Canadian Heritage Committee on May 4th, 2009

[Michael Harris]

Our local news is the most popular program on the channel, even beating hockey. So it's what the salespeople go out with first.

[Dean Del Mastro, Conservative, Peterborough, ON]

Are you telling me it's more popular than the Maple Leafs, sir?

[Michael Harris]

Yes.

[Dean Del Mastro, Conservative, Peterborough, ON]

My goodness, this is terrible, Mr. Chair.

I wanted to point out a couple of things. We've had some local stations before us. They've indicated that they've pulled local news. You're not looking at pulling any local news. In fact, I note that you are doing three separate news offerings.

[Michael Harris]

Yes. I'd like to think that we're a model of efficiency. Each of our reporters does three stories every day. They're videographers. They shoot them, they write them, and they're responsible for editing them and putting them in the newscasts. So it's a very efficient operation. I can't imagine any programming being cheaper than that.

[Dean Del Mastro, Conservative, Peterborough, ON]

So you're finding viability through efficiency?

[Michael Harris]

Yes.

[Dean Del Mastro, Conservative, Peterborough, ON]

Okay.

The last thing I'd like to ask you about is your relationship with CBC. I know there are only a couple of CBC affiliates. We had Mr. Lacroix here and I asked him about the ongoing relationship with CBC.

Can you speak to that, because I do know it's something the people in our area certainly value?

[Michael Harris]

Well, I'll let John answer. On the news side, it's a very strong relationship.

[John Cassaday]

Our relationship with the CBC is very, very good. We're just dealing with a fundamental philosophical issue, and that is that they're questioning the role of non-owned, affiliated stations. We believe that as good a job as we're doing, without access to the CBC programming, we would find it impossible to serve the constituents in Peterborough. We have an affiliation agreement until 2011. It's our hope that can be renewed.

[Dean Del Mastro, Conservative, Peterborough, ON]

That's great. Thank you very much.

[The Chair, Conservative, Gary Schellenberger]

Thank you very much.

I apologize for the shortness of the opportunities to question.

Mr. Angus.

[Charlie Angus, NDP, Timmins—James Bay, ON]

Sorry, I don't want to jump in again, but just as a point of clarification, you said there was uncertainty about renewing the licences with the non-affiliated stations. I would like to have that clarified so that it gives us a better picture of local....

[John Cassaday]

When we renewed to 2011, it was with a clear understanding that they hoped we wouldn't be back. It's our very, very fervent hope that we can convince them to allow us to continue to be affiliated with the CBC.

[The Chair, Conservative, Gary Schellenberger]

Thank you very much.

Again, we have to recess to bring in our next witnesses.

Your answers were fantastic. Thank you very much.

[The Chair, Conservative, Gary Schellenberger]

Could people please find their seats again? I welcome you back for the second hour of our committee meeting here today.

Again, I'm going to ask the various presenters to introduce the folks that are with you. We have the Canadian Association of Broadcasters, along with--you'll have to excuse my French--Fédération des télévisions communautaires autonomes du Québec. I tried. As well we have Télé-Québec and TVCogeco Peterborough.

With that, I will ask our first presenter to go ahead. Please keep it as brief as you can. I apologize that we have so many witnesses. You're all very important to this committee. We'll keep our questions as short as we can, and please keep the answers as short as possible.

Could we have the Canadian Association of Broadcasters, please?

[Pierre-Louis Smith, Vice-President Policy and Chief Regulatory Officer, Canadian Association of Broadcasters]

Thank you, Mr. Chair, members of the committee. My name is Pierre-Louis Smith, and I am the vice-president, policy and chief regulatory officer at the Canadian Association of Broadcasters. With me is Tara Rajan, who is the CAB vice-president, research and policy.

The CAB is the voice of Canada's private television, radio, and pay and specialty services of all sizes, in all regions, and all languages spoken in Canada. In total, we represent over 600 stations and services, some of which have appeared before you in these hearings.

