:
Good afternoon, Mr. Chairman and members of the committee and committee staff. My name is Ivan Fecan. I'm president and chief executive officer of CTVglobemedia and the CEO of CTV.
Thank you for the invitation to discuss a matter that is vital to the social fabric of Canada: the future of local television. Joining me today, from the corporate side, is Paul Sparkes, executive vice-president, corporate affairs, CTVglobemedia.
We noted that you invited several of our station managers, and I think this was a great initiative on your part, because these people are on the front lines of small-market local television. Peggy Hebden is general manager of CKVR in Barrie, and Don Mumford is the general manager of our stations in London, Wingham, and Windsor. They have been with their stations for many years and can give firsthand testimony on the subjects you are exploring. We also brought Elaine Ali, who is the senior vice-president in charge of all our local stations, both CTV and A. She can share her direct knowledge about how the issues endangering small markets are also now putting large-market stations at risk. I really urge you to ask questions of them directly.
I have some brief opening remarks, right off the top. I just want to state that we are not asking for bailouts or short-term fixes, however well-intentioned they may be. What interests us is a plan to build a sustainable future for conventional television in Canada.
So how did we get here?
Well, several decades ago, local television thrived in an environment in which there were only a few channels available in every home. Over those decades, the competition for attention in every home has mushroomed to hundreds of channels. Competition for share of mind has also come from personal video recorders and from the Internet. Consequently, the ratings for local stations have declined.
That's only part of the story. The advertising pool available to support local television has shrunk as well. In the beginning, advertisers could only reach a local audience in Sudbury through the two local Sudbury TV stations. Over time, an advertiser could reach those viewers in Sudbury through regional channels, then through specialty channels, and now over the Internet.
The erosion of both the audience and the ad pool has been ongoing for years and has finally reached a tipping point. That, in a nutshell, is the structural issue. All advertiser-supported, over-the-air broadcasters around the world are facing the same issue. The recession we are now experiencing hasn't created this problem, but it has accelerated the damage. I don't have a crystal ball and can't predict when the recession will end or how it will end. Will it be a V recovery, will it be a U, or is this just the new normal? What I am sure of is that when this recession ends, it will not go back to the way television was 40 years ago or even to what it was when the recession started. The damage is ongoing and progressive.
The solution to the structural issue gaining traction in the U.S. is fee-for-carriage, otherwise known as retransmission consent. The distributors there seem to understand that they've had a free ride for several decades, that their customers value their local TV stations, and that it's time to pay up. What makes this work in the U.S. is that cable systems need the consent of a local TV station to put that station on their system. For instance, if the cable system in Philadelphia can't reach a deal to carry the ABC station in Philadelphia, it can't just import a signal from another ABC station outside Philadelphia. In other words, no ABC Philly, no Desperate Housewives in Philly, period. In our industry, that's known as program rights protection, and it's an integral part of retransmission consent.
Here's another example. Rochester is just 118 kilometres from Buffalo. The citizens of Rochester are not allowed to see Buffalo television stations on Rochester cable, because this would infringe upon the program rights owned by the Rochester stations. In contrast, Toronto is 160 kilometres from Buffalo, and we happily import all the Buffalo over-the-air signals to our cable systems. Our colleagues in America shake their heads, because they can't understand why, as a country, we would undermine our local stations by doing this. Why was this done? The answer is that it was to build cable's business.
The Broadcasting Act clearly states that local stations have to be given priority carriage in their home territory by the distributors. Yet when satellite was launched, they were allowed to ignore this. This disenfranchised dozens of local stations, such as ours in Timmins. The stated reason was that they didn't have the capacity. Since then, they've launched many satellites and have found room for hundreds of new channels.
Today, satellite penetration is 44% in the Timmins area, but there is still no room for Timmins' only station. Why was this done? To help build the satellite business.
These are but two examples of how systematically over time the underpinnings of local television were compromised by the regulator in order to help the distributors. In addition, when conventional television made a lot of money, the regulator imposed many obligations for the privilege of owning conventional stations. These varied from the amount of local news a station had to produce all the way up to the number of Canadian dramas a station needed to commission from independent producers. As the conventional business deteriorated, the obligations have largely stayed put. This makes no sense.
What we are saying now to the regulator is please give us new revenue sources, or reduce the obligations, or some mix of both. Otherwise, we don't believe there's a business there in the future. Our preference, to be clear, is to solve this through new revenue streams like fee-for-carriage rather than reducing service. As a private broadcaster, we exist to make a profit based on the services we provide. If we don't see a way to make money, we cease to exist, or we exit that service.
