Canadian Heritage Committee on Feb. 8th, 2007

[The Chair, Conservative, Gary Schellenberger]

I'm sorry for the little delay here, but we like to make sure we have as many people here as we can for our committee.

I welcome everyone here this morning to our 33rd meeting of this session of the Standing Committee on Canadian Heritage. This morning we are entering into a little bit of a discussion with the Canadian Television Fund.

Pursuant to Standing Order 108(2) and our study on the Canadian Television Fund, I welcome our witnesses here this morning.

I would ask Mr. Barrett, please, to introduce his delegation.

Thank you.

[Douglas Barrett, Chair of the Board, Canadian Television Fund]

Thank you very much, Mr. Chairman.

My name is Douglas Barrett. I am the chair of the board of directors of the Canadian Television Fund. With me is Valerie Creighton, the fund's president.

To her right is Mr. Stéphane Cardin, Vice-President, Strategic Policy Planning at the Canadian Television Fund and

Kathy Corcoran, our director of research.

To my left is Mr. Michel Carter, Vice-Chairman of the CTF board's finance committee. He is also the former chair of of the finance committee, and, most notably, an independent director of the CTF board.

I understand we have ten minutes this morning. Do I have it correctly that you have in front of you the English version of our remarks?

[The Chair, Conservative, Gary Schellenberger]

We have that, and we have a partial translation. I thank our Bloc members for accepting that part of translation. Thank you very much for that. So we do have your brief.

[Douglas Barrett]

All right.

You may notice, just from the weight of our brief, that it will run long. We've been furiously editing it down to meet your shortened time requirements. If certain passages aren't read out as we go by, we'd like you to read them later.

Thank you very much for giving us the opportunity to appear before you this morning. This is an important moment in the controversy that has arisen in the past couple of weeks. As you know, there has been much press coverage in recent weeks focusing on allegations that the fund is a broken institution, calling for a complete restructure of what we are and what we do. From our perspective, we don't think the fund is the real issue before the committee at this time. But I'll come back to that in my closing remarks.

For the record, while we certainly believe the CTF can and should improve, we believe it's a healthy and strong organization, definitely not broken, as some have suggested. The CTF has evolved and will continue to evolve, transform, and improve itself on an ongoing basis.

As a practical matter, the CTF is a well-governed and well-managed institution. It is both program-effective in service delivery and cost-effective on the administrative side. It manages a considerable amount of public and private funding to the highest degree of fiduciary standards. It operates under broad policy guidelines contractually imposed, and under program objectives set by the Department of Canadian Heritage. Its results are subject to close scrutiny, and it is repeatedly found to be performing well in periodic examinations and reviews.

All of these statements are supported by the facts. We are pleased to be able to review these facts with you today.

The CRTC, as you know, first proposed the establishment of the cable production fund, the fund's predecessor, in 1994. It was established as a privately incorporated non-profit corporation. Once the policy supervision of the fund was transferred in 1996 to the Department of Canadian Heritage from the CRTC, the fund has operated under a series of contribution agreements with the department.

The contribution agreements contain approximately ten overriding policy directions that govern our operations. We have a list of them in the document we have provided to you. These policy directions look simple and straightforward to administer, but they are not. They are quite complex, and require a tremendous amount of expertise to figure out how to implement. That's why the CTF's governance structure was intended from the outset to bring the very best industry expertise to the table in the original CRTC public notice.

A 20-member board of directors governs the CTF, with nominees representing numerous stakeholder groups. The largest group of seats on the board is held by the department itself, with five. Until recently, the board included senior officers from both Shaw and Vidéotron, who have participated in our board meetings for a number of years.

Good governance practices require conflict of interest management. Currently there are six directors on the board who are independent of any commercial connection with the television business. Together, the independent directors form a permanent independent committee that supervises and monitors an extensive conflict of interest policy.

In addition, and perhaps most importantly, all of the substantive policy and financial decisions of the board must be passed by a double majority of the independent board members and of the remaining stakeholder board members.

Mr. Chairman, I have been a corporate lawyer for over 30 years and a partner in a major Bay Street law firm for over 20 years, so I think it's safe to say that I know a little about corporate governance. I can assure you that the governance practices of the CTF match or exceed the best governance practices found in Canada's biggest public companies.

[Valerie Creighton, President, Canadian Television Fund]

So after the tax credits, the Canadian Television Fund is the largest funder of television production in Canada. In 2005-06 the CTF invested more than $249 million in Canadian production, creating 2,276 hours of quality new programming. In the past 10 years, the CTF has supported over 4,000 projects, contributed $2.2 billion in funding to the production of Canadian television, which has triggered $7.4 billion in production budgets.

