Proceedings of the Standing Senate Committee on
Transport and Communications

Issue 8 - Evidence for Thursday, December 12, 1996

OTTAWA, Thursday, December 12, 1996

The Standing Senate Committee on Transport and Communications, to which was referred Bill C-216, to amend the Broadcasting Act (broadcasting policy), met this day at noon to give consideration to the bill.

Senator Lise Bacon (Chair) in the Chair.


The Chair: We welcome you, Mr. Gallaway. We have heard a lot about you recently.

Senator MacDonald: Madam Chair, on a point of order, I first wish to congratulate you on the convening of this committee to consider Bill C-216, which was referred to you only nine days ago. That is something of a record. I wish to commend your staff, especially Mr. Fraser, for providing us with some very valuable research, including 13 very useful and penetrating questions which literally cover all the concerns which have been expressed by some eight senators in the chamber.

My point of order is really in the form of a request. Might I be assured that Mr. Fraser's questions will be posed in the order in which they appear? I say that because in my experience as the chairman of this committee for four years, I noticed that on many occasions the research questions were often times not asked, for whatever reason, possibly because time ran out, possibly because some senators assumed that some other senator would ask the question. That resulted in the absence of a useful sequence.

With respect, Madam Chair, might I suggest that these questions be asked by you, as the first questioner, a conditional procedure, or failing that that you possibly designate another senator to pose these questions to the witness. This of course in no way is intended to disallow any senators from asking follow-up questions.

The Chair: I could ask the first question, Senator MacDonald, but members may have questions that they want to put here in the committee. If there are questions left over from the ones that Mr. Fraser prepared, I can ask those questions, if that is suitable to you. I think it would have the same purpose anyway.

Senator MacDonald: My request is really that the questions be asked in a sequence. I have prepared some questions. In no way are they as good as Mr. Fraser's questions.

The Chair: I agree with you, Mr. Fraser has done a great job.

Senator MacDonald: If those questions were posed first, by yourself or some other senator, we could get off to a clear understanding of exactly what faces us here.

Senator Spivak: There are 13 questions and it is likely they might take up all of the time. I agree with Senator MacDonald that if we had the answers to each and every one of these questions, we would be in a better position to evaluate the bill. My own view is that I would like to support him in suggesting that these questions be asked first -- I do not care how you do it -- so that we can get an understanding of these issues before we go on to other questions that senators may wish to ask. It might seem a little manipulative or arbitrary, but I think that is what we should do as well.


Senator Corbin: Madam Chair, as you know, I am not a member of this committee, but this question is of concern to me. That is why I am here. I agree with senator MacDonald's proposal. There is a logical sequence to these questions. Regardless of the way in which we proceed, I believe that they should all be asked since they follow on logically from one another. I support the senator's proposal. We have to agree on who will ask them. It could be senator MacDonald himself, following your first question, as you said.

Now, as we are dealing with the questions to be asked, I would point out that we are using terms I have always found offensive. We talk on the one hand about Quebec, and on the other about English Canada. That usage shocks and offends me. I think it goes against the very spirit of what Canada should be and in fact is. There is no Quebec on the one hand, and English Canada on the other. This is usage developed by Quebec separatists. I can appreciate that our researcher, Mr. Fraser, was well intentioned, but he has fallen into the trap of using the separatist language. I hope that we will not repeat this expression in the future, be it in the work of our committees or elsewhere in the Parliament of Canada. Thank you, madam Chair.

Senator Bacon: Senator Corbin, we will take careful note of that.


The Chair: Senator MacDonald, I will ask the first question and you can ask the other questions.

Senator Whelan: I too have had quite a bit of committee experience in another place, and these questions are only suggestions. They could be given to the witness with a request to provide a written response to them. We should be free to ask the questions we feel are most relevant.

The Chair: I have no doubt, Senator Whelan, you have other questions.

Senator Whelan: I am not saying that they are not good questions; I am not saying they are not similar to the ones I have either.

The Chair: We must hear Mr. Gallaway first. Following his presentation, Senator MacDonald, I will ask the first question. We can then decide how to proceed after that.

Mr. Gallaway, please proceed with your presentation.

Mr. Roger Gallaway, Member of Parliament for Sarnia--Lambton: Bill C-216 was passed by the House of Commons to address a concept that is not radical, revolutionary or peculiar; that is, consumers in every part of this country, notwithstanding whichever official language spoken, should have the right to choose the specialty channels -- and I emphasize specialty channels -- which appear on their television screens, to be informed about what the channel purports to be and what it costs, as well to consent to receiving it prior to being charged for it.

The converse of what I have just described is referred to as negative-option billing, which is what led to the consumer revolt of January 1995 when cable companies proceeded, with the tacit concurrence of the CRTC, to provide specialty channels without meeting any of the three criteria to which I have just referred. At that time, the CRTC assumed that the only method of marketing these channels was to force them onto the television screens of Canadians who, after some indeterminate period of time, would accept their presence and attendant costs.

The outcry following this action I have summarized in three points: First, Canadians recognize specialty channels as discretionary entertainment which for some is a diversion and for others is an entertainment product which is neither wanted nor welcome as an additional cost of being a cable subscriber. Secondly, consumers demand some element of control over what they will receive on their television screens and what the option as to choice and cost will be. These specialty channels are targeted to niche markets; more succinctly, not every cable subscriber is interested in cartoons or gardening and, therefore, is not asking but demanding control over these types of specialty products. Thirdly, the notion that additional entertainment would be delivered and payment demanded without prior consent is absurd and repugnant to our marketplaces. The public saw the regulatory gun pointed at its collective head and stated their feelings clearly to the cable companies, to the CRTC and, most properly, to those who can affect a remedy -- that is, their members of Parliament.


The result was the creation of this bill and its ultimate passage by the House of Commons after study by the Standing Committee on Canadian Heritage, an amendment presented by the Parliamentary Secretary to the Minister of Canadian Heritage on behalf of the CRTC, and its final passage by the House of Commons on September 23 of this year as amended in accordance with the recommendations of the CRTC.


