Sylvain Lafrance: Good morning Mr. Chairman, Vice-Chairmans, Commissioners and CRTC staff. My name is Sylvain Lafrance, Executive Vice President, French Services.
With me today are Richard Stursberg, Executive Vice President, English Services, and Steven Guiton, Chief Regulatory Officer at CBC/Radio-Canada.
Also with us are Louis Lalande, Executive Director, Regional Services, French Services, François Conway, Senior Director Strategy and Planning and Bev Kirshenblatt, Senior Director, Regulatory Affairs.
We believe the broad policy issues now before you must be dealt with in a timely manner. This will enable a more balanced regulatory regime to be put in place in advance of the filing of the privates’ television licence renewal applications at the end of this year, and prior to our own renewal applications early next year. Greater regulatory certainty is essential if licensees are to be able to make reasonable plans for the future and prepare coherent and meaningful licence renewal applications.
Mr. Chairman, this clarity is also essential given the important place that the Canadian broadcasting system, and particularly television broadcasting, holds in the cultural, political and social vitality of Canada.
Television has been, is and will remain for the foreseeable future one of the central medium that binds Canadians together within this richly diverse country.
For decades, conventional television has been the cornerstone within the Canadian television industry. In our view, this is still the case.
As you know from our filing, over 80% of original Canadian entertainment programming in prime-time comes from conventional broadcasters. This is a fact also reflected in viewing: over 80% of all viewing in prime-time to Canadian entertainment programming is viewing to conventional broadcasters’ programming. And of course in terms of local programming, we conventionals are virtually the only providers.
Conventional television is central to Canadian culture and society.
And, yet, conventional television is in crisis. And that means the entire Canadian television sector is in crisis.
If a good part of the 80% of programming disappears, the Canadian broadcasting system will become a shadow of its former self since there is no one who can step up to replace that lost programming.
We risk losing a critical component of our national, regional and local cultural expression if the scope of this crisis is not properly acknowledged and dealt with in a coherent and comprehensive manner.
In the context of this proceeding, we would like to address three aspects of the current situation:
1) putting the television sector back onto a sustainable economic footing;
2) financing local programming; and
3) distributing programming to Canadians in a fully digital environment.
I will now turn things over to Steven to begin our discussion of these matters.
II. Fixing a Systemic Problem
Steven Guiton: We are all aware of the financial crisis that has gripped the globe over the last year.
As our President, Hubert Lacroix, indicated before the Heritage Committee on Monday, “The business model on which conventional television – both public and private – is based, is no longer working. It hasn’t been working for several years. The current economic crisis has only accelerated what was already a steady decline in the value of television advertising.”
The problems with Canadian conventional television are systemic and have two key aspects.
First, there is an imbalance between BDUs and broadcasters. While there are many elements to this imbalance, the central one is simple – BDUs are making hundreds of millions of dollars off of conventional television and paying nothing in return.
Second, there is an imbalance between conventional broadcasters and specialty services; namely, specialty services have two revenue streams – advertising and subscription revenues – while conventional broadcasters are restricted to the advertising stream only..
These simple systemic imbalances have existed for many years and, over that time, they have been slowly tipping conventional broadcasters toward financial disaster.
The current economic crisis has given that slide toward disaster an additional shove – but that is all it has done. It is not the cause. And once it is over, the systemic problems will remain unless they are fixed now.
So, what can be done? The starting point must be to establish a level playing field.
Introducing fee for carriage will make BDUs pay for what they use – a requirement that is economically rational and necessary. It will also place conventional broadcasters and specialty services on an even footing in the market place. It will level the playing field.
In our view, this simple step may not solve all the problems of the television sector, but without taking that step there is absolutely no chance that the Commission will be able to put this sector back onto an economically sustainable basis and still fulfill the objectives of the Broadcasting Act.
We believe it is critical that the Commission move swiftly on this issue by establishing the policy that all conventional broadcasters be eligible for subscriber fees as part of its upcoming hearing this summer. Given the urgency of the situation, the Commission should establish an interim rate for all conventional broadcasters and implement it, effective January 2010. This rate could be adjusted at each conventional broadcaster’s licence renewal, if appropriate.
III. The LPIF – Encouraging Local Program Commitments
Richard Stursberg: The second key issue for the television system is the need to sustain and improve local programming. This has been recognized as an important problem by the Commission for many years – a problem that the Commission has finally taken steps to address by establishing the Local Programming Improvement Fund (LPIF).
The economic reality is that local programming is not profitable anywhere but in some of the largest markets. It must be subsidized one way or another. A properly funded and administered LPIF will go a long way to achieving this goal.
In this regard, we have four points..
First, the LPIF is not a substitute for fee for carriage and is not a short term fix for the current economic woes. The LPIF addresses a totally different problem – the long standing and unchanging need to subsidize local programming if the objectives of the Broadcasting Act are to be met.
