EVIDENCE

[Recorded by Electronic Apparatus]

Monday, June 19, 1995

.1535

[English]

The Chair: Ladies and gentlemen, welcome back to what will be the last public session in our series on DTH. As the people here know, we were obliged to abandon you last week because of votes that went on much longer than we expected in the House of Commons. We're sorry for any inconvenience that may have caused and we're truly grateful that you've returned.

Our members are straggling in, but we only need a minimum of three to hear witnesses and I suspect that more will come along. As long as you have the patience, I'm sure they will appear.

I should mention one other thing I've learned, which seems to be throwing a certain amount of confusion into at least the chairman, but this often happens. I've seen a press release that seems to indicate the government has sent some final orders, it would seem, to the CRTC to which the CRTC says it will respond by Wednesday. The difficulty I have with this is that my understanding of the process we were involved in is that it was a bit like Lent. That is to say it involved 40 days and 40 nights.

There is some problem in how you count the days as to whether days in which the Senate is in session count as part of the total package of 40, so that if the House of Commons' members were away, they would be still be parliamentary days. In any event, since I know nothing of this, I propose we say to our witnesses that we are attempting to find out exactly what the story is, but I think we should proceed as if we're still in business. I beg your indulgence until we can find some clarification of this.

With that, we have two sets of witnesses. We can go one of two ways. Since you're both in the same line of work, perhaps it might make sense to start with Astral and Mr. Bureau. Then perhaps if there is a set presentation from the people at Allarcom, we will hear that as well, and then move into a general discussion that will allow us to compare notes between the two presentations and to perhaps be more efficient with our time. Again, I'm apologizing for first of all our failure to hear you last week and, secondly, for some confusion surrounding today's events.

I would invite Mr. Juneau to begin.

[Translation]

I apologize, Mr. Bureau. Oh, dear! Oh, dear! I'm sorry, Mr. Bureau.

[English]

Mr. André Bureau (Vice-Chairman, Astral Communications Inc.): Good afternoon, ladies and gentlemen. My name is André Bureau. I am vice-chairman of Astral Communications Inc. and I'm president and CEO of the Astral Broadcasting Group. I'm here today with Lisa de Wilde, the president of TMN Networks Inc. and Viewer's Choice Canada, our pay-per-view service in the east. Also with me is Chris Johnston, our legal adviser. I would also like to introduce our three colleagues from Allarcom Pay Television Limited. They are Grant Buchanan, vice-president, corporate affairs; Ric Davies, Allarcom's vice-president of programming; and Luther Haave, who is Allarcom's vice-president and general manager as well as president of Home Theatre.

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Our presentation will be a joint presentation, Mr. Chairman, with your permission. Before we start our presentation, I would like to ask Chris Johnston to deliver a few preliminary remarks concerning the ongoing process.

Mr. Chris Johnston (Legal Counsel, Astral Communications Inc. and Allarcom Pay Television Limited): Thank you André, Mr. Chairman, and members of the committee.

Mr. Chairman, as you mentioned, we were all taken by surprise to learn that, according to a press release, final proposed orders have been delivered to the CRTC for a response by Wednesday, two days from now.

Mr. Chairman, as you're aware, we are here today to discuss two directions issued by the Governor in Council to the CRTC dealing with direct-to-home broadcasting. Those directions represent an extraordinary use of the government's powers. It's the first time that the government has acted to issue a policy direction to the CRTC.

There are serious concerns about both the legality and the policy underpinnings of those directions. It was for that reason that we thought we were engaged in a very serious process, both before the Senate committee and before this committee, to give you our input and that of many other parties to try to arrive at directions that were sound both legally and on a policy basis. We understand the Senate committee's report has yet to be issued. We know your report has yet to be issued. You have not heard from us, the two representatives of the national pay services in this country. You have not heard from the Directors' Guild and the other representatives of the production industry who are to come, and yet we find -

The Chair: For your clarification, we actually heard their written presentations. We did not have a chance in fact to ask them questions. We did ask them to return and they were unable to do so. So perhaps that's useful.

Mr. Johnston: Thank you for that clarification. We find ourselves in a state of some astonishment, because we've been engaged in this process for a long time, put many hours into our written and oral submissions, as have all the other parties, and now it seems very clear that the government has simply issued proposed final orders without the benefit of the reports from either of the standing committees.

I don't like to be cynical about this, Mr. Chairman, but I wondered why we're having this hearing in the railway committee room and I'm beginning to understand perhaps the significance of that. We'll have a little more to say about this later on, but I'll turn it back to Mr. Bureau.

The Chair: I have some information here that has just come to my attention, which is that the CRTC was given, in my understanding, a draft order - not the final one - and apparently it is the habit of the department to consult. So this draft order is subject to a final revision. That's my understanding of the distinction. The word ``final'' may not be accurate. My understanding is that nothing is final. Why this has come from the CRTC I'm not certain, unless there was an error on their part.

Mr. Johnston: Mr. Chairman, as I understand the act, it requires that the government have a final consultation before they issue the orders. We're all aware of the kinds of time pressures that this process has been under. I assume that when the press release says ``government's proposed final orders'', this is what it means. I hear what you're saying, but knowing how far we are down the road, I wonder if these aren't in fact final orders.

The Chair: Let's assume they're not and see what we can do about it.

Mrs. Brown (Calgary Southeast): Mr. Chairman, I need clarification. What is the time line on our committee's report on DTH?

The Chair: My understanding is that there is a 40-day period during which Parliament, both the Senate and the House of Commons, can examine the government orders. I thought that period was coming to an end this Friday. There is some confusion about the 40 days, because it deals with not only sitting days of the House but sitting days of the Senate. If the Senate were sitting during the time we were away, that would also constitute part of the 40 days.

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I was working under the assumption that Friday, June 23 was the last of the 40 days. Again, we're going to have to have some clarification about -

Mrs. Brown (Calgary Southeast): Our colleague has certainly pointed out a flaw in this process if we are still to hear witnesses. Everything we do here is of little consequence if others already in the system are making decisions for which our work here is going to have little relevance or bearing at all.

The Chair: As I tried to indicate, we're operating under imperfect information, the latest of which says this is simply a draft order that is not final, despite the fact that the written words seem to say ``final''. So until we get clarification, I think we should carry on.

Mrs. Brown (Calgary Southeast): I can't express strongly enough that this particular process has been interrupted so many times with the very same kind of procedure, where the work of the committee really becomes of little consequence because committees over here are being struck outside of the work we're doing.

We have various and sundry reports coming out of committees with respect to the work of the CBC and the restructuring there. It seems to me we're bumping into another problem of the same order, but of even greater magnitude in terms of long-term effect.

It's extremely frustrating as a member of this committee to sit here and have to entertain this kind of problem all the time.

[Translation]

Mrs. Tremblay (Rimouski - Témiscouata): Mr. Chairman, this is adding insult to injury. In fact, your assistant had to make telephone calls and when I asked him to let me make an emergency call, he told me he was phoning on your behalf. The fact that there are so few Liberals on this Committee proves that they were aware of the situation and that the Opposition was not. Because you are a gentleman, you were kind enough to chair the Committee, but I think this situation is outrageous.

The CRTC is not that irresponsible. If the CRTC puts out a press release, it's because it has a reason to do so. If this press release exists, I would like it to be tabled. I want to see it with my own eyes, I want to read it and find out what's going on. In the meantime, we might suspend proceedings. I see that the parliamentary secretary is on the phone; I hope she is on the line with her department.

Thank you, sir. I would like to take the time to read it. It is in both languages.

The CRTC today received a request under section 7(6) of the Broadcasting Act for consultation on the government's proposed final orders related to direct-to-home (DTH) broadcasting distribution and programming undertakings. As requested by the government, the CRTC's response will be provided to the government by Wednesday, June 21, 1995.

There you have it, Mr. Chairman: this is a direct order. According to my sources, the Senate will table its report tomorrow or Wednesday, and our Committee is to meet once public hearings are over - tonight or tomorrow morning - to decide what our report will look like. However, it seems that the government has given an order in the guise of a proposed final order, for consultation with the CRTC, as stipulated in section 7(6) of the act.

Mr. Chairman, words can't express how disappointed I am in the face of this ultimately hollow exercise in democracy. In my opinion, the government is wasting money and thumbing its nose at taxpayers. I knew these committees were a sham, but I had no idea just how bad it was.Mr. Chairman, I'm totally at a loss for words.

The Chair: Mr. de Savoye.

Mr. de Savoye (Portneuf): Mr. Chairman, the Minister of Industry and the Minister of Canadian Heritage jointly issued orders...

Mrs. Tremblay: On April 28.

Mr. de Savoye: ...approximately 40 days ago, and we are not quite sure what that was all about.

.1550

As well, we received a memo from Power Corporation, which included a specific timetable. I had my suspicions and found out I was right, because we are facing very tight deadlines before the end of the session. In short, it seems that the deck has been stacked.

Witnesses have come before the committee in good faith. We have held our hearings in good faith. By listening to the various groups of witnesses, we have tried to find solutions to improve the situation of radio and television across the country. Today, we are...

Mrs. Tremblay: Here come some extras.

Mr. de Savoye: ...confronted with what seems to be a done deal.

Mr. Chairman, have we worked for nothing? Have the witnesses come before the committee for nothing? Was it always a done deal? Did Power Corporation stack the deck, leaving us with nothing to do but to helplessly watch the situation unfold as it had been planned?

Mr. Chairman, I ask for an explanation. You chair this committee. Tell us what's going on.

The Chair: As everyone knows, we are involved in a new process. The rules of the game are not quite clear. Does the committee have to produce a report, write a letter or do nothing? I'm not quite sure, and I'm not too sure about the 40 days either, as mentioned earlier. The parliamentary secretary is trying to clarify the situation. We have two choices: we could take Mrs. Tremblay's advice and suspend the hearing until we know what the deal is, or we can hear the witnesses, since they have been here a while, until we find out more through the parliamentary secretary. I leave it up to you.

Mr. de Savoye.

Mr. de Savoye: Mr. Chairman, a little earlier, you told us that you are not quite clear on the situation, but we will obviously know what's going on within the next few minutes. When will the 40 days be up? Is our work useful or useless? We would be insulting our witnesses if we asked them to present their case without having a clear answer to those questions. I therefore suggest that we suspend the proceedings for a few moments, just until we know whether our work has a purpose or not.

