Canadian Heritage Committee on May 25th, 2009

[The Chair, Conservative, Gary Schellenberger]

Good afternoon, everyone. Welcome to meeting number 22 of the Standing Committee on Canadian Heritage.

Pursuant to Standing Order 108(2), we continue with our study on the evolution of the television industry in Canada and its impact on local communities. This afternoon, for a repeat performance, we have the Canadian Radio-television and Telecommunications Commission, the CRTC.

Welcome, gentlemen.

Mr. von Finckenstein, would you please make your address?

[Konrad W. von Finckenstein, Chairman, Canadian Radio-television and Telecommunications Commission]

Thank you, Mr. Chairman.

Good afternoon, ladies and gentlemen of the committee. Thank you for having invited us here today. With me today are two colleagues from the Canadian Radio-television and Telecommunications Commission, Michel Arpin, Vice-Chair of Broadcasting, and Scott Hutton, Executive Director of Broadcasting.

When we last appeared before you on March 25, the commission had not yet held its public hearing to renew the licences of the majority of Canada’s private conventional television broadcasters. Similarly, your study was only getting underway. Both this committee and the CRTC have since heard a wide range of views in our respective forums.

There are clear benefits to holding public hearings on these issues. Being exposed to the opinions of different stakeholders allows both of us to not only understand exactly what is it stake, but also to reach informed decisions.

The conventional television sector has been the cornerstone of the Canadian broadcasting system since the introduction of television in Canada in 1952. Local programming is, of course, one of the defining characteristics of a conventional television station.

On the first day of our public hearings, I had an exchange with Mr. Ivan Fecan, president and CEO of CTVglobemedia, on the importance of conventional television. I referred to his testimony before your committee and said I had read very carefully his statement to the House of Commons--which essentially he had repeated to us--that conventional is local; it is a glue that binds a community together; it's needed for national interest and national unity issues; and it is the best machine for promoting things, better than anything we have right now. I said to Mr. Fecan, “Have I got that right?” Mr. Fecan answered, “Yes.”

I believe you all agree with Mr. Fecan's viewpoint. I'm glad he shared it with us at the outset of the hearing. However, conventional television's ability to play its central role in the broadcasting system, which includes providing local audiences with local programming, has recently come under threat. There has been a steady fragmentation of audiences' advertising revenues, which are now split between conventional, pay, and specialty services, as well as the Internet.

While conventional broadcasters were adjusting to this trend, along came the global recession. Like many other sectors of the economy, broadcasters were sideswiped by the downturn. They have seen their revenues shrink as spending on advertising declined sharply. Let’s not forget that the automotive sector was traditionally the single largest advertiser on television.

On May 15 we handed out a preliminary decision that provided private broadcasters with key details regarding their licence renewals. Specifically, we renewed the licences of the major English-language networks for one year, including the television stations operated by CTV Television, Canwest Television, and SUN TV, as well as the Citytv station. We decided to renew the licences of the major networks for a shorter period than the customary seven years to give the industry a certain flexibility to respond to the current economic downturn. We plan to use a group-based approach to renew the licences of major English-language networks in the spring of 2010.

We renewed the licences of the TVA Group’s television stations for two years. We will therefore renew TVA's broadcasting licences in 2011. In the same timeframe we will also review the licences of the French-language television stations operated by the Canadian Broadcasting Corporation and reconsider the programming commitments of the TQS television stations. The specific terms and conditions attached to the licences will be issued by mid-July.

It's become clear that we cannot carry on with our traditional assumption on models over the medium and long terms. Consolidation in the Canadian broadcasting industry has resulted in a few large groups that control an array of conventional, specialty, and pay-television services. As I indicated in my previous appearance, the commission's processes must take this reality into account to ensure that the objectives of the Broadcasting Act are achieved in the most effective way possible. Over the next year, we will work with the industry to find solutions to the underlying issues that have led us to this point.

The commission has identified seven areas that require structural reform.

The first area is group licensing. As I mentioned to you previously, we need to move away from a framework where licence renewals for conventional television services are assessed independently from pay and specialty services. A group-based approach will allow us to harmonize the rules that govern all categories of television services. It will also allow us to consider the total audiences reached by broadcasting groups, the totality of its revenues, and its programming commitments and obligations.

Secondly, there needs to be a refocus on core elements, coupled with necessary energy and resources. Conventional broadcasters need to refocus on the core elements of their service--local news, local programming, and programs of national interest. Rather than perceiving it as a cost of doing business, they need to see it as a central element of their survival, and expend meaningful resources and energy on it.

Third is the harmonization of local programming obligations. The amount of local programming varies from station to station and depends on when the licence was originally granted. We believe there should be a level playing field and that the amount of local programming should be harmonized, depending on the size of the markets they serve.

