Canadian Heritage Committee on May 11th, 2010

[Kenneth Engelhart]

I can tell you that if we were still in the video distribution business, with the launch of satellite we'd be bankrupt today. But we've reinvented ourselves as an Internet company, and we provide telephone service. We're happy that customers find value in these services.

So yes, we are a profit-making entity and not ashamed of that, but I would agree with you that there has to be a balance between our corporate interest and the public interest.

I'm sorry to hear you say that you don't think we've achieved that balance, because that is what we are trying to do.

[The Chair, Conservative, Gary Schellenberger]

Okay.

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

Do I have any time left?

[The Chair, Conservative, Gary Schellenberger]

Keep it very short. You have one minute.

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

I would like to come back to the subject of telecommunications. As I said, he who controls the medium controls the message. Look at what happened with Globalive. You say that costs will go down if we allow foreign companies access. But the service that Windows Mobile provides is not much cheaper than others offering the same kinds of devices. Perhaps it seems to be cheaper, but you very quickly see that the service is extremely restricted, including in its geography. At the moment, even if we accept foreign ownership of telecommunications services, there is no evidence that services will be cheaper.

[Kenneth Engelhart]

I find myself agreeing with you that a lot of the criticism of Canada's telecommunications sector is unfounded. I think we do have good services here at reasonable rates. But I think we need to have a forward-looking policy. The idea of foreign ownership restrictions is seen increasingly by Canadians as an anachronism, but I think it's an anachronism that we need to keep for content producers.

I take your point that cable companies and telecommunications companies can influence content, but bear in mind that Canada has one of the most regulated regimes in the world. The CRTC regulates what cable companies can and can't carry, and the rules apply to foreign-owned entities as well.

[The Chair, Conservative, Gary Schellenberger]

Thank you.

We'll go to Mr. Angus, please.

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

Thank you very much for coming, gentlemen.

I have a couple of questions. I just want to get right into it.

Mr. Engelhart, you've been following our discussions here. There are a number of things on our radar and there are a few things that are below the surface that would certainly affect competitiveness, affect copyright, and affect a digital strategy. One of these is under way right now, in the ACTA negotiations, with respect to a push, it seems, particularly from the U.S., to end the safe harbour liability for ISPs. When your customers download something, and the entertainment industry wants to go after them, they want to be able to go after you, too, for not having stopped that.

What's Rogers position on the safe harbour liability? Do you think it would impede further innovation in the digital realm if Canada were to adopt a strategy like that?

[Kenneth Engelhart]

Thank you for that question.

We are concerned, as many ISPs are, about the ACTA negotiations. It's supposed to be about counterfeiting, but it seems to have gone way past counterfeiting to being about ISPs and the downloading activities of our customers.

We don't think ISPs should be put in the position of being traffic cops that decide what is legal and what is not. We really hate any idea that we would have to terminate a customer's service based on a three-strikes policy. We do not want to do that at all. I have a great deal of sympathy for the copyright holders who feel that their content is being stolen. It's a big problem. But I don't want to see this done by putting ISPs in the position of having to disconnect their customers or aiding in the conviction of their customers.

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

We were speaking to representatives from the four large U.S. labels, and in the U.S. they've moved a great deal to lawsuits. One of my concerns about the lawsuit approach is that there's no system in there for someone who's challenged or charged with defending whether or not it was proper downloading. My concern is with the “three strikes and you're out” provision. If we don't have provisions in place to ensure that consumers can defend themselves, we might be swatting a whole lot of flies with tanks, and missing out.

How do the ISPs see their role in terms of fairness to your consumers and fairness to copyright holders?

[Kenneth Engelhart]

Right now we have a voluntary “notice and notice” regime. The copyright owner can send us a notice saying this particular IP address appears to be unlawfully taking some of our copyrighted material. We then send a notice to the customer telling them that they're infringing.

That does stop a lot of people from infringing. They've been told. Maybe the teenage son was doing it, and mom and dad got the message and told him to cut it out.

So those types of things we think are very useful. We're doing it today at considerable cost. It's not perfect, obviously not, but we think some of those types of mechanisms should be exhausted before any kind of more draconian measures are imposed.

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

Thank you.