The Chair: I would like to know when the witnesses' flights are leaving. It would help us in case we decide to suspend the proceedings in order to clarify the situation.

[English]

Mrs. Brown.

Mrs. Brown (Calgary Southeast): Thank you, Mr. Chairman.

For the record, I have to express outrage at the arrogance of this government, which continues to just disregard process, procedure, people, committee work. It says in this press release ``as requested by the government''. Well, that's pretty clear to me. ``The CRTC's response will be provided to the government by Wednesday, June 21.''

It's just reprehensible. It seems to be a pattern with this government that they're arrogant and oversee everything. It's frustrating in the extreme. You take time to come together, to prepare yourself for a meeting such as this, and then there is a news release like this. It's extremely arrogant. I can't even begin to tell you the level of frustration.

I concur with the Bloc Québécois. I think we should suspend these proceedings for at least a period of time until we find out exactly what this means. This is ridiculous.

The Chair: During these discussions I noticed that the parliamentary secretary was at the phone. I don't know if she's in a position to help us out so that we can proceed about this apparent difficulty we find ourselves in. Have you learned anything?

Ms Guarnieri (Mississauga East): I certainly understand the anger of the members around the table. However, nothing is going to happen until due process is observed, and the work of this committee is still very valid and relevant.

The Broadcasting Act requires the government to consult with the CRTC before the final orders are issued. So the notice is gazetted, as the members have pointed out here. The government is simply consulting for options at this point, and that is quite within the norm. Nothing will happen until due process is observed.

.1555

I implore the members, since we do have witnesses who have been rescheduled and who have been good enough to come again.... I, for one, am very interested in hearing the presentations to be made by our witnesses who have been gracious enough to reappear before us.

Perhaps we could continue our discussion after the witnesses have completed their -

The Chair: That seems to be consistent with what I have heard, which was simply that this was part of the closing-in negotiating process, but these are not in fact, despite the press release, the final orders.

Mr. de Savoye: Mr. Chairman, I appreciate the expression ``due process''. I would just want to make sure exactly what it means right now. When will due process be over? In how many hours, days, after what reports have been received by whom? What exactly do we mean by due process?

Ms Guarnieri: The 40 days will be up, and that's due process.

Mr. de Savoye: At what time is this? Today? Tomorrow? The day after?

Ms Guarnieri: Count it in working days from the day the directive was issued.

It's not every day that we issue directives of this nature. It will be 40 sitting days from the day the directive was issued.

Mr. de Savoye: I'm afraid this could be today. Am I right or wrong?

Ms Guarnieri: You're wrong. The notice the CRTC has given us is their request for submissions by June 21. The work of this committee doesn't complete itself until we finish our hearings.

The Chair: My understanding is the very earliest it could be would be June 21, counting all the Senate days, and so on. Today and tomorrow, we are certainly within the 40 days. Shall we, within the 40 days, proceed?

Ms Guarnieri: I still think that the representation made by our witnesses today would be very valuable. I certainly implore our colleagues to listen to them.

The Chair: I would like to say to the witnesses that we, as a committee collectively, have not come to any collective decision about what we are going to tell the government, and we would not do so until we have heard from the final witnesses.

Ms Guarnieri: We have a meeting scheduled, I understand, tomorrow morning to discuss in camera what the course of action of this committee will be.

Mr. McKinnon (Brandon - Souris): Mr. Chairman, would I be out of order in asking what is the source of the press release, which I haven't seen on this side of the table as yet?

The Chair: The source of the press release is the CRTC itself. We'll have copies prepared for everybody.

With your indulgence, Mr. de Savoye....

[Translation]

Mr. de Savoye: Mr. Chairman, considering your assurances, I am willing to continue while presuming that the witnesses find those assurances as conforting as I do. However, I want to stress that this process, which squeezes the deadlines on an extremely important issue doesn't help in any way our witnesses, the industry and the honourable members around this table to accomplish a thoughtful job. We are being ``bulldozed'', to use a popular term.

The Chairman: I understand your frustration, but don't forget that we were also involved in a very serious work, namely on the CBC. With all the work we had to do as a committee, we decided to divide up that way. We also consulted Mrs. Tremblay extensively on the work schedule. So, once again, I give you our apologies and I invite Mr. Bureau to continue his presentation.

Mr. Bureau: Mr. Chairman, we already met twice, and I fully understand why our testimony could not be heard the first time.

.1600

We came here with the hope of being able to put across views that were serious enough that a committee such as yours which has worked relentlessly for months on other subjects besides this one but also on this subject, could understand what's at stake for the Canadian broadcasting system and help the government to develop, if that is still part of its plan directions which on the one hand are legal, consistent with what the law prescribes, and on the other hand, ensure that our Canadian broadcasting system, which is a success all over the world, will not be jeopardized. We came here with documents that were drafted carefully and checked over and over and that we are prepared to table before you.

[English]

However, because of the circumstances today, we will try to focus on a few points that we really consider absolutely vital and that we believe...if it's not too late to bring them to your attention. You understand that we're not formulating any criticism of your work. Like you, we're looking at the process that seems to us of great concern, and we're quite nervous about what could be behind all of it.

We're used to taking the word of the commission seriously, and when it says ``proposed final orders'', as licensees who are used to their vocabulary, we take it seriously. We don't take it aside and say that's not what it means.

So this being said, we will concentrate on these few points, and I will invite immediately Lisa de Wilde and then after that Grant Buchanan to express to you what these vital key issues are.

Ms Lisa de Wilde (President, TMN Networks Inc.): Thank you very much. Good afternoon, Mr. Chairman and members of the committee.

As my colleague has just emphasized for you, this is a proceeding that is of tremendous importance to us. We work in Canadian broadcasting and frankly are proud to work in an industry that provides great jobs and great opportunities for Canadians to strut their stuff not only on a Canadian stage but also on an international stage. We don't think that's just any little accomplishment that should be tossed away. So we are going to continue to believe that this is an important proceeding, and we're going to continue to work hard at it until we have to admit that there is no other forum to put our case in.

We worked over the Christmas holidays and we worked weekends, because we think it's important to communicate our points clearly to you. So today we're going to take another run at reducing to more simple language some of the things floating up there that we can tend to think are very esoteric.

I'm going to address a couple of points. First of all, the pay-per-view directive as it's currently constituted is tragically flawed. It completely underestimates a huge risk that is buried within it, and that risk relates to how broadcasters purchase programming rights.

If nothing changes in the proposed directive, American producers of programming and American distributors are going to win something that they failed to win and that they frankly have lusted after for years.

The government's pay-per-view policy will destroy Canadian services by inadvertently destroying the economic base of Canadian pay-per-view to start with. The directive assumes that we can simply say rights can't be bought exclusively and that this is equivalent to the protection that's offered by our long-standing separate program rights market. It's a separate Canadian program rights market that has protected Canadian broadcasters for over 40 years, and it's allowed Canadian broadcasters to support the development of what is now a very successful film and television production industry. Non-exclusivity in a condition of licence is not the equivalent of a separate program rights market. In fact, it's virtually no protection.

.1605

The problem is that nobody seems to think that paying attention to program rights is important, and yet it very well is the Trojan Horse. Once we let it in, it will destroy the entire Canadian system.

Second, I'd like to focus on the question of what is next. We need to have a thorough examination of the impact of the program rights question. We can't just assume that in the CRTC subsequent licensing process non-exclusivity conditions will protect Canadian broadcasters and hence their ability to buy Canadian program rights.

We believe that we're letting this issue slip through, based on some flawed assumptions that are contained in a hurriedly written report. We therefore want to emphasis that the CRTC must be allowed to look at this issue carefully.

In closing, Canada has never contemplated as high risk a sea change as we're about to embark on. The history of Canadian broadcasting policy is about to be jettisoned. If the government's directive in effect deprives the commission, your committee, and the Canadian public of the ability to understand and to debate this fundamental issue of program rights, we may very well lose not just Canadian pay-per-view but the entire framework that underlies our broadcasting system.

I'll pass the microphone now to my colleague, Grant Buchanan.

Mr. Grant Buchanan (Vice-Chairman, Corporate Affairs, Allarcom Pay Television Limited): I propose to deal with a couple of subjects, the first being access and the second being the domino effect that will inevitably follow. I will ask Ric Davies to talk about some of the fundamental flaws in the logic that went into the panel's report in the first place and subsequently into their recommendations. Then Luther Haave will speak to the issue of competition, or more precisely the lack of competition that will ensue should the pay-per-view order be enacted as proposed in the DTH order as well.

The issue of access, of course, is one of the cornerstones of Canadian communications policy. In a market the size of Canada's, the Canadian solution suggests that you licence a limited number of Canadian services and then you guarantee them access to all the different distribution vehicles out there. This is to enable them to reach a large enough critical mass that they can produce the programming and support the Canadian production industry. That has been the pillar of Canadian policy to date.

That will not continue, in our view, should these directives go through as proposed. Quite obviously, Power is going to apply for its own pay-per-view service. Cable will do likewise, and then we're off to the races. Every distribution service will be looking for its own proprietary service, and they're going to start distinguishing themselves on the basis of the services as opposed to price, packaging, efficiencies, service, or whatever.

The government knows full well the importance of access to these Canadian programming services. Indeed, that's exactly why the government instructed the CRTC to report back to it by July 31 on this very important issue. It sent them a message telling them basically what we're saying to you, that everybody should be carried by everyone and get access to audiences.

We simply ask for the continuation of that very policy. All licensed Canadian programming services should be carried by all licensed Canadian distribution undertakings. This is not hard to understand.

This is all the more important, given that Power DirecTv is proposing to own its own service. In other words, it would be bad enough if they were just going to be in a position to deny access to a licensed CRTC service. It's quite another thing to go the next step and supplant that service with a service that they own themselves. This gets into the whole issue of the separation of carriage and content, which has also been a cornerstone of CRTC and government policy for many years.

I'll pass on to the second subject that I wish to address, which is the domino effect. Attempts have been made throughout this process to isolate the issue to one of pay-per-view undertakings. You only see us in front of you today, but we can guarantee there will be more.

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There will be an inevitable ripple effect through the Canadian broadcasting system that will flow, beginning with cable and marching on through pay, specialty, and ultimately conventional broadcast services. They all have to fall because of the artificial distinctions that were drawn between pay-per-view and other licensed Canadian programming services.

