Proceedings of the Subcommittee on
Communications
Issue 3 - Evidence
OTTAWA, Wednesday, March 25, 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 position in communications generally, including a review of the economic, social and cultural importance of communications for Canada.
Senator Marie-P. Poulin (Chairman) in the Chair.
[English]
The Chairman: Mr. Addy, good afternoon and welcome to the subcommittee doing a special study on communications. I would like to introduce you to my colleagues, my Deputy Chair, Senator Spivak from Manitoba, and Senator Rompkey, whom you know well, I believe, already.
Mr. Addy, we really appreciate your coming. I see that you are accompanied by Lorna Higdon-Norrie. Welcome to both of you.
As you know, last year, in the late spring or early summer, we published a preliminary report on our findings. We know that a copy of that has been sent to you. We know, therefore, that you are aware of the focus of our study.
The question that we have been asking ourselves is, basically, what does Canada have to do to remain at the leading edge of communications and telecommunications after the year 2000 and in the year 2000? In our preliminary report, although we had four chapters indicating that we were looking at in terms of technological issues, human resources issues, cultural, content issues, and commercial issues, we really spent a lot of time looking at technological issues. Now we are looking at the impact of the technological issues on the content, i.e. public policy for cultural issues, as we enter le monde sans frontieres. We really appreciate your being here today, and we are all ears. I hear you have a presentation for us.
Mr. George Addy, Executive Vice-President and Chief General Counsel, TELUS: I do, indeed. Madam Chairman, I commend the subcommittee for the issues on which you are focusing. I have obviously had an opportunity to review the extract of your draft that was forwarded to us by the clerk. I think you are focusing on some very significant and key questions to which we must turn our minds.
First, I would like to start with an apology. Given certain events of the last few days, which you may have noticed, I have not had time to polish my remarks as much as I would have liked, so I will be referring to my notes somewhat extensively, and more than I normally would. I ask for your indulgence in that regard.
We have an audio-visual presentation we would like to take you through, which should take about 20 minutes, and then I would be more than pleased to get into a dialogue with you and your committee members on these key issues.
As we begin the audio-visual, I would like to tell you a bit about TELUS so you know who we are -- at least, what you might not have picked up in the papers in the last few days. We are Canada's third largest communications firm. When I started with the company in mid-1996, we were 9,000 employees. We are now up to 10,600, so it is a growth-oriented company with very strong Alberta roots.
As you will see from the bottom of the screen, our vision is quite audacious, in the positive sense: to be recognized as the world's premier communications company. That has a whole host of elements that we must integrate into our day-to-day business. That does not necessarily mean size, but we want to be the premier communications firm in the world.
Many of the issues that you have referred to in your report are issues that we are facing on a daily basis. The strategic alliances are being announced almost daily. To a significant extent, those alliances are being driven by customer demands. In an increasingly globalized market, companies want to be connected around the world. They cannot be left behind. Canada cannot be left behind. Customers are demanding the types of services that these strategic alliances can offer them in order to compete on a global basis.
Canadian companies like ourselves are paying close attention to forging those new global alliances. Alliances are not the only answer. There are other keys to that competitive matrix; the competitiveness of the Canadian communications industry and our customers. To a large extent, that is what you are focusing on: What are the related policy issues, government framework issues associated with that?
I would like to spend a moment to speak about a few of these. In addition to the global alliances issues at the macro level, there are two keys to having the right competitive package in the global marketplace: infrastructure and services. Our argument or our position is that in order to get these, we need investment and innovation. In turn, to generate those, to see the necessary investment and innovation in Canada, we need symmetrical and, in our view, light-handed regulation.
Let me take these elements one by one for a moment. First, I will tackle the investment issue. As you have noted in the material that was forwarded to us by the clerk, it is important for the infrastructure in Canada to be leading-edge infrastructure. That, in turn, requires investment. To be truly "wired to win", in your language, many billions of dollars will be needed to expand and enhance the existing networks, and building new networks.
That is where innovation also enters the picture. New networks alone will not create the business that will pay for the investment. It is the services, the applications, the extra value that consumers and businesses can extract and receive from those networks that will drive the investment as well. This is what you would refer to, I suppose, as the content issue.
That brings me to the third component, which is regulation. The actions of government and the regulator, or regulators, can either spur investment or they can scuttle it. We have, frankly, examples of both that I would like to share with you. My first example will be the Internet. The Internet is what I would call a regulator-free zone. The notion of an electronic mode of commerce is not a new one; it has been around for years. Electronic data interchange, for instance. Those have been around for years. Today the Internet has made both of those potentially, at least, mass market money makers, mass market instruments for Canadian consumers and businesses.
We have been talking about convergence since the late 1980s, but it is through the Internet that we are really beginning to see some of that convergence materializing in the marketplace. You see it in Internet banking, shopping, new media applications. All of these instruments, all of these developments, are making convergence very real.
As much as the Internet seems now to be everywhere, it still has some way to go. It is almost like the adage from a commercial -- I forget which one -- "You ain't seen nothing yet." The potential for the Internet, frankly, is just phenomenal. It is something that is very exciting for those of us in the business. It is potentially a huge export driver for Canadian businesses, and a powerful distribution vehicle for Canadian content and services.
With respect to the Internet, I am reminded of an example that was given to me about a business consumer in the Middle East who was searching for sources of water. He went to the Calgary Internet Web page and, through that, scanned down and determined that there was a business in Calgary offering bottled water. He ended up purchasing a substantial amount of bottled water from this enterprise in Calgary. That is just the tip of the iceberg, as far as we are concerned.
Linking it back to your agenda, the "wired to win" focus of your study, we at TELUS believe very strongly in the need to extend these services, these networks, as broadly as possible throughout society. You have identified the information "haves" and the information "have-nots" as an issue. We at TELUS are very sensitive to that aspect, and we are doing our utmost to address it. We have embraced the SchoolNet program, which you may have heard about, which is being championed by Industry Canada, but we have taken it further. We are partnering our SchoolNet initiatives with a charitable foundation we have created called the TELUS Bright Futures Foundation. That foundation is providing free Internet service, on a high-speed line, to every school in Alberta.
When we started rolling out the Internet, what we found is that it is one thing to put the infrastructure in place, but quite another to have it used properly, so we expanded our free Internet service to include an additional component of training at least one teacher in every school on the uses of the Internet and how it can enhance the educational experience for children.
From an investment point of view, we have invested $8.5 million to date in providing Internet to schools in Alberta, and a further $1 million in training teachers to make sure that we are not just installing plant, and to ensure that the facilities actually are used, and used efficiently.
When we made that commitment to the schools in Alberta, we ran across a very interesting school in northern Alberta, in Pineridge, which is a sawmill camp in northern Alberta. You normally think of the Internet as using phone lines, and just slapping in some wire and some modems and this sort of electronic stuff that, frankly, I do not understand all that much. I use it a lot, but I do not understand it. We found that the Pineridge School was in a sawmill. The school consisted of a room probably half this size, with eight students. We had made the commitment that we would provide free Internet service to schools in Alberta, so we were faced with a dilemma. There are no phone lines going into this sawmill. All the power requirements are generated at the mill. There are no phone lines at all.
It was expensive, but installing wireless Internet service to this school was part of our commitment. The result is that there are eight children in this classroom in northern Alberta who access Internet on a wireless basis at our expense, and the reaction of the children to that is just phenomenal.
That is an example of the recognition that I think is consistent with what you are seeing, and what other policy makers are seeing: the requirement to make sure that the Internet and this type of access to the information highway is available to as many people as possible, so that we do not get into this information "haves" and "have-nots" scenario.
