Canadian Heritage Committee on April 22nd, 2009

[The Chair, Conservative, Gary Schellenberger]

Try to make your introduction shorter than Ms. Dhalla's.

[Voices]

Oh, oh!

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

That's no problem.

The owner of TVA/Quebecor Media appeared before the committee on Monday and said that one of his solutions would be to share the current fees of cable companies with general interest channels, not just the specialty channels?

What do you think of this suggestion made by Pierre Karl Péladeau?

[Ivan Fecan]

I'm not sure I understand your question, so could I file an answer on it, please? I'd like to read his transcript.

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

Can I...?

[The Chair, Conservative, Gary Schellenberger]

No, that's your one short question.

I think Mr. Masse wants to take the floor, and I think you will get a reply.

[Brian Masse, NDP, Windsor West, ON]

Thank you, Mr. Chair.

I was interested in your response with regard to the CRTC. It seems you're willing to partition your business and cut the A-Channel's local stations loose, even though you called them the binding aspect in many respects.

I want to make this clear. Are you saying that it was very clear to the CRTC that you would cut these stations loose if they did not make a profit? Are they the real problem, because they actually made you take those stations knowing that they made a loss and knowing that you were going to cut them loose if they weren't going to make a profit, knowing that they had a history, in your words, of 30 years of failed operations in terms of returning revenue?

[Ivan Fecan]

Well, we're at the end of a licence term, sir, so we agreed to take it for the term. Now we've asked for a one-year extension, because we very much hope a solution—

[Brian Masse, NDP, Windsor West, ON]

With all due respect, I'd like you to answer my question. Were those conditions laid out between you and the CRTC when you made the deal to get CHUM and they gave you the A-Channel? Were the conditions clear then, that you had to make a profit or you would cut them loose? Did the CRTC know that at that time?

[Ivan Fecan]

No one, sir, is required to reapply for a licence when it expires.

[The Chair, Conservative, Gary Schellenberger]

Okay. Thank you for the answer.

Mr. Del Mastro, you have the last question. Please keep it very short.

[Dean Del Mastro, Conservative, Peterborough, ON]

Thank you very much, Mr. Chair.

The CRTC extended the Canadian programming fund to 6% from 5%. It's an extra $60 million. That money didn't come out of thin air. The cable companies didn't take it out of profit, nor did the satellite providers. It's 55¢ per subscriber, and folks are going to pay it. I would argue that fee-for-carriage is a fee that subscribers would have to pay.

If the position of CTV is that nobody should have to pay anything more and that we should find a way to hem the cable companies and satellite companies in so that subscribers don't pay anything extra.... Rogers was here the other day, and they said that such a scenario would lead to job losses at Rogers. Are you prepared to say that, if we were to hem them in and this cost jobs at the cable companies or satellite providers, you would still hold a position that if we're taking from one pocket and giving to the other and the result is job losses at the cable and satellite providers...? Do you think that's a reasonable position?

[Ivan Fecan]

A year ago, Rogers said you should never increase cable bills without increasing services, and they did just that. So I'm not sure how credible they are on this subject.

[The Chair, Conservative, Gary Schellenberger]

Thank you very much. This brings this part of the meeting to an end.

I must thank our witnesses for being so candid, and thank you for the questions around the table.

We'll recess for five minutes and then we'll reassemble.

[The Chair, Conservative, Gary Schellenberger]

We've gone a little past where we should be. We're running a little late today.

I welcome our witnesses for this second hour. As everyone has taken the time to come today, we'll make sure there is an hour. You do have a full hour, so we will monitor that.

Mr. Bissonnette, if you would like to introduce the rest of the people with you and give your presentation, please go ahead.

[Peter Bissonnette, President, Shaw Communications Inc.]

Thank you very much. We're delighted to be here today. With me is Ken Stein, our senior vice-president of corporate and regulatory affairs; Jean Brazeau, our senior vice-president of regulatory affairs; and Alex Park, vice-president of programming and educational services.

