Proceedings of the Subcommittee on
Communications
Issue 2 - Evidence
OTTAWA, Wednesday, March 18, 1998
The Subcommittee on Communications of the Standing Senate Committee on Transport and Communications met this day at 3:35 p.m. to study Canada's international competitive position in communications generally, including a review of the economic, social and cultural importance of communications for Canada.
Senator Marie Poulin (Chairman) in the Chair.
[English]
The Chairman: The meeting is called to order.
[Translation]
Mrs. Gagné and Mr. Kelly, we especially appreciate your coming here today. Regardless of the techniques in use today, artists are ultimately the ones who are vital to this process. Their souls are driven by their desire to create. Without their imagination, ideas, talent and genius, technology would remain a hollow tool. It would be like sitting behind the wheel of a shiny new car that has no engine.
[English]
Madam Gagné and Mr. Kelly, your association, the Canadian Conference of the Arts has been in existence since 1945 and represents, I believe, about 200,000 artists from coast to coast. We would be pleased to hear your views on the role of the arts in culture in the context of the new technologies.
We know that the CCA is very aware of these changes and of how they are affecting the work of individual artists and artists collectively, and also how artists are influencing the evolution of these technologies. We were browsing in your web site, which we accessed through CultureNet, and we noted that you have a working group on broadcasting, new media, and the CRTC. We welcome your views on these and other issues.
Before you present your paper let me provide you with a general idea of the work of the subcommittee and, more specifically, issues that will likely be dealt with in the context of these hearings which will result in a report later this year, probably in the fall.
As you may know, last April this subcommittee issued a report entitled, "Wired to Win -- Canada's International Competitive Position in Communications". In that report we assessed the country's competitive advantages in the year 2000 under four broad headings: technological issues, commercial issues, human capital issues, and cultural issues.
In Phase II of our report the subcommittee is focusing on issues specifically relating to technology and culture, particularly in the context of media globalization.
As new distribution technologies like satellites and the Internet make globalization a reality, one of the challenges for national policy-makers is to ensure that Canadian cultural products find shelf space, both in the domestic and in the international markets. We want to hear your suggestions as to how do we do this, who can facilitate what, where and when it should be done.
It has also been said that, in this new context, content is king. We understand that to mean that, with so many new distribution outlets opening, there is more and more room for content producers to reach consumers with their products. Producers rely on creators. How does Canada facilitate the growth and the excellence of its artistic pool?
We are also eager to listen to your particular concerns, whatever they are, as part of these subcommittee hearings.
I hope that, by giving you some idea of our particular interests, we have given you some guidance regarding what questions we may have following your remarks.
I would like to introduce you to my colleagues, my Deputy Chairman, Senator Spivak, Senator Perrault from B.C. and Senator Johnson from Manitoba. Welcome, madam et monsieur.
Mr. Keith Kelly, National Director, Canadian Conference of the Arts: I just want to clarify one thing.
The Chairman: You represent 300,00 artists, not 200,000.
Mr. Kelly: Yes, at least, and the number is growing by the day. When we prepared this presentation, we prepared it on the basis of the Working Group on Cultural Policy for the 2lst Century.
The Chairman: We are nearly there.
Mr. Kelly: I agree, but the preoccupation with technology will be included in our next phase, Phase II. Our comments will relates to a far more general situation.
Senator Perrault: That is fine.
The Chairman: Perfect.
[Translation]
Mrs. Gagné, President, Canadian Conference of the Arts: Thank you, Madame Chair, for inviting the Canadian Conference of the Arts to meet with you today to discuss, as Mr. Kelly indicated, the preliminary findings of the working group on cultural policy for the 21st century.
[English]
When the board of governors met last June in Winnipeg, we were preoccupied with two key issues: The Standing Committee on Canadian Heritage had commenced a study of federal cultural policy which was prematurely terminated because of the federal election. This question of a coherent federal cultural policy has long been a priority for the Canadian Conference of the Arts.
We were uncertain if the committee would resume its work when Parliament reconvened, and therefore our board decided that it was important for us to focus attention on this process. At the time our board met, we were also concerned with the growing impact of international trade agreements on the integrity and viability of Canadian cultural policy. The decision of the World Trade Organization, which ruled against our domestic magazine industry policy, raised many questions about the extent to which other key policies were exposed to similar action.
We were also learning about the potential impact of the proposed Multilateral Agreement on Investment which was on the way at the Organization for Economic Development and Cooperation. A preliminary assessment indicated that there was much to be concerned about.
Since that time the European Union has lodged a challenge to our domestic film distribution policy, and we are expecting new challenges in the coming months from the United States against the recently enacted revision to the Copyright Act.
The board of the CCA felt it was impossible to consider the two issues separately. If Canada had ceded the right to manage our domestic cultural affairs as we best see fit, without threat of challenge or retaliation, the question of domestic federal policy would have been irrelevant.
It was decided to merge the two fields of study into an integrated process. The board also insisted that the work of this group pay close attention to the network of international trade agreements to which Canada is party and assess their impact on the integrity of the Canadian cultural policy framework.
The board wanted a clear, factual assessment of the undertakings made by Canada in these deals and any measures contained in them that affirms our domestic cultural sovereignty.
Mr. Kelly: The working group drew on the expertise of prominent individuals from all disciplines, cultural industries as well as trade specialists. Over the course of three months, these individuals concentrated their energies on learning the argot of international "trade-speak" and the architecture and substance of these agreements either signed or in negotiation by Canada. These included the GATT, GATS, FTA, NAFTA, MAI and, to a lesser extent, the World Intellectual Property Organization.
The preliminary findings report documents the results of this research and reflection on the new universe in which Canada now operates. The first discovery of the working group was that Canada has been an enthusiastic participant and promoter of a world trading system free of barriers since the Bretton Woods conference in 1944. Every elected government since that time has reaffirmed this commitment.
Canada has joined in the process with gusto and continues to do so. The reasons for this are the apparent economic benefits Canada derives from freer trade. The working group and the board of the CCA, therefore, do not want us to turn back the hands of time and revert to an isolationist stance. We do, however, want to ensure that the steady erosion of national powers does not compromise our ability to continue the celebration of Canadian creativity and the expression of diverse culture identities.
However, the findings of the working group suggest that there are some inherent flaws in the process of giving birth to these international trade agreements.
Essentially, as the network of agreements has taken shape, there appears to have been little regard for the integrity of sovereignty in the economic, political or cultural realms. In fact, a fundamental principle for the elaboration of agreements to create a world trading system free of barriers is that the loss of national sovereignty is a fair trade-off for the economic benefits that will flow to the signatory states as a result of these agreements.
If all signatory states experience the same loss of sovereignty, at least there is a level playing field, with no single state enjoying a greater advantage than another.
