Thank you, Mr. Chairman.
You've already introduced my team, so let me get right into it.
Thank you for your indulgence. I thought it was necessary to set the framework, and therefore I'll take a few more minutes than is normal.
Let me start by thanking you for your invitation to be here today.
In the first three years of my mandate I have had the opportunity to discuss with this committee a number of matters related to Canadian broadcasting.
Today, you have asked us to contribute to your study on the future of Canadian television. This is a very timely study given that this industry is at a turning point. I will address the five issues you have identified in sequence, starting with the upcoming transition to a digital broadcasting environment.
The switchover from analog to digital is already well under way in many countries. Our neighbours to the south, for instance, had planned to turn off their analog transmitters last month, on February 17. As we have seen, they were not ready in time, and they have now pushed back the cut-off date to June 12.
You may be aware that digital television makes a far more efficient use of the airwaves than analog television. The digital transition will allow the government to free up the 700 megahertz spectrum for public security as well as for other purposes. It will also allow viewers to benefit from sharper television images and better sound quality through digital transmissions.
In Canada, this transition will occur by August 31, 2011, at the latest. The CRTC established this deadline nearly two years ago after consulting with the industry.
Over 90% of Canadians subscribe to cable or satellite television packages. However, that leaves a small number of viewers who rely on analog over-the-air signals. How do we ensure that these viewers continue to receive the local stations they currently enjoy after the transition? Given the size of our country, would it make financial or common sense to force broadcasters to replace every single analog transmitter with a digital one? Likewise, would it be unfair to penalize viewers by taking away their access to over-the-air stations and forcing them to pay for cable or satellite subscriptions? These are some of the questions we have to struggle with.
We brought together, last year, the CEOs of the broadcasting and distribution companies and asked them to find a solution. They have formed a working group to study the possible options. The working group undertook to submit its report to us before the licence renewal hearings for private conventional television stations get under way this April. We will post the report on our website, and it will be the focus of discussions at the hearings.
It is evident to everyone that the industry prefers a hybrid system. This scenario would see broadcasters upgrade to digital over-the-air transmitters in large and medium-sized markets, while cable and satellite companies would provide access to all local television stations in smaller markets.
In December 2008, the Minister of Canadian Heritage indicated that he would be prepared to ask us, under subsection 14(2) of the Broadcasting Act, to review and consider any technical matter relating to an industry-led solution to ensure universal access to Canadian conventional broadcasting. The emphasis here is obviously on universal access.
Up to this point, the process has been driven by the industry. We look forward to seeing its report and are confident that it will contain a workable solution to the digital transition challenge.
We are prepared to take the necessary regulatory steps to implement a hybrid system and to support local broadcasting. Among other things, we will need to revise our definition of a conventional broadcaster to ensure that local stations qualify for mandatory carriage, even if they do not broadcast their signals over the air.
Upon hearing from all interested parties, the Commission will carefully review the industry's proposals and how they will affect Canadian viewers before giving the report its endorsement. Some of the proposals may require the support or participation of other government departments.
Now I'm going to talk about local and Canadian programming.
The broadcasting system is made up of many different elements, but conventional television has always been its cornerstone. The other services that came along, such as pay and specialty, were built around this cornerstone.
Conventional television stations are expected to produce, acquire, and broadcast a significant amount of Canadian content, including drama series, documentaries, and in particular local programming. In exchange, they benefit from regular support in five key areas.
Conventional broadcasters enjoy mandatory carriage as part of the basic package offered by cable and satellite companies. They are allowed to solicit and air local ads. They have no minimum Canadian programming expenditures imposed upon them. They can draw from a number of funds that support the creation of Canadian programming, such as the Canadian Television Fund, soon to be replaced by the Canada Media Fund. They benefit from simultaneous substitution; that is to say, cable and satellite companies must substitute the signal of a foreign channel for that of a Canadian channel when the same program is aired at the same time on both channels.
This model worked very well for many years. It helped sustain a healthy television industry that is distinctively Canadian. However, conventional television now finds itself under a great deal of financial pressure, which the industry claims is threatening the viability of local programming. I know that this situation is as disconcerting to you as it is to the Commission.
The extent to which local programming is suffering in many markets was emphasized at several recent CRTC public hearings. In particular, television stations serving a population of less than one million are having a hard time maintaining the quality and quantity of their local programming. What's more, Canadians told us in no uncertain terms how much they valued their local television news.