Mr. Bishop, I find this discussion in terms of where we're going with the creation of content fascinating. When we did our television study, one of the things that was really clear was that to make good television in Canada, you have to make a lot of bad television, but it's too expensive. We used to have the Canada television fund. Boy, oh boy, if one pilot bombed, we'd have my colleagues over there up in the House, demanding an investigation as to why we were wasting taxpayers' dollars on this outrageous show. It seems that we became very unwieldy in terms of creating content. We had to be more safe than adventurous.

It occurs to me now, in this new realm, that it's possible to make some cheaper pilots that you could post on YouTube, start to see if kids get excited or if there's a market, before moving up into larger and larger investments of dollars. That would appear to me to provide a whole new realm of exciting opportunities for creation of Canadian content.

Could you speak to how your company is dealing with the new opportunities that actually exist?

[Mark Bishop]

Absolutely. It's a great question, so thank you for that, Charlie.

Something that we've been excited about since the very beginning of our company is the idea of using the interactive platforms to create content that can speak to audiences directly in a very niche audience. This was the case even years ago for our first project, deafplanet.com. Again, a website became a television series, secondly, for deaf children when it had a very tough time being developed for a traditional media platform. But by using the interactive platform, we were able to start to create some short-form content and connect directly with an audience and offer something that was unique and engaging to the audience.

So it's something we believed in from the very beginning and continue to do. I think it's an opportunity that's afforded to us now because audiences have caught up to this idea that we've talked about for a long time of engaging in content. Our funding agencies are now open to this idea and are doing more pilot programs. The Independent Production Fund, for example, just launched an online webisode funding stream to help fund, which is the one project I mentioned. We'll be working with that stream to fund online content.

So these types of initiatives do exactly what you're describing. The hope of the Canada media fund is that through the experimental stream we'll see some of those initiatives happen. That's the area where we have to be investing money. As I said before, the problem with the way the tax credits and the other initiatives are all set up is that they're so siloed; it's either broadcast television or it's an interactive property. It's very hard to have anything that's a hybrid.

So I think for real innovation to happen, we need to break down those barriers and look at that, and we need to encourage content producers to be able to create interesting, compelling content that maybe some day ends up on broadcast television and maybe not; maybe it's just an online series.

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

Thank you very much.

[The Chair, Conservative, Gary Schellenberger]

Thank you.

Mr. Del Mastro, please, for the last question.

[Dean Del Mastro, Conservative, Peterborough, ON]

Thank you very much, Mr. Chairman.

Thank you to the witnesses here today.

Mr. Engelhart, first I want to get something out of the way. You talked about network PVRs and Bill C-61, and I just want to mention to you that I personally support your view on that. I think if the content owners or creators and the cable companies can come to an agreement on how they should be reimbursed for that content, I can't understand what the difference is between a network PVR and one on top of the television screen. I think the Copyright Act should be flexible in recognizing that as well. I think it's a very important innovation. As we move forward, we don't want to see Canada becoming a laggard, so you have my support on that.

Some of the things that really stifle innovation and that we don't talk enough about are things like fees and taxes. You talked about how we're paying substantially more for copyright. We're paying for format-shifting at the radio stations; in some cases, four times. To me that's not a support of Canadian content; in fact, it's stifling the actual promoters of Canadian content. It doesn't help them get that Canadian content message out. If anything, it keeps them in old formats. It prevents them from doing things like you're speaking about, such as launching Internet radio stations that would literally assist us in blasting this out around the globe. It's hurting our innovation.

I want to get your opinion of the value-for-signal decision, which you mentioned. To me, I don't think there has been a bigger assault on Canadian content than that specific decision; it puts all of the value in an over-the-air network that's going to come to you and want to negotiate the value of their signal and the ability to shut off the U.S. network. That's their trump card. And it's only the U.S. content they can shut off. So it seems to me this is a huge shot at Canadian content, something the CRTC is actually charged to protect.

I also think it's a violation of section 27 of NAFTA, which indicates that if a signal isn't broadcast by a Canadian rights holder, the U.S. signal must prevail. I'm really dumbfounded, to be honest with you, by the decision—which is now supported solely by CTV. It doesn't benefit the CBC at all; the CRTC put them on the sidelines. CanWest and the owners of CanWest have specifically come out and said they didn't want it. Shaw said they didn't want it. CORA said they didn't want it. The Jim Pattison Group said they didn't want it.

