Proceedings of the Standing Senate Committee on
Transport and Communications
Issue 10 - Evidence - March 28, 2007
OTTAWA, Wednesday, March 28, 2007
The Standing Senate Committee on Transport and Communications met this day at 6:15 p.m. to examine and report on the objectives, operation and governance of the Canadian Television Fund.
Senator Lise Bacon (Chairman) in the chair.
[English]
The Chairman: Today, we have as our witnesses Ken Stein, Senior Vice-president of Shaw Communications Inc., and Cynthia Rathwell, Vice-president, Regulatory Affairs, Star Choice Communications Inc.
Welcome to our committee. Please proceed.
Ken Stein, Senior Vice-President, Corporate and Regulatory Affairs, Shaw Communications, Inc.: We are pleased to outline our views of the Canadian Television Fund. We have fundamental problems with its governance and how it has spent its $2.3 billion over the past five years. In September, Shaw suspended payments pending action on our request for significant reform. We wrote to and met with the Minister of Canadian Heritage responsible for the fund to discuss our action and concerns. We also met with the Canadian Radio-television and Telecommunications Commission, CRTC, about our issues. In February, we restored our payments based on indications that our concerns finally would be considered seriously. Subsequently, the CRTC announced that it was creating a task force to investigate the issue of what changes to Canadian programming financing may be needed. The CRTC task force is a positive step. The governance and performance of the fund are critical, given the unprecedented competitive challenges of global digital media. As a country, we need to decide how best to ensure that Canadians with unlimited choice and access to content can receive high quality Canadian programming. In a competitive global entertainment market, Canadian programming will be relevant only if it is produced to satisfy viewer tastes and demands, not to fulfill a quota or maximize a producer's access to subsidies. New products must come from consumer demand, not regulation.
We have made several requests for changes to the fund over the last five years. These requests were dismissed repeatedly and we were advised to stand down and wait the possibility of change going forward. Finally, we decided it was time to act.
Specifically, we could not properly fulfil our responsibilities to our shareholders in a situation that was akin to taxation without representation. Moreover, we believe that tens of millions of dollars are being used inefficiently by the fund with little value to Canadian viewers. It has been a terrible waste of a Canadian asset. Shaw's actions have been legal. Since our requests went unheeded, we considered a lawful course of action available to us and took it. We are making recommendations to the CRTC on a better way to bring high quality Canadian programming to our customers.
Canada's cable and satellite companies support high-quality Canadian programming. Canadians want high-quality Canadian programming. If Canadian programming is not popular, customer loyalty to our licensed cable and direct- to-home, DTH, services will be undermined. Viewers will turn away from our broadcasting system, and scarce national resources will have been squandered.
Cynthia Rathwell, Vice-President, Regulatory Affairs, Star Choice Communications, Inc.: The key problems are poor performance and unfairness. We have heard repeatedly that funding has generated 23,000 hours of Canadian programming. Beyond repeating the statistics and noting four or five programs it supports, the fund does not explain how or even whether it measures its success in supporting high-quality Canadian programming. Surely, Canadians deserve to know whether $2.5 billion of their money has been spent in a way that gives them value. The fund has not been accountable to private contributors who provide over half its budget. Shaw contributed $44 million to the fund last year but it had only one board seat. The government contributes $100 million and has five board seats. In total, private contributors had only four board seats out of 20. The fund has given private contributors totally insufficient input even though the production of Canadian programming is ultimately for their customer's benefit. Perhaps the situation is better characterized as negligent. By contrast, the government has a formal contribution agreement tying its financial support to specific operating requirements.
Regarding performance, we know for a fact that while the fund has spent $2.3 billion, it has not increased viewers to Canadian programming. Further, while CTF funding was supposed to provide leverage to increase private sector investment, it has not done so. Private broadcasters now spend more on non-Canadian programming and less on Canadian programming. For example, in 2005 private broadcasters benefited from CTF funding increases of $20 million while their own spending on Canadian programming decreased by $21 million. That is a raw deal for Canadians. Canadian cable and satellite subscribers are receiving a negative net benefit from the fund. It creates a disincentive for broadcasters and programmers to invest in Canadian programming. All in all, CTF contributions force our customers to subsidize large programmers that are capable of funding programming on their own. They continue to find the money to spend more and more on non-Canadian programming.
Mr. Stein: Finally, we question the overall fairness of the fund model. Our contributions are the result of having built a strong business serving 3.1 million Canadian cable and satellite customers. We invested, at great expense, in a world class infrastructure that distributes as wide a range of choice as possible to our 3.1 million customers throughout Canada. Shaw has created highly profitable Canadian specialty services and provides high definition programming and other advanced capabilities. Examples are interactive set-top boxes, geared to keeping our customers tuned in while supporting other efficient digital operations such as Internet and digital phone service.
At the same time, we have broadcasters that, while completing multi-billion dollar consolidations or receiving large parliamentary allocations, complain they cannot afford Canadian content. They already receive $500 million a year from us directly, from Shaw, in affiliation payments, which, to a large extent are guaranteed because programmers receive mandatory carriage. Many of these services, such as French Language Services in the West and services such as Book Television, Issue or others are not even popular, yet we must carry and pay for them. Cable and satellite companies pay indirectly and then again through the CTF, and all the while their commitment to Canadian programming is declining.