This bill, Madam Chair, is about consumers. It is about entertainment and it is about money. This bill is about whether an individual has the choice to see and pay for what I refer to as the "People Magazine" or "Better Homes and Gardens" of the airways. Clearly there is a continuum of interest in these diversionary entertainment channels and an express statement by consumers for a continuum of choice as to cost and delivery. Based upon the average increase in cost of discretionary channels in January of 1995 of more than $3 per month, or about $40 per year, this bill is about who will decide how Canadians spend their hard-earned discretionary income. Quite simply, will it be them or will it be us, the federal legislators.

By way of illustration, there is one particular cable company which employed negative-option billing on its nearly 2.5 million subscribers in January 1995. The same company has just announced a cable rate hike for its customers effective March 1, 1997. We should realize that rates for basic service are regulated by the CRTC, however, rates for discretionary services are not regulated by the CRTC. Cable companies are free to set whatever rates they want for these services. What this means in dollars and cents for customers of Canada's largest cable company is an increase of almost $2 per month on their cable bill starting in March.

The newly licensed specialty channels will start broadcasting in September of next year. There will be additional charges for these new services. As legislators, we must ensure that these services are not provided on a negative-option basis or consumers will see their cable bills increase yet again. It all starts to add up to increased costs and less discretionary income for millions of Canadians, especially those on fixed incomes who struggle to make ends meet. Home heating costs, local telephone charges and now cable rates are all increasing. Certainly, we can give consumers the choice when it comes to optional television channels.

This bill is not about culture, it is not about language and it is not about minority rights. Sadly, there are those who insist this to be the case. In a November 27 editorial in The Gazette, it stated:

Opponents have managed to parlay the law into a linguistic debate. But language is more a red herring than a genuine concern. The real issue is whether cable companies should have the right to bill unsuspecting customers for channel packages they do not want. The answer is no.

There are those who would insist that the government has a fundamental responsibility to the Francophone minorities and that such minorities must see their own reality reflected in television. Alternatively, there are those who would amend this bill to exempt negative-option billing for French-language channels. Interestingly, the editorialists of The Ottawa Citizen and The Toronto Star have described such critics of this bill as advocates of "institutionalized consumer deception" and "language apartheid".

Culture, language and minority rights have been recognized in our broadcasting policy, as set out in the Broadcasting Act and as administered and applied by the CRTC. We see this recognition reflected in the basic cable service. However, in this era of specialty channels, a new reality has evolved; namely, there are certain television channels which have little or nothing to do with culture or language and everything to do with entertainment. This is an issue which is not language-specific and putting the faith and viability of new specialty channels ahead of consumer rights is simply wrong and unacceptable.

There are those members of this place who have suggested that Canadians trust the CRTC to give proper and correct advice concerning broadcasting in this country. It is appropriate to note that the chair of the CRTC, as he then was, Mr. Keith Spicer, advised the members of the Standing Committee on Canadian Heritage to pass this bill.

Of greater interest is the evidence given by Mr. Allan Darling, the Secretary General of the CRTC, when he appeared before that committee on May 30 of this year. Mr. Darling addressed the technical aspects of this bill, especially those concerns raised by some involving RDI, the Réseau d'information, and whether this bill would in any way negatively impact that channel and other specialty or pay channels licensed by the CRTC in the future. Mr. Darling, in response to a question of the committee, stated:

...the key concern the committee started to raise was whether the bill before you, if passed, would prevent the commission from imposing as a mandatory service the carrying of the Réseau d'information, RDI, as a must-carry service, and the short answer is no.

Subsequently, he stated:

It seems clear to me it's the intent you want from this bill to ensure new specialty and pay television services we will be licensing in the future, many of them in the next few months, will not be sold to customers using a negative option technique... we understand your intent. We endorse that intent. We have developed a proposed alternative set of words...We would like to put forward for consideration a different formulation than the one in the bill before you, which in our view... would meet the objective you've stated you wish to achieve in the principle of this bill...

Following this, an amendment prepared by the CRTC was moved by Mr. Guy Arsenault, the Parliamentary Secretary for the Minister of Canadian Heritage. This amendment was accepted by the committee which subsequently approved the bill and it passed at third reading in the House of Commons.

I find it quite remarkable that opponents of this bill fear that some of the newly licensed specialty channels cannot survive without negative-option billing. In fact, I am told that these very concerns have been expressed by some of the new licensees themselves. The former chair of the CRTC addressed this issue when he testified before the House committee studying Bill C-216. He outlined the CRTC's instructions to the industry, and he stated:

We said don't even fantasize about coming forward to demand negative option or imposition of things.

He then quoted directly from CRTC Public Notice 1995-29 which outlined the specific criteria the commission would use to evaluate applications for new Canadian specialty and pay television channels. He said, and I quote once again:

...applicants should assess their projected subscriber levels realistically, with careful attention to the level of acceptance their services are projected to achieve with consumers and distributors alike... applicants are advised that they should not assume that their proposed services will be distributed as part of the highest penetrations discretionary tier.

Mr. Spicer also stated that applicants were told to submit a marketing strategy that clearly demonstrates that there is a strong interest in the proposed service -- in other words, that a lot of people would gladly pay for it.

Madam Chair, I would like to conclude my remarks by highlighting some of the key facts about C-216. This bill only applies to non-mandatory pay or specialty services. The CRTC will continue to have the flexibility it needs to ensure the survival of both French- and English-language broadcasting in this country. The CRTC will continue to decide if a channel is mandatory or not. If it is mandatory, then this bill would simply not apply.

Small cable companies -- that is, those defined in the bill as those having less than 2000 subscribers, which are mostly in rural areas -- have been exempted from this bill. Additionally, this bill does not prevent cable companies from substituting one channel for another, provided that the price does not increase as a result.

In closing, I would urge all committee members to closely examine the text of Bill C-216. The bill is not what some lobbyists have made it out to be; it is in fact a flexible and carefully drafted piece of legislation which gives all Canadian consumers a level of protection that they deserve and want.

