Proceedings of the Standing Senate Committee on
Transport and Communications
Issue 11 - Evidence for February 23, 2005
OTTAWA, Wednesday, February 23, 2005
The Standing Senate Committee on Transport and Communications met this days at 6:21 p.m. to study the current state of Canadian media industries; emerging trends and developments in these industries; the medias' role, rights and responsibilities in Canadian society; and current and appropriate future policies relating thereto.
Senator Joan Fraser (Chairman) in the Chair.
[Translation]
The Chairman: Honorable senators, welcome to this meeting of the Senate Committee on Transport and Communications. We are continuing our study of Canadian news media and the role government should play in helping the media to remain strong, independent and diversified against the backdrop of disruptions that have affected this field over the past few years — including globalization, technological developments, convergence and concentration of ownership.
[English]
This evening we have the pleasure of welcoming Mr. Glenn O'Farrell, the President and Chief Executive Officer of the Canadian Association of Broadcasters. The CAB is a professional industry association that represents the vast majority of Canadian programming services — television, radio stations and networks, and speciality, pay and pay- per-view television services. The CAB was established in 1926 and has more than 600 members.
Please proceed, Mr. O'Farrell.
Mr. Glenn O'Farrell, President and Chief Executive Officer, Canadian Association of Broadcasters: Thank you, Madam Chair and members of the committee for this opportunity to appear before you to share our views and to answer any questions you may have about our submission.
The last review of the media in Canada by a committee of the Senate was, as you know, chaired by Senator Keith Davey in 1970. Senator Davey's committee received 500 briefs and heard 125 witnesses over the course of two years. In his memoires, Senator Davey reflects on the importance of that committee's work, which was, in his own words, to ``determine whether we had the press we need, or the press we deserved.'' It was a crucial question in 1970.
[Translation]
And no less crucial today, as 35 years later, Canadians have direct access to more television and radio stations, more newspapers, more magazines, more news and more varied sources of information and entertainment than would have been conceivable 30, 20, or in many cases, even 10 years ago.
[English]
Today, private broadcasting in Canada is a $5 billion industry employing over 21,000 people. We have over 600 private Canadian broadcasters and twice as many indigenous services per capita as there are in the U.S., headquartered from St. John's to Vancouver. We invest in over 90,000 hours of Canadian content every year. In 2003-04 alone, $482 million was spent on independent production, a 150-per-cent increase in 10 years, and we broadcast in over 40 languages every week. That is a snapshot of what our members do.
We are a town hall, a store front, a library and a bandstand in every community across the country.
Over the course of 20 months of hearings across the country, this committee has heard testimony from more than 220 witnesses relating to every conceivable form of media — television, radio, magazines, newspapers, sound recordings, books and films, as well as the Internet, a medium undreamed of when Senator Davey did his work in 1970.
What is the role of Canada's private broadcasters in today's crowded media landscape? Again I quote your predecessors whose final report noted, with respect to the importance of broadcasting, ``...no other communication medium has had this charge laid upon it by an Act of Parliament: 'to safeguard, enrich and strengthen the cultural, political, social and economic fabric of Canada.'``
It is a charge that Canada's private broadcasters take very seriously and one in which they invest creativity and capital on a daily basis.
[Translation]
The interim report of this committee reflects a wide range of views with respect to whether or not the media in Canada are concentrated. I would draw particular attention to the quotation in your interim report from Mr. Charles Dalfen, chair of the CRTC, who noted that the commission had conducted research.
[English]
...research on a 10-year period, 1991 to 2001, in terms of media concentration in the four major markets in Canada. In every case, in practically every medium, you will find that there are a larger number of owners and a larger number of broadcasting and newspaper outlets over that 10-year period. Even though it may sound counterintuitive, that, in fact, is the case when you focus them in.
We have attached to our submission an appendix titled ``Broadcasting in Canada — then and now,'' that provides a statistical overview of the media in Canada in 1970 and today for your reference.
While I will review the conclusions of that analysis in a moment, I want to highlight one of the broad results of that study — just how very different the broadcasting environment is today compared to 35 years ago.
In 1970, Canadians could choose from one of two Canadian television networks. In English it was CBC or CTV; in French it was Radio-Canada or TVA. Only one in five Canadian households had cable TV. For Canadians outside the largest urban markets, radio was limited to one or two mainly AM stations.
Now, 35 years later, Canadians can choose from more than 100 TV channels. FM radio has grown to add many more choices for Canadian radio listeners, and soon subscription radio will add many more.
When CHUM Limited made its presentation to this committee in April 2003, CEO Jay Switzer included a snapshot of the media menu in Ottawa — then and now. It is worth reviewing that snapshot because it illustrates just how far we have come in terms of providing Canadians with a vastly increased menu of entertainment and information choices.
Twenty years ago, if you lived in Ottawa, you would have had access to seven commercial radio stations — three CBC/Radio-Canada radio stations, a CBC TV station in English, a Radio-Canada station in French, a CTV station, one French language TV affiliate, one daily English and one daily French newspaper and one national newspaper.
Today we have 10 commercial radio stations in Ottawa, three CBC radio stations, local CBC/Radio-Canada TV stations in English and French, a local CTV station, a local CHUM TV station, a TVA and a TQS affiliate, two local English newspapers, one local French newspaper, two national newspapers, over 100 Canadian specialty and pay television services, over 30 foreign and third-language television services, not to mention countless sources of daily international news, information and entertainment available over the Internet.
Simply put, there are more media ownership groups active across Canada today than there were 20 or 30 years ago. The broadcasting sector in particular is less concentrated today than at any point in time in its history.
[Translation]
The expansion of ownership and outlets in the broadcasting sector has taken place against an ever-changing regulatory backdrop.
The history of Canadian broadcasting has been the history of a regulated industry, balancing public and private components, and balancing our ability to tell Canadian stories in an economic reality dominated by a global entertainment industry.
As a result of changes in technology, that balance is shifting — and shifting rapidly.
[English]
I could, of course, produce a list of issues that demand up-to-date regulatory attention. I am not sure you would appreciate that, but they would range from copyright reform to signal theft to the ongoing and expensive transition to digital television and digital radio broadcasting. When we analyze this list, we find most of these issues relate to two fundamental trends that private broadcasters in Canada must confront and accommodate in their day-to-day operations and their broad strategic planning. One is fragmentation, and the other is the erosion of traditional borders. Alone, each of these issues would be complicated and difficult, but they are happening at the same time with a compounding effect. Let us start with fragmentation.
More channels means more choice and more opportunities to tell Canadian stories and reflect Canadian diversity, but more choice, a synonym for fragmentation or fractionalization, also changes the economics of the industry. As fragmentation divides the market into smaller and smaller slices, the relative share of resources available to any single outlet is reduced. One of the consequences of the vastly expanded menu of broadcasting choices in Canada over the past generation is that our fragmented market makes it more difficult to do local and expensive dramatic programming. This is the economic reality that this committee must take into account, in our view.
The economic impact of fragmentation in the Canadian broadcasting market is significant, and that impact is made even more significant when combined with the effect that new technologies are having with respect to the erosion of traditional borders, the second point.