We also face a Canadian production industry that is so dependent on handouts that the House standing committee referred to it as ``a house of cards'' completely dependent on the fund. This subsidy-based model is not fair, not beneficial and cannot be sustainable. Creating a viable Canadian television production industry and high-quality programming demands an investment-based approach to Canadian television rather than a subsidy approach. We think an investment-based approach can be achieved with a more focused, fair and accountable funding regime. Such an approach would serve Canadian viewers much better than one that emphasizes quantity over quality and puts the commercial interests of broadcasters and producers above those of consumers.
In closing, we reiterate Shaw's commitment to the development of mechanisms to assist with the production of high- quality Canadian content. We played a key role in the establishment of the Canadian production fund. It was our idea. We intend to be equally constructive going forward in making recommendations regarding the reform of Canadian production financing, with the goal of ensuring the ongoing health of the Canadian broadcasting system and to that ensure our customers receive the high-quality Canadian programming they demand and deserve.
Thank you very much for inviting us to appear here this evening. We look forward to your questions.
The Chairman: Thank you very much. On February 20, in the House of Commons Standing Committee on Canadian Heritage, you mentioned that you would like to see more fairness in the system. With your remarks again tonight, we can feel that you want more fairness in the system. You want a funding mechanism that is independent and accountable to those who provide the funding. Yet, the core of your argument is a necessity to achieve measurable results. According to you, the CTF has failed to create a strong, self-sustaining and self-financing industry. The letter you sent to the CTF dated December 20 reflects this preoccupation.
We have a small market here compared to the U.S. We are struggling to make good and successful TV shows that Canadians will watch. In Quebec, the local production in French is far more popular than American or foreign programs. In English Canada, we also have some tremendously popular Canadian shows. However, Canadian shows are not making money, as is the case with their American counterparts. Can you describe specific measures you would support to improve the CTF in terms of performance?
Mr. Stein: I can give a number of different answers to that. First, when we say that Canadian programming cannot be sustainable on its own, we think that is wrong. I am a member of the Shaw Rocket Fund, which sponsors children's programming. That programming is the most successful programming that Canadians produce. We export it around the world. It receives rave reviews in Germany, Australia, France, et cetera. We develop means through the Shaw Rocket Fund to increase the exposure of Canadian programming around the world to try to have more exports and to sell it more productively.
As a result of our success, the Canadian Television Fund reduced the amount of money it spent on Canadian children's programming. Combined with the CRTC changes in policy in 1999, the amount of money now spent on Canadian children's programming is 30 per cent less than it was in 1999. We think that is totally unfair and inequitable.
We have also been told that situation is because Shaw owns YTV, children's programming services and so on, which we do not. That is owned by CORUS, which is a different company structurally, although the Shaw family has a controlling interest in it. The money in the Shaw Rocket Fund goes to everyone. It goes to the CBC, TVA and a whole range of people. It is based on the quality of proposals that come forward. This fund is chaired by Annabel Slaight, who I am sure will be pleased to talk to you about children's programming and the concerns that she has with it. We think that fund is an example. If we were able to focus on particular areas, we would be much more successful as a country in developing that kind of programming.
Second, we have examples where Canadian programmers have produced successful and popular North American programming such as CSI. We think that Canadians have the capability to do it. The capabilities are there. The fact that we have not been able to produce that programming is only a poor reflection on the structures that have been put in place to try to do it.
The Chairman: In his letter to the CTF dated December 20, the CEO of Shaw Communications wrote that, ``Our understanding was that after the initial five-year period, the fund would be self-sustaining and self-financing from a return on investment in successful productions.''
Was that an explicit condition? Was anything put in writing with respect to this understanding?
Mr. Stein: The fund evolved in 1993. While we felt we were explicit about it, other people probably were not. Part of the issue in all this is that it has not been clear what the fund is actually doing, and how it funds and finances programming. We took the position that when cap X ended, the commitment would end. However, that did not happen. In 1996, the government removed the fund from the CRTC oversight, put it under the Department of Canadian Heritage and combined it with other measures and funding to create this so-called public-private partnership. We were told that was the way it would be. It then went that route.
We have always been told that we would have input and there would be results and reports on how it was doing, but we never received anything satisfactory. It probably evolved from what our view was at the beginning, and a view shared by other people in the cable and distribution business, namely that this fund was to be more investment-based. I am not sure we could say that it was totally investment-based, but it was certainly much more of an investment than anything else.
The Chairman: The actual television production system requires that to be granted public money from CTF, they must be an independent producer. CTF has been a force in the development of a strong, independent production industry in Canada. What are your views regarding the independent sector?
Mr. Stein: It is important to have a strong broadcasting and production sector. We feel that how that sector operates is best dealt with in the marketplace. We have had discussion with others. People such as Quebecor have a view about how that sector should be created. Our view is that an independent production ministry is an important element. We want to have more independence in terms of creating that entrepreneurial kind of spirit and ideas for new kinds of programming. We do not think broadcasters should step away from their responsibilities either.
