Speaking notes for Hubert T. Lacroix regarding measures announced in the context of the Deficit Reduction Action Plan

April 4, 2012
2015 Same Strategy, Different Paths

Short clips taken from CBC/Radio-Canada’s employee town hall on April 4, 2012.

Hubert T. Lacroix
President and CEO

Kirstine Stewart,
Executive Vice-President, English Services

Louis Lalande (French only),
Executive Vice-President, French Services

2015 Same Strategy, Different Path Website

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This speech was delivered to all of CBC/Radio-Canada employees at a town hall by Hubert T. Lacroix, President and CEO, CBC/Radio-Canada.

Good afternoon everyone.

So, here we are. We finally have confirmation of our number.

For months now, while you have been waiting, and wondering, and worrying, your Senior Executive Team has been working to meet the requirements of the Deficit Reduction Action Plan. Like all organizations, we were instructed to provide the Government with a detailed list of how we would implement a cut of 5% or 10% to our budget.

We made it clear that reductions of that size couldn’t be done simply through efficiencies. We provided a detailed list of the programs and services that would be affected under those two scenarios. The Government then made its decision.

This has not been fun, and it's the second time since 2009 that we have had to come up with plans to reduce our programs and services and eliminate jobs.

Before I go on and give you some of the details that you have been waiting for, I want to thank you for your patience and your understanding. This was indeed a long and drawn-out process. That it was under Cabinet Confidence limited what I could say about it, adding, I am sure, to your anxiety. I am sorry for that, but those were the rules of the game.

The Government Announcement

Last week, Minister Flaherty announced that our budget will be reduced by $115M over the next three years.

This $115 million reduction includes the elimination, over that period, of the $60 million envelope that we had received since 2001 to invest in Canadian programming. So, let's be clear: the $115M includes the $60M; it's not $115M plus another $60M.

I can't and won't pretend that this cut is a good thing for us. But, I also read the tea leaves and knew that we couldn't expect to somehow be exempted from DRAP.

So, is this a fair reduction? Today, questions of this kind, and answers thereto, are not very important.

After months of discussion with Government highlighting the values and importance of public broadcasting and its impact on the Canadian economy, the Government still decided to reduce our appropriations by $115 million. I will let Canadians decide for themselves if this is a fair cut. For our part, we need to adjust and move on.

The Government has laid out our appropriations for the next three years. We now need to plan our finances over that period to allow us to meet two key objectives: (i) maintain our capacity to fulfill our mandate under the Broadcasting Act, and (ii) continue to drive Strategy 2015 by delivering high-quality Canadian programming, enhancing our regional presence and local impact, and investing more in digital platforms.

Our challenges

Our challenges, unfortunately, don't end with this budget reduction. More than ever, we need to plan our finances in more than one-year budgetary cycles, to give ourselves more stability, the ability to plan better and margin to manoeuvre in this environment. So, as we go forward, we need to take into account other financial pressures on us like:

  • The fact that Strategy 2015 calls on us to make important investments and re-directions (about $55 million per year) in the parts of our business, which are core to our vision, like our access to various digital platforms;
  • The fact that our Corporation continues to face, each year, a number of unavoidable increases in fixed costs (taxes, rent, rights increases, etc.), and that CBC/Radio-Canada, like other federal Crown agencies and departments, has stopped receiving from Government, since 2010, an adjustment to our funding to cover inflation on our salaries. This means that we must use our existing resources to cover any increase in salary. We have been doing this for two years now; not the best of situations. Just this unfunded salary inflation piece (assuming an increase of 1.5%) represents an amount of $13 million in our budget per year, compounding every year; and
  • The fact that we have little or no financial flexibility to manage a cut over time (meaning that, as we don't have access to credit lines or short-term borrowing to manage our cash flows, every time we lose a dollar of revenue, we must immediately postpone a dollar of expense or cut a dollar of expense which then triggers more one-time costs, compounding our problem, in order to balance our budget).

Our plan for the next three years needs to reflect these various financial pressures. Overall then, when you add these pressures to the $115 million cut under DRAP, our financial challenge quickly becomes something in the order of $200 million.

The Measures

So, how will we do this?

To explain the measures that we will be implementing, we have grouped them into five categories.