As the media business in general becomes increasingly international in scope and sophistication, we are seeing even more fragmentation within the Canadian market as a result of an increasing number of foreign television channels coming into Canada. Combined with the black and grey market in television services, expanding Internet distribution and peer-to-peer file sharing, the degree of fragmentation in the broadcasting market is increasing on practically a daily basis.
The erosion of borders adds a further dimension. It disrupts the copyright system on which the broadcasting industry is based. The extension of unauthorized distribution impedes the rights of copyright owners who are authorized in each market, and peer-to-peer file sharing of programming has the potential to eliminate the value of legitimately acquired programming rights. We urge this committee to recognize that Canadian broadcasters go to work every day in a world in which consumers not only receive media content but they also produce it, copy it and distribute it with or without the permission of the copyright holder.
The degree to which fragmentation and the erosion of traditional borders is changing Canadian broadcasting can be illustrated by understandings the economic value chain in which Canadian television and radio operate. As the data in our written brief indicate, revenue sources and market shares have themselves fragmented over time. For both radio and television, the volume of new choices, the different types of new choices and the ability of consumers to copy, produce and distribute programming have all made the value chains far more complicated than they were the last time a committee of the Senate considered the state of Canadian media.
The changing value chains are illustrated in detail in our written submission. I had one of those charts enlarged. It hangs over my desk. It reminds me every day that the broadcasting industry when I entered the office in the morning is different from the broadcasting industry I encountered earlier that day, and it will be different again tomorrow. It is a value chain that seems to keep track of things, for me at least.
If we compare the value chains today to those in 1970, what has happened? What has changed? Where are the pressure points, and what are their effects on the ability of broadcasters to produce Canadian content? The growing ability of consumers to move digital content from traditional distribution to peer-to-peer file sharing adds to content producers' and broadcasters' concerns about copyright protection.
Another change is the increased ability of advertisers and consumers to link up with each other, bypassing the traditional broadcasting model.
In 1970, content producers dealt primarily with broadcasters, whereas in today's fragmented market, content producers seek alternatives — direct delivery of content to consumers, mergers with broadcasters or launching their own programming services.
In 1970, advertisers dealt primarily with broadcasters, but by 2005, cable companies and others have applied to the CRTC for permission to sell Canadian advertising in competition with broadcasters.
In 1970, broadcasters were the sole proprietors of the middle links in the value chain: between producers and viewers, and between advertisers and consumers. This is clearly no longer the case.
[Translation]
It is evident from the brief description in this presentation, and from the detailed data in the CAB's written submission, that the business model for Canadian broadcasting has changed, and will continue to change.
[English]
The models which essentially carried Canadian broadcasting from the 1920s to the 1970s bear little resemblance to the business models of today and will bear little resemblance to the business models of tomorrow. Today, broadcasters operate in a highly decentralized media environment characterized by more choice and more sources of information and entertainment than anyone probably thought possible in 1970. Yet it has become an article of faith amongst certain commentators and observers that Canadian broadcasting has become more concentrated over the past generation. Seldom, however, is that assumption put to any scrutiny. Simply counting the number of outlets operated by any one owner in one part of the overall media market tells us nothing about the overall amount of diversity in the Canadian media market. We must consider the sheer volume of fragmentation in the broadcasting market today, because there has been not only an increase in the number of broadcasting outlets but an increase in the number of owners and operators of those outlets, each of which reaches smaller audiences today than at any point in the history of our broadcasting system.
A ``concentrated'' broadcasting market in Canada would imply that Canadians, as a pool of consumers, receive common information from a common pool of sources. This is clearly not so.
[Translation]
I refer again to the statement by the chair of the CRTC, quoted in this committee's interim report, to the effect that there is a larger number of owners, and a larger number of outlets today than there were in 1970.
[English]
To that, I would add that each of those outlets is generally achieving smaller audience shares today than at any point in the past. Fragmentation, whether we like it or not, is the new reality of Canadian broadcasting: more choices, more voices, and smaller audiences. As Mr. Dalfen stated, it may be counterintuitive, but the numbers do not lie. However, in many circles we continue to hear assertions about increasing concentration in the Canadian broadcasting market, assertions that simply do not stand up to empirical analysis, and that simply do not reflect the economic reality of fragmentation within the Canadian broadcasting industry today. It is important for this committee to understand that where broadcasters have consolidated their holdings, and there has been consolidation, it is in response to the current trends in broadcasting and fragmentation and the erosion of traditional borders. It is a response to fragmentation as broadcasters seek to maintain economies of scale in the face of fragmenting resources. It is a response to the erosion of borders as broadcasters seek to re-aggregate audiences that have been splintered by the increasing volume of American and other foreign channels in our broadcasting system. It is a response to the evolution of our country that has led Canada's private broadcasters to spearhead an unprecedented initiative to deal with the fair and accurate portrayal of Canada's cultural diversity on television screens.
The CAB has tabled a comprehensive cultural diversity action plan with the CRTC, and has created the cultural diversity task force comprised of members of the broadcasting industries and cultural community groups to sponsor research, identify best practices and help define issues and present practical solutions to the broadcasting industry. As Canada has evolved, so has this industry called broadcasting.
Today, Canadians have more programming choices from more sources than at any other point in our history: increasing Canadian choices, increasing international choices and shrinking audiences.
Today, Canada's broadcasting companies have to compete for every viewer, every minute of every hour of every day. Unlike, in 1970, when a few U.S. border stations were available to anyone with a strong enough antenna, today that competition includes the world's largest media conglomerates.
[Translation]
As the Lincoln report observed in 2003, Canadian broadcast groups are, by international standards, not that large when compared with the world's top audiovisual companies.
In fact, none of Canada's media companies appears on the list of the world's top 50 audiovisual companies, as established by the European Audiovisual Observatory. Moreover, the budgets of any of the top three international audiovisual companies on that list dwarf the combined budgets of every private broadcaster in Canada.
[English]
To stay competitive in this super-fragmented media marketplace, Canada's private broadcasters must be super efficient and must take advantage of every opportunity to maximize the benefits of the content we produce. I hope that this committee, in considering the question of media concentration, will bear in mind the data presented in our brief, and also that fragmentation is the cause, consolidation is the effect.
Senator Tkachuk: Thank you. I wanted to ask about the news media, in particular in the broadcast industry. Are there more or less journalists working in radio television today than there were 20 or 30 years ago?
Mr. O'Farrell: I do not have the actual employment numbers in front of me, but if you go on the basis of the number of outlets and the number of operators that are running those outlets in more communities with more choices, one would have to assume that the answer would be a resounding yes.
Senator Tkachuk: Are there more people employed in the industry?
Mr. O'Farrell: The numbers we have are there are approximately 21,000 people employed in broadcasting in Canada today. I am not suggesting that all of those are attached to the editorial or journalistic function of a newsroom, or of news gathering. I do not have that breakdown.
Senator Tkachuk: When you were discussing, in your presentation, the copying of product, you were talking about the music industry and you were talking about other copyright infringement. What exactly do you mean by that?
