HELD AT: TENUE À:

Conference Centre Centre de Conférences

Outaouais Room Salle Outaouais

Hull, Quebec Hull (Québec)

August 31, 2000 le 31 août 2000

Transcripts

In order to meet the requirements of the Official Languages

Act, transcripts of proceedings before the Commission will be

bilingual as to their covers, the listing of the CRTC members

and staff attending the public hearings, and the Table of

Contents.

However, the aforementioned publication is the recorded

verbatim transcript and, as such, is taped and transcribed in

either of the official languages, depending on the language

spoken by the participant at the public hearing.

Transcription

Afin de rencontrer les exigences de la Loi sur les langues

officielles, les procès-verbaux pour le Conseil seront

bilingues en ce qui a trait à la page couverture, la liste des

membres et du personnel du CRTC participant à l'audience

publique ainsi que la table des matières.

Toutefois, la publication susmentionnée est un compte rendu

textuel des délibérations et, en tant que tel, est enregistrée

et transcrite dans l'une ou l'autre des deux langues

officielles, compte tenu de la langue utilisée par le

participant à l'audience publique.

Applications for Licences to operate New Pay and Specialty

Services for Digital Distribution / Demandes de licences

visant la distribution numérique de nouveaux services de

télévision spécialisée et payante

BEFORE / DEVANT:

Françoise Bertrand Chairperson of the

Commission / Présidente

du Conseil

Andrée Wylie Chairperson / Présidente

Jean-Marc Demers Commissioner / Conseiller

Ronald Williams Commissioner / Conseiller

Martha Wilson Commissioner / Conseillère

ALSO PRESENT / AUSSI PRÉSENTS:

Peter Cussons Hearing Manager and

Secretary / Gérant de

l'audience et secrétaire

Alastair Stewart Legal Counsel /

conseiller juridique

Peter McCallum Legal Counsel /

conseiller juridique

HELD AT: TENUE À:

Conference Centre Centre de Conférences

Outaouais Room Salle Outaouais

Hull, Quebec Hull (Québec)

August 31, 2000 le 31 août 2000

PAGE

PHASE III

THE NATIONAL BROADCAST READING SERVICE INC. 4311

CANADIAN INDEPENDENT RECORD PRODUCTION

ASSOCIATION (CIRPA) 4337

CANADIAN INDEPENDENT FILM CAUCUS 4358

DIRECTORS GUILD OF CANADA 4383

ALBERTA MOTION PICTURE INDUSTRIES ASSOCIATION 4428

TELETOON CANADA INC. 4441

THE FAMILY CHANNEL INC. 4454

BELL EXPRESSVU LIMITED PARTNERSHIP 4472

Hull, Québec / Hull (Québec)

--- Upon resuming on Thursday, August 31, 2000

at 0830 / L'audience reprend le jeudi

31 août 2000 à 0830

29316 THE CHAIRPERSON: Good morning, everyone.

29317 Before we proceed, I would like to give an update on where we are on the agenda.

29318 We will hear today those intervenors who have been scheduled to be heard, and the same tomorrow, which would allow us, we hope, to have a half day of hearings tomorrow.

29319 On Tuesday we have also a list of interventions, and probably we will begin Phase IV of the hearing, which may allow us then to start the hearing of the Pay-per-View and Video-on-Demand on Wednesday, rather than Thursday.

29320 So keep abreast of how we are proceeding as possibly the schedule will be changed to this extent.

29321 Bonjour à tous. Alors je veux vous rappeler qu'aujourd'hui nous allons entendre tous les intervenants qui sont à l'agenda ainsi que demain ce qui devrait nous permettre de terminer demain vers midi, une heure pour jouir du long week-end.

29322 Mardi nous entendrons les requérants qui sont déjà à l'agenda, et possiblement nous commencerons la Phase IV, ce qui nous permettrait peut-être de commencer l'audition de la télévision payant et sur demande mercredi au lieu de jeudi.

29323 Alors on vous demande de rester à l'écoute pour vous assurer que vous suivez le déroulement.

29324 Nous vous remercions.

29325 I would like to introduce ourselves to you before you start.

29326 Perhaps, Mr. Secretary, we will call you first, for the record.

29327 MR. CUSSONS: Thank you, Madam Chair.

29328 Before I do that, I have a couple of brief announcements to make.

29329 First of all, we have been advised that four intervenors that had hoped to appear at our hearing will no longer be able to do so. I thought perhaps, for the record, I would just read their names into the record, although of course we still have their written interventions and they will stand on our file.

29330 The four are: l'Association québécoise de l'industrie du disque, du spectacle et de la vidéo; Sportscope Television Network Limited; Saleem Ahmed; and Illusions Entertainment.

29331 I have also been advised that the second intervenor on our list this morning, Canadian Independent Record Production Association, Mr. Chater, may be delayed. So we may hear that intervenor later in the morning.

29332 That means that after our first intervenor I may be calling the Canadian Independent Film Caucus.

29333 I just wanted to make that clear.

29334 Now I am pleased to introduce our first intervenor today, the National Broadcast Reading Service Incorporated.

29335 THE CHAIRPERSON: Good morning. I will introduce ourselves to you.

29336 I am Andrée Wylie. I am chairing this hearing. To my immediate right is the Chair of the Commission, Madame Bertrand.

29337 CHAIRPERSON OF THE COMMISSION: Good morning.

29338 THE CHAIRPERSON: To her right is Commissioner Jean-Marc Demers. To my immediate left is Commissioner Ron Williams; and to his left is Commissioner Martha Wilson.

29339 COMMISSIONER WILSON: Good morning.

29340 THE CHAIRPERSON: Welcome to the hearing.

INTERVENTION / INTERVENTION

29341 MR. TRIMBEE: Thank you. Good morning, Madam Chair and Commissioners. My name is Bob Trimbee. I am the Executive Director of The National Broadcast Reading Service.

29342 On my right is Geoff Eden, an NBRS Director; and on my left is John Stubbs, NBRS's Director of Operations.

29343 You have our sincere thanks for giving us this time to appear to discuss the importance of described video programming and why new licensees -- be they conventional or specialty, analog or digital -- must make some specific commitments to broadcasting described programming.

29344 Commissioners, we are here today as a matter of principle. We know that DVS has a place in the Canadian broadcasting system, and we are here in support of that principle.

29345 Before we go any further, we feel it would be useful to demonstrate what described programming looks and sounds like. We would like to play for you a segment of an episode of "Due South" which aired last December on Showcase.

--- Video presentation / Présentation vidéo

29346 MR. EDEN: You have just seen 90 seconds of television that without a description it would have been impossible to follow the action of the story. And the description obviously for somebody in my situation gives me the story line and makes it acceptable and enjoyable.

29347 MR. STUBBS: Commissioners, we have been following these proceedings, and we are pleased to hear you ask each applicant whether their facilities will be ready to carry DVS programming. Most applicants said their facilities will be ready.

29348 That is terrific. That is an important first step towards getting described programming on to these new channels. There will be no need to retrofit or to upgrade the facilities at these new specialty services.

29349 That said, each of the applicants raised the issue of the cost of obtaining described programming.

29350 Bringing down the cost of producing described programming is something we are actively working on. But it is important to understand why the cost remains high.

29351 Up until now, each described program has been a one off. In essence, each program has been a new prototype. Each time we have had to hire the staff and gear up for the production. This way of producing programming is expensive.

29352 We have known all along that the high cost of production would only change when we could begin producing described programming in volume. Production in volume will allow us to hire staff on a fulltime basis and establish the infrastructure which will allow cost efficiencies to come into the equation.

29353 Madam Chair, we are pleased today to report to you on two recent developments which have us renewed optimism that we will be able to develop that infrastructure in the not too distant future.

29354 On July 21st of this year the FCC issued new rules that require private broadcasters in the top 25 U.S. markets to broadcast four hours a week of described programs by April 2002. The same applies to the top five specialty services on cable and satellite delivery systems with more than 50,000 subscribers.

29355 We have filed today with the Hearing Secretary a copy of that decision.

29356 At a minimum, this means the four networks and the top five specialty services will broadcast 208 hours of described programs each year. That adds up to almost 2,000 hours a year of described programs. Compare that to today when not one hour of described programming is aired by these broadcasters. Currently, PBS is the only American broadcaster which regularly produces and airs described programming.

29357 This move by the FCC brings the United States into line with Great Britain where 10 per cent of the broadcast schedule has to be described by 2006.

29358 Clearly DVS has come of age! The rest of the English-speaking world has moved way beyond NBRS trying to make the case that there is a need and that there is a way to fill that need. Based on the actions of FCC and British regulators, the demand for described programs will explode over the next two years.

29359 We at NBRS hope to be in a position to produce programming for these foreign broadcasters. But regardless of whether the programming is produced by NBRS or someone else, clearly the demand for described programming will rise dramatically over the next few years. And it is reasonable to expect that the supply of described programming will also rise.

29360 A second recent development is the proposal by BCE included in its benefits package associated with its proposed acquisition of CTV. BCE proposes to donate $2 million to NBRS to underwrite the production of described programming.

29361 This single grand gesture by BCE would allow NBRS to hire the staff and put into place the infrastructure needed to produce Canadian described programming in volume. This, in turn, should allow us to significantly reduce the hourly cost of described programming.

29362 We are not here to argue the merits of the BCE proposal. BCE can do that themselves at the appropriate time and place. But we do feel it is important for the Commission to get a full picture of all the factors affecting demand and supply as it deliberates on what to expect from these new digital licensees.

29363 We can also tell you that we are actively working on how to use digital technology to bring down the time it takes to produce described programming. We are working with developers to create new software which will dramatically improve efficiencies.

29364 The developments in technology, when coupled with the infrastructure and the growing market for described programming, all point to one thing. There will be a growing supply of described programming and inevitably the cost of producing it will come down.

29365 How much will costs drop?

29366 We can't give you an exact figure. At the TV Policy Review hearing we told you the price could come down to $3,000 an hour. Our target now is to reduce the hourly cost to between $1,500 and $2,000. We know that it has to be done if description is going to be economically feasible for the Canadian broadcast industry.

29367 We believe all these supply side developments, coupled with the fact that the new digital plants will be ready to broadcast described programs means that it's time for the Commission to take the next logical step.

29368 Geoff.

29369 MR. EDEN: The Commission has encouraged in the past managing violence in video and domestic programming being brought up to a reasonable level and has also encouraged closed captioning. The next step is obviously to have described video and I think that clearly without this encouragement and getting it started in the marketplace that blind people will never have an opportunity to enjoy the Canadian media scene equally in any fashion at all.

29370 MR. TRIMBEE: Commissioners, we urge you to require these new licensees to broadcast minimum levels of described programs. We have suggested an hour a month in the first year, rising an additional hour each year thereafter. Given what has happened in the United States and Britain, we believe our proposal is both reasonable and realistic. Our proposal means that seven hours a month of described programming by the end of the first seven-year licence term. That's half of what the FCC will require in two years.

29371 We would be pleased to answer any questions you may have.

29372 Thank you.

29373 THE CHAIRPERSON: Thank you very much, Mr. Trimbee and Mr. Eden. It's nice to see you.

29374 Commissioner Williams, to my left, has some questions for you.

29375 COMMISSIONER WILLIAMS: Good morning.

29376 You mentioned in your opening remarks how encouraged you were that many of the applicants said they would be equipped to allow the broadcast of DBS programming. In fact, all of the applicants have said they will be so equipped. So there is a movement.

29377 Do you believe that the condition of licences you have recommended should be applied across the board or should such condition of licences differ depending upon the genre and language of the programming?

29378 MR. TRIMBEE: Clearly there are, as we have said at previous hearings and I will repeat today, there are many types of television programming that are not suitable for description. They can stand on their own. Even within certain genres that can be improved with description such as a children's programming, there are some programs, as I mentioned at one hearing, Hammy the Hamster, for example, there is so much going on and so much description automatically in the program itself that description would just get in the way and wouldn't improve the enjoyment of that program by a person who could not see the screen or could not see it well.

29379 What we have said is that -- and looking at the normal broadcast day -- a broadcaster probably is looking at a maximum of two hours a day of programming that might be suitable for description. That's why we came up with our written proposal, which we repeated today, that we were asking for two hours a week of programming.

29380 COMMISSIONER WILLIAMS: Thank you.

29381 Can you tell me a bit more about the technological advances and the changes in software, the creation of new software, that you talked about in your opening remarks that will dramatically lower the cost of describing which a while back was $5,000 per hour and now you are suggesting perhaps even as low as $1,500 or $2,000.

29382 MR. STUBBS: With the advances and computers, turning the computer into a digital VCR, allowing to work in one space rather than using VCRs, televisions, computers as well. When we first started, it was like working on a blank canvas with a paint brush and very carefully painting in the squares and creating the picture, and we are using pencils and pieces of paper.

29383 Now, we are developing the software to accurately define the areas that need the description to call into play grammar checkers, thesaurus, dictionaries, visual dictionaries, a lot more resources to call upon that are readily at hand that are much faster to access. That all leads to a speedier development of the production and describing it.

29384 It's still time consuming because you are verbally expressing what is happening on the screen, and to do that so that the plot can be understood and the context of what is happening can be understood. It still takes a while, but we have moved quite a bit ahead in the development of putting all of this into one box so that it is easier to access.

29385 COMMISSIONER WILLIAMS: Thank you.

29386 I understand it would vary from a type of programming to another type of programming, but typically how much time does it take to describe one hour of programming?

29387 MR. STUBBS: It's about 20 hours.

29388 COMMISSIONER WILLIAMS: Twenty hours to produce one?

29389 MR. STUBBS: Yes.

29390 COMMISSIONER WILLIAMS: How many suppliers of described programming are there who produce English-language audio descriptions?

29391 MR. STUBBS: Right now there are three that are known, WGBH in Boston, there is NTN, which is the Narrative Television Network cable specialty channel in the States, and ourselves.

29392 COMMISSIONER WILLIAMS: Are there any that do French-language description?

29393 MR. STUBBS: We have done French-language description. We did the Louis Braille story for the CNIB, we did it in both French and English. We are working on a couple of other projects where we are given films by the National Film Board that have two versions of the same film, so we are working on doing those and we have done some instructional videos. So we have the resources to do it in French as well as English.

29394 COMMISSIONER WILLIAMS: Some broadcasters suggest that DVSs is cost prohibitive versus the small number of subscribers that would benefit. I guess through the process, Fairchild is one that has brought forward that concern.

29395 Could you please comment on that?

29396 MR. STUBBS: There are approximately in the range of 2 million Canadians that would benefit directly from this. To breakdown them down into different genres and language groups, and so forth, is difficult. That I don't have, but it is approximately 10 per cent of the Canadian population that is affected by this which is a considerable group of people. There are types of programming that definitely, as Bob said, are exempted because of its content, that you don't really need the description to enjoy the program, but movies and documentaries, programming, docudramas, children's programming, all tend to lend themselves to description. So to pick one particular broadcaster group and say, "No, we don't need to describe for blind people", it would be hard to prove one way or the other how many people are benefitting from that.

29397 MR. TRIMBEE: If I could just add just to comment to that. One of the things that will help keep the cost in mind as well is once the program is described, it can be used over and over again. So it doesn't mean that everyone must describe that program by themselves.

29398 So if you have a network, for example, the cost of describing that program if it went to all the network affiliates, if you took a look at it that way, the economics would certainly come well into play and the comments that John made earlier about the fact that we are pushing to lower that cost of a single order is the fact that we know that there will be smaller broadcasters or smaller groups.

29399 If there is going to be a business, if description is going to come into play, it has to be developed on a business-like basis, and it won't be just us doing it and for that to happen there has to be a volume and once the volume is there, cost can come down. We believe in the longer term, that independent producers will take this activity in their own shop. They won't be having to farm it out to an organization like ours or to others.

29400 The other thing that is happening that will assist in this whole area is the fact that we are training a number of describers and they will set up independent businesses. They are not full-time employees of ours. They are contractors and, therefore, their activities will be used by a whole number of organizations and, as I said, as the volume gets up, other people will come in, their thoughts, their ideas, how to improve technology will all come into play and just as captioning started, it was very awkward and sort of hiccuped its way along for a while.

29401 Once the volume was there, once it was a requirement, people found a way to do it, and found a way to do it economically.

29402 MR. EDEN: One thing that has become very obvious to me in my career -- I write policy for the planning department for the City of Toronto -- is that we often don't know how deep a group is, how many people there are, how many users there are and I think one of the phenomena that has been obvious with captioning is there is a number of people that we had no idea and no anticipation whatsoever that they would find captioning extremely useful, and I work among people with disabilities all the time and all kinds of professionals in the business who talk about how useful close captioning is for an audience for which nobody could have had any predicting that there would be any benefit.

29403 I think that one must bear that in mind, that the audience might be an awful lot deeper and more widespread than we can see at the moment.

29404 COMMISSIONER WILLIAMS: Thank you. Have you received any commitments from any of the applicants to date?

29405 MR. TRIMBEE: We are working with Alliance Atlantis on a project that's going over three years. As John mentioned, and it's premature for us to comment because it hasn't been decided, ECE is certainly going to make a pretty strong commitment to our particular activities.

29406 We know that a number of broadcasters are potential licensees and broadcasters have commented to us to ask where we are with our activities and has anything changed to bring the economics into line. We will be talking to them again as we move forward.

29407 It's hard for anybody to say that they have asked on an ongoing basis, but we have described, for example, CBC now three mini-series. We have done maybe about ten other hours for broadcasters. These are all sort of giving them an opportunity to get experience in using it and to test out their own market.

29408 Showcase, when they carried Due South and Open Format, wanted to get the reaction of those people who are vision dependent as well as those with diminished vision. The response was decidedly in favour of the program. You know, from that I think, everybody is sort of getting their feet wet. They know what's coming down the line.

29409 The FCC activities certainly will be pushing that down in the States and some of that programming will be coming into Canada. Again, everybody wants to know what it's going to mean and how they can handle it themselves.

29410 It's that from now we will see more from broadcasters in terms of asking us to do something on an ongoing basis.

29411 MR. STUBBS: We had one call from the group that you are hearing about right now, asking the question about described programming, and that was The Justice Channel, out of the group that's before you right now.

29412 MR. TRIMBEE: I just want to make sure. We had the one call. There were a number of others, I guess there were about six, who have asked us for information on this programming. Not surprisingly, we have had calls from people in the United States who know that we are in this business and asked us for background and description and how we are going to do it.

29413 Without being boastful, I do feel that -- since our program is designed, our description activity is designed for a mixed audience, people who can see and people who cannot see the screen well, we think our product is probably the best there is on the market today. It means, for example -- we know that a number of people will do it on open description and we don't want it to be an intrusion or something that bothers somebody who can see the screen.

29414 By taking that approach, we have been much more finite in our programming, the technology. The genre is spearheading to improve our activity. I think that is what has brought people to us. We think that our technology will be picked up by other people. That's another advantage.

29415 Interestingly, Canadian technology and Canadian culture now have a better chance to be exported. We have already got orders from the United States for our product, from Britain and from Australia.

29416 COMMISSIONER WILLIAMS: This will be my last question. Pulling together this product from other parts of the world and then Canada, do you think at some point in the future a specialty channel dedicated solely to described video programming could be possible? Would there be enough content developed?

29417 MR. EDEN: It's an intriguing idea. Thinking through quickly, there's a resistance in the disability community to what could be deemed ghettoization. It does possibly step it out of the mainstream which, of course, is the objective of the whole exercise, to keep people in tune so they can watch mainstream television.

29418 However, I think that your suggestion has merit. Perhaps once the inventory of described product grows, as does seem to be the trend, there seems to be all kinds of marketers out there having stuff from the past.

29419 I'm quite a fan of the History Channel. Of course, there's a good deal of repeat material there, material that's fairly old. I think maybe not this year, but in a few years there might be a really useful place for a described video channel.

29420 MR. STUBBS: If I may, the perfect genre for description, and it always lends itself to description, are movies. We have described over a hundred and twenty of them. We distribute them mostly in the public domain.

29421 You could definitely have a movie channel, and no problems, that is dedicated to only described movies. That is very possible. It doesn't ghettoize anything. It is a perfectly acceptable thing you could run.

29422 COMMISSIONER WILLIAMS: Twenty-four hours a day instead of 10 per cent of the time.

29423 MR. STUBBS: Absolutely.

29424 COMMISSIONER WILLIAMS: Thank you very much. Oh, I'm sorry.

29425 MR. TRIMBEE: If I could add one final comment on that. We have certainly thought about the idea when you made your call, but we had other problems on our desk that we were looking at, so we passed it.

29426 In our own mind we thought that it was something that could be sustained, but I think that point is well taken. We thought the better wisdom was for us to worry about our other problems, resolve that and work with other licensees. What we don't want to do in making media more accessible is to be seen as a competitor. We really want to make the media more accessible. That's the thrust of what we are doing.

29427 COMMISSIONER WILLIAMS: Thank you very much, Mr. Trimbee and Mr. Eden and Mr. Stubbs. It has been a good presentation.

29428 THE CHAIRPERSON: Commissioner Wilson has a question for you. The Commissioner has already established a relationship with your dog.

29429 COMMISSIONER WILSON: That's right.

29430 THE CHAIRPERSON: Commissioner Wilson.

29431 COMMISSIONER WILSON: That's not why I came over to say hello to the dog before the presentation started. I have a particular fondness for them.

29432 I wanted to ask you two or three questions. What is the percentage of blind or vision impaired people, the percentage of population in Canada that is blind or visually impaired?

29433 MR. TRIMBEE: We have estimated, and statistics really have to be based on an extrapolation of figures that were produced in 1991.

29434 COMMISSIONER WILSON: Yes.

29435 MR. TRIMBEE: We are looking at blind and low vision. Blind, 660,000; low vision, about the same number. The other million and a half that we -- demographic that we worry about are print restricted people. That's how we reach our three million total of the population that we are serving.

29436 Of that number, about half fall in the blind and low vision category.

29437 COMMISSIONER WILSON: I'm sure you mentioned those numbers earlier. I was sort of madly making notes about things. I had heard that there was some -- and maybe it was from you during the TV policy hearing or material that you may have sent to me that the prediction is that the percentage of either blind or low vision, but particularly low vision, is going to increase as the boomers age.

29438 MR. EDEN: I'm going to take that on as an answer. The issue is that as we all age and we are living longer, the opportunity for things to go wrong increases. Clearly the demographic is predictable, the range of disability, particularly in vision.

29439 Diabetes, as we know, is on the increase. That's the major cause of sight loss. Right in there is such things as glaucoma. These are all systemic things that evolve and become more serious problems as we age. Clearly the population is going to climb.

29440 I would like to point out always again the point I made earlier. There are a lot of unknowns here in that kind of growing audience. There's a lot of unacknowledged blindness in the community where people have just never reported it. With fairly limited vision, you can cope.

29441 In the day when the world was not so technological, people could cope rather well with rather poor vision. Obviously, you know, glasses weren't a regular part of life 150 years ago and people did just fine. There are only the fine tasks of modern living that are more challenging, such as driving, that require good eyesight.

29442 There's that population that one has to postulate that is out there. I clearly think I can endorse that postulation.

29443 MR. TRIMBEE: At that hearing that you mentioned earlier, we noted the material from the U.S. where they did some research, the American Council -- the Federation of the Blind, I'm sorry. Their figure was that every second someone in North America loses their sight permanently. That's a huge number.

29444 COMMISSIONER WILSON: Yes, that would be a very large number.

29445 MR. TRIMBEE: I'm sorry, that was every seven minutes. I'm sorry.

29446 COMMISSIONER WILSON: Every seven minutes. Mr. Eden, you made the comment about the resistance in the disability community to be ghettoized in terms of a channel, a completely described channel. Is there not a channel -- besides PBS, is there not a channel in the U.S. that is predominantly described video?

29447 MR. EDEN: No. PBS are the ones that carry it, unless there's a channel in one of the smaller markets that I am unaware of.

29448 I live in Niagara, so I get an opportunity to watch some U.S. TV that comes over -- not just via the usual pathways -- and I have not seen anything like that. But I may not be fully informed.

29449 MR. TRIMBEE: If I could just add to that, there is a specialty network, The Narrative Television Network, and they carry four hours of described programming, mainly public domain movies, all on open description, unlike PBS, which has produced roughly about 1,600 or 1,700 hours of described programming, and they carry it all on closed format on the SAP channel.

29450 COMMISSIONER WILSON: And The Narrative Television Network, the four hours, is that per day?

29451 MR. TRIMBEE: That's today, yes.

29452 COMMISSIONER WILSON: Per day, sorry.

29453 MR. TRIMBEE: Yes.

29454 COMMISSIONER WILSON: Four hours per day?

29455 MR. TRIMBEE: Per day.

29456 COMMISSIONER WILSON: Finally -- and I guess I would like to direct this question to Mr. Eden. I think that I understand this, but the argument has been made that television is a visual medium. So what is the importance to you of having described video?

29457 MR. EDEN: In the written submission, I mean, I stopped and thought about this for a while, and I have been noticing over the past couple of years that I spend less time with my family watching television because it is not interesting. It is really just a lot of boom and crash, some dialogue. There is a tendency to fill every quiet space any more with low-cost synthesized music, and I think that just because it is low cost and it is easy to get we get more sound effects and synthetic racket, candidly, in all sorts of productions. So I have watched much less prime time television.

29458 One can only turn to one's partner or one's son or daughter and ask what is going on occasionally, or you are going to wear them out. Pretty soon they become impatient trying to be describers for you.

29459 I personally would like to watch more prime time television. There are a number of adventure series and other things that are happening in prime time that I don't join in the discussion at work.

29460 Candidly --

29461 COMMISSIONER WILSON: You feel isolated --

29462 MR. EDEN: Very deprived when everybody is talking about the show last night: Did you notice that so-and-so did this or did that? And I am a bystander. That really puts quite a dent in what I perceive to be my quality of working life. Because those in-the-hallway conversations are such a major part of the way you build all of your networks.

29463 COMMISSIONER WILSON: So would it be fair to say that, for you, it is as much about integrating into society, into mainstream society, as it is about actually watching a program?

29464 MR. EDEN: Thank you for framing it that way. Yes, I think that is really a part of it.

29465 Visual media -- I think that any visual media can be turned into other kinds of media. Pictures are, after all, a thousand words. We read books and enjoy them. From the pages of books, pictures are painted in our minds, and so on.

29466 So if I can just turn it that way, absolutely, the ability for me to remain a part of my working group, of my social group, to join in conversations on the bus, in the office, even at the kitchen table, are all influenced by how much television I can take in too.

29467 COMMISSIONER WILSON: Thank you so much for that perspective.

29468 MR. TRIMBEE: If I could just add to that, because the question has always been that television wasn't made for people who can't see, the problem is that the majority of people who have diminished vision today have enjoyed television during most of their life. It is the aging process that brought along this new challenge.