The measures are far reaching and the changes that come with them are significant. I'm not underplaying that. There will be very evident changes to the services we offer. It will take time to explain them more thoroughly and appreciate their full impact on our programs, services and operations ― not only with you, but also with our stakeholders, partners, communities, audiences, and Canadians across the country.

I should also tell you that these measures follow about eight months of consultation with the media lines and each corporate component. I want to recognize their work, often done through week-ends, long nights and cancelled holidays. This needed to be done. We made a lot of difficult choices, gut-wrenching choices actually. Choices that different people will criticize for different reasons, all valid. But we needed to make choices and we did.

I know that some of you will be more affected by these choices than others. That some of you might be angry, puzzled perhaps, upset, wondering "Why me", "Why our service and not that other one?" That's fair. Some of you might have questions that we don't have answers to, today. That's okay too; we’ll get to them in time. This isn't something that we can all deal with in one moment. It's too big, too complex, too many dominoes.

So, back to our five categories for information on what we are about to implement to deal with pressures totalling about $200 million:

1. Increasing self-generated revenues

(Ongoing savings: up to $50 million)

We started by looking at our revenues in order to reduce the impact of the cuts on our people, programs and services.

We'll do different things. Here are a few examples.

We want to increase self-generated revenues by leveraging ads on television, increasing digital revenue and, as an alternative to more drastic solutions, adding advertising/sponsorships to both CBC Radio 2 and Espace musique.

We have developed our advertising initiatives based on industry best practices, always upholding the public broadcaster’s advertising policies and brand values and maintaining our Strategy 2015 commitment to increase Canadian content.

We have already submitted our application for a licence change for CBC Radio 2 and Espace musique to the CRTC, and will work through the process with the Commission.

The decision to add advertising/sponsorship won’t change the programming mandate of CBC Radio 2 and Espace musique. It will, however, ensure that through both Radio 2 and Espace musique, we can continue to be a point of discovery for Canadian music fans, offering a music discovery experience, across a broad range of genres, with more multi-platform music content than any other broadcaster in Canada. CBC Radio 2 and Espace musique remain deeply committed to supporting and showcasing the best in Canadian music across a broad range of genres.

And yes, we did consider commercializing CBC Radio One and Première Chaîne, and chose not to go there. We wanted our "talk radio" to stay commercial free and made that choice.

Finally, we will look to our real estate portfolio to generate more revenues as we seek to exit some buildings that we own to become tenants in more efficient and less-costly premises. (More on this in a moment).

We are also looking to lease significant square footage in the Toronto Broadcast Centre. In fact, as you have surely noticed, we have already started leasing what we no longer need in the TBC. In addition to our deals with Boston Pizza, Disney and MediaVoice, we are finalizing a lease for about 175,000 square feet, and have applied for a zoning change to allow us to increase our ability to lease vacant space in the building.

2. Transforming RCI

(Ongoing savings: up to $10 million)


Next, we looked at those services that modern platforms have for the most part replaced, and that few Canadians are using. We are thus shutting down shortwave transmission. RCI will be transformed by focusing on the more relevant platforms. It will now provide national and international audiences with content on the web in five languages (French, English, Spanish, Arabic and Mandarin). The Brazilian and Russian sections will close.

This transformation responds to demographic shifts, to the traffic on our sites, and concentrates our efforts on Canada's largest communities of diverse origins, while continuing to offer an international service via the web. These decisions are consistent with international trends and approaches adopted by other public broadcasters.

3. Accelerated shutdown of analogue television transmitters

(Ongoing savings: up to $10 million)

We are also shutting down the analogue system sooner than anticipated. Since the initial discussions around DTV started, we have clearly stated that we wouldn’t duplicate our analogue footprint in digital, that we would build digital transmitters only where we make programming, and that we would be eventually shutting down our analogue transmitters given the obsolescence of analogue technology and its disappearance throughout the world.

The useful life of CBC/Radio-Canada’s satellite distribution backbone for analogue transmission is approaching its end and becoming increasingly expensive to maintain. Continuing to operate over 600 transmitters to reach about 1.7% of the population would not be an efficient use of our resources at the best of times; it is certainly not viable given the current circumstances. Over 98% of Canadians won’t be affected by this and will continue to receive their CBC and/or Radio-Canada television signal the same way they do today: via cable, satellite, or digital over-the-air.

So, we have given notice to tower landlords and informed the CRTC that we will be shutting down analogue television signals on July 31, 2012.

