Proceedings of the Standing Senate Committee on
Transport and Communications
Issue 3 - Evidence, March 5, 2014
OTTAWA, Wednesday, March 5, 2014
The Standing Senate Committee on Transport and Communications met this day at 6:45 p.m. to continue to examine the challenges faced by the Canadian Broadcasting Corporation in relation to the changing environment of broadcasting and communications.
Senator Dennis Dawson (Chair) in the chair.
[Translation]
The Chair: Honourable senators, welcome to the Standing Senate Committee on Transport and Communications.
Today, we are continuing to examine the challenges faced by the Canadian Broadcasting Corporation in relation to the changing environment of broadcasting and communications.
[English]
Our witnesses for today are from the Canadian Radio-television and Telecommunications Commission. I would like to introduce Mr. Scott Hutton, who is the Executive Director, Broadcasting, and Mr. Peter Foster, Director General, Television Policy and Applications.
Before I begin and since we're still waiting for a few senators who will be coming in in a few minutes, I wanted to point out to people who are following us on webcast that, on March 24 and 25, we'll be in Winnipeg, if people want to contact the clerk to give testimony. We're going to be in Yellowknife on March 26. We're told that it's colder here than in Yellowknife right now; I hope that stays the same. On March 27 and 28 we'll be in Edmonton. The following week we will be starting our regular hearings here until we look forward to the visits in the rest of the country.
Mr. Hutton will be speaking.
Scott Hutton, Executive Director, Broadcasting, Canadian Radio-television and Telecommunications Commission: Thank you, Mr. Chair. We appreciate this opportunity to offer the CRTC's perspective on the opportunities and challenges facing the Canadian Broadcasting Corporation and Societé Radio-Canada in a fast-changing communications environment. With me today is Mr. Peter Foster, Director General, Television Policy and Applications.
[Translation]
As the national public broadcaster, CBC/Radio-Canada must meet the objectives of the Broadcasting Act to properly serve all Canadians. This means offering a wide and diverse range of programming that informs and entertains in both official languages.
You are also likely aware that the commission recently examined the impacts of technological change on its ability to satisfy these objectives. This was part of our comprehensive review of CBC/Radio-Canada's licences for its English- and French-language radio and television services last May.
Our decision to renew the licences was influenced by a number of factors, including the thoughtful interventions of the more than 8,000 Canadians who expressed their interest in the future of CBC/Radio-Canada. It also reflects our confidence in their long-term plans.
As CRTC Chairman Jean-Pierre Blais said when announcing our decision, the renewal of CBC/Radio-Canada's licences signals our belief that, "in the ever-changing media landscape, the Canadian Broadcasting Corporation will continue to play a key role for the vitality of Canada's French- and English-language culture, throughout the country." This assessment was based, in part, on the Corporation's five-year plan, Strategy 2015: Everyone, Every way.
In addition to conventional broadcasting using traditional media, the plan emphasizes CBC/SRC's commitment to having a strong presence on digital platforms — the way of the future. With continuing innovations planned through to the end of its new licence term in 2018, this should ensure that Canadians will have access to leading-edge digital content from their national public broadcaster.
Equally important, it should help to secure the financial viability of the Corporation's operations. This approach recognizes that Canadians today want access to their favourite programs anywhere, anytime and on the device of their choice. It also confirms CBC/Radio-Canada's understanding of just how dramatically the broadcasting and communications landscape is changing.
Of course, Canadians are still watching conventional television. TV takes up more of our time than almost anything we do aside from work and sleep — about 28 hours per week, on average.
But there is no denying that technological innovation is redefining the very definition of "broadcasting." Canadians are plugged in 24/7 in ways that few people could have imagined even a few years ago. This has irreversibly altered the TV landscape.
[English]
CBC/Radio-Canada's coverage of the Sochi 2014 Olympic Winter Games reflected this evolving reality. It worked in partnership with other broadcasters to provide Canadians with extensive coverage on television, the Internet and mobile devices.
While Canadians still have access to over 700 traditional channels, TV is now offered on different media, as Internet-based offerings like Netflix, Tou.tv, YouTube and Apple TV attest.
According to the CRTC's 2013 Communications Monitoring Report, a third of Canadians watch over three hours of Internet television per week. That's an increase of 2.8 hours from 2011. Four per cent report watching only programs online. A further 6 per cent of Canadians watch television programming on a tablet or smartphone.
The report also found that revenues for private television services reached $6.5 billion in 2012. That was a 1.9 per cent increase from the previous year.
Not on the sheet here today, but this morning I did receive our preliminary results for the year 2013, and there is a slight decrease in revenues for private television. It's approximately $6.4 billion, so a 0.5 or 0.6 per cent decrease.
Another notable trend: The percentage of Canadians subscribing to Netflix grew from 10 per cent in 2011 and 17 per cent to 2012, and numbers were released yesterday by MTM to 25 per cent in 2013.
The CRTC has been monitoring trends like Internet television, trying to determine the implications of these innovations for Canada's telecommunications and media industries.
[Translation]
After an initial review in 1999, we exempted digital programming services from our regulations. A second review in 2009 confirmed that this was the right approach.
The CRTC does not intervene into the commercial arena unless absolutely necessary to achieve the objectives of the Broadcasting Act. We allow market forces to drive change and only intervene when the market is unable to achieve the policy objectives set out in the act.
While some might like to tum back the clock, the reality is that broadcasting as we once knew it is no longer — and will never again be — the same. Just as Canadians' viewing patterns are changing, the system needs to evolve. That is not necessarily a bad thing. Rather than seeing companies like Netflix and YouTube as a threat, they should be looked at from the standpoint of the new opportunities they present. We should be leveraging them to promote Canada's creative advantage in the global arena. Information and communication technologies now drive industry and create business opportunities. Certainly, this is how CBC/Radio-Canada seems to view the situation. A few of the SRC's French-language TV shows — such as Les Invincibles, Les Parents and La Galère — can be viewed on Netflix. This is in addition to the large library of titles available through its Tou.tv website.
[English]
The CBC recently extended and expanded its licensing agreement with Netflix for its English-language TV shows. The agreement will see new seasons of shows added to Netflix, such as Republic of Doyle, Heartland, Mr. D, Dragons' Den and, naturally, other titles. As well, the deal adds its popular Murdoch Mysteries series to the service for the first time. This agreement reflects CBC/Radio-Canada's, and Canadian content creators' generally, proven ability to make quality programming which appeals to audiences both here at home and around the world.