I started out by noting that it is not a radical idea that Canadians should have the right to consent to receive new specialty channels. Flowing from this concept is the idea that Canadians, by the passage of this bill, additionally have the right to control some portion of their leftover income. In this era of high unemployment and decreasing disposable income, it is the least assurance that can be given to all Canadians.

The Chair: I have a point of order from Senator MacDonald to read all of the questions that were prepared by Mr. Fraser. I intend to ask you ask, Senator MacDonald, to ask all of the questions, if the members accept my decision. If there are any questions that Mr. Gallaway cannot answer, perhaps he could agree to furnish us with answers following this committee meeting. If honourable members of the committee disagree with my suggestion, we must have a vote.

Senator Forrestall: I wondered, Madam Chair, whether the witness is technically able to answer many of these questions.

The Chair: That is why I added, Senator Forrestall, that if there are some questions that the witness is not able to answer, we can arrange for him to provide us the answers at a later date.

Are we all agreed?

Hon. Senators: Agreed.

Senator Whelan: Is Mr. Fraser here?

The Chairman: Yes, to my right.

Senator Whelan: May I ask Mr. Fraser a question about the questions he prepared?

The Chair: You are not supposed to do that, Senator Whelan, but I think you can ask him in private if you want to have the answer.

Senator Whelan: Madam Chair, have you discussed these questions with Mr. Fraser?

The Chair: Thoroughly.

Senator Whelan: Do you have the complete feeling that none of these questions was presented to Mr. Fraser by anybody else but his own researchers?

The Chair: Mr. Fraser is a very experienced researcher and he is doing a great job.

Senator Whelan: I notice that a lot of the questions that are prepared for us are very good. I have used some of them in committee meetings that I have attended, Madam Chair, because I find them to be excellent questions also.

The Chair: In order not to lose too much time, if you all agree, I will ask Senator MacDonald to ask the first questions.

Senator MacDonald: I will not comment on the questions that I will ask you, Mr. Gallaway; I am just interested in your answers.

There is a legal view according to which "consumer protection" is the responsibility of the provinces. Indeed, Quebec and some provinces in English Canada, British Columbia and Nova Scotia, have passed legislation in this area -- and I believe legislation is now going through the Ontario legislature. Are you not concerned that a court challenge could be made claiming that the proposed federal law is ultra vires?

Mr. Gallaway: In response to your question, you and I both know that anyone can by way of reference go to the Supreme Court with respect to whether a matter is intra vires or ultra vires. The sole argument presented in the House of Commons by the members of the Bloc was that this practice is outlawed in the Province of Quebec. However, if you examine the Quebec Act, radiodiffusion is excepted. In other words, broadcasting is exempt from the Quebec Act.

It is a generally accepted principle that the sale of goods falls under the provincial jurisdiction. We know that. But there are also a number of cases which clearly indicate that those industries, if I can classify this as being an industry, which are federally regulated fall outside the purview of that jurisdiction.

In response to your question, of course somebody could take a run at that. However, I would point out to you that in fact nobody in British Columbia attempted to invoke the legislation which some would say prohibits this practice, although British Columbia was one of the sites where there was a great outcry when this practice was last used in January of 1995.

You referred to Ontario. I can advise you that the bill that you refer to in Ontario was proposed by a Mr. Cam Jackson, who was then a member of the opposition during the Bob Rae government. That bill in fact died and the Province of Ontario, if you examine their legislative schedule, or what they are saying, has no intention of introducing it.

Senator MacDonald: In Quebec, the concept of negative-option marketing has not been the same as in English Canada. In Quebec, specialty channels have been added to the basic service with a regulated price increase. In English Canada, specialty services have been added to discretionary tiers, whose rates are unregulated. These traditionally have been very different markets and marketing practices. Do you agree that Bill C-216 does not recognize the unique nature of the Quebec market where so-called negative-option marketing does not even meet the same definition as in English Canada? If so, is it not dangerous to apply a uniform law on two very specific market realities?

Mr. Gallaway: There are several companies in Quebec -- some of them have tiers, some of them do not have tiers. If you want, I would certainly undertake to provide you with a written response to that question.

"Market realities" -- in response to your question -- is it a unique market we are talking about or is it a unique product that we are talking about? If you examine those channels that have been recently licensed by the CRTC for the Quebec market, we will find a French-language cartoon channel, a French-language Much Music channel, a French-language headline news channel -- every 30 minutes it flips again -- and a health channel. Is it dangerous to apply a uniform law on two very specific market realities? I do not believe for one minute that the cartoon channel has anything to do with market reality. I think the cartoon channel has something to do with whether a person wants a product, and whether you speak French or English is really quite immaterial. I expect that there are a lot of Quebecers who would not want the cartoon channel simply as a function of their age. I do not think that is a very profound observation or thought.

Is it dangerous to apply a uniform law on two very specific market realities? I think you must look at the product you are putting on it. Please remember that this bill, if there is some type of market reality or if there is some cultural import to a specific channel, in no way ties the hands of the CRTC and prevents them from saying, "This is a mandatory service; carry it."

Senator MacDonald: In Quebec, cable companies consulted their subscribers about the addition of new channels in 1995. As a result, the launch of new channels was successful. Technically, this success could be described as negative-option marketing. But it was a successful way of ensuring a strong presence of French specialty in Quebec and was not in violation of provincial law. Is it fair that a federal law impose a more stringent definition on cable marketing and thus undermine the launch of French-language channels throughout Canada?

Mr. Gallaway: First, I am pleased that it was not in violation of provincial law. I think that it in some way validates my initial response was to you. Let me give you an example. I have talked to a number of consumer groups who would strongly disagree with the premise of the initial assumption, that is, that the companies consulted their subscribers about the additional new channels and that the launch of the new channels was successful. By way of analogy, I recently attended a meeting in the other place where the Canadian Bankers Association stated a survey showed that 98 per cent of their customers were satisfied. I would hope to find something that was a little more arm's length, third-party, in terms of saying whether they were in fact happy. Let us also consider that we are offering a whole new set of products here. Can that be extrapolate into the future with a new group of products? I am not certain what the nature of the products were in 1995 in Quebec, but that does not necessarily apply to the future.

