Proceedings of the Standing Senate Committee on
Transport and Communications
Issue 13 - Evidence for April 12, 2005
OTTAWA, Tuesday, April 12, 2005
The Standing Senate Committee on Transport and Communications met this day at 9:34 a.m. to examine the current role of Canadian media industries; emerging trends and developments in these industries; the media's role, rights and responsibilities in Canadian society; and current and appropriate future policies relating thereto.
Senator Joan Fraser (Chairman) in the Chair.
[English]
The Chairman: Honourable senators, members of the public and, of course, our witnesses, welcome to this session of the Standing Senate Committee on Transport and Communications. We are continuing our hearings into the state of the Canadian news media and the appropriate role of public policy in helping to ensure that the media remain healthy, independent and diverse in light of the tremendous changes that have occurred in recent years, notably, globalization, technological change, convergence and increased concentration of ownership.
[Translation]
It is our pleasure to welcome officials from Cogeco today. They are Mr. Michel J. Carter, President and Chief Executive Officer of TQS and Cogeco, and Mr. Yves Mayrand, Vice-President, Corporate Affairs at Cogeco.
We will proceed in the following manner: you have 10 or 15 minutes to make an opening statement, and then we will move on to questions.
Mr. Yves Mayrand, Vice-President, Corporate Affairs, Cogeco: Madam Chair, I would like to make a small clarification. Mr. Carter is the Chairman of TQS. The President and Chief Executive Officer of Cogeco is Mr. Louis Audet who was supposed to be here this morning, but who unfortunately had other commitments abroad. He sends his apologies.
The Chairman: Please give him our best regards. I am sure that you will represent him well.
[English]
We thank you for your invitation to appear before your committee and hope that we can be of assistance in your examination of the current state of Canadian media industries. With copies of our presentation you will find a profile of our company and our activities in the Canadian media industries, as well as our latest financial statements. Some time ago, we provided the committee with a profile of our group and the various media properties that we operate.
You may be interested to know that we once held a cross-media ownership position in weekly newspapers in Quebec, which we sold in 1996 to G.T.C. Transcontinental Group Ltd., a printing and publishing group that appeared before you last year. This shows that market dynamics can also lead to a reduction of cross-media ownership in some instances.
We have read your preliminary report and it seems to us that some of the answers to the questions that you are considering already emerge from the information gathered in that report. It will be our pleasure to give you our views on specific questions that you have raised. We would like to use our allotted time to give you a broader perspective on the key issues facing the electronic media in Canada, the sector in which we conduct our business activities.
Our main proposition to you today is that Canadians, as well as citizens throughout the world, now keep in touch through an amazingly complex and diverse array of communications and information sources and channels. We submit to you that this universe is bound to further expand exponentially with the combined thrust of digitization of all information content, which includes archival content, cheap pervasive broadband communications and cheap pervasive digital recording and storage devices. In this universe the citizen has found, and will increasingly find, an unbridled degree of freedom in selecting information for his or her own personal needs and preferences.
What does that mean in practical terms? First, the traditional mass media has become but one component of a much wider information ecosystem. Second, this ecosystem is so complex and rapidly evolving that it cannot be managed by detailed regulation, much less detailed regulation on a nation state basis. Third, citizens living in democratic states dearly love their new-found degree of freedom, and citizens living in non-democratic states yearn for the same degree of freedom.
[Translation]
Mr. Michel J. Carter, President and Chief Executive Officer, TQS and Cogeco Diffusion: Considering these trends, how and to what extent can and should national governments play a role in the development, operation and availability of information sources and channels to their citizens? In our view, by arm's length support a domestic information alternative, and by letting market forces do the rest, subject only to true, fair and sustainable competition across the communications and media industries.
You will certainly ask what we mean by arm's length support of a domestic information alternative. In the broadcast media, we have a system of comprising both public and private elements, and a licensing scheme with domestic policy objectives.
While improvements can no doubt be pursued on either side of the public-private broadcasting equation, there is nothing structurally wrong with this dual broadcasting system, or the fact that public broadcasting captures declining overall audience shares in the face of growing diversity within the communications ecosystem.
Quite the contrary, this broadcasting system supports not only the presence of domestic information sources and channels, but also provides an inherent diversity of sources and balance within that system.
Do we need more publicly-funded information channels or vehicles for that matter? We think not. The existing public broadcasting information infrastructure that we have has already extended its reach through the Internet, video distribution and printed material.
Let public broadcasting continue to play its role, but focusing on original domestic content, and increasingly on domestic content that cannot be as effectively provided by the private sector of broadcasting.
Let our public broadcaster have predictable arm's length financing for that original, and increasingly differentiated, domestic content mandate.
[English]
Mr. Mayrand: On the private sector side, let private information sources and channels proliferate in Canada to the fullest extent possible. If we are serious about diversity, accessibility, relevance and balance in information, we should no longer pursue regulatory schemes designed to limit or impede these very objectives. For example, let us welcome the distribution and use of non-domestic information sources in Canada, even if they may compete with our own. Let us wean ourselves of exclusive, regulated formats for specialty television networks. Let us welcome the distribution and packaging of local information by Canadian broadcasting distributors, and let us distribute our existing local broadcast information sources on all Canadian broadcasting distribution undertakings, including Canadian satellite services. In a nutshell, with respect to the broadcasting media, less and smarter regulation can go a long way in promoting more diversity, relevance and balance in information.
If you look at the CRTC's latest broadcasting policy-monitoring report issued on December 16, 2004, you will see that our broadcasting system constitutes a key asset for Canadians in the pursuit of their communication and information needs. It is a major contributor to the overall diversity, accessibility, relevance and balance in information. Yet, the federal government does not seem determined to do all that is necessary to uphold this key asset.
With respect, we are shooting ourselves in the foot by driving our fellow citizens to bypass the Canadian broadcasting system altogether in order to access non-Canadian broadcasting sources that we deny them through regulatory means. We are allowing a culture of theft of service to thrive for lack of credible law enforcement.
