CHER Committee Meeting

STANDING COMMITTEE ON CANADIAN HERITAGE

COMITÉ PERMANENT DU PATRIMOINE CANADIEN

EVIDENCE

[Recorded by Electronic Apparatus]

Tuesday June 9, 1998

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[English]

The Chairman (Mr. Clifford Lincoln (Lac-Saint-Louis, Lib.)): I will now open the meeting of the Standing Committee on Canadian Heritage.

[Translation]

Pursuant to Standing Order 108(2), Consideration of a Canadian cultural policy.

[English]

consideration of a Canadian cultural policy.

We're very pleased today to welcome the Canadian Association of Broadcasters, represented by its president and CEO, Mr. Michael McCabe; by Mr. Duff Roman, president of the board of the CAB; Mr. Michel Tremblay, le vice-président éxecutif; and Ms. Jill Birch, vice-president, radio.

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The floor is yours. Mr. McCabe, do you want to start, or Mr. Roman?

Mr. Duff Roman (President of the Board, Canadian Association of Broadcasters): I'll start.

The Chairman: By all means, Mr. Roman.

Mr. Duff Roman: Thank you. Good morning, Mr. Chairman and members of the committee.

My name is Duff Roman. I'm chair of the Canadian Association of Broadcasters, which represents the vast majority of Canada's private radio, television and specialty television services. With me today are Michael McCabe, president and CEO of the CAB, Jill Birch, vice-president, radio, et Michel Tremblay, vice-président exécutif.

The CAB is pleased to have the opportunity to appear before the House committee to present its views on the role of private broadcasters as a main contributor to Canada's cultural environment, and to assist the committee in its deliberations.

Both the radio and television industries are at a crossroads. With increased media choice, greater competition for viewers and listeners, and an increasingly global media scene, both are facing significant challenges.

They are also going through a period of considerable change on the technology front, which will bring both radio and television transmission into the digital era. These factors present a major challenge for broadcasters in delivering high-quality and relevant programming to their audiences while continuing to be a major contributor to Canadian culture and remaining viable businesses.

We have reached a watershed where our ability to deliver our cultural contribution to the system must be enhanced if we are to remain relevant and keep Canadians tuned to Canadian radio and television.

Government, too, is facing considerable challenges in this new competitive environment, as technology and globalism are bypassing cultural policy.

What is required for radio to enjoy the necessary flexibility to be competitive, to attract listeners, and to continue to play its role as the community “newspaper” of the broadcasting world?

On the television front, what is required is to allow making Canadian television a sound business opportunity. What is required of government is to allow both industries to fully play their role and to provide them with the necessary flexibility and access to the necessary resources to do so.

We would like to share the CAB's plan for radio and television with you now, over the course of two consecutive presentations. I'll ask Michael McCabe to outline the initiatives the CAB is proposing on the television side, and Jill Birch and Michel Tremblay will do the same for radio.

Your committee has posed some key questions, which we will address during the course of these presentations. We will also forward to the committee, under separate cover, research reports to add greater detail on these fronts. And of course, we'll be pleased to entertain any questions from members of the committee at the end of our presentations.

Michael.

Mr. Michael McCabe (President and Chief Executive Officer, Canadian Association of Broadcasters): First of all, thank you again for meeting with us. We greatly appreciate this, and we'll try to be as brief as we can so we can get to the question period.

I think we've provided the clerk with a document that looks like this. Have we handed that out? It would be helpful for people to have in hand, because it will ensure that I don't have to hit every point.

What we'd like to use as the framework for discussing television with you here is what we call the “business case” for television in the years ahead. The key point is that we must succeed as businesses if we're to make a cultural contribution.

So I'd like to give you a picture of the industry overall and take a look at the success story of Canadian television, because it is a success story; take a look at the challenges that we face over the next period; talk about establishing some goals for the system and how they will serve the public interest—that will best serve the public interest if we do; suggest a policy and regulatory framework that is needed to achieve the goals we will suggest; and then talk about how that will, in effect, serve the country well.

As you'll see from what's before you, the private television industry is all across Canada. There are three great national systems. There are 25 significant companies and 90 TV stations, of which 57 are in smaller markets and are relative newcomers to the field; and 52 specialty, pay, and pay-per-view services out there.

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We contribute significantly to the economy, to the culture, and indeed to our communities, as you will have seen in the ice storms and floods that we've seen over the last period. We're a major player in the economy. Over 27,000 jobs, direct and indirect, are attributable to the Canadian TV industry. And $ 576 million is paid out in direct salaries per year.

There are some interesting facts in cultural terms. Seventy-five percent of Canadian programming that is seen on the screens is viewed on private television, both conventional and speciality. Over $ 700 million annually is spent by conventional and speciality broadcasters on Canadian programming. Eighty-five percent of Canadians get their news from private TV. And, as I've suggested, we play a major role in the community, in terms of both information and emergency coordination when emergencies do occur.

However, we face several challenges, as Duff has suggested. The first of these is what we call “program performance at home and abroad”. What we mean by that, essentially, is that we have a lot more hours of television in front of Canadians than there ever have been before, largely because of new conditions of licensing for existing broadcasters, but also because of new licences.

The real question is that we haven't really moved the viewership during this whole period of Canadian programming. What we really have to pay some attention to is the performance of the programming, that is, we need Canadians watching it. That is the base. Successful programming at home is the basis for successful programming abroad. It's the way the market works.

One of the key concerns we have over this next period is that there's an enormous amount of cultural pressure, and properly enough, to do better national programming, the big series. That puts heavy pressure on our local presence. The money comes from somewhere, and if we start pulling it out of our local news and the local scene, it will become a problem for us and for the community.

Another concern is the transition to digital. We have to move to digital over the next period. The estimate now is $ 500 million over the next ten years or so, and there's no evident new source of revenue to match that. That's a considerable concern for us.

Increased fragmentation in the marketplace is another. The CRTC decision to in effect bring new specialties into the marketplace, Canadian specialties, means that they bring along with them, one for one, another American specialty. That comes into the marketplace as well. So that and the growth of the Internet generally has started to concern us in terms of our market share. In the past five years, for instance, conventional broadcasters have moved down from 42% to 39% of viewing, but a lot of that has been picked up by the specialty services.