This activity has generated more than 23,000 hours of Canadian content delivered in prime time to hundreds of millions of viewers. In 2004-05 the CTF distributed $251 million in funding, which supported $841 million in production, generating an estimated 22,400 full-time jobs.

In terms of return on investment, the CTF is far-reaching and impressive. In 2005-06, every dollar invested triggered $3.50 of production value. And these television productions are made in every region of Canada, developing both a creative and technical professionalism throughout the country.

Our funding is delivered by a rules-based program, including the market-driven broadcaster performance envelopes that we call BPEs and the special initiatives program. And importantly, in both of these programs the funds are paid directly to independent producers.

The BPE program was launched in 2004-05 and its intent was to provide a greater degree of funding predictability to both the broadcasting and production communities, which had been oversubscribed for a number of years. It was also intended to drive audience success by encouraging broadcasters to choose and support productions that would generate large audiences. The program supports under-represented genres on Canadian television in both official languages and prime time in the genres of drama, documentary, variety and performing arts, and children's and youth programming.

The envelopes themselves are based on four performance factors, including audience success, historic access to the fund, above-average licences by the broadcasters, and regional production licences.

In 2005-06, 65 broadcasters were allocated envelopes, which in turn supported 383 new productions.

In our special initiatives program, these programs include development, burgeoning French language outside of Quebec, and aboriginal languages. The latter two are on a selective basis to ensure regional and linguistic support, access, and programming.

With respect to audiences, since the early 1990s the number of new broadcast licences and programming distribution undertakings going to air in Canada has exploded exponentially. At the same time, according to Nielsen, the amount of viewing to television has changed little in comparison.

Despite an increased competitive environment, several Canadian programs have received more profile and attention than ever before, including many programs funded by the CTF. For example Little Mosque on the Prairie recently premiered on CBC with an average audience of over two million viewers. Subsequent airings of the program have stabilized with over one million viewers. Trailer Park Boys has a very strong recognition in the country and is consistently one of the top programs on Showcase.

Degrassi: The Next Generation is a cult hit in Canada, particularly among teens. It is on the verge of nearing syndication in the U.S.

Da Vinci's Inquest, currently in syndication in the U.S., draws three million to four million viewers per week, often winning its time period, and is now aired in over 100 countries around the world.

In the category of children and youth programming, nine of the top fifty programs in Canada among kids two to eleven are funded by the CTF.

[Stéphane Cardin, Vice-President, Strategic Planning and Stakeholder Relations, Canadian Television Fund]

With less competition from American sources and less fragmentation of audiences, the Quebec market has had tremendous success with its domestically-produced content. The CTF continues to play a very important role in sustaining the dominant position of Canadian-produced content in this market. Based on viewers aged two and up, 10 out of the top 25 regularly scheduled programs in the Quebec francophone market were funded by the CTF, including Le coeur a ses raisons, Annie et ses hommes and Casino.

Additionally, several successful CTF-funded French-language productions have won international acclaim, such as Insectia or L'Odyssée de l'espèce, or have been successfully sold nationally or internationally as formats. They include Un gars, une fille exported to more than 30 markets around the world and the first Quebec television program to be adapted in the United States. There is also Le coeur a ses raisons, which was recently sold in France, and Rumours, sold in English Canada and abroad.

As for critical acclaim, in 2005 almost half, that is 38 out of 75 Gemini Awards, were given to CTF-funded productions including, in English, Making the Cut, The Eleventh Hour and Beethoven's Hair. CTF-funded French-language productions received even greater critical acclaim. In 2005, almost two-thirds or 48 out of 74 Gémeaux Awards were received by CTF productions including Annie et ses hommes, Rumours and Ramdam.

[Michel Carter, Member of the Board of Directors, Canadian Television Fund]

Timely, consistent funding is crucial to the operation of the CTF, and its ability to support the Canadian television production community as mandated and required. As such, it has been the practice of the BDUs, as per CRTC circular 426, to make monthly contributions to the CTF. The entire CTF financing model is based on monthly cash flow injections from BDUs and payments from the Department of Canadian Heritage, combined with reserves and other contributions. CTF payments to producers happen throughout the year, according to the guidelines, and are critical to develop, maintain and complete Canadian productions.

The recent announcement and action of withholding CTF contributions by Shaw Communications and Videotron are significant and may have a potentially devastating impact on the Canadian production community, especially as April-September is the traditional production cycle and broadcast cycles—requiring new Canadian content—begin in September.

Deeply concerned about the industry's ability to manage a dramatic reduction at this critical time, the board has approved a financial plan that will enable the CTF to maintain financial support to all eligible productions for the remainder of fiscal 2006-2007, ending on March 31. This will ensure that all projects currently in application will continue to be processed and all genres will receive equitable treatment.

