Canadian Heritage Committee on June 17th, 2015

[The Chair (Mr. Gordon Brown (Leeds—Grenville, CPC)), Conservative, Gord Brown]

Good afternoon, everyone.

We're going to call to order meeting number 52 of the Standing Committee on Canadian Heritage. In today's business pursuant to Standing Order 108(2), we are doing a study on OMNI programming changes.

With us today from Rogers Media we have Keith Pelley, the president, and Colette Watson, vice-president of television and operations, with Susan Wheeler, vice-president of regulatory media at Rogers Communications.

For up to eight minutes, Mr. Pelley, you have the floor.

[Keith Pelley, President, Rogers Media]

Thank you, Mr. Chairperson.

We also have with us Paritosh Mehta from OMNI, who is at the back of the room. He is our head of independent production. As well, Heidi Bonnell, our vice-president of federal government relations, is in the audience.

Thank you for the opportunity to appear to talk about OMNI, the challenges it faces as an over-the-air ethnic television station, and our thinking behind the program strategy that we have recently put in place. Our remarks today will focus on three key areas: Rogers' 30-year investment in Canadian ethnic television, the challenge to OMNI's business model, and the need for policy and regulation to keep pace with market changes.

I will pass it over to Colette, our vice-president of OMNI.

[Colette Watson, Vice President, Television and Operations, Rogers Media]

We know that OMNI plays a vital and essential role in reflecting and connecting Canada's multicultural and multilingual communities. We have had the privilege of working alongside ethnocultural communities and organizations for over 30 years and believe we have made a meaningful contribution to the engagement and integration of those communities in Canadian society. We remain an important partner to many different ethnocultural communities through direct investments in local programming and marketing, and participation in festivals, events and on diverse boards and committees.

We take this role seriously and believe our record of performance over the past 30 years has exceeded Canadian ethnic service standards in terms of the quantity, quality and distribution of Canadian ethnic programming available to consumers.

In fact, until two years ago, when we gave over $1 million to an independent community group to launch an ethnic television station in Montreal, we were the only ethnic over-the-air television broadcaster in Canada. We believe we have upheld that responsibility well, despite troubling financial challenges.

When I was appointed head of OMNI earlier this year, I was given a mandate to refresh the OMNI brand to make it more relevant to the next generation of ethnocultural viewers and to stem its financial losses to a break-even position. The mandate wasn't driven by profits. It was about making OMNI self-sustaining.

OMNI supports three types of Canadian programming: in-house local production, which included our language newscasts and information programs; national independent productions; and local independent production.

Local in-house production is by far the most expensive of these programming categories, since the station bears 100% of the cost and risk. In the last broadcast year, the language newscasts we produced cost over $9 million on an unallocated basis—$11.7 million if you include overhead costs—and garnered only $5.8 million in revenue. After several years of losses, it was clear that we had to find another more sustainable model for our in-house production.

OMNI also makes significant investments in ethnic drama and documentary programming. Since 2002, OMNI has committed and spent almost $65 million in the licencing and development of Canadian ethnic and third-language independent drama and documentary productions through tangible benefits contributions. With this investment, which is unmatched by any other Canadian ethnic broadcaster, OMNI has played a foundational role in the creation of this type of content and in fostering the Canadian ethnic independent production sector.

Specifically, this investment has produced over 600 hours of ethnic and third-language dramas and documentaries. This year we're very proud to launch OMNI's first serialized drama, Blood and Water, which was shot in Vancouver and Toronto, in Chinese and English. We are very excited about this project and hope it will resonate with current audiences and attract new viewers to OMNI.

The rest of our Canadian ethnic programming is composed of local, independent production. We work with 49 local ethnic producers in 48 languages across all our OMNI stations. We use a model where we provide local ethnic producers with airtime, and in return we share the revenues generated from advertising in the program. This model has worked well and provides an important outlet for local expression, but unfortunately, revenues from this type of programming will never be able to sustain our in-house production investments. Our in-house production remains subsidized by our foreign-acquired programming.

