Canadian Heritage Committee on April 22nd, 2009

[Yves Mayrand, Vice-President, Corporate Affairs, Cogeco Cable Inc.]

Good afternoon, Mr. Chair and members of the committee. Our presentation will indeed be very short and to the point.

We are the fourth-largest cable system operator in Canada. Our service footprint covers many local communities in Ontario and Quebec. We offer a wide range of broadcasting distribution and telecommunications services as well as local community programming through our extensive broadband fibre and coaxial cable network, extending from Windsor to the tip of the Gaspé Peninsula.

We have been in the broadcasting business for over half a century, and in the cable business for over 35 years. Needless to say, we have experienced phenomenal change in our lines of business. We have been able to succeed by adapting to change and reinvesting for the future. You can check on what we do, and how well we do, every quarter because our shares are listed on the Toronto Stock Exchange.

Your suggested study themes raise several fundamental questions of broadcasting and electronic communications policy that would require much more than a five-minute speech to fully address.

Here are our key messages today. Hopefully they will help you in your deliberations.

First, traditional local broadcasting is clearly under pressure from a combination of changes--growing costs, declining advertising, and declining viewership--which are all driven in good measure by technological change. As a result, the way of doing local broadcasting has to change as well. In short, technological change must be embraced. The cost structure must be alleviated; advertising must be more targeted and effective; multiple platforms must be used; and viewer involvement must be promoted.

Second, fee-for-carriage for over-the-air television is not a silver bullet. It will not address any of the required changes that we just mentioned. It will only delay them and make things worse in the end. It would be like pouring water in a barrel with an open tap, because Canadian broadcasters are free to overspend on buying American programs and free to underspend on producing local programming.

Third, the expectation that our analog over-the-air television system--which was built over a period of over 60 years--will be converted entirely from analog to digital by August 31, 2011, is, simply put, a project conceived on thin air. Our federal government has decided to reclaim the analog spectrum to sell it for mobile communications, as is being done in the U.S., but has left the resulting technical and financial problem entirely to the broadcasting industry. There is just a small hitch. The broadcasting industry does not have the technical resources or the capital available to go digital all the way, and even if it did, there is no workable business plan to justify the required investment.

Fourth, what can the federal government do to help? Frankly, a good start would be to stop hobbling the industry. For general revenue purposes, the federal government has collected almost $800 million from 1998 to 2006 from revenues of the broadcasting industry by way of a special licence fee calculated as a percentage of all broadcasting revenues. The question of whether this fee constitutes an improper tax is now before the Supreme Court of Canada, but the government is always free to end that tax and to return part of its earlier proceeds to the industry.

This special licence fee is in addition to the base licence fee, corporate income tax, GST, and mandatory contributions to Canadian program funding, which now include the Local Programming Improvement Fund (LPIF). The federal government does not collect any of these taxes or fees on pirated broadcasting signals and services in Canada, yet spends next to nothing on enforcement of its own broadcasting and radiocommunication laws.

And the federal government now stands to collect several billion dollars more from the auctioning off of the analog spectrum used by broadcasters for over 60 years. All of this while the industry faces a more challenging environment than ever before in its history.

Fifth, what can our company do to help more on the local programming front? We have a model that we developed seven years ago in North Bay. When the CTV local affiliate in North Bay decided to cut back on the local news, TVCogeco stepped up to the plate and started to provide local news coverage on our local cable channel. We have a daily half-hour program of news Monday to Friday at 5:30 p.m., with repeats at 6 p.m., 11 p.m., 11:30 p.m., 6 a.m., and 6:30 a.m. Overall, TVCogeco produces, in North Bay, a year-round weekly average of 8.6 original first-run hours of local programs. We also plan to webcast North Bay news beginning in the new year.

Is this good for local broadcasting and diversity of voices? Our viewers, our community groups, and our local representatives sure think so. We could do more if we had access to our own local resources for that purpose. Oddly enough, our local advertising is restricted by regulation. Indeed, regulations still preclude most advertising activities from local community programming, on-demand programming, and commercial availabilities on cable or satellite programming signals.