Those of you who use the Internet realize you are using a phone line and the phone line has charges. Typically, Internet service providers are based in urban centres, so whoever you have your account with is typically in a city. Typically, for a large slice of the Canadian population, that is a long distance charge. The commitment we made in Alberta is that, for Internet access in Alberta, it is always a local call. There are no long distance access charges in Alberta to get on to the Internet. That is the type of commitment we made there. Frankly, I do not know of any other communications firm that is doing that.
You also highlighted the issue of "smart cities" and the elements of integrating various components of government service offerings electronically -- what we are calling the "wired city". If you would just turn now to our examples here, this is an example from Grande Prairie, Alberta.
(Video presentation)
Mr. Addy: The potential of the information highway is something that you have flagged in your report. One of the questions, as I recall, is what appropriate mechanisms should be in place to ensure that the advantages of these new technologies are made available to isolated regions and communities, as well as schools, libraries, and hospitals. I have explained a little about how we are dealing with that situation in Alberta. As you heard from Mayor Graydon of Grande Prairie, it is happening already.
When we address those issues, the solutions are quite frequently individual; they are tailor-made. These days, increasingly, individual people, businesses or communities have tailor-made, individual requirements that we are trying to satisfy on the information highway. The most appropriate mechanism that can be put in place, frankly, is one that does not constrain the delivery of those alternatives; that allows for that tailor-made service.
The challenge to us, and the challenge to all enterprises involved in this type of activity, is being able to meet those individual needs. What we are faced with now is trying to meet those needs within a regulatory framework that has not kept pace with the technology; it has not kept pace with the demands; it has not kept pace with the evolution of the industry.
Indeed, that is one of your questions: What are the appropriate public policy and regulatory instruments that need to be put in place? Our experience has been, I think, illustrated by the Internet and its evolution, and what some private enterprises can do if they put their mind to it and are willing to invest in those types of activities. What I think we are demonstrating today is that the instruments you put in place, the regulations that should be put in place, should be minimalist. The marketplace can deliver some of these benefits. The marketplace can rise to the challenge and, indeed, is rising to the challenge of the marketplace, without the need for extensive micro-regulation.
I am not saying that there are no issues that require public policy attention by government. Privacy and security are a couple of issues which you have probably heard about and are considering. The issue in dealing with those, I think, was illustrated by the good example used by Mayor Graydon. They are trying to grapple with those issues, not by using extensive regulation but by pursuing an approach that has been adopted by Industry Canada as well, of light-handed regulation, partnerships with the industry, and determining if the self-regulation of the industry, for want of a better term, is a better means of achieving those objectives. I think that is the right model. That is the model that we should be pursuing.
We can achieve some of our social policy objectives in that fashion. It is not necessarily required that we have extensive regulation. For instance, about two months ago, we launched an Internet browser tailor-made for Canada. I think AltaVista.ca is the moniker for it. If you are familiar with the Internet, when you screen into an inquiry it gives you feedback on the basis of frequency of hits, if you will.
This application that we developed with AltaVista.ca is bilingual, and the first screen is Canada. No matter what the inquiry, it will give you the hits on Canadian sites first. I think that is an interesting way of promoting access to Canadian content, if you will, over the Internet, by having browsers, the driver of the applications, focused on that type of activity. That was done without regulation or government incentive.
The other example we have is not quite as positive. I will not turn over the floor to my colleague, Ms Higdon-Norrie, to brief you a bit on our multimedia experience.
Ms Lorna Higdon-Norrie, Vice-President, Public Policy and Government Affairs, TELUS:It sounds like I get the bad news portion.
Your committee asked us specifically about our experience with our multimedia trial. For those of you who may not be familiar with it, we have been running a multimedia trial in Calgary and Edmonton since last fall.
What I would like to do before I talk about some of the issues and the problems we have encountered with that, is just show you a couple of minutes of video, which will illustrate what we are trying to do.
(Video presentation)
Ms Higdon-Norrie: What we are trying to do here has never been done before. It is a very brave and very innovative trial, and we knew from the get-go that it would be tough; that it would be a challenge. For this trial to succeed, we must build a digital set-top box that actually works. That has never been done before. We have had some problems developing and creating that digital set-top box. We can talk about those a bit more in the question period, if you wish.
Experiencing problems of that nature, we think, is pretty normal when you are trying to do something that is as new as this. This is a brand new, out-there piece of technology that, if we can succeed, would put Canada in the forefront of the world.
In trying to run the trial, we have come up squarely against the degree to which, in regulatory terms, convergence is not here yet. This is a trial. It involves fewer than 1,000 homes. This is about $65 million-worth of R & D, but we have had to conduct the trial as though it were, in effect, a full cable licence. We went through months of hearings; we received the licence; it was appealed to the cabinet which, by the way, supported us, and we were finally able to launch the project. Then our original set-top box supplier failed us, and a number of other people, and went out of business. It was not a terrific day. That forced us to find another supplier, thus enduring several months of delay.
If you are building a cable service, that is pretty standard. It has been done before, and pretty successfully, and you can predict with a great deal of certainty that, in September, we will do this; by October, we will do that; by November, we will have reached "x" number of homes. What we are trying to do, as I say, has not been done before and is not predictable, but that fact has not stopped some of the cable companies, especially, from trying to prevent us from succeeding. Frankly, the regulatory process has been available to them to use as an additional tool to put pressure on our trial, through the CRTC, because of the delay.
The trial is still alive, and we are still trying, and we are confident that in the end we will succeed. To translate the trial into commercial reality, assuming that we can get past these hurdles, is another set of hurdles that I do not think we, as a country, have begun to address at the pace that we must. It will require both CRTC and the government to come to terms with what is the true meaning of convergence.
Broadcasting and telecommunications in this country have always been treated very differently. While competition in telecommunications is quite well advanced, competition in broadcasting distribution is lagging far behind. There is not any real reason for that. In our view, it will continue to lag unless the fairly extreme degree of regulatory control over that service is lifted, and companies are basically given the opportunity to truly compete for the customer's individual needs.
That causes some concern among cultural policy makers, among the cultural community, among Canadians as a whole, because it is very important to all of us not to just invest ourselves in competition for its own sake and lose sight of those other, really important national objectives that we have.
It is our belief that embracing competition and the power of these new technologies does not pose a threat to Canadian creators. We think it is quite the opposite. Whenever new content services have come on stream, whatever they are doing, they have one thing in common: They have a huge need for truly great content in order to differentiate themselves from the other guys. With the world opening up through digital broadband networks, we are finally in a position in this country to overcome some of the industry structure issues that have, so far, prevented Canadian creators from penetrating other markets, particularly in the U.S.
Studios and networks, which have always been an issue for Canadian creators trying to penetrate that U.S. distribution system, will not control the menu anymore. In fact, no one will. As I say, we believe that poses tremendous opportunities. It also poses a challenge for the commission, frankly, because a control-oriented approach to regulation has always been the underpinning, the assumption, that control is possible.
I am afraid that the debate over how we should best control the distribution of visual content is becoming increasingly academic. The question, in our view, really ought to be: What happens when that power to control is no longer there? We very much urge the government and the CRTC to begin embracing competition because of the extent to which it will drive the demand for more Canadian content and, at the same time, to recognize some of the issues that that will cause, and to begin refocusing their content support programs to address those products which perhaps need additional production or marketing support in order to find their audiences.
The sooner we move away from the control of distribution as a major underpinning of the broadcast policy framework, I think, the sooner we will see more delivery sources emerge, and more content production taking place to meet the ever-increasing demand -- and more innovation and investment, frankly, in this critical area of Canada's cultural expression.
