:
Mr. Chairman, it is my understanding that we are here today because broadcasters like CTV and Global have threatened to close local TV stations unless cable and satellite distributors step in and bail them out. They say the conventional over-the-air TV system is broken. Mr. Chairman, this is little more than self-serving fiction. Until recently, over-the-air television was a very profitable enterprise. Because it is a cyclical industry it will be profitable again.
Just four years ago, according to CRTC figures, Canadian over-the-air television netted almost $250 million in operating profits. Two years ago the industry was so profitable that CTV bought CHUM Ltd. For $1 billion, CTV got six additional over-the-air TV stations, 34 radio stations, and 21 additional specialty channels, most of them highly profitable. Also in 2007, CanWest Global, although heavily mortgaged after buying the Hollinger newspaper chain, took on an additional billion dollars in debt to acquire Alliance Atlantis and its 18 specialty channels. Between them, CTV and Global now own 56 of Canada's most profitable specialty channels. TSN alone earned more than $60 million in operating profits for CTV last year. Both CTV and Global have profitable TV operations. Contrary to claims made by CTV and CanWest, their broadcasting assets should be valued as the sum of their parts, not as though each segment was a stand-alone business. Last year alone, CTV's combined over-the-air and specialty TV operating profit was around $200 million. Global wasn't far behind, at $164 million. So what's the problem?
Recently, CanWest's Leonard Asper said that in all the media coverage, “What is often overlooked is that CanWest's businesses are highly profitable and generate well over $500 million a year in operating profits”. This is both the TV and at newspapers. Asper said that the only problem is that “our 'mortgage' is too high for our lenders' liking”.
At Rogers we have mortgages too. We're also having difficulty with our over-the-air TV interests. But as Tony Viner will say, we're not here seeking a bailout; we're not here asking customers or other companies' shareholders to underwrite our problems. The economic situation will improve shortly, and when it does, history tells us that over-the-air television will be back in the black. Please do not be fooled by the so-called “fee-for-carriage solution”. It is nothing more than a tax on consumers. It is one of the most insidious schemes to come around in a long time. It has twice been rejected by the CRTC because, quite simply, it's a backdoor bailout. It's robbing Peter to pay Paul. It's a cash grab based on the myth that cable and satellite distributors don't contribute enough to the system. Nothing could be further from the truth.
Our services give tremendous value to over-the-air TV broadcasters. Cable gives local TV stations guaranteed carriage with priority positions on the dial. We give over-the-air stations simultaneous program substitution. That is, when an American show is run at the same time in Canada and the U.S.--for example, when House is run on Global and Fox at 8 o'clock on Monday nights--viewers see only the Global signal, no matter which channel they watch. As a result, the ads that Global sells are seen by many more viewers and can be sold for much higher prices.
Simultaneous substitution is worth over $300 million annually to over-the-air broadcasters. It's part of the regulatory bargain that the CRTC struck between over-the-air broadcasters and cable. By terms of the bargain, broadcasters provide signals and then we help boost their ad revenues by prioritizing, promoting, and programming their stations. Yes, that's right, I said programming. Most people don't know this, but every year cable and satellite companies contribute around $215 million to subsidize TV production costs. Broadcasters like CTV and Global pay only about 30% of what a Canadian prime time show costs to produce, but their appetites for handouts are insatiable.
Recently the CRTC ordered distributors to contribute another $60 million of our revenue to subsidize local programming for over-the-air broadcasters in small and medium-sized cities. And so it goes. But our support for these broadcasters is only part of what we contribute to the system. We also help fund the parliamentary channel CPAC, and we offer our own fabulous brand of local programming, as Colette Watson can explain. Community broadcasting paid for by the cable companies is quickly becoming the most respected source of truly local television in Canada. At a cost of $30 million a year, Rogers' 33 television stations offer far more local programming than commercial over-the-air stations anywhere.
So when CTV and Global accuse us of not doing enough, when they threaten to shut stations, what are they up to? When they demand fee-for-carriage, how do they plan to spend this money? Believe me, it won't be spent on more local news in your part of the country. The sad fact is that most of the money CTV and Global spend on programming goes straight to Hollywood, and each year the amount climbs. Over-the-air broadcasters spent 25% more in Hollywood over the past three years, while their other costs grew at only 2%. The fee for carriage most often mentioned is 50¢ per subscriber per month per local channel.