Those arguments were singularly unconvincing to us, as we have outlined in great detail in the reports that we filed, especially on June 2 to the minister.

We will guarantee that they won't be the least bit convincing to Mickey Kantor, Jack Valenti, ESPN, USSB, HBO, Showtime, and everyone else who's watching anxiously for the first crack in the door.

It's going to be impossible to continue to justify the separate regulatory treatment of the Canadian pay-per-view services that are supposedly distinct from Canadian pay, specialty, and other services. There's no question that we're going to lose control over the broadcasting system in Canada just as surely as we have lost it over video stores, motion picture theatres, and so on, and we're not going to get it back.

This isn't like the national energy program or the pay television launch in the early 1980s, or something else where it was essentially Canadian players, and when it fails you put them all in a room and we sort it out. Now we've got NAFTA. We've got strong American interests, and once you get them in, it will be impossible to get them out.

As I said earlier, unfortunately there were some fundamental flaws in the logic leading to the panel's report.

I would now ask Ric Davies to address those.

Mr. Ric Davies (Vice-Chairman, Programming, Allarcom Pay Television Limited): There were two underlying assumptions that led to this report that are just simply false; they are simply wrong. The first assumption was that pay-per-view is somehow different from all other forms of television, that pay-per-view instead is exactly like a video store. It was called a video store in the sky.

This assumption is logical probably from the point of view of a consumer. From the point of view of the business, it simply couldn't be more wrong.

If you look at home videos, when a home video operator buys a cassette, for instance, the home video operator owns that cassette. He can sell it, he can rent it, he can keep it, he can send it to his cousin in Australia, England or wherever. The point is that the studio has no further interest in that cassette whatsoever, subject of course only to copyright laws.

A pay-per-view operator on the other hand doesn't buy anything. The pay-per-view operator negotiates a licence for certain very defined rights, for a certain defined territory, and for a certain defined period of time. In fact, in all our contracts, it is absolutely clear and it's spelled out that ownership does not reside with a pay-per-view operator in any way. Ownership in its entirety remains with the studio.

I want to point out that this is exactly like pay television. The contracts are exactly the same - a defined right over a defined territory over a defined period. Both these industries put the product on consignment, as was used by one witness. There are no guarantees. It's simply a matter of how many households are receiving the film.

The second underlying false assumption was touched on by my colleague from Toronto, and that is the thought that North American rights can somehow be prevented by a condition of licensing against exclusivity. We've heard a whole lot of so-called theories and logic on this issue over the last months.

I sit before you today as someone who has spent his entire adult life negotiating program rights in Canada. I can tell you that protecting against North American rights by a condition of licence requiring non-exclusivity simply cannot work.

We spent decades working to retain this separate Canadian rights market, in terms of broadcasting. We're about to lose it entirely. The question is, what do we get in return?

Mr. Luther Haave (Vice-Chairman and General Manager, Allarcom Pay Television Limited): If we're to believe the report of the DTH panel, what we are supposed to get in return for putting at risk 40 years of history in our broadcasting system is competition for the consumer in pay-per-view. This entire process appears to be preoccupied with promoting the illusion of competition in a market segment that doesn't even exist yet, while losing sight of the bigger and very real concern of Canadians about having a prompt, effective, and sustainable Canadian competitor or alternative to their existing monopoly supplier.

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The end result of implementation of these orders will no doubt be higher prices for pay-per-view movies and events than consumers are presently paying to the licensed Canadian pay-per-view suppliers.

As far as competition goes, in the questioning of the group from Power DirecTv last week,Mr. de Savoye had it exactly right when he pointed out that there will be no competition in pay-per-view beyond the day when a consumer makes a choice of whether he will purchase an RCA or Thomson DTH unit, or one manufactured by Sony.

In response to this questioning, the representative of Power DirecTv provided a very apt but incomplete analogy. Mr. Bell acknowledged that the competition would be limited to the purchase of hardware and likened the consumer choice to his purchase every 5 to 10 years of a new automobile. He pointed out that during the entire life of his purchase, he enjoys the benefit of having been able to choose the model and the features that were important to him in a competitive environment.

Ironically, Power DirecTv is not in the business of marketing its hardware to consumers. It isn't in the business of retailing cars. It wants to be in the business of selling the fuel the cars run on.

The correct analogy is that Power DirecTv is asking the Government of Canada and the CRTC to amend the rules so that they can establish a network of monopoly gas stations. They're the only places in the country where a purchaser of, shall we call it, a direct car from Thomson or Sony can fill up with information and entertainment fuel week after week and month after month. This is because these attractive new digital cars from General Motors, which run on the same fuel as all the other cars, have been purposely fitted with a filler cap that allows the owner only to fill up at Power service stations in Canada.

Prior to the recent rewriting of Canadian broadcasting policy, competitors on the Canadian information highway were actively participating in a standard setting process for the filler caps of all these new digital cars that are going to appear on our information highway in the next few months and years. These competitors included broadcasters, the cable industry, and DTG interests.

This process, which Power DirecTv did not participate in, was undertaken by ABSOC under the direction and guidance of Industry Canada. It was designed to ensure that Canadian program services would enjoy the most economical distribution system possible and to ensure that Canadian consumers would in the future be able to fill up their digital cars at their entertainment and information provider of choice. This opportunity has now been lost.

Mr. Bureau: In conclusion, Mr. Chairman, we are tabling the documents we intended to present to you today and to make an oral presentation on today so you can look at them and decide what to do with them.

I would like to stress the fact that the companies that are here before you today have a track record. We're not mercenaries of U.S. interests. Why would we have fought so hard for the FTA, NAFTA, and GATT for those cultural exemptions if we are now prepared to offer the Americans what they have been dreaming of for years? You can kiss goodbye the cultural exemption.

The minute the North American rights are allowed for one service in Canada and the minute we abandon the Canadian marketing agents' interests, that's it for our separate Canadian market rights. How will you then be able to stop the rest?

We cannot accept that, and we're here to hopefully come in the home stretch and say, please look at that. There are some very essential fundamental questions to be dealt with. If, because of the time constraints you're working under, you're not completely satisfied about the importance or the critical aspect of these questions, at least give the CRTC the mandate to look into that before making any further decisions in these overall things. Thank you.

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We're prepared to answer your questions, obviously, and officially I would like to table our two documents.

The Chair: Thank you, and thank you also for presenting such a well-integrated presentation for two different entities. I think that was very helpful.

[Translation]

I propose that we begin with a first 10-minute round of questioning. Mrs. Tremblay.

Mrs. Tremblay: I simply wish to point out, Mr. Chairman, that I'm agreeing to remain at the table this afternoon only because of our guests; otherwise, given the circumstances, it probably would have been more to the point that we withdraw completely. Although I have very little faith in the current process, I will try to make as positive a contribution as possible.

Since we've been holding hearings, and receiving testimony from various groups, and since I became a Member of Parliament, every time I've had an opportunity, I have risen in the House to defend Canadian culture. Of course, our liberal friends may find it rather strange that a sovereignist would want to defend Canadian culture, but as I've often pointed out, when we leave Canada, we want Canada to be able to stand on its own, with its own culture, because we don't want to be the only ones to have a culture of our own.

Looking at Canada's past history, it would seem that there is a Quebec culture lost somewhere in North America, a land henceforth populated only by Americans. So, we want Canada to preserve its culture. This doesn't seem to be much of a concern for some Canadians, who apparently couldn't care less, but as long as we are here, we intend to try to defend it.

To all the groups that came before the committee, I expressed my personal apprehension, my fear that this order in concil will make Canadian culture vulnerable. To me it marks the introduction of a North American market with respect to broadcasting rights that may well destroy everything the industry and ourselves have collectively built, and, what is worse, there will be no second chance.

Are you really saying that the major danger here is allowing Power DirecTv to have access to American satellites? As I understand what's been explained to us, out of the 100 or 120 channels it would offer, between 20 and 40 would be Canadian, while the other 80 would be American. In other words, we would be invaded by American culture.

Mr. Bureau: Mrs. Tremblay, you have put your finger on a fundamental problem with the two orders in council currently before Parliament.

To be perfectly frank, we have better things to do than come and whine about our need for protection. We have demonstrated in past years that we are well able to survive even in extremely difficult circumstances.

The issue of Canada being invaded by American signals is not a new one. There has been talk of this for as long as we have had a broadcasting system. As soon as it became possible for American signals to reach Canada, the invasion began. At the time, there was no cable and we were still receiving these signals on both radio and television. But at one point, Canada decided to develop a distinctive Canadian broadcasting system.

From that moment on, we took whatever measures were required to prevent those kinds of things from happening. To prevent Canada from being culturally invaded by American productions. That is why when cable systems were being set up some 30 or 40 years ago, rules were put in place to ensure that Canadian broadcasters would not be deprived of their right to broadcast programs for which they had paid broadcasting rights in relation to the Canadian market, so that they would not be deprived because of the fact that American signals would be entering Canada causing them to lose their Canadian audiences that would henceforth be watching American programming.

.1625

So, we've been waging a battle for some 30 years now to protect the Canadian market as a distinctive market, and to protect the rights of those who buy products and broadcast them here in Canada. I think we can be honest with each other, we all need American programs to keep our Canadian broadcasting system afloat. There is no shame in that. The important thing is to be smart enough to ensure the proper mix.

The issue we are discussing today is that if those directives were to be approved in their present form, we would be in direct competition with an American company called DirecTv that has signed contracts with every American studio. Coincidentally, they are exclusive contracts. USSB, which is another Direct-to-Home service, like DirecTv, has no right to buy those films. So, our reaction is: Well! Even in the massive American market, where competition is so important, they allow that sort of thing to happen.

Also, DirecTv has a potential market worth hundreds of millions of dollars. Our potential market is infinitely smaller. Does anyone really believe that the day Power DirecTv is given permission to become affiliated with DirecTv, that absolutely nothing will change in terms of the way the system currently operates and that we, as Canadian broadcast rights holders, will be able to go to the U.S. and suggest that they purchase our broadcast rights? Their reaction will be to say: ``Listen, those rights were already acquired by DirecTv''. They won't have been acquired by Power, because Power is a marketing agent. They'll have been acquired by DirecTv for the entire North American market. It's perfectly natural, and so simple. Adding Canada costs nothing. So, that's exactly what they're going to do, and we will end up being deprived of our rights.