We will start paying 1% of our total cable broadcasting revenue into the LPIF next fall, but we will not be eligible for any funding from the LPIF unless the criteria proposed by the CRTC are changed. We will be making that point to the CRTC at the public hearing next week.

Based on our experience in North Bay, there are real local programming solutions at hand when the broadcasters feel they no longer have a business case for local programming tailored to the different needs of the local communities. We just need to think and act outside the traditional mode, and we need a little understanding from the federal government and the regulators to deploy these alternative solutions more widely.

I'd be happy to answer your questions.

[The Chair, Conservative, Gary Schellenberger]

Thank you for that presentation.

Mr. Viner.

[Peter Viner, President and Chief Executive Officer, Canwest Television, Canwest Media Inc.]

Thank you very much.

Good afternoon, Mr. Chairman and committee members. Thank you for inviting us to provide our input into your study on the state of local television in Canada.

My name is Peter Viner, and I'm president and CEO of Canwest Television.

Joining me today is Charlotte Bell, our senior vice-president of regulatory affairs.

Our comments today will focus on the financial state of local television, the challenges we face as an industry, and what we believe some of the solutions are.

You've asked us to comment on the appropriateness of a fee for carriage for local stations, so let me begin there.

We believe that local broadcasters should be paid for the use of their signals as part of a cable and satellite package in the same way that Canadian specialty services like TSN, the Food Network, TELETOON, and others are, and also U.S. cable channels like CNN, A&E, and Spike TV.

Under the banner of regulatory reform, there are many other things that can and should be done, but in our view, a properly designed fee-for-carriage regime would put Canadian local broadcasting on a sustainable footing and would go a long way in addressing the ongoing decline in the sector.

Now let me talk about the state of local television in Canada. This crisis is real. The conventional television business model is broken, and it's been broken for some time. Some are suggesting that this is merely a short-lived decline in the advertising revenue that will rebound with the economy. The facts suggest otherwise. A weak economy has only accelerated a trend that began years ago.

Local broadcasters have been warning the CRTC for many years that a crisis was inevitable. It's extremely frustrating that it took an economic downturn to validate these concerns. Over a thousand people have lost their jobs, and the very existence of many local television stations is now at stake. It didn't have to be this way.

By all measures, the signs of deterioration have been here for some time. Our advertising revenues have been flat to declining for the past three years. Profitability for the sector sank to single digits and reached an all-time low of less than half of a per cent last year. This all happened in a healthy economy. Quite simply, this happened because we've gone from a few stations reaching all Canadians to literally hundreds of stations reaching all Canadians. In other words, the amount of advertising money available is now divided among a much larger group of stations, and that doesn't take into account the growing proportion of the advertising market going to the Internet.

Some have suggested that the debt incurred by broadcasters as a result of a consolidation is to blame for the crisis. But debt doesn't account for the worst three-year performance in recorded history of local television or last year's meagre profitability before the economy began to really slide. Debt didn't reduce the value of CTV's local operations by 75% or cause Canwest to take a billion-dollar writedown on its local stations. It also didn't cause Rogers to record a $294 million loss on its local stations some 18 months after they purchased it.

The conventional television business model is broken. Consolidation was a necessary response to fragmentation caused by years of over-licensing and authorizing too many foreign signals in Canada. Consolidation didn't break the local television business model. In fact, consolidation only delayed the inevitable.

The crisis was predictable, and it has been well documented. As far back as 1993, broadcasters, economists, and others warned that local television was at risk unless measures were taken to address the structural imbalances within the system. One could say that the proverbial chickens have now come home to roost.

Charlotte.

[Charlotte Bell, Senior Vice-President, Regulatory Affairs, Canwest Media Inc.]