We look forward to an open and constructive dialogue about the state of the Canadian broadcasting system, the importance of serving local communities, Shaw's contributions to the system, and our focus on the 3.4 million customers, your constituents, whom we serve.

We congratulate you on conducting this important study. We know you have read our submission very carefully and will consider it fully as you deliberate. Because time is short and we know you're anxious to ask questions, we will quickly address our key points in response to the committee's stated suggested study themes.

First, we'll be part of the solution by continuing to build and sustain a strong Canadian broadcasting system. We believe in the system, and we believe that television has an exciting future. Shaw and our 10,000 employees already make, and will continue to make, significant contributions.

Second, requests for a fee for carriage must be denied. The harm to consumers, the harm across the entire broadcasting system, and the harm to the Canadian economy would far outweigh any perceived benefits that would be enjoyed by broadcasters alone.

Finally, we will make specific recommendations about how the government and the CRTC can contribute to maintaining the strength and the relevance of local broadcasting by focusing on consumers and investment.

The most important contribution of BDUs, broadcasting distribution undertakings, is building the network and infrastructure that delivers choice to Canadians and supports hundreds of programming services. Shaw alone has invested over $5 billion, and as a result of these investments we have built a world-class broadband network in large and small communities across western Canada. We have transitioned our networks from analog to digital. We have grown the subscriber base of our all-digital satellite service, Shaw Direct, from zero to approximately 900,000 households, including homes in rural and remote communities throughout Canada. And we provide competitive programming satellite signal delivery services through Shaw broadcast services to over 2,000 small Canadian cable systems. These systems rely on Shaw broadcast services to serve millions of customers, again, in small communities.

We will make more investments in broadband and satellite infrastructure. These capital expenditures are critical for a number of reasons. We serve Canadians with tremendous choices, including an attractive and affordable basic service, hundreds of digital discretionary services, 50 high-definition channels in Shaw and satellite, as well as interactive applications like pay-per-view and video-on-demand. We provide conventional and specialty services with high-quality signals, allowing them to attract billions of dollars in advertising revenues. We operate in an intensely competitive market in every sector of our business, broadcast distribution, Internet, and telephony. In this environment we make business decisions every day and we're held accountable by our customers. We invest to bring fibre connectivity to small communities. Broadband investment will be a key driver of economic recovery and will support Canada's knowledge-based economy.

Shaw also makes a significant contribution to the system and to local communities through our popular community channels, which provide 100% local, 100% Canadian programming every day of every week. Each year we produce over 9,000 hours of original local political programming, special community events, local sports, and local news and magazine shows.

Our achievements include the following: we raise approximately $4 million each year for local community associations across western Canada and northern Ontario; annually, we produce over 1,000 hours of programming focused on federal political issues from a local perspective; we produce weekly coverage of over 50 local municipal council, school board, and committee meetings; we provide 24/7 live coverage of the flood watch in local Winnipeg communities; we provide two dedicated multicultural channels in Vancouver and Calgary to support a diversity of local ethnic communities; and we produce over 120 community feature stories every day across western Canada and northern Ontario.

Beyond these contributions, cable has also invested over $50 million in CPAC to provide a commercial-free window on Parliament and national public affairs at no charge to Canadians. Since 1997 we've also contributed over $400 million to the Canadian Television Fund and private funds.

We are confident that Minister Moore's creation of a Canada Media Fund will finally ensure that this funding is about investment to satisfy the needs of our audiences rather then subsidies to satisfy the needs of producers and broadcasters.

These investments demonstrate that we are committed to customers, and we are very excited about the future of Canadian broadcasting.

Broadcasters also demonstrated their belief in creating a specialty service in Canadian television when they spent a combined $3.7 billion to acquire a number of specialty services to add market share, increased bargaining power, and cross-purpose content. We know there are many challenges ahead, but there are also tremendous opportunities to take full advantage of synergies and new technologies.