Now supposing the studios were to say: ``No, there is no exclusivity; whatever happens in the U.S., there will be no exclusivity in Canada''. Do you think we will really be in a position to compete with DirecTv to purchase Canadian film rights when they have 20 times our buying power? What do you think would happen then? Well, it may happen that DirecTv will simply be prepared to pay a higher price to American studios than we can possibly offer.

Are we just being paranoid? No, because that's precisely what they're now doing. They already pay American studios more than we, as Canadians, pay for the same film. We're not just making this up: it is already happening.

What will we do if they say: ``If you want to buy them, you have to pay the same price as the Americans pay''? Well, the day that we have to pay the same price the Americans are paying, we will be completely out of the picture. We simply can't operate that way because we use Canadian satellites here that cost millions of dollars a year to amortize with a much smaller potential subscriber base.

Our transmission costs are such that we simply cannot possibly compete with American companies when it comes to buying rights. From their perspective, it costs them absolutely nothing. The satellite already covers Canada. It doesn't cost them a cent more to invade Canadian airwaves. We, however, will have to continue to pay in order to cover the Canadian market. So, we simply cannot compete with them.

When this obsession with the need for competition that everyone's trying to sell us on these days is raised as an important argument, unfortunately ignoring the cultural goals set out in the Broadcasting Act, people just don't stop to think what this will mean and exactly what it's going to cost.

When we say it's dangerous because we will not be able to pay those kinds of rights, what it means for all intents and purposes is that whether there is exclusivity or not, we will not be here anymore: there will no longer be a Canadian service. There will be an agent in place to market an American service. When we have completely disappeared, DirecTv may come to the conclusion it no longer needs its marketing agent anymore, but by then it'll be too late.

Then how will you go about explaining to Canadians that you have to take away their service because they didn't keep their word?

.1630

It would be ridiculous to think that is a real alternative.

We are saying: Don't think about Astral or Allarcom, think about the system as a whole. The day you tell them you can do it with pay-per-view, the same studios will also start offering pay television. How are we going to be able to say to them, as the three wisemen said: ``Pay-per-view is completely different. It just can't apply!'' Really! They can't be serious!

I'm sorry if I'm getting a little excited, Mrs. Tremblay, but for quite a few years now...

Mrs. Tremblay: I really appreciated your explanation.

The Chair: It was a great explanation, but it did take 10 minutes. Can you wait until the next round, Mr. de Savoye?

[English]

Mrs. Brown (Calgary Southeast): Thank you for staying for the remainder of our session here today. I do concur there is a real problem with process, but this has been a consistent problem for this committee and for the work of the heritage department it seems ever since it was formulated through Bill C-53.

You should also understand that I do very much believe in competition. I come from a mind-set that looks at the marketplace and consumers determining what that marketplace will look like; choice obviously has a place to play. But it seems to me that with broad process also comes a technology that has charged ahead. We've been left, unfortunately, with regulations in Canada that are just so outdated, it's like dust left behind.

Having said that, I do want to ask you to come back to a comment you made about the control over our broadcasting system being lost. If indeed it is true that consumers are ultimately going to be the determinants of what that marketplace will look like, and I do believe in support of competition, I don't have a pessimistic view that Canadians are going to completely turn their backs on what it is that has been offered over time that's good about Canada and is expressed through our broadcasting system, be it on television or on radio. I'm not quite so quick to say ``oh well, Canadians are going to abandon everything that is cultural and good about Canada''. But I do believe we haven't tested the opportunities enough that are presented by the marketplace.

Unfortunately we have had a framework of an overburden of regulation that has not really progressed with the technology. As well, I believe there has been some interference and intervention behind the scenes in this process to bring us to where we are today, and that's why we're faced with something such as we are with the CRTC and the government orders.

I would like you to comment a little bit about the place from which I come, which is competition and a healthy marketplace and the fact that I do believe Canadians will indeed support content if it is quality; if it has a programming element that is something that captivates them. I think we really have to go back and win some of that audience back that we've lost to Americans. There's no question about that. I would like you to comment on some of those observations of mine.

Mr. Bureau: I think what needs to be assessed in terms of the risks is not the question that the existing licensees do not agree with competition just to protect their little thing and say, ``If competition comes in, we're out. Look at us, it's terrible. Would you do that to us? We're good people.'' That's not the point. The point is this is an illusion of competition that is being supported at this point in time.

We're saying the minute we authorize the North American rights concept to be approved, it's not a question that Canadians will stop supporting the Canadian entrepreneurs trying to offer them something attractive. It's a question of Canadian entrepreneurs not having access to a very large and important portion of the offering. Hence, they will not be able to support their own services and the services will gradually lack interest. That's normal, because good quality programming that is coming from the United States will not be available on Canadian services in the future. We will end up having destroyed this Canadian entrepreneurship, which is part of the intricate system that has been built over the years, and allowing someone coming with some support from the United States to take over this thing.

.1635

It's not that Canadians will stop supporting; it is that in fact the Canadian services will lack that ingredient and so there will be less and less attractiveness and less and less support. You can't blame Canadians for switching, then. If we want competition, let's make sure we create a real fair and level playing field. At the present time we just can't compete against DirecTv; it's impossible.

So it's not a question of not fighting hard enough. It won't exist, so we will disappear and that's it, there will no competition.

In addition to that - and I don't mean to deprive you of further questions, I'm just trying to make sure we understand each other on this thing. The other thing, as Luther has expressed, is that once you have chosen one technology like DirecTv, you're stuck with it. You cannot receive something else, because you've invested $1,000 more into it, and you won't want to change tomorrow morning.

It's not like having a choice between Unitel and Bell, where if you want to, you could change. That's very simple. It doesn't cost you anything - at least they say so - to change from one to the other.

But that's not the case here. Once you've bought that dish, you're stuck with it. You have invested $1,000. No one will expect you tomorrow morning to say ``Well, I have a choice; I'll buy another one to get access to Expressvu because I made a mistake by buying the one from DirecTv.''

So the notion of competition is much more important than it appears to be. Let's not fall into the trap of saying we will push this thing for competition, because in fact what will happen is we will end up with no competition and with the disappearance of some of the elements that are trying to continue furthering the objectives of the Broadcasting Act.

Mr. Buchanan: I would like to add to what Mr. Bureau said. First of all, as I understand it you live in Calgary, where you have one airport with four direct flights a day to Ottawa. We live in Edmonton, where we enjoy the benefits of competition, and we have one flight a day to Ottawa.

We think you have to take the notion of competition and when you graft it onto something that has cultural overtones, be very careful to make sure the benefits are actually delivered. In this situation we've demonstrated clinically throughout our briefs that we don't think it's there. We have the hardware problem that was referred to repeatedly, and there's the software problem. Why are our prices as a monopolist cheaper now for pay-per-view movies than DirecTv's are in the United States? Is that the benefit of competition?

I don't understand why one would expect prices to come down. Once they get into a home with a $1,500 system and you're hostage to it, why would one expect the prices of a pay-per-view movie to come down? They start out more expensive to begin with. If it's going to happen, fine, but they aren't proposing a model for you that has, for example, two or three competitive pay-per-view services on a single distribution system; not at all. They want their own pay-per-view system and their own distribution system.

It doesn't work on the software side. It doesn't work actually on the breadth of movie titles either. There will never be a movie seen on an 80-channel system that isn't seen on a 20, or a 10, or whatever. There are just a few more start times, that's all. Our question throughout this has been, is that possibility worth jettisoning the Canadian broadcasting system for? We have said no.

I'll stop there.

Mrs. Brown (Calgary Southeast): Thank you for that.

.1640

I hear your frustration, but it is only mirrored by my own. In all the discussions we had on the issue of direct-to-home and pay-per-view services - it was on the floor of the House of Commons - and looking at the process in terms of the flawed process, where was it that it started to unravel? Were there players that were intervening in an inappropriate way?

As for that challenge to the level playing field, there never seemed to be full disclosure in the House of Commons in terms of really what was happening there. I do appreciate those comments, and they are valuable, certainly, for the record.

The other thing I want to touch on has to do with distribution. There is an article that you submitted to us in which you're looking at the distribution system that will lump the U.S. and Canada into a single market. I think that also has some implications for this discussion we've been having, so I would like you to explore that a little bit.

This is information gathering for me, and to also put on the record your thoughts on how that is going to affect our broadcasting system if we indeed are not able to compete, with Canada being swallowed up and lumped in with the American distribution system. That has to do with movie distribution internationally.

Mr. Bureau: Just before we go ahead with this one, I would like to remind everybody here that there will be competition in Canada between cable and Expressvu.

Mrs. Brown (Calgary Southeast): Yes.

Mr. Bureau: So it's not like having no competition and having some sort of a monopoly situation. In fact, it will be there.

Ms de Wilde: The article we included in the package we left with the clerk talks about a special series of movies that's been pulled together, because it's the centennial of the creation of movies. The point simply expressed is that, among all the countries in the world that have contributed to this series, be it a country like New Zealand or England, Canada isn't part of that series because, for the purposes of the Americans who produced movies, they say Canada is part of their domestic market. So we simply lost out.

We think there is an important tradition now of Canadian movie-making, and it's something that shouldn't happen. It does happen by virtue of the way that market for program rights is set up.

In contrast, the broadcasting system makes Canada separate. So we're able, in the context of broadcasting, to have a distribution system made up of television stations, specialty networks, pay and pay-per-view that serves Canada. This is simply an illustration of what happens when you lose Canada as a separate market: you lose something that is important.

Mr. McKinnon: I'm a regular member of the committee. I have been here and I witnessed all of the presentations up to now. If any apologies are owed to you because of our efforts to not hear you sooner than today, I'm prepared to make them, but we did have a lot of difficulties, and side issues crept in here in the last while.

How important is it, in your view, for us to be retaining the regulator, as far as your industry is concerned? That's my first question. I would like a comment from whomever would like to attempt to answer that question.

Mr. Bureau: Of course, I'm a little bit biased. I would like to say that from the beginning so that you can discount whatever I say.

Apart from that, we just have to look at what has happened in any other cultural industry in Canada whenever we decided not to regulate, not to have someone look after these cultural objectives. Records are gone. Books are gone. Movies in theatres are gone. Video stores are gone. What's left? One thing: the Canadian broadcasting system. That's the last bastion we have.