4. Reducing costs and delivering services differently

(Ongoing savings: up to $100 million)

Another group of measures is dedicated to reducing costs and delivering our services differently. To do this, we are looking at eliminating the things that do not get us closer to achieving the goals set out in Strategy 2015.

Over the last years, there has been a non-stop focus on operating and production efficiencies as we systematically squeezed out on-going annual savings of tens of millions of dollars out of our assets. This work will continue.

We will also look to increase employee contributions to our pension plans from 34% to 40% over the next two years. This measure will generate approximately $5 million per year. This is consistent with what's happening across business and Government. In its budget, the federal Government stated it plans to increase the contribution to 50% for the public service. We will re-balance the contribution at CBC/Radio-Canada to a 40-60 ratio.

We’ll also continue our priority of reducing the footprint of our real estate portfolio. We had an objective of reducing it by a minimum of 400,000 square feet by 2015 but are accelerating that pace and increasing the target to over 800,000 square feet by 2017. In the shorter term, we will pursue the sale of CBC/Radio-Canada-owned buildings, shift from owner to tenant in a number of locations, and look to lease our vacant space in the remaining buildings.

To give you a feel for the importance of these real estate initiatives, our operating expenses average about $15 per square foot and we calculate our opportunity costs to be also approximately $15 per square foot. Do the math with $30 per square foot on 800,000 square feet, and you'll see how fast we get to millions of dollars of savings.

More specifically, this means that:

  • We have re-evaluated the Halifax project. Our original plan involved a big investment in our real estate infrastructure, including TV studio production, and the incurring of substantial ongoing costs and business risks over the next years to maintain our presence in that fashion. Basically, we were consolidating all CBC/Radio-Canada operations in a renovated/new facility at Bell Road, and continuing our operations much as we have until now. Unfortunately, we can't afford the costs of that project anymore. We will not make that investment. We will be moving out of both of our Halifax buildings into new leased premises, and looking to sell both of our existing sites. Our new space configuration will not include facilities for TV studio production.
  • This was a tough decision given the creative success that our people in Halifax have had over the years. I also know how hard the Halifax Team has worked to justify our initial decision to maintain the TV studio production. I certainly don't like making decisions to cancel approved projects, and would not have done so had we not faced these financial challenges and choices. Ultimately, given what we know now, investing in infrastructure was no longer a choice I could justify, given our priorities.
  • We have plans to reduce the size of La Maison Radio-Canada, in Montreal, by 400,000 square feet when we go out for proposals this summer.
  • We have plans to sell our building in Calgary as we reorganize our operations in less square footage.
  • We will be moving out of our current locations in Rimouski, Sydney, Cornerbrook, Saint John (New Brunswick) and others, into new spaces, thereby saving 60,000 square feet.

These are only a few examples but I think that you get the picture. Newer facilities, more functional, more efficient, and no maintenance obligation attached to them, and no capital tied up in infrastructure.

5. Pacing the 2015 roll-out

(Ongoing savings: up to $30 million)

Finally, because these initiatives were still not enough, we looked at 2015 and had to scale back our ambitions.

We are still committed to our goals of becoming more distinctly Canadian, more regional, and more digital, which remain vital to the fulfillment of our role as Canada’s public broadcaster in a rapidly changing environment. However, in light of this cut, moving as far or as fast on certain elements of our Strategy 2015 won’t be as easily accomplished.

As a result, we will be scaling back our plans in some areas including: program reductions in the network schedule, reductions in the number and/or budget of signature events produced, reductions in the number of live music recordings on radio as well as in cross-cultural programming projects.

While we are well on our way to introducing or improving local services to 3.5 million Canadians out of the six million we said we would target by the end of our fiscal 2015, the remaining 2.5 million targeted by CBC will take longer and will be more difficult to achieve. And, in light of these pressures, CBC's initiatives to complete its local service extension plan will be digital-only services instead of a combination of radio/digital services, with fewer new opportunities.

Our strategy on specialty channels will also be affected. CBC no longer plans to launch a Kids digital channel, and neither CBC nor Radio-Canada will pursue the launching of sports channels after having obtained the necessary licences to do so. Finally, we also intend to sell bold, one of our CBC specialty channels, the licence conditions of which no longer fit our strategy nor complement our other programming streams. It will immediately be put on the market.

About FTEs

What does this all mean for jobs?

There is no easy way for me to say this.

