a complete answer. In the draft exemption order it has provided CCSA addresses other important issues as follows.  The draft order states the Commission's expectation that programmers will permit independent small systems to distribute their services, regardless of the technology used, at wholesale rates that are equitable in relation to the rates paid by the major MSOs.

3998             To make that expectation work we have also included a provision whereby the major MSOs cannot invoke contractual MFN provisions to demand the same special carriage terms and rates that are granted to independent small systems.  Independent small systems are exempted from currently applicable digital migration policies.  In particular, the existing tier mirroring requirements continue to be an obstacle to digital migration.

3999             All independent systems that currently are required to directed 5 per cent of gross revenues to Canadian programming must continue to do so.  But the full 5 per cent may be direct to local expression.

4000             And finally, exemption from licensing must not impair a BDU's right of access to the Commission's binding dispute resolution processes.

4001             Those are CCSA's submissions with respect to its proposed exemption order for independent cable systems.  We would now like to address briefly the fee‑for‑carriage issues raised once again in this proceeding.

4002             We have yet to see any compelling justification for such a fee.  We see on the record no evidence of a sustained downturn in conventional television's profitability.  Conventional television's profit margins are at least as good as small cable's.  Fittingly, we see no evidence of any fundamental change in circumstances that would warrant a change to the Commission's decision in PN 2007‑53 to reject the broadcasters' fee proposal.  Rather, conventional television's position has improved since that decision was made.

4003             We do not believe that the conventional broadcasters have met their burden of demonstrating subscriber acceptance of increased fees or that such fees would not adversely affect the health of the speciality services.  We do believe strongly that it would be improper to levy such a new tax on BDUs and their customers.  There is no convincing logic that leads to a conclusion that BDUs and the subset of Canadians that subscribe to BDU services should be the ones to fund the private commercial enterprises of the conventional broadcasters.

4004             In particular, small cable companies simply cannot afford to add a new cost element with no corresponding addition to product value.  The allegation that cable operators regularly raise their basic service rates does not generally apply to small cable.  If our members are forced to raise their rates they expect their customers to vote with their feet.

4005             CCSA Class 1 and 2 systems pay compensation to CAB for the use of distant signals.  We agree with the larger BDUs that the rates paid today overvalue the harm caused by such use.  As well, in relative terms, the impact caused by small cable's time shifting use is miniscule.  There should be no increase to the compensation rates currently in place.

4006             Should the Commission decide to adopt some form of fee‑for‑carriage we strongly urge that our proposed small systems exemption include an exemption from payment of such fees.  As is currently the case, exempt systems should not be required to compensate CAB for distant signals.

4007             MR. BOYD:  I would like to now address certain aspects of the Commission's assumed distribution model.

4008             CCSA supports regulation of the minimum offering of services on the basic service tier.  However, CCSA would have serious concerns with any regulated maximum number of services that may be included in basic.  We believe that BDUs should be as free as possible to design program offerings in response to consumer demand.  A BDU should be able to distinguish its offerings from those of other BDUs as a means of competitive positioning.  That ability should extend to the design of basic service offerings that respond to the demographics of the BDUs' markets.

4009             A regulated maximum offering that is less than what the BDUs currently offer on basic will cause serious disruption, particularly for small cable systems that offer a large basic service or an analogue‑only system.

4010             Campbell River TV Association, for instance, has currently over 50 services on basic for a price that arguably is probably the best programming deal in the whole country.  It would be a huge problem for Campbell River to break that basic package apart, adjust its other discretionary tiers and then have to resell those new discretionary levels of service to its angry customers and, I might add, to actually pay the cost of installing the traps to do so.

4011             We can't imagine a more destructive measure related to BDU service than that of depriving customers of the channels they are used to receiving on basic and then requiring them to buy a new tier of other discretionary services to get those channels back.  We wish to emphasize that every single customer loss is a major event to a small system.  It would be wrong to assume that such systems can absorb any level of customer losses.