Mr. O'Farrell: Thank you for asking that, because it is one of the new challenges that we are facing. Frankly, the answers to the question are not all that clear. The problem is clear and it is that essentially, as copyrighted content — be it music, audio or audiovisual — becomes digitized, as people have access to digital copies of audiovisual or audio material, it is possible to duplicate it and distribute it in a way that nobody really considered possible not all that long ago. If you think of consumers of media today, consumers are no longer passive consumers, they are very interactive. In fact, they are producers of content themselves. They will receive video files, they will receive JPEG files, they will receive any number of files, via the Internet, of material that is copyrighted, and will reproduce it or repurpose it and distribute it.
Senator Tkachuk: You are talking of programming, news, or video?
Mr. O'Farrell: All of the above.
Senator Tkachuk: You see that as competition to the television station that produces it. How does that affect the TV station's ability to operate?
Mr. O'Farrell: Exactly.
Senator Tkachuk: I need this clarified.
Mr. O'Farrell: I might not be of much help, but I will do my best.
If you go back to an age where there was no digitized content, what a television station in the Ottawa, Calgary, Montreal, Vancouver market produced for its six o'clock newscast was its exclusive property. It distributed it by way of transmission, which was over the air. That transmission could be captured by cable or satellite and distributed to consumers. In large measure, it was still exclusive and unassailable in terms of the ability of third parties to acquire it for other purposing. Yes, people could make VCR copies at one point in time as technology evolved, but not to the point where, today, so much can be simply downloaded, because of its digitized versioning, and repurposed in any number of ways without the permission of the original copyright holder. The capital and operating expenditures that are required to produce content today, be it news or any other form of television content or, for that matter, audio content from a radio perspective, can be repurposed because of the digitized capacity that consumers have access to. They can take that content and do what they wish to do with it; either share it with friends or distribute it at large, all without ever seeking the permission from the copyright owner. To speak to the core of your question of how it impacts the business, you lose control of your property right over that content. It is used, distributed, duplicated and copied by any number of people without having any control or ability to control what use is made of it.
Senator Tkachuk: Let us just discuss radio, and hopefully one of the other senators will discuss television. For radio- station broadcast music, it already belongs to someone else: They pay a fee to the publishers and someone captures that music. Do you see the people who capture that music and then relisten to it as competitors to the radio station, or how does that affect the listenership of that radio station? They could buy the CD or make a copy of the tape, et cetera, before, so what effect does that have on the radio station?
Mr. O'Farrell: Let me give you an example. More and more morning shows on radio are using a variety of content, which includes music, news, information, weather, but there is also now a lot of humour in the morning. The teams that produce those morning shows are writers, producers and talent on air. They prepare scripts, they prepare sketches; they are writers of content. Ultimately they produce their content. A good example that comes to mind is RadioÉnergie in Montreal and across Québec that has a million listeners per week listening to their afternoon show called ``les grandes gueules.'' That is original content that a lot of people are listening to that costs a lot of money to produce, but it is available and people can download that and take that content, which is nothing short of stand-up comedy, and repurpose it in whichever way they choose. They would have no entitlement to it if they did not pay for the use of it. People who listen to it again are not competing, but people who take the content diminish its value by virtue of the fact that the owner loses its exclusivity for other uses that the owner may have for it. That is where the problem exists or begins to exist. That is the best radio example I can give you, because we all know that writing content, whether it is dramatic, news or humour, requires a lot of skill. The skill and the payments involved to acquire that skill and to acquire that product — ultimately, that the radio station has invested in for the purpose of achieving an audience — when it is broadcasting that show are all fine and well, except that once it is transmitted and broadcast. Once it is broadcast, the owner's ability to maintain any control over it is lost because of the digitization of that content that people then use in whatever way they see fit.
Senator Munson: Good evening. You talked about fragmentation. How is anybody surviving? Are profits less for all these companies? Is there a danger that some of these companies may go under?
Mr. O'Farrell: If you look at the companies that are publicly traded now, which information is publicly available, no, none of them are in, or on the verge of, bankruptcy. How did they achieve their current financial condition — as I tried to point out, largely in response to consolidation. As the market shares became smaller and smaller, and their ability to maintain profitable levels, or sustaining the operations became more and more challenged, people consolidated their businesses to aggregate more audience segments to have the critical mass that they once had by way of fewer outlets than they have to own today. The answer to your question is: They are, for the most part, healthy, although there are exceptions at both ends of the spectrum. Overwhelmingly, they have maintained their overall financial health by way of consolidation, which we have seen in the past 10 or 12 years to have been the phenomenon that has largely defined the broadcasting landscape.
Senator Munson: There was a time on the Hill when there was a healthy competition amongst private broadcasters who had there bureaus here. There were at least six in English and many in French, but they seemed to have disappeared. Remaining is the CBC, the public broadcaster. Could you explain what happened in the last 15 years, and why private broadcasters do not pay more attention to covering politics on the Hill?
Mr. O'Farrell: Are you asking me for an editorial suggestion?
Senator Munson: I am asking for your point of view. There was a time when it seemed to be extremely important to broadcasters to spend money for journalists on Parliament Hill covering political news events. That does not happen now.
Mr. O'Farrell: Is it your suggestion that there are fewer journalists on the Hill today than there were 10 years ago?
Senator Munson: I am talking about fewer radio journalists. There used to be Contemporary News, Broadcast News, Standard Broadcast News, News Radio and a group of French bureaus. They do not exist today. I am asking, in the interests of covering politics, are private broadcasters taking away that expense by not having anyone on the Hill?
Mr. O'Farrell: Go back to 1985, or even 1975. In radio there was the transition from the AM station group to the FM station group that dominated in terms of market share. Whereas, the largest players in most of the markets across the country in the 1970s and 80s were likely to be AM stations, they became FM stations over time as people migrated more and more to FM choices. I cite that as one of the reasons for the phenomenon that you described — the news format within that may have lost some of its prevalence overall. Today, there is talk radio in most markets across the country but it is not necessarily about Parliament Hill. It might be more about local or regional communities and events. Radio as a whole, I think, has defined itself in this media age of fragmentation as being extraordinarily local in character, first and foremost. Its connection with listeners seems to be prefaced largely on its commodity being a local media.
Perhaps through that transformation from AM to FM and as news formats became less dominant and local formats became more dominant, you may well have the explanation as to why there are fewer radio journalists on the Hill. Local radio stations across the country today have news in most markets on most stations on the hour, the half-hour, or some other variation. The focus is largely local and community-based, as opposed to regional, provincial, national or international. Some stories will be covered on the international and national level but they will be through syndication sources. They will not be through dedicated reporters abroad, in bureaus on the Hill, or in other places across the country.
Senator Munson: That could be a long debate. I do not understand, for the life of me, why FM radio cannot cover the Hill.
Mr. O'Farrell: I am not saying that it cannot cover the Hill but I am saying it has changed. Radio became more local, fundamentally, senator. In one phrase, I would say that in the last 20 years, radio as a medium has become extremely local in its personality and its character, as opposed to what it may have been before, more of an amalgam of many other things. If you define radio today, you define it as a local medium.
Senator Munson: Do you believe that small-town radio listeners across the country are getting as much as they got 25 years ago in coverage of local news, town hall news, city hall news, et cetera? I do not happen to think so.
