Canadian Heritage Committee on April 29th, 2009

[The Chair, Conservative, Gary Schellenberger]

Welcome. This is the 17th meeting of the Standing Committee on Canadian Heritage.

Pursuant to Standing Order 108(2), we are studying the evolution of the television industry in Canada and its impact on local communities.

For the first hour we will be going from roughly 3:50 until 4:50. There will be an hour for your presentation and questions.

Welcome to Maxime Rémillard, from Remstar. Could you please introduce the person with you?

[Maxime Rémillard, Co-Founder and President, Remstar - TQS]

Thank you, Mr. Chairman.

I'd like to introduce to the committee Mr. Tony Porrello, executive vice-president and chief operating officer.

Mr. Chair, ladies and gentlemen, members of the Standing Committee on Canadian Heritage, we would like to thank you for your invitation and congratulate you on holding this hearing, which deals with the major issues that will have a direct impact on the future of television in Canada.

We are appearing before you for the first time, because Remstar Diffusion took ownership of TQS on September 5, 2008, after the network had gone through a period of technical bankruptcy starting in December 2007.

My brother Julien and I founded Remstar Corporation 12 years ago, its mandate being to finance, produce and distribute films and television shows for Canadian and international markets. We have been creating and distributing Canadian and foreign cultural content since 1997.

Remstar's film catalogue clearly shows our desire to strike a balance between entertainment and social issues.

The production of films such as Elles étaient cinq, Ma fille, mon ange, Battle in Seattle and more recently Polytechnique attests to the type of risks that we have taken to create cultural products that make a contribution by raising public awareness of major social issues.

Remstar's record shows how passionate we are about the entertainment industry, and this passion that has led us to accept the challenge of getting TQS back on track.

Our acquisition of TQS represents a major investment and a considerable risk. This is something we thought out carefully over the long, complex and difficult process we have been through.

We saw the acquisition of TQS as an opportunity to support the development of high-quality cultural content for the Quebec market.

TQS has become known for taking risks and innovating, but also for its serious financial problems that forced the former owners to place the network under the protection of the Companies' Creditors Arrangement Act on December 18, 2007. With annual losses of close to $18 million, TQS could no longer fulfill its mandate as a conventional broadcaster without making major changes. These changes were especially needed in our news department, which was losing considerable money and was no longer able to compete with Radio-Canada or TVA, which can have their all-news speciality channels bear some of the costs of their news rooms.

The issues that you raise in this hearing are some of the key concerns that we too are facing.

TQS operates five stations in Montreal, Quebec City, Trois-Rivières, Saguenay and Sherbrooke, and its signal is retransmitted by affiliate stations in Gatineau, Rouyn-Noranda and Rivière-du-Loup.

Each year TQS invests over $30 million in the development and acquisition of original French-language productions, which contribute to the development of our culture.

Those investments provide work to our 200 employees as well as nearly 1,000 artists and artisans, whose creativity, talent and energy help create the various productions with which audiences identify.

Our new positioning targets a younger audience, whose lifestyles and consumer habits we have to take into account.

Information today is disseminated faster and is more accessible on the Internet or mobile phones than on television or other traditional media.

Ensuring a diversity of voices and reflecting regional realities do meet people's needs, but account for a significant part of broadcasters' costs.

As for entertainment, although there are more and more broadcasting platforms, television remains the vehicle of choice to produce and finance high-quality content.

Just as cinema needs theatres to launch its films and create the buzz that will attract crowds and ensure success, creators of content for the small screen need conventional television to launch the high-quality shows that will draw broad audiences and, in one way or another, will be distributed on a host of other platforms.

Although today's audience is more fragmented, major television events, whether they be cultural, sporting, social or political, play an important part in our social lives.

Quebeckers greatly enjoy dramas, comedies and reality TV as well as quality entertainment shows.

To succeed, TQS will offer programs that are more interactive and event-based, project a strong brand identity that is youthful and daring, and consider the Internet and social networking sites as potential allies.

We have been working to revive the fortunes of TQS since September 2008, and our efforts are already paying off, but the main impact of our plan will be felt starting next September.

Despite the extremely difficult economic context, we are investing in our programs on an ongoing basis and every day we are increasing our market share of our target audience of people between the ages of 18 and 49.

Between the weeks of March 9 and April 20, our market share in the evenings has already increased from 6.4% to 10.6%, an increase of nearly 66%. During that same period, La Première Chaîne of Radio-Canada saw its market share decline from 15% to 12.5%. Such results show the relevance and value of content provided by a second private conventional broadcaster in the Quebec market.

TQS's substantial financial losses and the implementation of its recovery plan have clearly confirmed that the current television financing rules are jeopardizing the survival of private conventional broadcasters and compromising their ability to fulfill their obligations. The imbalance, which now must be corrected, was caused in part by the exponential growth of cable and satellite television, together with the increase in the number of specialty channels.