The Chairman: The representatives of CBC, and also other stakeholders in the television industry, indicated to this committee that the Canadian Television Fund has been successful in many ways to strengthen Canadian-produced television programs, and to ensure diversity.
There must be some positive aspects to the fund and some areas that are working well. What programs funded by the CTF for English Canada would you describe as an audience success? Do you have any examples in mind? Is that asking too much?
Mr. Stein: It is ironic that they say it is successful and at the same time, they describe it as a house of cards. Maybe they have a different view than we have of what an industry is. Our view of an industry is one that is successful and self- sustaining in creating positive employment for people, and that industry is growing and competitive.
I am chairman of CPAC. We run CPAC in a certain way to make sure it is effective, efficient and accountable. Everyone knows what goes on. We negotiate agreements. If anyone asks, ``How do you do it?'' we open the books and there it is. They can go down the street and watch it. We have no difficulty with that. That is fine; that is a public purpose and it is funded and the funds are allocated properly. However, it is something more difficult to throw money into something and then have no representation or agreement with them as to how that money is used, what it funds or how it is managed.
On the viewing side, that is exactly the issue. In the last 10 years, the standing committee produced viewing results that we had someone analyze. We were told there was only one year of viewing results. There were no baseline comparisons to judge.
When the CBC appeared before the standing committee, they gave a viewing chart outlining what they had done. It was noteworthy that everyone talks about the same four programs as being there, and they are the CBC programs. We are saying the public already pays for the CBC. We agree that those programs are extremely popular and successful. They should be there.
As Robert Rabinovitch indicated at the last standing committee, or indicated publicly, the government should decide how much money the CBC needs to do its task and then give it the money to do it. Whether it is a hospital, the CBC, the education system or whatever, that is the job of the government, and we support that.
When we look at the private broadcasters, and the CBC evidence put forward, the only two programs that were CTF-financed in prime time in a particular week were at 10 p.m. on Sunday night against hockey. One was called Whistler, and I cannot remember the name of the other one. We checked the viewing numbers. One is at 173,000 and one is at 141,000. That is ridiculous. Why are we spending $2.2 billion to obtain 173,000 and 141,000? We looked at those audience numbers combined with two things. The spending on Canadian programming has been flat over the last five years. There has not been an increase in Canadian programming. There has been a 25 per cent or 40 per cent increase in spending on foreign programming. We felt that this fund is a subsidy to allow broadcasters to buy more foreign programming, and it is a shell game. We wanted some answers, and we still do.
Senator Tkachuk: Thank you for the presentation, Mr. Stein and Ms. Rathwell. I agree with you that the goal should be a strong and independent production system that is not reliant on government subsidies. My view is also that economics would tell us that the more money we pour in, the less money someone else has to, and that is exactly what is happening to the system. The only problem with subsidies is that people become reliant on them, and then it is almost impossible to move away from that reliance.
I am not sure exactly how the CTF started, and senators might help me if my memory is a little rusty on what has happened in the last little while because we have had a two-week break. I know we were told by the CBC that this fund is not really the money of the cable companies. This money was allocated because an application was made for an increase in capital expenditures. The government said, ``We will give you the capital expenditures, and more, but you have to throw this money into the fund.'' I think that is close to what we have been told here by the people in charge of the CTF fund, and by CBC.
Exactly how did the actual amount of money that is put into the fund by the cable companies come about? Is it your money, or is it a tax that the federal government imposed? If it is a tax, the consumers pay. How do the cable companies fit into this funding?
Mr. Stein: First, it is a tax. It has been described as various things, but it is a tax. There is no doubt about that. It is paid for by Canadian consumers. It is their money. We offered to give it back to them.
When the deal was made in 1993, it was complicated because a cap X arrangement was in place. I was president of the cable association, so I can speak for what our representations were at that time. The proposal was that, going forward, an investment was needed as we developed fibre optics and interactive services and Vidéotron was strong, and Videoway, and addressability and those kinds of things. We knew we were getting into the Internet age, but we did not yet know it was already the Internet age. We were talking about the need to make these kinds of investments. At the same time, we also said, and this was J.R. Shaw's initiative, that we need to invest in content.
The proposal that was put forward was that it would be 50-50. There would be a discretionary amount. The cable systems could make a choice. If they kept the amount in the cap X, they would give half of it back to this production fund, but they could also give it back to the consumers. That was the proposal.
The CRTC decided that they did not want a voluntary, discretionary decision like that, so they made it a requirement that, going forward, the cap X that was in the base would remain, and going forward there would be a contribution to the fund.
Senator Tkachuk: Once they put their hands on it, it was over.
Mr. Stein: Yes, in 1996, that was changed. There must have been discussions between the department and the commission, because the commission decided that it would pass control of this fund to the Department of Canadian Heritage and it would impose a 5-per-cent charge on the gross revenues of every broadcast distribution undertaking, which would be cable and satellite. That is the way the fund evolved.
There is no benefit to the cable industry right now. We are not talking about our money; we are talking about the consumers' money. We already pay for programming services. Our company pays $500 million a year for the programming services we receive from Canadian programming services.
When people try to be simplistic and say this is money that the cable companies were given, that is not true. It did not happen that way at all. It was already in the base.
