Canadian Heritage Committee on Nov. 23rd, 2010

[Royal Galipeau, Conservative, Ottawa—Orléans, ON]

So that would include, for instance, CFCF and CBMT?

That's my only question.

[The Chair, Conservative, Michael Chong]

Mr. Armstrong, go ahead.

[Scott Armstrong, Conservative, Cumberland—Colchester—Musquodoboit Valley, NS]

Thank you all for being here, and thank you for your presentations. I found them quite compelling.

Mr. Cardin, how much of the experimental stream was invested in gaming last year, roughly?

[Stéphane Cardin]

On the first round?

[Scott Armstrong, Conservative, Cumberland—Colchester—Musquodoboit Valley, NS]

Yes.

[Stéphane Cardin]

There were 12 projects out of 27 at the production stage. I do not have the results yet on the second round, given that it ended on November 12.

[Scott Armstrong, Conservative, Cumberland—Colchester—Musquodoboit Valley, NS]

Do you know the results of that investment? How many of these companies actually made a profit or made a go of this?

[Stéphane Cardin]

It's too soon for that because we provide the funding ahead of time, so they're going to go into production with the funding that we've provided.

[Valerie Creighton]

It was just October when that closed.

[Scott Armstrong, Conservative, Cumberland—Colchester—Musquodoboit Valley, NS]

You said the whole program was over-prescribed by quite a bit. So your organizations had to choose winners and losers, obviously. What you said was that you brought in a team of experts in that field to make the decision on what projects they thought were the most viable. What type of criteria did you set for that team of experts?

[Stéphane Cardin]

Specifically, it wasn't based on their viability. Although we do provide equity investments and we are hoping to gain recuperated revenue from the projects we invest in, the focus in the experimental stream, as I mentioned, is on innovation. So the projects were chosen based on their innovative qualities. It was the primary factor in the evaluation grid. Other than that, we also assessed the strength of the production team, the business plan, and the distribution strategy.

[Scott Armstrong, Conservative, Cumberland—Colchester—Musquodoboit Valley, NS]

Great.

So when you were looking at innovation, can you give me specifically an example of a project that impressed you through its innovation that you actually ended up funding?

[Stéphane Cardin]

Out of the 27?

[Scott Armstrong, Conservative, Cumberland—Colchester—Musquodoboit Valley, NS]

Just pick one that would strike you as innovative, just so I can wrap my head around what innovative means in the area of gaming.

[Stéphane Cardin]

For children and youth, there are a lot of projects out there; in terms of illustration and art design, things like that, there are things that are commonly available on the market in a physical product. There's a company that came forth and proposed a piece of software that would allow these same functionalities, and it was specifically geared towards the Nintendo DS platform, which is very popular with preteenagers, for example. So it was taking a concept that exists out there on the market but bringing it to a new distribution strategy and trying to gain a new customer base through a different form of distribution.

[The Chair, Conservative, Michael Chong]

Thank you very much, Mr. Armstrong.

Thank you to our witnesses for their testimony and for the briefs they've submitted.

We'll suspend for five minutes to allow our next panel to appear.

[The Chair, Conservative, Michael Chong]

Welcome to lease 31st meeting of the Standing committee on Canadian Heritage. We now have two groups, the Association des producteurs de films et de télévision du Québec and Corus Entertainment Inc.

We'll begin with an opening statement from the Association des producteurs de film et de télévision du Quebec.

[Claire Samson, President and Chief Executive Officer, Association des producteurs de films et de télévision du Québec]

Good afternoon, ladies and gentlemen. I wish to thank the Standing Committee on Canadian Heritage for giving us the opportunity to express our thoughts regarding the effects of concentration in Canada's communications industry, and more specifically in Quebec.

My name is Claire Samson. I am the president and CEO of the APFTQ, the Quebec producers association. I am accompanied today by Suzanne D'Amours, who is a consultant.