You have heard many points of view throughout these hearings. Today, our main objective is to present you with a set of facts about Canadian private television, along with solutions—some familiar to you and some less so—to address the pressure on local television.

CAB members, both in the radio and television sectors, are proud to have established strong relationships with their audiences and communities. Each day, your constituents benefit from the services provided by a number of our members. From news to weather, sports, entertainment and information services, broadcasters unite Canadians by showing them the stories that have a special significance to Canadians.

Broadcasters employ some 23,000 Canadians in creative, highly-skilled jobs. These people are professionals who strive for excellence. CAB members are pleased to see your committee take an interest in local television and the broadcasting industry as a whole. The facts show that the broadcasting sector, both public and private, has been affected by the fragmentation of audiences, the decline in advertising revenues and increased costs. Broadcasters have a number of recommendations to deal with the situation.

Let us first look at the statistics.

I will now give the floor to Ms. Rajan.

[Tara Rajan, Vice-President, Research and Policy, Canadian Association of Broadcasters]

Thank you, Pierre-Louis.

We are on page 3.

Our broadcasting system offers hundreds of choices, the majority of which are Canadian. It is clearly the preferred option for Canadians. Today, we have more choice per capita than people in the United States, the United Kingdom, France or Australia. Despite fragmentation, Canadian channels obtain 70% of television ratings in Canada. When it comes to French-language services, ratings are at over 95%.

Last year, private television spent $385 million on locally-produced programming. These impressive figures went into delivering services to communities throughout the country. Over the last 10 years, conventional private television spent over $90 million for a host of activities related to Canadian programming, skills development and other initiatives, as a result of tangible benefits resulting from property transactions. A further $51 million was spent on closed captioning and video description.

Finally, in 2007, private broadcasters disbursed $314 million for the benefit of the communities they service, through donations, volunteer hours and public service announcements. That is probably the most visible aspect of our work to you and your constituents: radiothon or fund-raising dinners and activities. Private broadcasters build relationships with their communities by providing substantial and irreplaceable support.

I'll move on to page 6.

The focus of these hearings has been local television. For private conventional television, the local advertising market has been flat for many years. Private conventional television has relied increasingly on national advertising to drive its business model. Increases in national advertising revenues make it possible for private conventional television stations to increase their spending on Canadian programming, including local programming.

Is this just another business cycle? Advertising, the source of virtually all private television revenues, has shifted considerably away from conventional television over the past 15 years. This slow erosion of ad share will not be recovered in the next business cycle, nor is Canada exceptional in this regard. The erosion of ad share for conventional TV is even more acute in the U.S.

Where are the ad dollars going? As the ad market has become more fragmented over time, the dollars are flowing to specialty television and the Internet.

I'll turn to page 8 to focus on local advertising. You'll recall that local television ad revenues have been flat for the past 15 years. In terms of share of advertising, local television is capturing less of the local ad market than ever. Other media and new advertising vehicles, such as the Internet, are capturing a greater share of local ad dollars. This does not look like a business cycle blip.

Moreover, the costs of other kinds of Canadian programming supported by public policy and regulation are increasing faster than conventional television revenues. For example, over the past five years, English language drama costs have increased an average of 11% per year, while conventional television revenues have increased less than 1%. Similarly, French language variety and performing arts production costs have increased an average of 15% annually. With production costs outpacing revenues, private conventional television faces one more pressure.

The 21 largest private television stations, which made modest profits of 4.8% in 2008, buttressed the losses of 78 smaller stations, which collectively had a minus 13% profit margin last year. Larger companies, which own both large and small stations, argue that they cannot continue to cross-subsidize stations that are losing money. Smaller companies, many of which also operate smaller stations, are in a precarious position.

Fragmentation of audiences, declining ad share, higher programming costs: these are some of the elements of the structural transformation in local television. The transition to digital and its attendant cost of up to $327 million for the private sector simply makes the transformation even more challenging in the next 12 months.

Pierre-Louis, would you continue?