Several parties argue that there is a systemic problem that requires a systemic solution. The systemic problem is with the existing regulatory regime, which is based on protections and subsidies. This model is unsustainable in the global, dynamically competitive digital communications environment.

The fix is not more regulation and taxation or a bailout for broadcasters. Broadcasters make business decisions to spend more than $700 million annually on American programming. In one case, they amassed a $4 billion debt from the purchase of non-Canadian television stations and publishing properties. They should be held accountable for these decisions.

Let's now discuss the false premises that support the broadcasters' demands for fee-for-carriage. More money will not go into local broadcasts. More money will not be used to breathe life into local programming. To help explain the broadcasters' real motives, let's look at the example of the CRTC's proposed local programming improvement fund. It was introduced only last October, but broadcasters are already demanding more, because they say 1% of our revenues is not sufficient, and they are already trying to escape any commitments to spend that money on incremental local programming.

Fee-for-carriage completely ignores broadcasters' regulatory advantages and privileged place in the broadcasting system. The long list of broadcasters' existing protections is included in our written brief. They include mandatory and priority carriage on the basic service, free cable and satellite delivery of local broadcast signals, valuable free spectrum, and simultaneous substitution.

Free distribution on cable and satellite will become even more important as we move through the digital transition, because broadcasters are telling us they will not build over-the-air digital transmission facilities in most markets. In all communities outside of major urban centres, cable and satellite will be the only way for Canadians to receive their local stations.

Finally, fee-for-carriage is not a market-based solution. In contrast to the situation under the U.S. regime, where broadcasters must make a choice between “must carry” and retransmission consent, Canadian broadcasters want both. There would be no real negotiation with broadcast distributors. There would be no customer choice. Customers would have to both take and pay for these services. The result would be a wealth transfer from Canadians to private broadcasters. Put simply, it would be a tax on ten million Canadian households for the benefit of two or three private enterprises.

Clearly, fee-for-carriage is not the solution. However, we would like to make the following specific recommendations, which will provide relief in the short term and over the long term will help to build a strong and competitive Canadian broadcasting system.

For the digital transition, Shaw will support the availability of an affordable virtual broadcast solution on cable and satellite so that broadcasters can continue to reach local audiences while saving hundreds of millions of dollars in capital costs for new digital transmissions.

As suggested by the CRTC chairman, part II licence fees should be eliminated. There should be relief through the elimination of advertising restrictions and a reduction of regulatory obligations.

If broadcasters consider local programming to be a regulatory burden, they are always free to give up their licences, and the CRTC should call for new applications from companies that believe there is a business case for serving local communities.

The government and the CRTC must fully embrace the potential of community channels to provide a diversity of voices through local news and local programming that reaches various geographic, cultural, and linguistic communities.

Finally, the CRTC should be provided with the direction to conduct a comprehensive review of the entire system. Such a review should lead to recommendations based on the interests of Canadians as viewers and consumers.

In conclusion, Shaw greatly appreciates the opportunity to appear before this committee, because we share the common goals of building a strong broadcasting system and serving Canadians and local communities. We are a successful company because every day we engage our 3.4 million customers and we listen to them. We ask the committee to do the same by focusing on the interests of Canadians. If innovation, investment, and new technology are allowed to drive this market, Canadian consumers and viewers will be the winners.

Shaw is already part of the solution. We reach Canadians through our ongoing and substantial capital investments to bring world-class service to large and small communities. We distribute hundreds of Canadian programming services. We make significant financial contributions to private funds and the Canada Media Fund, and we provide outstanding programming on our community channels.

However, we cannot support any solution that is based on new subsidies, taxes on our customers, or broadcaster bailouts. We believe the true cornerstone of the system must be Canadian consumers. As set out in the Broadcasting Act, the system must serve their needs and interests.

Thank you, and we look forward to answering your questions.

[The Chair, Conservative, Gary Schellenberger]

Thank you for that presentation.

We'll go to Ms. Dhalla for the first question.

