Canadian Heritage Committee on Feb. 20th, 2007

[Jim Shaw]

The first thing is we have to be successful, and you know it looks like we have the money. So if the money continues to flow in, the challenge is to the industry to be successful, and that's what we have to do. You can't be successful if you don't produce anything that Canadians want to watch.

Then I would question whether we have the right board members. Is the structure right? How do we fund it? What do we produce? Does it need more entrepreneurs on it? I don't know the complete makeup of the board, but are there too many people who are only there to get money out of the fund? Where is the responsibility and accountability? They should be on a structure. You guys are all on a structure. You have to report back to your constituents. Every 90 days I have to produce financial results.

So I think there has to be some level of accountability from all things.

[The Chair, Conservative, Gary Schellenberger]

Thank you very much.

Again, I thank our witnesses for being here this morning.

We are going to take a five-minute recess. In exactly five minutes I'll be calling the next witnesses.

[The Chair, Conservative, Gary Schellenberger]

I welcome our second set of witnesses here this morning, Mr. Péladeau and Mr. Lavoie.

Please start your presentation.

[Pierre Karl Péladeau, President and Chief Executive Officer, Québecor inc.]

Thank you, Mr. Chairman.

Ladies and gentlemen members of Parliament, Mr. Chairman, thank you for welcoming us here today.

For two years, Quebecor Media has been trying by every means at its disposal to alert all those concerned, whether they be politicians, public servants, regulatory authorities or television industry stakeholders, to the consequences of the radical changes that the digital revolution is causing to the Canadian audiovisual landscape.

Faced with inertia and a lack of reaction, we decided to increase the pressure by suspending our monthly payment to the Canadian Television Fund for 21 days. I am pleased to see that one of the consequences of our action was to convince the Standing Committee on Canadian Heritage to hold special hearings in order to discuss the issue, because I sincerely believe that if we do not react quickly, the Canadian audiovisual production industry is running very serious risks that could result in its suffocation.

First allow me to make a clarification. I'm astonished that this seems necessary, but having read statements that have been reported in the press and the testimony that has been delivered here, I feel obliged to do so.

The monopoly in the cable television sector is no more. It has been replaced, as the legislator wanted during the 1990s, by a highly competitive market in which compete the older cable companies, new players in the sector, satellite operators, telephone companies now operating the service through new technologies, and above all, the Internet, which is becoming the universal means of communication.

In case you are not aware, there are 2.8 million Canadian homes that subscribe to some kind of cable service. The legislator was right to impose deregulation, even though it is far less comprehensive than it should be. In fact, the cable companies are still subject to overzealous regulations which limit their ability to offer better service to consumers and to compete on a levelled-playing field with new stakeholders in the cable sector.

This is why we have publicly encouraged the various authorities concerned on many occasions to carry out to its logical conclusion the thinking that guided the Industry Minister, Mr. Maxime Bernier, and his decision to accelerate the deregulation of the residential telephone sector and to deregulate the cable television sector as completely as possible.

Nevertheless, it must be recognized that the deregulation that has already taken place has served consumers well. Services have been vastly improved, prices are lower and the cable operators are now using their very costly infrastructure to offer new services to consumers and to the population. This is how, for the first time in the history of Canada, Videotron and other cable companies were able to participate in the residential telephone market which allowed for a very substantial decrease in prices.

Another myth I would like to dispel is that by which people believe that the right to broadcast television programs is a privilege, because the airwaves are public property. Do you believe that YouTube.com which has just signed a deal with a major content distributor to broadcast programs in their entirety, or that tetesaclaques.com, a true phenomenon in Quebec, asked anyone to give them the privilege to occupy more and more space in the audiovisual landscape?

Protectionist measures are only possible if the boundaries can be controlled. This is no longer the case. The massive audiences that we could impose a schedule on are no longer there. They are dispersed over the hundreds of new windows. Mainstream broadcasters, like the TVA network, who depend entirely on advertising revenues, are at risk. Audiences are decreasing substantially and ad revenues are following that downward curve. If we do not wake up, these mainstream broadcasters who offer the flagship news shows and public affairs programming will no longer be able to offer these services.