[Pierre-Louis Smith]

Thank you, Tara.

We have five recommendations for this committee. First, provide local programming support. The local programming improvement fund's, or LPIF's, structure and amount is still being discussed at the CRTC. Some parties have recommended an increase to the amount, in recognition of the decline in revenues and unsustainable business model for local over-the-air television. Based on the current CRTC proposal--1% of BDUs' revenues--the LPIF would not alone solve the pressures on local television. It would contribute needed funds, particularly for stations serving less than one million population, to bolster local programming, particularly news. Therefore, the CAB endorses a fund that will assist these stations.

The second recommendation deals with signal carriage. Private broadcasters need all local signals carried by VTH and compensation for these signals when carried outside of their local market. Broadcasters, large and small, see this as a pillar of the policy framework. Broadcasters and MPs have asked that all local television stations be broadcast in their local market. The government and the CRTC should require the carriage fix for all local stations, such as in Medicine Hat, Rouyn, or Rivière-du-Loup.

The second issue relates to the monetary harm caused to local stations by the distribution of distant signals. CAB estimates that the economic impact of the distribution of Canadian distant signals through the OTA sector was $70 million in lost advertising revenue for the year 2005-06 alone, of which BDUs compensated broadcasters $10 million to offset the loss--clearly not an acceptable level. Therefore, broadcasters have asked for the right to exercise control over the carriage of their signals out of market.

The third recommendation deals with DTV transition. The committee is aware of the government-mandated August 31, 2011, transition date to convert analog to digital television signals. Broadcasters are requesting industry collaboration to implement a hybrid model. A hybrid approach would significantly lower the cost of conversion. The request to fund the digital transmitter conversion for broadcasters would be appropriate, given the government-mandated conversion. Depending on the model chosen, financial support will be quantified. Equally important, the consumer information campaign required to inform viewers of the change should be led and supported by government.

The fourth recommendation deals with part II licence fees. Broadcasters, distributors, and the CRTC have all recommended the elimination of the part II licence fee regime. On an annual basis, this $100 million fee, which broadcasters challenge as an illegal tax, takes away from broadcasters' bottom line, while the fees are directed to the Consolidated Revenue Fund with no connection back to the broadcasting system. This committee should recommend the immediate end of the part II regime.

Finally, a recalibration of the CBC/Radio-Canada funding. CBC members fully support CBC/Radio-Canada as a key component of the Canadian broadcasting system. It is critical to ensure a clear mandate and funding structure for CBC/Radio-Canada. Our members believe the time is right to examine a change to CBC/Radio-Canada's undue reliance on commercial advertising and government appropriations. This quasi-commercial approach puts the public broadcaster in direct competition with the private sector, as programming decisions are driven by the need to maximize viewing audiences in order to generate advertising revenues. Changing the corporation's ability to access commercial advertising would obviously need to be offset by increased parliamentary appropriations.

Mr. Chairman, members of the committee, overall, private broadcasters are of the view that we must take action, in the area of policy and regulations to address the challenges faced by local television.

In closing, the CAB has taken no position on the issue of distribution rates or fee-for-carriage. Member companies within the organization or the association have addressed this issue individually with you. We would be pleased to answer any questions you may have.

[The Chair, Conservative, Gary Schellenberger]

Thank you very much.

Now we move to the Fédération des télévisions du Québec.

[Sylvain Racine, Director of des Moulins Regional Television, Treasurer to the Board of Directors, Fédération des télévisions communautaires autonomes du Québec]

Mr. Chairman, members of the committee, we are here before you today to remind you that the Broadcasting Act provides that the Canadian system comprises three elements: public, private and community. We are representatives of the community element.

The television stations we represent are non-profit organizations established by the members of their communities. They are media players that offer local news in their own way, commensurate with the meagre financial resources available to them. The independent CTVs or community television stations are part of the range of news voices and they need better financial support.