Senator MacDonald: The CRTC has been reluctant to stipulate the conditions governing the marketing of new specialty services but it seems to have the regulatory power to do so. Would this issue not be better served by regulation instead of legislation?

Mr. Gallaway: I suppose that that is, in one sense, an argument that can always be made. We could always correct a lot of problems in this place by regulation.

However, I do not think that that is what the public wants. I think the public wants laws as opposed to regulations. You and I both know that regulations can come and go with governments. It is also a question of policy, a question of something that is more fundamental than what would be laid out in a regulation, and that is that Canadians have the right to have some control over products; in this particular case specialty and pay TV channels.

Senator MacDonald: The vast majority of Canadian cable companies has said that they have do not intend to use the negative-option marketing technique in the future. Let me add that the association representing 600 cable companies has made a very strong statement that they have no intention of using negative-option marketing -- the chairman of the cable association said that they would be insane to use it. Does this not satisfy you that negative-option marketing is a thing of the past -- and if so, why amend the Broadcasting Act to enforce a non-existent practice?

Mr. Gallaway: In January 1995, the cable companies said they would not do it again, but they continued to practise negative-option marketing techniques to some point in 1995. At what point does that statement take effect -- it is an association and as such might change its policy tomorrow? If so, why are there those who would suggest that this law should not be passed?

I can only remind you of what Mr. Spicer said -- and I am paraphrasing him. He noted that the cable companies said that they would not practise negative-option marketing again, but he said to go ahead with the legislation; there is no harm in passing an act to prevent a practice for which you have, as a Canadian, as a consumer, no guarantee that this will not happen again.

Senator MacDonald: Even with negative-option marketing in the past, cable rates in Canada have remained comparatively low; lower than their American counterparts. By using this marketing technique, we have been able to ensure a strong Canadian presence on TV screens while keeping monthly rates relatively low. Should this not be applauded instead of condemned?

Mr. Gallaway: I am not aware of what cable rates in this country are relative to the U.S., but I will accept them as being lower than those in the U.S. At the same time, I must point out to you that this bill is limited not only to cable companies, but also to the provision of television services via direct-to-home satellite and the telephone, which is coming. If in fact you make a comparison and say relative to the market in the U.S. that we are doing well, that is wonderful; but please recognize that we are talking about other systems coming on line and then I think you will see the real prices.

I will give you an example. I live 400 yards from the American border, senator, and in my community, people are no longer interested in cable -- they are buying pizza dishes and obtaining post office box addresses in the United States. They are of the opinion that it is a lot better deal than dealing with Maclean-Hunter Cable Television in my community.

Please recognize that this is somewhat a limited market. Perhaps, on average, we are doing better than the U.S., but it is not an open marketplace. What is your choice otherwise? I am saying that this is a law that applies to an open marketplace, an open marketplace in the sense that it will apply today, and it also applies to the future. We know that the new technologies, the DTHs and the telephone companies getting involved, are close. Whether the cabinet or whether the CRTC moves on it or not, the reality, and the reality in the communities, is that people are already accessing those. People are not accessing those technologies because they believe they have a lot better deal than those people living across the border; they are accessing these other technologies because it is another avenue of competition and it is a better deal.

Senator MacDonald: In the near future, Canada will be inundated with American and foreign television services when the so-called "pick and pay" world arrives. Increased choice generally means more foreign competition for Canadian channels. Do you not agree that we must do everything to ensure that Canadian channels achieve a maximum level of penetration in Canadian households, especially in Quebec with its distinct and fragile culture?

Mr. Gallaway: That is an interesting question. Let us look at the last round of approvals, the 1995 round.

One of the networks which was sold to Canadians without their choice as being distinctly Canadian is a network on which its most popular show, which determines advertising rates, is the Mary Tyler Moore Show -- Mary Tyler Moore on the Canadian network demanding the highest rates in terms of advertising and in terms of those who watch. To suggest that these channels are in some way indicative of Canadian culture -- we are talking about specialty channels once again.

Please recognize that there was a applicant -- I do not know whether it was approved -- called the Horse Channel. Is there a horse that is distinctly Canadian? A comedy channel was licensed -- is there a comedy channel that is distinctly Canadian? Comedians, as you know, operate in the North American marketplace. The successful Canadian comedians -- and we still identify them as Canadian comedians -- are all working somewhere south of the forty-ninth parallel.

If there is something that is distinctly Canadian, please recognize that this bill will not prevent the CRTC from saying that this is a mandatory service and it must be carried.

With respect to Quebec's distinctive fragile culture, I want to ask you, rhetorically, if you really believe that a cartoon channel will be representative of a fragile culture, of a distinct culture. Do you really believe that a headline news channel that is broadcasting world events is in some way reflective of a fragile culture, of a distinct culture?

This legislation in no way fetters the discretion of the CRTC with respect to channels that in some way would help bolster, reinforce, reflect the distinct and fragile culture of Quebec.

Senator MacDonald: Both Newsworld and RDI are very successful channels in Canada, mainly because they were given mandatory carriage on the basic service -- cable companies with over 6,000 subscribers. If Bill C-216 had been adopted before 1987 when Newsworld and RDI were licensed, they might not have achieved sufficient market penetration to survive. Do you not then agree that given the severe restraints imposed by Bill C-216, a more flexible approach should be adopted?

Mr. Gallaway: Once again, we are talking about specialty channels. This is a specialty channel in one sense, but it in no way constrains the CRTC from determining what is a specialty as opposed to what is a non-specialty channel or a mandatory channel. That is why Mr. Darling, when he appeared before the committee in the other place, pointed out that in fact this bill does not threaten RDI. This bill, even if RDI came on today, does not threaten it. A flexible approach? This bill gives it a flexible approach.

Senator MacDonald: This bill requires that cable companies receive express prior consent from each subscriber before billing for a new service. This would require that all 8 million Canadian TV households be contacted and asked specifically to indicate which channels they want and which they do not want. Do you not find that this would be a cumbersome process and with the possible result that Canadian channels may go bankrupt if large numbers of Canadians do not state a preference for them?

