Canadian Heritage Committee on April 19th, 2016

[The Chair, Liberal, Hedy Fry]

Order, please.

In the first hour, we have Rogers and the Fédération nationale des communications.

I think each one of you who are presenting, both as a unit, Rogers and the Fédération, should remember that you have 10 minutes to present. I will let you know when you have two minutes left. After that, there is a question and answer period.

We will begin with Rogers. I don't know if you'll split your 10 minutes or if one person is going to speak.

Please begin.

[Colette Watson, Vice-President, Television and Broadcast Operations, Rogers]

Thank you, Madam Chair and members of the committee, for inviting us here to discuss the current challenges facing local media.

My name is Colette Watson, vice-president of television and broadcasting operations for Rogers Media, and with me is Susan Wheeler, vice-president of regulatory affairs for Rogers Media.

At Rogers, we are committed to innovation and the celebration of Canadian culture. It has been our legacy ever since Ted Rogers revolutionized radio in this country with the first FM signal. We honour a diversity of voices by delivering content to Canadians that enlightens, informs, and entertains.

On the local level, we operate under the City brand in seven markets across the country–Toronto, Vancouver, Calgary, Edmonton, Winnipeg, and Montreal, and in the province of Saskatchewan–and operate 51 local music and news/talk radio stations across Canada.

We also operate five local multicultural TV stations under the OMNI brand in Toronto, Vancouver, Calgary, and Edmonton. At OMNI, we provide programming to more than 40 distinct ethnic and cultural groups in more than 40 different languages.

Across our cable footprint in Ontario, New Brunswick, and Newfoundland, we have 41 community TV channels offering coverage of local events and issues in both official languages. In fact, in 15 of these 41 communities, Rogers TV is the only source of local TV news and information content, and last year, close to 30,000 community groups participated in the creation of this community content.

As you have no doubt heard throughout these hearings, the Canadian media industry has been in a state of transformation for a few years. The economic model for local television is under significant pressure as advertising dollars shift from linear to digital platforms. We've had to adapt to the new realities of this changing economic model over the last few years, not just for financial reasons but also to meet changing audience demands and trends. As Canadians we lead the way in data consumption globally. We want to consume content where we want, when we want, and on the device of our choosing. There is no doubt the consumer is firmly in the driver's seat.

As broadcasters, we must move with this changing tide and the successful companies will be the ones who adapt the fastest. While the industry is still in a state of transition and new business models have not yet been firmly established, we believe there are three immediate actions the government and its legislative arms can take to help navigate the digital transition.

One, fully compensate local broadcasters for costs associated with the government's plan to repurpose the 600 megahertz spectrum and create a fund for local programming with a portion of the auction proceeds.

Two, modernize the government's funding tools and programs to reflect Canada's digital reality.

Three, ensure sustainable financing for local news and information programming resulting from the CRTC's review of local and community television programming.

First, allow me to give you a sense of the economics of the broadcast industry today. Based on the CRTC's latest statistical and financial report on conventional television, the private over-the-air, or OTA, television sector in Canada has experienced a 16% decline over the past four years.

In 2014, profits before interest and taxes, or PBIT, for private local television stations dropped industry-wide to minus $138.7 million, and the PBIT margin decreased to minus -7.7%.

As the smallest conventional television group, Rogers stations have been disproportionately impacted by this decline with a PBIT margin of minus -37.2% in 2014.

For niche stations like OMNI, the situation is dire. Since 2011, OMNI has experienced a cumulative decline in revenue of 74%. That is a drastic and unsustainable decline, a decline that has forced us to take costs out of the business in an effort to keep these stations on the air. While these challenges are real and significant, we do remain committed to finding a new business model for the production and dissemination of local news and information programming. One that reflects how, when, and where Canadians consume the content they trust and rely on.

The 600 megahertz spectrum is currently occupied by local OTA television stations. In August of last year the Department of Innovation, Science and Economic Development issued its decision to repurpose a good portion of this spectrum band for mobile broadband use.

Rogers supports the repurposing of this spectrum, but we have deep concerns about the impact it will have on local television. We have expressed these concerns to the department directly and through our trade association, the Canadian Association of Broadcasters. It is important for this committee to know that the cost of relocating to new channel allotments will be significant and, in some cases, totally prohibitive for certain broadcasters.