In his recent testimony before this committee, CRTC chairman Konrad von Finckenstein explained what a subsidy would mean to consumers: “To put things in perspective on the fee-for-carriage we turned down, CTV and CanWest asked for 50¢ per signal. In Toronto that would have meant an increase for cable subscribers of $6.50 a month; in Montreal it would have been $4.50 per month, and $6.50 per month in Ottawa.”
As the chairman said, this is a tax that would be passed on to consumers in any economic times, let alone these extraordinarily difficult ones. To tax people $6.50 a month and to give them nothing in return is just plain wrong. There will be consumer outrage. To compound the injustice, fee-for-carriage would set up the worst of all public policy solutions, a two-tier taxation solution. Those who subscribe to cable or satellite would pay a lot more, while those who receive television by rabbit ears or rooftop antennae would pay no consumer tax and continue to receive free over-the-air television. Such a system would be patently unfair.
We're not freeloaders. Canadian cable companies have always worked to make our broadcasting system the best in the world. Rogers Cable alone has made capital investments of $6.5 billion over the past 10 years. These huge outlays have made Canada the envy of the world and benefited all stakeholders. We deliver crystal-clear TV pictures to Canadians. We expand local television areas, which in turn give broadcasters more viewers and allow them to charge more for advertising. At our expense, we substitute Canadian over American signals so that the Canadian broadcaster can have exclusive carriage rights for their most popular U.S. shows. We pump hundreds of millions of dollars into prime-time and Canadian local over-the-air TV, and we provide in-depth local coverage with our own community channels.
Mr. Chairman, it cannot be in the public interest to ask our subscribers to do more, to underwrite CTV's and Global's questionable business practices. The system is not broken. TV is a cyclical business. It's gone through some rough patches before and recovered to earn billions of dollars for its owners. History tends to repeat itself. With the greatest respect, our advice to this committee is simple: give history time to repeat itself.
Thank you, Mr. Chairman. We're pleased to try to answer any of your questions.
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Thank you very much, Mr. Chairman.
[Translation]
Thank you very much.
Members of the Standing Committee on Canadian Heritage, allow me to introduce my colleagues. To my left is Pierre Dion, President and Chief Executive Officer of TVA. To my right is Serge Sasseville, Vice-President of Corporate and Institutional Affairs at Quebecor Media.
Thank you for inviting us. We appear once again before you today to put into perspective a situation that we first brought to your attention on February 20, 2007. We are also here to ask you specifically to use all of your influence to force those in power to make the critical decisions that need to be made.
General interest television in Canada has deteriorated to the point where we now have a number of stations closing down and several thousand employees being laid off. It is unfortunate that it had to come to this before we all finally realized that the famous Canadian model was no longer working.
I have spoken in many different arenas for more than three years to warn authorities and stakeholders about the dire consequences affecting general interest television. Serious flaws in regulatory structures and the regulator's inability to understand technological evolution and just how seriously it is affecting the audiovisual landscape are a problem for general interest TV in Canada and everywhere else in the world.
Back in November 2005, I announced the end of television as we knew it to members of the Academy of Canadian Cinema & Television.
In April 2006, during a day-long event devoted to the main challenges of the small screen and hosted by Infopresse, a magazine specializing in media, I used the loaded term “technological tsunami” to describe the powerful impact of technology on traditional media, in general, and on general interest TV, in particular. We were already feeling the effects of fragmented audiences and dwindling advertising revenue then. It was clear that general interest TV was heading straight for a dead end. The red lights were everywhere, and the urgent need to carefully review our practices was already clear. I announced the end of costly series such as Vice caché, which, despite speaking to the heart of Canada's broadcasting identity, cost too much in broadcasting rights and fell short in advertising revenue—the only source of revenue for general interest stations. It was the hard line of the Canadian Television Fund that killed costly series such as Un homme mort, which were very well-received by critics and still managed to bring in large, although declining, audiences. Essentially, the CTF would not allow us to charge fees, which would have made it possible to continue broadcasting these programs on all platforms and thus, make the necessary investments worthwhile.
Back in 2006, during a hearing on the review of TV broadcasting policy, we asked the CRTC to put in place the conditions necessary to reset the balance in the Canadian broadcasting system in order to level the playing field between general interest TV, specialty channels and independent producers. The idea was to allow general interest stations to also charge subscription fees and such so that they could broadcast their programs on all platforms.