Last October, the CRTC launched a national conversation with Canadians about this new age of television in an undertaking called Let's Talk TV: A conversation with Canadians. We have purposely sought out Canadians' opinions before moving to formal regulatory proceedings. We want to put Canadians at the centre of their television system, so we need to hear directly from them about their needs as engaged citizens, as consumers who make informed choices about programming, and as creators of television content.
More than 3,100 Canadians took up our invitation to express their views on the future of their television system during the first phase of the consultation. Many Canadians told us they want more choice and control over the programming they watch and pay for. So, I don't think we should expect to see a change in the trends that I've already outlined when it comes to Canadians' viewing habits.
The commission is continuing this conversation with Canadians. Last month, we released the Let's Talk TV: Choicebook, created using the comments received in phase 1.
In this second phase, we are asking Canadians to weigh the difference outcomes that certain changes to the television system could bring about and to think about what is important to them. We are asking them to look beyond individual interests to the bigger picture and what this means for their television system, because individual preferences, multiplied by the actions and choices of other Canadians, are not without consequences. The demands of one group may have a detrimental impact on the choices of others.
This spring we will launch a formal proceeding that will include a public hearing in September 2014. Our objective is to develop a framework for the television system that is responsive to the needs and expectations of all Canadians.
I would be pleased to answer your questions regarding these initiatives or any other aspects of our presentation today.
The Chair: Mr. Foster, you have nothing to add? He said it all.
Peter Foster, Director General, Television Policy and Applications, Canadian Radio-television and Telecommunications Commission: He said it all.
Senator Greene: Thank you very much for being here. I agree with everything you've been saying about the trends. It's not that I am an expert in this field; I'm not. I think all viewers understand where we're headed, so the trends aren't new to anybody.
I would like ask you a few questions around traditional cable companies and the difference between pick-and-pay versus must-carry. What are the CRTC rules right now on cable companies and their ability to offer pick-and-pay?
Mr. Hutton: There's a myriad of rules and there's a myriad of absence of rules, because a lot of the decisions that cable companies make on a daily basis are in their own commercial interest and dealing with their own subscribers.
You've mentioned two subjects. One is mandatory distribution. There are a handful of services that the CRTC, pursuant to the Broadcasting Act, has essentially asked all Canadians to contribute towards. They primarily revolve around services that help OLMCs — official language minority communities — receive services from the Broadcasting Act. A number of others deal with accessibility issues, facilitating access to Canadians who are disabled, either visually or suffer from hearing loss.
Those are the majority of the types of those services, but they represent a very small portion of one's bill. I believe the wholesale fees related to those are about $1.24.
Beyond that, the CRTC asks the cable companies to distribute the local TV stations, essentially here in Ottawa CJOH, the CBC or the SRC services, and to distribute them locally in their basic package. Those are pretty much the high level rules we put on the basic package.
The cable companies do themselves add a number of services in certain instances to the basic for a variety of reasons. Sometimes they have a commercial interest to do that through their affiliation agreements with the services. Other times they view it as providing added benefit or added value to the basic package, to attract subscribers to the basic package.
Senator Greene: I see what you mean, because in my package, for example, I bought HD and you can get CBS non-HD or with HD, but in order to buy the HD you have to have already bought the non-HD, in the package I have.
Mr. Hutton: Those are all their own commercial arrangements.
Senator Greene: So I have no choice but to buy certain things that I never watch. I suppose that is up to the cable company itself.
Mr. Hutton: Yes, the cable companies, and it depends which side of the river you live on.
If we move to pick-and-pay, which is the second part of your question, in conversing with Canadians there is one message we have to get out — and hopefully we will do that through our proceeding — is that there is already a certain level of competition out there. We all have to exercise our own consumer rights and shop around, because various companies that provide television services, whether it is an IP TV service, a cable service, or a satellite service, provide different levels of packaging. So there are certain choices that are available on that front. What we have heard from English Canadians is that they want to go beyond their current level of choices.
In Quebec, the market itself has actually delivered something that is very close to full unbundling or full pick-and-pay, led by Quebecor and its Vidéotron affiliate when it put a foray into essentially allowing you to pick your channels. One thing that seems to be of greater interest, as opposed to simply picking individual channels, is that they are also offering a service where you can make your own bundle. For $5, they will sell you — and I am simplifying the price here — five channels; or, for $10, you can get 10 channels. You pick each of those on that front. That seems to be very popular in the province of Quebec. Vidéotron started it; Bell and Shaw followed.
Senator Greene: I think that would be popular right across the country.
Mr. Hutton: I cannot say that, but I have certainly heard that Canadians are as concerned as you are on that front. We have certainly seen in the province of Quebec that the market can deliver it.
Is a regulatory intervention needed? That is what we are looking at right now.
Senator Greene: You mentioned that the Broadcasting Act requires cable companies to offer a certain number of things. That is also required, then, in Quebec with regard to this?
Mr. Hutton: That is correct. The model that appears to have come about in the province of Quebec is that there would be a smaller basic service than compared, for example, with Rogers here in Ottawa and one which roughly resembles just what is required. They do go a bit beyond that to provide a semblance of better value to subscribers, but there is a comparatively lower price for the basic service in Quebec. You get fewer services and then you can either go the traditional route of purchasing big bundles — many Quebecers still do that — or move to build your own or to a greater reliance on pick-and-pay.
Senator Greene: In the future, do you see regulations in this area becoming fewer and fewer, simply allowing cable companies to offer to viewers whatever they want to watch?
Mr. Hutton: I have to be careful because I was talking about our Let's Talk TV consultation. In April we will be launching the formal regulatory proceeding that will address these factors.
Over the last number of years, the trend is that the CRTC has been moving away from regulating. We are down to few packaging requirements — and I have mentioned them to you — on basic. If I went back 5, 10 or 15 years ago, I might still be explaining what all the rules were to you on that front.
Certainly there has been a trend towards less intervention by the CRTC, pursuant to the Broadcasting Act, with Canadian consumers' ability to pick and pay. We have backed off from most of those regulations, but the big packages and a certain level of dissatisfaction with those continues. One might be looking at where there is a need for regulatory intervention to make that happen. I think that the debate can go either way.
Mr. Foster: Senator Greene, EastLink does offer a pick-a-pack approach; they announced that in the fall. It is available in the Maritimes.