Say we come to you and ask whether you want us to go and say that tomorrow it's lifelike in the cinema world? What would be the result? It would be that 97% of Canadian screens would be filled with American movies. It wouldn't be 60% or 40%, but 97%. With no regulations, that's it.

.1645

We have given the competition bureau the responsibility in case. It said that two big companies owned by Americans - but that's not the point - can be here, provided there is competition. That means one doesn't buy more than, I believe, four studios, and the other doesn't buy more than four studios. There will be competition. That's okay. That's great. That's exactly in line with the spirit and the objectives of the Competition Act.

We forgot that there was another aspect to it. We Canadians forgot that. We're saying that, for God's sake, we should not replicate that terrible example we have in front of our eyes that we cannot deny or ignore because it's right there.

That's what happens when you don't have a regulator. You may not like the regulator; I've lived through that. Even people here at this table hated me. That's okay.

The fact is, if we abandon that, that's it.

Mr. Buchanan: I'd like to add a small comment to that. As we move into the information highway, which is flowing faster and in ever-increasing volumes, there are going to be different issues for the regulator to tackle. It won't be the same regulator. It won't be the same way.

I think we have to avoid the current public discontent with some of what they've been sold as the commission holding them back from receiving hundreds of signals or things that are really pie in the sky to begin with and focus on what they will ultimately end up doing. There are a lot of issues: privacy, violence, copyright, and all kinds of things. There will be mammoth issues to deal with in the next decade on the information highway.

To invoke the notion at the beginning of the information highway process that perhaps we could dispense with the regulator, I would suggest, is drastically premature. I accept the thinking behind it that perhaps the regulator is under some criticism nowadays, but when this blows over, we'll find a profound role in the years to come.

Mr. Haave: I just want to add that in a world with no regulator, for example, if free television broadcasters in this country were free to become an affiliate of ABC, NBC or CBS themselves, that's what they would do, because that's how they could make the most money. They could just simply become a conduit for foreign programming and become a direct affiliate of those networks.

It's because we have regulations in this country that require those broadcasters to invest in the creation of public affairs programming in Canada that people watch, W5 and other things, instead of just a steady diet of 20/20 and other U.S. things.

If all of that goes away, I'm not sure even what voice there will be for committee members like these to get their voices heard back at the constituency level. All of this could tumble down, and we would just let our entire system be a conduit for foreign interests.

Mr. McKinnon: The issue of competition was raised. I think we should perhaps pick up on that. Generally, for the consumer - note that I say generally - competition will promote development in the infrastructure or the hardware so that it's delivered on a more efficient vehicle that's lower in price. I, too, am interested in the consumer receiving the best quality and selection for the best price.

However, what if we are going to lose our cultural identity? I'm sensing that as your major concern here today. If you were sitting at this side of the table or that side of the table, how would you resolve this dilemma?

.1650

Mr. Bureau: Let me try to answer your question, and I hope my colleagues will add to and improve on what I will put before you.

The first thing, of course, is there will be competition. There will be competition starting this fall between cable and direct-to-home. So 87% of Canadians who already have access to cable will be able to choose. That's point number one.

Point number two is we're not against competition. We're saying let's at least make sure that if we establish competition, it will be fair, real, viable competition, not an illusion of competition. Let's look at how it can be done in a market like Canada. Let's not give a chance to the Americans to come in here and just destroy what exists.

We're not against competition. We are trying to convey to you that we should look at it before putting ahead some project that could destroy it.

You ask what we would do if we were sitting in your chair. Quite frankly, if it were 40 days ago, or 33 or 27, because Ottawa has always had a different way of calculating things, so I'm not surprised we're having a dispute about how many days have been -

Mr. McKinnon: I don't count the same way.

The Chair: I'll intervene at this point to say that according to our research friend here, who has been in touch with the legal department of Industry, the 40 days - it is so biblical, isn't it? - comes to an end on June 23, that is to say Friday, which is what I thought we were doing all along.

Mr. Bureau: We are looking at a very important issue here. Some people have told you not to worry about the exclusivity clause because it has been taken care of. We're telling you that is not true. It's not what will solve the problem. It is much more profound, and practically it's more difficult than that to deal with it. I explained a few minutes ago how it will work and how non-exclusivity will not solve the problem.

We're saying maybe there is a need for additional time. Unfortunately you're working under a very strict time period of discussion here. If you are not completely satisfied, please ask a body that is experienced, that has the means of listening to everybody and that will come up with witnesses, evidence, interventions, etc.

Ask them to deal specifically with making sure we don't lose our separate Canadian market for rights. At least if you give a chance to that body to look at it and allow everybody to be heard and have a chance to explain their thing, it may be very helpful.

Ms de Wilde: What we're suggesting is the direction should not prevent the commission, when it comes to licensing, from looking at the question of program rights. Don't shut the door. That's what we're suggesting.

The Chair: Thank you. I notice there are two more questioners on my list, monsieur de Savoye and myself.

[Translation]

Mr. de Savoye: I've several questions to ask but the last one should cover them all in principle. We are in front of the pieces of a puzzle. The witnesses came one by one to give us the pieces. I have spread them in front of me and I am trying to assemble them. There is still one piece missing, which will perhaps make it possible to link them all together.

First of all, why does Power DirecTv require the use of an American satellite whereas Expressvu can manage with a Canadian one? Better yet, why doesn't Power DirecTv compete on the same field as Expressvu? Why does it need a skating rink of completely different dimensions?

.1655

Why is the three wisemen's report nothing but an exploration of procedures and license granting mechanisms, with no recommendation on the compatibility of transmission protocols, even though they're the only guarantee of competition that will be advantageous to consumers? Why does the three wisemen's report recommend licensing criteria that will leave the door wide open to an invasion of American culture, without even taking into consideration the potential impact of all this on Canadian culture?

It seems to me you don't decide to build a gas station without first determining whether there could be any environmental impact! What are needed are extensive public hearings. What is at stake here is Canadian culture as a whole, and we only have 40 days. What can possibly come of it?

Why does the Minister of Industry keep repeating that these orders in council will ensure there is healthy competition, when it is now abundantly clear that that is not the case, and that this will, on the contrary, pave the way for American domination?

Why did Power Corporation set out a critical path for the Privy Council, for the implementation of these orders in council? And why is the government now following that critical path down to the last detail? The CRTC's timetable with respect to the orders is June 23, the very day we will be rising for our summer adjournment. Why have these orders been set down in such a way as to completely upset the usual rules?

There are a lot of pieces to the puzzle. Why have such short timeframes been established, so that we can't really look at these issues in any depth? Where is the public's interest, and the consumer's interest? Where is the interest of our cultural industry in all of this?

The last piece of my puzzle is the one I'm missing. I'm sure you can help me with it. How much money is at issue here?

Mrs. Tremblay: How many billion dollars?

The Chair: So there is one of Mr. de Savoye's questions. As usual, his question lasted three minutes and 20 seconds. It's a very good question offering a great many possibilities. Please proceed.

Mr. Bureau: I will try to give a succinct answer to each of the nine questions I noted, but I do hope my colleagues will feel free to add any comments they may wish to make.

First of all, why did Power DirecTv find an American partner when Expressvu can do without?

These people are subsidized 100% because they don't have a penny extra to pay in distribution costs. Distribution is already paid for in the U.S. through a satellite that covers Canada. That makes one heck of a difference. Here in Canada, we were quite prepared to do things differently, to pay our way as we always had, thinking that we would eventually make some money out of it. The problem is, these people want things to move more quickly.

Why did the three wisemen's report make no mention of standards? Well, it does mention them, but only in one paragraph and they are never referred to again. They don't make any specific recommendations in that regard.

Why do licensing criteria open the door to Canadian culture? Because that is what Power DirecTv asked for.

Why is the industry preaching the benefits of competition with such enthusiasm? Well, I don't think we can criticize them for that. They have a responsibility to enforce the Competition Act. It's one of their concerns, and part of their mandate. I have no objection to that, but I do say: Let's not forget about the other important component. We also have a statute in place called the Broadcasting Act that another minister and another department have a responsibility to defend and that also sets out certain cultural obligations. We must try to reconcile the two. In this case, we seem to have totally set aside one goal and determined that the other is the only one worth pursuing.

Mr. de Savoye: Isn't it true that rather than creating competition, we will end up being completely dominated?

Mr. Bureau: There will be no competition; it will have completely disappeared within four months.

That brings me to your last question. You asked me about what was at stake here, and I'll come back to that in a moment.

Why is the critical path established by Power DirecTv being followed down to the last detail? I really can't answer that question. I may well be asking myself that same question, but unfortunately I have no answer.

Why are the timeframes so short? That's a question that I've asked myself. We are in the process of examining an issue that is extremely important for our broadcasting system and for our cultural identity here in Canada. Why all of a sudden are we being rushed in this way? What's going on? What is so urgent? Is there a deadline for the contracts between Power and DirecTv? What's the story here? Does everything have to be in place before Christmas so we can sell our satellite dishes?

.1700

Where is the public interest in all this? First of all, there will be a direct broadcast television service at the same price that we could pay for it in the U.S. There will be competition between cable and DirecTv. What's the problem? I can assure you there's going to be one! So why are people maintaining that one of the two offering the service will be in a much better position to meet the public's needs? The public will have its competition. It will be able to get the same programs, except that one of the two will be in a position to wipe out the other. They'll be able to completely wipe out the Canadian portion, and that Canadian portion is part of an extremely complex system that is made up of a number of small segments.

You talked about the pieces of your puzzle earlier. Well, I'm going to tell you about the different components of the Canadian broadcasting system. All those components form a unit, so to speak. If we decide to get rid of one, claiming that it's not important, what is going to happen is the other components will all fall away as well.

What is at stake in dollar terms? Well, this is not just a matter of money. In dollar terms, it's not only pay-per-view that counts. It's much more than that. It's the entire broadcasting system that will be gradually eroded if we allow this concept to take root.

We're talking about hundreds of millions of dollars. The Canadian broadcasting and film sector currently contributes some $7 billion to the gross domestic product, which is not exactly peanuts! We're not talking about 150 employees. We're talking about a large Canadian system.

Mr. de Savoye: What we're really doing is flipping a 10¢ coin over $7 billion.

Mr. Bureau: I would go even further than that. We envy the United States because they have become the biggest exporters of entertainment products in the world, including film, television and so forth. Right now, we're in second position: we already export some $132 million worth of Canadian entertainment products all over the world; are we now prepared to put that on the line? This is an area of extraordinary growth! We have an independent production infrastructure here in Canada that cannot be matched anywhere else in the world, except in the U.S., and yet we are prepared to jeopardize that?