Some say we should subsidize the losses of conventional from our profits on specialty television. There are two things wrong with that premise. First of all, our most successful specialty channels--TSN, RDS, and Discovery--have shareholders who are not shareholders of our local stations. How do we tell one shareholder that his or her money is being used to pay for something in which they have no ownership interest?
Secondly, our competitors in specialty--Astral and Chorus--don't have conventional TV holdings of any size. They don't need to cross-subsidize. It would be unfair to ask us to do something that our competitors are not required to do.
Others say we have a financial problem because of what we paid for CHUM a few years ago. Frankly, I scratch my head at this. We bought CHUM for their specialty services in radio. The only conventional television we acquired with CHUM were the A stations, which collectively were worth around 2% of the value of the deal. The purchase of CHUM, and in 2000 of NetStar, which owned TSN, RDS, and Discovery, signalled the move of our company away from purely conventional to specialty. The purchase of specialty has been our lifeline.
Still others say that the problem is we pay too much for American programs. The hard truth is that generally, the money we make on American programming pays for the losses on Canadian programming. Please understand this is not a criticism of Canadian programming. It's about the reality of our market size and the cost of production. Because of the structural issues I outlined earlier, we make less on American than we did before, and now the obligations of these local licences cost more than the money we make.
A few months ago we announced that we were not going to reapply for licences in several locations because we determined that we couldn't make money there ever. We also offered to sell these stations for a nominal fee: $1. Many have come to kick tires; no one has made a real offer to buy and continue operating those local stations. That speaks volumes. Yet local is worth fighting for. In fact, we believe that the foundation of our broadcasting system is local broadcasting, and if we cut those roots we will lose something invaluable as a nation. Local is the comfort zone for our audiences; local is the glue that binds; local is where people live. There may be many forms of community, but the strongest is local. Local broadcasting is not just the news. It's the community messages throughout the broadcast day. It's the interaction between our on-air personalities and local events.
Canada is one of the most diverse countries in the world. Our country is so broad that a collection of voices from one central place cannot speak for all of Canada. Local is the best chance our citizens get to see themselves on the screen and to contribute to the national debate. Local television also gives a place for local debate on issues that can't hold national attention. Local television gives local businesses a chance to speak to their customers and compete with national and multinational businesses. Local is also what Canadian audiences have overwhelmingly told us they value very highly. We believe local should be the top priority for conventional television.
The second priority should be programs of national interest, particularly those that enhance our national identity. This includes national news and current affairs shows like W-FIVE. It also includes shows like Corner Gas, the Junos, the Giller awards, Degrassi, Flashpoint, national talent competitions like So You Think You Can Dance Canada, as well as some professional sports events and the upcoming Vancouver Olympics, but it's very difficult to have this kind of successful national programming without local roots.
Both local and national identities are very important to democracy and both deserve structural support. I repeat, we are not asking for bailouts or short-term fixes, however well intentioned they may be. What interests us is a plan to build a sustainable future for conventional television in Canada.
As time is of the essence, the government needs to act swiftly on a series of structural reforms that will provide a viable framework for local television. That viability proposition includes, one, fee-for-carriage. To set the record straight, fee-for-carriage does not need to impact the consumer, nor will it invoke undue harm to the cable and satellite industry. There is no reason why Canadians should pay more for a service they're already paying for. This is an industry-to-industry matter, and we need a fair regime to negotiate for the value of our signals. In fact, there is no empirical data supporting harm to the consumer, based on the U.S. experience, which changed its policy in 1992 to allow local broadcasters to negotiate carriage fees.
Cable and satellite is one of the most profitable sectors in the Canadian economy, and the players in that sector should pay for what they use and their business. From 2003 to 2007, basic cable rates have gone up almost 36%, almost four times the rate of inflation. We estimate their margins for the basic cable service are in excess of 75%.
Two, on satellite carriage for local TV stations, we simply would like the CRTC to uphold Parliament's clear statement in the Broadcasting Act, which calls for priority carriage of local television stations. Satellite is no longer a fledgling industry. It seems to have ample capacity for a host of U.S. services, adult entertainment channels, and music channels, but can't make room for local stations like Windsor.
Three, on digital transition, the mandated transition in 2011 was not driven by the consumers or by industry; it's a result of a bilateral agreement between the U.S. and Canada, where both governments want to auction the conventional TV spectrum for billions of dollars. This is not about HD programming. We are already investing in HD to respond to consumer demand. What is at issue is how the signal is distributed to Canadians.
Over 90% of Canadians choose to receive their local TV signals through their cable or satellite provider. We cannot justify an investment of several hundreds of millions of dollars to reach 9% of the marketplace, particularly when this investment produces no additional revenue in a business that is already teetering on the edge.