A Canadian household illegally hooked up to a U.S. satellite service does not get any Canadian broadcast information or public affairs programming through that source, including our public and private national network news and CPAC, our parliamentary and public affairs channel. The longer we condone this situation, the more difficult it will be to get those disconnected Canadian households to tune back into our domestic broadcasting sources.
While we study the effects of cross-media ownership and concentration in the Canadian media industries, we simply cannot afford to let a major component of these industries wither due to outdated regulatory requirements, public neglect or both. Doing better on this front should be a top priority, in our view. In any event, we submit to you that unauthorized satellite signal reception, if left unchecked, will fuel increased concentration in the Canadian broadcast media because the domestic market for Canadian broadcast media will suffer growing shrinkage to the grey and black markets.
We stated earlier that market forces should take care of the rest but should be subject to true, fair and sustainable competition across the communications and media industries. Whether we like it or not, collecting, presenting, packaging and distributing information constitutes economic activity. For any economic activity in a market economy, experience has shown that competition is a desirable public policy objective because it breeds innovation, efficiency and responsiveness to consumer needs. Experience has also shown that in some situations involving market power by one or more players in a relevant market, the government has a legitimate role in ensuring that competition ultimately prevails, hence the need for competition policy.
You have already heard about the application of competition policy to the Canadian media industries, and how the Competition Bureau and the CRTC share responsibility when broadcasting activities are involved. You have also heard about the uneasy interface between competition and broadcasting policy objectives in the current state of Canadian law.
In our view, the competition policy requirements, the relevant markets involved and other evaluation criteria are not sufficiently clear and consistent at this time with respect to Canadian media industries, and neither are the respective roles and responsibilities of the federal government agencies involved.
While one can readily observe that there is concurrency of competition and broadcasting policy implementation in several countries with developed market economies, this does not mean that concurrency issues in other countries have equal clarity and efficiency. We submit to you that Canada could do better in this respect. You may want to look at the model developed in the U.K. by the Office of Communications, Ofcom. Ofcom has been set up not only to supervise the electronic communications industries in the U.K., with a clear bias against detailed regulation and a clear bias in favour of market governance, but also with a clear mandate to apply competition policy across these industries. Ofcom retains the ability to refer a matter to the Office of Fair Trading, OFT, which is the equivalent of our Competition Bureau, but assumes front-line responsibility for the implementation of competition policy in the communications industries.
In Canada, the CRTC has yet to be convinced that competition in broadcasting is not inherently dangerous to the attainment of broadcasting policy objectives, or that the most dominant and highly integrated players in our media industries do not need to be protected by the regulator. The federal government can provide appropriate policy directions to the CRTC in this respect, appoint new CRTC commissioners with experience in competition policy, have the CRTC retooled for a new role as a front-line promoter of competition across the communications industries, and set the appropriate interface requirements between the Competition Bureau and the CRTC until such time as the relevant federal statutes are updated.
While we can clarify competition policy requirements with respect to the Canadian media, we must go further to ensure that there is an appropriate control mechanism in place to ensure the quality and consistency of individual decisions. We must be aware of the relevant markets involved and other evaluation criteria with respect to these industries, as well as the appropriate interface between the CRTC and the Competition Bureau. No administrative tribunal or agency should have absolute discretion and final say on determinations that have broad and irreversible public policy consequences.
In this respect, CRTC determinations on ownership changes, including major ownership transactions, are based on a record of unsworn evidence and on internal staff analyses and recommendations that are not available as part of the public record. Once the determination is made, there is no revision mechanism available, and it is virtually impossible to obtain leave to appeal from the Federal Court of Appeal. There is no political control of CRTC ownership decisions and this should remain the case.
We suggest that effective judicial review and control mechanisms would go a long way in promoting transparency, quality, and consistency of CRTC determinations on future large transactions involving major broadcasting properties.
[Translation]
Mr. Carter: There are effective measures that can address practical issues arising from ownership changes in the Canadian media industries, which are inevitable in a fast-changing market environment.
Let us illustrate this with a concrete example. When Quebecor acquired TVA in 2001, it was appropriately required by the Competition Bureau to divest from its ownership interest in TQS. A company controlled by Cogeco stepped up to the plate as the proposed new owner of TQS. Our proposal did not involve any cross-media ownership or market power in conventional television, it brought a new player in French-language television network broadcasting and it resolved the concern of the Competition Bureau.
This clearly desirable outcome created however some concerns with respect to the preservation of distinct local information sources in Jonquière, Sherbrooke and Trois-Rivières, where we own local television stations affiliated with Radio-Canada. We struck new and very innovative affiliation arrangements with Radio-Canada that ensure that our local news programs on these local stations are completely produced by Radio-Canada employees under the direction of Radio-Canada. Each particular media transaction has its own set of benefits, costs and potential concerns, but practical solutions can usually be found to address these concerns.
Other parties that have already appeared before you commented that Canadian ownership and control requirements contribute to the overall level of convergence and integration in the Canadian media industries because the pool of potential purchasers of media properties that come up for sale is consequently artificially constrained. We agree. If we want to keep Canadian ownership and control as a key policy objective for Canadian media industries, we must be willing to accept a higher level of media integration than would otherwise be the case if foreign capital were free to acquire control of media properties here.
[English]
Mr. Mayrand: We do not purport to understand the print media as well as you do, Madam Chair; we are not in that line of business. It seems to us, however, that trying to extend the regulatory concepts used in Canadian broadcasting to other types of media, including the print media, or trying to regulate or undo cross-media ownership or convergence by regulatory intervention cannot and ultimately will not work to the advantage of Canadians.
These are our thoughts. We thank you for hearing us and this provides you with some food for thought.
The Chairman: I should point out to you that I am not the only former journalist in the room. We also have a distinguished former broadcast journalist and a distinguished former journalist in all media. Even though I came out of print, many people here understand broadcasting. We also have among us some very sceptical non-journalists who think that maybe journalists tend to overestimate their own importance.
Senator Carney: There are some sceptical ex-journalists here too.
Senator Tkachuk: Thank you very much for appearing before us today. I have a few questions and I may come back on a second round if we have more time.