The Internet is now becoming a serious challenge. We have to either compete with them or be one of them. We have to get on the Internet and be an Internet broadcaster. We have to compete with them—or maybe a little of both. But that's a concern we now have as an industry, and we're starting to head in that direction.

The financing gap is another concern. We'll talk more about this later, but in regard to programming, you saw the problems we had earlier in the spring with the fund. There is a significant financing gap for Canadian programming. Major broadcasters like CTV and Global are sitting there with series—and they've said so publicly—they want to do for which there is a shortage of funding.

Some of our people have estimated—we'll have a better indication in the next two or three weeks and we will provide you with it—that this gap is $ 250 million to $ 300 million in terms of getting on the air the programming broadcasters have ready and are short of financing for.

Financial markets. An interesting thing has happened in our business, and that is, as we have moved from being kind of entrepreneur-owners to more public ownership, the shareholders of our companies are often major pension funds and groups like that. Often, as our people say, they know more about our business than we do. But it's interesting to see what they're looking for. They're looking for a bottom-line success every quarter, and that sometimes runs counter to the longer term. So the cultural objectives we face....

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Maintaining Canadian programming or program rights. We are concerned that some of the American programming that we normally have access to may become less available to us, and we make a lot of money on that, money that is in effect used to underwrite the Canadian drama programming that we often lose money on.

Earlier, I mentioned unrestricted access to foreign services. The increased number of foreign services in the market is of considerable concern to us. They don't contribute to the system other than the fact that viewers like them.

We are suggesting that in the period ahead—and as you know, we're heading to a CRTC hearing—we ought to be looking at establishing system-wide goals that everybody buys into. We think these goals should be in the area of viewing Canadian programming, that as a system we try to drive up the viewing levels, and in the area of viewing levels for particular kinds of programming, for instance, drama and the like.

We need to have a goal that relates to maintaining our local presence, one that relates to diversity so that we're not in fact as a country looking at a television system that, by regulation, all looks the same. We have to look to a system in which people can do different things, because that will succeed in the marketplace and that's good for viewers. We have to look at goals related to represented programming. What about areas like drama, children's variety, and, we would suggest, documentaries? How do we move them higher in viewing levels? Again, where do we find the resources for Canadian programming? That also ought to be one of the goals.

If we can set some goals in these areas, we believe it would serve the public interest well. We would ensure the following: that Canadians have the best programming from Canada and from around the world and that it is universally available; that we continue to make our contribution in communities; that into the next millennium we can be a successful industry contributing to the country; that our local service would be strengthened; that we would have the diversity that we've talked about; and I guess, most importantly, that Canadians would get the television they want.

What are the conditions for meeting the goals that we're going to set out?

We would suggest there are two: first, a modern and flexible regulatory framework, and second, a consistent government policy and funding support.

I'll just hit each one of those briefly. On June 30 we will be submitting a comprehensive brief to the CRTC. It's in the works now. There are two pieces of research that we will have out before June 30. One is an environmental scan of what's happening now and what's likely to happen in the next ten years, and one is the success story of Canadian television and where it's going. We'll get those to you before June 30 so you will have them in hand.

But in regard to meeting the goals in regulatory terms, what will we be looking for as we go into this hearing? We're looking for some flexibility, because it's only by being able to move in the marketplace in terms of scheduling of programming and kinds of programming will we be able to succeed.

The CRTC has incentives at this point for drama and so on. We'll be looking to perhaps expand those to try to focus on the performance of programming, if you will, again, the viewing.

We're also suggesting that there should be no new Canadian content obligations. Here, I guess, the point is that often more is the enemy of better. In a situation of limited resources, you have to focus. We're going to be suggesting that we should focus on the programming that we're really trying to make work and not spread our money and the money that's available in the system over more hours, if you will.

We will be taking a look at the whole of the regulatory structure to see what can be eliminated there.

Advanced substitution. As you probably know, simulcast or simultaneous substitution brings about $ 100 million into the system and protects our programming rights. The system is starting to leak a bit. We will be making proposals to in fact improve and perfect that system.

We're looking at increased advertising opportunities and we'll be suggesting ways to go at that.

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I mentioned earlier that there are U.S. services authorized into the system and they do not contribute to the system. In some of our estimates, we suggest that as much as $ 200 million goes out of the system in subscriber fees, which doesn't contribute to the U.S. services. Viewers like them, but they don't contribute to the system as such. We'll be looking at new promotional strategies and incentives to ease the way to digital television. That's on the regulatory CRTC side.

On the government side, we will be looking to increased resources for production and a commitment to the permanent presence of resources to support production. We'll be looking to focus resources on programming that can gain the biggest audiences. The independent production industry in this country, which has access to government funds and incentives, has now become a mature industry. Many of its companies are publicly traded and the time has come to bring all the resources to bear.

We will be proposing that broadcasters be able to be producers and distributors, because if we can see revenue from productions in foreign markets and see ourselves being a part of that, we will invest more money in Canadian programming. Invest is the key word. If we can make investments that have some potential for return, we call this rebalancing risk and reward in the system. But it's going to be a key part of what we'll have to say to the government.

As you all know, because you are concerned directly with it, the assault on the Canadian cultural protection and promotion structure will be considerable over the next period. We have to look to a strong and consistent policy that deals with culture in the trade context.

Finally, if we can make some progress in these areas with respect to both regulation and policy, we think we will be able to achieve some viewing goals, which means Canadians will be seeing programming they like and more of it. We will be able to succeed more in export markets, and as businesses we will be able to succeed and contribute more to the system.

Jill.

Ms. Jill Birch (Vice-President, Radio, Canadian Association of Broadcasters): Thank you, Mr. Chair.

I'd now like to present an overview of the private industry's initiatives in the radio field with regard to the initiative you have here in the House.

Basically, radio is poised for growth and technological innovation right now. Radio is experiencing its own renaissance, and private broadcasters have driven a number of initiatives to better serve listeners across the country.

