Canadian Heritage Committee on May 6th, 2009

[Grant Buchanan, Partner, McCarthy Tétrault LLP, Directors Guild of Canada]

Dr. Fry, you were asking about a solution to closures of small stations. I have the same shopping list my colleague just presented to you.

[Hedy Fry, Liberal, Vancouver Centre, BC]

Okay. Thank you.

We heard earlier that fee-for-carriage has certain inherent risks, and there should be very clear structures within it to prevent those risks from happening. I accept that is something we need to talk about, but my big question here is for the CFTPA.

You talked a lot about the consolidation of the broadcasters and how that has created a 90% share in conventional television. That is a very frightening issue, in terms of where the future of television's going. We might as well close down Canadian television and become a big part of the United States. So I'm very concerned about that. Do you have a solution to that?

Secondly, I am also concerned about the consolidation of this large media fund, and broadcasters sharing that fund. If we remember the history of this, the Canadian Television Fund was set up because many of the cable broadcasters, television stations, were allowed to increase their fees because they needed to digitalize. Then they got all their infrastructure in and had to decide what to do with the fees. The solution was to put the money into a pot to be used for Canadian programming by independent producers and broadcasters. Now it seems to me they want to renege on that and get a piece of the pie, when they already had the opportunity to increase their fees.

[The Chair, Conservative, Gary Schellenberger]

We're going to run out of time.

[Hedy Fry, Liberal, Vancouver Centre, BC]

That's my question. What do you think of that, and what do you think we could do to deal with the foreign programming issue?

[Norm Bolen]

Thank you very much, Dr. Fry.

I think these are both excellent questions. Let me deal first with the foreign programming expenditure question, and I'll speak from my own experience at Alliance Atlantis.

I'll grant you that specialty programming and conventional programming have differences. In many ways, conventional has advantages over specialty, and some of them were enumerated by my colleague, Claire Samson.

When I was at Alliance Atlantis we had Canadian content spending requirements, and conventional programming also had them prior to the 1999 change in the television policy. A certain percentage of our gross revenue was allocated to Canadian content by regulation. That meant every year when I put together my budget for programming and our corporate budget, the first thing I checked off was Canadian content. It was 40% of the previous year's budget. It was a fixed cost. We didn't see it as a tax; we saw it as an audience opportunity.

Second, I had overhead and other costs I needed to cover. I needed to make a profit to satisfy my shareholders. What was left I could spend on foreign content. That programming expenditure requirement forced me to put a brake on my foreign spending. It prevented me from accelerating my foreign spending to a point where I couldn't afford to meet my other obligations.

We don't have that any more. We have a system out of whack. They can flatline their Canadian content and spend more and more on foreign content. That's why their bottom line is so negatively affected.

We'll be speaking to the Canada media fund or the fee-for-carriage issue, but it will be a shame to see money going to those broadcasters who will bid up the price of foreign programming even more, or shift money into more foreign programming.

[The Chair, Conservative, Gary Schellenberger]

I have to cut you off right here. Dr. Fry had quite a long statement and question. We're already a minute over.

I will turn to Mr. Pomerleau, please. I've been told by the critic to be tough.

[Roger Pomerleau, Bloc, Drummond, QC]

Thank you, Mr. Chairman.

I'm just going to ask two questions, then I'm going to hand over to Ms. Lavallée. My first question is for Ms. Samson or Ms. Doucet. We naturally start from the assumption that Canadians want Canadian content. I think that's true to a certain degree. I don't think it's as true as that, but I think it's true. People tell us that, if you ask Canadians directly whether they want Canadian content, the answer will be yes, but that ratings very often seem to say something else, despite what Mr. Anthony just said. Others have told us otherwise. That's why ratings shouldn't be the only evaluation method, as you said. Someone before you even talked about weighting ratings. If ratings shouldn't be the only evaluation method, what specifically do you propose?

[Claire Samson]

Thank you.