29469 I think if we took that type of approach, or that principle, to the extreme, you would say that telephones aren't made for people who can't hear. It was developed by someone who was interested in hearing -- teaching people who were deaf -- and also the fact that we have found a way to make the PSTN accessible to people with diminished hearing. And I think that is perfectly a natural thing to do, and it should be.

29470 If it is there and if it is supported by public dollars, the people who have been used to it, the people who would like to participate in it, should have that activity.

29471 I think your idea of integration is a perfect example, but also staying part of society is very important as well.

29472 COMMISSIONER WILSON: Thank you very much.

29473 THE CHAIRPERSON: Thank you, Mr. Trimbee, Mr. Eden and Mr. Stubbs.

29474 Mr. Eden, you know that this hearing is being broadcast on CPAC live. I shudder at the thought of what the description would say.

--- Laughter / Rires

29475 THE CHAIRPERSON: Thank you very much for your presentation.

29476 Do you have something to add?

29477 MR. EDEN: No, thank you. I wouldn't want to be described --

29478 THE CHAIRPERSON: I was more selfishly concerned about myself.

29479 Thank you very much.

29480 MR. TRIMBEE: Thank you.

29481 THE CHAIRPERSON: We always enjoy seeing you.

29482 Mr. Secretary, please.

29483 MR. CUSSONS: Thank you, Madam Chair.

29484 Contrary to my earlier announcement, Mr. Brian Chater is most definitely with us this morning. So it is my pleasure to introduce the Canadian Independent Record Production Association.

29485 Welcome, Mr. Chater.

INTERVENTION / INTERVENTION

29486 THE CHAIRPERSON: Good morning, Mr. Chater. I was about to say Mr. "CIRPA".

29487 MR. CHATER: Well, you could.

29488 THE CHAIRPERSON: That would work too?

29489 MR. CHATER: A mental slip, but I will accept it.

29490 THE CHAIRPERSON: I have been teasing Mr. "CPAC".

29491 MR. CHATER: I dread to think I am the last, but I dread to think what my description would be. I would be like you; I wouldn't want to hear it.

29492 THE CHAIRPERSON: Go ahead when you are ready.

29493 MR. CHATER: Thank you, Madam Chair.

29494 Good morning Madam Chair and Commissioners. My name is Brian Chater and I am President of CIRPA.

29495 This morning I would like to take the opportunity to expand upon CIRPA's written intervention to the various applications.

29496 Obviously in a 10 minute presentation, given the diverse -- in all senses of the word -- applications, I can only give you an overview of the key issues that CIRPA feels should be considered by the Commission in its deliberations.

29497 THE CHAIRPERSON: Mr. Chater, not too fast, please. We have trouble with our translators and court reporters.

29498 MR. CHATER: All right. I do have 10 minutes, so I can slow down.

29499 THE CHAIRPERSON: Yes.

29500 MR. CHATER: Naturally, we would be happy to expand on any particular point. Should you have questions that arise from our presentation I would be happy to give you a more detailed answer on any particular issue.

29501 As can be seen from the Commission's call and from the vast number of applications in Categories 1 and 2, the world is rapidly changing. When one combines this with the rapidly changing playing field on which everyone is operating, a subject of much discussion at the New Media hearings, and when one views the rapid and seemingly ever-escalating technological changes that are occurring almost on a daily basis, it seems it is very evident, in CIRPA's view, that this is no ordinary hearing.

29502 While in the simplest form it is a hearing to discuss the issues and policy matters that will help to guide the Commission in the upcoming licensing discussions, it is clearly much more than that and, in CIRPA's submission, should be considered in that light.

29503 While CIRPA will endeavour to keep its arguments brief, succinct and to the point regarding the current process, it would also submit that, with respect, this process is part of a much bigger ongoing picture and the decisions made following this hearing should reflect this reality.

29504 However, our specific objective here today is to present the case for the licensing of new music and music-related channels as part of the Category 1 process.

29505 CIRPA notes that in Public Notice 2000-6 and 2000-22 and the Notice of Public Hearing 2000-5 that there are a number of selection criteria for Category 1 applications. These include: contributions to Canadian programming, attractiveness of the proposed service, contribution to programming diversity, reasonableness of business plan, innovative use of digital medium/interactivity, and affordability or cost to subscribers.

29506 Let us look at these criteria and whether music-based channels address these points.

29507 There will be a substantial contribution to Canadian programming in the form of both videos and general programming content if the appropriate Cancon level suggested by CIRPA in the written brief are adhered to.

29508 Given the popularity and ubiquity of music in the Canadian psyche, as evidenced by regularly published surveys, both from public and private sources, there is little doubt of the attraction to Canadians of such services.

29509 Given the variety of musical genres proposed, there is no doubt that the licensing of these channels will make a major contribution to programming diversity.

29510 The business plans of all applicants in this category are, in CIRPA's view, appropriate, and given the current costs of programming compared with other types of applications also very affordable.

29511 As the Commission is aware, the music industry is at the forefront of the innovative use of digital media. Whether we like it or not, some of these innovations are of major concern to the industry, however the fact remains that whatever the outcome for legislation and lawsuits, music will continue to be at the forefront of new innovations and applications, both on the Internet and in other fora.

29512 As we stated earlier, the programming costs are substantially lower than in other types of applications and, therefore, by definition cost to consumers would be very affordable.

29513 Having reviewed these arguments, I cannot possibly see why the Commission shouldn't license all of the Category 1 music applications. However, to be serious, CIRPA strongly feels, in the light of our arguments, that every consideration should be given by the Commission to the licensee of this genre of application in Category 1.

29514 We would like to briefly address our policy issues of concern to CIRPA. These are the issues of nesting and a further concentration of ownership; the issue of same packages and migration to digital, as well as the issue of any further ownership of new specialty channels by BDUs.

29515 CIRPA is concerned that the issue of licensing new players and the further concentration of ownership inherent in the nesting concept be reviewed very carefully, particularly in the light of recent media events.

29516 I specifically refer to the rapid expansion of ownership concentration following the recent decision on television ownership and the subsequent purchases by CanWest of a large number of newspapers across the country.

29517 CIRPA's view of this, as representing independent Canadian owned companies in the music business, is that ownership diversity is, by definition, a good thing and contributes to Canadian cultural expression. This is an issue that is rapidly becoming of major concern to our members.

29518 The second issue is that of theme packages and migration to digital. These are issues raised by the CAB, quite rightly in CIRPA's view, and issues which have direct relevance to music channels and their marketing to consumers. Again, CIRPA would appreciate the Commission giving due consideration to this matter in its deliberations.

29519 Finally, there is the issue of further ownership by BDUs of programming entities. We note the continuing plethora of applications that are directly from broadcasting distributors, and even if one disregards the issue, which we submit should not be the case, there is the issue of market power in negotiating what is or not included on cable satellite systems and how the package or group of channels is marketed to consumers.

29520 CIRPA is under the impression that the Commission has stated that it would allow a stake of 9.9 per cent in channels not owned by BDUs or closely connected companies.

29521 If this is the case, then, in CIRPA's view, this is exactly 9.9 per cent too much. As we have stated continually over the years, CIRPA values diversity and independence of ownership in all fields of the media and the giving of opportunities to new and regional players outside the current cabal that exists today.

29522 Increasing concentration of ownership is not, we submit, a beneficial policy for Canadians.

29523 As we stated at the beginning of our presentation, there are many critical issues involved in this hearing, not just a matter of licensing of new specialty channels, and we have endeavoured to point out some of these in our brief presentation.

29524 Thank you.

29525 We look forward to your questions.

29526 THE CHAIRPERSON: Thank you, Mr. Chater.

29527 Commissioner Wilson.

29528 COMMISSIONER WILSON: Good morning, Mr. Chater.

29529 MR. CHATER: Good morning, Commissioner.

29530 COMMISSIONER WILSON: I want to ask you a few questions about some of the statements that you have made in your opening remarks and then a couple of questions about points that you have raised in your written intervention, including a response to that by Corus.

29531 I'm just wondering, you have reiterated for us the criteria that we set out that we are going to use to make our decision about which applications to license. In view of some of the comments that you have made about such things as concentration of ownership as it relates to diversity of ownership, how would you rank those criteria?

29532 MR. CHATER: I think, well --

29533 COMMISSIONER WILSON: Have you given any thought to that?

29534 MR. CHATER: To ranking them specifically? I mean, not off the top of --

29535 COMMISSIONER WILSON: Like in what order of priority should we look at them?

29536 MR. CHATER: Okay.

29537 This is really -- the answer to your question clearly is no.

29538 The second answer is, let me give you some quick thought.

29539 I would say, again, in our view that diversity of ownership is good and obviously one has to look at the ability to function financially.

29540 But, in our view, looking at the applications, there are a lot of applications that you could easily say won't be able to do that and are not necessarily from the same, if you like, small group of owners. They are from new players, different players, players who are only, if you like, peripheral at the moment.

29541 So I would say that is a definite concern of our members because, you know, we are what we are and our members are the same, if you like. They like to see more diversity of ownership and more ability for, if you like, regional players to be involved than would be the case if one were just licensing amongst five or six major players.

29542 So I would say that would be -- the key two things would be diversity and financial ability to compete.

29543 COMMISSIONER WILSON: And that diversity of ownership you feel has a very direct impact on the livelihood of your members?

29544 MR. CHATER: Well, we see it -- I mean, as you well know, media, we are not dealing in many respects often in just broadcast media. The broadcast media is often -- in our business too, for example, in the record business, Universal for example, is not just a record company, it is also a television producer, it owns -- the same with Disney, the same -- there is incredible cross-energy.

29545 What is happening to the marketplace, and not just here but worldwide, is that by definition you have either restriction by financial needs or restriction by technology more and more because our members are relatively small, as they are in other countries, and they need to have the access to players who are in the same, if you like, boat as they are and will work with them.

29546 To be blunt, if I'm Universal I'm going to say, "Well, I have a division that does that. I don't need you."

29547 This is happening. I mean, this is a slight sidebar, but it is happening more and more in our business that it is becoming more and more difficult to make worldwide deals or deals in different markets because there are fewer and fewer independent players left. They are all being bought out, which causes, obviously -- you are, in some respects, restricted to either you deal with a major or you don't, which obviously narrows your choice.

29548 Particularly in areas like distribution it is becoming, in Canada, a major problem because of the concentration of ownership amongst the major players in our business, but they all spin over, as you know, into -- the media business is no longer just one version of it, it is worldwide across the Board, as it were.

29549 COMMISSIONER WILSON: Okay. I wonder, the second issue that you raise in your opening remarks at the top of page 4, you say:

"The second issue is that of theme packages and migration..."

29550 Which is being dealt with in a separate process. But you say:

"These are issues raised by the CAB ... and issues which have direct relevance to music channels and their marketing to consumers."

29551 With respect just to the theme packages, what is the direct impact or the direct relevance to music channels and their marketing?

29552 MR. CHATER: Well, from -- I'm sorry.

29553 COMMISSIONER WILSON: I guess what I'm trying to figure out is: Are you saying "We like theme packages"? "We don't like theme packages". "Theme packages would help our members in terms of marketing and selling to the Canadian public"?

29554 MR. CHATER: I think the answer to that is probably, in a word, yes.

29555 For example, I don't know, in the markets outside Toronto, where I live, the reality is that you have one MuchMoreMusic is in the third package on my cable system on Channel 68, MuchMusic is on 21, CMT is on 38, but they are also in different parts of different packages depending on which part of the tiers they are in and whether they are basic or whether they are tiered.

29556 Obviously from our point of view, and particularly, you know, if new channels are licensed or allied to music-type channels are licensed, then it would be, in our view, beneficial if there were some ways that you could structure packages that will give -- not just music but anything -- give people access to their particular interests.

29557 COMMISSIONER WILSON: I want to turn now to your written intervention.

29558 You say in your written intervention that:

"When funding for video production is part of an application the Commission should give due consideration as to the best method of administering these funds so as to utilize this funding in both a cost-effective manner and to ensure music industry broadcasting benefits." (As read)

29559 What do you see as the best method to administer video production funds to ensure that the maximum benefits flow to the music industry?

29560 MR. CHATER: Again, from our point of view, both the efficiency and again obviously by definition, maximum benefit, we would suggest it goes into FACTOR or Musique Action if it's in French, but if it's in English, FACTOR.

29561 That's in our view the most efficient way. Over the years we have dealt with the Commission and the Commission has also dealt with licensees to be part of that process.

29562 As you know, there are other areas where we are working with the CAB on it, be it the Starmaker Fund, which is a different thing.

29563 In essence, our concern is that we don't want to set up, if you like competing bureaucracies or competing boards of directors doing the same thing three or four times. We would like it to be as efficient as possible.

29564 COMMISSIONER WILSON: You said FACTOR and Musique Action. What about Video Fact?

29565 MR. CHATER: Video Fact -- well, as you know, we have no problem with them either. They do a good job and, as you know, they are a dedicated from that particular channel.

29566 COMMISSIONER WILSON: It's administered at arm's length I believe.

29567 MR. CHATER: Yes, it is. We have had actually no problems with Video Fact. In fact, our members like it very much. We have no particular -- I mean because of Video Fact, as you know, as expanded now with M3, MuchMoreMusic, but the reality is they can be in turn more efficient because, obviously, their administrative costs are not going up much, but their revenue is going up. Therefore, what they are giving back to industry obviously grows by definition as a percentage.

29568 Our real concern is more an issue of to get the maximum percentage out and not spend it on administration.

29569 COMMISSIONER WILSON: If we decided to license new digital video services, do you think the Commission should impose Canadian video production funding obligations on those licensees?

29570 MR. CHATER: I think in Category 1, yes.

29571 COMMISSIONER WILSON: In Category 1?

29572 MR. CHATER: Yes, in Category 1. In Category 2, I think we are not allowed to talk about that, but I am talking about it. It should be looked at there too I'd say.

29573 COMMISSIONER WILSON: Considering what has been described as the thin air of the digital services business plans, how should the Commission determine the scope of those obligations for the Category 1 services; still as a percentage of gross revenues?

29574 MR. CHATER: I am not so sure I would describe the Category 1 applications as thin air. I am not sure you said that, but --

29575 COMMISSIONER WILSON: Some of the Category 1 applicants have said that.

29576 MR. CHATER: I am sure. We all know how this Commission works and how the procedure is.

29577 I would say, personally, in looking at the applications that I would be very happy if one of the Category 1 applicants on the thesis that down the road this would become a good business, which as we have seen in general, especially in general, not every case, a good business, but in general has a good return on investment after a while.

29578 I think these new channels, whatever they are, will have the same benefit. The public will work and go towards those channels and the advertisers will be targeting those markets. I personally would say if you want to give me a licence I will take one, even though I didn't apply.

29579 COMMISSIONER WILSON: But we can't do that.

29580 MR. CHATER: I know you can't, but I just thought I would tell you.

29581 COMMISSIONER WILSON: You have to apply first.

29582 MR. CHATER: I just thought I'd throw it in.

29583 COMMISSIONER WILSON: That's what the public process is all about. In case we have a spare one.

29584 MR. CHATER: If you've got a spare one toss it my way.

29585 COMMISSIONER WILSON: We will have someone with a stamp at the door.

29586 MR. CHATER: Yes.

29587 COMMISSIONER WILSON: Now, you said in your written intervention also, and I have to compliment you, Mr. Chater, on how succinct you were. You said this morning in your opening remarks that you would be succinct and your intervention was very succinct. It was only two pages.

29588 MR. CHATER: Yes.

29589 COMMISSIONER WILSON: I admire someone who can right to the point.

29590 MR. CHATER: Thank you.

29591 COMMISSIONER WILSON: So I will get right to the point. You have said that Cancon levels for music videos should be 30 per cent, rising to 40 per cent over the licence term for video, music video channels in the digital universe.

29592 Are you recommending that that 30 per cent apply to all genres of music?

29593 MR. CHATER: Pretty much, yes.

29594 COMMISSIONER WILSON: Including classical and other genres?

29595 MR. CHATER: Yes. We'd say -- and again, if I can quote the old field of dream, if they build it they will come. I think in talking to our members they say if they have options to do this there are places that they would like to look at and they think they would provide -- obviously, there is no purpose today in making a -- except for Bravo, you get played on Bravo, but there is not a great deal of purpose in a classical video. There is not a great deal of purpose in a jazz video because of the limited access points.

29596 If there were a specific access point, I think you would see a considerable increase, particularly given that technology will allow you to -- while videos are of course very expensive, there will be some technological advances over the next few years which will lower the absolute costs of videos I think.

29597 COMMISSIONER WILSON: In Corus' response to your intervention, let me just read to you their paragraph 3, which I am sure you are familiar with:

"In recognition of the limited number of Canadian selections available in certain specialized musical genres, the Commission has considered it appropriate to require differing levels of Canadian content. For example, classical radio broadcasters have a minimum content level of 10 per cent. The limitation on Canadian classical video selections is even more severe than is the case for radio." (As read)

29598 So that's why I am asking you if you would apply the 30 per cent right off the bat to all musical genres, or you might look at a sliding scale.

29599 MR. CHATER: Let me answer it in two ways. As the Commission knows, we have at CIRPA suggested to the Commission that in fact the levels of radio content could often rise. Again, but as in the jazz field and the classical field my members tell me and people who have done considerable research in this say that there is in fact more than one thing out there in the marketplace to be played.

29600 Again, in the context of videos, CIRPA is nothing, if not flexible. If it is undoable, then we will be stupid to say let's do it. But we think, again, it should be pushed as much as possible within the bounds of reality.

29601 So we would prefer to go in saying at the start we think the rate should be the same, but convince us differently.

29602 COMMISSIONER WILSON: I just have one final question and that has to do again with the suggestion that we start at 30 per cent and move to 40 per cent. I realize that some of the analog or the existing specialties have the 40 per cent requirement, but more typically it's in the 30 range, 30 per cent. I am wondering why you would suggest a more stringent requirement in the digital universe than in the analog.

29603 MR. CHATER: I guess it is we like 40. But, seriously, CMT as well, because they are at 40, the other Much are at 30 and stringent, more stringent, as you well know I think over the years we have generally said as supply increases we would like the ratios to change, which the Commission acceded to our view in the last radio hearing. We think this is a subject which you may say in having reviewed this it is not feasible at the moment, but it is something that should be kept, if you like, on the back burner, the front burner. It should be a discussion that we should be having on a regular basis.

29604 In other words, I mean we feel that with the licence goes an obligation and this is one of the obligations and it should be fulfilled as best as possible.

29605 COMMISSIONER WILSON: Thank you so much, Mr. Chater.

29606 MR. CHATER: No problem.

29607 COMMISSIONER WILSON: Those are all my questions.

29608 MR. CHATER: Thanks.

29609 THE CHAIRPERSON: Thank you, Mr. Chater.

29610 MR. CHATER: Thank you, ma'am.

29611 THE CHAIRPERSON: Have a good trip back.

29612 THE CHAIRPERSON: Mr. Secretary, please.

29613 MR. CUSSONS: Thank you, Madam Chair.

29614 I would now like to invite the Canadian Independent Film Caucus to present its intervention please.

--- Pause / Pause

29615 THE CHAIRPERSON: Good morning.

INTERVENTION / INTERVENTION

29616 MS COHEN: Good morning, Madam Chair and Commissioners.

29617 I am Barri Cohen and to my right from Montreal is Malcolm Guy. We are both independent documentary filmmakers and we are here today as national board reps from the Canadian Independent Film Caucus.

29618 As you may know from our previous appearances before you, the CIFC is the lobby organization that represents a growing body of some 440 independent documentary filmmakers from coast to coast.

29619 I want to thank you for finding some space in your very packed schedule to hear our remarks today during this phase of the hearings.

29620 Our main priority in being here today is to emphasize our strong belief that a Category 1, 100 per cent documentary digital service should be licensed.

29621 It is a genre that will be a vital component in any digital service package, offering diversity of form and expression in ways not currently on offer in the analog domain.

29622 We know it is strongly popular amongst Canadian viewers; otherwise, one would not have witnessed such stiff competition so far amongst the big players. The CRTC's own crop poll of June 1998 showed that over half of all viewers want more Canadian documentaries on TV than they presently have access to. No doubt this information was important in the CRTC's decision to include Canadian documentaries as priority prime time programming.

29623 I would like to also think that our recommendation in this direction during the Canadian Content Review Hearings had something to do with your decision as well.

29624 We feel that the research presented by the applicants is sound enough to prove collectively that Canadians enjoy docs, as we call them, and want to see more of them.

29625 It is also a genre that, despite the smattering of documentary strands across existing channels, no service has yet done full justice to.

29626 What we tried to do in our written brief for you was to focus your attention on what, for an independent film maker, and hence a potential content provider for a documentary service, are the key issues or criteria.

29627 We looked at four applicants with 50 per cent or better documentary commitment. This consequently meant a review of The Documentary Channel, The Canadian Documentary Channel, The Independent Film and Documentary Channel and Docs TV.

29628 We looked at basically how well the promises on offer would serve independent film makers in terms of realistic dollar and volume commitments, the kinds of track records the applicants have in documentary and in the community at large, and the kind of programming vision brought to bear on the independent documentary film form.

29629 As you know, it is a form, you have no doubt heard, that is the founding cinematic language of the nation.

29630 We also looked at things such as fair access, given some of the producer-affiliated relations involved in some of the applications; and we voiced concerns around business and rights issues vis-à-vis webcasting, interactivity and forced tied sales with affiliated services.

29631 What I want you to understand as well is that a big priority right now for the future health and vitality of the documentary form, in light of a recent report on Canadian documentary, published with the assistance of Heritage Canada and spearheaded by many producer-director organizations like our own and the CFTPA, is that the financing structure these days for documentary, principally through Telefilm Canada and the CTF, strongly disadvantages the long form independent documentary in favour of cheap lower cost producer-driven series; in other words, the very kind of programming that would hopefully be the mainstay of any successfully documentary service.

29632 Why do I mention this here and now? It is not to be arcane, I hope.

29633 It is because the key for us is that the success and future of the documentary in the digital universe will mean obtaining necessary licence fees to trigger investment and hence production.

29634 I want to turn briefly to Malcolm, who will spell this out for you in a bit more detail.

29635 MR. GUY: Thank you very much, Barri. Bonjour, Madame la Présidente et les Commissaires.

29636 As a producer and director of primarily one off documentaries over the past decade, I, like you, have seen the world of documentary production turned upside down.

29637 On the one hand, there appears to be more documentaries produced today than ever before. A closer look reveals, as Barri has mentioned, that most of this increase in documentary production has come about as a result of documentary series, particularly producer-driven, industrial style documentary series in which short production cycles and a tight budget are the order of the day -- if you like, kind of a Big Mac style of documentary, with a similar look and taste and questionable nutritional value.

29638 As a result, during this so-called golden age of the documentary, the situation in fact has never been more critical for one off and limited series documentaries, the point of view documentaries -- or "documentaires d'auteur" as they are called in Quebec -- in which the film maker has full editorial and creative control.

29639 This type of documentary, surprisingly, is in danger of disappearing.

29640 At the heart of the problem is the explosion of the specialty channels with less cash available; therefore, lower licence fees. The result is that budgets available to the directors and producers of these one off and limited series documentaries are plummeting.

29641 This has been accompanied by a significant shift away from the traditional supporters of documentary production, such as the CBC and Radio-Canada.

29642 A recent study that I was involved in, and that Barri mentioned, reveals that the contribution of public broadcasters to documentary funding went from 60 per cent to 22 per cent over the last decade, while a share of Specialty and Pay TV broadcasters went from 7 per cent to 42 per cent, according to Telefilm Canada figures.

29643 The study also reveals that feature length documentaries are virtually disappearing from the scene.

29644 Does this mean that there is no longer any place for such award winning documentaries, such as "A Place Called Chiapas" by Nettie Wild, or "Manufacturing Consent" by Peter Wintonick and Mark Achbar?

29645 Good POV and author driven documentaries do not cost an excessive amount of money, but neither can they be stamped out for next to nothing in an assembly line atmosphere. They require a reasonable budget to enable the creative crew and the director to spend the time on research, shooting and editing that makes the difference between a run of the mill documentary and a great one.

29646 I give you the case of Magnus Isacsson's recent award-winning film, "The Choirboys", about a choir of homeless men in Montreal. He spent an extensive time on research getting to know all of the participants. It was difficult. He shot for over a year with them following them in their lives, and he spent many weeks in the editing room. The result is a documentary work of important social, political and aesthetic relevance.

29647 A film like this, as well as the films I previously mentioned, are becoming more and more difficult, if not impossible, to make in the present situation.

29648 To continue to make quality documentaries, we need licence fees high enough to generate a reasonably sized budget.

29649 But the amount of money being offered by any one TV broadcaster is very often not sufficient to trigger this kind of investment. We are obliged, and in many cases obligated, by the TV licence holders to seek second and third window licences to complement the relatively modest first window licence we receive.

29650 This is happening in almost all the productions in which I am involved.

29651 For example, it was a third window licence from one station in Montreal, CFCF-12, of $12,000 that helped assure the production of a film I have just worked on featuring Bruny Surin and Donovan Baily that will screen on CBC next week.

29652 The licences, we are very much in favour of the new documentary channel, but one that provides an adequate licence fee to produce quality documentaries and provide space for POV and director-driven documentaries.

29653 I will hand it back to Barri.

29654 MS COHEN: Thank you, Malcolm.

29655 I guess I have about four minutes, approximately.

29656 MR. CUSSONS: About two; sorry.

29657 MS COHEN: Two. All right, I will wrap it up.

29658 We are realistic, I think, about the market that we are looking at here. We have accepted the fact that we need second and third window licences. We are not going to bleat about that fact.

29659 Given that, we are accepting that we need good at least second window licences. We want to make sure that you understand that.

29660 Consequently, when we looked over the applications, we thought that at first sight the only service offering fees that even remotely comes close to creating a viable second window market for us is the Rogers application for The Documentary Channel.

29661 We are also pleased that they have recently tabled more detailed commitments for first window acquisitions starting in the year one. True, it comes at a cost. Their Cancon commitments are lower than the other applicants. We surmise that this is so that they may offer more money to the independent community.

29662 We also like the fact that there is a significant commitment to the whole idea of independence, rather than just being considered as part of an envelope. They represent a good foothold on the future for us.

29663 The Corus application has many merits, the most obvious being its strong Canadian content commitments -- right out of the gate, so to speak. But you have to look beneath the surface. Its reliance on existing institutional libraries means that the bulk of this Cancon commitment comes precisely from these libraries, not chiefly independent work.

29664 Out of their proposed Cancon dollar commitments, about 35 per cent would go to independents. This would amount to, if I understand it correctly, less than about a quarter of their total programming slate, or what amounts to about 164 hours a year. And I don't think that changes to the independents.