In the next few minutes we'll be covering the radio's contribution to a vision of the future. We'll be looking at the community, the music industry, and the economy. We'll be looking at CAB's plan. Over the past 18 months, a number of research studies, statistics, and analyses have been conducted in response to the CRTC request for a radio response. With that we've been able to really tap into the listener to be able to understand what the listener of the future wants and how private radio can best meet those needs. Finally, we'll be looking at how everybody can win: private radio, the music industry, the community, and most importantly, the listener.

Let's look at our vision of the future. Essentially, right now we have five pillars that contribute to radio's vision for the future. The first imperative is for the local audience to be better served. The challenge we have now is that listeners are more demanding and the market is more fragmented. This poses huge challenges for private radio. Stronger radio groups are required to meet this need. With stronger radio we can build greater formats and diversity. To illustrate this challenge right now, there are about 147 owners of 500 radio stations across the country.

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Radio needs to move to become a performer rather than a survivor. We need to be able to invest in the technology and sophisticated programming mix that will serve the listener.

Radio also needs to become a more competitive medium. Right now, radio is competing with newspaper, Internet, TV, and the yellow pages, just to name a few, in order to build advertising revenues that will allow us to invest in the technology and therefore keep the listener loyal.

The promise of the future for radio is for us to move to DAB, digital audio broadcasting. Moving from analog to digital will allow us to provide more services and relevancy to our customers, the listeners, and to be able to provide some services that have not yet been experienced.

Think about being able to have your French or Japanese lesson at 8 a.m. on your commute in from work, or, while having your favourite song played on the radio, if you can't remember the title, all of a sudden it pops up on a screen in your car. These are some of the things that digital radio will be able to deliver to these customers and listeners.

I'd like to move now to radio's contribution to the community. You just have to look at the ice storm of 1998 to understand the incredible power of this medium, especially in times of urgency and emergency.

Radio continues to be the intimate friend. From the senior citizen to the newly emergent home office worker, radio provides services and connects communities and connects people.

It's also a focal point for charitable causes. Many social and health issues have been assisted through radio. Whether it's drug and alcohol abuse, child abuse, or things of that nature, radio continues to reach out.

It's a strong Canadian voice as well. The axiom of thinking locally and acting nationally is again acted out through the many services radio provides.

It's the only truly electronic medium across the country. To illustrate some of the power, here are just a couple of statistics. Private radio accounts for 85% of all radio tuning. On average, Canadians listen to twenty hours of radio per week, which is five hours more than what our neighbours to the south listen to.

In terms of our contribution to the music industry, we can underscore the strong relationships that radio is developing with many allied groups in trying to support the development of Canadian talent. Several independent studies have indicated that air play is the key to music sales, and radio still is the major channel to funnel and grow record sales across this country. Right now, private broadcasters contribute $ 1.8 million per year to the development of Canadian talent.

We have also initiated the Canadian Radio Music Awards program, which showcases and promotes Canadian talent across the country, and we have many national award winners who have been celebrated and who continue to receive airplay and the attention they deserve.

In addition, radio does a number of other things, including free concerts, on-air promotions, and CD release parties. It really is partnering with many of the key stakeholders in the industry to build Canadian stars. We realize the importance of this and are continuing to push forward on that front.

Radio's economic contribution lies in the fact that we have 500 stations from coast to coast to coast, meaning there are 9,000 direct jobs that radio provides, as well as numerous indirect employment opportunities and contracts. Some $ 862 million in revenues were contributed by radio in 1997.

CAB has established a four-point plan, and our plan is in motion. Our first issue is to restructure radio so that radio will become more profitable and will be able to grow and increase loyal listenership. We want to make programming more competitive and have it meet the needs of listeners, especially as the segmentation continues. Essential for us is the promotion of Canadian music by developing it, encouraging it, and nurturing it.

And finally, there's the roll-out of digital radio. It's happening now. It's rolling out as we speak.

I'd now like to turn it over to Michel Tremblay.

[Translation]

Mr. Michel Tremblay (Executive Vice-President, Canadian Association of Broadcasters): Thank you, Jill.

I would now like to address the key aspects of our plan of attack as far as radio is concerned.

Radio is barely out of the woods, after a long period of economic difficulties, and 50 % of stations are still not cost-effective. The economic problems of radio broadcasting are not cyclical. They are not linked to recessions. They are due to a structural problem, and restructuring will be necessary before we can address the whole issue of this most fragmented of media industries.

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In its recent decision, moreover, the CRTC recognized the need for action to revitalize the radio sector by allowing multiple ownership across the radio broadcasting market. The document you have before you describes a policy which now allows ownership of a maximum four stations in a eight-station or more market, or a maximum of three in other markets. We feel this is a good start toward helping radio enhance its competitive position with other media that are also dependent on advertising revenue. At the same time, there is also a considerable additional role in reviving the industry's economic situation. Audiences also stand to benefit from the increased diversification of services and formats.

[English]

On the music front, we believe it's fundamental for all players to contribute to strengthening Canadian music to make it more competitive. Radio plays a major role in this respect, and it's a willing supporter of Canadian content and French vocal music at a level that is sustainable and allows radio to remain relevant to its listeners.

Recently, the CRTC moved up the Canadian content level in radio from the current level of 30% to 35% weekly and from 25% to 35% during the daytime from Monday to Friday. These levels far exceed the natural demand for Canadian music, which is in the 20% to 25% range, based on research conducted by the Angus Reid Group.

These changes represent a considerable challenge for the radio industry. Why is that? First, we have to assess this 35% level against a music supply that remains very low. The next slide in your package refers to the fact that, in the past year, of all sales of music in Canada, Canadian records accounted for fewer than 15% of that amount. Of all new releases, Canadian records accounted for less than 13%. These levels have not really moved significantly over time. It went back to 11%, up to 12%, and then to 13%, so there's a constant.... There's no trend moving upward on that front.

What also adds to the degree of difficulty for radio broadcasters is that records from major artists like Céline Dion or Bryan Adams quite often do not qualify as Canadian. It is ironic that when Frank Sinatra sings My Way, it qualifies as Canadian. However, when Céline Dion sings My Heart Will Go On from Titanic, it does not qualify based on the complex MAPL system used by the CRTC to determine whether or not it is Canadian. The list could go on and on by adding even Rod Stewart's recordings and Neil Diamond's recordings, which at times qualify as Canadian. Statistics Canada has already moved to recognize all Canadian artists, but that's not so at the CRTC.