Mr. Gallaway: I am not certain what "a preference" means in this case, but I will define it to mean that Canadians either do or do not want a particular bundle of packages. Is it a cumbersome practice, or would it in fact imperil the survival of the cable companies? They are not doing this every day of the week. When the next group of services come out, there will have been a time lapse of about two and a half years between new products, if I can put it that way, in the marketplace.

Eight million households -- if that is what the number is -- that is the nature of the game. They are a service industry.

Banks are able to contact their customers once a month usually -- and they are doing quite nicely. Cable companies are also doing quite nicely. What other business could market a new product and not have any costs imposed on marketing it -- a free ride, in other words? Contacting 8 million subscribers is not an onerous task. I do not think it is an unusual task. We are asking them to communicate with their customers; communicate with the people they are allegedly servicing -- adapt a standard in the marketplace that is the generally accepted practice.

Senator MacDonald: This bill stipulates that automatic billing can be made if a new channel substitutes for another service. Does this not run the risk of irritating many subscribers who might be deprived of a service which they wanted to keep, which is precisely what happened to Rogers in 1995.

Mr. Gallaway: I know the incident you are referring to. This is probably a question that is more properly put to the CRTC because you are referring to one specific example. I can tell you that the CRTC says that this happens across the system from time to time. A lot of it has to do with the availability of a particular channel to the particular cable company.

You might want to get some statistical evidence from the CRTC -- I do not have it here with me. But the CRTC did refer to the fact that this occurs with some degree of regularity, whatever regularity means, in the marketplace. No, I do not think that this is a problem.

Senator MacDonald: Earlier this year before the Commons Committee on Canadian Heritage, you said that "negative-option billing for the new programming services can actually jeopardize the very service it is supposed to sell." You added that the new channels launched in 1995 are not popular with Canadians due to the "consumer backlash." Actually those services enjoy a penetration rate of 60 per cent and climbing. Do you not agree that in the past, negative optioning at least had the merit of getting Canadian channels into Canadian homes so they could be watched -- and then viewers would gradually see that they were good Canadian channels?

Mr. Gallaway: I do recall that line in my comments to the standing committee. What I said -- I think it was in a more conditional sense -- was that if you force-feed people, you do risk a backlash. Please remember that when you talk about a penetration rate of 60 per cent, what you are talking about is a system that in fact forced negative-option billing. What in fact happened was that people bailed out.

If you go back to the situation prior to the 1995 go-around of negative-option billing, and I cannot recall the year but it was a number of years prior to that, you will find that the penetration rate was much higher. What you are seeing is that a number of people actually bailed out of the system because they were fed up with it. They either did not want it, could not afford it, or just found the whole practice repugnant. Whether it climbing or not, that is an interesting assumption, but I do not know of any evidence to suggest that it is climbing.

Senator MacDonald: Earlier this year, Keith Spicer said to the commons committee: "This legislation is probably bursting through an open door, because really the problem has been resolved by the consumers and therefore the market." Indeed, negative-option billing is the product of a situation where consumers are captive to monopolies. However, consumers will very soon have several choices to cable -- wireless cable, satellite TV, internet television, and so on.

Given the new era of competition, will not negative-option billing soon be utterly pointless; and if so, why pass a law to ensure that it does not happen? Why not just let the market regulate cable services?

Mr. Gallaway: First, you are making an assumption that the market is regulating cable services. This obviously gets into a very philosophical discussion. There are those who would suggest that we have a very competitive cable industry. But it is a very regulated industry. You and I both know that when DTH comes on and when the telephone companies get into it, it will still be a regulated industry.

We get into the philosophical nexus of whether a regulated industry is really a competitive industry, whether it is an open market. There are those who suggest that if you remove all regulation -- in other words, let the CRTC regulate some very technical aspects such as wire size, and so on, but tell them they have nothing to do with respect to content. If you are talking about an open market, and you have expressed concern about content, what kind of an open market are we talking about then, what kind of a free marketplace are we talking about.

So, no, I reject the notion that the market regulate cable service. Let's talk about the market regulating television service, because this bill applies to television service into the future, DTH and telephone. If we are going to have a marketplace, I have to assume that it will still be a regulated marketplace. So I reject the notion that there is a marketplace at the moment, and that in the future, that unless there are some drastic changes, there will be a marketplace. In fact I think the evidence would suggest that regulated marketplaces are much weaker than open marketplaces.

Senator MacDonald: I have no comment to make on any of those answers; I leave that to my colleagues. I simply want to say to Mr. Gallaway that I do not know of any person in English Canada who is in favour of negative optioning as a marketing technique. I certainly want to assure you that I am not in favour of it. However, we felt, some senators felt, that your bill, however commendable, had unintended consequences and that is why I am sure you know we are here.

The Chair: Senator MacDonald, you forgot to ask question number one.

Mr. Gallaway: May I read it into the record, Madam Chair?

The Chair: Why not.

Mr. Gallaway: In 1995, there was only one cable company that had problems with negative-option marketing -- Rogers. This was not because Rogers added new channels with a charge, but because some existing channels were taken away if the subscriber did not wish to take the new channels. Other cable companies successfully launched new specialty services with little problem. Should all cable companies suffer because one company, Rogers, made a marketing mistake? Is this bill not throwing the baby out with the bath water?

Well, first, you have made, once again, an assumption that is categorically false and wrong. I live in the deep south of Canada -- in southern Ontario. I can tell you that in January of 1995, my home was hooked up to cable. I live in a major urban market in that heavily populated swath of southern Ontario, and guess what, I was not hooked up to Rogers. I suffered much worse than what you have described here because I was hooked up not to Rogers but to another cable company. You have made the assumption that it was only Rogers. You are wrong. What more can I tell you.

Senator Whelan: I have no further comments. I want to congratulate Mr. Gallaway for his presentation on behalf of consumers of Canada.

Senator Atkins: Before I ask my question, I was in the deep south of Ontario in Petrolia two weeks ago, and I was approached by a number of people who asked me: "Why are the Conservative senators against Mr. Gallaway's bill?" I asked them who told them that, and they answered, "Mr. Gallaway". What you should know, sir, is that we were not holding up the bill, nor was our caucus against it; in fact, they are in favour of it in principle. The fact is that Mr. Gauthier, who is sick in the hospital, had adjourned the debate and it was a Liberal senator who in fact was holding up the bill and not us.