Concerning local programming, the competition is not fair. Canadians have access to hundreds of TV channels and a broadcasting system that is among the most diversified in the world, but the Canadian television market is one of the most complex, competitive and regulated that exists. Diversity has a price.

The struggle to attract viewers and advertising income has intensified since the early 1990s. Today, there are some 170 specialty Canadian channels competing for the same audiences and advertising. And for local stations, advertising is their only source of income. Canadians also receive, via cable, dozens of American channels in all kinds of niches.

Here's the problem. Canadian specialty and U.S. cable channels receive hundreds of millions of dollars in subscriber fees each year. In fact, over the last nine years, U.S. cable channels--I'm saying U.S.--such as CNN, A&E, and Spike TV received almost $2 billion from Canadian cable and satellite services. Meanwhile, local television received nothing.

The time to act is now. Fee-for-carriage is a basic question of fairness, recognized as far back as 1971 when the CRTC established the first cable policy. The commission declared at the time that one should pay for what one uses to operate one's business. In other words, fee-for-carriage was regarded as a matter of fair business practice and was one of several measures prescribed by the CRTC at the time to counterbalance the impact of cable technology and the importation of additional foreign signals into the local marketplace, but it was never implemented, as you know.

So today, while new entrants such as specialty and foreign cable channels receive a portion of cable and satellite bills, local stations still don't receive a cent. Ironically, Canadians believe that a portion of their cable or satellite bills is going to their local stations. In two separate consumer surveys conducted on our behalf since 2006, subscribers overwhelmingly said they valued local television above all other programming services. More than 65% of subscribers also believed they were already paying for local stations on their bills. When informed that local stations don't receive any portion of their fees, almost 80% of subscribers were in favour of local stations receiving a portion of their basic fees, and a vast majority of respondents were willing to pay almost $5 extra each month to continue to receive their local station.

The cable and satellite companies continue to argue that consumers will revolt if their bills increase, and we know this is your concern also. During last year's CRTC policy review, executives at Rogers and Shaw threatened to pass on to consumers any new carriage fees for local stations. Rogers executives actually said the majority of Canadian consumers are not prepared to pay a fee where no added value is associated with that fee. Consumers would be forced to pay an extra $5 or $10 a month on their cable or satellite bill and receive nothing new for this increase. But based on the 50¢-per-subscriber fee that we proposed, the average increase would have been no more than $2.40 in most markets and much lower than that in many places.

But here's the irony. In March of this year, Rogers subscribers saw their bill increase by $6 a month, although Rogers had not added a single additional service, and no revolt occurred. In fact, by all accounts, despite continuous price increases over the years, the number of cable and satellite subscribers has continued to grow. The facts just don't support their arguments.

[Peter Viner]

Mr. Chairman, local television remains a vital part of the Canadian broadcasting system. Over the past 10 years, Canwest local stations have spent in excess of $1.6 billion on Canadian content, including news, benefit taxes related to various transactions, and part II fee levies from the government. We're still in this business because we think it's worth fighting for. The arguments against fee-for-carriage simply do not hold up. Given the current state of local television, fee-for-carriage is not just a matter of fairness; it has now become a matter of survival. When it comes to the future of local television, fee-for-carriage may well determine whether local television survives in Canada.

Thank you for your time and interest. We'll be pleased to answer any of your questions.

[The Chair, Conservative, Gary Schellenberger]

Thank you very much for that presentation. Now we move to Ms. Skelly, please.

[Donna Skelly, Co-host, CHCH-TV]

On February 5 of this year, an emergency meeting was called to inform the employees of CHCH-TV in Hamilton that, along with its sister stations in the E! Network, we were up for sale. Our parent company, Canwest Global, told us that a buyer would have to be found within eight to ten weeks. If not, they told us, the worst-case scenario would be possible. After 54 years, the first independent television station in Canada, CHCH-TV, could go black.