As Mr. Shaw said at the hearing, it was a bad deal. It was a bad deal then, and it is a bad deal now. We offered to give it back. When we did not make our payments for that month, we held the money, we accrued for it, and we made it clear that our view was that we would give the money back to our customers.
Senator Tkachuk: I remember the $500 million you talk about. You are affiliated with one of these individual programming companies that I pay for.
Mr. Stein: They are all doing well.
Senator Tkachuk: They have one office in Toronto, and they are paid a cheque every month, and that cheque was to be used to invest in quality Canadian programming. With the advent of cable and all these channels coming in, the reason they were able to charge the money and the reason I must pay for bundles rather than only the individual programming that I want is so that Canadian programming can benefit.
My view is that all that money goes into people's pockets and not a lot of Canadian programming is made, which to me is a misrepresentation by the programming people who come to the CRTC, beg for a cable licence, receive a cable licence, receive a piece of cash every month from every Canadian consumer, most of which we are forced to pay, and then there is no programming. What is happening with the $500 million? Is it all going into people's pockets in Toronto? It was supposed to go all over Canada too. That was the whole idea.
Mr. Stein: I am not sure what the question was.
Senator Tkachuk: If all this money is going into these individual programming companies that you carry, should there not be a tremendous amount of money spent on Canadian programming right now? I do not believe there is.
Mr. Stein: I totally agree with that. First, we are required to carry all the services that are licensed.
Senator Tkachuk: I understand that.
Mr. Stein: That is one thing. Then, we are required to pay for subscribers for a number of services, whether subscribers take it or not. Services may not go to subscribers, but we must pay for them anyway.
We had hoped with digital that we could give customers more choice and at Shaw we did. We have pick-and-pay packages on our digital services, so close to 30 per cent of our subscribers can pick their services. We do not with the analog services. We offer the older type of services in packages. The commission requires us to offer packages.
Over the past couple of years, the commission has come up with a digital policy stating that even though we are now in a new world of digital and people can pick and pay for services, the services that are on analog must be offered also on digital in packages. We disagreed with that approach, but that is the policy.
What evolved is not a system that gives the consumer choice; it evolved into a system that guarantees revenues for the programmers. We do not agree with that, but that is what we do.
Rogers tabled evidence yesterday at the CRTC hearing on digital licensing of new applicants that said eight out of ten Canadians feel they do not receive enough choice. They want to choose the television services that they receive and do not feel they can do that at the moment. That view is totally consistent. It is the largest complaint we get from our customers: When I go into a magazine store to buy Time, I do not need to buy Maclean's also, so if I want only this service, why must I buy other services?
Senator Tkachuk: I agree. I am asking that question because I have you here. It does not have much to do with the CTF fund, but I thought I would ask that question and put it on record.
Mr. Stein: It is all interrelated.
Senator Tkachuk: You had deliberations, obviously, and an action, which was to withhold the money. What did you have in mind to replace the governance of the CTF, and how would it conduct its affairs and support the system? There must have been some discussion about what you wanted as a cable company in your perfect world that would have triggered this action. What exactly was that?
Mr. Stein: I can talk about that in general terms, because we have a CRTC task force, but we have not yet met with the task force. I understand they are trying to develop a consensus. We want to have that discussion.
Broadly, we are saying that a board running a fund should not have beneficiaries on the board. A board running a fund that is building an industry should be investment focused. It should be focused on how to build this industry. As such, the representatives should be representative of the consumers and the distributors who make the contributions to the fund. It should not have beneficiaries on the board and it should have people who are focused on investment.
Second, we feel that, as with any other industry that develops strength in it, the more investment based it is, the stronger it will be for Canadians.
When I walk into a hotel room with my kids, they do not turn on the television. They bring in their laptop and they want to know where the high-speed Internet connection is. We are not talking future, but now, today. They are looking at MySpace and YouTube and setting up their chatrooms. That is the direction the system is going. It is disappointing to see that the Canadian entrepreneurial system is not doing enough to ensure there is Canadian content. We think that is because the system has been overly protected and subsidized. The way we can strengthen it is to take an investment focus. Those are our views in terms of the CTF.
We will see where the discussions go.
Senator Dawson: First, I think as far as lack of accountability, poor performance and unfairness, there seems to be a sense of recognition on the part of the committee that these things need to be addressed. That is why we have these hearings. On that side of the issue, I think you can have sympathy on my part.
My sympathy stops there. When people ask for licences and receive them, they are given restrictions on what they are allowed to do and what they must do, including French-language television in the West. I find it insulting that those who are given licences sometimes describe it as a licence to make money. They were given to you instead of someone else. No one forced these licences onto these poor cable distributors and required them to participate in the support of the cultural industries of Canada. They define that requirement as a burden when they would not have any profits if they had not been given a licence to make those profits.
From what we were told, along the way, you were supposed to reduce your cost. It was an agreement between the government, the CRTC, and you that some of this money could be used to support Canadian programming, which I think deserves to be supported. You could say that many of these services, such as French-language services in the West, are not popular, yet you must carry and pay for them.