On page 3, you say,
Let public broadcasting continue to play its role, but focussing on original domestic content, and increasingly on domestic content that cannot be as effectively provided by the private sector of broadcasting.
What is it that the CBC does that the private sector does not or cannot do?
Mr. Carter: For example, it is impossible for private broadcasters to provide international news coverage. TQS cannot afford to provide that kind of coverage, but SRC, the French CBC, can and does. Both SRC and CBC have the funds to cover the arts and theatre, which generally attract smaller audiences. Private broadcasters cannot afford to provide that coverage.
Senator Tkachuk: If the private sector received subsidies like the CBC does, could it provide us with international news and news on the arts?
If there was direct subsidy to the arts communities could they afford to supply their own programming?
Mr. Carter: There is already a system for private broadcasters to produce some form of art.
Senator Tkachuk: I noticed that.
Mr. Carter: We have examined that possibility. Although there are a few specialty channels that specialize in that form of broadcasting, we as conventional broadcasters could certainly not afford to do it, even with the funding available.
Senator Tkachuk: Part of your presentation examines the problem that we have with our American neighbours. You seem to say that less regulation is better, rather than having Canadian households illegally hooked up to get programming they want to watch. I agree with that proposition.
How long will it be before the Internet will provide good quality programming? When that happens there will be absolutely nothing that anyone will be able to do about getting information.
In other words, how soon will it be before I can go to cable in the U.S. or ESPN and watch it on television through my Internet?
How long will it be before the quality becomes good enough that people will bypass television all together?
Mr. Mayrand: The technology exists. It is proven, it works. The new video standards provide for that type of quality. You will see a whole array of different types of technical quality in video programming. The long and short is that it will be a market-driven environment with a significant amount of audiovisual content circulating on the Internet, essentially on demand.
That is what we tried to capture in the earlier part of our presentation. We are in an entirely different world where there is pervasive broadband communications that allow this kind of transmission with more than satisfactory quality, even for demanding types of audiovisual content. This has been the case for some time for audio content. We all know the extent to which music is freely circulated, stored and carried by individuals around the world. There is no doubt that we are heading in that direction for audiovisual content as well.
Senator Tkachuk: Canadian regulations and the CRTC's need to control news perplex me. There was a situation a number of months ago where CTV had to go on bended knee to say they wanted to do more than a headline, they wanted to run a documentary.
It seems so nonsensical.
Is there any reason why the CRTC should be involved in regulating anyone that wants to open up a news specialty channel?
Why should that be the business of the government?
If someone wants to have a magazine, it is as simple as borrowing the money and starting a magazine. If someone wants to present news via the cable companies, they have to go to the CRTC.
Is there any reason why the CRTC should be involved?
Mr. Mayrand: We have to acknowledge that we are part of that industry and that Canada regulates the broadcast media. The Broadcasting Act has quite a series of cultural objectives and the application of the cultural objects is possibly a matter for discussion. The statutory scheme is set up differently for magazine and newspaper publishing.
I believe your question deals with the issue of format exclusivity.
Why should we have tightly regulated formats in which a particular service operator ought to remain?
Why is the operator obliged to make applications for a variation because of market conditions or the evolution of the market?
We say that we should move away from these exclusivities. You may or may not agree with that statement. I think that when we tried, some 20 years ago, to develop domestic sources of specialty programming on television, quite appropriately the commission wanted to foster the emergence of as many differentiated and viable alternatives as possible before foreign sources took a hold.
There has been a heck of a lot of change since then, and the players and services are well established. One provision of the act requires that a broadcasting service have a license. That does not necessarily mean that we cannot now afford a little more flexibility and more competition among services if these services are actually licensed.
Senator Tkachuk: Should it be wide open?
Mr. Mayrand: How wide is a matter of what the statutory scheme or the Broadcasting Act allows. Do you still have a Broadcasting Act and some relevant objectives if pretty well everything is exempt? That is quite debatable. Even within the confines of the act as it is there is room for a lot more flexibility and a lot more cross-pollination of content and a lot more entry.
Senator Carney: I really enjoyed this brief. It is very clear. It is on the issues, and informs us of broadcasting issues that we have not spent a lot of time on.
I will come back to the issue of the Internet, but first I want to ask you about the competition policy comments that you made, because that is a policy area of concern to us. You say,
In our view, competition policy requirement, the relevant markets involved and other evaluation criteria are not sufficiently clear and consistent at this time with respect to Canadian media industries, and neither are the respective roles and responsibilities of the federal government agencies involved.
I remember a time years ago when Southam's was in existence. They owned The Vancouver Sun and The Province, and when it bought up all the local community newspapers, the Competition Bureau could not find that was a market- dominating factor.
Could you give us your views on what you would like to see in terms of clarity of competition policy?
What evaluative criteria would you would like to see?
Mr. Mayrand: I can try to address that complex question.
Senator Carney: Right, it is a swap.
Mr. Mayrand: One of the elements is trying to achieve more clarity in the attribution of roles and responsibilities as they apply to competition in the broadcast sector or in mergers and acquisitions that involve broadcasting properties.
As we say in our brief, pretty well around the world, at least the countries that we have looked at, there is a concurrency of jurisdiction between some form of competition authority and some kind of communications or broadcast regulator.
There are, however, different ways in which the policy considerations and their implementation are coordinated between these agencies. In Canada there is document that describes how the CRTC and the Competition Bureau are prepared to consider mergers and acquisitions involving broadcast properties and competition issues involving the behaviour of broadcasting firms. It is not a regulation. It is not an enforceable document.
Senator Carney: Is it guidelines?
Mr. Mayrand: It is a very loose guideline. I take it that there can be some consultation between the two bodies, but there is no real channel set up in the law or by regulation to allow that to take place. It creates situations. The argument goes that very seldom do we see that the two bodies are at odds, but it has happened before.
Senator Carney: In terms of an operator, if you are looking at a merger and acquisition, is your problem the fact the guidelines are too vague, or is the problem that you do not know whether there is a conflict between the CRTC and the Competition Bureau?
Mr. Mayrand: It is both. It is difficult to understand how the relevant market will be considered for that purpose.