Your committee is examining the repercussions of increasing vertical integration among the major suppliers of content and suppliers of mobile telephone and Internet access services. I would like to begin by demonstrating the relative weight of these two industries: telecommunications, the telcos; and broadcasting, distribution, EDR, radio, and television programming.

According to CRTC data, in 2009 the telco industry represented $41 billion while the broadcasting industry accounted for $14.5 billion—$7.5 billion for BDU and $7 billion for radio and television programming. All of the BDUs and the major telcos now operate in both sectors, and telecommunications activities have become their main source of revenue. These access controllers account for 88% of all of Canada's communications industries' revenue.

Four large groups—BCE, Shaw, Rogers, and QMI—control six of the seven national and regional conventional networks—CTV, Global, CityTV, A-Channel, OMNI, and TVA—and account for 80% of total revenues for optional private services. These are the same businesses that control Internet access, cable television, and mobile telephony. In order to continue to prosper, these businesses must offer consumers a variety of products and content.

It is clear that the main activity of businesses that control broadcasting is not broadcasting itself. It is the telco divisions that generate the most revenue, that offer the most growth potential, and that see the most ferocious competition. While the average growth rate for the past three years in broadcast programming services was 1.6%, for BDUs it was 10.3%. The integrated communications providers' main objective is to monopolize households, for example, by becoming the sole provider of services such as Internet access, cable television, and conventional and wireless telephony. Customers get increased discounts based on whether they sign up for two, three or four of these services. Another way to finance those discounts would be to pass the costs on to the programming services by reducing the affiliation fees they pay out or by applying strong downward pressure to their wholesale monthly fees.

Until now, the main objective of small, large, independent, or affiliated programmers has been to ensure the largest possible distribution for their content across all platforms. In the future, the objective may be to offer exclusive content to tempt consumers to subscribe to their telecommunications services. When BCE purchased CTV, it declared that it did not expect to make the content it was acquiring available on mobile telephones to any suppliers of those services other than Bell.

The CRTC's new regulations open the door to these types of practices, even for private conventional television providers, by giving them the right to withdraw their signals if negotiations on the proper market value of fees to pay fail. This strategy is obviously based on the control of the best-performing commercial programming services, as well as other media or content that result from a parallel increase in cross-media ownership and exclusive distribution agreements for certain platforms.

In fact, ensuring the profitability of programming services is less of an issue today. The main priority is increasingly to continue to increase market penetration and revenues stemming from other services offered by the companies that provide Internet access, mobile telephony, and cable. A simple glimpse reveals that the performance of BDUs is 26% for cable distribution of television services and 69% for non-programmed services, mainly Internet. Naturally, these services are not regulated by the CRTC. In short, the access controllers are in a position to make gains across the board.

They are largely deregulated with respect to both consumers--deregulation of basic service fees--and programming, and they financially control the Canadian broadcast and telecommunication systems. The independent broadcasters that are not owned by the access controllers will be marginalized in that environment. Their financial clout is in no way comparable to that of the access controllers, and their negotiation power decreases in tandem with the reduction in regulatory protection. This occurs in different degrees, based on whether the broadcaster is a private commercial player, a national broadcaster, an educational station, or a non-profit station.

In Quebec, for example, just one single conventional television station remains unlinked to an access provider, and that's VTélé. One large group that licenses optional services and is not tied to an access controller is Astral Media. Both operate their broadcast activities exclusively or primarily in the French language market, where concentration is extremely high in both the broadcast and Internet services areas.

QMI services 51% of television subscribers in Quebec, while in Canada no individual BDU services more than 25% of subscribers. Astral is no doubt the group that is in the best position to stand up to the integrated communications companies. However, just like VTélé, Astral is a choice target for major players that are backed by considerable financial clout, at a time when the theory that technological convergence must be based on a strong multi-media platform is making a comeback. Eventually, current economic logic suggests that all private and independent players of any significant size will eventually be eliminated.