Ms Gagné: The CCA and the working group looked with particular care at the treatment of culture in the GATT and we found only two measures which afford any flexibility for signatory states in the cultural domain: Article IV, which allows for quantitative quotas for the import of cinema, and Article XX, which provides a general exemption permitting the protection of national treasures. This last measure is generally interpreted to mean archaeological and physical works central to the history or culture of the nation.
This lack of reference points on cultural matters brings with it some practical consequences, as we can see in the decision of the WTO appellate body on our domestic magazine policy.
In reaching the conclusion that the domestic magazine policy was inconsistent with our obligation under the GATT the panel members resort to the precedents set in disputes in traditional trading commodities such as alcoholic beverages, flax seeds, linseed and oil seeds and auto parts.
The structure of the GATT did not furnish the panel with any instrument to consider the cultural dimension behind the magazine industry policy. There can be little doubt that further changes will confront the same deficit of cultural reference points, to our distinct disadvantage.
The cultural exemption clause in FTA and NAFTA appears to have limited practical utility in effectively affirming the freedom of Canada to pursue its domestic cultural policy. In the case of the magazine industry policy, which was protected under the exemption, the United States merely stepped around FTA and NAFTA and found a friendlier environment to air their grievance at the WTO.
Mr. Kelly: Similarly, the cultural exemption does not remove the threat of action against Canada using section 301 of the American Trade Act. Under this provision it is possible for individuals and corporations who feel that the actions of a trading partner compromise their economic interests to lodge a complaint with the United States trade representative. After an investigation of the complaint, if there is any substance to the claim, the President of the United States is obliged to take retaliatory or punitive actions against the offending trading partner.
The United States used this section 301 in the country music television dispute several years ago and is expected to launch similar actions in the near future on the newly revised Canadian Copyright Act.
The proposed Multilateral Agreement on Investments has even more dire potential consequences if Canada signs it without a general exemption for culture. The CCA is gratified that the Minister of International Trade, the Honourable Sergio Marchi, and the Minister of Canadian Heritage, the Honourable Sheila Copps, recognize this and are working hard to promote this view among other OECD nations. While we believe that the exemption strategy is somewhat effective in the context of the Multilateral Agreement on Investments, given the constraints of time for the negotiations, it is apparent that a broader, more durable solution is a logical and essential objective of Canadian participation in the development of a global economy.
Ms Gagné: To this end the board of the CCA has adopted an international strategy to complement the work of ministers Copps and Marchi. It is our intention to work with our colleagues in other nations around the world to come to a basic agreement that removes culture from the discipline of trading agreements designed for more traditional goods, services, and investments.
This agreement would afford each nation the right to manage its cultural affairs as it best sees fit without threat of challenge or retaliation.
The CCA will continue to promote this concept and give it some substance so that our fellow actors and cultural workers around the world can promote this approach to their own political leaders.
The time for this is short. New negotiations are scheduled for the WTO in the year 2000. It is imperative that this issue benefit from considerable momentum before those talks begin. If we succeed in partnership with the government of Canada in making this breakthrough we will have made a critically important contribution to the world trading system and we will have affirmed the unfettered right of Canada to pursue its cultural destiny.
Senator Spivak: I was aware of some of the things you were saying about the threat of the MAI and what has happened in the past. I am overwhelmed by the challenge which all of these bilateral agreements and global trading agreements poses to anyone who wishes to maintain cultural sovereignty in this country and other countries, given the fact that the American culture is so dominant and has such tremendous resources with which to disseminate whatever they wish to disseminate. It is not only seductive, it is also very powerful.
How do you expect to implement your solution in terms of working with other countries to attempt to remove culture from all global trading agreements? How realistic is this, given the fact that Canada is already bound? We hope it will not be bound under MAI but it seems to me that even our best negotiators are still fairly naive as to the implications of it. Canada is also bound. There are the recent statements of Mrs. Barshefsky.
The United States absolutely considers cultural products as trade products, because they are so dominant. Within an economy a market dominance is seen as a threat to competition but somehow, on the world stage, market dominance is not seen as a threat to competition. Do you have any strategies that can give us some hope?
Mr. Kelly: Yes. In fact we have quite a number of strategies. We are going to be participating in the UNESCO conference that starts in Stockholm next week. Our objective is to use the gathering of people from around the world there to begin in earnest the development of a network of like-minded organizations and individuals who can then put pressure on their political leaders.
A month ago I was in Paris meeting with others from around the world. There is strong interest in coming onside. What we need to do is hammer together some language we can all agree on. Of course, that is much easier said than done.
Also in Stockholm at the same time is a meeting of the Federation internationale des acteurs, which is an organization of cultural labour unions from around the world. I am going to be attending that conference at the same time as I am attending the UNESCO conference, so we are trying to lift off that way.
We also recognize that in the United States many independent artists and producers face the same obstacles as we do and they have as difficult a time accessing the distribution systems of the mass entertainment industry.
To that end, we have asked the Consul-General in Los Angeles, Kim Campbell, if she would co-sponsor with our organization a meeting in Los Angeles that would bring together key American organizations and key Canadian organizations to discuss our commonalities as well as our differences.
We are also going to be looking at the forthcoming negotiations for a Free Trade Agreement for the Americas and targeting our Central and South American partners, who have some of the very same strong sensibilities as we do in this area.
Our problem really is not that we are protectionists. You just have to look at numbers in our working group report of the penetration of foreign materials into the Canadian market to see that, if we are protectionists, we are the most inept protectionists on earth and we should probably give it up. We are not protectionists. That has never been our objective. Our objective is to preserve an option for Canadian content and Canadian choice.
We have a little over a year and a half to build such a consensus. Will we ever bring the United States onside? Probably not. However, among like-minded nations, if we can build sufficient momentum, we may be able to use the collective energies of the diplomatic forces of our countries to maybe come to some sort of better accommodation for the treatment of works of the imagination and culture.
Senator Spivak: I have another question I want to ask you.
[Translation]
Mrs. Gagné: I wanted to add that we have also met with Mr. Bill Diamond on several occasions.
Senator Spivak: The chief MAI negotiator?
Mrs. Gagné: That is correct. He has met with our Board of Directors and we continue to work with him to provide him with the documentation, arguments and terminology as well, because this is not an easy battle. We do not harbor any illusions, of course, but art and commercial products are not one and the same thing. We almost have to invent a new language to better understand one another.
[English]
Senator Spivak: I am very pleased to hear this because my feeling from what I have read, and I do not have inside information, is that those people who are negotiating have been quite naive about the impact of what this means for us.
The only other thing I have to ask you is how we can help you.
The Chairman: Have you been asked that before when you have appeared before a committee?
Mr. Kelly: No.
Ms Gagné: We offer our help, usually.
Mr. Kelly: We offer our help.
Ms Gagné: This time, we need help.
Senator Spivak: How can we work together? This is one of the most serious issues facing us right now, apart from labour standards and environmental standards. They are all grouped together.