Senator Carney: You do not care for regulation; that is clear.
Is there a concern that the regulations would be too specific?
You say that there is no clarity, and that there is a need for less regulation. What is acceptable to you?
Mr. Mayrand: When we say less detailed regulation, we are talking about the regulation of broadcasting.
With respect to competition policy and dealing with transactions involving media properties, we need more clarity, not necessarily a great amount of detail, but more clarity on who does what in what circumstances, and whether there are thresholds or benchmarks that trigger some concern.
Senator Carney: That is what I wanted from you.
You do not make much comment on foreign ownership. You refer to it but you do not indicate whether you think that the broadcast industry should be open to increased foreign ownership.
What is your view, for the record?
Mr. Mayrand: For the record, our view is that we should consider relaxing the rules for foreign ownership of these undertakings. We include foreign ownership at control levels for telecommunications companies and cable companies that provide electronic communications and telecommunications, as well.
Senator Carney: For the majority or minority?
Mr. Mayrand: Foreigners should have the ability to take controlling positions as well.
Senator Carney: That is interesting, considering your company is held so closely.
Mr. Mayrand: I say that because we have a separate group that deals with content and broadcasting. We have always taken the corporate view that with respect to content we should keep things as they are. In other words, in the distribution infrastructure, there is room for relaxation. We support a continuation of the existing regime concerning content.
Senator Carney: I have one more question on high-speed Internet service. There are so many questions that come from your brief. Video-on-demand and other impacts I leave to my colleagues or a second round.
We seem to be in a box here. The CRTC regulates broadcasters, but does not regulate the Internet. Some witnesses have expressed concern that the big media conglomerates will dominate the Internet and access to Internet services.
In the Al-Jazeera decision, the CRTC told the distributors, who are the conglomerates, that it is their job to edit offensive material on the Internet. They have found themselves in the position of gatekeeper. They are required to monitor the information content and to deliver that content through these convergence agencies. At the same time, we have the Charter of Rights and Freedom in this country.
How do we get out of that box?
That is a broad question, but I think you understand what I am saying.
If you are responsible for monitoring my offensive, racist, western alienation, anti-Ontario statements, just as an example, and at the same time have freedom of information, then how can you possibly meet the challenge laid down by the CRTC?
Mr. Mayrand: Our view is that when we act as a cable distributor we should not intervene in the content that we distribute. In fact, we see that as a fundamental principle of the Broadcasting Act. We do not want to do that. We have no intention of doing that further on.
The only extent to which we intervene on content is with our community channel because we produce a community channel with the input of the community and have some control over that content.
However, if we are thinking of the distribution of pretty well any other television or radio content on our systems, we are distributors. We should not be involved in the business of monitoring, cutting, deleting, changing, or exerting pressure with respect to content of any service.
I am not thinking that this is something that would arise only with a service such as Al-Jazeera. Clearly that is our view, and in fact, there are enormous practical difficulties in doing that in any event.
Senator Carney: Therefore, it is basically an unenforceable regulation?
Mr. Mayrand: Well, I guess that the facts speak for themselves. Certainly, we have not launched Al-Jazeera in those conditions, and I do not think that any cable distributor has done that yet.
Senator Munson: I am in a state of feigned shock this morning.
Do you not have a newspaper?
Everywhere we go across this country, and everywhere we have gone across the country, we hear that big is better, that cross-media ownership works, that it is good for the economy, and let the best man or woman win and that sort of thing. However, I see here in your testimony that you do not have any newspapers. You did.
Does this not put you at a disadvantage in the great big competitive media world?
Mr. Mayrand: Let me start, and I think Mr. Carter will want to add something. It affects our market dynamics, particularly with respect to cross-promotions. Obviously, we do not have the same degree of flexibility that some groups with that level of cross- ownership have.
We manage to compete in the fields of broadcasting and broadcast distribution. I thought that you were suggesting that we might have something to correct. In fact, we manage to compete in our circumstances without any ownership of newspapers.
Mr. Carter: We find that we can create partnerships with independent owners of papers. We do this all over the Province of Quebec with owners of magazines or newspapers that do not have television or electronic media services.
We can create partnerships that work well for us. We can say that we are at a certain disadvantage, but by developing creative partnerships with other people, we can manage.
Senator Munson: What is your overall view of cross-media ownership, as we see in Vancouver, for example?
Mr. Mayrand: It is difficult for us to comment on the situation in Vancouver, because we do not have any activities there.
Senator Munson: I am just thinking of the terms of the dynamic, for the viewer, for the reader, the individual getting different sorts of information in one market.
Mr. Mayrand: We could perhaps comment more usefully with respect to the situation in Montreal.
Senator Munson: Please.
Mr. Mayrand: I am sure you are aware that there are a number of cross-ownership situations in Montreal. I guess what we find is that there remains quite an extensive degree of competing sources, and that there is a very vibrant competitive environment in Montreal across the mass media that includes television, radio, and the print media.
Now, that is a trying market to work in and we face intense competition. We have just absorbed a write-off on our television activities there, but it is and remains a very competitive environment on both the francophone and the anglophone side.
Now, if there were further concentration beyond what we have in Montreal, that certainly could be a matter for debate, but in the present circumstances, there are a number of alternatives and a lot of competition.
Senator Munson: With a lot of risk.
Mr. Mayrand: Yes, with a lot of risk.
Senator Munson: I am interested in your statement on page 4. We are trying to find a way around information that deals with satellite operators that operate by stealth. You say that we are shooting ourselves in the foot.
What kind of strong recommendation would you have for us to pass on to these regulatory bodies to penalize people who are doing a disservice to good strong Canadian content with these pirate satellite operations?
Mr. Mayrand: I think there are two things that we would like to see happen. We would like to see a change that brings more options and more choices to Canadians who feel constrained to use unauthorized means to get content that they cannot get otherwise.
That is on the regulatory side. Certainly, there has been debate on whether there is reason for more enforcement and stiffer penalties for theft of service if we still have the lingering situation whereby ordinary Canadians are constrained in their choices.