In response, the commission has undertaken the following steps. First, in October 2008 we established a local programming improvement fund specifically to support this type of programming in smaller markets. Previously, cable and satellite companies were required to contribute 5% of the gross revenues generated from their broadcasting activities to support Canadian programming. We have now raised this contribution to 6%.
The increase, which will amount to roughly $60 million in the first year, will be allocated to the new local programming fund. One-third of these funds, or about $20 million, will be set aside for French language markets. The remaining two-thirds, or $40 million, will be allocated to stations in English language markets. Stations that qualify for funding must use it solely on local programming.
Second, we settled the question of distance signals, better known as time shifting. This is a popular feature that allows satellite and digital cable subscribers to watch local television stations from other provinces. We decided that conventional broadcasters should be fairly compensated for the retransmission of their signals.
CTVglobemedia and CanWest estimated lost revenues from time shifting at $47.2 million annually. We have therefore given conventional broadcasters permission to renegotiate with cable and satellite companies for their use. We hope the issue can be resolved through speedy negotiation and will result in an additional source of revenues for local broadcasters.
Third, we decided to take a different approach to licensing conventional broadcasters, which I will explain in a moment.
You also asked me to comment on diversity of voices. Canadian pay and specialty channels have been far more successful than anyone ever imagined when they were first licensed. That they have been gradually attracting more viewers is an indication of the strength of our television industry. On the other hand, it has resulted in a fragmentation of conventional television audiences. This phenomenon has become more evident with the emergence of the Internet as a means to view high-quality programming.
Canadian broadcasters have responded by acquiring specialty channels in order to retain their viewership. The most recent ones--the purchase of Alliance Atlantis by CanWest, and of CHUM by CTVglobemedia--amounted to over $3.5 billion.
The trend toward greater media concentration raises the concern that a large ownership group could achieve a dominant position through acquisitions. The inherent risk with having a small number of large companies is that it could lead to a reduction in the diversity of voices in the broadcasting system. A democratic system like our own depends on a range of perspectives in news and information programming.
At the moment, the broadcasting system provides Canadians with a wide variety of editorial voices and programming choices. The Commission developed new rules to maintain this diversity of voices, which can be summarized as follows:
A single entity will not be permitted to control all three main sources of local news serving the same market, i.e., a radio station, television station, and a newspaper. At most, a party would be able to control two of the three.
Second, we will carefully examine transactions that would result in one party controlling between 35% and 40% of the total national audience share, commonly referred to as eyeballs. It will only be allowed if they do not endanger the diversity of voices.
Additionally, a single entity will not be permitted to control more than 45% of the total national television audience share as a result of any transaction.
And finally, a single entity will not be permitted to control the delivery of all television programming in a given market. There must be at least two providers.
The present environment suggests that we can expect more consolidation in the coming months and years. We will assess any future transactions against these rules that we have put in place.
Now I'm going to discuss cultural development funds.
Canadians can take pride in having developed a broadcasting system that provides an ample choice of programming, both homegrown and foreign. This is especially remarkable when you consider that we live next door to the largest producer of popular entertainment in the world and that a large proportion of our citizens share the same language.
Series like Flashpoint and Les hauts et les bas de Sophie Paquin show us that Canadian creators are more than capable of producing entertaining television, and that there is an audience for Canadian shows beyond our borders.
However, it is just as expensive to produce such high-quality programming for a small market like Canada as it is for the American market. Financial assistance is necessary to help Canadian producers bring their stories to the small screen. Through regulatory measures, we have encouraged the creation of independent funds that provide over $50 million annually to independent producers.
The Canadian Television Fund was established to support Canadian productions. Earlier this month, the Minister of Canadian Heritage announced that the CTF and the Canada New Media Fund would be merged into a new fund, the Canada Media Fund.
In creating the Canada Media Fund, Minister Moore made the very wise decision that it should support the production of Canadian content for all platforms, including interactive digital media. We welcome this announcement and are pleased that cable and satellite companies will support the new fund with their financial contributions.
As you know, the commission held public hearings in February and March to look at broadcasting in the new media environment. I cannot at this point comment on our decision, owing to due process concerns, but one thing became clear: traditional media and new media form a continuum. Supporting both makes eminent sense and means moving with the times.