The Chair: I think you are being unfair, Senator Atkins.

Senator Atkins: I am not being at all unfair.

The Chair: Senator Gauthier was very sick and he wanted to make a speech on BillC-216 -- I have to be fair to everyone.

Senator Atkins: I am not being unfair at all to him. I am simply stating the facts. Now the thing has moved ahead. However, I think it was unfair of you to accuse us of being the ones who were against and holding up this bill.

Mr. Gallaway: First, you may be aware, Senator Atkins, that Petrolia is not in my riding.

Senator Atkins: It does not matter whether it was or not -- I said southern Ontario.

Mr. Gallaway: I am just making an observation. Secondly, you and I have been around -- we were not born yesterday -- we both know that what is said and what people's impressions are of what is said can be radically different. I am really wondering what you were doing in Petrolia.

Senator Atkins: I was speaking to a Progressive Conservative organization.

The only question I have to ask is this: Is your minister now in support of your bill?

Mr. Gallaway: In response to that, this is a private member's bill, one which in fact passed the House. The minister was not present for the vote at third reading, though, once again, it is my impression -- and it is only my impression from press reports -- that she is in favour of the bill.

Senator Atkins: You have not had any discussion with her.

Senator Corbin: When was this bill introduced in the House of Commons?

Mr. Gallaway: It received first reading in February 1995. I am assuming, senator, that you are aware of the process for a private member's bill on the other side. It was drawn in either March or April of this year and it went to the committee. I know that in the latter part of May, the first part of June there was a two or three-week consideration by the committee. Of course the House adjourned for the summer. It passed the House on September 23.


Senator Corbin: What do you mean by a specialized channel? You said earlier that RDI --


...or Newsworld, is specialized in one sense. Could you clarify your understanding of "specialized"; is it defined in the law or the regulations anywhere?

Mr. Gallaway: "Specialized", I believe, and, once again, you must ask the CRTC regulators, is defined in the regulations pursuant to the Broadcasting Act. Whether a station, or whether a particular channel is in fact specialized or not is determined by the CRTC. Please recognize that this is not a law, and I do not mean to be flippant about this, that is intended to be retroactive. What we are dealing with, as clearly indicated from the testimony this morning, will be those channels that are coming in the future, namely, the group that was licensed in September of this year by the CRTC, and those are all specialty channels and some pay TV.

Senator Corbin: I wish to have a clear understanding of your interpretation of specialty channels is. In this regard, I quote from the first paragraph of your statement:

...notwithstanding whichever official language spoken should have the right to choose the specialty channels (and I emphasize specialty channels)...

Do you consider French-language programs in provinces other than Quebec specialized channels?

Mr. Gallaway: No. Where I live, we have three French-language channels, two of which are on the basic tier. I obviously do not regard them as specialty channels. They are on the basic tier; they are deemed to be mandatory.

Senator Corbin: They are deemed to be mandatory? Do you mean to say by that that they are imposed on you?

Mr. Gallaway: Yes, they are in the basic tier. They are imposed in the sense that if you decide to hook up to cable, these are the products that you will receive -- and you know that when you hook up to the service.

Senator Spivak: My question relates to question number 8. I was not clear in the manner in which you answered it. It has long been recognized in Canada that television and entertainment is not just an industry. In my view, we should not oppose spending money to maintain a flourishing Canadian culture. I say that because we do that for everything else -- we want to prop up a nuclear industry, so we spent $1.5 billion to sell reactors.

What in your opinion ought we to be doing to ensure that we allow some handicap for small enterprises in Canada, these channels, to get started and to grow so that they can compete with what is not a level playing field in the market? In your view, what should we be doing to make sure that we have a flourishing Canadian culture, and do you think that that is important?

Mr. Gallaway: Of course I think that that is important, but you are getting down to some very basic questions here about what is Canadian culture. I have given you an example of a channel that was deemed to be Canadian culture on which Mary Tyler Moore is the most popular show.

Senator Spivak: There are all kinds of other specialty channels where that is not accurate at all.

Mr. Gallaway: We are emerging, we are entering the time of this so-called 500-channel universe.

Senator Spivak: Yes, there will be a lot of garbage out there.

Mr. Gallaway: At some point I must believe, and this is only my opinion, that Canadian culture must stand on its own two feet. Either we have a culture in this country and it can survive on its own, or all is lost in any event.

Senator Spivak: That is not true across the border, it is not true anywhere. People do subsidize their cultures. The Americans spend I think it is $500 million a year to support Campbell products being exported abroad. That is a fact. I cannot understand this idea which I think you are espousing, and if I am wrong please correct me, that we should not be spending a single penny, that everything must stand on its own feet or else Canadian culture and the Quebec language -- that if it does not work in the marketplace, let it go. Is that the attitude you espouse?

Mr. Gallaway: I am not suggesting that at all. Let us look at the bill. We are talking about specialty channels, we are talking about entertainment, we are talking about People Magazine. If what you are saying, that this particular channel or this particular network or this particular product is in the opinion of the CRTC -- let us face it, we have always said the CRTC has the right and the authority to deal with what is Canadiana and what is not. It in no way fetters what they can do in terms of deeming that a particular product must be carried.

Senator Spivak: I take you are point on that.

Mr. Gallaway: Would you not be a little bit upset if the Horse Channel appeared on your TV screen, or a cartoon channel? Maybe you like cartoons, but I am not that interested in them.

Senator Spivak: I am interested in promoting Canadian animation, which is of very high quality. So if a cartoon channel adopts it, I am willing to have that channel.

Mr. Gallaway: Then what you are suggesting to me is -- for example, there is a wonderful animation department at Sheridan College.

Senator Spivak: I could just click the channel, I do not need to watch it.