We will be proposing a hybrid solution to the CRTC, which will have an over-air component in the larger markets and a cable or satellite solution for smaller markets.
In conclusion, we are passionate about television. Our belief is demonstrated not merely by rhetoric but by a consistent body of work composed of the top-rated Canadian programming that is unmatched by any other broadcaster in English Canada. In order to continue that audience success, we need your help. We have made three immediate suggestions, all of which can be implemented without amendments to the Broadcasting Act.
Thank you for this opportunity to appear. We very much look forward to answering your questions.
:
Thank you very much. We're delighted to be here today. With me is Ken Stein, our senior vice-president of corporate and regulatory affairs; Jean Brazeau, our senior vice-president of regulatory affairs; and Alex Park, vice-president of programming and educational services.
We look forward to an open and constructive dialogue about the state of the Canadian broadcasting system, the importance of serving local communities, Shaw's contributions to the system, and our focus on the 3.4 million customers, your constituents, whom we serve.
We congratulate you on conducting this important study. We know you have read our submission very carefully and will consider it fully as you deliberate. Because time is short and we know you're anxious to ask questions, we will quickly address our key points in response to the committee's stated suggested study themes.
First, we'll be part of the solution by continuing to build and sustain a strong Canadian broadcasting system. We believe in the system, and we believe that television has an exciting future. Shaw and our 10,000 employees already make, and will continue to make, significant contributions.
Second, requests for a fee for carriage must be denied. The harm to consumers, the harm across the entire broadcasting system, and the harm to the Canadian economy would far outweigh any perceived benefits that would be enjoyed by broadcasters alone.
Finally, we will make specific recommendations about how the government and the CRTC can contribute to maintaining the strength and the relevance of local broadcasting by focusing on consumers and investment.
The most important contribution of BDUs, broadcasting distribution undertakings, is building the network and infrastructure that delivers choice to Canadians and supports hundreds of programming services. Shaw alone has invested over $5 billion, and as a result of these investments we have built a world-class broadband network in large and small communities across western Canada. We have transitioned our networks from analog to digital. We have grown the subscriber base of our all-digital satellite service, Shaw Direct, from zero to approximately 900,000 households, including homes in rural and remote communities throughout Canada. And we provide competitive programming satellite signal delivery services through Shaw broadcast services to over 2,000 small Canadian cable systems. These systems rely on Shaw broadcast services to serve millions of customers, again, in small communities.
We will make more investments in broadband and satellite infrastructure. These capital expenditures are critical for a number of reasons. We serve Canadians with tremendous choices, including an attractive and affordable basic service, hundreds of digital discretionary services, 50 high-definition channels in Shaw and satellite, as well as interactive applications like pay-per-view and video-on-demand. We provide conventional and specialty services with high-quality signals, allowing them to attract billions of dollars in advertising revenues. We operate in an intensely competitive market in every sector of our business, broadcast distribution, Internet, and telephony. In this environment we make business decisions every day and we're held accountable by our customers. We invest to bring fibre connectivity to small communities. Broadband investment will be a key driver of economic recovery and will support Canada's knowledge-based economy.
Shaw also makes a significant contribution to the system and to local communities through our popular community channels, which provide 100% local, 100% Canadian programming every day of every week. Each year we produce over 9,000 hours of original local political programming, special community events, local sports, and local news and magazine shows.
Our achievements include the following: we raise approximately $4 million each year for local community associations across western Canada and northern Ontario; annually, we produce over 1,000 hours of programming focused on federal political issues from a local perspective; we produce weekly coverage of over 50 local municipal council, school board, and committee meetings; we provide 24/7 live coverage of the flood watch in local Winnipeg communities; we provide two dedicated multicultural channels in Vancouver and Calgary to support a diversity of local ethnic communities; and we produce over 120 community feature stories every day across western Canada and northern Ontario.
Beyond these contributions, cable has also invested over $50 million in CPAC to provide a commercial-free window on Parliament and national public affairs at no charge to Canadians. Since 1997 we've also contributed over $400 million to the Canadian Television Fund and private funds.
We are confident that Minister Moore's creation of a Canada Media Fund will finally ensure that this funding is about investment to satisfy the needs of our audiences rather then subsidies to satisfy the needs of producers and broadcasters.
These investments demonstrate that we are committed to customers, and we are very excited about the future of Canadian broadcasting.
Broadcasters also demonstrated their belief in creating a specialty service in Canadian television when they spent a combined $3.7 billion to acquire a number of specialty services to add market share, increased bargaining power, and cross-purpose content. We know there are many challenges ahead, but there are also tremendous opportunities to take full advantage of synergies and new technologies.