As well, we believe these new policies will be in fact reducing programming flexibility, which is radio's worst enemy when it comes time to meet listeners' demands. Ultimately, our job is to try to keep listeners with stations, but we also have to ensure that we keep them tuned to Canadian stations with appropriate public policies.

[Translation]

As for French-language vocals, private radio is already airing two out of three numbers in French, which is considerable. The recent CRTC decision set a new requirement: all music broadcast between 6:00 a.m. and 6 p.m. Monday to Friday must meet the 55% requirement. Even this represents a considerable challenge for French-language radio, given the low number of French recordings produced in Canada.

As well, a recent Angus Reid poll indicated that the demand for French-language vocal music is well under 65%.

In section 14 of the document, there is more specific reference to the nature of these challenges. It is true that there is a significant drop in the number of French-language recordings, according to ADISQ figures. Between 1991-2 and 1994-5, an annual average of 144 recordings were produced in Canada, whereas there was a considerable drop in 1995-96, to 95, followed by a slight rise in 1996-97.

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In addition to taking the low supply into consideration, we must also look at the advisability of giving these recordings air play according to listener requirements and station formats. If the requirements are enhanced, there are concerns that this will only increase the phenomenon of the drop-off in Francophone listeners, as they turn increasingly to Canadian English-language stations, or to American border stations.

For example, two million hours of listening time have been lost to the English-language stations in the Montreal market alone between 1991 and 1997, and recent BBM surveys show a continuation of that trend.

Finally, radio is very actively involved in forging a future in digital broadcasting. Starting in September 1998, 20 digital stations will be launched in the Toronto market, and it is anticipated that the Montreal and Vancouver markets will make the transition to digital within the year. These are joint projects involving the public broadcaster CBC and private broadcasters working together. It is our estimate that the 10 major Canadian markets will make the transition to digital by the year 2000.

This commitment involves a substantial capital investment, estimated at $ 150 or $ 200 million. As well, radio has already expanded its range and its level of service to listeners by moving onto the Internet.

[English]

In the end, a healthy and competitive radio industry can maximize its contribution to the system, and I'd just like to point out a few elements on this last slide. A strong radio industry can allow us to maintain a vital source of information, continue to help strengthen the music industry, and continue to position Canada as a leader in the new digital world.

Thank you.

The Chairman: Merci beaucoup, monsieur Tremblay.

We're ready for questions now.

Mr. Michel Tremblay: We certainly are.

The Chairman: We'll start with Mr. Abbott.

Mr. Jim Abbott (Kootenay—Columbia, Ref.): Thank you.

Mr. McCabe, I was interested that you were talking about the fact that some of the television networks have works ready on the shelf that could go to production, but they're looking at a requirement of about $ 250 million to $ 300 million. Would that be over and above the $ 200 million that has already been committed under the—

Mr. Michael McCabe: That's our calculation at the moment, Mr. Abbott. Our sense is that just with what's on the shelf ready to go, we're looking at a number like $ 250 million to $ 300 million.

Mr. Jim Abbott: I have no difficulty with the direction the CRTC wants to go in terms of getting more Canadian stories on Canadian television. What I do have difficulty with is the fact that there's already been a commitment of about $ 150 million taxpayer dollars to this. They have already gone into next year's funding to the tune of $ 20 million or $ 25 million, whatever that is, which I assume will also be added to it.

I'm not challenging your numbers, but here's another $ 250 million to $ 300 million. It would seem to me that the Canadian public is probably not aware of the fact that this well-intentioned effort to get more Canadian content on the air is probably going to end up costing $ 500 million, $ 600 million, $ 700 million—that's annually.

Mr. Michael McCabe: It may well be that this is where we finally end up, and there's a good reason for this, I think. It is that a couple of things come together at this point. One of them is that government policy is, as you say, pressing properly to get more Canadian stories on television.

At the same time as more American competition comes into the marketplace, we're trying to find unique programming that we can win audiences with, which means we turn to Canadian programming, and we put pressure on the system that way. The result is that a fund, which I think is well-intentioned, in the order of $ 100 million a year from the government for the next three years at least, and $ 100 million that will flow from cable and other distributors, I think will finally be much too small for the demand. Furthermore, the sense you get is that this is a temporary measure meant to cover a short-term gap.

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I think in practical terms, sitting next to the biggest entertainment generator in the world, if we're going to want to have a continued Canadian presence and a stronger Canadian presence, we're going to have to assume that public moneys are going to have to be a permanent part of a lot of high-cost programming, programming that can't always make its money back in this marketplace. So I think we're going to have to look to its being permanent. As I say, the $ 250 million to $ 300 million suggestion of what's on the shelf now, that need, I think reasonably could rise to $ 600 million and $ 700 million as a financing gap in the system.

Mr. Jim Abbott: It just strikes me that there hasn't been sufficient public debate about this. In other words, it's been a well-intentioned policy of the CRTC and of the government, but there just hasn't been sufficient debate. The people in Canada simply are not aware of these hundreds of millions of dollars that we're talking about. That's a concern to me.

Mr. Michael McCabe: I believe that's true. It's interesting in regard to the cultural community and the attitudes toward something like this, which is both an industrial and a cultural measure, that it seems to be no great problem, except for extraneous reasons, to give hundreds of millions of dollars to Bombardier, for instance, because that creates jobs, it's a good thing, and yet somehow you're throwing away money on frivolous things when you put it into Canadian television. I think to some extent we in the production industry are at fault, because we haven't—and Paul Martin has pointed this out to us—really sufficiently made the industrial case. I think we have to do that. But I also think there has to be some public debate, and this committee is a forum and the CRTC is a forum. Otherwise the case will never get made. That level will not change.

Mr. Jim Abbott: But in radio, with the 35% to 40% rule proposed by the CRTC, it strikes me that there might be somebody at some point who is going to end up also saying, “We need some public money to help with production facilities so we can get out some quality Canadian music, additional quality Canadian music, as well.”

Mr. Michael McCabe: There already is, as you may know, a sound recording development fund in the heritage department, but it's quite small.

Michel, is it $ 6 million?

Mr. Michel Tremblay: Yes, in the order of $ 5 million to $ 10 million.