Mr. O'Farrell: Take our radio membership and ask them that question and in any market across the country, you would get a pretty vigorous defence of their local coverage. Why is that? They think it is their bread and butter. It is a commercial business issue that is driving them. Golden West Broadcasting is one of our members and its headquarters is in Altona, Manitoba. There you will find out everything you want to know, or never wanted to know, about Altona by listening to Golden West Radio in that market place. It is extensively local. In most prairie towns there is a great deal of local content that you will not find in larger markets on radio. The smaller the community is, the deeper they become locally oriented in their mission.
Senator Munson: I have one more question. Should the CRTC begin to regulate the Internet because of its ability to compete with broadcasters?
Mr. O'Farrell: The commission raised that question in a public hearing four or five years ago. It answered by saying, no, it would exempt the Internet from all regulation. There is a willingness to look back on whether that is still a useful proposition going forward. Irrespective of whether the commission decides to regulate, or what our point of view would be on point, the broader question is: Is it regulatable? I do not have an answer to that question.
The Chairman: I have a supplementary on local radio. Not long ago I found myself stuck in a morning traffic jam and my cab driver, for the better part of one hour, subjected me to a station that described itself as that city's local all- news network. The only local news at prime time that morning was the traffic report. Nothing else was locally generated — not the weather, not the sports and not the financial reports, which came out of New York. There was nothing. I am sure that station portrays itself as the city's local radio network. With this comment I am being a little skeptical about your response to Senator Munson. The other recent event that I am sure you are aware of is the controversial developments at CKAC in Montreal. What was a historically large and important news room is gone.
Mr. O'Farrell: I will not rebut your point and I do not think you identified the station, which is fine.
The Chairman: On purpose, I did not say what or where.
Mr. O'Farrell: I am not here to suggest that every local station in every market across the country will be pleasing to each and every listener on a daily, weekly and monthly basis, or any time at all for that matter. That would be silly. However, I am suggesting that if they are still in business, they are satisfying an audience because that is all they have in the way of their ability to sustain their business. If they call themselves local and it is not local enough to one listener's ear or one listener's sensitivity, they are obviously satisfying someone else. If they are not, over time, they will have to migrate to a different format because their audience will shrink, and the advertising revenue along with it. Far be it for me to suggest that the local character of every local radio station in every market is defined in exactly the same terms, or in some way that it would satisfy a particular group or sample of Canadians.
They sample their audiences and they are surviving in a very competitive marketplace, at least until now, by calling themselves, and delivering, local content in a way that seems to satisfy some critical mass of listeners; otherwise, they would not be in business.
Senator Phalen: On your website you have a code dealing with children's advertising that prohibits advertising something that might do physical, emotional or moral harm to children. What would be the age of the children that this code relates to?
Mr. O'Farrell: You have caught me off guard. I cannot recall the eligibility age. I am not sure. I believe it is school children. It is not preschoolers. To be clear, that is a code that is enforced by the CRTC, and that is required of all television stations to abide by, as a condition of licence.
Senator Phalen: What is the consequence if they violate the code?
Mr. O'Farrell: They are called before the commission and it is a show cause. The commission will make whatever claim it feels is appropriate in support of a claim that there was a violation, and they will establish a sanction.
Senator Phalen: I have asked this question of another presenter and he chose not to answer it.
There has been recent media attention on the subject of advertising directed towards children. Advertising to children in Quebec is prohibited by the Quebec Consumer Protection Act. Can you give this committee any information on the impact such a prohibition has on advertising revenues for your members in Quebec?
Mr. O'Farrell: It has had a negative impact insofar as children's advertisers have not sought to buy advertising from Quebec broadcasters because they are not entitled to sell it. Children's advertisers have sought alternative avenues to reach Quebec viewers, and they do so by purchasing services that emanate from outside Quebec but are distributed within Quebec.
Senator Phalen: Are Quebec broadcasters playing on an uneven field?
Mr. O'Farrell: Absolutely they are.
Senator Phalen: What would be the impact of a similar nation-wide ban, or is there any agreement to that? Would anybody agree to that?
Mr. O'Farrell: I cannot point to any studies that are current or have any currency that would quantify the revenue losses, that I would be able to refer this committee to. There is a segment of advertising across the system that consists of advertising to children that complies with the code, and that raises revenue for broadcasters in every market except Quebec where it is prohibited.
It is interesting to note, that prohibition has been in effect since the 1970s in Quebec.
Senator Phalen: Even the one that meets the regulations set by the code? You are saying that there is broadcasting to children but it is by code.
Mr. O'Farrell: Exactly, yes, outside of Quebec, where there is no broadcasting advertising allowed, except by sources that emanate from outside of Quebec. Frankly, what happens is advertisers who seek to reach Quebec audiences will seek to do so by way of broadcasting signals that originate from outside the province.
Senator Phalen: Do you have a personal opinion regarding a nation-wide ban that you would like to express?
Mr. O'Farrell: The evidence is compelling on one level and that is, I cannot point to any societal benefit that I see documented empirically or otherwise that shows that Quebec youth over the past 30 years have benefited from being sheltered from advertising that other Canadian children have not been sheltered from. One case in point that is current is there is a new concern about child obesity. One could suggest that while there was no advertising allowed to children in Quebec directly by Quebec broadcasters for the past 30 years or whatever the exact number of years — I think it was in the 1970s that the act was introduced — is there any demonstrable difference between the obesity levels in children in Quebec versus outside Quebec; one where there was no advertising to children, and the other where there was? There does not seem to be any evidence.
We may have convinced ourselves to a certain degree that a total ban was a good thing, whereas the system that worked elsewhere in Canada by way of this code has proven to have benefits that have not accrued to Quebec. One thing that is particularly impoverished in Quebec is children's programming. Why is there so little children's programming produced in Quebec for Quebec audiences: because there is no advertiser support to fund it. Producers of children's television programming in English Canada are producing programs because there is an advertising revenue base to secure the funding. On the French side there is no such revenue source. Consequently, in the past 25 to 30 years, with the exception of Radio-Canada or Radio Québec children's programming, there has been no other children's programming produced in Quebec and that is a travesty.
Senator Eyton: I am a curious soul and I would like to know more about you and the CAB.
Can you tell us something about yourself in 100 words or less in terms of your background or experience?
Mr. O'Farrell: I know what I will not tell you so I can start from the opposite side of the equation. I have been in the broadcasting industry since 1987. I was a private practitioner in Quebec City, and I started as counsel to a company, amongst other clients, that was an affiliate of the TVA private network. It engaged in an acquisition that gave it ownership of all TVA affiliate stations outside Montreal. I was with that company until 1990. In 1990, I joined CanWest in Toronto and held various positions there from general counsel to Vice-President, Legal and Regulatory Affairs to President of Global Quebec, to Senior Vice-President. I left CanWest in 2002 to assume the job as President of the CAB.
Senator Eyton: That is a great career and some great companies with it. With respect to the makeup of your membership, you have an excellent brochure that has much information in a short space with few words. On a quick survey, your membership is made up of three different categories: Television, radio and the third category is specialty and pay. Would that description cover all your members?
Mr. O'Farrell: Yes.
Senator Eyton: Is there any other category?
Mr. O'Farrell: There are associate members, which are companies that are non-broadcasters that have an indirect relationship of some type to the broadcasting industry, including law firms involved in serving broadcasting clients. They could be associate members. Outside of associate members, that is basically it.