The following demonstrates the true impact on the CTF's funding due to the reduction in funding by Shaw and Videotron: for fiscal 2006-2007 the total funding reduction is $24,900,000, net funding reduction, after recoupment revenues, unused BPE funds and reserves, is $10 million. For fiscal 2007-2008 the funding reduction from Shaw and Videotron will be $62,600,000 plus $10 million in reduced interest revenue and deficit recovery costs, for a total shortfall of $72,600,000.

This reduction of $72.6 million, representing a decrease of 27% from the CTF's 2006-2007 budget level, is estimated to result in a loss of $165 million in production volume in the English market and of $81 million in the French market, for a total loss of $246 million. This will lead to the loss of several thousand jobs in all sectors of the film and television production industry.

[Douglas Barrett]

At the outset of our presentation I suggested that the real issue before the committee is not the state or performance of the CTF. We understand Shaw and Vidéotron have concerns about the fund. Some of these concerns are principled, and some relate to commercial interests. They're not alone in having issues with our decisions. Given all of the interests at the table—broadcasters, producers, BDUs, and so on—it would be a surprise if this were not the case. What sets Shaw and Vidéotron apart, however, is that they have related BDU operations that contribute to the CTF, and this gives them a significant financial lever with which to pursue their particular interests.

From the outset in 1994, the girders underlying the CTF's structure have required us to make our decisions in a manner that is completely free from the overriding financial interests of any particular stakeholder, group, or corporate interest. The job is to address the issues in the best interests of the broadcasting and production system as a whole and indeed in the interests of all Canadians.

The public policy considerations that led to the creation of the CTF came from the Broadcasting Act and the commission, from the work of parliamentarians such as yourselves, and from successive ministers of Canadian Heritage and their departmental officials.

We think the real question here today is who is to be primarily responsible for determining and designing the appropriate structures for supporting television production in this country with public resources? Is it to be Parliament, its ministers and officials, plus the mandated regulator, or is it to be private stakeholder groups with financial levers driving the debate?

We all understand that the television landscape is changing and that there are major new challenges to face. The CTF is looking forward to working through those challenges with the Department of Canadian Heritage and the minister and with all of our other stakeholder groups, in the way we always have in the past. This will surely involve change. Nevertheless, the CTF has proven itself to be an incredibly flexible and adaptive organization, and in this respect alone has been an innovative and outstanding public policy instrument for the Government of Canada and for all Canadians.

Mr. Chairman, you asked us to make a series of recommendations, and they are part of this presentation, but if I were to read them out to you, we would be well beyond our time period, so we leave them with you for your consideration.

Thank you very much for giving us the opportunity—

[The Chair, Conservative, Gary Schellenberger]

Would you like to have just a little wee bit more time to read those recommendations?

[Douglas Barrett]

Sure. Thank you very much for that opportunity.

We understand there's an ambiguity within the CRTC regulatory environment that makes the annual payment provisions of the BDU regulations enforceable while the monthly payment requirements of the CRTC circular are apparently somewhat less enforceable. To address this issue, we recommend that the applicable provisions of the BDU regulations be amended so that they include all of the necessary payment requirements currently included in the circular.

Secondly, we see the BDUs, because they are contributors to the system, as having an important role in the debate. Because we are an operational agency that operates under direction from the Department of Canadian Heritage, we think that policy debate should be at what we call the “big P” ministerial level. So we are recommending that the minister establish a form of funders council, which would meet each time the department signs a contribution agreement with the fund, to give the minister input and the government input on the policy directions that we would receive in the contribution agreement. We think this is a more appropriate forum at which to have that dialogue than is the operational level at which we work.

We believe it is time to add an additional seat to the board for direct-to-home satellite providers. As you may know, there's been one seat alone for the satellite providers and three for the cable operators, and for some time it's been apparent that as the contribution of the DTH providers rises, it's not appropriate to continue with a single seat. So we do feel that it's time to add that additional seat.

Finally, we recommend the establishment of a nominating organization to represent the interests on the board of all of the BDUs. Apart from the CBC-SRC, we do not have and do not believe it is appropriate to have dedicated corporate seats on our board. All our seats are held through trade organizations, such as the CAB, the CFTPA, and so on.

The CCTA is dissolving formally this August, and there needs to be a replacement organization that would nominate the BDU representatives to the board. Otherwise their entitlement to sit on the board will evaporate, and notwithstanding all that's gone on in the past few weeks, we welcome their participation on the board. The quality of the contribution made by the BDU directors—there are four of them—over the entire course of the history of the fund has been of a very high calibre, and we would like to see them back at the table.

Thank you very much, Mr. Chairman.

[The Chair, Conservative, Gary Schellenberger]

Thank you, sir.