I want to address one more example of how continued, inappropriate regulation can have a very direct impact on Canada's international competitiveness. I am sure you are aware that, no matter what telecommunications company you use, a Stentor alliance company or any other, all calls made from Canada to overseas must go through a monopoly carrier called Teleglobe. As a monopoly, of course, Teleglobe is not forced to be price competitive in the international market, with the result that the rates a company like ours must charge our customers are much higher than they would be if we were free to shop around. The Teleglobe monopoly is scheduled to end in October. Through other decisions, we may be able to improve some prices to our customers between now and then. Teleglobe, of course, is doing everything possible to hang on, including appeals to cabinet, and so on, in an effort to protect that monopoly to the last possible minute.
The fact is that this is a clear example of where the lack of market pressure is having a very direct -- and damaging -- effect on the competitiveness of Canadian businesses. The telecommunications costs are an increasingly large part of a business's expenditures annually, and for Canadian businesses, their rates for overseas telecommunications are dramatically higher than their international counterparts.
Conversely, we are optimistic that when competition is finally brought to bear in this service, it will have substantial benefits overall for Canada's competitiveness.
I will now turn back the floor to Mr. Addy, to close the formal part of the presentation.
Mr. Addy: As does any other company, TELUS wants to grow. As we look to the future, we ask ourselves where will we be investing? Where will we develop? Where will we Grow? We will develop and invest where the market is free enough, and the regulatory framework is such that it will allow us to serve our customers best, to earn an appropriate return to our shareholders, and to earn our place in the marketplace based on our business skills and in satisfying our customers.
Frequently, people sort of look at the communications industry in Canada now and say it is all deregulated. We are far from there yet. We have a long way to go. People often turn to the long distance experience in Canada as a demonstration of how the whole industry is deregulated. It is a good example of what a competitive market can deliver, but a whole host of other components of this business are not anywhere close to that level of deregulation.
We urge the committee to continue focusing on market freedom as a primary driver of both the domestic development, which I think creates the foundation for our international competitiveness of Canada, and Canadian industries. We urge you to keep the market in mind as that primary driver, and to consider regulation as an exception as opposed to the norm.
We recognize, and do not challenge, the need for government to focus on social and cultural policy objectives. We endorse that wholeheartedly. We wish to remind those involved in policy making that there are always a host of alternatives available, different tools which you can use to achieve those objectives. We would urge that, in making those choices, policy makers focus on those that will be the least disruptive of the market dynamics, because those are the dynamics that are producing innovation and investment in the community.
With that, Madam Chairman, we at TELUS look forward to continuing to work with government policy makers, Industry Canada, as an example, in developing some of those solutions.
The Chairman: Mr. Addy, Ms Higdon-Norrie, thank you very much for a most interesting presentation. My colleagues are enthusiastic to ask questions.
Senator Rompkey: I have a number of questions. I was interested in what you said about Teleglobe hanging on. We have just gone through some hearings with regard to this very subject. In fact, we heard from Teleglobe yesterday. I am interested in what you say about Teleglobe hanging on, because the impression we get is that they are looking forward to competing in the marketplace. They have no hidden agendas; they do not want to grandfather any contracts, and the CRTC has adequate power to deal with those. Give us your perspective about Teleglobe hanging on.
Ms Higdon-Norrie: The specific instance at hand these days -- and I do not want to drag us down a rat-hole we will never emerge from -- is an issue called switched hubbing.
Senator Rompkey: We have heard about switched hubbing, too. We thought it was a new kind of inter-marital exchange.
The Chairman: I thought it was a dance, so we were all mixed up.
Ms Higdon-Norrie: For those who have not been exposed to switched hubbing, I will try to give you the really simple version.
Senator Rompkey: They explained switched hubbing to us.
Ms Higdon-Norrie: I would have to say that there has been a full and complete examination of that particular component, as to whether or not it fits within the monopoly framework. In my view, it would be a clear example of Teleglobe being able to, in effect, back up the words with an actual position that would be consistent with a pro-competitive market opening -- accelerated transition, kind of approach and, in fact, it is not.
CRTC has made a determination that loosening up the market through a form of switched hubbing would be consistent with a continued monopoly, because we would still be forced to use Teleglobe's facilities for overseas traffic. The issue at hand is what happens after it lands someplace else.
It is inconsistent, I would think, to be taking a position publicly of, "We embrace competition and, golly gee, we cannot wait for the monopoly to end," and, at the same time, to be appealing to cabinet to hang on for just six more months, or whatever it is.
Mr. Addy: I would like to build on that. The reason I asked Lorna to do that portion of the presentation on multimedia is that I tend to get passionate, and she is always trying to tone me down on that issue.
The experience we had on the multimedia and the Teleglobe incidents are indications of how, with the regulatory framework that we now have, there is a great deal of very expensive, very time-consuming and, quite frankly, irrelevant gaming going on. I would much rather shut down the unit reporting to me that handles all of our regulatory work and have all of those people, instead, focusing on the type of things that we are trying to do at the multimedia level, those types of applications such as the Alta Vista initiatives, the SchoolNet initiatives, as opposed to diverting resources, time, money and people to that type of gaming. I will try not to get too passionate about this.
The Chairman: What is gaming?
Mr. Addy: That is the issue that I find most irritating, frankly; the months of hearings that we are forced to go through. Here we are, trying to create in Alberta a multimedia lab, if you will. Nobody has done this in the world. We are trying to develop a technology. We are not trying to take over Shaw or Videotron. We are talking of a thousand households in Alberta, for crying out loud. That is not a lot of homes. We had to go through months of hearings, a cabinet appeal, and we have invested $65 million dollars to date. And it is not over.
As an officer of the company, I have to report to my president and defend with him, and he has to defend with the board of directors, why we are going through this. Why are we doing this? We could take our $65 million and go back to Britain, where we invested a whack of money a few years ago and had a very nice return, thank you very much, and very liberal regulation.
Senator Rompkey: Is it the CRTC?
Mr. Addy: It is not just the CRTC. I have sympathy for the CRTC, frankly, because they are seized with some awfully difficult issues. They are trying to grapple with this transition. The instruments that they have been given with which to grapple with that transition are, frankly, in my view, structured around technology. Technology is miles ahead of that structure, that focus to the legislation.
One of the problems is our continued focus on delivery technology as the way of achieving our social and cultural objectives. If Canadian content is an objective, you know that the Internet is just a massive tool. It is being used by everybody. There is a thirst for content. Demand for content is not the issue, and yet the regulatory framework is designed to address the questions: How do you control that fibre? Who owns the copper, and what is going into the switch?
I think the technology and the cycle-time of technological evolution is overtaking a framework that is designed to achieve our cultural objectives, which I do not contest from a technological perspective, as opposed to what is the real objective here. Do we want Canadian content? Fine. Let us define it and let us see what other tools are available, other than trying to control the pipe, because today you are trying to control the pipe. Tomorrow, there is no pipe; it is wireless. Now how are you to control that? That is the sort of dilemma that we face on a daily basis.
Senator Rompkey: Should we do without the CRTC altogether? Is the CRTC irrelevant in the next century?
Mr. Addy: I would suspect that there are issues. Whether it is the CRTC as you know it today, whether it is the CRTC as it existed ten years ago, I do not know. In all likelihood, there will be a continued need for some sort of body to deal with some of these social policy objectives, although they might not be dealing with the situation in the same fashion. It might not be through a licensing regime or it might not be through controlling the copper over wireless, et cetera, but there may well be legitimate issues there that the marketplace, left to its own devices, may not deliver but, from a public policy perspective, are meritorious.
Senator Spivak: I am not sure I understand this whole business of no control of distribution. I do not know how you can separate it from social and economic objectives. Look at the Microsoft issue in the United States. Unfortunately, in this country, I do not think that the Bureau of Competition exercises the same degree of anti-trust power as happens in the United States.
We have two fabulous success stories in this country: We have the music industry -- which was highly regulated, and remains highly regulated -- and we have the publishing industry. Had it not been for small publishers, we would not have had the flowering of Canadian authors. At least, that is the testimony given by the authors themselves, that they never would have been able to succeed had they not been encouraged by small publishing companies, and that was under regulation.