In Quebec, we have the good fortune of the protection of language, which has allowed us to draw significant audiences for homemade productions. Unfortunately, we cannot be fooled into thinking that Quebec is forever protected from this global reality.

The model according to which independent producers do not invest one cent; take absolutely no risk; are totally subsidized by a combination of the Canadian Television Fund, private fund and tax credits; pay 20% of the total production costs; sell single broadcast licences while continuing to hold the broadcast rights through other outlets where we find the audience that we need in order to ensure the survival of an all-purpose broadcaster, that type of model can no longer work. In order to justify the investments that are required to broadcast high-quality programming, a group like Quebecor Media must hold the rights to the products that it airs. We must be able to fully exploit the economic potential of the various types of programming by moving them from video on demand to the generalist network, to a digital network, a downloading site and, finally, to retail DVD sales. That is now the only way to ensure that good quality programming will be economically viable.

With that in mind, the integration of Quebecor Media is no different from what is being done by other large international groups in the entertainment and communications industry. The Canadian Television Fund, which, in the past, did play a constructive role, has not kept up with the digital revolution that has increased the number of broadcasting channels and has broken down barriers.

During the last quarter, advertising revenue at TVA dropped 3.7%. For a single quarter, that is huge. As responsible managers, we must take the necessary steps to adjust our spending to this new reality. I would remind you that Quebecor Media, whose subsidiary, TVA, already spends $109 million annually to produce and acquire Canadian content, intends to hold the line on spending for the coming years. Moreover, Quebecor Media, through its subsidiary Vidéotron, intends to considerably increase its contribution to Canadian programming.

Vidéotron currently contributes $19 million to the Canadian Television Fund and to a CRTC privately regulated fund for the production of Canadian programming.

We intend to increase that amount to $109 million for the next three years. We will meet this commitment to the CRTC by allowing the Commission to sit on the fund's board, which will manage the investment and produce an annual public report.

Before answering your questions, I am appealing to your sense of realism. Our industry is at a turning point. I know that you are clever enough to realize this. If there is one thing that I would ask you to keep in mind, it is that the pace of this change is accelerating, and we no longer have time to discuss it for months or even years. The time has come to act.

Thank you very much for your attention.

[The Chair, Conservative, Gary Schellenberger]

Ms. Fry.

[Hedy Fry, Liberal, Vancouver Centre, BC]

I think you've heard from quite a few people around this table that we agree with you that in fact, with new media, etc., it's getting very difficult to reach audiences, and that protectionism, as you call it, has a difficult time working. But I think it's a pity that you see the idea of Canadian programming and Canadian content as protectionism, because when you look at very viable countries of the world that are seeking to maintain their own culture in this mass communications world—If you look at England and the BBC, if you look at the work that's being done out of England, the work that's being done out of Australia, you'll find that they're maintaining a very strong business.

The question isn't really whether we should be protecting ourselves. The question is how we put money into a fund that will ensure that Canadian content, Canadian culture, maintains its own sense of viability and its own strength in this multi-mass-communications era.

That's a big question. We've heard people say what went on, etc., and now we're putting the money back into the fund.

We heard earlier on from Shaw that they felt they had some problems. They needed an audit. Well, obviously the Auditor General's audit doesn't seem to cut it.

The big question here is this. I would like to hear some really positive solutions, because I think the idea that we're going to do away with the Canadian Television Fund and that we're all going to float ourselves out into the ether isn't going to happen. We all want a strong sense of Canadian culture, Canadian programming.

Of course, language is important. Quebec has the ability to keep its head above water because of its language. We're probably the only people in this hemisphere who can maintain good, strong, French language programming. However, the point is that we need to be able to ensure, because we live so close to the U.S., that we have a strong program.

I want to hear some positive solutions showing that you are committed to maintaining a strong CTF and a way of ensuring that we're producing quality product. If you can give me some of those answers, I'd like to hear them.

[Pierre Karl Péladeau]

I'll do it with pleasure, Madame.