[Ruby Dhalla, Liberal, Brampton—Springdale, ON]

Thank you very much for coming before the committee today and providing us with some insight as to what's going on within your organization.

I have a couple of questions.

You spoke in regard to the CRTC and its mandate, the local programming improvement fund, and your accessibility in regard to that. When the chair was before us, he spoke about the fact that it's increasing by $60 million. It's supposed to be more than 72 eligible stations. Do you think that's enough to ensure there is local programming and strong Canadian content in this country?

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

First of all, we do not believe in funds. We have the position that funds just become subsidies of uneconomic behaviour. We believe regulatory obligations are the best way to proceed. We don't look for funds. When we invested in satellite services, I think in the first year we lost $350 million.

[Peter Bissonnette]

Yes, we lost $350 million. We didn't have a tag day special. We said we need to make this a profitable business and let's get creative about doing that. We looked at adding new services and making the service a much more attractive service to our customers. Ultimately we were able to move from that position, of losing $350 million, through investment—investing in more transponders and the new satellite.

[Ken Stein]

In terms of local programming, we think local programming is important. We do have one local television station that we happen to own. It was part of the cable system we purchased in Kenora. We believe it's a successful operation and we continue to plan to make it a success. We think there's a lot of room for working together with the cable system in a local area in order to make sure the people in that area are served. We think those kinds of solutions are much better than funding mechanisms, which just create artificial distortions.

[Ruby Dhalla, Liberal, Brampton—Springdale, ON]

You don't believe in a local programming improvement fund, and you're against fee-for-carriage. What other types of ideas and solutions would you propose to get the broadcasting industry out of its state of crisis?

[Ken Stein]

First of all, we don't believe it is in a state of crisis. We do know Canwest is facing significant financial issues. We do know CTV has taken certain writedowns, but as was just pointed out, they're a private company and we don't know what their numbers are saying. We believe there is an issue—that is, in terms of a recession—and we can see the impacts of that, but it's affecting every Canadian. It's affecting every business. We believe the way to get through this is to ensure we get the policy situation right.

The problem is that when we get into the whole ambit of the CRTC, we then tend to look at the only policy solution as being regulation, or subsidies, or other kinds of funding mechanisms. We think that's the wrong way to go. We think the proper way to go at this would be, for example, if there was a systemic issue that happened over the last number of years because of the change in viewing shares, then one has to not look at short-term solutions such as one-year licence renewals, but ask what is happening over the next number of years.

The commission has done that in the past. In the early 1990s it did look at the whole broadcast distribution and television business, and it included consideration of fee-for-carriage, which it also rejected at that time, and it laid out a vision for how cable was going to unfold over the next number of years. We think that's the proper approach.

[Ruby Dhalla, Liberal, Brampton—Springdale, ON]

I have a last quick question before the chair tells me that time's up.

Do you think the CRTC has acted fast enough, quickly enough? I know you think there's no crisis, but we've talked to a number of different stakeholders, a number of different broadcasters, and they certainly feel there is a crisis. If you talk to Canadians, when they're losing their local news, they're losing the programming they're used to seeing, for them it is a state of crisis.

So do you think the CRTC has acted quickly enough, or do you think there should have been further direction provided to the CRTC by the government?

[Ken Stein]

First of all, as you point out, we don't agree that there's a crisis. We feel that television is probably entering a golden age. We think it is an exciting period. The development of high definition, the relationship to the Internet, webcasting--all of those choices are there for Canadians. We think we're just at the beginning of it, so we think making proper investments is the way to go.

In terms of the CRTC, we have disagreements, absolutely. For example, when the chairman of the CRTC appeared he said local broadcasting is the cornerstone of the system, that conventional television, as he called it, is the cornerstone of the system. We don't agree with that. We think the cornerstone of broadcasting is as laid out under paragraph 3.(1)(d) of the Broadcasting Act: Canadians' interests, needs, and aspirations. That is what has to be looked at, not the state of the broadcasters. The broadcasters may be in a financial crisis, but Canadian television viewers are not.