Mr. Michael McCabe: If indeed the aim is to drive the Canadian content levels in radio higher—and I can understand there would be pressure to do that—money is part of the problem. But I think the real problem in some sense is not money. One of the real problems is the one that is suggested when Michel was talking, that we have to recapture those people—the Bryan Adamses, the Céline Dions and the Terri Clarks and the like—who stopped being Canadian at some point, and allow them to be Canadian again. That would help a great deal, and I think there has to be a partnership built between the music industry and the radio industry that is much more businesslike and less political/emotional, to really think as an industry about how we build product that....

The Chairman: Ms. Bulte.

Ms. Sarmite Bulte (Parkdale—High Park, Lib.): Thank you, Mr. Chairman.

Thank you all for coming today. I think your presentation today is quite timely. We've all had a chance to read the papers this morning in regard to what our minister has said in Banff with respect to the announcement of the multimedia fund today, or yesterday, and also the request of the private broadcasters to get access to the production funds.

I'm certainly a great advocate of the Canada Cable and Television Production Fund, and it's certainly a great example of how programming has been increased to 2,200 hours and 19,600 jobs. I think it's one of the best things this government has done.

In my understanding, one of the concerns of the private broadcasters—certainly the ones I've been approached by—is that they want to stop the requirement that 50% of the fund goes to the CBC. Is that the position your association takes?

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Mr. Michael McCabe: I guess in practical terms we have to recognize, in a sense, the genesis of this fund, in that it came along at the same time as significant cuts to the CBC. One of the very useful and valuable things it does is that it does induce the CBC, because they have a hold on half of that fund, to do more work with independent producers, which I think is a good thing.

Our concern is that we—with access to in fact less than half the fund, because conventional broadcasters see only something like 28% of that fund and the rest goes to specialty and educational and so on—in fact are delivering most of the audience to Canadian programming. So, yes, we will propose that those rules be reviewed, because we think it's important that if we have limited resources we use them to get to the biggest Canadian audiences we possibly can.

Ms. Sarmite Bulte: So how do you see the role of the independent producers, if that comes into fact? Can your members not work in partnership with the independent producers? Why is it necessary that you produce it in-house? And who's going to produce it in-house?

Mr. Michael McCabe: Well, first of all, we will not become, I think, full-dress producers in the same sense that the independent producers are. They've built companies with infrastructure and with distribution arms, and so on. We will continue to buy programming from them. Indeed, in a transition period, I would expect that we would provide some guarantees of that.

Our concern is this, in it's simplest form. If we pay $ 150,000 to $ 200,000 for the licence fee for an hour of Canadian programming from an Alliance or an Atlantis, we then put that on the air, and the best of them—that is, programs like Traders and Due South and so on—bring in something in the order of $ 100,000 or $ 125,000 in advertising. In other words, we lose money on that.

So we're suggesting that if indeed we could be investors in that, and without cutting off government funding, then we would be prepared to invest more money in making those programs better, in making those programs perform on the air.

When the independent producers hand us an hour of programming, they have no further investment in the promotion of that hour of programming. Why? Because they're already made whole. They have received their money from the fund. They've had their money from the tax incentive. They have some other funds out there—the so-called independent production fund and the COGECO fund and others. Then they have money from our licence fee, and their foreign sales commitments.

At that point, when they hand us that hour of programming, they don't care how well it does on our screens. We care deeply how well it does on our screens. So we said, if we can be players, if we can be as they are.... I mean, they are broadcasters in the sense that a number of the public companies already own specialty services, so that if Alliance buys CTV, as they could, Alliance would continue to have access to Telefilm's funds. If CTV buys Alliance, it wouldn't.

Ms. Sarmite Bulte: Mr. McCabe, you will agree with me that not all the independent producers are Atlantis and Alliance. You have the Tapestry Films as well, the mere young luckies of this world who produce Canadian programming such as The Avro Arrow. Would something like The Avro Arrow have happened if we didn't have an independent producer? Would the broadcasters themselves have produced something like that? According to you, they probably would have lost money.

Mr. Michael McCabe: Yes, but what should happen, it seems to me, is we should be providing for production companies like that. We should be providing some guarantees for access to our screens—for them to make product and for us to put on the screen. It's the big players, the ones who are public companies that I'm suggesting can compete with us.

• 1155

Ms. Sarmite Bulte: Just one—

The Chairman: Very briefly.

Ms. Sarmite Bulte: You said no more new Canadian content in regulatory reforms. I believe that's what you said. That's what I wrote down.

My understanding of Canadian content is based on our historical cultural policy, where successive governments have focused on the importance of creation, the artist, and content, and also the infrastructure to allow that to get to the public. When you say no new, are you suggesting that we redefine that cultural policy and redefine what is presently under section 3 of the Broadcasting Act?

Mr. Michael McCabe: Not at all. I want to be very clear. We're suggesting that there be no additional hours required. We're saying if there are limited funds, let's focus on making the hours that are there perform better—that is, get more audiences. We're saying no additional hours, because if we have limited money and it's stretched over more hours, you end up with programming that's less attractive.

Ms. Sarmite Bulte: Thank you very much.

The Chairman: Thank you.

Mr. Godfrey, Mr. Bonwick, and then Mr. Bélanger.

Mr. John Godfrey (Don Valley West, Lib.): I have two sets of questions, one on television and one on radio.

As we look at the future and the impact of technology and demographics, for instance, it seems to me that in television, the whole business model is now in peril. There was a time when a kind of monopoly of distribution, a limited number of players, and the ability of the private sector to take quite a lot of money out of simulcasting American productions was basically what kept the organizations going and what was the source of profit.

The problem I now see is that first, the audiences are maturing in every sense of the word. They're not growing bigger; they can't. They've only so many hours in the day, and they're actually getting older, according to the cultural demographics we've seen. So the audiences can't grow.

The second factor is there's going to be fragmentation, i.e. more players. We've already seen it. Even the so-called beachfront property is not as valuable as it used to be.

Third, the very crucial premise on which your industry is based, which is simulcasting or band substitution—you speak about leaks, but one might predict floods, as the new technologies just bring everything over the borders.

