Canadian Heritage Committee on April 20th, 2009

[The Chair, Conservative, Gary Schellenberger]

With that, this brings to an end our testimony here for this part of the meeting.

I thank our witnesses from Rogers very much for being so frank with the committee, and I thank the committee for their good questions.

We will recess for five minutes to change witnesses.

[The Chair, Conservative, Gary Schellenberger]

Welcome to the second half of our meeting this afternoon, pursuant to Standing Order 108(2), on a study on the evolution of the television industry in Canada and its impact on local communities.

For this hour, or till 5:30, we are meeting with Quebecor Media Inc. I will ask the president and chief executive officer, Mr. Péladeau, to please introduce his colleagues and make his presentation.

Thank you.

[Pierre Karl Péladeau, President and Chief Executive Officer, Quebecor Media Inc.]

Thank you very much, Mr. Chairman.

Thank you very much.

Members of the Standing Committee on Canadian Heritage, allow me to introduce my colleagues. To my left is Pierre Dion, President and Chief Executive Officer of TVA. To my right is Serge Sasseville, Vice-President of Corporate and Institutional Affairs at Quebecor Media.

Thank you for inviting us. We appear once again before you today to put into perspective a situation that we first brought to your attention on February 20, 2007. We are also here to ask you specifically to use all of your influence to force those in power to make the critical decisions that need to be made.

General interest television in Canada has deteriorated to the point where we now have a number of stations closing down and several thousand employees being laid off. It is unfortunate that it had to come to this before we all finally realized that the famous Canadian model was no longer working.

I have spoken in many different arenas for more than three years to warn authorities and stakeholders about the dire consequences affecting general interest television. Serious flaws in regulatory structures and the regulator's inability to understand technological evolution and just how seriously it is affecting the audiovisual landscape are a problem for general interest TV in Canada and everywhere else in the world.

Back in November 2005, I announced the end of television as we knew it to members of the Academy of Canadian Cinema & Television.

In April 2006, during a day-long event devoted to the main challenges of the small screen and hosted by Infopresse, a magazine specializing in media, I used the loaded term “technological tsunami” to describe the powerful impact of technology on traditional media, in general, and on general interest TV, in particular. We were already feeling the effects of fragmented audiences and dwindling advertising revenue then. It was clear that general interest TV was heading straight for a dead end. The red lights were everywhere, and the urgent need to carefully review our practices was already clear. I announced the end of costly series such as Vice caché, which, despite speaking to the heart of Canada's broadcasting identity, cost too much in broadcasting rights and fell short in advertising revenue—the only source of revenue for general interest stations. It was the hard line of the Canadian Television Fund that killed costly series such as Un homme mort, which were very well-received by critics and still managed to bring in large, although declining, audiences. Essentially, the CTF would not allow us to charge fees, which would have made it possible to continue broadcasting these programs on all platforms and thus, make the necessary investments worthwhile.

Back in 2006, during a hearing on the review of TV broadcasting policy, we asked the CRTC to put in place the conditions necessary to reset the balance in the Canadian broadcasting system in order to level the playing field between general interest TV, specialty channels and independent producers. The idea was to allow general interest stations to also charge subscription fees and such so that they could broadcast their programs on all platforms.

In 2007 and 2008, during a hearing on the Canadian Television Fund, we raised the same points before the CRTC. We stressed that general interest TV could not continue to bear most of the financial burden when it came to producing quality dramas, large-scale variety programs and the like, while meeting the discriminatory requirements of the Canadian Television Fund. We argued for the need to quickly introduce a new funding model, where the producer and the broadcaster shared the risks, and similarly, the revenue. We suggested directing our annual contribution to a new programming fund and increasing the amount to $30 million with a further yearly increase of 20%—representing an investment of more than $100 million over three years—while discontinuing our contributions to Canadian Heritage.

Also in 2007 and 2008, during a hearing on the regulatory framework review for distribution, we made the same arguments before the CRTC we had been making all along. We said that it needed to review and relax its regulations to promote the production of quality Canadian content and meet the needs of customers, who, more and more, were able to watch whichever shows they happened to be interested in, in the place and media format of their choice.

At the time, we showed that specialty channels had an advantage because of their regulatory status, which allows them to not only access advertising revenue, but also, and more importantly, to charge mandatory fees. This gives them tremendous advertising clout because they are able to offer multi-channel programming, which advertisers find very appealing. Together these channels dominate the market, while general interest TV watches its market share melt away like snow in the summer, even though it is the one that has to provide the lion's share of Canadian content. We proved that the regulatory obligations imposed on general interest TV and the associated costs in no way compare with the burden on specialty channels. We also showed that the situation is not tenable for much longer.