4012             The assumed model suggests creation of guaranteed access for a limited number of core Canadian services that provide exceptional diversity to the system.  CCSA does not agree with that approach.  We submit that once the Commission recognizes access rights for a core group of services it will inevitably be bombarded with applications from others hoping to join the group. Frankly, we anticipate that that would evolve into something very like the dual and modified dual status designations that arose from the different licensing rounds of analogue services.

4013             The Commission's power under section 9(1)(h) of the Act is capable of dealing with any requirements for guaranteed access for any service.  CCSA considers that use of 9(1)(h) is a much better approach because it can be applied on a case by case basis and, therefore, demands a full justification for each regulatory intervention.  And secondly, it can be applied flexibly to create only the minimally intrusive intervention required by the specific case.  The standard applied to mandatory carriage applications should be high, that is it should be the same standard as set for 9(1)(h) applications in the digital migration framework.

4014             We wish as well to remind the Commission that every time it guarantees distribution access to a service it profoundly affects the balance of any commercial negotiation with that service.  For small systems, even as represented by CCSA, the negotiation effectively becomes a take it or leave it proposition.  As such, guaranteed access inflates prices, both to the BDU and to the consumer.

4015             Even with the small systems exemption in place as we propose, non‑protection limits the number of competing suppliers in the field and forces small BDUs to negotiate with sole‑source suppliers.  Again, the protection profoundly affects the balance of these commercial negotiations with the programmers and, again, the result is inflated prices to both us and the consumer.  We believe that this should be the fullest possible competition among Canadian services.  This is how the regulated system will match the already competitive offerings of the unregulated systems.  Consumers will benefit from such competition.

4016             The preponderance requirement is a reasonable form of cultural protection.  Again, however, simplicity and flexibility are the key issues.  The existing 50 per cent plus 1 requirement is sufficient for that purpose.  CCSA is particularly troubled by the suggestion that preponderance be applied at the package level.  This would amount to an even more stringent requirement than the existing one to one packaging rule.  As such, it would effectively negate any gains in packaging flexibility that this proceeding was originally intended to provide.

4017             Measurement of subscriber purchases at the package level to ensure preponderance at that level would be a substantial new administrative burden.  Such a requirement would be inconsistent with the objective of streamlined regulation.

4018             We agree as well that there should be some restriction on the authorization of non‑Canadian services that compete directly with Canadian ones.  Because this issue is largely about the protection of the Canadian rights market, the assessment should be based on the degree of overlap of programming that is identical to that carried by the Canadian service.

4019             CCSA emphasises the importance of the Commission's increased exercise of jurisdiction over foreign services.  They should be required to operate in a way that supports the Canadian system.  For small cable, this means that those services should be encouraged to assist in a digital transition by permitting migration of the services.  At this time, it is the foreign services that remain the primary obstacle to migration by small systems and so are holding up the digital transition.

4020             CCSA submits that those services should also be subject to the Commission's binding dispute resolution mechanism.  Within that framework, they should be bound to act in a manner that does not hamper the achievement of the regulatory objectives of section 5(2) of the Act.

4021             MS TOWNSEND:  To conclude, our top priority in this proceeding is a new substantially complete small systems exemption.  That exemption should include exemption from any requirement to pay wholesale fees to conventional broadcasters.  Such an exemption should apply to all cable systems, regardless of size, that are unaffiliated with the large BDUs.  Its key purposes will be the creation of additional flexibility for small systems and facilitation to digital by those systems.

4022             We wish to emphasize that no party to this proceeding has raised any serious objection to CCSA's proposal.  Rather, independent cable systems are almost completely under the radar, which can be illustrated by this room at the moment.

4023             That fact alone underscores the appropriateness of the proposed small systems exemption.

4024             Thank you for your time and the opportunity to make these remarks.  We would be pleased to respond to any of your questions.