I guess the question I'm going to ask you, and to hold on it until I ask the radio question, is that I'm not surprised you'd like to get into another line of business, which is the content business, because if you stay in this line of business, this line of business won't hunt. I mean, this is a limited line of business.

The second question is about radio. I'm trying to understand the difference. As I look at what happens in private radio, I see the growth of chains. I see the advance of technologies, which means fewer and fewer people in local stations, and the use of pre-taping, bringing in satellite signals, mixing the package somewhere out of the station, and actually minimal people on the ground. So I'm kind of curious about how that technological evolution—which allows you to be more competitive, have fewer overhead costs and so on—is actually going to serve a local audience better, particularly as I go through local listening areas. That's the first question.

The Chairman: I thought it was the second, John.

Mr. John Godfrey: I mean it's the first part of the second set of questions.

I guess the other one has to do with past behaviour. That is, anyone who actually listens in a major city to what's on offer would understand there's a tremendous copycat phenomenon, whether it's easy rock, whether it's new country. When people ask to do something new, they're usually asking to do something old, which may be one of the reasons that the business isn't working so well.

Finally, one also has to be a bit skeptical, based on the whole issue of Cancon and the 25% to 35%. When you actually understand the behaviour patterns of loading up on the American programming during the dry period, and then as soon as that's over putting the Canadian stuff on, no wonder people who observe this, as in today's Globe and Mail, are a bit cynical and skeptical about various declared intentions, and wonder if maybe there isn't a chicken-and-egg argument here. That is, because people are so careful to try to load up during the heavy hours of listening on the American stuff, it's amazing we manage to sell as much Canadian stuff as we actually do.

Just a couple of questions, Mr. Chairman.

• 1200

Mr. Michael McCabe: Mr. Godfrey, let me deal with the television question and ask Duff Roman to touch on the radio ones.

Your analysis that the business model is under serious threat is indeed correct. It's interesting. In the United States, up to five years ago, they had a set of rules called the fin-syn rules, the financing and syndication rules. What they did was essentially what's done in Canada today. Broadly speaking, they said the big networks couldn't own their own programming; they had to acquire it from the Universals and the Capitals. In other words, they had to buy it from producers, the same way we do here.

Five years ago in the United States they changed it, because they began to realize that even those big networks were under threat. In effect, programming had gotten so expensive to make that if they were merely renting it from somebody else, they couldn't make their money back on their own screens, except in the situation of an ER or something that really took off.

In effect that's the case we make here. If we finally end up in a business where it's more and more competitive and we are essentially renting programming that we lose money on—and that is the programming we need to make us distinctive, to give us a product that's different from somebody else's—then we have a real problem.

So our suggestion is this. There is room in the production business and the distribution business for us to compete with the big public companies, to provide some commitments to the smaller companies, and to say that down the road, Canadian television and Canadian audiences are going to be best served and more money will come into the system if we are able to invest our moneys in the programming so that we own them and own the rights for the sale in other countries.

I don't think the current business model will work much longer.

The Chairman: I should advise members that the bells will start to ring at 12.15 p.m. for 15 minutes; the vote will take place at 12.30. So could I ask you to be concise in your questions and the same with your answers, so that everybody gets a chance?

Mr. Roman.

Mr. Duff Roman: Thank you.

You had about three parts to the radio side there, Mr. Godfrey, so I'll try to be as concise as possible.

On the technological impact on radio, I don't want to spend a lot of time defending the efficiencies of what technology makes possible. Even in the smallest markets, at one time radios used to have live orchestras. There used to be a standby organist in every studio. I just don't think we can struggle with the fact that there is a more efficient way to deliver improved programming. In fact whether the music resides on a digital server in a computer or physically in a music department on vinyl doesn't really matter any more.

Ultimately you can apply the same kind of measuring stick to technology used to serve a local audience. For instance, most of our tuning in terms of service to the local community comes in the morning show, and the morning shows continue to operate at a very local level. The rest of the day, radio is used in a different way; it's used as a flow medium. In a sense, whether or not you have the actual announcer in in the afternoon doesn't denigrate the local service, which is produced by the public service department in conjunction with the news department, and it's offered on an ongoing basis.

The essence, to me, of good local programming is to efficiently provide and serve the information needs of the audience. How it gets there or how technically competent the system is I don't think is the main issue here. Ultimately we need stronger stations doing key functions in those areas where surveillance, service to the community, traffic information, and news information are most important, and that is the morning show.

You mentioned the copycat phenomenon. Well, we have a problem there, and that's why group ownership and fewer owners with more stations address that. That phenomenon has been borne out in the U.S. If you own two stations in even the largest market, you have to go where the audience is. You have to go head-on for the baby boomer bubble. But if a company owns four formats, they don't duplicate themselves. What's happened in the U.S. is you get more diversity.

• 1205

As a case in point, what's roughly comparable is the Boston market versus the Toronto market. Boston is the most heavily duopolized market in the U.S. on a per capita basis. On a format-count basis, it has three more formats than Toronto's twelve formats. It's simply a function of being more able to pursue smaller niches and more variety in the formats because your economies of operating under one roof and reducing your technical, financial, maintenance, and administrative costs allow you to be more focused and pursue discrete diversified audiences rather than always going for the big boxcar numbers.

In terms of Canadian content distribution and whether or not music is heard in key listening periods, I really challenge that. The CRTC has had in place the 25% between 6 a.m. and 7 p.m. rule for seven or eight years, and we passed with flying colours. It just doesn't apply any more.

A case in point—

Mr. John Godfrey: Say you're going to work between 6 a.m. and 9 a.m. During the driving—

Mr. Duff Roman: Let me continue on that line. The number one tuning station in Canada is CHFI-FM in Toronto. Its biggest audience is at midday.

It changed dramatically. Yes, traditionally, the morning show is the largest audience. But here's a little quick math demonstration. Fewer records are played in the morning show. So essentially, you're caught with perhaps playing too few Canadian records or way too many.

Say you're playing only six records in the average morning show hour in which you've got news, traffic, information, and lots of personality. If you play two out of six, you're at 33%, which exceeds the 30%. If you play one in six—this is a swing of one record—you're down at an abysmal 17%. We're caught in that constantly.