Finally, you asked us to comment on the commission's upcoming final hearings to renew the licences of private conventional television stations. Our normal practice is to issue a licence for a seven-year period. In doing so, we attach a number of conditions having to do with programming commitments and closed captioning, among others. However, as I mentioned a few moments ago, the global financial crisis is having a pronounced effect on conventional broadcasters. They live off advertising revenues, and economic conditions have resulted in belt-tightening by the media and by us. One of the biggest buyers of air time is the automotive industry. I don't have to tell you that General Motors and Chrysler are facing possible bankruptcy. This obviously reflects on their purchase of advertising.
With ratings down in Canada, conventional broadcasters face an acute revenue crisis and must find ways to drastically reduce costs. Given these exceptional circumstances, the commission is willing to ease its regulatory obligation in the short term. Last month we reduced the scope of public hearings to only a few points.
We will renew the licences for one year only, given the impossibility of making long-term plans under the existing circumstances. We will thereafter issue licences for seven years on a group basis rather than a category basis, i.e., all speciality and conventional channels owned by one group will be licensed at the same time and will be considered at the same time.
We will consider lower levels of local, priority, and independent programming that each station will be required to broadcast over the 12-month transition period.
We will explore whether conditionally requiring a 1:1 ratio between Canadian and non-Canadian programming expenditures should be introduced for conventional broadcasters for the upcoming broadcasting year and/or on a seven-year basis for the broadcasting groups starting in 2010.
We will discuss with the industry and hopefully endorse the digital transition report that I mentioned earlier.
We will finalize the terms of the Local Programming Improvement Fund, particularly those relating to eligibility and allocation of funds. Our aim is to begin distributing the funds in September 2009, i.e., in a very few months.
I will now say a few words about a fee for carriage, which you no doubt have heard much about. Certain broadcasters have renewed their calls for a fee for carriage of local conventional television signals. It is quite likely that a representative will appear before you to make the case for such fees. They argue that a fee for carriage is necessary to provide stable revenues. The commission turned down this request on two separate occasions, most recently in October 2008. The conventional broadcasters were unable to give us a solid commitment on how the fees would be used to improve Canadian broadcasting systems and specifically how they would be used to improve local programming. We also took into consideration the fact that their overall revenues had been stable in recent years, yet their expenditures on foreign programs had been climbing steadily. Furthermore, they had just completed major multi-billion-dollar transactions, indicating that lenders had confidence in their business plans.
That being said, we realize that there is a major problem in non-metropolitan areas as far as local content by conventional broadcasters is concerned. That's why we created the Local Programming Improvement Fund. In our view, that fund is part of the answer to the revenue problem conventional broadcasters face. Of course, the question that always arises is: What is the appropriate amount? This is one of the issues that will no doubt be raised at our April hearings.
As an aside, I can tell you that the CRTC this morning decided to issue a public notice that will enlarge the scope of the April 27 hearing to specifically address two issues: the adequacy of the 1%, and the date on which the distribution for local signal provisions should come into effect.
While our current focus is quite clearly set on helping the industry weather the storm, the combination of the arrival of the new media as a possible alternative system of distribution and the onset of the global financial crisis have shown us that the current model is in desperate need of a systemic solution. We have an opportunity and an obligation to rethink our traditional assumptions and to move forward with a long-term vision for the Canadian television industry. This is not something the commission will be able to do alone. It's a process that will require everyone to step up and to table with us bold and creative ideas.
During the summer months we will initiate a public process to find a more effective way to achieve the Broadcasting Act's objectives, taking into consideration the new economic and technological realities. This approach will then be used to assess the future licence renewals on the basis of ownership group.
Let me conclude by sharing with you the exact words that I spoke a month ago at the Canadian Film and Television Production Association in February:
We need to face the new reality squarely:
• Conventional television is no longer the cornerstone or the centrepiece of our broadcasting system; however, it is still the best way to reach a huge audience in one go.
• Conventional television can no longer bear the largest part of the obligations under the Broadcasting Act.
• We have an industry that consists primarily of a few integrated broadcasting groups, and there may be further consolidations.
• These integrated groups will create, acquire and deliver programming in every possible way, over every available platform.
• We need to define the appropriate role of the public broadcaster in this new environment.
Our current model is a jumble of differing rules for different categories. What is required is not a piecemeal fix, but a systemic structural solution. That's what the process of the coming months is all about.
The Commission has been proactive in addressing the challenges facing the conventional television sector. We appreciate that it is under a great deal of financial pressure and we are committed to providing whatever help we can.
Thank you for giving me the time to set the scene of what we're facing. We're ready to answer your questions.
