Canadian Heritage Committee on April 20th, 2009

[Carole Lavallée, Bloc, Saint-Bruno—Saint-Hubert, QC]

The two main problems you seem to be having are Canadian content and audiences, who are not tuning in enough. Is that right?

[Colette Watson]

I would say yes, Mrs. Lavallée. We are mostly concerned with the requests for financial assistance that we receive from cable companies. There is no reason for it. For the most part, these companies are profitable. Over-the-air television should not be separated from specialty television. The major television stations are strong enough to deal with the various economic situations in the country. The issue of Canadian content has nothing to do with our position on giving the industry a financial helping hand.

[Carole Lavallée, Bloc, Saint-Bruno—Saint-Hubert, QC]

Why do you say that they have nothing to do with one another?

[The Chair, Conservative, Gary Schellenberger]

Thank you, Ms. Lavallée.

We move on now to Mr. Angus, please.

[Charlie Angus, NDP, Timmins—James Bay, ON]

Thank you.

I'm very pleased that you wanted to take the time to come today. This is going to be a very interesting session for us all. This is one of the committees where you'll find that all parties are actually trying to work to come forward with a coherent response to the various, and sometimes very different, views we're hearing.

Mr. Viner, I'd like to ask you about the terms of the commitments made when you purchased the CHUM group. In Vancouver we have 27.5 hours of programming; CKEM in Calgary, 31.5 hours of local programming; CKAL Calgary, 31.5 hours; Citytv, 29 hours; CHMI, 15 hours. The proposal you're coming up with now is for 20 hours, including 10 hours of news.

Given that you just bought the stations in 2007, don't you think it's kind of odd that you're unilaterally wanting to change the commitments that you made just two years ago when you purchased those stations?

[Anthony Viner]

Those commitments were made by our predecessor company, CHUM. Frankly, it was those commitments that put them into the financial difficulty they found themselves in and forced them to sell. We knew that we would operate those stations over the course of a year and a half before we were to have our licence renewals. The fact of the matter is—and I guess it's nobody's fault but my own—when we purchased those stations from CTV, we did it through publicly available information, and what we did not know at the time was the extent to which CHUM relied on its specialty services to amortize their costs. So when you took away those specialty services and were left with just the OTAs, the over-the-airs, it became increasingly difficult to operate them in that manner. In fact, CHUM, in 2006, had significantly reduced news in many of their stations. They had local programming, but almost no news.

[Charlie Angus, NDP, Timmins—James Bay, ON]

When you brought in your TV renewal application on February 23, you stated that local programming commitments should be evaluated based on the programming mandate of the OTA broadcast group and the financial health of the station group. In 2008 you had $11.3 billion in total revenue. You more than doubled your annual dividend to your shareholders. So to cry poor after buying those stations and say you want to now cut the local programming commitments when you are, as Rogers said, in the strongest position financially, organizationally, and structurally that you've ever been in, how you can justify cutting that local programming commitment?

[Anthony Viner]

Those numbers that you cited, Mr. Angus, of course relate to Rogers Communications, its wireless group and cable group. Rogers Media is a separate entity. But in any event, we are part of Rogers Communications.

What we are trying to do is build a station group that can sustain itself and not forever sustain nothing but losses. So we're trying to come up with a business plan that allows our stations to continue local service. Our application, as you pointed out, is to sustain local service, while others are trying to reduce or eliminate it.

[Charlie Angus, NDP, Timmins—James Bay, ON]

I guess what I'm hearing from you is the same argument you just used against the broadcasters. You said the broadcasters are making major money from all their speciality services and they want to pin it all on local, and then you turn around and tell me that local is losing you money, but don't count the other streams of revenue. You have record profits. You bought these stations two years ago, and now you want to cut local programming and still tell your shareholders that everything is fine.

It seems to me the public has a hard time believing that a company as smart financially as Rogers would have bought those stations without knowing what it would cost, and a year and a half later be trying to dodge those commitments.

[Anthony Viner]

Our position is that one of the things we are adding.... Local programming is one thing, but news is another. Our commitment is to add, of those 20 hours, a minimum of 10 hours of news. In many of those markets CHUM had eliminated news, and it's our intention to restore it. News is much more expensive to produce than other forms of local programming.

[Charlie Angus, NDP, Timmins—James Bay, ON]

Mr. Lind, you said in Maclean's on April 2 that if there was an increase for fee-for-carriage it would result in a massive reduction of customers and you would have to recalibrate your business model. The numbers that we're getting for fee-for-carriage run from $2 to $5, yet 30 days before you made that statement to Maclean's you increased your fees by $6 a month, and we didn't see a massive revolt of your customers on cable. Do I have my facts wrong?

[Kenneth Engelhart]

Yes. There was no $6 increase. Basic went up by $1.50; the tiers went up by $1; The Movie Network went up by $2. For all of those services, we added channels. We're spending a lot of money to add high-definition channels and video-on-demand channels, and customers perceive benefits from getting those channels. So you can't compare a rate increase associated with better service--

[Charlie Angus, NDP, Timmins—James Bay, ON]

So was that rate increase--just to be clear, before I get cut off here--directly related to increase in service?

[Kenneth Engelhart]

Our rate increases are related to increases in costs, but most of our cost increases do translate into added value to the customers, yes.