Also, I'm not sure that the morning show is where the most records are sold. I think people use radio in different ways. Whether or not they're essentially listening to music as much as they're listening to information on the morning show, and what benefit that might bring to the music industry, is still a source of debate.

I think we work very carefully, and I think the report card on our distribution of music in that 6 a.m. to 6 p.m. or 7 p.m. period is essentially pretty good. But I will grant you that the morning show is very difficult for us as radio programmers because of the swing of one record.

The Chairman: Mr. Bonwick, followed by Mr. Bélanger.

Mr. Paul Bonwick (Simcoe—Grey, Lib.): In an effort to keep it quick, I'll just concentrate on radio for now.

Mr. Tremblay, could you provide me with just a quick answer on the percentage of profitable radio stations versus those that are not profitable? I just missed it as I was taking notes.

Mr. Michel Tremblay: We're still looking at the 50% level. We've been over 50% in the last six or seven years, so there has been a constant problem there.

Mr. Paul Bonwick: In regard to radio, I am very supportive. I believe radio, especially local radio, plays an enormous role in not only providing the entertainment, but the flavour and culture locally and nationally. I see it as a cornerstone in a lot of rural communities where access to cable, although it's becoming more and more so with satellites and what not, is not as great as that of the radio. So they have a huge societal role to play.

I've taken some time to discuss this with my local radio station and people who work there. Some of the problems they suggest are inherent in this competition. There's the fact the vast majority of the Canadian population live 200 to 300 kilometres away from its competitors to the south. When you implement 30% to 35% Canadian content, what they're typically having to do in order to compete against the broadcasters or radio stations to the south is play over and over and over again a very select number of quality productions, or their advertisers are simply going south of the border or simply not participating because the listenership is south of the border.

So it's kind of a different role that the CRTC and certainly this committee are dealing with. We realize the importance of local radio to carry forward the rural and local message, as well as the national message, but they can only be there if they're profitable. If we put rules in place that perhaps create a situation in which it's not profitable....

So my question—either you could comment now or submit a letter to the clerk—is, what do you propose the content be in order for us to maintain a good, respectable level of Canadian content but not to the point of jeopardizing the profitability in order to be competitive with the U.S. side? Could I also have some rationale behind that?

• 1210

Mr. Duff Roman: I may get some help from my colleagues on this one. Again, I'll break it into two parts and try to be as concise as I can.

I think the proof of the pudding is in those markets such as that in Windsor, where the CRTC has actually made an exception to its own policy. I think you need no greater demonstration that, in Windsor, they allow a reduced Canadian content level. Because in that area, in that sense, the emperor has no clothes. You have no protection from the Detroit signals, and the only way to keep your head above water as a Canadian broadcaster in those border markets is by having every tool and every flexible kind of rule to compete head-on with Detroit.

Sometimes there's a lot of great Canadian product and other times there isn't. The problem is that there are swings in the supply. As a result, the commission has actually reduced the requirement from 30% to 20% in Windsor.

As for the other issue about what we might do to sort of build supply, I believe this in all good faith and goodwill. At the review, we did present a proposal with which we would work with the music industry. We felt that the 30% had reached a kind of equilibrium that was more favoured toward the music industry, in a sense, in terms of providing them with a guaranteed showcase for their product, whether it was 10% of the total available, or 12%, or as it is now, 14.5%. That 30% really, in my opinion, worked well.

What we don't have is a way of driving up not just the quantity of Canadian records but the quality of Canadian records to reach levels that are not based on either retail sales or listener preference. So we're well over what listeners suggest is a reasonable level through their retail purchases, and this is well above what our studies show is their preferred listening level, which is about 20% to 25%. That 30%, I think, has been a very useful and effective level for us.

Mr. Michael McCabe: I'll add one quick comment. It'll take me one sentence.

We could live with the 35% if we were able to get changes in the MAPL system so that artists only, in effect, could qualify. In other words, once more, Céline Dion, Terri Clark, and so on, could be Canadian. We could live with it.

The Chairman: Mr. Bonwick, if there's time, we'll come back to you. Just give a chance to Mr. Bélanger.

[Translation]

Mr.Mauril Bélanger (Ottawa-Vanier, Lib.): Thank you, Mr. Chairman.

[English]

I've a number of questions that I'll ask rapidly. I want to indicate that I have some sympathy with this difficulty of defining Canadian content, Canadian artists, if you will. If there were documents that your association would care to share or reflections on this, that would be appreciated.

I think there's probably room to manoeuvre there without upsetting any apple carts.

[Translation]

Now, moving to radio, I should point out in passing that the French on the agenda lists the Canadian Association of Broadcasters as the Association canadienne de télévision par câble, which is the French title of the Canadian Cable Television Association. That needs to be corrected, perhaps.

Mr. Tremblay, I will ask you a couple of quick questions. You say that the decision to allow a company to own four radio stations is a good start, your words. What do you see as the end point?

Mr. Michel Tremblay: Initially we had proposed to the CRTC a model for industry restructuring which allowed a bit more leeway. There was even talk of up to five stations in the major markets, in order to lessen the economic problem. A model had been suggested that would eventually allow ownership of a maximum of four stations in all markets. The CRTC decision was, therefore, an adjustment downward from what we were hoping for, which we had based on a somewhat detailed study of all Canadian markets.

Mr. Mauril Bélanger: If you say that four stations is a good start, what do you see as an end point? Five?

Mr. Michel Tremblay: We would like to see more flexibility for the stations.

Mr. Mauril Bélanger: You would like to see one company able to own all stations in one municipality?

Mr. Michel Tremblay: No, we are not talking about all stations.

Mr. Mauril Bélanger: No?

Mr. Michel Tremblay: We had proposed a model that, in the very large markets, such as Montreal, Toronto and Vancouver, would have allowed ownership of five stations, and a maximum of four in all other markets.

Mr. Mauril Bélanger: When it comes down to it, you came close to getting what you wanted. It is more than just a start.

Mr. Michel Tremblay: More or less, yes.

Mr. Mauril Bélanger: Can we agree that it is more than just a start?

Mr. Michel Tremblay: Actually, it is a good start.

Mr. Mauril Bélanger: You want to have it all.