4025             THE CHAIRPERSON:  Thank you for your presentation.

4026             On page 5 where you talk about the proposed exemption, you say the primary purpose of such small systems exemption would be to assist independent small systems in migrating programming service to digital so that they can recover capacity and use that capacity to offer more and different digital services.

4027             Can you explain to me?  I don't quite see the connection between the exemption and the migration to digital.

4028             MR. EDWARDS:  I think that goes back.  The first thing I would say is the issue with the current mirroring policy in the digital migration.  At this point we are still faced with a situation in which even the smallest systems have to move entire tiers of service if they are going to move.

4029             It also relates to the question of how services will be packaged once they are moved to digital.  The more freedom in packaging that is available, the more the small systems will be able to design a package that's responsive to consumers in their smaller markets.

4030             MR. BOYD:  If I might add, there is one element and that's the cost element.  Exemption from licensing is exemption from licensing fees, which is an important element in their cost structure.  And as we are proposing, it would be an exemption from all new fees as well.

4031             These companies have very difficult business models and high cost structures and any lower costs that they can have can be devoted to investment in initiatives like the digital platform.

4032             THE CHAIRPERSON:  Okay, I understand that point.  I'm not too sure I understood the first point.

4033             Are you saying that our present migration rules make it difficult for small systems to meet your customers' demands?

4034             MR. EDWARDS:  The present migration rules have evolved over time and have gotten closer and closer to liberal rules for small cable.  But the mirroring requirement and the consent requirement are still obstacles.

4035             I guess we are asking to get to the point where small systems at least can simply move services to digital without further process.

4036             THE CHAIRPERSON:  And on guaranteed access, if I understand you correctly, you are suggesting the present guaranteed access be abolished under 9(1)(h) and then you have a 9(1)(h) like proceeding for anybody who wants guaranteed access other than access to basic.  But the test would be the same.

4037             MS TOWNSEND:  That's correct.

4038             What we are suggesting is that there is no need for an access rule beyond the mandatory basic requirement.  That would effectively introduce the access commitment all over again.

4039             Really, it is not needed at this time.  There are Cat‑2s who have been introduced to the marketplace.  The larger BDUs carry at least 40 of them.  They have been very successful.  And they have shown us that reliance on market forces is reasonable protection for these services.

4040             THE CHAIRPERSON:  You heard Mr. O'Farrell who appeared just before you making an eloquent plea that the diversity of the existing system is based on both access rule and ‑‑

4041             MS TOWNSEND:  Yes.

4042             THE CHAIRPERSON:  You are willing to jettison both.

4043             MS TOWNSEND:  Well, you know, I don't see it ‑‑

4044             THE CHAIRPERSON:  You feel that is an over‑statement?

4045             MS TOWNSEND:  I don't see it as jettisoning.  I see it as an evolution.  What was described was an historical growing up of a system.  In the beginning, yes, protections were required.  It was a nascent, it was an infant system.  But it became a teenager and now it's an adult.

4046             I think to restrict choice, choice of the consumer who is asking for this, is I guess paternalistic.  It is an adult system now.

4047             The protections are no longer required.  We got to where we need to get.  And as an adult, if we want to grow and create, the less protection the better.  It's like an adult child.  It's time for them to leave home.

4048             MR. BOYD:  And there is one other element.  A number of people have spoken here in this forum about unlimited channel capacity.  That is certainly a fallacy in the systems run by our members.

4049             We do have limited channel capacity.  We have to make choices about what services we put on.  So if there are more services with guaranteed access rights than we have room, then others won't get on.

4050             We certainly would like to be able to put on many more Category 2 services, many more high definition services.  In fact, we really have no choice if we are going to remain competitive.  But we would like to make those selections based on what our market wants.

4051             MR. EDWARDS:  If I can just add, in terms of diversity and how the market will respond to that, it seems to me that the direction of the market has been towards more and more niche programming, both on the Internet and in the regulated system.