Mr. Kelly: First of all, I realize the reflections of the subcommittee are broader than this. However, the reflections of this subcommittee are all hypothetical unless we can affirm the right of Canada to manage our own domestic cultural affairs as we see fit. I would say that if the Senate subcommittee could draw a very fine point on this issue it would be helpful to us. You can certainly encourage our negotiators to stay the course. You can encourage our ministers, both Ms Copps and Mr. Marchi, to do the same.
Senator Johnson: We are.
Mr. Kelly: We appreciate it. Basically, you can use the tools available to you. You can use your own international contacts. I know that many senators are members of inter-parliamentary groups. You have an opportunity to raise this issue with your international colleagues.
Senator Perrault: The whole question of the new methods of communication, the Internet and the rest of it, is a very interesting field. It comes through to me that you are worried about being overwhelmed by the great flood of cultural material now freely available throughout the world and how to ensure that Canadian artists receive adequate compensation for all they do in a creative way.
I have been on the Internet for about three or four years. I find it invaluable as a research device for the work that we do here. I have explored those wonderful sites: the Louvre, St. Petersburg, the Hermitage Museum. I have been to the Metropolitan Museum. The Internet opens new vistas of information that I did not possess before.
I think that probably these artistic and cultural sites may be serving a very useful purpose in the element that they are teaching our young people to appreciate cultural values. They can now access the Louvre up in northern British Columbia or up near the Arctic Circle. They pick it up and they marvel at this creative work being done. I wonder if it might create a new world interest in the arts and culture, which might be to the benefit of the artists.
I am rather interested to hear that the French or the European nations are critical of our film distribution. They have a very xenophobic attitude towards film production in France, do they not? They are worried about Hollywood products coming in and they have taken action against that.
Mr. Kelly: Yes.
Senator Perrault: Why are they critical of our film distribution?
[Translation]
Mrs. Gagné: I will try to answer the first question. You are indeed correct. We have nothing against innovation, technological developments and the Internet. On the contrary, these are useful tools for young people, for those who cannot afford to travel and for shut-ins. The Internet is an excellent way of reaching people everywhere. However, there has to be some control over the content of the Internet. The Louvre is a beautiful Museum, but it is also important to see Canadian museums on the Internet. People must have access to things that are happening in their own country. It is a matter of quantity.
Senator Perreault: Which is also on. Excellent.
Mrs. Gagné: We must encourage the production of material that will be put on the Internet and compete with other material and ensure that we have the tools and the necessary resources to present our field in a professional, imaginative and constructive way. This requires a certain investment of funds. However, we must also contend with all of the copyright problems associated with the Internet. That is the role of the government. We are now in phase three of our discussions on copyright.
[English]
Senator Perrault: To police this whole system. The copyright infractions that have existed in this world. They say the Chinese are now cracking down to some extent but there is still an abuse with books and CDs.
Ms Gagné: It is terrible. You cannot control everything around the world. You cannot have police checking every little store to see what they are selling. We have to find other ways to protect the artist.
Senator Perrault: You talk about the need for proper controls. I have been reading articles recently that say that it is almost impossible to police the Internet. It transcends international boundaries. I was told the other day that there is a chap at the South Pole and he will give you weather forecasts. I got on the machine and I got through to him. He told me what was going to happen in the Arctic Circle.
Is it possible to impede the technological progress which has been made in this whole business of the Internet? If you cannot fight it can you join it in some measure?
Mr. Kelly: I think there are many aspects to the Internet which cannot be regulated and which it is undesirable to regulate.
Senator Perrault: Hear, hear!
Mr. Kelly: In terms of person-to-person communications, Web sites, what have you, certainly, there will be regulation for violations of hate law and the existing laws. Where I suppose we are concerned is where copyright material is being used and the creator gets nothing for it.
We say there are two areas in which we should find a way to regulate in the Internet: the protection of intellectual property -- copyright -- and the Internet being used as a delivery system for broadcasting. It does not take very long if we say that if you deliver your broadcasting signal through the Internet you are free of all of the restrictions and disciplines there that are imposed on you.
Senator Perrault: Then the new technologies mean just perfect sound.
Mr. Kelly: Yes. We do not know what that regulatory regime looks like yet. I would be dishonest if I told that you there is broad consensus but there certainly is a recognition that without some form of regulatory control over what we call Web casting the regulatory regime we have set up for the public and private broadcasters would fall apart very quickly because you would just switch all of your activities through the Internet and you would be free of all the regulatory disciplines in the broadcasting.
We are certainly not interested in turning back the hands of time here. We think that this is a tool that can benefit artists and help us bring our works to audiences. One of the public objectives of agencies like the Canada Council and the National Film Board and Telefilm is to stimulate creation -- but it also has to reach an audience. We are prepared to explore whatever technologies present themselves to do that in a more effective manner.
Senator Perrault: The term "new media" is used. Does that cover all of the new methods of transmitting information, either visually or by sound and so on?
Mr. Kelly: New media is the sort of interactive nature of the media, so it could be CD-ROMS or it could be different sites on the Internet. It will also probably mean things we do not yet know exist.
Senator Perrault: In January the CBC radio program This Morning discussed the state of the arts in Canada. One guest stated that a year from now a lot of unpredictable things will have happened and they will have happened as a result of the changing technologies, and particularly the Internet, and the way in which these different media will distribute their materials over the Internet. This is what we are talking about.
Mr. Kelly: Yes.
Senator Perrault: It is a great unknown, really.
Mr. Kelly: It is. The only problem, and it may be just a transitional problem or a transient problem, is that one of the challenges that we face as a sector is reaching beyond the traditional confines of the arts audience, which is generally perceived to be well-to-do, middle-class and upper-class.
Senator Perrault: It is also changing because of the accessibility then.
Mr. Kelly: That is the issue. Who has access to the Internet? Is it not the middle and upper class? It may not actually solve our problem.
Senator Perrault: All of the schools are installing all of these, so there is a generation that knows how to run them.
Mr. Kelly: The uptake on Internet is quite high. As the technology reaches higher penetration levels fairness of access is one of the things we will have to address so that we do not develop a population that has technological competency merely as a by-product of their economic standing.
Senator Perrault: I am old-fashioned enough to believe that we are never going to replace the book. A chap phoned me up two months ago and he said: "It is incredible. The entire War and Peace is on the Internet." I am not going to sit in front of the screen and read War and Peace. You can say that you can transmit books all over the world but who would sit in front of a terminal and read War and Peace?
Mr. Kelly: It is hard to snuggle up in bed with a monitor on your lap.
Senator Perrault: It is an awesome prospect to tackle a work of that size.
Mr. Kelly: Indeed, it is. We have to harness the resolve and imagination to do it in a way that does not impede the development of the technology but also make sure that everybody gets their just deserts out of the broader access.
Senator Johnson: As my colleague Senator Spivak said, we are a group that wants to work together and support you in every way we possibly can. One of the major reasons for our study is how we can go about this in the most significant manner.