Senator Eyton: It seems that it is a mixed bag and you are one association. Can you describe the decision-making process? There is a reference to advocacy and lobbying. It seems to me with that mix of characters, there will have to be some background decision to tell you where and how to get there. How do you make decisions in a circumstance such as that?
Mr. O'Farrell: Clearly, there is a broad cross-section of interests represented by the organization. They do represent three silos of activity: Broadcasting from a radio perspective, broadcasting from a television over-the-air perspective, and pay and specialty broadcasting. Often the interests of those respective silos are not at odds with each other. Sometimes they are.
Senator Eyton: I would say often they are.
Mr. O'Farrell: They can be, but not all the time. The government is charging the broadcasting industry Part II Fees, which is an illegal tax that everyone pays and everyone does not want to pay any more. There is a large consensus on that. There are issues where there is a common point of view.
Where there are difficulties in finding common ground, we have had, on occasion, the opportunity to build consensus and where there is no consensus we do not take the position.
Senator Eyton: Do you have decision-making by vote? Is it a democratic process?
Mr. O'Farrell: Absolutely, we have a board of directors that considers these matters and voices their opinions, and votes are taken.
Senator Eyton: Is it one member, one vote, or more sophisticated than that?
Mr. O'Farrell: Yes, it is one board member, one vote.
Senator Eyton: The members belong to all three divisions?
Mr. O'Farrell: One or the other, or sometimes more than one.
Senator Eyton: What kind of relationship do you have with the print media? I have always wondered at the print media who provide our news stories and are the first to do the research and establish the stories of the day. They are then picked by television and radio. I read The Globe and Mail in the morning and understand what they will be talking about on television that day.
They manufacture content that you use in terms of your product. You made a comment that your content is then pirated by others and passed on. What kind of relationship would you have with the print media generally?
Mr. O'Farrell: Our association has no relationship with the print media if you are talking about the CAB. As to our members' relationships with the print media, they vary. Some have ownership positions in print media assets; others do not. The relationships vary from company to company.
Senator Eyton: You would not, as an organization, deal with the associations that represent, for example, our newspapers, both local and national?
Mr. O'Farrell: We have worked with other associations including the Canadian Newspaper Association from time- to-time on issues of common concern, but as an industry not as a matter of operational realities relating to their businesses or to the respective businesses of member companies.
Senator Eyton: Last question: Your pamphlet refers to the new competition you are facing. It seems it will have a great impact on broadcasting generally: the low-power radio, which in many ways seems to be advantageous; digital radio, which seems to be almost here and with one, two or perhaps even three new broadcasters; and then one that is not referred to here is the mini iPods and people canning music and having a daily supply and not needing to listen to radio or watch TV. What, as an industry, are you doing to respond to those challenges?
Mr. O'Farrell: If I could start with the last challenge: Clearly, the younger generation are growing up in large measure as consumers of music and content that does not include a lot of radio. It is as big challenge for the radio industry to convert those listeners to loyal listeners as previous generations have been to that medium. A variety of strategies are being deployed including trying to modernize the look and feel of radio for those audiences.
The other challenges we are facing across the spectrum are extraordinarily diverse when you think about them because they range from competitive challenges that are technology-based and competitive challenges that are regulatory- or policy-based. If I take one moment to give you a dimension of what I am referring to, it is fair to say that 15 years ago this committee could have been looking at the broadcasting sector and could have said the regulatory model in Canada is one that is akin to regulating an island unto itself.
The broadcasting industry could be looked at as an insular entity, and therefore the regulations and policies that would apply to that island could be contained. Today, the realities are that the sector cannot be impervious to other things occurring outside the sector. An example is bilateral and multilateral trade agreements that our country enters into through globalization. The more it unfolds and puts Canada into situations where we are parties to multilateral or bilateral trade agreements that involve trading partners and trading relationships that include impacts, effects or consequences on all sectors of our economy, the more difficult it will be to regulate a system like broadcasting as an island unto itself.
The example is the one of Spike TV. We have rules under the regulatory system that everyone says is a fairly good balance, not perfect but fairly good, where Canadian services have certain rules to play by, as do non-Canadian services. A service that was authorized as a non-Canadian service for distribution in Canada changed its vocation, its brand, its programming to become something else, Spike TV. If the same thing had been done by a Canadian service, that service would have required CRTC approval: a public hearing process — in all likelihood a public debate by stakeholders with an interest in programming, and ultimately a determination. In the instance of the American channel, which is ultimately owned by Viacom, a large player and media conglomerate, it changed its vocation, brand and programming not because of its significance in the Canadian market. They were rebranding and repurposing their network for the American audience, first and foremost, and because they are available for distribution here, that change had an impact here. That change was made. It was done without regulatory approval. We sought the commission to intervene on it, and the commission ultimately approved it on the basis of rationalization that I will not argue with tonight, but we have some difficulty with it from a policy and principle point of view. Essentially, the regulator, to a certain degree, had its hands tied by virtue of the fact that had it come down hard and heavy on that service, maybe the United States Trade Representative, USTR, would have concerns about how Canada's regulatory agency and broadcasting was treating a non-Canadian company, from the point of view of the broadcasting system.
I give you that example as one amongst many that shows that today's broadcasting environment, with all the super competitive qualities and challenges, also has the challenging reality that we can no longer find in regulation the ultimate envelope that it was for so many years that helped support the system. That is a big challenge going forward as well.
[Translation]
Senator Chaput: I want to make sure I have got it right. I really enjoyed your presentation. You referred to two fundamental trends radio and television are facing, fragmentation and the erosion of traditional borders. When it comes to fragmentation, as the market divides itself up into increasingly smaller segments, I assume that those who are in the market will hold their own as long as they can find advertising revenue. If that were to change at some point, that is when consolidation might occur. That would be a possibility, would it not?
Mr. O'Farrell: Absolutely. There are several examples of programming services, for example in radio, that have seen the market change and their market share drop, from a critical mass to a fraction of that critical mass. Often, in some cases, those stations have had to make difficult decisions, that is, to go out of business or sell to someone who, because of economies of scale, could consolidate that service with others they own and maintain the service.
There are several examples across the country in relation to which it could be said that fragmentation had the effect you mentioned, and that has inevitably brought certain realities to bear on certain services. In response to fragmentation, as I pointed out in my presentation, there has been no choice but to consolidate.
Senator Chaput: In terms of the erosion of traditional borders, with the upcoming arrival of satellite radio in Canada, is there any chance that radio news will become less Canadian?
Mr. O'Farrell: That is a matter that is currently before the CRTC, and I would not want to comment on the outcome or substance of a scenario that I am still unfamiliar with. The parties who made their applications and debated the merits of those applications put forward the pros and cons of the suggestion you made. We are going to let the regulatory agency do its job; as for the findings it makes in its decision, we will certainly have some things to say then.
[English]
Senator Johnson: How effective is the CAB in serving its 600 members, and in the radio, TV networks, your channels, your specialty, your pay per view? What do they expect of you? Would you highlight the cultural diversity action plan you filed with the CRTC, and the cultural diversity task force you created as good examples of your work?
Mr. O'Farrell: Thank you for mentioning the cultural diversity initiative because that is one of the better examples of our work. You could have done far worse in your choice of examples.
