Canadian Heritage Committee on Feb. 20th, 2007

[The Chair, Conservative, Gary Schellenberger]

Good morning, everyone.

I'd like to welcome everyone here today to the 36th meeting of the Standing Committee on Canadian Heritage. We are here pursuant to Standing Order 108(2), a study on the future of the Canadian Television Fund.

This morning we have three sets of witnesses. I will be keeping our time for questions and answers to five minutes for each person.

At the bottom of the agenda you will notice that we have a couple of notices of motion. I suggest we deal with them on Thursday. At Thursday's meeting we have only one witness, and we will make sure we look into those notices of motion.

Our first witnesses today are from Shaw Communications Inc. We have until 9:45; at 9:45 the questioning will end so that we can get ready for our next witnesses.

I welcome Mr. Jim Shaw and Mr. Ken Stein. Thank you, gentlemen, for coming this morning.

Please go ahead, Mr. Shaw.

[Jim Shaw, Chief Executive Officer, Shaw Communications Inc.]

Good morning. Thank you for bringing me and Ken Stein to the proceeding here today. I am CEO and Ken is our senior vice-president of regulatory and corporate affairs.

Shaw's invitation to appear at this committee's examination of the Canadian Television Fund marks the first time this committee has asked us, one of the major funders of the Canadian programming fund, to comment.

Prior to our announcement to withhold CTF funding, few decision-makers cared to hear our views. Our reason for withholding funds has been clear and consistent: the CTF has not delivered on its mandate to support and expand the development of quality television programs that reflect Canada's unique and special nature.

We are here because the issue is important to us and we want to participate in the process of finding a better way to bring more quality to Canadian television in the future. You may disagree with the methods we used to get attention, but I hope you won't disagree with our goal. The Canadian Radio-television and Telecommunications Commission and the government have expressed their desire to deal with this lack of performance of the CTF, and both have engaged in consultation with us and others in the industry.

We are all committed to developing a program funding system that can meet the challenges of competition in the new digital world. At Shaw, our desire for reform rests on three basic principles: performance, accountability, and fairness.

The CTF has not created a strong, self-sustaining, self-financing production industry. The production industry cannot remain completely dependent on the CTF and the CTF cannot forever be dependent on taxing Canadians.

The CTF has not increased viewership for Canadian programming. The CTF has spent $2.3 billion, resulting in only what we will call a few success stories. Can we say this investment has produced positive results?

[Ken Stein, Senior Vice-President, Corporate and Regulatory Affairs, Shaw Communications Inc.]

Finally, CTF funding was intended to provide leverage to increase private sector spending on Canadian programming. In fact, private broadcasters are now spending more on non-Canadian programming and less on Canadian. For example, in 2005 alone, private broadcasters saw CTF funding increases of $20 million, while their own spending on Canadian programming decreased by $21 million. CTF funding has been used by broadcasters to replace, not expand, their own required funding for Canadian programming. Cable and satellite subscribers are being taxed to support the broadcasters, while they use their own money to purchase more non-Canadian programming.

Let me also speak to CTF accountability. The CTF was created as a public-private partnership, but the CTF is not our partner and it has never been accountable. If we were an equal partner in the process, we would participate in the decisions about how our subscribers' money is spent.

Finally, we would like to see some fairness introduced into the system. We have said repeatedly that we want a funding mechanism that is independent, accountable to those who provide the funding, and responsible for achieving measurable results.

Shaw has met its part of the bargain. We have built a successful enterprise serving millions of cable and satellite subscribers. Shaw's capital expenditures have built a world-class system with a capacity to distribute the greatest number and variety of Canadian and non-Canadian services; increase the penetration and profitability of all Canadian broadcasting and programming services; build a digital capacity to launch numerous and profitable Canadian digital specialty services; provide delivery of high-definition content; and offer unprecedented choice in service to customers no matter where they live throughout Canada, whether in urban, rural, or remote communities. We have 3.1 million customers, and in a short time we have grown from 1,000 employees to 9,000 employees. We have North America's highest Internet penetration and we have launched competition in digital telephony.