I am interested in your explaining to me properly why we should not have any control of distribution. I understand that it may not last forever, and that it is difficult to do. When I asked the CRTC person what was the difference, the mandate between the CRTC and the Bureau of Competition, basically the answer was that, eventually, there would be no difference. It was not a very satisfactory answer.
I do not quite understand this multimedia experiment. From what I understand, the CRTC was not happy with your proposal, what you were given permission to do because, in effect, they said that you are offering traditional cable TV. Perhaps you could straighten that issue out for me.
I happen to have read George Gilder's book. He says to forget the digital set-top box. That is not the way to go; it will be via the computer.
Perhaps you could answer some of these questions. It is a bit of a mixed bag, I am afraid.
Ms Higdon-Norrie: I will take a couple of them. I would not presume to try to answer the question with respect to the Bureau of Competition with Mr. Addy present, so I will give him that one.
Senator Spivak: We have had success with regulation.
Ms Higdon-Norrie: We have, absolutely. I could not agree more. Regulation has played an absolutely vital role in moving the Canadian video industry, in all of its facets, whether it be broadcasting itself or production or distribution, to the state that it is today. We would be much worse off in this country, in my view, had we not had a very powerful regulator.
Senator Spivak: We simply would not have had what we have today.
Ms Higdon-Norrie: That is right. We would not have it at all. Our argument really is not that there is anything wrong with that. The issue is, can it hold? Can you continue to assume that tool will be available to you? You have seen today, just from my desktop computer there, what computer video looks like. I would argue that you would have to sort of search to find the difference between that and television.
Senator Spivak: Wait a second. Is that not a desktop thing on a television set?
Ms Higdon-Norrie: No.
Senator Spivak: Oh, sorry, I have the wrong message.
Ms Higdon-Norrie: Let me talk to you a bit about the connection between the set-top box and so on. There was no TV anywhere near this today. This was computer.
Senator Spivak: Was that a set-top box on a computer?
Ms Higdon-Norrie: No, it was just a computer. I intend to straighten out the issue around the digital set-top box one and the multimedia trial as well. My point was simply that, today, this is an example of the kind of thing that, with high-speed Internet, you can do through your computer. There is no television broadcast distribution network anywhere near it.
Increasingly, the world is going toward the broadband networks. All the communications networks are building more capacity. Capacity is the only thing. As the computers gain more high speed, the networks gain more high speed.
If you have an on-demand universe and you can go around the world, and you can essentially find your entertainment wherever you want it, where does that leave a Canadian cultural policy framework that has as its major underpinning an assumption that you can control what comes into the home? That assumption will not hold. We can argue, however, about whether it will hold for two years or five years or ten years. Different people have different predictions.
Senator Spivak: My question to you is, if you can devise this technology, surely someone can devise a technology to figure out how to control it?
Ms Higdon-Norrie: But why? Then we need to have the debate about control.
Senator Spivak: You want to have an industrial strategy in Canada which embraces one of the fastest-growing sectors of the economy.
Mr. Addy: You are starting from the premise that the way to do that is to control distribution.
Senator Spivak: No, I am not. I am only saying to you: Here are two examples that are very successful; show me why this should not be successful in terms of production of content.
Ms Higdon-Norrie: If I may speak about those examples, though, the music industry certainly flourished through a regulatory tool that was quota-driven. The publishing industry flourished under a voluntary system of, essentially, direct support.
Senator Spivak: Those were subsidies.
Ms Higdon-Norrie: There was no regulation anywhere near it. Nobody said, "If you intend to be a publisher in this country, you must have a licence to publish and "x" per cent of your books must be by Canadian authors." It is not a regulated industry. It was a supported industry.
Senator Spivak: It was also regulated. Magazine publishing, things like that, it is regulated. The WTO and the MAI and all of those sorts of things, they are a problem.
Senator Johnson: Could we simplify for one second? Could you give us an idea of what you see as an ideal regulatory framework, based on what you are suggesting? Do you want zero?
Mr. Addy: What is your objective?
Senator Johnson: I want to know what you are telling our committee, because you do not like the gaming, you do not like the hearings, you want few regulations, you want the market to drive everything, and if government wants to put in a few things regarding social and cultural policy objectives, that is fine; there are tools available.
I am a simple person. Just tell me, do you want any regulations?
Mr. Addy: Frankly, I put the question back to you, senator, and ask what is the objective you are trying to achieve? Are you trying to achieve a domestic-based publication industry? If that is your objective, fine. Are you trying to develop a domestic-based film production industry? Fine. Let us define the objective. I do not think we have spent enough time debating what the objective is. I am always amazed that, when calculating Canadian content of a film, the fact that it was catered by a restaurant, a McDonald's restaurant, is quantified as part of Canadian content. You see, that is the type of debate I do not think we have had.
Once we have had that debate and we have defined what we want, then I say let us examine the tools that can help achieve that. There is a whole host of tools. Maybe the issue is to let the market do it. Maybe the issue is let us have a direct subsidy to the producer and let the market determine distribution. You can go the full range up to distribution.
I agree wholeheartedly with Lorna that we are in serious trouble if, as a country, we think that we can keep ahead of the technological gurus in some fashion in developing ways around any type of regulation that you want to put in place.
You mentioned the Microsoft case. There is a lot of debate in the U.S. as to whether or not that is sound. Mr. Klein can challenge that, but people are saying that technology cycles so fast, so what if he is dominant for five years? His technology will be dead in year six and somebody else's will come in, and that is part of it. The situation is not black and white.
If you set your objectives, then I think the challenge is to devise the tool that is least intrusive of the market. Even the CRTC has said that regulation is a second best to the market in delivering efficiencies to the marketplace.
Ms Higdon-Norrie: You asked about the digital set-top box and so on. In fact, that is another example of a brand new tool for the promotion of Canadian content that was not available to us yesterday. It is not actually available to us today until we get the digital set-top box in place. Actually, your description of "lose the box, the thing will be a computer," is absolutely accurate. What we are building is a digital set-top computer. It is based on a power PC.
When we went to the commission to talk about this trial, we told them that what we really want to try out is using this technology to the full potential to see what it can do. Are there new mechanisms here that the technology is providing to promote Canadian content?
When you are on our service, when you come on, you no longer come on to a channel like you do on your TV. You come on to what we call the Navigator, and it gives you all of your available choices. It also gives you a chance to say, "At eight o'clock tonight, I want to watch something family-oriented. What is there?" Your choices will come up, the Canadian ones will be first and they will be flagged. In fact, in every way that you move through the interface, you will be steered toward the Canadian choices. They will be there, and they will be promoted. That is something we never had before.
I find it very frustrating nowadays when I tune into TV. I never know where to find the Canadian programs because everything just has a title in the TV Guide. Unless you know where those programs are, you cannot go there; you cannot find the stuff; you cannot support it. That is an example of the kind of thing we are talking about. What role can that play in the supportive framework?
When we say "regulation", I do not want that taken as a surrogate for government intervention. Regulation is one way in which government can intervene, but there are many others available. Some of them are through the formal or informal partnerships with industry.
We are all working for the same cause here in this country. When we were devising our multimedia trial, we tried very hard to identify and respond to the policy objectives of government, and say that we understand what you are trying to do. We also understand that the world is changing, so we have an opportunity here to help develop some new things that can help you achieve your objectives. Those kinds of partnerships can work.
I think we will always have a need in this country for direct cultural subsidy programs. We have market-sized issues that, especially in some segments of cultural production, perhaps we may never be able to overcome. The greater the extent to which a production is Canadian-specific, the less opportunity it has to recover its costs abroad.