By obtaining exclusive access to revenue from carriage fees and increasing access to the advertising market, the specialty channels have benefited from this dual revenue stream and become increasingly profitable. At the same time, the conventional broadcasters, which must offer local programming, are seeing their advertising market drop off steadily because of the centralization of advertising decisions, a result of the growth in national and international banners and the skyrocketing use of the Internet and other new media.

In concrete terms, the profit margin of private conventional broadcasters has plummeted from 14.5% in 2003 to 0% in 2008, while profits at specialty channels jumped from 12.6% to 23.6% over the same period. This reality is particularly puzzling, considering that the conventional broadcasters are still investing $1.4 billion, or approximately 30% more in Canadian programming and production than the specialty channels. Our industry absolutely must make those investments in order to reflect the values, realities, talents, aspirations and creativity of our society.

The diversity of programs and the requirement to create local productions lead to substantial costs for the private conventional broadcasters, whose sole source of revenue is advertising. Their situation cannot be compared to that of the public broadcasters, which receive significant and guaranteed public funding every year. The competitive advantage of the specialty channels and the public networks is considerable and creates an imbalance on the advertising market.

In fact, in hard economic times, those channels, which have a guaranteed stream of revenue, can sell their advertising spots at reduced rates in order to maximize their revenues at the expense of the private conventional broadcasters. Moreover, when public broadcasters, which benefit from substantial public funding, acquire and broadcast U.S. entertainment series, such as Desperate Housewives or Lost, they go beyond the scope of their mandate, and this has a direct impact on private conventional broadcasters and their ability to offer popular programs.

In order to explain the major impact of the distribution of carriage fees, we would like to remind you that in 2008 those fees amounted to over $250 million for Quebec's specialty channels alone. Astral Media received $107 million in carriage fees before earning a single dollar in advertising revenue. Their carriage fees alone are greater than all of TQS's advertising revenue for the same year.

Cable and satellite television has become a fact of life for almost all Canadians. Claiming that conventional broadcasters should be excluded from receiving carriage fees because the distributors offer them a privileged-distribution channel amounts to saying that television content is of secondary importance.

It is therefore essential to restore the balance in the allocation of carriage fees among all television content providers and distributors. That is why our brief contains a specific recommendation on reallocation of carriage fees. The recommendation reads as follows:To ensure the long-term viability of the general-interest television industry and of sustainable investments in local broadcasting, we recommend that the members of the Standing Committee on Canadian Heritage provide general-interest broadcasters with a new source of revenue by giving them access to fees associated with the carriage of their signals.

As for the Local Programming Improvement Fund, the CRTC's initiative is essential.

However, it is important to determine the rules of the fund as soon as possible and to increase its resources substantially. The structural crisis that our industry is undergoing forces us to be realistic and to request that this fund be reserved for the private general-interest broadcasters and that its resources be used to maintain the current programming commitments, no more. Simply maintaining the current regional and local programming commitments is an enormous challenge for a private general-interest broadcaster such as TQS, and this fund should help us meet that challenge.

Finally, to encourage production in the regions and television news at the regional and local levels, we suggest that a tax credit be introduced for regional productions and people working in the regional news industry. This tax credit would be for independent television broadcasters and producers. The introduction of this type of program would help ensure a diversity of voices in the public arena, would encourage the training and development of local talent, and would contribute to the quality of local television. There are several programs that have been developed for the film industry and other types of television production that could be used as a model.

The transition to digital broadcasting also represents a major challenge that will require TQS to make significant investments. The purchase of new transmitters and the costs of this technological transition could reach $15 million. In several regions, installing these transmitters is not a profitable investment. That is why we are suggesting that a program be established similar to the federal government's program to provide high-speed Internet service in remote areas of the country.

The television industry is undergoing a revolution but it remains a driving force essential to the culture and vitality of our country. The production of original Quebec and Canadian content is the key to ensuring our industry's future and to maintaining our national identity. The television industry is flexible and resilient, and it generates significant economic benefits. However, it needs a critical mass of activities in order to remain dynamic and vital, as well as focused measures in order to ensure its presence throughout all regions of Quebec and Canada.

In Canada, this industry invested $2.5 billion in programming and production in 2008. A new allocation of carriage fees among all content broadcasters and distributors is absolutely necessary if we want to have a dynamic industry made up of television broadcasters who compete on creativity and talent, without unfair regulatory distortion. We hope that your committee's work will lead the Government of Canada and the CRTC to make the appropriate decisions in order to ensure that this necessary rebalancing takes place.

Thank you.

[The Chair, Conservative, Gary Schellenberger]

Thank you very much for that presentation.

Our first question comes from Mr. Rodriguez, please.

[Pablo Rodriguez, Liberal, Honoré-Mercier, QC]

Thank you Mr. Chairman.