When Shaw asked for its licence, the company knew well there were Canadian conditions: the support of culture; support of local programming; and the support of French-language television. For you to find a way to come in here and use that remark as being something that surprises you, to be frank, insults me.
That being said, you also said that you were the creators of the fund. Could you elaborate on that?
Mr. Stein: First, we did not mean to be insulting and we did not mean to single out French-language programming.
Senator Dawson: You put it in your paper.
Mr. Stein: I do it advisedly and with thought. It is not a mistake to put it there. The issue is that the act requires services to be offered across the country. Those services are things that we comply with. When we offer services for choice, which digital services are — I am talking about French-language digital services — and no one takes them, then we have to say: Why do we continue to do that? That is another step. I am not talking about Radio-Canada, TVA or a certain basis of other French-language services, but carrying the totality of the services, even where there is no demand. That is the point we are trying to make. We are not trying to raise it in an insulting way. If you take it that way, that is wrong. If we are afraid to talk about those kinds of things, it is a problem, because we think that we would like to offer people many services. We are prepared to discuss it in a rational way. I hope you will not take it as an insult.
Senator Dawson: I understand. My kids are the same. They use the Internet probably more than they use the cable service. When the cable service was asked for, you did not ask for it for Internet. The reality is that the service is now a profit-making product for you. It was a licence that was not forced down your throat, but given to you because you asked for it. You were given restrictions and you were given content regulations. Again, I am surprised that you would not moderate the fact that, now we have cable, we should not have these obligations anymore. I think that obligation is part of the historical relationship between the cable industry in Canada, the government and the CRTC. Part of your responsibility is to continue assuming that.
To say that modernization means viewers are looking at MySpace or YouTube and it should free you from your commitments is forgetting that we did not force that licence on you. Now, the license is an even bigger permit to make money because on the cable side of it, you do not need to offer any kind of product.
Even though we agree — and I said it at the beginning — that you have some justified grievances toward the fund, I feel that some people that come in and complain forget the origin of their money-making permit.
Mr. Stein: We all saw cable licences as a license to spend money.
Senator Dawson: If you calculate the fund money as being indirect taxation, I guess you are making money with the taxpayers too; you must be taxing them for a service we offered you.
Mr. Stein: Taxes are fine, but if it is a tax, let us make it clear that it is a tax and that it is done properly as such. I guess one of our fundamental problems is that we do not think it is done properly.
Cable does not have a monopoly. That ended with the Liberal government in the 1994-95 period. Before that time, cable was the preferred distributor. When they received a licence, they were the preferred distributor to serve the people in that area and no one else could come in.
In Winnipeg, Senator Dawson, we have six competitors. Two of them are illegal, and the Government of Canada and the Parliament of Canada have done nothing to protect us, as opposed to what has happened in the United States, where the U.S. government and Congress have taken measures to protect against piracy and the stealing of signals.
We have 870,000 subscribers on Star Choice. There are more black market dishes in this country, yet no one has taken any action to protect us against that. When people say they are going to a black market dish for ESPN and all this other stuff, we are concerned about that. In the city of Winnipeg, we have a range of competitors in every market. Winnipeg is probably the most competitive market in the world for television services but every marketplace is competitive. That situation changed under the direction of the Government of Canada, when they directed the CRTC in 1995 that it would now be competitive, that there would be DTH licence on a competitive basis. All those measures were put in place, so the ballgame has changed.
We do not have this nice, little protected distribution system anymore. We are out there competing with people and we have stepped up to the task. That is what we feel. That is what I said in our presentation, that we feel that the bargain always has been that as distributors, we have these obligations. We live up to them and we deliver. We feel we have delivered; we delivered on the Internet.
At one time in Fort McMurray, we had more high speed Internet subscribers than AT&T had in San Francisco. We stepped up to the plate and made the investments, and we have served small communities. We provide those services.
We do not feel that the Canadian broadcasting and programming service industry has done the job. We do not feel they have produced the kind of Canadian content that we think would meet the demands of Canadians. If we spend $2.5 billion, we want to make sure it worked properly.
We understand when people start raising issues, like the poor guy who challenged the Ontario lottery commission, people will start protecting their self interests; but we are challenging it. We have been trying to attract attention for five years. We looked at the rules and the law; we consulted all our lawyers and asked what we can do to shake this issue up a bit. The answer was, we do not have to pay this money monthly, so we withheld a payment and we attracted attention and focus on the issue.
That is all we are trying to do. We want to fix the problem. We are focused on finding a positive solution.
If people want to say we are cable guys, we have all these obligations and we must live up to them, absolutely; we will live up to our obligations every step of the way. We only want to ensure everyone lives up to their obligations.
Senator Eyton: You have been critical of the CTF. To what extent does Shaw take advantage of the CTF and some of their investments and activity?
Mr. Stein: Shaw directly does not receive any return from the money that goes into the fund. On the core side, the services receive some of the funding for YTV and some of the other activities they undertake; but Shaw and Star Choice do not receive any of that money.
Senator Eyton: I am a Star Choice subscriber. Is there nothing that comes out of the CTF on Star Choice?
Mr. Stein: You would see CTF programming in terms of Canadian programming services; a lot of the programming would have a portion of CTF funding. Our point is that you already pay for that programming so you should not pay twice. When you pay your Star Choice bill, a good portion of that bill already goes to those programming services.