Senator Greene: Yes it is, I know. I get advertising from EastLink and Bell almost every other week saying that theirs is better and if you will join, then they will give you a deal for a few months. It is constant, but the pick-and-pay portion of it is quite small. I am interested in what they do in Quebec.
Senator Plett: Thank you, gentlemen. I apologize for being a few minutes late.
Is the CRTC's 2013 Communications Monitoring Report the report that Minister Glover requested of the CRTC, or is there a different report?
Mr. Foster: The monitoring report that is referred to here is an annual report that we issue every year. The report that Minister Glover has requested is a special report that is called section 15. That has a due date of April 30 for the filing of that report. That is specifically related to the pick-and-pay model.
Senator Plett: To the bundling and pick-and-pay?
Mr. Foster: Yes.
Senator Plett: And we can expect that report to be on time?
Mr. Foster: Absolutely.
Senator Plett: Wonderful.
You talked about some of my favourite Canadian shows, especially Dragon's Den and some others, being available on Netflix. Are you at all involved in CBC's negotiations with Netflix on these? Do you have any input there at all?
Mr. Hutton: No, we do not have any input, nor do we get involved on that side for any of the other broadcasters. We regulate them and what they present to Canadians through their platforms. The dealings on the sides, whether it is purchasing content and selection of which services they purchase from independent producers, is their decision. We provide a bit of the framework and help with that through something we call terms of trade, but we do not get involved ourselves beyond that in either the purchase or sale of programming.
Senator Housakos: I will ask a number of short questions and allow you to answer them. It is important for the CRTC to weigh in on this, because no one would have more experience on this than the CRTC.
I am curious to understand if the CBC/Radio-Canada has been well prepared. What have they done to get prepared for the challenges that have arisen over the last decade in terms of platforms and the fact that their competition is vertically integrated? What are some of these advantages that their competition was able to develop and garner that has forced the CBC/Radio-Canada to get on their horse and try to catch up?
Mr. Hutton: I would venture to say CBC/ Radio-Canada has often been at the forefront of numerous developments. If I go back over the time I have been concentrating on broadcasting with the CRTC, one of the first companies to test digital broadcasting was CBC/Radio-Canada, both on radio and on television.
We have mentioned Tou.tv here. It is a service that they were out at the forefront in offering online a significant portion — and I would venture to say you don't miss much — of what they would have put on the regular channels on that particular service. They do the same thing with the CBC player. It is not as well distinguished from their regular website on that front, but they have been at the forefront there. Certainly in the francophone world, that service continues to be a leader around the world for francophone content online.
Through our licence renewal process, we looked at what their plans were according to their own strategic plan on that front. They are building out on all the platforms; they are even building out regionally. The traditional media covers mostly the Island of Montreal, for example. They have put forward websites that kind of cover the south and the north. They have done those same issues in Vancouver. So they are trying, they are exploring, and they are putting some level of their own budgets behind developing product for all platforms and are actually exploring new things on new platforms. They certainly have been at the forefront of new media or digital media.
On vertical integration issues, they remain a broadcaster. The vertical integration that they are competing against is someone who controls the production, controls the broadcasting, and controls the distribution and even the telephone or the telecom unit, because many Canadians are viewing online and through their mobile devices. They are faced with that and I don't think they can develop the same level of vertical integration, but they have to differentiate themselves and ensure that they are on all platforms to survive into the future.
Senator Housakos: On their "digital strategy," would you call it a success? In the last few years since they launched their digital strategy, I have heard rumours that it has cost them close to $100 million. Unfortunately, in the first round of questions we had with the CEO of CBC/Radio-Canada, we were preoccupied with other things last week and we were unable to get to some of the issues but we will in the very near future. You just brought up the digital strategy. I have heard rumours that it has cost CBC close to $100 million.
From a technological point of view, from a capacity to get out and get more audience, do you think it has been a success and has it been profitable for CBC/Radio-Canada?
Mr. Hutton: I have already mentioned that Tou.tv has already been a success, especially on the francophone side. It has filled a void and provided a service and pushed others in the francophone market to step up and provide their own services online in that regard. If you put it as critical success, they have achieved it in the francophone market.
I don't have the budget's exact numbers, but they do put a set portion toward exploration, R & D and exploring new media or digital media platforms. The numbers that you are mentioning are not out of whack with my understanding.
It is still a developing market where one must innovate and the business models have not quite landed. People are garnering more and more revenue in this domain, but whether you are CBC/Radio-Canada or CTV — and I venture it's only until recently that some of the large American corporations who do the same thing may be entering break-even territory — it is a developing market. It is one where there is a lot of innovation and one where the business models are not fully worked out. It is improving. Advertising and subscriptions to digital media services are growing, but for the moment it is hard to say "Have you made a profit on this?" I am pretty sure Mr. Lacroix will have to say no, but put any other business person in this business here and they will answer the same thing he did.
In our research and in our conversations with Canadians, we have heard that Canadians want this programming to be everywhere and I think all broadcasters, including CBC/SRC, have to respond to that need and want.
Senator Housakos: From the CRTC's point of view, is a public broadcaster the only means to appropriately promote Canadian content and Canadian production in broadcasting? Maybe you can also tell this committee this: Besides the large amount of funding that the federal government gives CBC/Radio-Canada, are there any other mechanisms out there for private broadcasters above and beyond the public broadcaster that they can use in order to enhance and promote Canadian content and Canadian production?
Mr. Hutton: Our answer comes in part from the Broadcasting Act which looks at us and states that the Canadian broadcasting system has a private component, a public component and a community component. They are all equal and they are all part and parcel of reaching the various and numerous objectives of the act. The act also gives the CBC a special place and a special mandate within the system in our country.
To answer your question is it the only means, absolutely not, but it is an important means. After having been through the review of their licences and licence renewal last year, we have concluded that they are contributing to the objectives given to them and to the overall objectives of the Broadcasting Act.
Are there other means? On a daily basis, our private broadcasters produce Canadian content, promote Canadian content, and make it available to Canadians. Community broadcasters do the same, whether it is by television or by radio. They all play their own role, an important role, within the broadcasting system.
Senator Plett: Have you done surveys about what percentage of Canadians want Canadian content at the expense of it costing more tax dollars versus just simply those that are not concerned about the Canadian content that much?