Good afternoon, Mr. Rémillard. Welcome, Mr. Porrello. I'm pleased to see you with us.

How are you? Is TQS doing a bit better?

[Maxime Rémillard]

It's doing better. It went through a difficult time. The company is emerging from technical bankruptcy. Currently we are working hard on our recovery plan. As I mentioned, our ratings have gone up. That gives us hope.

[Pablo Rodriguez, Liberal, Honoré-Mercier, QC]

Good, that is good news.

When the CRTC agreed to your requests, it took the company's financial situation into account. It also reduced its requirements in terms of local content.

Have you made a long-term commitment, once you become profitable, to increase your local programming, local content or local news?

[Maxime Rémillard]

I would just like to make one correction, to Mr. Rodriguez. Our local programming commitments have not decreased. Our commitment was rather to offer category 1 news.

As I mentioned earlier, TQS is emerging from technical bankruptcy. For now, our main priority is to ensure adequate financing in order to conduct our operations and meet the requirements of our licence, as set by the CRTC.

[Pablo Rodriguez, Liberal, Honoré-Mercier, QC]

Will you manage if you continue to function according to the current economic model, that is, the model that is based almost solely on advertising revenue?

[Maxime Rémillard]

The current economic circumstances are very difficult, which makes the advertising market very unstable.

[Pablo Rodriguez, Liberal, Honoré-Mercier, QC]

But is it possible or not? Are you telling us today that the status quo is no longer possible and that there has to be a change? Perhaps a change to the fee-for-carriage allocation or another solution.

[Maxime Rémillard]

Yes, there has to be a change. The general-interest television networks have to have access to another source of revenue.

[Pablo Rodriguez, Liberal, Honoré-Mercier, QC]

That includes what is called fee-for-carriage; in other words, the fees that you would receive from cable companies that they would collect from the consumer and then pass on to you.

The cable companies have told us that this would necessarily have a direct impact on consumers. Do you agree?

[Maxime Rémillard]

We do not agree with that. What we are requesting is a review of the current allocation of the revenue, a rebalancing of current funding.

[Pablo Rodriguez, Liberal, Honoré-Mercier, QC]

And if you do obtain that new source of funds, the fee-for-carriage, will you commit to providing it to your regional stations or, to using it to increase local news, in other words to making sure that this will trickle down to in the regions?

[Maxime Rémillard]

For now, as I mentioned earlier, our main priority is to get the company out of the financial mess that it is now in. We want to meet our commitments. We believe that our current commitments are already very costly and we want to provide quality service to the citizens we serve.

[Pablo Rodriguez, Liberal, Honoré-Mercier, QC]

But if you had this source of additional revenue, in other words if there were a transfer of monies from cable companies, would you agree to making your investment priority the regions or local content?

I don't know exactly how many millions of dollars that would represent for you, but it would certainly be a few million dollars in new funding, not the status quo.

[Maxime Rémillard]

For now we agree to investing it in Canadian local production. That is part of our commitment. As I stated, our main priority is to respect our commitments and ensure adequate service and a good level of quality to all the citizens that our stations' serve. Therefore, a second source of revenue would help us meet those commitments.

[Pablo Rodriguez, Liberal, Honoré-Mercier, QC]

I assume that you support the Local Programming Improvement Fund, the CRTC' famous $60 million fund that you obviously have access to.

You said that you want to make your position on that clear. Have you made it clear today? Do you think that more money should be allocated to that fund?

[Maxime Rémillard]

I beg your pardon? Could you please repeat your question?

[Pablo Rodriguez, Liberal, Honoré-Mercier, QC]

Are you happy with the fund as it stands? Do you have any recommendations or suggestions to make with respect to this fund?

[Maxime Rémillard]

I think that there are still many unknowns with respect to that fund. We don't know what the allocation of the funds will be based on. So I would prefer to wait for more details and to wait and see how those funds will be shared, with whom the funds will be shared, whether they will be for public broadcasters or only for private broadcasters.

I would rather reserve my comments and make them known when the information is available.

[Pablo Rodriguez, Liberal, Honoré-Mercier, QC]

You are wise.

[The Chair, Conservative, Gary Schellenberger]

Thank you very much. Your time is up.

Ms. Lavallée, please.

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

You are right to be very strict with Mr. Rodriguez, who was very strict with us on Monday.

Mr. Rémillard: I very rarely like to begin in the same way as my Liberal colleague, but I too would truly like to know how things are going. You said that things are better. But will you meet all your commitments up to 2011, under your current agreement with the CRTC?

[Maxime Rémillard]

It is absolutely our intention to meet our commitments, but obviously because of the current economic circumstances it is very difficult to make long-term predictions. It has become more and more difficult to meet our CRTC commitments and our commitments to the public whom we serve through the stations we operate.