In 2007 and 2008, during a hearing on the Canadian Television Fund, we raised the same points before the CRTC. We stressed that general interest TV could not continue to bear most of the financial burden when it came to producing quality dramas, large-scale variety programs and the like, while meeting the discriminatory requirements of the Canadian Television Fund. We argued for the need to quickly introduce a new funding model, where the producer and the broadcaster shared the risks, and similarly, the revenue. We suggested directing our annual contribution to a new programming fund and increasing the amount to $30 million with a further yearly increase of 20%—representing an investment of more than $100 million over three years—while discontinuing our contributions to Canadian Heritage.
Also in 2007 and 2008, during a hearing on the regulatory framework review for distribution, we made the same arguments before the CRTC we had been making all along. We said that it needed to review and relax its regulations to promote the production of quality Canadian content and meet the needs of customers, who, more and more, were able to watch whichever shows they happened to be interested in, in the place and media format of their choice.
At the time, we showed that specialty channels had an advantage because of their regulatory status, which allows them to not only access advertising revenue, but also, and more importantly, to charge mandatory fees. This gives them tremendous advertising clout because they are able to offer multi-channel programming, which advertisers find very appealing. Together these channels dominate the market, while general interest TV watches its market share melt away like snow in the summer, even though it is the one that has to provide the lion's share of Canadian content. We proved that the regulatory obligations imposed on general interest TV and the associated costs in no way compare with the burden on specialty channels. We also showed that the situation is not tenable for much longer.
I repeated the same arguments before the CRTC during a triennial planning meeting in January 2008.
It has been more than three years since we first spoke about the issue, and unfortunately, we are seeing that everything is moving even faster than we anticipated.
Furthermore, apart from the many discussions that it has been a part of, the CRTC has not made any key decisions or undertaken any significant initiatives to avoid the looming disaster. What is worse, instead of tackling the problem now during the licence renewal hearings for general interest TV set to start next week, the CRTC chose to put off studying the real issue until 2010. There is no way to justify that approach given the current situation, so we urge you to intervene immediately to keep Canadian general interest TV from disappearing.
In order to survive, general interest TV needs funding and operating fee structures that are flexible so it can continue producing successful programs and broadcasting them on as many distribution channels as possible.
Even though we still believe that our proposal to direct our annual contribution to a new programming fund and to increase it to $100 million over three years would have been the best solution for the Canadian broadcasting system, we welcome the decision by the Minister of Canadian Heritage and Official Languages to set up the Canada Media Fund. It will help with the governance, funding and guidance problems surrounding the Canadian Television Fund. But we will still be watching to see how they implement the new fund and to ensure that general interest stations will finally be able to obtain the funding and fees that should be mandatory before they invest in worthwhile programming.
In the CRTC's June 5, 2008, report on the Canadian Television Fund, Commissioner Michel Morin expressed a dissenting opinion, which was appended to the report. Here are some of his comments:
The QMi proposal not only left more money for the other CTF beneficiaries but also represented a firm commitment to allocate more money than it allocates under the current CTF rules to the production of Canadian content, including notably a guaranteed amount for the production of dramas. Everyone came out a winner. There was more money for other broadcasters in the system and more Canadian content for TVA network viewers.
The cost of original programming weighs heavily on the bottom line of general interest stations but has almost no impact on the bottom line of specialty channels. They are less sensitive to ratings because they have guaranteed fee revenue.
In the French-language market, TVA is the only private broadcaster to invest heavily in producing quality drama series and variety programming. During the 2007-2008 fiscal year, TVA invested more than $116 million in Canadian programming.
To keep its place as market leader, TVA currently spends nearly 90% of its programming budget on original Canadian content, mainly on informative, drama and large-scale variety programs. Our audience performance numbers are excellent—30% of the market share, according to the latest BBM surveys for the current season, which is winding down. Last week, a record 3 million viewers tuned in for the finale of Star Académie. The program's Sunday gala shows drew even more viewers with an average of 2.4 million people watching, more than any other program broadcast in Canada.
At the time of their broadcast, all of TVA's dramatic series ranked among the top 30 most-viewed French-language programs. Generally speaking, they attracted a viewing audience of over one million. In the news category, our results have been equally exceptional. We systematically rank first in terms of our coverage of major elections or international events. Nearly three times as many viewers tune in to our news programming than to Radio-Canada programming.