4052             In fact, what we see is many, many Category 2 applications for all sorts of very directed types of programming services, and we see those Cat‑2 services being carried.

4053             We gave you some numbers in our October 19th submission showing you the explosion of content on some of the small systems in our membership.  I was looking at those again last night, and Westman's Verdon system, which has just over 800 subscribers, has almost 30 Category 2 services on them.

4054             The other systems that we showed you had well over 30.

4055             The fact is that these services are responding to a demand in the marketplace for this type of programming.  They are being carried and they are being viewed.

4056             THE CHAIRPERSON:  Thank you.

4057             Michel, I believe you have some questions.

4058             COMMISSIONER ARPIN:  Thank you very much, Mr. Chairman.

4059             I know that you are going to come back a few times to the exemption order that you have been talking about in your presentation, particularly you, Mr. Edward, because I know it is a major thrust of your submission.

4060             Before starting to deal with some of the issues here, you are not considering EastLink as being an MSO for the purpose because in your oral presentation and in your submissions, you are restricting the MSOs to be Rogers, Shaw, Vidéotron and Cogeco.

4061             MS TOWNSEND:  CCSA does not represent EastLink for regulatory purposes.  So that would be up to the Commission to decide whether they regarded EastLink as a major BDU.

4062             COMMISSIONER ARPIN:  I see.  Regarding your exemption order, will you apply it as well to small DSL and small MMDS?

4063             MR. EDWARDS:  I think the intention has been to apply it to small cable systems and that follows on all of the decision‑making that has come before with respect to digital migration where those definitions have evolved.

4064             We are picking our definition out of decisions that the Commission has made in respect to migration.

4065             COMMISSIONER ARPIN:  I remember that you are referring to a 2006 Public Notice that the Commission did issue where they defined small cable systems.

4066             Obviously you are representing cable operators here.  And for the purpose of the exemption, what you are saying to me is it applies to the cable industry, not the other types of BDUs who are essentially in digital format.

4067             MR. EDWARDS:  That is correct.  And if you look at the draft exemption order that we submitted in our reply phase comments, it is defined as small cable, following on those Commission definitions.

4068             MR. BOYD:  And just to add to that, Commissioner Arpin, companies like MTS Allstream, SaskTel and Aliant are not small independent companies like the ones that we represent.  There is quite a distinction.  They may currently have a fairly small customer base on telco TV, even though it is growing rapidly, although all of them are now bigger than any of our members.  We certainly don't feel that they should qualify for this kind of an exemption.

4069             COMMISSIONER ARPIN:  Now in your oral submission this morning you were talking about Aurora Cable and you are saying it should remain an exempted service.

4070             Is that request made on behalf of Rogers?

4071             MS TOWNSEND:  I think that what we intended by that remark was to give you an idea of the numbers that would be impacted.  So Aurora Cable would not be part of the application that we are making.

4072             We just wanted to illustrate to you that after Aurora leaves CCSA, which they will, being purchased by Rogers, we are talking ‑‑

4073             COMMISSIONER ARPIN:  If approved.

4074             MS TOWNSEND:  If approved, that's correct.

‑‑‑ Laughter / Rires

4075             MS TOWNSEND:  We will be talking about 20 systems within CCSA.

4076             COMMISSIONER ARPIN:  Thank you very much for that clarification.

4077             At the bottom of page 8 and the top of page 9, you are saying the allegation that cable operators regularly raise their basic service rates does not generally apply to small cable.

"If our members are forced to raise their rates, they expect their customers to vote with their feet."  (As read)

4078             It is surely a true statement.  Where will they go?  They will go to DTH.  Isn't the DTH basic rate higher than your small cable?

4079             MR. EDWARDS:  Part of this goes back to the study we submitted a while ago.

4080             One of the things about the small cable systems is they tend to carry dramatically fewer services than DTH.  So the numbers in that CMRI study was that the average for small cable was about 62 services; the averages for the large cable and DTH were more like 118 services.