My name is Donna Skelly, and I represent a group of employees who are trying to save CHCH-TV. Shortly after this shocking and devastating announcement, we came together to develop a plan that would prevent CHCH-TV from going black. The priority of our employee group is fundamentally different from the current players in the broadcast crisis. We don't want to answer to shareholders demanding high returns on their investments. We are not looking to expand into other industries or to acquire other properties. We simply believe that the residents of Hamilton, Halton, and Niagara have a fundamental right to at least one television station that serves their needs. We want to prove to Canada's regulatory commission, to you, our members of Parliament, and to other community leaders that this station, CHCH-TV, is more than a means of making money for shareholders. This station, the only station to serve a market of over a million people, has become an essential service that must be protected and preserved.

We know that the business model for conventional television is broken, but has anyone or any group given you an alternative model for local news? What has happened is that networks are now asking for relaxation of licence requirements, and for subsidies, to allow them to continue to operate under the same broken model.

What we are proposing is new. It is radical. It's a different approach to local news, but it's a model that we believe will not only protect local television in Hamilton, Halton, and Niagara; we think it could serve similar stations and communities across the country. But for today's purposes we are focusing on CHCH-TV.

We are proposing community ownership for this essential over-the-air licence. CHCH-TV would be controlled by the community. It would be governed by a board of directors made up of leaders and the people who understand the communities they live in. The broadcast mandate would focus on news and information that is important to the people in these communities. The programming schedule would not include the type of prime-time programming so readily available on other channels.

To sustain our model we have identified unique revenue opportunities. Traditional advertising will be crucial to this plan, but unlike the networks, we would aggressively solicit advertising dollars from lucrative untapped sources of advertising from within our own local business community. Currently, many local businesses simply cannot afford to advertise during prime-time hours. It is simply too expensive. In our opinion, broadcasters are too reliant on national advertising and have not provided enough opportunities to local business. Personally, I've been approached by local business owners who would welcome the opportunity to buy affordable television time to promote their own products.

The local program improvement fund will also be critical to sustaining and enhancing a local news and information service. Although it remains unclear right now as to what groups would be eligible for these funds, we believe there is no group more worthy than an independent CHCH Television in the cities and communities it is mandated to serve. In fact, we would ask the CRTC and this committee to include eligibility criteria that would give priority to communities that have one conventional television broadcaster providing local service.

The third element of this revenue initiative attempts to find a method of regulating funding from the community for local television services. Residents have anecdotally told us that they wish to continue having service from a local station and they want CHCH to continue with a strong local mandate. To do this, we believe a fee for carriage needs to be regulated to support local television in the communities served within the licence boundaries of CHCH. Under our proposal, all distributors in the defined coverage area carrying CHCH would be required to add a specified fee for carriage of the CHCH signal. CHCH would remain a must-carry option by these distributors.

To date, discussions concerning this crisis faced by Canada's broadcast industry have focused primarily on how to assist struggling networks. What hasn't been discussed is the impact on the true stakeholder in all of this, and that is the Canadian taxpayer. In 2000, when Canwest Global obtained the licence for CHCH-TV, the company promised to produce 37.5 hours of local programming. In a few weeks, Canwest will be back before the CRTC asking to reduce the amount to five hours of local news programming a week. That's a reduction of over 80%.

Although a final schedule has not been announced, this reduction could mean that viewers in Hamilton, Halton, and Niagara could lose their three-hour morning show, their daily noon show, their daily current affairs programming, all their weekend newscasts, their local sports, and their local lifestyle programming. What would remain is Snoop Dogg's Father Hood, Keeping Up with the Kardashians, and Dr. 90210. Ask any resident of Hamilton, Halton, and Niagara what they would have cut, and I can assure you it would not be local news programming.

Not only are Canadian viewers losing local news, they are losing access to quality news. Serious news coverage has all but disappeared in local newscasts because of the reduction in staff and resources. Many local newsrooms do not cover the stories that require dedicated resources and experienced journalists. Local criminal trials, city hall meetings, and investigative stories require long hours and a lot of money. Today, these stories are a rare component in local newscasts.