29665 It is great that there are 26 of those hours devoted to first window licences. We would expect any service that you choose, hopefully, to license as Category 1 would have a similar or some kind of a commitment along these lines.

29666 Now, I don't want to slag their livelihoods, make no mistake. We understand that they are repository ties of some fine, and in some cases, groundbreaking work, that some of our senior members, in fact, may have been involved with. But it's work from the past that represents the past, not the future and, of course, not all of it is documentary. You have to realize some of it will be CBC News and current affairs.

29667 In some programming slate that may well remind Canadians, Canadian viewers, of the very programs that they paid for in the first place, and that would be asked to pay for again if they are licensed.

29668 For us as well, the proposed licence fees are lower than we would have liked to see given our acceptance of the second and third-window market. We also question the logic of a service based on a partnership with a public service that already has ample opportunity through two networks to champion the independent documentary.

29669 Finally, the Independent Film and Documentary Channel and DocsTV each prove problematic for us with the former, though they had a very good programming slate, they had a very low commitment to independent documentary which didn't show a great deal of faith in the existing work and in the talent that is out there, we felt.

29670 And in the case of the latter, DocsTV's fees and their particular educational slant and banalizing approach to documentary precluded us from taking their proposal as seriously as the other applications.

29671 Finally, as for the issues of fair access and interactivity and rights, we have been pleased to read from the transcripts of these proceedings that you, the Commissioners, have been quite vigilant in pursuing questions that we ourselves raised in our brief so we won't rehearse them again here.

29672 I just want to conclude by saying I got a phone call last night from a producer who said, "I want you to tell the Commission that the caucus and the CFTPA, hopefully, will come back to the Commission with complaints in year two and three, whether they want them or not, if any service that has been licensed is not living up to its commitments".

29673 Thank you.

29674 THE CHAIRPERSON: Thank you, Ms Cohen.

29675 Commissioner Demers, please.

29676 CONSEILLER DEMERS: Merci, Madame la Présidente.

29677 Good morning. It's interesting and since you have referred to particular applications, and some of them are involved in many other undertakings in their applications, the questions will start for a very bottom line because I understand that if you want to have the prosperity, if you want your members to have the prosperity you describe, then we will have to look at precise decisions or rules that the Commission would put into place so that each player knows where it stands.

29678 So with that introduction, I come down to the level of such things as self-dealings that you have raised in your written intervention and that you have underlined this morning, affiliated and non-arm's length production companies, independent producers.

29679 So I put that back to you and ask if you have specific opinions or some suggestions or recommendations that you want the Commission to study.

29680 MS COHEN: Thank you for your question.

29681 In our brief, as you know, we did draw your attention to the producer-affiliated arrangements that some of the applicants, principally Corus and the Rogers application, have with some senior independent producers in the community and we recommended that the Commission impose as a condition of licence some kind of a set of safeguards to ensure that there is no self-dealing.

29682 When we reviewed their shareholder agreements, for example Corus' shareholder agreements, we noted that they had a first look clause that allowed the Newco, as they call it, or whatever it will be, CBC-2 perhaps, to purchase their stuff on a first-look basis. I gather during the questioning that you have put to them, you raised this with them and they said that they would -- and I trust their answer -- ensure that the first look clause would be exercised only with respect to the hours devoted to CBC/NFB. That is to say the 200 hours that they would buy at bottom rates from the CBC and the 100 hours they would buy from the NFB.

29683 Similarly, the shareholder agreement that Rogers has with its, as I understand it, with its producer/partners is a bit more vague and it had to do with First Nations which basically allows -- it was a First Nations clause, I believe, oh, sorry, favoured nations -- excuse me -- a favourite nations clause that allows them to treat each other no better or worse than their favourite clients, presumably.

29684 Also you asked questions, we noted, in that regard and you have received assurances and safeguards that they will not have preferred access.

29685 So I mean, we brought it to your attention, you brought it to their attention, you questioned them, and we are satisfied with that line of questioning and we hope that you would impose as a condition of licence safeguards for those kinds of dealings.

29686 COMMISSIONER DEMERS: You wouldn't have a specific rule that you would recommend to the Commission? If the Commission were to impose a level, for example, you wouldn't have a recommendation on it as to the non-affiliated production level that would be required, maybe quantity is important in those things?

29687 MS COHEN: It's an interesting question because we -- I mean, I would probably have to take it back to the national board for probably more of a debate around this. I'm always a little nervous ascribing on my feet a particular level or figure or those kinds of things. Much of it depends on the thrust that the successful putative applicant would have with the independent production community to appear to be dealing in a fair way, in a transparent way. That would be our opening approach and then we would look very carefully to see how those deals are going.

29688 I would think though -- just speaking for myself as a filmmaker/producer, and what I would like to see would be probably a kind of moratorium in the first few years. Perhaps it's a time issue rather than a volume issue. Let's see what they are commissioning, let's see how the market is playing out, but that perhaps there should be a moratorium followed by some kind of set of restrictions or a cap, if you will, on the amount of production that would be purchased or library material that would be purchased from an affiliated producer.

29689 Did you want to add anything to that, Malcolm?

29690 MR. GUY: Well, I think it's important. I mean, I have lived through it personally in the sense that with the downsizing of most of the channels that exist now, for example, there have been spin-off companies from the channels. People leave CBC, et cetera, set up their own companies, and there is obviously a relationship that exists there. So we are not talking about the famous level playing field already and this continues, these things continue. So we really want to reiterate that, that --

--- Technical difficulties / Difficultés techniques

29691 MR. GUY: Yes, that was quite interesting, yes.

29692 COMMISSIONER DEMERS: You said something important.

29693 MR. GUY: Yes, I must have said something important. Somebody plugged the plug.

--- Laughter / Rires

29694 Anyway, as I say, that exists and we are very concerned. We have seen it already. I see it in practice every day. These relationships that exist between the broadcasters as such and certain production companies, and I agree with the aspect of that. It's a matter of paying attention to that. I don't think there is any particular rule that I have right now that I would put forward, but we have to make sure that those relationships are examined and they don't exclude other producers.

29695 COMMISSIONER DEMERS: Thank you.

29696 Of course, if the Commission was to be concerned with that, I suppose it would have to speak quite clearly and more than wishes, no doubt. So whatever you can offer would be interesting.

29697 Could there be a difference, depending on the genre, as to the relationship that would be between independent producers and the licensee? Do you see a difference there? Of course, you are concerned with Quad Genre, which is a documentary especially. You don't have any comments on that.

29698 MS COHEN: Forgive me. I'm not certain I understand the question. The kind of relationship that the producer, the independent producer, would have with the documentary service?

29699 COMMISSIONER DEMERS: Yes, with the producer, maybe the level of relationship could be different, depending on the genre. At least these are ideas that were put forward during our hearing, that the genre, there would be a rule that may not be necessarily equal or the quantity equivalent for our genre.

29700 MS COHEN: Clearly on our wish list is that a service programs as much independent documentary as possible and that becomes a vital player in the system. Modest though it may be, but the crucial -- we are talking, for example, a licence fee of maybe $5,000 to $9,000. That makes all the difference in triggering access to the funds.

29701 I don't want to get again too arcane about it. I don't know if you are aware of some of the ridiculous funding decisions that have been made in the last year where, you know, nothing but series production got funded from the CTF and nothing -- one offs got funded by Telefilm and there's not proper rationale and consolidation within a system and so on and so forth.

29702 Any service that we are looking to that's dedicated to a particular genre that has a broad, rich, diverse programming slate of everything from culture to social, artistic so-called point of view which can be across all of that, is going to be a vital player.

29703 Consequently, the kind of relationship we would expect to have with that player would be, you know -- the business dealings would probably be what is standard, hopefully, in approaching some of the better broadcasters that we have been working with.

29704 There's a call that's put out for material. The material is submitted. I gather there may be a programming board or perhaps one or two programmers. What I will suggest is this, and it is something that has come up in our other interventions.

29705 We have always admired a commissioning system that has been in place, for example, in Europe or, say, that's in place in some of the educational broadcasters like TVOntario. That kind of relationship, say, with programmer or programmers who are looking both at acquisitions and at first windows should be individuals from or certainly who have a substantial background in the independent production community who understand those realities. That would go a long way to, I suppose, creating a good, safe, trusting relationship between our community and a service.

29706 I don't know if that answers your question.

29707 COMMISSIONER DEMERS: I will take that answer. Thank you.

29708 Our specialty applicants, or some of them, have indicated that they should be the owners of all the content on their channel. Do you have comments on that? What they have said is that if they buy a product from one of your organizations, they would buy all the rights so that it could help them -- some say it helps in sales from them in international markets.

29709 MS COHEN: What we pointed out in our written brief was that our chief concern in that regard in terms of rights had to with -- has to do with the fact that is this sort of the end of the road in terms of the after-market, the shelf life of a particular program, let's say.

29710 It is if they acquire all the rights. By that I mean once Webcasting -- who knows what's going to happen two, three, eighteen months, two, three, four, five years down the road. Once everything is digital, then we are finished. Once they acquire those Webcasting rights, if those rights are acquired in a coercive business contract at the same time as the main digital service rights are acquired, then we would have a problem.

29711 I have spoken to film-makers and producers about this. They have categorically said "We would walk away from any arrangement like that". That is a significant concern, that kind of forced type sales or tying up all the rights.

29712 We have brought it to the Commission some years before in a different context and now it's bearing fruit. It's going to be a significant reality and a highly charged rights debate, I suppose, over the next little while.

29713 Since that regime, the Internet and Webcasting, is not regulated, once it's on the Web, once the program is on the Web, it's finished in a sense for us. In terms of selling the service, I mean we would have to approach that very carefully.

29714 As yet, we have not seen any what we call boiler plate contracts from any of these services. It's hard to determine, but I can tell you that these are concerns and we have tabled them around these rights.

29715 MR. GUY: I will just add a little bit to that. Recently I had to deal with the question of Internet rights in a contract which I had. Everyone wants total and absolute control of the Internet rights from now in perpetuity.

29716 It's a very difficult thing and they do not add anything to the money that's provided for that. They just give you the same -- as I said, the licence fees are tumbling and they want more. I think there's a definite problem there.

29717 If you look at all the agreements, everyone now is asking for full Internet rights, absolute, in perpetuity. It doesn't work. Everyone wants them, so we as a producer are left dealing with them, parcelling them out and trying to fight them off one against the other. I think something absolutely has to be done on that level.

29718 MS COHEN: Well, what we might do is create our own documentary porthole and do our own streaming. That's one option certainly.

29719 COMMISSIONER DEMERS: Thank you. And a last question. You have refereed in your oral presentation to interactivity. Is interactivity less important, I will use the word, in documentary than it would be in other genres?

29720 MS COHEN: I guess it depends on what you mean by interactivity. It's one of those buzzwords. Everyone has been bandying it about. Is it a companion Web site?

29721 COMMISSIONER DEMERS: Let's hear you on that.

29722 MS COHEN: Yes. I suppose it can encompass that whole universe of uses, both known and, you know, being explored right now. It can also include, you know, sort of real time interactivity while a program is on where you can sort of have these pulldown menus and find out more information about a particular subject matter or character or background on the production of the film.

29723 I have to tell you, there's a big generational difference though in the reception of that material. I don't know if you have ever seen it. I conducted a workshop around these issues with documentary film-makers some months ago.

29724 Everyone above the age of 25 hated it and said that there's no way they would want their film to be interrupted by these pulldown menus and some kind of interactivity and the whole kind of integrity of the program would be disrupted. That was one example.

29725 Everyone under the age of 25 went "Well, it's like Web TV, man. You know, that's what we watch and that's great and we can groove on that". I mean there's a real generational -- so it's very interesting.

29726 I haven't seen the market research on all of that, but I don't doubt that the younger generation, you know, the new service, the new viewers that you would want to capture, would probably be very open to it.

29727 I suppose we are open to all of that, but the way in which we so far have been thinking about it, and Malcolm may have some other anecdotes, is basically the companion Web sites. That would require -- that's still a bit of a frontier there that would require additional negotiations, I think, because the producer or film-maker would be supplying additional material above and beyond the licence fee for the digital service.

29728 In terms of a priority for us, all I'm saying basically is because there's this generational shift, it's all kind of frontier, it's not a huge, huge priority for us as content providers. For viewers, I'm sure it's a bit different. That's my point, I guess.

29729 MR. GUY: If I could just add a little bit. I think probably documentaries are probably the most interactive form. If I take into consideration the number of times I have been invited out to speak to people, to interact with people, to have my films shown and to discuss with them afterwards, there is obviously a place in terms of interactivity that already exists as far as documentary film is concerned. I hope that will continue and take use of the new medias in that sense.

29730 There's also an extremely large portion of material that doesn't make it into our films that has to get out there in one form or another. Many of the -- whether it's the schools, teachers and elsewhere can take advantage of all the work, the years of work that goes into producing something which may occupy just 60 minutes on the screen.

29731 I think in that sense, yes, documentary has something to give to the interactive world.

29732 COMMISSIONER DEMERS: Merci beaucoup.

29733 Merci, Madame la Présidente.

29734 THE CHAIRPERSON: Thank you very much for your presentation. We enjoyed seeing you, as we have before.

29735 We will now take a 15 minute break.

29736 Nous prendrons maintenant une pause de 15 minutes.

--- Upon recessing at 1010 / Suspension à 1010

--- Upon resuming at 1030 / Reprise à 1030

29737 THE CHAIRPERSON: Welcome back to our hearing. Nous vous resouhaitons la bienvenue à notre audience.

29738 Monsieur le Secrétaire.

29739 Mr. Secretary, please.

29740 MR. CUSSONS: Thank you, Madam Chair.

29741 I would now like to invite the Directors Guild of Canada to come forward to present its intervention, please.

INTERVENTION \ INTERVENTION

29742 THE CHAIRPERSON: Good morning.

29743 MR. GOLUBOFF: Madam Vice-Chair, Madam Chair and Commissioners, thank you for providing me and my colleagues with an opportunity to appear today on behalf of the Directors Guild of Canada.

29744 My name is Alan Goluboff and I am the President of the Directors Guild of Canada. With me are the Guild's National Executive Director, Pamela Brand, and Paul Audley, a consultant to the Guild.

29745 The Directors Guild has over 3,000 members from coast to coast. We represent not only directors, but also individuals involved in all areas of the production, design and editing of films and television programs.

29746 The Guild is a major public policy voice on behalf of film and television makers in Canada. We believe that we enjoy a respected reputation as a body that takes a broad view of the welfare of the industry.

29747 The Guild's National Executive Board made the recommendations that the Guild is presenting to you today.

29748 I want to speak first to the English-language applications before asking Pamela Brand to comment on the French applications.

29749 As to the genre of independent film, we commented favourably in our intervention on the applications filed by Alliance Atlantis, Astral and Craig.

29750 At this time we favour the application filed by Alliance Atlantis based on the $140 million corporate commitment to independent production.

29751 However, we note that this is not a commitment of the entity that would receive the broadcast licence, but a commitment of its parent company.

29752 In our view, it is essential that a means be found to ensure that the $140 million commitment, consisting of $20 million per year to independent producers, is as enforceable by the Commission as if it were a condition of licence.

29753 This is necessary, because in the absence of the $140 million, Alliance Atlantis would not have had the best application. If this matter cannot be addressed to the Commission's complete satisfaction, then Alliance Atlantis should not be awarded the licence.

29754 In that case, the licence should go to either Astral or Craig.

29755 We support the application for a documentary service filed by Corus. We regard the participation of the National Film Board and the CBC as positive features.

29756 While there is now a thriving independent production sector, this was not always the case. Both the National Film Board and the CBC have libraries and ongoing output that the Canadian public has paid at least part of the cost of. It would be a mistake to fail to ensure that this programming is made available to the Canadian public.

29757 While we strongly support the independent production sector, we do not do so as a matter of doctrine. In our view, Corus has the best proposal, making use of public sector documentaries while stimulating independent production.

29758 In the genre of biography we support the application filed by Alliance Atlantis for the reasons outlined in our intervention.

29759 One of the aspects of the application that we found particularly attractive was the commitment to have not more than 15 per cent of the schedule consisting of programs about Americans. There is an abundance of information programming about Americans available to Canadian viewers. We do not believe that this 15 per cent limitation proposed by Alliance Atlantis is parochial; we regard it as enlightened.

29760 We believe that CTV has the best suspense or mystery application. As mentioned in our intervention, we would welcome more interest on CTV's part in feature films.

29761 We have indicated that the romance and human relationships application filed by Global is worthy of licensing. However, we did not recall seeing an offer of a percentage of previous year's revenues. We understand that their rivals, CHUM and Lifestyle, offered an average of 41.5 per cent.

29762 Accordingly, our support of Global's application is conditional on them making a commitment to invest a competitive percentage of previous year's revenues.

29763 There are three children's programming services that we support: Salter Street's application for Girls TV, which fits into a genre that we would describe as girls 5 to 17; Salter Street's application for Comedy for Kids, which fits into a genre that we would describe as comedy for children 5 to 17; and Craig's application for Connect, which fits into a genre that we would describe as youth 12 to 24.

29764 We believe that there are strong policy reasons for supporting each of these genres. We urge that they be licensed.

29765 We indicated previously that the travel applications filed by both BCE Media and Global were potentially worthy of licensing. We now believe that BCE Media has the best application. BCE Media proposes to spend more than Global on Canadian content programming, and Global's wholesale rate is simply too high.

29766 We considered the only application in the nature genre, which was filed by Salter Street for Nature TV. We regard the genre and their application as being worthy of licensing.

29767 In connection with the health genre, we indicated in our intervention that the applications filed by Alliance Atlantis, CTV and Global were potentially worthy of support.

29768 Upon further examination, we are of the view that CTV's application has a bit of an edge when considering criteria such as Canadian content, scheduling, spending, independent production and the wholesale rate.

29769 Now Pamela Brand has some comments concerning the French-language applications and other matters that apply to all applications.

29770 Pamela...

29771 MS BRAND: Thank you, Alan.

29772 We support the application by TVA in connection with the suspense or mystery genre. Positive features include Canadian content of 50 per cent and a commitment of 40 per cent of the previous year's revenues to Canadian programming.

29773 Quebecor's application for Canal Nature is the only application for a French-language nature service. Positive features include Canadian content of 55 per cent overall, with 49 per cent in prime time, rising to 50 per cent.

29774 The comedy genre is worthy of support as comedy is an area in which the Canadian industry is strong. The only French-language comedy application was submitted by TVA/Films Rozon/BCE Media. In our view this application is worthy of support. Positive features include Canadian content of 50 per cent throughout, and a commitment to spend 40 per cent of the previous year's revenues on Canadian programming.

29775 We have a few comments at this time which apply to all genres and all applications.

29776 We strongly support drama. Drama is expensive to produce and is therefore challenging to finance. However, it is a powerful antidote to the waves of non-Canadian drama that Canadian viewers are offered daily.

29777 We also note that the amount of Canadian drama being produced is declining.

29778 We therefore support genres that will require dramatic programming.

29779 The Directors Guild of Canada believes in feature films. We regard features as an important form of dramatic programming.

29780 We would therefore welcome whatever support the Commission is able to provide for Canadian feature films.

29781 We support the principle that each Category 1 service licensed provide a percentage of their preceding year's gross revenues to the acquisition of Canadian programming. We suggest that the percentage be not less than 40 per cent.

29782 This would level the playing field for all licensees, in that all would have a similar obligation and would ensure that suppliers of Canadian programming participate in the revenue growth of every service licensed in Category 1. This should be imposed as a condition of licence.

29783 As to the tests for determining who is an independent producer, we believe that an independent producer is a producer who is independent of a particular licensee. We suggest a three step process of analysis.

29784 We agree with Alliance Atlantis that a producer cannot be considered independent of a licensed service in which they are a partner.

29785 As to percentages of ownership, we note that Stornoway suggested 10 per cent, Alliance Atlantis suggested 30 per cent, CTV and BCE, and subsequently TVA, suggested 34 per cent, and CHUM believes that their 40 per cent ownership of a production company does not amount to control.

29786 While we favour a low percentage, whatever precise percentage is established ought to be the maximum percentage allowed of any class of share and not just voting shares.

29787 Additionally, there should be a test of de facto control and entity is not independent unless it is both owned and controlled by its majority shareholders and those majority shareholders operate at arm's length from other partners in a licensee.

29788 We have no other comments at this time. We would be glad to respond to any questions you may have. Thank you.

29789 THE CHAIRPERSON: Thank you, Mr. Goluboff and Ms Brand.

29790 Commissioner Wilson, please.

29791 COMMISSIONER WILSON: Good morning. Thank you for being with us this morning.

29792 I don't know if you are aware of it, but we were here quite late last night and there were two things that happened that will probably inform my discussion with you. One of them was that the Canadian Conference of the Arts supplied us with pages of statistics and explanation as to how they made their determinations about which channels to license. So that should give you a hint as to some of the questions I am going to ask you.

29793 The other was that we heard from the Independent Film and Video Alliance and Mr. Sandmark started out by saying "we are a self-interest group and we are here to defend our self-interest", or a special interest group.

29794 Of course, we were sitting until 10:30 last night, so it gave us all a bit of a chuckle when we were winding down after a long day.

29795 I guess the first thing that I want to do is sort of talk in broad strokes about how you determined which channels should be licensed. I guess partly because I would like to understand your secret since this is a process we will have to go through at the conclusion of the hearing and perhaps you can give us some guidance in that regard, but I would like for you to explain in some detail sort of how you came up with the genres and then application by application because it seemed to me from reading your intervention that that's essentially how it was organized.

29796 You sort of chose the genres first that you thought needed to be licensed and then looked at the applications within that genre and chose. So I would like to understand the process that you went through to do that for both the English and the French and what information informed those decisions.

29797 You don't need to go into the individual applications, but just sort of describe the process to me and what criteria because, obviously, you using the criteria that we set out in the notice. What criteria were the most important in helping you to determine, including self-interest.

29798 MR. GOLUBOFF: I will speak certainly to the broad strokes and if there is more detail that you would like then others may speak to it.

29799 For starters, this is an organization that is spread across the country and my national board, which was very much a part of the process and we certainly try to give as much information to everybody on the board so that they can make informed decisions.

29800 Now, that information comes to us, obviously, from the interventions of others and also from research that we do on our own.

29801 But you are quite correct in that we first looked at, I mean there were some 90 applicants, I am not sure exactly how many, but --

29802 COMMISSIONER WILSON: Eighty-eight.

29803 MR. GOLUBOFF:  -- there were dozens of --

29804 COMMISSIONER WILSON: One withdrawn.

29805 MR. GOLUBOFF: Eighty-eight applications, so certainly we had to narrow it down. We knew that we can't sit and debate and certainly over conference calls, which is often how we have to meet and conference calls at the best of times are good for an hour and after which are pretty painful.

29806 COMMISSIONER WILSON: Tell me about it.

29807 MR. GOLUBOFF: So we narrowed down the genres that we felt -- first off, we looked at the genres which we felt were not adequately served. We looked at Cancon levels. We looked at their attractiveness to the public. We look at their contribution to the diversity of genres, so that there weren't genres that were doubling up and also at affordability. So these kinds of things we sort of looked at, narrowed down and came up with the 11 genres that we felt were interesting to us, as well we felt would be interesting to the Canadian viewer and Canadian broadcast system.

29808 So at least then we could then take those 11 and look at each of those genres individually, some of which, as we mentioned, some of the Salter Street children's applications that we supported were the only applicants in that genre.

29809 So, obviously, that made it a little easier to support, but we still certainly looked at each of those applications once they were narrowed down and that paperwork was sent around the country to my board. We could then at least be somewhat informed and make intelligent decisions based on what we felt was going to be in the best interest.

29810 COMMISSIONER WILSON: I don't know if you saw the Canadian Conference of the Arts intervention, but their system consisted of giving a certain number of points or parts of points for different elements of the application.

29811 I am not suggesting any one system is better than the other, but was there a systematic process or was it more sort of based on your knowledge, experience, instinct and then sort of choosing the genres and then evaluating the applications on Cancon and --

29812 MR. GOLUBOFF: My sense is that certainly instinct is a part of it as far as the genres are concerned. The details of the applications we looked at closely as to which applicant was going to offer greater Cancon, which application was going to be spending more on original programming and that's certainly key to us on all the applicants because certainly it's not just about cash expenditure. It is about cash expenditure on new programming -- in part.

29813 COMMISSIONER WILSON: I am glad you added that phrase because I was just about to write that down.

29814 MR. GOLUBOFF: Also because we support the idea of the independent producer, but yet not categorically. It's how much money is spent and how much money is going to be directed to the independent producer. Pamela certainly spoke to what we would like to see as definitions or determining factors in determining what is an independent producer.

29815 So with the applicants we looked at the numbers. We looked at the hours that they said they were going to end up producing or broadcasting over the life of the licence. So there is a number of factors that we looked at and we just felt that certain applications were better than others, based on the applications that were presented, I mean based on the information that we had.

29816 Some of it has been refined over the last few days as applicants make adjustments in their presentations to you. We have received the summaries dailies. I am actually working day to day, so I am not having a great deal of time to read all the summaries of the hours of hearing.

29817 COMMISSIONER WILSON: You are not streaming this on the web and watching it, every minute?

29818 MR. GOLUBOFF: I myself am not, but there are professionals that are, I suspect.

29819 COMMISSIONER WILSON: It's riveting.

29820 MR. GOLUBOFF: I suspect some of it is, but hours and hours of per day and some of us even at ten o'clock at night, it was just pointed out, were actually enthralled by some of the goings on last night. So we were well aware that you guys were here until 10:30 and that is certainly commendable I suggest.

29821 COMMISSIONER WILSON: So are we. The Chair says "so are we".

29822 MR. GOLUBOFF: I mean just on a general note, we looked at trying to help ourselves help the Commission come to decisions that would provide what we consider the greatest benefit to Canadian broadcasting and that's a pretty general statement.

29823 I mean the decisions that we made were all kind of geared to that. Of course, our positions are different from coast to coast because we are an organization that represents filmmakers coast to coast, but we are not -- I mean we certainly pride ourselves in being able to make decisions that are not just beneficial to us. That we have no connection to Corus or Global or Alliance or Rogers or anybody, yet certainly our members, my members work for everybody, myself included.

29824 We'd like to think, and maybe this isn't -- and we don't see ourselves as being self-serving. Yet certainly a healthier broadcast industry, in our perspective, is healthy for us. We continually try to make decisions that are based on what is going to make this industry healthier. That is certainly a subjective thing.

29825 COMMISSIONER WILSON: Because I was actually trying to determine that when I read through the intervention. I was thinking, okay, you know: Are they focusing on the genres? And I was looking at drama and film and kid's programming. Are you focusing on these genres of programming because they are connected to the role that you play in the industry.