Second, the LPIF should be focused purely on local programming. It should not be used as a mechanism for funding marketing expenses or capital investments or any non-programming activities. If the LPIF is given this tight focus, then we believe it would be appropriate to keep the fund at 1% of BDU revenues for at least the first year. This will enable both the Commission and broadcasters to assess the effectiveness of this level of funding.
Third, we believe it is important that the LPIF encourage local programming commitments. That is why we support the Commission’s revised formula for allocating LPIF funding. Using historic spending as a basis for allocating funds provides a proper recognition to broadcasters who have made a commitment to local programming. It also rewards them if they have been able to increase that commitment.
Fourth, as you know, several parties have argued that CBC/Radio-Canada should not be eligible to participate in the LPIF. We find this quite extraordinary since their arguments have no foundation in policy or precedent.
In regard to precedent, CBC/Radio-Canada has always had the right to participate in the Canadian Television Fund. On March 9th the Government announced the formation of the Canadian Media Fund (CMF). CBC/Radio-Canada is a full participant in the CMF in keeping with one of the Government’s guiding principles for the CMF: All broadcasters will be put on a level playing field, including CBC/Radio-Canada.
In implementing the LPIF, the Commission’s policy focus should be to ensure that the monies are spent effectively. And, as the Commission itself has acknowledged in its decision last year, in this regard, CBC/Radio-Canada has a significant role to play and its full participation is clearly in the public interest.
The commitment of CBC/Radio-Canada to Canadian programming is beyond doubt. And this is true for both network programming and local programming.
CBC/Radio-Canada has a mandate to produce local programming and has been both committed and successful in pursuing this mandate. The Corporation has an extensive presence – in both English and French – across Canada. The Corporation is positioned to build on its past commitment and its past success. But, it will only be able to do so if it has access to the LPIF on the same terms as all other conventional broadcasters.
As the Commission is aware, the Corporation is facing difficult financial times – just like everyone else. In its business plans for the coming years, the Corporation has built in the positive support it will receive from the LPIF. If the Corporation is not given access to the LPIF on the same terms as other broadcasters, then CBC/Radio-Canada will have no choice but to revise these plans. This is a simple statement of economic reality. We cannot produce what we don’t have the money to produce..
In our view, the LPIF is an essential support mechanism and will assist with the production of local programming. All conventional broadcasters operating in small markets, including CBC/Radio-Canada, should be entitled to access the LPIF in a way that encourages commitment and rewards success.
IV. Distribution in the Digital Environment
Sylvain Lafrance: I would now like to turn to what we consider the next logical step in the process of revamping the television system – distribution.
In our view, it would be a strange thing to take important steps to support the creation of local programming and then neglect to ensure viewing of that programming. And yet, that is exactly the situation we face.
For many local television stations the lack of satellite distribution – that is carriage by the DTH BDUs – is already a major problem, particularly for Radio-Canada.
This problem will become an even bigger problem in 2011 when broadcasters will switch from analog to digital – and HD. The clear question at that time will be not who else will be carried but who will be dropped.
In our view, it is not acceptable to leave these local station distribution decisions up to DTH providers. The objectives of the Broadcasting Act must be determinative. Consequently, the Commission should deal with this issue in its summer hearing and establish clear distribution rules – rules which accord with the importance of local programming under the Broadcasting Act and which support, rather than contradict the LPIF initiative. Ideally, the goal should be to get all local stations distributed by DTH providers.
The second point we would like to make on distribution relates to the situation which will arise in places where local broadcasters decide not to install digital transmitters. We believe BDUs should be required to accept and distribute direct feeds from broadcasters who wish to continue to provide a local television service but not on an over-the-air basis. This is already the preferred delivery method for nearly all BDUs in Canada.
We also believe that BDUs should offer a limited basic package to Canadians who still don’t subscribe to a BDU service. We recognize that the cable BDUs have claimed that such a package would be impractical. In our view that claim should be scrutinized carefully by the Commission in the context of a public hearing.
Steven Guiton: To sum up, Mr. Chairman, CBC/Radio-Canada believes it is essential that the Commission step back and look at the present turbulent situation in the context of the entire broadcasting system and the objectives of the Broadcasting Act.
From that perspective, it is clear that there are serious systemic problems which must be fixed before there can be any realistic hope of restoring the television sector to health.
First, conventional broadcasters should have access to subscription revenues – forcing BDUs to pay for what they use and creating a level playing field in the system.
Second, the LPIF should be implemented in the modified form proposed by the Commission in BNC 2008-113-1 with funds being available to all local broadcasters.
Third, the Commission should establish clear, detailed rules for DTH distribution of local television services which will promote the objectives of the Broadcasting Act and support, rather than contradict, the LPIF initiative.
These are the key steps we believe the Commission must take to set the stage for future success. We believe it is essential that the Commission act on these points as quickly as possible. Further delay would invite disaster.
Thank you for giving us the opportunity to participate in this proceeding and present these comments today. We would be happy to answer any questions you might have.