Our mandate is to be the voice of an industry in proceedings such as these and others where policy, legislation, and regulatory change or considerations are before government. We seek to do the best we can to unify the views of our membership and present them to committees such as this.
In the case of the cultural diversity report, the CRTC required that the CAB conduct a study and — I would like to say historically, because I believe it was — to conduct some significant market research to determine to what extent the demographic makeup of the communities that watched programming on television screens in the various markets across the country were properly portrayed in that programming. The conclusions were wide ranging because the research was broad and deep.
What it showed was, overall, the depiction of ethnocultural communities was what I would call satisfactory. There were some areas where it was actually good, but there were many areas where there was a lot of work to do.
In order to be as proactive as possible, we did not just file a report and say here is a report card. We looked at the data from that report, and then worked extensively with experts in the area to develop best practices to define ways and means that would allow broadcasting companies to change that depiction of ethnocultural communities and programming — from news to sports to dramatic programming right across the board — in both English and French television.
The commission received that report. They have not yet given us a ruling or a decision as to their views. However, what is extraordinary is that 100 per cent of our membership supported the report, and supported the best practices that were recommended. They have taken it on themselves, in their individual companies, to start implementing these best practices so that we can begin the work of being a better reflection of the ethnocultural diversity of our audiences across the country.
Senator Johnson: That was a great answer.
With all the choices today, and we all know that there are just so many, and the severe competition and the super- fragmented media marketplace, how do your broadcasters maximize the content they produce?
Mr. O'Farrell: They do as much as they can, as creatively as they can, to maximize the return on every bit of content they produce and/or acquire. The best way to put it is that there is no room for squandering that resource.
Over time, you will see — and we have already seen — the whole idea of repurposing content; that means to try to find as many applications as possible while not diluting its value.
That is a difficult proposition in some instances because it is not always clear when the dilution effect begins. It may begin in your eyes at one point, or in my eyes at a different point. To serve the audience's sense of the novelty, originality and value of watching, that whole equation of when does that phenomenon start is a critical determination.
What you will find is, over time, most broadcasters will fundamentally understand the realities of their business that have always been there, except there is greater sophistication. People and audiences across the country are more media literate than they are given credit for. In most instances, people are quick to cast judgment on whether they like something or not; and they move on because they have choice like never before.
I can remember growing up just outside Quebec City. There was not a lot of television to watch on Saturday night. Whether you liked it or not, it was better than the alternative, which was doing chores. You watched television because it was better than the barn.
Today, people have many choices. The discerning minds of most viewers or listeners are such that they know what they like. If the repurposing of content goes too far, we risk alienating those audiences at our own peril. That is the last thing broadcasters want to do because their businesses will fail.
Senator Johnson: Given your distinguished career in the private sector, would you comment on the CBC? Given that it is state-supported but it is also a competitor for advertising dollars, what could rectify the situation? What role do you feel is appropriate for a public broadcaster within the Canadian broadcasting system? In your view, is public broadcasting necessary?
Mr. O'Farrell: I think it is important that we always situate private broadcasting in the broader context of the Canadian system that does include a public component. We do represent the CBC. Why is that? Interestingly, both Newsworld and RDI are members of the CAB because of an historic association they had with the predecessor organization that merged into the CAB before I even came around. You cannot blame me for it. We do represent those two but we do not represent their main networks.
In terms of your question, everything that makes sense for the strength of the Canadian broadcasting system has equally strong and compelling tentacles for both the private and public sectors because both make sense to the Canadian viewer and listener. It is all about putting Canada first in terms of the viewing and listening options that people have. A strong Canadian system as a whole depends largely on a strong private system, but also on a strong public system.
If you look at it historically, we could not expect the public component of the system to grow and keep pace with all the change that has occurred over the course of the last 20 or 25 years. If you look today, there are so many private players as opposed to one public player. That is because the markets and entrepreneurs across the country were prepared to invest their resources, financial and otherwise, in broadcasting as an option for Canadians. Meanwhile, the CBC has not expanded that much, which has had both benefits and disadvantages.
I think that the CBC that you see today is a CBC that has every opportunity to maintain its relevance to Canadians by becoming more strategic. We have said that in a number of cases. In French Canada, for instance, we believe that Radio-Canada should not conduct its business like a private broadcaster. It has largely what I will call a commercial broadcaster vocation as opposed to a public broadcaster vocation.
That was all right at a place and time in the past when there were very few French-language options in Quebec to watch. Today there are many more. Is it still appropriate for the federal treasury to support a public broadcaster with a commercial vocation? We think that is a question that has to be reviewed seriously.
On the English side of the equation — CBC television and CBC radio — we all know that CBC radio is a success story that is recognized across the country in most markets. Personally, I always marvel that no matter what town or market I am in — and the same is true of French CBC radio and English CBC radio — I do not have to be told I am on CBC. I hear it: I know it is CBC or I know it is Radio-Canada, it is just there. They have branded that extraordinarily well.
That is a great success story. The television side of the English marketplace is a more challenging circumstance because it faces largely the same challenge that the private sector faces, and that is how to deal with all this high-budget non-Canadian content that is produced and promoted. The promotional efforts of American broadcasting and content producers to support their content when compared to what we can promote is such a different animal all together. Today, some players do it very well but still on a different scale when you look at the huge promotional budgets that American content enjoys, and spills right into our market whether we like it or not, and that Canadian consumers absorb. CBC faces that same kind of challenge.
In the long term, we will have to figure out some stable funding for CBC. We say that it is important that the Canadian programming industry have a game plan. We have said that for some time now to various committees. In the Lincoln report, we have said there are two imperatives here, namely, cultural policy and fiscal policy. CRTC decisions say, ``Here is what you have to produce in the way of Canadian programming.'' The budget today says, ``Here is the mechanism of support fiscal policy will deliver to support that mission.'' However, there is a disconnect between the two.
We need a plan for that, in the same way CBC needs a plan, to say, ``We are going to give you this kind of funding for this many years so that you can go about doing what you want to do to fulfill your mandate and be judged accordingly.'' Hopefully, they will achieve that.
The Chairman: Would you suggest, for example, that Radio-Canada should kill off Les Bougon and bring back Zone Libre? Is that what you are talking about?
Mr. O'Farrell: I would not make individual programming choices, but notionally what you are saying, yes.
The Chairman: I wanted to be sure I understood.
Mr. O'Farrell: I noticed that they decided not to bid on Les Bougon.
The Chairman: I missed that.
Senator Trenholme Counsell: Thank you for your wonderful presentation and obviously, your vast knowledge on the subject. I have two questions and they are very disconnected, or, to use your word, fragmented.
In terms of local radio stations, I admit we have great choices. There are so many choices, and that is wonderful. Are there any guidelines in terms of the percentage of any given hour or any given day that can be advertising? Sometimes when I listen to a local radio station, it seems to me I hear one song followed by a series of ads, and then one more song that they sometimes cut into at the very end. Are there any regulations?
When I look at your annual report for last year, I take exception to your efforts to have Canadians better informed — for example, better health information, when it comes to advertising prescription drugs and non-prescription drugs — so I would like to discuss that.
Mr. O'Farrell: I am looking forward to that.