• 1215

You say there has been a considerable drop-off in Francophone listeners in the Montreal and Hull-Ottawa markets, 2 million listening hours. That represents 2 million out of how many? Two million by itself means nothing to me. How many hours in total?

Mr. Michel Tremblay: I do not have the figure right here for Montreal, but I can tell you it is substantial. You have to make a conversion. The hours are converted into rating points. Rating points are what stations use to set their advertising rates. When you are talking about 2 million listening hours, a 10% change is substantial, and has an impact on the station coverage and advertising revenues. I will give you the figure in detail that you are asking for.

Mr. Mauril Bélanger: It is easy to refer to such figures, but if they are not put into perspective, they mean nothing. You are just trying to impress us.

Mr. Michel Tremblay: The key point, putting aside the question of the relationship between this figure and the total number of hours, is that year after year there is a problem of listener drop-off in favour of the English-language stations in the Ottawa and Montreal markets. A loss of two million hours hurts.

Mr. Mauril Bélanger: Mr. Tremblay, I accept that, but if you want to give figures, give them all to us and tell us where they come from and how they were obtained.

Mr. Michel Tremblay: They are BBM figures.

The Chairman: Pardon me for the interruption, but are you going to send us this, Mr. Tremblay?

Mr. Michel Tremblay: Yes indeed.

The Chairman: Thank you.

Mr. Mauril Bélanger: You say 50% of stations are not cost-effective.

[English]

You said 50% of them are not, yet you don't tell us how many of the groups that own radio stations are losing or not losing money. You're pushing for a greater concentration of ownership. You've obtained most of what you're looking for, although you think it's a good start and you're quite close to what you wanted. So how many groups of owners are or are not making money in the radio business?

[Translation]

Mr. Michel Tremblay: I cannot give you a specific response, but I can tell you that the association, as a general rule, gauges the health of the industry using official Statistics Canada figures. In the last seven or eight years, 50% of stations have not been profitable. On the other hand, in the case of public broadcasters...

[English]

Mr. Mauril Bélanger: With all due respect, your association is insisting that for economic reasons, which are valid and are accepted in great part by the CRTC, this same owner be allowed to own more than one station. That's one of the prime motivations of that argument, is it not?

Mr. Michael McCabe: Yes.

Mr. Mauril Bélanger: I would hope you'd then give us the economic benefits as well. When you say only 50% of radio stations, I don't particularly buy into that argument, because it doesn't give me your economic argument. Give me numbers that flow from your own economic argument and I'll be more receptive.

Mr. Michael McCabe: I think, however, you have to recognize that if you take the Stats Canada numbers as well as the 50% number, there is the fact that the industry has spent seven out of the past ten years in a loss position. Only in the past two years have we come over the profit line.

Mr. Mauril Bélanger: That's per radio station. Correct?

Mr. Michael McCabe: Yes, it's based on all the revenues and all the expenses of the business.

So I'm suggesting to you that when we see losses over seven years and then a profit before taxes of 2%, there can't be very many companies making very much money at this business. If half of them are losing money and the rest are making that little profit—

Mr. Mauril Bélanger: Fine. I have a final question then, Mr. Chairman, if I may.

If that is so and it's the same for television, I don't understand why the quest for the right to broadcast is incessant and increasing in value. The two just don't jibe. Someone will have to explain that.

Mr. Michael McCabe: I think the answer is twofold. For some time it has been the view that it would be possible to persuade the CRTC that more concentration of ownership that would give economies of scale was possible, and when we are able to make the move to digital the economies improve.

• 1220

Indeed, it depends where you're looking. If you're in one of these small and medium-sized markets, there isn't anybody looking to open a new station or buy a station. They can't sell some of those stations. Get into a large market. If I can get into the Toronto market, every point of listenership I get is a million dollars. So yes, sure, other people want to get into that market and take their chances.

I think you have to be clear when you're saying there's pressure and people really want to get into the business. It's only in those big markets that they really want to get into the business.

Mr. Mauril Bélanger: Thank you.

The Chairman: Mr. Bonwick, do you want to follow up with your questions?

Mr. Paul Bonwick: Yes, just in brief. I think it's important that we maintain that level of service in rural areas especially, because sometimes their choice or selection is somewhat limited compared to some of the larger urban centres.

I wonder if I might draw a very quick analogy, and that is if you had a major newspaper, a national newspaper—Thomson, or anybody—and nationally they're profitable but they have individual newspapers in rural areas that are not profitable, what do they do? They effectively close if they're not profitable. Obviously they're not going to have large urban centres subsidizing rural areas; thereby, they close them in most cases. Certainly that's been my experience in rural areas.

I wanted to put a quick question to you, and you might have to come back to us with this. Do you have access to information about the number of U.S. versus Canadian radio stations that are accessible to the majority of Canadians? If you take that belt along the U.S. border and say there are—and I'm making up numbers—300 Canadian stations that the average Canadian has access to and and there are 3,000 U.S. stations—or is it the other way around?—whatever the number is.... I think we should know that information in order to access the competitiveness of our Canadian industry.

Mr. Michael McCabe: We can provide those numbers. We will do it across the country and on a market by market basis, showing you what sorts of shares the U.S. stations get in those markets versus the Canadian.

Mr. Paul Bonwick: On my comment on the rural-urban, I'd be interested, if you had time—

Mr. Michael McCabe: On the rural-urban, it's interesting. We saw in the province of Quebec a couple of years ago that six stations were closed because they just became impossible to maintain. In a big company, and it doesn't matter how well the company is doing, each of the units is expected to make its contribution. You don't say, oh well, we've got ten radio stations, we'll let five of them make money and five of them lose money on an ongoing basis.

How do you do that? Well, you cut service. I think in rural and smaller stations, and in some of the smaller markets, we have cut service too much. It has started to damage our local base.

What I think should happen from this consolidation the CRTC is allowing is that the larger companies will begin to see that they can in fact reinvest in some of those smaller stations. They've now got the ability to consolidate their accounting and their sales, etc.

The Chairman: Because of the vote, I think we should close the meeting now, but not before I thank you very much, Mr. McCabe, Mr. Roman, Ms. Birch, and Mr. Tremblay for your appearance here today. We really appreciate it. Thank you very much for coming on short notice.

The meeting is adjourned.