Let us address the choice issue and then let us be consequent and clear that the choices exist and that there is intellectual property and value involved. They have to be financed, and services that require a payment require payment for a good and valuable reason. Stealing those services is theft, no matter which way you slice it. That means we have to ensure that we have credible sanctions for theft, particularly theft organized by people who make a business out of that theft.
I do not think we have ever advocated being unduly harsh for individuals who take matters into their own hands and deal with access to services in a way that they think is appropriate, even though it is wrong. For the most part, we must address the organized businesses that operate within the theft issue. The House of Commons has proposed amendments to try to improve the situation through stiffer penalties, particularly for those who profit from this activity.
Senator Munson: What are the current penalties?
I should know this, but I have not seen a headline saying that people have been charged hundreds of thousands of dollars for this kind of theft, although I continue to see little dishes all over the city.
Mr. Mayrand: The penalties are quite small and usually imposed on the people who profit from the theft. Generally, they do not exceed a few thousand dollars so they do not deter the continuance of the activity. That is a problem.
Senator Tkachuk: Is that not the way in which the original cable companies made their money? Did they not steal the signals from the Americans?
Is that not the way in which it all began? That is the way our cable companies got their start. They were stealing NBC, CBS and ABC signals and selling to Canadian consumers a product they obtained for free.
Mr. Mayrand: The cable operators started out in the late 1940s and early 1950s. At that time, and particularly in border areas in Quebec and British Columbia, they began to extend the distribution of a number of signals, not only the American signals but also local signals.
The structure has evolved in such a way that cable operators now have retransmission fees that they pay for distant signals, so there is payment and consideration. There was an emergence of an absolutely novel technology and I do not think we can draw any lessons from the early beginnings of a few border cable systems in 1949 and 1950.
Senator Tkachuk: I beg to differ on that. In the 1960s in Saskatchewan, the cable companies were selling us NBC, CBS, ABC and PBS. They charged consumers a fee for the service and the Americans complained about it. When the town of Nipawin wanted to have a co-op cable company, it was not allowed to do it. I do not see the difference between that original action to obtain signals to build a cable company and people taking satellite information.
What is the difference?
Mr. Mayrand: There is a big difference because the satellite signals today are encrypted. There is clearly a design to ensure that these signals are made available in the areas where the rights are purchased and compensated. Those are the encrypted signals. In the early days of cable, the signals were freely available over the air. That is the major difference.
Senator Tkachuk: Thank you, I apologize for the interruption.
Senator Munson: This cosy relationship that you have with the CBC seems to work and seems to put you in a unique position. You are a private broadcaster but you said that there is a place for the CBC and you to cohabit.
Would you describe how that works with the CBC?
Mr. Carter: As we mentioned, when we acquired the TQS Network, we were already affiliates of both the TQS and the SRC in the regions of Sherbrooke, Trois Rivières and the Saguenay.
At the time of the acquisition, the SRC and a number of public bodies were concerned because we had one newsroom serving two different networks. We cut a deal with the SRC so that they now have their own employees under our roof. They produce the SRC newscast with their employees. We share the facilities to produce and broadcast the news for them. It has worked well for four years and the newsrooms are completely independent. We have the TQS newsroom and there is the SRC newsroom. They do not share information or anything else. They are quite rigorous and proud of their respective broadcasts and do not want to share with one another. It works well.
Senator Munson: Is the same union involved for employees?
Mr. Carter: No, there are different unions, except for our shared employees that produce and broadcast. News people, journalists and field cameramen are with a separate union.
Mr. Mayrand: The purpose of that setup was to ensure that following our acquisition of the TQS Network, in the three regions where there are ``twin stick operations,'' news programming and the news sources would actually remain different and continue to differ over time. The arrangement ensured continued diversity of sources in those regions.
The Chair: Is this for local news or for all news?
Mr. Carter: It is primarily for local news but some of that ends up on the network feed as well.
Mr. Mayrand: Respectively, CBC for them or TQS for us.
Senator Munson: That is fine.
[Translation]
The Chairman: Why did you choose to get into the newspaper business? My colleague was saying that this goes against the general trend called convergence.
Mr. Mayrand: We were unable to develop a strong synergy between the weekly papers and, for instance, our radio stations. This was at the beginning of the 1990s, at the very start of the convergence wave, and we believed that it would be possible for us to develop synergies. But it did not really happen. So we ended up in a situation where other players developed better synergies. For instance, it made a lot of sense for a printing company to develop synergies. That is why we sold our weeklies to GTC Groupe Transcontinental.
The Chairman: Did you end up regretting doing so?
Mr. Mayrand: We did not have time to regret anything. We are always turned towards the future.
The Chairman: I found your remarks on the Competition Act's regulations very interesting. You said that competition policy requirements must be clarified, including for markets. I imagine that you defined what these markets are. That is one of the trickiest issues in this field. Can you tell us more about your definition of what a market is?
Mr. Mayrand: It would be difficult for us to give you a detailed presentation on what we perceive as being relevant markets. However, we can say that increasingly — and this is something you probably noticed in your previous analyses —, Canada's communication market offers bundled services, that is, it offers radio broadcasting distribution services, Internet access services, fixed-line telephone services, and in some cases, mobile telephone services. With time, the dynamics of this competitive market will offer consumers more and more bundled services. Up until now, the authorities, or the CRTC, examined competition problems on a service-by-service, or a company-by-company basis, and sometimes on a regional basis. But clearly, important changes are happening. It would be important for us to understand how competition criteria, market dominance criteria and criteria related to major players should be established in an environment which offers bundled services. In our opinion, there has to be a change in philosophy in that regard. How will this play out more specifically? I cannot give you any detailed answer right now.
The Chairman: Your most recent financial statements are not what you would have wished. If I understand correctly, it is because of TQS. You said that TQS has faced bad competition from two nearly opposing sides. On the one hand, specialized services are attracting advertising revenues, and on the other hand, conventional television networks have improved their content. I found that observation rather interesting. You really are stuck. Is there a solution for the third largest station in that market?