29826 MR. GOLUBOFF: Yes, I did. There is no way that we --

29827 COMMISSIONER WILSON: I'm trying to avoid saying "self-interest".

29828 MR. GOLUBOFF: There is no way that we cannot avoid that. Certainly dramas, documentaries and children's programming have always been priority for us, but also it is priority programming within the industry and they are priorities to us.

29829 There are certainly -- out of the 88 applications there were certainly some that we from the very beginning said we were not supportive of, that there was nothing in this application that we felt was going to give anything to the viewer in this country that we don't already have.

29830 COMMISSIONER WILSON: Well, that's useful. That is sort of the broad picture of how you went about it.

29831 Let me just ask you a quick question of clarification. The genres that you have listed in your intervention, and again in your remarks this morning, are they listed in any order of priority, as in the first one on the list --

29832 MR. GOLUBOFF: No.

29833 COMMISSIONER WILSON:  -- is the most important?

29834 COMMISSIONER WILSON: There was a nodding head beside you.

29835 MR. GOLUBOFF: No. No, no.

29836 I mean if it's nodding --

29837 COMMISSIONER WILSON: The nodding head was to the left.

29838 MR. GOLUBOFF:  -- it's nodding because he is nodding off because maybe he was --

--- Laughter / Rires

29839 COMMISSIONER WILSON: No, no, no. The nodding head was to your left.

29840 MR. GOLUBOFF: Oh, her too.

--- Laughter / Rires

29841 MR. AUDLEY: If they are in that order it is accidental.

29842 MR. GOLUBOFF: Yes. I think that we would all like to agree that it is not in a priority order. There are genres that we think are valuable and would be of interest to --

29843 COMMISSIONER WILSON: You're sure?

29844 MR. GOLUBOFF: Yes.

29845 COMMISSIONER WILSON: Okay.

29846 So I guess if we decided -- you have given us 11 genres. Is that right?

29847 MR. GOLUBOFF: Yes.

29848 COMMISSIONER WILSON: So if we decided only to do 10, which one would you give up?

29849 MR. GOLUBOFF: First off, we would be incredibly upset that you didn't follow all our examples and take every one of them.

29850 But aside from that, no. No, we would not -- there is nothing -- I don't think that we would select one and say "No, this one is less important".

29851 Our view is, there are 11 genres that would be valuable and we never looked at them individually to say, well, you know, "What if there is only 10? What if there is only 5." We did not.

29852 That is why I say what I said a moment ago, we didn't prioritize and say -- and just take the one off the bottom.

29853 COMMISSIONER WILSON: Right.

29854 MR. GOLUBOFF: It's not the way that we have looked at it.

29855 COMMISSIONER WILSON: So you will leave that to us --

29856 MR. GOLUBOFF: We will indeed, yes.

29857 COMMISSIONER WILSON:  -- to struggle with --

29858 MR. GOLUBOFF: Yes.

29859 COMMISSIONER WILSON:  -- if we decide only to do 10. Okay.

29860 In your intervention, the written intervention, when you start off you give reasons for the no's, and then you kind of stop giving reasons and just say, yes for these reasons and no, no, no, no, no.

29861 I was wondering, just you didn't want to get into the details? Was there some reason for why you started off giving sort of the reasons behind both the applications that you supported and the ones that you did not support and then you changed your approach?

29862 MR. GOLUBOFF: Well, let me ask --

29863 COMMISSIONER WILSON: Because I found that useful.

29864 MR. GOLUBOFF: Okay. Well, let me just ask Paul to address that, because I think you would be better served if he responded.

29865 MR. AUDLEY: There wasn't any particular intention behind that. Where there had been competing applications, certainly an assessment was done based on listing and comparing the objective criteria for each of the applications.

29866 COMMISSIONER WILSON: Okay.

29867 The next question I had prepared, and actually -- well, you refined one of your choices when you spoke in your remarks this morning.

29868 I guess the question that I had framed was: Were you persuaded to alter your opinions based on any of the responses to the intervention?

29869 I will give you some examples: Learning and Skills Television. The second paragraph of their response says:

"The Guild states that had the Corus application made a commitment to spend 40 per cent of the previous years' revenues on Canadian programming it would have made the application clearly superior." (As read)

29870 I believe they are talking about the documentary and travel applications. They say that is precisely what they had promised, 40 per cent.

29871 In the Rogers response they talk about the fact that their channel is committed to new documentary production as opposed to archival.

29872 MR. GOLUBOFF: The Rogers application.

29873 COMMISSIONER WILSON: Right. The archival nature of the Corus application drawing on the CBC and the NFB and their application. So they questioned your choice of Corus in light of the strong statements that you made in your intervention relating to the protection of the interests of the independent producers.

29874 Then Salter Street talked about the Canadian content level for the Independent Film Channel and said that at the end of their license term in fact they end up at a level that is higher than what Atlantis had proposed in their application.

29875 So did any of those responses affect the way you looked at the choices that you made?

29876 MR. GOLUBOFF: No, because our choices were really made prior to these hearings.

29877 COMMISSIONER WILSON: Oh, microphone. You have to put your microphone on.

29878 MR. GOLUBOFF: I would say no, because our choices were made prior to the beginning of these hearings, which only began two weeks or so ago. Correct?

29879 COMMISSIONER WILSON: Right. They filed these in July, on July 17th.

29880 MR. GOLUBOFF: Oh, I'm sorry. The original interventions.

29881 COMMISSIONER WILSON: Right. You did the written intervention and then they responded to you.

29882 MR. GOLUBOFF: Yes.

29883 COMMISSIONER WILSON: I was wondering if you had been persuaded by any of their arguments.

29884 MR. GOLUBOFF: Do you want to speak to that, Paul?

29885 MR. AUDLEY: I guess the short answer is, no.

29886 COMMISSIONER WILSON: No.

29887 MR. AUDLEY: The only place where material became available subsequent to filing the original Directors Guild intervention has affected the position is just in that the Guild was prepared to look at some additional information and to go back to the information it had originally and to express a preference in the case of some services where all the original intervention says is there are two or three applications in this category that are worthy of licensing and at the time the original intervention was filed a preference wasn't expressed. Subsequently that changed in some cases.

29888 COMMISSIONER WILSON: Okay.

29889 With respect to when you looked at Canadian content exhibition levels, and when you used that as one of your criteria for evaluating, did you take into account original hours versus repeat?

29890 MR. GOLUBOFF: Oh, yes. I think I mentioned earlier, the original -- the percentages of original material is obviously very important to us. But we are also not naive enough to think that these licences can exist with only original programming.

29891 I think in part -- you mentioned the Corus and the Rogers applications in our support of Rogers --

29892 COMMISSIONER WILSON: Corus.

29893 MR. GOLUBOFF:  -- or our support of Corus, I'm sorry. Our support of Corus in that we like the idea that there would be archival -- as you used the term, archival work available to the Corus application.

29894 But there is also a strong commitment from them to original programming and a 50 per cent commitment, if I'm not mistaken, to acquisitions from the independent producers.

29895 So original programming is important to us and it was taken into account.

29896 But again, you know, you are trying to take a number of things into account and one isn't necessarily more important than the other, but certainly original programming weighs very heavy in our minds.

29897 COMMISSIONER WILSON: Okay.

29898 With respect to Canadian program expenditures, you have said already that you think we should impose obligations on the new digital services. But we have had quite a few discussions during the course of the hearings about whether or not there should be flexibility with respect to how that level is calculated.

29899 I don't know how much you know about how we calculate the percentage of Canadian programming expenditures, but it has been suggested, sort of from a philosophical standpoint, that because of the challenges inherent in the digital environment that flexibility would be warranted, instead of using this traditional approach where you take a total of seven years and expenses and -- or revenues and divide by expenses.

29900 Anyway, the Chair of the panel understands all of this very clearly. And I am sure Mr. Audley does too.

29901 Then we have had discussions about different methods that would afford more flexibility in terms of being 10 per cent over or under each year, or calculating it only from years three to seven, not taking into account the first few years when you would be spending a lot of money to try and get your service up and running.

29902 What is your general approach? Do you think flexibility is warranted, or should we stick to our guns?

29903 MR. GOLUBOFF: Well, I think our view is that -- I mean, I don't think flexibility is really our concern. Therefore, a firmer stand is something that we would be more supportive of.

29904 COMMISSIONER WILSON: Okay.

29905 MR. GOLUBOFF: Paul wants to add something. I know he does.

29906 MR. AUDLEY: We have had a discussion of this. Alan was expressing concern about what you do in the first year, for example. You obviously cannot regulate based on the previous year's revenue, because there wasn't any. So that is an issue.

29907 It seemed, when we were talking about it, that there really is a lot of flexibility built into a percentage of revenue calculation. People can project that they are going to have a lot of revenue and fall 10 or 20 per cent short of it. But if you are regulating Canadian programming expenditure based on a percentage of revenue, there is a corresponding 10 or 20 per cent decline in what they are being asked to spend.

29908 So there is quite a bit of flexibility already built in.

29909 Equally important, if you are regulating based on the previous year's expenditure -- and we are talking about services that are part of a digital tier, the penetration of which will increase steadily from year to year -- in the year 2000, assuming they had been in operation last year, their revenues may be 50 per cent higher than they were last year. But you are asking them to spend in 2000 based on the revenue they had last year.

29910 So through the start-up period, if you were to pick the figure of 40 per cent and say you have to spend 40 per cent of last year's revenue, they will never be spending 40 per cent of the current year's revenue.

29911 So there is a kind of start-up flexibility that is already built in to a percentage of revenue.

29912 COMMISSIONER WILSON: We have had a lot of jokes here about people who don't like to do math in public. So I am going to ask the Chair, who is a real expert on this Canadian programming expenditure stuff, to jump in if she has heard anything that she --

29913 Andrée...?

29914 THE CHAIRPERSON: No, I don't have any question. I only have perhaps one comment, and that is that I agree with you that that is the case. However, the percentage is also chosen at a level which may not be reflected if the revenues expected don't pan out.

29915 The percentage is calculated by taking the forecast revenues and the forecast expenditures, and that is what generates a percentage which is applied. So it may well be that that percentage is high even though applied to revenues that are lower, because it would have been lower had the revenues been forecast more conservatively.

29916 MR. AUDLEY: I don't want to try to provide more help than I am capable of, but I suppose one possible way out of that is to regulate based on a percentage of program spending.

29917 One of the start-up difficulties that you are referring to is obviously that they may be spending a good deal more on costs other than programming costs in the initial years, as you say, just to get started.

29918 So you might say let's translate their projections into a figure that can be expressed as a percentage of total programming expense. So they will spend this percentage on Canadian programming and that percentage on foreign programming.

29919 I guess that is the only approach that I can think of -- and that is not a Guild position; that is just my comment -- that would get around this start-up issue.

29920 THE CHAIRPERSON: What you would be proposing is to use a different method calculation really, an entirely different method from what we have used in the past.

29921 COMMISSIONER WILSON: Thank you, Madam Chair.

29922 I was wondering if you would like to add your voices to the issue of defining an independent film.

29923 There have been a number of suggestions about how we do that. One is to say that an independent film is one that has not appeared on the Variety Top 100 list or that it is not one that has been distributed by one of the major Hollywood studios, maybe financed and distributed by one of the major Hollywood studios.

29924 MR. GOLUBOFF: It is something that we did not address, did not discuss as a definition. I might have a view on what an independent film is. But certainly it would be something that I would want to talk about and speak with my board about before we came up and said this was a Guild position on what an independent film is.

29925 Certainly most of my film makers who are members within our Guild are independent film makers, and there are 400 or 500 director members who may have very differing views on what makes an independent film. Just because it is financed -- I mean, it has to be financed from somewhere.

29926 It is something that I would not feel comfortable addressing here.

29927 COMMISSIONER WILSON: What I want to do, before we move to -- I want to get a little bit of clarification from Ms Brand on the independent production issue, but I want to ask you a few questions about some of the comments you have made where you support specific applications.

29928 The first one has to do with the Independent Film Channel.

29929 You say that you have refined your view now and that you are going to support the Alliance Atlantis application, and that the reason that you are doing that is because of the $140 million commitment to feature film.

29930 I don't know if you are aware of some of the comments that have been made about that commitment during the intervention phase. They have ranged from "the details are too vague", to "it's not appropriate in a competitive licensing process for the parent corporation to put that kind of a parent corporation commitment on the table when they are trying to get a licence" -- and you have made the point that it is not a commitment of the entity, the licensed entity itself -- to "they would have spent the money anyway, so is it really something additional that they are bringing to the system".

29931 Because you have chosen that application on the basis of that corporate commitment, I guess what I want to ask you is: Do you think that sends the message that if someone comes in and puts a big corporate commitment on the table to help the industry, that that is reason enough to choose the application?

29932 You have said that in the absence of it, they would not have had the best application and that we should license someone else.

29933 MR. GOLUBOFF: I said exactly that. We do believe that the one thing this industry needs is it needs capital. You need capital to produce quality programming. You need quality programming to build a viewership.

29934 If there is a corporate entity -- i.e., Alliance Atlantis -- who has the kind of pockets and available resources to put that money on the table, I don't see that as a bad thing. We don't see that as a bad thing. It is money that will be going into production within this country, and I think that is a good thing for all of us.

29935 And I think --

29936 COMMISSIONER WILSON: But if they would have done it anyway, then why bring it in to this process?

29937 MR. GOLUBOFF: That is the question. But I think that we believe that a good deal of this is new money -- and I know that that has been questioned by others.

29938 They stipulate quite clearly that they plan to spend $20 million per year on new Canadian films produced by non-affiliated producers. They said that. That $20 million a year is a big chunk of money into new programming into non-affiliated producers.

29939 I think that that is a worthy stance that they have taken, and we are supportive of that. If other players -- and certainly we believe there are other players who could do that -- stood up and did that, we would all be better off.

29940 The industry needs cash. The folks that spoke before us certainly talked about their concerns and licensing fees.

29941 I mean, there is not enough cash in spite of all of these large numbers and it is substantial, $140 million, $20 million a year. It still isn't huge when it might cost $20 million to mount a television series, a dramatic series per year. But it's that kind of cash that I think the industry needs to be viable.

29942 COMMISSIONER WILSON: Okay. With respect to documentary, you say that one of the reasons that you think the Corus application should be supported above any others, and it's interesting that you refer in your previous comment to the intervenors who appeared immediately before you because they discussed this particular genre at length, and talked about the need for cash in terms of the production of new programming, and this is a point of departure for the Directors' Guild and the Independent Film -- not Independent Film, sorry they appeared last night -- the Canadian Independent Film Caucus.

29943 You say in your remarks that it would be a mistake to fail to ensure that this programming -- and you are talking about the CBC and the NFB archival programming -- is made available to the Canadian public.

29944 In fact, when we talked with Corus and we talked with the NFB and the CBC, much of -- not much, but lots of their documentary programming is available in the system right now and that's an argument that other people have made against that application, that, yes, they do have a commitment to new programming, but that lots of that programming is in the system on existing specialty channels, on other conventional broadcasters who are buying the rights to show it.

29945 So why is that such a compelling argument? I am not in any way not recognizing the value of that, but if it is already in the system and if you take into consideration the remarks of the previous intervenors about needing licence fees that are large enough to trigger funding, then where do you come out on this? How did you arrive here?

29946 MR. GOLUBOFF: Firstly, what is important to us is that quality programming is available to viewers across this country. That's number one and like I mentioned before, cash is important, cash builds and helps produce quality programming.

29947 We are not of the view that just need to fill the airwaves just with unending amounts of material, which is what may be out there. Our position is we want to see quality programming. The CBC and the National Film Board have produced, and continue to produce, some of the top documentary work in the world, renowned and I think everybody in this country is certainly proud of the work that they do and the fact that there is another window for them on a subsequent licence, whatever, lower down on the channel, I think is an asset to the growth of that channel because just as there is repeat programming in the drama world -- I mean you have a program like Due South, which I saw when one of the gentlemen aired a piece this morning, Due South continues to have a long shelf life in part because of its success on its original broadcaster -- I think it was CTV, I am not mistaken -- and it can still live off of that.

29948 This Corus application I think will have a better chance, and I think that this is what is important. I mean, we want to support licences that have the best opportunity for success as opposed to down the road having to sell out to the highest bidder. We would like to see applicants that we believe will have a future within the system.

29949 So utilizing what already exists and they are still saying, Corus is saying that 50 per cent of their acquisitions are going to be from independent producers, that there is only going to be 200 hours in the CBC and 100 hours from the NFB and five hours of new-run NFB films.

29950 So I think the Corus application has a solid foundation with already existing programs which will be of great benefit to getting that licence off the ground and off the ground and out of the blocks quicker and still be able to pour revenue into new programming which is what they are committed to doing.

29951 And they are suggesting 47 per cent of their revenue from the previous year. So that's huge and that's why we found that their application is more substantial than the Rogers.

29952 So we certainly don't feel that there is a problem. I know that -- and we chatted with the folks whom we have been very much on the same wavelength for years have a slightly different take on it, but our view is that there is a greater chance for Corus to be viable, and I think that long range, which is again what we would like to see, we want to look long range and see success with these licences and Corus, I think, has a better opportunity to do that using that foundation that already exists -- and we are not talking just, you know, shlock programming. We are talking quality documentary programming that already has been seen and deserves to be seen again.

29953 COMMISSIONER WILSON: Turning now to three genres that you sort of talk about together, numbers 6, 7 and 8 in your opening remarks this morning, the girls 5 to 7 comedy for children, and the youth 12 to 24. But I would note that we did have some discussion about whether or not someone who is 24 could qualify as a youth.

29954 MR. GOLUBOFF: No, they can't.

29955 COMMISSIONER WILSON: They can't? You say, "We believe that there are strong policy reasons". This is a lot of sort of youth programming that you are suggesting. And then you say, "There are strong policy reasons for supporting each of them".

29956 I am just wondering why you would suggest three services of your 11 targeted at this --what are the strong policy reasons for that?

--- Pause / Pause

29957 MR. GOLUBOFF: I'm just thinking here before I jump into this. I mean, certainly children's programming in this country is respected and it lays a foundation, I think, for future viewers, so to speak, and I think that there is a desire to see again, and I mentioned it before, quality programming in which we have the ability to produce quality programming, and have a history of producing quality programming in the children's area or youth area. What leads to the licences, I guess, was a little different and -- do you have anything just in general that you would wish to say?

29958 MR. AUDLEY: I guess just on the question of age, which is the issue that arises in the case of Craig, it was our understanding from the beginning that their primary target audience was 12 to 17. They have gone a little beyond that, but it's not really their intention to target that audience.

29959 I guess the premise here is that one of the things the Commission might want to do and that it seemed to the Guild and to the Guild's executive board it made sense to do, was to try to use the Category 1 licences to make things happen that will otherwise not happen and to give a leg up to some applications in important programming categories that are obviously under-served, and seriously under-served. That was the case with all of these services. They didn't seem particularly to be heavily overlapping services.

29960 COMMISSIONER WILSON: So it's your view that children and youth programming is particularly under-served?

29961 MR. AUDLEY: Yes.

29962 COMMISSIONER WILSON: Okay. With respect to feature films, you say you would welcome whatever support the Commission is able to provide for Canadian feature films. What kind of support were you thinking of when you made that statement? Requirements that services air Canadian feature films?

29963 MS BRAND: We were hoping whatever the Commission could persuade the applicants to put towards feature films.

29964 COMMISSIONER WILSON: In the way of funding or...?

29965 MS BRAND: In the way of putting money into feature films, some money for Canadian programming, Canadian contents, to divert towards feature films.

29966 COMMISSIONER WILSON: And on the issue of independent producers, I guess essentially you are saying -- and correct me if I am wrong -- that independent equals zero participation by a broadcaster of any kind. Is that accurate?

29967 MR. GOLUBOFF: Yes.

29968 COMMISSIONER WILSON: Okay.

29969 MR. GOLUBOFF: I mean in a nutshell, yes.

29970 COMMISSIONER WILSON: Okay. But then you talk in your second point, this is on page 6 of your opening remarks, you say that while we favour a lower -- I guess I'm confused because you are saying independent equals zero per cent and then you talk about the different percentages that have been discussed during the course of the hearing.

29971 MR. GOLUBOFF: Certainly zero would be the optimum.

29972 COMMISSIONER WILSON: The optimum.

29973 MR. GOLUBOFF: Optimum. Obviously everybody has a different take on that. The applicants all have charm. I mean Alliance. They all have a different take on what they believe makes or doesn't make an independent producer. You know, our view is that, you know, zero would make an independent producer. I don't think that's going to fly.

29974 Somewhere from zero to I guess 40 per cent is probably where it's going to end up. Exactly what the specific percentage is, you know, I guess it's something you guys will have to grapple with. Our view is zero. We like zero.

29975 COMMISSIONER WILSON: Okay. And then you talk about a test of de facto control. Commissioner Williams, who sits beside me here, keeps saying I'm not a lawyer, but I have a lot of lawyers with me.

29976 I'm trying to understand a little bit better how this test of de facto control would work. Is this a standard test that you are talking about, applying tests?

29977 MR. AUDLEY: I guess there are tests that are applied in other contexts to establish the relationship between companies in the way you apply it in the case of deciding whether somebody is Canadian controlled. You look not just at percentage of equity, but at de facto control as well. It's a test that's used by the Finance Department in the case of taxation and tax policy.

29978 This is not an area where there are no precedents for using a de facto control test. One of the problems is you could have a company in which the majority owner of the voting shares had 60 or 70 or even 80 per cent of the shares and the minority shareholder had a management agreement that gave it control over major areas of decision-making.

29979 I have seen those agreements. They are not hard to draft. If you set criteria that don't give you any sort of fallback to a control test, then you are inviting clever lawyers to run circles around you, with respect.

29980 COMMISSIONER WILSON: With respect to the lawyers who are sitting on the panel.

29981 MR. AUDLEY: Yes.

29982 COMMISSIONER WILSON: Okay. So once we establish the definition, then you say that essentially you agree with the position of Cinefest which is they would not acquire any production whatsoever. Your preferred position would be zero and zero. Is that your characterization?

29983 MR. GOLUBOFF: Yes.

29984 COMMISSIONER WILSON: Okay. You did on page 6 say in your second point that if it's not going to be zero, then you were giving us an idea. If it's -- on page 7, the amount of programming required from non-affiliated producers, if it's not going to be zero, what is a reasonable amount? What did you consider reasonable when you made your choices of the services that you thought we should licence?

29985 MS BRAND: I guess we could live with 10 per cent.

29986 COMMISSIONER WILSON: Ten per cent. Okay. Just let me ask you quickly on the issue of the independent programming with respect to the sort of -- I guess that means you're done.

--- Fire alarm / Alerte d'incendie

29987 MR. CUSSONS: I will just check to see, hopefully, if that's a test.

--- Pause / Pause

29988 COMMISSIONER WILSON: All right. I will ask my final question with respect to independent production. Some of the applicants have made the argument that because of the inherent nature of the digital environment which will have very low subscriber numbers --

29989 MR. CUSSONS: Ladies and gentlemen, I'm advised that it's strictly a test.

29990 COMMISSIONER WILSON: Okay. Some people have made the argument that because of the challenges of the digital environment, the risks inherent in the nature of the digital environment, lower subscriber counts, a longer sort of period of time before they might see a return, that we should be more flexible on the issue of independent production and the limits that we might use.

29991 I think that's where that discussion with Global that you talk about in your opening remarks came from, where they talk about the 25 per cent and 50 per cent. The business cases are more challenging. What would your comment be on that? Should we take the same approach or, again, should we offer more flexibility in this environment to try and get the channels up and running to get the content out there as sort of maybe short term pain for long term gain?

29992 MR. GOLUBOFF: I will make one comment and then I know Paul wants to make a comment here.

29993 I think I have said it, but I just maybe need to say it again for my own clarification in my own mind. I don't think that just getting these licences up and running is reason enough. I think we have to be convinced that getting them up and running and their survival is what's important.

29994 It's easy -- I shouldn't say easy. You guys have a difficult challenge ahead of you obviously and have been involved in looking at 90 or 88 applications and narrowing that down to however many ultimately become licensed. Even within the numbers that you licence, we have to be, you know, all very sure that there is a good chance of survival.

29995 Being overly flexible may not benefit us down the road if ultimately they were so flexible that they produced the program that they are producing no one wants to watch, that it is so inexpensively produced that the licence fees to the film-makers is non-existent, that the film-makers cannot make a living, therefore, they are not going to be making films, they are not going to be producing content for these licences.

29996 I think that we have to be very careful that we are not overly flexible. I just don't see the benefit of being too flexible.

29997 MR. AUDLEY: I guess the premise of the business argument for being allowed to produce inhouse rather than to acquire from independents is that producing inhouse is less expensive than acquiring from independents. I'm not sure you should begin with that as an accepted premise that no one would challenge.

29998 The second point though is that in looking at applications where there were competing applications, what the guild looked at was what the competing applicants were offering to do. The beginning point was what was being offered.

29999 Where in some cases it's almost a hundred per cent from independent producers, the guild certainly supports that and would like to see that written into the licence. It may be that there are different arguments to be made based on the genre in which the service is operating. That may have affected what people were prepared to come and offer. We certainly began with what they came and offered.

30000 COMMISSIONER WILSON: Thank you so much for responding to my questions.

30001 THE CHAIRPERSON: Thank you very much, gentlemen, and Madam Brand.

30002 Mr. Secretary, please.

30003 MR. CUSSONS: Thank you, Madam Chair.

30004 We will now hear the intervention by The Alberta Motion Picture Industries Association.

INTERVENTION \ INTERVENTION

30005 THE CHAIRPERSON: Good morning.

30006 MS EDWARDS: Good morning.

30007 THE CHAIRPERSON: I see you are not surrounded by lawyers.

30008 MS EDWARDS: I am not surrounded by anyone.

--- Laughter / Rires

30009 MS EDWARDS: But I will try my best.

30010 THE CHAIRPERSON: Go ahead. We are all ears.

30011 MS EDWARDS: Thank you.

30012 Madam Chair, Madam Co-Chair and Commissioners, thank you very much for the opportunity to speak with you today.

30013 My name is Connie Edwards and I am the President of The Alberta Motion Picture Industries Association.

30014 Over the past 26 years, The Alberta Motion Picture Industries Association has been guided by its mandate to enhance business and employment opportunities for its producers and craft members, and, as such, it has been our policy to seek specific, measurable and targeted benefits for the Alberta independent production sector. Ultimately, our organization's goal is to find a way to create a positive environment for film and television production in Alberta for the benefit of all stakeholders, including our broadcaster partners.