Several parties argue that there is a systemic problem that requires a systemic solution. The systemic problem is with the existing regulatory regime, which is based on protections and subsidies. This model is unsustainable in the global, dynamically competitive digital communications environment.
The fix is not more regulation and taxation or a bailout for broadcasters. Broadcasters make business decisions to spend more than $700 million annually on American programming. In one case, they amassed a $4 billion debt from the purchase of non-Canadian television stations and publishing properties. They should be held accountable for these decisions.
Let's now discuss the false premises that support the broadcasters' demands for fee-for-carriage. More money will not go into local broadcasts. More money will not be used to breathe life into local programming. To help explain the broadcasters' real motives, let's look at the example of the CRTC's proposed local programming improvement fund. It was introduced only last October, but broadcasters are already demanding more, because they say 1% of our revenues is not sufficient, and they are already trying to escape any commitments to spend that money on incremental local programming.
Fee-for-carriage completely ignores broadcasters' regulatory advantages and privileged place in the broadcasting system. The long list of broadcasters' existing protections is included in our written brief. They include mandatory and priority carriage on the basic service, free cable and satellite delivery of local broadcast signals, valuable free spectrum, and simultaneous substitution.
Free distribution on cable and satellite will become even more important as we move through the digital transition, because broadcasters are telling us they will not build over-the-air digital transmission facilities in most markets. In all communities outside of major urban centres, cable and satellite will be the only way for Canadians to receive their local stations.
Finally, fee-for-carriage is not a market-based solution. In contrast to the situation under the U.S. regime, where broadcasters must make a choice between “must carry” and retransmission consent, Canadian broadcasters want both. There would be no real negotiation with broadcast distributors. There would be no customer choice. Customers would have to both take and pay for these services. The result would be a wealth transfer from Canadians to private broadcasters. Put simply, it would be a tax on ten million Canadian households for the benefit of two or three private enterprises.
Clearly, fee-for-carriage is not the solution. However, we would like to make the following specific recommendations, which will provide relief in the short term and over the long term will help to build a strong and competitive Canadian broadcasting system.
For the digital transition, Shaw will support the availability of an affordable virtual broadcast solution on cable and satellite so that broadcasters can continue to reach local audiences while saving hundreds of millions of dollars in capital costs for new digital transmissions.
As suggested by the CRTC chairman, part II licence fees should be eliminated. There should be relief through the elimination of advertising restrictions and a reduction of regulatory obligations.
If broadcasters consider local programming to be a regulatory burden, they are always free to give up their licences, and the CRTC should call for new applications from companies that believe there is a business case for serving local communities.
The government and the CRTC must fully embrace the potential of community channels to provide a diversity of voices through local news and local programming that reaches various geographic, cultural, and linguistic communities.
Finally, the CRTC should be provided with the direction to conduct a comprehensive review of the entire system. Such a review should lead to recommendations based on the interests of Canadians as viewers and consumers.
In conclusion, Shaw greatly appreciates the opportunity to appear before this committee, because we share the common goals of building a strong broadcasting system and serving Canadians and local communities. We are a successful company because every day we engage our 3.4 million customers and we listen to them. We ask the committee to do the same by focusing on the interests of Canadians. If innovation, investment, and new technology are allowed to drive this market, Canadian consumers and viewers will be the winners.
Shaw is already part of the solution. We reach Canadians through our ongoing and substantial capital investments to bring world-class service to large and small communities. We distribute hundreds of Canadian programming services. We make significant financial contributions to private funds and the Canada Media Fund, and we provide outstanding programming on our community channels.
However, we cannot support any solution that is based on new subsidies, taxes on our customers, or broadcaster bailouts. We believe the true cornerstone of the system must be Canadian consumers. As set out in the Broadcasting Act, the system must serve their needs and interests.
Thank you, and we look forward to answering your questions.
:
Thank you, Mr. Chairman.
I would like to thank our witnesses for coming to meet with us today. I have just one question, but a long preamble.
The producers have told us generally that if they did not generate more revenue, they were going to have to cut certain services being offered at the moment. The distributors, including Rogers and yourselves, tell us that in the end, there is no problem, if we look at these companies overall, we see that they can afford to lose some money in specific areas, but that generally, their activities are extremely profitable. That is roughly what we are hearing from the various witnesses who appear before us.
You brought along with you a rather lengthy brief. Like the representatives from Rogers, you refer to a tremendous number of facts that tend to confirm very rationally what you are saying. The text is very well written. It states that these people are investing less and less in Canadian productions and more and more in foreign productions, particularly American ones. These people claim to be losing money, but this often refers to products they bought abroad and that have nothing to do with local distribution.