Just in economic terms - let's forget about the cultural aspect, as others have done - we would be absolutely crazy to do that! Every other country in the world looks at Canada and says: They are organized and know what they're doing, and have succeeded despite the American presence! Exporting $132 million worth of product per year is no small feat! Our system works well. Why would we do something that might destroy it? So, the stakes are very high, both culturally and economically.

The contribution of the Canadian broadcasting and film sectors to Canada's GDP represents almost $7 billion annually.

[English]

Mr. Buchanan: If I could, I'll add a comment that speaks both to the issue you raised about the ongoing relevance of the CRTC as well as to Monsieur de Savoye's question. What we beg of you today is to please let the CRTC have a close look at this stuff when we get the licensing proceeding.

We are very concerned about what we call the ``name, rank and serial number'' approach to licensing that's being espoused by Power DirecTv, where you show up, suggest you're Canadian, and they have to issue you a licence, provided you hit certain minimum criteria. We think that is wrong. We've isolated this again in our oral presentation, which we handed out to you. We would invite you to have a closer look at that when time allows, on pages 4 and 5.

We think that is wrong. We totally agree with you that the CRTC should be allowed unfettered access to documents to be able to analyse the impact of North American rights and the impact on other players, not only in the sector but everywhere in Canada. As we pointed out, it's a trickle-down. The economic and cultural impact must also be considered.

This ought not to be limited to showing up and proving you're a Canadian incorporated company and that you will do 5% of your revenues and that's it. The commission can do a lot better than that for the Canadian broadcasting system. The system deserves better.

The Chair: I might possibly come in at this point with a few questions.

Mr. McTeague asked me to begin with one. In some cases, I'm afraid we're going to embarrass ourselves by having you answer some very fundamental ones, but just as a technicality, do your services, both Astral and Allarcom, at some point in their operation require satellites to get them to the cable systems? How does it work technically?

.1705

One answer will do for both, if it turns out to be the same answer.

Mr. Bureau: The simple answer is yes.

The Chair: How does it work?

Mr. Bureau: It works very well, by the way.

Some hon. members: Oh, oh!

The Chair: Good. It's a Canadian satellite, I assume?

Mr. Bureau: Of course; what else?

The Chair: So how do you do it?

Mr. Bureau: We use satellites for the distribution of our services. As a matter of fact, we even use digital video compression. We were the first company in North America to use digital video compression when we started it more than a year ago to distribute our pay TV services.

We're using all of the new technologies. We are amongst the very good clients of Telesat Canada, because in the future we will use their capacity more and more with our existing services.

The Chair: So basically what each of you does from your respective head operations is beam the signal up and then down to the various cable companies, who then redistribute it. Is that correct?

Mr. Bureau: Yes, and in a few months there will be a direct-to-home service, which means our services will also be uplinked. The signals will be sent to that satellite for reception in every Canadian home using the super power satellites.

The Chair: Let me ask, then, the next question, which was mine.

One of our favourite words in this committee is ``addressable'', or ``addressability''. We love this word. I notice on page 3 of the Astral presentation, it reads: ``In Canada, cable networks are in8 million households, of which 650,000 are addressable.'' Does that mean your services are in 650,000 households, or in 8 million households, or somewhere in between?

Mr. Bureau: The pay-per-view services?

The Chair: Yes.

Mr. Bureau: Ms de Wilde will answer that.

Ms de Wilde: Addressability simply means the cable system, from its offices, can descramble the programming signal that you receive in your home or that I receive in my home. It's a more sophisticated way of interacting with your cable operator. All 8 million homes are cable homes; a subset of that have the fancy boxes on top of their televisions.

The Chair: Between your two companies, which sort of divide up the northern half of the continent, how many homes are you in if you want to see your service?

Ms de Wilde: Between the two of us, about 650,000.

The Chair: I see. So that's the universe in which you are currently operating.

Ms de Wilde: Exactly.

The Chair: And this change that will come along will increase that universe?

Ms de Wilde: Yes, because the DTH market will in effect add a new channel of distribution through which we can send our signal into people's homes, so we see it as a pretty exciting new market.

Mr. Haave: The cable companies are also going to be embracing digital video compression and putting in a new generation of digital set top boxes that we hope will dramatically expand the percentage of basic cable households that will have addressability and be able to take our services.

I believe you'd agree with that, Lisa.

The Chair: How many within what time, roughly?

Ms de Wilde: They hold the keys to that answer, but I think the sooner the better.

The Chair: Lots, you hope.

I think Mr. Bureau was pointing out that 97% of the movies Canadians see in movie theatres are essentially American. You may want to answer this separately or together. Of your pay-per-view revenues in the 650,000 homes where you are, what percentage come from Canadian product?

That's the first question. Why don't we start with that?

Mr. Haave: For home theatre, I would say our current revenue from the exhibition of Canadian films on pay-per-view is probably approximately 5% of our total revenue.

The interesting part of it is we are required, by our conditions of licence from the commission, to invest a significant proportion of the money we earn, not only on the sale of Canadian movies but also on the sale of American movies, in the creation of more Canadian programming. That's the alchemy of the regulatory process in this country.

When American programming is consumed in Canada, it is consumed through a distribution undertaking required by the regulator to invest some of the money earned from selling the foreign programming in the stimulation of Canadian cultural objectives.

.1710

The Chair: But the figure I retain is 5%.

Mr. Haave: That's correct.

The Chair: What figure do I retain from you?

Mr. Haave: That's income.

Ms de Wilde: Off the top of my head, I think it is closer to 10%, but on top of that, over each year for which we've held the licence, we've invested a further $1 million in the production in equity investments, in fact, in new Canadian movies.

I think you also have to put that against the backdrop. This is a service with gross revenues of$8 million, so it's a very small operation at this point. It's important because it's a new service.

Mr. Buchanan: I was going to add to that and say this is the future. I don't think there's anybody in this room or elsewhere who doesn't think that pay-per-view is where it's going. It is important to occupy the terrain on the ground floor, be there and watch it grow. We now have a condition where 30% of our revenues are ploughed back into Canadian programming. That could be a huge number, as soon as we get through the technological problem we have right now with the cable operators.

I think it's wrong to focus on an absolute number as we sit here today. The important thing is to look forward, not backward.

The Chair: Looking backward just a little, what percentage of your revenues currently in those cases come from showing adult movies?

Mr. Bureau: Adult movies?

The Chair: That's the polite word for them.

Mr. Davies: From our service I can answer that very quickly; it's zero.

The Chair: You don't show any adult movies?

Mr. Davies: We don't show adult movies at this point in western Canada.

The Chair: What about Astral?

Ms de Wilde: I will certainly admit that in the east we do. We'll just have to explain that as a cultural difference.

Mr. de Savoye: Which one do you subscribe to?

The Chair: I live in the east; I have no choice.

Some hon. members: Oh, oh!

The Chair: I'm sorry, what percentage were they?

Ms de Wilde: We don't actually break it down to a percentage. It's a part of the business.

The Chair: Would you like to take a rough guess?

Ms de Wilde: No. I think I learned in my training that wild guesses usually get you into trouble.

The Chair: Do you think, with a little work, you could find out?

Ms de Wilde: Of course, if it's of interest to you.

The Chair: I'm just curious, yes.

Ms de Wilde: Would you like it broken out by Canadian and non-Canadian?

The Chair: Well, I don't know.... That's a very interesting question. Do we actually have a Canadian adult movie business?

Ms de Wilde: Absolutely. The things you learn, eh?

Mrs. Tremblay: I'm surprised you didn't see that walking through Ottawa.

The Chair: Oh, but I don't know whether they're offered by our friends here.

Thank you very much. I don't know whether there are any final questions from around the table that need clarification.

As I said, just to bring us up to date on where we are, my understanding is that the 40 days end on June 23. The consultation process....

Oh my goodness, we have the Directors' Guild back and I have completely overlooked them. Forgive me.

Let me thank this group of witnesses and say we think we are still active players in the process. We think these consultations to which the CRTC notice refers are preliminary, and we intend to influence the final outcome. Therefore, thank you for coming and helping us.

We will take a two-minute pause while we change witnesses.

.1713

PAUSE

.1724

The Chair: I see four members in the room, including myself. The mere fact that I don't see them at the table does not discourage me in the least. I know that by this act of hitting the gong, people will miraculously join me.

.1725

We welcome back Peter Grant. We again beg his indulgence because, as we said with our previous group, we were taken up with parliamentary business in a way we didn't expect last week, which prevented us from -

[Translation]

Yes, Mrs. Tremblay.

Mrs. Tremblay: Mr. Chairman, I would like to raise a point of order. Expressvu just gave us a letter and I would like it to be on the record because it contains a rather important detail. When we go down to $21.5 million...

The Chair: Do you want to read the letter?

Mrs. Tremblay: Can we read it?

The Chair: Yes, if you want. Go ahead.

Mr. de Savoye: It's signed.

[English]

Chris Frank, vice-president, government and regulatory affairs for Expressvu, and I quote:

We are concerned by, and therefore wish to respond to, certain statements made by representatives of Power DirecTv regarding the cost of re-uplinking signals to the Anik satellite.

You will recall that Power DirecTv officials stated to the Standing Committee on June 15, 1995 that it would cost some $300 million to purchase a Canadian satellite space segment to re-uplink the currently authorized US programming services.

Our calculations demonstrate that the actual space segment cost will be no more than $21.5 million, which is approximately 1/14th of or $278.5 million dollars less than the figure provided by Mr. Bell. This is the cost calculated over the remaining six year life of the Anik satellite on a net present value basis to carry all currently authorized US broadcasting services. These calculations have been made in accordance with Telesat's CRTC regulated Tariff 8001 and are based on the assumption that the entire 54mhz KU-band transponder is fully and efficiently utilized.

Mr. Bell's assertion is a significant overstatement of the costs of using Canadian space segment and will leave Members of the Committee with an exaggerated and erroneous view of the cost implications of using the Anik satellite facility.

I would appreciate it if you could circulate this letter to your colleagues on the Committee.

[Translation]

The Chair: Thank you.

[English]

I think it will now be part of the record.

[Translation]

It has to be circulated to all members of the Committee.