First of all, I think we have to draw an important distinction here. You're very sensitive to this, I'm convinced of it. There is an enormous difference between the behaviour of the francophone audience and that of the anglophone audience. Quebec has traditionally managed to rely on a star system that has developed over the years, first with radio, then in the theatre, variety reviews, movies and now television. This star system has a very significant power of attraction over the audience, which supports the entertainment industry, magazines and radio programs that focus solely on the entertainment industry, which in turn naturally supports the promotion of local talent. The situation is completely different in English Canada. You must understand that. Having often sat on the Canadian Television Fund, I know that my English Canadian colleagues often envy us very much because we always have pretty good results.

In the case of Quebec, I think the ratings speak for themselves. We want to protect this situation and not go back to the situation in the 1960s, when the most popular programs in Quebec were Dallas, Dynasty and the Little House on the Prairie. That's no longer the case today, and we definitely wouldn't want to go back to that time. There's still a lot of work to do in English Canada. The situation has vastly improved in recent years, but the battle isn't won. As my colleagues said, our next door neighbour is the largest producer of cultural content in the world, with solely private funding and no restrictions. For our neighbours, who are the biggest producers in the world, selling English Canada a series that they have amortized around the world represents an advantage. That increases their business turnover, but it reflects no cultural interest.

[Roger Pomerleau, Bloc, Drummond, QC]

Mr. Chairman, my second question is for Mr. Bolen.

[Claire Samson]

Do you want me to talk to you about criteria?

[Roger Pomerleau, Bloc, Drummond, QC]

Yes.

[Claire Samson]

I think the Canadian Television Fund, as it was, offered a happy balance between the audience reached and the quality of the licences granted by a broadcaster to a producer. If the licences were minimal, it wasn't very profitable for it, but if the licence was improved and enhanced, you could go get more money from the Canadian Television Fund. In addition, there was a regional production incentive, a regional enhancement. We thought all these factors were positive. In addition, if you consider its behaviour over the past five years, how it behaved in the case of the acquisition of Canadian content, I sincerely believe it was much more balanced than to claim that only ratings should guide the system. If it's only ratings that guide the system, in Quebec, that will of course favour only one player in the Quebec industry and would of course put the educational and specialty channels at a disadvantage.

We think that the envelope system—which moreover was developed by the APFTQ and presented to the Canadian Television Fund through a Quebec census—was much more balanced and respectful of the missions of each of the broadcasters and genres.

[The Chair, Conservative, Gary Schellenberger]

Thank you very much. That took up the five minutes.

Mr. Angus, please.

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

Thank you very much, Mr. Chair.

Of all the many people who've come to speak with us and tell us about the level of the crisis, we had a manager from a very small television station. We asked him about the high cost and how much they lose on doing local news. He said that was their largest market, that everybody watches it because it's local, which is very different from the other message we were hearing. Then I began to think that this does tend to.... Everybody in my region watches the local news because it's the one time during the day they're going to hear about themselves.

I'm reading an excellent book right now, called Appetite for Self-Destruction: The Spectacular Crash of the Record Industry in the Digital Age. I suggest you read it. They talked over and over, saying they were going to make the transition to digital and were going to have a plan, but they had no intention of having a plan because they thought business would go on as usual.

I'm prefacing my remarks because I'm wondering if we're about to watch the spectacular crash of television in America or Canada, because unless there is really good content, young people are not going sit and watch reality TV shows all night. In my kids' generation, none of them watch television, but they watch lots of TV shows. They're watching TV shows in different languages from around the world, and they are looking for good content.

We're sort of being asked to accept that the solution is to cut all our obligations, that we have to make this as cheap and simple as possible or we'll go under. And I'm wondering if we're watching the self-destruction of another industry that's saying if we do everything on the cheap somehow they'll sit on their couches, when the new demographic has lots of better things to do.

I'm prefacing that in terms of the role of independent production, because independent production takes the risks. It has to raise capital. It has to go through a bidding process, so if you have a really stinky idea, you'll never get it on.