I confess that I have a favourable bias toward your point of view, but that does not mean that this could not change. I find it logical. However—and this is where I have some reservations—I am not an anglophone; I watch television in English from time to time, but I watch more television in French. And one thing seems clear to me. Most of the programs in English that I watch seem to be American in one way or another—whether they are imports or series or feature actors who are quite clearly American.
On the other hand, when I watch television in French, I never see or almost never see that type of thing. The news is really designed in Quebec for Quebeckers. Television series are made from A to Z by Quebeckers and for Quebeckers. There are very few American programs presented in translation. Variety shows—and here we are talking about Quebecor—such as Star Académie or others are produced in Quebec by Quebeckers. The same goes for advertising. People tried for a long time to use advertisements produced in Toronto to sell products here, but they had to stop, because people were simply not buying these products. The advertising has to be produced in Quebec if products are to sell.
Mr. Péladeau's company, Quebecor, seems to be dealing with problems that are totally different from the other companies. You say that the truth of the matter is that the companies have done nothing to promote Canadian programming. That is not true of Mr. Péladeau. All his programming is home grown, and he pays what it costs to do that. He is making money, or at least I hope he is, and I hope he will continue to do so like the other companies. In any case, his problems are totally different from those faced by other producers of television programs. I come now to my question.
If as a Member of Parliament I conclude that your comments are valid for the Canadian side of the market, that producers like CTV and Canwest really do not have any problems because they are producing fewer and fewer Canadian programs, but that this is not the case for Quebecor, do you think I would be justified in saying that a different solution should be applied to Quebecor, perhaps even as regards broadcast rates?
:
Good afternoon, Mr. Chair and members of the committee. Our presentation will indeed be very short and to the point.
We are the fourth-largest cable system operator in Canada. Our service footprint covers many local communities in Ontario and Quebec. We offer a wide range of broadcasting distribution and telecommunications services as well as local community programming through our extensive broadband fibre and coaxial cable network, extending from Windsor to the tip of the Gaspé Peninsula.
[Translation]
We have been in the broadcasting business for over half a century, and in the cable business for over 35 years. Needless to say, we have experienced phenomenal change in our lines of business. We have been able to succeed by adapting to change and reinvesting for the future. You can check on what we do, and how well we do, every quarter because our shares are listed on the Toronto Stock Exchange.
[English]
Your suggested study themes raise several fundamental questions of broadcasting and electronic communications policy that would require much more than a five-minute speech to fully address.
Here are our key messages today. Hopefully they will help you in your deliberations.
First, traditional local broadcasting is clearly under pressure from a combination of changes--growing costs, declining advertising, and declining viewership--which are all driven in good measure by technological change. As a result, the way of doing local broadcasting has to change as well. In short, technological change must be embraced. The cost structure must be alleviated; advertising must be more targeted and effective; multiple platforms must be used; and viewer involvement must be promoted.
Second, fee-for-carriage for over-the-air television is not a silver bullet. It will not address any of the required changes that we just mentioned. It will only delay them and make things worse in the end. It would be like pouring water in a barrel with an open tap, because Canadian broadcasters are free to overspend on buying American programs and free to underspend on producing local programming.
Third, the expectation that our analog over-the-air television system--which was built over a period of over 60 years--will be converted entirely from analog to digital by August 31, 2011, is, simply put, a project conceived on thin air. Our federal government has decided to reclaim the analog spectrum to sell it for mobile communications, as is being done in the U.S., but has left the resulting technical and financial problem entirely to the broadcasting industry. There is just a small hitch. The broadcasting industry does not have the technical resources or the capital available to go digital all the way, and even if it did, there is no workable business plan to justify the required investment.
Fourth, what can the federal government do to help? Frankly, a good start would be to stop hobbling the industry. For general revenue purposes, the federal government has collected almost $800 million from 1998 to 2006 from revenues of the broadcasting industry by way of a special licence fee calculated as a percentage of all broadcasting revenues. The question of whether this fee constitutes an improper tax is now before the Supreme Court of Canada, but the government is always free to end that tax and to return part of its earlier proceeds to the industry.
[Translation]
This special licence fee is in addition to the base licence fee, corporate income tax, GST, and mandatory contributions to Canadian program funding, which now include the Local Programming Improvement Fund (LPIF). The federal government does not collect any of these taxes or fees on pirated broadcasting signals and services in Canada, yet spends next to nothing on enforcement of its own broadcasting and radiocommunication laws.
And the federal government now stands to collect several billion dollars more from the auctioning off of the analog spectrum used by broadcasters for over 60 years. All of this while the industry faces a more challenging environment than ever before in its history.