Mr. Hutton: In the context of our conversation with Canadians, we have conducted surveys. We are getting the answers in and we will be publishing them along with the report that Minister Glover has requested. Those are coming and we will be able to inform you on that front. Here, we are concentrating primarily on television.
Tomorrow I will be at another committee where we do have a survey related primarily to music. The question "do you pay more money to get more Canadian content?" is not asked, but I think the number is in the 90 percentile that Canadians do believe that it is important to hear and have an opportunity to hear Canadian music. Stay tuned for the result on the television side.
Senator Plett: Thank you very much.
Senator Eggleton: Picking up on the last question, CBC/Radio-Canada may not be the only conveyor of Canadian content, but from what I see from the stats it is the main one by far, particularly for non-news and information programs.
On this question of cultural identity and the CBC, in January 2012, the former chairman of the CRTC stated in an interview that, "Internet and wireless technology has disarmed federal regulators of their weapons to protect cultural identity."
I would like to know if you agree with your former chairman on that, and what weapons are required to protect Canada's cultural identity?
Mr. Hutton: Chairman von Finckenstein always liked to express himself in a certain way.
Certainly, change is upon us. Technology, the plain operation of the Internet; consumer behaviour, whether it is on consumption of television product or audio product, has changed. Definitely he is right in saying that there is a sea change. I'd venture to say that the old means of doing regulation, which are issues of seeking protection and forcing quotas, are being challenged definitely looking forward.
I think what the CRTC is looking at, and what our current chair in a number of his speeches has been looking at and saying, is that we need to move from the old ways to a new way. In my opening remarks, I said we need to embrace these new technologies and a number of things that he mentioned, from protection to promotion.
So, protection was, for example, limiting choice or keeping certain services from other parts of the world at bay. You need to think about how do we, in this new world of digital media, make Canadians aware of Canadian product? How do we allow them to consume Canadian product? How do we promote the availability of that Canadian product?
Certain ideas that one is looking at and one that our current chair has mentioned in some of his current speeches is moving from an environment where you are forced to produce Canadian content by way of a quota to one where we set in place a structure where you are motivated to do it because it is in your commercial best interest. That relates to issues to embracing the new world.
In the past, broadcasting was very local. It was providing services in a certain area, whether by a cable company or a local TV station. All of a sudden, through technology, availability and the development of specialty channels, that became national. Now, with digital media, there is a potential for it to be international. There are also opportunities to take Canadian content and bring it to the world. Those are the types of things that we need to look at.
Is it going to happen overnight? No. We have a number of structures, realities and consumption habits that exist right now, but, as you strive and as you look toward the future, you must attempt to work on those different ways.
Senator Eggleton: You're saying promotion instead of protection and motivating them. Motivating how? It sounds like more money to me at a time when the CBC is actually getting cut back as the prime producer of Canadian content. So motivated how?
Mr. Hutton: Well, motivated. The CBC doesn't need to be as motivated as other players in the broadcasting industry.
Senator Eggleton: As long as they get the money.
Mr. Hutton: Well, it costs money, but, as I mentioned in my opening remarks, selling some of their product to Netflix, that is embracing the new world, and they are not being forced to do that. They do receive money from Netflix to make that programming available to customers, and it is being made available to all of the markets in which Netflix operates. It is sort of whether or not there are opportunities in that domain.
What are other motivating factors? We have seen even CTV embrace the production of high-end dramas and comedies. They can't do it wall-to-wall and have every hour of the day as Canadian content, but they have been producing high-quality dramas that are competing effectively with foreign broadcasters here in Canada and garnering interest and distribution elsewhere in the world.
What they are finding is if they are involved in the production and they control the rights, it is far easier for them. There is a motivating factor there, if they have actually participated in the programming and own the rights, to exploit the programming on the variety of platforms and get money from Netflix and foreign markets, whereas in the past, those opportunities were not there. There is a new motivating factor. How can we change and evolve our regulations to capitalize on that new motivating factor?
Senator Eggleton: I understand what Netflix is picking up, though, from the CBC in terms of its content, is old programming from the past as opposed to current programming. Is that correct?
Mr. Hutton: But that is Netflix's business model. At 8 bucks a month for all that content —
Senator Eggleton: Yes, but it is not new content.
Mr. Hutton: But, when you control the rights — if they put Dragon's Den on it, that is someone's program, and it is greatly watched in my house, too, even by my sons, they sell that to them. That money comes in and it helps to continue with that show, or it helps to continue to make new content. That's what these companies are finding, namely, that if they own the intellectual property and own the rights, they are able to sell it next year, but that money, when it comes in, goes toward producing new content and making the day financially viable.
Senator Eggleton: As I understand it, Netflix does not have to meet Canadian content rules and does not have to make a financial contribution, either, to Canadian culture. Should that change? I noticed in your remarks, after you talked about Netflix and YouTube, that you said we should be leveraging them to promote Canada's creative advantage in the global arena. Maybe you could expand on that and whether we should be getting money for Canadian content from Netflix.
Mr. Hutton: The CRTC has looked at all digital media, whether it's offered by someone like Netflix or by SRC in the form of Tou.tv, or by CTV on CTVGO or CTV.ca, or similar products from Rogers and Shaw, back in 1999, when it was all leading edge, and again in 2009 when the market had been developed, and again we did a spot check in 2011. We are having great discussions about the future of television through the conversation we are having right now. Our consistent finding is that all of these digital media platforms have been complementary to the Canadian system.
On purpose I mentioned that we continue to view 28 hours on average of traditional television. That is actually an increase. Young Canadians are watching traditional television. I don't know where we are finding all this extra time in our lives, but all this new viewing in all these additional platforms is in addition to what had been occurring in the past.
Our view at the CRTC has been that business models aren't quite there; this is a very experimental environment. Regulation might not be the right way to help it grow and see if it does contribute without regulation. Why we are mentioning that folks that like the CBC or even some of the other Canadian broadcasters are selling product to Netflix is that they are buying and picking it up and making it available to Canadians across the world. That is, in fact, a contribution to the system. So they are looking at that front. We have not embarked upon the discussion of regulating or having them contribute.
The Chair: Does Netflix buy any French content from Radio-Canada?
Mr. Hutton: Yes, it does, but there is very little available and Netflix, quite frankly, based on the numbers, is far more popular in English Canada than in francophone Canada.
The Chair: But there are some?
Mr. Hutton: There are some.
Senator Mercer: Gentlemen, thank you for being here; we appreciate your time.