Are the findings of this working group on cultural policy for the 2lst century going to be your document as we head into the next decade? Is it going to be a work in progress? Will you be upgrading it as we go along?
Mr. Kelly: It is very much a work in progress. We hope that as we deal successfully with some of the problems that are reflected in that we can draw a sharper focus on what we can do rather than on the question of whether we can do it.
What appears to us to be the real issue is how much latitude does Canada enjoy in the development of distinct cultural policies that are not constrained by this broader set of agreements or obligations that we have already undertaken. I would hope that, as we find ways to deal with the treatment of culture and trade, as we manage to persuade the federal government that an articulation of a cultural policy is indeed desirable, we can move on to some of the more applied and rarified questions of how we can continue the task of Canadian cultural development.
Senator Johnson: It is absolutely critical, too. I think your initiatives are excellent. You should not feel afraid to use the word "protectionist" at all because I really do not think the U.S., no matter who their producers are, are in any way in a position like us, unless you are talking about very small ones. As you know, we could end up with a Walt Disney cultural world everywhere, in my opinion, if we do not carefully shelter some of our cultures.
You made a very good point about senators being in touch with other countries. I receive many calls from smaller countries talking to me now that they are faced with the onslaught of sort of the American world which they have been able, up to now, to avoid due to not having DTH or satellites up there. They have been able to shelter their culture a little bit more. These countries ask what we have done over the years to protect our culture. I answer that we have done as much as we can.
What are some other countries doing to this point now that they are faced with this? They really have not had to address it in Europe, for example, to the same extent that they do now as a result of all the technologies and the Internet and globalization. Will this be something that you will be talking about at UNESCO? Does Canada play a leading role in some of these discussions in this respect?
Mr. Kelly: We are considerably ahead of most other countries in tracking this issue. When I went to Paris in February my French colleagues said they had only really happened upon this problem in the last three or four months. We have been working on it in a fairly dedicated way for almost a year now. They said perhaps it is because the wind blows a little closer to us. I thought that was a very nice way of saying it.
What I have found is that countries like Australia and New Zealand are engaged in this and are probably at the same level as Canada in thinking about these issues. Other countries are really just starting to appreciate the issue. For example, it was a very common understanding in France and in Europe that there was a cultural exemption coming out of the Uruguay Round of the GATT. There was not.
The European Union went to Blair House to hash out a position with the United States over agricultural subsidies and the European request for an audiovisual exemption. They came to an agreement, a compromise, on agricultural subsidies but the Americans said they were never going to be prepared to accept a general exemption based on cultural rationales.
The understanding in the French community was that they had this in their pocket and that the MAI negotiations were going to take away an exemption that they never actually had. I think people are now beginning to pay much closer attention to the issue of how their cultural sovereignty, if you will, has been affected by these larger agreements.
Everybody wants to participate in these agreements. Everybody sees the benefits. I suppose there is no agreement on how far is too far, what are the essential tools a nation state needs in order to function in a global environment and are we going to retain them through the course of these negotiations?
Senator Johnson: Of course some of these are the same countries that are involved in the MAI talks, as we are.
Mr. Kelly: Exactly.
Senator Johnson: There are many people in the cultural communities, film makers, writers, who are just sort of getting tuned into the fact of MAI. It is astonishing but it is true, especially of the independents, of whom there are so many in the cultural community, and our writers and artists. They are phoning me, saying this cannot happen April 27. I say I do not believe that it is going to happen April 27. They want to know what is going to happen. What are you saying to people in the arts?
Mr. Kelly: We have commissioned a couple of studies which detailed the potential impact of the MAI on Canadian cultural policies. They are posted on our Web site.
Senator Perrault: What is the Web site?
Mr. Kelly: The specialist is there.
Ms Susan Annis, Associate Director, Canadian Conference of the Arts: It is www.culturenet.ca.
Mr. Kelly: We have studies of the potential impact of the MAI on cultural policies. We also have a study done by Lesley Ellen Harris, who is a lawyer and an international specialist on copyright and intellectual property, on the treatment of copyright and intellectual property in international trade agreements. We have the executive summary and the key findings of the working group's report. There are quite a number of documents there.
Once they look at those I think they will see how their own cultural policies will be affected. They should be talking to their politicians and insisting that they listen. I found it very interesting in talking to Danish artists, for example, who are just waking up to this issue. They called their government to find out what is being done about the MAI. They found out that Denmark is fully supportive of the MAI.
Senator Perrault: The government sees no hazards in it at all.
Mr. Kelly: It sees no hazards in it for culture at all. The arts community is looking at this and saying "holy mackerel", or words to that effect, I suppose -- what are we going to do about this?
Senator Perrault: Holy herring.
Mr. Kelly: This is one of the things they could do that would be most supportive of what we are trying to achieve, which is to develop an understanding. We have, as I say, lots of material on the Internet. If they want more information, we have scads. We would be happy to share it with them.
Senator Johnson: It is a commentary on the state of our MAI situation when Peter C. Newman comments that it is a bigger issue than Quebec separatism in terms of the next century.
Senator Perrault: He sounded the alarm.
Senator Johnson: He did on that particular side of it.
I will come back if there are more questions. We could go on all day with this, but we can just go to your Web site now.
[Translation]
Mrs. Gagné: In this and in most other areas, the CCA faces a dual challenge. That is why we need your help in reaching all artists in Canada. This is no easy feat. We read very little about this in the newspapers and hear little in the electronic media. We are working to mobilize the artistic community in some concrete way. We have arranged for different consultative processes. The other challenge we face is on an international level. Your help would be greatly appreciated in directing people to us or in helping us to provide them with information so that they can develop their own policy.
[English]
Senator Johnson: Today, my colleague, Senator Spivak, and I called for an inquiry in the Senate into the MAI agreement so that in the next number of weeks any senator who so chooses can stand up and speak to this issue. That is a good start for us in terms of following through with some of the suggestions you made. That will all be on the record. I will make a speech in which I will use all of this information you are giving us. Hopefully, Senator Perrault will also contribute to the debate.
Senator Perrault: During the last session of Parliament, a witness before this subcommittee suggested that in the near future television shows and much more would be available over the Internet and that no Canadian regulator would be able to control the content on such a system. That comment keeps coming back to us. It seems there is no way to control it.
I often think they are going to overload that system to such an extent it will disappear into a black hole in space. It keeps on growing, just like Topsy.
Senator Johnson: Our researchers have told us that the Internet is the first distribution network that will give the word "globalization" its real meaning.
Senator Perrault: I wonder if this new technology eliminates the effectiveness of any Canadian content regulations. Does it not place those in jeopardy?
Do you agree with the forecast for Internet-based television, with the policy implications of that?
Mr. Kelly: There is no question that the availability of broadcasting signals on the Internet represents a very serious challenge to the integrity of broadcasting regulation policies. Unless we can find some way to regulate it, we cannot sustain a two-tiered system: one for the traditional broadcasters, cable and broadcast distribution undertakings; and another for other people who circumvent that and use the Net.