[English]
Fifth, what can our company do to help more on the local programming front? We have a model that we developed seven years ago in North Bay. When the CTV local affiliate in North Bay decided to cut back on the local news, TVCogeco stepped up to the plate and started to provide local news coverage on our local cable channel. We have a daily half-hour program of news Monday to Friday at 5:30 p.m., with repeats at 6 p.m., 11 p.m., 11:30 p.m., 6 a.m., and 6:30 a.m. Overall, TVCogeco produces, in North Bay, a year-round weekly average of 8.6 original first-run hours of local programs. We also plan to webcast North Bay news beginning in the new year.
Is this good for local broadcasting and diversity of voices? Our viewers, our community groups, and our local representatives sure think so. We could do more if we had access to our own local resources for that purpose. Oddly enough, our local advertising is restricted by regulation. Indeed, regulations still preclude most advertising activities from local community programming, on-demand programming, and commercial availabilities on cable or satellite programming signals.
We will start paying 1% of our total cable broadcasting revenue into the LPIF next fall, but we will not be eligible for any funding from the LPIF unless the criteria proposed by the CRTC are changed. We will be making that point to the CRTC at the public hearing next week.
Based on our experience in North Bay, there are real local programming solutions at hand when the broadcasters feel they no longer have a business case for local programming tailored to the different needs of the local communities. We just need to think and act outside the traditional mode, and we need a little understanding from the federal government and the regulators to deploy these alternative solutions more widely.
I'd be happy to answer your questions.
Good afternoon, Mr. Chairman and committee members. Thank you for inviting us to provide our input into your study on the state of local television in Canada.
My name is Peter Viner, and I'm president and CEO of Canwest Television.
Joining me today is Charlotte Bell, our senior vice-president of regulatory affairs.
Our comments today will focus on the financial state of local television, the challenges we face as an industry, and what we believe some of the solutions are.
You've asked us to comment on the appropriateness of a fee for carriage for local stations, so let me begin there.
We believe that local broadcasters should be paid for the use of their signals as part of a cable and satellite package in the same way that Canadian specialty services like TSN, the Food Network, TELETOON, and others are, and also U.S. cable channels like CNN, A&E, and Spike TV.
Under the banner of regulatory reform, there are many other things that can and should be done, but in our view, a properly designed fee-for-carriage regime would put Canadian local broadcasting on a sustainable footing and would go a long way in addressing the ongoing decline in the sector.
Now let me talk about the state of local television in Canada. This crisis is real. The conventional television business model is broken, and it's been broken for some time. Some are suggesting that this is merely a short-lived decline in the advertising revenue that will rebound with the economy. The facts suggest otherwise. A weak economy has only accelerated a trend that began years ago.
Local broadcasters have been warning the CRTC for many years that a crisis was inevitable. It's extremely frustrating that it took an economic downturn to validate these concerns. Over a thousand people have lost their jobs, and the very existence of many local television stations is now at stake. It didn't have to be this way.
By all measures, the signs of deterioration have been here for some time. Our advertising revenues have been flat to declining for the past three years. Profitability for the sector sank to single digits and reached an all-time low of less than half of a per cent last year. This all happened in a healthy economy. Quite simply, this happened because we've gone from a few stations reaching all Canadians to literally hundreds of stations reaching all Canadians. In other words, the amount of advertising money available is now divided among a much larger group of stations, and that doesn't take into account the growing proportion of the advertising market going to the Internet.
Some have suggested that the debt incurred by broadcasters as a result of a consolidation is to blame for the crisis. But debt doesn't account for the worst three-year performance in recorded history of local television or last year's meagre profitability before the economy began to really slide. Debt didn't reduce the value of CTV's local operations by 75% or cause Canwest to take a billion-dollar writedown on its local stations. It also didn't cause Rogers to record a $294 million loss on its local stations some 18 months after they purchased it.
The conventional television business model is broken. Consolidation was a necessary response to fragmentation caused by years of over-licensing and authorizing too many foreign signals in Canada. Consolidation didn't break the local television business model. In fact, consolidation only delayed the inevitable.
The crisis was predictable, and it has been well documented. As far back as 1993, broadcasters, economists, and others warned that local television was at risk unless measures were taken to address the structural imbalances within the system. One could say that the proverbial chickens have now come home to roost.
Charlotte.
:
Concerning local programming, the competition is not fair. Canadians have access to hundreds of TV channels and a broadcasting system that is among the most diversified in the world, but the Canadian television market is one of the most complex, competitive and regulated that exists. Diversity has a price.