[English]

We return to the ever-patient Mr. Grant. I think it might be useful, because we've had so much thrown at us recently, if would you just give us the high points of your presentation. I know you were here before, but it may be that our memories are less effective than they used to be.

Mr. Peter Grant (Legal Counsel, Directors' Guild of Canada): Thank you, Mr. Chairman. As you know, I've been involved in this matter as counsel for the Directors' Guild of Canada.Mr. King and I appeared before you last week, as did Louise Baillargeon and Suzanne D'Amours for the APFTQ. Those were two of the seven organizations that joined in this submission.

I had a hand in assisting the Directors' Guild in preparing the submission, so Mr. King asked me to come along today to answer any further questions you may have.

I don't think it'll be necessary for me to really go into any detail.

The Chair: Just a brief summary of it.

.1730

Mr. Grant: The submission itself makes five or six essential points. The first deals with the problem of focusing only on exclusivity. There is some common cause with the concerns expressed by Mr. Bureau before me about the fact that this is not adequately handled in the panel report.

There's also a major focus, in the joint submission from the cultural groups, on the inherent policy problem in allowing a DTH distributor to own and operate its own pay-per-view service and not be subject to a requirement to give access to all Canadian-licensed programming services.

Our thinking is that public policy really treats distribution undertakings as important gatekeepers for cultural services. It's a crucial underpinning of public policy to ensure that all the gatekeepers have to carry at least all the Canadian-licensed services.

There are three other points made. One is the cultural groups that joined in the brief did not see a need to rescind the exemption order immediately. Rather they would wait until the conclusion of a licensing process, the point being it is just as important to keep the grey market under control. A launch in the near term of a legal Canadian DTH alternative is very important.

The last two points addressed in the brief focus on Canadian content and distribution. The first makes the point that the panel has understated the amount of contribution that should properly be made by both the distribution undertakings and the pay-per-view services towards Canadian content in a DTH system.

Finally, the brief concludes with a point raised in a number of other briefs: that it's important to require the non-studio films for pay-per-view services to be acquired from Canadian-owned distributors.

In brief, Mr. Chairman, those are the key points made in the joint submission. I'd be pleased to answer any questions.

The Chair: Thank you for an admirably succinct and clear summary of your document. Thank you for giving it again.

[Translation]

Mrs. Tremblay: Thank you, sir, for coming back. Please forgive us for all this confusion.

A number of the groups who appeared before us - and you're among them - have shown real concern for the cultural future of Canada if we were to go ahead and implement the orders as they are written.

When you talk about exclusivity, do you refer to programming rights negotiated on an exclusive basis?

[English]

Mr. Grant: The panel report focuses on exclusivity as one of the issues in which they would insist that any pay-per-view service carried on direct-to-home not acquire its films or other programs on an exclusive basis, the theory being that would then allow the same films and programs to be acquired by competing pay-per-view services. As we say, that's a first step, but we don't think it goes far enough to ensure there is a level playing field.

[Translation]

Mrs. Tremblay: One of the groups who came before us, the ADISQ, presented wonderfully done graphs which gave a rather apocalyptic vision of what could happen to Canadian culture if we were to go ahead with this. What is your view of the production percentage? I know you mention it in your document. By the way, is 5% enough in terms of contribution to the Canadian fund? I believe I saw 24%. Is that possible?

Now, how would you put such a system in place over time? I'm sure you understand that we cannot ask for 24% of their profits. How do you see this from your own perspective?

[English]

Mr. Grant: There are two different ratios to be considered. First of all, there's the ratio applicable to the retail level for direct-to-home, which is to say the distribution level. The panel suggests that would be at least 5%. The view expressed by the cultural groups is it should be at least 10%.

.1735

There's been recent support for that in the report of the group of experts on alternative programming services, which also recommended that 10% of the gross revenue of distribution undertakings, including cable as well as direct-to-home, be allocable to Canadian content expenditures.

Then there is the wholesale level, which would be the pay-per-view service and any other licensed services. Each of those is currently required by the commission to meet an expenditures requirement. In the case of Home Theatre, it's 30% of their net. They describe it as gross revenue, but that's the gross revenue they receive, so it would be net of the cable retail component.

It is true that the Viewer's Choice licence has a figure of 5%, which is presumably the figure the panel thought up. If you actually examine more closely the Viewer's Choice model, you'll discover that when you put in the $1 million annual commitment and run it past their gross revenue, much more than 5% should be able to be assessed at the wholesale level, which is where the packaging and combination of scheduling of the service occurs.

Frankly, we weren't able to assess a specific number. In our brief it says something between 20% and 30% should be the right number.

[Translation]

Mr. Tremblay: Now, I understand that, for the time being, you don't propose to rescind the exemption order in favour of Expressvu. If we decide that everyone should have a licence, people can launch their undertaking and get a licence on the way and, if they don't meet the requirements, the business will be closed. Is that a correct interpretation? Is it more or less what you propose?

[English]

Mr. Grant: The approach we're proposing is that a legal entity under the current exemption order would proceed. It would be required eventually to get a licence. All the cultural groups do appreciate that licensing is a preferable mode of regulation.

Once those licences are obtained or the process is concluded and final licences are issued, at that point the exemption order could be rescinded. In the meantime you would allow, on an interim transitional basis, a legal Canadian option to stop the grey market from expanding.

[Translation]

Mrs. Tremblay: Regarding this famous grey market, do you think that only by launching Expressvu we are going to be able to stop the grey market? People who buy right on the grey market cannot use the technology required by Expressvu or by Power DirecTv. Unfortunately, they have been had. They bought a certain type of technology and, as soon as the others are going to be in operation, the screens will be black.

In your opinion, is the grey market that important? How can we hope to really stop it? I have my doubts about that.

[English]

Mr. Grant: I've had some experience in a number of other scenarios with grey market questions. I've always felt that if you have a legal, affordable option available, it avoids all of the problems of dealing with fly-by-night operators who cannot have a place of business that isn't subject to a raid and that doesn't have a fraudulent address and an under-the-table phone number.

As soon as you're able to provide a legal option, if the grey market is not stopped dead, there will at least be a material cessation of activity as people move then to a legal option, because the services a legal DTH competitor would provide would be just as affordable, in fact more so.

On the pay-per-view side, right now, for example, I've been talking to some cable operators in New Brunswick, where there is third-party distribution of DirecTv dishes coming from the Maine side up. In order to maintain the pretence, they have a U.S. phone number and address.

They cannot order the movies by the normal system of plugging their jack in, because that would disclose their phone number. Instead they use an 800-line in which they're taking the orders one by one. There's a $2 U.S. charge for that. When you couple that with the U.S. charge for the movies, you're talking about movies on pay-per-view on the DirecTv in the grey market costing as much as $7.99 or $8.99 a movie in Canadian terms.

.1740

If you had Expressvu or another legal alternative in the market with a Canadian option that had pay-per-view movies at $3.99 Canadian, I think the interest in the grey market would dissolve very quickly. In other words, there's a very important point in having effective distribution of legal equipment where there's somebody you can go to...they have a status, they're licensed, they are responsible.

I think that makes a big difference for consumers. This is our hope, but we think the current situation, where the field is now really left to the grey market because we do not have a Canadian direct-to-home option in a digitized form, is unacceptable to the cultural community because every grey market dish, of course, contributes no money to the Canadian cultural community and is in fact also distributing programming for which the rights have not been acquired by Canadians.

[Translation]

Mrs. Tremblay: Thank you very much.

Mr. de Savoye: I have read in your brief all those arguments that you have summed up. The guild has 1,500 members in 29 categories and it represents all areas of the production, design and editing of film and television programs in Canada. It's a very important industry. You are telling us that through the system proposed by Power DirecTv, the Americans are going to quickly take over the whole sector and that, eventually, those jobs which are linked to the Canadian culture and also to the Canadian economy are going to disappear. Is that what you are saying?

[English]

Mr. Grant: The difficult question is what some people would call the slippery slope. Many of the jobs that are held by directors and other creative personnel don't relate just to feature film but also to the television sector.

They include made-for-series drama on television. That's been an extraordinarily successful increase for the industry in the last 10 years, particularly. It's difficult to say if that is going to be at odds if we allow a U.S.-based system into the country.

The panel suggested that maybe there was some difference in kind between pay-per-view and programming services. I tend to worry about that a great deal, and I don't agree with this assessment. I think the two systems are very similar. So I would worry that it would be difficult for the government to draw the line and say that on pay-per-view we will allow this North American distribution system to apply if it wishes.

To give the panel credit, they sought to impose some minimum standards for Canadian content investment. I think the problem is the jury is still out on whether that model provides as much Canadian investment as one in which you have single service providers at the wholesale level.

There's no question that it would have a problem for the feature film support that pay-per-view can provide. Whether it would also lessen the contribution that can be made by the Canadian system towards television programming generally depends really on whether the model is kept in a watertight compartment or whether you discover pressures, which colleagues made very clear. Pressures would develop to allow other scheduled programming services to be offered on a North American basis, in which case you would have grave concern for the continuance of the level of employment in the sector in Canada.

Mr. de Savoye: In your opinion, is there room in Canada for two Expressvu-type corporations...Expressvu as we know it and another one using a Canadian satellite?

.1745

Mr. Grant: Are you asking that at the distribution level or at the pay-per-view wholesale level?

Mr. de Savoye: Both.

Mr. Grant: At the distribution level the cultural groups that formed part of the brief are not necessarily against competition. They're prepared to be persuaded that there could be competition at the distribution level, which is retail. First of all, there would be competition inevitably between cable and DTH. The cultural groups don't find that a problem. The question is whether you could have two or more DTH suppliers at distribution. The problem we face is that we have seen no business plans from either Expressvu or Power DirecTv, and you wouldn't expect to see their detailed business plans unless they were required to file for a licence application. So our position is that we're going to hold our fire and stay above the fray until we see the actual licence applications to the commission and see how much there is in those business plans under the monopoly model or the competitive model for Canadian content.

[Translation]

Mrs. Tremblay: When Mr. Ritchie came before us to give evidence, he said that we could allow as many suppliers as we want. I know that in other areas we allowed companies. There were seven of them at some point in time, but they all went bankrupt. Don't you think that in an area such as the DTH service, we should be a little more careful, in view of the high cost of equipment? If your company is going bankrupt after getting itself equipped with very costly technologies, it will not do you much good.