The role of Radio-Canada in this environment is changing. Radio-Canada should be able to take its place in this environment, due to its legislative and judicial status, which is defined in the Broadcasting Act, and its critical mass. It has 26 local stations affiliated with two national networks; 84 radio stations affiliated with its four national radio station networks; one pay-music service, Galaxie; five specialized category A services; a very sophisticated website; and TOU.TV.

With its multi-year financial backing guaranteed by the government, Radio-Canada could be in a position to show leadership and provide essential financing of Canadian programming for its television, radio, and new media services. We must also recognize that Radio-Canada was a pioneer in the development of new media platforms, and thus it benefits from significant cross-promotion capabilities.

On the role of the CRTC in guaranteeing the diversity of voices in the current media environment, the fundamental challenge of ensuring a diversity of voices is naturally a concern for all of the Canadian broadcasting system's stakeholders--public, private, and community-based--whether they are in programming or distribution.

The only way to ensure a diversity of voices in this new environment is to maintain a regulatory structure where the objective is to establish a framework that gives all broadcast groups the latitude necessary to adapt to the rapid changes in the communications sector, while ensuring that the content presented by the Canadian broadcast system has a distinctly Canadian flavour.

This objective implies that the CRTC and interested parties take into account the crucial role played by Canadian producers and creators in the broadcast system; the different conditions in which English and French language broadcasters operate, as well as the different needs they each have despite their many common points; and the role of the public broadcaster in a world of rapidly changing communications.

In order to meet the law's objectives, the CRTC has developed a series of regulations and policies to guarantee that the broadcast system provides a diversity of voices, and that programming reflecting the interests of all Canadians has reasonable access to the system.

We hope that the CRTC maintains these regulations and policies. However, we also hope that the CRTC considers establishing specific rules for the Internet and mobile telephony broadcasting industries. The CRTC has in the past always refused to regulate this part of the industry. We believe it is now time for it to review its position on the matter.

And finally, we believe that the Canadian government should give the CRTC the powers to penalize broadcasters who do not respect the conditions of their licences.

The next topic I will discuss is the role of the Canada Media Fund and other financing mechanisms in ensuring the success of new programs related to next-generation media platforms.

First, we must ensure the financing of all content slated for the various distribution platforms, whether television, the Internet, or mobile telephony.

The Canada Media Fund has developed new programs to meet the objectives outlined by the Canadian heritage minister. These include financing the production of multi-media applications linked to television shows supported by the CMF, and the production of original interactive content destined for new platforms, such as the Internet and mobile telephony. All this time, no new additional financing was made available for these new productions.

It is too soon to know the results of these new measures, since the programs were put in place in 2010. However, we are convinced that the goal of financing original productions for an increased number of broadcast platforms using the same amount of money can only lead to a decrease in production quality or a drop in the number of original Canadian productions.

The APFTQ would like to express its strong disappointment with the CRTC's decision not to regulate broadcasting over the Internet and on mobile devices and for not obliging suppliers of these services to contribute to Canadian productions. We were convinced that the time had come to set some guidelines regarding Canadian content availability on these platforms and regarding specific financial assistance for the production of this content.

By preserving a two-speed system, one that is regulated and one that is not, we foresee an accelerated move in television broadcast activities towards the new media—and this without any protection or promotion of national production. This is a missed opportunity to stimulate Canadian multiplatform production and could lead to Canadian culture losing a privileged position on our screens.

We also believe that to ensure that productions slated for new distribution platforms, such as the Internet and mobile telephony, are adequately financed, the government should make its tax credit program open to Canadian cinematographic productions.

In conclusion, your notice of motion does not take into account the impacts of concentration in the communications industry on the independent production industry in Canada. Through the diversity of the talent pools and businesses that operate within it, this industry has enabled broadcasters to prosper and to attract large audiences, particularly in the French language system. Currently, independent producers are fighting to use the broadcasting rights for the various distribution platforms.

The CRTC has informed Canadian broadcasters that they need to negotiate commercial agreements and terms of trade with independent producers, taking into account the new platform operating rights. Despite the moderate proposals that we have put forward so far, not a single broadcaster, neither private nor public, has accepted signing an agreement recognizing that the payment of a broadcasting licence does not confer all operating rights for the shows they acquire.