In setting out to refresh the OMNI brand, we sought input from OMNI staff, including its community liaison officers. We spoke with our regional advisory councils, and we conducted a number of strategic reviews, all intended to identify the right programming strategy and business model for OMNI going forward. The feedback we received was that OMNI's programming was not highly visible. It was seen as tired and outdated, particularly by young viewers, who are the key demographic for advertisers.

Moreover, our market research indicated that where at one time new Canadians came to this country knowing only the language of their country of origin, many now come to Canada proficient in either English or French. This research also indicated that more and more Canadians are looking to alternate online sources for their news programming. This trend has made it even more difficult to attract broad audiences to our traditional newscasts. All of this suggested that a new approach is required.

I'd like to make clear that this wasn't just about cutting costs to save money. It was really about reinvigorating the OMNI brand and its programming. We simply saw a better opportunity to engage a broader audience on local issues with new local current affairs programs. Unlike newscasts, current affairs programming has a flexible format that allows members of the community to engage and interact on local issues. It also provides a greater opportunity to delve deeper into issues, exploring a variety of different angles and perspectives, which is something formal newscasts cannot do.

Contrary to what you may have heard, we have not reduced the number of languages nor hours of local programming OMNI offers. The national Mandarin, Punjabi, and Cantonese newscasts have all been replaced with local current affairs programs in those languages, which we believe will better resonate with local audiences. In most cases we've kept the same on-air talent, which preserves the trust and continuity our people have built with audiences over many years. Our Italian newscasts will be replaced with novellas and a new Italian lifestyle program that is scheduled to launch this fall. We're also extremely excited to launch a new national Punjabi lifestyle program called Kitty Talk, which will feature three dynamic women as they discuss the issues of the day that are important to their communities.

These are just a few examples of OMNI's new programming direction, which is based on a more sustainable production model, and is designed to attract new and broader audiences. While there is no guarantee this new approach will succeed, we are very much encouraged by the positive feedback we have received from viewers and community organizations about this new strategy.

[Keith Pelley]

Thanks, Colette.

OMNI is operating, as you probably know, in an extremely competitive environment that is being transformed daily by the introduction of new and unregulated digital platforms, changes to video consumption patterns, and shifts in advertising revenue to digital platforms.

In order to understand OMNl's financial situation, it is important to understand the over-the-air television sector. Advertising on conventional television is declining at a torrid pace. This is not just a couple of years. This is not cyclical. This is a structural change, and, unfortunately OMNI, as the smallest and the most niche player in the marketplace, feels the pain. Since 2011, OMNl's advertising revenue has dropped from $80 million to this year's advertising revenue of about $22 million.

OMNl's business model has been very simple over the past number of years. The U.S. programming, the strip programming, i.e., Two and a Half Men and The Simpsons, has been the reason for OMNI's success. It has funded all the ethnic programming. For example, in 2011 there was $55 million in advertising revenue from the U.S. programming against $30 million in costs. We were making $25 million on the U.S. programming and we allowed that to be spent on the ethnic programming. Now the industry has changed and the way people are consuming has changed dramatically and with that advertising revenue gone away, we can no longer fund the ethnic programming in the way we did. The U.S. programming is not generating that type of margin any more, so we have had to significantly change.

OMNI was also hit hard by the extension of CTV Two in the marketplace. OMNI is facing intense competition not only from over-the-air and the piracy challenges that the broadcast industry is facing but also because Canadian distributors now carry over 130 foreign ethnic specialty services. This, unfortunately, as I've said over and over again, is not 1979 any more.

I know we're running out of time here, so I'm going to just pass it to Susan quickly to talk a little bit about some of the regulatory challenges we have faced with OMNI.

[Susan Wheeler, Vice-President, Regulatory, Media, Rogers Communications, Rogers Media]

Over the last three years we have made several attempts to raise awareness about OMNI's financial challenges and have suggested tangible policy and regulatory changes for how the system can support and govern OTA ethnic television in Canada.

In 2013 we met with representatives from each of your political parties and walked through OMNl's financial challenges and made recommendations on how the government could support ethnic programming. Specifically, we recommended giving the CMF a mandate to support language, news, and information programming. Last year we asked for several changes to OMNl's licence at our renewal hearing. We believe many of these changes would have helped OMNI drive the revenue needed to support its in-house production.