Fourth, we need clarified funding. As indicated on May 15, to carry out such refocusing, broadcasters need more predictable funding. Rather than resorting to fee-for-carriage, we will seek to provide revenue support for conventional television by investigating alternative support mechanisms designed solely for local programming; protecting the integrity of the Canadian broadcasters' signals; and exploring mechanisms for establishing, through negotiations, the fair market value of these stations' signals. This will be backed up, if necessary, by CRTC arbitration.

Fifth, we need meaningful commitments. I'm certain that broadcasters can develop successful business models if supported by revenue streams that reflect the value of the programming being distributed. However, in exchange for the above-mentioned harmonization of obligations and negotiated funding, it will be necessary for broadcasters to provide firm commitments regarding local news, local programming, and programming of national importance.

Sixth, we need restraint on foreign programming, and/or commitments toward Canadian program spending. We have heard great exasperation from the Canadian creative community about the amount of money that's being spent each year in Hollywood. To live up to the objectives of the Broadcasting Act, some sort of restraint or attenuation is required. It remains to be determined whether this should be achieved by way of ratio--minimum Canadian expenditure requirements--or a percentage of revenues obtained. But some sort of restraint mechanism appears to be necessary and desirable.

The seventh sector is digital transition. Finally, we must find an acceptable solution to the obstacles standing in the way of the transition from analog to digital television. A hybrid solution which would entail over-the-air digital signals in standard definition in major centres and access by way of cable or satellite in non-metropolitan centres appears to be the answer. However, certain details still need to be worked out, including access, cost and entitlement.

On the same day that we announced the new licensing terms for private conventional television broadcasters, we outlined our plan to address these seven areas that I have just described. We will soon initiate a public process that will culminate in public hearings this fall, on September 29 to be exact. This is the summer process I referred to during my presentation back in March. We are confident that we will come out of the hearings with a revitalized framework that we will be able to apply in 2010 to the group-based licence renewals. We recognize that we're dealing with very tight timelines. However, the urgency of the matter justifies these timelines, and we have every reason to believe that we will achieve our goal.

You have raised some very pertinent issues during your study, which we are taking into consideration, and we look forward to reading your final report. It will add an important perspective to our deliberations.

Thank you. We are prepared to answer your questions.

[The Chair, Conservative, Gary Schellenberger]

Thank you very much.

The first question comes from Mr. Rodriguez, please.

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

Thank, Mr. Chairman.

Good afternoon, Mr. von Finckenstein. I'm pleased to see you and your team again. With you, we started our examination of the future of television on March 25, exactly two months ago. We heard dozen of witnesses. We spent countless hours studying this issue. The most knowledgeable experts have appeared before this committee.

Two months have passed. Did you learn anything new? Has your position on this subject changed?

[Konrad W. von Finckenstein]

As I mentioned, major structural changes are clearly needed. Those are the seven points that I have just referred to. Point no 4, namely clarified funding, is the most important. Conventional television must be based on stable and predictable financial mechanisms.

There are also other points to consider. The emphasis must be placed once again on the basic elements, with the energy and resources necessary to support that.

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

This isn't new, I agree with you. It was true two months ago and it's still true today. There's a structural problem, and it will require structural solutions. One of the issues which is most often raised is that of fee-for-carriage. You were asked the question two months ago, and I'll ask you the question again today since there has been a lot of discussion in the intervening period.

Let me quote what you said.

On fee for carriage, you said:

We've turned it down because it wouldn't have done anything for local content, which is exactly the thing you're working on. I asked the people to understand. I said, “If we give you a fee for carriage, are you going to commit to a certain local content, especially in the smaller markets?” I got a resounding no. That's why we didn't do it.

The people who came after you, the CTVs and the Globals, said that's not true, that they didn't say that. So we have two versions here, and it's very important. Somebody's not necessarily saying the truth here.

You're being contradicted by these folks. Do you stand by the remarks you made last time?

[Konrad W. von Finckenstein]

I'm glad you asked me that question. It gives me an opportunity to clarify this, as I already did in our April hearing, but I'll gladly do it again.

At the hearing for fee-for-carriage, I asked CTV:

Would it make a lot of sense for us to -- assume we could grant you a fee-for-carriage of 50 cents per signal as you suggest and we earmark it in some way, we either insist that it is incremental over what you spend right now on local content and drama, let's say those two things, or we say it all has to go into local news, or in some way that in effect both you and we as a Commission could demonstrate we are doing this only for one purpose and that is to maintain that part of the system which we feel is under threat because of the fragmentation of the advertising dollars and a fragmentation of the whole broadcasting system.

That was my question.

Mr. David Goldstein of CTV, who was in the room, said:

As outlined in our joint submission, we submit that the fee would be tied to local reflection as to be defined by the Commission.

I said:

Put some bones on the flesh for me. What does that mean?

Mr. David Goldstein responded:

One of our issues, of course, is that of sustainability. As the economic research has borne out, the obligations on these stations are particularly onerous. What we are not coming back, or at least not what we are presenting today, is ask for a reduction in those obligations. But what we would -- what we would hope is to come back at group licence renewal for each of these individual stations and give you an extremely specific proposal of what that means to the sustainability of local service in each of those markets.