In an environment of increasing vertical integration between the large suppliers of content and Internet and mobile telephony distribution services, we must ensure that content will be used wisely with respect to the rights holders and creators.

We thank you for your interest and are ready to answer your questions.

[The Chair, Conservative, Michael Chong]

Thank you very much.

We'll have an opening statement now by Corus Entertainment Inc.

[Gary Maavara, Executive Vice-President and General Counsel, Corporate, Corus Entertainment Inc.]

I was going to say good afternoon, but I'll say good evening, Mr. Chairman, because I think there's probably somebody in town having a martini by now.

[Royal Galipeau, Conservative, Ottawa—Orléans, ON]

It's past noon.

[Gary Maavara]

It's past noon.

My name is Gary Maavara, and I am the executive vice-president and general counsel of Corus Entertainment. With me today is Sylvie Courtemanche, our vice-president of government relations.

[Sylvie Courtemanche, Vice-President, Governement Relations, Corus Entertainment Inc.]

Thank you for inviting us to appear before the committee. Unfortunately, there was not enough time between your indication an appearance for us to get a brief translated. That being said, the tables included in our document would be easy to understand.

We also understand that the committee hoped that we would keep our remarks short. As such, we will simply discuss the issue of the changes affecting our business model and the need for scale.

Corus Entertainment is one of Canada's larger media companies. We operate over a dozen specialty and pay television services. We own Nelvana, which is one of the world's premiere producers of children's animation programming. Corus has invested over $1 billion in the production of Canadian content programming.

Over the past several years, we have been exploring new and innovative ways to capitalize on new technology-driven markets. Our goal is to use a variety of digital platforms to deliver our content directly to viewers, not only in Canada but around the world. Corus provides Canadian content to multiplatform channels, such as KidsCo in Europe, Asia, and Africa, and qubo in the United States. Corus is also Canada's largest publisher of children's books.

In this context, we appear before the committee today as a company that plays a variety of roles in the Canadian economy. Corus is a distinctive Canadian company. We are a broadcaster here and around the world, but we are also a major producer of content in a variety of forms. But in a world context, we are small. We are very small.

[Gary Maavara]

Mr. Chairman and members of the committee, television and media markets have become enormously complex. Corus drives its business through four revenue sources: channel subscriptions, advertising sales, program or book sales, and merchandise sales. In our recent appearances before this committee we have argued for an approach to policy and regulation based on what we characterize as the Corus big six. The full list is attached to this script, which we've distributed, but we will only mention two of them this afternoon due to the time constraint we face.

Corus big six number one: embrace the merits of fostering a Canadian-owned and globally competitive industry. It must be explicitly recognized that we compete in the world market, even at the local level. These markets are enormously complex. The chart that we provided illustrates how our media environment has changed.

Mr. Chairman, we have full-sized charts, which we are happy to provide to the committee. I recognize that this is a little bit dense to look at.

On the left, you can see that we've moved from well-separated activities, where everybody knew what photography was, what the post was, what music was, what magazines were, television, cinema, etc.

On the right, you see all of this is blending into a big digital pool. We have all of these types of media and forms of communication crossing over each other. We've noted some of the major brands, basically all of which are non-Canadian, that are dominating the field these days.

The notion of a domestic market is rapidly changing. It is complex, and the most powerful players are not Canadian. You must align our domestic policies and rules so that we can have a Canadian-owned system that is globally competitive. We can no longer shelter our domestic market. The barriers that we have built to protect Canadian media will become a confining trap if we are not mindful of this change. The emergence of new media platforms has increased the competition for content and for advertising dollars.

There are new, over-the-top technologies, as they're becoming known, such as this iPad, which should.... Yes, it is playing.

[Scott Armstrong, Conservative, Cumberland—Colchester—Musquodoboit Valley, NS]

Excellent film, by the way.