Senator Rompkey may or may not agree with me. I am a big fan of This Hour has 22 Minutes. I am isolating you because of our shared ethnic heritage.
Senator Rompkey: We are the fourth largest ethnic group in Toronto.
Ms Higdon-Norrie: I do not think "22 Minutes" is exportable. If the economics of This Hour has 22 Minutes depended on exports, it would not be going there. It is very relevant; it is very Canadian; it is tremendously important and terrific to see, and it has to be supported here in this economy. Either it will find that support in the market, the cost to match the audience, or we will be doing some kind of direct support, and that is great.
Having been around this field for a long time, my plea to government would be: Let us begin to be truly open to thinking about what are those issues, and what is that basket of tools that is available to us, and let us use them all to their greatest capacity. I live in fear of the day when, in fact, we wake up and discover that control has been taken out of our hands, and that we did not put anything in place to replace it. Furthermore, here we are, scrambling again because we are behind, and other countries are coming at us and we must struggle yet again to find that Canadian niche. That is what I do not want to see happen.
Mr. Addy: Senator Spivak, perhaps I could just correct your impression of the CRTC. They were supportive of our multimedia trial. We got the licence. They supported us. They gave us a holiday, if you will, from the tiering and linkage rules because it was a trial. Where we ran into difficulty with them was on Christmas Eve. In late November, I think it was -- I forget the exact dates, because we had started to roll out our service as a trial in pieces. We had planned to roll out the digital set-top box at a certain point in time. However, our supplier collapsed, so we has lost our supplier, and had to find another supplier, and we did not have the set-top box rolled out as initially planned. The CRTC told us at that time "You are in violation of your licence."
"I am just a poor boy from Missouri" is the expression, but it seems to me a trial licence is just that: It is a trial. Surely, it presumes that you will be bringing forward something new and that you may have difficulties. You may have to shift things around. We ended up having a delay because we had to change suppliers. Thereafter, we ran into a whole harangue, and there is now a process under way before the CRTC because we did not roll out on the date that we had predicted.
Senator Rompkey: The worst thing you can have under your Christmas tree is no Christmas box.
I want to ask about the takeover bid on AT&T Canada, and the reaction from Bell, which feels threatened by the merger. They are suggesting that this could be the end to the Stentor alliance and the provincial phone companies. I wanted to give you an opportunity to comment on that and the future of Stentor.
Mr. Addy: We are not out of time yet, Madam Chair?
Frankly, you will not like the answer. I cannot talk to you about the deal. There is no deal. Discussions are under way right now. For security and a whole host of reasons, I cannot talk to you about that.
However, I can explain that, from our perspective, we are a growth-oriented company. An alliance exists of which we are a member, and the alliance has been working in some fashion for a period of time. Our paramount concern is as we have outlined throughout our presentation: We want to deliver services to customers that they want. We can achieve that by a host of means, and we intend to explore every means of being the most responsive company we can.
Unfortunately, as I said, I cannot discuss the other issue. Suffice it to say that, as yet, there is no deal, but discussions are under way.
Senator Rompkey: AT&T is what, number two in Canada now?
Mr. Addy: No.
Senator Rompkey: How would you rank them? Is it ranked at number three or somewhere around there?
Mr. Addy: I am trying to visualize. I have a chart in my mind. I am trying to translate that into numbers. In long distance, for instance, their share is probably about 7 per cent nationally, somewhere in that order. That gives you a relative share. The Stentor companies, by and large, have the bulk of the market.
Senator Rompkey: Stentor is way ahead.
Ms Higdon-Norrie: The Stentor companies individually are larger than AT&T Canada. TELUS is the third largest telecommunications company in Canada, behind Bell and BC Tel, and you go through a couple of others before you start getting to the long distance providers.
The Chairman: Yesterday in my office, I had my computer updated in exactly the way you talked about today, to make it multimedia and very digital. I was standing behind the technician while he was doing this and he was showing me what he was doing. All of a sudden, on my computer, I was able to bring up two screens with two totally different things. I was able to work up the volume. It was incredible.
Then I thought about the fact that, during World War II, radio was a social medium. With the invention of television, radio slowly evolved as a private medium. When people listen to radio, they do so when they are alone: in the car, in the kitchen. Radio ratings have increased, but our social habits around radio have changed.
With the evolution of the computer, do you think that our social habits around the computer will change? In other words, the computer right now is a private tool, but when I saw it yesterday, I decided that I wanted this in my kitchen now; I do not want it only in my office. I want to be able to use it now when there are a few people around.
Do you think that habit will change? Do you think that our traditions will change?
Ms Higdon-Norrie: The big challenge for the industry as a whole -- however broadly you want to define the industry -- or the bridge we have not yet crossed is somehow getting those different types of extremes coming into the same piece of equipment. That is the fundamental challenge that we have been trying to address with the digital set-top computer that we are trying to build. If we can do that, what you will have on your 12-inch TV or 54-inch TV, all of the choices that are available to you, whatever your social habit is -- just imagine the family with the increasingly popular 54-inch TV. In other words, your choices are not dictated by the fact that that is a TV, and the computer is elsewhere in your home. You can watch ordinary TV, you can watch digital TV, or you can flip straight to the Internet.
Here is something that Canadian services are interested in exploring with us through the trial. You can be watching The Canadian Gardener on ordinary, everyday TV, and have the ability to go straight from that to the Web site, where you might find additional advice about how to plant your peonies, and if you are interested in buying Canadian Gardener logo gardening gloves, you can do that, too. It takes all of those different, disparate bits, whereas right now, we must sort of struggle to find our way through all those different sources in order to bring those in.
The Chairman: Will we be giving it a new name?
Ms Higdon-Norrie: "Multimedia" is kind of boring.
Senator Spivak: How soon will that be available, so that it is easy to use and affordable?
Ms Higdon-Norrie: Perfection, of course, is elusive. We are hoping it will be operational within a matter of a couple of months.
Senator Spivak: You will have a picture quality that is comparable to television?
Ms Higdon-Norrie: Absolutely, yes.
Senator Spivak: What sort of television? High-definition television?
Ms Higdon-Norrie: It largely depends on your television. If you are watching it on your own television set, it will be as good as your TV is today.
Senator Spivak: I still do not understand this. You have this box and that is your computer, but then your screen is your television screen.
Mr. Addy: Exactly.
The Chairman: It is the computer screen, but it will look like the television screen, is that what you are saying?
Mr. Addy: You can use your TV as your screen.
The Chairman: You can use your TV; just hook that up?
Ms Higdon-Norrie: You can just go into your living room. Whereas today, if you want to access the Internet, you must go to something called a terminal, and the computer has a terminal.
Senator Spivak: I was not so far off.
Mr. Addy: You have it. There was just some confusion as to what we were doing today as to the box.
The Chairman: That is why we need to invent a new word.
Mr. Addy: That would be handy. One of the other considerations, Madam Chairman, is that this facility goes beyond typically what we think of as social policy issues, the banking, publication, publishing, et cetera. I am told that if you are enterprising enough, you can actually negotiate a consumer loan with a bank in the U.S. over the Internet. That is in clear violation of our regulatory laws about doing consumer banking in Canada. How do you stop that?
The Chairman: Have you read the article in The New York Times of about two weeks ago, which explored the history of the banking transactions of the last month? It said saying exactly that. It was a very worthwhile article.
Mr. Addy: People are working on voice over the Internet. You can have voice now. If you have seen it, it looks sort of like a stick person. It is staggered. It is not real time. The engineers are still working on that. However, I do not think it will be very long before you will have real-time voice over the Internet now. How then will you tell the difference between the telephone and your computer when you are getting live voice over the computer? Our regulatory framework is not ready for that.
Senator Rompkey: Are you are saying, "Do not try to protect your borders; just support your own people as best you can"?