Senator Eyton: You are eloquent in your criticisms. I see you there, not literally, but I see you standing alone and naked. Quebecor was with you for a while, but you are a lone voice speaking for fairness and accountability. Where are all the other partners like you?
Mr. Stein: Where are the others? I am not sure that Quebecor and ourselves are in a different spot at the moment. Quebecor had discussions and was convinced to resume its payments earlier than we resumed our payments. However, in the end, we did the same thing after discussions with them and with others about what they saw as the need for change.
Also, Quebecor serves a different situation in terms of the market they serve and the interests they have. It is interesting that you say we are a lone voice. I receive lots of calls from people who say, ``Keep it up, you are on the right track.'' We say, come on and help, but they say ``No, we cannot do that.''
We hear from some CBC producers and some independents, et cetera. I worked on a film that was a boondoggle. It should never have been done.'' We hear these stories, but people say they cannot speak out, they cannot do that.
I think we will keep going at it. We will continue to talk with people on the CRTC. We have resumed our payments. We have never been under any kind of a notion that we would not pay money, but we want some fairness in it. We want Star Choice dealt with more fairly in how it is treated. We will keep hammering away on it.
Senator Eyton: Good for you. You made it an issue and brought it front and centre; now the CRTC will have an examination. My understanding is that it will be largely or wholly private, is that correct?
Mr. Stein: No: They said they want to cool this issue out and bring in rationality; bring the parties together to hear their views first. Then, when they bring those views together, they will know whether there is any basis to move this forward. That process obviously would be public. If there is not a consensus, it will be in public.
I do not have any sense at all that there are secret deals. I think Konrad Von Finkenstein is to be congratulated, and I think the minister is to be congratulated for supporting him in the initiative.
Senator Eyton: Do you think the process they have adopted is the right one?
Mr. Stein: Yes, it is normal to hear people out. We are all used to negotiations. We generally have a negotiation first and then, beyond that, we make sure the solution will be discussed, with everyone's input.
I have no sense from the commission that they will do anything without ensuring everyone has input. Our whole objective has been to bring some transparency into this process.
When people talk about what initiated all of this activity, part of it was the fact that we bought a cable system in Kenora that has a television station attached to it. The television station is so valuable that the commission actually put zero value on it, but it serves the area of Kenora and Lake of the Woods. Those of you from Winnipeg know that Lake of the Woods is about the best spot in the world. The television station serves that area and is terrific, but it does not make any money. We went through it this year and were rigorous about it. We felt this year we could get an operating increment or that one broadcast station could produce about $20,000. Our one board member from Shaw was kicked out of the meeting because now Shaw is a broadcaster. We thought that rule was ridiculous because it closes the system down. Issues like that we want resolved. Why should the board meeting not be an open and public discussion about how they are funding things or what they are doing? Why can people not know about that? We do not understand that. Given the transparency required today from us, from our board and from the legislation that is in place both in Canada and United States governing our activities, we think that it should apply equally to them.
Senator Eyton: The CRTC examination highlights that it will look at the use of the required contributions, how they are applied, the appropriate size and structure of the CTF board and mechanisms to deal with perceived conflict. Do you think that this examination will, or should, cover what I understand to be the policy directions given to the CTF? They are complicated. I do not want to read them here because they have already been read into the record at least once. I suppose you are familiar with them. There are nine of them. They are comprehensive and in some ways contradictory. Some of them touch on the things we have talked about here tonight, so I will read them quickly: one, support the creation of high-quality, distinctly Canadian television programming such as drama and so on; two, allocate one third of its resources to French-language programming and two thirds to English-language programming; three, support the production of Aboriginal-language programming; four, support the programming produced by francophone producers based outside of Quebec; five, allocate 37 per cent of resources to programs licensed by the CBC/SRC; six, spend a minimum percentage of its revenues on the development of television programming; seven, ensure the programming it supports is produced in regions across the country in an equitable manner, whatever that may mean; eight, support language versioning; and, lastly, develop a mechanism that enhances access to the CTF by programs supported by educational broadcasters. That list is quite a menu that I think would be difficult to manage in any circumstance.
Mr. Stein: Absolutely, I agree with you. I think what you are referring to there is the basis for the contribution agreement between the government and the CTF. It hits on one of the concerns we have whereby the government, by putting in its funds, has a contribution agreement with specific objectives.
Senator Eyton: My notes say that this information was provided by the CTF at its recent appearance before the House of Commons Standing Committee on Canadian Heritage, so it is what the CTF believes. Is that something you would also hope to bring up? If you want a clear and appropriate direction, it has to be simple. You cannot have 15 different directions because they will not go the same way.
Ms. Rathwell: Without getting into the details of our submissions to the CRTC, while we will have views on certain of those requirements, we suggest a different fundamental approach altogether. The list that you went through refers to types of programming that essentially merit support. The CTF has allocated money to many different program productions without much measurement as to how that money has benefited the Canadian broadcasting system or Canadian viewers. While I am sure we will be opining on several of those requirements, at the same time I think our recommendations will include fundamental suggestions as to different directions in which to take financing.