CTVs welcome many volunteers whom they train in technical aspects of production, hosting, and whom they involve as members of their board. Community television is a medium available to all, accessible and close to the people. This medium plays a crucial role in local economic, social and cultural development.

The total budget of an independent community television station varies considerably, ranging, according to our latest figures, between $30,000 and $400,000. The CTVs' main funding sources are the following, but not necessarily in this order: self-funding activities, member recruitment campaigns, Quebec government advertising, the Quebec government community media operation support program, local sponsorships and cable company contributions. We will return to this last source below.

As you are no doubt aware, the community television experience has not all been positive. Far from it! Following the first revision of the Broadcasting Distribution Regulations in 1998, Canadian companies lost access to their community channel, which had become a competitive advantage for the cable companies that now had to compete with newcomers, such as satellite distribution undertakings. Citizens' right to their own television was called into question.

In 2000 and 2001, in response to pressure by the CTVs, the federation and a number of other stakeholders, the CRTC launched a revision of the Community Channel Policy. The result was the publication of the Policy Framework for Community-Based Media, on October 10, 2002, under Broadcasting Public Notice CRTC 2002-61. In this new policy, the CRTC finally acknowledged the contribution of independent CTVs to the Canadian broadcasting system and formally included them in the new Policy Framework for Community-Based Media as undertakings promoting community access to community programming. Quebec independent community television stations could consider this recognition as an unprecedented historic gain.

Apart from the recognition of independent CTVs, the policy framework put in place guidelines for the operation of community channels that were maintained by cable companies. However, this recognition has not forced cable companies to fund the independent CTVs for the local and access programming they produce. And yet if a cable operator decides to maintain a community channel, under section 29 of the Broadcasting Distribution Regulations, it may deduct all or part of the percentage of its gross revenue that must go to Canadian programming to fund community programming. However, a number of cable operators prefer to retain the money for their own production teams and little or nothing goes to the independent CTVs.

We note that, since there is no funding obligation, these contributions are uneven from one cable operator to the next, from one CTV to another, and many receive absolutely nothing. An appropriate way must be found to fund local, independent community television stations. We believe that the solution lies in the creation of a dedicated local community and access programming fund.

My colleague Mr. Gérald Gauthier, of the Fédération des télévisions communautaires autonomes du Québec, will continue.

[Gérald Gauthier, Research and Development Officer, Fédération des télévisions communautaires autonomes du Québec]

Currently, at the local level, the independent CTVs are completely excluded from funding concerns: there is no obligation to provide a financial contribution through cable distribution, the CTVs are disqualified in advance from all existing federal programs and the Government of Canada does not buy advertising slots from the CTVs. Even if they are guaranteed space on the community channel, how can the independent CTVs fully play their role as program producers for their communities if they do not have access to adequate, structural funding? Would it not be time for the Canadian government to recognize the importance of the independent community television stations by ruling on the necessary funding they urgently need to cope with rapid change and increasing challenges? The community element of the act must be developed and serve all Canadian citizens.

The idea of establishing a dedicated local community and access programming fund has been in the air for a number of years now. In 2001, the federation submitted to the Standing Committee on Canadian Heritage that a federal community access programming financial assistance fund was necessary in a context in which cable operators preferred to retain the portion of the deductible Canadian contribution for community-channel activities for their own purposes. In its report entitled, Our Cultural Sovereignty: The Second Century of Canadian Broadcasting, the committee submitted a recommendation to that effect, recommendation 9.8.

In its brief to the CRTC in the context of its Diversity of Voices hearing, Quebec's Department of Culture, Communications and Status of Women also recommended that a fund be established for the promotion of local news for commercial and community radio and television stations. It therefore seems clear to many that the establishment of a dedicated local community and access—

[The Chair, Conservative, Gary Schellenberger]

Excuse me, we're not getting our translation here.

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

I believe our anglophone colleagues are no longer getting interpretation. I want them to hear you and understand what you have to say.

[The Chair, Conservative, Gary Schellenberger]

They've got it now.