All but one of these requests were rejected. Even as recently as last fall we were asked to appear before the Senate committee reviewing the mandate of the CBC to talk about our challenges with OMNI and about how we are making the station work given its financial situation. We made it very clear that major changes were needed to make the station financially viable.

In addition to these efforts, we have discussed OMNl's financial situation with our regional advisory councils, which comprise independent representatives from communities and organizations involved in the local diversity community.

While we wish we were here under different circumstances, we do welcome the opportunity to draw attention yet again to OMNl's financial situation, and hope it will encourage and expedite a discussion of a new policy and regulatory framework for free ethnic television.

[The Chair, Conservative, Gord Brown]

Thank you very much for your presentation.

We are now going to go to Mr. Fantino, for seven minutes.

[Julian Fantino, Conservative, Vaughan, ON]

Thank you, Mr. Chair.

Thank you for attending here today, on a matter of significant importance to the Punjabi, Cantonese, Mandarin, and Italian speaking Canadians of whom we have about 1.8 million.

Since the cancellation of OMNI's Italian-language newscast, many of my constituents and many in the Italian Canadian community in Ontario have contacted me to express their concern about this particular decision that you have taken. For Italian Canadians in Ontario, it was a much more personal transgression, as OMNI, then-CFMT, was founded by a prominent Italian Canadian, Dan Iannuzzi. Indeed, I would like to share some of those comments.

One person noted:

It is time to take Rogers Communications to task. They have grown and prospered on the backs of Immigrants who were new to Canada and subscribed to their services.... Italo-Canadians accepted every aspect of their changing organization and contributed to the growth and prosperity of the Rogers of today.... Ted Rogers must be rolling in his grave!

Another noted, “...my parents and inlaws...like being able to keep up to date with what goes on... and are very saddened at the loss of” OMNI News Italian edition.

I can go on with a number of others. Recently, you, Ms. Watson, a senior executive at Rogers, had a very flippant response to concerns that I had raised publicly on behalf of my constituents about the cancellation of the local ethnic newscasts, indeed here. If I don't have your quote, you can correct me, but you spoke to the Globe and Mail and the quote is, as reported, “This is a private sector business. Does Julian Fantino go to Wal-Mart and say, You need to have more stuff in a certain language?” That's pretty bizarre. It's an insult really for someone at Rogers to make. As well, as we all know, unlike Wal-Mart, Rogers has obligations stemming from its CRTC-issued licence to broadcast on public airwaves.

Further, I want to read from a transcript from a CRTC hearing from April 2014 on the renewal of OMNI's licence. Specifically, I want to read the testimony of Madeline Ziniak, the former national vice-president of OMNI Television. She said:

During its proud history of broadcasting, OMNI has played a critical role in developing ethnic programming in Canada and serving ethnocultural audiences.... We are an important partner to many different ethnocultural communities through the provision of local news programming and participation in events, festivals. ...we know that this was a very meaningful and important vehicle for communities....

But here we are, a little over a year later, and Rogers has cancelled Italian, Cantonese, Mandarin, and Punjabi newscasts. In Ms. Ziniak's testimony for the OMNI licence renewal, she waxed eloquently on local news programming and its importance to OMNI. Why didn't Rogers reveal its plans to cancel all news programming within the very near future? Doesn't it seem a little odd that Rogers would omit mentioning that very fact? Especially, I note, from the CRTC July 2014 broadcasting decision, there is a clear expectation for licensees to provide at the time of licensing and licence renewal specific plans as to how the station will reflect local issues and concerns during the terms of their licences.

I fully appreciate that Rogers and OMNI are in the business per se. I more reflect on what was said to a licensing body that, within a very short time thereafter, seems to have become a flip-flop. Why the apparent misrepresentation, and why did we not hold true to what was stated to the CRTC?

Mr. Chair, I can wait for the answer.

[Keith Pelley]

Thank you very much.

To be totally honest, that comes as an overwhelming surprise to me, because for three years I have been talking about the challenges that OMNI faces. We have spoken to every ethnic group. We have spoken to the ethnic council. We've spoken to the Senate committee. We spoke to the Conservatives. We spoke to the Liberal caucus. We spoke to the NDP.