I think we fully agree with all the members and the chairman here that we're proud of this country and proud of this industry. Since we are involved on a day-to-day basis, we produce—I mentioned in my presentation that it's more than $109 million that we're spending, some in news, some in what we call in French séries lourdes—dramas, documentaries, public affairs. We're committed to that, and the objective of the law is to make sure that the industry—

[Hedy Fry, Liberal, Vancouver Centre, BC]

I'd like the recommendations, Mr. Péladeau.

[Pierre Karl Péladeau]

We had one. We've been proposing a solution.

Since the objective of the law is to contribute to the Canadian programming industry, I don't think there is an obligation to contribute to a fund; the obligation is to contribute to the Canadian programming, or the Canadian broadcasting system.

That's why we're proposing that on top of what we are actually contributing to the Canadian fund, we'll add to it, for a $30 million contribution per year, and we're ready to make a commitment for three years of over $100 million. I think this is a real solution.

In fact, we will contribute better to the industry and at the same time we will not contribute to a bureaucratic structure that is saying, “Well, this is a weekend.” We have a bunch of people who say, “We can fund this through CTF and this we can't fund.” Who are they to be able to get what is good for Canadians?

[Hedy Fry, Liberal, Vancouver Centre, BC]

We're not going to go over that, Mr. Péladeau. What I'm going to say is that we've heard very clearly that you were given a licence in return for the ability to get the infrastructure and charge an amount of money, and you'd have this fund. So let's not walk away from the fund.

You are suggesting that the only solution is to give you the money and you would produce better programming. What proof do we have that you will do that? I don't understand, if great minds that are sitting around here in Canada, who all want to keep Canadian content alive under a fund cannot do it, that you can do it. That's not a solution, to me.

You have critiqued the fund. I'd like to hear from you some positive solutions on how the fund could work well and how we can produce Canadian programming under the current structure. I'd like to get those recommendations, and giving the money to you to do your own thing is not a solution, as far as I'm concerned.

[Pierre Karl Péladeau]

What the fund is all about is not what has been said in the law. The law is to contribute to the Canadian broadcasting system. We believe as an organization that we're contributing more than any other broadcaster—any other private broadcasters—in terms of contribution. So—

[Hedy Fry, Liberal, Vancouver Centre, BC]

So you have no recommendation. Thank you.

[Luc Lavoie, Executive Vice-President, Corporate Affairs, Quebecor Inc.]

No. We do have recommendations.

[Pierre Karl Péladeau]

Absolutely. We just mentioned that we were ready to contribute more than our actual contribution to the Canadian Television Fund.

[The Chair, Conservative, Gary Schellenberger]

Thank you for that.

We go to Mr. Kotto.

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

Welcome Mr. Péladeau and Mr. Lavoie.

After listening to you, I have a feeling that the debate will go far beyond the Canadian Television Fund itself, with the arrival of new technologies. You spoke of deregulation. Have you considered the impacts of such a process? We were dealing with telecommunications, but the same could apply to radio and television broadcasting. Have you assessed the impact of cultural sovereignty in Quebec and in Canada, in view of the fact that, as Ms. Fry said, we are located so close to the United States?

Because of its identity and its language, Quebec is relatively sheltered—and I say relatively sheltered—but anglophones in Canada could see their culture threatened, could even be culturally assimilated, if that were to come to pass.

I would like to hear what you have to say about that.

[Pierre Karl Péladeau]

Thank you, Mr. Kotto.

What we are suggesting is to improve and increase the financial contributions to Canada's broadcasting system and, more particularly, as you may suspect, to the Quebec French-language space where most of our activities occur. You said earlier that 16,000 jobs were in jeopardy. We have no intention of jeopardizing these jobs, on the contrary. With the additional funding that we intend to inject in the industry, there might even be an increase in the number of jobs.

We want to ensure that the francophone side of Canada's broadcasting system is solid. We are aiming to occupy all of the audiovisual environment, which is no longer limited to television alone. There were previously two large entertainment and information media: newspapers and conventional television. That was the environment in which the Canadian Television Fund was created. That environment has exploded.

Because of today's distribution channels, audiences that once watched only conventional television have moved, and our advertising revenue has followed them.