30015 AMPIA has a total of 245 members and represents over 55 production companies that produce high quality, award winning programming. These programs represent significant creative and employment opportunities for writers, directors, cast and crew members of the entire Alberta production industry.

30016 AMPIA plays an important role in this sector of the economy, representing film and television professionals, disseminating information to them, lobbying and marketing on their behalf, and, most importantly, advocating for indigenous production.

30017 The licensing of the new specialty channels in 1994 has had a very positive impact on the independent production community in Alberta and across Canada. Specialty services have spent significantly more on Canadian programming, acquisition and licensing than conventional television. We are hopeful that digital services will provide similar results.

30018 As we did in our written response to Public Notice 2000-5, AMPIA would like to reiterate our comments on our concerns in general about vertical integration. While we do understand the fiscal realities of mergers and mega mergers, and are certainly not opposed to them, AMPIA believes that bigger does not always mean better.

30019 Unless each broadcaster takes care to preserve the diverse voices from across this country through firm commitments to work with independent writers, producers and directors, whether on television screens or on the Internet, we believe that amalgamations are not always necessarily going to benefit the Canadian viewing public. We wonder how well it would serve Canadian viewers if the demographic diversity of voices and opinions, creativity and objectivity were limited by a potentially finite number of voices.

30020 What makes this country great is the diversity of its people. What services this country well is the diversity of its voices. What constitutes interesting Canadian television programming is a diversity of visions from a variety of independent sources. Those sources are the truly independent producers; producers who have little or no affiliation to a broadcaster.

30021 AMPIA recommends that the Commission look to paragraph 42 of Public Notice 2000-6 when reflecting on the definition of an independent producer in relation to any vertically integrated company applying for a digital service. In paragraph 42 the Commission discusses access rules for "distributors who carry on any Category 2 programming service in which they directly or indirectly control more than 10 per cent of the equity".

30022 Utilizing that thought process, AMPIA would recommend perhaps a similar rule for broadcasters who are producers, or producers who are broadcasters or distributors, and so on.

30023 We recommend exploring limits in company ownership so that independent producers truly remain independent. But more importantly, AMPIA would like to see commitments made by successful applicants for a significant minimum percentage of programming that will be licensed from non-affiliated production companies.

30024 Further, AMPIA recommends that the Commission continue to adopt stringent self-dealing policies to ensure that diversity of voices and choices continue to be a cornerstone of their licensing decisions. We believe that this will ensure the diversity and innovation of Canadian television programs.

30025 Our comments today do not oppose any applicant and, further, we have encouraged our members to submit individual interventions as they saw fit.

30026 We would like to thank the Commission for the opportunity to present our comments, and I would be pleased to answer any questions that you may have.

30027 THE CHAIRPERSON: Thank you, Ms Edwards.

30028 Commissioner Williams, please.

30029 COMMISSIONER WILLIAMS: Good morning, Ms Edwards.

30030 MS EDWARDS: Good morning.

30031 COMMISSIONER WILLIAMS: Thank you for your presentation.

30032 I have a few areas that I will go through to try to gain a better understanding of your position.

30033 This is just a general question. You are familiar with the selection criteria that the Commission has decided to consider in the licensing of these Category 1s. What criteria do you think are the most important in choosing Category 1 services?

30034 MS EDWARDS: Frankly, we haven't had a lot of opportunity to really look at those criteria. We are a volunteer organization and, as such, we do our best when we can, so I don't feel qualified to give you an answer.

30035 I would be perfectly prepared to go back and speak with our board and a consultant and give you our written comments on that, if that is suitable to you.

30036 COMMISSIONER WILLIAMS: Well, I can just read the criteria and maybe you can just try from there, if that's okay.

30037 MS EDWARDS: Okay.

30038 COMMISSIONER WILLIAMS: Contributions to Canadian programming; attractiveness of service; contribution to diversity of programming genre; affordability; and reasonableness of the business plan.

30039 MS EDWARDS: And you are asking me what I think of --

30040 COMMISSIONER WILLIAMS: Which of those do you think is the most important?

30041 MS EDWARDS: Based on my comments, certainly diversity, I think followed very closely by Canadian programming. Those would be the two.

30042 COMMISSIONER WILLIAMS: Thank you.

30043 In your written intervention you have noted the positive impact that specialty services have had on the independent production sector in Alberta, and of course across Canada. How many Category 1 applications should the Commission license at this time?

30044 MS EDWARDS: Again, we would feel that the Commission would be more knowledgeable in that area. I have heard anywhere from 10 to 14. I think that is certainly a reasonable number.

30045 COMMISSIONER WILLIAMS: Okay, 10 to 14.

30046 How many Category 1 French-language services should be approved?

30047 MS EDWARDS: We have not explored that, so I am unable to answer that question.

30048 COMMISSIONER WILLIAMS: More than one?

30049 Okay, I can accept your answer, if that is your answer. I am not going to try to get a new answer out of you.

30050 MS EDWARDS: Yes, I'm sorry.

30051 COMMISSIONER WILLIAMS: In the area of independent production, if the Commission were to require that certain amounts of production come from producers not affiliated with specialty services, which level of production would you recommend? How much?

30052 MS EDWARDS: Ideally -- and I think I have heard this from one of the applicants. There was a 25/75 split. The 25 was in-house or affiliated and 75 was independent.

30053 I want to be very clear, as well, that we are not opposed to a broadcaster being part of a producer or buying into a production company, or vice versa. I think that is very healthy. Certainly, some of our members would benefit from that. So I want to be very clear on that. But we would like to see a significant percentage that is committed to the truly independent, non-affiliated producer.

30054 COMMISSIONER WILLIAMS: Should this level vary according to the genre of service?

30055 MS EDWARDS: I think that would be reasonable. If you have something that is more heavy into news, sports and that kind of thing, it would be very difficult to regulate it across the board without consideration for the different genres.

30056 COMMISSIONER WILLIAMS: Some parties have suggested that some channels, by their nature, are more suited for in-house production. Would you care to comment on that?

30057 MS EDWARDS: Again, not having thoroughly reviewed the applications, I think, obviously, our position would be that we would like to see some level of independent production for all of the channels, again to ensure diversity of voices. That is something that is very important. There may be someone with a very important story to tell who lives in perhaps a remote part of the country that perhaps that particular broadcaster doesn't have any -- I don't want to say tentacles, but they don't necessarily know.

30058 But that producer may be able to come forward and offer something meaningful. So I would hate to see a closed shop.

30059 COMMISSIONER WILLIAMS: A number of applicants have stated that it would be very important for specialty licences to own their own content in a digital environment. What is your view of this assertion?

30060 MS EDWARDS: I can understand their comments to that extent.

30061 It is very difficult as an independent producer, the only thing that we have -- and I think our colleagues at the CFTPA and perhaps the Canadian Conference for the Arts made the point -- the only thing we have is our intellectual property. When we make business arrangements with our funders, if we have equity participants, we need to pay those people back. We need to create some kind of a revenue stream. So it would be difficult to hand over the control to someone else and lose our control. From our perspective, businesswise it would not make a great deal of sense. That is as a producer of course.

30062 COMMISSIONER WILLIAMS: In your written submission you state that:

"The Commission should not consider as directly competitive splinter services proposed by parent services but that the directly competitive test must be more rigorous when a sub-genre service is proposed by another part." (As read)

30063 It can be argued that diversity of ownership is another type of diversity that the Commission has a duty to ensure is present in the broadcasting system.

30064 So how should the Commission balance these apparently conflicting goals of preserving the quality and diversity of existing programming services, while at the same time ensuring that new players and voices have a place in the Canadian broadcasting system?

30065 MS EDWARDS: That is a very good question.

30066 I'm sorry, what you read to me, could you just let me know what paragraph that is?

30067 COMMISSIONER WILLIAMS: I pulled it from my own notes, not from your presentation.

30068 MS EDWARDS: Oh, sorry. Okay.

30069 COMMISSIONER WILLIAMS: I can dig it out for you.

30070 MS EDWARDS: If you could just perhaps reiterate. I understand what you are saying and it is a very difficult -- a very difficult question.

30071 Certain --

30072 COMMISSIONER WILLIAMS: Well, we can just go straight to the question and never mind the preamble.

30073 MS EDWARDS: Okay.

30074 COMMISSIONER WILLIAMS: That might make it a bit easier. I'm sure you have the answer.

30075 How should the Commission balance the apparent conflicting goals of: (1) preserving the quality and diversity of existing programming services; and (2) ensuring that the new players and voices will have a place in the Canadian broadcasting system?

30076 So how do we preserve what we have and at the same time leave the door open for new players?

30077 MS EDWARDS: I think one of the exciting things with the digital age is that there are new and innovative ways of doing things, some of which we perhaps don't even know at this point.

30078 I liked the way that the Commission was looking at the different categories and how they could complement, perhaps -- maybe that is the best way to go about it, to complement the Canadian broadcasting system to fill some voids that are there and perhaps to push in new directions.

30079 My sense of it from the applicants is that that is in fact what people are trying to do. They are trying to break new ground, find new roads, and I think ultimately that will benefit the viewing public.

30080 It is a very difficult balancing act that you are going to be undertaking, but certainly new and innovative, is something that is very exciting and it allows us to preserve what is out there currently.

30081 COMMISSIONER WILLIAMS: Okay. So to summarize your intervention then, you would like us to explore limits so that independent producers truly remain independent; you would like to see commitments from successful applicants for a significant minimum percentage of programming that will be licensed from non-affiliated production companies; make sure we take a good look at self-dealing policies; and encourage diversity of voices in the Canadian broadcasting system.

30082 MS EDWARDS: Yes.

30083 COMMISSIONER WILLIAMS: Thank you very much.

30084 MS EDWARDS: Thank you very much.

30085 THE CHAIRPERSON: Thank you, Ms Edwards.

30086 Mr. Secretary, please.

30087 MS CUSSONS: Thank you, Madam Chair.

30088 We will now hear the intervention by Teletoon Canada Inc.

--- Pause / Pause

30089 THE CHAIRPERSON: Proceed when you are ready.

INTERVENTION / INTERVENTION

30090 MR. RILEY: Good morning, Madam Chair, Madam Chairperson, members of the Commission and Commission staff.

30091 My name is John Riley and I am the President of Teletoon, Canada's animation specialty service that offers feeds in the French and English languages. Thank you for the opportunity to present Teletoon's intervention to you today.

30092 Today I will highlight a couple of key points from our written intervention and respond to discussion that has taken place in Phase I. Our written intervention included the following key points.

30093 First, the test for directly competitive should be rigorously applied when the issue of competition from proposed services against existing services is considered. Because existing services have established themselves with clearly defined program grids, set target audiences and workable business plans for their given genres, the Commission's objective should be foremost to preserve the quality and diversity of existing programming services.

30094 In Teletoon's short three-year history, we have expended some $19 million for Canadian animated programming. Next year alone we will spend over $13.5 million on Canadian animated programming. Over 90 per cent of this spending is for original Canadian programming. It is unlikely that new digital services will be able to achieve contributions of the magnitude made by existing services, particularly for original animation which is relatively costly to produce.

30095 Secondly, specific limitations with respect to the amount of animation offered by new services should be set to ensure diversity of programming. We propose that not more than 10 per cent of the broadcast day of new services should be comprised of animated programming, plus an additional limitation that not more than 10 per cent of the hours from 4:00 p.m. to 10:00 p.m. -- which is prime time for younger-skewing audiences -- should be comprised of animated programs in order to ensure diversity of programming.

30096 This proposed restriction should apply to the total animated programming on the service, not just the programming logged as Category 7(e), animation, because programs that are comprised completely or predominantly of animation could be logged under other categories, such as 7(a), 7(b). For example, "The Simpson's" could be logged, presumably, as Category 7(b), an ongoing comedic series.

30097 Now, turning to the specific application, the three applications for Category 1 book channels all feature some component of animation. The sample schedules filed by Book Channel and BookTelevision reveal levels of animation near or less than our proposed 10/10 limitation. Therefore, we expect that these applicants could accept our proposal.

30098 In the case of Booknet, however, the amount of animation in the sample schedule is much higher, being 36 per cent of the broadcast week and a whopping 70 per cent of the day period from 6:00 a.m. to 4:00 p.m.

30099 The applicant stated at the hearing that it would accept a licence condition limiting animation to 20 per cent of the 4:00 p.m. to 10:00 p.m., but it's sample schedule reveals no animation for that period, so arguably this commitment represents a potential increase in animation on the service. No restriction was offered for the overall broadcast day.

30100 The applicants for book services offered various reasons to support including animation in their respective channels. We do not object to the presence of animation on the new services, provided it is not to the extent that it makes them either individually or cumulatively directly competitive with Teletoon.

30101 I would like to address certain points that were made. It has been argued that animation offered on a book channel is distinguishable from other animation because it is based on pre-existing literary works. This is a distinction without a difference.

30102 The fact of the matter is, all dramatic television programming is based on one of two sources, either an original concept or a pre-existing literary work. Much animation, particularly for kids, is book based. Indeed, 50 per cent of programs in Teletoon's broadcast day are based on pre-existing literary works.

30103 In the case of YTV's current schedule, programs based on pre-existing literary works appear to constitute at least 55 per cent of the broadcast day, and for Family Channel it appears to be about 40 per cent book based. We submit that book-based programming, particularly book-based animation, is very well served by existing services and adding more of the same will not bring greater diversity to the Canadian broadcasting system.

30104 It was argued by the applicant for BookTelevision that dramatic programs on a book channel that are otherwise already offered by existing broadcasters can nevertheless be considered as adding diversity if accompanied with added elements that provide a book context. Madam Bertrand will remember the exchange in which she asked, "What's the difference between a Harlequin movie on BookTelevision and a Harlequin movie on other [channels]?"

30105 The answer given was: "context"; that when the program was presented on a book channel it might include wraparounds involving discussion of the book, or readings from it, et cetera.

30106 The applicant agreed to accept an augmentation to its proposed nature of service description that its programs will be identifiably book related or presented in a book context. While we don't disagree that added context may prove an interesting add-on, we don't believe that context alone makes the service any less directly competitive with an existing one because the underlying main program is still the same.

30107 Therefore, we submit that limits on the quantity of content overlapping with existing services remain appropriate regardless of any commitment to present programs in a "context". We acknowledge that BookTelevision agreed to accept a condition of licence limiting animation to 5 per cent of the schedule.

30108 It was stated in the Booknet application that because its programming during the day from 6:00 a.m. to 3:00 p.m. will be commercial free it will not have an adverse effect on other children's services or blocks since no direct commercial revenue is derived from pre-school programming.

30109 The logic of this argument would suggest that the Commission could license an infinite number of pre-school channels and it should have no adverse effect on Treehouse because Treehouse does not derive direct commercial revenue.

30110 Absence of direct commercial revenue does not make a service less directly competitive with an existing one. Booknet's animation content during this day period is 78 per cent, all of which is available on existing networks. This hardly adds diversity to the system, and makes the channel virtually an animation channel for six straight hours, a full third of the broadcast day.

30111 Booknet also said that the high level of animation proposed was justified to support the Canadian animation production industry because it was argued that other than Teletoon, YTV, Family Channel and Treehouse there is very little animation on existing channels.

30112 First, to exclude these four channels before assessing the opportunities for animation is somewhat like saying that other than the Maple Leafs, Blue Jays, Raptors and Argos, there is limited opportunity to attend professional sporting events in Toronto.

30113 Second, while Teletoon strongly supports opportunities to increase the creation and exhibition of Canadian animation, we don't believe this should be a key factor to justify high animation on a book channel.

30114 Finally, we point out that our 10/10 proposal, coupled with the number and kind of services expected to be licensed, will allow abundant opportunities for the Canadian animation production industry.

30115 We acknowledge that the applicants for Comedy For Kids, Girls TV, and Connect have offered to limit animation to 15 per cent of their schedules; and in the case of Connect, it subsequently agreed to extend this limit to the 4:00 p.m. to 10:00 p.m. period.

30116 However, for the reasons stated here and in our written intervention, we remain of the view that our 10/10 proposal remains appropriate; 10/10 may sound restrictive, but this would amount to over 30 half-hour animated programs per week per new service. That is a lot.

30117 I would like to close with one additional general point.

30118 We recognize that Category 2 applications are not the subject matter of this hearing. However, we respectfully encourage the Commission to subject the Category 2 applications to the same scrutiny and restrictions as Category 1 regarding competitiveness with existing services.

30119 Though Category 2 applications are non-appearing and will not have certain distribution rights accorded Category 1, they will not be lesser animals.

30120 One need look no further than the last launch in 1997 when so-called analog services -- Teletoon, Comedy, History and CTV Newsnet (which one might consider somewhat akin to Category 1) -- were joined by so-called digital services like Prime, HGTV, Outdoor Life, Treehouse and Headline Sports. And so, too, will Category 1's and Category 2's cohabit in digital offerings, having similar impact on existing service.

30121 In closing: Let's have new services, but let's ensure that they meet their own claims of distinctiveness and that they add diversity to the system by firmly restricting content overlap with existing services.

30122 Thank you for the opportunity to appear before you today. If you have any questions, I would be happy to answer them. If not, best wishes with your deliberations.

30123 THE CHAIRPERSON: You are not going to get away that easily.

30124 MR. RILEY: Oh, shoot.

30125 THE CHAIRPERSON: Commissioner Demers, please.

30126 COMMISSIONER DEMERS: Thank you, Madam Chair.

30127 Good nearly afternoon, Mr. Riley.

30128 Would it be fair if I were to say that there is a bit of a shift in what you present in your oral presentation as to the reasons why there should be less animation in the new applications?

30129 In your written intervention you indicated that the supply of this type of programming could be in jeopardy from your point of view if there were too much other channels with this type of programming.

30130 MR. RILEY: I don't think so much it is a shift. We did have ten minutes, and we wanted to spend that time to really respond to the discussion that had taken place. We are aware, of course, that you had already received the written intervention.

30131 I think the point we were trying to bring out in the written intervention was that one must also consider that Teletoon -- which, by the way, does have a restriction on its live action. We are only permitted to have 10 per cent.

30132 We are really about animation, and that is all we do.

30133 To the extent that if you look at the total pool of dramatic programming that is available, it comes really in one of two forms: it is either live action or it is animation.

30134 So regardless of the relative size of pool of programming, whether it increases, whether it is small, or what have you, we will always have access to "half the pool". Whereas let's say a Girl's TV Channel, Teen Channel, whatever other channel is there, will also have availability to a larger pool

30135 So regardless of the size of pool of animation, we have access to one pool. The others that are seeking other target audiences will always have a bigger pool to choose from.

30136 That is the point that we wanted to raise in the written, and I was only here because we had to make some sacrifices.

30137 COMMISSIONER DEMERS: Thank you. Just another point, and here again the basis of my question refers to your written submission, because I don't remember hearing it here today.

30138 In your written submission you state that the Commission should not consider as directly competitive splinter services proposed by parent services, but that the directly competitive test must be more rigorous when a sub-genre service is proposed by another party.

30139 It can be argued that diversity of ownership is another type of diversity that the Commission has a duty to ensure and that is present in the Canadian broadcasting system.

30140 How should the Commission balance these apparently conflicting goals of preserving quality and diversity of existing programming services while at the same time ensuring that new players and voices have a place in the system?

30141 MR. RILEY: It is obviously a difficult task for the Commission, because the Commission's duty is that they are charged with balancing the criteria that have been set forward and trying to keep all those balls in the air at the same time.

30142 The Commission, from what I have witnessed, is faced with a great number of applications, some of which are from existing groups, some of which are from new groups. Ultimately when the Commission assesses all the criteria and all the applications, it will be forced to sit down and say we are trying to come up with a decision that meets all the six criteria that have been outlined.

30143 We may not be able to meet them all with one application, but what you do have is you have the power of selecting, especially in Category 1, which application may proceed and another will not.

30144 I would suggest that, as the Commission makes that decision, it will have to make choices that in some cases may address some of the criteria and may have to make choices that balance that out by making the other choice that ensures that the other criteria are also met.

30145 Every single application may not hit all six criteria all at once. So it is a question of the choices that you have to make and the power that you have to make those decisions.

30146 It is not easy, but it will have to be done, I think.

30147 COMMISSIONER DEMERS: Thank you, Mr. Riley.

30148 MR. RILEY: Thank you very much.

30149 COMMISSIONER DEMERS: Thank you, Madam Chair.

30150 THE CHAIRPERSON: Thank you very much for your presentation.

30151 Mr. Secretary, please.

30152 MR. CUSSONS: Thank you, Madam Chair.

30153 I have just been advised that the next intervention on our list, CTV Sportsnet Incorporated, Mr. Akande, will no longer be appearing. But we have his written intervention on file.

30154 That being the case, I would like to call forward The Family Channel to present its intervention, please.

--- Pause / Pause

INTERVENTION / INTERVENTION

30155 MR. WRIGHT: Good afternoon, Madam Chair, Madam Chairperson, Members of the Commission and Commission Staff.

30156 My name is Kevin Wright and I am the Vice-President of programming for The Family Channel Inc. Len Cochrane, Family's President and COO, is unable to appear and has kindly asked me to speak in his place.

30157 Family Channel is Canada's national English-language premium television service presenting quality entertainment programming for children, youth and their families.

30158 Family has been a long-time supporter of Canadian programming, spending, since our launch in 1988, over $40 million on the licensing of Canadian programming. Next year alone we expect to expend over $6.5 million.

30159 I thank you for the opportunity to speak today on behalf of Family regarding the Category 1 applications for new digital television licences.

30160 First, there are two primary objectives in evaluating the addition of new services:

30161 One, to ensure that all new services truly add diversity to the broadcasting landscape offered to viewers, and

30162 Two, to ensure that the addition of new services does not endanger the ability of existing services to continue to meet their conditions of license and support high quality Canadian programming.

30163 With regard to the impact of new services, there has been discussion during the hearing that since the new digital services will be distributed initially to a relatively small number of Canadian homes due to relatively low digital box penetration, that the new digital services will not have a significant negative impact on existing analog services and thus will not be that competitive with existing services.

30164 It is our view that in assessing the impact of new services, overlapping content, not relative distribution, should be the primary consideration. Although lower initial distribution may affect a new service's relative market power at the outset, this doesn't make that service any less competitive in terms of programming with overlapping existing services.

30165 Furthermore, in the coming years, as digital box distribution increases and services migrate to digital carriage, distribution differences will disappear.

30166 We support the creation and development of Canadian family-oriented programming. We also support the granting of new licences for services that are truly new and unique and that will assist in facilitating digital roll-out and acceptance.

30167 We note, however, that many of the programs set out on the proposed grids are already being aired on existing services. As such, a large portion of some of the applicants' proposed grids are not new, diverse or distinct.

30168 In the particular case of programming targeting children, youth and families, Canadians already enjoy access to four English-language national services -- Family, Teletoon, YTV, Treehouse -- that together devote their entire schedules to children, youth and families.

30169 We believe that this target audience is currently very well served. This strong selection of existing services must be kept in mind when evaluating any new services seeking to serve these demographics.

30170 New services targeting children, youth and families must offer truly unique and under-represented programming. Our review of new services targeting these audiences suggest that some applications do not meet this test and are directly competitive with existing services, specifically Family Channel.

30171 Family Channel's schedule incorporates a variety of programs for children, youth and their families, with over 90 per cent of our current schedule falling within our core mandate of family programming.

30172 What is "family programming"? It is not simply a program watched by someone who has a family.

30173 We offer the following operational definition of family programming:

"Programming from Category 5 (Pre-school & Informal education, recreation and leisure) and Category 7 (drama and comedy) that has a target audience of children, youth to age 17 or adults in conjunction with children and youth."

30174 We do not believe this to be an all encompassing or overly inclusive definition. A program must fall into one of these two categories and have a family audience. A program would be deemed to have a family audience if the program is targeted to or attracts a 50 per cent or greater audience of 2 to 17 year olds as measured by Nielsen.

30175 The Girls TV application states that:

"There is a dearth of programs featuring girls as main characters".

30176 We respectfully disagree.

30177 The proposed Girls TV service contains significant duplication with existing services, including Family Channel. In fact, 54 per cent of their proposed broadcast schedule overlaps with family programming.

30178 Family Channel currently has numerous "girl-skewing" programs, including five series with a young girl as the central character; programs such as "The Little Lulu Show", "Madeline", "Clarissa Explains It All", "Disney's Pepper Ann" and "So Weird". These programs present positive role models and attract sizeable female audiences for Family Channel.

30179 Family also currently features an additional nine girl-skewed programs and many other where the female characters are presented as equals on a team or within a family.

30180 With this large overlap in programming with the Family Channel, in addition to a plethora of young female protagonists on YTV, Treehouse and Teletoon, we submit that Girls TV is directly competitive with existing services and therefore does not meet the criteria to be granted a Category 1 or Category 2 licence.

30181 The Comedy For Kids application is another concern. Their proposed broadcast schedule contains over 60 per cent family programming.

30182 Most of Family's programming for children is humour or comedy-based. Family is pleased to present Canadian and international comedy programs for kids, such as "Clarissa Explains It All", "Microsoap" and "Little Lulu".

30183 We acknowledge that the applicant has agreed to a 15 per cent restriction on animated programming. However, 60 per cent of Family's schedule is live action. With a restriction on animation, but no restriction on family programming, there is a sizeable potential for duplication with Family Channel.

30184 We further note that of the live-action series appearing on the applicant's sample grid, several of the proposed programs are currently airing on Family. In fact, two of the titles, "Clarissa" and "Full House" are not only both currently on the air, they are also listed in the applicant's other proposed service Girls TV. Such duplication can hardly be seen to be adding programming choice or diversity.

30185 We take the position that, in accordance with several other intervenors, comedy-based programming for children is already adequately served. As such, the applicant's licence application is neither new, nor distinct and should not be granted.

30186 We believe that the "Directly Competitive" test for new services should be vigorously and strictly applied. As you have heard from several intervenors, the cumulative effect of numerous new services with overlapping content essentially represent defacto direct competition; direct competition for both programming and viewership.

30187 To ensure true diversity, we have proposed a condition of license for new services that limits family programming to no more than 10 per cent of the overall broadcast day and 10 per cent of prime time.

30188 We believe a number of the new services devoted to books contain varying degrees of overlap with Family Channel. If it is truly the core mandate of these new services to focus on books and authors, we question the respective applicants' concerns to accept a condition of license limiting the potential overlap with Family Channel.

30189 As the Commission has already been made aware, most dramatic programs produced are based on books or underlying works of literature. In fact, Family's current daytime schedule derives over 40 per cent of its content from book programs.

30190 Booknet, in particular, is of concern due to the high percentage of family programming in their proposed broadcast schedule. The requested 40 per cent limitation on children and youth programming represents, we feel, a significant overlap with family.