We are disappointed that financial results do not offset all of the risks taken to ensure Canadian content. I'd like to draw your attention to some very telling statistics. In 2008, a total of $171 million was spent by general interest private television networks in Quebec to produce original Canadian programming, whereas French-language speciality and pay TV services spent only $125 million on this area, preferring instead to set aside substantial sums of money to purchase catalogues of programs previously shown by other networks, in most cases, by general interest television networks.
Unfortunately,earnings do not reflect the choice made by general interest television to invest more in original Canadian programming. In 2008, earnings reported by French-language speciality and pay television services totalled $121.7 million, whereas in the case of general interest television in Quebec, earnings reported totalled only 39% of this figure, or $47 million.
We inform our investors of all of the additional risks associated with our activities. The heads of Corus and Astral Media have been able to reassure their own investors that the economic crisis has had less of an impact on their overall results. In a press release issued on April 9, 2009, Mr. Ian Greenberg, President and CEO of Astral Media, had this to say:
The strength and resilience of these second quarter results are another illustration of the importance of having a diversified and balanced revenue mix under challenging economic conditions.
These companies can count on stable or ever-higher fees as a result of the sizeable investments made by broadcasters to increase their customer base. Over the last five years, Astral Media has distributed an average of $90 million per year to its shareholders, or nearly 13% of the group's earnings. Astral Media's earnings are double those of TVA. As such, investors consider shares in this corporation to be a better bet than shares in TVA.
In addition, Astral Media has the advantage of being able to use distribution networks in which it is not required to invest. Vidéotron has invested upwards of $1 billion over the last five years to enhance the performance of its network, in the process taking a considerable financial risk, especially given the current economic climate. According to its own annual reports, over the last five years, Astral Media has spent only $39.3 million on its infrastructures in the form of fixed assets acquisitions for television.
Canadian distributors make available to speciality channels a newly-paved highway to reach their customers, all the while allowing them to operate their businesses in the comfort of their own private reserve, safe from competition. New sources of financing are required to meet the overall needs of general interest television. The first source of such financing is the opportunities created by the expansion of the number of platforms. We have the possibility of recovering at least some of the advertising revenue losses suffered by general interest television by broadcasting content on all platforms. In order for this to happen, broadcasters must have the appropriate exploitation rights. TVA is looking to work with producers to negotiate and obtain such rights.
All parties must agree on the new realities of the television industry, as we saw happen last February when the Union des artistes reached a collective agreement with TVA that defines precise parameters for the use of content on all platforms. This partnership allows for the sharing of the revenues generated by these new platforms, instead of TVA having to pay in advance for operations that for the time being, do not look promising on the revenue side. The second source of financing must come from a rebalancing of the Canadian broadcasting system to allow general interest television to access fees for signal carriage.
There is no longer any need to prove that general interest television should have equal access to fees currently reserved for speciality channels. However, we object to the fact that the CRTC can set and impose these fees and that they are automatically added to the subscriber's bill. No sensible person would dare propose at this point in time that an additional financial burden be placed on Canadians to access services that are already available to them.
Instead, we are proposing that the system be rebalanced by allowing broadcasters, whether general interest or specialty networks, to freely negotiate the fee issue among themselves. A fair and reasonable fee for carriage would be more a function of the overall audience share and of consumer interest in the proposed service than a function of the price set out in business plans that were submitted several years ago to the CRTC and that bear no relation with today's reality.
I think we can readily agree that certain aberrations must be corrected. For example, it would be fairly logical if an all-news service like LCN, which enjoys a larger audience share that its rival RDI, had access to similar fees. That is not the case at this time. RDI receives one dollar per month per subscriber, whereas LCN receives on average only 46 cents per month per subscriber.
Lastly, let me say again that the CRTC must move quickly to deregulate general interest television. It must challenge the need for general interest television to resort to independent production and agree to view the license fees paid by general interest television as genuine investments that make it possible to exploit, over all platforms, rights to programs that it has made successful. The CRTC must revise its whole approach which involves taking action through quotas and so-called priority program selections and where investments by general interest television in content are often targeted and made primarily to comply with regulatory requirements.
For nearly 60 years, our business model has been rooted in an unshakeable faith in local content and culture. We make a very significant contribution to home-grown culture by supporting original production and disseminating it widely. Our subsidiaries broadcast and distribute content across the land on a full spectrum of media and platforms.
Quebecor media spent over $370 million on developing, creating, producing, broadcasting and promoting Canadian content in 2008, making it Canada's largest private producer of original content.
Thank you for your attention.