Good afternoon, Mr. Chairman, members of the committee, and committee staff.
My name is André Bureau. I am chairman of the board of Astral Media, and I'm joined today by John Riley, president of Astral Television Networks, and by Pierre Roy, president of les Chaînes Télé Astral.
I would first like to thank the committee for inviting us to be part of this review of the television broadcasting industry, an important economic sector in Canada and a pillar of Canadian identity.
Astral Media is very proud to have become a truly national Canadian media company, operating 18 pay and specialty services, 2 small CBC affiliates, as well as 82 radio stations across the country. What is distinctive about our operation is that we are a fully bilingual company with properties in both the French and English language markets.
Broadcasting is an industry with a finely regulated balance among its different constituents. So far, the committee has heard from over-the-air broadcasters and broadcast distribution undertakings. However, you have not heard from the specialty/pay television sector. We would like to take this opportunity to profile the sector and some of the specific challenges that the current context presents. We hope this will complement the information provided to the committee today.
The specialty/pay sector is the fastest growing part of the Canadian television industry, with revenues of $2.9 billion recorded in fiscal 2008. There are over 180 domestic specialty and pay services now available in Canada. These services currently draw 42% of the overall viewing audience in the French market and 38% in the English market. The sector directly employs close to 5,500 people and pays more than $406 million annually in salaries.
The sector contributes significantly to the creation of Canadian programming. In 2008, the overall specialty/pay sector invested $1.1 billion in Canadian programming. Also, 90% of broadcasters' financing for Canadian filmmaking comes from pay television services.
By way of background, specialty/pay services were introduced as cable developed in Canada and BDUs needed new and exclusive sources of content to offer consumers, and in order to justify charging for their BDU services. Broadcasting policies at the time encouraged the development of a domestic specialty/pay sector, rather than simply importing existing foreign--U.S.--services into Canada.
Fast forward two decades, and what we have now is a strong and steadily growing sector that offers Canadians access to a diversity of content, including many underserved genres that are not widely available on conventional television, such as children and documentary programming. In addition, the specialty/pay sector delivers the largest audience for Canadian programming, with 55% of the total viewing of Canadian programs coming from these services.
Since the advent of Canadian specialty/pay, the portrait of viewing has evolved significantly. Why? Because Canadians appreciate our programming. Our sector has developed in response to the specific programming needs and desires of Canadians. In so doing, we have become a thriving hub of economic activity that is viewed internationally as a unique success. It has enabled Canadian broadcasters to develop profitable businesses employing thousands of Canadians and contributing significantly to the national GDP.
However, while the specialty/pay TV sector is profitable and growing steadily, it is not without its own challenges. During this hearing, some ODA broadcasters have suggested that because specialty services have access to subscription fees, it has granted them an unfair advantage. We would caution the committee against focusing on a singular rule in isolation without looking at the broader matrix of rules that serve to produce a carefully regulated balance between the various sectors. For example, over-the-air broadcasters have access to revenues from both national and local advertising, whereas specialty advertising revenues are only at the national level. Pay services, which constitute over 50% of Astral's television revenues, have only one source of revenue: subscription fees. English language OTA benefits from simultaneous substitution. Specialty and pay do not. OTA do not have specific Canadian programming expenditure obligations, as is the case for specialty and pay. OTA also have the advantage of mandatory carriage on basic cable and DTH. Specialty and pay do not. In fact, specialty and pay do not control how they are sold to consumers. Packaging and retail pricing are decided by BDUs.
What is also important to note is that since 1983, 26 years ago, the vast majority of Astral's specialty services have not had a single increase in wholesale rate, despite numerous increases in the amounts BDUs charge to consumers.
With consolidation in broadcasting and telecommunications, BDUs have also become increasingly integrated with specialty, over-the-air, and VOD programming services. They have also been growing mobile and Internet businesses, the newly emerging platform for content consumption. This presents a particular challenge for specialty pay broadcasters in that BDUs are now, in some cases, also our competition. Furthermore, we are no longer necessarily the focus of their bundle offers, which include Internet, telephony, and television services.
The Quebec market is obviously very different from the English-Canadian market. First, and critically, Quebec is a small market that generates less revenue in absolute terms—revenue that underwrites program creation. But there is no less demand for original programming. In fact, viewership for locally conceived and produced shows is high, and loyal.
Broadcasters' investments in original programming for this market are significant—ours as well as others. In fiscal 2008, Astral's French-language specialty and pay services invested more than $85 million in Canadian content. And, because we work almost exclusively with independent producers, the vast majority of this amount was invested in Quebec's independent production community, increasing the overall impact of our dollars on domestic cultural development.
In Quebec, the BDU relationship is a challenge. Quebecor Media is the dominant BDU, and with its subsidiary, Vidéotron, represents 60% of BDU subscribers in Quebec. Quebecor is also the dominant private OTA broadcaster with TVA, and they operate a considerable number of specialty and VOD services. It is a matter of significant concern to Astral that Quebecor would suggest that if a fee-for-carriage was implemented, it should be left to the discretion of the BDU to decide where they will source the funds to pay the OTA broadcasters, which, for Quebecor, would include its own subsidiary, TVA.
Quebecor has repeatedly indicated that if they were to negotiate a fee-for-carriage, this fee would be deducted from what is paid to specialty services as part of a so-called “recalibration” of the system. They reiterated this position in front of your committee on April 20, 2009.
Economically, it makes no sense to allow BDUs to siphon money from a healthy and growing business into a struggling one.
The Canadian television industry has gradually developed because of a careful balance involving profits, rights and obligations. It may well be that we have reached a point where a rethink is required. However, it has taken 40 years to establish this balance and we should be careful to ensure that any changes that are made do not have unintended consequences.
The committee has received conflicting information regarding the state of over-the-air broadcasting. It is still unclear to us whether the challenges are cyclical or structural. If they are cyclical, short-term solutions may be required. However, if they are structural, a full review of the system is needed, and we believe that the CRTC, with its expertise, tools, and information, remains the best vehicle to conduct such a structural review.
With this in mind, we suggest that among the most helpful measures the committee could recommend to alleviate the immediate pressure on over-the-air broadcasters would be, first, to set a government priority on the settlement of the part II licence fees. It's hundreds of millions of dollars. Second would be to address the looming digital transition. Supporting hybrid solutions that take into account the specific challenge of the small market stations' transition to digital is important. As has been the case in other countries, government should work with the industry to ensure we find constructive solutions to help navigate through this particular financial challenge.
There are other possible immediate regulatory measures that could be taken, such as compensation for distant signals, the local programming improvement fund, and the rights of local stations for carriage in their local markets, all of which are currently being examined by the CRTC in a way that ensures the necessary checks and balances prevail.
Mr. Chairman and members of the committee, thank you for the opportunity to appear before you. We will be happy to answer any questions you might have.