Mr. Gallaway: But it is costing you 50 cents. You are making the assumption that everybody in this country has enough money to support some facet of the entertainment industry and that this is a way of doing it. There is an interesting dichotomy in all of this: some would suggest that this is one way of supporting Canadian culture; yet, at the same time, I read in this morning's newspaper that Friends of Canadian Broadcasting is suggesting that no one is doing enough, in view of the new realities at CBC. Where is the logic in all of this?

You are suggesting that it is good for employment, it is good for culture, it is good for the technical people in animation. I go back to my original premise -- it will stand on its own; it will not need it.

Senator Spivak: I should clarify my argument. My argument is not with negative optioning. Negative optioning is one way, and it is not a very good way, obviously, because a lot of people complained about it.

What I am really getting at here is this: We subsidize and support many things in Canada which we do not really have much choice about. We are a democracy; we agree to do that. Surely there is a high priority here for supporting Canadian culture. We ought not to be constantly promulgating the "let-the-market-rule" view, the opinion that if Canadian culture goes down because Disney is bigger than us, fine. That is not the way to go about it. As Canadians, we ought to support, through whatever means necessary, our culture; otherwise, something very valuable will be lost.

My question is: Do you support that view? Or is your view that the market should rule?

Mr. Gallaway: I should point out to you that Walt Disney is the biggest supporter of the Sheridan College animation department.

What you are saying is: Why can we not just slip this through in the name of supporting Canadian culture? That may not be a fair statement, but it is a generalization. Then let's be entirely fair and up front with Canadians: We will start providing free services, but we will up the tax rate to pay for it; we believe that this is in the best interests of the culture of our country, notwithstanding language. But let's not do it by slight of hand, saying to people that this is in some way culture. Please do not insult the intelligence of the average Canadian as to what is culture and what is not. I believe that viewers know Canadian culture when they see it. I do not always believe that regulators do.

Senator MacDonald: In The Toronto Star of today, which I wish I had brought with me, there was an article which indicated that you had a meeting with our colleague Senator Hervieux-Payette and that you were surprised to find at that meeting three senior bureaucrats of the Department of Heritage there. They asked you if you would be agreeable to what; would you tell us what you they asked you?

Mr. Gallaway: They suggested that there was a way of amending this bill to exempt the Province of Quebec and certain parts of New Brunswick. Actually, it was not the department that made that request; it was certain other people in attendance there.

Senator MacDonald: Well, there were three bureaucrats from the department present?

Mr. Gallaway: They were present, yes.

Senator MacDonald: Assistant Deputy Minister. Rabinovitch was there?

Mr. Gallaway: Yes, that is right.

Senator MacDonald: What was your answer to their suggestion?

Mr. Gallaway: I did not have an answer. They gave me a piece of paper. I left with it and said I would consider it. I find it rather amusing.

Senator MacDonald: You referred to them as "whining", did not you?

Mr. Gallaway: Yes, I did.

Senator Robichaud: I am not very knowledgeable in the field of communications <#0107> I am not like Senator Poulin -- but certain things intrigue me here. I am a subscriber to a Rogers package deal. There are several channels in the package that I could do without, but I tolerate them. I would like to have examples of what you mean in the third paragraph of your brief where you state that after some indeterminate period of time, a consumer would accept the presence of the specialty channels and their attendant costs. Do you have examples of such programs being imposed upon the consumers without their consent?

Mr. Gallaway: Yes.

Senator Robichaud: I would like to have some examples. For instance, what I have in mind here -- and I will not beat around the bush. In certain areas where there are French programs on television, are they being imposed? And if so, could a majority of English speaking people block them?

Mr. Gallaway: No. The first part of your question is you would like some examples. I would refer you to the press clippings of January, February 1995 when they were imposed. They were imposed by a number of companies across this country.

Senator Robichaud: What were the channels?

Mr. Gallaway: Bravo, Showcase, The Women's Network. If you want, I certainly would provide, and undertake to provide to the committee or to you, senator, the list of those which were imposed.

Senator Robichaud: Yes, I would like to have that list -- the number, the name and imposed upon whom.

Mr. Gallaway: They were imposed upon everybody whose house was hooked up to particular companies?

Senator Robichaud: Where? The locations?

Mr. Gallaway: Okay, I can provide that to you. Madam Chair, shall I provide it to the clerk then?

The Chair: Yes, please.

Mr. Gallaway: The second part of your question I believe is relative to language.

Senator Robichaud: Yes.

Mr. Gallaway: In certain markets, can a majority in fact refuse a particular channel? No, that is not the case. The CRTC at any time can insist that a certain channel be carried. As the law exists now, and as the marketplace has existed until now, the consumer has no right to say no to a certain channel.

However, there have been a couple of smaller cable companies in this country which actually contacted their subscribers -- and I am not certain if it was by mail or by phone; it must have been very costly -- and gave them a choice. But certainly, the vast majority of the companies did not. So the majority of subscribers would not have any choice. They could only sit back and tacitly, as I referred to, say yes.

Senator Robichaud: They tacitly agreed -- that is what it amounts to.

Senator Poulin: Mr. Gallaway, I believe I speak for all of us when I say that we are impressed with the objectives that you pursue, that it is the public good. I think that everyone in the other place and everyone in our chamber shares your concern.

Because it is the spirit and the responsibility of the Senate, as the chamber of sober second thought, we look at the history not only of the country but the full history of a particular legislation. In this regard, the first articles of the Broadcasting Act state that it views its responsibility and its objective as protecting -- it was updated, I believe, in 1988, Madam Chair, if memory serves me correctly.

When was the last update of the Broadcasting Act?

Mr. Gallaway: 1991.

Senator Poulin: The first articles are to protect and to foster the identity of the cultural life of our country. In 1991, the cable world was already up and running in our country; we already had access to specialty channels. With the thorough review of the Broadcasting Act that was done at that time, why was it not deemed in the best interest of public to bring the articles up to 1991, as you are recommending today?

Mr. Gallaway: You will also know -- I recognize, senator, that you worked for a public broadcaster for a number years -- that if policy were a constant, we would never amend laws in this country. If you examine section 3 of the Broadcasting Act, you will find a directive to reflect the wants and the needs of consumers. Clearly, that has in some way been left out of the equation in terms of the administration and/or interpretation of that section by the CRTC. In other words, had the CRTC followed what I believe to be the policy of section 3, we would never have had a consumer revolt. But we have had a consumer revolt because we are dealing with technology in broadcasting, and change in technology is occurring at a rate never contemplated in 1991, and certainly not in the 1988 review.

