Proceedings of the Standing Senate Committee on Transport and
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
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
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.
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
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
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
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
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
...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
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
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
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
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
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
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
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
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
Senator Atkins: It does not matter whether it was or not -- I said southern
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
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
...or Newsworld, is specialized in one sense. Could you clarify your
understanding of "specialized"; is it defined in the law or the
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
...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
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
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
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
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
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
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
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
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
Senator MacDonald: Well, there were three bureaucrats from the department
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
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
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
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
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
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
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
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
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
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
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
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?