The fact that this comes as a bit of a surprise or somewhat of a shock is really somewhat surprising, quite honestly, and it's very easy, with all due respect, to select a couple of phrases that came out of that hearing. We were pretty clear in the hearing that if in fact we were not able to get licence changes that we requested—and we requested a plethora of them—there would be gargantuan changes coming to OMNI. We made our first changes, and then again we congregated with all the respective groups, but these were going to come.

The industry has changed dramatically. Unfortunately, ethnic programming and audiences have deteriorated significantly, and the ad revenue just cannot match the actual programming costs. In every aspect of OMNI, we are meeting our conditions of licence, and that is very important for you to understand, because under no circumstances are we not in compliance with the licence we have. We are in compliance in every particular way.

At the same time, we do believe that we'll continue to invest in ethnic programming. We continue to invest in OMNI. Very easily, with the continued deterioration of ad revenue, any private business that lost almost $12 million in 2014, cash in, cash out, would be very likely to say that maybe they shouldn't be in this business. Instead, we've congregated as a group. We came up with different strategies and what we thought was more compelling programming for a millennial demographic, which the advertisers are seeking. We developed a very robust strategy. As Colette said, this is the very first time that we have ever done a serial drama in a different language.

With all due respect, sir, I do differ in what we communicated to the CRTC and what we have communicated to the Liberals, to the NDP, and to the Conservatives.

[The Chair, Conservative, Gord Brown]

Thank you very much.

We're now going to move to Ms. Sims for seven minutes.

[Jinny Sims, NDP, Newton—North Delta, BC]

Thank you very much.

First of all, let me say that my community in Surrey, B.C., in the Lower Mainland, and the Punjabi-speaking community across the country from coast to coast to coast are very disturbed and quite angry at the cuts they are seeing. The chat shows or the talk shows that you've just mentioned do not cut it and do not replace the news items that have been cancelled.

I also want to quote from a statement made by you on March 5, 2015:

Holding a...television licence is a privilege that comes with important obligations that are in the public interest, especially in regards to high-quality news coverage and reporting. An informed citizenry cannot be sacrificed for a company's commercial interests. Canadians can only wonder how many times corporate interests may have been placed ahead of the fair and balanced news reporting they expect from their broadcasting system. We expect Canada’s broadcasters... I'll save the rest. You can imagine the rest. We can send you the letter as well.

It is very clear that you have abandoned the very principles you put forward in there, where you specifically talk about news and how that cannot be sacrificed for commercial interests. What changed?

[Keith Pelley]

Again, I beg to disagree and will say that if we actually went through the transcript of the CRTC and spent three hours on it, I don't think we would have the exact same opinion. I believe that we have been totally up front, and at the exact same time we have also continued to serve the ethnic community.

Once again, if you're not willing to change, and you're not willing to change and follow where consumers want to be, you probably shouldn't own a broadcast licence. To be honest with you, all of the—

[Jinny Sims, NDP, Newton—North Delta, BC]

Sorry, Mr. Pelley—

[Keith Pelley]

Excuse me. Let me finish, please.

[Jinny Sims, NDP, Newton—North Delta, BC]

I'm sorry, Mr. Pelley, but we only have seven minutes and we have a number of people.

My question was specifically on what had changed, but as you said, I am going to pass it on to Mr. Sullivan right now.

[Mike Sullivan, NDP, York South—Weston, ON]

As Mr. Fantino has already said, this issue is huge in the Italian community, both in my riding of York South—Weston and in Toronto generally, so much so that the Italian consul general called a meeting and brought in 70 representatives of the Italian community to complain about this decision, which had come as a shock to them.

Giuseppe Pastorelli, who is the Italian consul general, Emilio Battaglia, the new president of Comites, and the Honourable Joe Volpe, who publishes Corriere Canadese, all have said that this decision is a shock to the community. Many in the Italian community came to Canada years ago and speak little or no English, so they rely on OMNI to get their news of Canada in Italian.

That is now gone. It's not going to be replaced by anything until this fall, when some kind of lifestyle program is coming that's aimed at younger people. We have abandoned an entire demographic of the Italian community. They will no longer be receiving any news. With an election coming, it is like voter suppression. These people will not be able to be engaged in the electoral process.