Mr. Carter: We believe there are solutions. Specialized television programs have an audience share of 30 per cent of French-Canadian viewers, or francophone Quebecers, in the Quebec market. We began at nearly zero per cent in 1986 when the first licenses were granted and we now have a market share of 30 per cent. Throughout that entire period, the viewership for general television programming has decreased, falling from 90 per cent to 60 per cent.
However, the ratings for specialty television programming have been stable for several years now. Specialty television has two revenue sources, as opposed to general television programming which only has one. Specialty television programmers receive monthly lump sum payments and sell advertising as do general television programmers, which is their only source of revenue. Given the fact that specialty television programming has two sources of revenues, it can, and still does, offer much lower advertising rates than general television programming.
As far as general television programming is concerned, there has been downward pressure on tariffs, but we do not have as many programming hours anymore either, of course. We are therefore in a situation where we have completely, or almost completely, sold out our inventory. The only way for us to increase our revenues is to attract more viewers.
The Société Radio-Canada has recently been particularly aggressive in broadcasting more popular programs such as Les Bougons and Tout le monde en parle. We could mention other programs which have also garnered large audiences. You do not see Les beaux dimanches on Radio-Canada anymore. The SRC has decided to broadcast much more popular programs and as a result it has attracted substantial inventory by adding significant program costs to its schedule. TVA, which is the market leader, has tried to keep its ratings by investing much more money in its schedule.
We are the black sheep and we have to try to bypass two heavyweights. However, it has to be said that we do not have nearly has many resources as they do. But there is a place for our kind of television, which takes risks and does things differently. We will succeed.
As far as our financial results are concerned, operational results go hand in hand with budgets. However, accounting rules are so strict that as soon as there is even a hint of future loss of revenue, the value of intangible assets must come down. That is what happened during the last quarter.
The Chairman: I simply wanted to understand the situation; I did not want to accuse anyone.
You support increased competition and the freedom to operate in the private sector in every area except in what you call the ``theft of satellite distribution signals.'' Is that not a contradiction?
Mr. Mayrand: I do not think so. With all due respect, if government said that there should be absolute freedom in the field of broadcasting, there would ensue hugely dramatic changes, even chaos, but one thing is sure, it would be total and equal freedom for everyone.
As things stand now, we have financial obligations towards the Canadian broadcasting system. We pay license fees and telecommunications fees. We are obligated to contribute to the Canadian system, whereas foreign satellite services are not. I do not think that there would be any dichotomy.
We say that within the Canadian system, there should be more competition; there should also be greater competition in Canada in the communications industry. But for now we have to make sure that the broadcasting regulations are applied as Parliament intended.
But if the intention is to change our broadcasting system, then let us admit it and change the regulation accordingly. However, what is unfair is not fair and sustainable competition, rather, it is the fact that some players are allowed to bypass the rules, to be completely exempt from them, and to impose a long series of obligations on other players, including the obligation of license renewal, of forcing them to increase their commitment to programming, to provide services to local markets, to contribute to programming production funds, and so on. There is a problem.
[English]
Senator Tkachuk: I want to follow up on Senator Carney's and Senator Fraser's line of questioning on the Competition Bureau and the CRTC. In your report, you lay out how the CRTC should be involved in competition policy, however, nowadays we also have the Competition Bureau for newspapers, and we have television stations that own newspapers and vice versa.
Do you believe that the CRTC should govern all competition policy amongst television, radio and newspapers?
Do you see a problem with the Competition Bureau handling all competition matters of Canadian business in Canada?
Mr. Mayrand: In our view, it makes more sense for the CRTC to apply competition policy and issues as a front line implementer of competition policy for the broadcast media, as long as there is a statutory scheme that specifically governs broadcasting.
It seems to us that when broadcasting or electronic communications is involved, it makes more sense for the CRTC to be the front line authority to deal with competition issues.
Now, in the print media, there is a different situation. I guess that the Competition Bureau has in past instances and would continue, understandably, to deal with situations involving non-broadcast media.
Senator Tkachuk: They kind of work together. In other words, a television station that is a dominant player in a particular city could own all the newspapers in that city or perhaps even in that province and the Competition Bureau might be involved and the CRTC.
Mr. Mayrand: To the extent that there are broadcast properties involved as well, yes.
There are countries where this interface between the competition authority and the communications regulator are formalized into some kind of an ongoing consultative mechanism. That is how it happens in the U.K. It is perfectly licit for Ofcom and the competition authorities there to meet and to discuss competition issues because the scheme provides for it. We do not have that situation right now in Canada.
Senator Carney: I would like to explore some of the issues on page 3 of your report, where you say,
On the private sector side, let private information sources and channels proliferate in Canada to the fullest extent possible.
Then you list a beautiful world where there would be very few regulatory schemes, because you say correctly that they limit choices. You go on to tell us to welcome the distribution of non-domestic information. I do not quite know what you mean.
You go on to say we should get away from regulated formats for specialty television that leads to the concept of video-on-demand. Let people demand whatever information they want in whatever means.
Broadcasters are using a public resource, are they not? They are using frequencies and channels that are a public resource.
Given the fact that the CRTC allocates the right to use a public resource, do you still see that need in the future?
You cannot just give unlimited use to a public resource, because the public resource is finite.
Mr. Mayrand: Underlying your question, Senator Carney, there is the issue of what really is a public resource.
I agree with you that when over-the-air transmission is involved there is spectrum allocation. You cannot have freedom of entry on a particular frequency because there would be chaos. In fact, all of these issues are before the Federal Court of Appeal right now in the Genex Communications case. This case involves a radio station that lost its licence some time ago. The Federal Court of Appeal will consider to what extent there is a public resource allocation factor that justifies CRTC regulation on broadcast content.
In any event, we are talking about over-the-air frequencies. When we look at broadband resources that are line based, it is somewhat of a different equation. These are facilities that are deployed by largely private company facilities at the expense of their shareholders. There is massive investment in those facilities. They have a lot of capacity, and the Internet traffic circulates over these facilities. I do not think that you have the same type of constraint in that situation.
The attitude of our regulators with respect to anything that has to do with the new media and Internet has been that they will not regulate, because implicitly, the same problems of allocating scarce resources are not present in those cases.
