Canadian Heritage Committee on June 17th, 2015

[Adam Vaughan, Liberal, Trinity—Spadina, ON]

Why not?

[Keith Pelley]

Because we're not permitted to. We're not permitted to actually discuss with the cable company what we're going to do with our media companies.

[Adam Vaughan, Liberal, Trinity—Spadina, ON]

You have several television stations.

[Keith Pelley]

That's correct.

[Adam Vaughan, Liberal, Trinity—Spadina, ON]

Those stations could be used to cross-subsidize to sustain your promise of performance to the CRTC.

[Keith Pelley]

No, City's losing money as well. You're saying we should use the profit that Sportsnet has to subsidize OMNI. Well, that's not the way you run a private business, sir. You have to actually look at them individually. You're not going to subsidize one business through another business. You have to look at them to see if they're all sustainable on their own. OMNI—and I've been saying this for the last three years—under the current model and with the current conditions of licence is not sustainable in this structurally changing world.

[Adam Vaughan, Liberal, Trinity—Spadina, ON]

If the station was created to serve multilingual communities locally, and you can no longer fulfill that mandate, why don't you surrender the licence?

[Keith Pelley]

Because I believe we are meeting every condition of licence. We have to broadcast in 20 different languages; we're broadcasting in 48 different languages.

[Adam Vaughan, Liberal, Trinity—Spadina, ON]

If the local communities disagree, and if the local communities say they're not being served by the change—i.e., switching news to lifestyle or current affairs to infotainment—and if they don't want the change from local news to simply getting international news, if the local communities you're required to serve are not happy with the product that's being served, and if your audience continues to diminish as a result, which is the argument you've put in front of us, why wouldn't you surrender the licence and allow broadcasters that want to perform those duties to step up and take over the channel?

[Keith Pelley]

Well, first, we haven't seen ones that would like to take on these conditions of licence. However, why don't we see where we are in a year from now? I beg to differ as well. For the news programming, for example, in Italian alone, in three years the ratings have eroded 68%. Let's see how the new programming and the new strategy work, but let's not evaluate them right away before we've had a chance to actually see how they work.

[Adam Vaughan, Liberal, Trinity—Spadina, ON]

You mean even though it contradicts your promise of performance.

[Keith Pelley]

I'm sorry?

[Adam Vaughan, Liberal, Trinity—Spadina, ON]

It contradicts the spirit of your promise of performance.

[Keith Pelley]

I totally disagree. I'm going to say exactly the same thing, that we are living up to our conditions of licence. The actual dollars we've put into the ethnic community, based on changing the strategy, with all due respect, do not in any way fail to live up to the spirit of the OMNI licence.

[Adam Vaughan, Liberal, Trinity—Spadina, ON]

You disagree that you have an obligation to provide local news programming.

[Keith Pelley]

I agree that we have an obligation to live up to the conditions of licence that we were given by the CRTC, and we are doing that in spades.

[The Chair, Conservative, Gord Brown]

Thank you very much, Mr. Vaughan.

We'll now go to Mr. Leung for seven minutes.

[Chungsen Leung, Conservative, Willowdale, ON]

Thank you, Chair.

We should address this issue perhaps from a financial viability side. I've been a public accountant and I somehow don't understand how your finances work with the trend of our current immigration patterns. Canada brings in about 280,000 immigrants a year, over half of whom settle in Toronto and another third or so in other urban centres. That means there are 90,000 people coming into Toronto. On top of that, we also have 100,000 foreign students who come in. A lot of them would come from China or Mandarin-speaking countries. Again, over half of them come to Toronto, which is 50,000 students coming to Toronto.

Of the greater Toronto population of more than four million, over 130,000 Mandarin or Cantonese speakers have come here. On top of that, more than a third, more than half a million Chinese, live in the Greater Toronto area. I would say that about 90% of them are first generation, who will probably have an understanding of either Cantonese or Mandarin.

What I don't understand is that as recently as 2010 and 2011 you were making a profit. It was a viable operation. What has changed between 2010 and your current and forecast situation that has made this dramatic drop? Have your internal costs increased tremendously? I don't see why you would not go after this increasing population, selling more advertising and so on, to gain that market share.

Finally, why do you throw away that market share?

[Keith Pelley]

To be candid with you, I'll answer in two ways, very quickly. The network was always funded, and the ethnic programming was always subsidized, by the U.S. programming. U.S. programming in 2012 generated $55 million in revenue versus a cost of $30 million. In 2013 that revenue dropped to $35 million, so we dropped our cost to $18 million on the U.S. programming. It dropped to $20 million in 2014, so that is a $35-million drop in the U.S. programming that always had a large margin that funded the ethnic programming.

I definitely want to squash the myth that ethnic programming, cash in, cash out, is not large enough to generate the advertising dollars to support the actual news programming. It's not any more complicated than that. Nobody from our team wanted to do what we had to do, but as the industry changed, and when you lose $58 million in ad revenue, you are going to have to make some changes.

With all due respect to the actual ethnic advertising, when you are drawing small numbers—and ratings are nothing more than a form of currency—advertisers will not spend big dollars against it. It's as simple as that. Your people who are coming in are pirating more than many other ethnic groups, and at the exact same time the opportunity to subscribe to a network in their specific language is now commonplace, with each broadcast distribution unit carrying over 130 specific language networks.

[Chungsen Leung, Conservative, Willowdale, ON]

Could you give some clarification regarding your U.S. programming? Why are you not able to maintain that chunk, or why is it no longer in existence? Why did we lose that? You talked about the U.S. component—

[Keith Pelley]

That's because now you add the emergence of Netflix, which used to be in a million homes. Now it's in four million homes, so strip programming, meaning taking Two and a Half Men, or 30 Rock or something like that, which would air at 7 o'clock every night, would generate large audience numbers and large advertising. That has just shrunk. The advertising has shrunk. The ratings have shrunk with competition and the ability to get the programming now in so many different places, whether it be over-the-top content, whether it be on Internet, whether it be other networks, or whether it be our own service like Shomi or Netflix.

The U.S. programming has gone down significantly, and not only on OMNI. We were just the first to be hit.

[Chungsen Leung, Conservative, Willowdale, ON]

To follow on with Mr. Vaughan's line of thinking, Rogers is a fairly modern, sophisticated communications technology company, and it defies me why you cannot use other channels of delivery, whether it be the Internet or the cellphone. There must be other channels you can use in order to improve that newscast and improve that program.

[Keith Pelley]

No, what you're asking is for another part of our business to subsidize OMNI, and that's just, from a pure.... We have a fiduciary responsibility to our shareholders to make sound economic decisions. You can't take a network like Sportsnet or a network like FX or another part of our business to subsidize a business that isn't viable. That just wouldn't be sound business practice. Anybody who has worked in the private sector would....

To be honest with you, after looking at all facets of our business at OMNI, I'd be surprised if you all didn't come to the same resolution.

[Chungsen Leung, Conservative, Willowdale, ON]

What is the impact of some of these other stations, such as Fairchild or some of the single-language dedicated stations? How do they impact you? Can you work cooperatively with them or not?

[Keith Pelley]

Sure. Telelatino currently makes about $10 million, but Telelatino has two forms of revenue. It has sub-revenue and it has advertising revenue. OMNI has advertising revenue and that's all it has.

The specialty networks all have two forms of revenue, hence the reason that conventional broadcasting, not just OMNI, is in trouble. If change doesn't happen, then you'll see the likes of CTV, you'll see the likes of City, and you'll see the likes of Global and overall over-the-air networks change dramatically in the coming years.