[Jim Shaw]

From the beginning of this process we have wanted to see a plan for increasing the quality of Canadian television programming through our investment. We asked for a plan for reform that is based on the three principles we have discussed—performance, accountability, and fairness.

The sincere and cooperative consultations that we have had over the last few weeks and months have reassured us that our message has been heard. We are confident that there is real and growing consensus to thoroughly review and restructure the way we produce and fund quality Canadian television programs. We believe there has been some acceptance of these principles that we have put forward to guide this review.

We were part of the initiation of the original programming fund development mechanism and the Canadian production fund. We have been financial supporters of the fund since some eleven years ago. We do not wish to destabilize the development of programming or throw the production industry into disarray. We are currently sufficiently assured and confident there will be a process and a schedule that will meet the suggestions for reform. We wish to assure the committee that today we will restore our payments to the CTF.

Mr. Chairman, that concludes our remarks.

[The Chair, Conservative, Gary Schellenberger]

Thank you.

Mr. Scott.

[Andy Scott, Liberal, Fredericton, NB]

Thank you very much to both Mr. Shaw and Mr. Stein for being here.

Could you repeat your last two sentences, please?

[Jim Shaw]

Did you get a copy?

[Andy Scott, Liberal, Fredericton, NB]

No. Did you announce that you're restoring the money?

[Jim Shaw]

It says here that we are sufficiently assured and confident that there will be a process and a schedule that will meet the suggestions we have made for reform. We wish to assure the committee that we do not want to destabilize the programming companies in Canada, and we will restore our payments with some form of assurance that down the road there will be some reform to a system that we feel is fatally flawed.

[Andy Scott, Liberal, Fredericton, NB]

There seems to be a little bit of a contradiction. Are you saying that you're announcing you're going to restore it because you are reassured, or are you saying that if you could be reassured, you would restore it? Which is it?

[Jim Shaw]

No, we're saying we will restore payments so that we do not destabilize the Canadian production industry. We are confidently assured, hopefully, by the committee meeting here today, by other government bodies, and by other people that a process will be put in place to make sure our money is spent wisely. That's all we're asking; we're not saying we won't pay.

[Andy Scott, Liberal, Fredericton, NB]

When you met with the minister earlier this year, I understand at least from media reports that you felt the fund was dead. What gave you that impression?

[Jim Shaw]

It was that there was a lack of change in the whole process. We have for quite a long time not had any reception from anyone, and until we said we wouldn't pay, we had no reception.

We would want to talk to various parties. A good example is that although we're the largest private contributor, our board member would have to leave the meeting when people voted on where the money went. We said, “Well, okay.”

We're only one of 20. I mean, it's not like we could outvote you. It's cloak and dagger stuff. If our results are only reflective of the three or four or five names that we can come up with, then we've done a pretty poor job, and I'm saying we have also.

[Andy Scott, Liberal, Fredericton, NB]

We've received testimony here, and I think you repeated it this morning, that you were part of the original proposal that came as a result of the licensing renewal. The amounts of fees that you were seeking after having done some capital improvements were no longer justified on that basis, so rather than seeing the fees lowered, you'd keep the fees and divide the money between the company and the fund at about 50-50. Is that correct? Is that what happened?

[Jim Shaw]

No, that would not be correct.

[Ken Stein]

What happened was that in 1993 there was an arrangement through the structural decision of the CRTC to allow systems to decide voluntarily whether to contribute back to a fund or to return funds to subscribers.

People have described that regime. It ended in 1996, 10 years ago. That regime was ended.

Capex was eliminated; the provisions for further capex increases were eliminated. What happened at that point was that the responsibilities for the fund were transferred from the CRTC and their regulatory supervision over to the Department of Canadian Heritage. It then became taken over by the Department of Canadian Heritage. It's quite clearly laid out in the decisions of the commission in 1996-97. It involved funding from the government into that fund, and that was when there was a step taken to make it a partnership.