We have wrestled with this. We have heard this argument put forward many times. It is said that the forces of globalization and new technology are so overwhelming that all we can do is either stand out of the way or roll over and let it crush us.
Senator Perrault: The express train is coming down the track.
Mr. Kelly: These are both human creations. If they cannot bear some of the fundamental human values, then we to blame.
In Canada, one normally has access to the Internet through telephone, cable, satellite, and now through wireless. All of these are regulated industries, so what is the great mystery of extending a regulatory regime to deal with the treatment of intellectual property rights and some form of responsibility for Web casting?
I would say that those who say that regulation is impossible have not been thinking hard enough about it. This is not a complicated situation.
Senator Perrault: They may not desire to have it.
Mr. Kelly: We have seen in the most recent information highway advisory council report those people who are promoting these technologies saying: "Do not regulate us, do not tax us, but spend millions of public dollars upgrading the infrastructure and providing the content." It is hard to believe that the government did not jump on that right away and say, "There is the ticket." That sounds like a fair deal to me.
We have to be very cautious about allowing what we refer to as "trail blazing", thinking that this technology is so important to roll out that rules and disciplines are only going to get in our way and somebody else will get a jump on us.
Obviously, we do not want to weigh the whole technology down with a regulatory regime which is unworkable for everyone, but I think we have a public responsibility to discharge, and that is to ensure that, as these technologies develop, they complement our ability to attain some of the broader social and cultural goals this country has established for itself.
Senator Perrault: I agree with you. The traditional art forms, film, TV production, theatre and books, have long benefited from subsidies in this country. With this vast change which appears to be underway, do you think that federal subsidies should be extended to the new media, the people involved in this revolution, to help them weather the storm?
[Translation]
Mrs. Gagné: In my view, this is not the time for the government to back down, particularly if you want to be able to challenge the Americans who hold all the power, from a technological and mass culture standpoint, to disseminate their product. We are at a critical stage in Canada if we are to deal with this globalization, read American, phenomenon. Basically, it comes down to that. We must have additional financial resources in order to compete with the Americans in this field. Otherwise, technology will not only swamp us, it will kill us. Artists are the ones responsible for creative content. I do not have the specific figures in front of me, but now is not the time to back down.
[English]
Senator Perrault: I have noticed some artists on the Web who are selling their works. Are they getting orders? Are people developing an interest in their art?
Mr. Kelly: For some, it is working out and, for others, it is not. We are still dealing with a population that is not completely confident in the use of the Internet and the sort of encryption protections for personal information such as credit card numbers. Certainly, they have a lot of hits at their Web site.
We are working in partnership with, for example, the Canadian Independent Record Producers Association to develop an interactive site to order Canadian CDs and cassettes.
Senator Perrault: That is a constructive initiative.
Mr. Kelly: We think that it has some potential, but we first have to address some of the fundamental problems. I know the OECD has an electronic commerce committee that is working on developing some standards for protection of that kind of information throughout the world. That will help make it easier for artists to attract new patrons and new consumers. However, people are sensitive to disclosing personal information.
Senator Perrault: There is a fear.
Mr. Kelly: Oh, yes. We have to overcome that.
Senator Johnson: I am curious to know what you think about the latest film distribution policy statement made by the minister. I believe it was just before Christmas. My friends in the industry in Western Canada -- and I am most familiar with Manitoba west although I know about Toronto as well -- say the biggest problem is getting their material out once it is done. An excellent film like Atom Egoyan's will squeak through now and then, but it happens very rarely that a $5-million budget film like that makes it to the Oscars.
Some excellent films have been made, but they have not seen the light of day because of distribution problems. Realistically, will this policy change any of that? If it does not, we will be in a situation, as they tell me at Credo in Winnipeg, where the only way a Canadian film will be shown is if an American star is in it.
Mr. Kelly: I presume you are talking about the idea of quotas on commercial cinema screens.
Senator Johnson: In your view, iss the initiative of quotas and the whole effort that is being made a good one? How can it be improved or changed?
I can name three films that have come out of Manitoba in the last five years that were as good as anything you can see on the large screen, both in terms of quality and performance. Unless you are a cult figure like Guy Madden with unusual productions, these films are never seen.
Mr. Kelly: Even Guy has limited visibility. We have been wrestling with this issue for many years.
As you know, when Flora MacDonald was Minister of Communications, she put together a film distribution package which essentially distinguished the rights for the Canadian market at the border. The bill died on the Order Paper because of extreme pressure from Jack Valenti and his fellows.
Marcel Masse tried a more modest undertaking but, unfortunately, that also went nowhere.
Senator Perrault: There was a big lobby.
Mr. Kelly: Yes.
Ideas have surfaced in the recent discussion paper on future film policy respecting quotas on screen time for the commercial cinema, where 10 per cent or 15 per cent of screen time would be reserved for Canadian film. I must say I have no confidence that that measure will succeed.
The rationale for Canadian content quotas in the broadcasting system is based on the fact that government policy recognizes the broadcasting system as public property. When a broadcaster gets a license to use public property for personal gain, there is a contract of returns, and part of that return is an engagement for Canadian content, putting it on the screen and investing in it.
That rationale does not exist in the commercial cinema which is a network of cinemas built by private entrepreneurs. There is no government assistance available to anyone to open a commercial cinema. If forced to accept a quota system, I would see a situation develop where certainly they will give the 15 per cent screen time but it will be at nine o'clock in the morning, or midnight; and there will be no promotion.
Senator Johnson: That is the way they will handle meeting the criteria.
Mr. Kelly: A year later, they will tell us it will not sell and, as a matter of fact, the box office revenues which are already pathetic, will have fallen further. We must find another way to address the issue of film distribution. I think it lies in the "P" word, the "protection" of rights for the Canadian market.
Senator Perrault: The Australians had a brilliant run of successful films, including, The Man from Snowy River, Gallipoli, and Breaker Morant.
Senator Johnson: They have bottomed out. Their industry is going through a difficult time.
Senator Perrault: They had good circulation. Did they involve a lot of government subsidy?
Mr. Kelly: Yes, they did, at one time. As a matter of fact, prior to the last election in Australia, the government had put out a document, which was a wonderful read, called, "Creative Nation", which was going to be the Australian cultural policy if the government was returned. Unhappily, it was not. It would have built some strength into the subsidies and agencies critical to the development of Australian culture.
The new government is looking at this issue with fresh eyes but, obviously, not fresh money. That may come.
Senator Perrault: There will not be not vast amounts.
Mr. Kelly: No, there will not be vast amounts of money.
Senator Johnson: Are you saying we need more government money?
The Americans are filming in Canada and using Canadian crews. That is good, because it creates jobs in various provinces, even the smaller ones. In most instances, these are not wonderful movies, and they are not based on Canadian stories, but that is fine. They are creating jobs.