30191 As such, we respectfully propose that the Commission impose the 10/10 limitation on family programming, that is, no more than 10 per cent of the overall broadcast day and 10 per cent of prime time each day can be devoted to the presentation of family programming. Such a limit would ensure diversity of programming and reduce programming overlap.

30192 We feel that this limitation would not inhibit the core mandate of this book channel to achieve its stated objective of "discussion, review, analysis and dramatization of books and literary based characters".

30193 Similarly, BookTelevision's proposed broadcast daytime schedule contains over 28 per cent family programming. Six series named in their proposed schedule have aired, or are currently airing, on Family Channel.

30194 We respectfully request that the CRTC subject all new services noted in our written intervention to a condition of license limiting their family programming to the 10/10 formula proposed here.

30195 In conclusion, we believe that the Commission has an ample number of potential services to select from without having to duplicate services, programming or target audiences that are currently being very well served by an array of existing services, including Family Channel.

30196 I thank you again for the opportunity to elaborate upon our position.

30197 Should you have any questions, I would be more than happy to answer them.

30198 THE CHAIRPERSON: Thank you, Mr. Wright.

30199 Commissioner Wilson, please.

30200 COMMISSIONER WILSON: I just have a few short questions for you because you have been quite clear in both your written intervention and your opening remarks this morning on what your position is.

30201 You spoke a bit to the first question which I have which is with respect to criteria. I think what I am hearing you say is that you think diversity is the most important criterion to be applied. Of the others that remain, what do you consider -- and you are talking about diversity of content.

30202 MR. WRIGHT: Yes. We are talking diversity of content. We feel that in many senses that if you respect that obligation, and these new services truly do add diversity, they will actually capture several other of your criteria in terms of attractiveness to viewers.

30203 The rollout of the digital services must offer a balance of attractive services and appropriate price. We feel that if the subscriber sees this package as having something new and novel and of interest, then they will at a minimum test and sample those new services and thus accomplishing many of the other objectives in terms of the financial business plans and the diversity that's added therein.

30204 COMMISSIONER WILSON: You have also said that you -- I guess the thrust of what you said with respect to the notion of death by a thousand cuts -- I don't think you used that expression but others have -- where you talk about licensed multiple channels, a portion of which overlap with yours, that ultimately will abode your audience and success.

30205 You say that you support the notion of nesting. Are you suggesting in those comments that you think that nesting would always result in the best diversity or at least the best managed diversity?

30206 MR. WRIGHT: I think at the end of the day any new services that are added to the landscape will represent competition for the existing services for viewership. What we hope to address in both our written intervention and what I have spoken here today is how do we identify what is directly competitive? What does not offer new diversity? What does not add to the programming landscape?

30207 We would see there are three areas that directly competitive program services would compete with an existing service. It would either be for existing programming for viewership or for ad dollars.

30208 Family Channel doesn't have advertising, so that last point is not a concern that we factored into our deliberations, but we did look at the first two. The result is what we discussed here.

30209 In terms of the nesting, I think the same criteria that you apply to the non-nested services would apply to the nested services as well. Do they truly offer diversity whether they are from a parent service or whether it's a unique service? To my mind, they should be subject to the same criteria that you would apply to any of the others.

30210 COMMISSIONER WILSON: I guess when you say that, that we should apply the same criteria, that assumes that the world doesn't change, that everything is static, maybe there's a limited number of channels really that we can licence in terms of the market as Canada and the number of people who are going to watch.

30211 It's quite a protective view that you are putting forth, sort of "Protect my genre". What we are hearing that people want, more choice, more services, even different ways of having programming delivered to them such as, you know, bringing together all the programming in one genre, which is very much what Family Channel is like, but like Space or Romance and Relationships where all the programming is one kind and the people like that because they know they can go there and they always are going to find that kind of programming -- I guess what I'm hearing, and I asked this question of Mr. Znaimer, could we ever -- I mean with the l0-10 restriction that you are proposing, is it really possible for us to ever licence a channel that would target children, youths and family to anybody but you?

30212 MR. WRIGHT: First off, I think the reality is that we currently we do live in a regulated environment. There is the Family Channel, there isn't a Disney Channel. We have a Teletoon, we don't have a cartoon network. So to some degree there is a level of regulation that presents a very, I think, sensible and survivable Canadian broadcasting landscape.

30213 I don't believe that the 10/10 rule is unnecessarily restrictive. It does, I believe, allow services that truly focus on a new and underserved area to do that and target children, youth and families. It's to focus on what they coin to be the core area.

30214 If your core area is books and issues around publishing and literature, that certainly can be done without programming to that demographic to those two categories. It is in fact, when you look at it, a very restrictive definition of family. There are many other -- some of the book applications don't have drama targeted to a family audience, so it does seem to be possible for, for example, a book channel to operate successfully without overlapping in a significant way with existing services.

30215 COMMISSIONER WILSON: What about Girls TV?

30216 MR. WRIGHT: I think Girls TV has a greater challenge in that what they put forward as their mandate I believe is already well served, is already an area that is adequately presented with programs for that demographic. There is a lot of choice.

30217 Not that one couldn't create a grid, but if, as you are in the position of having to choose ten services that truly do offer something different and unique and the subscriber is going to go "Wow, I never thought of that before", if they look down and go "Oh, that's another one of those. That's another one of those", it's not going to make that package attractive to them.

30218 COMMISSIONER WILSON: You are a programmer. It's good to have perspective from a programmer, but if I accept what you are saying, then Romance and Relationships shouldn't work because that programming is available everywhere, so why would anybody go to that channel?

30219 I'm trying to extend your argument. Could Girls TV ever be that and could it be done successfully with a 10 per cent -- the 10/10 limitations that you have proposed?

30220 MR. WRIGHT: I mean that may be a question you would have to ask the applicant. I think if a romance channel in fact -- if 60 per cent of the grid that they put forward is duplicated on existing services, then maybe that is not a large amount of diversity that is being offered with that application.

30221 In fact, with the example of the Girls Channel, YTV, Treehouse, Teletoon and Family are fairly one-stop shops for programming for that demographic and for that gender. Young girls don't have to surf over 15 channels to find three or four really good programs that are targeted exactly to their age and to their interests.

30222 Again, we don't feel that, for example, Girls TV is adding a great amount of diversity. If the Girls TV applicant would agree to the 10/10 restriction, and there did seem to be pockets of discussion and makeup tips, it wouldn't fall within our 10/10 definition of family programming, but if they felt that that was something that they could make a go of from a viability standpoint, certainly we wouldn't object to that.

30223 COMMISSIONER WILSON: Would you feel differently if Girls TV was a Category 2 service?

30224 MR. WRIGHT: As I said earlier, it may be a moot point. If we today ask people "Of the current services on the TV, which ones were the analog musculars and which ones weren't", there may be a bit of a tough time identifying which are which.

30225 We feel at the end of the day if the capacity is more than the initial ten that are granted licences, whether it's a Category 1, Category 2, it's a bit of a moot point in terms of the impact from a competition for programming for audience that we mentioned earlier.

30226 COMMISSIONER WILSON: You said that we should look at three things in determining direct competitiveness programming, viewership and advertising. You said that you didn't look at advertising because you don't carry it.

30227 If we were looking for a straightforward way to determine this, how would we translate those three things into safeguards -- or into tests? What level of programming overlap, what level of viewership overlap, what level of advertising overlap?

30228 Advertisers just seem to keep buying, so if there is space they will fill it. We have heard them from time to time say that they could use more space to place their advertising.

30229 What levels of overlap in those three areas would constitute direct competitiveness for you?

30230 MR. WRIGHT: Partially to answer that question --

30231 COMMISSIONER WILSON: Is it the 10 per cent?

30232 MR. WRIGHT: From our perspective, it is hard to answer that question from family programming without knowing how many services would be licensed.

30233 For example, if only one service were licensed that was a family oriented service or had elements of family programming, that would be one thing. If --

30234 COMMISSIONER WILSON: What one thing would that be? Thirty per cent or --

30235 MR. WRIGHT: I think 25 per cent, if there was a 25 per cent overlap.

30236 But if multiple services are licensed, then obviously that has a cumulative effect --

30237 COMMISSIONER WILSON: Things start splitting that --

30238 MR. WRIGHT:  -- and that is why we felt that 10 was realistic across the board. It still allows us a fair number of half hours that would be available for that service to program directly head-to-head with us. So, again, we don't feel it is restrictive.

30239 COMMISSIONER WILSON: Those are all my questions. Thank you very much, Mr. Wright.

30240 MR. WRIGHT: Thank you.

30241 THE CHAIRPERSON: Thank you, Mr. Wright.

30242 MR. WRIGHT: Thank you. It was my pleasure.

30243 THE CHAIRPERSON: We will now adjourn for lunch until two o'clock. We will then hear Bell ExpressVu, and we will obviously have a shorter day today than yesterday.

30244 Nous reprendrons à deux heures pour entendre le dernier requérant, Bell ExpressVu.

--- Upon recessing at 1225 / Suspension à 1225

--- Upon resuming at 1403 / Reprise à 1403

30245 THE CHAIRPERSON: Good afternoon and welcome back to our hearing. Nous vous resouhaitons la bienvenue à notre audience.

30246 Monsieur le Sécretaire.

30247 Mr. Secretary, please.

30248 MR. CUSSONS: Thank you, Madam Chair.

30249 We will now hear the intervention by Bell ExpressVu Limited Partnership.

INTERVENTION / INTERVENTION

30250 MR. McLENNAN: Good afternoon, Madam Chairperson and Commissioners. My name is David McLennan.

30251 I would like to apologize for being a few moments late.

30252 I am President of Bell ExpressVu. With me here on the panel is Chris Frank. Chris is our Vice-President of Government Relations and Corporate Development. Joining me here are Stuart Morris, Vice-President of Marketing, and Cynthia MacCallum, Director of Network Broadcasting. And David Elder has joined us from Bell Canada. He is our Regulatory Counsel.

30253 I believe that Alain Gourd is caught in traffic and will be joining us momentarily.

30254 The decisions flowing from this hearing are an important step toward Bell ExpressVu and other Canadian distributors being able to better service existing customers and attract new customers. That is something we are very excited about at Bell ExpressVu.

30255 We have made a substantial investment in infrastructure to underpin our digital service. To support this investment we need more quality programming product. Additional attractive and commercially viable product married with our advanced digital technology, flexible packaging and value for money to the consumer is a very compelling proposition and one that enhances the entire broadcasting system.

30256 In the 36 months since launching our all-digital service we have done quite well. We have taken the tools provided to us from our stakeholders -- a licence from the Commission, diverse programming from Canadian and foreign programmers, a substantial investment from our shareholder -- and we have combined these tools of production into a rapidly growing, and in fact the fastest growing distribution undertaking in Canada.

30257 We have been able to set new standards in terms of breadth of service, choice and quality of service, but there is a lot more we can do, especially with attractive, commercially viable programming services, such as the licences under consideration today. That is really what we are very excited about.

30258 In addition to having the bandwidth to carry more product, bandwidth in which we have already heavily invested, we want to take the lessons from successfully operating our digital network in the past 36 months and apply these lessons to the new services.

30259 One of the key lessons we have learned is packaging. We have had great success with selling programming services, both in a large all-inclusive package, as well as on smaller thematic bundles. This has allowed our customers to buy the packaging at a bulk discounted rate or to select programming in a more granular fashion.

30260 Our packaging philosophy has been embraced by both consumers, as evidenced by very high satisfaction levels among our subscribers, as well as by programmers, as evidenced by SPTV's and the CAB's complimentary comments on our packaging during this proceeding.

30261 Therefore, current packaging flexibility has allowed us to meet the demands of both the consumers, in terms of providing them choice, as well as the programmer, in terms of maximizing the penetration of services.

30262 Going forward, we believe that packaging flexibility will be the key to the launch of these new services.

30263 Other lessons added to packaging are in the area of marketing and promotion, customer service and value proposition. This has resulted in a formula that has proven very successful for us, and we are very anxious to apply this formula in partnership with the new services, both to help ensure their success, as well as further our own success.

30264 These lessons will become especially useful as new programming services, such as the ones under consideration here, become more targeted and specialized. These services will need to be packaged carefully and sold. They will also need to provide value in the consumer's eyes. This will require a very co-operative effort between the programmer and the distributor. Co-operation on marketing and value will be essential to the success of these new services.

30265 Our interests are aligned here: success at the consumer level translates into success both at the programmer level and the distribution level.

30266 Of course, there are always risks involved, and like any partnership we believe that risks should be shared.

30267 One example of risk is in the area of penetration and wholesale rates. It is reasonable to assume that there will be in excess of 1.5 million DTH subscribers by the time these services launch next fall. That means that the two licensed DTH undertakings will have to very convincingly sell this new programming to more than 1.5 million people.

30268 That is a great opportunity, but it is also quite a daunting challenge.

30269 The success will depend on a co-ordinated marketing effort in which the costs, risks and rewards of such effort need to be shared between the programmer and the distributor. This means that expectations of penetration and wholesale rates must reflect the reality that new services are more targeted and specialized in nature.

30270 Consequently, while we will do our utmost in conjunction with the programmer to optimize the penetration of these new services, in the spirit of risk sharing programmers should not expect a distributor to make up the difference between forecasted and actual penetration rates. A fair approach, in our minds, would be for distributors to pay only for the services subscribed to.

30271 I hope it is clear from my remarks that Bell ExpressVu is very excited about the prospect of having new, interesting and appealing programming to market to our customers.

30272 We have the capacity now to offer more services. Therefore, we encourage the new licensees to launch as rapidly as possible and, in any event, no later than September of next year. It is important that we make productive use of our available capacity to promote new Canadian programming services as soon as possible. Unutilized bandwidth, such as we have now, is very expensive and it is an unproductive proposition for us.

30273 I would like now to ask Stuart Morris to present our view of interactive TV in the near term -- an important innovation and one that is particularly relevant to these proceedings.

30274 Following Stuart, Cynthia MacCallum, who is responsible for affiliate relations, will make a few remarks about our voluntary access code which has been developed in consultation with industry partners.

30275 Stuart...

30276 MR. MORRIS: Thanks, David.

30277 Interactive television is a new and exciting development in the broadcast industry.

30278 At an earlier stage in this hearing, our Chairman, Alain Gourd, described the way in which Bell ExpressVu anticipates that interactive television will evolve on our DTH platform. Our current premium set-top box has some interactive capabilities that will require further investment.

30279 In 2001 we plan to deploy a second-generation box with more memory and greater interactive functionality. In 2002 we will have the option of deploying a second-generation receiver that would incorporate web browsing functionality.

30280 Currently, we are focused on working with hardware and software vendors to provide a platform capable of delivering data associated with the broadcast component. We will dialogue with the broadcasters to help them develop interactive features that will appeal to viewers and will work within the parameters of our set-top boxes.

30281 The applicants have each given you examples of interactive features they hope to deliver. Text and graphic-based factoids and games, along with some forms of e-commerce would appear to be the leading candidates. Clearly, a lot of work must be done in this area, by the service, by the distributors and by the vendors. These are very early days.

30282 As we have stated in the implementation of interactivity, it will be a multi-step process. At each step we must survey the current trends and demand for interactivity and re-tune the steps that follow to meet the new expectations for the long term. We at Bell ExpressVu will initially focus on enhanced broadcasting, but acknowledge that the market may evolve to web browsing on TVs.

30283 Mr. Gourd referred to a fourth possible step involving the two-way, high-speed interactivity which would be dependent upon the launch of a new satellite.

30284 We have been the leader in deploying digital technology in Canada and will strive to maintain our leadership position in the evolution of interactive broadcast distribution. There will be a need for ongoing dialogue between broadcasters and distributors as interactive capabilities and consumer demands evolve.

30285 MS MacCALLUM: Finally, I would like to assure the Commission and all the successful applicants in this proceeding that we will work earnestly with each one of them to establish equitable carriage arrangements that will enhance consumer choice at affordable prices for our mutual subscribers. To that end, we have developed a "Voluntary Access and Equitable Treatment Code" which articulates the principles of fairness that we intend to follow.

30286 We are pleased to observe that SPTV has specifically recognized that Bell ExpressVu has shown leadership in dealing with the services' concerns about access.

30287 The key principle of our proposed code is fairness. We acknowledge that affiliated broadcast undertakings should not be accorded more favourable terms and conditions than non-affiliated undertakings. Our packaging strategies will maximize subscriber penetration and revenue generation, building on our present approach of thematic and all-inclusive packaging. And we will consult with the services of packaging decision affecting them.

30288 Clearly, though, fairness cuts both ways. We seek access to their product on terms and conditions both similar and equitable to comparably sized digital distributors.

30289 We have had some preliminary discussions with representatives from SPTV and the CAB, and yesterday we provided them with a written copy of our voluntary code. We are confident that it will strengthen our relationship with the licensees and provide a constructive framework for mutually agreeable affiliate partnerships. We are pleased to provide the Commission with a copy of our code, which we have appended to these remarks.

30290 MR. McLENNAN: Before taking questions, I would just like to leave the Commission with a few thoughts.

30291 Bell ExpressVu is very excited about the prospects of being able to offer our subscribers desirable services at prices they can afford, and which maximize the penetration of these services.

30292 We have got the bandwidth to carry the new services.

30293 We have a successful marketing formula, including flexible thematic packaging, which we are anxious to bring to bear in partnership with the new services.

30294 We are actively taking steps to ready our network for interactive television.

30295 And, finally, by tabling our access code we have embraced the principle of fair and equitable access for both programmers and distributors.

30296 Thank you, and we would be happy to take any questions.

30297 THE CHAIRPERSON: Thank you very much, Mr. McLennan.

30298 Commissioner Williams, please.

30299 COMMISSIONER WILLIAMS: Thank you, Madam Chair.

30300 Good afternoon, Mr. McLennan and panel members.

30301 MR. McLENNAN: Good afternoon.

30302 COMMISSIONER WILLIAMS: Competitive, affordable, you have the bandwidth capacity, you have successful marketing and packaging concepts that are proven, a multi-step plan for enhanced interactivity and the voluntary access and equitable treatment code. It sounds like the recipe for a good business.

30303 ExpressVu has experienced rapid growth; in your intervention over 500,000 subscribers in three years, 100 per cent digital, a fully addressable system featuring thematic programming packages that encourage a take up with a full range of programming. In fact, you earned the highest average revenue per subscriber of any BDU in the country.

30304 However, in paragraph 7 of your intervention you state you are still well below the level of subscribers needed to provide financial stability over the long term. At what level of subscribers do you break even?

30305 MR. McLENNAN: On a pre-subscriber acquisition cost basis our break-even point on a cash basis, I should also say, is in around the 800,000 subscriber area.

30306 MR. FRANK: Could I also add to that by saying it's somewhat of a moving target. David, correct me, but I believe that's based on our current infrastructure. We have plans to develop other satellite facilities, so it would be a moving target.

30307 MR. McLENNAN: And it's also before any amortization of the substantial investment that we make to acquire a subscriber.

30308 COMMISSIONER WILLIAMS: Okay. Part of that investment in acquiring a subscriber is what you refer to as the set-top box subsidy. What is the amount of this set-top box subsidy up to today's times?

30309 MR. McLENNAN: For competitive reasons we have never publicly disclosed the actual subsidy, although maybe I can characterize my answer to just in total subscriber acquisition costs are in the area of $550 to $600 today.

30310 There are really a few components of subscriber acquisition costs. One is the actual subsidy of the hardware. Another is the cost that we incur to get that hardware from the manufacturer out into the retail distribution network. The third is what we have to pay the retailers to actually set that product, typically in the form of a margin on the hardware, as well as a sales commission.

30311 Those three basic components add up to $550 to $600.

30312 COMMISSIONER WILLIAMS: So I see -- maybe just to relax everyone, in the area of distribution I have no bias. I subscribe to cable, ExpressVu. I rent movies from Rogers Video. I am a frequent visitor to Blockbuster's at Silver City, as well as the local live theatre and the occasional dinner theatre. I enjoy being entertained, so my questions are toned to give you the idea that I am trying to get the answers in a friendly way. I am trying to help you build you --

30313 MR. McLENNAN: It's just a very competitively sensitive area.

30314 COMMISSIONER WILLIAMS: You have satellite transmission costs. What percentage of your cost of goods sold would be related to satellite transmission costs? You have costs obviously for the hardware, you say in the 500-plus range. In the area of satellite transmission costs would that represent a fairly large portion of your expenses?

30315 MR. McLENNAN: Without speaking to absolute numbers, if you don't mind, if I rank the costs that we incur to deliver our service, certainly the largest cost is the cost of programming.

30316 Our margin, which is essentially revenue less the cost of the programming, is in the neighbourhood of 50 to 52 per cent.

30317 The next largest cost we would have would be subscribe acquisition costs. Then, following that would be our satellite costs and then also our customer service costs. So those are sort of the big major operating items.

30318 COMMISSIONER WILLIAMS: How does your retail pricing to a customer compare with your competitors' pricing?

30319 MR. McLENNAN: It varies. We choose to sell our hardware, so from a hardware perspective typically the price points in the marketplace right now are $199 for the satellite system.

30320 It would be up to the subscriber to arrange for installation. Right now we have a special promotion that offers a free installation to a subscriber.

30321 On the service side -- and that's a different formula from some of our competitors, such as cable, which choose to rent or lease the box and that's impounded in their monthly fee.

30322 On the service side our programming ranges anywhere from $8.95 to $52.95 for our all-inclusive, the works, package. It is really up to the subscriber to choose through our menu of thematic bundles or go for the higher end all-inclusive, discounted package.

30323 COMMISSIONER WILLIAMS: Prior to the launch of this new satellite you referred to, what is your capacity to absorb new services?

30324 MR. McLENNAN: We are operating on a satellite with 32 transponders. We have additional transponders right now that are being unutilized, and that forms some of the basis for our ability to lift new services.

30325 We also have some technical things that we can do to provide ourselves with some more space by the time these services launch next year.

30326 COMMISSIONER WILLIAMS: You have recently launched an Internet service. Could you describe it a bit for the benefit of the Commission and then comment on whether there are future plans to bundle this with any of the program offerings.

30327 MR. McLENNAN: Our Internet service is called DirectPC. What it is is an expansion card that a subscriber would install into their PC, hook the expansion card up to the same antenna, the same dish that you would receive your entertainment service from, and then we would activate you with an account on the system.

30328 You would also choose your own Internet service provider to support you.

30329 What happens with the system is that any request going out to the net would go via your modem in your computer, via the telephone line, to your ISP. Then the download of data, or whatever you requested from the net, would come via the satellite, which is really where most of the bandwidth is required. It is the return of the data which tends to be more bandwidth intensive.

30330 The transmission speeds are about 400 kilobits. So it is certainly a lot faster than a typical 56K dial-up modem, which is what most people's dial-up speeds are at.

30331 So it offers a very substantial pick-up in performance relative to the dial-up options.

30332 COMMISSIONER WILLIAMS: Would you be using a toll-free line for the dial-up option, a national toll-free? Or do people incur telephone charges?

30333 MR. McLENNAN: What you do is -- it depends on what your Internet service provider arrangements were. If you have dial-up service now, you could use that same ISP to work in conjunction with DirectPC. If it is a local call to your existing ISP, there would be no reason to change that.

30334 COMMISSIONER WILLIAMS: And this is available throughout Canada?

30335 MR. McLENNAN: Yes, it is a national product.

30336 COMMISSIONER WILLIAMS: What is the early response to your voluntary code from the SPTV and CAB?

30337 MR. McLENNAN: I will ask Chris Frank to address that, because he was key in what I would call socializing this code with industry partners.

30338 COMMISSIONER WILLIAMS: Mr. Frank...?

30339 MR. FRANK: I would have to say that the response of both CAB and SPTV has been very enthusiastic. We had consultations with them. We ran through all the piece parts of our proposed code, got ideas from them, merged them with our own ideas, to build what we think is a truly two-way street. It is fair for both Bell ExpressVu, the distributor, and for SPTV and CAB's new digital perspective, digital members.

30340 So it is an attempt to balance the interests of both parties to develop sound and solid business practices for a successful launch of these exciting new services.

30341 COMMISSIONER WILLIAMS: Thank you, Mr. Frank.

30342 I have a couple of questions in the interactivity area. Some you have referred to in your remarks, but I want to bring out a bit more.

30343 What are your plans with respect to channel capacity over the next two or three years? I note that in 2001 you plan to deploy a second generation box with more memory and greater interactive functionality. I guess I would like some detail on that interactive functionality.

30344 In 2002 you will have the option of deploying next generation receivers that would incorporate web browsing.

30345 Those are the two areas that I would be interested in.

30346 MR. McLENNAN: Stuart, could you comment.

30347 MR. MORRIS: First and foremost, we are extremely excited about interactivity and the promise of interactivity. Clearly it is an important step in differentiating our product, the digital offering, from traditional analog offering. So we are very enthusiastic.

30348 For that reason, we are very eager to provide the richest possible experience to consumers.

30349 The important piece for us to understand is what consumers will most benefit from as we roll out interactivity. Those are the decisions that are ahead of us.

30350 The expanded box that we talk about in terms of 2001 simply provides a richer experience, has more memory, is a higher cost box and therefore has the ability to do more faster.

30351 So that is what we look at in terms of providing more functionality. The elements of interactivity that the other programmers have talked about are the ones that we will be interested in, enhanced broadcasting being probably the most significant.

30352 But that is the type of functionality that we will roll out.

30353 Of course, we are cognizant of the fact that the interactive area may just evolve towards a web browsing application, so we want to be certain that we continue to be the digital leader there, and that we provide that service.

30354 At this point in time I think all the evidence is that web browsing has not been a success with consumers. The experience with Web TV suggests that consumers are still first and foremost interested in a TV experience which focuses on relaxation. In that situation we need to predetermine some choices for them and make the experience easy and enjoyable.

30355 COMMISSIONER WILLIAMS: Thank you.

30356 Have you reserved capacity for interactive services? And if so, how much and for what purposes?

30357 MR. McLENNAN: The capacity we have is there for the broadcasting of the signals. To the extent that interactivity and data associated with interactivity is associated and vetted in that broadcast, we would carry that to the extent that our set-top box could make use of that functionality and make use of those certain applications.

30358 There is no real generic answer in terms of capacity available to service interactive TV applications, because it is really going to be a case-by-case application-by-application discussion with the programmers once these things become more defined.

30359 COMMISSIONER WILLIAMS: Thank you.

30360 Are there any particular interactive features that have been proposed that your current or proposed set-top boxes will not be able to support?

30361 MR. McLENNAN: Stuart, I am not sure that we have a full list of what has been proposed.

30362 MR. MORRIS: No. Clearly, the current set-top box that we have deployed -- and we have set-top boxes deployed that have interactive capability -- would not support web browsing. But it is certainly our intent in the immediate future to have a set-top box that provides the whole range of other interactive functionality.