I repeated the same arguments before the CRTC during a triennial planning meeting in January 2008.

It has been more than three years since we first spoke about the issue, and unfortunately, we are seeing that everything is moving even faster than we anticipated.

Furthermore, apart from the many discussions that it has been a part of, the CRTC has not made any key decisions or undertaken any significant initiatives to avoid the looming disaster. What is worse, instead of tackling the problem now during the licence renewal hearings for general interest TV set to start next week, the CRTC chose to put off studying the real issue until 2010. There is no way to justify that approach given the current situation, so we urge you to intervene immediately to keep Canadian general interest TV from disappearing.

In order to survive, general interest TV needs funding and operating fee structures that are flexible so it can continue producing successful programs and broadcasting them on as many distribution channels as possible.

Even though we still believe that our proposal to direct our annual contribution to a new programming fund and to increase it to $100 million over three years would have been the best solution for the Canadian broadcasting system, we welcome the decision by the Minister of Canadian Heritage and Official Languages to set up the Canada Media Fund. It will help with the governance, funding and guidance problems surrounding the Canadian Television Fund. But we will still be watching to see how they implement the new fund and to ensure that general interest stations will finally be able to obtain the funding and fees that should be mandatory before they invest in worthwhile programming.

In the CRTC's June 5, 2008, report on the Canadian Television Fund, Commissioner Michel Morin expressed a dissenting opinion, which was appended to the report. Here are some of his comments:

The QMi proposal not only left more money for the other CTF beneficiaries but also represented a firm commitment to allocate more money than it allocates under the current CTF rules to the production of Canadian content, including notably a guaranteed amount for the production of dramas. Everyone came out a winner. There was more money for other broadcasters in the system and more Canadian content for TVA network viewers.

The cost of original programming weighs heavily on the bottom line of general interest stations but has almost no impact on the bottom line of specialty channels. They are less sensitive to ratings because they have guaranteed fee revenue.

In the French-language market, TVA is the only private broadcaster to invest heavily in producing quality drama series and variety programming. During the 2007-2008 fiscal year, TVA invested more than $116 million in Canadian programming.

To keep its place as market leader, TVA currently spends nearly 90% of its programming budget on original Canadian content, mainly on informative, drama and large-scale variety programs. Our audience performance numbers are excellent—30% of the market share, according to the latest BBM surveys for the current season, which is winding down. Last week, a record 3 million viewers tuned in for the finale of Star Académie. The program's Sunday gala shows drew even more viewers with an average of 2.4 million people watching, more than any other program broadcast in Canada.

At the time of their broadcast, all of TVA's dramatic series ranked among the top 30 most-viewed French-language programs. Generally speaking, they attracted a viewing audience of over one million. In the news category, our results have been equally exceptional. We systematically rank first in terms of our coverage of major elections or international events. Nearly three times as many viewers tune in to our news programming than to Radio-Canada programming.

We are disappointed that financial results do not offset all of the risks taken to ensure Canadian content. I'd like to draw your attention to some very telling statistics. In 2008, a total of $171 million was spent by general interest private television networks in Quebec to produce original Canadian programming, whereas French-language speciality and pay TV services spent only $125 million on this area, preferring instead to set aside substantial sums of money to purchase catalogues of programs previously shown by other networks, in most cases, by general interest television networks.

Unfortunately,earnings do not reflect the choice made by general interest television to invest more in original Canadian programming. In 2008, earnings reported by French-language speciality and pay television services totalled $121.7 million, whereas in the case of general interest television in Quebec, earnings reported totalled only 39% of this figure, or $47 million.

We inform our investors of all of the additional risks associated with our activities. The heads of Corus and Astral Media have been able to reassure their own investors that the economic crisis has had less of an impact on their overall results. In a press release issued on April 9, 2009, Mr. Ian Greenberg, President and CEO of Astral Media, had this to say:

The strength and resilience of these second quarter results are another illustration of the importance of having a diversified and balanced revenue mix under challenging economic conditions.

These companies can count on stable or ever-higher fees as a result of the sizeable investments made by broadcasters to increase their customer base. Over the last five years, Astral Media has distributed an average of $90 million per year to its shareholders, or nearly 13% of the group's earnings. Astral Media's earnings are double those of TVA. As such, investors consider shares in this corporation to be a better bet than shares in TVA.