We are not talking about a major shift in policy in this country; we are just talking about including the consumer up at the table, along with the CRTC and the cable companies. What is wrong with ensuring a modicum of protection at the table for the people who buy these products?

Studies show that a majority of Canadians do not trust the CRTC, do not believe that it is doing its job. When the opinion of the vast majority of Canadians is that the CRTC is not doing its job, especially with respect to the cable industry, you and I, as collective legislators of this country, have a problem. When we have a problem, we often resort to amending the law. That is what we are doing here -- we are amending the law to reflect the reality of the marketplace and to reflect what Canadians would like to see in their laws.

Senator Poulin: If this amendment were to pass, what it would mean, practically speaking, for the consumer? Could you give us a before and after picture?

Mr. Gallaway: Sure, but we do not know what the cost of the new channels will be yet.

Senator Poulin: Based on information available to us today.

Mr. Gallaway: I attempted to get some of the marketing information from the CRTC earlier this week in anticipation of that question, but the CRTC cannot find any of it. We have been requesting it for days.

I referred earlier to the January 1995 increase, on average, of $40 a year. That was the average across the country. What it will be this time, I really do not know.

Senator Poulin: Today, when I subscribe to a cable service today, what do I pay for and in what fashion are these channels delivered? And secondly, what will the effect of your amendment be on this?

Mr. Gallaway: Today, there are a number of choices available from a cable company. It is Rogers in the Ottawa marketplace. You can opt for basic or extended basic, and I think there are two other choices over and above that in this area. So you have up to four choices.

Senator Poulin: Four choices meaning four packages?

Mr. Gallaway: That is right.

Senator Poulin: Each package being composed of channels which are chosen by the cable company?

Mr. Gallaway: Yes. That is their marketing strategy. What does it mean when my bill is passed -- that is entirely up to the cable companies to determine. This bill does not tell the cable companies how to market; it lays out basic parameters as to how they can charge and what they must do prior to marketing.

Senator Poulin: What does it mean exactly though, Mr. Gallaway, practically speaking?

Mr. Gallaway: You must ask the cable producers that. I am not a CRTC official and I am not into marketing. I am just saying that it gives a modicum of protection to the public. How the cable companies decide to market a product, as any retailer will tell you, is entirely within their purview.

Senator Poulin: If you cannot tell me practically what it means to the individual consumer, how can you be sure that it is in the best interests of the public?

Mr. Gallaway: I can tell that is always in the interests of the public to have the right to determine whether they will choose a product for which they will be charged.

Senator Poulin: I agree with you totally on the principle.

Mr. Gallaway: The Canadian public agrees in principle; they agree with me in spades on this one.

Senator Poulin: We all agree with you, in principle. I am trying to understand the practicality of it. In other words, today we are given a choice of four services, each service being a menu of certain channels. If this amendment were passed, what does that mean in terms of the new menu that is offered?

Mr. Gallaway: That is entirely up to the company that will market it. First, it must go into something other than the basic tier; but other than that, how they will market it is entirely within their purview.

Senator Poulin: Therefore you cannot answer me?

Mr. Gallaway: No. I am not from the cable industry. I am sorry to disappoint you, but how they market is entirely up to them. There are no constraints in this bill to tell them how to market.

Senator Poulin: Will the consumer choose from pre-chosen packages, or will the consumer choose between individual services for a price? I am trying to understand the application.

Mr. Gallaway: The application is a question of the marketplace, the marketplace being the cable companies. You quite fairly must pose those questions to them.

Senator Poulin: Does that mean that you would want, therefore, the cable companies to decide what the consumers want instead of the responsible parliamentarians that we all are? I do not understand.

Mr. Gallaway: I do not think, senator, that it is a radical idea for the cable companies to decide how they will market it. I am just saying to you that this bill in no way tells cable companies how to go out and sell their products. If they want to add it hither and yon, that is their business. I do not believe that we are here to tell them how to market their products. We are here to tell the cable companies that they will not sell a product without the consent of the person buying it. That is it, within the parameters as defined by this legislation. Whatever their marketing techniques are, I could not care less.

Senator Poulin: I do not think it is a question of marketing technique, I think it is a question of feasibility, and I would like therefore to know the feasibility of the practical application.

Mr. Gallaway: Once again, if there are four new licences that are being picked up by Rogers, as to whether they will put them on tier one, two, three or four, I do not know; I have no idea.

When the CRTC issued a news release in November 30, 1995 in respect to calling for new channels, they said that they were predisposed to be in favour of proposals based exclusively on discretionary carriage, which could be carriage either on a stand-alone basis or on a low penetration tier.

I can read that news release in total, but I think that answers your question.

Senator Poulin: Not quite, Mr. Gallaway. Maybe you would like to do further research on my question because I think it is of great interest to all Canadians. We know that the Broadcasting Act is the enabling legislation of the CRTC, therefore, the CRTC must make decisions based on this and I would like to see from you what it would mean practically, therefore, for the individual consumer.

Madam Chair, I would like to be most fair to our colleague from the other place.

Mr. Gallaway: I am not certain that I understand your question. Is it a question of what tier it will end up on, or is it a question of what will be the practical effect to Canadians?

Senator Poulin: What I am asking is what choice will be available to individual consumers based on the change in this article of the Broadcasting Act.

Mr. Gallaway: I think that the answer to that is -- and it is difficult to quantify it because it will vary from marketplace to marketplace, as you can understand, because certain companies will pick up more services than others. So in that sense, it is a function of the marketplace. However, at the same time, I would point out to you that the effect on the average consumer is positive. And I know that because the CRTC said to go ahead and pass it, that they agree with the intent of this bill.

The Chair: Mr. Gallaway, would you be able to return to this committee for a wrap up after we hear from other groups?

Mr. Gallaway: Absolutely.

The committee adjourned.

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