I am not saying that everything made in Canada has to be a "Sweet Hereafter." Right now the majority of the films the Americans come in and make are not very good films. How will we keep our film makers here if this policy we just talked about is not going to work?
I am also concerned about the attitude that, this being the new age of globalization, Canadians may feel they cannot possibly do it here and that they need an American producer or director. They may decide to film part of it in Teulon or somewhere in Saskatchewan and fulfil some Canadian content rules to get some Telefilm money. I am worried about the whole creative process being dissolved. We may not be able to keep our talent because they are looking at the global situation.
You have already said the policy is not adequate. What else can we do?
Mr. Kelly: When we look at how a film moves through the distribution chain, its time in a commercial cinema is probably the shortest phase of its life. It then moves into video stores and broadcast licensing. It probably reaches more people in those latter incarnations than it does as a feature in a commercial cinema.
Perhaps the answer lies in supporting the broadcasting system so that it can acquire these films. Perhaps it lies in some way of ensuring that when Canadians go to Blockbuster to rent a movie on Saturday, that there are more than six films in a section called "Canadian Films".
Senator Perrault: Sometimes it is a section called "Canadiana".
Mr. Kelly: It seems to me this is part of the responsibility of a good corporate citizen. Viacom, who owns Blockbuster, I believe, is a foreign company which we flagged a few years ago. They made some direct financial commitments for 5.38 years. After that, they need not spend a dime in Canada. They will have proved their good corporate citizenship and be able to siphon the money out of the country.
Perhaps we could consider revising the way we let these companies operate so that they make a permanent commitment to good corporate citizenship. I refer to the comment you made earlier, Senator Perrault, about shelf space. However, that is not the only answer. Perhaps we should ensure that operators are offering real Canadian choices, not just token ones.
Senator Johnson: That is an alternative that could apply to books, to records, and so on. I am talking about how we shelter and preserve our stories.
Senator Perrault: Last night, in Vancouver, there was a massive traffic tie-up. A huge vehicle was turned upside down and put on one of our main bridges. They said that it would not tie up traffic but it did. They were making a Hollywood film.
There are many motion pictures being made, of course. Our local courthouse is Little Rock, Arkansas. Banff is Denver, Colorado. All of the grey police cars have to be repainted. It has created good business for parts of Canada up to this time, but now the Americans are complaining that too much filming is being done in Canada.
Canadian production of U.S. film, of course, has been assisted by the weak dollar, but has this trend ultimately benefited Canadian artists? It is a tough enough occupation. They need all the working jobs they can get.
Mr. Kelly: I would say that there have been very real benefits from what we call the service industry to people working in film. We do not want to lose the service industry. The lower dollar is clearly their primary attraction, but we also have an excellent talent base that we have developed over the years.
We also want to make sure that those people get a chance to apply those skills to Canadian projects, to Canadian undertakings. We do not want them to be just a service class to foreign producers. Those are some of the issues that I think we have to consider.
Senator Johnson: These are real issues. We had to turn away a film production company that wanted to make a film in downtown Winnipeg with its Edwardian architecture. They could not find enough crew because a thriller with Christopher Plummer was being made at another location.
We talked about screen quotas being part of the new policy. You told us that the distribution restrictions will not work. Which policy mechanism will work?
Mr. Kelly: We have not actually come up with the ideal mechanism. I believe that the solution will lie in the distinction of the Canadian market as a separate field of rights. You may say that that is what our film distribution policy tries to do for non-proprietary film, and the European Union is clearly challenging that.
We may have to consider a situation that makes open bidding on Canadian rights a part of the way the business operates. Obviously, we want to be able to provide the wherewithal to support bids by Canadian distributors, but that just keeps them in the country, it does not get them into the cinemas. That is a hurdle we may not be able to overcome as long as the cinemas are independently funded and operated.
A quota system will not work. It may be worthwhile telling cinema operators that they can run however many Canadian films they want, and whatever income they earn from showing Canadian films will be tax-free. That would give them the motivation to promote Canadian films.
Senator Perrault: That is a good idea.
Mr. Kelly: We have to use the carrot as often as the stick, especially when we are talking about people whose business is supported out of their own pockets.
Senator Johnson:Your suggestion is very helpful.
[Translation]
Mrs. Gagné: I have one further comment. In the fields of film, music and literature, there is one other fundamental value that we must promote, namely education. If we want people to go and see Canadian films and read Canadian books, they have to learn that these things exist. Young people have to learn about Canadian culture and the arts. Education is an important field. I am not talking necessarily about investing money in each province, but about achieving consensus across all levels of government, federal, provincial and municipal. It is extremely important that the arts be taught in schools, that children have access to a wide range of artistic productions. As the commercial goes, Hygrade wieners are fresher because more people eat them, and more people eat them because they are fresher. The more Canadian products people see, the more they will want them. This is an important element. An education committee is presently considering these questions.
The Chairman: It is often said that the greater a child's involvement in music, the faster a child learns to read. Perhaps we could look to some of these research results for inspiration.
Mrs. Gagné: Absolutely. I am a pianist so this is right up my alley. Playing the piano teaches people how to use both hands and develops the brain as well. The arts in general greatly contribute to developing creativity. People in the world of business also need creativity. They need people with new ideas who will come up with new products to generate more sales. The ramifications are extensive.
[English]
The Chairman: We really appreciate the time and ideas you have shared with us. Perhaps, before you leave, you could suggest some recommendations you would like to see in our report. However, if you would like to think about that, you could send us any additional recommendations you would like to make to us.
[Translation]
Mrs. Gagné: Thank you very much. We accept your offer and we will try to become more closely involved in your work and to help you find the arguments you need.
[English]
The Chairman: Colleagues, the next item on our agenda is the report by our clerk and our senior advisor as a result of their fact-finding mission. They undertook that while we were in the midst of the ice storm in this area. They will now share their finds with us.
Mr. Matthew Fraser, Advisor to the Committee: I would refer you to the document entitled: "Senate Subcommittee on Communications Phase II Report." That will provide a road map to the comments I will make about the trip to California.
At the outset, I will describe our trip to California and what my colleague, Michel Patrice, and I did while we were there. The left on February 22 and returned on February 28. It was a seven-day trip.
We started off in Los Angeles, where our meetings were set up by our consulate people. They did an excellent job. Our meetings commenced at 7:00 a.m. every morning and we did not conclude until 6:00 p.m.
In Los Angeles, we were largely in Hollywood where we had meetings with the animation people at Dreamworks; at Warner Bros.; with the new media people at Universal Studios; and with the vice-president of business affairs at Sony Pictures.
Did I forget to mention anyone we met with in Los Angeles?
Mr. Michel Patrice, Clerk of the Subcommittee: In terms of the media, no. We also met with Jeffrey Cole, from UCLA, who is a specialist in communications policy. He is also special advisor to Al Gore.