30363 As I just previously said, if the market moves to a web browsing environment, then we would move in that direction as the leader.

30364 MR. McLENNAN: Just a follow-up.

30365 This is very, very early stages here for interactive TV. Many little steps will take place here, I think.

30366 We are on that continuum. We are taking the first step with enhanced broadcasting type of concept.

30367 But as Stuart says, quite possibly a latter step in the development of interactive TV could be in the area of web broadcasting. We would certainly be there with the product, because we are very focused on delivering those services to our subscribers.

30368 COMMISSIONER WILLIAMS: When do you anticipate that second satellite being launched that would facilitate a two-way high speed interactivity?

30369 MR. McLENNAN: We are evaluating our data plans right now. The first step was to launch DirectPC, which we did earlier this year. The next step or the next evolution is to evaluate a two-way -- meaning that both transmission and receipt would go right up and back to the satellite.

30370 We are in the process of evaluating that.

30371 That is a number of years out, though, in terms of being in construction with the satellite, designing terminals at the subscriber's home to make these things work.

30372 COMMISSIONER WILLIAMS: What are your thoughts as to how costs might be shared with programming undertakings in carrying some of the future interactive elements that they have been proposing?

30373 MR. McLENNAN: I think you heard me reference in my remarks the concept of sharing the risks and rewards.

30374 Certainly if I look at the components of interactive TV, there is application development that is required. There is bandwidth required to carry the applications, and there is set-top box technology required to deliver these applications to a subscriber's home.

30375 What I think has to happen is that a programmer needs to get paid for developing an application, and a distributor needs to get paid for making the investment in the bandwidth and set-top box technology.

30376 So there will be some business model there that shares the economics of the transaction among those elements.

30377 COMMISSIONER WILLIAMS: There will be an opportunity to test the equitable treatment code and business case.

30378 How many Category 1 applications should the Commission licence at this time? Specifically, should it licence more than ten English and how many French Category 1s?

30379 MR. McLENNAN: We have got capacity. If I look at our satellite space segment capacity, we have got capacity for about 25 to 30 channels. Given that, it would seem reasonable to me that having a figure of 10 to 15 Category 1 channels would seem reasonable because we could then use the balance of our capacity to augment the Category 1s with the other Category 2 services and services that would allow us to, you know, better serve the demographics of our base.

30380 COMMISSIONER WILLIAMS: You have suggested the new services should launch as early and as independently as possible after the Commission has issued its decision. The consensus that is developing in Phase I suggested that all Category 1s launch at the same time at a date determined by the Commission, for example, September 2001.

30381 MR. McLENNAN: Yes.

30382 COMMISSIONER WILLIAMS: Your remarks say sooner and certainly no later than then. Would you care to elaborate on that?

30383 MR. McLENNAN: A very practical comment is that it would be very efficient if we launched all of these services together. From a marketing perspective, you can really wrap an interest in promotion around a large product launch like that. From a packaging perspective, it would allow us to really, you know, insert these new services into our lineup, where they belonged and whatever thematic bundle.

30384 That's easier to do and more practical to do if you do it all at once. I am a big proponent of seeing that sort of coordinated launch. Certainly we will be looking to -- the date on that would be in the September timeframe of next year. It would seem to me to be appropriate.

30385 The only caveat I would offer to that is if there is a service that's ready to go and is, you know, something that we can practically launch before that, we should consider that.

30386 COMMISSIONER WILLIAMS: Okay. Some of the other participants in this proceeding have suggested perhaps a soft launch and then at a later date the full blown launch.

30387 MR. McLENNAN: You have to strike a balance between how you present this to your customer base because we have learned in the 36 months that we have been in business, we have learned that our customers are very sensitive to changes in their programming lineup.

30388 We have changed our programming lineup a number of times as we have increased our capacity and we have learned some lessons from that. A coordinated launch is good, but, you know, we should be open to on a case by case basis doing things when they make sense ahead of time.

30389 MR. FRANK: Could I just add to that by saying that those of us in the satellite business who have current unused capacity, very expensive unused capacity, obviously are anxious about that unused capacity and would like to get revenue contribution from it.

30390 An all-inclusive hard launch at or about the 1st of September, as David said, makes a lot of sense, but if there is a service or two that comes along in the meantime which we could integrate easily without upsetting our customer base and get contribution to space segment cost, that would be welcome.

30391 COMMISSIONER WILLIAMS: Are you paying for unused capacity now?

30392 MR. McLENNAN: We have within the group of companies, the B.C. media group of companies, all of the transponders on the Unik satellite.

30393 COMMISSIONER WILLIAMS: Do you pay more when you start using them? Do you get a lower rate or basic?

30394 MR. McLENNAN: From a Bell ExpressVu perspective, we are operating right now on 26 of those 32 transponders for which we are paying for.

30395 COMMISSIONER WILLIAMS: Okay. There has been some suggestion that the Commission should set a deadline date by which time affiliation agreements between Category 1 services and BDUs must be finalized, perhaps three to six months prior to a common launch date to facilitate rollout to the new digital tier. Could we have your views on this proposal, please?

30396 MR. McLENNAN: I think it's very important that affiliation agreements get documented carefully. I'm not sure though of the practicality of doing that six months ahead of time. That seems to be a long lead time to me.

30397 MR. FRANK: I think it's important that the affiliation agreements get done right because they set the foundation for the business relationship between the distributor and the programmer. If there was an arbitrary cutoff date, that might impact the, shall I say, win-win aspect of a full and complete negotiation.

30398 I think it's better to get the thing done right as opposed to getting it done by a specific point in time.

30399 COMMISSIONER WILLIAMS: Would you support some form of binding arbitration where if the two parties were unable to agree, they could come together and select a mutually agreeable neutral third party to arbitrate any major items in disagreement?

30400 MR. McLENNAN: Let me again just refer to our access code. We have tried to embrace and enshrine in that code the concept of fair and equitable access to distribution from a programmer's perspective as well as access to content from a distributor's perspective.

30401 In the, you know, event of a dispute, I think third parties could be useful, but I would really like to rely on, you know, the commercial process between the two interested parties to work that out.

30402 MR. FRANK: We are hopeful that our code will permit the kind of business practice and conduct which leads to a reasonably quick and mutually satisfactory agreement amongst all the parties.

30403 COMMISSIONER WILLIAMS: Well, you are partners in this digital era, both from the producing and distributing points.

30404 MR. McLENNAN: Yes.

30405 COMMISSIONER WILLIAMS: There has been some debate about how to guide the launch of Category 2s. What are your thoughts about their launch?

30406 MR. McLENNAN: Guides from the perspective of --

30407 COMMISSIONER WILLIAMS: Well, should they be launched at the same time as the Category 1s? Should they be able to launch before? I think the other DTH distributors suggested that perhaps they could even launch before the September 1 date if they had product up and ready and available for similar reasons, just to offset some of that satellite time cost.

30408 MR. McLENNAN: I would go back to my earlier comment about a coordinated launch makes a lot of sense from a consumer perspective.

30409 COMMISSIONER WILLIAMS: So 1s and 2s --

30410 MR. McLENNAN: Yes, and again no entertaining on a case by case basis. If there was a compelling reason to do one before that, then we should keep an open mind to that.

30411 COMMISSIONER WILLIAMS: All right. You have stated that more choice will help increase overall penetration levels in the French language market in Canada. Are there characteristics of the French language market that would warrant a different approach?

30412 MR. McLENNAN: In terms of launching the new channels?

30413 COMMISSIONER WILLIAMS: Well, no. In terms of how choice or increased services would help your overall penetration levels in that marketplace.

30414 MR. McLENNAN: I think one thing that we experience in marketing our francophone services is that we simply have less product in terms of number of channels. You know, we are quite excited about being able to market more product to that segment of our customer base and attract new customers as well.

30415 I think the fact that there are more channels available of, you know, desirable and reasonably priced content is something to get quite excited about and something that I think we can do something with in terms of increasing our penetration into those markets.

30416 COMMISSIONER WILLIAMS: I'm just going to come back to an earlier part of my questioning when we talked about your rapid growth over the last 36 months. Has that growth curb slowed or accelerated in any manner in, say, the past year?

30417 MR. McLENNAN: It's still very much accelerating. Our business is a little bit seasonal. We are driven by the normal consumer electronic seasonal pattern, but we have had very strong activations year to date. We have high expectations for the big selling season between now and the end of the year, so it's still accelerating.

30418 COMMISSIONER WILLIAMS: I note in paragraph 12 of your intervention that it says:

"The Company also supports the Commission's intention to invite applications for additions to the lists of eligible satellite services in respect of English-language services as soon as Category 1 services are licensed."

30419 We have heard some comments that perhaps that list should be opened up even sooner if the delay is until September. How do you feel about that?

30420 MR. McLENNAN: We are a consumer driven company and we are very hungry for more product, so I would say that if there is a path to getting more services out there to consumers, we would definitely like to participate in that.

30421 COMMISSIONER WILLIAMS: We have asked all of the applicants whether distributors should be obliged to carry interactive or set-top box components of these services that receive Category 1 licences. What is your opinion on that matter? Should the distributors decide by saying: "This is the technology that is available. Build your programming to fit the box"? Or should the programmer say: "Here are our ideas. We need a box that can deliver that"?

30422 MR. McLENNAN: This is -- and, Stuart, please augment this. This is going to be a case-by-case or application-by-application discussion with the programmers.

30423 I think collectively it is important as an industry for us to make sure that the necessary interfaces or bridges between a distribution platform and an application are built.

30424 They may not be on the same technology platforms. There could be differences. There are many different technologies out there. That is really what I am trying to say. What will be important is that the bridges get built to connect the applications with the distribution platform.

30425 So consultation will be absolutely key.

30426 COMMISSIONER WILLIAMS: Some have suggested that the Commission hold a process to address issues such as cost sharing and access to the set-top box. Do you agree with this suggestion for a separate process? If so, in what timeframe?

30427 MR. McLENNAN: I will go back to saying that the applications are going to be very different here, and varied across different programmers, and I think it would be very hard to apply a process -- a rigid process -- to that.

30428 I mean, this is really all about us sitting down with the application developers and the programmers, understanding what it is they are doing and understanding how we can distribute that via our technology to the subscribers.

30429 That is a case-by-case basis, as opposed to a macro policy basis.

30430 MR. FRANK: Our code begins to deal with that issue, and I think it gives the programmers comfort that we are very interested in the development of this part of the business. We understand how important it is to them. We know how important it will be to us.

30431 It goes to the issue of bilateral discussion and negotiation. And it's early days. I think we should be given an opportunity to try that out among the parties before it is joined in a process.

30432 I am not sure what there is to discuss in detail at this point. It may come to pass that a hearing is necessary, but we are confident that we can work with the programmers to develop this side of the business.

30433 MR. McLENNAN: And remember that our interests should be very much aligned here, because these are all services that we want to deliver to the subscriber base, so I think it is incumbent on us to figure that out.

30434 COMMISSIONER WILLIAMS: Thank you. I have enjoyed this opportunity to learn more about your company and to help you express your point of view. I will turn you back to our Chair now.

30435 MR. McLENNAN: Thank you very much.

30436 THE CHAIRPERSON: Thank you.

30437 Commissioner Wilson...?

30438 COMMISSIONER WILSON: Hi. Good afternoon. I just have a few questions that I wanted to ask you. The first ones are in the area of marketing and programming, and the other questions are with respect to your code -- your proposed code.

30439 You talk on page 3 of your opening remarks about the success you have had with the all-inclusive packages and the smaller thematic bundles. We have been having quite a lot of discussion the last day or two about the notion of packaging. It is clearly a matter of concern to the services about how they are going to be offered. I was wondering if you could just talk about -- I think it was when BCE Media appeared that Mr. Gourd talked about the penetration rates of the large packages.

30440 At the same time, we have heard Ms Logan from SPTV talk about requiring top down selling and prescribing that distributors emphasize to their customers the large packages first.

30441 I am wondering if you could just talk a little bit about what your approach has been and what has worked. How do you offer the services?

30442 I probably should have gone out and got one of your brochures with all of the packages listed, but I was here until 10:30 last night, so...

30443 MR. McLENNAN: We will leave one with you.

30444 COMMISSIONER WILSON: I was wondering if you could just talk about what your general approach has been.

30445 MR. McLENNAN: Sure.

30446 THE CHAIRPERSON: That is not an invitation for long answers.

--- Laughter / Rires

30447 MR. FRANK: Yes, summer has arrived, hasn't it.

30448 MR. McLENNAN: We are really driven by balancing -- offering our subscribers choice and control over what they watch and, on the other hand, maximizing the penetration of services. That is a balance that we try to strike.

30449 Actually, I am quite proud of the fact that I think we have struck that balance, because our customers seem to have responded very favourably in terms of our packaging, and so have the programmers, as evidenced by some of the comments you have heard in this proceeding.

30450 Our philosophy is to strike that balance between what the customer wants, offering them choice and control, but also, at the same time, finding that spot where we can maximize the penetration of the services.

30451 The philosophy that we have is small thematic bundles, grouping programming in genres that have some continuity thread --

30452 COMMISSIONER WILSON: Right. Some relationship.

30453 MR. McLENNAN: And then we also roll that up into a bundled discount -- bundled package, which is essentially a roll-up of those thematic bundles, but offer you a price discount if you buy all of that programming.

30454 We just have to be very cognizant that as we roll up those thematic bundles into an all-inclusive package the economics for the consumer don't get so far advanced that you are hitting a price point that just becomes unattractive to them.

30455 Our price point now with our all-inclusive package is $52.95, and we are beginning to see that that is a point where consumers are evaluating purchasing programming for $52.95.

30456 There are a couple of things there that we try to strike a balance between.

30457 COMMISSIONER WILSON: So when Mr. Gourd talks about the 70 per cent subscriber take-up of large packages, is it the all-inclusive package at $52.95?

30458 MR. McLENNAN: That package penetration is actually -- if I recall my numbers, it is approximately 70 per cent.

30459 COMMISSIONER WILSON: Yes, that is the number that he --

30460 MR. McLENNAN: We have two levels of --

30461 COMMISSIONER WILSON: Other people have mentioned 80 per cent.

30462 MR. McLENNAN: Yes. Just to be clear, we have two levels of discount packages, one that includes pay movies and one that does not. I am going from memory here -- and, Stuart, correct me if I am wrong -- but I believe that the one without pay movies is about 75 per cent and we are 69 per cent on the package including pay movies.

30463 Is that fairly accurate?

30464 MR. MORRIS: Yes.

30465 MR. FRANK: Could I just add to your comment about packaging? I think that Madam Wylie will recall these discussions back in 1995 when we first applied to the Commission. We telegraphed very clearly our intention to go with large discount packages, but to give the customers the opportunity for thematic choice.

30466 It has worked very well for us. We would hope that we would be allowed to continue to build on that success and that we wouldn't have any more packaging or distribution rules imposed on us. We hope that our success speaks well of our philosophy and that we are allowed to continue to pursue what we have done in the past.

30467 COMMISSIONER WILSON: Do you offer any à la carte programming?

30468 MR. McLENNAN: À la carte in terms of the bundles?

30469 COMMISSIONER WILSON: A single programming service.

30470 MR. McLENNAN: We have three ethnic --

30471 MR. MORRIS: Generally, no, not in terms of the main specialty channels, but clearly things like Super Écran are offered as a single package. Some of the ethnic channels are offered as a single channel in the package.

30472 COMMISSIONER WILSON: Why don't you offer pick and pay?

30473 MR. MORRIS: The reason, as Dave espoused -- I mean, our interest here is providing the best balance for the consumer. We are interested in providing them with choice and control, and yet there is the desire to make it very real and tangible for people, for them to grab on -- I am interested in sports. That's what I want.

30474 That satisfies the requirement for choice and control. That is what has motivated us, of course, in striking a balance with our interests. That is what determined our choices.

30475 There are obvious complications if you offer à la carte, as you have described it, in terms of just systems and the infrastructure required to support that choice today.

30476 COMMISSIONER WILSON: Does your infrastructure support that?

30477 MR. MORRIS: At this time it does not.

30478 COMMISSIONER WILSON: It's not capable of supporting pick and pay?

30479 MR. MORRIS: Not at this time.

30480 COMMISSIONER WILSON: So that is not a strategy that you have ever really pursued?

30481 MR. MORRIS: Well, no, clearly it is not. It is one that we are very anxious to maintain our competitiveness against our main competitors and, under that scenario, that would be something that we would immediately move to address.

30482 MR. McLENNAN: Just to be clear, we would have to make some system changes in order to support that type of program offering.

30483 COMMISSIONER WILSON: On page 5 you talk about sharing the risks and rewards between the distributors and the programmers and you say that the rates and the penetration expectations must reflect reality.

30484 Where is this comment coming from? Do you have make-whole arrangements currently with the services that you carry?

30485 MR. McLENNAN: In some of our contracts, yes. That concept is in some of our affiliation agreements.

30486 COMMISSIONER WILSON: But you don't think that that is appropriate for this environment?

30487 MR. McLENNAN: The thought process behind that is that as new services get at it they become -- I think many of them anyway become more targeted, more specialized and not necessarily generally less of a general interest-type of programming.

30488 I think in that environment we have to be cognizant of the fact that we are then marketing those services to subsets of our subscriber base and to have a financial arrangement that prices those services, assuming they are marketed to or appealing to all of our subscriber base, there is a disconnect there.

30489 So we are really driven by the fact that these are more specialized services and therefore we have to price them accordingly and market them accordingly.

30490 COMMISSIONER WILSON: I guess what I'm trying to get at is, if an applicant files a business plan with us that shows 65 per cent penetration and the rate is 50 cents, let's say, and their entire business plan is based on that, are you saying to us: Don't expect that to be.

30491 I mean, that is their best guess based on the subscriber forecasts, but that is not necessarily the way it is going to work out and U.S. commissions shouldn't expect that that is necessarily the way that it is going to work out?

30492 MR. McLENNAN: Yes. I think that really crystallizes what our message is that, you know, it's a partnership, the risk needs to be shared. We would be, I think, somewhat disadvantaged if the risk was entirely on our shoulders based on a forecast in a business plan.

30493 COMMISSIONER WILSON: So some of the Category 1s could fail?

30494 MR. McLENNAN: I'm not going to make that forecast. I'm just saying that our interests are aligned in marketing these services and the risks should be shared as well.

30495 MR. FRANK: Our Act -- our voluntary code speaks quite clearly, I think, to our optimism and our desire to maximize the penetration for all of the new services and we will work hand-in-glove with the programmers to make that happen.

30496 COMMISSIONER WILSON: First, I guess the difference with these services is they won't have an analog base, which many of those other services have, which gives them sort of the comfort of being able to perhaps be a little more flexible with you, because they have -- their business plan is supported by the analog subscriber universe in cable.

30497 MR. FRANK: That is correct. Neither did we have an analog base when we first started.

30498 MR. McLENNAN: I think when we launch a new channel we put significant resources behind it, so we are very much motivated to make these things a success in terms of physical resources like space segment and digital processing resources, as well as marketing dollars. You know, we go at it pretty hard when we launch a new service. So we are very much, I think, aligned on that and our interests are, you know, down the same path.

30499 COMMISSIONER WILSON: Just one final question and that is on the issue of the code.

30500 You mentioned the fact that SPTV and CAB had both been very complimentary about the proposed code that you have developed. But you are not the ones that they are complaining about, so why are you developing a code?

30501 They are not worried about your treatment of them -- that is what has been said -- because they are quite happy with the relationship that they have built with you. So why are you developing the code? It seems like some of your competitors are more likely candidates for having thought of this.

30502 MR. McLENNAN: It is an acknowledgement on our part that the programmer needs to be able to access fairly a distribution platform, and also that a distribution distributor like ourselves needs fair access to programming. It is just enshrining that concept and embracing that concept. That is in every negotiation process, let's say, with everyone.

30503 So it is a generic concept that I think applies across the gamut. That is really why we took this step, just to acknowledge that those principles were important to us.

30504 COMMISSIONER WILSON: I recall you said that it articulates the principles of fairness, but are you concerned at all about the possibility that you might be giving up any commercial flexibility through the adoption of a code like this?

30505 MR. McLENNAN: We will have to rely on a commercial arrangement which we will negotiate with each and every supplier and programmer and I think it is that process that the give and take always happens, but the concepts of fairness and equitable treatment on both sides is really where we approach those negotiations.

30506 MR. FRANK: Could I also add to that?

30507 It is a reflection of -- or you have heard reflected in this process the anxiety of the two programming associations. I think it is fair for you to assume there is a certain anxiety on our part.

30508 We have grown from zero to 500,000-plus subscribers in just a little under three years and it hasn't always been roses between us and certain programmers. We have had certain concerns about what we call reverse access, getting equitable deals.

30509 It seemed to us that given this period, where in a digital world there is no more balance amongst all the players, programmers on one side, distributors on the other, and in the distribution group more equality amongst the distributors in terms of size, that here was a wonderful opportunity to demonstrate our goodwill by saying "Yes, we hear your issues and we will address your issues on the one hand, but here are our issues. We want fair and equitable treatment as well. We want fair, just and reasonable rates for services. We want the same kind of treatment in terms of launch costs and what have you."

30510 COMMISSIONER WILSON: Realistic expectations about business plans.

30511 MR. FRANK: Sure. So it's really a two-way street. We are trying to balance and we are trying to forge ahead with our business and allow the programmers to do the same.

30512 COMMISSIONER WILSON: Let me just ask you one specific question, to end, on section 3.8 where you talk about providing interactive content that is directly associated with the digital service.

30513 You say:

"...provided that the datastream can reasonably be accommodated within the bandwidth normally assigned to such a programming service."

30514 So I guess what you are saying in that whole section is that once the more advanced interactive capability comes on stream that you would be looking for -- you are not going to give away your bandwidth is what you are saying? You are going to have some kind of a commercial relationship with respect to that additional bandwidth?

30515 MR. McLENNAN: I think that's correct. 3.8 discussions that within the realm of what is normally associated, or normally allocated to a channel, we will be happy to deliver that service to the extent that our set-top box can make use of that service the technical interface is there.

30516 But it will be a case-by-case discussion with the application developer. If the application is so bandwidth intensive that it requires a lot of space, then, yes, we will have to have a commercial negotiation or a commercial discussion about how that service would be carried.

30517 COMMISSIONER WILSON: Thanks very much for answering my questions.

30518 THE CHAIRPERSON: Commissioner williams is already lonesome. He has another question.

30519 COMMISSIONER WILLIAMS: Actually, at the risk of incurring the wrath of the Chair I have two.

30520 My first one concerns the set-top boxes that are currently deployed. As technological advances are made in the next three years, as we have discussed earlier, will these boxes still be capable of delivering your service, or will customers have to replace these boxes?

30521 MR. McLENNAN: The service as we know it today, yes. The boxes have been designed to be compatible going forward.

30522 That's a difficult question to answer, though, for services in the future.

30523 COMMISSIONER WILLIAMS: When we introduced TouchTone phones the rotary dial still worked for a while. Is that the scenario?

30524 MR. McLENNAN: That's right. I mean, we will be able to use our set-top boxes that were rolled out in September of 1997 when we first launched the service. It will still perform the decoding of the signals going forward.

30525 COMMISSIONER WILLIAMS: So customers can decide. It's like whether you need a new car or not. Your old car still works, but you might buy a new one.

30526 MR. McLENNAN: That's right. If a customer desires new functionality and the set-top box for that new functionality or their existing set-top box will not handle that new functionality, then that would be a purchase decision for the consumer to evaluate.

30527 COMMISSIONER WILLIAMS: In the experience of digital direct-to-home distributors in the United States or even other distributors in Canada or the United States, what has been the experience and the success of the pick and pay type of marketing, as opposed to the large discount thematic packaging that you favour?

30528 MR. McLENNAN: My sense of both Echo Star and DirectTV, and, Stuart, correct me if I am wrong, is that they have tried to bundle in small packages like we have. DirectTV has been tremendously successful with their service, enjoying very high revenue per subscriber, as is Echo Star.

30529 COMMISSIONER WILLIAMS: This one is because I spent a lot of time in the north. What is your most northerly customer? I know you need a larger antenna.

30530 MR. McLENNAN: Santa Claus.

30531 COMMISSIONER WILLIAMS: He's a bulk buyer, I imagine. He's in the high Arctic.

30532 MR. FRANK: I just note that with that picture in yesterday's paper about the north pole being open now, Santa Claus may be in a swimsuit.

30533 COMMISSIONER WILLIAMS: Thanks again, Madam Chair.

30534 THE CHAIRPERSON: I hope Santa Claus is not coming on a ski-doo.

30535 Madam Chairperson.

30536 CHAIRPERSON OF THE COMMISSION: I would like to pursue because there has been lots of discussion because, of course, a lot of work and creativity has been put into the applications in front of us. And, as you have been capable of seeing like us, there is no lack of this in this country, so there is a lot of entrepreneurship creativity and willingness to embark into this new world.

30537 But there is a lot of concern on both parts of how will it really deploy itself. Really, there is a key there, that is the consumer, does he really need it? Will there be added value, so he will want it and more so will he be willing to pay or will she be willing to pay for it?

30538 You are a missing link. All distributors are the missing link between the talent and creativity of all the artists in this country and the possibility of reaching out.

30539 A lot has been said about in this world you are the DTH, especially about the digital MMDS and DTH, you are the dominant player. I would like to hear your view because you have experience in that world that is very different, not because other distributors don't have any experience, but they have had one more linked to analog.

30540 Is it that different and does that make you a dominant? If it is so, how should we approach it and what kind of elements should we be looking here in a code of ethics that would give us sufficient comfort to say it's respectful of the framework and it's going to work. And what should we be looking for in other distributors that would be similar?

30541 It's a long question, but I think there is a recognition at the Commission that we have put forward a framework and after a long public process we don't want to reopen it. We want to go from that point on. We want to push forward, but we want to be respectful and -- "comment dire donc fidèle à l'esprit" -- and we don't want to make choices now that will destroy what we have done, but we don't want to do by that decision that is coming, kind of neutralize the movement and the going forward and what has been called by the industry at the time, but I think also by Canadians in general, as being innovative.

30542 Can you help us from your point of view, which is not exactly your story, where you are at on a very immediate term, but stepping back and looking at the situation and taking us by the hand on how you think it is going to deploy itself?

30543 MR. McLENNAN: Just on the issue of dominance, despite our success and, yes, we have had great success and we are proud of that, we are still a very small player in the overall scheme of things of multi-channel television in Canada. That is really what we are selling. We are selling programming here. So on a relative basis to some of our other competitors I don't feel we are dominant.

30544 In fact, I think some of the other companies are just so much larger than us with so many more subscribers and market power that we are definitely not a dominant player.