We believe strongly that any recipient of public funding for television news production should be required to set aside a significant portion of that funding for serious news. Infotainment cannot be a fallback or a weak alternative to news. Broadcasters may argue that these funds should not be micromanaged. We argue that the health of this industry depends on it.

On March 11, 2009, this committee agreed to study the future of television in this country. Throughout the process, you have been told this industry is in the midst of a crisis. I disagree. I say we have an opportunity to make radical changes to the business model; to insist upon tougher regulatory conditions when licences are renewed; to demand that serious news be a priority; to identify and classify licences in markets like Hamilton, Halton, and Niagara as essential services; and to protect these licences for the true stakeholders, the Canadian people, who have a fundamental right to their local news.

Thank you.

[The Chair, Conservative, Gary Schellenberger]

Thank you.

We're just changing the questioning around a little. Mr. Bruinooge is going to share his time with Mr. Del Mastro. Could I have the first question, please?

[Rod Bruinooge, Conservative, Winnipeg South, MB]

Thank you, Mr. Chair.

I just want to thank the Liberal critic, Mr. Rodriguez, for extending this opportunity for me to ask a question, as I do have to leave. Again, this highlights the non-partisan nature of this study. I think we all want to find a way to find a solution to what is a crisis in television broadcast.

Perhaps I could first thank all the witnesses for their testimony thus far. I have a number of questions. I'm from Manitoba, and I'll put my colours on the table right away. I would like to ask a couple of questions for a very important company that has maintained a presence in Manitoba when many other companies were running to Toronto and other places. Of course, Canwest has always maintained an important presence in Manitoba.

A couple of people who have come before this committee have suggested that perhaps the broadcasters might not necessarily be passing along any fee for carriage, that if you were to receive it—if the CRTC were to rule that—it might not get passed along to local content. In fact, the CRTC chairman, Mr. Konrad von Finckenstein, when he came before this committee, indicated he didn't have assurances from the broadcasters as to whether or not they would pass that along. I'm wondering if you can give some testimony as to whether or not you see that the fee for carriage, or any additional revenues you were to receive, would go to local news.

[Peter Viner]

Charlotte, please go ahead.

[Charlotte Bell]

To answer your question very quickly—and I know Ruby Dhalla also asked the same question a couple of times—what we said specifically to the commission is that we actually tied fee-for-carriage to local programming. What we said, clearly, to the commission was that we need to know the mechanism will be put into place and in exchange for making concrete commitments to local programming.

At the time, this was a policy review hearing. We have licences, with licence commitments, but we knew the decision the commission would issue on this particular matter would be issued in September or October and we would be filing our renewals a couple of months later. So we asked that they approve this mechanism and we would make those commitments in our licence renewal, and this is tied to the provision of meeting certain levels of local programming.

We didn't get a fee for carriage. We proposed a certain level, and you know the rest.

[Rod Bruinooge, Conservative, Winnipeg South, MB]

I see.

So you seem to think that perhaps you wouldn't agree with the testimony that the chairman of the CRTC put on the table at his most recent testimony before our committee.

[Charlotte Bell]

You know, as Mr. Fecan said earlier, maybe it wasn't made.... I think it was clear that the commitment would come afterwards. I think that's probably what the chairman was telling you also when he appeared before you, that we didn't make the concrete hourly commitment at the time. But it's a policy review, and in a policy review you're trying to put a framework around an idea. You make your concrete commitments in your licence renewal.

[Rod Bruinooge, Conservative, Winnipeg South, MB]

A number of other witnesses, specifically from the cable companies, have suggested that the broadcasters have spent--I think the phrase used was “like drunken sailors”, or something along those lines--in other areas, and that was one of the reasons they found themselves in these situations.

Is there any testimony you could provide in that regard, perhaps in relation to some of the requirements the CRTC has levied on your company, that your company was forced to buy certain assets that you maybe wouldn't have?