4081             It's not just the price proposition.  It's a full value proposition, and that gets tougher and tougher.

4082             MR. BOYD:  There are a couple of things here.

4083             Our smaller members tend to have fairly large basic services.  They don't have the number of discretionary tiers.  And some of them have basic only systems, in fact.

4084             So our rates aren't necessarily lower than DTH for basic service.  In fact, they are sometimes higher.

4085             The other thing you need to keep in mind in many of the markets that we serve is the problem of illegal satellite use is much higher out in rural areas where everyone has access to it.  And there we are competing essentially with free.

4086             The third problem is we have another issue with satellite subscription division; account stacking, if you will, which is an issue the Commission has dealt with, where one little six‑unit apartment building has one subscription and they divide the price by six.  That makes it very hard to compete with as well.

4087             There is a lot of that rampant in the markets that we serve, where everybody tends to know everybody.

4088             COMMISSIONER ARPIN:  And finally, my final question regarding your oral presentation has to do with page 10 where you are dealing with Campbell River TV and where you say that it has currently 50 services on basic and it is an analog basic service.

4089             Having a smaller basic service, you won't see it as an opportunity for him to launch digital, because he will have to go there?

4090             MS TOWNSEND:  And he has launched digital.  The point here is that if the Commission determined that there was going to be a mandatory number or a maximum number of basic services, then Campbell River may have to dismantle their current basic service and the customers will be charged for a tier where they previously got it as part of their basic cable.

4091             MR. BOYD:  And just one other thing.  Campbell River has actually quite a low penetration in digital.  So the possibility of moving services that have 100 per cent penetration up to digital, where they might have 15 or 16 per cent penetration, is very customer unfriendly or very costly to the customer to move to digital.

4092             So if you put them in analog, then it's costly to the company because they have to put in traps.

4093             So either way, it's not a good proposition for that company.

4094             COMMISSIONER ARPIN:  But you surely also heard that it is not a very good proposition even for Rogers in the analog world.

4095             MR. BOYD:  Exactly.

4096             COMMISSIONER ARPIN:  And they surely made the quest that whatever the Commission comes up with a solution, it applies only in the digital world and leaving alone the analog system at least, because it's a vanishing ‑‑

4097             MR. BOYD:  Exactly.  It would be a step in the wrong direction.  We don't want to do any more investments in analog.

4098             COMMISSIONER ARPIN:  Implementing traps and making significant investment, particularly for the smaller player.

4099             MR. EDWARDS:  We should probably add the point that a number of CCSA systems are basic only systems and dismantling of that analog basic would force them to create tiers anew.

4100             COMMISSIONER ARPIN:  Do you have an idea how many of your members are only having analog service, in terms of percentage?

4101             MR. EDWARDS:  I think we would have to undertake to answer that in our final comments with a precise number.

4102             COMMISSIONER ARPIN:  Are you talking the majority of your members or the minority of them?  I think it will help in better understanding.

4103             MR. BOYD:  I think we would want to do it for you two ways.

4104             It's probably quite a few member companies but it's not that many subscribers, because the larger ones all have a digital offering at a certain level of penetration.

4105             We can give you that information.

4106             COMMISSIONER ARPIN:  I am moving towards the questions that I had prepared for you today.

4107             The first one, I think in your oral presentation you have addressed it.  It has to do with the basic service and the size of that basic service and the issue of limited capacity compared to the major, the MSO.

4108             The Commission has put forward the notion of an all‑Canadian basic service ‑‑ and we will deal with it only in the digital fora because I understand well why the issue of analog is very different ‑‑ made up of local and regional over the air, one per network or per group, educational broadcasters of the province and 9(1)(h) services.

4109             Don't you think an all‑Canadian basic service will benefit your members in developing new and attractive packages of the remaining offering?

4110             I heard you saying that you agree with the small package but leave it to the market force to determine if it's got to be broader.