On the first question, yes, there is regulation. What is lost sometimes on listeners — I have the same reaction as you do sometimes — is the way they are clustered. Many companies have market research that suggests that certain clusters work better in certain day parts, as opposed to non-clusters on other day parts, and total clusters on other day parts. It is a moving target of listener tolerance to advertising or non-advertising content, but they all abide by regulation in terms of the amount of advertising per hour. The same is true in television: 12 minutes per hour of advertising content.
Senator Trenholme Counsell: Maybe I missed it. What is it for radio?
Mr. O'Farrell: Twelve minutes.
Senator Trenholme Counsell: Is that all, twelve minutes per hour? Is it monitored and do they abide by it?
Mr. O'Farrell: There are logs that are required by CRTC regulation to be kept.
Senator Trenholme Counsell: Sometimes you really like the music. You would like to listen to some of that music, but it is the ads that you cannot take.
Mr. O'Farrell: The way they are formatted and packaged is the irritant that I think you are referring to, as opposed to the amount.
Senator Trenholme Counsell: Is that hour-by-hour, or is it for a 24-hour period?
Mr. O'Farrell: It is per hour.
Senator Trenholme Counsell: I am going to be tempted to time it.
Mr. O'Farrell: It is good for the advertisers. You are listening.
Senator Trenholme Counsell: This profound document here, which is your annual report, is very well presented. It will ultimately result in ad revenue. That comes first, of course, for broadcasters. We are talking about advertising drugs.
Regarding natural health products, food and cosmetics, God knows there is too much of that now. As for medical devices, I just think of beds. You can hardly watch any television for any length of time without seeing one of those beds going up and down. It is a medical device, but you could be advertising a lot of other medical devices. The beds are certainly stealing the show.
The pursuit of made-in-Canada solutions that will ultimately result in ad revenue is most important, as well as better health information for Canadians. What is the status of this? I know a little bit about it, but I would like to hear your side of the story.
Mr. O'Farrell: Our side of the story starts with the fact that there are prohibitions on any number of types of advertising that still exist in Canada, whether it is natural products, certain foods, prescription drugs or certain medical devices. However, as you say so eloquently, they are all over TV. They are mostly over American networks. The ads that you see for various medical devices or prescription drugs come to Canadian audiences by the American channels that are available for distribution in Canada because they do not have a prohibition similar to us in the U.S., nor do the magazines that come to us from the U.S.
The next time you are in your physician's office for a checkup and you look at the pile of magazines waiting be read while you wait for your appointment, you will probably notice a lot of prescription drug advertising and other forms of advertising that are not allowed in Canada. However, they are in American publications distributed in Canada.
Our position is we have to take our heads out of the sand. Prescription drug advertising and other forms of advertising that are prohibited in Canada are available in Canada through electronic, television or magazine media that originate outside of Canada. We are saying Canadians want information as much as most other people about cures and opportunities for better living or better health. We should be looking at providing them with better information about that. Perhaps there is a way of doing that in a made-in-Canada approach, as opposed to simply absorbing information that is coming from across the border that in many instances relates to products that may not even be available here, or may not be approved for distribution here.
Senator Trenholme Counsell: Your organization on behalf of all the commercial interests you represent are very actively promoting, for example, the advertising of prescription drugs.
Mr. O'Farrell: We are promoting that we need to have a modernized advertising review of the products and services that are currently prohibited for advertising in Canada where that advertising is already available to Canadians from non-Canadian media sources.
There is a revenue element for our members. There absolutely is a revenue concern, so there is a commercial interest. There is absolutely no doubt about that, and I am not suggesting that we are arguing for better health, and there is no financial advantage for the broadcasting sector. I would like to emphasize that many Canadians are absorbing information in the form of advertising coming to them from non-Canadian media sources, and you have to ask yourself if that is a good thing.
Senator Trenholme Counsell: May I ask about this one ad that we all see some time between Friday morning and Monday night? It does not name a specific drug; does it? Now do not tell me you have not seen it.
Mr. O'Farrell: I know exactly what you are talking about and that is a perfect example.
Senator Trenholme Counsell: It does not name a specific drug.
Mr. O'Farrell: They are flaunting the system.
Senator Trenholme Counsell: That is flaunting. Is that ethically desirable?
Mr. O'Farrell: I think it is the perfect example of how you can flaunt the system by taking a regulation or a prohibition and playing around with the spirit and intent of the prohibition, and yet get your message across as effectively as if you were violating the prohibition directly and squarely.
Senator Trenholme Counsell: There must be more than one drug company involved in those ads. In the case of an ad like that would several drug companies come together to produce that ad?
Mr. O'Farrell: I do not know exactly which ad you are speaking of.
Senator Trenholme Counsell: Sometime between Friday and Monday, you know.
Senator Trenholme Counsell: They do not mention Viagra in the ad. I am not going to mention it because the ad does not mention it. I do not think the one that I saw mentions it, but I just wondered about the ethics of it.
Mr. O'Farrell: To your question about there being multiple companies behind the ad or not, to be honest, I do not know. I do not know that for a fact. Is it ethical or not? Well, there are many behaviours that are deemed to be ethical because they meet the letter of the law while they seem to violate the spirit of the law. People do that on an everyday basis in any number of applications, so I am not sure we want to cast too many stones at people who have found a creative way around a prohibition that seems to work for them. However, the point is, it flaunts the reality that we have to take our heads out of the sand and realize that the advertising is there, it is producing the effect it wishes to have on the audiences that are watching. Why not look at this instead a little more progressively and say, all right in Canada we are going to allow this kind of advertising because it is a good thing for the public policy goals of our health system over all. For example, in the U.S. it is not required to have an ad regarding a pharmaceutical product pre- cleared, or it was not. Why would that be a desirable public policy objective? Maybe if we had that regime in Canada we would have a pre-clearance mechanism to ensure that whatever consequences we wanted to avoid would be avoided by a pre-clearance mechanism.
Senator Trenholme Counsell: May I follow up?
The Chairman: We are running a little late, and I have something I want to explore, but I will give you one more.
Senator Trenholme Counsell: I know what the situation is in the United States. What about other countries, such as Great Britain and Japan, on prescription drug advertising?
Mr. O'Farrell: I would be happy to provide you with a chart, if you are interested to see our sense of current prohibitions or not, in respect of prescription drug advertising, if that interested you.
Senator Trenholme Counsell: I think it is a very important subject.
The Chairman: That would be very useful, because a number of witnesses have raised this question and we do not have that information, so it would be very helpful.
Mr. O'Farrell: I would be happy to provide you with what we have in the way of current information on advertising prohibitions that relate to some or all of the prohibitions that currently exist in Canada, and how different countries compare to our situation here.
The Chairman: That would be greatly appreciated.
Mr. O'Farrell, on page 9 of your brief, you refer to what sounds like an interesting and complicated situation. This is in the discussion of two separate applications before the CRTC by a company called 49th Media and from the Canadian Cable Television Association, CCTA — for permission to sell commercial advertising, Canadian commercial advertising I assume — on major U.S. channels carried on cable in Canada, which, for the past 30 years, we have not been able to do. That has been, as your brief points out, part of the cut-off in that we have a system whereby the Canadian market for advertising is basically reserved for Canadian broadcasters.
How exactly would these proposals work that the CCTA and 49th Media are making? I thought this came under the Income Tax Act, or are they proposing ads that would not be deductible under the Income Tax Act?