Mrs. Bell from CanWest then piped in and said:

And Chairman, we have tied the -- we have tied this to local original programming and part of the reason why it would be difficult for us to put a number on that at this point is we -- as you can appreciate this is a pretty massive review of television policy....

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

Monsieur von Finckenstein, time is precious. We only have ten minutes.

[Konrad W. von Finckenstein]

I only have one more quote. I'm not trying to use up your time.

But she then said:

So in terms of making long term commitments and telling you where those numbers lie it would be difficult for us to do that today.

So I said there was a resounding silence, which was a figure of speech. I just read you out the answer. If you can read into those answers a firm commitment—

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

Yes, but since then....

I see Mr. Goldstein in the back there smiling. I know we can't, but I'd like to have his comment.

My initial question was, has anything changed in your position in the last two months? I ask because those people came back after those hearings and we heard them say that maybe a lot of that money will go to local content. So we have to find out what's going on here. We want to make sure who is right on this.

[Konrad W. von Finckenstein]

It's not a question of who's right or wrong.

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

Yes, but it's very important that we clarify this, Mr. von Finckenstein.

[Konrad W. von Finckenstein]

It's not a question or right or wrong.

We clearly didn't have a discourse or understanding on this. I asked them, “What firm commitments are you willing to make?” They did not give me any. They claim they intended to—and I read you out the process. I think we shouldn't dwell on it.

The fact is that we were not prepared to give fee-for-carriage or consider it unless there were firm commitments. There were no firm commitments on the table.

Today, I just testified to you and said in point four that we want to explore “mechanisms for establishing, through negotiations, the fair market value of these stations' signals....backed up, if necessary, by CRTC arbitration”. In plain language, what that means is that you negotiate the value of the fee that's being distributed. The cable companies distribute it. It has to be evaluated; otherwise you won't be distributing it.

What is it you want? Do you want me to set the value? No. We won't do that. You negotiate that with the broadcasters. If you can't come to an agreement, come to us and we'll arbitrate it.

So there will be a fee. The amount of the fee will depend on the market of the station in question. You can't do it by having, as they said, 50¢ for each signal. It may very well be different for different markets. But you are the players in the market. You negotiate. If you can't negotiate it, I'll arbitrate it for you if I have to.

That's how we're going to approach it.

[The Chair, Conservative, Gary Schellenberger]

Thank you.

We have to move on now to Ms. Lavallée, please.

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

Thank you for being here today, Mr. von Finckenstein.

Your structural reform, as set out by you, includes seven areas, however a number of them are not clear to me. Since we don't have much time, I'll turn to what I'm more concerned about: “clarified funding”. You said:

Rather than resorting to fee-for-carriage, we seek to provide revenue support for conventional television stations by: a. investigating alternative support mechanisms for local programming; b. protecting the integrity of Canadian broadcasters' signals;

What do you mean by “investigating alternative support mechanisms for local programming”? What else is there besides that?

[Konrad W. von Finckenstein]

In point 2, I said we need to refocus on core elements coupled with the necessary energy and resources.

You have heard a lot of testimonies. All the conventional broadcasters tell us that local programming is at the very heart of what they do. I told them that that was not what I had observed, that they were not dedicating their resources, their talent and their money to local programming, but that if they wished to do so, I would fund them.

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

I'm sorry, Mr. von Finckenstein, but you're talking about English-language broadcasters. Canadian and Quebec productions are really at the heart of French-language broadcasters' programming and activities.

[Konrad W. von Finckenstein]

Unfortunately, that is not the case. If you recall, we renewed TQS's licence, and it wanted to completely scrap local programming.

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

You're right about TQS, but I don't think that you face the same problem with TVA and Radio-Canada.

[Michel Arpin, Vice-Chairman, Broadcasting, Chairman's Office, Canadian Radio-television and Telecommunications Commission]

It is true of TVA outside Montreal, it just keeps on shrinking. There is only one single, daily, locally produced news broadcast. There is no public affairs program. There's nothing else, except in Quebec City, where there are a few hours of locally-produced programs.

From what we've heard, these programs are still produced by folks from Montreal who simply travel to Quebec City to be physically present in a TV studio there. But to what extent does that kind of program represent the national capital?

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

You're right. I was confusing local programming with Quebec programming.

I've just come back from a tour of Quebec and I can tell you that there are a lot of half-baked arrangements in the various regions of Quebec, and the upshot is that the folks in the regions don't get any real local news. I was even told that for the Magdalen Islands, there's a weekly Radio-Canada quota of two news items. What on earth do they do when there are three!

[Michel Arpin]

That's what we were referring to in point 4.

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

You talk about: “investigating alternative support mechanisms for local programming”; what other mechanisms are there?

[Michel Arpin]

One thing that we have already done is to institute the Local Programming Improvement Fund.

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

Is the fund up and running?