Mr. Fraser: He also consults in Washington and advises the Vice-President on information infrastructure policy. As well, he is a specialist on violence on television.
We also met executives from the networks in Los Angeles. We had a breakfast meeting on issues related to children's programming and violence on television.
The second part of the meeting was in Silicon Valley, San Jose and Palo Alto. Palo Alto is where Stanford University is located. As you know, Silicon Valley was seeded Stanford. Some professors spinned out into the private sector. There we met with executives from Intel. We attended a seminar with a panel of some of the biggest names in Silicon Valley, notably, Richard Liddle, who was one of the Bill Gates' original partners in Microsoft. He is now on his own, and worth at least $2 billion.
Included was Halsey Minor the founder of C-Net, again, a typical Silicon Valley company. They deliver news and journalism on the Net. He started with $50,000, and he is now personally worth $300 million. His is a typical story in Silicon Valley where everybody seems to be worth about $500 million. Often, they are 25 years old.
We also had meetings with representatives of Dataquest, a research and consulting firm, who shared some of their expertise with us.
We also attended a conference sponsored by the City of San Francisco on digital technologies.
What we did learn is that, north of Silicon Valley, San Francisco, and south of Silicon Valley, Los Angeles, people are very jealous of Silicon Valley because that is where all the money is. The City of Los Angeles has a new program in which they are attempting to turn Los Angeles into the "digital coast". San Francisco, in like manner, is trying to attract a lot of digital business to San Francisco. The action is in the middle in Silicon Valley, San Jose, but they are all trying to get in on the same action which is, basically, creating wealth.
The success of San Francisco is due to the clustering effect, where a few industries started up and others clustered around. Nortel has a major presence there.
I will speak to the California trip under the two general headings of "technology" and "culture." Senator Poulin identified those two themes as guiding the Phase II report, so I will imbed the California trip in those two themes, technology basically being distribution, old distribution systems and new distribution systems; and culture being content. We discussed many of these issues with our friends from the CCA -- old content and new content.
The first observation I will make relates to distribution, and the second to content. In distribution, there has been a shift from traditional distribution systems, off-air broadcasting and cable TV -- very much related to some of the remarks made by Senator Perrault -- to new distribution systems like the Internet. The old distribution systems will remain, but new distribution systems are coming down the pike very quickly. Clearly, the Internet will have an effect on how the old distributions will respond if they are to maintain their market dominance.
The Chairman: May we ask questions as you go along?
Senator Perrault: Whatever you wish.
The Chairman: In your visit to the United States, when you identified the move from traditional distribution systems to new distribution systems, were you able to identify trends? Are there certain products that seem to be more adaptive? Will some stay with the old distribution systems and others will move more quickly to the new distribution systems?
Mr. Fraser: That is an excellent question. I will go right into my first component on the California trip on the distribution system. Virtually all the Hollywood companies are moving towards distributing their products via the Internet. That does not mean you will not see their movies in theatres, but they are experimenting on the Net. For example, the new media division at Universal Studios has a Web site.
Senator Perrault: Is the idea that it will be possible to access various movies from home?
Mr. Fraser: That leads me into the "however" part of our observation. We found that they are playing with this and they are doing it because they have got to be there. If it is going to happen, they want to be there. They are devoting large investments to new media divisions: Warner Bros. has a new media division; and Universal has a new media division. They are substantial divisions, with lots of money being invested just in case the Internet becomes a huge market, which it probably will. "However," they are not presently distributing software intellectual property. You cannot presently access their movies on the Net. That is because these companies are fairly concerned about the encryption and security aspects of their systems. They did not want to put in software form, these products that can be copied around the world a million times.
Presently, you can go on to any one of these sites and buy all kinds of hard goods: CDs, books, T-shirts, mugs. They have chat lines with the stars. Universal has stars like Jeff Goldblum on their site where fans can talk to him and send messages to him.
Video games are a big business, $20 billion, according to Universal Studios. They are building video games around their existing properties, like Xena and Hercules. I had never heard of Xena. She is a woman who beats up people using karate. They are cannibalizing their existing properties and making video games, but they are not making the movies available because they are concerned that they will be copied and distributed around the world. In fact, that is happened with songs.
Senator Perrault: Of course, this digital technology is perfect reproduction, is it not?
Mr. Fraser: Moreover, senator, the cost of reproduction is zero. You just download it.
Senator Johnson: You used to have to buy tapes.
Mr. Fraser: You can buy CDs on the Net. You probably saw the piece in The Globe and Mail about three days ago. Alanis Morrisette, who is from Ottawa, is now an international super star. An L.A. radio station with an advance copy of her new record played a few songs. Someone copied it and put it on the Net, and it is being distributed all over the world, free.
Keith Kelly from the CCA said that he thought intellectual property would be one of the areas where regulation might be a concern. The Hollywood studios are very concerned about that, so concerned that they are not putting it out. They do not trust the encryption and security systems. The losses, obviously, would be measured in the billions, with everybody downloading songs.
The Chairman: That should be a major part of our report because it means that the artist does not have copyright protection.
Senator Johnson: If you think it is bad now, with this, it would be totally out of control.
Mr. Patrice: That is the Hollywood perspective. However, but from the technology side, Silicon Valley, they think that they can install an encryption system, a key system, from which they would be able to charge for the products.
At Universal, they seem to be doubtful that the technology, the infrastructure, would be good enough to provide real time movies, for example, over the Internet. They say they can provide small clips, but they do not think that the technology, in the short or medium term, five to ten years, would be able to provide real time movies. However, that is the Hollywood point of view again.
Mr. Fraser: There is a lot of tension now in Canada and in the U.S. between the people who actually own the rights to products and the people who are driving the technology. In Silicon Valley you meet with representatives of Intel and Microsoft. Intel sells microprocessors which are the engines in your computer. These people want the wires to be thicker, and they want the computers to be stronger. They do not own the movies. They want the infrastructure to be built out so they can sell microprocessors and so they can get the movies into the homes. New media content takes up a lot more space in the wire. It is unlike broadcasting or telephone calls. The hardware manufacturers like Sony, Panasonic and Intel, are trying to reassure the intellectual property people by telling them that they need not worry, that they can trust their systems, but the intellectual property people, the creators, the people who owns the rights to it, are very worried.
Senator Perrault: I suppose the new high definition television which is just around the corner has a digital component. Would it be feasible to develop very high quality, home movie pictures using that technology? Today's television is still a bit grainy in relation to those pictures.
Mr. Fraser: High definition television is a slightly different issue. It relates to the picture quality.
Senator Perrault: It would make it more attractive.
Mr. Fraser: That is right. It has a bigger screen.
Senator Johnson: There will be life after television. You are not going to have televisions for much longer. It will be projection screens.
Mr. Fraser: That was one of the main themes of the trip. We asked virtually everybody whether the television was going to be the way of the future, whether it was going to be the computer, whether they will converge and, if they are do, will it be in the living room, in the study, or in the bedroom.