For us alone, we estimate the cost to relocate our stations to be over $20 million at a time when we have yet to fully depreciate the major investments we made to convert to digital transmission in 2011. On an industry basis, the cost could be anywhere from $520 million to $1.25 billion, depending on the complexity of the transition. The timing, quite frankly, couldn't be worse.

Given the fragile state of the OTA television sector here in Canada, and that the auction for this sector will likely generate more than $5 billion in revenue, we urge the federal government to fully compensate affected broadcasters for their relocation costs, and create a fund for local television programming from a portion of the proceeds of this auction.

South of the border, we note that the U.S. Congress has already agreed to compensate local broadcasters in full for their relocation costs. This was made clear to local broadcasters well before the commencement of the U.S. auction in March of this year. Unfortunately, we have yet to receive a response to our requests for compensation. We hope this committee will help bring attention to what risks being a very serious and immediate threat to the availability of local television in Canada.

Our second proposal is the suggestion that as part of the minister's upcoming digital consultations, this committee recommend a full review of its current cultural funding tools and support programs. The policy objectives of the funds are still very valid, but the framework is outdated and has not kept up with the rapid change of pace in the industry. We would welcome the opportunity to participate in such a review.

Finally, our third proposal is one we presented to the CRTC as part of its proceeding on local and community television programming. In that proceeding we proposed a model that would allow companies like Rogers, Quebecor, Bell, and Shaw/Corus that own both cable and local television stations to reallocate funding from the community channels they operate in major markets towards either OTA stations or community channels in smaller markets. This would, for example, allow us to reallocate funds from our Rogers TV station in Toronto, a market that is well-served by local broadcasters including City and OMNI, and direct these funds to a small market like, say, Bathurst, New Brunswick. Bathurst is a bilingual community that is not currently served by a local OTA station, and this would ensure that people there are given access to truly local news and information in both English and French.

We recognize that these suggestions are not long-term solutions to the current challenges facing local television, but we believe they do offer local broadcasters an immediate path that can help navigate what are currently very turbulent and financially difficult times in the traditional media space.

We hope our suggestions today will encourage further discussions on the development of new and creative policies that will result in the continued availability of local content in markets large and small across Canada.

Thank you.

[The Chair, Liberal, Hedy Fry]

Thank you, Ms. Watson.

Now we will go to the Fédération nationale des communications, Ms. St-Onge, for 10 minutes please.

[Pascale St-Onge, President, Fédération nationale des communications]

Thank you, Madam Chair. Good morning everyone.

My name is Pascale St-Onge, and I am the president of the Fédération nationale des communications, or FNC. I am joined today by my colleague, Pierre Roger, corporate secretary and treasurer of the FNC. We appreciate the opportunity to speak to the committee about news and information and, more specifically, about the future of regional news.

The FNC is a labour organization affiliated with the Confédération des syndicats nationaux, or CSN. The FNC represents more than 88 unions and some 6,000 workers in the communications and cultural sector. Present in most of Quebec's mainstream media outlets, the FNC represents the vast majority of staff and freelance journalists in the province.

We also have unions in Ontario and New Brunswick. Radio-Canada, La Presse, Groupe Capitales Médias newspapers, Le Devoir, Le Journal de Montréal, Transcontinental, TVA, Cogeco, and L'Acadie Nouvelle are just a few of the media outlets in which we are present. The people we represent work in print media, TV and radio, and increasingly, digital media.

In our brief, we discuss the numerous issues facing the news and information industry. On a structural level, the traditional media is experiencing financial trouble that is hindering its ability to carry out its first mission: to inform. Clearly, the advent of the Internet and the technological developments since have made it easier for people to access information and provided opportunities to significantly grow audiences.

The trend towards the use of digital media and social networks, which are free for the most part, is constantly on the rise. And these sources of information, which deprive traditional media organizations of considerable revenues, are, above all, dissemination platforms, as opposed to content producers.

Not only does this reality challenge the traditional media business model, but it has also given rise to a news and information crisis that could eventually lead to a democratic crisis.

In addition to these dramatic shifts, the industry's pervasive media concentration and convergence practices are jeopardizing the quality and diversity of information by turning it into an increasingly commercial commodity. All too often, spot news, fluff stories, and sensational headlines are what appeal to audiences. This type of information is intended, first and foremost, to entertain. The focus is on growing the audience at all costs, because that is the only way to make more money.