Mr. Addy: I am saying focus on your objective, and really examine how you are trying to achieve that objective. There was a debate two years ago or four years ago, I forget which, over the satellite dish. We are in a very awkward position there, frankly, with the notion that, somehow, prosecuting individuals who buy dishes is how one achieves compliance. It is very difficult. I am not saying the answers are easy.
Senator Spivak: That is a very good example. It is a good example because the weak point for Canadian films, no matter how good they are, is that they are not distributed and, had it worked, that would have been a fabulous distribution system for our films.
We must regulate it, however. We cannot go up against Hollywood. They have 98 per cent of the market. If we let them come in, they will have 100 per cent of the market.
Mr. Addy: I think it is a good, but for the other reason. You know what happened. You can leave here and drive down to Ogdensburg and buy a dish. The market found a way around that regulation.
Senator Spivak: I know what the market did, but that was because we were slow off the mark, and so was the CRTC.Regulation does not happen fast enough.
Senator Rompkey: The law is never fast enough.
Senator Spivak: Sometimes it is. In music and publishing, it was.
The Chairman: I am afraid time constraints mean we must bring to an end our enthusiastic meeting with you. With your permission, our researchers would probably like to follow up with a few questions, if that would be possible. This has been a most interesting meeting. You gave us a great deal of food for thought that will contribute a lot to our further thinking. We thank you very much.
Our next witness is the Canadian Film and Television Producers Association.
Ms Elizabeth McDonald, President, Canadian Film and Television Producers Association: Before I actually start my formal remarks, I would like to comment on something that Mr. Addy said. In fact, catering costs are not permitted as Canadian content under the tax credit, or under CAVCO. In fact, they are disallowed, as they are for any other tax purposes. I have spent considerable time talking to the Department of Revenue about catering expenses, so I really felt that it was incumbent on me to correct the record.
The Chairman: Ms McDonald is from the Canadian Film and Television Producers Association.
Thank you for appearing today before the Subcommittee on Communications. As you know, early last summer we presented to the Senate a preliminary report called "Wired to Win". In that report we brought forward quite a few questions which have given us extra work in these last few months, and will continue to do so in the future months.
As President of the Canadian Film and Television Producers Association, we would like you to relate to the committee your views regarding Canada's international competitive position in communications generally, including a review of the economic, social, and cultural importance of communications for Canada. Then after your presentation, we would like to follow up with a few questions.
Ms McDonald: Madam Chair, members of the committee, I trust that you will find our perspectives helpful as you begin the drafting of your final report to the Standing Committee on Transport and Communication. We recognize that this subcommittee has limited time for these hearings, and so I will keep brief my remarks on the background and history of the independent production sector. I will concentrate on what I think are the fundamental elements of our position for this committee to consider.
As requested, as part of our submission, I have brought along the association's most recent sectoral profile, which I believe is being distributed. We hope it will help the subcommittee understand more about the details of how our sector operates.
The 1998 CFTPA industry profile documents fairly clearly and concisely how the industry finances itself, as well as outlining its contribution to job creation and foreign trade, and some of the structural changes that are taking place within the industry as it evolves in both economic and cultural terms.
The CFTPA is the national trade association that represents the interests of more than 300 companies engaged in the production and distribution of Canadian television programming and theatrical feature films. Our members include large, diversified publicly-traded companies, as well as many medium-to-small sized companies operating in every region of this country.
Well-known film and television productions such as the Gemini award winning Traders; Due South, Reboot, This Hour has 22 Minutes, North of 60, The Sweet Hereafter, and The Hanging Garden are just a few of the many popular prize-winning productions that have been recently produced by our members.
The Canadian film and television industry has developed into a considerable success story over the past 15 years, with overall revenues from the independent sector alone growing from approximately $200 million in 1983 to over $1 billion in 1995. Revenues for the entire industry, including the production services sector and broadcasting, are currently estimated at more than $2.8 billion annually. As our profile indicates, this has resulted in a dramatic growth in employment opportunities in the sector and increased export opportunities for Canadian production.
The industry supports almost 30,000 direct jobs. I think they are called "above the net" jobs, and we usually say that they are jobs you would like your children to have. I have an 18-year-old, so I would just be glad if he had a job. There are an additional 48,000 indirect jobs. The export value of the Canadian production industry is more than $1.4 billion, and growing. According to the most recently available figures for 1996-97, the Canadian film and television production industry is a $2.8 billion industry.
Despite the commitment of Canadian producers to quality indigenous product for both domestic and international marketplaces, recent figures show that the volume of Canadian production did begin to level off in 1996-97 which has, in turn, meant a levelling off in the number of direct and indirect jobs created by the industry both nationally and regionally.
The levelling off of Canadian production reinforces the crucial need for public support that will ensure a continued Canadian presence on Canadian screens, that can sustain and encourage the creation of highly desirable Canadian jobs, and that will stimulate the export potential of Canadian feature films and television programs.
There is no question that public investment has certainly helped create distinctly Canadian programming for the Canadian marketplace, but it has also made good business sense. Public money enables producers to attract and sustain private investment in Canadian film and television programming. Recent figures from Canadian Heritage's CAVCO office demonstrate that reliance on public funding is, in fact, far more limited than is generally believed, but it still remains a critical component of a producer's financial structure.
According to CAVCO, on average over the past six years, less than 15 per cent of the financing of certified film and video productions was derived from the public sector. These figures indicate that public funding has helped attract and sustain private investment in Canadian film and television programming. Despite some fluctuation, as I said before, it is increasingly a smaller proportion of the total production volume in the sector.
The considerable success that the sector has achieved is important to understand in terms of how the industry has evolved, particularly in the context of the three main themes this committee is considering: globalization, competitiveness, and promotion of Canadian products. One of the main reasons for this has been the dramatic growth in the export value of the industry in recent years. Foreign financing and foreign revenues represent more than $800 million in value for the Canadian production sector. This is in addition to the $600 million in projects which represent location production. To be clear, location production is what is generally called service productions. It is the more polite term.
The growing importance of foreign sources of financing is occurring at a time in which there is mounting pressure from international trade negotiations to liberalize trade and investment. The more funding that can be tapped, the greater the opportunity to increase the scope of individual projects, and simultaneously to sustain a greater number of projects. We would agree that the future development of the Canadian production sector will be closely related to the ability of our productions to find foreign financing partners and greater access to foreign markets, but we never want to do so by undermining our ability to sustain -- and even expand, if necessary -- the existing regulatory and financial support mechanisms that have contributed to this growth.
It will be crucial to establish and hold Canadian positions in trade policy that sustain the existing regulatory and financial support mechanisms without compromising access to foreign markets by official co-productions or joint ventures or sales.
This committee should consider how the industry has evolved. This means paying particular attention to the essential role that public policy and programs have played in our growth. A fundamental aspect of this policy has been the commitment to a system of national objectives and regulations for broadcasting and the feature film industry. Central to these have been the importance of Canadian ownership and Canadian content, detailed in the Broadcasting Act and CRTC regulation. Virtually all major producers operating today would admit that they are in business largely because of the CRTC and the Canadian government's commitment to ensuring a demand for Canadian content in the system.
Because of the difficult economics of producing programming that can compete with relatively inexpensively acquired foreign programming, the government has also developed a significant body of funding programs to assist the creation of Canadian content production. Agencies such as the National Film Board, Téléfilm Canada and, most recently, the Canada Television and Cable Production Fund, have played, and continue to play, a key role in assisting the financing and distribution of Canadian film and television production.
The government has also maintained a generous system of capital cost allowances and tax credit measures over the past 20 years to encourage private investment. These programs have maintained flexible Canadian content requirements that both encourage investment and corporate development in Canadian production while also encouraging foreign sales.