We'll go to some questions now. They are five-minute questions and answers, so try to keep your questions short or concise and the answers likewise.

Ms. Keeper.

[Tina Keeper, Liberal, Churchill, MB]

Thank you, Mr. Chair.

Good morning.

I'd like to go back to the governance structures, as I think that's one of the issues that has arisen. I want to ask if you could just very quickly give us a brief overview of the change in the governance structure that occurred in 2005, as I understand. Could you explain what that change was and why it occurred?

[Douglas Barrett]

Yes. I think the short answer is that prior to 2004-05 we had a situation where the general policy guidelines of the fund had to be agreed upon by both our board and the Telefilm Canada board, and this two-board structure created a great deal of confusion. The direction at the time was to transfer to the fund all responsibility for policy-making at the program level in television, so there's now only one board. Our staff was considerably reduced, and we now focus on research—the policy-making at the level we work at and guideline preparation and so on. We have entered into a services agreement with Telefilm, and Telefilm does the file application processing and all of the paperwork and so on.

The money is ours. The cheques are ours. But the paper processing is provided to us by Telefilm.

And by the way, to my personal surprise, the negotiations with Telefilm went extremely well, and the operating relationship that occurs on a day-to-day basis functions quite well, from our perspective.

The other thing is that we beefed up the role of the independent committee considerably in that process. We've refined the processes for selecting independent directors, and we've expanded the role of the independent directors and introduced this double-majority concept that we spoke of earlier.

[Tina Keeper, Liberal, Churchill, MB]

One of your recommendations talks about the makeup of the board. Could you explain why that recommendation was presented today?

[Douglas Barrett]

When the fund began there was no satellite distribution, so no contributions were made to the fund by satellite distributors and the only representation on the board came from cable operators. With the dawn of the satellite era and the commencement of contributions from the satellite side, we introduced one seat.

The satellite side has grown dramatically and now represents, I'm not sure if I have this exactly correct, roughly 40% of the overall contributions we receive. So our sense is that there's a proportionality issue, and we think the satellite guys should be at the table.

I'd also say that the current seat that is available to the satellite distributors has never been filled, and that has to do with the fact that the two satellite operators have not agreed with one another as to who should sit on our board. The addition of a second seat gives some relief to that, so it's a beneficial result to a logical step.

[Andy Scott, Liberal, Fredericton, NB]

May I put a question?

Just quickly, can you explain the difference between the general enforceability you referred to in your presentation and the cashflow enforceability that you referred to?

[Douglas Barrett]

I was going to start off by saying I'm not a lawyer, but of course I am.

As I understand it, the full panoply of the commission's enforcement powers is available to enforce breaches of the regulations. The status of a circular as a policy document has not, as I understand it, been tested.

Now, there's conflicting legal advice on this, but I'm aware that there's a view out there that the legal obligation, the absolute obligation, is annual payment, and the monthly obligation is something else. I would just say that all of the BDUs have paid monthly for a decade or more—12 years—and have remained current and have been good and faithful partners to us, and nobody has raised this issue before.

[Andy Scott, Liberal, Fredericton, NB]

That begs the question of what it is that happened that has caused this to happen in the last weeks, given the long-standing relationship. You may not be back, and I'd like to hear that. I would probably hear it otherwise, but this is the only time we'll have a chance to ask you.

[Douglas Barrett]

Every stakeholder group—producers, broadcasters, BDUs, and so on—has an agenda for what it would like the fund to do, and those agendas conflict in some cases. Our actual job is to bring intelligence to the table to figure those things out in the interests of the industry as a whole.

We're not a mediator. We make decisions and provide leadership. But we do listen to all the positions taken by people. What we have is a situation wherein a couple of the BDUs feel that they're not satisfied with the way we operate, and they would like to have us operate in a different way, and they're withholding their funding in order to do that.

[Andy Scott, Liberal, Fredericton, NB]

I understand that, but what's new?

[The Chair, Conservative, Gary Schellenberger]

We've gone over time. You may have another opportunity.

We'll go to Mr. Kotto.

[Maka Kotto, Bloc, Saint-Lambert, QC]

Thank you, Mr. Chairman.

Good morning and welcome. Thank you for coming. Thank you for your presentation. I will play devil's advocate. I want to go straight to the source of what I consider to be behind the crisis we are facing today. The fund was created in 1996, following drastic cuts by the Government of Canada in CBC's and Radio-Canada's budget envelope.

Do you agree?

[Douglas Barrett]

Could you repeat the question? It was established in 1996—

[Maka Kotto, Bloc, Saint-Lambert, QC]

—following drastic cuts by the government to CBC/Radio-Canada's budgetary envelope.

[Douglas Barrett]

Since the start, there has always been a budget for CBC/SRC, yes.