It goes without saying that such an environment undermines the work of journalists. Being forced to multi-task and operate on multiple platforms has led to a much heavier workload for journalists. For their part, freelance journalists have no resources at their disposal to negotiate working conditions, in light of the high level of media concentration in the industry. Now more than ever, their independence and integrity are under tremendous strain.

As part of this consultation process, the FNC encourages our political leaders to redefine their vision of the media. Our various levels of government have a duty to intervene to safeguard and improve information accessibility, quality, and diversity, and most western nations are in the process of doing just that.

We would like to submit to the committee 10 recommendations that, we believe, will provide the support needed to ensure that the media can continue to play its role as the fourth estate. Without further ado, here they are.

First, the FNC believes that it is now necessary to implement funding measures to support the production of high-quality and diverse information and news in Canada, as well as Quebec. All funding options should be considered. We are especially in favour of a payroll tax credit. Such a measure would allow media companies in financial trouble to keep their staff or, even better, to hire journalists to improve information plurality and diversity. Similarly, the measure would provide support to hire more advertising representatives or new technology experts.

Second, the federal government should set up a permanent fund to support local and regional programming and production, to expand the regional media footprint. It is imperative that funding be allocated to the production of regional news and information.

Third, CBC/Radio-Canada should be involved in producing quality local and regional information and news content. It is crucial that the crown corporation strengthen its presence in the regions. In order to do that, the public broadcaster needs considerably more funding and, above all, a much stronger commitment to and awareness of regional realities on the part of its leadership.

Fourth, to give Canadians better access to this high-quality and diverse news and information, particularly in remote regions, it is crucial that the government recognize high-speed Internet service as being an essential service.

Fifth, the government should introduce grant programs to support digital platform innovation. Similar programs are in place for cultural enterprises. Many small media organizations cannot afford to build better online applications. As audiences increasingly turn to the web, media outlets need to equip themselves with appealing, innovative, and effective platforms in order to attract those audiences.

Sixth, given the period of upheaval that our media companies are going through, it is incumbent upon government leaders to create a task force to examine the regulatory framework that should govern multinational web companies. The purpose is to identify the right tools to protect the production of local content in the digital era. It is also incumbent upon government leaders to impose certain requirements on these Internet giants, who enjoy lucrative advertising markets, both locally and nationally. They should have to contribute financially to the production and dissemination of high-quality and diverse news and information content in connection with those markets. They should also have to follow the tax rules in force in the countries where they operate.

Seventh, the federal and provincial governments have a duty to immediately address the issue of media concentration and convergence rife in the industry. Clear restrictions need to be imposed on media companies in order to limit their ability to employ sweeping practices that hurt information and news quality and diversity. The media should be subject to stricter regulation, particularly as regards its responsibility to inform. Simply put, government leaders must address the urgent need to protect the diversity of voices, not just locally, but also regionally and nationally.

Eighth, the FNC-CSN believes that the government should undertake an in-depth review of the CRTC's role and governance. In our view, the rules governing the appointment of commissioners should be reviewed. Political partisanship should not determine who sits on the CRTC. The Harper government's direct involvement when industry players asked the CRTC to regulate Internet giants was especially disgraceful. The CRTC has a duty to ensure that licence holders comply with the conditions imposed on them, especially in the case of news and information. The CRTC should also be involved in the discussion on how to legislate and regulate the Internet. Similarly, it should examine ways to protect the local and national media industry.

Ninth, it is our view that governments should make an effort to spend their advertising dollars on Canadian and Quebec media organizations, first and foremost. While we appreciate that social media provide access to large audiences, we think it makes no sense to have our tax money end up in the hands of multinational giants who thumb their nose at our tax rules and contribute nothing whatsoever to the production of information and news or the production of cultural Canadian and Quebec content.

Tenth, and finally, as social networks continue to grow in size and number, we believe the federal government should work with its provincial counterparts to establish media education programs. Canadians need to be able to distinguish between information from reliable sources and the so-called fake news that is prevalent on social media sites. Canadians also need to be able to distinguish between editorial content and advertising, which is increasingly blurring that line. Given the crumbling of online boundaries, it has become necessary to explain and underscore the role and contribution of professional journalists.