[Peter Viner]

Yes. I'll take a stab at that.

Last year, we spent a little less than 2%, incrementally, on foreign programming, which I think is where part of that myth comes from. The broadcasters who are under some pressure here include the BBC, ITC, CBS, NBC, Rogers, CBC, CTV, and us. I don't think we're making this up. I don't think this is an imaginary crisis.

The fact of the matter is we borrowed money to purchase the Alliance Atlantis specialty channels, and that was in an attempt to keep our total television business alive, because clearly the audiences and the advertisers are moving to specialty television. If we're not in that business, then we're not going to be a healthy participant in the television business.

[Charlotte Bell]

If I may just add something, one of the issues here is the whole question of consolidation, and I think that's where you're going with this question.

Just to be clear, in 1994 and 1996, in both of those rounds, there were specialty applications being considered by the CRTC. We applied for three services in each of those rounds, so a total of six services. We got only one licence.

The commission, at the time, wanted to let new entrants in for the sake of diversity. The irony, again, is that most of those new entrants have now sold their businesses for millions of dollars and have completely left the industry. Of course, they've been sold to companies like CTV and Canwest and others. We had to buy our way in because we didn't get the licences when we competed for them at that time.

The other thing is that in 1994 and 1996, again, we applied for licences in Alberta, and we were denied both times. In order to complete our conventional network, we had to buy the WIC over-the-air television stations. That was another acquisition that cost dollars.

[Rod Bruinooge, Conservative, Winnipeg South, MB]

I have just one last question.

The CRTC, then, I guess, forced you to buy the WIC network, instead of just granting you a licence in Alberta?

[Peter Viner]

No, they didn't force us to buy it, but our business strategy depended on us having a complete network, and that was what we did to fill it in.

[The Chair, Conservative, Gary Schellenberger]

Thank you.

Ms. Lavallée, please.

[Carole Lavallée, Bloc, Saint-Bruno—Saint-Hubert, QC]

Thank you.

I have two questions for you, Mr. Mayrand. I found your presentation extremely interesting. I will ask you a first brief question, and I would ask that you respond just as briefly, and then we will have fun with the second question and answer, because they appear to me to be more basic.

You stated that the conversion from analog to digital is a “project conceived on thin air“. I interpret that to mean that it cannot be done. And you added that there is no workable business plan to justify the required investment. What do you suggest instead?

[Yves Mayrand]

What you have to understand is that they are talking about converting, from analog to digital, all over-the-air broadcasters. Much of the conversion is done in studio equipment, sound, etc.

However, the main problem is with the broadcasters. We are telling them, essentially based on a decision made by the regulator, that everyone must convert to digital by August 31, 2011. But here is the thing: the technical resources and the capital required are not available.

In addition, officials are talking about converting this entire transmission infrastructure to radio frequency for a very small part of the population that is currently served solely through over-the-air broadcasting. That is the problem.

[Carole Lavallée, Bloc, Saint-Bruno—Saint-Hubert, QC]

Are you suggesting that it should not be done, period?

[Yves Mayrand]

The CRTC has asked us as well as other industry players, both broadcasters and distributors, to find alternate solutions. We took part in a working group, and its findings have been officially tabled as part of the CRTC's public file for the hearings that will be held in one week's time.

We are considering alternate solutions that encompass cable or satellite signal distribution, or a combination of the two.

What remains unclear is how many of today's over-the-air local stations will stop their over-the-air broadcasting. That remains somewhat unclear, and we have not been able to obtain any clarification on that.

You will understand that it is a bit difficult for the industry to come up with a compromise model when the variables are unclear.

[Carole Lavallée, Bloc, Saint-Bruno—Saint-Hubert, QC]

Are you saying that some local stations could shut down because they will not proceed with the conversion?

[Yves Mayrand]

Some stations will definitely shut down, but it is up to the broadcasters to identify those stations.