4111             MS TOWNSEND:  I think that our members are having enough difficulty just getting to digital, that what they need to be able to do in their markets is respond to the people they know in those markets and what they want.  Any further regulation on digital seems counter‑productive to that.  They have a tough enough job moving there and selling it than to be limited in what they can sell.

4112             COMMISSIONER ARPIN:  Some of your members may have only from 100 to a few thousand subscribers, and obviously in markets where they only have a few hundred subscribers probably they have a single offering.  They may have a pay service on top of that, but the rest everybody gets it.

4113             MS TOWNSEND:  That's why it's all the more important that whatever they put on digital is what their customer wants.

4114             MR. BOYD:  And we don't disagree with you, Commissioner Arpin, that we might want to do a fair amount of repackaging of what is currently offered on analog.  We can do that as long as there is no maximum or in fact minimum.  The more regulation you put on it, the more difficult it will be to design those packages.

4115             So if you say you have to have these services on basic ‑‑ you can have more, you can't have less ‑‑ then we have the flexibility to do that as we move to digital.  We fully appreciate that we will probably have a smaller digital package that might not be as small as you were suggesting a few minutes ago.

4116             MS TOWNSEND:  The other thing you might think about is the impact.  When we are talking about these small systems, we are not talking about systems that can contribute a huge deal to these Canadian services, these very robust Canadian services.  These are very small systems that in terms of the return that might be received, it would be negligible.

4117             That's why it is our position that these systems should be allowed to respond to market forces.

4118             MR. EDWARDS:  I just wanted to say, in response to your question, the small basic you are suggesting might well be an opportunity for some systems.  I think it is important not to restrict them in some cases from doing a very simple large basic offering as the response to their customers' demand.

4119             COMMISSIONER ARPIN:  In the Commission description that we are dealing with an all‑Canadian basic service, meaning there will be no four‑plus‑one services, only Canadian, do you have any comments to make on that?

4120             That is a proposal that has been put on the table for the purpose of this public hearing, so it's time to say what you have to say.

4121             MR. BOYD:  Well, we will.

‑‑‑ Laughter / Rires

4122             MR. BOYD:  We would certainly be concerned with any restriction that would require us to remove the four‑plus‑one U.S. services from basic, and in fact other services as well.

4123             You have to keep in mind the kinds of markets we serve.  The demographics are quite different.  It has affected our approach to digital.  We essentially have a somewhat older demographic, lower income.  We have lower cable penetration.  We have smaller communities with lower density.  And as I mentioned earlier, we have a higher propensity to use some of the illegal services.

4124             People get used to having things in a certain way.  It has been a real barrier to us to try to push digital because people don't necessarily want a digital box in their home.  They are quite comfortable with analog as long as it's a good signal.

4125             People will expect, based on our experience, that in digital it may be a different technology but they will still get mostly the same services that they have now.  And if we start playing around with it, well, now you don't get the U.S. four‑plus‑one on basic or now you don't get say The Weather Network, or whatever.  We know the reaction we are going to get.

4126             So I would be very cautious about forcing a change which is really unnecessary, in our opinion.

4127             COMMISSIONER ARPIN:  In your submission ‑‑ and I'm referring you to paragraph 23 of the October 19th submission.  And I'm stating you:

"In CCSA's view, the regulatory question is not which sector of the industry shall suffer for the benefit of another but rather how can regulatory adjustment best contribute to the growth of the industry as a whole and fulfilment of the promise of digital technology?"

4128             Could you expand on that statement from the perspective of the small cable operators?  What are you trying to aim with that statement?

4129             MR. EDWARDS:  I think the point here is that, like everybody else, small cable operators find themselves more and more facing competition from various unregulated platforms.

4130             Our point of view really is that the task at hand is not do you take from one side and give to another in the regulated system but rather how can the regulated system respond in a positive way to the competition it faces as a system?