In addition, Astral Media has the advantage of being able to use distribution networks in which it is not required to invest. Vidéotron has invested upwards of $1 billion over the last five years to enhance the performance of its network, in the process taking a considerable financial risk, especially given the current economic climate. According to its own annual reports, over the last five years, Astral Media has spent only $39.3 million on its infrastructures in the form of fixed assets acquisitions for television.

Canadian distributors make available to speciality channels a newly-paved highway to reach their customers, all the while allowing them to operate their businesses in the comfort of their own private reserve, safe from competition. New sources of financing are required to meet the overall needs of general interest television. The first source of such financing is the opportunities created by the expansion of the number of platforms. We have the possibility of recovering at least some of the advertising revenue losses suffered by general interest television by broadcasting content on all platforms. In order for this to happen, broadcasters must have the appropriate exploitation rights. TVA is looking to work with producers to negotiate and obtain such rights.

All parties must agree on the new realities of the television industry, as we saw happen last February when the Union des artistes reached a collective agreement with TVA that defines precise parameters for the use of content on all platforms. This partnership allows for the sharing of the revenues generated by these new platforms, instead of TVA having to pay in advance for operations that for the time being, do not look promising on the revenue side. The second source of financing must come from a rebalancing of the Canadian broadcasting system to allow general interest television to access fees for signal carriage.

There is no longer any need to prove that general interest television should have equal access to fees currently reserved for speciality channels. However, we object to the fact that the CRTC can set and impose these fees and that they are automatically added to the subscriber's bill. No sensible person would dare propose at this point in time that an additional financial burden be placed on Canadians to access services that are already available to them.

Instead, we are proposing that the system be rebalanced by allowing broadcasters, whether general interest or specialty networks, to freely negotiate the fee issue among themselves. A fair and reasonable fee for carriage would be more a function of the overall audience share and of consumer interest in the proposed service than a function of the price set out in business plans that were submitted several years ago to the CRTC and that bear no relation with today's reality.

I think we can readily agree that certain aberrations must be corrected. For example, it would be fairly logical if an all-news service like LCN, which enjoys a larger audience share that its rival RDI, had access to similar fees. That is not the case at this time. RDI receives one dollar per month per subscriber, whereas LCN receives on average only 46 cents per month per subscriber.

Lastly, let me say again that the CRTC must move quickly to deregulate general interest television. It must challenge the need for general interest television to resort to independent production and agree to view the license fees paid by general interest television as genuine investments that make it possible to exploit, over all platforms, rights to programs that it has made successful. The CRTC must revise its whole approach which involves taking action through quotas and so-called priority program selections and where investments by general interest television in content are often targeted and made primarily to comply with regulatory requirements.

For nearly 60 years, our business model has been rooted in an unshakeable faith in local content and culture. We make a very significant contribution to home-grown culture by supporting original production and disseminating it widely. Our subsidiaries broadcast and distribute content across the land on a full spectrum of media and platforms.

Quebecor media spent over $370 million on developing, creating, producing, broadcasting and promoting Canadian content in 2008, making it Canada's largest private producer of original content.

Thank you for your attention.

[The Chair, Conservative, Gary Schellenberger]

Thank you.

The first question is by Mr. Rodriguez.

[Pablo Rodriguez, Liberal, Honoré-Mercier, QC]

Thank you, Mr. Chair.

Good day to all of you and thank you for coming here. The committee's focus is primarily on the television industry. How are things going at TVA? Are they going well?

[Pierre Dion, President and Chief Executive Officer, Groupe TVA, Quebecor Media Inc.]

Good day. TVA is doing well, under the circumstances, for a variety of reasons, in spite of the fact that over the past five years, we have felt the effects of the tsunami that Pierre Karl spoke of earlier. This is evidenced by the decline in EBITDA. The trend is also toward lower earnings. However, because of a unique situation, this year, TQS's advertising revenues have actually increased. However, a general trend can be noted.

[Pablo Rodriguez, Liberal, Honoré-Mercier, QC]

This is interesting and I want to understand clearly. What concerns people is the impact on regional stations and on local content. You have been buffeted by the crisis. Like everyone else, you have to contend with lower advertising revenues. Are you affected more or less than others by this situation?

[Pierre Dion]

In terms of sponsors, we in Quebec are feeling the effects just like everyone else in Canada is.

[Pablo Rodriguez, Liberal, Honoré-Mercier, QC]

Are you referring here to lower advertising revenues?

[Pierre Dion]

We are experiencing a downward pressure on advertising revenues.