Recently, CBC/Radio-Canada renewed their licence. We talked about the business plan and business model that broadcasters have. CBC/Radio-Canada's business plan has changed dramatically in the last few months, whether they wanted it to change or not, when they lost NHL hockey.
I know that we cannot rewrite history, but how does that change your view of CBC's business plan, the fact that their number one revenue generator is no longer there?
Mr. Hutton: That issue was certainly on our radar screen when we were conducting the renewal of CBC and when we were looking at their business plan.
How we look at the CBC is that they must meet certain objectives and contribute pursuant to the Broadcasting Act. We use various means to make sure that happens. Where it is happening, naturally, we don't get involved. Where there are potentially areas of weaknesses or failing, we will get involved and take regulatory intervention.
The strategy we took here is, certainly, we were aware of NHL rights and their potentially going to another player. Also, we were aware and it was quite clear what government appropriations will be for the period of the licence. That was made clear at the beginning as to what exactly they were going to be.
Another factor above and beyond the advertising and the fees related to NHL hockey is the overall advertising market. I mentioned that it is somewhat flat and decreasing as a bit of an extra, as we had the latest data.
Those were all factors and all financial risks that we took into consideration when we set the conditions of licence for CBC. Actually, the approach that we took was setting minimal levels, a little bit below, giving them a little bit of flexibility in case some of those difficulties or financial challenges arose over the next five years.
In some areas, such as OLMCs, or official minority language community obligations, we were probably more aggressive on that front, because we might have thought that there were certain failings. For example, the radio station Windsor was certainly not providing the level of service required by that community, but in other areas where they were being rather successful and providing a certain level of service, we will have set a minimal conditional licence, with a view that we realize there are financial challenges and some of these risks may materialize. One has. There is a minimum bottom line as to what we think is necessary for you to meet the objectives set for you by the Broadcasting Act. That is the approach we used in that context.
Senator Mercer: I have a hypothetical question. There has been some discussion about CBC/Radio-Canada going advertising-free, without any paid advertising. Where do you think that advertising dollar would go in the marketplace? Do you think it would migrate to other Canadian companies, or would it vanish off into the American networks?
Mr. Hutton: It's pure speculation. Every time we have seen someone leave a market, some of the other competitors do take up from the competitor that leaves the market. But often — and particularly the CBC, which has a certain product that is differentiated from others — you will leave some money on the table ultimately, in my view. But we have not had any profound studies of that particular option. I'm just comparing what I've seen in other markets, when a radio station closes, for example, in a certain market.
Senator Mercer: My final question: You made mention that you've launched a national conversation with Canadians about this new age of television in an undertaking called Let's Talk TV. When will we see the report? Is there a deadline for that?
Mr. Hutton: Minister Glover has asked us, pursuant to the Broadcasting Act, to provide a report on opportunities and challenges related to pick-and-pay for Canadian pay and specialty, or all channels in that regard. That report is due at the end of April.
What we will be doing in April is also putting out a call, a notice of a public hearing, where we will be outlining a number of our own findings pursuant to phases 1 and 2 of our process and going towards a hearing that will occur in September 2014. Following that, in early 2015, we will have a formal regulatory decision and policy set.
[Translation]
Senator Verner: Gentlemen, thank you for being here this evening.
I also wanted to talk about your national conversation Let's Talk TV. Based on your answers to my colleagues, my understanding is that the report on this conversation will be published at the end of April.
I still have a few questions that you could answer now. I am referring to an article published in Le Devoir in February in which Mr. Blais said he was concerned about the initially low participation rate of Quebecers in the first phase of the investigation.
Now that the second phase is in progress, can you tell us what the percentage of participation by Quebecers was in the first phase?
Mr. Hutton: Unfortunately, I do not have that information here. However, I can confirm that participation was indeed one of our concerns. That is what we did in the first phase too. I think the interview was one of our efforts to encourage francophones to participate in the process.
Although I do not have the data here with me, the participation rate was naturally lower, because what we kept hearing from English-speaking Canadians was the whole debate on choice of channels. As I said earlier, that is a done deal in Quebec. The level of dissatisfaction is lower on that front.
Basically, what we have heard in Quebec and the rest of French-speaking Canada has to do with access to additional channels and to more programming. That is more or less the message we have heard on the issue. Also, looking further into the component for informing and protecting consumers, we have received more comments and concerns about contracts and fees from the French-speaking market than the English-speaking market. Those are the differences in the comments we have received. However, the purpose of the interviews was to boost participation, and they did so significantly.
Senator Verner: In the second phase, finally?
Mr. Hutton: Even in the first phase, because 3,100 Canadians participated. And in turn, we also learned how to generate a different type of motivation in the second phase, which is under way.
Senator Verner: Is that why you are not worried right now about the participation of Quebecers in the second phase, because, as soon as you became aware of it, you took the necessary steps to increase participation?
Mr. Hutton: Yes.
Senator Verner: Some witnesses were inclined to make the case that the French-language network was perhaps better prepared to face the future changes than the English-language network. Right now, of course without revealing the results of the investigation because that will be done on April 30, are there any conclusions that you can draw and share with us this evening on the differences between the French-language network and the English-language network?
Mr. Hutton: When you say "network," are you talking about CBC/Société Radio-Canada or the two markets in general?
Senator Verner: I am talking about Radio-Canada, since that is more what we are studying here.
Mr. Hutton: To be honest, I have not seen a difference in how prepared they are. The strategies are similar, but slightly different, the way markets are also different. The legislation states and recognizes that the two markets are different. We see that some things are different.
The difference I may be able to see is a structural difference between the anglophone market and the francophone market as a whole. The francophone market is more attached to local programming. We set quotas in the francophone market, but they are, by and large, exceeded. That is sort of the approach the market requires; it expects French-language productions, and the various players deliver it. So, in that respect, the entire market is more prepared to face an environment where everything is turned upside down, because the shows produced have a market and, even though they receive government assistance, the market has accomplished more on the francophone side than on the anglophone side, where there is more competition. We are swimming in a sea of global production that is predominantly American. To produce one hour of programming costs millions of dollars, but it is sold at a discount here, because the costs of the American production are fully paid by the American market. It is difficult to sell at a discount here.
However, that is an opportunity, because producers have figured out that, if they produce their own programs, they can sell them elsewhere, they control the rights and they can develop them for various platforms.