You noted the CRTC's description of the task force mandate, the first one, which is to discuss broadly the uses of contributions. We would see that in a broad sense, not only the narrow sense of what groups should receive but how all this money should work. That is our primary focus.
Senator Eyton: I want to spend a little time on the legality of licence fees. I remind you that the courts found that the Part II licence fees levied on broadcasters were, in effect, a tax that had not been approved by Parliament. I have a particular interest because I am Joint Chair of the Standing Joint Committee of the Senate and the House of Commons for the Scrutiny of Regulations. That committee has felt that way about that particular fee for seven or eight years, perhaps more. The courts have now come to the same conclusion. By the ruling, the CRTC lost the power to levy those fees. Would Shaw argue that the CTF contributions constitute another unauthorized tax? Is that something you have considered with your lawyers? Secondly, if the courts were to decide that the CTF contributions constitute another unauthorized tax, what alternative could be found to fund the CTF?
Mr. Stein: We think it is a tax, but we are not equipped at this point to comment on whether it is authorized or unauthorized.
Senator Eyton: If it is a tax, it would not be authorized. If it is a fee, it is okay.
Mr. Stein: It will be an interesting discussion.
Senator Adams: I sometimes watch Aboriginal programming in Ottawa or in Rankin Inlet. You referred to the interpretation of Aboriginal programming. I know that the station based in Winnipeg distributes Aboriginal programming. Is that done through your service as well? I know that some Aboriginal programming is funded by the CBC.
Mr. Stein: A lot of what we do in that sense is more on the core side, so they would be more expert in terms of how to deal with language issues.
One thing we have done with Star Choice is to make sure we put our service into those areas. That has been our primary focus. We understand the language issue and support initiatives to deal with it. It is clear that it is an appropriate use of this type of fund. Those kinds of things need to be done. I am not an expert on language issues, but the core people, in terms of children's programming, are aware of the issues.
Senator Adams: You mentioned children's programming. Are you the only broadcaster in Canada who produces children's programming? Do other broadcasters such as the Canadian Documentary Channel, CDC, do it as well?
Mr. Stein: We do not do it. That sector is a strong production sector. Going back to the chair's remark earlier about believing in the independent production industry, most children's programming is produced successfully by independent producers. Their programs are successful around the world. They are not produced by Shaw. Some of it might be done by YTV, but most programming is done by independent producers, including Degrassi High.
Senator Adams: Are you the distributor?
Mr. Stein: Yes.
Ms. Rathwell: As a point of clarification for Senator Adams, Shaw is directly involved in children's programming with the Shaw Rocket Fund. We allocate some of our revenues to that fund. We are aware of what is going on in the children's arena but we are not the producers of the content. It is another fund that we support.
Mr. Stein: A few years ago we started awarding the Shaw Rocket Prize. We will ensure that all members of the committee receive an invitation to our celebration in Toronto in a few weeks. We have an interesting process. We pick a number of the programs that do not have to be programs the Shaw Rocket Fund has supported, although we support most of them. Kids in particular groups work with the media advisory centre to learn about film. They pick the programs that will be short-listed for consideration to win. We have an international jury with experts from Australia, Europe and the United States. The students come and talk about what they have learned from the process about media literacy and producing television. It is a sense of not only producing programming for children but also involving them in how the programming is produced. We are proud of that initiative. For the most part, the prize has been given back to the system. I know that Degrassi High tends to win everything but they funded a number of projects with children to produce interactive media projects. Part of the problem is that Canadian kids are good at television production but they do not tend to do much of it in Canada. They are successful around the world, and we want to be part of that process.
Senator Adams: In the education system, all schools in Nunavut have such programs with their computers and other equipment.
Mr. Stein: That is a different business. You will have to ask Bill Gates to appear before the committee, and he would probably come.
Senator Adams: You have nothing to do with that aspect.
Mr. Stein: That is right.
Senator Adams: I see you spend more than $3 million. Was that for company upgrades or for the cables? Over how many years did you spend $2 million?
Mr. Stein: I am unsure of your figure reference, senator. The company has spent more than $4.5 million investing in our plant over the past five years with such things as digital boxes and satellite systems services. The $2.5 million that you referred to is the amount that we think has been wasted going into the Canadian Television Fund that has built this house of cards. We do not think of that money as an investment. However, the $4.5 million is an investment. When I joined the company 12 years ago, we had 200 to 300 employees and now we have 9,000 employees. We are proud of our growth and investment and what we have been able to accomplish.
Senator Adams: What do the 9,000 employees do?
Mr. Stein: They are technicians, producers and engineers — good jobs.
Senator Adams: You are spending another $44 million and you pay $100 million in tax. How does that work?
Mr. Stein: The $44 million is the contribution we made to the Canadian Television Fund. The government put in $100 million and have five board seats and we put in $44 million and have one board seat. The government received a contribution agreement and a right to audit but we did not receive any of those rights. We thought it was unfair and inequitable and not a true public-private partnership. I have been a public servant for a large part of my life and have done many different public-private partnerships. I was involved with Don Mazankowski and arrangements with Air Canada, and another with Petro Canada but I have never seen such an arrangement as the one with the CTF whereby we put in our money and are told to go home.