The struggle to attract viewers and advertising income has intensified since the early 1990s. Today, there are some 170 specialty Canadian channels competing for the same audiences and advertising. And for local stations, advertising is their only source of income. Canadians also receive, via cable, dozens of American channels in all kinds of niches.
[English]
Here's the problem. Canadian specialty and U.S. cable channels receive hundreds of millions of dollars in subscriber fees each year. In fact, over the last nine years, U.S. cable channels--I'm saying U.S.--such as CNN, A&E, and Spike TV received almost $2 billion from Canadian cable and satellite services. Meanwhile, local television received nothing.
The time to act is now. Fee-for-carriage is a basic question of fairness, recognized as far back as 1971 when the CRTC established the first cable policy. The commission declared at the time that one should pay for what one uses to operate one's business. In other words, fee-for-carriage was regarded as a matter of fair business practice and was one of several measures prescribed by the CRTC at the time to counterbalance the impact of cable technology and the importation of additional foreign signals into the local marketplace, but it was never implemented, as you know.
So today, while new entrants such as specialty and foreign cable channels receive a portion of cable and satellite bills, local stations still don't receive a cent. Ironically, Canadians believe that a portion of their cable or satellite bills is going to their local stations. In two separate consumer surveys conducted on our behalf since 2006, subscribers overwhelmingly said they valued local television above all other programming services. More than 65% of subscribers also believed they were already paying for local stations on their bills. When informed that local stations don't receive any portion of their fees, almost 80% of subscribers were in favour of local stations receiving a portion of their basic fees, and a vast majority of respondents were willing to pay almost $5 extra each month to continue to receive their local station.
The cable and satellite companies continue to argue that consumers will revolt if their bills increase, and we know this is your concern also. During last year's CRTC policy review, executives at Rogers and Shaw threatened to pass on to consumers any new carriage fees for local stations. Rogers executives actually said the majority of Canadian consumers are not prepared to pay a fee where no added value is associated with that fee. Consumers would be forced to pay an extra $5 or $10 a month on their cable or satellite bill and receive nothing new for this increase. But based on the 50¢-per-subscriber fee that we proposed, the average increase would have been no more than $2.40 in most markets and much lower than that in many places.
But here's the irony. In March of this year, Rogers subscribers saw their bill increase by $6 a month, although Rogers had not added a single additional service, and no revolt occurred. In fact, by all accounts, despite continuous price increases over the years, the number of cable and satellite subscribers has continued to grow. The facts just don't support their arguments.
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On February 5 of this year, an emergency meeting was called to inform the employees of CHCH-TV in Hamilton that, along with its sister stations in the E! Network, we were up for sale. Our parent company, Canwest Global, told us that a buyer would have to be found within eight to ten weeks. If not, they told us, the worst-case scenario would be possible. After 54 years, the first independent television station in Canada, CHCH-TV, could go black.
My name is Donna Skelly, and I represent a group of employees who are trying to save CHCH-TV. Shortly after this shocking and devastating announcement, we came together to develop a plan that would prevent CHCH-TV from going black. The priority of our employee group is fundamentally different from the current players in the broadcast crisis. We don't want to answer to shareholders demanding high returns on their investments. We are not looking to expand into other industries or to acquire other properties. We simply believe that the residents of Hamilton, Halton, and Niagara have a fundamental right to at least one television station that serves their needs. We want to prove to Canada's regulatory commission, to you, our members of Parliament, and to other community leaders that this station, CHCH-TV, is more than a means of making money for shareholders. This station, the only station to serve a market of over a million people, has become an essential service that must be protected and preserved.
We know that the business model for conventional television is broken, but has anyone or any group given you an alternative model for local news? What has happened is that networks are now asking for relaxation of licence requirements, and for subsidies, to allow them to continue to operate under the same broken model.
What we are proposing is new. It is radical. It's a different approach to local news, but it's a model that we believe will not only protect local television in Hamilton, Halton, and Niagara; we think it could serve similar stations and communities across the country. But for today's purposes we are focusing on CHCH-TV.
We are proposing community ownership for this essential over-the-air licence. CHCH-TV would be controlled by the community. It would be governed by a board of directors made up of leaders and the people who understand the communities they live in. The broadcast mandate would focus on news and information that is important to the people in these communities. The programming schedule would not include the type of prime-time programming so readily available on other channels.
To sustain our model we have identified unique revenue opportunities. Traditional advertising will be crucial to this plan, but unlike the networks, we would aggressively solicit advertising dollars from lucrative untapped sources of advertising from within our own local business community. Currently, many local businesses simply cannot afford to advertise during prime-time hours. It is simply too expensive. In our opinion, broadcasters are too reliant on national advertising and have not provided enough opportunities to local business. Personally, I've been approached by local business owners who would welcome the opportunity to buy affordable television time to promote their own products.