[English]
Senator Batters: Thank you for being here tonight. I have a couple of comments, first, and then a question.
First, when you were responding to my colleague Senator Housakos' question, you were indicating that CBC was actually a forerunner of some of these new technologies and that sort of thing, and I think it's probably fair to say that that is perhaps due to the fact that it has a $1.3 billion annual budget, which would help out being proactive in those sorts of activities.
When you were speaking about the amount of television that people watch per week, did you say 28 hours per week?
Mr. Hutton: Yes.
Senator Batters: I'm not sure when people have time to work. Despite all of these new and very interesting trends, and certainly that's increasing, but that amount of just strict television time is certainly a massive piece of the pie as it currently exists. As important as these new trends are to understand, we can't lose sight of the fact that that still remains a major part of the pie that we're looking at here, and CBC obviously needs to deal with that.
You were speaking about Minister Glover's request earlier. This is just to let Canadians know, this is where that originated from. In the 2013 Throne Speech the government announced:
Our Government believes Canadian families should be able to choose the combination of television channels they want. It will require channels to be unbundled while protecting Canadian jobs.
As part of that, that's where Minister Glover issued the request to the CRTC. You've described a little bit more, in answer to questions from my colleagues, about the process going forward for that.
Part of her request is this public hearing process as well that's going to be undertaken in the fall. Is that considered the report to Minister Glover, or is this April report considered the final report?
Mr. Hutton: The April report is the final report to Minister Glover. I encourage everyone, and I know I don't have to encourage this room, but certainly in the industry, everybody goes to the Throne Speech; I've been encouraging everyone to read the section 15, the request for the report to us. So the request actually asked us to look at what the dangers and pitfalls are, because, even in the Throne Speech, there is more choice but jobs. It does ask us to report on a number of factors and what is important: consider independent producers, consider local channels, consider pay channels, and consider the impact on distribution companies, BDUs. That component of the report will be published in April, as per the deadline prescribed.
The report also asks us: Tell us what are ways that can potentially maximize pick-and-pay, so certainly we'll be exploring those on that side. The third part of the report actually says: Tell us what you, the CRTC, intend to do about it. So we will be answering all of those components of the question in April.
Naturally, one can suspect, being a quasi-judicial body, when we take action we must do it according to a public record to a full hearing, and we will be setting, pursuant to the hearing, new rules and regulations once we've completely looked at all of those sides. The report did not ask us to do a hearing to produce the report. It was also issued, and even the report mentions, that we were going down a certain path with a conversation with Canadians and it does fit in to our conversation. That's how we view it and how we will react to the report. We will have a hearing this September, and a decision on our part with new regulatory rules and new regulatory policies will come out early in 2015.
Senator Batters: Thank you very much for that information.
Senator Greene: With regard to the national Broadcasting Act, does the act confer on the CBC any advantages that CTV does not have, or does it impose any requirements on the CBC that are not imposed on the other private broadcasters?
Mr. Hutton: It carves out special objectives for the CBC, so it certainly does impose other obligations that are not imposed upon other broadcasters.
Senator Greene: Like what?
Mr. Hutton: Ensuring a representation of all of the country is one of the easiest things to note. All of the regions must see themselves. The news must also look a little bit more on the international side, understanding what is required on that front, but also very precise obligations towards Canadians who are minority groups. Official language minority obligations are one of the biggest ones. SRC certainly is headed out of Montreal and provides services to the province of Quebec, but there are stations that are in every province, in every capital, both radio and television, and those are one of the biggest obligations and most costly obligations that CBC/SRC faces.
Senator Greene: With regard to the objectives — which are broad and vague, I'm sure — has there ever been a time when you've had to chastise the CBC for not living up to something?
Mr. Hutton: When we conduct the renewal hearings, there may be individual situations, complaints or issues where we may call them offside on very minor things, but the process that we do follow is looking at the licences and what we do in that process is, we will have issued a previous decision and set the conditions or expectations for a certain term of licence. When we come back at the end of that term, we conduct another process and we evaluate them against those objectives. We then set new objectives going forward.
In the last licence renewal, certainly things we heard from Canadians were related to issues of minority language, where in some instances they made cutbacks that went too far. The radio station in Windsor is a prime example on that front. We put a condition of licence to guarantee a minimum level of programming there.
Senator Greene: Those requirements are not on the private broadcasters?
Mr. Hutton: That's correct.
Senator Greene: With regard to cable companies, I'm not suggesting that any cable company would want to do this, but if they wanted to, could a cable company decide not to carry the CBC?
Mr. Munroe: The cable company under our current rules, when we mentioned basic and the minimum level there, could not decide to not carry the CBC, in the same fashion as they cannot decide to not carry the local CTV station or the local Shaw station.
Senator Greene: But they could, if they were in the pick-and-pay portion of what they're offering, that would satisfy the requirement?
Mr. Hutton: It all depends on how you go forward. If you go on full-fledged unbundling of every channel model, which even includes when we're talking about mandatory distribution service, the initial handful of services, if you go completely pick-and-pay, yes, you could. The report from the government does acknowledge that local stations play an important role and asks us to look precisely as to what impact this whole regime may have on them. The report also mentions that we should maximize the ability to pick-and-pay in the pay and specialty environment, which are not your local stations also.
You don't pay extra fees for those local stations. Contrary to when you subscribe to TSN or Home & Garden, for that matter, there is a wholesale fee that the cable company pays those channels based on a number of factors, primarily number of subscribers. Such fees do not exist for local stations, whether it's CJOH or CBFT.
Senator Eggleton: The President of the CBC pointed out when he was here a week ago that the Broadcasting Act goes back to 1991 and has not really been subject to major amendment to reflect the new modern era in broadcasting. He said the Broadcasting Act doesn't even mention the Internet at this point in time.
In your opinion, should the Broadcasting Act be brought up to date, considering the current broadcasting environment? What recommendation would you make to the act?
Mr. Hutton: The CRTC currently finds that it's able to operate under the current act, so we are not looking to suggest modifications or evolutions; that's something that's left to government and Parliament to do. We find we're able to operate and so that we're not making any claims or suggestions on that side. It was a very prescient act back in 1991.
Senator Eggleton: Yes, but it's a little out of date now considering the changing environment. As I said, it doesn't even mention the Internet.
Let's go back to the Let's Talk TV consultations that you had. Apparently in phase 1 a number of respondents commented that the quality of programming on licensed TV is decreasing, with some saying that they could even identify Canadian content by its lower quality. That surprises me because I always thought Canadian productions were fairly high quality.