30545 But I agree with you there is a definite need to address -- I think I heard you say a code of ethics of code of conduct. That's really what our access code is an attempt to do, is to enshrine some key business principles as to how our company and how we would expect our competitors and suppliers also to conduct themselves in going forward and taking on new opportunities, such as licensing these new channels.

30546 I would also say for the most part our interests are very much aligned in seeing programming ventures be a success because at the end of the day that's what we are selling and co-operating with a programmer to sell a desirable service is in both of our best interests.

30547 So I think there is a lot of, call them natural self-correcting things if you believe in those principles that will help us going forward.

30548 CHAIRPERSON OF THE COMMISSION: Since we have started that process I have been very much in search about a good balance because that's always the work of the Commission. The work of the Commission is not about a specific regulation in itself. It is really finding through decisions a good balance to reflect or respond to the Broadcasting Act.

30549 You said a bit earlier on that you are a consumer-driven company and certainly we can relate to that and understand that, but that has to be balanced with other objectives.

30550 In the distribution there is that notion that in order to please the client it will have to be very low. You said, like Commissioner Wilson said, that there would be a need for expectations from broadcasting undertakings of penetration and wholesale rates must reflect the reality that new services are more targeted and specialized in nature.

30551 Yet in the objective of Canadian content of the necessity of this country to express itself and not in this new world, which is only another platform, that's only what it is and tomorrow it's going to be the Internet. It may revolutionize the "rapport" but if we had an objective of finding ourselves in many ways in the more conventional world certainly we still have that. Certainly the Broadcasting Act still has that kind of pulse.

30552 So how, if you consider the necessity for a company that is consumer driven and the fact that you are saying that thus expectations have to be from the programmer such that rates have to be affordable, where will the Canadian content, original hours, Canadian programming expenditures, all that we have been talking about with the applicants in the last two years -- well, maybe it seems like two years -- two and a half weeks, be taken care of?

30553 We will make a choice of the Category 1. It will be either one or two Star Choice as proposed, or it will be all like the Directors Guild proposal this morning. But probably it will still be around ten.

30554 But when it comes to Category 2 and packaging, that will be the distributor who will kind of bring the baby to "les fonds baptismaux".

30555 If you are strictly consumer-driven, where will the place be for the kind of elements that are the criteria in order to make the choice?

30556 MR. McLENNAN: I think the place is that we aggressively work with the programmer and aggressively sell this programming. That is really what we have done in the past 36 months in trying to creatively put genres of programming together that make sense from a consumer perspective but also make sense from a programmer's perspective, and go out and aggressively sell that programming.

30557 I think it is the places that we market aggressively with the programmer to make sure that these services are as successful as possible. I think it is incumbent on ourselves and the programmer to make a very good selling proposition to the consumer.

30558 MR. FRANK: If I might just add to that, I would say that our code attempts to ensure that there is balance between both perspectives, that the programmers on the one hand have an assurance that if they are unaffiliated to us, they will be treated fairly; that they will be consulted in packaging; that they understand our core packaging philosophy.

30559 And they are comforted that we are driving in the same direction as them, hopefully at the same speed.

30560 From our part, we hope that they will treat us in an equal manner.

30561 In that sharing of risk and reward, hopefully will come the success on this digital platform.

30562 CHAIRPERSON OF THE COMMISSION: Then that code of ethics, you say that it should be each company developing its own?

30563 MR. FRANK: I think it would be presumptuous for us to talk about other companies or other sectors of the distribution business. Certainly we saw an opportunity here. We saw an anxiety on the part of the programmers, a clear anxiety, for fair and equitable treatment. And we have the same anxiety. We have had it since day one.

30564 I think you will recall almost from our beginning our talking about issues of reverse access and equal opportunity, getting a reasonable cost of goods sold. So here was an opportunity for us to create a balance and an understanding to move forward.

30565 CHAIRPERSON OF THE COMMISSION: How do you explain that other distributors don't see the same necessity?

30566 MR. FRANK: Well, I am a little uncomfortable talking about the other sectors and our competition. But I would note your comments of yesterday wherein you talked about the cable industry and you talked about Star Choice's closeness to the cable industry. We are not close at this point to any existing established broadcasting industry. We forged our business on our own.

30567 We want to develop a partnership with the programmers because that is the way to succeed. That is what this code speaks to: an equal opportunity for both sides.

30568 CHAIRPERSON OF THE COMMISSION: I apologize if I put you on the hot seat, but I seem to have been doing that a bit these days.

30569 As I have said to many, I am just trying to get a good understanding, and it will be helpful.

30570 MR. FRANK: Surely.

30571 CHAIRPERSON OF THE COMMISSION: So if there are questions that are indiscreet, just do like we do at the Commission: just say the response would be indiscreet and you leave the question to itself. That's all.

30572 What do you think about the idea, as it has been put forward by some applicants, of joint marketing?

30573 Some of your competitors have said -- and other applicants too, I think, have the same view -- that marketing and packaging and advertising is really a competitive element differentiation between the different competitors. Thus, it would be difficult to develop a common approach to it.

30574 MR. FRANK: I think there is both a regulatory and a marketing answer there. I will not jump into the marketing side. I will leave that to the experts on my right.

30575 Clearly from a regulatory point of view, that is what we have attempted to do with this code: to provide the programmers with the knowledge up-front that we are prepared to discuss in earnest with them packaging launch plans.

30576 I do think that that is a bilateral relationship because of the intense competition in the industry. We have attempted also in the code to talk about those issues of confidentiality and how we might be able to vouchsafe those so that there is no indiscretion in terms of marketing and launch plans.

30577 CHAIRPERSON OF THE COMMISSION: But the question was -- I understand that it would be a kind of agreement that would bind you and the programmer that would be in business with you; The idea that it would be a competitive matter, that you would not share it if it was to be developed on an industry basis; that all the broadcasters and all the distributors would sit together to develop joint marketing practices.

30578 MR. FRANK: I think my colleagues should probably speak to that issue: the desirability of sitting in a large room with all of your competitors to share.

30579 This is essentially a competitive business, and we do wish to differentiate.

30580 I think I will stay out of this.

30581 MR. McLENNAN: I think you have answered it, Chris.

30582 We operate in an intensely competitive environment in terms of acquiring subscribers and keeping subscribers. I think it would be a difficult proposition for us to sit down in an industry forum and discuss our marketing plans with our competitors.

30583 I believe there is an area for us. We can differentiate ourselves from a marketing perspective.

30584 One good example of that is our packaging philosophy. Those are decisions that Bell ExpressVu has made to present programming in one particular format to our subscribers. Not all distributors have that same philosophy.

30585 So there is an example of differentiating our marketing approach.

30586 That is a competitive thing that we would not want to share in advance with our competitors.

30587 CHAIRPERSON OF THE COMMISSION: So when you are putting the access code forward, what are you suggesting to the Commission in respect of the framework we have developed and what we have heard to kind of add to the comfort yet not having too heavy a hand on the matter and yet being supportive of the necessity for partnering?

30588 MR. FRANK: This voluntary code is intended to supplement and to fill in areas of anxiety that may remain between the distributor Bell ExpressVu and the programmers.

30589 As we said in our formal written intervention, we support your framework. This is simply to create trust, if I can use that word, confidence that we can work together to establish reasonable business practices.

30590 CHAIRPERSON OF THE COMMISSION: You have developed one. But what do we say? Should we say something, that we expect every player in that new world to develop their own code and agree that their code will be in harmony?

30591 MR. FRANK: I think, in fairness, we can only speak to our own situation and our own company.

30592 CHAIRPERSON OF THE COMMISSION: Okay.

30593 MR. FRANK: We have offered this in good faith, and we intend to live by it if the reciprocal dealings pan out as we anticipate.

30594 THE CHAIRPERSON: Thank you. If I may pursue that, you have talked about to Madam Bertrand bilateral relationships. You said earlier that this code was a generic concept and a two way street. It's in fact not bilateral or two way, it's three way.

30595 We certainly appreciate your effort in putting it forward, so we are just trying to see, you know, how this can all develop in a positive way. I am in the same spirit as Madam Bertrand in just trying to discuss this with you.

30596 If you focus, for example, on your underlying principles at 2.1, the second one says:

"-- access to their product as soon as practicable and on terms and conditions both similar and equitable to comparably sized digital distributors."

30597 That's at 2.1, the second bullet. Again, at 3.4 at the end of that paragraph:

"-- it simply requires that what is done for another distributor or distributor sector will be done for Bell ExpressVu."

30598 It painfully shows how it will be a competitive environment. You want this code to be a two way street between programmers and you, but you drag in the other distributors. Right? You say whatever, and it's not difficult to find out what the other distributor is doing. All you have to do is subscribe or find your uncle to do so and you will know how they package and so on.

30599 Presumably the programmer could make a deal with the other distributor -- let's forget affiliation here and preference -- a non-affiliated programmer may be able to convince one distributor of what it thinks is the best way to package, but that may not be something you want or vice-versa.

30600 It's a three way street, isn't it, in a competitive environment. I think that's what Madam Bertrand was alluding to. Short of some joint effort at saying this is generally how we are going to behave, then it's really market forces basically or else you bind the distributors as you do here to be able to say "Whatever you gave to my competitor, I want the same or I won't give you better and you won't be allowed to do less".

30601 How do you manage that?

30602 MR. FRANK: These are very broad concepts. We think we know where the anxiety lies on the other side and we have moved to address that in the context of packaging in terms of treatment. On the other side, we are simply asking for in broad brush similar treatment.

30603 For instance, if a newly licensed Category 1 provides substantial launch contribution costs to a group of companies or a sector, we would hope that we would get a portion of that as well. In the past we haven't.

30604 It's a question of balance. I appreciate your balance about the third leg of the stool being the other distributors, but it's just a broad principle which is trying to get equitable treatment.

30605 THE CHAIRPERSON: Well, even that is difficult. Suppose, to use easy numbers, a programmer was prepared to put a million dollars into promotion of the launch, but that programmer thinks that the world is going to be the cable industry's world because they will deploy the boxes, because they are the incumbent, for whatever reason, and decides "I'm going to put three quarters of my eggs in that basket because I think that's where my future is, and one quarter in yours". Is that necessarily unfair in a competitive environment?

30606 MR. FRANK: We have to look at the circumstances, but I'm encouraged by the fact that you said we would get a quarter, which is of course, Madam Chair, a quarter more than we have had in the past.

30607 THE CHAIRPERSON: Wasn't that a golden opportunity to say that comment.

30608 MR. FRANK: It's a big a step forward. That's what we are trying to do here.

30609 THE CHAIRPERSON: You see what I'm driving at.

30610 MR. FRANK: Sure.

30611 THE CHAIRPERSON: It's short of what Madam Bertrand was addressing, which is some general marketing concepts that would be -- or guidelines that would be used for everyone, then it's really the competitive environment that takes hold. It rears its ugly head or whatever head it has right in the code by saying you will expect to be treated the same way, which takes away some of the competitive efforts at play.

30612 Personally, I see really three problems when I look at that area. One is the affiliated versus non-affiliated. That may eventually affect everyone. The relationship, because everybody is somewhat in programming and heaven knows what the future holds.

30613 The second one would be the actual relationship of the programmers where you think you want to alleviate the anxiety. That's the second.

30614 The third one is the relationship between the various distributors and the programmers and how that's handled. It's not easily done, short of having some perhaps more generic guidelines, but involving more parties which, of course, is not in your power to do.

30615 In the meantime, I suppose you can't do much more than protecting yourself by saying you are not going to give a better deal to my competitor than to me if we are going to have a good relationship.

30616 MS MacCALLUM: If I could just make a few comments from the network relations perspective, building on what Chris and David have said.

30617 First of all, we have relationships with most of the applicants that are very favourable. We do work together and dialogue. Part of the challenge in moving ahead is balancing the consumers' interests and inserting these new networks into packages that exist and having to upsell with expectations from the networks that have to in turn pay the producers for the programming.

30618 When Chris was saying about equitable terms, it's making sure that whatever relationship is woven into an agreement that going forward and running that agreement and managing that relationship is based on realistic and fair expectations and making sure that we have an opportunity to discuss with the must carrys opportunities to negotiate out equitable terms.

30619 Sharing risks and rewards is part of a way of saying if you are specialized or looking at a target market, that the wholesale fee doesn't tie into a make whole, but that at the same time if we go past your projected percentages that it's a win-win situation for the whole Canadian industry.

30620 These are exciting times. We are bringing new Canadian programming to consumers who want it. I think part of the code has been developed to assure, as Chris mentioned, the programmers that we want to work with and continue the relationships that we already have as partnerships.

30621 THE CHAIRPERSON: Even in your presentation paragraph 10 you talk about seeking access to product on terms and conditions both similar and equitable to comparably sized digital distributors, which is almost going to be comparable size from the word go or may well be or may not, but it's not as you indicated earlier, more comparable size if you look at the cable industry in the digital world.

30622 It's really not easy to manage this type of thing if it doesn't involve the other side. So we can look forward possibly to allegations of undue preference as between programmers and distributors as between programmers considering the relationship between the distributors. It's not easy unless we have an umbrella, a more generic expression of wanting voluntary guidelines.

30623 Maybe you have a bigger job. You have to try to co-opt your competitors. Would this be applicable to both Categories 1 and 2 or intended to cover both?

30624 MR. McLENNAN: Yes, it would.

30625 THE CHAIRPERSON: Now, I would like to understand what your understanding is of exactly how -- I guess make whole is what you are addressing at page 5, programmers should not expect a distributor to make up the difference between forecasted and actual penetration rate.

30626 Give me in two sentences an example of make whole as you understand it and not making whole as you understand it in a particular year of distribution or in your affiliation agreements, I suppose.

30627 MR. McLENNAN: I think in simple terms it would be if a -- let's do the math just to keep the numbers simple. If it was a 50 per cent penetration assumption in a business case and reality was something less than, let's say 40 per cent, so a 10 per cent difference, the economic difference between that 40 per cent penetration and 50 per cent penetration in absolute terms should not be the entire burden of the distributor.

30628 THE CHAIRPERSON: Yes. I understand that basic principle. How would it work from year to year? I'm trying to relate this to Madam Bertrand's concern, which is all of our concern I guess, about what happens to Canadian content, to expenditures, what happens to meeting your conditions of licence, the expectations and programming.

30629 Would it be at the end of each month if the penetration is not at the end of each year? There will be an adjustment possibly downward to your fees so that the revenues of the programmer would go down.

30630 MS MacCALLUM: If I could just add to those comments, we see three different rate cards presently today, just format-wise: penetration, flat rate, or volume discount based on number of subscribers.

30631 The make-whole provision, or comments about sharing the risks and rewards, is when the fee at -- wholesale fee -- which is only one of the components of bringing the costs to the consumer, in addition to marketing and building brand awareness, and the transportation and technology costs -- is when the wholesale fee is tied in to 100 per cent, and that it increases on a regular basis, going down from increments of sometimes 10 or 20.

30632 So that especially for new entrants heading into a marketplace that have submitted with the Commission a market expectation, if they were in turn to give us an affiliation agreement that had their proposed wholesale rate marked at 100 per cent, that would be make-whole in our eyes, because it is over and above not only the numbers they have projected, but it hasn't allowed us any discussion and dialogue to work them with and say: Who is your market? How does it fit?

30633 Because we have to up-sell all of these packages to consumers. We can't negative option our entire base.

30634 In fact, when you look at the other entrants in the marketplace who have to up-sell analog to digital, we have to up-sell existing packages. So it is very important for us to say: Whatever your wholesale fee is, we factored that into brand building, making customers enthusiastic about and aware of your business. And if you tie that rate to 100 per cent, then you have already disadvantaged the consumer getting access to that.

30635 So that is what the make-whole and sharing the risks and the rewards...

30636 We don't want to disadvantage our partners in any way. They have to pay for their programming schedule, and we are willing to work with them, but it requires a dialogue from both sides.

30637 THE CHAIRPERSON: Again, it would require you trying to ascertain what deal they make with your competitors.

30638 MR. MORRIS: Potentially. The concern there is that -- and only to build on the example you provided -- if a programmer were to provide a million dollars to help a distributor and a penetration target has been set -- a hurdle has been set under a make-whole scenario, that distributor is incredibly advantaged to get to that hurdle, whereas the people who are not supported are at a disadvantage. That is at the heart of our concern.

30639 THE CHAIRPERSON: Yes. That is, of course, an easy example. A more difficult one is packaging, which may be perceived as advantageous here, not advantageous there. But I see this as saying that the programmer doesn't have the luxury of saying: That is the deal I give him and that is the deal I am giving you.

30640 MS MacCALLUM: The important thing here, too, is that it is a demonstration that we want to work with the programmers, especially on the must-carry side. It is a must-carry, but, as the Commission mentioned yesterday, it is not necessarily a must-take.

30641 So dialoguing and making sure that we do have a good business case...

30642 And we are willing to work with them. We already have relationships in place with most of the applicants, and I firmly believe that they are willing to work with us, but in those circumstances that we create realistic expectations in a new domain that is in its early days, and that we are all working together.

30643 THE CHAIRPERSON: You may or may not want to answer this, but I gather that you have discussed this with SPTV and CAB.

30644 MR. FRANK: Yes.

30645 THE CHAIRPERSON: Have they raised any concern about comparable terms and conditions with other distributors? Or am I the only one who may not understand how it works?

30646 MR. FRANK: I think it is fair to say that both organizations were pleased with the discussions. Both organizations understood the need for fairness going both ways. I think that Ms Courtemanche from the CAB made that statement at least once during their presentation.

30647 THE CHAIRPERSON: Of course, she doesn't program a service.

30648 I meant more the actual partners that you would likely be dealing with, whether there has been any expression of concern as to their freedom to deal with distributors differently. Or the need to have a higher level of guidelines involving everyone, so that the understanding is across the board, perhaps at a more macro level, but nevertheless involving every party.

30649 My question is simply: Has a service provider who was already a programmer and has applied for licences expressed any concern about the difficulty of this type of requirement that there be similar conditions given?

30650 MR. FRANK: The answer to that is no at this point, but, in fairness, we haven't had across the board discussions. We have had sample discussions --

30651 THE CHAIRPERSON: Yes. With the associations, rather than the --

30652 MR. FRANK: No, we also have had some sample discussions with programmers, just to see if it passed the hee-haw test, and it appeared to.

30653 As I said, I think that both associations are quite enthusiastic about the opportunity to lock and load on something like this.

30654 THE CHAIRPERSON: Is the hee-haw desk the entrance to the dog and pony show?

--- Laughter / Rires

30655 MR. FRANK: I'm sorry. Pass the common sense test.

30656 THE CHAIRPERSON: Of course the question arises because there are other distributors who seem to have taken the position that, well, they were in good faith as well, but they didn't seem to think that this was a necessary exercise or that market forces should be the predominate driver in making this launch possible, in what will be difficult circumstances, as everybody has outlined. It will be riskier. It's a new world. There may be many services, some that you will choose to distribute, others that you have to distribute under regulatory requirements. So it will be difficult.

30657 Just one other easy question: When you speak about what I identified as one of the problems that arises -- the affiliated versus unaffiliated services -- the 10 per cent, it is not clear to me whether you mean voting securities or any equity.

30658 MR. FRANK: I believe the number is 20 that we are proposing.

30659 THE CHAIRPERSON: Oh, 20. I'm sorry. I was wrong on both counts.

30660 MR. FRANK: David, did you want to comment on that?

30661 THE CHAIRPERSON: I don't even remember where I saw the definition, whether it was in your code or whether it was in your presentation --

30662 MS MacCALLUM: Section 2.2 of the code.

30663 MR. FRANK: It is in the code. We can confirm that.

30664 THE CHAIRPERSON: Yes. Twenty per cent ownership. Okay. Any equity, or voting only?

30665 MR. ELDER: I think we were mainly speaking in terms of voting equity at the time when we drafted this, but you raise a good point. Obviously there will be circumstances where there could be some control.

30666 I don't think at the 20 per cent level of non-voting that you are going to be into much of a control situation. So I think we are --

30667 THE CHAIRPERSON: So either --

30668 MR. ELDER: Yes.

30669 THE CHAIRPERSON: I believe those are my questions.

30670 Commissioner Demers, please.

30671 COMMISSIONER DEMERS: Thank you.

30672 On the code, there was reference, if I remember correctly -- and we have heard many things -- that maybe your customers may have some interest in developing such a code. At least it was discussed, if I remember correctly, with one of the intervenors. Do you have comments on that?

30673 MR. FRANK: Our relationship with our customer is paramount to the future of our business. We do have a set of principles internally that we live by. Obviously, we are sampling our customers all the time to understand what it is they want and how we can make improvements in our business.

30674 So I guess the best proxy for a code with our customers is how we are doing as a business and how we interact with our customers. We test that quite regularly and I am happy to say that our customers have given us very recently an overwhelming vote of confidence in terms of service, in terms of quality and in terms of wanting to recommend, which I think is probably the most important test, wanting to recommend our service to neighbours and friends and family.

30675 COMMISSIONER DEMERS: Thank you.

30676 Do you have any input from customers, consumers on this draft code is not in your mind useful?

30677 MR. FRANK: I think the input of our customers is implicit in this code because it's something we can live by and if it wasn't competitive from our eyes and didn't give us the ability to sell our services, market our services the way we think our customers want, we wouldn't have put it forward.

30678 So I think the customer feedback is implicit in the drafting of this document.

30679 MR. MORRIS: If I may, we are happy when a customer subscribes to a package that includes one of the new channels, but we are thrilled if they watch it and enjoy it and really that's the heart of it. We want customers to watch these services, feel they are getting good value for the channels and watch them and enjoy them and, therefore, like the Bell ExpressVU service we provide that much more.

30680 MR. McLENNAN: Just in terms of a relationship with our subscriber, I think the way we work with our subscriber base is enshrined in our mission and value and how we conduct ourselves, and, you know, some of the basic principles that are offering them choice and diversity of content at very good value. That's enshrined in our code in terms of dealing with our customers and also acting with integrity. That's the contract that we have with our customer base.

30681 COMMISSIONER DEMERS: Thank you.

30682 Thank you, Madam Chair.

30683 THE CHAIRPERSON: Counsel.

30684 MR. McCALLUM: Some of the Category 1 applications heard in this hearing are proposing regional distribution. Can your DTH service restrict the distribution to the regions proposed by such applicants?

30685 MR. McLENNAN: Technically, yes, it's possible. We could offer services on a regional basis, but when we look at programming we also look at it -- when we look at local programming, let's say, we also evaluate it in terms of its attractiveness on a national basis too.

30686 We have had some great success with offering, quote, "regional services" on a national basis and our subscribers have tended to enjoy that type of offering.

30687 MR. McCALLUM: For those that are, say, French-language services would the intention be, if the Commission licences some of those, would the intention be to distribute those nationally?

30688 MR. McLENNAN: Yes, we do that at the moment and will continue to do that.

30689 MR. FRANK: That would, of course, be subject to the affiliation agreement. It presupposes that the programming service has the national rights. We wouldn't want to violate copyright.

30690 MR. McCALLUM: For those that you do have to restrict the distribution because it's proposing only regional distribution, does that leave some sort of excess capacity and, if so, can it be reused in any way, shape or form?

30691 MR. McLENNAN: Our natural tendency is to offer everything on a national basis because we are a national company. It becomes frustrating at times when we have to regionalize our service and, in fact, is wasteful of resources for us.

30692 For instance, if we are putting up a channel on our satellite that is broadcast nationally because the footprint of our satellite and yet we are only allowed to deliver that to a particular region, that is available nation-wide, but we have to black it out essentially for a good segment of the country because our agreement with that particular programmer would only allow us to offer it in a particular geographic region.

30693 I think a good, practical example of that would be the pay services with regional licences. That programming is up on the satellite on a national basis and not available on a national basis, so it's quite wasteful from our perspective, from a satellite resource perspective.

30694 We also believe that judged by the success we have had offering regional programming in other parts of the country, we think our subscribers would like to have access to that content on a national basis.

30695 MR. McCALLUM: Thank you.

30696 In discussion with I think Commissioner Wilson on the possibility of à la carte distribution or pick and pay distribution, I think your response was that the systems and infrastructure currently do not support that sort of type of distribution package. Could you say what sort of system changes you would have to make in order to do that?

30697 MR. McLENNAN: Basically, our delivery of the service is governed, partially governed by our subscriber management service. We configure that in a certain way and we have chosen to configure that and the packaging within that on these thematic bundles.

30698 If we were to go to pick and pay we would have to reconfigure the packaging within our subscriber management system.

30699 MR. McCALLUM: I guess I am trying to understand if it's mainly a billing issue or if it's a technical issue or if it's both.

30700 MR. McLENNAN: In fact, we made the decision to go on these thematic bundles based no what we believed was the best way to present this content to our consumers. So that was the top driver.

30701 If we need to change that philosophy then we will take the necessary technical steps to make sure that we remain competitive, but right now we believe that we have got a formula that works. We have configured our systems to support that formula.

30702 MR. McCALLUM: But how difficult would it be to change the system? I am still not quite sure I understand what is involved in changing the system.

30703 MR. McLENNAN: We would have to make programming changes or configuration changes I should say to our subscriber management system. So depending on the extent of that, to do one would be much simpler than to do a hundred. So it would depend on the scope of the change.

30704 MR. McCALLUM: And expensive I suppose too is a factor in this?

30705 MR. McLENNAN: Yes. Our IT Department would have to basically focus on this to reconfigure our packaging. It would take quite a bit of resources.

30706 MR. McCALLUM: Any sense of how long it would take in terms of time to do that?

30707 MR. McLENNAN: No. I would be hard pressed to give you an estimate of the scope of the project here today.

30708 MR. McCALLUM: Thank you, Madam Chair.

30709 THE CHAIRPERSON: Thank you.

30710 I believe that that ends our questions.

30711 We thank you for appearing a little earlier than you had planned I guess. We don't want to be too predictable as regulators, so sometimes we sit very late and sometimes less late, but thank you for co-operating and showing up. Is there something else?

30712 MR. FRANK: Just before we go, we would like to thank you for allowing us to appear a day later. It was very kind of you and made our appearance somewhat easier. Thank you very much.

30713 THE CHAIRPERSON: So, thank you and that completes our business for today.

30714 We will resume tomorrow at 8:30.

30715 Alors, nous reprendrons demain matin à 8 h 30 où nous allons commencer à entendre les intervenants qui se présentent pour appuyer les demandes.

30716 Alors, tomorrow morning we are beginning with Phase III intervenors who are appearing in support of one or a number of applications. We will see you at 8:30. Thank you.

--- Whereupon the hearing adjourned at 1550, to resume

on Friday, September 1, 2000 at 0830 / L'audience

est ajournée à 1550, pour reprendre le vendredi 1

septembre 2000 à 0830