At that time there was the imposition of a 5% charge allocation on satellites, satellite services, and DTH, and on the cable side a 5% allocation. The community channel was to get 2%, and the rest—the 3%—was to go to the Canadian programming fund or its successors and to individual private funds such as the Shaw Rocket Fund. That was a decision made in 1996.

When people talk about what's happened over the last 13 years, they're describing the first three years, not the last decade.

[Andy Scott, Liberal, Fredericton, NB]

You spoke of the need to be reassured by us. What assurances can you give us?

Given your announcement this morning of restoring the funds because you're confident that some things will happen with the CTF along the lines that you desire, what assurances can you give us that you won't simply repeat the behaviour of the last couple of months if it doesn't go your way? Ultimately, you've established a precedent here of the strategy that would be employed, so our committee would be very interested in having reassurance from you that if we go back to the table, you'll go back to the table to have those discussions, and that this won't be held over the fund as another so-called remedy for your agenda.

[Jim Shaw]

Let me respond in two ways.

The first is to ask you what assurances you can give me that you will fix this for Canadians.

We serve 3.1 million homes; a total of 8 or 9 million Canadian people live in those homes. What assurances can we give them that this money will be used wisely?

I don't get the money; it doesn't go to me. It's just a tax. Do you want us to disclose this tax to Canadians, and then put it on the committee and ultimately the government and everybody else that there is an issue here, and no one seems to deal with it?

I, in good faith, put it back on the table. I expect you, in good faith, to come back and do something to help us with what I call a Canadian problem.

[Andy Scott, Liberal, Fredericton, NB]

Compliance with regulations is not an act of generosity; it's an act of compliance with regulations.

[The Chair, Conservative, Gary Schellenberger]

Mr. Scott, I said five minutes. You have already gone six.

Mr. Kotto.

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

Thank you, Mr. Chairman.

Welcome Mr. Shaw and Mr. Stein.

There is something that I would like to ask you. As you know, we, the Bloc Québécois, are sovereignists. Do you think that, if I were the Premier of Quebec, for example, I could legally withhold the taxes that I owe the federal government because I am unhappy with the pseudo-confederal yolk in which my nation finds itself trapped?

[Ken Stein]

First, I'd like to make it clear that we have not broken any rules in doing what we did. What we have is a regulation in place that, as is clearly agreed by everyone, requires us to pay within the broadcast years. That gives us to the end of August to make the payments. If this is not a tax, in your sense of that—If it is a tax, then our view would be it would have to be dealt with as a tax.

It's a procedure set out by a circular by the CRTC as to how to deal with the payments to the fund. Since we do not believe that the procedures set out by the fund are—We think the procedures are questionable to begin with. We felt in the circumstances that we were being responsible by asking questions about what was happening with the funds that we were allocating from our subscribers going to the fund. We felt we weren't getting an accounting for those funds, and that's why we did it. We were not breaking any rules.

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

But the message that you are conveying through the stance that you are taking leaves us to believe that you could potentially be in the wrong. That's what I was trying to say. In our system, is the State not entitled to respect?

[Jim Shaw]

We are not in violation of any rule anywhere. I'm sure you were advised of that. We are totally within every right we have. We have until August to pay, if that's so required. We decided now to pay earlier to stabilize the industry. I'm just saying we have not broken any rule or any law, and Shaw is not in violation of any code of anything in Canada.

I can tell you that I probably have more rules than you. Let's just go through them--Sarbanes-Oxley, corporate governance, reporting to the New York Stock Exchange, reporting to the Toronto Stock Exchange, reporting to shareholders, disclosing everything. Every 90 days I sign off on committed funds of what's happening. My responsibility has to be to do something. I haven't done anything wrong. I have only asked for some attention.

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

I'm not accusing you of anything, I am simply asking questions.

And what I would also like to know is why you did not make the members of the House of Commons aware of your demands which, according to our information, are long standing, instead of deciding to flex your muscles.