[English]

Mr. Grant: That is a concern, and it's of particular interest when you contemplate having two DTH distribution systems that have incompatible technology not required to carry all the licensed Canadian pay-per-view services, because let's assume that only one technology in the end prevails. The market will decide whether Beta prevails over VHS, or vice versa, but if you said that you can only get one Canadian licensed pay-per-view service through the Beta technology and the other one through there, by making the technology choice you've also made a choice - which I think is unfortunate - between one or the other of the wholesalers. They're just in the programming business. They're not in the business of selling equipment.

From our perspective as creators we want all the Canadian-licensed programming services at the wholesale level to be carried by all of the licensed distributors so that their future security is not based on the technology choices at the retail level. There the consumer should have a choice because you want to get TSN through Expressvu, TSN through cable, TSN off a master antenna, through MDS. There will be ways to get it. All of those systems should be carrying TSN and they should be carrying YTV and every other licensed system so you do not have these services in jeopardy because one or another of these major gatekeepers decided to exclude them.

Ms Guarnieri: Mr. Grant, let me add my voice of gratitude for your being so gracious to take time out of your busy schedule to reappear before us today.

I have one question that is somewhat of an offshoot from earlier questions. On page 9 of your brief you're recommending that paragraph 4(b) of the DTH satellite distribution directive be amended to read as follows:

...to take, immediately after the final issuance of one or more licences to persons to carry on a DTH distribution undertaking, all necessary and appropriate steps to ensure that no person is authorized to carry on a DTH distribution undertaking by any means other than a licence.

I'd like to ask you to elaborate on the significance of the latter part of your quote, not the underlined portion but the part that reads, ``to ensure that no person is authorized to carry on a DTH distribution undertaking by any other means than a licence''.

.1750

Mr. Grant: Those words were of course taken from the original draft directive. Their import, as I understand it, is really to incorporate into the policy direction the thrust of the policy concept that a DTH distribution undertaking should be licensed and not subject to an exemption order.

From the perspective of the cultural groups that joined together in this brief, they are all quite comfortable with the idea that it would be preferable to have a licensing regime than to deal with this through an exemption order. So the only change we're proposing here is to allow the exemption order to prevail in the transitional period.

Ms Guarnieri: When you say it would be preferable to have the licence agreement, can you elaborate on the advantages, as you see them?

Mr. Grant: The key issue is that once you have a licensing regime, you also have full reporting of business plans, proposals and the ability of the commission to change, over time, the conditions of licence to reflect varying circumstances. That's quite an important component of Canadian cultural policy. A lot of our Canadian content requirements, particularly at the programming and network level, are imposed by conditions of licence. It's often very difficult to get those conditions right the first time, so you want the ability of an agency to require these entities to come back for renewal from time to time and adjust the numbers so that if they can afford more to support Canadian content, you can increase the requirement accordingly.

So from all those perspectives it seems to us that a licensing regime is preferable over the long run.

The Chair: I'd like to ask a couple of questions before we have a final one from the Bloc.

I noticed that you were concerned lest these proposed DTH services not be required to carry all licensed pay-per-view services in Canada. But surely that would be different from the current cable regime, where cable companies don't carry both Astral and Allarcom...they carry one or the other. They're both monopolies within their own territories. So suddenly to discover competition in one medium where it seems to be denied in another seems a trifle inconsistent, or have I missed something?

Mr. Grant: Yes, Mr. Chairman, I think you did miss something.

The Chair: It happens frequently.

Mr. Grant: If you look at the fine print, we say ``in the region licensed''. So we would not suggest -

The Chair: So you would maintain the monopoly position.

Mr. Grant: That's right.

If you are to move to a competitive position at the pay-per-view wholesale level...and again the cultural community is cautious about that...it hasn't landed one way or the other in this brief. It thinks, though, that those issues can best be determined on the basis of the business plans laid out in a commission hearing. You may very well see over time competitive pay-per-view licences being issued.

My inclination would be, however, that you'd probably see that evolve not as head-to-head competition, but rather niche-oriented, pay-per-view services. So you might have one pay-per-view service that would tend to focus on recently released theatrical movies. Then you could have room for a pay-per-view service that focuses on interactive educational multimedia programming. There could be one that tends to focus on children's programming, which, by the way, is a matter that TV Ontario is now experimenting with, with Viewer's Choice.

So you could imagine it evolved that way, and you can understand, then, why it would be important for all distribution undertakings to be carrying each of those pay-per-view licensees, because not all of the programming would be the same on each of them and you want Canadians to be able to have the choice between them all. Of course, they're addressable, so they don't have to take them all, but they should have the choice to do so.

The Chair: One thing I didn't seem to find in your brief, but, again, I may have missed the fine print, was one of the arguments that Power DirecTv made last week when it offered the possibility of exporting Canadian cultural product into the United States. I would have assumed that if it was done with any volume, this might be attractive to the various organizations you represent. What's your view of that?

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Mr. Grant: To be cynical about it, Mr. Chairman, they didn't think there was a heck of a lot behind that. The point is that in transactional pay-per-view systems, in general one would be concerned that the availability of access to the American distribution system, to have any real meaningful impact on revenues, would have to be accompanied by marketing dollars and scheduling emphasis.

You have to remember that for an American pay-per-view movie system, the huge volume of transactional benefit is to the movies that have been highly promoted, have enormous marketing budget behind them, and usually would have had a theatrical release. That's understandable in the system.

Throwing Canadian movies into that...of course there's some benefit. Some people may like to watch one or two, but they will probably have never heard of most of the titles. Unless they have been marketed or given some theatrical exhibition, it's difficult to imagine that the benefits would be as positive as expected.

The Chair: This is my last question. You had the privilege of hearing the two preceding witnesses, Allarcom and Astral. Does your view of these issues we're confronting differ in any material or nuanced way from theirs? Is there anything you would differ from them on, or is it basically a similar position?

Mr. Grant: I haven't read their written submissions to the government, so I can't say.

The Chair: Can you comment from what you've heard this afternoon?

Mr. Grant: There were many elements that I think the cultural community would agree to,Mr. Chairman. I don't want to suggest that my colleagues from Astral or Allarcom think otherwise, but I think the cultural community is perhaps a little bit more prepared to accept competition in these areas and allow the commission to have a competitive hearing.

We continue to be just as concerned, however, with the long-term implications of the possibility of a North American market developing in rights. We fully agree with them on the concerns raised on that score.

The Chair: Mindful of the fact that you have a 7 p.m. flight, I will now turn the last question over to

[Translation]

Mr. de Savoye.

Mr. de Savoye: You are representing a group of people working on contents. So, you do not have any particular interest in distribution.

I will ask you for an opinion I assume would be neutral, because if I were to ask for the same opinion of Expressvu or Power DirecTv, I would know that they have a particular interest in it,

[English]

a vested interest, but you haven't.

My question is as follows. We know there is a certain number of downsides with the Power DirecTv approach. Apart from their own bottom line, is there for the general public, the consumer, or the cultural aspect any upside to their advent on the Canadian market?

Mr. Grant: On behalf of the Directors' Guild, I have met with representatives of the Power DirecTv people. I have to say that the major upside, of course, is the fact that they would repatriate the grey market. They have made the proposition that they would then only offer to Canadians over their system those services that are licensed or authorized in Canada.

There's no question that is a major step forward. Where I guess we take issue is that they include among those licensed services their own pay-per-view service. We would prefer to see that assessed only when the commission takes a look at whether a vertically integrated licence is in the public interest.

I have to say that I think the idea of making the Power DirecTv technology work on a basis where it would repatriate dishes and have them only able to receive Canadian licensed and authorized services is, of course, a major benefit.

.1800

Mr. de Savoye: I would like to probe a little bit deeper on this grey market issue. Actually, you have Power DirecTv in the United States, who are beaming their signal over a footprint from Tierra del Fuego to the North Pole, and anyone who has the black box to interpret their signal can get the signal here in Canada. That's what we're calling the grey market.

Power DirecTv is not the only player in the United States. There will be a few other players. There are some now and there will be others in the years to come.

Anyone here in Canada will be able to tap into that signal, generating further grey market on which Power DirecTv has no control. Basically, we're not solving the grey market issue by asking Power DirecTv to negotiate with one player in the United States the interception of that signal.

What I would suggest is not to go through one Canadian corporation to ask an American corporation to please not grey-market us, but rather from government to government have a bilateral accord that will stop at the source the receptivity of any black box outside the American territory. Reciprocity, of course, would be included in that accord.

What would you think of that latter approach?

Mr. Grant: I think the point you just raised about the multiplicity of direct-to-home operators operating out of the United States is a valid one. Nothing you can do with one operator will affect the possibility of a grey market with the others.

I think what will affect the potential growth of the grey market is the availability of an affordable Canadian direct-to-home option with a good line-up of services; in fact, all the Canadian services and those American services that are on the authorized list.

I'll tell you why I feel comfortable with that, and maybe I can conclude with this story out of school, Mr. Chairman.

I acted recently as counsel to the Canadian firm that got the cable licence for the Bahamas. It competed, interestingly, against many American cable outfits to get that licence. The reason why they received the award was that they were the only operator prepared to offer service in all the small islands. They used as their model the approach they had used to wire up systems in Newfoundland.

They went down there and discovered that 50% of the homes in the Bahamas had dishes. They're all illegal dishes. They're all picked up out of Miami and they're all using fraudulent addresses, of course, because nobody has the rights for the Bahamas.

The question for this cable operator was, what would be the potential market if they're now going to put cable into the Bahamas knowing this dish population is out there? He conservatively thought that perhaps about a 60% penetration level might be right.

He got launched just before Christmas. He's now in about one-third of the main island and I can tell you his penetration level is 95% of homes. People are happy to get rid of these grey market dishes if they have something legal.

He's charging $30 U.S. for a panoply of 48 signals. They've all been legally acquired and organized, and he's paying rights fees for them all. It's the way you'd expect to see a system.

I'm happy to say that the grey market is going away there.

It's difficult to know whether you can apply that analogy entirely to Canada, but I would say that if you have an affordable Canadian direct-to-home option with dishes that can be accessed, and you don't have to fool people with your address and your phone number, I would hope that lesson could be applied in Canada.

The Chair: You would say it's now better in the Bahamas.

Mr. Grant: Yes, sir.

The Chair: On that note, before anything deteriorates further, I bring this to a conclusion by thanking you for coming back.

This meeting is adjourned.