[Pablo Rodriguez, Liberal, Honoré-Mercier, QC]

You're almost sounding like a politician. Are you saying that revenues are declining?

[Pierre Dion]

Yes.

[Pablo Rodriguez, Liberal, Honoré-Mercier, QC]

In Quebec, in light of what happened with TQS, there are concerns that the situation will deteriorate in the regions and that television stations will shut down. Would you agree that things are going well with TVA and that it faces no similar worries?

[Pierre Dion]

Even though the focus appears to be on the problems in the regions, you have to understand that generally speaking, all general interest television networks are experiencing problems. If things aren't going well for general interest television in Montreal, Quebec City, Toronto or Vancouver, you can be sure that things aren't looking too good either in the regions. However, this problem is not unique to the regions. General interest television is facing structural problems. What exactly does that mean? It means that our costs are increasing and that are revenues are decreasing through fragmentation. There are many different ways for advertisers to sell their products. So then, revenues are declining, costs are increasing and earnings across the country, even in major urban centres, are declining. The same trends are emerging everywhere, whether it be for national or local advertising revenues.

[Pablo Rodriguez, Liberal, Honoré-Mercier, QC]

The problem is that the impact is often felt in the regions. I'm thinking here about CTV which is shutting down some stations, and about TQS. CanWest is dealing with problems of its own. We receive many calls, e-mails and messages from very concerned people living outside the major centres. This issue is important to them. I simply want to hear you admit that from your perspective, everything is going well.

[Pierre Dion]

You are right to say that people are concerned, but in the large centres, we're concerned as well.

[Pablo Rodriguez, Liberal, Honoré-Mercier, QC]

Fine.

Mr. Péladeau, I understand that you support the fee-for-carriage proposal. In your case, this would involve a transfer. Your company owns Vidéotron as well as TVA. Vidéotron would collect this fee from its customers and pay TVA. Therefore, there would be no impact as such on Quebecor.

[Pierre Karl Péladeau]

What interests and concerns us is the health of general interest television. That is what we have been saying for many years. The health of general interest television is tied to the health of broadcasting systems. With that in mind, we...

[Pablo Rodriguez, Liberal, Honoré-Mercier, QC]

...are prepared to support this proposal.

[Pierre Karl Péladeau]

Exactly.

[Pablo Rodriguez, Liberal, Honoré-Mercier, QC]

Previous witnesses have said that should the fee-for-carriage proposal be adopted, the customer's charges will increase immediately. If the proposed fee was 50 cents per month, would that mean that Vidéotron would automatically bill each of its customers an additional 50 ¢?

[Pierre Karl Péladeau]

I believe I made myself quite clear when I spoke about this proposal. We must leave it up to the different industry stakeholders to decide, through the negotiation process, the value of their respective services. We have made representation on several occasions to the CRTC. Eventually, we agreed to a transition period during which we would move from a highly regulated environment to one that is less regulated, where market forces and players will decide the fair values of these services.

In the past, as you are no doubt already aware—and this helped to stimulate the Canadian audiovisual landscape—royalty fees were paid to create specialty channels and to help them survive. Today, the reverse is happening. Specialty channels, the only ones to receive royalty fees, are reporting higher income from the operations than general interest networks. Their contribution to the Canadian broadcasting system, particularly in terms of investment in Canadian programming, is less significant. We want some balance to be restored to this equation. Just as royalty fees were important when it came to creating specialty channels, so it is that today general interest television networks are dealing with the harsh reality that they do not have the benefit of these royalty fees.

[Pablo Rodriguez, Liberal, Honoré-Mercier, QC]

Summing up, on listening to you, I get the feeling that you do not have much affection for the CRTC. Would you like to see the CRTC's mandate reviewed?

[Pierre Karl Péladeau]

You have to understand that the CRTC was entirely legitimate when there were few broadcasting channels. Television was regulated. Subsequently, after the war, we encountered...Today, things are different. People have different ways of staying informed and of entertaining themselves, notably through the Internet which cannot be “regulated“ in that it is not a geographically confined system that operates in a vacuum. It operates on a global scale. Given that the CRTC was created initially to geographically regulate a specific field, its legitimacy is becoming increasingly eroded. If this can be said of the Internet, then it is even truer for other distribution platforms.

As you know, we have invested substantial sums of money to obtain exploitation licenses for the third generation wireless telephone system, which promises to be a major platform for the distribution of Canadian content, a platform that will be, I repeat, impossible to regulate.

[The Chair, Conservative, Gary Schellenberger]

Okay, thank you.

Ms. Lavallée, please.