Keep in mind that we have discussed these solution proposals with a number of media company heads in Quebec, as well as with our union leaders and members. Though it was not possible to obtain unanimous agreement on which approaches to adopt, we see a clear consensus emerging industry-wide. Immediate action is needed. Several measures, especially financial ones, could be implemented temporarily to give companies the chance to transition fully to digital platforms and build new business models to protect the future of news and information.

As our societies grow more and more complex and as social networks contribute to the polarization of ideas, our media outlets need to be able to continue producing high-quality news and information and to make it accessible on appealing platforms to ensure that Canadians are exposed to diverse points of view.

Thank you for listening to us. We are available to answer any questions.

[The Chair, Liberal, Hedy Fry]

Thank you very much.

Now we go to the question section. This is a seven-minute round, in which members will ask questions of you. The seven minutes includes questions and answers, so I would like everyone to be as concise as possible so we can get as many questions in, and as much information from our witnesses, as possible.

We begin with Ms. Dabrusin, for the Liberal Party.

[Julie Dabrusin, Liberal, Toronto—Danforth, ON]

Thank you, Madam Chair.

Thank you to all the witnesses.

My first question is for Rogers because you mentioned in your presentation that in moving to a digital platform our current “framework is outdated and has not kept up with the rapid pace of change in the industry.“ I was wondering if you could elaborate on what you see is outdated and needs change.

[Colette Watson]

We refer specifically to the CMF criteria and the CAVCO tax credit system. The genres that they allow for funding perhaps need some updating. They don't allow for local news and information, and the type of programming that is most popular with Canadians today.

With respect to tax credits, I think there might be something my colleague would add.

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

Yes. With respect to the tax credits, I think our main recommendation is to review the eligible productions that can receive the benefit of the tax credit program and look to see whether there are measures that can be taken to support local news and information programming. Traditionally, those have been excluded categories because they've been well financed and supported through advertising revenue, and that, given the digital transition, has obviously changed. The other programs that we believe should be in scope are things like the Canadian periodical fund as well. That currently doesn't provide any support for digital distribution. Given that is likely the trend going forward, we think that is something the department should consider.

[Julie Dabrusin, Liberal, Toronto—Danforth, ON]

We see a lot in the media these days, or we hear a lot, about people cutting the cord and moving away from cable to digital platforms. How are you facing that challenge, first of all of monetizing content in the digital realm, and also are there any specific copyright challenges that are posed by that switchover?

[Colette Watson]

I'll start, and I'll let my colleague discuss the copyright challenges.

With respect to cable erosion, for the last few years it's been within the regulated pie. With respect to our community channels, we've seen a 1.5% to 2% decline per year for the last four years. As the members may be aware, community television is financed by 2% of cable revenues. The community television financing has declined significantly since 2010, which has made it difficult to produce programming in those very small local markets, where sometimes it's the only television media available to those markets.

With respect to monetizing in the face of cable erosion, we have to look to different platforms. We will be looking at direct-to-consumer opportunities, we are looking at how to monetize online, and we are looking to create new programming, either through branded content or integrations, that will allow advertisers to also reach the audiences they seek.

[Susan Wheeler]

As more media consumption moves online, obviously the issue of piracy and the illegal consumption of content becomes a larger issue. The government, in its last review of the Copyright Act, indicated that it had built in a five-year review time frame for that. I think that the issue of piracy needs to be a priority in that next review, in terms of the tools that we currently have to remove that content and exercise our territorial rights for that content in the market.

[Julie Dabrusin, Liberal, Toronto—Danforth, ON]

You talked about that, Ms. St-Onge.

Would you like to comment on the issue?

[Pascale St-Onge]

When it comes to traditional television, it is clear that people are increasingly replacing cable television with intelligent TV and the web.

Our concern has more to do with the news. News content is currently produced by general-interest networks. When it comes to smart television, there is a lot of development and innovation left to do in terms of applications for users to have online access to the news. The format will have to be completely different from that used by general-interest networks.

The problem is that this requires investments in technology, innovation and programming, and many companies don't have the means to make those investments. I will let Mr. Roger provide further information on this, if he wants.

For example, the tablet application La Presse+ from the La Presse newspaper did not exist before; it's something completely new in the newspaper world. It has a good chance of success—and we hope that will be the case—but it required $40 million to $60 million in investments. I don't think that smaller markets have the means, especially when it comes to regional and local news, to develop these kinds of new technologies. I think that government support will be needed.