The Chairman: It is called the "great" room.
Mr. Fraser: We asked these questions of the leading edge people in Silicon Valley. Most of them felt that people will continue to watch some form of entertainment in their living rooms, but that they will do something else in their studies using computers. The question is what we will be looking at in the living room. It probably will not be NBC, ABC, CBC, Global or CTV, to the same extent. Those companies will be challenged.
Senator Perrault: Will it be Warner, Sony and Universal instead?
Mr. Fraser: Yes. They will want to get hardware into houses. Television networks basically aggregate contents. They package the goods and send it out. The programming will be pre-determined. In other words, you will only be able to watch Seinfeld on Tuesday nights at seven. If you are not there, you can tape it. It is pre-programmed. In other words, the consumer will have no autonomy in that transaction.
They predict that the consumer will have much more autonomy in choosing the programming. In other words, the consumer will be able to pull down a menu. If you are a Seinfeld fanatic, you will be able to go home and pull down a menu which has Seinfeld. You can choose any episode you want, say one from 1985, at a cost. It could be ten cents, it could be a nickel.
The real issue is how those things will be packaged. It cannot be a free-for-all. New players like Yahoo, Microsoft, Lycos and America On Line will probably move in and become the packagers of these, and create these menus. It will be a challenge for the cable companies and the networks because they currently do the packaging. They are a bit worried. That is why Bill Gates is very interested in all of this. He wants to go in, sort this out, and charge the consumer.
Senator Johnson: This is already happening. I was in a home over Christmas where there is an entertainment room where everything was shown on screen from a projector. We already have menus, although you cannot select 20 Seinfeld episodes at this point.
Senator Perrault: We also have pay TV.
Mr. Fraser: What you have described sounds like satellite television.
Senator Johnson: This already exists, and I am curious to know why they think they can stop it.
Mr. Patrice: I do not think they want to stop it.
The networks are using the Internet as an additional source of information. They have the traditional programming but they see this on the horizon. This is what they call "interactive TV."
Senator Johnson: Lots of groups are writing books about life after television.
Mr. Patrice: The television itself is still going to be a screen, whether there is a computer processor in it or not.
Senator Johnson: The concern is whether it comes through the computer.
Mr. Fraser: Very simply, the television set will probably look like a television set. Nobody opens up their television set to see what is inside, but what will be on the inside will basically be a computer.
On a social level, in other words, the way we interact with it, the shift will be from passively just turning it on and someone else doing the programming to more programming being chosen by the consumer. If you are a history buff, then will be able to chose historical documentaries.
Mr. Patrice: It may cost about $6.44 or $7.50.
Senator Perrault: For about a month, the Philips Company was marketing a device which can be installed in a simple television set which would give you access to the Internet. They are trying to reduce the cost of Internet access.
Senator Johnson: We should see a demonstration of this, Madam Chairman.
Mr. Fraser: As I said, there has been a fairly rapid shift from traditional distribution systems such as over-the-air broadcasting. There is more of that in the United States than there is in Canada -- cable TV towards Internet delivery and satellite television.
Most people give 2003, 2005, as the time-frame. Certainly, by the end of the first decade of the next century, we will be there. I am talking about total penetration. Earlier adapters are already there but penetration rates are quite a bit lower.
On the content side, that is, the cultural side, the pressures in favour of new forms of media are coming not from Hollywood but from Silicon Valley. That was very clear. In other words, the guys in Hollywood are not taking the initiative. It is the guys in Silicon Valley who are going to Hollywood and telling that they should start making new media content, and they are showing them how to do it.
They are doing this because they have a business interest in it because they sell the microprocessors and the softwear. Intel, for example, is even buying new media companies. I read in The Globe and Mail last week that Intel bought a piece of Discrete Logic, a Canadian company which is a very well-known new media producer. It has also invested in a number of other companies.
Microsoft, as you probably know, owns Softimage in Montreal. Bill Gates bought it. The founder of Softimage, Daniel Langlois, is now worth $300 million. In fact, there was a profile of him on the cover of L'Actualite this week.
These big Silicon Valley companies like Intel and Microsoft are buying new media producers because they want that product to get out there faster because, the faster the product gets out, the more powerful computers we will need and the bigger the wires will have to be. They have a strong business interest in this. It is not Hollywood but Silicon Valley which is driving the shift from old forms of content to new forms of content.
Hollywood is responding to this by creating movies with digital technologies and special effects and animation. You know about the battle between Disney and Dreamworks. They are trying to outdo one another. Toy Story is a good example of a recent movie that was almost entirely special effects. We will see lots more of that. In fact, I have heard that some movies will not have human actors. They will just be digital creations, digital actors.
Senator Johnson: It might be a relief in some cases.
Mr. Fraser: I am not an economist but I understand that one of the benefits of this is you do not have to pay Tom Cruise $30 million to star in your movies. Digital actors do not eat and they do not demand big fees.
Mr. Patrice: Their big animation movies cost around $50 million.
Mr. Fraser: There are high labour costs -- lots of hours logged by high-priced animators.
Another issue which I think will interest everyone is something that was mentioned to us a number of times. In Hollywood there is a good deal of resentment that a lot of production has been moving north to Canada. As you know, Hollywood studios are moving north of the border to take advantage of tax incentives offered by the federal and provincial governments.
The premier of Ontario, Mike Harris, was down there a few days ago meeting with Hollywood studios. There was a story in The Globe and Mail in which he was outlining his own fiscal incentives. They can access Telefilm funding by co-producing with a Canadian. Of course, with the low dollar, they save 30 cents on every dollar. A film that would costs $100 million can be made for $70 million.
As you pointed out, senator, we have very good crews here. However, people in Hollywood are very annoyed that a lot of their production is coming up here.
As you are all aware, we do very well in the animation sector. We have Nirvana; Disney has a studio in Toronto; and Dreamworks has just announced that it is thinking of building a studio here.
Many of the animators, including the senior people, at Dreamworks are Canadian. We discovered that there is a very good pool of talent coming out of Sheridan College. It is the best such school in the world. Apparently, its rival is a school called Ringling in Florida.
The real reason why they come up is because the animators in Canada are non-unionized and the animators in Hollywood are unionized and make double the salaries of Canadian animators. The microeconomics of animation in Canada and the United States are quite different.
I asked four questions that we may want to consider in the context of our hearings. I will go through them very quickly. On the distribution side: What are the main characteristics and economics of the Internet? Is the Internet likely to become a mass medium with the advent of new digital technologies? If so, should it be regulated and taxed?
On the content side: What are the main characteristics and economics of multimedia production? Is multimedia content likely to become mass consumed and, if so, should it be subsidized and regulated?
The Chairman: Thank you, Mr. Fraser and Mr. Patrice.
Senator Perrault, if there are any witnesses that you believe could contribute to our report, would you please let me know?
Senator Perrault: I shall.
The Chairman: Thank you.
The committee continued in camera.