The Investment Canada Act has helped ensure that transactions involving Canada's culture are treated by different criteria from transactions in other sectors. Foreign investment policies for certain cultural industries have also placed very specific conditions on investment in some sectors. In the area of film distribution, for example, government policies have played a key role in helping Canadian film distributors strengthen their market share and their ability to invest in the financing and promotion of Canadian feature films. The policy has been controversial, there is no question, especially recently, but we would maintain that it has proven to be effective.
We would also maintain that all of these measures have been, and will continue to be, essential to the continued development of the sector. The rationale for why these policies evolved has really not changed, and perhaps is more relevant than ever. In the film and television sector, Canada is, in fact, very open to the audiovisual products of other countries. No one has seriously maintained that Canadians should not have access to these products, or that they be restricted in any way.
However, it has been generally true that distributors of foreign-owned productions have never been strongly interested in financing the creation of Canadian production. If Canadians are to have any access to quality programming created by themselves and reflecting their reality, then a variety of special measures may need to be put in place to encourage that. This is simply a basic reality of the film and television industry.
As our industry diversifies, foreign sales have increased and we have become more confident of our ability to expand into foreign markets, but we have not lost sight of the fact that the reason we exist as an industry is that basic government policy has ensured a vital Canadian presence in our own domestic market, largely by encouraging the development of a vital, Canadian-owned production industry.
To contextualize these comments, we believe it is critical that any consideration of measures to improve access to global markets, improve competitiveness and promote Canadian products should not limit or circumscribe the government's ability to pursue any measure it deems appropriate to support its policy for culture and cultural industries and cultural expression.
In terms of globalization and competitiveness, the Canadian production sector has been aware of the importance of foreign markets and foreign partnerships for a long time. Market economies have been determined by the major U.S.-based studios who routinely spend upwards of $1.5 million for an hour of TV drama, and average $35 million for a feature-length film. These products are readily available everywhere, on screens and television, by cable satellite and conventional broadcast. Increasingly, they are the competition for all the world's industries.
This has been the reality of the Canadian producer since the 1960s: how to compete, how to finance productions that can compete, and find a market domestically and internationally. As we have seen, government policy has helped tremendously, but we have also seen that public dollars are a diminishing piece of that financing puzzle.
Increasingly, foreign partners and foreign sales are critical to the growth of the industry, but they have always been a reality for production financing. Canadian producers learned early that foreign sales were critical to the financing of quality production. They developed relationships with foreign broadcasters, distributors and sales agencies through the well-defined system of foreign television markets: MIP, MIPCOM, NATPE, the Cannes Film Festival. Foreign revenues make up a larger proportion of Canadian producer revenues every year.
Canada has also led the way in the area of co-production agreements which provide a flexible framework for producers from different countries to work in partnership and find access to a wide range of foreign markets. Co-production is a model for how the Canadian industry can reach global markets in a mutually beneficial way. Key to developing an industry is to retain control of production exploitation. To do that, the key is partnerships and joint ventures, where larger production costs may be covered, but a key body of distribution rights are retained for future exploitation because, in the end, what a producer owns is rights.
Promotion of Canadian products: New strategies for the development of new and improved mechanisms for the promotion of both Canadian television programming and feature films are critical to Canada's indigenous production sector. Our association is currently meeting with the members of both the Canadian Association of Broadcasters and the Specialty and Premium Television Association in anticipation of upcoming CRTC hearings scheduled for late this summer that focus on Canadian content in television programming. Our aim, collectively, is to develop new concepts that will enable more and better programming that will attract bigger audiences and prove Canada's export potential.
In our discussions with both the CAB and SPTV and other interested parties, including the CBC, we believe that promotion is one of the essential tools we need for Canadian television as it becomes increasingly more multi-channelled. In addition, one of the key issues that we will want to be pursuing in the recently announced review of Canada's feature film policy will be the issue of promotion.
As our profile clearly states, Canada has fallen behind the progress of other countries in developing strategies to assist their future film industries. Great Britain, France and Australia are already implementing such strategies, having recognized a need to play a much more direct role in supporting their feature film industries in order to strengthen domestic control over the production, distribution and exhibition sectors.
In Canada, approximately 24 feature films, the majority of which have average budgets of less than $3 million, are released theatrically each year. That is bad enough, but when you consider that the average marketing budget of the foreign films against which we are competing is about $20 million U.S., you can see the role that promotion plays in terms of the future of Canadian feature films.
The Department of Canadian Heritage has recognized this need in its announcement of the feature film review. There are no substantial reasons why Canadian feature films should not attain at least a similar level of success as that currently enjoyed by our television broadcasting, music and publishing industries.
As you are aware, the first round of public consultations on feature film are already under way. The association is hopeful that this study will result in the development of proactive policies aimed at increasing the production of quality, distinctly indigenous films and films which can compete in the global market.
We want to improve the theatrical presence of Canadian feature films at home and abroad through improved distribution and marketing strategies, and we want to develop greater synergy among the various sectors of the industry so that we can all work together for a more productive future. Central to these strategies must be financial incentives designed to promote both domestic and foreign investment in Canadian feature films. In addition, the tax system must be made more conducive to increased domestic production. The new federal Production Services Tax Credit, for instance, benefits foreign producers as much as, if not more than, our own producers. Recently, it was determined that new legislation regarding the CTCPF categorized the licence fee top-up program as direct assistance, and effectively decreased the actual contribution to the producers' financial structure by a significant amount.
In conclusion, while we appreciate the commitment that the government has made to our sector, we believe that the film and television industry requires its continued fiscal and regulatory support if it is to compete in an increasingly global environment. We are, after all, working against the largest entertainment machine in the world south of the border, and the competition that our industry faces in many ways is more significant than many other Canadian industries. This support must include more resources for the independent production of quality Canadian product and the development of policies which will promote that product both at home and abroad.
I thank the committee for this opportunity to appear today, and I will be pleased to answer any questions you may have.
Senator Rompkey: I would like you to comment on the "carrot and stick," I suppose, of government policy, the stick being the regulation and the carrot being the financial incentives, whether they be tax breaks or whatever else.
I see the point that you have made with regard to government support in the past and how important that is, even though it may be receding in ratio to private support. It is evident, too, that Canadian productions are doing better and getting into not only our marketplace but also other marketplaces.
I can see that there should be some funding that continues, whether it be tax breaks or other incentives, but how do we continue to hold the regulatory mechanisms in view of the global marketplace? It seems to me that, in the paragraph on page 5 of your remarks, there is some inherent contradiction. You say:
It will be crucial to establish and hold Canadian positions in trade policies that sustain the existing regulatory and financial support mechanisms, without compromising access to foreign markets...
Surely, if there is a liberalization, it has to be a two-way street. How can we liberalize and protect at the same time? I am not quite sure how we do that.
Ms McDonald: I am not quite sure that I have all the answers, senator, but I think, first of all, we should take a step away when we are talking about globalization. Globalization does not mean Americanization. I think we often make that mistake of interpreting everything by the ruler of the American marketplace.
We have a very open market. Now that we have the Golf Channel, I am certain that there is nothing missing from the television landscape.
Regarding feature films, I just came back from California and, quite clearly, we have everything that is available in Los Angeles. I think our marketplace is open, so I think perhaps we must look for measures that will ensure a place for the Canadian product.
As we consider our trade policy, we must also look at where our partners are located. Europeans are increasingly concerned, whether it is within the European market collectively, about ensuring a place for their product. Australians have Australian content, and that is just ensuring a place.
I think we must move away from the way in which we look presently at regulation as being some sort of evil stick, as you said, and begin to look at it as ensuring a marketplace. What we are talking about here is not that other markets and their products should have restricted entry into Canada, but ensuring that we have fair access to our own marketplace.