Do you think we were happy about cancelling the heavy series called Vice caché? Along with my associates and my family members, I watched the series and thought that it was very well done. Unfortunately, we were not able to fund it because the audience, which started out at 2 million, dropped to under 1 million.

The program is as good as any American one. We could compare it to Desperate Housewives that the CBC has bought to air on its network. Unfortunately, we no longer have the financial means to produce Vice caché because the audience has moved to other channels. Rest assured that we intend to maintain a high level of funding for Canadian programming.

[Luc Lavoie]

In your preamble you spoke about protecting Canadian culture, something that is quite noble and beyond reproach. The problem is that it no longer works.

How are you going to prevent YouTube and its ilk from entering Canada? I don't see how you can prevent these new and very powerful universal communication tools from entering Canada.

My colleagues at Shaw did not want to venture too far in their analysis of the francophone market. As someone who has spent a lot of time in English Canada and who has a great deal of affection for the country, let me say this. Jim Shaw referred to CSI. Last week, someone told me that at least half, and maybe more of the production crew who work on 24, one of the most popular programs in the United States, was Canadian.

That also reminds me that in 1992, the CRTC decided that the song Everything I Do, by Brian Adams, was not Canadian. However, the composer was Canadian, the lyricist was Canadian and the singer was Canadian as well. Everything about it was Canadian, but according to some technocratic grid that was devised by who knows who, it was decided that one of the best-selling records in the history of music was not Canadian.

I find that very hard to deal with. It speaks of an attitude whereby we must protect ourselves because we are not good enough. I think that English-speaking Canadians are just as good as the Americans. Moreover, when given an opportunity, they produce exceptionally high-quality programming. Programs such as 24 and CSI are prime examples.

Look at how many Canadians are in Hollywood and New York. I wonder if it isn't the system itself that forces Canadians to go elsewhere in order to produce their programs.

[The Chair, Conservative, Gary Schellenberger]

Thank you very much.

Mr. Angus.

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

Mr. Péladeau, you say that Vidéotron and Quebecor must subsidize Radio-Canada. You contribute $15 million to the Canadian Television Fund, but TVA received $18 million from the fund.

Is it not true, then, that the fund subsidized Quebecor?

[Pierre Karl Péladeau]

If we were to take what the CEO of Radio-Canada is saying, TVA doesn't receive any money, as Radio-Canada doesn't receive any money. It's received by the independent producer.

That's the system as it works today. What we're looking for is to change it, because at the end of the day, we think it's not positive and constructive for the Canadian industry. This is what we're saying.

[Luc Lavoie]

Mr. Angus, may I please add something that Pierre Karl may have forgotten when he presented our proposal a moment ago? I would like to underline and insist on the fact—because I don't think you hear corporations saying this very often in front of elected officials—that we are renouncing the $100 million that comes from the government.

If our proposal is accepted, we will be putting more money into the system. We're going to do more television production, and we're saying to the government, thank you very much for the $100 million, but we don't need it anymore.

[Pierre Karl Péladeau]

If the government wants to continue contributing to the Canadian fund, obviously it's the government's decision to do so.

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

Yes, but I think we have to be very clear about what is happening here.

There is a great difference between your position and Shaw's position, because you have a very large share in your market, and your number one competitor is Radio-Canada. There's no other market in the country where a cable company or a broadcaster has to go up head to head against Radio-Canada.

So I would suggest that this noble offer you've just made is actually part of a squeeze play. You do not want to have to pay into the fund, and you doubt that the $100 million will go to Radio-Canada. At the end of the day, you're looking to bulk up your own market against your number one competitor, which is Radio-Canada.

[Pierre Karl Péladeau]

Mr. Member of Parliament, I disagree with you, because you have a weakness in the way you perceive the marketplace. Our competitor is not Radio-Canada. Our competitor is this difficult revolution, the way in which we are using different channels for the distribution of content. It comes from the Internet, from VOD.

Radio-Canada is only one piece of it, on top of which you forgot to mention that all the specialties now have a market share close to what we have as conventional broadcasters.