[Charlie Angus, NDP, Timmins—James Bay, ON]

Do you have a percentage on how much service people added in that $6 increase?

[Kenneth Engelhart]

Yes. We added high-definition channels at every stage along the way and we added on-demand programming as well.

[The Chair, Conservative, Gary Schellenberger]

Thank you.

[Phil Lind]

The other thing is Tony Viner does not ask for fee-for-carriage. That's a big difference between him and the other over-the-airs.

[The Chair, Conservative, Gary Schellenberger]

Okay.

Mr. Del Mastro.

[Dean Del Mastro, Conservative, Peterborough, ON]

Thank you very much, Mr. Chair.

Thank you to the witnesses for appearing here today. This is obviously the first opportunity that we've had--certainly that I've had--to have Rogers here in an official capacity and on the record.

I wanted to first express the profound sadness and my condolences on the passing of Ted Rogers, a truly great Canadian, a great Canadian builder, and somebody I know an awful lot of Canadians have an awful lot of pride in. I think today he'd be awfully happy with his beloved Blue Jays starting off the season at 10 and 4, so we can find some great joy in that, I think.

I was very interested in the graphs you brought today, Mr. Lind, and also some of the statements you made. I guess the issue around conventional broadcasting for me--and I've expressed this to the broadcasters, I've expressed it to the cable companies, and I've expressed it to the CRTC--is we have a system right now where we have free over-the-air broadcasting of these networks. That is not slated to change. The CRTC is mandating that these networks must continue to broadcast. In fact, they must upgrade that broadcasting, according to the CRTC, in a couple of years' time and still broadcast that free over the air. On cable and satellite, they're looking for that same product to have a fee attached to it, because they are experiencing financial difficulty. I'm sensitive to that financial difficulty and also to the challenges that this presents in local communities.

I guess my question for you is if I were to look at your case against it, isn't that the central issue as to why the logic is broken on a fee on cable or a fee on satellite when it's free, if you're not receiving it that way?

[Kenneth Engelhart]

I would agree with that, sir. The reason that people are attracted to cable is not because of the over-the-air television signals. The over-the-air television signals are available free over the air, and 10% of Canadians don't subscribe to cable or satellite; they just use rabbit ears or antennas to pick those signals up. What we see Global and CTV doing now more and more is also putting their most popular programming free on the Internet so people can get it free another way. So it's very hard for us to attract people to cable for things they can already get for free.

In fact, our struggle is to get people to stay on the cable system and not to desert it for over-the-air, which is becoming even more attractive with digital television. With digital television now, your antenna will pull in crystal-clear pictures, and we see people in the U.S. cancelling cable for that. So the regulatory bargain that the CRTC established was that you have to carry those stations anyway, the over-the-air stations, so give them the lowest channel positions, give them mandatory carriage, give them simultaneous substitution, and that way they can greatly increase their advertising sales. We think the regulatory bargain is a good one, but it's very difficult for us to pay those fees when it would just mean that people are going to cancel cable and get those signals for free.

[Dean Del Mastro, Conservative, Peterborough, ON]

It seems to me the relationship here is inherently intertwined. The television broadcasters need the cable and satellite companies to extend their reach. They need the automatic substitution. These things provide real value to the broadcasters. And you need their product. You need to have television stations broadcasting signals so that you have something to sell. It seems as if the relationship has worked. To me, you've brought in models that show the television networks have by and large been profitable. And this is a tough year; let's face facts. It's a tough year to look at anything and say this economic model is broken. I don't believe, personally, that the auto industry is permanently broken. I think it's going through a period of transition and will re-emerge profitable. I think that's true of a lot of industries.

So I'm just curious. This relationship has worked. You inherently need each other. But this is a fundamental change of the industry, isn't it?

[Phil Lind]

I think you're right. The system has worked very well over the years. There have been minor squabbles between the various elements, but overall the system has worked happily for everyone for a lot of years. This fee-for-carriage thing is new and different, and that's disruptive of the whole sort of commaradarie we've managed to have over the years.

We're just not going to pay it. We just think it is the most insidious idea. To tax people on something they get nothing for at all is just a crazy idea.

[Dean Del Mastro, Conservative, Peterborough, ON]

Okay, I understand.

Mr. Englehart, what's wrong with this statement? The cable companies are profitable. They're making good money. The satellite companies are making good money. They don't have to pass this on. As a broadcaster, you're making money off my back. I want a chunk of what you're making, and I want the CRTC not to allow them to pass it on to consumers. What's wrong with that? Why do you think there's something wrong with that statement? I believe in my local broadcaster and I want my local news. Maybe I think I'm already paying a fee for my local television station. They're already receiving something out of my cable company. What's wrong with what I've just said? What's wrong with that contention?

[Kenneth Engelhart]

First of all, I think Rogers in its forty-year history has made a profit for the last four years. We had 36 years where we were losing money and we didn't come complaining.

The struggle we have now, as the earlier questions pointed out, is to keep people on the system without going to the Internet and to keep them focused on television in an era where a lot of the stuff is available on the Internet. That requires huge investments by us. We have to bring in high-definition programming, which is widely available on Rogers, video on demand, so that people can watch what they want when they want, and inter—