4131             That goes back to, I think, that growing pie proposition that we've heard a couple of times.  It's a question of looking for ways to improve the product offering that the customer receives and to improve the commercial opportunities that arise in the context of offering those improved products.

4132             COMMISSIONER ARPIN:  I note that in that section you are also dealing with HDTV and the availability of HDTV signal for small cable systems on one end.

4133             Can you explain to us what are the main issues regarding HDTV?  Is it a technological issue?  Is it access?  Is it cost?  Is it all of those that are intertwined that are a problem for your members?

4134             MS TOWNSEND:  It is all of those intertwined.

4135             Probably one of the key issues is access.  It was interesting to hear ExpressVu or Bell talk about this yesterday; how they had resolved the problem really by allowing everybody to come pick up the signal at 151 Front Street.

4136             Well, that does not help our members who are in B.C., who are in Newfoundland.  We need to be able to access those signals over satellite.  However, the cost of doing that is prohibitive because the programmers are not paying uplink to either of the SRDUs.  We have to pay additional costs for HD over and above the cost of the signal itself.

4137             So for small systems, they pay doubly.  They pay the increased fee, the increased subscriber fee for HD, and if they are not able to interconnect and they need to get it over satellite they will pay an increased fee there as well.

4138             COMMISSIONER ARPIN:  We will have an opportunity to deal ‑‑ unless you want to immediately deal with the issue of SRDU and interconnect where you are suggesting that you will be exempted from having to deal ‑‑ that your members have to deal with an SRDU, deal with whoever is able to provide them with the signal.

4139             I know that is what you are suggesting and you are requesting that you will be exempted of having to absolutely go through the mechanism of SRDUs and ‑‑

4140             MR. BOYD:  One of the problems for our members is that because of the hit system and the digital authorization provided by Shaw Broadcast Services, virtually all of them rely on Shaw or Star Choice for their SRDU signals.

4141             The second issue is that that service offers a lot less HD services than ExpressVu does.  ExpressVu has made that decision, a wise business decision on their part.  They carry a lot more HD.

4142             Unfortunately, in our markets we have to compete directly with them but we can only compete to the extent that we can get those signals from Star Choice.

4143             Any opportunity for us to get signals elsewhere, either from a major MSO who is able to provide that feed via fibre, will help our offering.  We essentially need the flexibility to get the signal anywhere it is available.

4144             The big MSOs have the great advantage, as Alyson was saying, that they can get direct access to the feed.  So we have to pay to actually have it transported.  We have to pay for the equipment to receive it on the ground, and then we have to put it out over our network.  Our costs are already higher.

4145             If in addition to that it isn't even available at all, then we can't compete.

4146             Everyone knows these days that HD is the way of the future.  The people in our markets are buying those big television sets, just like they are in Toronto, and they expect their little cable company to be able to provide the services.

4147             COMMISSIONER ARPIN:  How are your members that are only making an analog offering able to compete with those HD services?

4148             MR. BOYD:  Well, keep in mind that these are the very small systems that only have analog today.  We are talking systems with less than a thousand customers in most cases and in some cases only a few hundred customers.  They are struggling.  There is no doubt about it that systems that small that can't go to digital, that can't introduce high speed Internet, are having a very, very tough competitive problem.

4149             The reality in the small cable business is that broadband service is keeping them afloat.  Our broadband services are subsidizing our broadcasting services, subsidizing the upgrades on our network.

4150             And fortunately our entrepreneurial spirit of our members has allowed them to bring broadband into communities with two or three hundred people.  They put a lot of effort into that, but that has allowed them to develop a two‑way plant.

4151             So many, many of them now have digital.

4152             But I totally agree with you.  If you don't go digital, you are not going to be around.

4153             COMMISSIONER ARPIN:  For long, at least.

4154             MR. BOYD:  That's right.

4155             COMMISSIONER ARPIN:  You also addressed in your oral presentation the whole issue of preponderance.  We heard over the last couple of days the various approaches towards preponderance.