At the licence hearings, you committed to adhere to the standard conditions of licence applicable to English language conventional television stations, which expect “the licensee”—I say the word “expect”, and I know that you are going to yell that it is not a condition, but an expectation—“to maintain a local presence”, and a local presence includes “providing seven-day-a-week original local news coverage distinct to the market; employing full-time journalists”, which you don't anymore, and “operating a news bureau or news gathering office in the market”.

That's what you committed to do to live up to those expectations, and I know there is a difference in the words, but with a federal election on the horizon, the Italian community is up in arms. They are fuming. They were talking about boycotting Rogers, which I don't believe you would want them to do. They are concerned that a big part of that community will no longer have access to be engaged in Canadian society in the way they were.

With all respect to all of the dire predictions, you can't take news in isolation and say that news doesn't make money and therefore you are cutting out news. All the broadcasters in Canada would stop producing news if that was the attitude, because nobody makes a ton of money doing news. That's not what the licences are for. The licences are a licence to give Canadians information as per the Broadcasting Act, and I'm sorry, but lifestyle programming for a younger audience doesn't cut it.

[Keith Pelley]

The first comment I would make is that the CRTC has recognized this as a challenge, and people would drop the news, hence the reason that English news services had 9(1)(h) status in the last CRTC hearings. There is a recognition that news, not only in ethnic languages, is struggling in English Canada as well, based on the fact that you can get news anywhere. There is just a plethora of opportunities where you can get your news.

As far as the Italian goes, again, I don't want to get into selecting quotes and so forth from individual transcripts and so forth, because it would be very easy to go through the entire conversation that I had with Mr. Cash, your colleague, about this exact challenge—

[Jasbir Sandhu, NDP, Surrey North, BC]

Mr. Pelley, I do want to echo what my colleagues have said in regard to the ethnic news being cut, especially the Punjabi and the Cantonese news in the Lower Mainland. This serves as a vital link for people to get not only Canadian news in the language they understand but also news from abroad, whereby they're able to keep up links with whatever country they have come from.

Getting a licence is a privilege. It comes with a responsibility. I believe you're not living up to that responsibility of providing that content for the licence you got.

People are very upset in my community. I want to echo that here in this committee. As Mr. Sullivan has said, they're thinking about boycotting Rogers in regard to other services you provide. In one component you're going to make money and in others you're going to lose, but it's the whole package that you have to deliver. I have to convey this for my constituents: I think that in this case you guys have failed.

[Keith Pelley]

With all due respect, again, we are living up to the conditions of our licence. I strongly disagree with your comments.

[The Chair, Conservative, Gord Brown]

Thank you.

We're going to move to Mr. Vaughan for seven minutes.

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

You've made a number of comments about the business model, which we appreciate is changing, and certainly those of us who have worked in the industry understand it to be changing.

What I don't understand is why you have formerly used U.S. programming to subsidize multilingual programming. As a platform provider and not simply a content provider, you have a robust business model, all of it granted to you by federal statute. Why are you not using those other privileges granted to you by the CRTC, such as Rogers being a cable provider, which is gaining revenue as a result of media changes? Why are you not cross-subsidizing within your larger corporation? Why are you choosing to only cross-subsidize within OMNI?

[Keith Pelley]

OMNI has only one revenue source, which is advertising revenue. It doesn't have secondary—

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

No, I appreciate that. The question was, why aren't you using Rogers' full spectrum of revenue streams to cross-subsidize, to sustain the promise of performance you've made to the CRTC?

[Keith Pelley]

OMNI is not a not-for-profit organization. OMNI is a separate entity that is part of a private company, that runs as a separate entity with a separate P and L. If it were a not-for-profit or if it were a charitable organization, we could have that conversation, but that's not what it is.

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

You're misunderstanding the question, and I hope it's not deliberate. Rogers has a number of broadcast platforms, which it is given privilege to broadcast in. It has a number of telecommunications operations. To fulfill your promise of performance for multilingual programming, which is the reason the station exists, why have you not chosen to cross-subsidize through the Rogers' family of businesses? Why have you chosen to have OMNI stand alone when other wings of Rogers cross-subsidize one another?

[Keith Pelley]

Well, because we can't have those conversations.