But the response we've been given is that we have to change the regulatory structure so we don't have to deal with.... You people don't look as rotten as I've the heard independent producers are, but we have to go in-house. As long as it's all in-house and it's cheaper, then we don't mind spending money. But we don't want independents.

I remember our meeting with Monsieur Péladeau. He seemed to think that his obligation to the CTF was somehow a voluntary benefit that he gave. He said he didn't mind giving the money, as long it goes to our kinds of productions, which is our own video-on-demand and our own in-house service, and now he's one of the only people sitting on the board and making decisions about where the money goes.

I'd like to hear from you how important it is to make sure we have independent access, independent voices, and actually have some high-level content, as opposed to allowing taxpayers' money to go into a huge pot that's going to benefit five cable giants

I leave it open to you.

[Norm Bolen]

I'd like to speak to that. I would say the independent production sector and the creative community in Canada are best able to adapt to the changes that are going on in the digital marketplace. We see the changes that are going on, and our members are evolving the content they produce in order to embrace these new opportunities.

Instead of seeing the pie in a defeatist way, as an ever diminishing pie with smaller and smaller pieces that we have to squabble over, we actually see digital media—and that's why we talk about the need for a digital media strategy—as an opportunity to expand the pie. Around the world consumers are spending larger and larger percentages of their disposable income on content. So content isn't dead. And by the way, television isn't dead tomorrow. It still has a long way to go. It's still a mass vehicle. It reaches more homes than any other form of media, so it's still very important. But it does need to evolve.

We thank the minister for having put in place mechanisms like the Canada Media Fund that merge television and digital media and require multi-platform strategies. That's a very innovative thing to do. And that's the kind of thing we need to do more of. What we don't see broadcasters in Canada doing is evolving their strategy. They're saying, “it's broken, give us more money”. But they're not proposing a fix. They're not proposing the solution. They're not proposing a new way to do things other than “make us spend less in Canadian content and give us more money and we'll keep spending more on foreign”. That doesn't get us anywhere.

If you look at the United States, which is very innovative, and Britain and other countries, broadcasters are developing new ways of distributing and monetizing their content. NBC in the United States is a good example. Hulu is now the third most important place where people go to view video. They're making money on that stuff. They're transitioning to the digital age. BBC in Britain, as a public broadcaster, is getting its content out on every platform imaginable. We're not doing those kinds of things. Our broadcasters are still operating with the old model like dinosaurs. It's the independent producers who are pushing them into the future.

By the way, they vacuum up all of our rights, they acquire all the digital media rights, they don't pay for them, and then they don't exploit them. And they prevent us from exploiting them. That's just not balance. We need to bring balance to the system.

[The Chair, Conservative, Gary Schellenberger]

Mr. Anthony, please, and Ms. Samson. We'll let you both have short answers, please.

[Brian Anthony]

Very short.

Charles Darwin discovered much to his surprise that it wasn't the biggest and the strongest and the brightest that necessarily prevailed, it was those creatures who were most able to adapt to change. And our industry is a very agile industry that is able to adapt to change. Broadcasters have to learn how to do that as well. And we don't believe that the industry is broken up and conventional television is going to come to an end tomorrow, and what you should believe depends on who you listen to.

We have CTV and Global saying that the end is nigh, and yet you have Rogers and Shaw saying that the future of conventional broadcasting, including local broadcasting, is just filled with rays of sunshine.

[The Chair, Conservative, Gary Schellenberger]

Ms. Samson, please.

[Claire Samson]

Mr, Angus, I wish I could add one chapter to your catastrophe book. As we are observing, the plan unfolds. After we've made television, and whatever is going to be left of it, the cheapest spot, let us mute our core business to the new platforms that we do not want to be regulated. Don't you ever think of that. And once it's not regulated, then we will be able to dictate to the consumer and to Canadians what they're going to watch and how much it's going to cost them to watch, as we will have full control over the content of what is Canadian culture. And we know, and they know, what Canadians want. They're the only ones who know. But do not regulate that new environment. That's the future money-making business.