Senator Adams: In the meantime, you spent that money and you do not get any back.
Mr. Stein: Yes.
Senator Tkachuk: I am a satisfied customer of Shaw in the city of Saskatoon. However, the only thing that upsets me is what you are forced to do by the CRTC. I want to talk about the CTF. I believe that 37 per cent of the funds go to CBC. However, we were told an interesting story by CBC representatives. I think that this money could grow if people invested their own money that was then leveraged in some way. It would create greater self-interest by the producers or the originators of the programs. The representative went through a proposal process but I was so perplexed I did not ask a follow-up question. The witness from CBC said that they have a family slot at a particular time. Therefore, they let it be known in the industry and producers came forward. They accepted them because they liked the proposed script and gave them some money. If they like script, then they give them more money to write the pilot. Someone asked how this process worked and the witness said that it was not that they made a proposal to the CTF but they somehow knew that the money was already available at the CTF. It was CTF money that they were spending. They would simply send them to the CTF. Does it all work in that way? The more I hear about this, the more I think you have a point. If they make the proposal, what do they have to lever?
Ms. Rathwell: The fact of broadcaster envelopes lies at the heart of this kind of allocation because the CTF takes its pot of money, and the share for the CBC is mandated by the Department of Canadian Heritage through its contribution agreement. Otherwise, the CTF decides what percentage of the pot they will give to CTV, Global or other broadcasters or programmers that have entitlement. The programmer or broadcaster then makes decisions on how to deal with the money with the independent producers. There are no controls over those deals and they are left to make their own decisions.
I do not suggest what the rules should be but there is no accountability as to how the broadcaster can use its money. It could use the money to award the guy who made a decent children's program last year, or take a risk on something new. It could use the money to fund development and move it up to production. That process is not transparent to us but it is the essence of where the CBC's description lies — the broadcaster has control over the money. When the CBC says that it is not their money, that Shaw is misrepresenting them, and that it is the independent producer's money, the fact of the matter is that it is fully in the control of the broadcaster as to how the money is spent to offset their licence and development fees.
Mr. Stein: It is a shell game because the government gives $100 million and then, say, 37 per cent of the total, or $85 million, must go to CBC. Our point is: Why not give the CBC $85 million, or the 37 per cent, at the beginning. If they think the CBC needs it, give them the money. If they think the CBC must spend on independent production, there is a CBC board with a chief executive officer. That is what the board is there for. That is what they should do.
Where it starts to unravel is that then they allocate it by broadcaster and programmer, so each broadcaster receives an allocation of money. With that allocation, they solicit projects. It used to be a bit of a concern in the beginning years where they would receive applications for more funds than they had. Now they balance it out. I think that is probably what they were trying to describe: how they balance it so they do not receive more applications than they can deal with.
It is certainly not the way we run the Shaw Rocket Fund. The Shaw Rocket Fund is administered on a straightforward basis. No allocations are guaranteed. A producer comes in with an idea and puts it forward.
However, they must have a broadcaster. Here is the whole problem. If someone wants to produce a great program but no one has committed to broadcasting it, it will be difficult for an investor to contribute $5 million, and the producer to think they made this great production but no one bought it. There must be a relationship.
That relationship is developed through licence fees. The big problem with licence fees is that those spent by Canadian broadcasters have declined over the past five years. Rather than increasing their investment, they have actually declined, in some cases as low as 10 per cent. For a program of $1 million, they contribute $100,000 and they do not get the broadcast rights for that amount of money. We think that is wrong. We think licence fees should be higher. This is only a matter of shuffling money around.
What happens is that in Canada there are independent producers who are totally dependent on their financial expertise to succeed, and not their program production expertise. If they know how to work the provincial tax credits, the federal tax credits, the CTF funding, obtain a broadcast licence fee and maybe obtain some Shaw Rocket Fund funding, they will do fine. However, they must have someone who knows how to do that.
Pierre Péladeau made that point well, that people are taking 20 per cent off the top to put the program ideas together. They have nothing to do with the production. They take that amount of money. It is similar to a tax lawyer.
We think that part of the process should be exploded and started from scratch, and we need to figure out how we can do this better.
Senator Tkachuk: You said something interesting. You said the reason they went to this system is they had too many applications to deal with. It seems to me that is what they would want so they could choose good, bad and excellent. They would want lots of applications. There may be 100 applications, and 50 would be chosen because of quality.
In order not to worry about going through all that work, do they now allocate it and give everyone money who applies? Is that how it works? I am in the wrong business.
Mr. Stein: Each broadcaster receives an allocation. The CBC receives 37 per cent, but everybody receives an allocation. It is an allocation process. It is not an investment.
Senator Tkachuk: I understand.
Mr. Stein: It is all decided beforehand.
The Chairman: Thank you very much, Mr. Stein and Ms. Rathwell, for your presence here today. It has been helpful for the preparation of our report that will be completed soon.
Mr. Stein: Thank you. We look forward to your report, as always.
The Chairman: We will adjourn until April 17, at which time we will study the draft report. On April 18, Minister Oda will be here for a response to our media report.
The committee adjourned.