[Pierre Roger, Secretary General-Treasurer, Fédération nationale des communications]

In addition, I would say that the traditional business model is becoming less and less effective for the media. We could be talking about television or radio, but the situation is worse for print media, which are clearly struggling with that shift toward new platforms. On the one hand, traditional advertising revenues are decreasing, and on the other hand, companies have to develop digital platforms, and that requires investments. There is also advertising on digital platforms, but it is less profitable than advertising in traditional media.

We believe that considerable financial assistance will have to be provided by various levels of government over a number of years. That assistance could come in the form of payroll tax credits or significant funding dedicated to that digital transition.

[The Chair, Liberal, Hedy Fry]

Mr. Waugh, for the Conservative Party.

[Kevin Waugh, Conservative, Saskatoon—Grasswood, SK]

Thank you and good morning everyone.

We'll start with Rogers. Congratulations, it appears that you have either the first- or second-largest media outlet in this country. You've made some good choices, I see, with radio.

The specialty channels have certainly treated you well, but what hasn't treated you well? I guess that's the first statement I'm going to ask you to clarify. You've owned a lot of FM stations in radio. Your specialty channels have done well, maybe you've overpaid for some products. We won't talk about the NHL.

What's gone well for you right now?

[Colette Watson]

It's not that it's gone wrong, it's that the environment is evolving. Things are changing and as with many things in life, frameworks don't necessarily move at the pace of consumer evolution. We're here saying that there's a change. We want to operate within the Canadian cultural framework that has been established.

We have been a proud partner of that framework for 50 years, but it's changing and we're here to say that we have some ideas on how we can evolve this together for the benefit of Canadians. Good, strong, profitable Canadian companies create jobs for Canadians and pay taxes to the government. We want to evolve and we are hoping to keep pace with the pace of that evolution.

[Kevin Waugh, Conservative, Saskatoon—Grasswood, SK]

You're a distributor. You're in broadcasting, telecom, publishing, you're into everything here. We look to you. Other than looking at the CBC and their umbrella, you're the private people who have to lead the way, so lead.

[Colette Watson]

Right and that's why we're here. We have three concrete suggestions for you to look at.

[Kevin Waugh, Conservative, Saskatoon—Grasswood, SK]

Yes, I have them, the compensation, but everyone wants to be compensated by government. I'm tired of that, actually.

[Colette Watson]

We wouldn't need to be compensated if you weren't repatriating the spectrum we already occupy. We're saying if you want to expropriate, that's great, but we should be compensated since we've already made a digital transformation change in 2011 based on a government policy.

We haven't even fully depreciated all of those costs and those are unrecoverable costs. It's not like we can hang out a shingle and make some money off this, and so that's the kind of thing.... As for the Canada Media Fund, it's stuck in the 80s, and we need to bring it to 2016.

[Kevin Waugh, Conservative, Saskatoon—Grasswood, SK]

We haven't even updated our Broadcasting Act. Why would we do what you're suggesting?

The transformation talk about that...because you're supposed to be a leader in digital. I've sat with groups here in the last two weeks in my office, and all they complain about is Yahoo, Facebook, and Google. When are we going to take these companies on, and what do we have to do to take these companies on, and to get into the digital game?

[Colette Watson]

These are global companies with global scale. We operate in the world's best country, but it doesn't have the kind of scale those companies have. We have created and obtained cultural copyrights for content that can be easily usurped or monetized on a larger platform than we can compete with.

With respect to leading the way, we are. We like to innovate. We want to innovate. We just need to have a framework that allows and enables that digital transformation.

With respect to being leaders, I'm happy to point out that last week, or the week before, we launched the first direct-to-home sports channel application in the country. I can give you a 30-second commercial on Sportsnet now, if you'd like.

[Kevin Waugh, Conservative, Saskatoon—Grasswood, SK]

I saw it.

[Colette Watson]

We were the first to do this.

I was hired by Ted Rogers. Mr. Rogers needed to be first at everything. He wanted to try. If it didn't work, that's fine, but he would go out and try again. That DNA still exists in this company. We still want to be first. We want to succeed. He was also a patriot. We want to succeed in this country, and we're just here to offer some suggestions on how we can do that together.