We have some interesting inequities in the system. For example, we have a number of U.S. specialty services available on cable and satellite. People enjoy those. When I was working for the cable industry, Arts & Entertainment was available to 5.5 million cable households at about 35 cents per subscriber per month, and people enjoy the Arts & Entertainment programming. However, they are using that as a lucrative market to cream off the top because they certainly do not need it. It is just pure profit. They are taking it out of Canada and putting it wherever, and occasionally putting some money into the Banff Television Festival, but the reality is that they are not putting anything back in.
Such U.S. services are allowed to come in here, and in some ways it is easier for a U.S. service to come into Canada than it is for Canadian services to operate, given the Canadian content obligations. Canadian services must undergo a much more onerous process. I am not quite sure where the carrot and stick actually exists. People forget that, in terms of the amount of American programming on the market, and the amount of feature films. Trust me, I know. I have only been back in Canada two days. Primary Colors opened here in Canada, and it opened in the United States at exactly the same time. There is no feature film that you can get in L.A. that you cannot get here. Sometimes, in Ottawa, there is a delay of a couple of weeks, but I can assure you that it is there in Toronto and Vancouver. I think that is important when you look at the situation in that way.
Other partners in Europe and other countries want to ensure a marketplace. That is all that regulation does; ensures that Canadians have fair access to their own marketplace, so that can be the first stopping place towards the world market, or it can be the only stopping place. For a program such as This Hour has 22 Minutes, which is not an expensive production and therefore they can actually recoup in this market, they do not make the great foreign sales, pre-sales.
Senator Rompkey: People cannot understand the accent, I bet.
Ms McDonald: No, that is actually not the problem, senator. In fact, Michael Donovan, who is a member of our board of directors, has figured out that if he could not sell the product, he could sell the concept internationally. We are fairly entrepreneurial about that.
We do not expect to see foreign producers and foreign distributors shut out of this country at all. That is not what we are saying. All we are saying is, with only 15 per cent access to our feature film market and with very little you could think of that is not available on our Canadian television dial, let us make sure that we retain the regulatory measures which allow Canadians access to their own marketplace. That is the issue.
Senator Johnson: My first question is with regard to Britain, France and Australia. You were saying that they are implementing strategies to play a much more direct role in supporting their feature film industries. Can you tell me something about those?
Ms McDonald: I am actually a little worried about answering that question in front of Mr. Fraser, because I know he has done postgraduate work in that area.
In Britain, I think we are seeing more changes with this present government. They have the lottery system and they are putting a lot more money into the creation of a feature film industry in that market. There is a decided change in the meetings I have had with public servants in the United Kingdom. The money is available and the opportunity is there. They are putting more money into the system and trying to create an industry as well as just the productions.
In terms of France, one of the most outstanding areas is the amount that broadcasters are expected to put into the feature film industry. We have outlined that in the study, but it is quite dramatically apparent that without the direct investment of the broadcasting industry, there probably would not be a French feature film industry.
In Australia, both state programs and national programs combine together to create stimulation for Australian product and to try to market it, and they actually test a lot more out. In that regard, I guess we all look to Shine, but that was last year's success. We can look at The Sweet Hereafter and say that that is this year's success.
Certainly, when I meet with my international colleagues, it is apparent that what is happening is that countries are putting in more supply-side measures in an attempt to try to create the product. In some countries, there are quotas for product entry into theatres. However, at this point I am not sure that that will be where the future is. It will probably be more on the supply side in trying to create the product.
Senator Johnson: One of the reasons I asked the question -- and I know my friend Mr. Fraser is an expert, too -- is that in my part of the world, in Manitoba, which has developed a nice little industry of its own, there is an increasing trend among producers, especially CREDO, that they have just stopped trying to get any money out of Canadian sources because they can get it more easily in the United States. They do a lot of television work, as you know, and they have done some films. In terms of both attracting work there and getting money for production, they are finding that, as they get bigger, it is easier to just go the American route. This troubles, me because I really believe we must shelter the industry, to a certain extent, but I think we need regulation as well. Is this the case everywhere?
Ms McDonald: I know people from CREDO quite well. I think we are in a very strange position right now. At the moment, with the Canadian dollar where it is, it is very attractive for American interests to use Canadian producers. Canadian producers are top quality. We have excellent crews. We can produce the stories, and we can do it on a 70-cent dollar, perhaps a 68-cent dollar. That is one issue that is very important. In addition, we have a calmer labour front; we have a similar geography; we have excellent communications. We have all the infrastructure on a 68-cent dollar. That is the first part.
Senator Spivak: It is 70 cents.
Ms McDonald: Is it 70 today? I have sort of lost track. It is bad when you are in the United States and you are watching your dollar go down.
The other thing is that this government recently put in a Production Services Tax Credit, and that is fine because that certainly keeps the industry infrastructure going, but it is a far easier tax credit to access than the tax credit for indigenous production. Having looked at both of them, and looking at the money available from the U.S. market and the opportunity available to the Canadian producer, it is difficult to restrain yourself, to say no to that.
The problem is, if the dollar ever goes up, then that can go away. Also, other countries, as they develop their infrastructure, are starting to compete. There are states that are trying to compete. It becomes a somewhat difficult business strategy and, in the end, you do not continue to hold the intellectual property. The product you create with the after-sale does not always stay with you.
I am not surprised that Canadian producers are taking those funds. The Americans like to work here. The money is excellent and certainly, as a board member of the CTCPF, because we got it renewed and we are very grateful to this government, but to make the same amount of money work on an annual basis over a greater number of channels, we have had to make the guidelines more challenging. All of that means that putting together a financing structure for Canadian production is that much more difficult. It is good business for accountants, though.
Senator Johnson: Did you read Atom Egoyan's remarks from Hollywood during the last week of the Oscars? I think what he said is probably, to me, the essence of the issue. He said he could never have made The Sweet Hereafter in the United States. If we can continue as a country to foster the kinds of productions that he has done, and that quality, then I think that is where our film industry wants to go. We cannot make a Titanic, but we can make a Sweet Hereafter. Mr. Egoyan went into detail as to why he could not have made it down in the United States. It would not even have hit the theatres.
Ms McDonald: Exactly. It is just starting to hit some theatres there now.
Senator Johnson: To me, ultimately, that kind of production is what our film industry should be into in this country. Do you have a comment on whether quality is what we should be aiming for? We are not about to become huge, let us face it. Do you think the sort of things that you have suggested in your remarks, will also help us to preserve that quality?
Ms McDonald: In terms of Canadian feature films, in my opinion we must find a synergy between the different sectors: the distribution sector, the production sector, et cetera.
Mr. Egoyan has been very lucky. He has had a great, creative relationship with Alliance Communications as his distributor, and that has worked very well. He is extremely talented, and he was able to do with less than $5 million what would be a real miracle in the United States.
I think we must find ways to encourage the development of young film makers because Mr. Egoyan would not have succeeded without the help of some of the programs that were available through Téléfilm Canada, and through the Ontario Film Development Corporation. As he became more experienced and had some commercial successes, it has been a good business deal for Alliance.
On the other hand, one has to look at that distribution sector, which is the key to getting into the theatres, and ask what do they need. At the moment, that is the kind of discussion we are attempting to have within the feature film policy review.
We must also recognize that if every European country or large multinational company continues to go after some of the investment policies, then we are always in debate. We might not be able to move forward. I think we are trying to be constructive about that but, on the other hand, trying to hold on to that 15 per cent of the market and, at the same time, encourage the development of young film makers and their creativity, I do not think there is room for very much of that in the United States. It is really the blockbuster that they are looking for, so there is a challenge here.
The Chairman: Ms McDonald, can we come back to you if our research team has extra questions?
Ms McDonald: Surely. There is absolutely no problem.
The Chairman: Your paper was really interesting. We are sorry we do not have more time because what we are discussing with you is extremely important.
The committee adjourned.