Is there something in the regulations or licensing restrictions that might be hindering the quality or something more that can be done to improve the quality? What do you think of those comments that you got on your own series?
Mr. Hutton: We heard a plethora of comments from Canadians on a number of different issues. Some Canadians will have mentioned that they perceive a difference. I think if you go back in time, you might have, but it is less and less so today. The quality and our abilities here in Canada to produce programming are world-class.
We've also heard from a number of Canadians that certain Canadian programming is great, that it's their favourites, that it should not disappear and that the system is delivering upon that side. However, one conclusion we're certainly taking from all of Canadians' comments in that process relates to quality and it's in preparing ourselves for the future. A lot of other Canadians said, "I will watch something that is of high quality no matter where it comes from." We should all strive to produce the best Canadian content. That is the way to guarantee our future in this business.
Senator Eggleton: You're not concerned about these comments? They don't come from a sufficiently strong enough base or the number of people that you would be worried about the quality of Canadian content, then?
Mr. Hutton: I am more worried of how do you ensure that you hit that big middle, where people say I will watch what is of great quality. We should be aiming and continue to be aiming to produce high quality content. The CRTC has made a number of changes to its own regulations to favour, for example, pooling of money across various licences to have bigger budgets on individual programs and to produce world-class programming that competes internationally.
Senator Eggleton: This picks up a bit on the pick-and-pay or the unbundling that Senator Greene has been asking about. We had a witness who suggested that perhaps cable television rates need to be regulated. You don't do that, as I understand it. Yet they have been increasing many times the rate of inflation. The reason I have suggested pick-and-pay is that the government may think it's a great idea to unbundle it, but I don't think Canadians will save any money. At the end of the day, they'll just make it higher for the things they pick. Unless the CBC or Canadian broadcasting content is in the pick-and-pay system, that's going to be threatened as well.
Is it perhaps time to regulate the Canadian cable television rates?
Mr. Hutton: The CRTC has moved away from regulating retail rates more than two decades ago. Through our first phase of the conversation, which we have already made public, Canadians certainly continue to subscribe en masse; 90 per cent of households continue to subscribe. There is some concern certainly about price. We've heard from many Canadians, "I want it all for free." That can't happen.
The conclusion that we're working on and drawing is that they want a better value proposition. They have mentioned, "I want to be able to choose the programming." They're able to choose the programming they want to watch on almost every other platform — that is, other than cable TV — so they're used to those ideas and I think they're looking more on that front.
If we're looking towards new media platforms — I shouldn't be calling it "new" media; we've been at this for 15 years — or digital platforms, Canadians love Netflix because of their ability to go and pick individual services.
There are a lot of pitfalls with pick-and-pay, as you've pointed out. We all want to be able to only pick and pay for the channels we want to watch, but you don't want to watch the same channels that Mr. Housakos will want to watch. There is a potential that right now you share the costs.
Senator Eggleton: I only watch the Montreal Canadiens.
Mr. Hutton: I think everybody watches the Montreal Canadiens, one way or the other.
Senator Eggleton: It depends on whether you're from Toronto.
Mr. Hutton: Everyone wants to watch the Montreal Canadians under some circumstance. There is a danger that right now you share the cost of that programming and that your price will go up. That is a real danger that we have to look at.
Senator Eggleton: That's right. But you don't regulate them, so they can do anything they want.
Mr. Hutton: You have to ask some of those questions as to what is going to happen. If we look in Quebec, the price for individual services and the way they have marketed services has not gone up to the same extent as one would worry. We have to look at all that and we have to study all that.
Senator Eggleton: I would predict that after the unbundling, there may be some apparent reduction if people pick and pay and they end up taking less than what the bundles have been, but eventually — whether it's six months or a year — they'll be paying at least as much, if not more, as when they had a bundle. It will absolutely not work.
The Chair: I don't know if that was a question, but we appreciate that. We will go on to Senator Housakos.
Senator Eggleton: I'm glad you appreciated it.
Senator Housakos: Is it possible to tell our committee why it took so long for the CRTC to renew the licences of CBC?
Mr. Hutton: There was a period of between hearings of about 12 or 13 years. I assume that's what you're referring to.
Senator Housakos: That seems like a long time.
Mr. Hutton: Admittedly, we normally issue licences for seven years, so there is that seven-year period where they were operating under their initial licence. Also to note, we did renew them but not through a full-fledged hearing for the number of years between 7 and 13.
CBC is an important component of the broadcasting system and has its own requirements in that regard, but there were fundamental changes occurring in the television business in that period. We were seeing the large over-the-air broadcasters, who were and in part are the mainstays of delivering television product to Canadians, struggling. Advertising was down. There were structural issues to deal with at that point in time. In managing our resources and setting our priorities, we chose over that period to look at the structural issues which covered all of television, which included the CBC.
We were looking at those structural issues. Canwest was virtually bankrupt at a certain point in time. If I'm looking at priorities, am I sort of looking at the CBC or am I looking at the companies that are struggling? We made those choices during that period of time to address the struggling issues and the more threatened parts of the broadcasting industry. But we got to it.
Senator Housakos: I have another question: How do you respond to the argument, especially from private broadcasters, that the CBC right now has gone above and beyond its mandate and is being subsidized in the billions of dollars by taxpayers and, instead of providing Canadian niche contents and production, they are competing with private sector, mainstream broadcasters?
Mr. Hutton: I hear various complaints of that nature every day in my business, but there are some amazing facts. A couple of years ago, when we were preparing to go to the television renewal, some broadcasters who operate both in television and radio said, "Oh, CBC and all of that; sounds a lot like CBC television." I asked about radio, and they'd say, "Oh, that is a very good radio station and I actually listen to that one." You have to be careful of the perspectives of the various players out there.
The mainstay of private broadcasters certainly has been the production of certain local news and information. They are very popular across the country on that front. Certainly, the national news programs are. A big part of what they make money commercially on is purchasing American programming. A number of years ago, the CBC in its own adaptation — and I know there is a lot of money there but it has been either constant or changing over the years and has had to make choices — was purchasing American programming or American movies, and we addressed that in some of the renewals over time. Their schedule now is primarily Canadian, and they are offering primarily Canadian schedules.
When I have discussions with my private broadcaster friends, I look at their schedule and do not see a primarily Canadian schedule.