[The Chair, Conservative, Gary Schellenberger]

Thank you. I let that go a little over because I want everyone to have a chance.

There will be bells here at 5:30. Ms. Grewal is going to have the last question, and we will go the full five minutes because we only have to go down the hall.

Ms. Grewal.

Oh, Mr. Uppal, please.

[Tim Uppal, Conservative, Edmonton—Sherwood Park, AB]

Thank you very much, Mr. Chair.

I'm just going to get straight to the question. To the Canadian Film and Television Production Association, you strongly believe Canada needs a digital media strategy, and I gather you would like to see consultations take place sooner rather than later. How would you suggest these consultations proceed, and what do you see as the benefit?

[Norm Bolen]

We see this as being critical for driving innovation as Canada moves forward. We have pretty good infrastructure. We have a very well-educated population. We have a respected creative community. We are very plugged into the broadband world, but we're not doing much with it.

We see a need for stakeholders, independent producers, broadcasters, the telecommunications industry, key federal institutions, educational institutions, non-partisan players in the market coming into a big discussion about where we need to go, trying to evaluate best practices in other countries, trying to see what slice of the digital future could be the slice we could specialize in. Other countries are doing that.

That's the whole idea, and it should be a non-partisan process that could survive the prorogation of Parliament. It should be something we put a lot of effort into. It doesn't have to take a lot of time, though. It could be an ongoing process. It could have adjuncts to it that continue to function.

The idea is to get the best minds in our country looking at how we can work together to carve out the opportunities in the digital world, to access that growing pie I talked about. It's critical to the independent production community, because we see opportunity there, we see growth, we see employment. Instead of exporting jobs to the United States on foreign programming, we see opportunities to export our content and bring revenue back into our country.

It seems as obvious as the hands in front of me that the digital revolution could have the same impact as the industrial revolution, or even greater impact, and we're really not facing it together as a nation and trying to do what other countries are doing quite effectively. They're getting ahead of us on this.

[John Barrack]

We have to remember that 90% of the traffic on the web is in English. We as a producing nation, as a production business, are very good at working with a full range of budgets. We have tremendous talent in this country. We can turn things around quickly and nimbly, and the price points are important in that market.

If we adapt our support mechanisms to suit that future, we can be true leaders in this environment. I truly believe that.

[Tim Uppal, Conservative, Edmonton—Sherwood Park, AB]

In your submissions you mentioned the increasing levels of consolidation in TV broadcasting. You mentioned a terms-of-trade agreement between the independent producers and broadcasters that could deal with a number of the issues currently being faced. Can you elaborate on that?

[John Barrack]

The terms of trade, to put it in context for the committee, is a concept that evolved in Britain. If you think of the food chain that exists in our business, you have the cable companies, the BDUs, broadcasters, independent producers, unions, and guilds. Between the unions and guilds, you have a collective bargaining relationship that governs that relationship.

At the other end of the spectrum you have the Broadcasting Act, which reulates the relationship between broadcasters and the BDUs. There's a gap there between independent producers who sell in to broadcasters.

Terms of trade are designed to deal with rights allocation. How do you deal with it appropriately? With consolidation, as Dr. Fry mentioned earlier, we've seen a great imbalance of power take place between broadcasters and the independent production sector.

Why do broadcasters call for more in-house production? It's not because they physically wish to produce it. It's because they want the rights. They want to hoover up the rights to presumably deal with this digital world, but they're not using those rights and they're not well positioned to do that.

What we're talking about in terms of trade, for one example, is to say if a broadcaster has a strategy to make use of those digital rights, they should have those rights because that's in their interest. The more the program gets out, the more successful it will be, but if they're going to take those rights, please use those rights. Use it or lose it, because if the broadcaster is only going to acquire rights to put them on the shelf, all they're trying to do is beef up their balance sheet. They have absolutely no interest in moving into the digital age.