Mr. Chairman, it is my understanding that we are here today because broadcasters like CTV and Global have threatened to close local TV stations unless cable and satellite distributors step in and bail them out. They say the conventional over-the-air TV system is broken. Mr. Chairman, this is little more than self-serving fiction. Until recently, over-the-air television was a very profitable enterprise. Because it is a cyclical industry it will be profitable again.
Just four years ago, according to CRTC figures, Canadian over-the-air television netted almost $250 million in operating profits. Two years ago the industry was so profitable that CTV bought CHUM Ltd. For $1 billion, CTV got six additional over-the-air TV stations, 34 radio stations, and 21 additional specialty channels, most of them highly profitable. Also in 2007, CanWest Global, although heavily mortgaged after buying the Hollinger newspaper chain, took on an additional billion dollars in debt to acquire Alliance Atlantis and its 18 specialty channels. Between them, CTV and Global now own 56 of Canada's most profitable specialty channels. TSN alone earned more than $60 million in operating profits for CTV last year. Both CTV and Global have profitable TV operations. Contrary to claims made by CTV and CanWest, their broadcasting assets should be valued as the sum of their parts, not as though each segment was a stand-alone business. Last year alone, CTV's combined over-the-air and specialty TV operating profit was around $200 million. Global wasn't far behind, at $164 million. So what's the problem?
Recently, CanWest's Leonard Asper said that in all the media coverage, “What is often overlooked is that CanWest's businesses are highly profitable and generate well over $500 million a year in operating profits”. This is both the TV and at newspapers. Asper said that the only problem is that “our 'mortgage' is too high for our lenders' liking”.
At Rogers we have mortgages too. We're also having difficulty with our over-the-air TV interests. But as Tony Viner will say, we're not here seeking a bailout; we're not here asking customers or other companies' shareholders to underwrite our problems. The economic situation will improve shortly, and when it does, history tells us that over-the-air television will be back in the black. Please do not be fooled by the so-called “fee-for-carriage solution”. It is nothing more than a tax on consumers. It is one of the most insidious schemes to come around in a long time. It has twice been rejected by the CRTC because, quite simply, it's a backdoor bailout. It's robbing Peter to pay Paul. It's a cash grab based on the myth that cable and satellite distributors don't contribute enough to the system. Nothing could be further from the truth.
Our services give tremendous value to over-the-air TV broadcasters. Cable gives local TV stations guaranteed carriage with priority positions on the dial. We give over-the-air stations simultaneous program substitution. That is, when an American show is run at the same time in Canada and the U.S.--for example, when House is run on Global and Fox at 8 o'clock on Monday nights--viewers see only the Global signal, no matter which channel they watch. As a result, the ads that Global sells are seen by many more viewers and can be sold for much higher prices.
Simultaneous substitution is worth over $300 million annually to over-the-air broadcasters. It's part of the regulatory bargain that the CRTC struck between over-the-air broadcasters and cable. By terms of the bargain, broadcasters provide signals and then we help boost their ad revenues by prioritizing, promoting, and programming their stations. Yes, that's right, I said programming. Most people don't know this, but every year cable and satellite companies contribute around $215 million to subsidize TV production costs. Broadcasters like CTV and Global pay only about 30% of what a Canadian prime time show costs to produce, but their appetites for handouts are insatiable.
Recently the CRTC ordered distributors to contribute another $60 million of our revenue to subsidize local programming for over-the-air broadcasters in small and medium-sized cities. And so it goes. But our support for these broadcasters is only part of what we contribute to the system. We also help fund the parliamentary channel CPAC, and we offer our own fabulous brand of local programming, as Colette Watson can explain. Community broadcasting paid for by the cable companies is quickly becoming the most respected source of truly local television in Canada. At a cost of $30 million a year, Rogers' 33 television stations offer far more local programming than commercial over-the-air stations anywhere.
So when CTV and Global accuse us of not doing enough, when they threaten to shut stations, what are they up to? When they demand fee-for-carriage, how do they plan to spend this money? Believe me, it won't be spent on more local news in your part of the country. The sad fact is that most of the money CTV and Global spend on programming goes straight to Hollywood, and each year the amount climbs. Over-the-air broadcasters spent 25% more in Hollywood over the past three years, while their other costs grew at only 2%. The fee for carriage most often mentioned is 50¢ per subscriber per month per local channel.
In his recent testimony before this committee, CRTC chairman Konrad von Finckenstein explained what a subsidy would mean to consumers: “To put things in perspective on the fee-for-carriage we turned down, CTV and CanWest asked for 50¢ per signal. In Toronto that would have meant an increase for cable subscribers of $6.50 a month; in Montreal it would have been $4.50 per month, and $6.50 per month in Ottawa.”
As the chairman said, this is a tax that would be passed on to consumers in any economic times, let alone these extraordinarily difficult ones. To tax people $6.50 a month and to give them nothing in return is just plain wrong. There will be consumer outrage. To compound the injustice, fee-for-carriage would set up the worst of all public policy solutions, a two-tier taxation solution. Those who subscribe to cable or satellite would pay a lot more, while those who receive television by rabbit ears or rooftop antennae would pay no consumer tax and continue to receive free over-the-air television. Such a system would be patently unfair.
We're not freeloaders. Canadian cable companies have always worked to make our broadcasting system the best in the world. Rogers Cable alone has made capital investments of $6.5 billion over the past 10 years. These huge outlays have made Canada the envy of the world and benefited all stakeholders. We deliver crystal-clear TV pictures to Canadians. We expand local television areas, which in turn give broadcasters more viewers and allow them to charge more for advertising. At our expense, we substitute Canadian over American signals so that the Canadian broadcaster can have exclusive carriage rights for their most popular U.S. shows. We pump hundreds of millions of dollars into prime-time and Canadian local over-the-air TV, and we provide in-depth local coverage with our own community channels.
Mr. Chairman, it cannot be in the public interest to ask our subscribers to do more, to underwrite CTV's and Global's questionable business practices. The system is not broken. TV is a cyclical business. It's gone through some rough patches before and recovered to earn billions of dollars for its owners. History tends to repeat itself. With the greatest respect, our advice to this committee is simple: give history time to repeat itself.
Thank you, Mr. Chairman. We're pleased to try to answer any of your questions.