Senator Carney: Are you saying that by having unlimited access to the Internet we have really lost our ownership of a public resource or our ability to control a public resource?
Is it that there is no ``public'' in the resource any more?
Mr. Mayrand: I put it to you differently. I would say the public resource that used to be the commanding factor in electronic communications is increasingly taking a smaller role in the overall scheme of things.
Senator Carney: Could you tell us what is going to be the impact of video-on-demand on the existing programming structure?
Mr. Mayrand: As a cable operator, we provide video-on-demand services. The content is still somewhat in its infancy. I do not think we have explored the possibilities of video-on-demand fully. Mostly, the content is movie driven. We do get into some television programming that is made available on an on-demand basis; but it is still largely focused on movie content.
Senator Carney: I should define the term for the purposes of our use. I am talking about video-on-demand as the ability to look up the men's curling championship last weekend in Victoria and view it when I want to, not necessarily at the time that it is playing.
You say it is still in its infancy, but down the road can you see this influencing the way we deliver programming?
Mr. Mayrand: Most definitely. We can see that people will increasingly order, consume and store video content from databases. They will access those databases in any number of locations around the world, and they will store that to the extent to which the rights to store are provided. They will carry that content around in portable devices.
Senator Munson: I have a couple of brief questions. I notice you own radio stations.
Mr. Mayrand: Yes, we do.
Senator Munson: Do they make money?
Mr. Carter: We have three in the start-up mode that have just received their licences. We have one that is very popular in Montreal, and another one in Quebec City that has been up and down over the years.
Senator Munson: What kind of resources do you put into newsgathering?
I ask that in the context that in the last 10 years to 15 years, some people have come before us and have talked about news talk radio and open-line programs. That has a great place in democracy because it allows people to vent, but I do not know what it has to do with covering news. In the old days, we had many reporters here on the Hill, and many reporters covering town halls, city halls and so on.
Do you think your listeners are getting the same calibre of local radio news?
Do you spend enough money so that citizens can understand their own communities?
Mr. Carter: On our radio stations, we have a music network for adults. We provide small bits of news that we buy from Broadcast News. We have some local journalists that cover mainly the arts and variety types of programming.
We have one station in Quebec City that is more public affairs oriented, that has more local journalists, with debates and open lines, but I guess radio has evolved from the old AM-type newscast of the past. We mainly offer music and entertainment, rather than news, except for one of our stations, which is personality driven.
Senator Munson: It may have evolved but is that a good thing?
Mr. Carter: There are a number of ways that you can get your information. You can get it directly on the Internet. You can get it through the CPAC provision. You have local newspapers, which you did not have at the time. Whatever information you are looking for you can get, not necessarily only with radio but with a number of devices.
Mr. Mayrand: If I may add, we now have all-news radio. All-news radio is present in a number of our markets, so there is an alternative that focuses on news. It clearly provides an alternative and, as well, gathers audience from those people who want more news.
Senator Munson: People have to start somewhere. You talked about broadcast news, and that is news from away. All news is local. Where do young men and women start if they cannot start in a small local market that simply has evolved into an FM station concept where it is very different now?
My personal view is that local communities do not receive enough of their local news and that local issues are poorly covered.
Mr. Carter: Our television stations cover the news more in-depth day after day in all of those smaller markets and even in the bigger markets.
Some radio formats specifically address the news portion. Obviously, not all radio formats are targeted to news, but television covers it very well.
Senator Carney: I have a supplementary to Senator Munson, and it involves digital radio. Do I have the right term? If I remember correctly, in the last year or so the CRTC has been allocating rights into digital radio. Nobody seems to be making any money on it.
Mr. Carter: That is right. We have a licence to broadcast in DAB, but we have not put up the broadcasting equipment simply because there are no tuners, either in cars or in homes, to get the signal. There are a few digital broadcasters out there but virtually no tuners to listen to it. I do not know where this will end up.
There are other proposals on the table from either satellite radio distribution or using the DAB frequencies. There is a proposal from CHUM and Astral to provide a new type of subscription radio, but we still do not know what the CRTC decision will be on that.
Senator Carney: For the record, would you define DAB for us?
Mr. Carter: It is digital audio broadcasting, based on the Eureka 147 world system, which is used in other countries of the world but not accepted by the United States. Canada and the United States have different views concerning digital radio, which is problematic because they will now install in U.S. cars U.S.-type decoders, but they will not install Canadian-type decoders.
Senator Carney: Is the intent here simply to broaden the range of choices for listeners?
What is the impact of digital audio broadcasting?
Mr. Carter: It improves the quality of broadcasting, and it can add ancillary services to the person that has the appropriate or adequate decoder.
Senator Carney: What are ancillary services?
Mr. Carter: On top of the musical audio, you could see traffic information, for example, or weather information.
The Chairman: Stock indexes, sports scores, anything.
Senator Carney: I can hardly wait.
Senator Eyton: I had flight problems this morning and I apologize for coming in late. As a result, I did not hear your presentation. I scanned it but I am a little behind, so I will just ask a few miscellaneous questions that I am sure have not been asked up to now.
Looking through your material, I see your structure, in financial terms, is as a parent company listed on the TSE, and the cable company also listed on the TSE. I am curious about the history of the share price and the experience on the TSE for both companies.
Mr. Mayrand: That is a broad question.
Senator Eyton: When were they listed and at what prices? What are the prices today?
Mr. Mayrand: I believe that today the price per share of Cogeco Cable is $26.17 and $24 for Cogeco Incorporated, which is the mother company. Yes, I own some of those shares. Senator Eyton, the first company to go public was Cogeco Inc. in 1985. It was followed by the listing of the cable subsidiary in 1993. The share prices of these companies have varied quite considerably over that time. The issue price for Cogeco Inc. in 1985 was $7.50 per share when Mr. Carter was Vice-president of Finance.
Senator Eyton: These are two industries because I think of the cable side as separate, given the service that it provides, and then the one-way media communication business.
Who are your comparators? Who are your stocking horses in Canada? Whom do you look to for comparison's sake of the standard from day-to-day?