Senator Housakos: A few years ago, when they were buying more American content, was that because it was more profitable than airing Canadian content?
Mr. Hutton: To adapt to their struggling financial issues, they were emulating that business model. Under their new current leadership and under their current plan, they are not going down that route.
Senator Housakos: I want to get to the nitty-gritty of where I am at. At the end of the day it is always the bottom line. It doesn't matter if it's private money or taxpayers' money, but, as parliamentarians, it's taxpayers' money that we are concerned about. Looking at the ratings, we all would like to sit here and profess that we are great defenders of Canadian culture and that we're standing up for Canadian broadcasting in a big way against those big American giants in the South who will swallow us up. We've heard their story for the last 150 years. However, when all is said and done, these same people who perpetuate this choose continuously not to turn on the knob and zap into CBC, especially CBC English. I have been looking at the ratings and CBC English ratings do not warrant some of the polls we see about how enamored Canadians are with the CBC and all it does. Then I see Radio-Canada's polling numbers, and they are pretty decent; they are very competitive.
I am looking as a parliamentarian at the future of CBC/Radio-Canada, and I look at you guys because you are in the middle of this business. I see those two entities, and one is performing well, getting an audience and building on their audience. The other one, it has been a decade now and their audience has been shrinking. We have a bunch of scenarios. People say we need to put more money in it. If you do that, you will get better quality Canadian content and then more people will watch it. However, look at the content that is being prepared and designed on the French side. They haven't spent any more money in the last decade per ratio than CBC English spent, yet they are getting results.
My question to you is this: Can CBC fulfill its mandate without becoming a endless pit that we have as a national symbol that financially makes no sense?
Mr. Hutton: I know you know this, but the two markets are significantly different. The reason for intervention in each of the markets is also different. On the one hand, the francophone market is a small market of 7 million to 8 million people, but they are fervent about local content. Local content is not just local, but in the international sense of Canadian. They are fervent about seeing programming that reflects them. That is your intervention and that is certainly a sign of success of everything in the province of Quebec and in the francophone market, whether you are talking TVA, a number of the specialty channels, or pay television channels owned by Bell. Even V has been able to carve itself something along the break-even lines of being the third player and has been able to succeed. However, it is a different market and a different component.
In English Canada, there is a completely different market. It is one where there is very close cultural resemblance to the programming they see coming from the United States; and it's in the same time zone. A lot of factors line up for it being easy and Canadians actually wanting the best of the world. Quite frankly, a lot of the best and most popular product in the world is American.
If we are talking certainly ratings in Quebec, we don't need to talk about them. If we are talking about ratings in English Canada, one thing we have been looking at and that we have noticed over the last couple of years — and this is with the focus from the CBC on providing high-quality Canadian content and I venture to say even at CTV and at Shaw, the companies being able to pull the revenues and go after content that can compete internationally — is that we are seeing a number that we never saw before of Canadian shows reaching above 1 million viewers in English Canada.
We get the BBM weekly numbers, but it is a few weeks late. We look at the top 30 shows. Five years ago, we never saw an English-language Canadian service in the top 30. Now, I'd venture to say that the end of January, just prior to the Olympics, we had six or seven Canadian shows in the top 30. In the top 30, we're reaching over a million Canadians. CBC's Murdoch Mysteries was watched by 1.3 million or 1.4 million Canadians. It is not as good as the best show, which was Criminal Minds at 2.5 million, but it beat out other procedurals, like Hawaii Five-O or one of my favourites, Blue Bloods — I love the moustache on Tom Selleck. That didn't happen before.
The system is focusing on delivering high quality. The CMF, the organization which helps to subsidize in part, is putting its money behind results. Everyone is stepping up and then they are reaching that far. It is a hard business, but there is a lot of good stuff and Canadians are actually watching it. They get to choose from the best of the world, so you won't get all top shows being Canadian, but if you can have 25 per cent, that would be great.
Senator Housakos: Do we have 25 per cent right now?
Mr. Hutton: Well, if I am looking in the top 30, I have Dragon's Den, Murdoch Mysteries, The Rick Mercer Show.
Senator Housakos: So we are closer to 15 per cent, I guess.
Mr. Hutton: Yes, but we are working at it.
Senator Housakos: The question is: At what price? I guess that is why we are studying it.
Senator Plett: I have a comment on your comparison with Murdoch Mysteries and Hawaii Five-O. The comparisons you're making, with all due respect, are Canada's best versus America's worst.
Mr. Hutton: It is still a top-30 show.
Senator Plett: Yes, but we need to have more than 15 per cent. I am curious as to what the report will say about what Canadians want, and whether they want us to spend that kind of money on the Canadian content. If we get the top 30 shows, I'm fine with that but, as Senator Housakos says, at what cost do we have some of the other shows? However, that's a comment.
My question is: Does CBC have any different standards as far as the CRTC is concerned about advertising that they can or cannot do, for example, political advertising versus private broadcasters?
Mr. Hutton: The CBC has its own internal codes as to what it accepts or does not accept, which are its own in the competitive world they have in that respect. With respect to all our regulations on political advertising and political air time, we apply those consistently to all players.
Senator Plett: The fact that CBC does not sell program time is what they say is not any regulation on the CRTC?
Mr. Hutton: No.
Senator Plett: As a point of interest, I read here — and not wanting to be partisan I would say this is across the board — that advertising considered by CBC/Radio-Canada to be deceptive or misleading is something they will not accept. I am wondering how they can do any political advertising; nevertheless, that's a topic for another day.
The Chair: On that non-partisan note, Senator Mercer.
Senator Mercer: I would remind Senator Plett that they continue to run Canada's action plan ads all the time, too.
I actually don't have a question. I am here to tell you that tonight on CBC Halifax it was reported that there will be more Canadian content on Netflix because Netflix has just announced that they've picked up 10 new seasons of Trailer Park Boys, as well as the new season of eight episodes of Trailer Park Boys will be on Netflix. So, gentlemen, you can watch Trailer Park Boys, which is a program produced in Senator Greene's and my home province.
The Chair: I am sad for the Maritimes.
Before going to the Maritimes, I want to repeat we will be travelling on March 24 and 25 to Winnipeg, on March 26 to Yellowknife, and on March 27 and 28 to Edmonton.
Mr. Hutton and Mr. Foster, thank you very much for your presence.
(The committee adjourned.)