Up to 650 full-time positions will be eliminated over the next three years (representing 7% of our FTEs). This breaks out like this: about 475 positions in 2012-2013, about 150 positions in 2013-14, and the rest in the following year. Unfortunately, in a corporation where about 60% of our overall budget goes to salaries, it's simply impossible to take a hit of this magnitude without a major impact on our people.

About 500 of these FTEs will come out of our media lines, split about evenly between English and French Services, with the other 150 from Corporate Services. The elimination of these positions also means that we have to find an additional one-time amount of $25 million to cover severance, on top of the $200 million that I just referred to.

We will work with our union leaders starting immediately to implement these reductions, respecting the terms of our collective agreements. In addition, we have initiated discussions with our unions to evolve the methods of production, in order to get to a more effective and less traditional way of managing production issues, where we can work together to reduce the 650 number as best we can.

If you are a CBCer or a Radio-Canadien who will be leaving us, I promise that you will be treated fairly, with the dignity and recognition that you deserve for your years with us. We'll also provide you with the support you might need through these tough times.

And, for those of you who will see your friends go, let me tell you that we're mindful of the challenges that these departures will create. We'll work through this together and do it right.

Let me reiterate to everyone my message today that, in this era where everything around us continues to change, we need to adapt faster. We will thus focus our people efforts on Learning and Development in order for you to grow and acquire a deeper knowledge and be best equipped in a multi-platform environment and evolving modes of production. In return, I ask you to embrace flexibility and agility in the ways we do business. We need to make our jobs more evolutionary, and we need to become more of a learning organization following the pace of change in order to create more opportunities and make our jobs less fragile.

Conclusions

It's important to understand that this plan will be closely monitored and adjusted as required as (i) it's being implemented over a three-year period, and (ii) it will heavily depend on the strength of the ad and real estate markets, and on our overall revenue performance during this period. For example, our plan assumes that the CRTC's Local Programming Improvement Fund will remain in place and that we will continue to have access to it, generally in accordance with the current rules. As you know, the LPIF is currently under review and the public hearings start in a few weeks.

And, because this plan will be constantly monitored and adjusted over the next three years, it means that many of our efficiency initiatives never stop. For instance, Strategy 2015 calls on us to be more nimble, and our employees to be more accountable for their decisions. So, I've asked Roula and Suzanne to look very closely at, and report on, our levels of management and especially the ratio of direct reports to managers, and benchmark us against the very best organizations. All with a view to accelerating our decision–making processes and making us more efficient.

In addition, this plan encompasses innumerable adjustments to our programming and schedules.

All in all, the measures to deal with financial pressures of $200 million break out generally as follows: English Services contributes about $86 million, French Services about $64 million and the transformation of RCI and non-media services about $50 million. About 81% of the media FTE reductions will affect the network, with 19% impacting the regions.

One last piece of information to put things in perspective. Even though the main objective of DRAP was to find efficiencies, clearly we couldn't limit our measures to that and reach our target. Very simply, our financial recovery plan of 2009-2010 was about efficiencies. The measures today are not limited, as you already heard, to efficiencies: these only represent 41% of our cuts. 59% of what we are announcing today affects our programs and services.

So, there you have it. An overview of what’s in store. As you can now see, these measures are not proportional across our Corporation, but mostly strategic and all linked to protecting our mandate and our strategic plan.

It’s difficult to hear, I’m sure. And it’ll take some time to digest. As far as people are concerned, it’s obviously a tough situation.

While this is definitely bad news, we can’t afford to get lost in it.

Things have till now been going exceptionally well in terms of the progress we’ve made against our 2015 plan, and our programming successes along the way.

We can’t lose sight of that.

All our research this past year points to overwhelming support for public broadcasting among Canadians, our audiences and opinion leaders across the country. They still see not just a need, but also a bright future, for public broadcasting. Obviously, I believe that too. While we might not get as far and as fast as we’d like, we will still find ways to get there.

So, despite the bad news and the tough road ahead, we need to stay clear-headed, stay focused on what we deliver to Canadians: culture, democracy, distinct Canadian programming, reflecting regions to themselves and the country, and digital content wherever they want it. We need to show Canadians and ourselves that we can overcome hard times and keep evolving into the modern public broadcaster this country needs. And we need to move quickly.

Together, I know we can ― and will ― work through all this and get it right.

Now we’ll turn it over to you for questions.

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