Mr. Mayrand: We would typically benchmark on the cable side with the other major cable operators in Canada: Rogers, Shaw and Vidéotron. On the broadcasting side, we look at comparables with the other major players in television, TVA and, for some areas, CBC.
Senator Eyton: Within those two industries, do you share common views in terms of policy? Is policy coordinated in any way? Is there a forum to meet, discuss public policy issues and agree on a combined course of action?
Mr. Mayrand: The two companies have the same president and chief executive officer. However, the two companies have separate board of directors. There is not a particular forum for discussion of policy issues. In some cases, it can happen that the cable company has views that are somewhat different from the holding company or from some of the broadcasting subsidiaries. By and large, the holding company, Cogeco Inc., has the same key management group and CEO as Cogeco Cable. There is some broad understanding of the overall function of our companies within the legal and regulatory environment.
Mr. Carter: If I may complement, in respect of the industry, the cable side is a member of the CCTA and the broadcasting side is a member of the CAB. We discuss broad policy decisions and representations to the government and to the CRTC with our peers in the industry.
Senator Eyton: Generally, in those cases, your views and attitude toward public policy would be similar. Do you share the same attitude and outlook?
Mr. Carter: We have good discussions with our peers at board and committee meetings. We do not necessarily always agree but that is democracy.
Senator Eyton: We have heard from a variety of witnesses in both industries but when the CAB speaks, it would be speaking for you, as a member.
Mr. Carter: Yes, it would consult with the membership.
Senator Tkachuk: I can understand why cable companies or satellite providers bundle certain products, such as movies. Is this part of your mandate or do you make your own choices for the first 55 channels: CBC, NBC, and Newsworld, et cetera? Why do you bundle the choices?
Mr. Mayrand: Well, there are numerous factors, senator. First, as a cable operator, we have some priority carriage rules to observe.
Senator Tkachuk: Could you give the committee an example?
Mr. Mayrand: We are required to carry most conventional signals and television services available within our service area. There are some additions to that, including CPAC, for example. There is a corpus of signals that we must distribute in priority. Typically, that has built up our basic service offering.
The next intervening factor was the technology available to cable companies when the first specialty services emerged. That technology set out analogue traps to block certain signals and allow certain other signals to go through for those who decided to purchase those extra services.
It is a somewhat unwieldy technology because once it was set on the system and it deployed, the number of channels remained set. Those channels are difficult to change.
Senator Tkachuk: What do you pay CBC Newsworld? What do you pay them in Quebec? What do you pay them in English Canada?
Mr. Mayrand: I am afraid that we cannot disclose the specific payment terms. We have confidentiality requirements in our agreements.
Senator Tkachuk: Is that so?
Mr. Mayrand: Yes.
Senator Tkachuk: Do you pay more to them than you pay to CTV?
Mr. Mayrand: I truly could not comment on that.
Senator Tkachuk: I want to buy the service so I go to the cable provider, Shaw, and he charges me $9 for the product package. To have the product I want, I have to buy others that I do not want; nonetheless, I buy the package.
Can you not tell me what you pay to these providers?
Mr. Mayrand: I cannot disclose the specific amounts but I can tell you that at the retail level, whatever you pay for a particular tier of discretionary services, there is a blend of the aggregate amount of fees that have to be paid for the various services involved in that tier. The fees can differ depending on whether the services are available on the first, second or third tier and on some recapture of the costs involved in making the service available.
Senator Tkachuk: I am not complaining about the fact that you bundle because I believe in free enterprise. You can package your product in any way that you choose because you have competition and there are satellite companies that offer the same product. In Saskatchewan, we have SaskTel as well; there is a great deal of competition.
Is it in your mandate to carry CBC Newsworld? Do you have to put it in a bundle? Do you have to put it in a certain tier?
Mr. Mayrand: We have to provide access to CBC Newsworld. Certainly, carrying CBC Newsworld is a non-issue.
Senator Tkachuk: I understand that but is it in your mandate to carry it?
Mr. Mayrand: It is not per se a mandatory service. It is carried as a discretionary service, but we have the obligation to provide access for that service.
Senator Tkachuk: Therefore, I have to pay for it.
Mr. Mayrand: That depends on the way your provider offers it.
Senator Tkachuk: So, when I want CBC, ABC, NBC, CBS, I get Newsworld, right. I have no choice. It comes with the good package. It does not come as a separate package.
The Chairman: Some of us think it is part of a good package.
Senator Tkachuk: I did not say that. I said if other people want to get into the marketplace, how do they do that? What kind of money can they make? Can we have five types of channels in Canada? How would they be bundled into the process? Are they mandated? I am not just getting into Newsworld. We only have two, and we only have one Newsworld channel. That is why I am talking about it because CTV is a headline channel. They cannot even provide it, or did they get permission?
Senator Munson: Not yet.
Senator Tkachuk: You see they do not have permission. We only have one. That is what I am trying to get at, how does a new player get into the marketplace to compete there?
Since CBC is the only one in this monopoly that we have here in Canada, I want to find a little more about how we can get more players into the marketplace so we do not have to go to the United States and buy FOX and NBC and CNN.
I do not know if that is helpful, but I think for what we are setting, that is helpful. Can you help me?
Mr. Mayrand: I take your point. What you are saying is that the Canadian broadcasting system should be devoid of any prescription on the services that are distributed and the extent to which they are available to Canadians.
I thought that one of the considerations that this committee is looking at is the accessibility of services. I would think that includes our Canadian services.
I would submit to you that there ought to be a reasonable balance in making our own services widely available and accessible to Canadians, and allowing services that are not from Canada to be more accessible here.
Senator Tkachuk: The best of both worlds, right?
[Translation]
The Chairman: Mr. Carter, Mr. Mayrand, thank you very much, it was extremely interesting and truly very useful for us. We regret the fact that Mr. Audet could not be here, but you have represented him very well.
[English]
Senators, after this meeting is adjourned, I am going to ask senators and staff members to stay for five minutes while members of the public leave the room. Then, I am going to have another five minutes with the steering committee. That concludes this formal meeting of the committee.
The committee adjourned.