Can I get your views on this? We haven't heard you at our committee since the decision of the CRTC, and I'd just like to hear what you have to say on it.

[Kenneth Engelhart]

Yes, thank you. I wholeheartedly agree with your comments.

The other point that I think people might not be picking up on is that we have today 96% of our revenue coming from linear television, and 96% of our costs from linear television, but 10%, 20%, 30%--and increasing--of the viewing on the on-demand platforms.... People are watching The Movie Network on demand more than they're watching the linear programs.

So as we see the importance of the on-demand viewing--on cellphones, on Internet, on video-on-demand--increasing, we increasingly need to get those rights. We need to get that content. That costs money, and we're having a hard time getting it. At the same time, we see the CRTC loading us up with more costs to obtain the linear programming.

So the value for signal, on top of all the things you've said, is moving us away from the direction we need to be going. We need to be paying the rights holders for the on-demand content and getting a better on-demand experience for our customers. By loading up all these costs on the linear programming, I think it makes it much harder for us to modernize the system and move it forward.

[Dean Del Mastro, Conservative, Peterborough, ON]

Madame Lavallée indicated that Canadians are just used to paying more, and we'll get over it; we'll just keep digging in and we'll pay more.

It's not actually the case. I can tell you that I've reviewed my mother's Comcast bill from the place she has in Florida. I can assure you that her Comcast bill is not cheaper than my COGECO bill for the same services. In fact, I was surprised at how much she is paying.

Has the OECD not also come out and indicated the U.S. has higher cellphone rates than we have in Canada, despite the fact our country is bigger, with a less dense population? Am I mistaken on that?

[Kenneth Engelhart]

No, the OECD did say that, but I have to say, in fairness to my American friends, that I think the OECD study is somewhat badly flawed.

The measure that I think is more appropriate is average revenue per minute. When you look at that, Canada is one of the ten lowest-priced countries in the world for cellphone service. As you say, our cable rates are very competitive in Canada.

If you think a little about the cellphone service, too, the newspapers are full of stories about how AT&T can't keep up with demand. They're constantly dropping calls. People can't get data connectivity. Canadians get a very high-quality and very reliable service here.

Today we have three HSPA-plus networks in Canada, offering 21 megabits per second. There's not a country in the world that can say that.

So I think we do have good services here, but I agree with your point: Canadians do not want to pay more and they are not prepared to pay more; they want their service providers to be competitive.

[The Chair, Conservative, Gary Schellenberger]

You can ask one last short question.

[Dean Del Mastro, Conservative, Peterborough, ON]

Mr. Bishop, I wish I had an opportunity to talk to you about co-production. I think it's really important. I'd love to meet with you to talk about it or even talk on the phone.

Mr. Engelhart, these types of fees and taxes are constantly talked about. If we want to get Canada on the edge of the wave and take advantage of emerging digital technologies, will these fees and taxes, this non-productive kind of approach to things, prevent us, in your view, or certainly stifle us, from being able to take advantage of all these digital opportunities?

[Kenneth Engelhart]

Absolutely. As I said to Madame Lavallée, there has to be a balance. We're not saying the value chain shouldn't be preserved. We're not saying there should be no copyright payments, or no fees, but there has to be a balance. Otherwise, we're going to drive consumers off the regulated system and onto the unregulated platforms, and that's going to be bad for everyone.

[Dean Del Mastro, Conservative, Peterborough, ON]

Thank you.

[The Chair, Conservative, Gary Schellenberger]

Okay.

Thank you very much for your presentations and your answers to the questions that were posed.

We're going to take a short break to change witnesses.

Again, we hope to see you soon.

Thank you.

[The Chair, Conservative, Gary Schellenberger]

We'll call the meeting back to order.

Welcome to our next witnesses. We have Steven High, Canada Research Chair in Public History, Department of History, Concordia University. We also have--my French isn't very good, so I've had this translated into English--Mr. Pierre Proulx from the digital alliance network of the digital industry of Quebec.

Welcome, gentlemen. If you could keep your remarks as close to ten minutes as possible, that would be great. This meeting will be over at 20 minutes to one.

Dr. High, please.