The local program improvement fund will also be critical to sustaining and enhancing a local news and information service. Although it remains unclear right now as to what groups would be eligible for these funds, we believe there is no group more worthy than an independent CHCH Television in the cities and communities it is mandated to serve. In fact, we would ask the CRTC and this committee to include eligibility criteria that would give priority to communities that have one conventional television broadcaster providing local service.
The third element of this revenue initiative attempts to find a method of regulating funding from the community for local television services. Residents have anecdotally told us that they wish to continue having service from a local station and they want CHCH to continue with a strong local mandate. To do this, we believe a fee for carriage needs to be regulated to support local television in the communities served within the licence boundaries of CHCH. Under our proposal, all distributors in the defined coverage area carrying CHCH would be required to add a specified fee for carriage of the CHCH signal. CHCH would remain a must-carry option by these distributors.
To date, discussions concerning this crisis faced by Canada's broadcast industry have focused primarily on how to assist struggling networks. What hasn't been discussed is the impact on the true stakeholder in all of this, and that is the Canadian taxpayer. In 2000, when Canwest Global obtained the licence for CHCH-TV, the company promised to produce 37.5 hours of local programming. In a few weeks, Canwest will be back before the CRTC asking to reduce the amount to five hours of local news programming a week. That's a reduction of over 80%.
Although a final schedule has not been announced, this reduction could mean that viewers in Hamilton, Halton, and Niagara could lose their three-hour morning show, their daily noon show, their daily current affairs programming, all their weekend newscasts, their local sports, and their local lifestyle programming. What would remain is Snoop Dogg's Father Hood, Keeping Up with the Kardashians, and Dr. 90210. Ask any resident of Hamilton, Halton, and Niagara what they would have cut, and I can assure you it would not be local news programming.
Not only are Canadian viewers losing local news, they are losing access to quality news. Serious news coverage has all but disappeared in local newscasts because of the reduction in staff and resources. Many local newsrooms do not cover the stories that require dedicated resources and experienced journalists. Local criminal trials, city hall meetings, and investigative stories require long hours and a lot of money. Today, these stories are a rare component in local newscasts.
We believe strongly that any recipient of public funding for television news production should be required to set aside a significant portion of that funding for serious news. Infotainment cannot be a fallback or a weak alternative to news. Broadcasters may argue that these funds should not be micromanaged. We argue that the health of this industry depends on it.
On March 11, 2009, this committee agreed to study the future of television in this country. Throughout the process, you have been told this industry is in the midst of a crisis. I disagree. I say we have an opportunity to make radical changes to the business model; to insist upon tougher regulatory conditions when licences are renewed; to demand that serious news be a priority; to identify and classify licences in markets like Hamilton, Halton, and Niagara as essential services; and to protect these licences for the true stakeholders, the Canadian people, who have a fundamental right to their local news.
Thank you.
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Yes, I can confirm that Cogeco Cable would be obliged to pass on the additional costs, i.e., the fee-for-carriage that would have to be paid to conventional broadcasters, to our customers.
The reason for that is quite simple. We are a public company. We have shareholders. We have to make sure that their interests are also factored into the equation. This is not only about the interests of the broadcasting system, some broadcasters and our consumers, but it's also about the interests of our shareholders.
Coming back to your question, Mr. Rodriguez, let us say that the problem cannot be entirely fixed with a local programming assistance fund. We all agree on that.
Contrary to others, we are for the new fund. It's already much better than the status quo, but it is not a silver bullet, and neither is fee- for-carriage for that matter.
Why is fee-for-carriage not a silver bullet? Because, as I indicated in my opening remarks, it is far too expensive to purchase American programs. That is what we told the CRTC last year.
The figures were in the 2007 report. Canadian private broadcasters spent approximately $722 million on foreign programs, an increase of 4.9% over 2006, whereas spending on Canadian programs decreased by 1.2%, accounting for $616 million.
Those are the CRTC's own figures, Mr. Rodriguez. The figures are slightly different this year. So much the better if Mr. Viner has been able to stem the increase in costs for American programming.
Nevertheless, the fundamental problem is that there are no rules. They can spend whatever they wish on American and Canadian programs.
In support of Mr. Konrad von Finckenstein, I must confirm that I was at the CRTC's public hearing around this time in 2008 and was expecting a clear and specific commitment for a dollar for dollar reinvestment of carriage fees in Canadian programming, and no such commitment was made.
It is all well to say that it was a policy hearing, but the broadcasting policy applies to all components.