Mr. O'Farrell: Their application is very unique proposal that I can perhaps describe for you. First, 49th Media, please consider that no longer relevant because that application was effectively withdrawn, so it is no longer before the commission. I am going to focus on the CCTA application. The CCTA distributes, as you know, a number of Canadian services, but also a number of American services: CNN, TNN, now Spike TV, and TBS and other American super channels. If you look at the programming content as opposed to the advertising content on those channels, you will see after the programming content, American advertising, and then you will see spots that do not air American advertising. They oftentimes will air promotional spots for Canadian media: Canadian radio, Canadian programming and Canadian programming services. Those amount currently to approximately two minutes an hour on average in each of those American distributed channels.
The Chairman: Already, now.
Mr. O'Farrell: Exactly, and why are there two minutes of Canadian commercials, if you will, in those signals? The reason is because, in America, those services are distributed to their cable operators, but those two-minute slots are available. Cable distributors in America sell those to advertisers on a local basis.
When those services were allowed for distribution in Canada, one of the quid pro quos of the regulatory balance was, you do not sell those two minutes of available air time for the privilege of distributing those services that are not making any contribution to the Canadian Television Fund, to any Canadian talent initiatives or to any Canadian initiatives period. Instead, rather than sell those two minutes, you will devote those two minutes to the promotion of Canadian programming: Canadian programming services, Canadian radio channels and that type of vocation. That has been the contract. CCTA and its application seeks to change the contract and replace the requirement to air those two minutes of Canadian promotional advertisements with Canadian advertising sold to advertising clients. You would see, therefore, other advertising as opposed to promotion of Canadian programming and Canadian services.
We oppose that for a whole variety of reasons. We oppose it on the basis that it changes the contract. The services that have distribution in Canada earn revenue in Canada. Each subscriber is paying a wholesale fee, which in part is returned to that non-Canadian service provider in its place of origin. This is a minimal contribution to the system that should not be undermined or undone. If anything, it should be enhanced in our view.
The Chairman: I want to understand how it would actually work. The cable company sells an ad to Canadian Widgets. Is Canadian Widgets, under their proposal, then entitled to deduct that advertisement as a business expense?
Mr. O'Farrell: Absolutely.
The Chairman: This would involve not just permission from the CRTC but adjustment of the Income Tax Act, right?
Mr. O'Farrell: That is a good question because as you know, if you are advertising in a non-Canadian service, you are not entitled to deduct that as a Canadian expenditure. I believe that what the Canadian Cable Television Association proposal envisages is that there would be deductibility for the Canadian company that advertises by making that purchase.
The Chairman: Is that on the grounds that it is a Canadian cable company? I see. I assume from your brief that you would like us to recommend against this innovation.
Mr. O'Farrell: Yes, we would, because we think that if you have an interest in ensuring that Canadian voices and Canadian choices maintain any kind of a relative balance to the ever growing number of foreign services, the small contribution that we now, from a systemic point of view, derive from the distribution of non-Canadian services should not be taken away. If anything it should be maintained or enhanced.
The Chairman: Okay. You can see that we are all on a permanent learning curve on this committee.
There was something else I wanted to ask you and it has to do with cross-ownership of media. Some of our biggest broadcasters also own newspapers, and magazines as well. I am thinking particularly here of newspapers. Newspapers always and everywhere resist any kind of government regulation. There has been some suggestion that because the CRTC regulates broadcasters and sometimes sets conditions for their relationship with their newspaper partners within the corporate structure, that this amounts in some way to regulation of newspapers. Do you think that is true? Do you think it is desirable? Do you think the CRTC has the mix right as it goes about contemplating these very complicated situations?
Mr. O'Farrell: As you know, the record today is such that three companies — Bell Globemedia, CanWest and Quebecor — all have voluntary codes filed with the CRTC as a result of individual licensing proceedings that related to their respective broadcasting properties. I would not want to suggest that what was done there was either untoward or without founding, but from an intellectual and philosophical point of view the question is open for debate as to (a) whether it is appropriate; (b) whether it produces any kind of meaningful consequences; or (c) whether it should be enshrined and maintained as a practice going forward. I think history will tell us whether or not there has been any positive outcome from that, but as to the meaningfulness, or whether it is appropriate, in my mind that question is still very much open for debate.
The Chairman: This really is my last question. On more general terms, do you think the CRTC gets it right? Do you think it has the right priorities and the right mix of analysis, or are there areas where you think there is room for improvement?
Mr. O'Farrell: There clearly is room for improvement. The CRTC would be prepared to acknowledge that if any of its members were here before you. However, in fairness, one has to look at the CRTC in the broader context. The responsibility to supervise and regulate the broadcasting system today is a very complex and challenging task. The variety of stakeholders has never been more vociferous or more demanding, and the challenges have never been any lesser and, frankly, the stakes have never been any higher. I am referring to broadcasting and not telecom. If you want to get into the telecom side of the equation, that is another question.
I think it is a formidable task that we as Canadians expect of the regulatory agency called the CRTC, regarding supervision and regulation of broadcasting. At times, we have an unreasonable expectation of their ability as a group of individuals, albeit with their support and staff, to make, ultimately, decisions that will be unanimously acceptable or consensual to a majority of Canadians; not even unanimously.
Why do I say that? The world has become very complex for them to make these decisions, even on a case-by-case basis. That is not an apology for the work that should be done, the improvements that should be made or, frankly, the need to look forward and understand that if we do not take steps in a very proactive way — and government has a role to play in that and the commission itself has a role to play in that — the ability to regulate will come under growing pressure and its meaningfulness will come under greater stress.
I believe the question was asked earlier whether the CRTC should regulate the Internet. I said that it is a very good question, and is it able to be regulated? How would we expect a government agency to enforce regulation over the Internet? Those are very difficult questions to ask, but those are the questions that have left the commission, over the past several years in the minds of many Canadians, as not having been up to the task all the time. I do not know of too many Canadians who have the answers to all these questions. We have to put our minds together as stakeholders to put forward our best self-interest, of course, but with a view to maintaining some kind of an overall balance. It has taken us this far.
If you go back to the beginning of the broadcasting system in Canada, it has been a balancing act. Somehow, the challenges of people who walked this road before us have not probably been less daunting in their time than our challenges in our time. We have to look again at how to continue that balancing act going into the future.
My closing comment is that I do not have any particular direction or course that would suggest where the balance can be found, but I do believe that the strength in our system has been that we have encouraged public discussion and public debate. We have been fairly transparent in terms of open public proceedings that have encouraged people to come forward and voice a diversity of views. Ultimately, we have found our way to building a system that I said in my opening remarks has, just as one example, twice as many indigenous Canadian television services on a per capita basis than exists in the U.S. To me, that is a success story. Maintaining the success is the challenge ahead.
The Chairman: You had an admirably eloquent closing statement, Mr. O'Farrell. Thank you very much indeed. It was an extremely interesting session. Which of these charts do you have framed on your wall?
Mr. O'Farrell: It is the video value chain. I will show it to you here.
The Chairman: Senators, while Mr. O'Farrell is searching through his material, I would like us to stay behind for a two-minute in camera session to discuss our work next week.
The committee continued in camera.